Management's Discussion of Results of
Operations (Excerpts) |
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COMPANY OVERVIEW We are a leading supplier and manufacturer of building materials, manufactured components and construction services to professional contractors, sub-contractors and consumers. The Company operates approximately 400 locations in 40 states across the United States. Given the span and depth of our geographical reach, our locations are organized into nine geographical regions (Regions 1 through 9), which are also our operating segments, and these are further aggregated into four reportable segments: Northeast, Southeast, South and West. All of our segments have similar customers, products and services, and distribution methods. Our financial statements contain additional information regarding segment performance which is discussed in Note 13 to the condensed consolidated financial statements included in Item 1 of this quarterly report on Form 10-Q. We offer an integrated solution to our customers providing manufacturing, supply and installation of a full range of structural and related building products. Our manufactured products include our factory-built roof and floor trusses, wall panels and stairs, vinyl windows, custom millwork and trim, as well as engineered wood that we design, cut, and assemble for each home. We also assemble interior and exterior doors into pre-hung units. Additionally, we supply our customers with a broad offering of professional grade building products not manufactured by us, such as dimensional lumber and lumber sheet goods and various window, door and millwork lines. Our full range of construction-related services includes professional installation, turn-key framing and shell construction, and spans all our product categories. We group our building products into six product categories: Lumber & Lumber Sheet Goods. Lumber & lumber sheet goods include dimensional lumber, plywood, and OSB products used in on-site house framing. Manufactured Products. Manufactured products consist of wood floor and roof trusses, steel roof trusses, wall panels, stairs, and engineered wood. Windows, Door & Millwork. Windows & doors are comprised of the manufacturing, assembly, and distribution of windows and the assembly and distribution of interior and exterior door units. Millwork includes interior trim and custom features that we manufacture under the Synboard ® brand name. Gypsum, Roofing & Insulation. Gypsum, roofing, & insulation include wallboard, ceilings, joint treatment and finishes. Siding, Metal, and Concrete. Siding, metal, and concrete includes vinyl, composite, and wood siding, exterior trim, other exteriors, metal studs and cement. Other Building Products & Services. Other building products & services are comprised of products such as cabinets and hardware as well as services such as turn-key framing, shell construction, design assistance, and professional installation spanning the majority of our product categories. Our operating results are dependent on the following trends, events and uncertainties, some of which are beyond our control: Homebuilding Industry. Our business is driven primarily by the residential new construction market and the residential repair and remodel market, which are in turn dependent upon a number of factors, including demographic trends, interest rates, consumer confidence, employment rates, housing affordability, household formation, land development costs, the availability of skilled construction labor, and the health of the economy and mortgage markets. According to the U.S. Census Bureau, the seasonally adjusted annualized rates for U.S. total housing starts and U.S. single-family housing starts were 1.3 million and 0.9 million, respectively, as of September 30, 2019. However, both total and single-family housing starts remain below the normalized historical annual averages (from 1959 through 2018) of 1.5 million and 1.1 million, respectively. Due to the lower levels in housing starts versus historical norms, increased competition for homebuilder business and cyclical fluctuations in commodity prices, we may experience pressure on our gross margins. In addition to these factors, there has been a trend of consolidation within the building products supply industry. However, our industry remains highly fragmented and competitive and we will continue to face significant competition from local and regional suppliers. We still believe there are several meaningful trends that indicate U.S. housing demand will continue to trend towards recovering to the historical average. These trends include relatively low interest rates, the aging of housing stock, and normal population growth due to immigration and birthrate exceeding death rate. While the rate of market growth has recently eased, industry forecasters, including the National Association of Homebuilders (“NAHB”), expect to see continued increases in housing demand over the next year. Targeting Large Production Homebuilders. In recent years, the homebuilding industry has undergone consolidation, and the larger homebuilders have increased their market share. We expect that trend to continue as larger homebuilders have better liquidity and land positions relative to the smaller, less capitalized homebuilders. Our focus is on maintaining relationships and market share with these customers while balancing the competitive pressures we are facing in servicing large homebuilders with certain profitability expectations. Additionally, we have been successful in expanding our custom homebuilder base while maintaining acceptable credit standards. Repair and remodel end market. Although the repair and remodel end market is influenced by housing starts