Builders FirstSource
Annual Report 2019

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2019OR☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number: 0-51357 BUILDERS FIRSTSOURCE, INC.(Exact name of registrant as specified in its charter) Delaware 52-2084569(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.) 2001 Bryan Street, Suite 1600Dallas, Texas 75201(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code:(214) 880-3500Securities registered pursuant to Section 12(b) of the Act: Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which RegisteredCommon stock, par value $0.01 per shareBLDRNASDAQ Stock Market LLCSecurities registered pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. Seethe definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes ☐ No ☑The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2019 was approximately $1,920.7 million based on the closing priceper share on that date of $16.86 as reported on the NASDAQ Stock Market LLC.The number of shares of the registrant’s common stock, par value $0.01, outstanding as of February 19, 2020 was 116,130,284.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive proxy statement for its annual meeting of stockholders to be held on May 21, 2020 are incorporated by reference into Part II and Part III of thisForm 10-K.  BUILDERS FIRSTSOURCE, INC.Table of Contents to Form 10-K Page PART I Item 1. Business 3Item 1A. Risk Factors 10Item 1B. Unresolved Staff Comments 19Item 2. Properties 19Item 3. Legal Proceedings 20Item 4. Mine Safety Disclosures 20 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21Item 6. Selected Financial Data 22Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23Item 7A. Quantitative and Qualitative Disclosures About Market Risk 31Item 8. Financial Statements and Supplementary Data 32Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 65Item 9A. Controls and Procedures 65Item 9B. Other Information 66 PART III Item 10. Directors, Executive Officers and Corporate Governance 67Item 11. Executive Compensation 67Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 67Item 13. Certain Relationships and Related Transactions, and Director Independence 68Item 14. Principal Accountant Fees and Services 68 PART IV Item 15. Exhibits and Financial Statement Schedules 69Item 16 Form 10-K Summary 73 2 PART I Item 1. BusinessCAUTIONARY STATEMENTStatements in this report and the schedules hereto that are not purely historical facts or that necessarily depend upon future events, including statementsabout expected market share gains, forecasted financial performance or other statements about anticipations, beliefs, expectations, hopes, intentions or strategiesfor the future, may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautionednot to place undue reliance on forward-looking statements. In addition, oral statements made by our directors, officers and employees to the investor and analystcommunities, media representatives and others, depending upon their nature, may also constitute forward-looking statements. All forward-looking statements arebased upon currently available information and the Company’s current assumptions, expectations and projections about future events. Forward-looking statementsare by nature inherently uncertain, and actual results or events may differ materially from the results or events described in the forward-looking statements as aresult of many factors. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of newinformation, future events or otherwise. Any forward-looking statements involve risks and uncertainties, many of which are beyond the Company’s control or maybe currently unknown to the Company, that could cause actual events or results to differ materially from the events or results described in the forward-lookingstatements, including risks or uncertainties related to the Company’s growth strategies, including gaining market share, or the Company’s revenues and operatingresults being highly dependent on, among other things, the homebuilding industry, lumber prices and the economy. The Company may not succeed in addressingthese and other risks. Further information regarding the risk factors that could affect our financial and other results are included as Item 1A of this annual report onForm 10-K and may also be described from time to time in the other reports the Company files with the Securities and Exchange Commission(“SEC”). Consequently, all forward-looking statements in this report are qualified by the factors, risks and uncertainties contained therein.OVERVIEWIn this annual report, unless otherwise stated or the context otherwise requires, references to the “company,” “we,” “our,” “ours” or “us” refer to BuildersFirstSource, Inc. and its consolidated subsidiaries.We are a leading supplier and manufacturer of building materials, manufactured components and construction services to professional homebuilders, sub-contractors, remodelers and consumers. The Company operates approximately 400 locations in 40 states across the United States. We offer an integrated solutionto our customers by providing manufacturing, supply and installation of a full range of structural and related building products. Our manufactured products includeour 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, andassemble specifically for each home. We also assemble interior and exterior doors into pre-hung units. Additionally, we supply our customers with a broad offeringof professional grade building products not manufactured by us, such as dimensional lumber and lumber sheet goods and various window, door and millworklines. Our full range of construction-related services include professional installation, turn-key framing and shell construction, spanning all of our productcategories.Builders FirstSource, Inc. is a Delaware corporation formed in 1998 as BSL Holdings, Inc. On October 13, 1999, our name changed to BuildersFirstSource, Inc. Our common stock is listed on the NASDAQ Stock Market LLC under the ticker symbol “BLDR”.OUR INDUSTRYWe compete in the professional segment (“Pro Segment”) of the U.S. residential building products supply market. Suppliers in the Pro Segment primarilyfocus on serving professional customers such as homebuilders and remodeling contractors. The Pro Segment consists predominantly of small, privately ownedsuppliers, including framing and shell construction contractors, local and regional materials distributors, single or multi-site lumberyards, and truss manufacturingand millwork operations. Because of the predominance of smaller privately owned companies and the overall size and diversity of the target customer market, thePro Segment remains fragmented. There were only eight building product suppliers with manufacturing capabilities in the Pro Segment that generated more than$500 million in sales, according to ProSales magazine’s 2019 ProSales 100 list. We were the largest building product supplier with manufacturing capabilities onthis list.3 The residential building products industry is driven by the level of activity in both the U.S. residential new construction market and the U.S. residentialrepair and remodeling market. Growth within these markets is linked to a number of key factors, including demographic trends, housing demand, interest rates,employment levels, availability of credit, foreclosure rates, consumer confidence, the availability of qualified tradesmen, and the state of the economy in general. The residential building products industry is characterized by several key trends, including greater utilization of manufactured components, an expandingrole of the distributor in providing turn-key services and a consolidation of suppliers by homebuilders. •Prefabricated components: Compared to conventional “stick-build” construction where builders cut and assemble lumber at the job site with theirown labor, prefabricated components are engineered in an offsite location using specialized equipment and labor. This outsourced task allows foroptimal material usage, lower overall labor costs and improved quality of structural elements. In addition, using prefabricated components typicallyresults in faster construction because fabrication can be automated and performed more systematically. As such, we believe there is a long term trendtowards increased use of prefabricated components by homebuilders. •Turn-key services: Many homebuilders have taken a more limited role in the homebuilding process and have outsourced certain key elements of theconstruction process, including process management, product selection, order input, scheduling, framing and installation. As such, we believe thatmany homebuilders are increasingly looking to suppliers in the Pro Segment to perform these critical functions, resulting in greater demand forintegrated project services. •Consolidation of suppliers by homebuilders: We believe that homebuilders are increasingly looking to consolidate their supplier base. Manyhomebuilders are seeking a more strategic relationship with suppliers that are able to offer a broad range of products and services and, as a result, areallocating a greater share of wallet to a select number of larger, full service suppliers.According to the U.S. Census Bureau, the single-family residential construction market was an estimated $289.3 billion in 2019, which was 5.2% higherthan 2018, and still down significantly from the historical high of $413.2 billion in 2006. Further, according to the Home Improvement Research Institute (“HIRI”)in its September 2019 semi-annual forecast, the professional repair and remodel end market was an estimated $124.6 billion in 2019, which was 4.5% higher than2018.OUR CUSTOMERSWe serve a broad customer base across the United States. We have a diverse geographic footprint as we have operations in 77 of the top 100U.S. Metropolitan Statistical Areas (“MSAs”), as ranked by single family housing permits based on available 2019 U.S. Census data. In addition, approximately86% of U.S. single-family housing permits in 2019 were issued in MSAs in which we operate. Given the local nature of our business, we have historically and willcontinue to locate our facilities in close proximity to our key customers and co-locate multiple operations in one facility to improve efficiency.We have a diversified customer base, ranging from large production builders to small custom homebuilders, as well as multi-family builders, repair andremodeling contractors and light commercial contractors. For the year ended December 31, 2019, our top 10 customers accounted for approximately 15.3% of netsales, and no single customer accounted for more than 5% of net sales. Our top 10 customers are comprised primarily of the largest production homebuilders,including publicly traded companies such as D.R. Horton, Inc., Pulte Homes, Inc., Lennar Corporation, Hovnanian Enterprises, Inc., and Taylor Morrison HomeCorporation.In addition to the largest production homebuilders, we also service and supply regional production and local custom homebuilders as well as repair andremodeling contractors and multi-family builders. These customers require high levels of service and a broad product offering. Our sales team expects to work veryclosely with the designers on a day-to-day basis in order to ensure the appropriate products are identified, ordered or produced and delivered on time to the buildingsite. To account for these increased service costs, pricing in the industry is tied to the level of service provided and the volumes purchased.OUR PRODUCTS AND SERVICESWe group our building products and services into six product categories:Lumber & Lumber Sheet Goods. Lumber & lumber sheet goods include dimensional lumber, plywood and oriented strand board (“OSB”) products used inon-site house framing. Lumber & lumber sheet goods are our largest sales volume product category. The products in this category are highly sensitive tofluctuations in market prices for such commodities.Manufactured Products. Manufactured products are factory-built substitutes for job-site framing and include wood floor and roof trusses, steel roof trusses,wall panels, stairs, and engineered wood that we design, cut, and assemble for each home. Our manufactured products allow builders to build higher quality homesmore efficiently. Roof trusses, floor trusses, wall panels and stair units are built in a factory controlled environment. Engineered floors and beams are cut to therequired size and packaged for the given application at many of our locations. Without manufactured products, builders construct these items on site, whereweather and variable labor quality can negatively impact construction cost, quality and installation time. In addition, engineered wood beams have greater structuralstrength than conventional framing materials, allowing builders to frame houses with more open space creating a wider variety of house designs. Engineered woodfloors are also stronger and straighter than conventionally framed floors.4 Windows, Doors & Millwork. Windows & doors are comprised of the manufacturing, assembly and distribution of windows, and the assembly anddistribution of interior and exterior door units. We manufacture a portion of the vinyl windows that we distribute in our plant in Houston, Texas which allows us tosupply builders, primarily in the Texas market, with cost-competitive products. Our pre-hung interior and exterior doors consist of a door slab with hinges and doorjambs attached, reducing on-site installation time and providing higher quality finished door units than those constructed on site. These products typically require ahigh degree of product knowledge and training to sell. Millwork includes interior trim and custom features, including those that we manufacture under theSynboard ® brand name. Synboard is produced from extruded PVC and offers several advantages over traditional wood features, such as greater durability and noongoing maintenance such as periodic caulking and painting.Gypsum, Roofing & Insulation. Gypsum, roofing, and 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 consist of various products, including cabinets and hardware. This category alsoincludes services such as turn-key framing, shell construction, design assistance and professional installation of products spanning all of our product categories.We provide professional installation and turn-key services as a solution for our homebuilder customers. Through our installation services program, we helphomebuilders realize efficiencies through improved scheduling, resulting in reduced cycle time and better cost controls. By utilizing an energy efficiency softwareprogram, we also assist homebuilders in designing energy efficient homes in order to meet increasingly stringent energy rating requirements. Upgrading to ourpremium windows, doors, and insulating products reduces overall cost to the homebuilder by minimizing costs of the required heating/cooling system. We workclosely with the homebuilder to select the appropriate mix of our products in order to meet current and forthcoming energy codes. We believe these servicesrequire scale, capital and sophistication that smaller competitors do not possess. We will continue to pursue profitable business in this category.We compete in a fragmented marketplace. We believe our integrated approach and scale allow us to compete effectively through our comprehensiveproduct lines, prefabricated components, and value-added services combined with the knowledge of our integrated sales forces to enable our homebuildercustomers to complete construction more quickly, with higher quality and at a lower cost. While we expect these benefits to be particularly valuable to ourcustomers in market environments characterized by labor shortages, sourcing challenges or sharply rising demand for new homes, we expect such benefits will alsobe increasingly valued and demanded by our customers operating under normal market conditions.MANUFACTURINGOur manufacturing facilities utilize the latest industry leading technology and high quality materials to improve product quality, increase efficiency, reducelead times and minimize production errors. We manufacture products within two of our product categories: manufactured products, and windows, doors &millwork.Manufactured Products — Trusses and Wall Panels. Truss and wall panel production has two steps — design and fabrication. Each house requires its ownset of designed shop drawings, which vary by builder type: production versus custom builders. Production builders use prototype house plans as they replicatehouses. These house plans may be minimally modified to suit individual customer demand. We maintain an electronic master file of trusses and wall panels foreach builder’s prototype houses. For custom builders, the components are designed individually for each house. We download the shop drawings from our designdepartment to computerized saws. We assemble the cut lumber to form roof trusses, floor trusses or wall panels, and store the finished components by houseawaiting shipment to the job site.Manufactured Products — Engineered Wood. As with trusses and wall panels, engineered wood components have a design and fabrication step. We designengineered wood floors using a master filing system similar to the truss and wall panel system. Engineered wood beams are designed to ensure the beam will bestructurally sound in the given application. After the design phase, a printed layout is generated. We use this layout to cut the engineered wood to the requiredlength and assemble all of the components into a house package. We design and fabricate engineered wood at many of our distribution locations.Manufactured Products — Stairs. We manufacture box stairs at some of our locations. After a house is framed, our salesman takes measurements at the jobsite prior to manufacturing to account for any variation between the blueprints and the actual framed house. We fabricate box stairs based on these measurements.Custom Millwork. Our manufactured custom millwork consists primarily of exterior trim, interior and exterior doors, custom windows, features and boxcolumns. In addition, we sell many of these custom millwork products in a synthetic material under our Synboard brand name. We sand, cut, and shape sheets of 4foot by 18 or 20 foot Celuka-blown, extruded PVC, or Synboard, to produce the desired product.5 Windows. We manufacture a full line of traditional vinyl windows at an approximately 200,000 square foot manufacturing facility located in Houston,Texas. The process begins by purchasing vinyl lineal extrusions. We cut these extrusions to size and join them together to form the window frame and sash. Wethen purchase sheet glass and cut it to size. We combine two pieces of identically shaped glass with a sealing compound to create a glass unit with improvedinsulating capability. We then insert the sealed glass unit and glaze it into the window frame and sash. The unit is completed when we install a balance to operatethe window and add a lock to secure the window in a closed position.Pre-hung Doors. We pre-hang interior and exterior doors at many of our locations. We insert door slabs and pre-cut door jambs into a door machine, whichbores holes into the doors for the door hardware and applies the jambs and hinges to the door slab. We then apply the casing that frames interior doors at a separatestation. Exterior doors do not have a casing, and instead may have sidelights applied to the sides of the door, a transom attached over the top of the door unit and adoor sill applied to the threshold.OUR STRATEGYBy pursuing the following strategies, we intend to build on our advantaged market position to create value for our shareholders by increasing profits and netcash flow generation, while making us a more valuable partner to our customers. The resulting cash flow should provide meaningful opportunities for debtreduction and increased investment in organic and acquisitive growth.Leverage our competitive strengths to capitalize on housing market growth As the U.S. housing market returns to a historically normalized level, we intend to leverage our core business strengths including size, national footprint,unmatched scale in manufacturing capability, breadth of product portfolio, and end market exposure to expand our sales and profit margins. Our customerscontinue to emphasize the importance of competitive pricing, a broad product portfolio, sales force knowledge, labor-saving manufactured products, on-siteservices and overall “ease of use” with their building products suppliers. Our comprehensive product offering, experienced sales force, strong strategic vendorrelationships, and tenured senior management team position us well to capitalize on strong demand in the new home construction market and the repair andremodel segment. Our large delivery fleet, professional drivers, and comprehensive inventory management enable us to provide “just-in-time” product delivery,ensuring a smoother and faster production cycle for the homebuilder. Our comprehensive network of products, services and facilities provides a strategicallyadvantaged service model which enhances our value to our customers and provides a strong platform to drive growth.Maximize our share of wallet by capturing above-market growth in our higher margin value added productsWe believe our national manufacturing footprint and differentiated capabilities will allow us to capture growth in our higher margin value-added products.We believe our value-added products address the growing demand for ways to build homes more efficiently, addressing labor constraints and rising costs. Weplan to accelerate this growth by further expansion of our national manufacturing footprint to serve locations that do not currently have adequate access to thesehigh margin products. By focusing on our differentiated platform and broad product mix, we are able to offer a complete array of products and services that wouldotherwise need to be sourced from various distributors, providing us an opportunity to capture a greater share of wallet. This operational platform often will makeus a preferred distributor for large scale national homebuilders as well as local and custom homebuilders looking for more efficient ways to build a home. Webelieve that customers continue to place an increased value on these capabilities, which further differentiates us from our competitors. Optimize our highly scalable cost structure with operational excellence initiativesWe continue to focus on standardizing processes and technology-based workflows to minimize costs, streamline our operations and enhance workingcapital efficiency. We are implementing operational excellence initiatives that are designed to further improve efficiency as well as customer service. Theseinitiatives, including distribution and logistics, pricing and margin management, back office efficiencies, customer integration and systems-enabled processimprovements, should yield significant cost savings. The scope and scale of our existing infrastructure, customer base, and logistical capabilities mean thatimprovements in efficiency, when replicated across our network, can yield substantial profit margin expansion.Environmental, social and governance strategyWe are committed to making informed choices that improve our corporate governance, financial strength, operational efficiency, environmentalstewardship, community engagement and resource management. Consistent with our core values, our goal is to be recognized by our customers as the preferredsupplier, by our employees as a safe, diverse and inclusive workforce, by the industry as being at the forefront of innovation and by our stakeholders as an ethicalcompany. We are working towards identifying, measuring and mapping the environmental, social and governance impacts of our business in an effort to be a goodcorporate citizen and proactively manage the impacts on the communities in which we serve. Helping homebuilders become more productive and efficient isfundamental to what we do and we are passionate about building this future together.6 SALES AND MARKETINGWe seek to attract and retain customers through exceptional customer service, leading product quality, broad product and service offerings, and competitivepricing. This strategy is centered on building and maintaining strong customer relationships rather than traditional marketing and advertising. We strive to addvalue for the homebuilders through shorter lead times, lower project costs, faster project completion and higher quality. By executing this strategy, we believe wewill continue to generate new business.Our experienced, locally focused sales force is at the core of our sales effort. This sales effort involves deploying salespeople who are skilled in housingconstruction to meet with a homebuilder’s construction superintendent, local purchasing agent, or local executive with the goal of becoming their primary productsupplier. If selected by the homebuilder, the salesperson and his or her team review blueprints for the contracted homes and advise the homebuilder in areas such asopportunities for cost reduction, increased energy efficiencies, and regional aesthetic preferences. Next, the team determines the specific package of products thatare needed to complete the project and schedules a sequence of site deliveries. Our large delivery fleet and comprehensive inventory management systems enableus to provide “just-in-time” product delivery, ensuring a smoother and faster production cycle for the homebuilder. Throughout the construction process, thesalesperson makes frequent site visits to ensure timely delivery and proper installation, and to make suggestions for efficiency improvements. We believe this levelof service is highly valued by our customers and generates significant customer loyalty. At December 31, 2019, we employed approximately 1,900 salesrepresentatives, who are paid a commission based on gross margin dollars collected and worked with approximately 1,600 sales coordinators and productspecialists.BACKLOGDue to the nature of our business, backlog information is not meaningful. While our customers may provide an estimate of their future needs, in most caseswe do not receive a firm order from them until just prior to the anticipated delivery dates. Accordingly, in many cases the time frame from receipt of a firm orderto shipment does not exceed a few days.MATERIALS AND SUPPLIER RELATIONSHIPSWe purchase inventory primarily for distribution, some of which is also utilized in our manufacturing plants. The key materials we purchase includedimensional OSB, lumber and plywood along with engineered wood, windows, doors, millwork, gypsum and roofing. Our largest suppliers are national companiessuch as Boise Cascade Company, Weyerhaeuser Company, Canfor Corporation, Norbord, Inc., James Hardie Industries plc, National Gypsum Company, PlyGemHoldings, Inc., M I Windows and Doors, Inc., Andersen Corporation, Masonite International Corporation and JELD-WEN Inc. We believe there is sufficientsupply in the marketplace to competitively source most of our requirements without reliance on any particular supplier and that our diversity of suppliers affordsus purchasing flexibility. Due to our centralized procurement platform for commodity wood products and corporate oversight of purchasing programs we believewe are better able to maximize the advantages of both our and our suppliers’ broad geographic footprints and negotiate purchases across multiple markets toachieve more favorable contracts with respect to price, terms of sale, and supply than our regional competitors. Additionally, for certain customers, we institutepurchasing programs on commodity wood products such as OSB and lumber to align portions of our procurement costs with our customer pricing commitments.We balance our OSB and lumber purchases with a mix of contract and spot market purchases to ensure consistent supply of product necessary to fulfill customercontracts, to source products at the lowest possible cost, and to minimize our exposure to the volatility of commodity lumber prices.We currently source products from thousands of suppliers in order to reduce our dependence on any single company and to maximize purchasing leverage.Although no purchases from any single supplier represented more than 8% of our total materials purchases for the year ended December 31, 2019, we believe weare one of the largest customers for many suppliers, and therefore have significant purchasing leverage. We have found that using multiple suppliers ensures astable source of products and the best purchasing terms as the suppliers compete to gain and maintain our business.We maintain strong relationships with our suppliers, and we believe opportunities exist to improve purchasing terms in the future, including inventorystorage or “just-in-time” delivery to reduce our inventory carrying costs. We will continue to pursue additional procurement cost savings which would furtherenhance our margins and cash flow.COMPETITIONWe compete in the Pro Segment of the U.S. residential building products supply market. We have and will continue to experience competition forhomebuilder business due to the highly fragmented nature of the Pro Segment. Most of our competitors in the Pro Segment are small, privately held localbusinesses. Most of these companies have limited access to capital and lack sophisticated information technology systems and large-scale procurementcapabilities. We believe we have substantial competitive advantages over these smaller competitors due to our long-standing customer relationships, local marketknowledge and competitive pricing. Our largest competitors in our markets include 84 Lumber Co., which is privately held, as well as BMC Stock Holdings, Inc.,which is publicly held.7 Our customers primarily consist of professional homebuilders and those that provide construction services to them, with whom we focus on developingstrong relationships. The principal methods of competition in the Pro Segment are the development of long-term relationships with professional builders andretaining such customers by (i) delivering a full range of high-quality products on time, and (ii) offering trade credit, competitive pricing and integrated service andproduct packages, such as turn-key framing and shell construction, as well as manufactured components and installation. Our leading market positions in thehighly competitive Pro Segment create economies of scale that allow us to cost-effectively supply our customers, which both enhances profitability and reducesthe risk of losing customers to competitors.EMPLOYEESAt December 31, 2019, we had approximately 15,800 employees. Less than 2% of the workforce at our company are members of eight different unions.We believe that we have good relations with our employees, as evidenced by our recent Forbes “America’s Best Large Employers” awards.INFORMATION TECHNOLOGY SYSTEMSOur operations are dependent upon our information technology systems, which encompass all of our major business functions. Our primary enterpriseresource planning (“ERP”) system, which we currently use for operations representing the majority of our sales, is a proprietary system that has been highlycustomized by our computer programmers. The materials required for thousands of standard builder plans are stored by the system for rapid quoting or order entry.Hundreds of price lists are maintained on hundreds of thousands of SKUs, facilitating rapid price changes in a changing product cost environment. A customer’sorder can be tracked at each stage of the process and billing can be customized to reduce a customer’s administrative costs and speed payment.We have a customized financial reporting system which consolidates financial, sales and workforce data from our ERP systems and our human resourceinformation system (“HRIS”). This technology platform provides management with robust corporate and location level performance management by leveragingstandardized metrics and analytics allowing us to plan, track and report performance and compensation measures.We have developed a proprietary program for use in our component plants. This software reviews product designs for errors, schedules the plants andprovides the data used to measure plant efficiency. In addition, we have purchased several software products that have been integrated with our primary ERPsystem. These programs assist in various aspects of our business such as analyzing blueprints to generate material lists, purchasing lumber products at the lowestcost, delivery management and resource planning and scheduling.SEASONALITY AND OTHER FACTORSOur first and fourth quarters have historically been, and are generally expected to continue to be, adversely affected by weather causing reducedconstruction activity during these quarters. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from periodto 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.8 The composition and level of working capital typically change during periods of increasing sales as we carry more inventory and receivables. Workingcapital levels typically increase in the first and second quarters of the year due to higher sales during the peak residential construction season. These increases mayresult in negative operating cash flows during this peak season, which historically have been financed through available cash and borrowing availability undercredit facilities. Generally, collection of receivables and reduction in inventory levels following the peak building and construction season positively impact cashflow.AVAILABLE INFORMATIONWe are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith, we file reports, proxyand information statements and other information with the SEC. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,proxy and information statements and other information and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934 are available through the investor relations section of our website under the links to “Financial Information.” Our Internet address iswww.bldr.com. Reports are available on our website free of charge as soon as reasonably practicable after we electronically file them with, or furnish them to, theSEC. In addition, our officers and directors file with the SEC initial statements of beneficial ownership and statements of change in beneficial ownership of oursecurities, which are also available on our website at the same location. We are not including this or any other information on our website as a part of, norincorporating it by reference into, this Form 10-K or any of our other SEC filings.In addition to our website, the SEC maintains an Internet site that contains our reports, proxy and information statements, and other information that weelectronically file with, or furnish to, the SEC at www.sec.gov.EXECUTIVE OFFICERSM. Chad Crow, President, Chief Executive Officer and Director, age 51. Mr. Crow joined the Company in September 1999, and has held several roles ofincreasing responsibility. Mr. Crow became a director in 2017 and President and CEO on December 29, 2017. In 2009, Mr. Crow was named Senior VicePresident and Chief Financial Officer and in 2014 he was promoted to President and Chief Operating Officer. Prior to joining Builders FirstSource, he served in avariety of positions at Pier One Imports and Price Waterhouse LLP. Mr. Crow received his B.B.A. degree from Texas Tech University. Peter M. Jackson, Senior Vice President and Chief Financial Officer, age 47. Mr. Jackson joined the Company on November 4, 2016 as Senior VicePresident and Chief Financial Officer. Prior to joining the Company, Mr. Jackson was employed by Lennox International, Inc. (“Lennox”). Since July 2014, Mr.Jackson had served as Vice President and CFO of Lennox’s Refrigeration Segment. His previous positions at Lennox also included Vice President, Finance -Financial Planning and Analysis and Mergers and Acquisitions as well as Vice President and Chief Financial Officer of Lennox’s Residential Heating and CoolingSegment. Before joining Lennox, Mr. Jackson served in multiple financial leadership positions at SPX Corporation, General Electric, and Gerber Scientific. Mr.Jackson is a certified public accountant and a graduate of General Electric’s Experienced Financial Leadership program. He holds an M.B.A. degree fromRensselaer Polytechnic Institute and a B.S. from Bryant University.Donald F. McAleenan, Senior Vice President and General Counsel, age 65. Mr. McAleenan has served as Senior Vice President and General Counsel ofthe Company since 1998. Prior to joining the Company, Mr. McAleenan served as Vice President and Deputy General Counsel of Fibreboard Corporation from1992 to 1997. Mr. McAleenan was also Assistant General Counsel of AT&E Corporation and spent nine years as a securities lawyer at two New York City lawfirms. Mr. McAleenan has a B.S. from Georgetown University and a J.D. from New York University Law School.Scott L. Robins, Senior Vice President and Chief Operating Officer – West, age 52. Mr. Robins was appointed to his current position on February 20,2018. He had been a Senior Vice President – Operations of the Company since the acquisition of ProBuild Holdings LLC by the Company in July 2015 and withProBuild prior to that since 2007. At the time of his promotion, he had supervisory responsibility for 93 locations in eight states. Mr. Robins joined Hope LumberCompany in 2004 as a Vice President of Operations, overseeing numerous operations in a three-state area, and continued in that role when Hope was acquired byProBuild Holdings LLC in 2007. Before then, he had worked in various operational and supply chain management positions with Andersen Lumber and StockBuilding Supply since 1988. Mr. Robins has 30 years of experience in the building products industry. He holds a B.A. in Finance from Weber State University.9 David E. Rush, Senior Vice President and Chief Operating Officer – East, age 57. Mr. Rush was appointed to his current position on November 29,2018. Mr. Rush previously served as Senior Vice President of Strategy and Business Development of the Company since August 2017. Prior to that, Mr. Rushserved as Senior Vice President of Integration after the acquisition of ProBuild Holdings LLC in July 2015. From 2003 to 2015, Mr. Rush was an Area VicePresident, with responsibility for more than 18 Company locations in three states. He joined the Company as Vice President of Finance of the Southeast Group in1999. Before joining Builders FirstSource, Mr. Rush worked in various accounting and finance positions, primarily with multi-location distribution companies,including as Chief Financial Officer of the Bojangles Restaurant chain. He holds a B.A. in accounting from the University of North Carolina at Chapel Hill.Item 1A. Risk FactorsRisks associated with our business, an investment in our securities, and with achieving the forward-looking statements contained in this report or in ournews releases, websites, public filings, investor and analyst conferences or elsewhere, include, but are not limited to, the risk factors described below. Any of therisk factors described below could cause our actual results to differ materially from expectations and could have a material adverse effect on our business, financialcondition or operating results. We may not succeed in addressing these challenges and risks.The industry in which we operate is dependent upon the residential homebuilding industry, as well as the U.S. economy, the credit markets and otherimportant factors.The building products industry is highly dependent on new home and multifamily construction, which in turn are dependent upon a number of factors,including interest rates, consumer confidence, employment rates, foreclosure rates, housing inventory levels and occupancy, housing demand and the health of theU.S. economy and mortgage markets. Unfavorable changes in demographics, credit markets, consumer confidence, housing affordability, or housing inventorylevels and occupancy, or a weakening of the U.S. economy or of any regional or local economy in which we operate could adversely affect consumer spending,result in decreased demand for our products, and adversely affect our business. Production of new homes and multifamily buildings may also decline because ofshortages of qualified tradesmen, reliance on inadequately capitalized builders and sub-contractors, and shortages of suitable building lots and material. Thehomebuilding industry is currently experiencing a shortage of qualified, trained labor in many areas, including those served by us. In addition, the building industryis subject to various local, state, and federal statutes, ordinances, and regulations concerning zoning, building design and safety, construction, energy and waterconservation and similar matters, including regulations that impose restrictive zoning and density requirements in order to limit the number of homes that can bebuilt within the boundaries of a particular area or in order to maintain certain areas as primarily or exclusively residential. Regulatory restrictions may increase ouroperating expenses and limit the availability of suitable building lots for our customers, which could negatively affect our sales and earnings. Because we havesubstantial fixed costs, relatively modest declines in our customers’ production levels could have a significant adverse effect on our financial condition, operatingresults and cash flows.According to the U.S. Census Bureau, annual U.S. total and single-family housing starts were 1.3 million and 0.9 million, respectively, for the year endedDecember 31, 2019. However, both total and single-family housing starts remain below the normalized historical averages (from 1959 through 2019) of 1.5million and 1.1 million, respectively. Due to the lower levels in housing starts, increased competition for homebuilder business, and cyclical fluctuations incommodity prices, we have seen, and may continue to experience pressure on our gross margins.The building supply industry is subject to cyclical market pressures.Prices of building products are subject to fluctuations arising from changes in supply and demand, national and international economic conditions, laborcosts, competition, market speculation, government regulation, and trade policies, as well as from periodic delays in the delivery of lumber and other products. Forexample, prices of wood products, including lumber and panel products, are subject to significant volatility and directly affect our sales and earnings. In particular,low prices for wood products over a sustained period can adversely affect our financial condition, operating results and cash flows, as can excessive spikes inprices. Our lumber and lumber sheet goods product category represented 30.9% of total net sales for the year ended December 31, 2019. We have limited ability tomanage the timing and amount of pricing changes for building products. In addition, the supply of building products fluctuates based on available manufacturingcapacity. A shortage of capacity or excess capacity in the industry can result in significant increases or declines in prices for those building products, often within ashort period of time. Such price fluctuations can adversely affect our financial condition, operating results and cash flows.10 In addition, the building products industry is cyclical in nature. The homebuilding industry has experienced growth in recent years and industry forecastersexpect to see continued growth in the housing market over the next year. However, it is likely, based on historical experience, that we will face future downturns inthe homebuilding industry which could have an adverse effect on our operating results, financial condition or cash flows. We are not able to predict the timing,severity or duration of any future downturns in the housing market.The building supply industry is seasonal.Although weather patterns affect our operating results throughout the year, adverse weather historically has reduced construction activity in the first andfourth quarters in the regions where we operate. To the extent that hurricanes, severe storms, floods, other natural disasters or similar events occur in the regions inwhich we operate, our business may be adversely affected. We anticipate that fluctuations from period to period will continue in the future.Homebuyer demand may shift towards smaller homes creating fluctuations in demand for our products.Home affordability can be a key driver in demand for our products. Home affordability is influenced by a number of economic factors, such as the level ofemployment, consumer confidence, consumer income, supply of houses, the availability of financing and interest rates. Changes in the inventory of availablehomes as well as economic factors relative to home prices may result in homes becoming less affordable. This could cause homebuyer demand to shift towardssmaller homes which could have an adverse impact on our financial condition, operating results and cash flows. Our industry is highly fragmented and competitive, and increased competitive pressure may adversely affect our results.The building products supply industry is highly fragmented and competitive. We face, and will continue to face, significant competition from local andregional building materials chains, as well as from privately-owned single site enterprises. Any of these competitors may (1) foresee the course of marketdevelopment more accurately than we do, (2) develop products that are superior to our products, (3) have the ability to produce or supply similar products at alower cost, (4) develop stronger relationships with local homebuilders or commercial builders, (5) adapt more quickly to new technologies or evolving customerrequirements than we do, or (6) have access to financing on more favorable terms than we can obtain in the market. As a result, we may not be able to competesuccessfully with them. In addition, home center retailers, which have historically concentrated their sales efforts on retail consumers and small contractors, haveintensified their marketing efforts to professional homebuilders in recent years and may continue to intensify these efforts in the future. Furthermore, certainproduct manufacturers sell and distribute their products directly to production homebuilders or commercial builders. The volume of such direct sales could increasein the future. Additionally, manufacturers of products distributed by us may elect to sell and distribute directly to homebuilders or commercial builders in thefuture or enter into exclusive supplier arrangements with other distributors. Consolidation of production homebuilders or commercial builders may result inincreased competition for their business. Finally, we may not be able to maintain our operating costs or product prices at a level sufficiently low for us to competeeffectively. If we are unable to compete effectively, our financial condition, operating results and cash flows may be adversely affected.We are subject to competitive pricing pressure from our customers.Production homebuilders and multi-family builders historically have exerted and will continue to exert significant pressure on their outside suppliers tokeep prices low because of their market share and their ability to leverage such market share in the highly fragmented building products supply industry. Thehousing industry downturn and its aftermath resulted in significantly increased pricing pressures from production homebuilders and other customers. Over the pastseveral years, these pricing pressures have adversely affected our operating results and cash flows. In addition, continued consolidation among productionhomebuilders or multi-family and commercial builders, or changes in such builders’ purchasing policies or payment practices, could result in additional pricingpressure, and our financial condition, operating results and cash flows may be adversely affected.The loss of any of our significant customers or a reduction in the quantity of products they purchase could affect our financial health.Our ten largest customers generated approximately 15.3% of our net sales for the year ended December 31, 2019. We cannot guarantee that we willmaintain or improve our relationships with these customers or that we will supply these customers at historical levels. Moreover, during the downturn and insubsequent years, some of our homebuilder customers exited or severely curtailed building activity in certain of our regions.11 In addition, production homebuilders, multi-family builders and other customers may: (1) seek to purchase some of the products that we currently selldirectly from manufacturers, (2) elect to establish their own building products manufacturing and distribution facilities or (3) give advantages to manufacturing ordistribution intermediaries in which they have an economic stake. Continued consolidation among production homebuilders could also result in a loss of some ofour present customers to our competitors. The loss of one or more of our significant customers or deterioration in our relations with any of them could significantlyaffect our financial condition, operating results and cash flows. Furthermore, our customers are not required to purchase any minimum amount of products fromus. The contracts into which we have entered with most of our professional customers typically provide that we supply particular products or services for a certainperiod of time when and if ordered by the customer. Should our customers purchase our products in significantly lower quantities than they have in the past, suchdecreased purchases could have a material adverse effect on our financial condition, operating results and cash flows.Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in theeconomy or our industry, and prevent us from meeting our obligations under our debt instruments.As of December 31, 2019, our debt totaled $1,300.0 million, which includes $242.1 million of finance lease and other finance obligations. We also have a$900.0 million revolving credit facility (“2023 facility”), under which we had $27.0 million of outstanding borrowings and $82.2 million of letters of creditoutstanding as of December 31, 2019. In addition, we also have $298.6 million in obligations under operating leases.Our substantial debt could have important consequences to us, including: •increasing our vulnerability to general economic and industry conditions; •requiring a substantial portion of our operating cash flow to be dedicated to the payment of principal and interest on our indebtedness, thereforereducing our liquidity and our ability to use our cash flow to fund our operations, capital expenditures, and future business opportunities; •exposing us to the risk of increased interest rates, and corresponding increased interest expense, because borrowings under the 2023 facility and the$52.0 million senior secured term loan facility due 2024 (“2024 term loan”) are at variable rates of interest; •limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions, and generalcorporate or other purposes; •limiting our ability to adjust to changing marketplace conditions and placing us at a competitive disadvantage compared to our competitors whomay have less debt. •limiting our attractiveness as an investment opportunity for potential investors.In addition, our debt instruments contain cross-default provisions that could result in our debt being declared immediately due and payable under a numberof debt instruments, even if we default on only one debt instrument. In such event, it is possible that we would not be able to satisfy our obligations under all ofsuch accelerated indebtedness simultaneously.Our financial condition and operating performance, including that of our subsidiaries, are also subject to prevailing economic and competitive conditionsand to certain financial, business and other factors beyond our control. There are no assurances that we will maintain a level of liquidity sufficient to permit us topay the principal, premium and interest on our indebtedness.If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sellassets, seek additional capital, or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet ourscheduled debt service obligations. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required todispose of material assets or operations in an effort to meet our debt service and other obligations. The agreements governing our debt instruments restrict ourability to dispose of assets and to use the proceeds from such dispositions. We may not be able to consummate those dispositions or be able to obtain the proceedsthat we could realize from them, and these proceeds may not be adequate to meet any debt service obligations then due.We may have future capital needs and may not be able to obtain additional financing on acceptable terms.We are substantially reliant on cash on hand and borrowing availability under the 2023 facility, which totaled $695.3 million at December 31, 2019, toprovide working capital and fund our operations. Our working capital requirements are likely to grow assuming the housing industry continues to grow. Ourinability to renew, amend or replace our debt instruments when required or when business conditions warrant could have a material adverse effect on our business,financial condition and results of operations.12 Economic and credit market conditions, the performance of our industry, and our financial performance, as well as other factors, may constrain ourfinancing abilities. Our ability to secure additional financing, if available, and to satisfy our financial obligations under indebtedness outstanding from time to timewill depend upon our future operating performance, the availability of credit, economic conditions and financial, business and other factors, many of which arebeyond our control. Significant worsening of current housing market conditions or the macroeconomic factors that affect our industry could require us to seekadditional capital and have a material adverse effect on our ability to secure such capital on favorable terms, if at all.We may be unable to secure additional financing, financing on favorable terms or our operating cash flow may be insufficient to satisfy our financialobligations under indebtedness outstanding from time to time. The agreements governing our debt instruments, moreover, restrict the amount of permittedindebtedness allowed. In addition, if financing is not available when needed, or is available on unfavorable terms, we may be unable to take advantage of businessopportunities, including potential acquisitions, or respond to competitive pressures, any of which could have a material adverse effect on our business, financialcondition, and results of operations. If additional funds are raised through the issuance of additional equity or convertible debt securities, our stockholders mayexperience significant dilution.We may incur additional indebtedness.We may incur additional indebtedness in the future, including collateralized debt, subject to the restrictions contained in the agreements governing our debtinstruments. If new debt is added to our current debt levels, the related risks that we now face could intensify.Our debt instruments contain various covenants that limit our ability to operate our business.Our financing arrangements, including the agreements governing our debt instruments, contain various provisions that limit our ability to, among otherthings: •transfer or sell assets, including the equity interests of our restricted subsidiaries, or use asset sale proceeds; •incur additional debt; •pay dividends or distributions on our capital stock or repurchase our capital stock; •make certain restricted payments or investments; •create liens to secure debt; •enter into transactions with affiliates; •merge or consolidate with another company or continue to receive the benefits of these financing arrangements under a “change in control” scenario(as defined in those agreements); and •engage in unrelated business activities.The agreement governing the 2023 facility contains a financial covenant requiring the satisfaction of a minimum fixed charge ratio of 1.00 to 1.00 if ourexcess availability falls below the greater of $80.0 million or 10% of the maximum borrowing amount, which was $80.0 million as of December 31, 2019.These provisions may restrict our ability to expand or fully pursue our business strategies. Our ability to comply with the agreements governing our debtinstruments may be affected by changes in our operating and financial performance, changes in general business and economic conditions, adverse regulatorydevelopments, a change in control or other events beyond our control. The breach of any of these provisions could result in a default under our indebtedness, whichcould cause those and other obligations to become due and payable. If any of our indebtedness is accelerated, we may not be able to repay it.13 Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly.Interest rates may increase in the future. As a result, interest rates on our 2023 facility and our 2024 term loan could be higher or lower than currentlevels. As of December 31, 2019, we had approximately $79.0 million, or 6.1%, of our outstanding debt at variable interest rates. If interest rates increase, ourdebt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows,including cash available for servicing our indebtedness, would correspondingly decrease. Further, an increase in interest rates could also trigger a limitation on thedeductibility of those interest costs, increasing our tax expense and further decreasing our net income and cash flows. In recent years, the Company has executedseveral debt transactions designed to reduce debt, extend maturities or lower our interest rates. The Company is likely to execute similar debt transactions in thefuture. However, there can be no assurance that we will be successful in anticipating the direction of interest rates or changes in market conditions, which couldresult in future debt transactions having a material adverse impact on our financial condition, operating results and cash flows.A 1.0% increase in interest rates on the 2023 facility would result in approximately $0.3 million in additional interest expense annually as we had $27.0million in outstanding borrowings as of December 31, 2019. The 2023 facility also assesses variable commitment and outstanding letter of credit fees based onquarterly average loan utilization. A 1.0% increase in interest rates on the 2024 term loan outstanding as of December 31, 2019 would result in approximately $0.5million in additional interest expense annually.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 can, at our option, be based on LIBOR. In July 2017, the United KingdomFinancial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. The U.S. Federal Reserve, in conjunction with theAlternative Rates Reference Committee, is considering various alternatives, such as the Secured Overnight Financing Rate (“SOFR”), to replace LIBOR. Thephase out of LIBOR may have an adverse impact on the cost of our borrowings under our 2023 facility and 2024 term loan.The agreements that govern our indebtedness contain various covenants that impose restrictions on us and certain of our subsidiaries that may affect ourability to operate our businesses.The agreements that govern our indebtedness contain various affirmative and negative covenants that may, subject to certain significant exceptions, restrictthe ability of us and certain of our subsidiaries to, among other things, have liens on our property, and/or merge or consolidate with any other person or sell orconvey certain of our assets to any one person. The ability of us and our subsidiaries to comply with these provisions may be affected by events beyond ourcontrol. Failure to comply with these covenants could result in an event of default, which, if not cured or waived, could accelerate our repayment obligations.A range of factors may make our quarterly revenues, earnings and cash flows variable.We have historically experienced, and in the future will continue to experience, variability in revenues, earnings and cash flows on a quarterly basis. Thefactors expected to contribute to this variability include, among others: (1) the volatility of prices of lumber, wood products and other building products, (2) thecyclical nature of the homebuilding industry, (3) general economic conditions in the various areas that we serve, (4) the intense competition in the industry,including expansion and growth strategies by competitors, (5) the production schedules of our customers, and (6) the effects of the weather. These factors, amongothers, make it difficult to project our operating results and cash flows on a consistent basis, which may affect the price of our stock.Our continued success will depend on our ability to retain our key employees and to attract and retain new qualified employees.Our success depends in part on our ability to attract, hire, train and retain qualified managerial, operational, sales and other personnel. We face significantcompetition for these types of employees in our industry and from other industries. We may be unsuccessful in attracting and retaining the personnel we require toconduct and expand our operations successfully. In addition, key personnel may leave us and compete against us. Our success also depends to a significant extenton the continued service of our senior management team. We may be unsuccessful in replacing key managers who either resign or retire. The loss of any memberof our senior management team or other experienced senior employees could impair our ability to execute our business plan, cause us to lose customers and reduceour net sales, or lead to employee morale problems and/or the loss of other key employees. In any such event, our financial condition, operating results and cashflows could be adversely affected.14 Product shortages, loss of key suppliers, and our dependence on third-party suppliers and manufacturers could affect our financial health.Our ability to offer a wide variety of products to our customers is dependent upon our ability to obtain adequate product supply from manufacturers andother suppliers. Generally, our products are obtainable from various sources and in sufficient quantities. However, the loss of, or a substantial decrease in theavailability of, products from our suppliers or the loss of key supplier arrangements could adversely impact our financial condition, operating results, and cashflows.Although in many instances we have agreements with our suppliers, these agreements are generally terminable by either party on limited notice. Failure byour suppliers to continue to supply us with products on commercially reasonable terms, or at all, could put pressure on our operating margins or have a materialadverse effect on our financial condition, operating results and cash flows. Short-term changes in the cost of these materials, some of which are subject tosignificant fluctuations, are oftentimes, but not always passed on to our customers. Our delayed ability to pass on material price increases to our customers couldadversely impact our financial condition, operating results and cash flows.If the housing market declines, we may be required to take impairment charges relating to our operations or temporarily idle or permanently closeunder-performing locations.If conditions in the housing industry deteriorate we may need to take goodwill and/or asset impairment charges relating to certain of our reporting units.Any such non-cash charges would have an adverse effect on our financial results. In addition, in response to industry conditions, we may have to temporarily idleor permanently close certain facilities in under-performing regions. Any such facility closures could have a significant adverse effect on our financial condition,operating results and cash flows.The nature of our business exposes us to product liability, product warranty, casualty, construction defect, asbestos, vehicle and other claims and legalproceedings.We are involved in product liability, product warranty, casualty, construction defect, asbestos, vehicle and other claims relating to the products wemanufacture and distribute, and services we provide or have provided that, if adversely determined, could adversely affect our financial condition, operatingresults, and cash flows. We rely on manufacturers and other suppliers to provide us with many of the products we sell and distribute. Because we have no directcontrol over the quality of such products manufactured or supplied by such third-party suppliers, we are exposed to risks relating to the quality of such products.The Company has a number of known and threatened construction defect legal claims. We are also involved in several asbestos personal injury suits due to thealleged sale of asbestos-containing products by legacy businesses that we acquired. In addition, we are exposed to potential claims arising from the conduct of ourrespective employees and subcontractors, and builders and their subcontractors, for which we may be contractually liable. Although we currently maintain what webelieve to be suitable and adequate insurance in excess of our self-insured amounts, there can be no assurance that we will be able to maintain such insurance onacceptable terms or that such insurance will provide adequate protection against potential liabilities. Product liability, product warranty, casualty, constructiondefect, asbestos, vehicle, and other claims can be expensive to defend and can divert the attention of management and other personnel for significant periods,regardless of the ultimate outcome. Claims of this nature could also have a negative impact on customer confidence in our products and our company. In addition,we are involved on an ongoing basis in other types of legal proceedings. We cannot assure you that any current or future claims against us will not adversely affectour financial condition, operating results and cash flows.We occupy most of our facilities under long-term non-cancelable leases. We may be unable to renew leases at the end of their terms. If we close a facility,we are still obligated under the applicable lease.Most of our facilities are leased. Many of our leases are non-cancelable, typically have initial expiration terms ranging from five to 15 years and mostprovide options to renew for specified periods of time. We believe that leases we enter into in the future will likely be for similar terms (five to 15 years), will benon-cancelable and will feature similar renewal options. If we close or idle a facility we would remain committed to perform our obligations under the applicablelease, which would include, among other things, payment of the base rent, insurance, taxes and other expenses on the leased property for the balance of the leaseterm. Management may explore offsets to remaining obligations such as subleasing opportunities or negotiated lease terminations. We have closed or idled anumber of facilities for which we continue to remain liable. Our obligation to continue making rental payments with respect to leases for closed or idled facilitiescould have a material adverse effect on our business and results of operations. At the end of a lease term, for those locations where we have no renewal optionsremaining, we may be unable to renew the lease without additional cost, if at all. If we are unable to renew our facility leases, we may close or, if possible, relocatethe facility, which could subject us to additional costs and risks which could have a material adverse effect on our business. Additionally, the revenue and profitgenerated at a relocated facility may not equal the revenue and profit generated at the former operation.15 We are a holding company and conduct all of our operations through our subsidiaries.We are a holding company that derives all of our operating income from our subsidiaries. All of our assets are held by our direct and indirect subsidiaries.We rely on the earnings and cash flows of our subsidiaries, which are paid to us by our subsidiaries in the form of dividends and other payments or distributions, tomeet our debt service obligations. The ability of our subsidiaries to pay dividends or make other payments or distributions to us will depend on their respectiveoperating results and may be restricted by, among other things, the laws of their jurisdiction of organization (which may limit the amount of funds available for thepayment of dividends and other distributions to us), the terms of existing and future indebtedness and other agreements of our subsidiaries, as well as the covenantsof any future outstanding indebtedness we or our subsidiaries incur.We may be adversely affected by any disruption in our respective information technology systems.Our operations are dependent upon our information technology systems, which encompass all of our major business functions. Our primary ERP system isa proprietary system that has been highly customized by our computer programmers. Our centralized financial reporting system currently draws data from our ERPsystems. We rely upon our information technology systems to run critical accounting and financial information systems, process receivables, manage and replenishinventory, fill and ship customer orders on a timely basis, and coordinate our sales activities across all products and services. A substantial disruption in ourinformation technology systems for any prolonged time period (arising from, for example, system capacity limits from unexpected increases in our volume ofbusiness, outages, natural or other disasters, or disruptions in our service) could result in problems and delays in generating critical financial and operationalinformation, processing receivables, receiving inventory and supplies and filling customer orders. These disruptions could adversely affect our operating results aswell as our customer service and relationships. Our systems, or those of our significant customers or suppliers, might be damaged or interrupted by natural or man-made events or by computer viruses, physical or electronic break-ins, or similar disruptions affecting the global Internet. In addition, we rely on a number of third-party service