Building Materials Holding Corporation
Annual Report 2017

Plain-text annual report

BUILD EASIER BUILD WITH BMC SERVICE YOU CAN COUNT ON 2017 ANNUAL REPORT company company overview overview • A leading national building solutions • A leading national building solutions provider with strategic footprint in provider with strategic footprint in attractive long-term growth markets attractive long-term growth markets • Locations in 18 states* representing 65% • Locations in 18 states* representing 65% of 2017 single-family building permits of 2017 single-family building permits • Significant market presence in 43* • Significant market presence in 43* attractive metropolitan areas attractive metropolitan areas • Focus on differentiated, value-added • Focus on differentiated, value-added products and services that meet critical products and services that meet critical industry needs industry needs • Proven track record of growth in highly • Proven track record of growth in highly fragmented industry positioned for fragmented industry positioned for continued recovery continued recovery *As of 12/31/17 *As of 12/31/17 DISTRIBUTION DISTRIBUTION SERVICES SERVICES 101 Lumber and 101 Lumber and Building Materials Building Materials Distribution Yards Distribution Yards TRUSS TRUSS MANUFACTURING MANUFACTURING 51 READY-FRAME®, 51 READY-FRAME®, EWP, and Truss and EWP, and Truss and Panel Manufacturing Panel Manufacturing Facilities Facilities MILLWORK MILLWORK MANUFACTURING MANUFACTURING 48 Custom 48 Custom Millwork Operations Millwork Operations READY-FRAME® READY-FRAME® Computerized Computerized Precision Pre-Cut Precision Pre-Cut Framing Packages Framing Packages TURNKEY TURNKEY SOLUTIONS SOLUTIONS Installation Installation Management Management DESIGN DESIGN SERVICES SERVICES Design Centers Design Centers and Showrooms and Showrooms eBUSINESS eBUSINESS PLATFORM PLATFORM Logistics, Account Logistics, Account Services and eCommerce Services and eCommerce CORPORATE HEADQUARTERS CORPORATE HEADQUARTERS TWO LAKESIDE COMMONS TWO LAKESIDE COMMONS 980 HAMMOND DR. NE 980 HAMMOND DR. NE SUITE 500 SUITE 500 678.222.1219 678.222.1219 678.222.1316 Fax 678.222.1316 Fax ATLANTA, GA 30328 ATLANTA, GA 30328 www.BuildWithBMC.com www.BuildWithBMC.com Letter from Interim President and CEO Letter from Interim President and CEO To our shareholders: To our shareholders: During the two years since our merger, the entire BMC team has worked tirelessly, leveraging the strength and During the two years since our merger, the entire BMC team has worked tirelessly, leveraging the strength and capabilities of both predecessor companies, to integrate ourselves into one organization, with one brand, one capabilities of both predecessor companies, to integrate ourselves into one organization, with one brand, one strategy and one culture. Through this hard work, we achieved $48 million in annual run rate cost savings from strategy and one culture. Through this hard work, we achieved $48 million in annual run rate cost savings from synergies, and today, we are one of the leading providers of building materials and solutions in our industry. synergies, and today, we are one of the leading providers of building materials and solutions in our industry. We have a solid balance sheet that sets us apart from some of our closest competitors and provides us with We have a solid balance sheet that sets us apart from some of our closest competitors and provides us with tremendous flexibility as we pursue our growth strategies. We’ve introduced innovative capabilities nationwide, tremendous flexibility as we pursue our growth strategies. We’ve introduced innovative capabilities nationwide, such as Ready-Frame, to help our customers build faster and more efficiently as they face the challenges of such as Ready-Frame, to help our customers build faster and more efficiently as they face the challenges of a tight labor market. We continue to invest in our IT platform, which has strong tools to allow us to win in the a tight labor market. We continue to invest in our IT platform, which has strong tools to allow us to win in the marketplace, and which provide an enhanced customer experience. marketplace, and which provide an enhanced customer experience. As a result of the solid efforts of our team during this integration, net sales have grown to $3.4 billion for 2017. As a result of the solid efforts of our team during this integration, net sales have grown to $3.4 billion for 2017. Sales of Structural Components and Millwork, Doors and Windows, which represents our value-added, higher- Sales of Structural Components and Millwork, Doors and Windows, which represents our value-added, higher- margin product categories, are each up significantly in the past 2 years. Net income has increased $62.3 million margin product categories, are each up significantly in the past 2 years. Net income has increased $62.3 million since 2015 and Adjusted EBITDA has improved 54% to $200 million. since 2015 and Adjusted EBITDA has improved 54% to $200 million. Of course, the success of BMC relies on having the right team in place to execute. I have had the privilege of Of course, the success of BMC relies on having the right team in place to execute. I have had the privilege of speaking with many of our employees across the company since taking on the role of Interim President and CEO, speaking with many of our employees across the company since taking on the role of Interim President and CEO, and I am continually energized by their commitment and dedication. In 2017, we made our team even stronger and I am continually energized by their commitment and dedication. In 2017, we made our team even stronger through the appointments of Michael McGaugh to the role of Executive Vice President and Chief Operating through the appointments of Michael McGaugh to the role of Executive Vice President and Chief Operating Officer, Lanesha Minnix as Senior Vice President, General Counsel and Corporate Secretary and Lisa Hamblet Officer, Lanesha Minnix as Senior Vice President, General Counsel and Corporate Secretary and Lisa Hamblet to an expanded role as Executive Vice President, eBusiness and Pro Remodeler Segment. In addition, we were to an expanded role as Executive Vice President, eBusiness and Pro Remodeler Segment. In addition, we were pleased to welcome Mark Alexander and Henry Buckley to our Board of Directors last summer and Cory Boydston pleased to welcome Mark Alexander and Henry Buckley to our Board of Directors last summer and Cory Boydston in March. As we look forward, the Board’s top priority is to identify and appoint the best person for the role of in March. As we look forward, the Board’s top priority is to identify and appoint the best person for the role of CEO. The Board has formed a committee to oversee the search process and is working with a leading executive CEO. The Board has formed a committee to oversee the search process and is working with a leading executive search firm to find the individual with the right experience, vision and track record to accelerate our strategy and search firm to find the individual with the right experience, vision and track record to accelerate our strategy and lead BMC into the future. lead BMC into the future. Looking Ahead Looking Ahead With the majority of our integration activities in the rearview mirror, we are sharpening our focus on our growth With the majority of our integration activities in the rearview mirror, we are sharpening our focus on our growth strategies. With the goal to achieve industry-leading financial performance through operational excellence and strategies. With the goal to achieve industry-leading financial performance through operational excellence and customer service leadership, we are striving to be the provider of choice in our industry. customer service leadership, we are striving to be the provider of choice in our industry. company company overview overview • A leading national building solutions • A leading national building solutions provider with strategic footprint in provider with strategic footprint in attractive long-term growth markets attractive long-term growth markets • Locations in 18 states* representing 65% • Locations in 18 states* representing 65% of 2017 single-family building permits of 2017 single-family building permits • Significant market presence in 43* • Significant market presence in 43* attractive metropolitan areas attractive metropolitan areas • Focus on differentiated, value-added • Focus on differentiated, value-added products and services that meet critical products and services that meet critical industry needs industry needs • Proven track record of growth in highly • Proven track record of growth in highly fragmented industry positioned for fragmented industry positioned for continued recovery continued recovery *As of 12/31/17 *As of 12/31/17 DISTRIBUTION DISTRIBUTION SERVICES SERVICES 101 Lumber and 101 Lumber and Building Materials Building Materials Distribution Yards Distribution Yards TRUSS TRUSS MANUFACTURING MANUFACTURING 51 READY-FRAME®, 51 READY-FRAME®, EWP, and Truss and EWP, and Truss and Panel Manufacturing Panel Manufacturing Facilities Facilities MILLWORK MILLWORK MANUFACTURING MANUFACTURING 48 Custom 48 Custom Millwork Operations Millwork Operations READY-FRAME® READY-FRAME® Computerized Computerized Precision Pre-Cut Precision Pre-Cut Framing Packages Framing Packages TURNKEY TURNKEY SOLUTIONS SOLUTIONS Installation Installation Management Management DESIGN DESIGN SERVICES SERVICES Design Centers Design Centers and Showrooms and Showrooms eBUSINESS eBUSINESS PLATFORM PLATFORM Logistics, Account Logistics, Account Services and eCommerce Services and eCommerce CORPORATE HEADQUARTERS CORPORATE HEADQUARTERS TWO LAKESIDE COMMONS TWO LAKESIDE COMMONS 980 HAMMOND DR. NE 980 HAMMOND DR. NE SUITE 500 SUITE 500 ATLANTA, GA 30328 ATLANTA, GA 30328 678.222.1219 678.222.1219 678.222.1316 Fax 678.222.1316 Fax www.BuildWithBMC.com www.BuildWithBMC.com Letter from Interim President and CEO Letter from Interim President and CEO To our shareholders: To our shareholders: During the two years since our merger, the entire BMC team has worked tirelessly, leveraging the strength and During the two years since our merger, the entire BMC team has worked tirelessly, leveraging the strength and capabilities of both predecessor companies, to integrate ourselves into one organization, with one brand, one capabilities of both predecessor companies, to integrate ourselves into one organization, with one brand, one strategy and one culture. Through this hard work, we achieved $48 million in annual run rate cost savings from strategy and one culture. Through this hard work, we achieved $48 million in annual run rate cost savings from synergies, and today, we are one of the leading providers of building materials and solutions in our industry. synergies, and today, we are one of the leading providers of building materials and solutions in our industry. We have a solid balance sheet that sets us apart from some of our closest competitors and provides us with We have a solid balance sheet that sets us apart from some of our closest competitors and provides us with tremendous flexibility as we pursue our growth strategies. We’ve introduced innovative capabilities nationwide, tremendous flexibility as we pursue our growth strategies. We’ve introduced innovative capabilities nationwide, such as Ready-Frame, to help our customers build faster and more efficiently as they face the challenges of such as Ready-Frame, to help our customers build faster and more efficiently as they face the challenges of a tight labor market. We continue to invest in our IT platform, which has strong tools to allow us to win in the a tight labor market. We continue to invest in our IT platform, which has strong tools to allow us to win in the marketplace, and which provide an enhanced customer experience. marketplace, and which provide an enhanced customer experience. As a result of the solid efforts of our team during this integration, net sales have grown to $3.4 billion for 2017. As a result of the solid efforts of our team during this integration, net sales have grown to $3.4 billion for 2017. Sales of Structural Components and Millwork, Doors and Windows, which represents our value-added, higher- Sales of Structural Components and Millwork, Doors and Windows, which represents our value-added, higher- margin product categories, are each up significantly in the past 2 years. Net income has increased $62.3 million margin product categories, are each up significantly in the past 2 years. Net income has increased $62.3 million since 2015 and Adjusted EBITDA has improved 54% to $200 million. since 2015 and Adjusted EBITDA has improved 54% to $200 million. Of course, the success of BMC relies on having the right team in place to execute. I have had the privilege of Of course, the success of BMC relies on having the right team in place to execute. I have had the privilege of speaking with many of our employees across the company since taking on the role of Interim President and CEO, speaking with many of our employees across the company since taking on the role of Interim President and CEO, and I am continually energized by their commitment and dedication. In 2017, we made our team even stronger and I am continually energized by their commitment and dedication. In 2017, we made our team even stronger through the appointments of Michael McGaugh to the role of Executive Vice President and Chief Operating through the appointments of Michael McGaugh to the role of Executive Vice President and Chief Operating Officer, Lanesha Minnix as Senior Vice President, General Counsel and Corporate Secretary and Lisa Hamblet Officer, Lanesha Minnix as Senior Vice President, General Counsel and Corporate Secretary and Lisa Hamblet to an expanded role as Executive Vice President, eBusiness and Pro Remodeler Segment. In addition, we were to an expanded role as Executive Vice President, eBusiness and Pro Remodeler Segment. In addition, we were pleased to welcome Mark Alexander and Henry Buckley to our Board of Directors last summer and Cory Boydston pleased to welcome Mark Alexander and Henry Buckley to our Board of Directors last summer and Cory Boydston in March. As we look forward, the Board’s top priority is to identify and appoint the best person for the role of in March. As we look forward, the Board’s top priority is to identify and appoint the best person for the role of CEO. The Board has formed a committee to oversee the search process and is working with a leading executive CEO. The Board has formed a committee to oversee the search process and is working with a leading executive search firm to find the individual with the right experience, vision and track record to accelerate our strategy and search firm to find the individual with the right experience, vision and track record to accelerate our strategy and lead BMC into the future. lead BMC into the future. Looking Ahead Looking Ahead With the majority of our integration activities in the rearview mirror, we are sharpening our focus on our growth With the majority of our integration activities in the rearview mirror, we are sharpening our focus on our growth strategies. With the goal to achieve industry-leading financial performance through operational excellence and strategies. With the goal to achieve industry-leading financial performance through operational excellence and customer service leadership, we are striving to be the provider of choice in our industry. customer service leadership, we are striving to be the provider of choice in our industry. To this end, our strategic priorities are focused around 4 key pillars: To this end, our strategic priorities are focused around 4 key pillars: 1. Organically Grow Our Value-Added Products and Services. We are making key investments to enhance 1. Organically Grow Our Value-Added Products and Services. We are making key investments to enhance our manufacturing capabilities in our value-added product lines, such as Trusses, Ready-Frame® and other our manufacturing capabilities in our value-added product lines, such as Trusses, Ready-Frame® and other Structural Components as well as Millwork, Doors and Windows. In addition, we are pursuing growth Structural Components as well as Millwork, Doors and Windows. In addition, we are pursuing growth across all of our customer segments. In particular, we intend to grow our presence in the Professional across all of our customer segments. In particular, we intend to grow our presence in the Professional Remodeling space, which should improve our margin profile and provide a level of protection against the Remodeling space, which should improve our margin profile and provide a level of protection against the cyclicality of our industry. cyclicality of our industry. 2. Enhance Customer Service and Operational Excellence. We are driving our people, process and 2. Enhance Customer Service and Operational Excellence. We are driving our people, process and performance with lean principles and utilizing the BMC Operating System to focus on creating an performance with lean principles and utilizing the BMC Operating System to focus on creating an expectation and culture of continuous improvement. With Kaizen events planned for every market this year, expectation and culture of continuous improvement. With Kaizen events planned for every market this year, increasing productivity and gaining efficiency in our processes are a top priority going forward. Our process increasing productivity and gaining efficiency in our processes are a top priority going forward. Our process improvements should enable us to enhance the consistency and service levels to our customers. improvements should enable us to enhance the consistency and service levels to our customers. 3. Continue to Develop a High-Performing Culture. We are committed to the training and development of 3. Continue to Develop a High-Performing Culture. We are committed to the training and development of our associates and have recently re-launched a trainee program with the goal to hire our next generation of our associates and have recently re-launched a trainee program with the goal to hire our next generation of leaders and professionals. In addition, in March, we launched our Leadership Development Program, which leaders and professionals. In addition, in March, we launched our Leadership Development Program, which is intended to enhance the leadership skills among our managers, further their knowledge of the BMC is intended to enhance the leadership skills among our managers, further their knowledge of the BMC Operating System, pinpoint ways we can identify and utilize our competitive advantages and steer them to Operating System, pinpoint ways we can identify and utilize our competitive advantages and steer them to be leaders of change who are committed to achieving growth and strong performance in their respective be leaders of change who are committed to achieving growth and strong performance in their respective markets. markets. 4. Pursue Strategic Tuck-In Acquisitions. Consistent with our first pillar, we intend to pursue opportunities 4. Pursue Strategic Tuck-In Acquisitions. Consistent with our first pillar, we intend to pursue opportunities that provide additional products and capabilities to enhance our value-added offerings, support our that provide additional products and capabilities to enhance our value-added offerings, support our expansion in the Professional Remodeling space or enable us to expand our market share in certain expansion in the Professional Remodeling space or enable us to expand our market share in certain existing markets or enter new attractive geographies. We are committed to maintaining a prudent existing markets or enter new attractive geographies. We are committed to maintaining a prudent debt to EBITDA ratio of 2.0 to 2.5 times and a disciplined approach to our investment analysis and debt to EBITDA ratio of 2.0 to 2.5 times and a disciplined approach to our investment analysis and transaction pricing. However, given the number of organic and inorganic opportunities that exist, along transaction pricing. However, given the number of organic and inorganic opportunities that exist, along with the significant cash generation potential that we are forecasting, we should see the opportunity to with the significant cash generation potential that we are forecasting, we should see the opportunity to substantially increase our investments in acquisitions over the next several years. substantially increase our investments in acquisitions over the next several years. BMC is well positioned as we move past integration and into our next phase of growth. We have a strong team BMC is well positioned as we move past integration and into our next phase of growth. We have a strong team and outstanding culture at BMC and I’m confident that our laser focus on customer service, our associates, and outstanding culture at BMC and I’m confident that our laser focus on customer service, our associates, innovation, value-added products, and strategic expansions will drive additional shareholder value. innovation, value-added products, and strategic expansions will drive additional shareholder value. On behalf of the entire BMC team, I thank you for your support as we continue this journey together. On behalf of the entire BMC team, I thank you for your support as we continue this journey together. Portions of the registrant's Proxy Statement for the 2018 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to Portions of the registrant's Proxy Statement for the 2018 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant's fiscal year ended December 31, the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant's fiscal year ended December 31, Sincerely, Sincerely, David L. Keltner, David L. Keltner, Interim President and CEO Interim President and CEO SECURITIES AND EXCHANGE COMMISSION SECURITIES AND EXCHANGE COMMISSION UNITED STATES UNITED STATES Washington, D.C. 20549 Washington, D.C. 20549 _____________________________ _____________________________ Form 10-K Form 10-K _____________________________ _____________________________ For the fiscal year ended December 31, 2017 For the fiscal year ended December 31, 2017 OR OR For the transition period from ___ to ___ For the transition period from ___ to ___ Commission file number 001-36050 Commission file number 001-36050 BMC Stock Holdings, Inc. BMC Stock Holdings, Inc. (Exact name of Registrant as specified in its charter) (Exact name of Registrant as specified in its charter) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 o o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 o o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (State or other jurisdiction of incorporation or organization) (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) Delaware Delaware 26-4687975 26-4687975 Two Lakeside Commons Two Lakeside Commons 980 Hammond Drive NE, Suite 500 980 Hammond Drive NE, Suite 500 Atlanta, Georgia 30328 Atlanta, Georgia 30328 (Address of principal executive offices, including zip code) (Address of principal executive offices, including zip code) Registrant’s telephone number, including area code: (678) 222-1219 Registrant’s telephone number, including area code: (678) 222-1219 Securities registered pursuant to Section 12(b) of the Act: Securities registered pursuant to Section 12(b) of the Act: Common stock, par value $0.01 per share Common stock, par value $0.01 per share (Title of each class) (Title of each class) The Nasdaq Stock Market LLC The Nasdaq Stock Market LLC (Name of exchange on which registered) (Name of exchange on which registered) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x Securities registered pursuant to Section 12(g) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None 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 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, and (2) has been subject to such filing requirements for the past 90 days. Yes x No o months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. company. See the 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 Large accelerated filer Non-accelerated filer Non-accelerated filer x x o (Do not check if a smaller reporting company) o (Do not check if a smaller reporting company) Accelerated filer Accelerated filer Smaller reporting company Smaller reporting company Emerging growth company Emerging growth company o o o o o o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard pursuant to Section 13(a) of the Exchange Act. o accounting standard pursuant to Section 13(a) of the Exchange Act. o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2017 was approximately $1.16 billion based on the closing The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2017 was approximately $1.16 billion based on the closing price per share on that date of $21.85 as reported on the Nasdaq Stock Market LLC. price per share on that date of $21.85 as reported on the Nasdaq Stock Market LLC. The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, at February 28, 2018 was 67,140,448 shares. The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, at February 28, 2018 was 67,140,448 shares. Documents Incorporated by Reference Documents Incorporated by Reference No o No o 2017 . 2017 . To this end, our strategic priorities are focused around 4 key pillars: To this end, our strategic priorities are focused around 4 key pillars: 1. Organically Grow Our Value-Added Products and Services. We are making key investments to enhance 1. Organically Grow Our Value-Added Products and Services. We are making key investments to enhance our manufacturing capabilities in our value-added product lines, such as Trusses, Ready-Frame® and other our manufacturing capabilities in our value-added product lines, such as Trusses, Ready-Frame® and other Structural Components as well as Millwork, Doors and Windows. In addition, we are pursuing growth Structural Components as well as Millwork, Doors and Windows. In addition, we are pursuing growth across all of our customer segments. In particular, we intend to grow our presence in the Professional across all of our customer segments. In particular, we intend to grow our presence in the Professional Remodeling space, which should improve our margin profile and provide a level of protection against the Remodeling space, which should improve our margin profile and provide a level of protection against the cyclicality of our industry. cyclicality of our industry. 2. Enhance Customer Service and Operational Excellence. We are driving our people, process and 2. Enhance Customer Service and Operational Excellence. We are driving our people, process and performance with lean principles and utilizing the BMC Operating System to focus on creating an performance with lean principles and utilizing the BMC Operating System to focus on creating an expectation and culture of continuous improvement. With Kaizen events planned for every market this year, expectation and culture of continuous improvement. With Kaizen events planned for every market this year, increasing productivity and gaining efficiency in our processes are a top priority going forward. Our process increasing productivity and gaining efficiency in our processes are a top priority going forward. Our process improvements should enable us to enhance the consistency and service levels to our customers. improvements should enable us to enhance the consistency and service levels to our customers. 3. Continue to Develop a High-Performing Culture. We are committed to the training and development of 3. Continue to Develop a High-Performing Culture. We are committed to the training and development of our associates and have recently re-launched a trainee program with the goal to hire our next generation of our associates and have recently re-launched a trainee program with the goal to hire our next generation of leaders and professionals. In addition, in March, we launched our Leadership Development Program, which leaders and professionals. In addition, in March, we launched our Leadership Development Program, which is intended to enhance the leadership skills among our managers, further their knowledge of the BMC is intended to enhance the leadership skills among our managers, further their knowledge of the BMC Operating System, pinpoint ways we can identify and utilize our competitive advantages and steer them to Operating System, pinpoint ways we can identify and utilize our competitive advantages and steer them to be leaders of change who are committed to achieving growth and strong performance in their respective be leaders of change who are committed to achieving growth and strong performance in their respective markets. markets. 4. Pursue Strategic Tuck-In Acquisitions. Consistent with our first pillar, we intend to pursue opportunities 4. Pursue Strategic Tuck-In Acquisitions. Consistent with our first pillar, we intend to pursue opportunities that provide additional products and capabilities to enhance our value-added offerings, support our that provide additional products and capabilities to enhance our value-added offerings, support our expansion in the Professional Remodeling space or enable us to expand our market share in certain expansion in the Professional Remodeling space or enable us to expand our market share in certain existing markets or enter new attractive geographies. We are committed to maintaining a prudent existing markets or enter new attractive geographies. We are committed to maintaining a prudent debt to EBITDA ratio of 2.0 to 2.5 times and a disciplined approach to our investment analysis and debt to EBITDA ratio of 2.0 to 2.5 times and a disciplined approach to our investment analysis and transaction pricing. However, given the number of organic and inorganic opportunities that exist, along transaction pricing. However, given the number of organic and inorganic opportunities that exist, along with the significant cash generation potential that we are forecasting, we should see the opportunity to with the significant cash generation potential that we are forecasting, we should see the opportunity to substantially increase our investments in acquisitions over the next several years. substantially increase our investments in acquisitions over the next several years. BMC is well positioned as we move past integration and into our next phase of growth. We have a strong team BMC is well positioned as we move past integration and into our next phase of growth. We have a strong team and outstanding culture at BMC and I’m confident that our laser focus on customer service, our associates, and outstanding culture at BMC and I’m confident that our laser focus on customer service, our associates, innovation, value-added products, and strategic expansions will drive additional shareholder value. innovation, value-added products, and strategic expansions will drive additional shareholder value. On behalf of the entire BMC team, I thank you for your support as we continue this journey together. On behalf of the entire BMC team, I thank you for your support as we continue this journey together. UNITED STATES UNITED STATES SECURITIES AND EXCHANGE COMMISSION SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Washington, D.C. 20549 _____________________________ _____________________________ Form 10-K Form 10-K _____________________________ _____________________________ x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017 For the fiscal year ended December 31, 2017 OR OR o o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 o o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___ to ___ For the transition period from ___ to ___ Commission file number 001-36050 Commission file number 001-36050 BMC Stock Holdings, Inc. BMC Stock Holdings, Inc. (Exact name of Registrant as specified in its charter) (Exact name of Registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.) Delaware Delaware 26-4687975 26-4687975 Two Lakeside Commons Two Lakeside Commons 980 Hammond Drive NE, Suite 500 980 Hammond Drive NE, Suite 500 Atlanta, Georgia 30328 Atlanta, Georgia 30328 (Address of principal executive offices, including zip code) (Address of principal executive offices, including zip code) Registrant’s telephone number, including area code: (678) 222-1219 Registrant’s telephone number, including area code: (678) 222-1219 Securities registered pursuant to Section 12(b) of the Act: Securities registered pursuant to Section 12(b) of the Act: Common stock, par value $0.01 per share Common stock, par value $0.01 per share (Title of each class) (Title of each class) The Nasdaq Stock Market LLC The Nasdaq Stock Market LLC (Name of exchange on which registered) (Name of exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None Securities 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 x No o Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x 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 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, and (2) has been subject to such filing requirements for the past 90 days. Yes x No o months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. company. See the 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 Large accelerated filer Non-accelerated filer Non-accelerated filer x x o (Do not check if a smaller reporting company) o (Do not check if a smaller reporting company) Accelerated filer Accelerated filer Smaller reporting company Smaller reporting company Emerging growth company Emerging growth company o o o o o o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard pursuant to Section 13(a) of the Exchange Act. o accounting standard pursuant to Section 13(a) of the Exchange Act. o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2017 was approximately $1.16 billion based on the closing The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2017 was approximately $1.16 billion based on the closing price per share on that date of $21.85 as reported on the Nasdaq Stock Market LLC. price per share on that date of $21.85 as reported on the Nasdaq Stock Market LLC. The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, at February 28, 2018 was 67,140,448 shares. The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, at February 28, 2018 was 67,140,448 shares. Documents Incorporated by Reference Documents Incorporated by Reference Portions of the registrant's Proxy Statement for the 2018 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to Portions of the registrant's Proxy Statement for the 2018 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant's fiscal year ended December 31, the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant's fiscal year ended December 31, 2017 . 2017 . Sincerely, Sincerely, David L. Keltner, David L. Keltner, Interim President and CEO Interim President and CEO BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES Table of Contents to Form 10-K Table of Contents to Form 10-K Cautionary Statement with Respect to Forward-Looking Statements Cautionary Statement with Respect to Forward-Looking Statements Item 1. Item 1. Item 1A. Item 1A. Item 1B. Item 1B. Item 2. Item 2. Item 3. Item 3. Item 4. Item 4. Item 5 Item 5 Item 6. Item 6. Item 7. Item 7. Business Business Risk Factors Risk Factors Unresolved Staff Comments Unresolved Staff Comments Properties Properties Legal Proceedings Legal Proceedings Mine Safety Disclosures Mine Safety Disclosures PART 1 PART 1 PART II PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Quantitative and Qualitative Disclosures About Market Risk Item 8. Item 8. Item 9. Item 9. Item 9A. Item 9A. Item 9B. Item 9B. Item 10. Item 10. Item 11. Item 11. Item 12. Item 12. Item 13. Item 13. Item 14. Item 14. Item 15. Item 15. Item 16. Item 16. Financial Statements and Supplementary Data Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Controls and Procedures Controls and Procedures Other Information Other Information Directors, Executive Officers and Corporate Governance Directors, Executive Officers and Corporate Governance Executive Compensation Executive Compensation PART III PART III Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services Principal Accountant Fees and Services Exhibits and Financial Statement Schedules Exhibits and Financial Statement Schedules Form 10-K Summary Form 10-K Summary Signatures Signatures PART IV PART IV i i 2 2 7 7 21 21 22 22 22 22 22 22 23 23 25 25 26 26 44 44 45 45 82 82 82 82 82 82 83 83 83 83 83 83 84 84 84 84 85 85 87 87 88 88 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Some of the statements contained in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of Section 27A of the Securities Some of the statements contained in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to expectations, beliefs, Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts or present facts or projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts or present facts or conditions. In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” conditions. In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or the negative of these terms or other comparable terminology. “estimates,” “predicts,” “potential” or the negative of these terms or other comparable terminology. The forward-looking statements reflect our views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may The forward-looking statements reflect our views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. These factors achievements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. These factors include without limitation: include without limitation: the state of the homebuilding industry and repair and remodeling activity, the economy and the credit markets; the state of the homebuilding industry and repair and remodeling activity, the economy and the credit markets; the impact of potential changes in our customer or product sales mix; the impact of potential changes in our customer or product sales mix; our concentration of business in the Texas, California and Georgia markets; our concentration of business in the Texas, California and Georgia markets; the potential loss of significant customers or a reduction in the quantity of products they purchase; the potential loss of significant customers or a reduction in the quantity of products they purchase; seasonality and cyclicality of the building products supply and services industry; seasonality and cyclicality of the building products supply and services industry; competitive industry pressures and competitive pricing pressure from our customers and competitors; competitive industry pressures and competitive pricing pressure from our customers and competitors; fluctuation of commodity prices and prices of our products; fluctuation of commodity prices and prices of our products; our exposure to product liability, warranty, casualty, construction defect, contract, tort, employment and other claims and legal proceedings; our exposure to product liability, warranty, casualty, construction defect, contract, tort, employment and other claims and legal proceedings; our ability to maintain profitability; our ability to maintain profitability; our ability to retain our key employees and to attract and retain new qualified employees, while controlling our labor costs; our ability to retain our key employees and to attract and retain new qualified employees, while controlling our labor costs; product shortages, loss of key suppliers or failure to develop relationships with qualified suppliers, and our dependence on third-party suppliers and product shortages, loss of key suppliers or failure to develop relationships with qualified suppliers, and our dependence on third-party suppliers and our ability to identify or respond effectively to consumer needs, expectations, market conditions or trends; our ability to identify or respond effectively to consumer needs, expectations, market conditions or trends; manufacturers; manufacturers; the implementation of our supply chain and technology initiatives; the implementation of our supply chain and technology initiatives; the impact of long-term non-cancelable leases at our facilities; the impact of long-term non-cancelable leases at our facilities; our ability to effectively manage inventory and working capital; our ability to effectively manage inventory and working capital; the credit risk from our customers; the credit risk from our customers; the impact of pricing pressure from our customers; the impact of pricing pressure from our customers; our ability to successfully implement our growth strategy; our ability to successfully implement our growth strategy; the impact of federal, state, local and other laws and regulations; the impact of federal, state, local and other laws and regulations; the impact of changes in legislation and government policy; the impact of changes in legislation and government policy; the impact of unexpected changes in our tax provisions and adoption of new tax legislation; the impact of unexpected changes in our tax provisions and adoption of new tax legislation; our ability to utilize our net operating loss carryforwards; our ability to utilize our net operating loss carryforwards; natural or man-made disruptions to our distribution and manufacturing facilities; natural or man-made disruptions to our distribution and manufacturing facilities; our exposure to environmental liabilities and subjection to environmental laws and regulation; our exposure to environmental liabilities and subjection to environmental laws and regulation; the impact of health and safety laws and regulations; the impact of health and safety laws and regulations; the impact of disruptions to our information technology systems; the impact of disruptions to our information technology systems; cybersecurity risks; cybersecurity risks; our exposure to losses if our insurance coverage is insufficient; our exposure to losses if our insurance coverage is insufficient; our ability to operate on multiple Enterprise Resource Planning ("ERP") information systems and convert multiple systems to a single system; our ability to operate on multiple Enterprise Resource Planning ("ERP") information systems and convert multiple systems to a single system; the impact of our indebtedness; and the impact of our indebtedness; and the various financial covenants in our secured credit agreement and senior secured notes indenture. the various financial covenants in our secured credit agreement and senior secured notes indenture. Certain of these and other factors are discussed in more detail in “Item 1A. Risk Factors” of this Annual Report on Form 10-K. The forward-looking statements Certain of these and other factors are discussed in more detail in “Item 1A. Risk Factors” of this Annual Report on Form 10-K. The forward-looking statements included herein are made only as of the date of this Annual Report on Form 10-K and we undertake no obligation to publicly update or revise any forward-looking included herein are made only as of the date of this Annual Report on Form 10-K and we undertake no obligation to publicly update or revise any forward-looking statement made by us or on our behalf, whether as a result of new information, future developments, subsequent events or circumstances or otherwise. statement made by us or on our behalf, whether as a result of new information, future developments, subsequent events or circumstances or otherwise. 1 1 BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES Table of Contents to Form 10-K Table of Contents to Form 10-K Cautionary Statement with Respect to Forward-Looking Statements Cautionary Statement with Respect to Forward-Looking Statements Business Business Risk Factors Risk Factors Unresolved Staff Comments Unresolved Staff Comments Properties Properties Legal Proceedings Legal Proceedings Mine Safety Disclosures Mine Safety Disclosures Selected Financial Data Selected Financial Data Controls and Procedures Controls and Procedures Other Information Other Information Item 1. Item 1. Item 1A. Item 1A. Item 1B. Item 1B. Item 2. Item 2. Item 3. Item 3. Item 4. Item 4. Item 5 Item 5 Item 6. Item 6. Item 7. Item 7. Item 8. Item 8. Item 9. Item 9. Item 9A. Item 9A. Item 9B. Item 9B. Item 10. Item 10. Item 11. Item 11. Item 12. Item 12. Item 13. Item 13. Item 14. Item 14. Item 15. Item 15. Item 16. Item 16. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Directors, Executive Officers and Corporate Governance Directors, Executive Officers and Corporate Governance Executive Compensation Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services Principal Accountant Fees and Services Exhibits and Financial Statement Schedules Exhibits and Financial Statement Schedules Form 10-K Summary Form 10-K Summary Signatures Signatures PART 1 PART 1 PART II PART II PART III PART III PART IV PART IV i i 2 2 7 7 21 21 22 22 22 22 22 22 23 23 25 25 26 26 44 44 45 45 82 82 82 82 82 82 83 83 83 83 83 83 84 84 84 84 85 85 87 87 88 88 Some of the statements contained in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of Section 27A of the Securities Some of the statements contained in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to expectations, beliefs, Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts or present facts or projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts or present facts or conditions. In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” conditions. In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or the negative of these terms or other comparable terminology. “estimates,” “predicts,” “potential” or the negative of these terms or other comparable terminology. The forward-looking statements reflect our views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may The forward-looking statements reflect our views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the cause events or our actual activities or results to differ significantly from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, actions, levels of activity, performance or achievements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. These factors achievements. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements. These factors include without limitation: include without limitation: • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • the state of the homebuilding industry and repair and remodeling activity, the economy and the credit markets; the state of the homebuilding industry and repair and remodeling activity, the economy and the credit markets; the impact of potential changes in our customer or product sales mix; the impact of potential changes in our customer or product sales mix; our concentration of business in the Texas, California and Georgia markets; our concentration of business in the Texas, California and Georgia markets; the potential loss of significant customers or a reduction in the quantity of products they purchase; the potential loss of significant customers or a reduction in the quantity of products they purchase; seasonality and cyclicality of the building products supply and services industry; seasonality and cyclicality of the building products supply and services industry; competitive industry pressures and competitive pricing pressure from our customers and competitors; competitive industry pressures and competitive pricing pressure from our customers and competitors; fluctuation of commodity prices and prices of our products; fluctuation of commodity prices and prices of our products; our exposure to product liability, warranty, casualty, construction defect, contract, tort, employment and other claims and legal proceedings; our exposure to product liability, warranty, casualty, construction defect, contract, tort, employment and other claims and legal proceedings; our ability to maintain profitability; our ability to maintain profitability; our ability to retain our key employees and to attract and retain new qualified employees, while controlling our labor costs; our ability to retain our key employees and to attract and retain new qualified employees, while controlling our labor costs; product shortages, loss of key suppliers or failure to develop relationships with qualified suppliers, and our dependence on third-party suppliers and product shortages, loss of key suppliers or failure to develop relationships with qualified suppliers, and our dependence on third-party suppliers and manufacturers; manufacturers; the implementation of our supply chain and technology initiatives; the implementation of our supply chain and technology initiatives; the impact of long-term non-cancelable leases at our facilities; the impact of long-term non-cancelable leases at our facilities; our ability to effectively manage inventory and working capital; our ability to effectively manage inventory and working capital; the credit risk from our customers; the credit risk from our customers; the impact of pricing pressure from our customers; the impact of pricing pressure from our customers; our ability to identify or respond effectively to consumer needs, expectations, market conditions or trends; our ability to identify or respond effectively to consumer needs, expectations, market conditions or trends; our ability to successfully implement our growth strategy; our ability to successfully implement our growth strategy; the impact of federal, state, local and other laws and regulations; the impact of federal, state, local and other laws and regulations; the impact of changes in legislation and government policy; the impact of changes in legislation and government policy; the impact of unexpected changes in our tax provisions and adoption of new tax legislation; the impact of unexpected changes in our tax provisions and adoption of new tax legislation; our ability to utilize our net operating loss carryforwards; our ability to utilize our net operating loss carryforwards; natural or man-made disruptions to our distribution and manufacturing facilities; natural or man-made disruptions to our distribution and manufacturing facilities; our exposure to environmental liabilities and subjection to environmental laws and regulation; our exposure to environmental liabilities and subjection to environmental laws and regulation; the impact of health and safety laws and regulations; the impact of health and safety laws and regulations; the impact of disruptions to our information technology systems; the impact of disruptions to our information technology systems; cybersecurity risks; cybersecurity risks; our exposure to losses if our insurance coverage is insufficient; our exposure to losses if our insurance coverage is insufficient; our ability to operate on multiple Enterprise Resource Planning ("ERP") information systems and convert multiple systems to a single system; our ability to operate on multiple Enterprise Resource Planning ("ERP") information systems and convert multiple systems to a single system; the impact of our indebtedness; and the impact of our indebtedness; and the various financial covenants in our secured credit agreement and senior secured notes indenture. the various financial covenants in our secured credit agreement and senior secured notes indenture. Certain of these and other factors are discussed in more detail in “Item 1A. Risk Factors” of this Annual Report on Form 10-K. The forward-looking statements Certain of these and other factors are discussed in more detail in “Item 1A. Risk Factors” of this Annual Report on Form 10-K. The forward-looking statements included herein are made only as of the date of this Annual Report on Form 10-K and we undertake no obligation to publicly update or revise any forward-looking included herein are made only as of the date of this Annual Report on Form 10-K and we undertake no obligation to publicly update or revise any forward-looking statement made by us or on our behalf, whether as a result of new information, future developments, subsequent events or circumstances or otherwise. statement made by us or on our behalf, whether as a result of new information, future developments, subsequent events or circumstances or otherwise. 1 1 Item 1. Business Item 1. Business Overview Overview PART I PART I BMC Stock Holdings, Inc. is one of the leading providers of diversified building products and services in the U.S. residential construction market. Our objective is BMC Stock Holdings, Inc. is one of the leading providers of diversified building products and services in the U.S. residential construction market. Our objective is to provide best-in-class customer service and value-added products to our customers, which are primarily single- and multi-family home builders and professional to provide best-in-class customer service and value-added products to our customers, which are primarily single- and multi-family home builders and professional remodelers. Our product offerings include lumber and lumber sheet goods and an array of value-added products, including millwork, doors, windows and structural remodelers. Our product offerings include lumber and lumber sheet goods and an array of value-added products, including millwork, doors, windows and structural components such as engineered wood products (“EWP”), floor and roof trusses and wall panels. Our whole-house framing solution, Ready-Frame ®, which is one components such as engineered wood products (“EWP”), floor and roof trusses and wall panels. Our whole-house framing solution, Ready-Frame ®, which is one of our fastest growing product offerings, saves builders both time and money and improves job site safety. We also offer our customers important services, such as of our fastest growing product offerings, saves builders both time and money and improves job site safety. We also offer our customers important services, such as design, product specification, installation and installation management. design, product specification, installation and installation management. The 18 states in which we operate accounted for approximately 65% of 2017 U.S. single-family housing permits according to the U.S. Census Bureau. Our primary The 18 states in which we operate accounted for approximately 65% of 2017 U.S. single-family housing permits according to the U.S. Census Bureau. Our primary operating regions include the South and West regions of the United States (as defined by the U.S. Census Bureau), with a significant portion of our net sales operating regions include the South and West regions of the United States (as defined by the U.S. Census Bureau), with a significant portion of our net sales derived from markets within Texas, California and Georgia. Given the local nature of our business, we locate our facilities in close proximity to our key customers derived from markets within Texas, California and Georgia. Given the local nature of our business, we locate our facilities in close proximity to our key customers and often co-locate multiple operations in one facility to increase customer service and efficiency. and often co-locate multiple operations in one facility to increase customer service and efficiency. house framing. house framing. The Company is a Delaware corporation and its common stock is listed on the Nasdaq Stock Market under the ticker symbol “BMCH.” The Company is a Delaware corporation and its common stock is listed on the Nasdaq Stock Market under the ticker symbol “BMCH.” Merger of Stock Building Supply Holdings, Inc. and Building Materials Holding Corporation Merger of Stock Building Supply Holdings, Inc. and Building Materials Holding Corporation employees. employees. We group our building products and services into four product categories: (i) structural components, (ii) lumber & lumber sheet goods, (iii) millwork, doors & We group our building products and services into four product categories: (i) structural components, (ii) lumber & lumber sheet goods, (iii) millwork, doors & windows, and (iv) other building products & services. For the year ended December 31, 2017 , our sales of structural components and millwork, doors & windows windows, and (iv) other building products & services. For the year ended December 31, 2017 , our sales of structural components and millwork, doors & windows products represented 42% of net sales. Each of these categories includes both manufactured and distributed products. Products in these categories typically carry a products represented 42% of net sales. Each of these categories includes both manufactured and distributed products. Products in these categories typically carry a higher gross margin and provide us with opportunities to cross-sell other products and services. higher gross margin and provide us with opportunities to cross-sell other products and services. Structural components . Structural components are factory-built substitutes for job-site framing and include floor trusses, roof trusses, wall panels and EWP that Structural components . Structural components are factory-built substitutes for job-site framing and include floor trusses, roof trusses, wall panels and EWP that in many cases we design and cut for each home. Roof trusses, floor trusses and wall panels are built in a factory controlled environment. Engineered floors and in many cases we design and cut for each home. Roof trusses, floor trusses and wall panels are built in a factory controlled environment. Engineered floors and beams are cut to the required size and packaged for the given application at many of our locations. Without structural components, builders construct these items beams are cut to the required size and packaged for the given application at many of our locations. Without structural components, builders construct these items on site, where weather and variable labor quality can negatively impact construction cost, quality and installation time. on site, where weather and variable labor quality can negatively impact construction cost, quality and installation time. In addition to increased efficiency and improved quality, a primary benefit of using structural components is shortening cycle time from start to completion, In addition to increased efficiency and improved quality, a primary benefit of using structural components is shortening cycle time from start to completion, eliminating job-site waste and clutter and minimizing the amount of skilled labor that must be sourced for a job site. eliminating job-site waste and clutter and minimizing the amount of skilled labor that must be sourced for a job site. Lumber & lumber sheet goods . Lumber & lumber sheet goods include dimensional lumber, plywood and oriented strand board ("OSB") products used in on-site Lumber & lumber sheet goods . Lumber & lumber sheet goods include dimensional lumber, plywood and oriented strand board ("OSB") products used in on-site Millwork, doors & windows . The millwork, doors & windows products category includes interior and exterior doors, windows, interior trim, custom millwork, Millwork, doors & windows . The millwork, doors & windows products category includes interior and exterior doors, windows, interior trim, custom millwork, moldings, stairs and stair parts, and cabinetry, among other products. We pre-hang interior and exterior doors in many of our markets, which consists of attaching moldings, stairs and stair parts, and cabinetry, among other products. We pre-hang interior and exterior doors in many of our markets, which consists of attaching hinges and door jambs to a door slab, thereby reducing on-site installation time and providing a higher quality finished door unit than those constructed on site. hinges and door jambs to a door slab, thereby reducing on-site installation time and providing a higher quality finished door unit than those constructed on site. Selecting, designing and managing the procurement of the proper window package for performance and architectural reasons is a key service provided by our Selecting, designing and managing the procurement of the proper window package for performance and architectural reasons is a key service provided by our On December 1, 2015, Stock Building Supply Holdings, Inc. (“SBS” or “Legacy SBS”) completed a business combination with privately-held Building Materials On December 1, 2015, Stock Building Supply Holdings, Inc. (“SBS” or “Legacy SBS”) completed a business combination with privately-held Building Materials Holding Corporation (“BMHC" or "Legacy BMHC") in accordance with the terms of the Agreement and Plan of Merger, dated as of June 2, 2015, by and between Holding Corporation (“BMHC" or "Legacy BMHC") in accordance with the terms of the Agreement and Plan of Merger, dated as of June 2, 2015, by and between SBS and BMHC (the “Merger Agreement”), pursuant to which BMHC merged with and into SBS (the “Merger”). As a result of the business combination, SBS SBS and BMHC (the “Merger Agreement”), pursuant to which BMHC merged with and into SBS (the “Merger”). As a result of the business combination, SBS survived the Merger and in connection therewith changed its name to BMC Stock Holdings, Inc. survived the Merger and in connection therewith changed its name to BMC Stock Holdings, Inc. Other building products & services . Other building products & services consist of various products, including hardware, wood boards, gypsum, insulation, Other building products & services . Other building products & services consist of various products, including hardware, wood boards, gypsum, insulation, roofing, siding and flooring. This category also includes design assistance and professional installation services of products spanning most of our product roofing, siding and flooring. This category also includes design assistance and professional installation services of products spanning most of our product categories. Through our installation services program, we offer scheduling, supplier and subcontractor management, and other services to many of our customers. categories. Through our installation services program, we offer scheduling, supplier and subcontractor management, and other services to many of our customers. We also provide professional estimating, product advisory and product display services that assist homebuilders and their clients in selecting the appropriate mix of We also provide professional estimating, product advisory and product display services that assist homebuilders and their clients in selecting the appropriate mix of All references to “BMC,” “we,” “us,” “our” or the “Company” in this Annual Report on Form 10-K mean BMC Stock Holdings, Inc. All references to “BMC,” “we,” “us,” “our” or the “Company” in this Annual Report on Form 10-K mean BMC Stock Holdings, Inc. Under generally accepted accounting principles in the United States, the Merger was treated as a “reverse merger” under the acquisition method of accounting. For Under generally accepted accounting principles in the United States, the Merger was treated as a “reverse merger” under the acquisition method of accounting. For accounting purposes, BMHC is considered to have acquired SBS. Consequently, the historical financial statements of the Company reflect only the operations and accounting purposes, BMHC is considered to have acquired SBS. Consequently, the historical financial statements of the Company reflect only the operations and financial condition of BMHC prior to the Merger. The operating results of SBS are included as part of the Company's reported results beginning on the closing date financial condition of BMHC prior to the Merger. The operating results of SBS are included as part of the Company's reported results beginning on the closing date of the Merger. of the Merger. Our Customers Our Customers products to meet their needs. products to meet their needs. Manufacturing Manufacturing Sales and Marketing Sales and Marketing Our manufacturing facilities and related design capabilities are utilized to improve quality, cost and service to our homebuilder and repair and professional Our manufacturing facilities and related design capabilities are utilized to improve quality, cost and service to our homebuilder and repair and professional remodeling customers. We utilize specialized assembly and manufacturing technology and various design software packages in our manufacturing and assembly remodeling customers. We utilize specialized assembly and manufacturing technology and various design software packages in our manufacturing and assembly activities. We manufacture and assemble products within two of our product categories: structural components and millwork, doors & windows. activities. We manufacture and assemble products within two of our product categories: structural components and millwork, doors & windows. We serve a broad customer base across 43 metropolitan areas in 18 states that includes a mix of large-scale production homebuilders, custom homebuilders, multi- We serve a broad customer base across 43 metropolitan areas in 18 states that includes a mix of large-scale production homebuilders, custom homebuilders, multi- family builders and professional repair and remodeling contractors. Our largest 10 customers accounted for approximately 20% of our 2017 net sales, with no family builders and professional repair and remodeling contractors. Our largest 10 customers accounted for approximately 20% of our 2017 net sales, with no single customer accounting for more than 6% of our 2017 net sales. Our largest customers are comprised primarily of the large production homebuilders, including single customer accounting for more than 6% of our 2017 net sales. Our largest customers are comprised primarily of the large production homebuilders, including publicly traded companies such as D.R. Horton, Inc., Hovnanian Enterprises, Inc., Lennar Corporation, PulteGroup, Inc. and Toll Brothers, Inc. In addition to these publicly traded companies such as D.R. Horton, Inc., Hovnanian Enterprises, Inc., Lennar Corporation, PulteGroup, Inc. and Toll Brothers, Inc. In addition to these large production homebuilders, we also service and supply regional and local custom homebuilders. We also serve professional residential remodeling contractors large production homebuilders, we also service and supply regional and local custom homebuilders. We also serve professional residential remodeling contractors and multi-family and light commercial contractors in most of our markets. and multi-family and light commercial contractors in most of our markets. Our Products and Services Our Products and Services We seek to attract and retain customers through customer service, product quality, a range of product and service offerings and competitive pricing. This strategy is We seek to attract and retain customers through customer service, product quality, a range of product and service offerings and competitive pricing. This strategy is centered on building and maintaining strong customer relationships. We strive to add value for homebuilders through solution-based selling, improved product centered on building and maintaining strong customer relationships. We strive to add value for homebuilders through solution-based selling, improved product selection and procurement processes, lower material costs and general project coordination and support. selection and procurement processes, lower material costs and general project coordination and support. Our experienced sales and service professionals advise the homebuilder or contractor in areas such as opportunities for cost optimization, increased building or Our experienced sales and service professionals advise the homebuilder or contractor in areas such as opportunities for cost optimization, increased building or project efficiencies, new products and regional product preferences. The team coordinates a sequence of site deliveries with the customer. Our large delivery fleet project efficiencies, new products and regional product preferences. The team coordinates a sequence of site deliveries with the customer. Our large delivery fleet and inventory management systems enable us to provide “just-in-time” product delivery. We believe this level of service is valued by our customers and generates and inventory management systems enable us to provide “just-in-time” product delivery. We believe this level of service is valued by our customers and generates customer loyalty. At January 31, 2018 , we employed approximately 950 sales professionals. customer loyalty. At January 31, 2018 , we employed approximately 950 sales professionals. We provide a wide variety of building products and services directly to homebuilder and professional contractor customers. We offer a broad range of products We provide a wide variety of building products and services directly to homebuilder and professional contractor customers. We offer a broad range of products sourced through a network of suppliers with whom we have strategic supplier agreements. These products are available through our distribution locations and, in sourced through a network of suppliers with whom we have strategic supplier agreements. These products are available through our distribution locations and, in most instances, delivered to the job site. We manufacture floor trusses, roof trusses, wall panels, stairs, specialty millwork, windows and pre-hung doors. We have most instances, delivered to the job site. We manufacture floor trusses, roof trusses, wall panels, stairs, specialty millwork, windows and pre-hung doors. We have developed several proprietary capabilities to design, pre-cut, label and bundle lumber and lumber sheet goods into customized framing packages, which we have developed several proprietary capabilities to design, pre-cut, label and bundle lumber and lumber sheet goods into customized framing packages, which we have branded Ready-Frame ® . We also provide an extensive range of installation services and special order products. branded Ready-Frame ® . We also provide an extensive range of installation services and special order products. Materials and Supplier Relationships Materials and Supplier Relationships We purchase inventory primarily for distribution, some of which is also utilized in our manufacturing plants. The key materials we purchase include dimensional We purchase inventory primarily for distribution, some of which is also utilized in our manufacturing plants. The key materials we purchase include dimensional lumber, OSB, EWP, windows, doors and millwork. Our largest suppliers are national lumber and wood products producers and distributors such as Boise Cascade lumber, OSB, EWP, windows, doors and millwork. Our largest suppliers are national lumber and wood products producers and distributors such as Boise Cascade Company, Hampton Lumber, LP, Interfor Corporation, Company, Hampton Lumber, LP, Interfor Corporation, 2 2 3 3 Item 1. Business Item 1. Business Overview Overview PART I PART I BMC Stock Holdings, Inc. is one of the leading providers of diversified building products and services in the U.S. residential construction market. Our objective is BMC Stock Holdings, Inc. is one of the leading providers of diversified building products and services in the U.S. residential construction market. Our objective is to provide best-in-class customer service and value-added products to our customers, which are primarily single- and multi-family home builders and professional to provide best-in-class customer service and value-added products to our customers, which are primarily single- and multi-family home builders and professional remodelers. Our product offerings include lumber and lumber sheet goods and an array of value-added products, including millwork, doors, windows and structural remodelers. Our product offerings include lumber and lumber sheet goods and an array of value-added products, including millwork, doors, windows and structural components such as engineered wood products (“EWP”), floor and roof trusses and wall panels. Our whole-house framing solution, Ready-Frame ®, which is one components such as engineered wood products (“EWP”), floor and roof trusses and wall panels. Our whole-house framing solution, Ready-Frame ®, which is one of our fastest growing product offerings, saves builders both time and money and improves job site safety. We also offer our customers important services, such as of our fastest growing product offerings, saves builders both time and money and improves job site safety. We also offer our customers important services, such as design, product specification, installation and installation management. design, product specification, installation and installation management. The 18 states in which we operate accounted for approximately 65% of 2017 U.S. single-family housing permits according to the U.S. Census Bureau. Our primary The 18 states in which we operate accounted for approximately 65% of 2017 U.S. single-family housing permits according to the U.S. Census Bureau. Our primary operating regions include the South and West regions of the United States (as defined by the U.S. Census Bureau), with a significant portion of our net sales operating regions include the South and West regions of the United States (as defined by the U.S. Census Bureau), with a significant portion of our net sales derived from markets within Texas, California and Georgia. Given the local nature of our business, we locate our facilities in close proximity to our key customers derived from markets within Texas, California and Georgia. Given the local nature of our business, we locate our facilities in close proximity to our key customers and often co-locate multiple operations in one facility to increase customer service and efficiency. and often co-locate multiple operations in one facility to increase customer service and efficiency. The Company is a Delaware corporation and its common stock is listed on the Nasdaq Stock Market under the ticker symbol “BMCH.” The Company is a Delaware corporation and its common stock is listed on the Nasdaq Stock Market under the ticker symbol “BMCH.” Merger of Stock Building Supply Holdings, Inc. and Building Materials Holding Corporation Merger of Stock Building Supply Holdings, Inc. and Building Materials Holding Corporation On December 1, 2015, Stock Building Supply Holdings, Inc. (“SBS” or “Legacy SBS”) completed a business combination with privately-held Building Materials On December 1, 2015, Stock Building Supply Holdings, Inc. (“SBS” or “Legacy SBS”) completed a business combination with privately-held Building Materials Holding Corporation (“BMHC" or "Legacy BMHC") in accordance with the terms of the Agreement and Plan of Merger, dated as of June 2, 2015, by and between Holding Corporation (“BMHC" or "Legacy BMHC") in accordance with the terms of the Agreement and Plan of Merger, dated as of June 2, 2015, by and between SBS and BMHC (the “Merger Agreement”), pursuant to which BMHC merged with and into SBS (the “Merger”). As a result of the business combination, SBS SBS and BMHC (the “Merger Agreement”), pursuant to which BMHC merged with and into SBS (the “Merger”). As a result of the business combination, SBS survived the Merger and in connection therewith changed its name to BMC Stock Holdings, Inc. survived the Merger and in connection therewith changed its name to BMC Stock Holdings, Inc. All references to “BMC,” “we,” “us,” “our” or the “Company” in this Annual Report on Form 10-K mean BMC Stock Holdings, Inc. All references to “BMC,” “we,” “us,” “our” or the “Company” in this Annual Report on Form 10-K mean BMC Stock Holdings, Inc. Under generally accepted accounting principles in the United States, the Merger was treated as a “reverse merger” under the acquisition method of accounting. For Under generally accepted accounting principles in the United States, the Merger was treated as a “reverse merger” under the acquisition method of accounting. For accounting purposes, BMHC is considered to have acquired SBS. Consequently, the historical financial statements of the Company reflect only the operations and accounting purposes, BMHC is considered to have acquired SBS. Consequently, the historical financial statements of the Company reflect only the operations and financial condition of BMHC prior to the Merger. The operating results of SBS are included as part of the Company's reported results beginning on the closing date financial condition of BMHC prior to the Merger. The operating results of SBS are included as part of the Company's reported results beginning on the closing date of the Merger. of the Merger. Our Customers Our Customers Our Products and Services Our Products and Services We serve a broad customer base across 43 metropolitan areas in 18 states that includes a mix of large-scale production homebuilders, custom homebuilders, multi- We serve a broad customer base across 43 metropolitan areas in 18 states that includes a mix of large-scale production homebuilders, custom homebuilders, multi- family builders and professional repair and remodeling contractors. Our largest 10 customers accounted for approximately 20% of our 2017 net sales, with no family builders and professional repair and remodeling contractors. Our largest 10 customers accounted for approximately 20% of our 2017 net sales, with no single customer accounting for more than 6% of our 2017 net sales. Our largest customers are comprised primarily of the large production homebuilders, including single customer accounting for more than 6% of our 2017 net sales. Our largest customers are comprised primarily of the large production homebuilders, including publicly traded companies such as D.R. Horton, Inc., Hovnanian Enterprises, Inc., Lennar Corporation, PulteGroup, Inc. and Toll Brothers, Inc. In addition to these publicly traded companies such as D.R. Horton, Inc., Hovnanian Enterprises, Inc., Lennar Corporation, PulteGroup, Inc. and Toll Brothers, Inc. In addition to these large production homebuilders, we also service and supply regional and local custom homebuilders. We also serve professional residential remodeling contractors large production homebuilders, we also service and supply regional and local custom homebuilders. We also serve professional residential remodeling contractors and multi-family and light commercial contractors in most of our markets. and multi-family and light commercial contractors in most of our markets. We group our building products and services into four product categories: (i) structural components, (ii) lumber & lumber sheet goods, (iii) millwork, doors & We group our building products and services into four product categories: (i) structural components, (ii) lumber & lumber sheet goods, (iii) millwork, doors & windows, and (iv) other building products & services. For the year ended December 31, 2017 , our sales of structural components and millwork, doors & windows windows, and (iv) other building products & services. For the year ended December 31, 2017 , our sales of structural components and millwork, doors & windows products represented 42% of net sales. Each of these categories includes both manufactured and distributed products. Products in these categories typically carry a products represented 42% of net sales. Each of these categories includes both manufactured and distributed products. Products in these categories typically carry a higher gross margin and provide us with opportunities to cross-sell other products and services. higher gross margin and provide us with opportunities to cross-sell other products and services. Structural components . Structural components are factory-built substitutes for job-site framing and include floor trusses, roof trusses, wall panels and EWP that Structural components . Structural components are factory-built substitutes for job-site framing and include floor trusses, roof trusses, wall panels and EWP that in many cases we design and cut for each home. Roof trusses, floor trusses and wall panels are built in a factory controlled environment. Engineered floors and in many cases we design and cut for each home. Roof trusses, floor trusses and wall panels are built in a factory controlled environment. Engineered floors and beams are cut to the required size and packaged for the given application at many of our locations. Without structural components, builders construct these items beams are cut to the required size and packaged for the given application at many of our locations. Without structural components, builders construct these items on site, where weather and variable labor quality can negatively impact construction cost, quality and installation time. on site, where weather and variable labor quality can negatively impact construction cost, quality and installation time. In addition to increased efficiency and improved quality, a primary benefit of using structural components is shortening cycle time from start to completion, In addition to increased efficiency and improved quality, a primary benefit of using structural components is shortening cycle time from start to completion, eliminating job-site waste and clutter and minimizing the amount of skilled labor that must be sourced for a job site. eliminating job-site waste and clutter and minimizing the amount of skilled labor that must be sourced for a job site. Lumber & lumber sheet goods . Lumber & lumber sheet goods include dimensional lumber, plywood and oriented strand board ("OSB") products used in on-site Lumber & lumber sheet goods . Lumber & lumber sheet goods include dimensional lumber, plywood and oriented strand board ("OSB") products used in on-site house framing. house framing. Millwork, doors & windows . The millwork, doors & windows products category includes interior and exterior doors, windows, interior trim, custom millwork, Millwork, doors & windows . The millwork, doors & windows products category includes interior and exterior doors, windows, interior trim, custom millwork, moldings, stairs and stair parts, and cabinetry, among other products. We pre-hang interior and exterior doors in many of our markets, which consists of attaching moldings, stairs and stair parts, and cabinetry, among other products. We pre-hang interior and exterior doors in many of our markets, which consists of attaching hinges and door jambs to a door slab, thereby reducing on-site installation time and providing a higher quality finished door unit than those constructed on site. hinges and door jambs to a door slab, thereby reducing on-site installation time and providing a higher quality finished door unit than those constructed on site. Selecting, designing and managing the procurement of the proper window package for performance and architectural reasons is a key service provided by our Selecting, designing and managing the procurement of the proper window package for performance and architectural reasons is a key service provided by our employees. employees. Other building products & services . Other building products & services consist of various products, including hardware, wood boards, gypsum, insulation, Other building products & services . Other building products & services consist of various products, including hardware, wood boards, gypsum, insulation, roofing, siding and flooring. This category also includes design assistance and professional installation services of products spanning most of our product roofing, siding and flooring. This category also includes design assistance and professional installation services of products spanning most of our product categories. Through our installation services program, we offer scheduling, supplier and subcontractor management, and other services to many of our customers. categories. Through our installation services program, we offer scheduling, supplier and subcontractor management, and other services to many of our customers. We also provide professional estimating, product advisory and product display services that assist homebuilders and their clients in selecting the appropriate mix of We also provide professional estimating, product advisory and product display services that assist homebuilders and their clients in selecting the appropriate mix of products to meet their needs. products to meet their needs. Manufacturing Manufacturing Our manufacturing facilities and related design capabilities are utilized to improve quality, cost and service to our homebuilder and repair and professional Our manufacturing facilities and related design capabilities are utilized to improve quality, cost and service to our homebuilder and repair and professional remodeling customers. We utilize specialized assembly and manufacturing technology and various design software packages in our manufacturing and assembly remodeling customers. We utilize specialized assembly and manufacturing technology and various design software packages in our manufacturing and assembly activities. We manufacture and assemble products within two of our product categories: structural components and millwork, doors & windows. activities. We manufacture and assemble products within two of our product categories: structural components and millwork, doors & windows. Sales and Marketing Sales and Marketing We seek to attract and retain customers through customer service, product quality, a range of product and service offerings and competitive pricing. This strategy is We seek to attract and retain customers through customer service, product quality, a range of product and service offerings and competitive pricing. This strategy is centered on building and maintaining strong customer relationships. We strive to add value for homebuilders through solution-based selling, improved product centered on building and maintaining strong customer relationships. We strive to add value for homebuilders through solution-based selling, improved product selection and procurement processes, lower material costs and general project coordination and support. selection and procurement processes, lower material costs and general project coordination and support. Our experienced sales and service professionals advise the homebuilder or contractor in areas such as opportunities for cost optimization, increased building or Our experienced sales and service professionals advise the homebuilder or contractor in areas such as opportunities for cost optimization, increased building or project efficiencies, new products and regional product preferences. The team coordinates a sequence of site deliveries with the customer. Our large delivery fleet project efficiencies, new products and regional product preferences. The team coordinates a sequence of site deliveries with the customer. Our large delivery fleet and inventory management systems enable us to provide “just-in-time” product delivery. We believe this level of service is valued by our customers and generates and inventory management systems enable us to provide “just-in-time” product delivery. We believe this level of service is valued by our customers and generates customer loyalty. At January 31, 2018 , we employed approximately 950 sales professionals. customer loyalty. At January 31, 2018 , we employed approximately 950 sales professionals. We provide a wide variety of building products and services directly to homebuilder and professional contractor customers. We offer a broad range of products We provide a wide variety of building products and services directly to homebuilder and professional contractor customers. We offer a broad range of products sourced through a network of suppliers with whom we have strategic supplier agreements. These products are available through our distribution locations and, in sourced through a network of suppliers with whom we have strategic supplier agreements. These products are available through our distribution locations and, in most instances, delivered to the job site. We manufacture floor trusses, roof trusses, wall panels, stairs, specialty millwork, windows and pre-hung doors. We have most instances, delivered to the job site. We manufacture floor trusses, roof trusses, wall panels, stairs, specialty millwork, windows and pre-hung doors. We have developed several proprietary capabilities to design, pre-cut, label and bundle lumber and lumber sheet goods into customized framing packages, which we have developed several proprietary capabilities to design, pre-cut, label and bundle lumber and lumber sheet goods into customized framing packages, which we have branded Ready-Frame ® . We also provide an extensive range of installation services and special order products. branded Ready-Frame ® . We also provide an extensive range of installation services and special order products. Materials and Supplier Relationships Materials and Supplier Relationships We purchase inventory primarily for distribution, some of which is also utilized in our manufacturing plants. The key materials we purchase include dimensional We purchase inventory primarily for distribution, some of which is also utilized in our manufacturing plants. The key materials we purchase include dimensional lumber, OSB, EWP, windows, doors and millwork. Our largest suppliers are national lumber and wood products producers and distributors such as Boise Cascade lumber, OSB, EWP, windows, doors and millwork. Our largest suppliers are national lumber and wood products producers and distributors such as Boise Cascade Company, Hampton Lumber, LP, Interfor Corporation, Company, Hampton Lumber, LP, Interfor Corporation, 2 2 3 3 Norbord Inc., West Fraser Timber Co. Ltd. and Weyerhaeuser Company and building products manufacturers such as James Hardie Industries plc, JELD-WEN Norbord Inc., West Fraser Timber Co. Ltd. and Weyerhaeuser Company and building products manufacturers such as James Hardie Industries plc, JELD-WEN Holding, Inc., Masonite International Corp, Metrie, Inc. and MI Windows and Doors, Inc. We believe there is sufficient supply in the marketplace to source most Holding, Inc., Masonite International Corp, Metrie, Inc. and MI Windows and Doors, Inc. We believe there is sufficient supply in the marketplace to source most of our requirements without reliance on any particular supplier and that our diversity of suppliers affords us purchasing flexibility. We also work with our suppliers of our requirements without reliance on any particular supplier and that our diversity of suppliers affords us purchasing flexibility. We also work with our suppliers to ensure that we have sufficient adaptability and flexibility to service our customers' needs as they evolve and as their markets grow. For certain customers, we to ensure that we have sufficient adaptability and flexibility to service our customers' needs as they evolve and as their markets grow. For certain customers, we institute purchasing programs on raw materials such as OSB to align portions of our procurement costs with our customer pricing commitments. We balance our institute purchasing programs on raw materials such as OSB to align portions of our procurement costs with our customer pricing commitments. We balance our lumber and OSB purchases with a mix of contract and spot market purchases to ensure consistent quantities of product necessary to fulfill customer contracts, to lumber and OSB purchases with a mix of contract and spot market purchases to ensure consistent quantities of product necessary to fulfill customer contracts, to source products at the lowest possible cost and to minimize our exposure to the volatility of commodity lumber prices. source products at the lowest possible cost and to minimize our exposure to the volatility of commodity lumber prices. We currently source products from over 1,500 suppliers in order to reduce our dependence on any single company and to maximize purchasing leverage. For the We currently source products from over 1,500 suppliers in order to reduce our dependence on any single company and to maximize purchasing leverage. For the year ended December 31, 2017, no supplier accounted for more than 10% of our total materials purchases. We believe we are one of the largest customers for year ended December 31, 2017, no supplier accounted for more than 10% of our total materials purchases. We believe we are one of the largest customers for many of our suppliers, and therefore have significant purchasing leverage. many of our suppliers, and therefore have significant purchasing leverage. We seek to maintain strong relationships with our suppliers and we believe opportunities exist to improve purchasing terms in the future, including inventory We seek to maintain strong relationships with our suppliers and we believe opportunities exist to improve purchasing terms in the future, including inventory storage or “just-in-time” delivery to reduce our inventory carrying costs. storage or “just-in-time” delivery to reduce our inventory carrying costs. History History • • • • • • • • • • • • the volatility of lumber prices; the volatility of lumber prices; the cyclical nature of the homebuilding industry; the cyclical nature of the homebuilding industry; general economic conditions in the markets in which we compete; general economic conditions in the markets in which we compete; the pricing policies of our competitors; the pricing policies of our competitors; the production schedules of our customers; and the production schedules of our customers; and the effects of weather. the effects of weather. Seasonality and Other Factors Seasonality and Other Factors Our first and fourth quarters have historically been, and are generally expected to continue to be, adversely affected by weather patterns in some of our markets, Our first and fourth quarters have historically been, and are generally expected to continue to be, adversely affected by weather patterns in some of our markets, causing reduced construction activity. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to causing reduced construction activity. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to period arising from the following factors, among others: period arising from the following factors, among others: Competition Competition The lumber and building materials ("LBM") distribution industry in the United States is highly fragmented, with a number of retailers and distributors offering a The lumber and building materials ("LBM") distribution industry in the United States is highly fragmented, with a number of retailers and distributors offering a broad range of products and services. Demand for our products is largely driven by the level of activity in the U.S. residential construction market, particularly in broad range of products and services. Demand for our products is largely driven by the level of activity in the U.S. residential construction market, particularly in single-family new construction, which has experienced improving demand trends influenced by job growth, consumer confidence, market demographics, levels of single-family new construction, which has experienced improving demand trends influenced by job growth, consumer confidence, market demographics, levels of household formations, interest rate levels, inventories of available housing units and other external factors. According to the U.S. Census Bureau, from 2005 to household formations, interest rate levels, inventories of available housing units and other external factors. According to the U.S. Census Bureau, from 2005 to 2011, single-family housing starts in the United States declined by approximately 75% to 0.43 million, which was significantly less than the 50-year average rate 2011, single-family housing starts in the United States declined by approximately 75% to 0.43 million, which was significantly less than the 50-year average rate of approximately 1.0 million per year. Following several challenging years, single-family housing starts increased on a year-over-year basis each year from 2012 to of approximately 1.0 million per year. Following several challenging years, single-family housing starts increased on a year-over-year basis each year from 2012 to 2017, with starts in 2015 , 2016 and 2017 reaching 0.71 million, 0.78 million and 0.85 million, respectively. 