to a lesser degree than the homebuilding market, the repair and remodel end market is still dependent upon some of the same factors as the homebuilding market, including demographic trends, interest rates, consumer confidence, employment rates and the health of the economy and home financing markets. We expect that our ability to remain competitive in this space will depend on our continued ability to provide a high level of customer service coupled with a broad product offering. Use of Prefabricated Components. Homebuilders are increasingly using prefabricated components in order to realize increased efficiency, overcome skilled construction labor shortages and improve quality. Shortening cycle time from start to completion is a key imperative of the homebuilders during periods of strong consumer demand. We continue to see the demand for prefabricated components increasing within the residential new construction market as the availability of skilled construction labor remains limited. Economic Conditions. Economic changes both nationally and locally in our markets impact our financial performance. The building products supply industry is highly dependent upon new home construction and subject to cyclical market changes. Our operations are subject to fluctuations arising from changes in supply and demand, national and local economic conditions, labor costs and availability, competition, government regulation, trade policies and other factors that affect the homebuilding industry such as demographic trends, interest rates, housing starts, the high cost of land development, employment levels, consumer confidence, and the availability of credit to homebuilders, contractors, and homeowners. Housing Affordability. The affordability of housing can be a key driver in demand for our products. Home affordability is influenced by a number of economic factors, such as the level of employment, consumer confidence, consumer income, the supply of houses, the availability of financing and interest rates. Changes in the inventory of available homes as well as economic factors relative to home prices could result in changes to the affordability of homes. As a result, homebuyer demand may shift towards smaller, or larger, homes creating fluctuations in demand for our products. Cost of Materials. Prices of wood products, which are subject to cyclical market fluctuations, may adversely impact operating income when prices rapidly rise or fall within a relatively short period of time. We purchase certain materials, including lumber products, which are then sold to customers as well as used as direct production inputs for our manufactured and prefabricated products. Short-term changes in the cost of these materials, some of which are subject to significant fluctuations, are oftentimes passed on to our customers, but our pricing quotation periods may limit our ability to pass on such price changes. We may also be limited in our ability to pass on increases on in-bound freight costs on our products. Our inability to pass on material price increases to our customers could adversely impact our operating results. Controlling Expenses. Another important aspect of our strategy is controlling costs and striving to be a low-cost building materials supplier in the markets we serve. We pay close attention to managing our working capital and operating expenses. Further, we pay careful attention to our logistics function and its effect on our shipping and handling costs. Multi-Family and Light Commercial Business. Our primary focus has been, and continues to be, on single-family residential new construction and the repair and remodel end market. However, we will continue to identify opportunities for profitable growth in the multi-family and light commercial markets. Capital Structure: As a result of our historical growth through acquisitions, we have substantial indebtedness. We strive to optimize our capital structure to ensure that our financial needs are met in light of economic conditions, business activities, organic investments, opportunities for growth through acquisition and the overall risk characteristics of our underlying assets. In addition to these factors, we also evaluate our capital structure on the basis of our leverage ratio, our liquidity position, our debt maturity profile and market interest rates. As such, we may enter into various debt or equity transactions in order to appropriately manage and optimize our capital structure. RECENT DEVELOPMENTS During the nine months ended September 30. 2019, the Company executed several debt transactions, including extending the maturity of our $900.0 million revolving credit facility (“2023 facility”), redemption of $192.4 million in aggregate principal amount of our 5.625% senior secured notes due 2024 (“2024 notes”), and repayment of $301.2 million of our senior secured term loan facility due 2024 (“2024 term loan”). The repayments of our 2024 notes and 2024 term loan were funded with the proceeds from the issuance of $475.0 million in aggregate principal amount of our 6.75% senior secured notes due 2027 (“2027 notes”) and cash on hand. Collectively, these transactions have extended our debt maturity profile and reduced the amount of long-term debt outstanding. These transactions are described in Note 4 to the condensed consolidated financial statements included in Item 1 of this quarterly report on Form 10-Q. From time to time, based on market conditions and other factors and subject to compliance with applicable laws and regulations, the Company may repurchase or call our notes, repay debt, repurchase shares of our common stock or otherwise enter into transactions regarding its capital structure. On July 1, 2019, we acquired certain