providers to execute certain business processes and maintain certain information technology systems and infrastructure, and any breach of security ordisruption in their systems could impair our ability to operate effectively. There can be no assurance that such disruptions, delays, problems, or associated costsrelating to our systems or those of our significant customers, suppliers or third-party providers would not have a material adverse effect on our financial condition,operating results and cash flows.We are subject to cybersecurity risks and expect to incur increasing costs in an effort to minimize those risks.Our business employs systems that allow for the secure storage and transmission of customers’, vendors’ and employees’ proprietary information. Securitybreaches could expose us to a risk of loss or misuse of this information, litigation and potential liability. We may not have the resources or technical sophisticationto anticipate or prevent rapidly evolving types of cyber-attacks. Any compromise of our security could result in a violation of applicable privacy and other laws,significant legal and financial exposure, damage to our reputation and a loss of confidence in our security measures, which could harm our business. Theregulatory environment related to information security and privacy is increasingly rigorous, with new and constantly changing requirements applicable to ourbusiness, and compliance with those requirements could result in additional costs. Our computer systems have been, and will likely continue to be, subjected tocomputer viruses or other malicious codes, unauthorized access attempts and cyber- or phishing-attacks. These events could compromise ours’ and our customers’and suppliers’ confidential information, impede or interrupt our business operations, and could result in other negative consequences, including remediation costs,loss of revenue, litigation and reputational damage. To our knowledge, we have not experienced a material cybersecurity breach to date. As cyber-attacks becomemore sophisticated, we expect to incur increasing costs to strengthen our systems from outside intrusions. While we have implemented administrative and technicalcontrols and have taken other preventive actions to reduce the risk of cyber incidents and protect our information technology, they may be insufficient to preventphysical and electronic break-ins, cyber-attacks or other security breaches to our computer systems.We are subject to payments-related risks that could increase our operating costs, expose us to fraud, subject us to potential liability and potentiallydisrupt our business.We accept payments using a variety of methods, including credit card, debit card, direct debit from a customer’s bank account, consumer invoicing, andphysical bank checks, and we may offer different payment options over time. These payment options subject us to many compliance requirements, including, butnot limited to, compliance with payment card association operating rules, including data security rules, certification requirements, rules governing electronic fundstransfers and Payment Card Industry Data Security Standards. They also subject us to potential fraud by criminal elements seeking to discover and take advantageof security vulnerabilities that may exist in some of these payment systems. For certain payment methods, including credit and debit cards, we pay interchange andother fees, which may increase over time and raise our operating costs and lower profitability. We rely on third parties to provide payment processing services,including the processing of credit and debit cards, and it could disrupt our business if these companies become unwilling or unable to provide these services to us.If we fail to comply with these rules or requirements, or if our data security systems are breached or compromised, we may be liable for card issuing banks’ costs,subject to fines and higher transaction fees, and lose our ability to accept credit and debit card payments from our customers, process electronic funds transfers, orfacilitate other types of online payments, and our business and operating results could be adversely affected.16 We may be adversely affected by any natural or man-made disruptions to our distribution and manufacturing facilities.We currently maintain a broad network of distribution and manufacturing facilities throughout the U.S. Any widespread disruption to our operationsresulting from fire, earthquake, weather-related events, an act of terrorism or any other cause could damage multiple facilities and a significant portion of ourinventory and could materially impair our ability to distribute our products to customers. Moreover, we could incur significantly higher costs and longer lead timesassociated with distributing our products to our customers during the time that it takes for us to reopen or replace a damaged facility. In addition, any shortages offuel or significant fuel cost increases could disrupt our ability to distribute products to our customers. If any of these events were to occur, our financial condition,operating results and cash flows could be materially adversely affected.We may be unable to successfully implement our growth strategy, which includes increasing sales of our prefabricated components and other value-added products, pursuing strategic acquisitions, opening new facilities and reducing our outstanding debt.Our long-term strategy depends in part on growing our sales of prefabricated components and other value-added products and increasing our market share.If any of these initiatives are not successful, or require extensive investment, our growth may be limited, and we may be unable to achieve or maintain expectedlevels of growth and profitability.Our long-term business plan also provides for continued growth through strategic acquisitions and organic growth through the construction of new facilitiesor the expansion of existing facilities. Failure to identify and acquire suitable acquisition candidates on appropriate terms could have a material adverse effect onour growth strategy. Moreover, our liquidity position, or the requirements of or debt instruments could prevent us from obtaining the capital required to effect newacquisitions or expand our existing facilities. Our failure to make successful acquisitions or to build or expand needed facilities, including manufacturing facilities,produce saleable product, or meet customer demand in a timely manner could adversely affect our financial condition, operating results, and cash flows. A negativeimpact on our financial condition, operating results and cash flows, or our decision to invest in strategic acquisitions or new facilities, could adversely affect ourability to reduce our substantial outstanding debt.In addition, although we have been successful in the past with the integration of numerous acquisitions, we may not be able to fully integrate the operationsof any future acquired businesses with our own in an efficient and cost-effective manner or without significant disruption to our or the acquired companies’existing operations. Moreover, acquisitions involve significant risks and uncertainties, including uncertainties as to the future financial performance of the acquiredbusiness, the achievement of expected synergies, difficulties integrating acquired personnel and corporate cultures into our business, the potential loss of keyemployees, customers or suppliers, difficulties in integrating different computer and accounting systems, exposure to unforeseen liabilities of acquired companiesand the diversion of management attention and resources from existing operations. We may be unable to successfully complete potential acquisitions due tomultiple factors, such as issues related to regulatory review of the proposed transactions. We may also be required to incur additional debt or issue additionalshares of our common stock in order to consummate acquisitions in the future. Potential new debt may be substantial and may limit our flexibility in using ourcash flow from operations. The issuance of new shares of our common stock could dilute the equity value of our existing shareholders. Our failure to fullyintegrate future acquired businesses effectively or to manage other consequences of our acquisitions, including increased indebtedness, could prevent us fromremaining competitive and, ultimately, could adversely affect our financial condition, operating results and cash flows.Federal, state, local and other regulations could impose substantial costs and/or restrictions on our operations that would reduce our net income.We are subject to various federal, state, local and other regulations, including, among other things, regulations promulgated by the Department ofTransportation and applicable to our fleet of delivery trucks, work safety regulations promulgated by the Department of Labor’s Occupational Safety and HealthAdministration, employment regulations promulgated by the United States Equal Employment Opportunity Commission, tariff regulations on imported productspromulgated by the Federal government, accounting standards issued by the Financial Accounting Standards Board (“FASB”) or similar entities, state and localregulations relating to our escrow business, and state and local zoning restrictions and building codes. More burdensome regulatory requirements in these or otherareas may increase our general and administrative costs and adversely affect our financial condition, operating results and cash flows. Moreover, failure to complywith the regulatory requirements applicable to our business could expose us to substantial penalties that could adversely affect our financial condition, operatingresults and cash flows.17 Future changes to tax laws and regulations could have an adverse impact on our business.On December 22, 2017, legislation commonly referred to as the Tax Cuts and Jobs Act (“the 2017 Tax Act”) substantially changed several aspects of theInternal Revenue Code, some of which may have an adverse impact on our business over time. Certain aspects of the 2017 Tax Act may make purchasing a homeless attractive and therefore could have an adverse impact on our business. The 2017 Tax Act contains limitations on the ability of homeowners to deduct propertytaxes and mortgage interest as well as limitations on an individual taxpayer’s ability to deduct state and local income taxes. The 2017 Tax Act also raises thestandard deduction. These changes could reduce the perceived affordability of homeownership, and therefore the demand for homes, and/or have a moderatingimpact on home sales prices in areas with relatively high housing prices and/or high state and local income taxes and real estate taxes, including in certain of ourserved markets such as California and New York. As a result, some communities in those locations could experience lower net orders and/or a tempering ofaverage sales prices in future periods depending on how homebuyers react to the tax law changes under the 2017 Tax Act. Further, there can be no assurance thatany future changes in federal and state tax laws and regulations will not have an adverse impact on our financial condition, operating results and cash flows. We are subject to potential exposure to environmental liabilities and are subject to environmental regulation.We are subject to various federal, state and local environmental laws, ordinances and regulations. Although we believe that our facilities are in materialcompliance with such laws, ordinances, and regulations, as owners and lessees of real property, we can be held liable for the investigation or remediation ofcontamination on such properties, in some circumstances, without regard to whether we knew of or were responsible for such contamination. No assurance can beprovided that remediation may not be required in the future as a result of spills or releases of petroleum products or hazardous substances, the discovery ofunknown environmental conditions, more stringent standards regarding existing residual contamination, or changes in legislation, laws, rules or regulations. Moreburdensome environmental regulatory requirements may increase our general and administrative costs and adversely affect our financial condition, operatingresults and cash flows.We may be adversely affected by uncertainty in the economy and financial markets, including as a result of terrorism or unrest.Instability in the economy and financial markets, including as a result of terrorism or unrest, may result in a decrease in housing starts, which wouldadversely affect our business. In addition, such unrest or related adverse developments, including a retaliatory military strike or terrorist attack, may causeunpredictable or unfavorable economic conditions and could have a material adverse effect on our financial condition, operating results, and cash flows. Anyshortages of fuel or significant fuel cost increases related to geopolitical conditions could seriously disrupt our ability to distribute products to our customers. Inaddition, domestic terrorist attacks may affect our ability to keep our operations and services functioning properly and could have a material adverse effect on ourfinancial condition, operating results and cash flows.Some Company Employees are Unionized.Less than 2% of the workforce at our company are members of eight different unions. There can be no assurance that additional employees of our companywill not conduct union organization campaigns or become union members in the future. The trading price of our common stock has been and may continue to be subject to wide fluctuations.Between January 1, 2019 and December 31, 2019, the price of our common stock on the NASDAQ ranged from $10.56 to $26.07 per share. Our stockprice may fluctuate in response to a number of events and factors, including those described in this “Risk Factors” section. Additionally, our substantialindebtedness may hinder the demand for our common stock, which could have a material adverse effect on the market price of our common stock.The price of our common stock is volatile and may decline.The market price of our common stock historically has experienced and may continue to experience significant price fluctuations similar to thoseexperienced by the broader stock market in recent years. In addition, the price of our common stock may fluctuate significantly in response to various factors,including: •actual or anticipated fluctuations in our results of operations; •announcements by us or our competitors of significant business developments, changes in customer relationships, acquisitions, or expansion plans; •changes in the prices of products we sell; •involvement in litigation; •our sale of common stock or other securities in the future;18 •market conditions in our industry; •changes in key personnel; •changes in market valuation or earnings of our competitors; •the trading volume of our common stock; •changes in the estimation of the future size and growth rate of our markets; and •general economic and market conditions; Broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance. In the past,following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company.If we were involved in any similar litigation we could incur substantial costs and our management’s attention and resources could be diverted, which couldadversely affect our financial condition, results of operations and cash flows. As a result, it may be difficult for you to resell your shares of common stock in thefuture.Significant sales of our common stock, or the perception that significant sales may occur in the future, could adversely affect the market price of ourcommon stock.The sale of substantial amounts of our common stock could adversely affect the price of our common stock. Sales of substantial amounts of our commonstock in the public market, and the availability of shares for future sale, including 0.4 million shares of our common stock issuable as of December 31, 2019 uponexercise of outstanding vested and unvested options to acquire shares of our common stock, and through the conversion of 2.1 million restricted stock units underour stock incentive plans, could adversely affect the prevailing market price of our common stock and could cause the market price of our common stock to remainlow for a substantial time. Additional stock grants may also be made under our incentive plans, including our 2014 Incentive Plan, as it may be amended. Thepotential for future stock grants could have a negative effect on the market for our common stock and our ability to raise additional capital.We do not have any current plan to pay, and are restricted in our ability to pay, any dividends on our common stock, and as a result, your onlyopportunity to achieve a return on your investment in our common stock is if the price of our common stock increases.We anticipate that we will retain all future earnings and other cash resources for the future operation and development of our business, including potentialdebt reduction. Accordingly, we do not intend to declare or pay regular cash dividends on our common stock in the near future. Payment of any future dividendswill be at the discretion of our board of directors after taking into account many factors, including our operating results, financial condition, current and anticipatedcash needs and plans for expansion. The declaration and payment of any dividends on our common stock is also restricted by the terms of our outstandingindebtedness.Item 1B. Unresolved Staff CommentsNone.Item 2. PropertiesWe have a broad network of distribution and manufacturing facilities in 40 states throughout the U.S. Based on available 2018 U.S. Census data, we haveoperations in 77 of the top 100 U.S. Metropolitan Statistical Areas, as ranked by single family housing permits in 2018.Distribution centers typically include 10 to 15 acres of outside storage, a 45,000 square foot warehouse, 4,000 square feet of office space, and15,000 square feet of covered storage. The outside area provides space for lumber storage and a staging area for delivery while the warehouse stores millwork,windows and doors. The distribution centers are usually located in industrial areas with low cost real estate and easy access to freeways to maximize distributionefficiency and convenience. Many of our distribution centers are situated on rail lines for efficient receipt of goods.19 Our manufacturing facilities produce trusses, wall panels, engineered wood, stairs, windows, pre-hung doors and custom millwork. In many cases, they arelocated on the same premises as our distribution facilities. Truss and panel manufacturing facilities vary in size from 30,000 square feet to 60,000 square feet with8 to 10 acres of outside storage for lumber and for finished goods. Our window manufacturing facility in Houston, Texas has approximately 200,000 square feet.We contractually lease approximately 310 facilities and own approximately 90 facilities. These leases typically have an initial lease term of 5 to 15 yearsand most provide options to renew for specified periods of time. A majority of our leases provide for fixed annual rentals. Certain of our leases include provisionsfor escalating rent, as an example, based on changes in the consumer price index. Most of the leases require us to pay taxes, insurance and common areamaintenance expenses associated with the properties. As described in Note 10 to the consolidated financial statements included in Item 8 of this annual report onForm 10-K, 139 of our leased facilities are subject to a sales-lease back transaction that is accounted for in our financial statements as owned assets with offsettingfinancing obligations.We operate a fleet of approximately 11,000 rolling stock units, which includes approximately 4,500 trucks and 4,500 forklifts as well as trailers to deliverproducts from our distribution and manufacturing centers to our customers’ job sites. Through our emphasis on local market flexibility and strategically placedlocations, we minimize shipping and freight costs while maintaining a high degree of local market expertise. Through knowledge of local homebuilder needs,customer coordination and rapid restocking ability, we reduce working capital requirements and guard against out-of-stock products. We believe that thisreliability is highly valued by our customers and reinforces customer relationships.Item 3. Legal ProceedingsThe Company has a number of known and threatened construction defect legal claims. While these claims are generally covered under the Company’sexisting 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 timebecause (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 theclaims. Although the Company cannot estimate a reasonable range of loss based on currently available information, the resolution of these matters could have amaterial 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 insurancecoverage 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 allof 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 adverseeffect on our consolidated financial position, cash flows or results of operations. However, there can be no assurances that future adverse judgments and costswould 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 materialimpact 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 canbe held liable for the investigation or remediation of contamination on such properties, in some circumstances without regard to whether we knew of or wereresponsible for such contamination. Our current expenditures with respect to environmental investigation and remediation at our facilities are minimal, although noassurance 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 hazardoussubstances or the discovery of unknown environmental conditions.Item 4. Mine Safety DisclosuresNot applicable.20 PART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur common stock is traded on the NASDAQ Stock Market LLC under the symbol “BLDR”. The approximate number of stockholders of record of ourcommon stock as of February 19, 2020 was 70. We currently have no intention to pay dividends. Any future determination relating to dividend policy will be made at the discretion of our board ofdirectors and will depend on a number of factors, including restrictions in our debt instruments, as well as our future earnings, capital requirements, financialcondition, prospects and other factors that our board of directors may deem relevant. Our debt agreements currently restrict our ability to pay dividends. See“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” contained in Item 7 of this annualreport on Form 10-K.The graph below matches the cumulative 5-Year total return of holders of Builders FirstSource, Inc.’s common stock with the cumulative total returns of theRussell 2000 index and the S&P 600 Building Products index. The graph assumes that the value of the investment in our common stock, in each index, and in thepeer group (including reinvestment of dividends) was $100 on 12/31/2014 and tracks it through 12/31/2019. 12/14 12/15 12/16 12/17 12/18 12/19Builders FirstSource, Inc. 100.00 161.28 159.68 317.18 158.81 369.87Russell 2000 100.00 95.59 115.95 132.94 118.30 148.49S&P 600 Building Products Index 100.00 121.42 162.96 185.64 135.56 202.37 The stock price performance included in this graph is not necessarily indicative of future stock price performance.21 The information regarding securities authorized for issuance under equity compensation plans appears in our definitive proxy statement for our annualmeeting of stockholders to be held on May 21, 2020 under the caption “Equity Compensation Plan Information,” which information is incorporated herein byreference.Item 6. Selected Financial DataThe following selected consolidated financial data for the years ended December 31, 2019, 2018 and 2017 and as of December 31, 2019 and 2018 werederived from our consolidated financial statements which are included in Item 8 of this annual report on Form 10-K. Selected consolidated financial data as ofDecember 31, 2017 and as of and for the years ended December 31, 2016 and 2015 were derived from our consolidated financial statements, but are not includedherein.The following data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”contained in Item 7 of this annual report on Form 10-K and with our consolidated financial statements and related notes included in Item 8 of this annual report onForm 10-K. Year Ended December 31, 2019 2018 2017 2016 2015 (In thousands, except per share amounts) Statement of operations data: Net sales (1) $7,280,431 $7,724,771 $7,034,209 $6,367,284 $3,564,425 Gross margin 1,976,829 1,922,940 1,727,391 1,596,748 901,458 Selling, general and administrative expenses 1,584,523 1,553,972 1,442,288 1,360,412 810,703 Net income (loss) (2)(3) 221,809 205,191 38,781 144,341 (22,831) Net income (loss) per share — basic $1.92 $1.79 $0.34 $1.30 $(0.22) Net income (loss) per share — diluted $1.90 $1.76 $0.34 $1.27 $(0.22) Balance sheet data (end of period): Cash and cash equivalents $14,096 $10,127 $57,533 $14,449 $65,063 Total assets (4) 3,249,490 2,932,309 3,006,124 2,909,887 2,882,038 Total debt (including current portion) 1,291,273 1,561,294 1,784,420 1,802,052 1,951,671 Stockholders’ equity 824,953 596,338 376,209 309,620 149,195 Other financial data: Depreciation and amortization $100,038 $97,906 $92,993 $109,793 $58,280 (1)We adopted updated revenue recognition guidance using the modified retrospective method as of January 1, 2018. As such, periods prior to the adoptiondate have not been restated and continue to be presented in accordance with previous guidance. (2)As discussed in Note 12 to the consolidated financial statements included in Item 8 of this annual report on Form 10-K, net income for the year endedDecember 31, 2017 includes $29.0 million in income tax expense attributable to revaluation of our net deferred tax assets resulting from the enactment ofthe 2017 Tax Act. Net income for the year ended December 31, 2016 includes a reduction to our valuation allowance of $131.7 million as we released thevaluation allowance against our net federal and certain state deferred tax assets in that period. Net loss for the year ended December 31, 2015 includes avaluation allowance of $9.7 million against primarily all of our deferred tax assets.(3)Net income for the year ended December 31, 2019 includes net losses on debt extinguishment and other financing costs of $10.2 million. Net income forthe year ended December 31, 2018 includes a net gain on debt extinguishment of $3.2 million. Net income for the year ended December 31, 2017 includesnet losses on debt extinguishment and other financing costs of $58.7 million. Our 2019, 2018 and 2017 debt transactions are discussed in detail in Note 9 tothe consolidated financial statements included in Item 8 of this annual report on Form 10-K. Net income for the year ended December 31, 2016 includes netlosses on debt extinguishment and other financing costs of $56.9 million. Net loss for the year ended December 31, 2015 includes $38.6 million ofacquisition and transaction related costs associated with the ProBuild acquisition, including $13.2 million in commitment fees related to bridge andbackstop financing facilities incurred in connection with the financing of the ProBuild acquisition. In addition, net loss for the year ended December 31,2015 also includes $10.3 million related to non-cash interest expense from the amortization of debt discount and deferred loan costs, and fair valueadjustments related to previously outstanding stock warrants.(4)As discussed in Note 2 to the consolidated financial statements included in Item 8 of this annual report on Form 10-K we adopted updated guidance relatingto leases using the modified retrospective method as of January 1, 2019. As such, periods prior to the adoption date have not been restated and continue tobe presented in accordance with previous guidance. 22 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion of our financial condition and results of operations should be read in conjunction with the selected financial data and theconsolidated financial statements and related notes contained in Item 6. Selected Financial Data and Item 8. Financial Statements and Supplementary Data of thisannual report on Form 10-K, respectively. See “Risk Factors” contained in Item 1A. Risk Factors of this annual report on Form 10-K and “Cautionary Statement”contained in Item 1. Business of this annual report on Form 10-K for a discussion of the uncertainties, risks and assumptions associated with these statements.OVERVIEWWe 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 geographicalreach, our locations are organized into nine geographical regions (Regions 1 through 9), which are also our operating segments, and these are further aggregatedinto 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 15 to the consolidated financial statementsincluded in Item 8 of this annual report on Form 10-K.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 engineeredwood that we design, cut, and assemble for each home. We also assemble interior and exterior doors into pre-hung units. Additionally, we supply our customerswith 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 allour 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 houseframing. •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 anddistribution of interior and exterior door units. Millwork includes interior trim and custom features that we manufacture under the Synboard ® brandname. •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 andcement. •Other Building Products & Services. Other building products & services are comprised of products such as cabinets and hardware as well asservices such as turn-key framing, shell construction, design assistance, and professional installation spanning the majority of our productcategories.Our operating results are dependent on the following trends, strategies, 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 andmortgage markets. According to the U.S. Census Bureau, annual U.S. total and single-family housing starts were 1.3 million and 0.9 million,respectively, in 2019. However, both total and single-family housing starts remain below the normalized historical averages (from 1959 through2019) of 1.5 million and 1.1 million, respectively. Due to the lower levels in housing starts versus historical norms, increased competition forhomebuilder 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 andcompetitive and we will continue to face significant competition from local and regional suppliers. We still believe there are several meaningfultrends that indicate U.S. housing demand will continue to trend towards recovering to the historical average. These trends include relatively lowinterest rates, the aging of housing stock, and normal population growth due to immigration and birthrate exceeding death rate. While the rate ofmarket growth has recently eased, industry forecasters, including the National Association of Homebuilders (“NAHB”), expect to see continuedincreases in housing demand over the next year.23 •Targeting Large Production Homebuilders. In recent years, the homebuilding industry has undergone consolidation, and the larger homebuildershave increased their market share. We expect that trend to continue as larger homebuilders have better liquidity and land positions relative to thesmaller, less capitalized homebuilders. Our focus is on maintaining relationships and market share with these customers while balancing thecompetitive pressures we are facing in servicing large homebuilders with certain profitability expectations. Additionally, we have been successful inexpanding 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 thehomebuilding market, the repair and remodel end market is still dependent upon some of the same factors as the homebuilding market, includingdemographic trends, interest rates, consumer confidence, employment rates and the health of the economy and home financing markets. We expectthat our ability to remain competitive in this space will depend on our continued ability to provide a high level of customer service coupled with abroad product offering. •Use of Prefabricated Components. Homebuilders are increasingly using prefabricated components in order to realize increased efficiency, overcomeskilled construction labor shortages and improve quality. Shortening cycle time from start to completion is a key imperative of the homebuildersduring periods of strong consumer demand. We continue to see the demand for prefabricated components increasing within the residential newconstruction 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 supplyindustry is highly dependent upon new home construction and subject to cyclical market changes. Our operations are subject to fluctuations arisingfrom changes in supply and demand, national and local economic conditions, labor costs and availability, competition, government regulation, tradepolicies and other factors that affect the homebuilding industry such as demographic trends, interest rates, housing starts, the high cost of landdevelopment, 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 ofeconomic factors, such as the level of employment, consumer confidence, consumer income, the supply of houses, the availability of financing andinterest rates. Changes in the inventory of available homes as well as economic factors relative to home prices could result in changes to theaffordability 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 pricesrapidly rise or fall within a relatively short period of time. We purchase certain materials, including lumber products, which are then sold tocustomers as well as used as direct production inputs for our manufactured and prefabricated products. Short-term changes in the cost of thesematerials, some of which are subject to significant fluctuations, are oftentimes passed on to our customers, but our pricing quotation periods andmarket competition may limit our ability to pass on such price changes. We may also be limited in our ability to pass on increases on in-boundfreight 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 themarkets we serve. We pay close attention to managing our working capital and operating expenses. Further, we pay careful attention to our logisticsfunction 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 andthe repair and remodel end market. However, we will continue to identify opportunities for profitable growth in the multi-family and lightcommercial markets. •Capital Structure. As a result of our historical growth through acquisitions, we have substantial indebtedness. We strive to optimize our capitalstructure to ensure that our financial needs are met in light of economic conditions, business activities, organic investments, opportunities for growththrough acquisition and the overall risk characteristics of our underlying assets. In addition to these factors, we also evaluate our capital structure onthe basis of our leverage ratio, our liquidity position, our debt maturity profile and market interest rates. As such, we may enter