2017, with starts in 2015 , 2016 and 2017 reaching 0.71 million, 0.78 million and 0.85 million, respectively. We compete in the professional building contractor segment of the U.S. residential new construction building products supply market (the “Pro Segment”). Our We compete in the professional building contractor segment of the U.S. residential new construction building products supply market (the “Pro Segment”). Our customers primarily consist of professional homebuilders and those that provide construction services to them. We focus on a distinctly different target market than customers primarily consist of professional homebuilders and those that provide construction services to them. We focus on a distinctly different target market than home center retailers such as The Home Depot and Lowe’s, which primarily serve do-it-yourself and remodeling customers. The principal methods of competition home center retailers such as The Home Depot and Lowe’s, which primarily serve do-it-yourself and remodeling customers. The principal methods of competition in the Pro Segment are developing long-term relationships with professional builders and retaining such customers by delivering a full range of high-quality in the Pro Segment are developing long-term relationships with professional builders and retaining such customers by delivering a full range of high-quality products on time and offering trade credit, competitive pricing, flexibility in transaction processing, and integrated service and product packages, as well as products on time and offering trade credit, competitive pricing, flexibility in transaction processing, and integrated service and product packages, as well as offering value-added products and services such as structural components and installation. Our market positions in the highly competitive Pro Segment create offering value-added products and services such as structural components and installation. Our market positions in the highly competitive Pro Segment create economies of scale that allow us to supply our customers cost-effectively, which both enhances profitability and reduces the risk of losing customers to economies of scale that allow us to supply our customers cost-effectively, which both enhances profitability and reduces the risk of losing customers to competitors. competitors. We have and will continue to experience competition for homebuilder business. Many of our competitors are predominantly small, privately owned companies, We have and will continue to experience competition for homebuilder business. Many of our competitors are predominantly small, privately owned companies, local and regional materials distributors, single or multi-site lumberyards, and truss manufacturing and millwork operations. Many of these companies have limited local and regional materials distributors, single or multi-site lumberyards, and truss manufacturing and millwork operations. Many of these companies have limited access to capital and lack sophisticated IT systems and large-scale procurement capabilities. We believe we have substantial competitive advantages over these access to capital and lack sophisticated IT systems and large-scale procurement capabilities. We believe we have substantial competitive advantages over these smaller competitors due to our long-standing customer relationships, local market knowledge, integrated supply chain and competitive pricing. We also face smaller competitors due to our long-standing customer relationships, local market knowledge, integrated supply chain and competitive pricing. We also face competition from large national lumber and building materials companies. For example, our largest competitors in our local markets often include one or more of competition from large national lumber and building materials companies. For example, our largest competitors in our local markets often include one or more of 84 Lumber Co., Builders FirstSource, Inc., Carter Lumber Company and US LBM Holdings, LLC. 84 Lumber Co., Builders FirstSource, Inc., Carter Lumber Company and US LBM Holdings, LLC. Employees Employees At January 31, 2018 , we had approximately 9,100 full-time equivalent employees, approximately 220 of whom were represented by unions. We believe that we At January 31, 2018 , we had approximately 9,100 full-time equivalent employees, approximately 220 of whom were represented by unions. We believe that we have good relations with our employees. have good relations with our employees. 4 4 BMHC was created in 1987 and initially operated approximately 20 lumber and building materials distribution facilities located in the West. The company grew BMHC was created in 1987 and initially operated approximately 20 lumber and building materials distribution facilities located in the West. The company grew primarily through acquisitions and expanded its footprint throughout the South and West regions of the United States. primarily through acquisitions and expanded its footprint throughout the South and West regions of the United States. SBS’s predecessor was founded as Carolina Builders Corporation in Raleigh, North Carolina in 1922 and began operating under the Stock Building Supply name SBS’s predecessor was founded as Carolina Builders Corporation in Raleigh, North Carolina in 1922 and began operating under the Stock Building Supply name in 2003. In addition, certain companies acquired by SBS were founded as early as 1822. On August 14, 2013, SBS completed its initial public offering. in 2003. In addition, certain companies acquired by SBS were founded as early as 1822. On August 14, 2013, SBS completed its initial public offering. On December 1, 2015, BMHC and SBS completed the Merger, with SBS surviving the Merger. In connection with the Merger, SBS was renamed BMC Stock On December 1, 2015, BMHC and SBS completed the Merger, with SBS surviving the Merger. In connection with the Merger, SBS was renamed BMC Stock Holdings, Inc. Holdings, Inc. Intellectual Property Intellectual Property Regulation and Legislation Regulation and Legislation codes and regulations. codes and regulations. We possess an array of intellectual property rights, including patents, trademarks, trade names, proprietary technology and know-how and other proprietary rights We possess an array of intellectual property rights, including patents, trademarks, trade names, proprietary technology and know-how and other proprietary rights that are important to our brand and marketing strategy. In particular, we maintain registered trademarks for BMC ® and the BMC logo, Fortis ® and Artrim ® , two that are important to our brand and marketing strategy. In particular, we maintain registered trademarks for BMC ® and the BMC logo, Fortis ® and Artrim ® , two of our private label lines, and our Ready-Frame ® system. In addition, we maintain registered trademarks for the trade names under which certain of our local of our private label lines, and our Ready-Frame ® system. In addition, we maintain registered trademarks for the trade names under which certain of our local branches operate. While we do not believe our business is dependent on any one of our trademarks, we believe that our trademarks are important to the branches operate. While we do not believe our business is dependent on any one of our trademarks, we believe that our trademarks are important to the development and conduct of our business as well as the marketing of our products. We vigorously protect all of our intellectual property rights. development and conduct of our business as well as the marketing of our products. We vigorously protect all of our intellectual property rights. We are subject to various federal, state and local government regulations applicable to the business generally in the jurisdictions in which we operate, including We are subject to various federal, state and local government regulations applicable to the business generally in the jurisdictions in which we operate, including laws and regulations relating to our relationships with our employees, public health and safety, work place safety, transportation, zoning, business, environmental, laws and regulations relating to our relationships with our employees, public health and safety, work place safety, transportation, zoning, business, environmental, contractor licensing and fire codes. We strive to operate each of our distribution, manufacturing, retail and service facilities in accordance with applicable laws, contractor licensing and fire codes. We strive to operate each of our distribution, manufacturing, retail and service facilities in accordance with applicable laws, Transportation and Work Place Safety . Our operations in domestic interstate commerce are subject to the regulatory jurisdiction of the Department of Transportation and Work Place Safety . Our operations in domestic interstate commerce are subject to the regulatory jurisdiction of the Department of Transportation ("DOT"), which has broad administrative powers with respect to our transportation operations. We are subject to safety requirements governing Transportation ("DOT"), which has broad administrative powers with respect to our transportation operations. We are subject to safety requirements governing interstate operations prescribed by the DOT. Vehicle dimensions and driver hours of service also are subject to both federal and state regulation. Our operations are interstate operations prescribed by the DOT. Vehicle dimensions and driver hours of service also are subject to both federal and state regulation. Our operations are also subject to the regulatory jurisdiction of the Occupational Safety and Health Administration ("OSHA"), which has broad administrative powers with respect to also subject to the regulatory jurisdiction of the Occupational Safety and Health Administration ("OSHA"), which has broad administrative powers with respect to workplace and jobsite safety. Our operators are also subject to state and federal labor laws regulating hours worked and compensation paid. workplace and jobsite safety. Our operators are also subject to state and federal labor laws regulating hours worked and compensation paid. Environmental . Our operations and properties are also subject to federal, state and local laws and regulations relating to the use, storage, handling, generation, Environmental . Our operations and properties are also subject to federal, state and local laws and regulations relating to the use, storage, handling, generation, transportation, treatment, emission, release, discharge and disposal of hazardous materials, substances and wastes and relating to the investigation and cleanup of transportation, treatment, emission, release, discharge and disposal of hazardous materials, substances and wastes and relating to the investigation and cleanup of contaminated properties, including off-site disposal locations, stormwater and other run-off and similar issues. We have not incurred material costs in the past to contaminated properties, including off-site disposal locations, stormwater and other run-off and similar issues. We have not incurred material costs in the past to comply with environmental laws and regulations. However, we could be subject to material costs, liabilities or claims relating to environmental compliance in the comply with environmental laws and regulations. However, we could be subject to material costs, liabilities or claims relating to environmental compliance in the future, especially in the event of changes in existing laws and regulations or in their interpretation or enforcement. future, especially in the event of changes in existing laws and regulations or in their interpretation or enforcement. As current and former owners, lessees and operators of real property, we can be held liable for the investigation or remediation of contamination on or from such As current and former owners, lessees and operators of real property, we can be held liable for the investigation or remediation of contamination on or from such properties, in some circumstances regardless of whether we knew of or caused such contamination. Our current expenditures with respect to environmental properties, in some circumstances regardless of whether we knew of or caused such contamination. Our current expenditures with respect to environmental investigation and remediation at our facilities are immaterial, although no investigation and remediation at our facilities are immaterial, although no 5 5 Holding, Inc., Masonite International Corp, Metrie, Inc. and MI Windows and Doors, Inc. We believe there is sufficient supply in the marketplace to source most Holding, Inc., Masonite International Corp, Metrie, Inc. and MI Windows and Doors, Inc. We believe there is sufficient supply in the marketplace to source most of our requirements without reliance on any particular supplier and that our diversity of suppliers affords us purchasing flexibility. We also work with our suppliers of our requirements without reliance on any particular supplier and that our diversity of suppliers affords us purchasing flexibility. We also work with our suppliers to ensure that we have sufficient adaptability and flexibility to service our customers' needs as they evolve and as their markets grow. For certain customers, we to ensure that we have sufficient adaptability and flexibility to service our customers' needs as they evolve and as their markets grow. For certain customers, we institute purchasing programs on raw materials such as OSB to align portions of our procurement costs with our customer pricing commitments. We balance our institute purchasing programs on raw materials such as OSB to align portions of our procurement costs with our customer pricing commitments. We balance our lumber and OSB purchases with a mix of contract and spot market purchases to ensure consistent quantities of product necessary to fulfill customer contracts, to lumber and OSB purchases with a mix of contract and spot market purchases to ensure consistent quantities of product necessary to fulfill customer contracts, to source products at the lowest possible cost and to minimize our exposure to the volatility of commodity lumber prices. source products at the lowest possible cost and to minimize our exposure to the volatility of commodity lumber prices. We currently source products from over 1,500 suppliers in order to reduce our dependence on any single company and to maximize purchasing leverage. For the We currently source products from over 1,500 suppliers in order to reduce our dependence on any single company and to maximize purchasing leverage. For the year ended December 31, 2017, no supplier accounted for more than 10% of our total materials purchases. We believe we are one of the largest customers for year ended December 31, 2017, no supplier accounted for more than 10% of our total materials purchases. We believe we are one of the largest customers for many of our suppliers, and therefore have significant purchasing leverage. many of our suppliers, and therefore have significant purchasing leverage. The lumber and building materials ("LBM") distribution industry in the United States is highly fragmented, with a number of retailers and distributors offering a The lumber and building materials ("LBM") distribution industry in the United States is highly fragmented, with a number of retailers and distributors offering a broad range of products and services. Demand for our products is largely driven by the level of activity in the U.S. residential construction market, particularly in broad range of products and services. Demand for our products is largely driven by the level of activity in the U.S. residential construction market, particularly in single-family new construction, which has experienced improving demand trends influenced by job growth, consumer confidence, market demographics, levels of single-family new construction, which has experienced improving demand trends influenced by job growth, consumer confidence, market demographics, levels of household formations, interest rate levels, inventories of available housing units and other external factors. According to the U.S. Census Bureau, from 2005 to household formations, interest rate levels, inventories of available housing units and other external factors. According to the U.S. Census Bureau, from 2005 to 2011, single-family housing starts in the United States declined by approximately 75% to 0.43 million, which was significantly less than the 50-year average rate 2011, single-family housing starts in the United States declined by approximately 75% to 0.43 million, which was significantly less than the 50-year average rate of approximately 1.0 million per year. Following several challenging years, single-family housing starts increased on a year-over-year basis each year from 2012 to of approximately 1.0 million per year. Following several challenging years, single-family housing starts increased on a year-over-year basis each year from 2012 to 2017, with starts in 2015 , 2016 and 2017 reaching 0.71 million, 0.78 million and 0.85 million, respectively. 2017, with starts in 2015 , 2016 and 2017 reaching 0.71 million, 0.78 million and 0.85 million, respectively. We compete in the professional building contractor segment of the U.S. residential new construction building products supply market (the “Pro Segment”). Our We compete in the professional building contractor segment of the U.S. residential new construction building products supply market (the “Pro Segment”). Our customers primarily consist of professional homebuilders and those that provide construction services to them. We focus on a distinctly different target market than customers primarily consist of professional homebuilders and those that provide construction services to them. We focus on a distinctly different target market than home center retailers such as The Home Depot and Lowe’s, which primarily serve do-it-yourself and remodeling customers. The principal methods of competition home center retailers such as The Home Depot and Lowe’s, which primarily serve do-it-yourself and remodeling customers. The principal methods of competition in the Pro Segment are developing long-term relationships with professional builders and retaining such customers by delivering a full range of high-quality in the Pro Segment are developing long-term relationships with professional builders and retaining such customers by delivering a full range of high-quality products on time and offering trade credit, competitive pricing, flexibility in transaction processing, and integrated service and product packages, as well as products on time and offering trade credit, competitive pricing, flexibility in transaction processing, and integrated service and product packages, as well as offering value-added products and services such as structural components and installation. Our market positions in the highly competitive Pro Segment create offering value-added products and services such as structural components and installation. Our market positions in the highly competitive Pro Segment create economies of scale that allow us to supply our customers cost-effectively, which both enhances profitability and reduces the risk of losing customers to economies of scale that allow us to supply our customers cost-effectively, which both enhances profitability and reduces the risk of losing customers to We have and will continue to experience competition for homebuilder business. Many of our competitors are predominantly small, privately owned companies, We have and will continue to experience competition for homebuilder business. Many of our competitors are predominantly small, privately owned companies, local and regional materials distributors, single or multi-site lumberyards, and truss manufacturing and millwork operations. Many of these companies have limited local and regional materials distributors, single or multi-site lumberyards, and truss manufacturing and millwork operations. Many of these companies have limited access to capital and lack sophisticated IT systems and large-scale procurement capabilities. We believe we have substantial competitive advantages over these access to capital and lack sophisticated IT systems and large-scale procurement capabilities. We believe we have substantial competitive advantages over these smaller competitors due to our long-standing customer relationships, local market knowledge, integrated supply chain and competitive pricing. We also face smaller competitors due to our long-standing customer relationships, local market knowledge, integrated supply chain and competitive pricing. We also face competition from large national lumber and building materials companies. For example, our largest competitors in our local markets often include one or more of competition from large national lumber and building materials companies. For example, our largest competitors in our local markets often include one or more of 84 Lumber Co., Builders FirstSource, Inc., Carter Lumber Company and US LBM Holdings, LLC. 84 Lumber Co., Builders FirstSource, Inc., Carter Lumber Company and US LBM Holdings, LLC. Competition Competition competitors. competitors. Employees Employees At January 31, 2018 , we had approximately 9,100 full-time equivalent employees, approximately 220 of whom were represented by unions. We believe that we At January 31, 2018 , we had approximately 9,100 full-time equivalent employees, approximately 220 of whom were represented by unions. We believe that we have good relations with our employees. have good relations with our employees. 4 4 Norbord Inc., West Fraser Timber Co. Ltd. and Weyerhaeuser Company and building products manufacturers such as James Hardie Industries plc, JELD-WEN Norbord Inc., West Fraser Timber Co. Ltd. and Weyerhaeuser Company and building products manufacturers such as James Hardie Industries plc, JELD-WEN Seasonality and Other Factors Seasonality and Other Factors We seek to maintain strong relationships with our suppliers and we believe opportunities exist to improve purchasing terms in the future, including inventory We seek to maintain strong relationships with our suppliers and we believe opportunities exist to improve purchasing terms in the future, including inventory storage or “just-in-time” delivery to reduce our inventory carrying costs. storage or “just-in-time” delivery to reduce our inventory carrying costs. History History Our first and fourth quarters have historically been, and are generally expected to continue to be, adversely affected by weather patterns in some of our markets, Our first and fourth quarters have historically been, and are generally expected to continue to be, adversely affected by weather patterns in some of our markets, causing reduced construction activity. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to causing reduced construction activity. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to period arising from the following factors, among others: period arising from the following factors, among others: • • • • • • • • • • • • the volatility of lumber prices; the volatility of lumber prices; the cyclical nature of the homebuilding industry; the cyclical nature of the homebuilding industry; general economic conditions in the markets in which we compete; general economic conditions in the markets in which we compete; the pricing policies of our competitors; the pricing policies of our competitors; the production schedules of our customers; and the production schedules of our customers; and the effects of weather. the effects of weather. BMHC was created in 1987 and initially operated approximately 20 lumber and building materials distribution facilities located in the West. The company grew BMHC was created in 1987 and initially operated approximately 20 lumber and building materials distribution facilities located in the West. The company grew primarily through acquisitions and expanded its footprint throughout the South and West regions of the United States. primarily through acquisitions and expanded its footprint throughout the South and West regions of the United States. SBS’s predecessor was founded as Carolina Builders Corporation in Raleigh, North Carolina in 1922 and began operating under the Stock Building Supply name SBS’s predecessor was founded as Carolina Builders Corporation in Raleigh, North Carolina in 1922 and began operating under the Stock Building Supply name in 2003. In addition, certain companies acquired by SBS were founded as early as 1822. On August 14, 2013, SBS completed its initial public offering. in 2003. In addition, certain companies acquired by SBS were founded as early as 1822. On August 14, 2013, SBS completed its initial public offering. On December 1, 2015, BMHC and SBS completed the Merger, with SBS surviving the Merger. In connection with the Merger, SBS was renamed BMC Stock On December 1, 2015, BMHC and SBS completed the Merger, with SBS surviving the Merger. In connection with the Merger, SBS was renamed BMC Stock Holdings, Inc. Holdings, Inc. Intellectual Property Intellectual Property We possess an array of intellectual property rights, including patents, trademarks, trade names, proprietary technology and know-how and other proprietary rights We possess an array of intellectual property rights, including patents, trademarks, trade names, proprietary technology and know-how and other proprietary rights that are important to our brand and marketing strategy. In particular, we maintain registered trademarks for BMC ® and the BMC logo, Fortis ® and Artrim ® , two that are important to our brand and marketing strategy. In particular, we maintain registered trademarks for BMC ® and the BMC logo, Fortis ® and Artrim ® , two of our private label lines, and our Ready-Frame ® system. In addition, we maintain registered trademarks for the trade names under which certain of our local of our private label lines, and our Ready-Frame ® system. In addition, we maintain registered trademarks for the trade names under which certain of our local branches operate. While we do not believe our business is dependent on any one of our trademarks, we believe that our trademarks are important to the branches operate. While we do not believe our business is dependent on any one of our trademarks, we believe that our trademarks are important to the development and conduct of our business as well as the marketing of our products. We vigorously protect all of our intellectual property rights. development and conduct of our business as well as the marketing of our products. We vigorously protect all of our intellectual property rights. Regulation and Legislation Regulation and Legislation We are subject to various federal, state and local government regulations applicable to the business generally in the jurisdictions in which we operate, including We are subject to various federal, state and local government regulations applicable to the business generally in the jurisdictions in which we operate, including laws and regulations relating to our relationships with our employees, public health and safety, work place safety, transportation, zoning, business, environmental, laws and regulations relating to our relationships with our employees, public health and safety, work place safety, transportation, zoning, business, environmental, contractor licensing and fire codes. We strive to operate each of our distribution, manufacturing, retail and service facilities in accordance with applicable laws, contractor licensing and fire codes. We strive to operate each of our distribution, manufacturing, retail and service facilities in accordance with applicable laws, codes and regulations. codes and regulations. Transportation and Work Place Safety . Our operations in domestic interstate commerce are subject to the regulatory jurisdiction of the Department of Transportation and Work Place Safety . Our operations in domestic interstate commerce are subject to the regulatory jurisdiction of the Department of Transportation ("DOT"), which has broad administrative powers with respect to our transportation operations. We are subject to safety requirements governing Transportation ("DOT"), which has broad administrative powers with respect to our transportation operations. We are subject to safety requirements governing interstate operations prescribed by the DOT. Vehicle dimensions and driver hours of service also are subject to both federal and state regulation. Our operations are interstate operations prescribed by the DOT. Vehicle dimensions and driver hours of service also are subject to both federal and state regulation. Our operations are also subject to the regulatory jurisdiction of the Occupational Safety and Health Administration ("OSHA"), which has broad administrative powers with respect to also subject to the regulatory jurisdiction of the Occupational Safety and Health Administration ("OSHA"), which has broad administrative powers with respect to workplace and jobsite safety. Our operators are also subject to state and federal labor laws regulating hours worked and compensation paid. workplace and jobsite safety. Our operators are also subject to state and federal labor laws regulating hours worked and compensation paid. Environmental . Our operations and properties are also subject to federal, state and local laws and regulations relating to the use, storage, handling, generation, Environmental . Our operations and properties are also subject to federal, state and local laws and regulations relating to the use, storage, handling, generation, transportation, treatment, emission, release, discharge and disposal of hazardous materials, substances and wastes and relating to the investigation and cleanup of transportation, treatment, emission, release, discharge and disposal of hazardous materials, substances and wastes and relating to the investigation and cleanup of contaminated properties, including off-site disposal locations, stormwater and other run-off and similar issues. We have not incurred material costs in the past to contaminated properties, including off-site disposal locations, stormwater and other run-off and similar issues. We have not incurred material costs in the past to comply with environmental laws and regulations. However, we could be subject to material costs, liabilities or claims relating to environmental compliance in the comply with environmental laws and regulations. However, we could be subject to material costs, liabilities or claims relating to environmental compliance in the future, especially in the event of changes in existing laws and regulations or in their interpretation or enforcement. future, especially in the event of changes in existing laws and regulations or in their interpretation or enforcement. As current and former owners, lessees and operators of real property, we can be held liable for the investigation or remediation of contamination on or from such As current and former owners, lessees and operators of real property, we can be held liable for the investigation or remediation of contamination on or from such properties, in some circumstances regardless of whether we knew of or caused such contamination. Our current expenditures with respect to environmental properties, in some circumstances regardless of whether we knew of or caused such contamination. Our current expenditures with respect to environmental investigation and remediation at our facilities are immaterial, although no investigation and remediation at our facilities are immaterial, although no 5 5 assurance can be provided that more significant investigation and remediation will not be required in the future as a result of spills or releases of petroleum assurance can be provided that more significant investigation and remediation will not be required in the future as a result of spills or releases of petroleum products or other hazardous substances or the discovery of currently unknown environmental conditions, or changes in legislation, laws, rules or regulations or products or other hazardous substances or the discovery of currently unknown environmental conditions, or changes in legislation, laws, rules or regulations or their interpretation or enforcement. their interpretation or enforcement. Item 1A. Risk Factors Item 1A. Risk Factors Risks Related to Our Business Risks Related to Our Business To date, costs to comply with applicable laws and regulations relating to the protection of the environment and natural resources have not had a material adverse To date, costs to comply with applicable laws and regulations relating to the protection of the environment and natural resources have not had a material adverse effect on our business, financial condition, operating results or cash flow. There can be no assurance that such laws and regulations will not become more stringent effect on our business, financial condition, operating results or cash flow. There can be no assurance that such laws and regulations will not become more stringent in the future or that we will not incur costs in the future in order to comply with such laws and regulations. We did not incur material capital expenditures for in the future or that we will not incur costs in the future in order to comply with such laws and regulations. We did not incur material capital expenditures for environmental controls in fiscal year 2017 and do not anticipate material capital expenditures in this regard in fiscal year 2018 . environmental controls in fiscal year 2017 and do not anticipate material capital expenditures in this regard in fiscal year 2018 . other important factors. other important factors. Business . Our suppliers are subject to various laws and regulations, including in particular laws and regulations regulating labor, forestry and the environment. We Business . Our suppliers are subject to various laws and regulations, including in particular laws and regulations regulating labor, forestry and the environment. We consult with our suppliers as appropriate to confirm they have determined they are in material compliance with applicable laws and regulations. Generally, our consult with our suppliers as appropriate to confirm they have determined they are in material compliance with applicable laws and regulations. Generally, our suppliers agree contractually to comply with our expectations concerning environmental, labor and health and safety matters. suppliers agree contractually to comply with our expectations concerning environmental, labor and health and safety matters. Products that we import into the United States are subject to laws and regulations imposed in conjunction with such importation, including those issued and/or Products that we import into the United States are subject to laws and regulations imposed in conjunction with such importation, including those issued and/or enforced by U.S. Customs and Border Protection. In addition, certain of our products are subject to laws and regulations relating to the importation, acquisition or enforced by U.S. Customs and Border Protection. In addition, certain of our products are subject to laws and regulations relating to the importation, acquisition or sale of illegally harvested agricultural products and the emissions of hazardous materials. We work closely with our suppliers to help ensure material compliance sale of illegally harvested agricultural products and the emissions of hazardous materials. We work closely with our suppliers to help ensure material compliance with the applicable laws and regulations in these areas. with the applicable laws and regulations in these areas. Financial Information Financial Information We have one reportable segment. For certain additional information about our segment, see Note 15 to the consolidated financial statements included in Item 8 of We have one reportable segment. For certain additional information about our segment, see Note 15 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. this Annual Report on Form 10-K. Available Information Available Information We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, we file We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, we file reports, proxy statements and other information with the Securities and Exchange Commission ("SEC"). Our annual reports on Form 10-K, quarterly reports on reports, proxy statements and other information with the Securities and Exchange Commission ("SEC"). Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information and amendments to those reports filed or furnished pursuant to Section 13(a) or Form 10-Q, current reports on Form 8-K, proxy statements and other information and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are, or will be, available through the investor relations section of our website buildwithbmc.com by following the links to "Financial 15(d) of the Exchange Act are, or will be, available through the investor relations section of our website buildwithbmc.com by following the links to "Financial Information" and "SEC Filings." Our investor relations website can also be accessed directly at ir.buildwithbmc.com. Reports are available on our website free of Information" and "SEC Filings." Our investor relations website can also be accessed directly at ir.buildwithbmc.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, the SEC. In addition, our directors and certain senior officers are charge as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. In addition, our directors and certain senior officers are required to file with the SEC initial statements of beneficial ownership and statements of change in beneficial ownership of our securities, which are also available required to file with the SEC initial statements of beneficial ownership and statements of change in beneficial ownership of our securities, which are also available on our website at the same location. The information on the respective websites of the Company, its subsidiaries or affiliates is not, and shall not be deemed to be a on our website at the same location. The information on the respective websites of the Company, its subsidiaries or affiliates is not, and shall not be deemed to be a part of this Annual Report on Form 10-K or incorporated into any other filings the Company makes with the SEC. part of this Annual Report on Form 10-K or incorporated into any other filings the Company makes with the SEC. In addition to our website, you may read and copy public reports we file with or furnish to the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., In addition to our website, you may read and copy public reports we file with or furnish to the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains our reports, proxy statements and other information that we electronically file with, or furnish to, the SEC at www.sec.gov. an Internet site that contains our reports, proxy statements and other information that we electronically file with, or furnish to, the SEC at www.sec.gov. 6 6 The industry in which we operate is dependent upon the homebuilding industry and repair and remodeling activity, the economy, the credit markets and The industry in which we operate is dependent upon the homebuilding industry and repair and remodeling activity, the economy, the credit markets and The building products supply and services industry is highly dependent on new single-family home construction, multi-family construction and repair and The building products supply and services industry is highly dependent on new single-family home construction, multi-family construction and repair and remodeling activity, which in turn are dependent upon a number of factors, including interest rates, consumer confidence, employment rates, wage rates, remodeling activity, which in turn are dependent upon a number of factors, including interest rates, consumer confidence, employment rates, wage rates, foreclosure rates, housing inventory levels, housing demand, the availability of land, local zoning and permitting processes, the availability of construction foreclosure rates, housing inventory levels, housing demand, the availability of land, local zoning and permitting processes, the availability of construction financing, the availability of qualified trade laborers and the health of the economy and mortgage markets. Unfavorable changes in demographics, credit markets, financing, the availability of qualified trade laborers and the health of the economy and mortgage markets. Unfavorable changes in demographics, credit markets, mortgage rates, consumer confidence, health care costs, housing affordability, housing inventory levels, a weakening of the national economy or of any regional or mortgage rates, consumer confidence, health care costs, housing affordability, housing inventory levels, a weakening of the national economy or of any regional or local economy in which we operate, changes in legislation and government policy and other factors beyond our control could adversely affect consumer spending, local economy in which we operate, changes in legislation and government policy and other factors beyond our control could adversely affect consumer spending, result in decreased demand for homes and adversely affect our business. result in decreased demand for homes and adversely affect our business. The homebuilding industry underwent a significant downturn that began in mid-2006 and began to stabilize in late 2011. The downturn in the homebuilding The homebuilding industry underwent a significant downturn that began in mid-2006 and began to stabilize in late 2011. The downturn in the homebuilding industry resulted in a substantial reduction in demand for our products and services, which in turn had a significant adverse effect on our business during fiscal industry resulted in a substantial reduction in demand for our products and services, which in turn had a significant adverse effect on our business during fiscal years 2007 through 2012. The U.S. Census Bureau reported approximately 849,000 single-family housing starts for 2017 , which is an increase of approximately years 2007 through 2012. The U.S. Census Bureau reported approximately 849,000 single-family housing starts for 2017 , which is an increase of approximately 9% from 2016 , but still well below historical averages over the past 50 years. There is significant uncertainty regarding the timing and extent of any continued 9% from 2016 , but still well below historical averages over the past 50 years. There is significant uncertainty regarding the timing and extent of any continued recovery in construction and repair and remodeling activity and resulting product demand levels. The positive impact of a recovery on our business may also be recovery in construction and repair and remodeling activity and resulting product demand levels. The positive impact of a recovery on our business may also be dampened to the extent the average selling price or average size of new single family homes decreases, which could cause homebuilders to decrease spending on dampened to the extent the average selling price or average size of new single family homes decreases, which could cause homebuilders to decrease spending on our products and services. According to the U.S. Census Bureau, the average square footage of a new single family home start decreased by approximately 2% in our products and services. According to the U.S. Census Bureau, the average square footage of a new single family home start decreased by approximately 2% in 2016 compared to 2015, which was the first annual decrease in seven years. This trend has continued through the first three quarters of 2017. If conditions in the 2016 compared to 2015, which was the first annual decrease in seven years. This trend has continued through the first three quarters of 2017. If conditions in the housing industry deteriorate, we may need to take goodwill and/or asset impairment charges. Any such non-cash charges would have an adverse effect on our housing industry deteriorate, we may need to take goodwill and/or asset impairment charges. 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 idle or permanently close certain facilities in under-performing financial results. In addition, in response to industry conditions, we may have to temporarily idle or permanently close certain facilities in under-performing regions. Any such facility closures could have a significant adverse effect on our business, financial condition, operating results and cash flows. regions. Any such facility closures could have a significant adverse effect on our business, financial condition, operating results and cash flows. In addition, beginning in 2007, the mortgage markets experienced substantial disruption due to increased defaults, primarily as a result of credit quality In addition, beginning in 2007, the mortgage markets experienced substantial disruption due to increased defaults, primarily as a result of credit quality deterioration. The disruption resulted in a stricter regulatory environment and reduced availability of mortgages for potential home buyers due to a tight credit deterioration. The disruption resulted in a stricter regulatory environment and reduced availability of mortgages for potential home buyers due to a tight credit market and stricter standards to qualify for mortgages. Mortgage financing and commercial credit for smaller homebuilders, as well as for the development of new market and stricter standards to qualify for mortgages. Mortgage financing and commercial credit for smaller homebuilders, as well as for the development of new residential lots, continue to be constrained. As the housing industry is dependent upon the economy as well as potential homebuyers’ access to mortgage financing residential lots, continue to be constrained. As the housing industry is dependent upon the economy as well as potential homebuyers’ access to mortgage financing and homebuilders’ access to commercial credit, prolonged constraint of the credit markets could have a significant adverse effect on our business, financial and homebuilders’ access to commercial credit, prolonged constraint of the credit markets could have a significant adverse effect on our business, financial condition, operating results and cash flows. condition, operating results and cash flows. Changes in our customer or product sales mix could affect our operating results. Changes in our customer or product sales mix could affect our operating results. Our operating results may vary according to the amount and type of products we sell to each of our primary customer types: new single-family homebuilders, Our operating results may vary according to the amount and type of products we sell to each of our primary customer types: new single-family homebuilders, remodeling contractors, and multi-family builders and light commercial builders. We tend to realize higher gross margins on sales to remodeling contractors due to remodeling contractors, and multi-family builders and light commercial builders. We tend to realize higher gross margins on sales to remodeling contractors due to the smaller product volumes purchased by those customers, as well as the more customized nature of the projects those customers generally undertake. Gross the smaller product volumes purchased by those customers, as well as the more customized nature of the projects those customers generally undertake. Gross margins on sales to single-family, multi-family and light commercial customers can vary based on a variety of factors, including the purchase volumes of the margins on sales to single-family, multi-family and light commercial customers can vary based on a variety of factors, including the purchase volumes of the individual customer, the mix of products sold to that customer, the size and selling price of the project being constructed and the number of upgrades added to the individual customer, the mix of products sold to that customer, the size and selling price of the project being constructed and the number of upgrades added to the project before or during its construction. project before or during its construction. We generate significant business from the large single-family homebuilders; however, our gross margins on sales to them tend to be lower than our gross margins We generate significant business from the large single-family homebuilders; however, our gross margins on sales to them tend to be lower than our gross margins on sales to other market segments. A shift in our sales mix towards the larger homebuilders could negatively impact our gross margins. on sales to other market segments. A shift in our sales mix towards the larger homebuilders could negatively impact our gross margins. In addition, we typically realize greater gross margins on more highly engineered and customized products, or ancillary products that are often purchased based on In addition, we typically realize greater gross margins on more highly engineered and customized products, or ancillary products that are often purchased based on convenience and are therefore less price sensitive to our customers. For example, sales of lumber & lumber sheet goods tend to generate lower gross margins due convenience and are therefore less price sensitive to our customers. For example, sales of lumber & lumber sheet goods tend to generate lower gross margins due to their commodity nature and the relatively low switching costs of sourcing those products from different suppliers. Structural components and millwork, doors & to their commodity nature and the relatively low switching costs of sourcing those products from different suppliers. Structural components and millwork, doors & windows often generate higher windows often generate higher 7 7 assurance can be provided that more significant investigation and remediation will not be required in the future as a result of spills or releases of petroleum assurance can be provided that more significant investigation and remediation will not be required in the future as a result of spills or releases of petroleum Item 1A. Risk Factors Item 1A. Risk Factors products or other hazardous substances or the discovery of currently unknown environmental conditions, or changes in legislation, laws, rules or regulations or products or other hazardous substances or the discovery of currently unknown environmental conditions, or changes in legislation, laws, rules or regulations or their interpretation or enforcement. their interpretation or enforcement. Risks Related to Our Business Risks Related to Our Business To date, costs to comply with applicable laws and regulations relating to the protection of the environment and natural resources have not had a material adverse To date, costs to comply with applicable laws and regulations relating to the protection of the environment and natural resources have not had a material adverse effect on our business, financial condition, operating results or cash flow. There can be no assurance that such laws and regulations will not become more stringent effect on our business, financial condition, operating results or cash flow. There can be no assurance that such laws and regulations will not become more stringent in the future or that we will not incur costs in the future in order to comply with such laws and regulations. We did not incur material capital expenditures for in the future or that we will not incur costs in the future in order to comply with such laws and regulations. We did not incur material capital expenditures for environmental controls in fiscal year 2017 and do not anticipate material capital expenditures in this regard in fiscal year 2018 . environmental controls in fiscal year 2017 and do not anticipate material capital expenditures in this regard in fiscal year 2018 . Business . Our suppliers are subject to various laws and regulations, including in particular laws and regulations regulating labor, forestry and the environment. We Business . Our suppliers are subject to various laws and regulations, including in particular laws and regulations regulating labor, forestry and the environment. We consult with our suppliers as appropriate to confirm they have determined they are in material compliance with applicable laws and regulations. Generally, our consult with our suppliers as appropriate to confirm they have determined they are in material compliance with applicable laws and regulations. Generally, our suppliers agree contractually to comply with our expectations concerning environmental, labor and health and safety matters. suppliers agree contractually to comply with our expectations concerning environmental, labor and health and safety matters. Products that we import into the United States are subject to laws and regulations imposed in conjunction with such importation, including those issued and/or Products that we import into the United States are subject to laws and regulations imposed in conjunction with such importation, including those issued and/or enforced by U.S. Customs and Border Protection. In addition, certain of our products are subject to laws and regulations relating to the importation, acquisition or enforced by U.S. Customs and Border Protection. In addition, certain of our products are subject to laws and regulations relating to the importation, acquisition or sale of illegally harvested agricultural products and the emissions of hazardous materials. We work closely with our suppliers to help ensure material compliance sale of illegally harvested agricultural products and the emissions of hazardous materials. We work closely with our suppliers to help ensure material compliance with the applicable laws and regulations in these areas. with the applicable laws and regulations in these areas. We have one reportable segment. For certain additional information about our segment, see Note 15 to the consolidated financial statements included in Item 8 of We have one reportable segment. For certain additional information about our segment, see Note 15 to the consolidated financial statements included in Item 8 of Financial Information Financial Information this Annual Report on Form 10-K. this Annual Report on Form 10-K. Available Information Available Information We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, we file We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, we file reports, proxy statements and other information with the Securities and Exchange Commission ("SEC"). Our annual reports on Form 10-K, quarterly reports on reports, proxy statements and other information with the Securities and Exchange Commission ("SEC"). Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information and amendments to those reports filed or furnished pursuant to Section 13(a) or Form 10-Q, current reports on Form 8-K, proxy statements and other information and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are, or will be, available through the investor relations section of our website buildwithbmc.com by following the links to "Financial 15(d) of the Exchange Act are, or will be, available through the investor relations section of our website buildwithbmc.com by following the links to "Financial Information" and "SEC Filings." Our investor relations website can also be accessed directly at ir.buildwithbmc.com. Reports are available on our website free of Information" and "SEC Filings." Our investor relations website can also be accessed directly at ir.buildwithbmc.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, the SEC. In addition, our directors and certain senior officers are charge as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. In addition, our directors and certain senior officers are required to file with the SEC initial statements of beneficial ownership and statements of change in beneficial ownership of our securities, which are also available required to file with the SEC initial statements of beneficial ownership and statements of change in beneficial ownership of our securities, which are also available on our website at the same location. The information on the respective websites of the Company, its subsidiaries or affiliates is not, and shall not be deemed to be a on our website at the same location. The information on the respective websites of the Company, its subsidiaries or affiliates is not, and shall not be deemed to be a part of this Annual Report on Form 10-K or incorporated into any other filings the Company makes with the SEC. part of this Annual Report on Form 10-K or incorporated into any other filings the Company makes with the SEC. In addition to our website, you may read and copy public reports we file with or furnish to the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., In addition to our website, you may read and copy public reports we file with or furnish to the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains our reports, proxy statements and other information that we electronically file with, or furnish to, the SEC at www.sec.gov. an Internet site that contains our reports, proxy statements and other information that we electronically file with, or furnish to, the SEC at www.sec.gov. 6 6 The industry in which we operate is dependent upon the homebuilding industry and repair and remodeling activity, the economy, the credit markets and The industry in which we operate is dependent upon the homebuilding industry and repair and remodeling activity, the economy, the credit markets and other important factors. other important factors. The building products supply and services industry is highly dependent on new single-family home construction, multi-family construction and repair and The building products supply and services industry is highly dependent on new single-family home construction, multi-family construction and repair and remodeling activity, which in turn are dependent upon a number of factors, including interest rates, consumer confidence, employment rates, wage rates, remodeling activity, which in turn are dependent upon a number of factors, including interest rates, consumer confidence, employment rates, wage rates, foreclosure rates, housing inventory levels, housing demand, the availability of land, local zoning and permitting processes, the availability of construction foreclosure rates, housing inventory levels, housing demand, the availability of land, local zoning and permitting processes, the availability of construction financing, the availability of qualified trade laborers and the health of the economy and mortgage markets. Unfavorable changes in demographics, credit markets, financing, the availability of qualified trade laborers and the health of the economy and mortgage markets. Unfavorable changes in demographics, credit markets, mortgage rates, consumer confidence, health care costs, housing affordability, housing inventory levels, a weakening of the national economy or of any regional or mortgage rates, consumer confidence, health care costs, housing affordability, housing inventory levels, a weakening of the national economy or of any regional or local economy in which we operate, changes in legislation and government policy and other factors beyond our control could adversely affect consumer spending, local economy in which we operate, changes in legislation and government policy and other factors beyond our control could adversely affect consumer spending, result in decreased demand for homes and adversely affect our business. result in decreased demand for homes and adversely affect our business. The homebuilding industry underwent a significant downturn that began in mid-2006 and began to stabilize in late 2011. The downturn in the homebuilding The homebuilding industry underwent a significant downturn that began in mid-2006 and began to stabilize in late 2011. The downturn in the homebuilding industry resulted in a substantial reduction in demand for our products and services, which in turn had a significant adverse effect on our business during fiscal industry resulted in a substantial reduction in demand for our products and services, which in turn had a significant adverse effect on our business during fiscal years 2007 through 2012. The U.S. Census Bureau reported approximately 849,000 single-family housing starts for 2017 , which is an increase of approximately years 2007 through 2012. The U.S. Census Bureau reported approximately 849,000 single-family housing starts for 2017 , which is an increase of approximately 9% from 2016 , but still well below historical averages over the past 50 years. There is significant uncertainty regarding the timing and extent of any continued 9% from 2016 , but still well below historical averages over the past 50 years. There is significant uncertainty regarding the timing and extent of any continued recovery in construction and repair and remodeling activity and resulting product demand levels. The positive impact of a recovery on our business may also be recovery in construction and repair and remodeling activity and resulting product demand levels. The positive impact of a recovery on our business may also be dampened to the extent the average selling price or average size of new single family homes decreases, which could cause homebuilders to decrease spending on dampened to the extent the average selling price or average size of new single family homes decreases, which could cause homebuilders to decrease spending on our products and services. According to the U.S. Census Bureau, the average square footage of a new single family home start decreased by approximately 2% in our products and services. According to the U.S. Census Bureau, the average square footage of a new single family home start decreased by approximately 2% in 2016 compared to 2015, which was the first annual decrease in seven years. This trend has continued through the first three quarters of 2017. If conditions in the 2016 compared to 2015, which was the first annual decrease in seven years. This trend has continued through the first three quarters of 2017. If conditions in the housing industry deteriorate, we may need to take goodwill and/or asset impairment charges. Any such non-cash charges would have an adverse effect on our housing industry deteriorate, we may need to take goodwill and/or asset impairment charges. 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 idle or permanently close certain facilities in under-performing financial results. In addition, in response to industry conditions, we may have to temporarily idle or permanently close certain facilities in under-performing regions. Any such facility closures could have a significant adverse effect on our business, financial condition, operating results and cash flows. regions. Any such facility closures could have a significant adverse effect on our business, financial condition, operating results and cash flows. In addition, beginning in 2007, the mortgage markets experienced substantial disruption due to increased defaults, primarily as a result of credit quality In addition, beginning in 2007, the mortgage markets experienced substantial disruption due to increased defaults, primarily as a result of credit quality deterioration. The disruption resulted in a stricter regulatory environment and reduced availability of mortgages for potential home buyers due to a tight credit deterioration. The disruption resulted in a stricter regulatory environment and reduced availability of mortgages for potential home buyers due to a tight credit market and stricter standards to qualify for mortgages. Mortgage financing and commercial credit for smaller homebuilders, as well as for the development of new market and stricter standards to qualify for mortgages. Mortgage financing and commercial credit for smaller homebuilders, as well as for the development of new residential lots, continue to be constrained. As the housing industry is dependent upon the economy as well as potential homebuyers’ access to mortgage financing residential lots, continue to be constrained. As the housing industry is dependent upon the economy as well as potential homebuyers’ access to mortgage financing and homebuilders’ access to commercial credit, prolonged constraint of the credit markets could have a significant adverse effect on our business, financial and homebuilders’ access to commercial credit, prolonged constraint of the credit markets could have a significant adverse effect on our business, financial condition, operating results and cash flows. condition, operating results and cash flows. Changes in our customer or product sales mix could affect our operating results. Changes in our customer or product sales mix could affect our operating results. Our operating results may vary according to the amount and type of products we sell to each of our primary customer types: new single-family homebuilders, Our operating results may vary according to the amount and type of products we sell to each of our primary customer types: new single-family homebuilders, remodeling contractors, and multi-family builders and light commercial builders. We tend to realize higher gross margins on sales to remodeling contractors due to remodeling contractors, and multi-family builders and light commercial builders. We tend to realize higher gross margins on sales to remodeling contractors due to the smaller product volumes purchased by those customers, as well as the more customized nature of the projects those customers generally undertake. Gross the smaller product volumes purchased by those customers, as well as the more customized nature of the projects those customers generally undertake. Gross margins on sales to single-family, multi-family and light commercial customers can vary based on a variety of factors, including the purchase volumes of the margins on sales to single-family, multi-family and light commercial customers can vary based on a variety of factors, including the purchase volumes of the individual customer, the mix of products sold to that customer, the size and selling price of the project being constructed and the number of upgrades added to the individual customer, the mix of products sold to that customer, the size and selling price of the project being constructed and the number of upgrades added to the project before or during its construction. project before or during its construction. We generate significant business from the large single-family homebuilders; however, our gross margins on sales to them tend to be lower than our gross margins We generate significant business from the large single-family homebuilders; however, our gross margins on sales to them tend to be lower than our gross margins on sales to other market segments. A shift in our sales mix towards the larger homebuilders could negatively impact our gross margins. on sales to other market segments. A shift in our sales mix towards the larger homebuilders could negatively impact our gross margins. In addition, we typically realize greater gross margins on more highly engineered and customized products, or ancillary products that are often purchased based on In addition, we typically realize greater gross margins on more highly engineered and customized products, or ancillary products that are often purchased based on convenience and are therefore less price sensitive to our customers. For example, sales of lumber & lumber sheet goods tend to generate lower gross margins due convenience and are therefore less price sensitive to our customers. For example, sales of lumber & lumber sheet goods tend to generate lower gross margins due to their commodity nature and the relatively low switching costs of sourcing those products from different suppliers. Structural components and millwork, doors & to their commodity nature and the relatively low switching costs of sourcing those products from different suppliers. Structural components and millwork, doors & windows often generate higher windows often generate higher 7 7 gross margins relative to other products. A shift in our sales mix towards the lumber & lumber sheet goods product category could negatively impact our gross gross margins relative to other products. A shift in our sales mix towards the lumber & lumber sheet goods product category could negatively impact our gross margins. margins. others: the volatility of lumber prices; the cyclical nature of the homebuilding industry; general economic conditions in the markets in which we compete; the others: 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 and the production schedules of our customers. pricing policies of our competitors and the production schedules of our customers. We conduct a significant portion of our business in Texas, California and Georgia, which exposes us to the homebuilding activities within the markets of We conduct a significant portion of our business in Texas, California and Georgia, which exposes us to the homebuilding activities within the markets of these states. these states. Our industry is highly fragmented and competitive, and increased competitive pressure may adversely affect our results. Our industry is highly fragmented and competitive, and increased competitive pressure may adversely affect our results. We presently conduct a significant portion of our business in Texas, California and Georgia, which represented approximately 33%, 13% and 12%, respectively, of We presently conduct a significant portion of our business in Texas, California and Georgia, which represented approximately 33%, 13% and 12%, respectively, of 2017 total net sales. Sales activities in these markets and in most of the other markets in which we operate have declined from time to time, particularly as a result 2017 total net sales. Sales activities in these markets and in most of the other markets in which we operate have declined from time to time, particularly as a result of slow economic growth. In the last several years, many of these markets have benefited from better than average employment growth, which has aided of slow economic growth. In the last several years, many of these markets have benefited from better than average employment growth, which has aided homebuilding activities, but we cannot assure you that these conditions will continue. Local economic conditions can depend on a variety of factors, including homebuilding activities, but we cannot assure you that these conditions will continue. Local economic conditions can depend on a variety of factors, including national economic conditions, local and state budget situations and the impact of cutbacks in federal spending and employment. In addition, the significant decline national economic conditions, local and state budget situations and the impact of cutbacks in federal spending and employment. In addition, the significant decline in oil prices in recent years may negatively impact home construction and remodeling activity in Texas (particularly in the Houston metropolitan area, which in oil prices in recent years may negatively impact home construction and remodeling activity in Texas (particularly in the Houston metropolitan area, which accounted for 11% of our 2017 total net sales) and other markets with significant employment in the energy sector. Such a reduction in construction and accounted for 11% of our 2017 total net sales) and other markets with significant employment in the energy sector. Such a reduction in construction and remodeling activities could negatively impact our operating results in those markets in the future. Additionally, our concentration in these markets increases our remodeling activities could negatively impact our operating results in those markets in the future. Additionally, our concentration in these markets increases our exposure to natural disasters and other events adversely impacting these markets. If homebuilding activity declines in one or more of the markets in which we exposure to natural disasters and other events adversely impacting these markets. If homebuilding activity declines in one or more of the markets in which we operate, our costs may not decline at all or at the same rate and therefore may negatively impact our operating results. operate, our costs may not decline at all or at the same rate and therefore may negatively impact our operating results. Because our operations are currently concentrated in these areas, a prolonged economic downturn or localized adverse events in the future in one or more of these Because our operations are currently concentrated in these areas, a prolonged economic downturn or localized adverse events in the future in one or more of these areas or a particular industry that is fundamental to one of these areas, particularly within Texas, could have a material adverse effect on our business, financial areas or a particular industry that is fundamental to one of these areas, particularly within Texas, could have a material adverse effect on our business, financial condition, operating results and cash flows, and a disproportionately greater impact on us than other lumber and building material companies with more diversified condition, operating results and cash flows, and a disproportionately greater impact on us than other lumber and building material companies with more diversified operations. To the extent the oil and gas industries, which can be very volatile, are negatively impacted by declining commodity prices, climate change, legislation operations. To the extent the oil and gas industries, which can be very volatile, are negatively impacted by declining commodity prices, climate change, legislation or other factors, a result could be a reduction in employment, or other negative economic consequences, which in turn could adversely impact home sales and or other factors, a result could be a reduction in employment, or other negative economic consequences, which in turn could adversely impact home sales and activities in Texas and certain of our other markets. activities in Texas and certain of our other markets. The loss of any of our significant customers or a reduction in the quantity of products they purchase could affect our financial health. 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 20% and 18% of our net sales for the years ended December 31, 2017 and 2016 , respectively. We cannot Our ten largest customers generated approximately 20% and 18% of our net sales for the years ended December 31, 2017 and 2016 , respectively. We cannot guarantee that we will maintain or improve our relationships with these customers or that we will continue to supply these customers at historical levels. Due to the guarantee that we will maintain or improve our relationships with these customers or that we will continue to supply these customers at historical levels. Due to the weak housing market over the past several years in comparison to long-term averages, many of our homebuilder customers substantially reduced their construction weak housing market over the past several years in comparison to long-term averages, many of our homebuilder customers substantially reduced their construction activity. Some homebuilder customers exited or severely curtailed building activity in certain of our markets. activity. Some homebuilder customers exited or severely curtailed building activity in certain of our markets. In addition, production homebuilders and other customers may: (i) seek to purchase some of the products that we currently sell directly from manufacturers; (ii) In addition, production homebuilders and other customers may: (i) seek to purchase some of the products that we currently sell directly from manufacturers; (ii) elect to establish their own building products manufacturing and distribution facilities or (iii) give advantages to manufacturing or distribution intermediaries in elect to establish their own building products manufacturing and distribution facilities or (iii) give advantages to manufacturing or distribution intermediaries in which they have an economic stake. Continued consolidation among production homebuilders could also result in a loss of some of our present customers to our which they have an economic stake. Continued consolidation among production homebuilders could also result in a loss of some of our 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 adversely affect our business, financial competitors. The loss of one or more of our significant customers or deterioration in our relations with any of them could adversely affect our business, financial condition, operating results and cash flows. Furthermore, our customers typically are not required to purchase any minimum amount of products from us. The condition, operating results and cash flows. Furthermore, our customers typically are not required to purchase any minimum amount of products from us. The contracts into which we have entered with most of our professional customers typically provide that we supply particular products or services for a certain period contracts into which we have entered with most of our professional customers typically provide that we supply particular products or services for a certain period 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, such 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, such decreased purchases could have a material adverse effect on our business, financial condition, operating results and cash flows. decreased purchases could have a material adverse effect on our business, financial condition, operating results and cash flows. The building products supply and services industry is seasonal and cyclical. The building products supply and services industry is seasonal and cyclical. Our industry is seasonal. Although weather patterns affect our operating results throughout the year, our first and fourth quarters have historically been, and are Our industry is seasonal. Although weather patterns affect our operating results throughout the year, our first and fourth quarters have historically been, and are generally expected to continue to be, adversely affected by weather patterns in some of our markets, causing reduced construction activity. To the extent that generally expected to continue to be, adversely affected by weather patterns in some of our markets, causing reduced construction activity. To the extent that hurricanes, severe storms, earthquakes, floods, fires, droughts, other natural disasters or similar events occur in the markets in which we operate, our business may hurricanes, severe storms, earthquakes, floods, fires, droughts, other natural disasters or similar events occur in the markets in which we operate, our business may be adversely affected. be adversely affected. The building products supply and services industry is highly fragmented and competitive. We face significant competition from local, regional and national The building products supply and services industry is highly fragmented and competitive. We face significant competition from local, regional and national building materials chains, as well as from privately-owned single site enterprises. Any of these competitors may (i) foresee the course of market development more building materials chains, as well as from privately-owned single site enterprises. Any of these competitors may (i) foresee the course of market development more accurately than we do, (ii) provide superior service and sell superior products, (iii) have the ability to produce or supply similar products and services at a lower accurately than we do, (ii) provide superior service and sell superior products, (iii) have the ability to produce or supply similar products and services at a lower cost, (iv) develop stronger relationships with our customers, (v) adapt more quickly to new technologies or evolving customer requirements than we do or (vi) cost, (iv) develop stronger relationships with our customers, (v) adapt more quickly to new technologies or evolving customer requirements than we do or (vi) develop a superior branch network in our markets. As a result, we may not be able to compete successfully with them. In addition, home center retailers and/or develop a superior branch network in our markets. As a result, we may not be able to compete successfully with them. In addition, home center retailers and/or eCommerce retailers, which have historically concentrated their sales efforts on retail consumers and small contractors, may in the future intensify their marketing eCommerce retailers, which have historically concentrated their sales efforts on retail consumers and small contractors, may in the future intensify their marketing efforts to professional homebuilders. Furthermore, certain product manufacturers sell and distribute their products directly to production homebuilders. The volume efforts to professional homebuilders. Furthermore, certain product manufacturers sell and distribute their products directly to production homebuilders. The volume of such direct sales could increase in the future. Additionally, manufacturers and specialty distributors who sell products to us may elect to sell and distribute of such direct sales could increase in the future. Additionally, manufacturers and specialty distributors who sell products to us may elect to sell and distribute directly to homebuilders in the future or enter into exclusive supplier arrangements with other distributors. Consolidation of production homebuilders may result in directly to homebuilders in the future or enter into exclusive supplier arrangements with other distributors. Consolidation of production homebuilders may result in increased 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 compete increased 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 compete effectively. If we are unable to compete effectively, our business, financial condition, operating results and cash flows may be adversely affected. effectively. If we are unable to compete effectively, our business, financial condition, operating results and cash flows may be adversely affected. Some of our competitors are larger than we are and have greater financial resources. These resources may afford those competitors greater purchasing power, Some of our competitors are larger than we are and have greater financial resources. These resources may afford those competitors greater purchasing power, increased financial flexibility and more capital resources for expansion and improvement. increased financial flexibility and more capital resources for expansion and improvement. Certain of our products are commodities and fluctuations in prices of these commodities could affect our operating results. Certain of our products are commodities and fluctuations in prices of these commodities could affect our operating results. Many of the building products we distribute, including OSB, plywood, lumber and particleboard, are commodities that are widely available from other Many of the building products we distribute, including OSB, plywood, lumber and particleboard, are commodities that are widely available from other manufacturers or distributors with prices and volumes determined frequently based on participants’ perceptions of short-term supply and demand factors. A manufacturers or distributors with prices and volumes determined frequently based on participants’ perceptions of short-term supply and demand factors. A shortage of capacity or excess capacity in the industry can result in significant increases or declines in market prices for those products, often within a short period shortage of capacity or excess capacity in the industry can result in significant increases or declines in market prices for those products, often within a short period of time. of time. Prices of commodity products can also change as a result of national and international economic conditions, labor and freight costs, competition, market Prices of commodity products can also change as a result of national and international economic conditions, labor and freight costs, competition, market speculation, government regulation and trade policies, as well as from periodic delays in the delivery of lumber and other products. Short-term changes in the cost speculation, government regulation and trade policies, as well as from periodic delays in the delivery of lumber and other products. Short-term changes in the cost of these materials, some of which are subject to significant fluctuations, are sometimes passed on to our customers but our pricing quotation periods and pricing of these materials, some of which are subject to significant fluctuations, are sometimes passed on to our customers but our pricing quotation periods and pricing pressure from our competitors may limit our ability to pass on such price changes. For example, we frequently enter into extended pricing commitments, which pressure from our competitors may limit our ability to pass on such price changes. For example, we frequently enter into extended pricing commitments, which may compress our gross margins in periods of inflation. At times, the price at which we can charge our customers for any one or more products may even fall may compress our gross margins in periods of inflation. At times, the price at which we can charge our customers for any one or more products may even fall below the price at which we can purchase such products, requiring us to incur short-term losses on product sales. Excessive spikes in the market prices of certain below the price at which we can purchase such products, requiring us to incur short-term losses on product sales. Excessive spikes in the market prices of certain building products, such as lumber, can also put negative pressure on our operating cash flows by requiring us to invest more in inventory. We may also be limited building products, such as lumber, can also put negative pressure on our operating cash flows by requiring us to invest more in inventory. We may also be limited in our ability to pass on increases in freight costs on our products due to the price of fuel. in our ability to pass on increases in freight costs on our products due to the price of fuel. Some of our products are imported into the United States and may be subject to tariffs or import duties that may impact the price of the products and limit their Some of our products are imported into the United States and may be subject to tariffs or import duties that may impact the price of the products and limit their availability. Furthermore, the ongoing trade dispute between the United States and Canada following the expiration of the Softwood Lumber Agreement in 2015 availability. Furthermore, the ongoing trade dispute between the United States and Canada following the expiration of the Softwood Lumber Agreement in 2015 could lead to increased volatility in prices of softwood lumber imported from Canada. For the year ended December 31, 2017, we purchased between $250 million could lead to increased volatility in prices of softwood lumber imported from Canada. For the year ended December 31, 2017, we purchased between $250 million and $270 million of inventory from Canada. and $270 million of inventory from Canada. Periods of generally increasing prices provide the opportunity for higher sales and increased gross profit (subject to the extended pricing commitments described Periods of generally increasing prices provide the opportunity for higher sales and increased gross profit (subject to the extended pricing commitments described above), while generally declining price environments may result in declines in sales and profitability. In particular, low market prices for wood products over a above), while generally declining price environments may result in declines in sales and profitability. In particular, low market prices for wood products over a sustained period can adversely affect our business, financial condition, operating results and cash flows, as can excessive spikes in market prices. For the year sustained period can adversely affect our business, financial condition, operating results and cash flows, as can excessive spikes in market prices. For the year ended December 31, 2017 , average composite framing lumber prices and average composite structural panel prices (a composite calculation based on index prices ended December 31, 2017 , average composite framing lumber prices and average composite structural panel prices (a composite calculation based on index prices for OSB and plywood) as reported by Random Lengths were approximately 19% and 18% higher, respectively, than the prior year. Our lumber & lumber sheet for OSB and plywood) as reported by Random Lengths were approximately 19% and 18% higher, respectively, than the prior year. Our lumber & lumber sheet goods product category represented approximately 33% of net sales in 2017 . If lumber or structural panel prices were to decline significantly from current levels, goods product category represented approximately 33% of net sales in 2017 . If lumber or structural panel prices were to decline significantly from current levels, The building products supply and services industry is also subject to cyclical market pressures. Quarterly results historically have reflected, and are expected to The building products supply and services industry is also subject to cyclical market pressures. Quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to period arising from the following factors, among continue to reflect, fluctuations from period to period arising from the following factors, among our sales and profits could be negatively affected. our sales and profits could be negatively affected. 8 8 9 9 gross margins relative to other products. A shift in our sales mix towards the lumber & lumber sheet goods product category could negatively impact our gross gross margins relative to other products. A shift in our sales mix towards the lumber & lumber sheet goods product category could negatively impact our gross others: the volatility of lumber prices; the cyclical nature of the homebuilding industry; general economic conditions in the markets in which we compete; the others: 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 and the production schedules of our customers. pricing policies of our competitors and the production schedules of our customers. We conduct a significant portion of our business in Texas, California and Georgia, which exposes us to the homebuilding activities within the markets of We conduct a significant portion of our business in Texas, California and Georgia, which exposes us to the homebuilding activities within the markets of Our industry is highly fragmented and competitive, and increased competitive pressure may adversely affect our results. Our industry is highly fragmented and competitive, and increased competitive pressure may adversely affect our results. margins. margins. these states. these states. We presently conduct a significant portion of our business in Texas, California and Georgia, which represented approximately 33%, 13% and 12%, respectively, of We presently conduct a significant portion of our business in Texas, California and Georgia, which represented approximately 33%, 13% and 12%, respectively, of 2017 total net sales. Sales activities in these markets and in most of the other markets in which we operate have declined from time to time, particularly as a result 2017 total net sales. Sales activities in these markets and in most of the other markets in which we operate have declined from time to time, particularly as a result of slow economic growth. In the last several years, many of these markets have benefited from better than average employment growth, which has aided of slow economic growth. In the last several years, many of these markets have benefited from better than average employment growth, which has aided homebuilding activities, but we cannot assure you that these conditions will continue. Local economic conditions can depend on a variety of factors, including homebuilding activities, but we cannot assure you that these conditions will continue. Local economic conditions can depend on a variety of factors, including national economic conditions, local and state budget situations and the impact of cutbacks in federal spending and employment. In addition, the significant decline national economic conditions, local and state budget situations and the impact of cutbacks in federal spending and employment. In addition, the significant decline in oil prices in recent years may negatively impact home construction and remodeling activity in Texas (particularly in the Houston metropolitan area, which in oil prices in recent years may negatively impact home construction and remodeling activity in Texas (particularly in the Houston metropolitan area, which accounted for 11% of our 2017 total net sales) and other markets with significant employment in the energy sector. Such a reduction in construction and accounted for 11% of our 2017 total net sales) and other markets with significant employment in the energy sector. Such a reduction in construction and remodeling activities could negatively impact our operating results in those markets in the future. Additionally, our concentration in these markets increases our remodeling activities could negatively impact our operating results in those markets in the future. Additionally, our concentration in these markets increases our exposure to natural disasters and other events adversely impacting these markets. If homebuilding activity declines in one or more of the markets in which we exposure to natural disasters and other events adversely impacting these markets. If homebuilding activity declines in one or more of the markets in which we operate, our costs may not decline at all or at the same rate and therefore may negatively impact our operating results. operate, our costs may not decline at all or at the same rate and therefore may negatively impact our operating results. Because our operations are currently concentrated in these areas, a prolonged economic downturn or localized adverse events in the future in one or more of these Because our operations are currently concentrated in these areas, a prolonged economic downturn or localized adverse events in the future in one or more of these areas or a particular industry that is fundamental to one of these areas, particularly within Texas, could have a material adverse effect on our business, financial areas or a particular industry that is fundamental to one of these areas, particularly within Texas, could have a material adverse effect on our business, financial condition, operating results and cash flows, and a disproportionately greater impact on us than other lumber and building material companies with more diversified condition, operating results and cash flows, and a disproportionately greater impact on us than other lumber and building material companies with more diversified operations. To the extent the oil and gas industries, which can be very volatile, are negatively impacted by declining commodity prices, climate change, legislation operations. To the extent the oil and gas industries, which can be very volatile, are negatively impacted by declining commodity prices, climate change, legislation or other factors, a result could be a reduction in employment, or other negative economic consequences, which in turn could adversely impact home sales and or other factors, a result could be a reduction in employment, or other negative economic consequences, which in turn could adversely impact home sales and activities in Texas and certain of our other markets. activities in Texas and certain of our other markets. The loss of any of our significant customers or a reduction in the quantity of products they purchase could affect our financial health. 