assets and the operations of Sun State Components (“Sun State”) for $42.5 million in cash. Sun State is comprised of three truss locations, which are located in Las Vegas, Nevada; Surprise, Arizona; and Kingman, Arizona. Sun State manufactures roof trusses and floor trusses and distributes lumber and related products to residential homebuilders and commercial contractors. CURRENT OPERATING CONDITIONS AND OUTLOOK For the third quarter of 2019, actual U.S. total housing starts were 0.3 million, a 4.1% increase compared to the third quarter of 2018. Actual U.S. single-family starts were 0.2 million in the third quarter of 2019, a 3.7% increase compared to the same quarter a year ago. For the nine months ended September 30, 2019 actual U.S. total housing starts were 1.0 million, a 1.3% decrease compared to the nine months ended September 30, 2018. Actual U.S. single-family starts were 0.7 million in the first nine months of 2019, a 1.8% decrease compared to the same period a year ago. A composite of third party sources, including the NAHB, are forecasting 1.3 million U.S. total housing starts for the full year 2019, an increase of 0.8% from 2018, and 0.9 million U.S single family housing starts, a decrease of 0.1% from 2018. In addition, in its September 2019 semi-annual forecast, the Home Improvement Research Institute (“HIRI”) forecasted sales in the professional repair and remodel end market to increase approximately 4.5% in 2019 compared to 2018. Our net sales for the third quarter of 2019 decreased 6.5% from the same period last year. Commodity price deflation decreased our sales in the third quarter of 2019 by an estimated 17.4%. In the third quarter of 2019, we had one additional selling day compared to the third quarter of 2018, which increased sales by 1.5%. Excluding the impact of commodity price deflation and the additional selling day, we achieved 9.4% sales growth in the single-family, multi-family and repair and remodel/other end markets, primarily as a result of sales volume growth in our manufactured products and windows, doors & millwork categories. Our gross margin percentage increased by 2.6% during the third quarter of 2019 compared to the third quarter of 2018. This increase in gross margin percentage is primarily attributable to an improved product mix, the decline in the cost of commodities relative to our customer pricing commitments and continued pricing discipline. In addition, sales growth in our value-add higher margin product categories, primarily our manufactured products and windows, doors & millwork categories, contributed to increased gross profit dollars and percentage compared to the third quarter of 2018. Our selling, general and administrative expenses, as a percentage of net sales, were 20.8% in the third quarter of 2019, a 1.9% increase from 18.9% in the third quarter of 2018. This increase was largely due to the effects of commodity price deflation on our net sales and an increase in variable compensation related to increased sales volume and gross margin in the third quarter of 2019 compared to the third quarter of 2018. We believe the long-term outlook for the housing industry is positive due to growth in the underlying demographics. We feel we are well-positioned to take advantage of the construction activity in our markets and to increase our market share, which may include strategic acquisitions. We will continue to focus on working capital by closely monitoring the credit exposure of our customers, remaining focused on maintaining the right level of inventory and by working with our vendors to improve payment terms and pricing on our products. We strive to achieve the appropriate balance of short-term expense control while maintaining the expertise and capacity to grow the business as market conditions warrant. In addition, optimization of our capital structure will continue to be a key area of focus for the Company. SEASONALITY AND OTHER FACTORS Our first and fourth quarters have historically been, and are generally expected to continue to be, adversely affected by weather causing reduced construction activity during these quarters. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to period arising from the following: • The volatility of lumber prices; • The cyclical nature of the homebuilding industry; • General economic conditions in the markets in which we compete; • The pricing policies of our competitors; • The production schedules of our customers; and • The effects of weather. The composition and level of working capital typically change during periods of increasing sales as we carry more inventory and receivables. Working capital levels typically increase in the first and second quarters of the year due to higher sales during the peak residential construction season. These increases may result in negative operating cash flows during this peak season, which historically have been financed through available cash and borrowing availability under credit facilities. Generally, collection of receivables and reduction in inventory levels following the peak building and construction season positively impact cash flow. RESULTS OF OPERATIONS Three Months Ended September 30, 2019 Compared with the Three Months Ended September 30, 2018 Net Sales. Net sales for the three months ended September 30, 2019 were $1,981.0 million, a 6.5% decrease from net sales of $2,118.5 million for the three months ended September 30, 2018. Commodity price deflation decreased our sales in the third quarter of 2019 by an estimated 17.4%. In the third quarter of 2019, we had one additional selling day compared to the third quarter of 2018 which increased sales by 1.5%. Excluding the impact of commodity price deflation and the additional