into various debt orequity transactions in order to appropriately manage and optimize our capital structure.24 RECENT DEVELOPMENTSDebt TransactionsDuring the year ended December 31, 2019, the Company executed several debt transactions, including extending the maturity of our $900.0 millionrevolving credit facility (“2023 facility”), redemption and repurchase of $192.4 million in aggregate principal amount of our 5.625% senior secured notes due 2024(“2024 notes”), and repayment of $406.3 million of our senior secured term loan facility due 2024 (“2024 term loan”). The repayments of our 2024 notes and 2024term 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 (“2027notes”) and cash on hand.In February 2020, we completed a private offering of $550.0 million in aggregate principal amount of 5.0% unsecured senior notes due 2030 (“2030 notes”)at an issue price equal to 100% of their par value. The proceeds from this offering were used together with borrowing under our 2023 facility to redeem theremaining $503.9 million in aggregate principal amount of 2024 notes outstanding at a redemption price of 104.2% of their par value and $47.5 million inaggregate principal amount of 2027 notes at a redemption price of 103.0% of their par value.These transactions are described in Notes 9 and 18 to the consolidated financial statements included in Item 8 of this annual report on Form 10-K.Collectively, these transactions have extended our debt maturity profile and reduced the amount of long-term debt outstanding. From time to time, based on marketconditions and other factors and subject to compliance with applicable laws and regulations, the Company may repurchase or call our notes, repay debt, repurchaseshares of our common stock or otherwise enter into transactions regarding its capital structure.Business CombinationsOn 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 ofthree truss locations, which are located in Las Vegas, Nevada; Surprise, Arizona; and Kingman, Arizona. Sun State manufactures roof trusses and floor trusses anddistributes lumber and related products to residential homebuilders and commercial contractors.On December 9, 2019, we acquired certain assets and the operations of Raney Components, LLC and Raney Construction, Inc. (collectively “Raney”) for$59.0 million in cash, subject to certain adjustments. Located in Groveland, Florida, Raney is a vertically-integrated manufacturer and installer of residentialstructures for production builder customers. Raney combines sub-contractor labor and material supply to place concrete slabs, install masonry block for exteriorwalls, set wall panels and roof trusses, frame interior walls and install roof decking.On January 9, 2020, we acquired certain assets and the operations of Bianchi & Company, Inc. (“Bianchi”) for $17.2 million in cash, subject to certainadjustments. Located in Charlotte, North Carolina, Bianchi is a supplier and installer of interior and exterior doors, crown moldings, open stair rail, chair rail,wainscoting, commercial hollow metal frames and doors and other custom millwork.These acquisitions are described in Notes 5 and 18 to the consolidated financial statements included in Item 8 of this annual report on Form 10-K.Retirement of President and Chief Executive OfficerOn January 10, 2020, Mr. Crow notified our Board of his decision to retire as President and Chief Executive Officer of the Company during 2020 afterassisting the Board in hiring his replacement. Mr. Crow has agreed to continue with the Company in a consulting capacity for a period of time following theappointment of a new Chief Executive Officer to assist in the transition. The Board has retained a leading global executive search firm to help identify a successor.CURRENT OPERATING CONDITIONS AND OUTLOOKAccording to the U.S. Census Bureau, actual U.S. total housing starts for the year ended December 31, 2019 were 1.3 million, an increase of 3.3%compared to the year ended December 31, 2018. Actual U.S. single-family housing starts for the year ended December 31, 2019 were 0.9 million, an increase of1.4% compared to the year ended December 31 2018. A composite of third party sources, including the NAHB, are forecasting 1.3 million U.S. total housing startsand 0.9 million U.S. single-family housing starts for 2020, which are increases of 1.0% and 5.8%, respectively, from 2019. In addition, in its September 2019semi-annual forecast, the Home Improvement Research Institute (“HIRI”) forecasted sales in the professional repair and remodel end market to increaseapproximately 0.9% in 2020 compared to 2019.25 Our net sales for the year ended December 31, 2019 decreased 5.8% over the same period last year. Commodity price deflation decreased our net sales in2019 by an estimated 12.3%. Excluding the impact of commodity price deflation, we achieved 6.5% net sales growth in the single-family, multi-family and repairand remodel/other end markets, primarily as a result of sales volume growth in our manufactured products and windows, doors & millwork categories. Our grossmargin percentage increased by 2.3% during the year ended December 31, 2019 compared to the year ended December 31, 2018. This increase in gross marginpercentage is primarily attributable to an improved product mix, the decline in the cost of commodities relative to our customer pricing commitments andcontinued 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 year ended December 31, 2018. Our selling, general andadministrative expenses, as a percentage of net sales, were 21.8% in 2019, a 1.7% increase from 20.1% in 2018. This increase was largely due to the effects ofcommodity price deflation on our net sales and an increase in variable compensation related to increased sales volume and gross margin for the year endedDecember 31, 2019 compared to the year ended December 31, 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 takeadvantage of the construction activity in our markets and to increase our market share, which may include strategic acquisitions. We will continue to focus onworking capital by closely monitoring the credit exposure of our customers, remaining focused on maintaining the right level of inventory and by working with ourvendors to improve payment terms and pricing on our products. We strive to achieve the appropriate balance of short-term expense control while maintaining theexpertise 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 focusfor the Company.RESULTS OF OPERATIONSA discussion regarding our financial condition and results of operations for the year ended December 31, 2019 compared to the year ended December 31,2018 is presented below. A discussion regarding our financial condition and results of operations for the year ended December 31, 2018 compared to the yearended December 31, 2017 can be found under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with theSEC on March 1, 2019. 2019 Compared with 2018The following table sets forth the percentage relationship to net sales of certain costs, expenses and income items for the years ended December 31: 2019 2018 Net sales 100.0% 100.0% Cost of sales 72.8% 75.1% Gross margin 27.2% 24.9% Selling, general and administrative expenses 21.8% 20.1% Income from operations 5.4% 4.8% Interest expense, net 1.5% 1.4% Income tax expense 0.8% 0.7% Net income 3.1% 2.7% Net Sales. Net sales for the year ended December 31, 2019 were $7,280.4 million, a 5.8% decrease from net sales of $7,724.8 million for 2018. Commodityprice deflation decreased our net sales in 2019 by an estimated 12.3%. Excluding the impact of commodity price deflation, we achieved 6.5% sales growth in thesingle-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.26 The following table shows net sales classified by major product category for the years ended December 31, (dollars in millions): 2019 2018 Net sales % of Sales Net sales % of Sales % Change Lumber & lumber sheet goods $2,251.6 30.9% $2,902.2 37.6% (22.4)%Manufactured products 1,449.5 19.9% 1,392.0 18.0% 4.1%Windows, doors & millwork 1,542.9 21.2% 1,445.9 18.7% 6.7%Gypsum, roofing & insulation 528.6 7.3% 528.4 6.9% 0.0%Siding, metal & concrete products 712.6 9.8% 697.8 9.0% 2.1%Other building products & services 795.2 10.9% 758.5 9.8% 4.8%Total sales $7,280.4 100.0% $7,724.8 100.0% (5.8)% The decrease in net sales in our lumber and lumber sheet goods category resulted from the impact of commodity price deflation in 2019 compared to theprior year, which offset increased volume in the category. We achieved increased net sales in our remaining product categories due to higher sales volume.Gross Margin. Gross margin increased $53.9 million to $1,976.8 million. Our gross margin percentage increased to 27.2% in 2019 from 24.9% in 2018, a2.3% increase. Our gross margin percentage increase was primarily attributable to an improved product mix, the decline in the cost of commodities relative to ourcustomer pricing commitments and continued pricing discipline. In addition, sales growth in our value-add higher margin product categories, primarily ourmanufactured products and windows, doors & millwork categories, contributed to increased gross profit dollars and percentage compared to the year endedDecember 31, 2018.Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $30.6 million, or 2.0%, and as a percentage of netsales increased to 21.8% from 20.1% in 2018. This increase was primarily due to increases in variable compensation related to increased sales volume and grossmargin. 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 $109.6 million in 2019, a decrease of $1.3 million from 2018. This decrease in interest expense is primarily dueto lower outstanding debt balances in 2019 compared to 2018. However, offsetting the overall decrease were one-time charges of $10.2 million in 2019 related tothe debt transactions executed in that period. In addition, interest expense for the year ended December 31, 2018 included a $3.2 million gain on debtextinguishment.Income Tax Expense. We recorded income tax expense of $60.9 million during the year ended December 31, 2019 compared to income tax expense of$55.6 million during the year ended December 31, 2018. Our effective tax rate was 21.6% for the year ended December 31, 2019 compared to 21.3% for the yearended December 31, 2018.Results by Reportable SegmentThe following tables show net sales and income before income taxes by reportable segment excluding the “All Other” caption as shown in Note 15 to theconsolidated financial statements included in Item 8 of this annual report on Form 10-K (dollars in thousands): Year ended December 31, Net sales Income before income taxes % of net % of net % of net % of net 2019 sales 2018 sales % change 2019 sales 2018 sales % change Northeast $1,295,643 18.4% $1,309,391 17.5% (1.0)% $56,012 4.3% $36,354 2.8% 54.1%Southeast 1,610,156 22.9% 1,700,317 22.7% (5.3)% 83,466 5.2% 67,465 4.0% 23.7%South 1,866,891 26.6% 2,020,258 27.0% (7.6)% 113,550 6.1% 111,515 5.5% 1.8%West 2,253,854 32.1% 2,448,581 32.8% (8.0)% 86,144 3.8% 106,525 4.4% (19.1)% $7,026,544 100.0% $7,478,547 100.0% $339,172 4.8% $321,859 4.3% We have four reportable segments based on an aggregation of the geographic regions in which we operate. While there is some geographic similaritybetween 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. 27 According to the U.S. Census Bureau, actual single-family housing starts during the year ended December 31, 2019 decreased 11.6%, 2.6% and 3.8% in theNortheast region, Midwest region and West region, respectively. Actual single-family starts increased 6.8% in the South region during the same period. For theyear ended December 31, 2019, our net sales declined in all of our reportable segments primarily due to the impact of commodity price deflation. We achievedincreased profitability in our Northeast, Southeast and South reportable segments largely due to an improved product mix, the decline in the cost of commoditiesrelative to our customer pricing commitments and continued pricing discipline. However, profitability declined in our West reportable segment largely due theimpact of commodity price deflation offsetting the improvement in gross margin percentage.LIQUIDITY AND CAPITAL RESOURCESOur primary capital requirements are to fund working capital needs and operating expenses, meet required interest and principal payments, and to fundcapital expenditures and potential future growth opportunities. Our capital resources at December 31, 2019 consist of cash on hand and borrowing availabilityunder our 2023 facility.Our 2023 facility will be primarily used for working capital, general corporate purposes, and funding capital expenditures and growth opportunities. Inaddition, we may use the 2023 facility to facilitate debt consolidation. Availability under the 2023 facility is determined by a borrowing base. Our borrowing baseconsists of trade accounts receivable, inventory, other receivables which include progress billings and credit card receivables, and qualified cash that all meetspecific criteria contained within the credit agreement, minus agent specified reserves. Net excess borrowing availability is equal to the maximum borrowingamount minus outstanding borrowings and letters of credit.The following table shows our borrowing base and excess availability as of December 31, 2019 and 2018 (in millions): As of December 31,2019 December 31,2018 Accounts Receivable Availability$413.0 $431.9 Inventory Availability 370.0 395.4 Other Receivables Availability 29.8 18.8 Gross Availability 812.8 846.1 Less: Agent Reserves (26.6) (25.5)Plus: Cash in Qualified Accounts 4.2 26.0 Borrowing Base 790.4 846.6 Aggregate Revolving Commitments 900.0 900.0 Maximum Borrowing Amount (lesser of Borrowing Base and Aggregate Revolving Commitments) 790.4 846.6 Less: Outstanding Borrowings (27.0) (179.0)Letters of Credit (82.2) (82.2)Net Excess Borrowing Availability on Revolving Facility$681.2 $585.4 As of December 31, 2019, we had $27.0 million in outstanding borrowings under our 2023 facility and our net excess borrowing availability was $681.2million after being reduced by outstanding letters of credit of approximately $82.2 million. We are required to meet a fixed charge coverage ratio of 1:00 to 1:00 ifour excess availability falls below the greater of $80.0 million or 10% of the maximum borrowing amount, which was $80.0 million as of December 31, 2019. Wewere not in violation of any covenants or restrictions imposed by any of our debt agreements at December 31, 2019.LiquidityOur liquidity at December 31, 2019 was $695.3 million, which consists of net borrowing availability under the 2023 facility and cash on hand.We have substantial indebtedness, which results in significant interest expense and could have the effect of, among other things, reducing our flexibility torespond to changing business and economic conditions. From time to time, based on market conditions and other factors and subject to compliance with applicablelaws and regulations, the Company may repurchase or call our notes, repay debt, or otherwise enter into transactions regarding its capital structure.28 Should the current industry conditions deteriorate or we pursue additional acquisitions, we may be required to raise additional funds through the sale ofcapital 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 beavailable on favorable terms, if at all. Alternatives to help supplement our liquidity position could include, but are not limited to, idling or permanently closingadditional facilities, adjusting our headcount in response to current business conditions, attempts to renegotiate leases, managing our working capital and/ordivesting of non-core businesses. There are no assurances that these steps would prove successful or materially improve our liquidity position.Consolidated Cash FlowsA discussion regarding our consolidated cash flows for the year ended December 31, 2019 compared to the year ended December 31, 2018 is presentedbelow. A discussion regarding our consolidated cash flows for the year ended December 31, 2018 compared to the year ended December 31, 2017 can be foundunder Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on March 1, 2019.2019 Compared with 2018Cash provided by operating activities was $504.0 million and $282.8 million in 2019 and 2018, respectively. The $221.2 million increase in cash providedby operations was largely the result of a working capital decrease of $106.2 million in 2019 compared to a working capital increase of $92.2 million in 2018. Thischange in working capital was primarily due to the timing and impact of changes in commodity prices on the value of cash received from customers, inventorypurchases and cash paid to vendors during the year ended December 31, 2018 compared to the year ended December 31, 2019.Cash used in investing activities was $199.2 million and $96.7 million in 2019 and 2018, respectively. This increase in cash used in investing activities wasprimarily due to $92.9 million in cash used for our acquisitions of Sun State and Raney in 2019. In addition, our capital expenditures increased $11.5 million in2019 compared to 2018. This increase in capital expenditures was largely due to the Company’s decision to purchase, rather than lease, more of its machinery androlling stock units in 2019 compared to 2018.Cash used in financing activities was $300.9 million and $233.6 million in 2019 and 2018, respectively. Cash used in financing activities for the year endedDecember 31, 2019 was primarily due to $610.8 million in long-term debt repayments, largely consisting of $406.3 million in repayments of the 2024 term loanand $191.5 million in cash repayments of our 2024 notes. In addition, we had $152.0 million in net repayments on our 2023 facility in 2019. These payments wereoffset by $478.4 million in proceeds received from the issuance of 2027 notes. In connection with our debt transactions executed in 2019 we paid $10.9 million indebt issuance and extinguishment costs. Further, in 2019 we paid $7.9 million to repurchase and retire 460,000 shares of our common stock pursuant to arepurchase program authorized by our board of directors. Cash used in financing activities for the year ended December 31, 2018 was primarily due to $171.0million in net repayments on the 2023 facility as well as $61.5 million in net payments on long-term debt arrangements largely associated with repurchases of our2024 notes.Capital ExpendituresCapital expenditures vary depending on prevailing business factors, including current and anticipated market conditions. Historically, capital expenditureshave for the most part remained at relatively low levels in comparison to the operating cash flows generated during the corresponding periods. We expect our 2020capital expenditures to be in the range of approximately $110 million to $130 million primarily related to rolling stock, equipment and facility improvements tosupport our operations.DISCLOSURES OF CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTSThe following summarizes our contractual obligations as of December 31, 2019 (in thousands): Payments Due by Period Contractual obligations Total Less than 1 year 1-3 years 3-5 years More than 5 years Long-term debt $1,057,923 $— $— $582,923 $475,000 Interest on long-term debt(1) 402,056 68,460 136,883 119,229 77,484 Other finance obligations(2) 288,666 18,091 35,066 34,947 200,562 Finance lease obligations(2) 22,011 11,331 10,029 651 — Operating leases (2) 365,695 78,375 125,460 74,458 87,402 Total contractual cash obligations $2,136,352 $176,257 $307,439 $812,208 $840,448 (1)We had $27.0 million in outstanding borrowings under the 2023 facility as of December 31, 2019. Borrowings under the 2023 facility bear interest at avariable rate. Therefore, actual interest may differ from the amounts presented above due to interest rate29 changes or any future borrowing activity under the 2023 facility. The 2024 term loan also bears interest at a variable rate, therefore actual interest maydiffer from the amounts presented above due to interest rate changes.(2)Future commitments for other finance obligations, finance lease obligations and operating lease obligations.Purchase orders entered into in the ordinary course of business are excluded from the above table because they are payable within one year. Amounts forwhich we are liable under purchase orders are reflected on our consolidated balance sheet as accounts payable. Where it makes economic sense to do so, we plan tolease certain equipment during 2020 to support anticipated sales growth.OTHER CASH OBLIGATIONS NOT REFLECTED IN THE BALANCE SHEETIn addition to the lease obligations included in the above table, we have residual value guarantees on certain equipment leases. Under these leases we havethe option of (1) purchasing the equipment at the end of the lease term, (2) arranging for the sale of the equipment to a third party, or (3) returning the equipment tothe lessor to sell the equipment. If the sales proceeds in either case are less than the residual value, then we are required to reimburse the lessor for the deficiencyup to a specified level as stated in each lease agreement. The guarantees under these leases for the residual values of equipment at the end of the respectiveoperating lease periods approximated $4.8 million as of December 31, 2019.Based upon the expectation that none of these leased assets will have a residual value at the end of the lease term that is materially less than the valuespecified in the related operating lease agreement or that we will purchase the equipment at the end of the lease term, we do not believe it is probable that we willbe required to fund any amounts under the terms of these guarantee arrangements. Accordingly, no accruals have been recognized for these guarantees.In addition, the Company is party to certain agreements related to its other finance obligations which commit the Company to perform certain repairs andmaintenance obligations under the leases in a specified manner and timeframe. As of December 31, 2019 our obligations under these agreements have largely beencompleted with the remainder expected to be completed within the next year.CRITICAL ACCOUNTING POLICIES AND ESTIMATESCritical accounting policies are those that both are important to the accurate portrayal of a company’s financial condition and results, and require subjectiveor complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.In order to prepare financial statements that conform to GAAP, we make estimates and assumptions that affect the amounts reported in our financialstatements and accompanying notes. Certain estimates are particularly sensitive due to their significance to the financial statements and the possibility that futureevents may be significantly different from our expectations.We have identified the following accounting policy that requires us to make the most subjective or complex judgments in order to fairly present ourconsolidated financial position and results of operations.Goodwill. Goodwill represents the excess of the amount we paid to acquire businesses over the estimated fair value of tangible assets and identifiableintangible assets acquired, less liabilities assumed. At December 31, 2019, our goodwill balance was $769.0 million, representing 23.7% of our total assets.We test goodwill for impairment in the fourth quarter of each year or at any other time when impairment indicators exist. Examples of such indicators thatcould cause us to test goodwill for impairment between annual tests include a significant change in the business climate, unexpected competition or a significantdeterioration in market share. We may also consider market capitalization relative to our net assets. Housing starts are a significant sales driver for us. If there is asignificant decline or an expected decline in housing starts, this could adversely affect our expectations for a reporting unit and the value of 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 withour nine geographic regions which are also determined to be our operating segments. In evaluating goodwill for impairment, the Company first assesses qualitativefactors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If it is concluded that it is more likelythan not that the fair value of the reporting unit is not less than its carrying amount, then no further testing of the goodwill is required.30 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 quantitativegoodwill 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 itscarrying 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 reportingunit exceeds its fair value an impairment loss is recognized in amount equal to that excess, limited to the amount of goodwill allocated to that reporting unit.In performing our annual goodwill impairment tests at December 31, 2019, we first assessed qualitative factors relative to each of our reporting units todetermine if it was more likely than not that the fair value of our reporting units were less than their carrying amounts. Examples of such factors we considered inthis assessment included the amount of cushion from prior quantitative goodwill impairment tests, significant changes in the goodwill balance, the presence of anyknown or forecasted declines in operating performance, market conditions, market share or any other negative factors. For reporting units where we determined that it was more likely than not that the fair values were less than their carrying amounts, we performed aquantitative goodwill impairment test. In evaluating our goodwill for impairment at December 31, 2019, $77.1 million of our goodwill balance was assessedutilizing a quantitative assessment. In performing the quantitative impairment test at December 31, 2019, we developed a range of fair values using a five-yeardiscounted cash flow methodology. Inherent in such fair value determinations are significant assumptions relating to future cash flows, expected future revenues,expected future profitability, the discount rate, the terminal value, and our interpretation of current economic indicators and market conditions and their impact onour strategic plans and operations. Due to the uncertainties associated with such estimates, interpretations and assumptions, actual results could differ fromprojected results, which could result in impairment of goodwill being recorded.Significant information and assumptions utilized in estimating future cash flows for quantitative goodwill impairment analyses include projections ofrevenue growth utilizing publicly available industry information such as lumber commodity prices and housing start forecasts developed by industry forecasters,including the NAHB. Expected future profitability reflects current headcount levels and cost structure and are flexed in future years based upon historical trends atvarious revenue levels. Long-term growth was based upon terminal value earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples of6.0x to reflect the relevant expected acquisition price. A discount rate of 11.0% was used and is intended to reflect the weighted average cost of capital for apotential market participant and includes all risks of ownership and the associated risks of realizing the stream of projected future cash flows. Decreasing the long-term growth to an EBITDA multiple of 5.0x, or increasing the discount rate by 1.0% to 12.0%, would not have changed the results of our impairment testing.At December 31, 2019, the fair values of each of our reporting units were substantially in excess of their respective carrying amounts. Factors that couldnegatively impact the estimated fair value of our reporting units and potentially trigger additional impairment include, but are not limited to, unexpectedcompetition, lower than expected housing starts, an increase in market participant weighted average cost of capital, increases in material or labor cost, andsignificant declines in our market capitalization. Future impairment of goodwill would have the effect of decreasing our earnings or increasing our losses in suchperiod, but would not impact our current outstanding debt obligations or compliance with covenants contained in the related debt agreements. We did not have anygoodwill impairments in 2019, 2018 or 2017.RECENTLY ISSUED ACCOUNTING STANDARDSInformation regarding recent accounting pronouncements is discussed in Note 2 to the consolidated financial statements included in Item 8 of this annualreport on Form 10-K.Item 7A. Quantitative and Qualitative Disclosures about Market RiskWe may experience changes in interest expense if changes in our debt occur. Changes in market interest rates could also affect our interest expense. Our2024 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 interestrates. 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. A1.0% increase in interest rates on the 2023 facility would result in approximately $0.3 million in additional interest expense annually as we had $27.0 million inoutstanding borrowings as of December 31, 2019. The 2023 facility also assesses variable commitment and outstanding letter of credit fees based on quarterlyaverage loan utilization. A 1.0% increase in interest rates on the 2024 term loan would result in approximately $0.5 million in additional interest expense annuallyas of December 31, 2019.We purchase certain materials, including lumber products, which are then sold to customers as well as used as direct production inputs for ourmanufactured 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 tosignificant fluctuations, are oftentimes, but not always, passed on to our customers. Delays in our ability to pass on material price increases to our customers canadversely impact our operating results.31 Item 8. Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 33Consolidated Statement of Operations and Comprehensive Income for the years ended December 31, 2019, 2018 and 2017 35Consolidated Balance Sheet at December 31, 2019 and 2018 36Consolidated Statement of Cash Flows for the years ended December 31, 2019, 2018 and 2017 37Consolidated Statement of Changes in Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017 38Notes to Consolidated Financial Statements 39 32 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 ReportingWe have audited the accompanying consolidated balance sheet of Builders FirstSource, Inc. and its subsidiaries (the “Company”) as of December 31, 2019 and2018, and the related consolidated statements of operations and comprehensive income, of changes in stockholders’ equity and of cash flows for each of the threeyears in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”). We also have auditedthe Company's internal control over financial reporting as of December 31, 2019, 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 December31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity withaccounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internalcontrol over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.Change in Accounting PrincipleAs discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019. Basis for OpinionsThe Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and forits assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reportingappearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control overfinancial 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 andregulations 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 reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internalcontrol 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 financialstatements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidenceregarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significantestimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financialreporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing andevaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as weconsidered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactionsand dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.33 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.Critical Audit MattersThe critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated orrequired 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 theconsolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the criticalaudit matter or on the accounts or disclosures to which it relates.Goodwill Quantitative Impairment TestAs described in Notes 2 and 6 to the consolidated financial statements, the Company’s consolidated goodwill balance was $769.0 million as of December 31,2019, and $77.1 million of the goodwill balance was assessed utilizing a quantitative assessment. Goodwill is tested for impairment on an annual basis andbetween annual tests whenever impairment is indicated. This annual test takes place as of December 31 each year. Impairment losses are recognized whenever thecarrying amount of a reporting unit exceeds its fair value. In performing the quantitative impairment test, management developed a range of fair values using afive-year discounted cash flow methodology. The significant assumptions used in the discounted cash flow methodology are the discount rate, the terminal valueand the expected future revenues and profitability.The principal considerations for our determination that performing procedures relating to the goodwill quantitative impairment test is a critical audit matter arethere was significant judgment by management when determining the fair value of any reporting unit where a goodwill quantitative impairment test was performed.This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s future cash flows, includingthe significant assumptions for the terminal value, expected future revenues and profitability. In addition, the audit effort involved the use of professionals withspecialized skill and knowledge to assist in performing these procedures and evaluating audit evidence obtained.Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financialstatements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment test, including management’s controlsover the goodwill quantitative impairment test. These procedures also included, among others, testing management’s process for determining the fair value of anyreporting unit where a goodwill quantitative impairment test was performed, evaluating the appropriateness of the discounted cash flow methodology, testing thecompleteness, accuracy, and relevance of underlying data used in the valuation methodology, and evaluating the significant assumptions used by management,including the terminal value, expected future revenues and profitability. Evaluating management’s assumptions related to the expected future revenues andprofitability involved evaluating whether the assumptions used were reasonable considering the past performance of the reporting unit and whether theseassumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluatingthe appropriateness of the valuation method used and the reasonableness of certain significant assumptions, including the terminal value. /s/ PricewaterhouseCoopers LLP Dallas, TexasFebruary 21, 2020We have served as the Company’s auditor since 1999. 