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 20% and 18% of our net sales for the years ended December 31, 2017 and 2016 , respectively. We cannot Our ten largest customers generated approximately 20% and 18% of our net sales for the years ended December 31, 2017 and 2016 , respectively. We cannot guarantee that we will maintain or improve our relationships with these customers or that we will continue to supply these customers at historical levels. Due to the guarantee that we will maintain or improve our relationships with these customers or that we will continue to supply these customers at historical levels. Due to the weak housing market over the past several years in comparison to long-term averages, many of our homebuilder customers substantially reduced their construction weak housing market over the past several years in comparison to long-term averages, many of our homebuilder customers substantially reduced their construction activity. Some homebuilder customers exited or severely curtailed building activity in certain of our markets. activity. Some homebuilder customers exited or severely curtailed building activity in certain of our markets. In addition, production homebuilders and other customers may: (i) seek to purchase some of the products that we currently sell directly from manufacturers; (ii) In addition, production homebuilders and other customers may: (i) seek to purchase some of the products that we currently sell directly from manufacturers; (ii) elect to establish their own building products manufacturing and distribution facilities or (iii) give advantages to manufacturing or distribution intermediaries in elect to establish their own building products manufacturing and distribution facilities or (iii) give advantages to manufacturing or distribution intermediaries in which they have an economic stake. Continued consolidation among production homebuilders could also result in a loss of some of our present customers to our which they have an economic stake. Continued consolidation among production homebuilders could also result in a loss of some of our 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 adversely affect our business, financial competitors. The loss of one or more of our significant customers or deterioration in our relations with any of them could adversely affect our business, financial condition, operating results and cash flows. Furthermore, our customers typically are not required to purchase any minimum amount of products from us. The condition, operating results and cash flows. Furthermore, our customers typically are not required to purchase any minimum amount of products from us. The contracts into which we have entered with most of our professional customers typically provide that we supply particular products or services for a certain period contracts into which we have entered with most of our professional customers typically provide that we supply particular products or services for a certain period 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, such 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, such decreased purchases could have a material adverse effect on our business, financial condition, operating results and cash flows. decreased purchases could have a material adverse effect on our business, financial condition, operating results and cash flows. The building products supply and services industry is seasonal and cyclical. The building products supply and services industry is seasonal and cyclical. Our industry is seasonal. Although weather patterns affect our operating results throughout the year, our first and fourth quarters have historically been, and are Our industry is seasonal. Although weather patterns affect our operating results throughout the year, our first and fourth quarters have historically been, and are generally expected to continue to be, adversely affected by weather patterns in some of our markets, causing reduced construction activity. To the extent that generally expected to continue to be, adversely affected by weather patterns in some of our markets, causing reduced construction activity. To the extent that hurricanes, severe storms, earthquakes, floods, fires, droughts, other natural disasters or similar events occur in the markets in which we operate, our business may hurricanes, severe storms, earthquakes, floods, fires, droughts, other natural disasters or similar events occur in the markets in which we operate, our business may be adversely affected. be adversely affected. The building products supply and services industry is also subject to cyclical market pressures. Quarterly results historically have reflected, and are expected to The building products supply and services industry is also subject to cyclical market pressures. Quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to period arising from the following factors, among continue to reflect, fluctuations from period to period arising from the following factors, among The building products supply and services industry is highly fragmented and competitive. We face significant competition from local, regional and national The building products supply and services industry is highly fragmented and competitive. We face significant competition from local, regional and national building materials chains, as well as from privately-owned single site enterprises. Any of these competitors may (i) foresee the course of market development more building materials chains, as well as from privately-owned single site enterprises. Any of these competitors may (i) foresee the course of market development more accurately than we do, (ii) provide superior service and sell superior products, (iii) have the ability to produce or supply similar products and services at a lower accurately than we do, (ii) provide superior service and sell superior products, (iii) have the ability to produce or supply similar products and services at a lower cost, (iv) develop stronger relationships with our customers, (v) adapt more quickly to new technologies or evolving customer requirements than we do or (vi) cost, (iv) develop stronger relationships with our customers, (v) adapt more quickly to new technologies or evolving customer requirements than we do or (vi) develop a superior branch network in our markets. As a result, we may not be able to compete successfully with them. In addition, home center retailers and/or develop a superior branch network in our markets. As a result, we may not be able to compete successfully with them. In addition, home center retailers and/or eCommerce retailers, which have historically concentrated their sales efforts on retail consumers and small contractors, may in the future intensify their marketing eCommerce retailers, which have historically concentrated their sales efforts on retail consumers and small contractors, may in the future intensify their marketing efforts to professional homebuilders. Furthermore, certain product manufacturers sell and distribute their products directly to production homebuilders. The volume efforts to professional homebuilders. Furthermore, certain product manufacturers sell and distribute their products directly to production homebuilders. The volume of such direct sales could increase in the future. Additionally, manufacturers and specialty distributors who sell products to us may elect to sell and distribute of such direct sales could increase in the future. Additionally, manufacturers and specialty distributors who sell products to us may elect to sell and distribute directly to homebuilders in the future or enter into exclusive supplier arrangements with other distributors. Consolidation of production homebuilders may result in directly to homebuilders in the future or enter into exclusive supplier arrangements with other distributors. Consolidation of production homebuilders may result in increased 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 compete increased 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 compete effectively. If we are unable to compete effectively, our business, financial condition, operating results and cash flows may be adversely affected. effectively. If we are unable to compete effectively, our business, financial condition, operating results and cash flows may be adversely affected. Some of our competitors are larger than we are and have greater financial resources. These resources may afford those competitors greater purchasing power, Some of our competitors are larger than we are and have greater financial resources. These resources may afford those competitors greater purchasing power, increased financial flexibility and more capital resources for expansion and improvement. increased financial flexibility and more capital resources for expansion and improvement. Certain of our products are commodities and fluctuations in prices of these commodities could affect our operating results. Certain of our products are commodities and fluctuations in prices of these commodities could affect our operating results. Many of the building products we distribute, including OSB, plywood, lumber and particleboard, are commodities that are widely available from other Many of the building products we distribute, including OSB, plywood, lumber and particleboard, are commodities that are widely available from other manufacturers or distributors with prices and volumes determined frequently based on participants’ perceptions of short-term supply and demand factors. A manufacturers or distributors with prices and volumes determined frequently based on participants’ perceptions of short-term supply and demand factors. A shortage of capacity or excess capacity in the industry can result in significant increases or declines in market prices for those products, often within a short period shortage of capacity or excess capacity in the industry can result in significant increases or declines in market prices for those products, often within a short period of time. of time. Prices of commodity products can also change as a result of national and international economic conditions, labor and freight costs, competition, market Prices of commodity products can also change as a result of national and international economic conditions, labor and freight costs, competition, market speculation, government regulation and trade policies, as well as from periodic delays in the delivery of lumber and other products. Short-term changes in the cost speculation, government regulation and trade policies, as well as from periodic delays in the delivery of lumber and other products. Short-term changes in the cost of these materials, some of which are subject to significant fluctuations, are sometimes passed on to our customers but our pricing quotation periods and pricing of these materials, some of which are subject to significant fluctuations, are sometimes passed on to our customers but our pricing quotation periods and pricing pressure from our competitors may limit our ability to pass on such price changes. For example, we frequently enter into extended pricing commitments, which pressure from our competitors may limit our ability to pass on such price changes. For example, we frequently enter into extended pricing commitments, which may compress our gross margins in periods of inflation. At times, the price at which we can charge our customers for any one or more products may even fall may compress our gross margins in periods of inflation. At times, the price at which we can charge our customers for any one or more products may even fall below the price at which we can purchase such products, requiring us to incur short-term losses on product sales. Excessive spikes in the market prices of certain below the price at which we can purchase such products, requiring us to incur short-term losses on product sales. Excessive spikes in the market prices of certain building products, such as lumber, can also put negative pressure on our operating cash flows by requiring us to invest more in inventory. We may also be limited building products, such as lumber, can also put negative pressure on our operating cash flows by requiring us to invest more in inventory. We may also be limited in our ability to pass on increases in freight costs on our products due to the price of fuel. in our ability to pass on increases in freight costs on our products due to the price of fuel. Some of our products are imported into the United States and may be subject to tariffs or import duties that may impact the price of the products and limit their Some of our products are imported into the United States and may be subject to tariffs or import duties that may impact the price of the products and limit their availability. Furthermore, the ongoing trade dispute between the United States and Canada following the expiration of the Softwood Lumber Agreement in 2015 availability. Furthermore, the ongoing trade dispute between the United States and Canada following the expiration of the Softwood Lumber Agreement in 2015 could lead to increased volatility in prices of softwood lumber imported from Canada. For the year ended December 31, 2017, we purchased between $250 million could lead to increased volatility in prices of softwood lumber imported from Canada. For the year ended December 31, 2017, we purchased between $250 million and $270 million of inventory from Canada. and $270 million of inventory from Canada. Periods of generally increasing prices provide the opportunity for higher sales and increased gross profit (subject to the extended pricing commitments described Periods of generally increasing prices provide the opportunity for higher sales and increased gross profit (subject to the extended pricing commitments described above), while generally declining price environments may result in declines in sales and profitability. In particular, low market prices for wood products over a above), while generally declining price environments may result in declines in sales and profitability. In particular, low market prices for wood products over a sustained period can adversely affect our business, financial condition, operating results and cash flows, as can excessive spikes in market prices. For the year sustained period can adversely affect our business, financial condition, operating results and cash flows, as can excessive spikes in market prices. For the year ended December 31, 2017 , average composite framing lumber prices and average composite structural panel prices (a composite calculation based on index prices ended December 31, 2017 , average composite framing lumber prices and average composite structural panel prices (a composite calculation based on index prices for OSB and plywood) as reported by Random Lengths were approximately 19% and 18% higher, respectively, than the prior year. Our lumber & lumber sheet for OSB and plywood) as reported by Random Lengths were approximately 19% and 18% higher, respectively, than the prior year. Our lumber & lumber sheet goods product category represented approximately 33% of net sales in 2017 . If lumber or structural panel prices were to decline significantly from current levels, goods product category represented approximately 33% of net sales in 2017 . If lumber or structural panel prices were to decline significantly from current levels, our sales and profits could be negatively affected. our sales and profits could be negatively affected. 8 8 9 9 We are exposed to product liability, warranty, casualty, construction defect, contract, tort, employment and other claims and legal proceedings related to We are exposed to product liability, warranty, casualty, construction defect, contract, tort, employment and other claims and legal proceedings related to our business, products and services as well as services provided for us through third parties. our business, products and services as well as services provided for us through third parties. team or other experienced, senior employees or sales force employees could impair our ability to execute our business plan, cause us to lose customers and reduce team or other experienced, senior employees or sales force employees could impair our ability to execute our business plan, cause us to lose customers and reduce our net sales, or lead to employee morale problems and/or the loss of other key employees. In any such event, our business, financial condition, operating results our net sales, or lead to employee morale problems and/or the loss of other key employees. In any such event, our business, financial condition, operating results We are from time to time involved in product liability, warranty, casualty, construction defect, contract, tort, employment and other claims relating to our business, We are from time to time involved in product liability, warranty, casualty, construction defect, contract, tort, employment and other claims relating to our business, the products we manufacture, distribute or install, and services we provide, either directly or through third parties, that, if adversely determined, could adversely the products we manufacture, distribute or install, and services we provide, either directly or through third parties, that, if adversely determined, could adversely affect our business, financial condition, operating results and cash flows if we were unable to receive indemnification for such claims or were not adequately affect our business, financial condition, operating results and cash flows if we were unable to receive indemnification for such claims or were not adequately insured for such claims. We rely on manufacturers and other suppliers to provide us with many of the products we sell, distribute or install. Because we do not insured for such claims. We rely on manufacturers and other suppliers to provide us with many of the products we sell, distribute or install. Because we do not have direct control 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 have direct control 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. In addition, we are exposed to potential claims arising from the conduct of our employees, homebuilders and their subcontractors, and third-party products. In addition, we are exposed to potential claims arising from the conduct of our employees, homebuilders and their subcontractors, and third-party installers for which we may be liable. We and they are subject to regulatory requirements and risks applicable to general contractors, which include management of installers for which we may be liable. We and they are subject to regulatory requirements and risks applicable to general contractors, which include management of licensing, permitting and quality of our third-party installers. If we fail to manage these processes effectively or provide proper oversight of these services, we licensing, permitting and quality of our third-party installers. If we fail to manage these processes effectively or provide proper oversight of these services, we could suffer lost sales, fines and lawsuits, as well as damage to our reputation, which could adversely affect our business. could suffer lost sales, fines and lawsuits, as well as damage to our reputation, which could adversely affect our business. Product liability, warranty, casualty, construction defect, contract, tort, employment and other claims can be expensive to defend and can divert the attention of Product liability, warranty, casualty, construction defect, contract, tort, employment 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 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. We cannot assure you that any current or future claims will not adversely affect our business, financial condition, confidence in our products and our Company. We cannot assure you that any current or future claims will not adversely affect our business, financial condition, operating results and cash flows. operating results and cash flows. and cash flows could be adversely affected. and cash flows could be adversely affected. On January 10, 2018, we announced that Peter C. Alexander was leaving the Company under mutual agreement, effective immediately, and would be replaced by On January 10, 2018, we announced that Peter C. Alexander was leaving the Company under mutual agreement, effective immediately, and would be replaced by David Keltner, a member of the Board of Directors, as interim President and Chief Executive Officer while the Board conducts a search for a permanent David Keltner, a member of the Board of Directors, as interim President and Chief Executive Officer while the Board conducts a search for a permanent replacement. Any change in senior management involves significant inherent risk, and any failure to identify a suitable replacement or maintain a smooth transition replacement. Any change in senior management involves significant inherent risk, and any failure to identify a suitable replacement or maintain a smooth transition process could hinder our strategic planning, execution and future performance. While we endeavor to minimize any negative impact associated with changes such process could hinder our strategic planning, execution and future performance. While we endeavor to minimize any negative impact associated with changes such as these, there may be uncertainty among investors, employees and others regarding our future direction and performance. Any disruption in our operations, as these, there may be uncertainty among investors, employees and others regarding our future direction and performance. Any disruption in our operations, uncertainty regarding our future or negative public perception regarding the change could have a material adverse effect on our business, financial condition, uncertainty regarding our future or negative public perception regarding the change could have a material adverse effect on our business, financial condition, operating results and cash flows. operating results and cash flows. Our ability to control labor costs is subject to numerous external factors, including prevailing wage rates, the impact of legislation or regulations governing wages, Our ability to control labor costs is subject to numerous external factors, including prevailing wage rates, the impact of legislation or regulations governing wages, regulations governing payment of workers on a "piece-work" or "piece-rate" basis, labor relations, healthcare benefits, and health and other insurance costs. In regulations governing payment of workers on a "piece-work" or "piece-rate" basis, labor relations, healthcare benefits, and health and other insurance costs. In addition, we compete with other companies for many of our employees in hourly and piece-rate positions, and we invest significant resources in training and addition, we compete with other companies for many of our employees in hourly and piece-rate positions, and we invest significant resources in training and motivating them to maintain a high level of job satisfaction. These positions have historically had high turnover rates, which can lead to increased training and motivating them to maintain a high level of job satisfaction. These positions have historically had high turnover rates, which can lead to increased training and retention costs. If we are unable to attract or retain highly qualified employees in the future, it could adversely impact our operating results. retention costs. If we are unable to attract or retain highly qualified employees in the future, it could adversely impact our operating results. We may be unable to maintain profitability or positive cash flows from operations. We may be unable to maintain profitability or positive cash flows from operations. Product shortages, loss of key suppliers or failure to develop relationships with qualified suppliers, and our dependence on third-party suppliers and Product shortages, loss of key suppliers or failure to develop relationships with qualified suppliers, and our dependence on third-party suppliers and We have set goals to progressively improve our profitability over time by growing our sales, increasing our gross margin and reducing our expenses as a We have set goals to progressively improve our profitability over time by growing our sales, increasing our gross margin and reducing our expenses as a percentage of sales. For the years ended December 31, 2017 and 2016, we had net income of $57.4 million and $30.9 million , respectively, and for the year ended percentage of sales. For the years ended December 31, 2017 and 2016, we had net income of $57.4 million and $30.9 million , respectively, and for the year ended December 31, 2015, we had a net loss of $4.8 million . For the years ended December 31, 2017 , 2016 and 2015, we had cash provided by operations of $93.9 December 31, 2015, we had a net loss of $4.8 million . For the years ended December 31, 2017 , 2016 and 2015, we had cash provided by operations of $93.9 million , $106.9 million , and $0.7 million , respectively. There can be no assurance that we will achieve our profitability goals or continue to generate positive million , $106.9 million , and $0.7 million , respectively. There can be no assurance that we will achieve our profitability goals or continue to generate positive cash flow from operations. Factors that could significantly adversely affect our efforts to achieve these goals include, but are not limited to, the failure to: cash flow from operations. Factors that could significantly adversely affect our efforts to achieve these goals include, but are not limited to, the failure to: • • • • • • grow our revenue through organic growth or through acquisitions; grow our revenue through organic growth or through acquisitions; improve our revenue mix by investing (including through acquisitions) in businesses that provide higher gross margins than we have been able to generate improve our revenue mix by investing (including through acquisitions) in businesses that provide higher gross margins than we have been able to generate historically; historically; achieve improvements in purchasing or maintain or increase our rebates from suppliers through our supplier consolidation and/or low-cost country achieve improvements in purchasing or maintain or increase our rebates from suppliers through our supplier consolidation and/or low-cost country initiatives; initiatives; improve our gross margins through the utilization of improved pricing practices and technology and sourcing savings; improve our gross margins through the utilization of improved pricing practices and technology and sourcing savings; effectively evaluate future inventory reserves; effectively evaluate future inventory reserves; collect monies owed from customers; collect monies owed from customers; • • • maintain or reduce our overhead and support expenses as we grow; • maintain or reduce our overhead and support expenses as we grow; • • • • • maintain relationships with our significant customers; • maintain relationships with our significant customers; • • • • integrate any businesses acquired; and integrate any businesses acquired; and continue to successfully integrate BMHC and SBS. continue to successfully integrate BMHC and SBS. Any of these failures or delays may adversely affect our ability to maintain or increase our profitability. Any of these failures or delays may adversely affect our ability to maintain or increase our profitability. Our continued success will depend on our ability to retain our key employees and to attract and retain new qualified employees, while controlling our Our continued success will depend on our ability to retain our key employees and to attract and retain new qualified employees, while controlling our labor costs. labor costs. Our success depends in part on our ability to attract, hire, train and retain qualified managerial, operational, sales and other personnel, while at the same time Our success depends in part on our ability to attract, hire, train and retain qualified managerial, operational, sales and other personnel, while at the same time controlling our labor costs. We face significant competition for these types of employees in our industry and from other industries. Labor shortages may impact our controlling our labor costs. We face significant competition for these types of employees in our industry and from other industries. Labor shortages may impact our ability to hire skilled or unskilled workers with experience in carpentry, construction or fabrication. We may be unsuccessful in attracting and retaining the ability to hire skilled or unskilled workers with experience in carpentry, construction or fabrication. We may be unsuccessful in attracting and retaining the personnel we require to conduct and expand our operations successfully. In addition, key personnel, including sales force employees with key customer personnel we require to conduct and expand our operations successfully. In addition, key personnel, including sales force employees with key customer relationships, may leave us and compete against us. relationships, may leave us and compete against us. Our success also depends to a significant extent on the continued service of our senior management team. Our officers and divisional vice presidents have Our success also depends to a significant extent on the continued service of our senior management team. Our officers and divisional vice presidents have experience in manufacturing, distribution, retail and homebuilding, and have been integral to our successful acquisition and integration of businesses to gain scale experience in manufacturing, distribution, retail and homebuilding, and have been integral to our successful acquisition and integration of businesses to gain scale in our current markets. The loss of any member of our senior management in our current markets. The loss of any member of our senior management 10 10 manufacturers could affect our financial health. 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 and other Our ability to offer a wide variety of products to our customers is dependent upon our ability to obtain adequate product supply from manufacturers and other suppliers. Generally, our products are obtainable from various sources and in sufficient quantities. Our ability to continue to identify and develop relationships with suppliers. Generally, our products are obtainable from various sources and in sufficient quantities. Our ability to continue to identify and develop relationships with qualified suppliers who can satisfy our high standards for quality and our need to access products in a timely and efficient manner is a significant challenge. Our qualified suppliers who can satisfy our high standards for quality and our need to access products in a timely and efficient manner is a significant challenge. Our ability to access products also can be adversely affected by the financial instability of suppliers (particularly in light of continuing economic difficulties in various ability to access products also can be adversely affected by the financial instability of suppliers (particularly in light of continuing economic difficulties in various regions of the United States and the world), suppliers’ noncompliance with applicable laws, tariffs and import duties, supply disruptions, shipping interruptions or regions of the United States and the world), suppliers’ noncompliance with applicable laws, tariffs and import duties, supply disruptions, shipping interruptions or costs, and other factors beyond our control. The loss of, or a substantial decrease in the availability of, products from our suppliers or the loss of key supplier costs, and other factors beyond our control. The loss of, or a substantial decrease in the availability of, products from our suppliers or the loss of key supplier arrangements could adversely impact our business, financial condition, operating results and cash flows. arrangements could adversely impact our business, financial condition, operating results and cash flows. Although in many instances we have agreements with our suppliers, these agreements are generally terminable by either party on limited notice. Many of our Although in many instances we have agreements with our suppliers, these agreements are generally terminable by either party on limited notice. Many of our suppliers also offer us favorable terms based on the volume of our purchases. If market conditions change, suppliers may stop offering us favorable terms. Failure suppliers also offer us favorable terms based on the volume of our purchases. If market conditions change, suppliers may stop offering us favorable terms. Failure by our suppliers to continue to supply us with products on favorable terms, commercially reasonable terms, or at all, could put pressure on our operating margins or by our suppliers to continue to supply us with products on favorable terms, commercially reasonable terms, or at all, could put pressure on our operating margins or have a material adverse effect on our business, financial condition, operating results and cash flows. have a material adverse effect on our business, financial condition, operating results and cash flows. A portion of the workforces of many of our suppliers, particularly our foreign suppliers, are represented by labor unions. Workforce disputes at these suppliers may A portion of the workforces of many of our suppliers, particularly our foreign suppliers, are represented by labor unions. Workforce disputes at these suppliers may result in work stoppages or slowdowns. Such disruptions could have a material adverse effect on these suppliers ability to continue meeting our needs. result in work stoppages or slowdowns. Such disruptions could have a material adverse effect on these suppliers ability to continue meeting our needs. The implementation of our supply chain and technology initiatives could disrupt our operations, and these initiatives might not provide the anticipated The implementation of our supply chain and technology initiatives could disrupt our operations, and these initiatives might not provide the anticipated benefits or might fail. benefits or might fail. We have made, and we plan to continue to make, significant investments in our supply chain and technology. These initiatives are designed to streamline our We have made, and we plan to continue to make, significant investments in our supply chain and technology. These initiatives are designed to streamline our operations to allow our employees to continue to provide high quality service to our customers, while simplifying customer interaction and providing our operations to allow our employees to continue to provide high quality service to our customers, while simplifying customer interaction and providing our customers with a more interconnected purchasing experience. The cost and potential problems and interruptions associated with the implementation of these customers with a more interconnected purchasing experience. The cost and potential problems and interruptions associated with the implementation of these initiatives, including those associated with managing third-party service providers and employing new web-based tools and services, could disrupt or reduce the initiatives, including those associated with managing third-party service providers and employing new web-based tools and services, could disrupt or reduce the efficiency of our operations. In the event that we grow very rapidly, there can be no assurance that we will be able to keep up, expand or adapt our IT infrastructure efficiency of our operations. In the event that we grow very rapidly, there can be no assurance that we will be able to keep up, expand or adapt our IT infrastructure to meet evolving demand on a timely basis and at a commercially reasonable cost, or at all. In addition, our improved supply chain and new or upgraded to meet evolving demand on a timely basis and at a commercially reasonable cost, or at all. In addition, our improved supply chain and new or upgraded technology might not provide the anticipated benefits, it might take longer than expected to realize the anticipated benefits or the initiatives might fail altogether. technology might not provide the anticipated benefits, it might take longer than expected to realize the anticipated benefits or the initiatives might fail altogether. 11 11 We are exposed to product liability, warranty, casualty, construction defect, contract, tort, employment and other claims and legal proceedings related to We are exposed to product liability, warranty, casualty, construction defect, contract, tort, employment and other claims and legal proceedings related to our business, products and services as well as services provided for us through third parties. our business, products and services as well as services provided for us through third parties. We are from time to time involved in product liability, warranty, casualty, construction defect, contract, tort, employment and other claims relating to our business, We are from time to time involved in product liability, warranty, casualty, construction defect, contract, tort, employment and other claims relating to our business, the products we manufacture, distribute or install, and services we provide, either directly or through third parties, that, if adversely determined, could adversely the products we manufacture, distribute or install, and services we provide, either directly or through third parties, that, if adversely determined, could adversely affect our business, financial condition, operating results and cash flows if we were unable to receive indemnification for such claims or were not adequately affect our business, financial condition, operating results and cash flows if we were unable to receive indemnification for such claims or were not adequately insured for such claims. We rely on manufacturers and other suppliers to provide us with many of the products we sell, distribute or install. Because we do not insured for such claims. We rely on manufacturers and other suppliers to provide us with many of the products we sell, distribute or install. Because we do not have direct control 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 have direct control 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. In addition, we are exposed to potential claims arising from the conduct of our employees, homebuilders and their subcontractors, and third-party products. In addition, we are exposed to potential claims arising from the conduct of our employees, homebuilders and their subcontractors, and third-party installers for which we may be liable. We and they are subject to regulatory requirements and risks applicable to general contractors, which include management of installers for which we may be liable. We and they are subject to regulatory requirements and risks applicable to general contractors, which include management of licensing, permitting and quality of our third-party installers. If we fail to manage these processes effectively or provide proper oversight of these services, we licensing, permitting and quality of our third-party installers. If we fail to manage these processes effectively or provide proper oversight of these services, we could suffer lost sales, fines and lawsuits, as well as damage to our reputation, which could adversely affect our business. could suffer lost sales, fines and lawsuits, as well as damage to our reputation, which could adversely affect our business. Product liability, warranty, casualty, construction defect, contract, tort, employment and other claims can be expensive to defend and can divert the attention of Product liability, warranty, casualty, construction defect, contract, tort, employment 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 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. We cannot assure you that any current or future claims will not adversely affect our business, financial condition, confidence in our products and our Company. We cannot assure you that any current or future claims will not adversely affect our business, financial condition, operating results and cash flows. operating results and cash flows. team or other experienced, senior employees or sales force employees could impair our ability to execute our business plan, cause us to lose customers and reduce team or other experienced, senior employees or sales force employees could impair our ability to execute our business plan, cause us to lose customers and reduce our net sales, or lead to employee morale problems and/or the loss of other key employees. In any such event, our business, financial condition, operating results our net sales, or lead to employee morale problems and/or the loss of other key employees. In any such event, our business, financial condition, operating results and cash flows could be adversely affected. and cash flows could be adversely affected. On January 10, 2018, we announced that Peter C. Alexander was leaving the Company under mutual agreement, effective immediately, and would be replaced by On January 10, 2018, we announced that Peter C. Alexander was leaving the Company under mutual agreement, effective immediately, and would be replaced by David Keltner, a member of the Board of Directors, as interim President and Chief Executive Officer while the Board conducts a search for a permanent David Keltner, a member of the Board of Directors, as interim President and Chief Executive Officer while the Board conducts a search for a permanent replacement. Any change in senior management involves significant inherent risk, and any failure to identify a suitable replacement or maintain a smooth transition replacement. Any change in senior management involves significant inherent risk, and any failure to identify a suitable replacement or maintain a smooth transition process could hinder our strategic planning, execution and future performance. While we endeavor to minimize any negative impact associated with changes such process could hinder our strategic planning, execution and future performance. While we endeavor to minimize any negative impact associated with changes such as these, there may be uncertainty among investors, employees and others regarding our future direction and performance. Any disruption in our operations, as these, there may be uncertainty among investors, employees and others regarding our future direction and performance. Any disruption in our operations, uncertainty regarding our future or negative public perception regarding the change could have a material adverse effect on our business, financial condition, uncertainty regarding our future or negative public perception regarding the change could have a material adverse effect on our business, financial condition, operating results and cash flows. operating results and cash flows. Our ability to control labor costs is subject to numerous external factors, including prevailing wage rates, the impact of legislation or regulations governing wages, Our ability to control labor costs is subject to numerous external factors, including prevailing wage rates, the impact of legislation or regulations governing wages, regulations governing payment of workers on a "piece-work" or "piece-rate" basis, labor relations, healthcare benefits, and health and other insurance costs. In regulations governing payment of workers on a "piece-work" or "piece-rate" basis, labor relations, healthcare benefits, and health and other insurance costs. In addition, we compete with other companies for many of our employees in hourly and piece-rate positions, and we invest significant resources in training and addition, we compete with other companies for many of our employees in hourly and piece-rate positions, and we invest significant resources in training and motivating them to maintain a high level of job satisfaction. These positions have historically had high turnover rates, which can lead to increased training and motivating them to maintain a high level of job satisfaction. These positions have historically had high turnover rates, which can lead to increased training and retention costs. If we are unable to attract or retain highly qualified employees in the future, it could adversely impact our operating results. retention costs. If we are unable to attract or retain highly qualified employees in the future, it could adversely impact our operating results. We may be unable to maintain profitability or positive cash flows from operations. We may be unable to maintain profitability or positive cash flows from operations. We have set goals to progressively improve our profitability over time by growing our sales, increasing our gross margin and reducing our expenses as a We have set goals to progressively improve our profitability over time by growing our sales, increasing our gross margin and reducing our expenses as a percentage of sales. For the years ended December 31, 2017 and 2016, we had net income of $57.4 million and $30.9 million , respectively, and for the year ended percentage of sales. For the years ended December 31, 2017 and 2016, we had net income of $57.4 million and $30.9 million , respectively, and for the year ended December 31, 2015, we had a net loss of $4.8 million . For the years ended December 31, 2017 , 2016 and 2015, we had cash provided by operations of $93.9 December 31, 2015, we had a net loss of $4.8 million . For the years ended December 31, 2017 , 2016 and 2015, we had cash provided by operations of $93.9 million , $106.9 million , and $0.7 million , respectively. There can be no assurance that we will achieve our profitability goals or continue to generate positive million , $106.9 million , and $0.7 million , respectively. There can be no assurance that we will achieve our profitability goals or continue to generate positive cash flow from operations. Factors that could significantly adversely affect our efforts to achieve these goals include, but are not limited to, the failure to: cash flow from operations. Factors that could significantly adversely affect our efforts to achieve these goals include, but are not limited to, the failure to: grow our revenue through organic growth or through acquisitions; grow our revenue through organic growth or through acquisitions; improve our revenue mix by investing (including through acquisitions) in businesses that provide higher gross margins than we have been able to generate improve our revenue mix by investing (including through acquisitions) in businesses that provide higher gross margins than we have been able to generate achieve improvements in purchasing or maintain or increase our rebates from suppliers through our supplier consolidation and/or low-cost country achieve improvements in purchasing or maintain or increase our rebates from suppliers through our supplier consolidation and/or low-cost country improve our gross margins through the utilization of improved pricing practices and technology and sourcing savings; improve our gross margins through the utilization of improved pricing practices and technology and sourcing savings; • maintain or reduce our overhead and support expenses as we grow; • maintain or reduce our overhead and support expenses as we grow; historically; historically; initiatives; initiatives; • • • • • • • • • • • • • • • • labor costs. labor costs. effectively evaluate future inventory reserves; effectively evaluate future inventory reserves; collect monies owed from customers; collect monies owed from customers; • maintain relationships with our significant customers; • maintain relationships with our significant customers; integrate any businesses acquired; and integrate any businesses acquired; and continue to successfully integrate BMHC and SBS. continue to successfully integrate BMHC and SBS. Any of these failures or delays may adversely affect our ability to maintain or increase our profitability. Any of these failures or delays may adversely affect our ability to maintain or increase our profitability. Our continued success will depend on our ability to retain our key employees and to attract and retain new qualified employees, while controlling our Our continued success will depend on our ability to retain our key employees and to attract and retain new qualified employees, while controlling our Our success depends in part on our ability to attract, hire, train and retain qualified managerial, operational, sales and other personnel, while at the same time Our success depends in part on our ability to attract, hire, train and retain qualified managerial, operational, sales and other personnel, while at the same time controlling our labor costs. We face significant competition for these types of employees in our industry and from other industries. Labor shortages may impact our controlling our labor costs. We face significant competition for these types of employees in our industry and from other industries. Labor shortages may impact our ability to hire skilled or unskilled workers with experience in carpentry, construction or fabrication. We may be unsuccessful in attracting and retaining the ability to hire skilled or unskilled workers with experience in carpentry, construction or fabrication. We may be unsuccessful in attracting and retaining the personnel we require to conduct and expand our operations successfully. In addition, key personnel, including sales force employees with key customer personnel we require to conduct and expand our operations successfully. In addition, key personnel, including sales force employees with key customer relationships, may leave us and compete against us. relationships, may leave us and compete against us. Our success also depends to a significant extent on the continued service of our senior management team. Our officers and divisional vice presidents have Our success also depends to a significant extent on the continued service of our senior management team. Our officers and divisional vice presidents have experience in manufacturing, distribution, retail and homebuilding, and have been integral to our successful acquisition and integration of businesses to gain scale experience in manufacturing, distribution, retail and homebuilding, and have been integral to our successful acquisition and integration of businesses to gain scale in our current markets. The loss of any member of our senior management in our current markets. The loss of any member of our senior management 10 10 Product shortages, loss of key suppliers or failure to develop relationships with qualified suppliers, and our dependence on third-party suppliers and Product shortages, loss of key suppliers or failure to develop relationships with qualified suppliers, and our dependence on third-party suppliers and manufacturers could affect our financial health. 