selling day, we achieved 9.4% sales growth in the single-family, multi-family and repair and remodel/other end markets primarily as a result of sales volume growth in our manufactured products and windows, doors & millwork categories. The decrease in net sales in our lumber and lumber sheet goods category resulted from the impact of commodity price deflation in the third quarter of 2019 compared to the prior year, which offset increased volume in the category. We achieved increased sales in our remaining product categories due to higher sales volume. Gross Margin. Gross margin increased $18.4 million to $541.1 million. Our gross margin percentage increased to 27.3% in the third quarter of 2019 from 24.7% in the third quarter of 2018, a 2.6% increase. Our gross margin percentage increase was primarily attributable to an improved product mix, the decline in the cost of commodities relative to our customer pricing commitments and continued pricing discipline. In addition, sales growth in our value-add higher margin product categories, primarily our manufactured products and windows, doors & millwork categories, contributed to increased gross profit dollars and percentage compared to the third quarter of 2018. Selling, General and Administrative Expenses. In the third quarter of 2019, selling, general and administrative expenses increased $10.5 million, or 2.6%, and as a percentage of sales increased to 20.8% from 18.9% in the third quarter of 2018. This increase was primarily due to increases in variable compensation related to increased sales volume and gross margin. The increase as a percentage of net sales was also attributable to the effect of commodity price deflation on our net sales. Interest Expense, Net. Interest expense was $27.8 million in the third quarter of 2019, a decrease of $1.3 million from the third quarter of 2018. This decrease in interest expense is primarily due to lower outstanding debt balances during the third quarter of 2019 compared to the third quarter of 2018. However, this decrease was partially offset by $3.1 million in one-time charges related to the debt financing transactions executed in the third quarter of 2019 as well as the effect of higher interest rates. Income Tax Expense. We recorded income tax expense of $23.7 million and $19.4 million in the third quarters of 2019 and 2018, respectively. Our effective tax rate was 23.3% and 20.9% in the third quarters of 2019 and 2018, respectively. Nine Months Ended September 30, 2019 Compared with the Nine Months Ended September 30, 2018 Net Sales. Net sales for the nine months ended September 30, 2019 were $5,516.9 million, a 6.6% decrease over net sales of $5,908.8 million for the nine months ended September 30, 2018. Commodity price deflation decreased our sales in the first nine months of 2019 by an estimated 12.9%. Excluding the impact of commodity price deflation, we achieved 6.3% sales growth in the single-family, multi-family and repair and remodel/other end markets, primarily as a result of sales volume growth in our manufactured products and windows, doors & millwork categories. Nine Months Ended September 30, The decrease in net sales in our lumber and lumber sheet goods category resulted from the impact of commodity price deflation in the first nine months of 2019 compared to the prior year, which offset increased volume in the category. We achieved increased sales in our remaining product categories due to higher sales volume. Gross Margin. Gross margin increased $70.1 million to $1,500.3 million. Our gross margin percentage increased to 27.2% in the first nine months of 2019 from 24.2% in the first nine months of 2018, a 3.0% increase. Our gross margin percentage increase was primarily attributable to an improved product mix, the decline in the cost of commodities relative to our customer pricing commitments and continued pricing discipline. In addition, sales growth in our value-add higher margin product categories, primarily our manufactured products and windows, doors & millwork categories, contributed to increased gross profit dollars and percentage compared to the nine months ended September 30, 2018. Selling, General and Administrative Expenses. For the nine months ended September 30, 2019, selling, general and administrative expenses increased $31.4 million, or 2.7%, and as a percentage of sales increased to 21.4% from 19.5% in the first nine months of 2018. This increase was primarily due to increases in variable compensation related to increased sales volume and gross margin, as well as an increase in insurance costs. The increase as a percentage of net sales was also attributable to the effect of commodity price deflation on our net sales. Interest Expense, Net. Interest expense was $82.1 million for the nine months ended September 30, 2019, a decrease of $2.7 million compared to the nine months ended September 30, 2018. This decrease in interest expense is primarily due to lower outstanding debt balances during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. However, this decrease was partially offset by $6.8 million in one-time charges related to the debt financing transactions executed in the first nine months of 2019 as well as the effect of higher interest rates. Income Tax Expense. We recorded income tax expense of $54.7 million and $40.5 million for the nine months ended September 30, 2019 and 2018, respectively. Our effective tax rate was 23.2% and 20.9% in the first nine months of 2019 and 2018, respectively. Results by Reportable Segment The following tables show net sales and income before income taxes by reportable segment excluding the “All Other” caption as shown in Note 13 to the condensed consolidated financial statements included in Item 1 