34 BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME Years Ended December 31, 2019 2018 2017 (In thousands, except per share amounts) Net sales $7,280,431 $7,724,771 $7,034,209 Cost of sales 5,303,602 5,801,831 5,306,818 Gross margin 1,976,829 1,922,940 1,727,391 Selling, general and administrative expenses 1,584,523 1,553,972 1,442,288 Income from operations 392,306 368,968 285,103 Interest expense, net 109,551 108,213 193,174 Income before income taxes 282,755 260,755 91,929 Income tax expense 60,946 55,564 53,148 Net income $221,809 $205,191 $38,781 Comprehensive income $221,809 $205,191 $38,781 Net income per share: Basic $1.92 $1.79 $0.34 Diluted $1.90 $1.76 $0.34 Weighted average common shares outstanding: Basic 115,713 114,586 112,587 Diluted 117,025 116,554 115,597 The accompanying notes are an integral part of these consolidated financial statements. 35 BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEET December 31, 2019 2018 (In thousands, except per share amounts) ASSETS Current assets: Cash and cash equivalents $14,096 $10,127 Accounts receivable, less allowances of $13,492 and $13,054 at December 31, 2019 and 2018, respectively 614,946 654,170 Other receivables 77,447 68,637 Inventories, net 561,255 596,896 Other current assets 39,123 43,921 Total current assets 1,306,867 1,373,751 Property, plant and equipment, net 721,887 670,075 Operating lease right-of-use assets, net 292,684 — Goodwill 769,022 740,411 Intangible assets, net 128,388 103,154 Deferred income taxes 8,417 22,766 Other assets, net 22,225 22,152 Total assets $3,249,490 $2,932,309 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable 436,823 423,168 Accrued liabilities 308,950 292,526 Current portion of operating lease liabilities 61,653 — Current maturities of long-term debt 13,875 15,565 Total current liabilities 821,301 731,259 Noncurrent portion of operating lease liabilities 236,948 — Long-term debt, net of current maturities, debt discount, premium and issuance costs 1,277,398 1,545,729 Deferred income taxes 36,645 — Other long-term liabilities 52,245 58,983 Total liabilities 2,424,537 2,335,971 Commitments and contingencies (Note 14) Stockholders’ equity: Preferred stock, $0.01 par value, 10,000 shares authorized; zero shares issued and outstanding at December 31, 2019 and 2018 — — Common stock, $0.01 par value, 200,000 shares authorized; 116,052 and 115,078 shares issued and outstanding at December 31, 2019 and 2018, respectively 1,161 1,151 Additional paid-in capital 574,955 560,221 Retained earnings 248,837 34,966 Total stockholders’ equity 824,953 596,338 Total liabilities and stockholders’ equity $3,249,490 $2,932,309 The accompanying notes are an integral part of these consolidated financial statements. 36 BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENT OF CASH FLOWS Years Ended December 31, 2019 2018 2017 (In thousands) Cash flows from operating activities: Net income $221,809 $205,191 $38,781 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 100,038 97,906 92,993 Amortization of debt discount, premium and issuance costs 3,880 4,642 6,092 Loss (gain) on extinguishment of debt 8,189 (3,170) 56,657 Deferred income taxes 50,994 51,823 49,104 Stock compensation expense 12,239 14,420 13,508 Net (gain) loss on sales of assets and asset impairments (949) (1,393) 6,965 Changes in assets and liabilities, net of assets acquired and liabilities assumed: Receivables 42,789 (9,221) (75,673)Inventories 44,202 (5,425) (60,645)Other current assets 4,674 (10,356) 8 Other assets and liabilities 1,611 5,637 8,315 Accounts payable 4,070 (89,392) 65,764 Accrued liabilities 10,500 22,168 (23,341)Net cash provided by operating activities 504,046 282,830 178,528 Cash flows from investing activities: Purchases of property, plant and equipment (112,870) (101,411) (62,407)Proceeds from sale of property, plant and equipment 6,545 4,753 2,981 Cash used for acquisitions (92,855) — — Net cash used in investing activities (199,180) (96,658) (59,426)Cash flows from financing activities: Borrowings under revolving credit facility 1,040,000 1,662,000 1,370,000 Repayments under revolving credit facility (1,192,000) (1,833,000) (1,020,000)Proceeds from long-term debt and other loans 478,375 3,818 — Repayments of long-term debt and other loans (610,834) (65,312) (379,926)Payments of debt extinguishment costs (2,301) (134) (48,704)Payments of loan costs (8,618) — (2,799)Exercise of stock options 4,873 3,945 8,055 Repurchase of common stock (10,392) (4,895) (2,644)Net cash used in financing activities (300,897) (233,578) (76,018)Net increase (decrease) in cash and cash equivalents 3,969 (47,406) 43,084 Cash and cash equivalents at beginning of period 10,127 57,533 14,449 Cash and cash equivalents at end of period $14,096 $10,127 $57,533 Supplemental disclosure of non-cash activitiesFor the years ended December 31, 2019, 2018 and 2017, the Company retired assets subject to other finance obligations of $0.6 million, $0.6 million and$14.0 million and extinguished the related other finance obligations of $0.6 million, $0.7 million and $11.7 million, respectively.The Company purchased equipment which was financed through finance lease obligations of $16.5 million, and capital lease obligations of $10.2 millionand $14.2 million in the years ended December 31, 2019, 2018 and 2017, respectively. In addition, purchases of property, plant and equipment included inaccounts payable were $3.4 million, $2.4 million and $3.9 million for the years ended December 31, 2019, 2018 and 2017, respectively. The accompanying notes are an integral part of these consolidated financial statements. 37 BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY Common Stock AdditionalPaid in RetainedEarnings(Accumulated Shares Amount Capital Deficit) Total (In thousands) Balance at December 31, 2016 111,564 $1,115 $527,868 $(219,363) $309,620 Vesting of restricted stock units 772 8 (8) — — Shares withheld for restricted stock units vested (213) (2) (2,642) — (2,644)Exercise of stock options 1,449 15 8,040 — 8,055 Stock compensation expense — — 13,508 — 13,508 Cumulative effect adjustment — — — 8,889 8,889 Net income — — — 38,781 38,781 Balance at December 31, 2017 113,572 1,136 546,766 (171,693) 376,209 Vesting of restricted stock units 975 10 (10) — — Shares withheld for restricted stock units vested (239) (2) (4,893) — (4,895)Exercise of stock options 770 7 3,938 — 3,945 Stock compensation expense — — 14,420 — 14,420 Cumulative effect adjustment — — — 1,468 1,468 Net income — — — 205,191 205,191 Balance at December 31, 2018 115,078 1,151 560,221 34,966 596,338 Vesting of restricted stock units 735 7 (7) — — Shares withheld for restricted stock units vested (196) (2) (2,448) — (2,450)Repurchase of common stock (1) (460) (4) — (7,938) (7,942)Exercise of stock options 895 9 4,950 — 4,959 Stock compensation expense — — 12,239 — 12,239 Net income — — — 221,809 221,809 Balance at December 31, 2019 116,052 $1,161 $574,955 $248,837 $824,953 (1)During the year ended December 31, 2019, we repurchased and retired 460,000 shares of our common stock, at an average price of $17.24 per share, for$7.9 million pursuant to the repurchase program authorized by our board of directors in February 2019. The primary purpose of the repurchase program isto offset all, or a significant portion, of the dilution from employee stock awards. The accompanying notes are an integral part of these consolidated financial statements. 38 BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of the BusinessBuilders FirstSource, Inc., a Delaware corporation formed in 1998, is a leading supplier of building materials, manufactured components and constructionservices to professional contractors, sub-contractors, and consumers. The company operates approximately 400 locations in 40 states across the United States.In this annual report, references to the “Company,” “we,” “our,” “ours” or “us” refer to Builders FirstSource, Inc. and its consolidated subsidiaries, unlessotherwise stated or the context otherwise requires. 2. Summary of Significant Accounting PoliciesPrinciples of ConsolidationThe consolidated financial statements present the results of operations, financial position, and cash flows of Builders FirstSource, Inc. and its wholly-ownedsubsidiaries. All intercompany transactions have been eliminated in consolidation.Accounting EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at thedate of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from thoseestimates.Estimates are used when accounting for items such as revenue, vendor rebates, allowance for returns, discounts and doubtful accounts, employeecompensation programs, depreciation and amortization periods, income taxes, inventory values, insurance programs, goodwill, other intangible assets and long-lived assets.Revenue RecognitionWe recognize revenue as performance obligations are satisfied by transferring control of a promised good or service to a customer in an amount that reflectsthe 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 revenuerelated 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 aspayment 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 combinedand accounted for as a single contract and whether a single or combined contract should be accounted for as a single performance obligation or multipleperformance obligations. If a contract is separated into more than one performance obligation, we allocate the transaction price to each performance obligationgenerally based on observable standalone selling prices of the underlying goods or services. Revenue related to contracts with service elements is generallyrecognized 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 ourcontracts with service elements as it best depicts the transfer of assets to our customers. Payment terms related to sales for contracts with service elements arespecific 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 thecontract 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 losseson uncompleted contracts are recognized in the period in which such losses are determinable. Prepayments for materials or services are deferred until suchmaterials have been delivered or services have been provided. All sales recognized are net of allowances for discounts and estimated returns, based on historicalexperience. The Company records sales incentives provided to customers as a reduction of revenue. We present all sales tax on a net basis in our consolidatedfinancial statements.39 Costs to obtain contracts are expensed as incurred as our contracts are typically completed in one year or less, and where applicable, we generally wouldincur these costs whether or not we ultimately obtain the contract. We do not disclose the value of our remaining performance obligations on uncompletedcontracts as our contracts generally have a duration of one year or less.Cash and Cash Equivalents & Checks OutstandingCash 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 incash and cash equivalents are proceeds due from credit card transactions that generally settle within two business days. We maintain cash at financial institutions inexcess of federally insured limits. Further, we maintain various banking relationships with different financial institutions. Accordingly, when there is a negativenet book cash balance resulting from outstanding checks that had not yet been paid by any single financial institution, they are reflected in accounts payable on theaccompanying consolidated balance sheets.Accounts ReceivableWe extend credit to qualified professional homebuilders and contractors, in many cases on a non-collateralized basis. Accounts receivable potentiallyexpose us to concentrations of credit risk. Because our customers are dispersed among our various markets, our credit risk to any one customer or geographiceconomy is not significant. Other receivables consist primarily of vendor rebates receivable.Our customer mix is a balance of large national homebuilders, regional homebuilders, local and custom homebuilders and repair and remodelingcontractors as well as multi-family builders. For the year ended December 31, 2019, our top 10 customers accounted for approximately 15.3% of our net sales, andno single customer accounted for more than 5% of net sales.The allowance for doubtful accounts is based on management’s assessment of the amount which may become uncollectible in the future and is estimatedusing specific review of problem accounts, overall portfolio quality, current economic conditions that may affect the customer’s ability to pay, and historicalexperience. Accounts receivable are written off when deemed uncollectible. We also establish reserves for credit memos and customer returns. The reserve balance was $7.6 million and $6.9 million at December 31, 2019 and 2018,respectively. The activity in this reserve was not significant for each year presented.Accounts receivable consisted of the following at December 31: 2019 2018 (In thousands) Accounts Receivable $628,438 $667,224 Less: allowances for returns and doubtful accounts 13,492 13,054 Accounts receivable, net $614,946 $654,170 The following table shows the changes in our allowance for doubtful accounts: 2019 2018 2017 (In thousands) Balance at January 1, $6,195 $4,973 $5,922 Additions 5,811 5,284 197 Deductions (write-offs, net of recoveries) (6,070) (4,062) (1,146) Balance at December 31, $5,936 $6,195 $4,973 InventoriesInventories consist principally of materials purchased for resale, including lumber, lumber sheet goods, windows, doors and millwork, as well as certainmanufactured products and are stated at the lower of cost and net realizable value. Cost is determined using the weighted average method, the use of whichapproximates the first-in, first-out method. We accrue for shrink based on the actual historical shrink results of our most recent physical inventories adjusted, ifnecessary, for current economic conditions. These estimates are compared with actual results as physical inventory counts are taken and reconciled to the generalledger.40 During the year, we monitor our inventory levels by market and record provisions for excess inventories based on slower moving inventory. We definepotential 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. Wethen apply our judgment as to forecasted demand and other factors, including liquidation value, to determine the required adjustments to net realizable value. Ourinventories are generally not susceptible to technological obsolescence.Our arrangements with vendors provide for rebates of a specified amount of consideration, payable when certain measures, generally related to a stipulatedlevel of purchases, have been achieved. We account for estimated rebates as a reduction of the prices of the vendor’s inventory until the product is sold, at whichtime such rebates reduce cost of sales in the accompanying consolidated statement of operations and comprehensive income. Throughout the year we estimate theamount 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. No materials purchased from any single supplier represented more than 8% of our total materialspurchased in 2019.Shipping and Handling CostsHandling costs incurred in manufacturing activities are included in cost of sales. All other shipping and handling costs are included in selling, general andadministrative expenses in the accompanying consolidated statement of operations and comprehensive income and totaled $332.5 million, $322.9 million and$296.2 million in 2019, 2018 and 2017, respectively.Income TaxesWe account for income taxes utilizing the 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 theirfinancial 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 affecttaxable 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 willnot be realized.Warranty ExpenseWe have warranty obligations with respect to most manufactured products; however, the liability for the warranty obligations is not significant as a result ofthird-party inspection and acceptance processes.Debt Issuance Costs and Debt Discount/PremiumLoan 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 debtare presented as a reduction to long-term debt. Debt issuance costs associated with revolving debt arrangements are presented as a component of other assets. Debtissuance costs incurred in connection with revolving debt arrangements are amortized using the straight-line method. Debt issuance costs incurred in connectionwith term debt are amortized using the effective interest method. Debt discounts and premiums are amortized over the life of the related debt using the effectiveinterest method. Amortization of debt issuance costs, discounts and premiums are included in interest expense. Upon changes to our debt structure, we evaluatedebt issuance costs, discounts and premiums in accordance with the Debt topic of the Codification. We adjust debt issuance costs, discounts and premiums asnecessary based on the results of this evaluation, as discussed in Note 9.Property, Plant and EquipmentProperty, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. The estimatedlives of the various classes of assets are as follows: Buildings and improvements 10 to 40 years Machinery and equipment 3 to 10 years Furniture and fixtures 3 to 5 years Leasehold improvements The shorter of the estimated useful life or the remaining leaseterm 41 Major additions and improvements are capitalized, while maintenance and repairs that do not extend the useful life of the property are charged to expenseas incurred. Gains or losses from dispositions of property, plant and equipment are recorded in the period incurred. We also capitalize certain costs of computersoftware 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 machinery and equipment and generally depreciated using the straight-line method over the estimated usefullives of the assets, generally three years.We periodically evaluate the commercial and strategic operation of the land, related buildings and improvements of our facilities. In connection with theseevaluations, some facilities may be consolidated, and others may be sold or leased. Nonoperating assets primarily related to land and building real estate assetsassociated with location closures that are actively being marketed for sale within a year are classified as assets held for sale and recorded at fair value, usually thequoted market price obtained from an independent third-party less the cost to sell. Until the assets are sold, an estimate of the fair value is reassessed at eachreporting period. Net gains or losses related to the sale of real estate and equipment or impairment adjustments related to assets held for sale are recorded asselling, general and administrative expenses in the accompanying consolidated statement of operations and comprehensive income.LeasesWe lease certain land, buildings, rolling stock and other types of equipment for use in our operations. These leases typically have initial terms ranging fromone to 15 years. Many of our leases contain renewal options which are exercisable at our discretion. These renewal options generally have terms ranging from oneto five years. We also lease certain properties from related parties, including current employees and non-affiliate stockholders.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 paymentsover 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 liabilityadjusted 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 exercisebased on an analysis of the relevant facts and circumstances. As the implicit rate of return of our lease agreements is usually not readily determinable, wegenerally use our incremental borrowing rate in determining the present value of lease payments. We determine our incremental borrowing rate based oninformation available to us at the lease commencement date. Certain of our lease arrangements contain lease and non-lease components. We have elected toaccount 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 recognizedon our balance sheet. We recognize the expense for these leases on a straight-line basis over the lease term.Certain of our leases are subject to variable lease payments based on various measures, such as rent escalations determined by percentage changes in theconsumer price index. As these types of variable lease payments are determined on a basis other than an index or a rate, they are generally excluded from thecalculation of lease liabilities and right-of-use assets and are expensed as incurred.In addition, we have residual value guarantees on certain equipment leases. Under these leases, we have the option of (a) purchasing the equipment at theend of the lease term, (b) arranging for the sale of the equipment to a third party, or (c) returning the equipment to the lessor to sell the equipment. If the salesproceeds in any case are less than the residual value, we are required to reimburse the lessor for the deficiency up to a specified level as stated in each leaseagreement. If the sales proceeds exceed the residual value, we are entitled to all of such excess amounts.Long-Lived AssetsWe evaluate our long-lived assets, other than goodwill, for impairment when events or changes in circumstances indicate, in our judgment, that thecarrying value of such assets may not be recoverable. The determination of whether or not impairment exists is based on our estimate of undiscounted future cashflows before interest attributable to the assets as compared to the net carrying value of the assets. If impairment is indicated, the amount of the impairmentrecognized 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 carryingvalue is greater than estimated fair value. The net carrying value of assets identified to be disposed of in the future is compared to their estimated fair value, usuallythe 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, anestimate of the fair value is reassessed when related events or circumstances change.42 InsuranceWe have established insurance programs to cover certain insurable risks consisting primarily of physical loss to property, business interruptions resultingfrom such loss, workers’ compensation, employee healthcare, and comprehensive general and auto liability. Third party insurance coverage is obtained forexposures above predetermined deductibles as well as for those risks required to be insured by law or contract. On a quarterly basis, we engage an externalactuarial professional to independently assess and estimate the total liability outstanding. Provisions for losses are developed from these valuations which relyupon our past claims experience, which considers both the frequency and settlement of claims. We discount our workers’ compensation liability based uponestimated future payment streams at our risk-free rate. Our total insurance reserve balances were $87.0 million and $84.7 million as of December 31, 2019 and2018, respectively. Of these balances $49.0 million and $49.4 million were recorded as other long-term liabilities as of December 31, 2019 and 2018, respectively.Included in these reserve balances as of December 31, 2019 and 2018, were approximately $8.6 million and $9.1 million, respectively, of claims that exceededstop-loss limits and are expected to be recovered under insurance policies which are also recorded as other receivables and other assets in the accompanyingconsolidated balance sheet.Net Income per Common ShareNet income per common share, or earnings per share (“EPS”), is calculated in accordance with the Earnings per Share topic of the Codification whichrequires 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: 2019 2018 2017 (In thousands, except per share amounts) Numerator: Net income$221,809 $205,191 $38,781 Denominator: Weighted average shares outstanding, basic 115,713 114,586 112,587 Dilutive effect of options and RSUs 1,312 1,968 3,010 Weighted average shares outstanding, diluted 117,025 116,554 115,597 Net income per share: Basic$1.92 $1.79 $0.34 Diluted$1.90 $1.76 $0.34 Antidilutive and contingent options and RSUs excluded from diluted EPS 402 682 215 Goodwill and Other Intangible AssetsIntangibles subject to amortizationWe recognize an acquired intangible asset apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or whenever itcan be separated or divided from the acquired entity and sold, transferred, licensed, rented, or exchanged, either individually or in combination with a relatedcontract, asset or liability. Impairment losses are recognized if the carrying value of an intangible asset subject to amortization is not recoverable from expectedfuture cash flows and its carrying amount exceeds its estimated fair value.GoodwillWe recognize goodwill as the excess cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed. Goodwill is testedfor 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.43 Stock-based CompensationWe have four stock-based employee compensation plans, which are described more fully in Note 11. We issue new common stock shares upon exercises ofstock options and vesting of RSUs. 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 modelwith the following weighted average assumptions for the year ended December 31: 2019 2018 2017Expected volatility (company) 38.3% 53.9% 73.7%Expected volatility (peer group median) 33.2% 28.4% 33.8%Correlation between the company and peer group median 0.5 0.39 0.33Expected dividend yield 0.0% 0.0% 0.0%Risk-free rate 2.6% 2.3% 1.5% The expected volatilities and correlation are based on the historical daily returns of our common stock and the common stocks of the constituents of theCompany’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 regulardividends 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 ineffect at the time of grant and has a term equal to the measurement period.The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted averageassumptions for the year ended December 31: 2017Expected life 6.0 yearsExpected volatility 59.2%Expected dividend yield 0.0%Risk-free rate 2.2% The expected life represents the period of time the options are expected to be outstanding. Historically, we used the simplified method for determining theexpected life assumption due to limited historical exercise experience on our stock options. The expected volatility is based on the historical volatility of ourcommon stock over the most recent period equal to the expected life of the option. The expected dividend yield is based on our history of not paying regulardividends 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 ineffect at the time of grant and has a term equal to the expected life of the options. We did not grant any options during the years ended December 31, 2019 or2018.Fair ValueThe Fair Value Measurements and Disclosures topic of the Codification provides a framework for measuring the fair value of assets and liabilities andestablishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fairvalue. The fair value hierarchy can be summarized as follows:Level 1 — unadjusted quoted prices for identical assets or liabilities in active markets accessible by usLevel 2 — inputs that are observable in the marketplace other than those inputs classified as Level 1Level 3 — inputs that are unobservable in the marketplace and significant to the valuationIf 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 thatis significant to the fair value calculation.44 As of December 31, 2019 and 2018 the Company does not have any financial instruments which are measured at fair value on a recurring basis. We haveelected to report the value of our 5.625% senior secured notes due 2024 (“2024 notes”), 6.75% senior secured notes due 2027 (“2027 notes”), $52.0 million seniorsecured term loan facility due 2024 (“2024 term loan”) and $900.0 million revolving credit facility (“2023 facility”) at amortized cost. The fair values of the 2024notes, 2027 notes and the 2024 term loan at December 31, 2019 were approximately $525.1 million, $522.5 million and $52.2 million, respectively, and weredetermined using Level 2 inputs based on market prices. The carrying value of the 2023 facility at December 31, 2019 approximates fair value as the rates arecomparable to those at which we could currently borrow under similar terms, are variable and incorporate a measure of our credit risk. As such, the fair value ofthe 2023 facility was also classified as Level 2 in the hierarchy.Supplemental Cash Flow InformationSupplemental cash flow information was as follows for the years ended December 31: 2019 2018 2017 (In thousands) Cash payments for interest (1) $100,354 $107,668 $193,429 Cash payments for income taxes 18,107 3,153 5,643 (1)Includes $2.3 million, $0.1 million and $48.7 million in payments of debt extinguishment costs which are classified as financing outflows in theaccompanying consolidated statement of cash flows for the years ended December 31 2019, 2018, and 2017, respectively. These payments were recorded tointerest expense in the accompanying consolidated statement of operations and comprehensive income for their respective years. Comprehensive IncomeComprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events andcircumstances from non-owner sources. It consists of net income and other gains and losses affecting stockholders’ equity that, under GAAP, are excluded fromnet income. We had no items of other comprehensive income for the years ended December 31, 2019, 2018, and 2017. Recently Issued Accounting PronouncementsIn December 2019, the FASB issued an update to existing guidance under the Incomes Taxes topic of the Codification. This updated guidance simplifies theaccounting for income taxes by removing certain exceptions to the general principles in the Income Taxes topic. This guidance is effective for public companiesannual and interim periods beginning after December 15, 2020 with early adoption permitted. We are currently evaluating the impact of this update on ourconsolidated financial statements.In June 2016, the FASB issued an update to existing guidance under the Investments topic of the Codification. This update introduces a new impairmentmodel for financial assets, known as the current expected credit losses (“CECL”) model that is based on expected losses rather than incurred losses. The CECLmodel requires an entity to estimate credit losses on financial assets, including trade accounts receivable, based on historical information, current information andreasonable and supportable forecasts. Under this guidance companies will record an allowance through earnings for expected credit losses upon initial recognitionof the financial asset. The aspects of this guidance applicable to us will be required to be adopted on a modified retrospective basis. This update is effective forpublic companies for annual and interim periods beginning after December 15, 2019. As such, this guidance will be effective for us on January 1, 2020. Theadoption of this guidance will not have a material impact on our consolidated financial statements.In February 2016, the FASB issued an update to the existing guidance under the Leases topic of the Codification. Under the new guidance, lessees are nowrequired 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’sobligation 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’sright to use, or control the use of, a specified asset for the lease term.45 We adopted this guidance on January 1, 2019 by applying the provisions of this guidance on a modified retrospective basis as of the effective date. As such,comparative periods have not been restated and the disclosures required under the new standard have not been provided for periods prior to January 1, 2019. Weelected the package of practical expedients whereby we were not required to: i) reassess whether any expired or existing contracts are or contain leases, ii) reassessthe lease classification of existing leases and iii) reassess initial direct costs for any existing leases. We did not elect the hindsight practical expedient or thepractical expedient related to land easements. We have assessed and updated our business processes, systems and controls to ensure compliance with therecognition and disclosure requirements of the new standard.Adoption of the new standard resulted in the recording of right-of-use assets and lease liabilities of $269.7 million and $267.5 million, respectively, as ofJanuary 1, 2019 to recognize operating leases, primarily related to real estate and rolling stock, which were not recognized on our balance sheet under previousguidance. Further, the adoption of this guidance had no impact to our remaining other finance obligations as they continue to fail to meet the sale-leasebackrequirements of the new standard. The adoption of this guidance did not have a material impact on our condensed consolidated statement of operations andcomprehensive income or on our condensed consolidated statement of cash flows as our leases retained their classifications as determined under previousguidance. 3. RevenueThe following table disaggregates our net sales by product category for the years ended December 31: 2019 2018 2017 (In thousands) Lumber & lumber sheet goods $2,251,580 $2,902,155 $2,510,945 Manufactured products 1,449,550 1,392,043 1,208,555 Windows, doors & millwork 1,542,924 1,445,858 1,360,567 Gypsum, roofing & insulation 528,571 528,439 538,378 Siding, metal & concrete products 712,644 697,744 655,889 Other building & product services 795,162 758,532 759,875 Total net sales $7,280,431 $7,724,771 $7,034,209 Information regarding disaggregation of net sales by segment is discussed in Note 15 to the condensed consolidated financial statements. Sales related tocontracts with service elements represents less than 10% of the Company’s net sales for each period presented.The timing of revenue recognition, billings and cash collections results in accounts receivable, unbilled receivables, contract assets and contract liabilities.Contract asset balances were not significant as of December 31, 2019 or December 31, 2018. Contract liabilities consist of deferred revenue and customeradvances and deposits. Contract liability balances are included in accrued liabilities on our consolidated balance sheet and were $38.6 million and $42.1 million asof December 31, 2019 and December 31, 2018, respectively. 4. Property, Plant and EquipmentProperty, plant and equipment consisted of the following at December 31: 2019 2018 (In thousands) Land $198,123 $198,304 Buildings and improvements 374,909 358,411 Machinery and equipment 439,449 403,765 Furniture, fixtures and computer equipment 92,094 78,910 Construction in progress 29,175 20,810 Finance lease right-of-use assets 37,153 — Property, plant and equipment 1,170,903 1,060,200 Less: accumulated depreciation 449,016 390,125 Property, plant and equipment, net $721,887 $670,075 46 Depreciation expense was $84.0 million, $74.4 million and $71.1 million, of which $19.7 million, $18.6 million and $9.8 million was included in cost ofsales, for the years ended December 31, 2019, 2018, and 2017, 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 leasepayments and include land, buildings and equipment. Amortization charges associated with assets held under other finance obligations are included in depreciationexpense.The following balances held under other finance obligations are included on the accompanying consolidated balance sheet as of December 31: 2019 2018* (In thousands) Land $118,403 $118,677 Buildings and improvements 136,620 142,345 Machinery and equipment — 27,188 Assets held under other finance obligations 255,023 288,210 Less: accumulated amortization 18,741 21,786 Assets held under other finance obligations, net $236,282 $266,424 *Totals as of December 31, 2018 included assets which, under previous guidance, were held under capital leases. As of December 31, 2019 these assets arenow presented as finance lease right-of-use assets as reflected in the table above. 