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 and other Our ability to offer a wide variety of products to our customers is dependent upon our ability to obtain adequate product supply from manufacturers and other suppliers. Generally, our products are obtainable from various sources and in sufficient quantities. Our ability to continue to identify and develop relationships with suppliers. Generally, our products are obtainable from various sources and in sufficient quantities. Our ability to continue to identify and develop relationships with qualified suppliers who can satisfy our high standards for quality and our need to access products in a timely and efficient manner is a significant challenge. Our qualified suppliers who can satisfy our high standards for quality and our need to access products in a timely and efficient manner is a significant challenge. Our ability to access products also can be adversely affected by the financial instability of suppliers (particularly in light of continuing economic difficulties in various ability to access products also can be adversely affected by the financial instability of suppliers (particularly in light of continuing economic difficulties in various regions of the United States and the world), suppliers’ noncompliance with applicable laws, tariffs and import duties, supply disruptions, shipping interruptions or regions of the United States and the world), suppliers’ noncompliance with applicable laws, tariffs and import duties, supply disruptions, shipping interruptions or costs, and other factors beyond our control. The loss of, or a substantial decrease in the availability of, products from our suppliers or the loss of key supplier costs, and other factors beyond our control. The loss of, or a substantial decrease in the availability of, products from our suppliers or the loss of key supplier arrangements could adversely impact our business, financial condition, operating results and cash flows. arrangements could adversely impact our business, financial condition, operating results and cash flows. Although in many instances we have agreements with our suppliers, these agreements are generally terminable by either party on limited notice. Many of our Although in many instances we have agreements with our suppliers, these agreements are generally terminable by either party on limited notice. Many of our suppliers also offer us favorable terms based on the volume of our purchases. If market conditions change, suppliers may stop offering us favorable terms. Failure suppliers also offer us favorable terms based on the volume of our purchases. If market conditions change, suppliers may stop offering us favorable terms. Failure by our suppliers to continue to supply us with products on favorable terms, commercially reasonable terms, or at all, could put pressure on our operating margins or by our suppliers to continue to supply us with products on favorable terms, commercially reasonable terms, or at all, could put pressure on our operating margins or have a material adverse effect on our business, financial condition, operating results and cash flows. have a material adverse effect on our business, financial condition, operating results and cash flows. A portion of the workforces of many of our suppliers, particularly our foreign suppliers, are represented by labor unions. Workforce disputes at these suppliers may A portion of the workforces of many of our suppliers, particularly our foreign suppliers, are represented by labor unions. Workforce disputes at these suppliers may result in work stoppages or slowdowns. Such disruptions could have a material adverse effect on these suppliers ability to continue meeting our needs. result in work stoppages or slowdowns. Such disruptions could have a material adverse effect on these suppliers ability to continue meeting our needs. The implementation of our supply chain and technology initiatives could disrupt our operations, and these initiatives might not provide the anticipated The implementation of our supply chain and technology initiatives could disrupt our operations, and these initiatives might not provide the anticipated benefits or might fail. benefits or might fail. We have made, and we plan to continue to make, significant investments in our supply chain and technology. These initiatives are designed to streamline our We have made, and we plan to continue to make, significant investments in our supply chain and technology. These initiatives are designed to streamline our operations to allow our employees to continue to provide high quality service to our customers, while simplifying customer interaction and providing our operations to allow our employees to continue to provide high quality service to our customers, while simplifying customer interaction and providing our customers with a more interconnected purchasing experience. The cost and potential problems and interruptions associated with the implementation of these customers with a more interconnected purchasing experience. The cost and potential problems and interruptions associated with the implementation of these initiatives, including those associated with managing third-party service providers and employing new web-based tools and services, could disrupt or reduce the initiatives, including those associated with managing third-party service providers and employing new web-based tools and services, could disrupt or reduce the efficiency of our operations. In the event that we grow very rapidly, there can be no assurance that we will be able to keep up, expand or adapt our IT infrastructure efficiency of our operations. In the event that we grow very rapidly, there can be no assurance that we will be able to keep up, expand or adapt our IT infrastructure to meet evolving demand on a timely basis and at a commercially reasonable cost, or at all. In addition, our improved supply chain and new or upgraded to meet evolving demand on a timely basis and at a commercially reasonable cost, or at all. In addition, our improved supply chain and new or upgraded technology might not provide the anticipated benefits, it might take longer than expected to realize the anticipated benefits or the initiatives might fail altogether. technology might not provide the anticipated benefits, it might take longer than expected to realize the anticipated benefits or the initiatives might fail altogether. 11 11 We occupy many of our facilities under long-term non-cancellable leases. If we close a facility, we are still obligated under the applicable lease. We may We occupy many of our facilities under long-term non-cancellable leases. If we close a facility, we are still obligated under the applicable lease. We may be unable to renew leases at the end of their terms. be unable to renew leases at the end of their terms. could result in additional pricing pressure which could adversely affect our business, financial condition, operating results and cash flows. could result in additional pricing pressure which could adversely affect our business, financial condition, operating results and cash flows. Many of our facilities are located in leased premises. Many of our current leases are non-cancellable and typically have initial terms ranging from five to ten years, Many of our facilities are located in leased premises. Many of our current leases are non-cancellable and typically have initial terms ranging from five to ten years, and most provide options to renew for specified periods of time. We believe that leases we enter into in the future will likely be long-term and non-cancellable and and most provide options to renew for specified periods of time. We believe that leases we enter into in the future will likely be long-term and non-cancellable and have similar renewal options. If we close or idle a facility, most likely we remain committed to perform our obligations under the applicable lease, which would have similar renewal options. If we close or idle a facility, most likely we remain committed to perform our obligations under the applicable lease, 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 lease term. The inability to include, among other things, payment of the base rent, insurance, taxes and other expenses on the leased property for the balance of the lease term. The inability to terminate leases when idling a facility or exiting a geographic market can have a significant adverse impact on our business, financial condition, operating results terminate leases when idling a facility or exiting a geographic market can have a significant adverse impact on our business, financial condition, operating results and cash flows. and cash flows. In addition, at the end of the lease term and any renewal period for a facility, we may be unable to renew the lease without substantial additional cost, if at all. If we In addition, at the end of the lease term and any renewal period for a facility, we may be unable to renew the lease without substantial additional cost, if at all. If we are unable to renew our facility leases, we may close or relocate a facility, which could subject us to construction and other costs and risks, which in turn could are unable to renew our facility leases, we may close or relocate a facility, which could subject us to construction and other costs and risks, which in turn could have a material adverse effect on our business, financial condition, operating results and cash flows. In addition, we may not be able to secure a replacement have a material adverse effect on our business, financial condition, operating results and cash flows. In addition, we may not be able to secure a replacement facility in a location that is as commercially viable, including access to rail service, as the lease we are unable to renew. For example, closing a facility, even during facility in a location that is as commercially viable, including access to rail service, as the lease we are unable to renew. For example, closing a facility, even during the time of relocation, will reduce the sales that the facility would have contributed to our revenues. Additionally, the revenue and profit, if any, generated at a the time of relocation, will reduce the sales that the facility would have contributed to our revenues. Additionally, the revenue and profit, if any, generated at a relocated facility may not equal the revenue and profit generated at the existing one. relocated facility may not equal the revenue and profit generated at the existing one. market share. market share. We may be unable to effectively manage our inventory and working capital as our sales volume increases, which could have a material adverse effect on We may be unable to effectively manage our inventory and working capital as our sales volume increases, which could have a material adverse effect on us. us. We purchase certain materials, including lumber products, which are then sold to customers as well as used as direct production inputs for our manufactured and We purchase certain materials, including lumber products, which are then sold to customers as well as used as direct production inputs for our manufactured and prefabricated products. We must maintain, and have adequate working capital to purchase, sufficient inventory to meet customer demand. Due to the lead times prefabricated products. We must maintain, and have adequate working capital to purchase, sufficient inventory to meet customer demand. Due to the lead times required by our suppliers, we order products in advance of expected sales. This requires us to forecast our sales and purchases accordingly. In periods of growth, it required by our suppliers, we order products in advance of expected sales. This requires us to forecast our sales and purchases accordingly. In periods of growth, it can be especially difficult to forecast sales accurately. We must also manage our working capital to fund our inventory purchases. In the future, if we are unable to can be especially difficult to forecast sales accurately. We must also manage our working capital to fund our inventory purchases. In the future, if we are unable to manage effectively our inventory and working capital as we attempt to grow our business, our cash flows may be negatively affected, which could have a material manage effectively our inventory and working capital as we attempt to grow our business, our cash flows may be negatively affected, which could have a material adverse effect on our business, financial condition, operating results and cash flows. adverse effect on our business, financial condition, operating results and cash flows. The majority of our net sales are credit sales that are made primarily to customers whose ability to pay is dependent, in part, upon the economic strength The majority of our net sales are credit sales that are made primarily to customers whose ability to pay is dependent, in part, upon the economic strength of the industry and geographic areas in which they operate, and the failure to collect or timely collect monies owed from customers could adversely affect of the industry and geographic areas in which they operate, and the failure to collect or timely collect monies owed from customers could adversely affect us. us. The majority of our net sales volume in fiscal 2017 was facilitated through the extension of credit to our customers whose ability to pay is dependent, in part, upon The majority of our net sales volume in fiscal 2017 was facilitated through the extension of credit to our customers whose ability to pay is dependent, in part, upon the economic strength of the industry in the areas where they operate. We offer credit to customers, either through unsecured credit that is based solely upon the the economic strength of the industry in the areas where they operate. We offer credit to customers, either through unsecured credit that is based solely upon the creditworthiness of the customer, or secured credit for materials sold for a specific job where the security lies in lien rights associated with the material going into creditworthiness of the customer, or secured credit for materials sold for a specific job where the security lies in lien rights associated with the material going into the job. The type of credit offered depends both on the financial strength of the customer and the nature of the business in which the customer is involved. End the job. The type of credit offered depends both on the financial strength of the customer and the nature of the business in which the customer is involved. End users, resellers and other non-contractor customers generally purchase more on unsecured credit than secured credit. During the housing downturn, several of our users, resellers and other non-contractor customers generally purchase more on unsecured credit than secured credit. During the housing downturn, several of our homebuilder customers defaulted on amounts owed to us or extended their payable days as a result of their financial condition. The inability of our customers to homebuilder customers defaulted on amounts owed to us or extended their payable days as a result of their financial condition. The inability of our customers to pay off their credit lines in a timely manner, or at all, would adversely affect our business, financial condition, operating results and cash flows. Furthermore, our pay off their credit lines in a timely manner, or at all, would adversely affect our business, financial condition, operating results and cash flows. Furthermore, our collections efforts with respect to non-paying or slow-paying customers could negatively impact our customer relations going forward. collections efforts with respect to non-paying or slow-paying customers could negatively impact our customer relations going forward. Because we depend on the creditworthiness of certain of our customers, if the financial condition of our customers declines, our credit risk could increase. Because we depend on the creditworthiness of certain of our customers, if the financial condition of our customers declines, our credit risk could increase. Significant contraction in our markets, coupled with tightened credit availability and financial institution underwriting standards, could adversely affect certain of Significant contraction in our markets, coupled with tightened credit availability and financial institution underwriting standards, could adversely affect certain of our customers. Should one or more of our larger customers declare bankruptcy as has occurred in the past, it could adversely affect the collectability of our our customers. Should one or more of our larger customers declare bankruptcy as has occurred in the past, it could adversely affect the collectability of our accounts receivable, bad debt reserves and net income. accounts receivable, bad debt reserves and net income. affected. affected. We are subject to competitive pricing pressure from our customers. We are subject to competitive pricing pressure from our customers. Production homebuilders historically have exerted significant pressure on their outside suppliers to keep prices low because of their market share and ability to Production homebuilders historically have exerted significant pressure on their outside suppliers to keep prices low because of their market share and ability to leverage such market share in the highly fragmented building products supply and services industry. The housing industry downturn resulted in significantly leverage such market share in the highly fragmented building products supply and services industry. The housing industry downturn resulted in significantly increased pricing pressures from production homebuilders and other customers. Continued consolidation among homebuilders, and changes in homebuilders’ increased pricing pressures from production homebuilders and other customers. Continued consolidation among homebuilders, and changes in homebuilders’ purchasing policies or payment practices, purchasing policies or payment practices, 12 12 We may not timely identify or effectively respond to consumer needs, expectations, market conditions or trends, which could adversely affect our We may not timely identify or effectively respond to consumer needs, expectations, market conditions or trends, which could adversely affect our relationship with customers, the demand for our products and services and our market share. relationship with customers, the demand for our products and services and our market share. It is difficult to predict successfully the products and services our customers will demand. The success of our business depends in part on our ability to identify and It is difficult to predict successfully the products and services our customers will demand. The success of our business depends in part on our ability to identify and respond promptly to changes in demographics, consumer preferences, expectations, needs and weather conditions, while also managing inventory levels. For respond promptly to changes in demographics, consumer preferences, expectations, needs and weather conditions, while also managing inventory levels. For example, an increased consumer focus on making homes energy efficient could require us to offer more energy efficient building materials and there can be no example, an increased consumer focus on making homes energy efficient could require us to offer more energy efficient building materials and there can be no assurance that we would be able to identify appropriate suppliers on acceptable terms. Failure to identify timely or effectively respond to changing consumer assurance that we would be able to identify appropriate suppliers on acceptable terms. Failure to identify timely or effectively respond to changing consumer preferences, expectations and building product needs could adversely affect our relationship with customers, the demand for our products and services and our preferences, expectations and building product needs could adversely affect our relationship with customers, the demand for our products and services and our Because we cannot immediately adapt our production capacity and related cost structures to rapidly changing market conditions, when demand is below our Because we cannot immediately adapt our production capacity and related cost structures to rapidly changing market conditions, when demand is below our expectations, our manufacturing capacity will likely exceed our production requirements. If, during a general market upturn or an upturn in one of our geographic expectations, our manufacturing capacity will likely exceed our production requirements. If, during a general market upturn or an upturn in one of our geographic markets, we cannot increase our manufacturing capacity to meet product demand, we will not be able to fulfill orders in a timely manner, which could lead to order markets, we cannot increase our manufacturing capacity to meet product demand, we will not be able to fulfill orders in a timely manner, which could lead to order cancellations, contract breaches or indemnification obligations. This inability could materially and adversely limit our ability to improve our results. By contrast, if cancellations, contract breaches or indemnification obligations. This inability could materially and adversely limit our ability to improve our results. By contrast, if during an economic downturn we had excess manufacturing capacity, then our fixed costs associated with excess manufacturing capacity could have a significant during an economic downturn we had excess manufacturing capacity, then our fixed costs associated with excess manufacturing capacity could have a significant adverse effect on our business, financial condition, operating results and cash flows. adverse effect on our business, financial condition, operating results and cash flows. We may be unable to successfully implement our growth strategy, which includes pursuing strategic acquisitions and opening new facilities. We may be unable to successfully implement our growth strategy, which includes pursuing strategic acquisitions and opening new facilities. Our long-term business plan provides for continued growth through strategic acquisitions and organic growth through the construction of new facilities or the Our long-term business plan provides for continued growth through strategic acquisitions and organic growth through the construction of new facilities or the expansion of existing facilities. Failure to identify and acquire suitable acquisition candidates on acceptable terms could have a material adverse effect on our expansion of existing facilities. Failure to identify and acquire suitable acquisition candidates on acceptable terms could have a material adverse effect on our growth strategy. Moreover, our reduced operating results during the housing downturn, our liquidity position or the requirements of the Credit Agreement could growth strategy. Moreover, our reduced operating results during the housing downturn, our liquidity position or the requirements of the Credit Agreement could prevent us from obtaining the capital required to effect new acquisitions or expansions of existing facilities. Our failure to make successful acquisitions or to build prevent us from obtaining the capital required to effect new acquisitions or expansions of existing facilities. Our failure to make successful acquisitions or to build or expand facilities, including manufacturing facilities, produce saleable product or meet customer demand in a timely manner could result in damage to or loss of or expand facilities, including manufacturing facilities, produce saleable product or meet customer demand in a timely manner could result in damage to or loss of customer relationships, which could adversely affect our business, financial condition, operating results and cash flows. customer relationships, which could adversely affect our business, 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. 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 DOT, work safety regulations We are subject to various federal, state, local and other regulations, including, among other things, regulations promulgated by the DOT, work safety regulations promulgated by OSHA, employment regulations promulgated by the United States Equal Employment Opportunity Commission, regulations of the United States promulgated by OSHA, employment regulations promulgated by the United States Equal Employment Opportunity Commission, regulations of the United States Department of Labor, federal and state environmental regulations, and state and local zoning restrictions, building codes and contractors’ licensing regulations. Department of Labor, federal and state environmental regulations, and state and local zoning restrictions, building codes and contractors’ licensing regulations. More burdensome regulatory requirements in these or other areas may increase our general and administrative costs and adversely affect our business, financial More burdensome regulatory requirements in these or other areas may increase our general and administrative costs and adversely affect our business, financial condition, operating results and cash flows. Moreover, failure to comply with the regulatory requirements applicable to our business could expose us to litigation condition, operating results and cash flows. Moreover, failure to comply with the regulatory requirements applicable to our business could expose us to litigation and/or substantial penalties that could adversely affect our business, financial condition, operating results and cash flows. and/or substantial penalties that could adversely affect our business, financial condition, operating results and cash flows. Our transportation operations are subject to the regulatory jurisdiction of the DOT. The DOT has broad administrative powers with respect to our transportation Our transportation operations are subject to the regulatory jurisdiction of the DOT. The DOT has broad administrative powers with respect to our transportation operations. More restrictive limitations on vehicle weight and size, trailer length and configuration, or driver hours of service would increase our costs, which, if operations. More restrictive limitations on vehicle weight and size, trailer length and configuration, or driver hours of service would increase our costs, which, if we are unable to pass these cost increases on to our customers, may increase our selling, general and administrative expenses and adversely affect our business, we are unable to pass these cost increases on to our customers, may increase our selling, general and administrative expenses and adversely affect our business, financial condition, operating results and cash flows. If we fail to comply adequately with DOT regulations or regulations become more stringent, we could financial condition, operating results and cash flows. If we fail to comply adequately with DOT regulations or regulations become more stringent, we could experience increased inspections, regulatory authorities could take remedial action including imposing fines or shutting down our operations or we could be subject experience increased inspections, regulatory authorities could take remedial action including imposing fines or shutting down our operations or we could be subject to increased audit and compliance costs. If any of these events were to occur, our business, financial condition, operating results and cash flows could be adversely to increased audit and compliance costs. If any of these events were to occur, our business, financial condition, operating results and cash flows could be adversely In addition, the homebuilding industry is subject to various local, state and federal statutes, ordinances, codes, rules and regulations concerning zoning, building In addition, the homebuilding industry is subject to various local, state and federal statutes, ordinances, codes, rules and regulations concerning zoning, building design and safety, construction, energy conservation, environmental protection and similar matters, including regulations that impose restrictive zoning and density design and safety, construction, energy conservation, environmental protection and similar matters, including regulations that impose restrictive zoning and density requirements on our business or that limit the number of homes requirements on our business or that limit the number of homes 13 13 We occupy many of our facilities under long-term non-cancellable leases. If we close a facility, we are still obligated under the applicable lease. We may We occupy many of our facilities under long-term non-cancellable leases. If we close a facility, we are still obligated under the applicable lease. We may could result in additional pricing pressure which could adversely affect our business, financial condition, operating results and cash flows. could result in additional pricing pressure which could adversely affect our business, financial condition, operating results and cash flows. be unable to renew leases at the end of their terms. be unable to renew leases at the end of their terms. Many of our facilities are located in leased premises. Many of our current leases are non-cancellable and typically have initial terms ranging from five to ten years, Many of our facilities are located in leased premises. Many of our current leases are non-cancellable and typically have initial terms ranging from five to ten years, and most provide options to renew for specified periods of time. We believe that leases we enter into in the future will likely be long-term and non-cancellable and and most provide options to renew for specified periods of time. We believe that leases we enter into in the future will likely be long-term and non-cancellable and have similar renewal options. If we close or idle a facility, most likely we remain committed to perform our obligations under the applicable lease, which would have similar renewal options. If we close or idle a facility, most likely we remain committed to perform our obligations under the applicable lease, 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 lease term. The inability to include, among other things, payment of the base rent, insurance, taxes and other expenses on the leased property for the balance of the lease term. The inability to terminate leases when idling a facility or exiting a geographic market can have a significant adverse impact on our business, financial condition, operating results terminate leases when idling a facility or exiting a geographic market can have a significant adverse impact on our business, financial condition, operating results and cash flows. and cash flows. In addition, at the end of the lease term and any renewal period for a facility, we may be unable to renew the lease without substantial additional cost, if at all. If we In addition, at the end of the lease term and any renewal period for a facility, we may be unable to renew the lease without substantial additional cost, if at all. If we are unable to renew our facility leases, we may close or relocate a facility, which could subject us to construction and other costs and risks, which in turn could are unable to renew our facility leases, we may close or relocate a facility, which could subject us to construction and other costs and risks, which in turn could have a material adverse effect on our business, financial condition, operating results and cash flows. In addition, we may not be able to secure a replacement have a material adverse effect on our business, financial condition, operating results and cash flows. In addition, we may not be able to secure a replacement facility in a location that is as commercially viable, including access to rail service, as the lease we are unable to renew. For example, closing a facility, even during facility in a location that is as commercially viable, including access to rail service, as the lease we are unable to renew. For example, closing a facility, even during the time of relocation, will reduce the sales that the facility would have contributed to our revenues. Additionally, the revenue and profit, if any, generated at a the time of relocation, will reduce the sales that the facility would have contributed to our revenues. Additionally, the revenue and profit, if any, generated at a relocated facility may not equal the revenue and profit generated at the existing one. relocated facility may not equal the revenue and profit generated at the existing one. We may be unable to effectively manage our inventory and working capital as our sales volume increases, which could have a material adverse effect on We may be unable to effectively manage our inventory and working capital as our sales volume increases, which could have a material adverse effect on We purchase certain materials, including lumber products, which are then sold to customers as well as used as direct production inputs for our manufactured and We purchase certain materials, including lumber products, which are then sold to customers as well as used as direct production inputs for our manufactured and prefabricated products. We must maintain, and have adequate working capital to purchase, sufficient inventory to meet customer demand. Due to the lead times prefabricated products. We must maintain, and have adequate working capital to purchase, sufficient inventory to meet customer demand. Due to the lead times required by our suppliers, we order products in advance of expected sales. This requires us to forecast our sales and purchases accordingly. In periods of growth, it required by our suppliers, we order products in advance of expected sales. This requires us to forecast our sales and purchases accordingly. In periods of growth, it can be especially difficult to forecast sales accurately. We must also manage our working capital to fund our inventory purchases. In the future, if we are unable to can be especially difficult to forecast sales accurately. We must also manage our working capital to fund our inventory purchases. In the future, if we are unable to manage effectively our inventory and working capital as we attempt to grow our business, our cash flows may be negatively affected, which could have a material manage effectively our inventory and working capital as we attempt to grow our business, our cash flows may be negatively affected, which could have a material adverse effect on our business, financial condition, operating results and cash flows. adverse effect on our business, financial condition, operating results and cash flows. We may not timely identify or effectively respond to consumer needs, expectations, market conditions or trends, which could adversely affect our We may not timely identify or effectively respond to consumer needs, expectations, market conditions or trends, which could adversely affect our relationship with customers, the demand for our products and services and our market share. relationship with customers, the demand for our products and services and our market share. It is difficult to predict successfully the products and services our customers will demand. The success of our business depends in part on our ability to identify and It is difficult to predict successfully the products and services our customers will demand. The success of our business depends in part on our ability to identify and respond promptly to changes in demographics, consumer preferences, expectations, needs and weather conditions, while also managing inventory levels. For respond promptly to changes in demographics, consumer preferences, expectations, needs and weather conditions, while also managing inventory levels. For example, an increased consumer focus on making homes energy efficient could require us to offer more energy efficient building materials and there can be no example, an increased consumer focus on making homes energy efficient could require us to offer more energy efficient building materials and there can be no assurance that we would be able to identify appropriate suppliers on acceptable terms. Failure to identify timely or effectively respond to changing consumer assurance that we would be able to identify appropriate suppliers on acceptable terms. Failure to identify timely or effectively respond to changing consumer preferences, expectations and building product needs could adversely affect our relationship with customers, the demand for our products and services and our preferences, expectations and building product needs could adversely affect our relationship with customers, the demand for our products and services and our market share. market share. Because we cannot immediately adapt our production capacity and related cost structures to rapidly changing market conditions, when demand is below our Because we cannot immediately adapt our production capacity and related cost structures to rapidly changing market conditions, when demand is below our expectations, our manufacturing capacity will likely exceed our production requirements. If, during a general market upturn or an upturn in one of our geographic expectations, our manufacturing capacity will likely exceed our production requirements. If, during a general market upturn or an upturn in one of our geographic markets, we cannot increase our manufacturing capacity to meet product demand, we will not be able to fulfill orders in a timely manner, which could lead to order markets, we cannot increase our manufacturing capacity to meet product demand, we will not be able to fulfill orders in a timely manner, which could lead to order cancellations, contract breaches or indemnification obligations. This inability could materially and adversely limit our ability to improve our results. By contrast, if cancellations, contract breaches or indemnification obligations. This inability could materially and adversely limit our ability to improve our results. By contrast, if during an economic downturn we had excess manufacturing capacity, then our fixed costs associated with excess manufacturing capacity could have a significant during an economic downturn we had excess manufacturing capacity, then our fixed costs associated with excess manufacturing capacity could have a significant adverse effect on our business, financial condition, operating results and cash flows. adverse effect on our business, financial condition, operating results and cash flows. We may be unable to successfully implement our growth strategy, which includes pursuing strategic acquisitions and opening new facilities. We may be unable to successfully implement our growth strategy, which includes pursuing strategic acquisitions and opening new facilities. Our long-term business plan provides for continued growth through strategic acquisitions and organic growth through the construction of new facilities or the Our long-term business plan provides for continued growth through strategic acquisitions and organic growth through the construction of new facilities or the expansion of existing facilities. Failure to identify and acquire suitable acquisition candidates on acceptable terms could have a material adverse effect on our expansion of existing facilities. Failure to identify and acquire suitable acquisition candidates on acceptable terms could have a material adverse effect on our growth strategy. Moreover, our reduced operating results during the housing downturn, our liquidity position or the requirements of the Credit Agreement could growth strategy. Moreover, our reduced operating results during the housing downturn, our liquidity position or the requirements of the Credit Agreement could prevent us from obtaining the capital required to effect new acquisitions or expansions of existing facilities. Our failure to make successful acquisitions or to build prevent us from obtaining the capital required to effect new acquisitions or expansions of existing facilities. Our failure to make successful acquisitions or to build or expand facilities, including manufacturing facilities, produce saleable product or meet customer demand in a timely manner could result in damage to or loss of or expand facilities, including manufacturing facilities, produce saleable product or meet customer demand in a timely manner could result in damage to or loss of customer relationships, which could adversely affect our business, financial condition, operating results and cash flows. customer relationships, which could adversely affect our business, financial condition, operating results and cash flows. The majority of our net sales are credit sales that are made primarily to customers whose ability to pay is dependent, in part, upon the economic strength The majority of our net sales are credit sales that are made primarily to customers whose ability to pay is dependent, in part, upon the economic strength of the industry and geographic areas in which they operate, and the failure to collect or timely collect monies owed from customers could adversely affect of the industry and geographic areas in which they operate, and the failure to collect or timely collect monies owed from customers could adversely affect Federal, state, local and other regulations could impose substantial costs and/or restrictions on our operations that would reduce our net income. Federal, state, local and other regulations could impose substantial costs and/or restrictions on our operations that would reduce our net income. us. us. us. us. The majority of our net sales volume in fiscal 2017 was facilitated through the extension of credit to our customers whose ability to pay is dependent, in part, upon The majority of our net sales volume in fiscal 2017 was facilitated through the extension of credit to our customers whose ability to pay is dependent, in part, upon the economic strength of the industry in the areas where they operate. We offer credit to customers, either through unsecured credit that is based solely upon the the economic strength of the industry in the areas where they operate. We offer credit to customers, either through unsecured credit that is based solely upon the creditworthiness of the customer, or secured credit for materials sold for a specific job where the security lies in lien rights associated with the material going into creditworthiness of the customer, or secured credit for materials sold for a specific job where the security lies in lien rights associated with the material going into the job. The type of credit offered depends both on the financial strength of the customer and the nature of the business in which the customer is involved. End the job. The type of credit offered depends both on the financial strength of the customer and the nature of the business in which the customer is involved. End users, resellers and other non-contractor customers generally purchase more on unsecured credit than secured credit. During the housing downturn, several of our users, resellers and other non-contractor customers generally purchase more on unsecured credit than secured credit. During the housing downturn, several of our homebuilder customers defaulted on amounts owed to us or extended their payable days as a result of their financial condition. The inability of our customers to homebuilder customers defaulted on amounts owed to us or extended their payable days as a result of their financial condition. The inability of our customers to pay off their credit lines in a timely manner, or at all, would adversely affect our business, financial condition, operating results and cash flows. Furthermore, our pay off their credit lines in a timely manner, or at all, would adversely affect our business, financial condition, operating results and cash flows. Furthermore, our collections efforts with respect to non-paying or slow-paying customers could negatively impact our customer relations going forward. collections efforts with respect to non-paying or slow-paying customers could negatively impact our customer relations going forward. Because we depend on the creditworthiness of certain of our customers, if the financial condition of our customers declines, our credit risk could increase. Because we depend on the creditworthiness of certain of our customers, if the financial condition of our customers declines, our credit risk could increase. Significant contraction in our markets, coupled with tightened credit availability and financial institution underwriting standards, could adversely affect certain of Significant contraction in our markets, coupled with tightened credit availability and financial institution underwriting standards, could adversely affect certain of our customers. Should one or more of our larger customers declare bankruptcy as has occurred in the past, it could adversely affect the collectability of our our customers. Should one or more of our larger customers declare bankruptcy as has occurred in the past, it could adversely affect the collectability of our accounts receivable, bad debt reserves and net income. accounts receivable, bad debt reserves and net income. We are subject to competitive pricing pressure from our customers. We are subject to competitive pricing pressure from our customers. Production homebuilders historically have exerted significant pressure on their outside suppliers to keep prices low because of their market share and ability to Production homebuilders historically have exerted significant pressure on their outside suppliers to keep prices low because of their market share and ability to leverage such market share in the highly fragmented building products supply and services industry. The housing industry downturn resulted in significantly leverage such market share in the highly fragmented building products supply and services industry. The housing industry downturn resulted in significantly increased pricing pressures from production homebuilders and other customers. Continued consolidation among homebuilders, and changes in homebuilders’ increased pricing pressures from production homebuilders and other customers. Continued consolidation among homebuilders, and changes in homebuilders’ purchasing policies or payment practices, purchasing policies or payment practices, 12 12 We are subject to various federal, state, local and other regulations, including, among other things, regulations promulgated by the DOT, work safety regulations We are subject to various federal, state, local and other regulations, including, among other things, regulations promulgated by the DOT, work safety regulations promulgated by OSHA, employment regulations promulgated by the United States Equal Employment Opportunity Commission, regulations of the United States promulgated by OSHA, employment regulations promulgated by the United States Equal Employment Opportunity Commission, regulations of the United States Department of Labor, federal and state environmental regulations, and state and local zoning restrictions, building codes and contractors’ licensing regulations. Department of Labor, federal and state environmental regulations, and state and local zoning restrictions, building codes and contractors’ licensing regulations. More burdensome regulatory requirements in these or other areas may increase our general and administrative costs and adversely affect our business, financial More burdensome regulatory requirements in these or other areas may increase our general and administrative costs and adversely affect our business, financial condition, operating results and cash flows. Moreover, failure to comply with the regulatory requirements applicable to our business could expose us to litigation condition, operating results and cash flows. Moreover, failure to comply with the regulatory requirements applicable to our business could expose us to litigation and/or substantial penalties that could adversely affect our business, financial condition, operating results and cash flows. and/or substantial penalties that could adversely affect our business, financial condition, operating results and cash flows. Our transportation operations are subject to the regulatory jurisdiction of the DOT. The DOT has broad administrative powers with respect to our transportation Our transportation operations are subject to the regulatory jurisdiction of the DOT. The DOT has broad administrative powers with respect to our transportation operations. More restrictive limitations on vehicle weight and size, trailer length and configuration, or driver hours of service would increase our costs, which, if operations. More restrictive limitations on vehicle weight and size, trailer length and configuration, or driver hours of service would increase our costs, which, if we are unable to pass these cost increases on to our customers, may increase our selling, general and administrative expenses and adversely affect our business, we are unable to pass these cost increases on to our customers, may increase our selling, general and administrative expenses and adversely affect our business, financial condition, operating results and cash flows. If we fail to comply adequately with DOT regulations or regulations become more stringent, we could financial condition, operating results and cash flows. If we fail to comply adequately with DOT regulations or regulations become more stringent, we could experience increased inspections, regulatory authorities could take remedial action including imposing fines or shutting down our operations or we could be subject experience increased inspections, regulatory authorities could take remedial action including imposing fines or shutting down our operations or we could be subject to increased audit and compliance costs. If any of these events were to occur, our business, financial condition, operating results and cash flows could be adversely to increased audit and compliance costs. If any of these events were to occur, our business, financial condition, operating results and cash flows could be adversely affected. affected. In addition, the homebuilding industry is subject to various local, state and federal statutes, ordinances, codes, rules and regulations concerning zoning, building In addition, the homebuilding industry is subject to various local, state and federal statutes, ordinances, codes, rules and regulations concerning zoning, building design and safety, construction, energy conservation, environmental protection and similar matters, including regulations that impose restrictive zoning and density design and safety, construction, energy conservation, environmental protection and similar matters, including regulations that impose restrictive zoning and density requirements on our business or that limit the number of homes requirements on our business or that limit the number of homes 13 13 that can be built within the boundaries of a particular area. Regulatory restrictions may increase our operating expenses and limit the availability of suitable that can be built within the boundaries of a particular area. Regulatory restrictions may increase our operating expenses and limit the availability of suitable building lots for our customers, which could negatively affect our sales and earnings. building lots for our customers, which could negatively affect our sales and earnings. We may not be able to utilize certain of our net operating loss carryforwards, which could harm our profitability. We may not be able to utilize certain of our net operating loss carryforwards, which could harm our profitability. Changes in legislation and government policy may have a material adverse effect on us. Changes in legislation and government policy may have a material adverse effect on us. The 2016 presidential and congressional elections in the United States have resulted in uncertainty with respect to, and could result in significant changes in, The 2016 presidential and congressional elections in the United States have resulted in uncertainty with respect to, and could result in significant changes in, legislation and government policy. The 2018 midterm elections could add to this uncertainty. Specific legislative and regulatory proposals discussed during and legislation and government policy. The 2018 midterm elections could add to this uncertainty. Specific legislative and regulatory proposals discussed during and after the election that could have a material impact on us include, but are not limited to, modifications to international trade policy and increased regulation related after the election that could have a material impact on us include, but are not limited to, modifications to international trade policy and increased regulation related to the employment of foreign workers. to the employment of foreign workers. Immigration reform and enforcement continues to attract significant attention in the public arena, the United States Congress and at the state and local levels. We Immigration reform and enforcement continues to attract significant attention in the public arena, the United States Congress and at the state and local levels. We rely in part on a seasonal workforce which requires specific types of visas to enter the United States. If new or more restrictive immigration legislation is enacted at rely in part on a seasonal workforce which requires specific types of visas to enter the United States. If new or more restrictive immigration legislation is enacted at the federal level or in states in which we do business, or if existing regulations are interpreted or enforced differently, these changes could make it more difficult or the federal level or in states in which we do business, or if existing regulations are interpreted or enforced differently, these changes could make it more difficult or costly for us to hire United States citizens and/or legal immigrant workers. In such case, we may incur additional costs to run our business, including to find and costly for us to hire United States citizens and/or legal immigrant workers. In such case, we may incur additional costs to run our business, including to find and hire replacement workers, or may have to change the way we conduct our operations, either of which could have a material adverse effect on our business, hire replacement workers, or may have to change the way we conduct our operations, either of which could have a material adverse effect on our business, financial condition, operating results and cash flows. financial condition, operating results and cash flows. The Tax Cuts and Jobs Act of 2017 ("2017 Tax Act") was enacted during December 2017, which, among other provisions, limits mortgage interest and state and The Tax Cuts and Jobs Act of 2017 ("2017 Tax Act") was enacted during December 2017, which, among other provisions, limits mortgage interest and state and local tax deductions, including property taxes and state income taxes, which may affect demand for new homes. The limitation on state and local tax deductions local tax deductions, including property taxes and state income taxes, which may affect demand for new homes. The limitation on state and local tax deductions may have a greater impact in high tax states such as California, which accounted for approximately 13% of our 2017 net sales. Future changes in federal income may have a greater impact in high tax states such as California, which accounted for approximately 13% of our 2017 net sales. Future changes in federal income tax laws may also affect demand for new homes. From time to time, various proposals are discussed, which, if enacted, may have an adverse effect on the tax laws may also affect demand for new homes. From time to time, various proposals are discussed, which, if enacted, may have an adverse effect on the homebuilding industry in general. No meaningful prediction can be made as to whether any such proposals will be enacted and, if enacted, the particular form such homebuilding industry in general. No meaningful prediction can be made as to whether any such proposals will be enacted and, if enacted, the particular form such laws would take. Because we have substantial fixed costs, relatively modest declines in our customers’ production levels could have a significant adverse effect on laws would take. Because we have substantial fixed costs, relatively modest declines in our customers’ production levels could have a significant adverse effect on our business, financial condition, operating results and cash flows. our business, financial condition, operating results and cash flows. Unanticipated changes in our tax provisions, the adoption of new tax legislation or exposure to additional tax liabilities could affect our financial Unanticipated changes in our tax provisions, the adoption of new tax legislation or exposure to additional tax liabilities could affect our financial performance. performance. We are subject to income and other taxes in the United States. We are subject to ongoing tax audits in various jurisdictions. We regularly assess the likely outcome We are subject to income and other taxes in the United States. We are subject to ongoing tax audits in various jurisdictions. We regularly assess the likely outcome of these audits in order to determine the appropriateness of our tax provision. However, there can be no assurance that we will accurately predict the outcome of of these audits in order to determine the appropriateness of our tax provision. However, there can be no assurance that we will accurately predict the outcome of these audits, and the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax these audits, and the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and therefore could have a material impact on our tax provision, net income and cash flows. In addition, our effective tax rate in the future could be expense and therefore could have a material impact on our tax provision, net income and cash flows. In addition, our effective tax rate in the future could be adversely affected by changes to our operating structure, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, and the discovery of adversely affected by changes to our operating structure, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, and the discovery of new information in the course of our tax return preparation. new information in the course of our tax return preparation. As of December 31, 2017, we had a net deferred tax liability of $1.8 million . The carrying value of our deferred tax assets is dependent on our ability to generate As of December 31, 2017, we had a net deferred tax liability of $1.8 million . The carrying value of our deferred tax assets is dependent on our ability to generate future taxable income in the United States. Future changes in tax legislation could have a significant adverse effect on our tax rate or the carrying value of our future taxable income in the United States. Future changes in tax legislation could have a significant adverse effect on our tax rate or the carrying value of our deferred tax assets and liabilities. Any of these changes could affect our financial performance. deferred tax assets and liabilities. Any of these changes could affect our financial performance. 