of this quarterly report on Form 10-Q (dollars in thousands): Three months ended September 30, We have four reportable segments based on an aggregation of the geographic regions in which we operate. While there is some geographic similarity between our reportable segments and the regions as defined by the U.S. Census Bureau, our reportable segments do not necessarily fully align with any single U.S. Census Bureau region. According to the U.S. Census Bureau, actual single-family housing starts in the third quarter of 2019 decreased 2.2%, 0.3% and 1.0% in the Northeast, Midwest and West regions, respectively, compared to the third quarter of 2018. However, single-family housing starts increased 8.1% in the South region over the same period. For the third quarter of 2019, our net sales declined in our Southeast, South and West reportable segments due to the impact of commodity price deflation. Net sales increased slightly in our Northeast reportable segment largely due to an increase in sales volume in our manufactured products and windows, doors & millwork categories, offsetting the impact of commodity price deflation. We achieved increased profitability in our Northeast, Southeast and West reportable segments largely due to an improved product mix, the decline in the cost of commodities relative to our customer pricing commitments and continued pricing discipline. However, profitability declined in our South reportable segment largely due to the impact of commodity price deflation offsetting the improvement in gross margin percentage. According to the U.S. Census Bureau, actual single-family housing starts in the first nine months of 2019 decreased 9.3%, 5.4% and 8.6% in the Northeast, Midwest and West regions, respectively, compared to the first nine months of 2018. However, single-family housing starts increased 3.4% in the South region over the same period. For the nine months ended September 30, 2019, our net sales declined in all of our reportable segments primarily due to the impact of commodity price deflation. We achieved increased profitability in our Northeast, Southeast and South reportable segments largely due to an improved product mix, the decline in the cost of commodities relative to our customer pricing commitments and continued pricing discipline. However, profitability declined in our West reportable segment largely due the impact of commodity price deflation offsetting the improvement in gross margin percentage. LIQUIDITY AND CAPITAL RESOURCES Our primary capital requirements are to fund working capital needs and operating expenses, meet required interest and principal payments, and to fund capital expenditures and potential future acquisitions. Our capital resources at September 30, 2019 consist of cash on hand and borrowing availability under our 2023 facility. Our 2023 facility will be primarily used for working capital, general corporate purposes, and funding acquisitions. In addition, we may use the 2023 facility to facilitate debt consolidation. Availability under the 2023 facility is determined by a borrowing base. Our borrowing base consists of trade accounts receivable, inventory, other receivables which include progress billings and credit card receivables, and qualified cash that all meet specific criteria contained within the credit agreement, minus agent specified reserves. Net excess borrowing availability is equal to the maximum borrowing amount minus outstanding borrowings and letters of credit. As of September 30, 2019, we had no outstanding borrowings under our 2023 facility and our net excess borrowing availability was $813.5 million after being reduced by outstanding letters of credit of approximately $82.2 million. Excess availability must equal or exceed a minimum specified amount, currently $89.6 million, or we are required to meet a fixed charge coverage ratio of 1:00 to 1:00. We were not in violation of any covenants or restrictions imposed by any of our debt agreements at September 30, 2019. Liquidity Our liquidity at September 30, 2019 was $856.8 million, which consists of net borrowing availability under the 2023 facility and cash on hand. We have substantial indebtedness following our historical acquisitions, which increased our interest expense and could have the effect of, among other things, reducing our flexibility to respond to changing business and economic conditions. From time to time, based on market conditions and other factors and subject to compliance with applicable laws and regulations, the Company may repurchase or call our notes, repay debt, repurchase shares or otherwise enter into transactions regarding its capital structure. Should the current industry conditions deteriorate or we pursue additional acquisitions, we may be required to raise additional funds through the sale of capital stock or debt in the public capital markets or in privately negotiated transactions. There can be no assurance that any of these financing options would be available on favorable terms, if at all. Alternatives to help supplement our liquidity position could include, but are not limited to, idling or permanently closing additional facilities, adjusting our headcount in response to current business conditions, attempts to renegotiate leases or other contractual arrangements, managing our working capital and/or divesting of non-core businesses. There are no assurances that these steps would prove successful or materially improve our liquidity position. Consolidated Cash Flows Cash provided by operating activities was $360.3 million for the nine months ended September 30, 2019 compared to cash provided by operating activities of $9.5 million for the nine months ended September 30, 2018. The $350.7 million increase in cash