5. Business CombinationsOn 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 ofthree truss locations, which are located in Las Vegas, Nevada; Surprise, Arizona; and Kingman, Arizona. Sun State manufactures roof trusses and floor trusses anddistributes lumber and related products to residential homebuilders and commercial contractors.On December 9, 2019 we acquired certain assets and the operations of Raney Components, LLC and Raney Construction, Inc. (collectively “Raney”) for$59.0 million in cash, subject to certain adjustments. Located in Groveland, Florida, Raney is a vertically-integrated manufacturer and installer of residentialstructures for production builder customers. Raney combines sub-contractor labor and material supply to place concrete slabs, install masonry block for exteriorwalls, set wall panels and roof trusses, frame interior walls and install roof decking. The acquisitions of Sun State and Raney were funded with a combination ofcash on hand and borrowings under our 2023 facility.These transactions were accounted for by the acquisition method, and accordingly their results of operations have been included in the Company’sconsolidated financial statements from their respective acquisition dates. The purchase price was allocated to the assets acquired and liabilities assumed based onestimated 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. The fairvalue of acquired intangible assets of $41.3 million, primarily related to customer relationships, was estimated by applying an income approach. That measure isbased on significant Level 3 inputs not observable in the market. Key assumptions developed based on the Company’s historical experience, future projections andcomparable market data include future cash flows, long-term growth rates, attrition rates and discount rates.The operating results of the acquisitions have been included in the consolidated statements of operations and comprehensive income from their acquisitiondates through December 31, 2019. Net sales and net income attributable these acquisitions were $29.3 million and $1.3 million, respectively, for the year endedDecember 31, 2019. Pro forma results of operations attributable to these acquisitions are not presented as they did not have a material impact on our results of operations,individually or in the aggregate. We did not incur any significant acquisition related costs attributable to these transactions.47 The following table summarizes the aggregate fair values of the assets acquired and liabilities assumed for these acquisitions for the year ended December31, 2019, (in thousands): Accounts receivable $12,390 Inventory 8,561 Other current assets 306 Property, plant and equipment (includes finance lease right-of-use assets) 18,925 Operating lease right-of-use assets 12,955 Goodwill (Note 6) 28,611 Intangible assets (Note 7) 41,300 Total assets acquired 123,048 Accounts payable and accrued liabilities (15,123)Operating lease liabilities (11,264)Finance lease liabilities (3,806)Total liabilities assumed (30,193)Total net assets acquired $92,855 In connection with the acquisition of Sun State, we entered into real estate leases with the sellers for Sun State’s three operating locations. Of the $42.5million in cash consideration, $33.9 million was paid to the sellers at closing with the remaining amount payable to the sellers on the first anniversary of theacquisition date. The remaining amount payable to the sellers is included in accounts payable and accrued liabilities in the table above. In connection with the acquisition of Raney, we entered into real estate leases with the seller for Raney’s operating locations. The purchase agreement forRaney also contains an earn-out provision contingent upon continued employment and the achievement of specified revenue and profitability targets for fiscal year2020. This earn-out provision could result in an additional cash payment to the seller ranging from zero to $5.0 million depending on the level of achievement ofthe specified targets. Future payments related to this earn-out provision will be included as compensation expense in the consolidated statement of operations andcomprehensive income over the period earned. 6. GoodwillThe following table sets forth the changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2019 and 2018 (inthousands): Northeast Southeast South West Total Balance as of December 31, 2018 Goodwill $97,102 $60,691 $329,662 $297,592 $785,047 Accumulated impairment losses (494) (615) (43,527) — (44,636) 96,608 60,076 286,135 297,592 740,411 Acquisitions — — 14,257 14,354 28,611 Balance as of December 31, 2019 Goodwill $97,102 $60,691 $343,919 $311,946 $813,658 Accumulated impairment losses (494) (615) (43,527) — (44,636) $96,608 $60,076 $300,392 $311,946 $769,022 In 2019, the change in the carrying amount of goodwill was attributable to our acquisitions of Sun State and Raney. The amount allocated to goodwill isattributable to the assembled workforces acquired, expected synergies, and expected growth from the new markets the Company entered into. All of the goodwillrecognized from these acquisitions is expected to be tax deductible and will be 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 areassessment of the recoverability of the carrying amount of goodwill prior to the required annual impairment test in accordance with the Intangibles – Goodwilland Other topic of the Codification.48 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 thereporting 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 carryingvalue, 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 thanits carrying amount, we perform a quantitative goodwill impairment test. This test identifies both the existence of and the amount of goodwill impairment bycomparing 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 isnot impaired. If the carrying amount of a reporting unit exceeds its fair value an impairment loss is recognized in amount equal to that excess, limited to the amountof 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 withour nine geographic regions which are also determined to be our operating segments. Inherent in such fair value determinations are certain judgments andestimates relating to future cash flows, including our interpretation of current economic indicators and market valuations and assumptions about our strategic planswith regard to our operations. Due to the uncertainties associated with such estimates, actual results could differ from such estimates resulting in furtherimpairment of goodwill.In evaluating our goodwill for impairment at December 31, 2019, $77.1 million of our goodwill balance was assessed utilizing a quantitative assessment. Inperforming the quantitative impairment test at December 31, 2019, we developed a range of fair values using a five-year discounted cash flow methodology. Thediscounted 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 ofrealizing 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 andprofitability.We recorded no goodwill impairment charges in 2019, 2018, and 2017. 7. Intangible AssetsThe following table presents intangible assets as of December 31: 2019 2018 GrossCarryingAmount AccumulatedAmortization GrossCarryingAmount AccumulatedAmortization (In thousands) Customer relationships $183,445 $(77,016) $149,045 $(63,187) Trade names 51,361 (36,082) 51,361 (34,065)Subcontractor relationships 4,700 (131) — — Non-compete agreements 3,579 (1,468) 1,379 (1,379)Favorable lease intangibles — — 6,409 (6,409)Total intangible assets $243,085 $(114,697) $208,194 $(105,040)Unfavorable lease obligations (included in Accrued liabilities and Other long-term liabilities) $— $— $(19,597) $19,597 During the years ended December 31, 2019, 2018, and 2017, we recorded amortization expense in relation to the above-listed intangible assets of $16.1million, $23.5 million, and $21.9 million, respectively. We recorded no intangible asset impairment charges for the years ended December 31, 2019, 2018 or2017. In connection with the acquisitions of Sun State and Raney, we recorded intangible assets of $41.3 million, which includes $34.4 million of customerrelationships, $4.7 million of subcontractor relationships and $2.2 million of non-compete agreements. The weighted average useful lives of the acquired assets are7.7 years in total, 8.5 years for customer relationships, 3.0 years for subcontractor relationships and 5.0 years for non-compete agreements, respectively. 49 The following table presents the estimated amortization expense for these intangible assets for the years ending December 31 (in thousands): 2020 $20,235 2021 18,642 2022 17,171 2023 14,513 2024 13,270 Thereafter 44,557 Total future net intangible amortization expense $128,388 8. Accrued LiabilitiesAccrued liabilities consisted of the following (in thousands): December 31,2019 December 31,2018 Accrued payroll and other employee related expenses $152,869 $145,313 Contract liabilities 38,559 42,054 Customer obligations 11,612 11,762 Self-insurance reserves 37,955 35,304 Accrued business taxes 32,604 28,954 Accrued interest 12,256 13,164 Other 23,095 15,975 Total accrued liabilities $308,950 $292,526 9. Long-Term DebtLong-term debt consisted of the following (in thousands): December 31,2019 December 31,2018 2023 facility (1)$27,000 $179,000 2024 notes 503,923 696,361 2024 term loan (2) 52,000 458,250 2027 notes 475,000 — Other finance obligations (Note 10) 221,726 227,071 Finance lease obligations (Note 10) 20,333 16,445 1,299,982 1,577,127 Unamortized debt discount/premium and debt issuance costs (8,709) (15,833) 1,291,273 1,561,294 Less: current maturities of long-term debt and lease obligations 13,875 15,565 Long-term debt, net of current maturities$1,277,398 $1,545,729 (1)The weighted average interest rate was 4.4% and 3.9% as of December 31, 2019 and 2018, respectively.(2)The weighted average interest rate was 5.6% and 5.2% as of December 31, 2019 and 2018, respectively.2017 Debt TransactionsDuring the year ended December 31, 2017, the Company executed several debt transactions which are described in more detail below. These transactionsincluded a repricing and extension of our previous term loan as well as increasing the borrowing capacity and extending the maturity of our previous revolvingcredit facility and the complete extinguishment of our previously outstanding 10.75% senior unsecured notes due 2023 (“2023 notes”).50 Term Loan AmendmentOn February 23, 2017, we repriced our previous term loan through an amendment and extension of the term loan credit agreement providing for a $467.7million senior secured term loan facility due 2024. This repricing reduced the interest rate by 0.75% and extended the maturity by 19 months to February 29, 2024.Deutsche Bank AG New York Branch continues to serve as administrative agent and collateral agent under the 2024 term loan agreement. In connection with the 2024 term loan amendment we recognized $0.4 million in interest expense for the year ended December 31, 2017 related to thewrite-off of unamortized debt discount and debt issuance costs. We incurred $1.2 million in lender fees which, together with $10.0 million in remainingunamortized debt discount and debt issuance costs, have been recorded as a reduction of long-term debt and are being amortized over the remaining contractuallife of the 2024 term loan using the effective interest method. In addition, we also incurred $1.4 million in various third-party fees and expenses related to the 2024term loan amendment which were recorded to interest expense for the year ended December 31, 2017.Revolving Credit Facility AmendmentOn March 22, 2017, the Company extended the maturity date and increased the revolving commitments under its previous revolving credit facility. Thistransaction resulted in an amended and restated $900.0 million revolving credit facility and extended the maturity by 20 months to March 22, 2022. SunTrust Bankcontinues to serve as administrative agent and collateral agent under the agreement. All other material terms of the revolving credit facility were unchanged fromthose of the previous agreement.In connection with this amendment, we recognized $0.6 million in interest expense for the year ended December 31, 2017 related to the write-off ofunamortized debt issuance costs. We incurred $1.6 million in lender and third-party fees which, together with $8.5 million in remaining unamortized debt issuancecosts, have been recorded as other assets and are being amortized over the remaining contractual life on a straight-line basis.2023 Notes RedemptionIn December 2017, the Company exercised its contractual right to redeem $367.6 million in aggregate principal amount of 2023 Notes at a total redemptionprice of 113.249%, plus accrued and unpaid interest. The redemption of the 2023 Notes was funded with a combination of borrowings under the 2023 facility andcash on hand.The redemption of the 2023 notes was considered to be a debt extinguishment. As such, we recognized a loss on extinguishment of $56.3 million which wasrecorded as a component of interest expense in the accompanying consolidated statement of operations and comprehensive income for the year ended December31, 2017. Of this $56.3 million loss, $48.7 million was attributable to the payment of the redemption premium and $7.6 million was attributable to the write-off ofunamortized debt issuance costs associated with the redeemed notes.2018 Debt TransactionsIn the fourth quarter of 2018, the Company executed a series of open market purchases of its 2024 notes. These transactions resulted in $53.6 million inaggregate principal amount of the 2024 notes being repurchased at prices ranging from 91.5% to 94.25% of par value. Following these transactions, there was$696.4 million of 2024 notes which remain outstanding.These repurchases of the 2024 notes were considered to be debt extinguishments. As such, we recognized a gain on debt extinguishment of $3.2 millionwhich was recorded as a component of interest expense in the accompanying consolidated statement of operations and comprehensive income for the year endedDecember 31, 2018. Of this gain, approximately $3.7 million was attributable to the repurchase of the notes at a discount to par value which was partially offset bya $0.5 million write-off of unamortized debt issuance costs associated with the 2024 Notes repurchased.2019 Debt TransactionsDuring the year ended December 31, 2019, the Company executed several debt transactions which are described in more detail below. These transactionsinclude: (i) open market purchases of our 2024 notes, (ii) extension of the maturity of our 2023 facility and (iii) privately negotiated purchases of our 2024 notesand partial repayments of our 2024 term loan with the proceeds from the issuance of 2027 notes and cash on hand. These transactions collectively have extendedour debt maturity profile and reduced the amount of long-term debt outstanding.51 First Quarter 2019 Note Repurchase TransactionsIn the first quarter of 2019, the Company executed a series of open market purchases of its 2024 notes. These transactions resulted in $20.4 million inaggregate principal amount of the 2024 notes being repurchased at prices ranging from 94.9% to 95.9% of par value.These repurchases of the 2024 notes were considered to be debt extinguishments. As such, we recognized a gain on debt extinguishment of $0.7 millionwhich was recorded as a component of interest expense in the first quarter of 2019. Of this gain, approximately $0.9 million was attributable to the repurchase ofthe notes at a discount to par value which was partially offset by a $0.2 million write-off of unamortized debt issuance costs associated with the 2024 notesrepurchased.Second Quarter 2019 Refinancing TransactionsIn April 2019, the Company extended the maturity date of its revolving credit facility by 20 months to November 22, 2023. All other material terms of the2023 facility remain unchanged from those of the previous agreement.In connection with the 2023 facility amendment we incurred $1.2 million in lender and third-party fees which, together with $5.9 million in remainingunamortized debt issuance costs, have been recorded as other assets and are being amortized over the remaining contractual life of the 2023 facility on a straight-line basis.In May 2019, we completed a private offering of $400.0 million in aggregate principal amount of 2027 notes at an issue price equal to 100% of their parvalue. The proceeds from the issuance of the 2027 notes were used, together with cash on hand, to purchase $97.0 million in aggregate principal amount of 2024notes, to repay $300.0 million of the 2024 term loan and to pay related transaction fees and expenses.In connection with the issuance of the 2027 notes, we incurred $6.1 million of various third-party fees and expenses. Of these costs, $2.1 million wererecorded to interest expense in the second quarter of 2019. The remaining $4.0 million in costs incurred have been recorded as a reduction to long-term debt andare being amortized over the contractual life of the 2027 notes using the effective interest method. Further, we recorded an additional $2.2 million to interestexpense in the second quarter of 2019 related to the write-off of unamortized debt discount and debt issuance costs in connection with the partial repayment of the2024 term loan.Third Quarter 2019 Refinancing TransactionsIn July 2019, we completed a private offering of an additional $75.0 million in aggregate principal amount of 2027 notes at an issue price of 104.5% oftheir par value. The proceeds from the issuance of the 2027 notes were used together with cash on hand to redeem an additional $75.0 million in aggregateprincipal amount of 2024 notes and to pay related transaction fees and expenses.The additional $3.4 million in proceeds received in excess of par value represents a debt premium which has been recorded as an increase to long-termdebt. In connection with the issuance of the additional 2027 notes, we incurred $1.3 million of various third-party fees and expenses which have been recorded as areduction to long-term debt. These third party costs and the debt premium are being amortized over the contractual life of the 2027 notes using the effective interestmethod.The redemption of the 2024 notes was considered to be an extinguishment. As such, we recognized a loss on extinguishment of $3.1 million which wasrecorded to interest expense in the third quarter of 2019. Of this loss, $2.2 million was attributable to the call premium paid to the lenders and $0.9 million wasattributable to the write-off of unamortized debt issuance costs associated with the extinguished 2024 notes. Fourth Quarter 2019 Term Loan RepaymentIn November 2019, we repaid $105.1 million of the 2024 term loan using cash on hand. In connection with this repayment we recognized a loss onextinguishment of $3.5 million related to the write-off of unamortized debt discount and debt issuance costs. This loss on extinguishment was recorded to interestexpense in the fourth quarter of 2019.2024 Term Loan Credit AgreementAs of December 31, 2019, we have $52.0 million outstanding under the 2024 term loan, which matures on February 29, 2024. The 2024 term loan bearsinterest based on either a eurodollar or base rate (a rate equal to the highest of an agreed commercially available benchmark rate, the federal funds effective rateplus 0.50% or the eurodollar rate plus 1.0%, as selected by the Company) plus, in each case, an applicable margin. The applicable margin in the 2024 term loan is(x) 3% in the case of Eurodollar rate loans and (y) 2% in the case of base rate loans. 52 2023 Revolving Credit FacilityThe 2023 facility provides for a $900.0 million revolving credit line to be used for working capital, general corporate purposes and funding capitalexpenditures and growth opportunities. In addition, we may use the 2023 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. Asof December 31, 2019, we had $27.0 million in outstanding borrowings under our 2023 facility and our net excess borrowing availability was $681.2 million afterbeing reduced by outstanding letters of credit of approximately $82.2 million.Borrowings under the 2023 facility bear interest, at our option, at either a eurodollar rate or a base rate, plus, in each case an applicable margin. Theapplicable margin ranges from 1.25% to 1.75% per annum in the case of eurodollar rate loans and 0.25% to 0.75% per annum in the case of base rate loans. Themargin in either case is based on a measure of availability under the 2023 facility. A variable commitment fee, currently 0.375% per annum, is charged on theunused amount of the revolver based on quarterly average loan utilization. Letters of credit under the 2023 facility are assessed at a rate equal to the applicableeurodollar margin, currently 1.25%, 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 2024 term loan and 2023 facility are guaranteed jointly and severally by the Company and all other subsidiaries that guarantee the2024 notes and 2027 notes. All obligations and the guarantees of those obligations are secured by substantially all of the assets of the Company and the guarantorssubject to certain exceptions and permitted liens, including (i) with respect to the 2024 term loan, a first-priority security interest in such assets that constituteNotes Collateral (as defined below) and a second priority security interest in such assets that constitute ABL Collateral (as defined below), and (ii) with respect tothe 2023 facility, a first-priority security interest in such assets that constitute ABL Collateral and a second-priority security interest in such assets that constituteNotes Collateral.“ABL Collateral” includes substantially all presently owned and after-acquired accounts receivable, inventory, rights of unpaid vendors with respect toinventory, 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 theforegoing. “Notes Collateral” includes all collateral which is not ABL collateral.The 2024 term loan and the 2023 facility contain restrictive covenants which, among other things, limit the Company’s ability to incur additionalindebtedness, incur liens, engage in mergers or other fundamental changes, sell certain assets, pay dividends, make acquisitions or investments, prepay certainindebtedness, change the nature of our business, and engage in certain transactions with affiliates. In addition, the 2023 facility also contains a financial covenantrequiring 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 maximumborrowing amount, which was $80.0 million as of December 31, 2019.Senior Secured Notes due 2024As of December 31, 2019 we have $503.9 million outstanding in aggregate principal amount of the 2024 notes which mature on September 1, 2024. Interestaccrues on the 2024 notes at a rate of 5.625% per annum and is payable semi-annually on March 1 and September 1 of each year.The terms of the 2024 notes are governed by the indenture, dated as of August 22, 2016 (the “Indenture”), among the Company, the guarantors namedtherein (the “Guarantors”) and Wilmington Trust, National Association, as trustee (the “Trustee”) and notes collateral agent (the “Notes Collateral Agent”). The2024 notes, subject to certain exceptions, are guaranteed, jointly and severally, on a senior secured basis, by certain of our direct and indirect wholly ownedsubsidiaries. All obligations under the 2024 notes, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and theGuarantors subject to certain exceptions and permitted liens, including a first-priority security interest in such assets that constitute Notes Collateral (as definedabove) and a second-priority security interest in such assets that constitute ABL Collateral (as defined above).The Notes Collateral Agent became a party to the ABL/Bond Intercreditor Agreement, dated as of May 29, 2013, among SunTrust Bank, as agent under theCompany’s 2023 facility, the Wilmington Trust, National Association, the Company and the Guarantors, and the Pari Passu Intercreditor Agreement, dated as ofJuly 31, 2015, among Deutsche Bank AG New York Branch, as term collateral agent under the Company’s 2024 term loan, Wilmington Trust, NationalAssociation, the Company and the Guarantors. These documents govern all arrangements in respect of the priority of the security interests in the ABL Collateraland the Notes Collateral among the parties to the Indenture, the 2023 facility and the 2024 term loan. The 2024 notes constitute senior secured obligations of theCompany and Guarantors, rank senior in right of payment to all future debt of the Company and Guarantors that is expressly subordinated in right of payment tothe 2024 notes, and rank equally in right of payment with all existing and future liabilities of the Company and Guarantors that are not so subordinated, includingthe 2023 facility.53 The Indenture contains restrictive covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, incur additionaldebt or issue preferred stock; create liens; create restrictions on the Company’s subsidiaries’ ability to make payments to the Company; pay dividends and makeother distributions in respect of the Company’s and its subsidiaries’ capital stock; make certain investments or certain other restricted payments; guaranteeindebtedness; designate unrestricted subsidiaries; sell certain kinds of assets; enter into certain types of transactions with affiliates; and effect mergers andconsolidations.At any time on or after September 1, 2019, the Company may redeem the 2024 notes at the redemption prices set forth in the Indenture, plus accrued andunpaid interest, if any, to the redemption date. If the Company experiences certain change of control events, holders of the 2024 notes may require it to repurchaseall or part of their 2024 notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date.Senior Secured Notes due 2027As of December 31, 2019, we have $475.0 million outstanding in aggregate principal amount of the 2027 notes which mature on June 1, 2027. Interestaccrues on the 2027 notes at a rate of 6.75% per annum and is payable semi-annually on June 1 and December 1 of each year.The terms of the 2027 notes are governed by the indenture, dated as of the May 30, 2019 (the “Indenture”), among the Company, the guarantors namedtherein and Wilmington Trust, National Association, as trustee and as notes collateral agent. The 2027 notes, subject to certain exceptions, are guaranteed, jointlyand severally, on a senior secured basis, by certain of the Company’s direct and indirect wholly owned subsidiaries (the “Guarantors”). All obligations under the2027 notes, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and the Guarantors subject to certain exceptionsand permitted liens, including a first-priority security interest in such assets that constitute Notes Collateral (as defined below) and a second-priority securityinterest in such assets that constitute ABL Collateral (as defined below).“ABL Collateral” includes substantially all presently owned and after-acquired accounts, inventory, rights of an unpaid vendor with respect to inventory,deposit accounts, investment property, cash and cash equivalents, and instruments and chattel paper and general intangibles, books and records and documentsrelated to and proceeds of each of the foregoing. “Notes Collateral” includes all collateral which is not ABL Collateral.The Indenture contains restrictive covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, incur additionaldebt or issue preferred stock, create liens, create restrictions on the Company’s subsidiaries’ ability to make payments to the Company, pay dividends and makeother distributions in respect of the Company’s and its subsidiaries’ capital stock, make certain investments or certain other restricted payments, guaranteeindebtedness, designate unrestricted subsidiaries, sell certain kinds of assets, enter into certain types of transactions with affiliates, and effect mergers andconsolidations.At any time prior to June 1, 2022, the Company may redeem the 2027 notes in whole or in part at a redemption price equal to 100% of the principal amountof the 2027 notes plus the “applicable premium” set forth in the Indenture. At any time on or after June 1, 2022, the Company may redeem the 2027 notes at theredemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to the redemption date. At any time and from time to time during the 36-monthperiod following the Closing Date, the Company may redeem up to 10% of the aggregate principal amount of the 2027 notes during each twelve-month periodcommencing on the Closing Date at a redemption price of 103% of the aggregate principal amount thereof plus accrued and unpaid interest to the redemption date.In addition, at any time prior to June 1, 2022, the Company may redeem up to 40% of the aggregate principal amount of the 2027 notes with the net cash proceedsof one or more equity offerings, as described in the Indenture, at a price equal to 106.750% of the principal amount thereof, plus accrued and unpaid interest, if any,to the redemption date. If the Company experiences certain change of control events, holders of the 2027 notes may require it to repurchase all or part of their 2027notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date.As of December 31, 2019 we were not in violation of any covenants or restrictions imposed by any of our debt agreements.54 Future maturities of long-term debt as of December 31, 2019 were as follows (in thousands): Year ending December 31, 2020 $— 2021 — 2022 — 2023 27,000 2024 555,923 Thereafter 475,000 Total long-term debt (including current maturities) $1,057,923 10. Leases and Other Finance Obligations Right-of-use assets and lease liabilities consisted of the following as of December 31, 2019 (in thousands): Assets Operating lease right-of-use assets, net $292,684 Finance lease right-of-use assets, net (included in property, plant and equipment, net) 32,070 Total right-of-use assets $324,754 Liabilities Current Current portion of operating lease liabilities $61,653 Current portion of finance lease liabilities (included in current maturities of long-term debt) 10,378 Noncurrent Noncurrent portion of operating lease liabilities $236,948 Noncurrent portion of finance lease liabilities (included in long-term debt, net of current maturities) 9,955 Total lease liabilities $318,934 Total lease costs consisted of the following for the year ended December 31, 2019 (in thousands): Operating lease costs* $84,603 Finance lease costs: Amortization of finance lease right-of-use assets 5,177 Interest on finance lease liabilities 1,115 Variable lease costs 15,441 Total lease costs $106,336 *Includes short-term lease costs and sublease income which were not material for the year ended December 31, 2019.Future maturities of lease liabilities as of December 31, 2019 were as follows (in thousands): Finance Leases Operating Leases 2020 $11,331 $78,375 2021 7,169 69,775 2022 2,860 55,685 2023 442 42,359 2024 209 32,099 Thereafter — 87,402 Total lease payments 22,011 365,695 Less: amount representing interest (1,678) (67,094)Present value of lease liabilities 20,333 298,601 Less: current portion (10,378) (61,653)Long-term lease liabilities, net of current portion $9,955 $236,948 55 Future maturities of lease obligations as of December 31, 2018 were as follows (in thousands): Capital Leases Operating Leases 2019 $10,784 $77,297 2020 5,392 63,633 2021 1,242 51,804 2022 — 37,054 2023 — 23,327 Thereafter — 57,000 Total minimum lease payments 17,418 $310,115 Less: amount representing interest (973) Present value of lease liabilities 16,445 Less: current portion (10,039) Long-term lease liabilities, net of current portion $6,406 Weighted average lease terms and discount rates as of December 31, 2019 were as follows: Weighted average remaining lease term (years) Operating leases 6.3 Finance leases 2.0 Weighted average discount rate Operating leases 6.6%Finance leases 6.0% The following table presents cash paid for amounts included in the measurement of lease liabilities as well as supplemental noncash information for theyear ended December 31, 2019 (in thousands): Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $81,488 Operating cash flows from finance leases 1,115 Financing cash flows from finance leases 11,477 Right-of-use assets obtained in exchange for new operating lease liabilities 86,148 Right-of-use assets obtained in exchange for new finance lease liabilities 16,462 The guarantees under these leases for the residual values of equipment at the end of the respective operating lease periods approximated $4.8 million as ofDecember 31, 2019. Based upon the expectation that none of these leased assets will have a residual value at the end of the lease term that is materially less thanthe value specified in the related operating lease agreement or that we will purchase the equipment at the end of the lease term, we do not believe it is probable thatwe will be required to fund any amounts under the terms of these guarantee arrangements. Accordingly, these guarantees have not been recognized in thecalculation of our right-of-use assets and lease liabilities. Our lease agreements do not impose any significant restrictions or covenants on us. As of December 31,2019, we had future lease payments of $2.2 million related to leases which have been signed, but have not yet commenced. As such, these lease payments are notreflected on our consolidated balance sheet as of December 31, 2019. Leases with related parties are not significant as of or for the years ended December 31,2019, 2018 or 2017.Other Finance ObligationsIn addition to the operating and finance lease arrangements described above, the Company is party to 139 individual property lease agreements with a singlelessor as of December 31, 2019. These lease agreements have initial terms ranging from nine to 15 years (expiring through 2021) and renewal options in five-yearincrements providing for up to approximately 30-year total lease terms. A related agreement between the lessor and the Company gives the Company the right toacquire a limited number of the leased facilities at fair market value. These purchase rights represent a form of continuing involvement with these properties, whichprecluded sale-leaseback accounting. As a result, the Company treats all of the properties that it leases from this lessor as a financing arrangement. The Company isalso party to certain additional agreements with the same lessor which commit the Company to perform certain repair and maintenance