14 14 We have net operating loss ("NOL") carryforwards to reduce future taxable income. Utilization of our NOL carryforwards may be subject to a substantial We have net operating loss ("NOL") carryforwards to reduce future taxable income. Utilization of our NOL carryforwards may be subject to a substantial limitation under Section 382 of the Internal Revenue Code of 1986, as amended ("Section 382"), and comparable provisions of state tax laws, due to changes in limitation under Section 382 of the Internal Revenue Code of 1986, as amended ("Section 382"), and comparable provisions of state tax laws, due to changes in ownership of our company that may occur in the future. Under Section 382 and comparable provisions of state tax laws, if a corporation undergoes an “ownership ownership of our company that may occur in the future. Under Section 382 and comparable provisions of state tax laws, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change by value in its equity ownership over a three-year period, the corporation's ability to carry forward its pre- change,” generally defined as a greater than 50% change by value in its equity ownership over a three-year period, the corporation's ability to carry forward its pre- change net operating losses to reduce its post-change income may be limited. We may experience ownership changes in the future as a result of future changes in change net operating losses to reduce its post-change income may be limited. We may experience ownership changes in the future as a result of future changes in our stock ownership. As a result, our ability to use our pre-change NOL carryforwards to reduce U.S. federal and state taxable income we produce in the future our stock ownership. As a result, our ability to use our pre-change NOL carryforwards to reduce U.S. federal and state taxable income we produce in the future years may be subject to limitations, which could result in increased future tax liability to us. years may be subject to limitations, which could result in increased future tax liability to us. We may be adversely affected by any natural or man-made disruptions to our distribution and manufacturing facilities. 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 eastern, southern and western United States. Any widespread We currently maintain a broad network of distribution and manufacturing facilities throughout the eastern, southern and western United States. Any widespread disruption to our facilities resulting from fire, earthquake, hurricanes and other weather-related events, an act of terrorism, labor disputes, supply chain disruptions disruption to our facilities resulting from fire, earthquake, hurricanes and other weather-related events, an act of terrorism, labor disputes, supply chain disruptions or any other cause could damage a significant portion of our inventory and could materially impair our ability to manufacture and distribute our products to or any other cause could damage a significant portion of our inventory and could materially impair our ability to manufacture and distribute our products to customers. We could incur significantly higher costs and longer lead times associated with distributing our products to our customers during the time that it takes customers. We could incur significantly higher costs and longer lead times associated 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 of fuel or significant fuel cost increases could disrupt our ability to distribute products to for us to reopen or replace a damaged facility. In addition, any shortages of fuel or significant fuel cost increases could disrupt our ability to distribute products to our customers. Disruptions to the national or local transportation infrastructure systems may also affect our ability to keep our operations and services functioning our customers. Disruptions to the national or local transportation infrastructure systems may also affect our ability to keep our operations and services functioning properly. If any of these events were to occur, our business, financial condition, operating results and cash flows could be materially adversely affected. properly. If any of these events were to occur, our business, financial condition, operating results and cash flows could be materially adversely affected. We are subject to exposure to environmental liabilities and are subject to environmental regulation. We are subject to exposure to environmental liabilities and are subject to environmental regulation. We are subject to various federal, state and local environmental laws, ordinances, rules and regulations, including those promulgated by the United States We are subject to various federal, state and local environmental laws, ordinances, rules and regulations, including those promulgated by the United States Environmental Protection Agency and analogous state agencies. As current and former owners, lessees and operators of real property, we can be held liable for the Environmental Protection Agency and analogous state agencies. As current and former owners, lessees and operators of real property, we can be held liable for the investigation or remediation of contamination at or from such properties, in some circumstances irrespective of whether we knew of or caused such contamination. investigation or remediation of contamination at or from such properties, in some circumstances irrespective of whether we knew of or caused such contamination. No assurance can be provided that investigation and remediation will not be required in the future as a result of spills or releases of petroleum products or No assurance can be provided that investigation and remediation will not be required in the future as a result of spills or releases of petroleum products or hazardous substances, the discovery of currently unknown environmental conditions, more stringent standards regarding existing contamination, or changes in hazardous substances, the discovery of currently unknown environmental conditions, more stringent standards regarding existing contamination, or changes in legislation, laws, ordinances, rules or regulations or their interpretation or enforcement. More burdensome environmental regulatory requirements may increase our legislation, laws, ordinances, rules or regulations or their interpretation or enforcement. More burdensome environmental regulatory requirements may increase our costs and adversely affect our business, financial condition, operating results and cash flows. costs and adversely affect our business, financial condition, operating results and cash flows. We are subject to health and safety laws and regulations and any failure to comply with any current or future laws or regulations could have a material We are subject to health and safety laws and regulations and any failure to comply with any current or future laws or regulations could have a material adverse effect on us. adverse effect on us. Manufacturing and building sites are inherently dangerous workplaces. Our work sites often put our employees and others in close proximity with large pieces of Manufacturing and building sites are inherently dangerous workplaces. Our work sites often put our employees and others in close proximity with large pieces of mechanized equipment, moving vehicles, manufacturing processes, and heavy products. As a result, we are subject to a variety of health and safety laws and mechanized equipment, moving vehicles, manufacturing processes, and heavy products. As a result, we are subject to a variety of health and safety laws and regulations dealing with occupational health and safety. Unsafe work sites have the potential to increase employee turnover and raise our operating costs. Our regulations dealing with occupational health and safety. Unsafe work sites have the potential to increase employee turnover and raise our operating costs. Our safety record can also impact our reputation. We maintain functional groups whose primary purpose is to ensure we implement effective work procedures safety record can also impact our reputation. We maintain functional groups whose primary purpose is to ensure we implement effective work procedures throughout our organization and take other steps to ensure the health and safety of our work force, but there can be no assurances these measures will be successful throughout our organization and take other steps to ensure the health and safety of our work force, but there can be no assurances these measures will be successful in preventing injuries or violations of health and safety laws and regulations. Any failure to maintain safe work sites or violations of applicable law could expose us in preventing injuries or violations of health and safety laws and regulations. Any failure to maintain safe work sites or violations of applicable law could expose us to significant financial losses and reputational harm, as well as civil and criminal liabilities, any of which could have a material adverse effect on our business, to significant financial losses and reputational harm, as well as civil and criminal liabilities, any of which could have a material adverse effect on our business, financial condition, operating results and cash flows. financial condition, operating results and cash flows. We may be adversely affected by any disruption in our information technology systems. We may be adversely affected by any disruption in our information technology systems. Our operations are dependent upon our IT systems, which encompass all of our major business functions. A substantial disruption in our IT systems for any Our operations are dependent upon our IT systems, which encompass all of our major business functions. A substantial disruption in our IT systems for any prolonged time period (arising from, for example, system capacity limits from unexpected increases in our volume of business, outages, computer viruses, prolonged time period (arising from, for example, system capacity limits from unexpected increases in our volume of business, outages, computer viruses, unauthorized access or delays in our service) could result in delays in receiving inventory and supplies or filling customer orders and adversely affect our customer unauthorized access or delays in our service) could result in delays in receiving inventory and supplies or filling customer orders and adversely affect our customer service and relationships. Our systems might be damaged or interrupted by natural or man-made events or by computer viruses, physical or electronic break-ins, or service and relationships. Our systems 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. Such delays, problems or costs may have a material adverse effect on our business, financial condition, operating similar disruptions affecting the global Internet. Such delays, problems or costs may have a material adverse effect on our business, financial condition, operating results and cash flows. results and cash flows. 15 15 building lots for our customers, which could negatively affect our sales and earnings. building lots for our customers, which could negatively affect our sales and earnings. Changes in legislation and government policy may have a material adverse effect on us. Changes in legislation and government policy may have a material adverse effect on us. The 2016 presidential and congressional elections in the United States have resulted in uncertainty with respect to, and could result in significant changes in, The 2016 presidential and congressional elections in the United States have resulted in uncertainty with respect to, and could result in significant changes in, legislation and government policy. The 2018 midterm elections could add to this uncertainty. Specific legislative and regulatory proposals discussed during and legislation and government policy. The 2018 midterm elections could add to this uncertainty. Specific legislative and regulatory proposals discussed during and after the election that could have a material impact on us include, but are not limited to, modifications to international trade policy and increased regulation related after the election that could have a material impact on us include, but are not limited to, modifications to international trade policy and increased regulation related to the employment of foreign workers. to the employment of foreign workers. rely in part on a seasonal workforce which requires specific types of visas to enter the United States. If new or more restrictive immigration legislation is enacted at rely in part on a seasonal workforce which requires specific types of visas to enter the United States. If new or more restrictive immigration legislation is enacted at the federal level or in states in which we do business, or if existing regulations are interpreted or enforced differently, these changes could make it more difficult or the federal level or in states in which we do business, or if existing regulations are interpreted or enforced differently, these changes could make it more difficult or costly for us to hire United States citizens and/or legal immigrant workers. In such case, we may incur additional costs to run our business, including to find and costly for us to hire United States citizens and/or legal immigrant workers. In such case, we may incur additional costs to run our business, including to find and hire replacement workers, or may have to change the way we conduct our operations, either of which could have a material adverse effect on our business, hire replacement workers, or may have to change the way we conduct our operations, either of which could have a material adverse effect on our business, financial condition, operating results and cash flows. financial condition, operating results and cash flows. The Tax Cuts and Jobs Act of 2017 ("2017 Tax Act") was enacted during December 2017, which, among other provisions, limits mortgage interest and state and The Tax Cuts and Jobs Act of 2017 ("2017 Tax Act") was enacted during December 2017, which, among other provisions, limits mortgage interest and state and local tax deductions, including property taxes and state income taxes, which may affect demand for new homes. The limitation on state and local tax deductions local tax deductions, including property taxes and state income taxes, which may affect demand for new homes. The limitation on state and local tax deductions may have a greater impact in high tax states such as California, which accounted for approximately 13% of our 2017 net sales. Future changes in federal income may have a greater impact in high tax states such as California, which accounted for approximately 13% of our 2017 net sales. Future changes in federal income homebuilding industry in general. No meaningful prediction can be made as to whether any such proposals will be enacted and, if enacted, the particular form such homebuilding industry in general. No meaningful prediction can be made as to whether any such proposals will be enacted and, if enacted, the particular form such laws would take. Because we have substantial fixed costs, relatively modest declines in our customers’ production levels could have a significant adverse effect on laws would take. Because we have substantial fixed costs, relatively modest declines in our customers’ production levels could have a significant adverse effect on our business, financial condition, operating results and cash flows. our business, financial condition, operating results and cash flows. Unanticipated changes in our tax provisions, the adoption of new tax legislation or exposure to additional tax liabilities could affect our financial Unanticipated changes in our tax provisions, the adoption of new tax legislation or exposure to additional tax liabilities could affect our financial performance. performance. We are subject to income and other taxes in the United States. We are subject to ongoing tax audits in various jurisdictions. We regularly assess the likely outcome We are subject to income and other taxes in the United States. We are subject to ongoing tax audits in various jurisdictions. We regularly assess the likely outcome of these audits in order to determine the appropriateness of our tax provision. However, there can be no assurance that we will accurately predict the outcome of of these audits in order to determine the appropriateness of our tax provision. However, there can be no assurance that we will accurately predict the outcome of these audits, and the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax these audits, and the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and therefore could have a material impact on our tax provision, net income and cash flows. In addition, our effective tax rate in the future could be expense and therefore could have a material impact on our tax provision, net income and cash flows. In addition, our effective tax rate in the future could be adversely affected by changes to our operating structure, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, and the discovery of adversely affected by changes to our operating structure, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, and the discovery of new information in the course of our tax return preparation. new information in the course of our tax return preparation. As of December 31, 2017, we had a net deferred tax liability of $1.8 million . The carrying value of our deferred tax assets is dependent on our ability to generate As of December 31, 2017, we had a net deferred tax liability of $1.8 million . The carrying value of our deferred tax assets is dependent on our ability to generate future taxable income in the United States. Future changes in tax legislation could have a significant adverse effect on our tax rate or the carrying value of our future taxable income in the United States. Future changes in tax legislation could have a significant adverse effect on our tax rate or the carrying value of our deferred tax assets and liabilities. Any of these changes could affect our financial performance. deferred tax assets and liabilities. Any of these changes could affect our financial performance. 14 14 that can be built within the boundaries of a particular area. Regulatory restrictions may increase our operating expenses and limit the availability of suitable that can be built within the boundaries of a particular area. Regulatory restrictions may increase our operating expenses and limit the availability of suitable We may not be able to utilize certain of our net operating loss carryforwards, which could harm our profitability. We may not be able to utilize certain of our net operating loss carryforwards, which could harm our profitability. Immigration reform and enforcement continues to attract significant attention in the public arena, the United States Congress and at the state and local levels. We Immigration reform and enforcement continues to attract significant attention in the public arena, the United States Congress and at the state and local levels. We We may be adversely affected by any natural or man-made disruptions to our distribution and manufacturing facilities. 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 eastern, southern and western United States. Any widespread We currently maintain a broad network of distribution and manufacturing facilities throughout the eastern, southern and western United States. Any widespread disruption to our facilities resulting from fire, earthquake, hurricanes and other weather-related events, an act of terrorism, labor disputes, supply chain disruptions disruption to our facilities resulting from fire, earthquake, hurricanes and other weather-related events, an act of terrorism, labor disputes, supply chain disruptions or any other cause could damage a significant portion of our inventory and could materially impair our ability to manufacture and distribute our products to or any other cause could damage a significant portion of our inventory and could materially impair our ability to manufacture and distribute our products to customers. We could incur significantly higher costs and longer lead times associated with distributing our products to our customers during the time that it takes customers. We could incur significantly higher costs and longer lead times associated 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 of fuel or significant fuel cost increases could disrupt our ability to distribute products to for us to reopen or replace a damaged facility. In addition, any shortages of fuel or significant fuel cost increases could disrupt our ability to distribute products to our customers. Disruptions to the national or local transportation infrastructure systems may also affect our ability to keep our operations and services functioning our customers. Disruptions to the national or local transportation infrastructure systems may also affect our ability to keep our operations and services functioning properly. If any of these events were to occur, our business, financial condition, operating results and cash flows could be materially adversely affected. properly. If any of these events were to occur, our business, financial condition, operating results and cash flows could be materially adversely affected. tax laws may also affect demand for new homes. From time to time, various proposals are discussed, which, if enacted, may have an adverse effect on the tax laws may also affect demand for new homes. From time to time, various proposals are discussed, which, if enacted, may have an adverse effect on the We are subject to exposure to environmental liabilities and are subject to environmental regulation. We are subject to exposure to environmental liabilities and are subject to environmental regulation. We have net operating loss ("NOL") carryforwards to reduce future taxable income. Utilization of our NOL carryforwards may be subject to a substantial We have net operating loss ("NOL") carryforwards to reduce future taxable income. Utilization of our NOL carryforwards may be subject to a substantial limitation under Section 382 of the Internal Revenue Code of 1986, as amended ("Section 382"), and comparable provisions of state tax laws, due to changes in limitation under Section 382 of the Internal Revenue Code of 1986, as amended ("Section 382"), and comparable provisions of state tax laws, due to changes in ownership of our company that may occur in the future. Under Section 382 and comparable provisions of state tax laws, if a corporation undergoes an “ownership ownership of our company that may occur in the future. Under Section 382 and comparable provisions of state tax laws, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change by value in its equity ownership over a three-year period, the corporation's ability to carry forward its pre- change,” generally defined as a greater than 50% change by value in its equity ownership over a three-year period, the corporation's ability to carry forward its pre- change net operating losses to reduce its post-change income may be limited. We may experience ownership changes in the future as a result of future changes in change net operating losses to reduce its post-change income may be limited. We may experience ownership changes in the future as a result of future changes in our stock ownership. As a result, our ability to use our pre-change NOL carryforwards to reduce U.S. federal and state taxable income we produce in the future our stock ownership. As a result, our ability to use our pre-change NOL carryforwards to reduce U.S. federal and state taxable income we produce in the future years may be subject to limitations, which could result in increased future tax liability to us. years may be subject to limitations, which could result in increased future tax liability to us. We are subject to various federal, state and local environmental laws, ordinances, rules and regulations, including those promulgated by the United States We are subject to various federal, state and local environmental laws, ordinances, rules and regulations, including those promulgated by the United States Environmental Protection Agency and analogous state agencies. As current and former owners, lessees and operators of real property, we can be held liable for the Environmental Protection Agency and analogous state agencies. As current and former owners, lessees and operators of real property, we can be held liable for the investigation or remediation of contamination at or from such properties, in some circumstances irrespective of whether we knew of or caused such contamination. investigation or remediation of contamination at or from such properties, in some circumstances irrespective of whether we knew of or caused such contamination. No assurance can be provided that investigation and remediation will not be required in the future as a result of spills or releases of petroleum products or No assurance can be provided that investigation and remediation will not be required in the future as a result of spills or releases of petroleum products or hazardous substances, the discovery of currently unknown environmental conditions, more stringent standards regarding existing contamination, or changes in hazardous substances, the discovery of currently unknown environmental conditions, more stringent standards regarding existing contamination, or changes in legislation, laws, ordinances, rules or regulations or their interpretation or enforcement. More burdensome environmental regulatory requirements may increase our legislation, laws, ordinances, rules or regulations or their interpretation or enforcement. More burdensome environmental regulatory requirements may increase our costs and adversely affect our business, financial condition, operating results and cash flows. costs and adversely affect our business, financial condition, operating results and cash flows. We are subject to health and safety laws and regulations and any failure to comply with any current or future laws or regulations could have a material We are subject to health and safety laws and regulations and any failure to comply with any current or future laws or regulations could have a material adverse effect on us. adverse effect on us. Manufacturing and building sites are inherently dangerous workplaces. Our work sites often put our employees and others in close proximity with large pieces of Manufacturing and building sites are inherently dangerous workplaces. Our work sites often put our employees and others in close proximity with large pieces of mechanized equipment, moving vehicles, manufacturing processes, and heavy products. As a result, we are subject to a variety of health and safety laws and mechanized equipment, moving vehicles, manufacturing processes, and heavy products. As a result, we are subject to a variety of health and safety laws and regulations dealing with occupational health and safety. Unsafe work sites have the potential to increase employee turnover and raise our operating costs. Our regulations dealing with occupational health and safety. Unsafe work sites have the potential to increase employee turnover and raise our operating costs. Our safety record can also impact our reputation. We maintain functional groups whose primary purpose is to ensure we implement effective work procedures safety record can also impact our reputation. We maintain functional groups whose primary purpose is to ensure we implement effective work procedures throughout our organization and take other steps to ensure the health and safety of our work force, but there can be no assurances these measures will be successful throughout our organization and take other steps to ensure the health and safety of our work force, but there can be no assurances these measures will be successful in preventing injuries or violations of health and safety laws and regulations. Any failure to maintain safe work sites or violations of applicable law could expose us in preventing injuries or violations of health and safety laws and regulations. Any failure to maintain safe work sites or violations of applicable law could expose us to significant financial losses and reputational harm, as well as civil and criminal liabilities, any of which could have a material adverse effect on our business, to significant financial losses and reputational harm, as well as civil and criminal liabilities, any of which could have a material adverse effect on our business, financial condition, operating results and cash flows. financial condition, operating results and cash flows. We may be adversely affected by any disruption in our information technology systems. We may be adversely affected by any disruption in our information technology systems. Our operations are dependent upon our IT systems, which encompass all of our major business functions. A substantial disruption in our IT systems for any Our operations are dependent upon our IT systems, which encompass all of our major business functions. A substantial disruption in our IT systems for any prolonged time period (arising from, for example, system capacity limits from unexpected increases in our volume of business, outages, computer viruses, prolonged time period (arising from, for example, system capacity limits from unexpected increases in our volume of business, outages, computer viruses, unauthorized access or delays in our service) could result in delays in receiving inventory and supplies or filling customer orders and adversely affect our customer unauthorized access or delays in our service) could result in delays in receiving inventory and supplies or filling customer orders and adversely affect our customer service and relationships. Our systems might be damaged or interrupted by natural or man-made events or by computer viruses, physical or electronic break-ins, or service and relationships. Our systems 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. Such delays, problems or costs may have a material adverse effect on our business, financial condition, operating similar disruptions affecting the global Internet. Such delays, problems or costs may have a material adverse effect on our business, financial condition, operating results and cash flows. results and cash flows. 15 15 We are subject to cybersecurity risks that could adversely affect us, and we may incur increasing costs in an effort to minimize those risks. We are subject to cybersecurity risks that could adversely affect us, and we may incur increasing costs in an effort to minimize those risks. associated with this project and a delay in our ability to improve existing operations, to support future growth and to take advantage of new applications and associated with this project and a delay in our ability to improve existing operations, to support future growth and to take advantage of new applications and Our business relies on systems, including those of third parties with whom we do business, and a website that involve the storage and transmission of customers’ Our business relies on systems, including those of third parties with whom we do business, and a website that involve the storage and transmission of customers’ and employees' personal and proprietary information. Our systems and those of third parties with whom we do business have been, and will likely continue to be, and employees' personal and proprietary information. Our systems and those of third parties with whom we do business have been, and will likely continue to be, subjected to computer viruses or other malicious codes, unauthorized access attempts and cyber-attacks that include phishing-attacks, denial-of-service attacks, subjected to computer viruses or other malicious codes, unauthorized access attempts and cyber-attacks that include phishing-attacks, denial-of-service attacks, ransomware, malware and hacking. Breach of our systems or those of third parties with whom we do business could compromise our confidential information and ransomware, malware and hacking. Breach of our systems or those of third parties with whom we do business could compromise our confidential information and that of our customers or employees, impede or interrupt our business operations, and may result in other negative consequences, including remediation costs, loss that of our customers or employees, impede or interrupt our business operations, and may result in other negative consequences, including remediation costs, loss of revenue, litigation, significant legal and financial exposure, loss of intellectual property and reputational damage. of revenue, litigation, significant legal and financial exposure, loss of intellectual property and reputational damage. To date, we have not experienced a material breach of cybersecurity. As cyber-attacks become more sophisticated generally, and as we implement changes giving To date, we have not experienced a material breach of cybersecurity. As cyber-attacks become more sophisticated generally, and as we implement changes giving customers greater electronic access to our systems, we may be required to incur significant costs to strengthen our systems from outside intrusions and/or maintain customers greater electronic access to our systems, we may be required to incur significant costs to strengthen our systems from outside intrusions and/or maintain insurance coverage related to the threat of such attacks. Further, the regulatory environment related to information security and privacy is increasingly rigorous, insurance coverage related to the threat of such attacks. Further, the regulatory environment related to information security and privacy is increasingly rigorous, with new and constantly changing requirements applicable to our business and those of third parties with whom we do business, and compliance with those with new and constantly changing requirements applicable to our business and those of third parties with whom we do business, and compliance with those requirements could result in additional costs. Despite our efforts, we may not have the resources or technical sophistication to anticipate or prevent rapidly requirements could result in additional costs. Despite our efforts, we may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks on our systems or those of the third parties with whom we do business. While we have implemented administrative and technical evolving types of cyber-attacks on our systems or those of the third parties with whom we do business. While we have implemented administrative and technical controls such as web filtering, endpoint and storage area network antivirus scanning and isolation, next-generation firewalls, a secure email gateway and mobile controls such as web filtering, endpoint and storage area network antivirus scanning and isolation, next-generation firewalls, a secure email gateway and mobile device administration, purchased cyber insurance coverage and taken other preventive actions to reduce the risk of cyber incidents and protect our IT, these device administration, purchased cyber insurance coverage and taken other preventive actions to reduce the risk of cyber incidents and protect our IT, these measures, and other measures we may take in the future, can be expensive, and may be insufficient, circumvented or may become ineffective. Any of the foregoing measures, and other measures we may take in the future, can be expensive, and may be insufficient, circumvented or may become ineffective. Any of the foregoing risks and increased costs could have a material adverse effect on our business, financial condition, operating results and cash flows. risks and increased costs could have a material adverse effect on our business, financial condition, operating results and cash flows. Insufficient insurance coverage could have a material adverse effect on us. Insufficient insurance coverage could have a material adverse effect on us. We carry insurance for general liability, auto liability and workers' compensation exposures subject to deductibles and/or self-insured retentions that we believe to We carry insurance for general liability, auto liability and workers' compensation exposures subject to deductibles and/or self-insured retentions that we believe to be reasonable under the circumstances, and we self-insure for employee and eligible dependent health care claims, with insurance purchased from independent be reasonable under the circumstances, and we self-insure for employee and eligible dependent health care claims, with insurance purchased from independent carriers to cover individual claims in excess of the self-insured limits. However, our insurance program does not cover, or may not adequately cover, every carriers to cover individual claims in excess of the self-insured limits. However, our insurance program does not cover, or may not adequately cover, every potential risk associated with our business and the consequences thereof. In addition, market conditions or any significant claim or a number of claims made by or potential risk associated with our business and the consequences thereof. In addition, market conditions or any significant claim or a number of claims made by or against us could cause our premiums and deductibles to increase substantially and, in some instances, our coverage may be reduced or become entirely unavailable. against us could cause our premiums and deductibles to increase substantially and, in some instances, our coverage may be reduced or become entirely unavailable. In the future, we may not be able to obtain meaningful coverage at reasonable rates for a variety of risks, including certain types of environmental hazards and In the future, we may not be able to obtain meaningful coverage at reasonable rates for a variety of risks, including certain types of environmental hazards and ongoing regulatory compliance. If our insurance coverage is insufficient, if we are not able to obtain sufficient coverage in the future, or if we are exposed to ongoing regulatory compliance. If our insurance coverage is insufficient, if we are not able to obtain sufficient coverage in the future, or if we are exposed to significant losses as a result of the risks for which we self-insure, any resulting costs or liabilities could have a material adverse effect on our business, financial significant losses as a result of the risks for which we self-insure, any resulting costs or liabilities could have a material adverse effect on our business, financial condition, operating results and cash flows. condition, operating results and cash flows. Operation on multiple ERP information systems, and the conversion from multiple systems to a single system, may negatively impact our operations. Operation on multiple ERP information systems, and the conversion from multiple systems to a single system, may negatively impact our operations. reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts, and other general corporate purposes; reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts, and other general corporate purposes; The Company currently operates on multiple ERP systems, which we use for operations representing virtually all of our sales. Certain of our ERP systems are The Company currently operates on multiple ERP systems, which we use for operations representing virtually all of our sales. Certain of our ERP systems are proprietary systems that have been highly customized by our computer programmers. We rely upon our ERP systems to manage and replenish inventory, to fill and proprietary systems that have been highly customized by our computer programmers. We rely upon our ERP systems to manage and replenish inventory, to fill and ship customer orders on a timely basis, to coordinate our sales and distribution activities across all of our products and services and to provide information for ship customer orders on a timely basis, to coordinate our sales and distribution activities across all of our products and services and to provide information for financial reporting purposes. financial reporting purposes. Processing, consolidating and reconciling information from multiple ERP systems increases the chance of error, and we may incur significant additional costs Processing, consolidating and reconciling information from multiple ERP systems increases the chance of error, and we may incur significant additional costs related thereto. Inconsistencies in the information from multiple ERP systems could adversely impact our ability to manage our business efficiently and may result related thereto. Inconsistencies in the information from multiple ERP systems could adversely impact our ability to manage our business efficiently and may result in heightened risk to our ability to maintain accurate books and records and comply with regulatory requirements. in heightened risk to our ability to maintain accurate books and records and comply with regulatory requirements. During 2016 and 2017, the Company implemented the ERP system utilized by Legacy SBS ("the Legacy SBS ERP system") at certain Legacy BMHC and newly During 2016 and 2017, the Company implemented the ERP system utilized by Legacy SBS ("the Legacy SBS ERP system") at certain Legacy BMHC and newly acquired locations. If the remaining implementation of the Legacy SBS ERP system across Legacy BMHC and newly acquired operations is not executed acquired locations. If the remaining implementation of the Legacy SBS ERP system across Legacy BMHC and newly acquired operations is not executed successfully, this could result in business interruptions and loss of customers. If we do not complete the remaining implementation timely and successfully, we successfully, this could result in business interruptions and loss of customers. If we do not complete the remaining implementation timely and successfully, we may also incur additional costs may also incur additional costs 