provided by operations was largely the result of a working capital decrease of $54.2 million in the first nine months of 2019 compared to a working capital increase of $266.5 million for the first nine months of 2018. This change in working capital was primarily due to the timing and impact of changes in commodity prices on the value of cash received from customers, inventory purchases and cash paid to vendors in the first nine months of 2018 compared to the first nine months of 2019. Cash used in investing activities was $106.4 million and $76.8 million for the nine months ended September 30, 2019 and 2018, respectively. This increase in cash used in investing activities was primarily due to our acquisition of Sun State in the third quarter of 2019. Our capital expenditures in the first nine months of 2019 were consistent with the first nine months of 2018. Cash used in financing activities was $220.7 million for the nine months ended September 30, 2019 compared to cash provided by financing activities of $44.2 million for the nine months ended September 30, 2018. Cash used in financing activities for the first nine months of 2019 was primarily due to $502.1 million in long-term debt repayments, largely consisting of $301.2 million in repayments of the 2024 term loan and $191.5 million in cash repayments of our 2024 notes. In addition, we had $179.0 million in net repayments on our 2023 facility in the first nine months of 2019. These payments were offset by $478.4 million in proceeds received from the issuance of 2027 notes. In connection with our debt transactions executed in the first nine months of 2019 we paid $10.9 million in debt issuance and extinguishment costs. Further, in the first nine months of 2019 we paid $7.9 million to repurchase and retire 460,000 shares of our common stock pursuant to a repurchase program authorized by our board of directors. Cash provided by financing activities for the first nine months of 2018 were primarily due to $54.0 million in net borrowings on the 2023 facility. Quantitative and Qualitative Disclosures About Market Risk We may experience changes in interest expense if changes in our debt occur. Changes in market interest rates could also affect our interest expense. Our 2024 notes and 2027 notes bear interest at a fixed rate, therefore, our interest expense related to these notes would not be affected by an increase in market interest rates. Borrowings under the 2023 facility and the 2024 term loan bear interest at either a base rate or eurodollar rate, plus, in each case, an applicable margin. A 1.0% increase in interest rates on the 2023 facility would result in no additional interest expense annually as we had no outstanding borrowings as of September 30, 2019. The 2023 facility also assesses variable commitment and outstanding letter of credit fees based on quarterly average loan utilization. A 1.0% increase in interest rates on the 2024 term loan would result in approximately $1.6 million in additional interest expense annually as of September 30, 2019. We purchase certain materials, including lumber products, which are then sold to customers as well as used as direct production inputs for our manufactured products that we deliver. Short-term changes in the cost of these materials and the related in-bound freight costs, some of which are subject to significant fluctuations, are sometimes, but not always, passed on to our customers. Delays in our ability to pass on material price increases to our customers can adversely impact our operating results. Legal Proceedings 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. Although our business and facilities are subject to federal, state and local environmental regulation, environmental regulation does not have a material impact on our operations. We believe that our facilities are in material compliance with such laws and regulations. As owners and lessees of real property, we can be held liable for the investigation or remediation of contamination on such properties, in some circumstances without regard to whether we knew of or were responsible for such contamination. Our current expenditures with respect to environmental investigation and remediation at our facilities are minimal, although no assurance can be provided that more significant remediation may not be required in the future as a result of spills or releases of petroleum products or hazardous substances or the discovery of unknown environmental conditions. Item 1A. Risk Factors In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part 1, “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2018, which could materially affect our business, financial condition or future results. The risks described in our annual report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Other than as described below, there were no material changes to the risk factors reported in Part 1, “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2018. The interest rates on our 2023 facility and 2024 term loan may be impacted by the phase out of the London Interbank Offered Rate (“LIBOR”) Interest rates on borrowings under our 2023 facility and 2024 term loan may be based on LIBOR. In July 2017, the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. At this time, there is no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. The phase out of LIBOR may have an adverse impact on the cost of our borrowings under our 2023 facility and 2024 term loan. Company Stock Repurchases The shares repurchased and retired in the third quarter of 2019 were repurchased pursuant to a program authorized by our board of directors in February 2019. Under this program we are authorized to repurchase up to $20.0 million of our common stock.