obligations under the leasesin a specified manner and timeframe.56 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 ofthe Codification. Effectively, a sale and leaseback of these facilities occurred when construction was completed and the lease term began. These transactions didnot qualify for sale-leaseback accounting. As a result, the Company treats the lease of these facilities as a financing arrangement.As of December 31, 2019, other finance obligations consist of $221.7 million, with cash payments of $21.0 million for the year ended December 31, 2019.These other finance obligations are included on the consolidated balance sheet as part of long-term debt. The related assets are recorded as components ofproperty, plant, and equipment on the consolidated balance sheet.Future maturities for other finance obligations as of December 31, 2019 were as follows (in thousands): 2020 $18,091 2021 17,610 2022 17,456 2023 17,465 2024 17,482 Thereafter 200,562 Total $288,666 11. Employee Stock-Based Compensation2014 Incentive PlanUnder our 2014 Incentive Plan (“2014 Plan”), as amended, the Company is authorized to grant awards in the form of incentive stock options, non-qualifiedstock options, restricted stock shares, restricted stock units, other common stock-based awards and cash-based awards. The Company has reserved 8.5 millionshares of common stock for the grant of awards under the 2014 Plan, subject to adjustment as provided by the 2014 Plan. All 8.5 million shares under the Plan maybe 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 termexceeding 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 (asdefined 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 bythe surviving entity, and the grantee’s employment is terminated under certain circumstances. Other specific terms for awards granted under the 2014 Plan shall bedetermined by our Compensation Committee (or the board of directors if so determined by the board of directors). Awards granted under the 2014 Plan generallyvest ratably over a three to four year period or cliff vest after a period of three to four years. As of December 31, 2019, 4.2 million shares were available forissuance under the 2014 Plan.2007 Incentive PlanUnder our 2007 Incentive Plan (“2007 Plan”), the Company was authorized to grant awards in the form of incentive stock options, non-qualified stockoptions, restricted stock, other common stock-based awards and cash-based awards. Stock options and SARs granted under the 2007 Plan may not have a termexceeding 10 years from the date of grant. The 2007 Plan also provided that all awards will become fully vested and/or exercisable upon a change in control (asdefined in the 2007 Plan). Historically, awards granted under the 2007 Plan generally vested ratably over a three to four-year period. As of May 24, 2017, nofurther grants will be made under the 2007 plan.2005 Equity Incentive PlanUnder our 2005 Equity Incentive Plan (“2005 Plan”), we were authorized to grant stock-based awards in the form of incentive stock options, non-qualifiedstock options, restricted stock and other common stock-based awards. Stock options and SARs granted under the 2005 Plan could not have a term exceeding 10years from the date of grant. The 2005 Plan also provided that all awards become fully vested and/or exercisable upon a change in control (as defined in the 2005Plan). Historically, awards granted under the 2005 Plan generally vested ratably over a three-year period. As of June 27, 2015, no further grants will be madeunder the 2005 Plan.57 1998 Stock Incentive PlanUnder the Builders FirstSource, Inc. 1998 Stock Incentive Plan (“1998 Plan”), we were authorized to issue shares of common stock pursuant to awardsgranted in various forms, including incentive stock options, non-qualified stock options and other stock-based awards. The 1998 Plan also authorized the sale ofcommon stock on terms determined by our board of directors. Historically, stock options granted under the 1998 Plan generally cliff vested after a period of sevento nine years with certain option grants subject to acceleration if certain financial targets were met. As of January 1, 2005, no further grants will be made under the1998 Plan.Stock OptionsThe following table summarizes our stock option activity: Options WeightedAverageExercisePrice WeightedAverageRemainingYears AggregateIntrinsic Value (In thousands) (In thousands) Outstanding at December 31, 2018 1,332 $5.97 Granted — $— Exercised (895) $5.54 Forfeited (3) $10.82 Outstanding at December 31, 2019 434 $6.81 4.4 $8,072 Exercisable at December 31, 2019 396 $6.43 4.1 $7,510 The outstanding options at December 31, 2019 include 124,000 options under the 2014 plan, 95,000 options under the 2007 Plan, 132,000 options underthe 2005 Plan and 83,000 options under the 1998 Plan. As of December 31, 2019, 86,000 options under the 2014 Plan, 95,000 options under the 2007 Plan,132,000 options under the 2005 Plan and 83,000 options under the 1998 Plan were exercisable. The weighted average grant date fair value of options grantedduring the year ended December 31, 2017 was $7.26. There were no options granted during the years ended December 31, 2019 or 2018. The total intrinsic valueof options exercised during the years ended December 31, 2019, 2018 and 2017 were $12.5 million, $10.9 million and $16.4 million, respectively. Vesting of all ofour stock options is contingent solely on continuous employment over the requisite service period.Outstanding and exercisable stock options at December 31, 2019 were as follows (shares in thousands): Outstanding Exercisable Range of Exercise Prices Shares WeightedAverageExercisePrice WeightedAverageRemainingYears Shares WeightedAverageExercisePrice $3.15 - $3.19 114 $3.16 2.8 114 $3.16 $6.35 - $6.59 79 $6.48 5.7 66 $6.45 $7.67- $12.94 241 $8.64 4.7 216 $8.14 $3.15 - $12.94 434 $6.81 4.4 396 $6.43 Restricted Stock UnitsThe outstanding restricted stock units (“RSUs”) at December 31, 2019 include 1,999,000 units granted under the 2014 Plan and 77,000 units granted underthe 2007 Plan.The following table summarizes activity for RSUs subject solely to service conditions for the year ended December 31, 2019 (shares in thousands): Shares WeightedAverage GrantDate Fair Value Nonvested at December 31, 2018 908 $16.25 Granted 772 $14.29 Vested (504) $14.45 Forfeited (45) $15.88 Nonvested at December 31, 2019 1,131 $15.73 58 The weighted average grant date fair value of RSUs for which vesting is subject solely to service conditions granted during the years ended December 31,2019, 2018 and 2017 were $14.29, $20.23, and $14.60, respectively.The following table summarizes activity for RSUs subject to both performance and service conditions for the year ended December 31, 2019 (shares inthousands): Shares WeightedAverage GrantDate Fair Value Nonvested at December 31, 2018 556 $15.16 Granted 397 $14.42 Vested (231) $10.94 Forfeited (30) $16.02 Nonvested at December 31, 2019 692 $16.11 The weighted average grant date fair value of RSUs for which vesting is subject to both performance and service conditions granted during the years endedDecember 31, 2019, 2018 and 2017 were $14.42, $21.15 and $15.38, respectively. The following table summarizes activity for RSUs subject to both market and service conditions for the year ended December 31, 2019 (shares inthousands): Shares WeightedAverage GrantDate Fair Value Nonvested at December 31, 2018 500 $12.78 Granted — $— Vested — $— Forfeited (247) $8.13 Nonvested at December 31, 2019 253 $17.31 The weighted average grant date fair value of RSUs for which vesting is subject to both market and service conditions granted during the years endedDecember 31, 2018 and 2017 were $21.96, and $11.49, respectively. There were no RSUs granted during the year ended December 31, 2019 for which vestingwas subject to both market and service conditions. Our results of operations include stock compensation expense of $12.2 million ($9.2 million net of taxes), $14.4 million ($10.7 million net of taxes) and$13.5 million ($8.2 million net of taxes) for the years ended December 31, 2019, 2018 and 2017, respectively. We recognized excess tax benefits for stock optionsexercised and RSUs vested of $2.2 million, $4.2 million and $5.1 million for the years ended December 31, 2019, 2018 and 2017, respectively. The total fair valueof options vested during the years ended December 31, 2019, 2018, and 2017 were $0.3 million, $2.7 million and $2.7 million, respectively. The total fair value ofRSUs vested during the years ended December 31, 2019, 2018 and 2017 were $9.8 million, $10.4 million and $6.9 million, respectively.As of December 31, 2019, there was $17.4 million of total unrecognized compensation cost related to non-vested share-based compensation arrangementsgranted under the Plans. That cost is expected to be recognized over a weighted-average period of 1.9 years. 59 12. Income TaxesThe components of income tax expense (benefit) included in continuing operations were as follows for the years ended December 31: 2019 2018 2017 (In thousands) Current: Federal $3,678 $(1,831) $1,831 State 6,274 5,572 2,213 9,952 3,741 4,044 Deferred: Federal 45,955 45,934 49,710 State 5,039 5,889 (606) 50,994 51,823 49,104 Income tax expense $60,946 $55,564 $53,148 Temporary differences, which give rise to deferred tax assets and liabilities, were as follows as of December 31: 2019 2018 (In thousands) Deferred tax assets related to: Accrued expenses $8,219 $10,019 Insurance reserves 14,277 13,245 Stock-based compensation expense 3,325 4,770 Accounts receivable 3,799 3,892 Inventories 5,394 13,348 Operating loss and credit carryforwards 13,821 38,813 Operating lease liabilities 74,650 — Other 1,677 — 125,162 84,087 Valuation allowance (2,409) (2,409) Total deferred tax assets 122,753 81,678 Deferred tax liabilities related to: Prepaid expenses (2,393) (2,845) Goodwill and other intangible assets (37,426) (28,055) Property, plant and equipment (37,991) (26,670)Operating lease right-of-use assets (73,171) — Other — (1,342)Total deferred tax liabilities (150,981) (58,912) Net deferred tax asset (liability) $(28,228) $22,766 A reconciliation of the statutory federal income tax rate to our effective rate for continuing operations is provided below for the years ended December 31: 2019 2018 2017 Statutory federal income tax rate 21.0% 21.0% 35.0%State income taxes, net of federal income tax 2.8 4.3 7.7 Valuation allowance — — (3.1)Stock compensation windfall benefit (0.8) (1.6) (5.5)Enactment of federal income tax rate change — — 31.5 Permanent difference – 162(m) limitation 0.4 0.6 0.8 Permanent difference – credits (2.3) (4.6) (9.6)Permanent difference – other 0.7 1.4 0.9 Other (0.2) 0.2 0.1 21.6% 21.3% 57.8%60 On December 22, 2017, the President signed into law the 2017 Tax Act. The 2017 Tax Act reduced the statutory federal corporate tax rate from 35% to21% for periods beginning after December 31, 2017. The Income Taxes topic of the Codification requires that the effect of a tax rate change on deferred tax assetsand liabilities be recognized in the period the rate change was enacted. As such, we recorded income tax expense of $29.0 million for the year ended December31, 2017 related to the revaluation of our net deferred tax assets.We have $274.1 million of state net operating loss carryforwards and $3.8 million of state tax credit carryforwards expiring at various dates through 2039.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 theCodification 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 inestimating valuation allowances for deferred tax assets and in making this determination, we consider all available positive and negative evidence and make certainassumptions. 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 taxcarryforwards.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 planforecasts and other expectations about future outcomes. Changes in existing tax laws or rates could affect our actual tax results, and future business results mayaffect the amount of our deferred tax liabilities or the valuation of our deferred tax assets over time. Due to uncertainties in the estimation process, particularlywith respect to changes in facts and circumstances in future reporting periods, as well as the residential homebuilding industry’s cyclicality and sensitivity tochanges 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 $2.0 million and $0.3 million as of December 31, 2019 and 2018, respectivelywith no significant impact recorded in the Company’s consolidated statement of operations and comprehensive income for the years ended December 31, 2019,2018 or 2017. We accrue interest and penalties on our uncertain tax positions as a component of our provision for income taxes. We accrued no significant interestand penalties in 2019, 2018 or 2017.We are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. Based on completed examinations and the expiration ofstatutes of limitations, we have concluded all U.S. federal income tax matters for years through 2014. We are currently under IRS audit for various aspects of our2015, 2016 and 2017 tax years. We report in 41 states with various years open to examination. 13. Employee Benefit PlansWe maintain one active defined contribution 401(k) plan. Our employees are eligible to participate in the plans subject to certain employment eligibilityprovisions. Participants can contribute up to 75% of their annual compensation, subject to federally mandated maximums. Participants are immediately vested intheir own contributions. We match a certain percentage of the contributions made by participating employees, subject to IRS limitations. Our matchingcontributions are subject to a pro-rata five-year vesting schedule. We recognized expense of $7.8 million, $6.8 million and $4.6 million in 2019, 2018 and 2017,respectively, for contributions to the plan.The Company contributes to multiple collectively bargained union retirement plans including multiemployer plans. The Company does not administer themultiemployer plans, and contributions are determined in accordance with the provisions of negotiated labor contracts. The risks of participating in multiemployerplans are different from single-employer plans. Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees ofother participating employers. If a participating employer stops contributing to a multiemployer plan, the unfunded obligations of that multiemployer plan may beborne by the remaining participating employers. If the Company chooses to stop participating in a multiemployer plan, the Company may be required to pay thatplan an amount (“withdrawal liability”) based on the plan’s formula and the underfunded status of the plan attributable to the Company. Contributions to the plansfor the years ended December 31, 2019, 2018 and 2017 were not significant. 61 14. Commitments and ContingenciesAs of December 31, 2019, we had outstanding letters of credit totaling $82.2 million under our 2023 facility that principally support our self-insuranceprograms.The Company has a number of known and threatened construction defect legal claims. While these claims are generally covered under the Company’sexisting 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 timebecause (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 theclaims. Although the Company cannot estimate a reasonable range of loss based on currently available information, the resolution of these matters could have amaterial 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 insurancecoverage 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 allof 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 adverseeffect on our consolidated financial position, cash flows or results of operations. However, there can be no assurances that future adverse judgments and costswould not be material to our results of operations or liquidity for a particular period. 15. Segment and Product InformationWe offer an integrated solution to our customers providing manufacturing, supply, and installation of a full range of structural and related buildingproducts. We provide a wide variety of building products and services directly to homebuilder customers. We manufacture floor trusses, roof trusses, wall panels,stairs, millwork, windows, and doors. We also provide a full range of construction services. These product and service offerings are distributed acrossapproximately 400 locations operating in 40 states across the United States, which have been organized into nine geographical regions. Centralized financial andoperational oversight, including resource allocation and assessment of performance on an income from continuing operations before income taxes basis, isperformed by our CEO, whom we have determined to be our chief operating decision maker (“CODM”). The Company has nine operating segments aligned with its nine geographical regions (Regions 1 through 9). While all of our operating segments havesimilar categories of products, distribution methods and customers, certain of our operating segments have been aggregated due to also containing similareconomic characteristics, resulting in the following composition of reportable segments: •Regions 1 and 2 have been aggregated to form the “Northeast” reportable segment •Regions 3 and 5 have been aggregated to form the “Southeast” reportable segment •Regions 4 and 6 have been aggregated to form the “South” reportable segment •Region 7, 8 and 9 have been aggregated to form the “West” reportable segmentIn addition to our reportable segments, our consolidated results include corporate overhead, other various operating activities that are not internallyallocated to a geographical region nor separately reported to the CODM, and certain reconciling items primarily related to allocations of corporate overhead andrent expense, which have collectively been presented as “All Other”. The accounting policies of the segments are consistent with those described in Note 2, exceptfor noted reconciling items. 62 The following tables present Net sales, Income before income taxes and certain other measures for the reportable segments, reconciled to consolidated totaloperations, for the years ended December 31, (in thousands): 2019 Reportable segments Net Sales Depreciation &Amortization Interest Income beforeincome taxes Northeast $1,295,643 $13,077 $20,694 $56,012 Southeast 1,610,156 12,586 21,729 83,466 South 1,866,891 19,753 22,309 113,550 West 2,253,854 27,599 37,513 86,144 Total reportable segments 7,026,544 73,015 102,245 339,172 All other 253,887 27,023 7,306 (56,417)Total consolidated $7,280,431 $100,038 $109,551 $282,755 2018 Reportable segments Net Sales Depreciation &Amortization Interest Income beforeincome taxes Northeast $1,309,391 $13,338 $23,198 $36,354 Southeast 1,700,317 11,661 25,599 67,465 South 2,020,258 20,758 25,816 111,515 West 2,448,581 27,268 39,961 106,525 Total reportable segments 7,478,547 73,025 114,574 321,859 All other 246,224 24,881 (6,361) (61,104)Total consolidated $7,724,771 $97,906 $108,213 $260,755 2017 Reportable segments Net Sales Depreciation &Amortization Interest Income beforeincome taxes Northeast $1,251,951 $12,972 $20,314 $41,445 Southeast 1,535,785 10,338 22,742 50,513 South 1,826,140 18,991 22,720 88,893 West 2,173,806 26,763 31,801 85,513 Total reportable segments 6,787,682 69,064 97,577 266,364 All other 246,527 23,929 95,597 (174,435)Total consolidated $7,034,209 $92,993 $193,174 $91,929 Asset information by segment is not reported internally or otherwise reviewed by the CODM nor does the company earn revenues or have long-lived assetslocated in foreign countries. 16. Related Party TransactionsCertain members of the Company’s board of directors also serve on the board of directors of one of our suppliers, PGT, Inc. Further, the Company hasentered into certain leases of land and buildings with certain employees or non-affiliate stockholders. Activity associated with these related party transactions wasnot significant as of or for the years ended December 31, 2019, 2018 or 2017.Transactions between the Company and other related parties occur in the ordinary course of business. However, the Company carefully monitors andassesses related party relationships. Management does not believe that any of these transactions with related parties had a material impact on the Company’sresults for the years ended December 31, 2019, 2018 or 2017. 63 17. Unaudited Quarterly Financial DataThe following tables summarize the consolidated quarterly results of operations for 2019 and 2018 (in thousands, except per share amounts): 2019 First Quarter Second Quarter Third Quarter Fourth Quarter Net sales $1,631,300 $1,904,523 $1,981,035 $1,763,573 Gross margin 441,975 517,156 541,142 476,556 Net income 35,708 (1) 66,604 (2) 78,130 (3) 41,367 (4)Net income per share Basic $0.31 (1)$0.58 (2)$0.68 (3)$0.36 (4)Diluted $0.31 (1)$0.57 (2)$0.67 (3)$0.35 (4) 2018 First Quarter Second Quarter Third Quarter Fourth Quarter Net sales $1,700,436 $2,089,888 $2,118,467 $1,815,980 Gross margin 411,052 496,328 522,781 492,779 Net income 23,220 56,622 73,328 52,021 (5)Net income per share Basic $0.20 $0.49 $0.64 $0.45 (5)Diluted $0.20 $0.49 $0.63 $0.45 (5) (1)Includes a gain on debt extinguishment of $0.7 million as discussed in Note 9.(2)Includes the write-off of debt discount and debt issuance costs of $2.2 million and financing costs of $2.1 million as discussed in Note 9.(3)Includes a loss on debt extinguishment of $3.1 million as discussed in Note 9.(4)Includes a loss on debt extinguishment of $3.5 million as discussed in Note 9.(5)Includes a gain on debt extinguishment of $3.2 million as discussed in Note 9.Earnings per share is computed independently for each of the quarters presented; therefore, the sum of the quarterly earnings per share may not equal theannual earnings per share. 18. Subsequent EventsBusiness CombinationOn January 9, 2020 we acquired certain assets and the operations of Bianchi & Company, Inc. (“Bianchi”) for $17.2 million in cash, subject to certainadjustments. Located in Charlotte, North Carolina, Bianchi is a supplier and installer of interior and exterior doors, crown moldings, open stair rail, chair rail,wainscoting, commercial hollow metal frames and doors and other custom millwork. This acquisition was funded with a combination of cash on hand andborrowings under our 2023 facility. The accounting for this acquisition has not been completed at the date of this filing given the proximity to the acquisition date. The acquisition will beaccounted for by the acquisition method, and accordingly the results of operations will be included in the Company’s consolidated financial statements from theacquisition date. The purchase price will be allocated to the net assets acquired based on estimated fair values at the acquisition date, with the excess of purchaseprice over the estimated fair value of the net assets acquired recorded as goodwill.Debt TransactionIn February 2020, we completed a private offering of $550.0 million in aggregate principal amount of 5.0% unsecured senior notes due 2030 (“2030 notes”)at an issue price equal to 100% of their par value. The proceeds from this offering were used together with borrowing under our 2023 facility to redeem theremaining $503.9 million in aggregate principal amount of 2024 notes outstanding at a redemption price of 104.2% of their par value and $47.5 million inaggregate principal amount of 2027 notes at a redemption price of 103.0% of their par value. 64 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresDisclosure Controls Evaluation and Related CEO and CFO Certifications. Our management, with the participation of our principal executive officer(“CEO”) and principal financial officer (“CFO”) conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and proceduresas of the end of the period covered by this annual report.Certifications of our CEO and our CFO, which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended(“Exchange Act”), are attached as exhibits to this annual report. This “Controls and Procedures” section includes the information concerning the controlsevaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.Limitations on the Effectiveness of Controls. We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. A system ofcontrols and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system aremet. Because of the limitations in all such systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within theCompany have been detected. Furthermore, the design of any system of controls and procedures is based in part upon certain assumptions about the likelihood offuture events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of howunlikely. Because of these inherent limitations in a cost-effective system of controls and procedures, misstatements or omissions due to error or fraud may occurand not be detected.Scope of the Controls Evaluation. The evaluation of our disclosure controls and procedures included a review of their objectives and design, the Company’simplementation of the controls and procedures and the effect of the controls and procedures on the information generated for use in this annual report. In the courseof the evaluation, we sought to identify whether we had any data errors, control problems or acts of fraud and to confirm that appropriate corrective action,including process improvements, were being undertaken if needed. This type of evaluation is performed on a quarterly basis so that conclusions concerning theeffectiveness of our disclosure controls and procedures can be reported in our quarterly reports on Form 10-Q. Many of the components of our disclosure controlsand procedures are also evaluated by our internal audit department, our legal department and by personnel in our finance organization. The overall goals of thesevarious evaluation activities are to monitor our disclosure controls and procedures on an ongoing basis, and to maintain them as dynamic systems that change asconditions warrant.Conclusions regarding Disclosure Controls. Based on the required evaluation of our disclosure controls and procedures, our CEO and CFO haveconcluded that, as of December 31, 2019, we maintained disclosure controls and procedures that were effective in providing reasonable assurance that informationrequired to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, asappropriate, to allow timely decisions regarding required disclosure.Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internalcontrol over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles ("GAAP"). Internal control over financial reporting includes policies and procedures that: (i) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactionsare recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only inaccordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of our 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 ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withexisting policies or procedures may deteriorate.65 Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of ourinternal control over financial reporting based on the framework set forth in Internal Control — Integrated Framework (2013) issued by the Committee ofSponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework set forth in Internal Control — Integrated Framework(2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2019.The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, has been audited by PricewaterhouseCoopers LLP,an independent registered public accounting firm, as stated in their report which appears herein.Changes in Internal Control over Financial Reporting. During the quarter ended December 31, 2019, there were no changes in our internal control overfinancial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Item 9B. Other Information None.66 PART IIIItem 10. Directors, Executive Officers and Corporate GovernanceThe information required by this item appears in our definitive proxy statement for our annual meeting of stockholders to be held May 21, 2020 under thecaptions “Proposal 1 — Election of Directors,” “Continuing Directors,” “Information Regarding the Board and Its Committees,” “Corporate Governance,”“Section 16(a) Beneficial Ownership Reporting Compliance,” and “Executive Officers of the Registrant,” which information is incorporated herein by reference.Code of Business Conduct and EthicsBuilders FirstSource, Inc. and its subsidiaries endeavor to do business according to the highest ethical and legal standards, complying with both the letterand spirit of the law. Our board of directors approved a Code of Business Conduct and Ethics that applies to our directors, officers (including our principalexecutive officer, principal financial officer and principal accounting officer) and employees. Our Code of Business Conduct and Ethics is administered by acompliance committee made up of representatives from our legal, human resources, finance and internal audit departments.Our employees are encouraged to report any suspected violations of laws, regulations and the Code of Business Conduct and Ethics, and all unethicalbusiness practices. We provide continuously monitored hotlines for anonymous reporting by employees.Our board of directors has also approved a Supplemental Code of Ethics for the Chief Executive Officer, President, and Senior Financial Officers ofBuilders FirstSource, Inc., which is administered by our general counsel.Both of these policies are listed as exhibits to this annual report on Form 10-K and can be found in the “Investors” section of our corporate Web site at:www.bldr.com.Stockholders may request a free copy of these policies by contacting the Corporate Secretary, Builders FirstSource, Inc., 2001 Bryan Street, Suite 1600,Dallas, Texas 75201, United States of America.In addition, within four business days of: •Any amendment to a provision of our Code of Business Conduct and Ethics or our Supplemental Code of Ethics for Chief Executive Officer,President and Senior Financial Officers of Builders FirstSource, Inc. that applies to our chief executive officer, chief financial officer or chiefaccounting officer as it relates to one or more of the items set forth in Item 406(b) of Regulation S-K; or •The grant of any waiver, including an implicit waiver, from a provision of one of these policies to one of these officers that relates to one or more ofthe items set forth in Item 406(b) of Regulation S-K.We will provide information regarding any such amendment or waiver (including the nature of any waiver, the name of the person to whom the waiver wasgranted and the date of the waiver) on our Web site at the Internet address above, and such information will be available on our Web site for at least a 12-monthperiod. In addition, we will disclose any amendments and waivers to our Code of Business Conduct and Ethics or our Supplemental Code of Ethics for ChiefExecutive Officer, President and Senior Financial Officers of Builders FirstSource, Inc. as required by the listing standards of the NASDAQ Stock Market LLC.Item 11. Executive CompensationThe information required by this item appears in our definitive proxy statement for our annual meeting of stockholders to be held May 21, 2020 under thecaptions “Executive Compensation and Other Information,” “Information Regarding the Board and its Committees — Compensation of Directors,” and“Compensation Committee Interlocks and Insider Participation,” which information is incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this item appears in our definitive proxy statement for our annual meeting of stockholders to be held on May 21, 2020 underthe caption “Ownership of Securities” and “Equity Compensation Plan Information,” which information is incorporated herein by reference.67 Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by this item appears in our definitive proxy statement for our annual meeting of stockholders to be held May 21, 2020 under thecaption “Election of Directors and Management Information,” “Information Regarding the Board and its Committees,” and “Certain Relationships and RelatedParty Transactions,” which information is incorporated herein by reference.Item 14. Principal Accountant Fees and ServicesThe information required by this item appears in our definitive proxy statement for our annual meeting of stockholders to be held May 21, 2020 under thecaption “Proposal 3 — Ratification of Selection of Independent Registered Public Accounting Firm — Fees Paid to PricewaterhouseCoopers LLP,” whichinformation is incorporated herein by reference. 68 PART IV Item 15. Exhibits and Financial Statement Schedules (a) (1) See the index to consolidated financial statements provided in Item 8 for a list of the financial statements filed as part of this report.(2) Financial statement schedules are omitted because they are either not applicable or not material.(3) The following documents are filed, furnished or incorporated by reference as exhibits to this report as required by Item 601 of Regulation S-K. ExhibitNumber Description 3.1 Amended and Restated Certificate of Incorporation of Builders FirstSource, Inc. (incorporated by reference to Exhibit 3.1 to Amendment No. 4 tothe Registration Statement of the Company on Form S-1, filed with the Securities and Exchange Commission on June 6, 2005, File Number 333-122788) 3.2 Amended and Restated By-Laws of Builders FirstSource, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report onForm 8-K, filed with the Securities and Exchange Commission on November 6, 2017, File Number 0-51357) 4.1 Indenture, dated as of August 22, 2016, among Builders FirstSource, Inc., the guarantors party thereto, and Wilmington Trust, NationalAssociation, as trustee and notes collateral agent (form of Note included therein) (incorporated by reference to Exhibit 4.1 to the Company’sCurrent Report on Form 8-K, filed with the Securities and Exchange Commission on August 23, 2016, File Number 0-51357) 4.2 Indenture, dated as of May 30, 2019, among Builders FirstSource, Inc., the guarantors party thereto, and Wilmington Trust, National Association,as trustee and notes collateral agent (form of Note included therein) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report onForm 8-K, filed with the Securities and Exchange Commission on May 31, 2019, File Number 0-51357) 4.3 First Supplemental Indenture, dated as of July 25, 2019, among Builders FirstSource, Inc., the guarantors party thereto, and Wilmington Trust,National Association, as trustee and notes collateral agent (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 30, 2019, File Number 0-51357) 4.4 Indenture, dated as of February 11, 2020, among Builders FirstSource, Inc., the guarantors party thereto, and Wilmington Trust, NationalAssociation, as trustee (form of Note included therein) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K,filed with the Securities and Exchange Commission on February 11, 2020, File Number 0-51357) 4.5* Description of Capital Stock 10.1 Term Loan Credit Agreement, dated as of July 31, 2015, among Builders FirstSource, Inc., Deutsche Bank AG, New York Branch, asadministrative agent, and the lenders and financial institutions party thereto (incorporated by reference to Exhibit 10.1 to the Company’s CurrentReport on Form 8-K, filed with the Securities Exchange Commission on August 6, 2015, File Number 0-51357) 10.2 First Amendment to Credit Agreement, dated as of August 22, 2016, by and among Builders FirstSource, Inc., Deutsche Bank AG, New YorkBranch, as administrative agent, and the lenders and financial institutions party thereto (incorporated by reference to Exhibit 10.2 to theCompany’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 23, 2016, File Number 0-51357) 10.3 Second Amendment to Credit Agreement, dated as of February 23, 2017, by and among Builders FirstSource, Inc., Deutsche Bank AG, New YorkBranch, as administrative agent, and the lenders and financial institutions party thereto (incorporated by reference to Exhibit 10.3 to theCompany’s Current Report on Form 10-K for the year ended December 31, 2016, filed with the Securities Exchange Commission on March 1,2017, File Number 0-51357) 69 ExhibitNumber Description 10.4 Amended and Restated ABL Credit Agreement, dated as of July 31, 2015, among Builders FirstSource, Inc., SunTrust Bank, as administrativeagent and collateral agent, and the lenders and financial institutions party thereto (incorporated by reference to Exhibit 10.2 to the Company’sCurrent Report on Form 8-K, filed with the Securities Exchange Commission on August 6, 2015, File Number 0-51357) 10.5 Amendment No. 1 to Credit Agreement, dated as of March 22, 2017, among Builders FirstSource, Inc., SunTrust Bank, as administrative agentand collateral agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filedwith the Securities and Exchange Commission on March 28, 2017, File Number 0-51357) 10.6 Amendment No. 2 to Credit Agreement, dated as of April 24, 2019, among Builders FirstSource, Inc., SunTrust Bank, as administrative agent andcollateral agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed withthe Securities and Exchange Commission on April 30, 2019, File Number 0-51357) 10.7 ABL/Bond Intercreditor Agreement, dated as of May 29, 2013, among Builders FirstSource, Inc. and certain of its subsidiaries, as grantors,SunTrust Bank, as ABL agent, and Wilmington Trust, National Association, as notes collateral agent (incorporated by reference to Exhibit 10.2 tothe Company’s Current Report on Form 8-K, filed with the Securities Exchange Commission on June 3, 2013, File Number 0-51357) 10.8 Collateral Agreement, dated as of July 31, 2015, among the Company, certain of its subsidiaries, and Deutsche Bank AG, New York Branch(incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the Securities Exchange Commission onAugust 6, 2015, File Number 0-51357) 10.9 Amended and Restated ABL Collateral Agreement, dated as of July 31, 2015, among the Company, certain of its subsidiaries, and SunTrust Bank(incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed with the Securities Exchange Commission onAugust 6, 2015, File Number 0-51357) 10.10 Notes Collateral Agreement, dated as of August 22, 2016, among Builders FirstSource, Inc., certain of its subsidiaries, and Wilmington Trust,National Association, as trustee (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securitiesand Exchange Commission on August 23, 2016, File Number 0-51357) 10.11 Notes Collateral Agreement, dated as of May 30, 2019, among Builders FirstSource, Inc., certain of its subsidiaries, and Wilmington Trust,National Association, as trustee (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securitiesand Exchange Commission on May 31, 2019, File Number 0-51357) 10.12 Guarantee Agreement, dated as of July 31, 2015, among the guarantors party thereto and Deutsche Bank AG, New York Branch (incorporated byreference to Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed with the Securities Exchange Commission on August 6, 2015, FileNumber 0-51357) 10.13 Amended and Restated ABL Guarantee Agreement, dated as of July 31, 2015, among the Guarantors (as defined therein) and SunTrust Bank(incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K, filed with the Securities Exchange Commission onAugust 6, 2015, File Number 0-51357) 10.14 Lease and Master Agreement Guaranty, dated as of July 31, 2015, by the Company in favor of LN Real Estate LLC (incorporated by reference toExhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the Securities and ExchangeCommission on November 9, 2015, File Number 0-51357) 10.15+ Builders FirstSource, Inc. 1998 Stock Incentive Plan, as amended, effective March 1, 2004 (incorporated by reference to Exhibit 10.4 toAmendment No. 1 to the Registration Statement of the Company on Form S-1, filed with the Securities and Exchange Commission on April 27,2005, File Number 333-122788) 10.16+ Amendment No. 7 to the Builders FirstSource, Inc. 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company’s AnnualReport on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on March 12, 2007, File Number0-51357) 10.17+ 2004 Form of Builders FirstSource, Inc. 1998 Stock Incentive Plan Nonqualified Stock Option Agreement (incorporated by reference toExhibit 10.5 to Amendment No. 1 to the Registration Statement of the Company on Form S-1, filed with the Securities and Exchange Commissionon April 27, 2005, File Number 333-122788)70 ExhibitNumber Description 10.18+ Builders FirstSource, Inc. 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.14 to Amendment No. 4 to the RegistrationStatement of the Company on Form S-1, filed with the Securities and Exchange Commission on June 6, 2005, File Number 333-122788) 10.19+ 2006 Form of Builders FirstSource, Inc. 2005 Equity Incentive Plan Nonqualified Stock Option Agreement (incorporated by reference toExhibit 99.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 17, 2006, FileNumber 0-51357) 10.20+ Builders FirstSource, Inc. 2007 Incentive Plan (incorporated by reference to Annex D of the Company’s Definitive Proxy Statement onSchedule 14A, filed with the Securities and Exchange Commission on December 15, 2009, File Number 0-51357) 10.21+ 2008 Form of Builders FirstSource, Inc. 2007 Incentive Plan Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.1 tothe Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, filed with the Securities and Exchange Commission on May1, 2008, File Number 0-51357) 10.22+ 2014 Form of Builders FirstSource, Inc. 2007 Incentive Plan Restricted Stock Unit Award Certificate (incorporated by reference to Exhibit 10.2 tothe Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, filed with the Securities and Exchange Commission onAugust 1, 2014, File Number 0-51357) 10.23+ Builders FirstSource, Inc. 2014 Incentive Plan (incorporated herein by reference to Appendix A of the Company’s Definitive Proxy Statement onSchedule 14A, filed with the Securities and Exchange Commission on April 11, 2014, File Number 0-51357) 10.24+ Amendment to the Builders FirstSource, Inc. 2014 Incentive Plan (incorporated by reference to Appendix A of the Company’s Definitive ProxyStatement on Schedule 14A, filed with the Securities and Exchange Commission on April 14, 2016, File Number 0-51357) 10.25+ 2014 Form of Builders FirstSource, Inc. 2014 Incentive Plan Restricted Stock Unit Award Certificate (incorporated by reference to Exhibit 10.3 tothe Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, filed with the Securities and Exchange Commission onAugust 1, 2014, File Number 0-51357) 10.26+ 2015 Form of Builders FirstSource, Inc. 2014 Incentive Plan Non-Statutory Stock Option Award Certificate (incorporated by reference to Exhibit10.22 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commissionon March 3, 2015, File Number 0-51357) 10.27+ 2016 Form of Builders FirstSource, Inc. 2014 Incentive Plan Restricted Stock Unit Award Certificate (incorporated by reference to Exhibit 10.2 tothe Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed with the Securities and Exchange Commission on May6, 2016, File Number 0-51357) 10.28+ 2017 Form of Builders FirstSource, Inc. 2014 Incentive Plan Director Restricted Stock Unit Award Certificate (incorporated by reference toExhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, filed with the Securities and ExchangeCommission on November 9, 2017, File Number 0-51357) 10.29+ 2017 Form of Builders FirstSource, Inc. 2014 Incentive Plan Restricted Stock Unit Award Certificate (incorporated by reference to Exhibit 10.29to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission onMarch 1, 2018, File Number 0-51357) 10.30+ 2019 Form of Builders FirstSource, Inc. 2014 Incentive Plan Restricted Stock Unit Award Certificate (incorporated by reference to Exhibit 10.1 tothe Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, filed with the Securities and Exchange Commission on May3, 2019, File Number 0-51357) 10.31*+ Builders FirstSource, Inc. Director Compensation Policy 10.32+ Builders FirstSource, Inc. Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.13 to Amendment No. 3 to theRegistration Statement of the Company on Form S-1, filed with the Securities and Exchange Commission on May 26, 2005, File Number 333-122788) 10.33+ Amended and Restated Employment Agreement, dated December 29, 2017, between Builders FirstSource, Inc. and M. Chad Crow (incorporatedby reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities andExchange Commission on March 1, 2018, File Number 0-51357)71 ExhibitNumber Description 10.34+ Employment Agreement, dated January 15, 2004, between Builders FirstSource, Inc. and Donald F. McAleenan (incorporated by reference toExhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005, filed with the Securities ExchangeCommission on November 2, 2005, File Number 0-51357) 10.35+ Amendment to Employment Agreement, dated October 29, 2008, between Builders FirstSource, Inc. and Donald F. McAleenan (incorporated byreference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Securities andExchange Commission on March 2, 2009, File Number 0-51357) 10.36+ Second Amendment to Employment Agreement, dated as of May 19, 2017, between Builders FirstSource, Inc. and Donald F. McAleenan(incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed with theSecurities Exchange Commission on August 4, 2017, File Number 0-51357) 10.37+ Employment Agreement, dated November 14, 2016, between Builders FirstSource, Inc. and Peter M. Jackson (incorporated by reference toExhibit 10.39 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and ExchangeCommission on March 1, 2017, File Number 0-51357) 10.38+ First Amendment to Employment Agreement, dated as of May 19, 2017, between Builders FirstSource, Inc. and Peter M. Jackson (incorporated byreference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed with the Securities ExchangeCommission on August 4, 2017, File Number 0-51357) 10.39+ Employment Agreement between Builders FirstSource, Inc. and Scott L. Robins dated effective as of February 20, 2018 (incorporated byreference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, filed with the Securities andExchange Commission on November 2, 2018, File Number 0-51357) 10.40+ Employment Agreement between Builders FirstSource, Inc. and David E. Rush dated effective as of November 29, 2018 (incorporated byreference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities andExchange Commission on March 1, 2019, File Number 0-51357) 10.41+ Amended and Restated Employment Agreement, dated January 1, 2018, between Builders FirstSource, Inc. and Floyd Sherman (incorporated byreference to Exhibit 10.41 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities andExchange Commission on March 1, 2018, File Number 0-51357) 14.1 Builders FirstSource, Inc. Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 to the Company’s Annual Report onForm 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on March 1, 2019, File Number 0-51357) 14.2 Builders FirstSource, Inc. Supplemental Code of Ethics (incorporated by reference to Exhibit 14.2 to the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2005, filed with the Securities and Exchange Commission on March 13, 2006, File Number 0-51357) 21.1* Subsidiaries of the Registrant 23.1* Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm 24.1* Power of Attorney (included as part of signature page) 31.1* Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of2002, signed by M. Chad Crow as Chief Executive Officer 31.2* Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,signed by Peter M. Jackson as Chief Financial Officer 32.1** Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002, signed by M. Chad Crow as Chief Executive Officer and Peter M. Jackson as Chief Financial Officer72 ExhibitNumber Description 101* The following financial information from Builders FirstSource, Inc.’s Form 10-K filed on February 21, 2020, formatted in Inline eXtensibleBusiness Reporting Language (“Inline XBRL”): (i) Consolidated Statement of Operations and Comprehensive Income for the years endedDecember 31, 2019, 2018, and 2017, (ii) Consolidated Balance Sheet at December 31, 2019 and 2018, (iii) Consolidated Statement of Cash Flowsfor the years ended December 31, 2019, 2018, and 2017, (iv) Consolidated Statement of Changes in Stockholders’ Equity for the years endedDecember 31, 2019, 2018, and 2017, and (v) the Notes to Consolidated Financial Statements. 104* The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 has been formatted in Inline XBRL. *Filed herewith**Builders FirstSource, Inc. is furnishing, but not filing, the written statement pursuant to Title 18 United States Code 1350, as added by Section 906 of theSarbanes-Oxley Act of 2002, of M. Chad Crow, our Chief Executive Officer, and Peter M. Jackson, our Chief Financial Officer.+Indicates a management contract or compensatory plan or arrangement(b) A list of exhibits filed, furnished or incorporated by reference with this Form 10-K is provided above under Item 15(a)(3) of this report. BuildersFirstSource, Inc. will furnish a copy of any exhibit listed above to any stockholder without charge upon written request to Donald F. McAleenan, SeniorVice President and General Counsel, 2001 Bryan Street, Suite 1600, Dallas, Texas 75201.(c) Not applicable Item 16. Form 10-K Summary None. 73 SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.February 21, 2020 BUILDERS FIRSTSOURCE, INC. /s/ M. CHAD CROW M. Chad Crow President and Chief Executive Officer The undersigned hereby constitute and appoint Donald F. McAleenan and his substitutes our true and lawful attorneys-in-fact with full power to execute inour name and behalf in the capacities indicated below any and all amendments to this report and to file the same, with all exhibits thereto and other documents inconnection therewith, with the Securities and Exchange Commission, and hereby ratify and confirm all that such attorney-in-fact or his substitutes shall lawfully door cause to be done by virtue thereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated. Signature Title Date /s/ M. CHAD CROW President, Chief Executive Officer and Director February 21, 2020M. Chad Crow (Principal Executive Officer) /s/ PETER M. JACKSON Senior Vice President and Chief Financial Officer February 21, 2020Peter M. Jackson (Principal Financial Officer) /s/ JAMI COULTER Senior Vice President and Chief Accounting Officer February 21, 2020Jami Coulter (Principal Accounting Officer) /s/ PAUL S. LEVY Chairman and Director February 21, 2020Paul S. Levy /s/ DANIEL AGROSKIN Director February 21, 2020Daniel Agroskin /s/ DAVID A. BARR Director February 21, 2020David A. Barr /s/ CLEVELAND A. CHRISTOPHE Director February 21, 2020Cleveland A. Christophe /s/ JANICE DAVIS Director February 21, 2020Janice Davis /s/ WILLIAM B. HAYES Director February 21, 2020William B. Hayes /s/ BRETT N. MILGRIM Director February 21, 2020Brett N. Milgrim /s/ FLOYD F. SHERMAN Director February 21, 2020Floyd F. Sherman /s/ CRAIG A. STEINKE Director February 21, 2020Craig A. Steinke 74Exhibit 4.5DESCRIPTION OF CAPITAL STOCKThe following description of our capital stock does not purport to be complete and is subject to, and qualified in its entirety by, ouramended and restated certificate of incorporation and amended and restated bylaws, which are incorporated by reference into this Descriptionof Capital Stock, and by the Delaware General Corporation Law (the “DGCL”). General Matters Our certificate of incorporation provides that we are authorized to issue 200,000,000 shares of common stock, par value $0.01 pershare, and 10,000,000 shares of undesignated preferred stock, par value $0.01 per share. Common Stock Shares of our common stock have the following rights, preferences, and privileges: •Voting rights. Each outstanding share of common stock entitles its holder to one vote on all matters submitted to a vote of ourstockholders, including the election of directors. There are no cumulative voting rights. Generally, all matters to be voted on bystockholders must be approved by a majority of the votes entitled to be cast by all shares of common stock present or representedby proxy. •Dividends. Holders of common stock are entitled to receive dividends as, when, and if dividends are declared by our board ofdirectors out of assets or funds legally available for the payment of dividends, subject to any preferential dividend rights of anyoutstanding preferred stock. •Liquidation. In the event of a liquidation, dissolution, or winding up of our affairs, whether voluntary or involuntary, after paymentof our liabilities and obligations to creditors, our remaining assets will be distributed ratably among the holders of shares ofcommon stock on a per share basis. •Rights and preferences. Our common stock has no preemptive, redemption, conversion or subscription rights. The rights, powers,preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of theholders of shares of any series of preferred stock that we may designate and issue in the future. •Listing. Our common stock is listed on NASDAQ under the symbol “BLDR.” •Transfer Agent and Registrar. The transfer agent and registrar for our common stock is Computershare Shareowner Services LLC,and its telephone number is (877) 219-7020. Preferred Stock Under our certificate of incorporation, without further stockholder action, the board of directors is authorized, subject to anylimitations prescribed by the law of the State of Delaware, to provide for the issuance of the shares of preferred stock in one or more series, toestablish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rightsof the shares of each such series and any qualifications, limitations or restrictions thereof. Exhibit 4.5Anti-Takeover Effects of Certain Provisions of Our Certificate of Incorporation and Bylaws Our certificate of incorporation and bylaws contain provisions that are intended to enhance the likelihood of continuity andstability in the composition of the board of directors and that may have the effect of delaying, deferring or preventing a future takeover orchange in control of our company unless the takeover or change in control is approved by our board of directors. These provisions include thefollowing: Staggered board of directors. Our certificate of incorporation and bylaws provide for a staggered board of directors, divided intothree classes, with our stockholders electing one class each year. Between stockholders’ meetings, the board of directors will be able toappoint new directors to fill vacancies or newly created directorships so that no more than the number of directors in any given class could bereplaced each year and it would take three successive annual meetings to replace all directors.Elimination of stockholder action through written consent. Our certificate of incorporation and bylaws provide that stockholderaction can be taken only at an annual or special meeting of stockholders and cannot be taken by written consent in lieu of a meeting.Elimination of the ability to call special meetings. Our certificate of incorporation and bylaws provide that, except as otherwiserequired by law, special meetings of our stockholders can only be called pursuant to a resolution adopted by a majority of our board ofdirectors, a committee of the board of directors that has been duly designated by the board of directors and whose powers and authorityinclude the power to call such meetings or by our chief executive officer or the chairman of our board of directors. Stockholders are notpermitted to call a special meeting or to require our board to call a special meeting.Advance notice procedures for stockholder proposals. Our bylaws establish an advance notice procedure for stockholder proposalsto be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board.Stockholders at our annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before themeeting by or at the direction of our board or by a stockholder who was a stockholder of record on the record date for the meeting, who isentitled to vote at the meeting and who has given to our secretary timely written notice, in proper form, of the stockholder’s intention to bringthat business before the meeting.Removal of directors; board of directors vacancies. Our certificate of incorporation and bylaws provide that members of ourboard of directors may not be removed without cause and the affirmative vote of holders of at least a majority of the voting power of ourthen-outstanding capital stock entitled to vote on the election of directors. Our bylaws further provide that only our board of directors mayfill vacant directorships, except in limited circumstances. These provisions would prevent a stockholder from gaining control of our board ofdirectors by removing incumbent directors and filling the resulting vacancies with such stockholder’s own nominees.Amendment of certificate of incorporation and bylaws. The DGCL provides generally that the affirmative vote of a majority of theoutstanding shares entitled to vote is required to amend or repeal a corporation’s certificate of incorporation or bylaws, unless the certificateof incorporation requires a greater percentage. Our certificate of incorporation requires the approval of the holders of at least two-thirds of thevoting power of the issued and outstanding shares of our capital stock entitled to vote in connection with the election of directors to amendcertain provisions of our certificate of incorporation relating to the directors, including their authority to amend our by-laws, the size of ourboard of directors, provision for a staggered board of directors, the removal of directors, and vacancies on the board of Exhibit 4.5directors, as well as our authority to provide indemnification for our directors and officers. Our bylaws provide that a majority of our boardof directors or, in most cases, the holders of at least a majority of the voting power of the issued and outstanding shares of our capital stockentitled to vote thereon have the power to amend or repeal our bylaws, except that, in the case of amendments or repeals approved bystockholders, the affirmative vote of holders of at least two-thirds of the voting power of the issued and outstanding shares of our capitalstock entitled to vote thereon shall be required to amend or repeal provisions of our bylaws relating to meetings of stockholders, including theprovision that stockholders may not take action by written consent in lieu of a meeting, the nomination and election of directors, vacancies onthe board of directors, and our authority to provide indemnification for our directors and officers. The foregoing provisions of our certificate of incorporation and bylaws could discourage potential acquisition proposals and coulddelay or prevent a change in control. These provisions are intended to enhance the likelihood of continuity and stability in the composition ofour board of directors and in the policies formulated by our board of directors and to discourage certain types of transactions that may involvean actual or threatened change of control. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal.The provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have theeffect of discouraging others from making tender offers for our shares, and, as a consequence, they also may inhibit fluctuations in the marketprice of the common stock that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventingchanges in our management or delaying or preventing a transaction that might benefit you or other minority stockholders. Limitations on Liability and Indemnification of Officers and Directors Our certificate of incorporation and bylaws provide indemnification for our directors and officers to the fullest extent permitted bythe DGCL. We have entered into indemnification agreements with each of our directors that are, in some cases, broader than the specificindemnification provisions contained under Delaware law. In addition, as permitted by Delaware law, our certificate of incorporationincludes provisions that eliminate the personal liability of our directors for monetary damages resulting from breaches of certain fiduciaryduties as a director. The effect of this provision is to restrict our rights and the rights of our stockholders in derivative suits to recovermonetary damages against a director for breach of fiduciary duties as a director, except that a director will be personally liable for: •any breach of his duty of loyalty to us or our stockholders; •acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; •any transaction from which the director derived an improper personal benefit; or •improper distributions to stockholders. These provisions may not be held to be enforceable for violations of the federal securities laws of the United States. Exhibit 10.31BUILDERS FIRSTSOURCE, INC. DIRECTOR COMPENSATION POLICY (as amended effective May 14, 2019) The Board of Directors (the “Board”) of Builders FirstSource, Inc. (the “Company”) has adopted the following compensation policy for purposes ofcompensating those directors of the Company who meet the eligibility requirements described herein (the “Eligible Directors”). This compensationpolicy has been developed to compensate the Eligible Directors of the Company for their time, commitment and contributions to the Board. In orderto qualify as an Eligible Director for purposes of receiving compensation under this policy, the director cannot concurrently be employed in anycapacity by the Company or any of its subsidiaries, unless otherwise determined by the Nominating Committee. CASH COMPENSATION (WITH ELECTION TO RECEIVE STOCK IN LIEU OF CASH) Retainers for Serving on the Board Eligible Directors shall be paid an annual retainer of $85,000, payable in quarterly installments, for each year of his or her service on theBoard (each a “Service Year”). In addition to the regular retainer for serving as a member of the Board, an Eligible Director who servesas Chairman of the Board shall be paid an annual cash retainer of $100,000 for service in such role for each Service Year, payable inquarterly installments. Service Years will commence on the date of the Company’s annual meeting of stockholders each year. Retainers for Serving as Chairpersons or Members of a Board Committee An Eligible Director who serves as a chairperson or as a member of the Audit Committee, the Compensation Committee or theNominating Committee of the Board shall be paid additional annual retainers for service in such roles for each Service Year, payable inquarterly installments, in the following amounts: Name of Committee Chairman Member Audit Committee $30,000 $5,000 Compensation Committee $20,000 $5,000 Nominating Committee $10,000 $5,000 A chairperson of a committee shall not be paid an additional retainer for also serving as a member of that committee. Eligible Directorsshall not be paid any additional retainers for attendance at meetings of the Board or its committees. Election to Receive Stock in Lieu of Cash Compensation In lieu of receiving annual cash retainer(s) and/or retainers for serving as a chairperson or as a member of the Audit Committee, theCompensation Committee or the Nominating Committee of the Board, an Eligible Director may elect to receive fully vested shares of theCompany’s common stock having a value on the first day of the service quarter for which they are issued approximately equal to theamount of the cash retainer payment he or she would otherwise receive. Such stock grants in lieu of cash retainer payments will beawarded on a quarterly basis at the same time cash retainer payments would be made. Pro Rata Cash Retainer Payment for New Eligible Director Following (i) the initial appointment or election of an Eligible Director to the Board or (ii) a change  in status which causes an ineligible director to qualify as an Eligible Director under this policy, a pro rata payment of the quarterly cashretainers (regular retainer(s) and retainers for committee service, as applicable) will be made to such Eligible Director, prorated to reflectthat portion of the quarter for which such director will serve on the Board and qualify as an Eligible Director. Such pro rata retainerpayment will be made as of (i) the date of commencement of Board service for a new Eligible Director, or (ii) the date a serving directorbecomes an Eligible Director, or (iii) such other date as the Board shall determine. EQUITY-BASED COMPENSATION Annual Restricted Stock Unit Awards At the start of each Service Year, Eligible Directors (“Grantees”) shall receive equity-based compensation awards with a value at the timeof issuance of approximately $130,000 (such amount to be effective as of the start of the Service Year commencing in 2019). Suchawards shall be made in the form of restricted stock units related to the Company’s common stock and shall be granted by the Boardpursuant to a form of restricted stock unit award agreement under the Company’s 2014 Incentive Plan (or any successor plans), asamended from time to time. The restricted stock units shall vest and convert to shares on the first anniversary of the grant date. Pro Rata Restricted Stock Unit Award for New Eligible Director Following (i) the initial appointment or election of an Eligible Director to the Board or (ii) a change in status which causes an ineligibledirector to qualify as an Eligible Director under this policy, a pro rata grant of restricted stock units related to the Company’s commonstock will be made to such Eligible Director with a value at the time of issuance based on the approximately $130,000 in value for regularannual restricted stock unit awards to Eligible Directors, but prorated for that portion of the Service Year in which such director will serveon the Board and qualify as an Eligible Director. Such grants shall be made as of (i) the date of commencement of Board service for anew Eligible Director, or (ii) the date a serving director becomes an Eligible Director, or (iii) such other date as the Board shall determine.The restricted stock units shall vest and convert to shares on the first anniversary of the grant date. Vesting Upon Departure of a Director If a Grantee shall cease to be a Director of the Company due to death, disability or retirement during the one-year vesting periodapplicable to any restricted stock units granted hereunder, all restricted stock units shall immediately vest and convert to shares. If theGrantee shall cease to be a Director of the Company for any other reason during such one-year vesting period, any unvested restrictedstock units shall be forfeited by the Grantee and such restricted stock units shall be cancelled. TRAVEL EXPENSE REIMBURSEMENT Eligible Directors shall be entitled to receive reimbursement for reasonable travel expenses which they properly incur in connection withtheir functions and duties as directors. AMENDMENTS, REVISION AND TERMINATION This policy may be amended, revised or terminated by the Board of Directors at any time and from time-to-time. 2Exhibit 21.1Builders FirstSource, Inc.SubsidiariesBuilders FirstSource, Inc. (Delaware)Builders FirstSource, Inc. SUBSIDIARIESBuilders FirstSource Holdings, LLC (Delaware)Builders FirstSource – Northeast Group, LLC (Delaware)Builders FirstSource – Texas GenPar, LLC (Delaware)Builders FirstSource – MBS, LLC (Delaware)Builders FirstSource – Texas Group, L.P. (Texas)BFS Texas, LLC (Delaware)BFS IP, LLC (Delaware)Builders FirstSource – South Texas, L.P. (Texas)Builders FirstSource – Intellectual Property, L.P. (Texas)Builders FirstSource – Texas Installed Sales, L.P. (Texas)Builders FirstSource – Dallas, LLC (Delaware)Builders FirstSource – Florida, LLC (Delaware)Builders FirstSource – Florida Design Center, LLC (Delaware)Builders FirstSource – Ohio Valley, LLC (Delaware)BFS, LLC (Delaware)Builders FirstSource – Atlantic Group, LLC (Delaware)Builders FirstSource – Southeast Group, LLC (Delaware)CCWP, Inc. (South Carolina)Builders FirstSource – Raleigh, LLC (Delaware)Builders FirstSource – Colorado Group, LLC (Delaware)Builders FirstSource – Colorado, LLC (Delaware)ProBuild Holdings LLC (Delaware)ProBuild Company LLC (Delaware)Spenard Builders Supply LLC (Alaska)Dixieline Builders Fund Control, Inc. (California)Timber Roots, LLC (Washington)ProBuild North Transportation, LLC (Washington)ProBuild Real Estate Holdings, LLC (Delaware)Builder’s Capital, LLC (New York)BFS Pay, LLC (Maryland)  Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-216400, 333-128430, 333-147107, 333-169001 and333-196363) of Builders FirstSource, Inc. of our report dated February 21, 2020, relating to the financial statements and the effectiveness of internal control overfinancial reporting, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Dallas, TexasFebruary 21, 2020 Exhibit 31.1Certification of Chief Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, M. Chad Crow, certify that: 1.I have reviewed this report on Form 10-K of Builders FirstSource, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. /s/ M. CHAD CROWM. Chad CrowPresident and Chief Executive OfficerDate: February 21, 2020Exhibit 31.2Certification of Chief Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, Peter M. Jackson, certify that: 1.I have reviewed this report on Form 10-K of Builders FirstSource, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. /s/ PETER M. JACKSONPeter M. JacksonSenior Vice President and Chief Financial OfficerDate: February 21, 2020Exhibit 32.1Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)In connection with the annual report of Builders FirstSource, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2019 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), we, M. Chad Crow, as President and Chief Executive Officer of the Company, and PeterM. Jackson, as Senior Vice President and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002, that, to the best of our knowledge: (1)The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ M. CHAD CROWM. Chad CrowPresident and Chief Executive Officer /s/ PETER M. JACKSONPeter M. JacksonSenior Vice President and Chief Financial OfficerDate: February 21, 2020A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnishedto the Securities and Exchange Commission or its staff upon request.

Continue reading text version or see original annual report in PDF format above