16 16 technologies. technologies. Such projects are inherently complex, resource intensive, and lengthy. As a result, we could experience unplanned or unforeseen issues that could adversely affect Such projects are inherently complex, resource intensive, and lengthy. As a result, we could experience unplanned or unforeseen issues that could adversely affect the project, our business or our results of operations, including: the project, our business or our results of operations, including: • • • • • • • • • • • • • • • • • • • • • • costs of implementation that materially exceed our expectations; costs of implementation that materially exceed our expectations; diversion of management’s attention away from normal daily business operations; diversion of management’s attention away from normal daily business operations; or the early termination of information system supplier agreements; or the early termination of information system supplier agreements; increased demand on our operations support personnel; increased demand on our operations support personnel; risk of incurring asset impairment charges, accelerated depreciation expense or other charges related to the early retirement of information system assets risk of incurring asset impairment charges, accelerated depreciation expense or other charges related to the early retirement of information system assets delays in the go-live of one or more of the stages of the project, resulting in additional costs or time for completion; delays in the go-live of one or more of the stages of the project, resulting in additional costs or time for completion; errors in implementation resulting in errors in the commencement or reporting of business transactions; errors in implementation resulting in errors in the commencement or reporting of business transactions; failure in the deliverables of our key partners, suppliers and implementation advisors, resulting in an inferior product, reduced business efficacy and the failure in the deliverables of our key partners, suppliers and implementation advisors, resulting in an inferior product, reduced business efficacy and the project not providing expected benefits; project not providing expected benefits; input deliveries and production impairment; input deliveries and production impairment; loss of sales or customers as a result of errors in business transactions or delays in providing products or services; loss of sales or customers as a result of errors in business transactions or delays in providing products or services; deficiencies in the training of employees in the use of the new solution, resulting in errors in the recording of data or transactions, leading to delays in deficiencies in the training of employees in the use of the new solution, resulting in errors in the recording of data or transactions, leading to delays in a control failure during or post implementation, which may result in a material weakness in our internal controls over financial reporting; and a control failure during or post implementation, which may result in a material weakness in our internal controls over financial reporting; and other implementation issues leading to delays and impacts on our business. other implementation issues leading to delays and impacts on our business. Any of the foregoing could materially and negatively impact our business, financial condition, operating results and cash flows. Any of the foregoing could materially and negatively impact our business, financial condition, operating results and cash flows. Risks Related to Our Indebtedness Risks Related to Our Indebtedness Our indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy Our indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or the industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under our indebtedness. or the industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under our indebtedness. As of December 31, 2017 , our total debt was $377.3 million , which includes obligations under the senior secured notes due 2024 (the "Senior Notes") and our As of December 31, 2017 , our total debt was $377.3 million , which includes obligations under the senior secured notes due 2024 (the "Senior Notes") and our revolving credit facility (excluding unamortized debt issuance costs), as well as obligations under capital leases and certain other notes. This leverage could have revolving credit facility (excluding unamortized debt issuance costs), as well as obligations under capital leases and certain other notes. This leverage could have important consequences, including: making it more difficult for us to satisfy our obligations with respect to our indebtedness; increasing our vulnerability to important consequences, including: making it more difficult for us to satisfy our obligations with respect to our indebtedness; increasing our vulnerability to general adverse economic and industry conditions; requiring us to dedicate a portion of our cash flow from operations to payments on our indebtedness, thereby general adverse economic and industry conditions; requiring us to dedicate a portion of our cash flow from operations to payments on our indebtedness, thereby increasing our vulnerability to and limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; exposing us increasing our vulnerability to and limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; exposing us to the risk of increased interest rates as borrowings under certain of our indebtedness are subject to variable rates of interest; placing us at a competitive to the risk of increased interest rates as borrowings under certain of our indebtedness are subject to variable rates of interest; placing us at a competitive disadvantage compared to our competitors that have less debt; and limiting our ability to borrow additional funds. disadvantage compared to our competitors that have less debt; and limiting our ability to borrow additional funds. We are substantially reliant on liquidity provided by our Second Amended and Restated Senior Secured Credit Agreement (the "Credit Agreement") and cash on We are substantially reliant on liquidity provided by our Second Amended and Restated Senior Secured Credit Agreement (the "Credit Agreement") and cash on hand to provide working capital and fund our operations. Our working capital and capital expenditure requirements are likely to grow as the housing market hand to provide working capital and fund our operations. Our working capital and capital expenditure requirements are likely to grow as the housing market improves and we execute our strategic growth plan. Economic and credit market conditions, the performance of the homebuilding industry, and our financial improves and we execute our strategic growth plan. Economic and credit market conditions, the performance of the homebuilding industry, and our financial performance, as well as other factors, may constrain our financing abilities. Our ability to secure additional financing, if available, and to satisfy our financial performance, as well as other factors, may constrain our financing abilities. Our ability to secure additional financing, if available, and to satisfy our financial obligations under indebtedness outstanding from time to time will depend upon our future operating performance, the availability of credit, economic conditions obligations under indebtedness outstanding from time to time will depend upon our future operating performance, the availability of credit, economic conditions and financial, business and other factors, many of which are beyond our control. and financial, business and other factors, many of which are beyond our control. We may be unable to secure additional financing or financing on favorable terms or our operating cash flow may be insufficient to satisfy our financial obligations We may be unable to secure additional financing or financing on favorable terms or our operating cash flow may be insufficient to satisfy our financial obligations under our outstanding indebtedness. If additional funds are raised through the issuance of additional equity or convertible debt securities, our stockholders may under our outstanding indebtedness. If additional funds are raised through the issuance of additional equity or convertible debt securities, our stockholders may experience significant dilution. We may also incur additional indebtedness in the future, including collateralized debt, subject to the restrictions contained in the experience significant dilution. We may also incur additional indebtedness in the future, including collateralized debt, subject to the restrictions contained in the Credit Agreement and Indenture. If new debt is added to our current debt levels, the related risks that we now face could intensify. Credit Agreement and Indenture. If new debt is added to our current debt levels, the related risks that we now face could intensify. 17 17 We are subject to cybersecurity risks that could adversely affect us, and we may incur increasing costs in an effort to minimize those risks. We are subject to cybersecurity risks that could adversely affect us, and we may incur increasing costs in an effort to minimize those risks. Our business relies on systems, including those of third parties with whom we do business, and a website that involve the storage and transmission of customers’ Our business relies on systems, including those of third parties with whom we do business, and a website that involve the storage and transmission of customers’ and employees' personal and proprietary information. Our systems and those of third parties with whom we do business have been, and will likely continue to be, and employees' personal and proprietary information. Our systems and those of third parties with whom we do business have been, and will likely continue to be, subjected to computer viruses or other malicious codes, unauthorized access attempts and cyber-attacks that include phishing-attacks, denial-of-service attacks, subjected to computer viruses or other malicious codes, unauthorized access attempts and cyber-attacks that include phishing-attacks, denial-of-service attacks, ransomware, malware and hacking. Breach of our systems or those of third parties with whom we do business could compromise our confidential information and ransomware, malware and hacking. Breach of our systems or those of third parties with whom we do business could compromise our confidential information and that of our customers or employees, impede or interrupt our business operations, and may result in other negative consequences, including remediation costs, loss that of our customers or employees, impede or interrupt our business operations, and may result in other negative consequences, including remediation costs, loss of revenue, litigation, significant legal and financial exposure, loss of intellectual property and reputational damage. of revenue, litigation, significant legal and financial exposure, loss of intellectual property and reputational damage. To date, we have not experienced a material breach of cybersecurity. As cyber-attacks become more sophisticated generally, and as we implement changes giving To date, we have not experienced a material breach of cybersecurity. As cyber-attacks become more sophisticated generally, and as we implement changes giving customers greater electronic access to our systems, we may be required to incur significant costs to strengthen our systems from outside intrusions and/or maintain customers greater electronic access to our systems, we may be required to incur significant costs to strengthen our systems from outside intrusions and/or maintain insurance coverage related to the threat of such attacks. Further, the regulatory environment related to information security and privacy is increasingly rigorous, insurance coverage related to the threat of such attacks. Further, the regulatory environment related to information security and privacy is increasingly rigorous, with new and constantly changing requirements applicable to our business and those of third parties with whom we do business, and compliance with those with new and constantly changing requirements applicable to our business and those of third parties with whom we do business, and compliance with those requirements could result in additional costs. Despite our efforts, we may not have the resources or technical sophistication to anticipate or prevent rapidly requirements could result in additional costs. Despite our efforts, we may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks on our systems or those of the third parties with whom we do business. While we have implemented administrative and technical evolving types of cyber-attacks on our systems or those of the third parties with whom we do business. While we have implemented administrative and technical controls such as web filtering, endpoint and storage area network antivirus scanning and isolation, next-generation firewalls, a secure email gateway and mobile controls such as web filtering, endpoint and storage area network antivirus scanning and isolation, next-generation firewalls, a secure email gateway and mobile device administration, purchased cyber insurance coverage and taken other preventive actions to reduce the risk of cyber incidents and protect our IT, these device administration, purchased cyber insurance coverage and taken other preventive actions to reduce the risk of cyber incidents and protect our IT, these measures, and other measures we may take in the future, can be expensive, and may be insufficient, circumvented or may become ineffective. Any of the foregoing measures, and other measures we may take in the future, can be expensive, and may be insufficient, circumvented or may become ineffective. Any of the foregoing risks and increased costs could have a material adverse effect on our business, financial condition, operating results and cash flows. risks and increased costs could have a material adverse effect on our business, financial condition, operating results and cash flows. Insufficient insurance coverage could have a material adverse effect on us. Insufficient insurance coverage could have a material adverse effect on us. associated with this project and a delay in our ability to improve existing operations, to support future growth and to take advantage of new applications and associated with this project and a delay in our ability to improve existing operations, to support future growth and to take advantage of new applications and technologies. technologies. Such projects are inherently complex, resource intensive, and lengthy. As a result, we could experience unplanned or unforeseen issues that could adversely affect Such projects are inherently complex, resource intensive, and lengthy. As a result, we could experience unplanned or unforeseen issues that could adversely affect the project, our business or our results of operations, including: the project, our business or our results of operations, including: • • • • • • • • • • • • • • • • • • • • • • costs of implementation that materially exceed our expectations; costs of implementation that materially exceed our expectations; diversion of management’s attention away from normal daily business operations; diversion of management’s attention away from normal daily business operations; risk of incurring asset impairment charges, accelerated depreciation expense or other charges related to the early retirement of information system assets risk of incurring asset impairment charges, accelerated depreciation expense or other charges related to the early retirement of information system assets or the early termination of information system supplier agreements; or the early termination of information system supplier agreements; increased demand on our operations support personnel; increased demand on our operations support personnel; delays in the go-live of one or more of the stages of the project, resulting in additional costs or time for completion; delays in the go-live of one or more of the stages of the project, resulting in additional costs or time for completion; errors in implementation resulting in errors in the commencement or reporting of business transactions; errors in implementation resulting in errors in the commencement or reporting of business transactions; failure in the deliverables of our key partners, suppliers and implementation advisors, resulting in an inferior product, reduced business efficacy and the failure in the deliverables of our key partners, suppliers and implementation advisors, resulting in an inferior product, reduced business efficacy and the project not providing expected benefits; project not providing expected benefits; loss of sales or customers as a result of errors in business transactions or delays in providing products or services; loss of sales or customers as a result of errors in business transactions or delays in providing products or services; deficiencies in the training of employees in the use of the new solution, resulting in errors in the recording of data or transactions, leading to delays in deficiencies in the training of employees in the use of the new solution, resulting in errors in the recording of data or transactions, leading to delays in input deliveries and production impairment; input deliveries and production impairment; a control failure during or post implementation, which may result in a material weakness in our internal controls over financial reporting; and a control failure during or post implementation, which may result in a material weakness in our internal controls over financial reporting; and other implementation issues leading to delays and impacts on our business. other implementation issues leading to delays and impacts on our business. Any of the foregoing could materially and negatively impact our business, financial condition, operating results and cash flows. Any of the foregoing could materially and negatively impact our business, financial condition, operating results and cash flows. We carry insurance for general liability, auto liability and workers' compensation exposures subject to deductibles and/or self-insured retentions that we believe to We carry insurance for general liability, auto liability and workers' compensation exposures subject to deductibles and/or self-insured retentions that we believe to be reasonable under the circumstances, and we self-insure for employee and eligible dependent health care claims, with insurance purchased from independent be reasonable under the circumstances, and we self-insure for employee and eligible dependent health care claims, with insurance purchased from independent Risks Related to Our Indebtedness Risks Related to Our Indebtedness carriers to cover individual claims in excess of the self-insured limits. However, our insurance program does not cover, or may not adequately cover, every carriers to cover individual claims in excess of the self-insured limits. However, our insurance program does not cover, or may not adequately cover, every potential risk associated with our business and the consequences thereof. In addition, market conditions or any significant claim or a number of claims made by or potential risk associated with our business and the consequences thereof. In addition, market conditions or any significant claim or a number of claims made by or against us could cause our premiums and deductibles to increase substantially and, in some instances, our coverage may be reduced or become entirely unavailable. against us could cause our premiums and deductibles to increase substantially and, in some instances, our coverage may be reduced or become entirely unavailable. In the future, we may not be able to obtain meaningful coverage at reasonable rates for a variety of risks, including certain types of environmental hazards and In the future, we may not be able to obtain meaningful coverage at reasonable rates for a variety of risks, including certain types of environmental hazards and ongoing regulatory compliance. If our insurance coverage is insufficient, if we are not able to obtain sufficient coverage in the future, or if we are exposed to ongoing regulatory compliance. If our insurance coverage is insufficient, if we are not able to obtain sufficient coverage in the future, or if we are exposed to significant losses as a result of the risks for which we self-insure, any resulting costs or liabilities could have a material adverse effect on our business, financial significant losses as a result of the risks for which we self-insure, any resulting costs or liabilities could have a material adverse effect on our business, financial condition, operating results and cash flows. condition, operating results and cash flows. Operation on multiple ERP information systems, and the conversion from multiple systems to a single system, may negatively impact our operations. Operation on multiple ERP information systems, and the conversion from multiple systems to a single system, may negatively impact our operations. The Company currently operates on multiple ERP systems, which we use for operations representing virtually all of our sales. Certain of our ERP systems are The Company currently operates on multiple ERP systems, which we use for operations representing virtually all of our sales. Certain of our ERP systems are proprietary systems that have been highly customized by our computer programmers. We rely upon our ERP systems to manage and replenish inventory, to fill and proprietary systems that have been highly customized by our computer programmers. We rely upon our ERP systems to manage and replenish inventory, to fill and ship customer orders on a timely basis, to coordinate our sales and distribution activities across all of our products and services and to provide information for ship customer orders on a timely basis, to coordinate our sales and distribution activities across all of our products and services and to provide information for financial reporting purposes. financial reporting purposes. Processing, consolidating and reconciling information from multiple ERP systems increases the chance of error, and we may incur significant additional costs Processing, consolidating and reconciling information from multiple ERP systems increases the chance of error, and we may incur significant additional costs related thereto. Inconsistencies in the information from multiple ERP systems could adversely impact our ability to manage our business efficiently and may result related thereto. Inconsistencies in the information from multiple ERP systems could adversely impact our ability to manage our business efficiently and may result in heightened risk to our ability to maintain accurate books and records and comply with regulatory requirements. in heightened risk to our ability to maintain accurate books and records and comply with regulatory requirements. During 2016 and 2017, the Company implemented the ERP system utilized by Legacy SBS ("the Legacy SBS ERP system") at certain Legacy BMHC and newly During 2016 and 2017, the Company implemented the ERP system utilized by Legacy SBS ("the Legacy SBS ERP system") at certain Legacy BMHC and newly acquired locations. If the remaining implementation of the Legacy SBS ERP system across Legacy BMHC and newly acquired operations is not executed acquired locations. If the remaining implementation of the Legacy SBS ERP system across Legacy BMHC and newly acquired operations is not executed successfully, this could result in business interruptions and loss of customers. If we do not complete the remaining implementation timely and successfully, we successfully, this could result in business interruptions and loss of customers. If we do not complete the remaining implementation timely and successfully, we may also incur additional costs may also incur additional costs 16 16 Our indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy Our indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or the industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under our indebtedness. or the industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under our indebtedness. As of December 31, 2017 , our total debt was $377.3 million , which includes obligations under the senior secured notes due 2024 (the "Senior Notes") and our As of December 31, 2017 , our total debt was $377.3 million , which includes obligations under the senior secured notes due 2024 (the "Senior Notes") and our revolving credit facility (excluding unamortized debt issuance costs), as well as obligations under capital leases and certain other notes. This leverage could have revolving credit facility (excluding unamortized debt issuance costs), as well as obligations under capital leases and certain other notes. This leverage could have important consequences, including: making it more difficult for us to satisfy our obligations with respect to our indebtedness; increasing our vulnerability to important consequences, including: making it more difficult for us to satisfy our obligations with respect to our indebtedness; increasing our vulnerability to general adverse economic and industry conditions; requiring us to dedicate a portion of our cash flow from operations to payments on our indebtedness, thereby general adverse economic and industry conditions; requiring us to dedicate a portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts, and other general corporate purposes; reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts, and other general corporate purposes; increasing our vulnerability to and limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; exposing us increasing our vulnerability to and limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; exposing us to the risk of increased interest rates as borrowings under certain of our indebtedness are subject to variable rates of interest; placing us at a competitive to the risk of increased interest rates as borrowings under certain of our indebtedness are subject to variable rates of interest; placing us at a competitive disadvantage compared to our competitors that have less debt; and limiting our ability to borrow additional funds. disadvantage compared to our competitors that have less debt; and limiting our ability to borrow additional funds. We are substantially reliant on liquidity provided by our Second Amended and Restated Senior Secured Credit Agreement (the "Credit Agreement") and cash on We are substantially reliant on liquidity provided by our Second Amended and Restated Senior Secured Credit Agreement (the "Credit Agreement") and cash on hand to provide working capital and fund our operations. Our working capital and capital expenditure requirements are likely to grow as the housing market hand to provide working capital and fund our operations. Our working capital and capital expenditure requirements are likely to grow as the housing market improves and we execute our strategic growth plan. Economic and credit market conditions, the performance of the homebuilding industry, and our financial improves and we execute our strategic growth plan. Economic and credit market conditions, the performance of the homebuilding industry, and our financial performance, as well as other factors, may constrain our financing abilities. Our ability to secure additional financing, if available, and to satisfy our financial performance, as well as other factors, may constrain our financing abilities. Our ability to secure additional financing, if available, and to satisfy our financial obligations under indebtedness outstanding from time to time will depend upon our future operating performance, the availability of credit, economic conditions obligations under indebtedness outstanding from time to time will depend upon our future operating performance, the availability of credit, economic conditions and financial, business and other factors, many of which are beyond our control. and financial, business and other factors, many of which are beyond our control. We may be unable to secure additional financing or financing on favorable terms or our operating cash flow may be insufficient to satisfy our financial obligations We may be unable to secure additional financing or financing on favorable terms or our operating cash flow may be insufficient to satisfy our financial obligations under our outstanding indebtedness. If additional funds are raised through the issuance of additional equity or convertible debt securities, our stockholders may under our outstanding indebtedness. If additional funds are raised through the issuance of additional equity or convertible debt securities, our stockholders may experience significant dilution. We may also incur additional indebtedness in the future, including collateralized debt, subject to the restrictions contained in the experience significant dilution. We may also incur additional indebtedness in the future, including collateralized debt, subject to the restrictions contained in the Credit Agreement and Indenture. If new debt is added to our current debt levels, the related risks that we now face could intensify. Credit Agreement and Indenture. If new debt is added to our current debt levels, the related risks that we now face could intensify. 17 17 The Credit Agreement and Indenture contain various covenants that could limit our ability to operate our business. The Credit Agreement and Indenture contain various covenants that could limit our ability to operate our business. Future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price. Future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price. The Credit Agreement and Indenture governing our senior notes (the "Indenture") place limitations on our ability and the ability of our subsidiaries to, among other The Credit Agreement and Indenture governing our senior notes (the "Indenture") place limitations on our ability and the ability of our subsidiaries to, among other things, incur debt, create other liens on its assets, make investments, sell assets, pay dividends, undertake transactions with affiliates, enter into merger transactions things, incur debt, create other liens on its assets, make investments, sell assets, pay dividends, undertake transactions with affiliates, enter into merger transactions and enter into unrelated businesses. The Credit Agreement also contains a financial covenant requiring us and our subsidiaries to maintain a Fixed Charge and enter into unrelated businesses. The Credit Agreement also contains a financial covenant requiring us and our subsidiaries to maintain a Fixed Charge Coverage Ratio, as defined therein, of at least 1.00:1.00 at the end of any fiscal quarter during the period from the date that Excess Availability, as defined therein, Coverage Ratio, as defined therein, of at least 1.00:1.00 at the end of any fiscal quarter during the period from the date that Excess Availability, as defined therein, under the Credit Agreement is less than or equal to the greater of (1) $33.3 million and (2) 10.0% of the Line Cap under the Credit Agreement until the date that under the Credit Agreement is less than or equal to the greater of (1) $33.3 million and (2) 10.0% of the Line Cap under the Credit Agreement until the date that Excess Availability has been greater than the greater of (i) $33.3 million and (ii) 10.0% of the Line Cap for a period of at least 30 consecutive days. The Credit Excess Availability has been greater than the greater of (i) $33.3 million and (ii) 10.0% of the Line Cap for a period of at least 30 consecutive days. The Credit Agreement and Indenture also contain various customary representations and warranties, financial and collateral reporting requirements and other affirmative and Agreement and Indenture also contain various customary representations and warranties, financial and collateral reporting requirements and other affirmative and negative covenants. Amounts owed under the Credit Agreement and Indenture may be accelerated and the lenders may exercise other remedies available to them negative covenants. Amounts owed under the Credit Agreement and Indenture may be accelerated and the lenders may exercise other remedies available to them upon the occurrence of various events of default set forth in the Credit Agreement and Indenture, including the failure to make principal or interest payments when upon the occurrence of various events of default set forth in the Credit Agreement and Indenture, including the failure to make principal or interest payments when due, breaches of covenants, representations and warranties set forth in the Credit Agreement and Indenture and defaults under other debt obligations. Acceleration due, breaches of covenants, representations and warranties set forth in the Credit Agreement and Indenture and defaults under other debt obligations. Acceleration of amounts owed under the Credit Agreement or the Indenture, or the exercise of other remedies available to holders of our debt, could materially and negatively of amounts owed under the Credit Agreement or the Indenture, or the exercise of other remedies available to holders of our debt, could materially and negatively impact our business, financial condition, operating results and cash flows. impact our business, financial condition, operating results and cash flows. Risks Related to Ownership of Our Common Stock Risks Related to Ownership of Our Common Stock The price of our common stock may fluctuate significantly. The price of our common stock may fluctuate significantly. Volatility in the market price of our common stock may prevent you from being able to sell your shares of our common stock at or above the price you paid for Volatility in the market price of our common stock may prevent you from being able to sell your shares of our common stock at or above the price you paid for them. The market price for our common stock could fluctuate significantly for various reasons, including but not limited to: them. The market price for our common stock could fluctuate significantly for various reasons, including but not limited to: • • • • • • • • • • • • • • • • • • • • • • our operating and financial performance and prospects; our operating and financial performance and prospects; our quarterly or annual earnings or those of other companies in our industry; our quarterly or annual earnings or those of other companies in our industry; the public’s reaction to our press releases, our other public announcements and our filings with the SEC; the public’s reaction to our press releases, our other public announcements and our filings with the SEC; changes in, or failure to meet, earnings estimates or recommendations by research analysts who track our common stock or the stock of other companies changes in, or failure to meet, earnings estimates or recommendations by research analysts who track our common stock or the stock of other companies in our industry; in our industry; changes in the frequency of coverage or the failure of research analysts to cover, or downgrades in analyst recommendations regarding, our common changes in the frequency of coverage or the failure of research analysts to cover, or downgrades in analyst recommendations regarding, our common stock; stock; general economic, industry and market conditions; general economic, industry and market conditions; strategic actions by us, our customers or our competitors, such as acquisitions or restructurings; strategic actions by us, our customers or our competitors, such as acquisitions or restructurings; sales of common stock by us or members of our management team; sales of common stock by us or members of our management team; the granting or exercise of employee stock options or other equity compensation; the granting or exercise of employee stock options or other equity compensation; volume of trading in our common stock; and volume of trading in our common stock; and the impact of the factors described elsewhere in “Risk Factors.” the impact of the factors described elsewhere in “Risk Factors.” In addition, in recent years, the stock market has regularly experienced significant price and volume fluctuations. This volatility has had a significant impact on the In addition, in recent years, the stock market has regularly experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. The changes have at times occurred without regard to the operating market price of securities issued by many companies, including companies in our industry. The changes have at times occurred without regard to the operating performance of the affected companies. Hence, the price of our common stock could fluctuate based upon factors that have little or nothing to do with us and these performance of the affected companies. Hence, the price of our common stock could fluctuate based upon factors that have little or nothing to do with us and these fluctuations could materially impact our share price. fluctuations could materially impact our share price. We do not currently intend to pay dividends on our common stock. We do not currently intend to pay dividends on our common stock. We do not anticipate paying any cash dividends on our common stock for the foreseeable future. Instead, we intend to retain future earnings to fund our growth. In We do not anticipate paying any cash dividends on our common stock for the foreseeable future. Instead, we intend to retain future earnings to fund our growth. In addition, our existing indebtedness restricts, and we anticipate our future indebtedness may restrict, our ability to pay dividends. Any determination to pay addition, our existing indebtedness restricts, and we anticipate our future indebtedness may restrict, our ability to pay dividends. Any determination to pay dividends in the future will be at the discretion of our Board and will depend upon many factors, including our financial condition, operating results, projections, dividends in the future will be at the discretion of our Board and will depend upon many factors, including our financial condition, operating results, projections, cash flows, earnings, legal requirements, restrictions in our indebtedness and agreements governing any other indebtedness we may enter into and other factors that cash flows, earnings, legal requirements, restrictions in our indebtedness and agreements governing any other indebtedness we may enter into and other factors that our Board deems relevant. Accordingly, holders of our common stock may need to sell their shares to realize a return on their investment, and may not be able to our Board deems relevant. Accordingly, holders of our common stock may need to sell their shares to realize a return on their investment, and may not be able to sell their shares at or above the price paid for them. sell their shares at or above the price paid for them. Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the price of our Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional shares. common stock and could impair our ability to raise capital through the sale of additional shares. There are 5.6 million shares authorized for issuance under the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan ("SBS 2013 Incentive There are 5.6 million shares authorized for issuance under the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan ("SBS 2013 Incentive Plan"), all of which are registered. As of January 31, 2018 , approximately 3.4 million of these shares were available for issuance, not including shares underlying Plan"), all of which are registered. As of January 31, 2018 , approximately 3.4 million of these shares were available for issuance, not including shares underlying outstanding unvested restricted stock awards and restricted stock units ("RSUs") and outstanding vested and unvested stock options. In addition, as of January 31, outstanding unvested restricted stock awards and restricted stock units ("RSUs") and outstanding vested and unvested stock options. In addition, as of January 31, 2018 , there were issued and outstanding approximately (i) 0.1 million shares of nonvested stock, (ii) 0.7 million RSUs that convert into common stock upon 2018 , there were issued and outstanding approximately (i) 0.1 million shares of nonvested stock, (ii) 0.7 million RSUs that convert into common stock upon vesting, and (iii) 0.7 million options for the purchase of common stock under the SBS 2013 Incentive Plan. Upon vesting, conversion or exercise as applicable, vesting, and (iii) 0.7 million options for the purchase of common stock under the SBS 2013 Incentive Plan. Upon vesting, conversion or exercise as applicable, such registered shares can be freely sold in the public market. If a large number of these shares are sold in the public market, the sales could reduce the trading such registered shares can be freely sold in the public market. If a large number of these shares are sold in the public market, the sales could reduce the trading price of our common stock. price of our common stock. Our future operating results may fluctuate significantly and our current operating results may not be a good indication of our future performance. Our future operating results may fluctuate significantly and our current operating results may not be a good indication of our future performance. Fluctuations in our financial results could affect our stock price in the future. Fluctuations in our financial results could affect our stock price in the future. Our revenues and operating results have historically varied from period-to-period and we expect that they will continue to do so as a result of a number of factors, Our revenues and operating results have historically varied from period-to-period and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control. Any volatility in our financial results may make it more difficult for us to raise capital in the future or pursue acquisitions many of which are outside of our control. Any volatility in our financial results may make it more difficult for us to raise capital in the future or pursue acquisitions that involve issuances of our stock. Our operating results for prior periods may not be effective predictors of future performance. that involve issuances of our stock. Our operating results for prior periods may not be effective predictors of future performance. Factors associated with our industry, the operation of our business and the markets for our products and services may cause our quarterly financial results to Factors associated with our industry, the operation of our business and the markets for our products and services may cause our quarterly financial results to fluctuate, including: fluctuate, including: the seasonal and cyclical nature of the homebuilding industry; the seasonal and cyclical nature of the homebuilding industry; the highly competitive nature of our industry; the highly competitive nature of our industry; the volatility of prices, availability and affordability of raw materials, including lumber, wood products and other building products; the volatility of prices, availability and affordability of raw materials, including lumber, wood products and other building products; shortages of skilled and technical labor, increased labor costs and labor disruptions; shortages of skilled and technical labor, increased labor costs and labor disruptions; the production schedules of our customers; the production schedules of our customers; general economic conditions, including but not limited to housing starts, repair and remodeling activity and light commercial construction, inventory general economic conditions, including but not limited to housing starts, repair and remodeling activity and light commercial construction, inventory levels of new and existing homes for sale, foreclosure rates, interest rates, unemployment rates, relative currency values, mortgage availability and levels of new and existing homes for sale, foreclosure rates, interest rates, unemployment rates, relative currency values, mortgage availability and pricing, as well as other consumer financing mechanisms, that ultimately affect demand for our products; pricing, as well as other consumer financing mechanisms, that ultimately affect demand for our products; actions of suppliers, customers and competitors, including merger and acquisition activities, plant closures and financial failures; actions of suppliers, customers and competitors, including merger and acquisition activities, plant closures and financial failures; litigation, claims and investigations involving us; litigation, claims and investigations involving us; the financial condition and creditworthiness of our customers; the financial condition and creditworthiness of our customers; cost of compliance with government laws and regulations; cost of compliance with government laws and regulations; weather patterns; and weather patterns; and severe weather phenomena such as drought, hurricanes, tornadoes and fire. severe weather phenomena such as drought, hurricanes, tornadoes and fire. • • • • • • • • • • • • • • • • • • • • • • • • Any one of the factors above or the cumulative effect of some of the factors referred to above may result in significant fluctuations in our financial and other Any one of the factors above or the cumulative effect of some of the factors referred to above may result in significant fluctuations in our financial and other operating results, including fluctuations in our key metrics. The variability and unpredictability could result in our failing to meet our internal operating plan or the operating results, including fluctuations in our key metrics. The variability and unpredictability could result in our failing to meet our internal operating plan or the expectations of securities analysts or investors for any period. This volatility could cause the market price of our shares to fall substantially and we could face expectations of securities analysts or investors for any period. This volatility could cause the market price of our shares to fall substantially and we could face costly lawsuits, including securities class action suits. costly lawsuits, including securities class action suits. Certain provisions of our organizational documents and other contractual provisions may make it difficult for stockholders to change the composition of Certain provisions of our organizational documents and other contractual provisions may make it difficult for stockholders to change the composition of our Board of Directors and may discourage hostile takeover attempts. our Board of Directors and may discourage hostile takeover attempts. Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing changes in control if our Board determines that such changes in control are not in the best interests of us and our stockholders. The provisions in our amended and changes in control if our Board determines that such changes in control are not in the best interests of us and our stockholders. The provisions in our amended and restated certificate of incorporation and amended and restated bylaws include, among other things, the following: restated certificate of incorporation and amended and restated bylaws include, among other things, the following: 18 18 • • a classified Board with three-year staggered terms; a classified Board with three-year staggered terms; 19 19 The Credit Agreement and Indenture contain various covenants that could limit our ability to operate our business. The Credit Agreement and Indenture contain various covenants that could limit our ability to operate our business. Future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price. Future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price. The Credit Agreement and Indenture governing our senior notes (the "Indenture") place limitations on our ability and the ability of our subsidiaries to, among other The Credit Agreement and Indenture governing our senior notes (the "Indenture") place limitations on our ability and the ability of our subsidiaries to, among other things, incur debt, create other liens on its assets, make investments, sell assets, pay dividends, undertake transactions with affiliates, enter into merger transactions things, incur debt, create other liens on its assets, make investments, sell assets, pay dividends, undertake transactions with affiliates, enter into merger transactions and enter into unrelated businesses. The Credit Agreement also contains a financial covenant requiring us and our subsidiaries to maintain a Fixed Charge and enter into unrelated businesses. The Credit Agreement also contains a financial covenant requiring us and our subsidiaries to maintain a Fixed Charge Coverage Ratio, as defined therein, of at least 1.00:1.00 at the end of any fiscal quarter during the period from the date that Excess Availability, as defined therein, Coverage Ratio, as defined therein, of at least 1.00:1.00 at the end of any fiscal quarter during the period from the date that Excess Availability, as defined therein, under the Credit Agreement is less than or equal to the greater of (1) $33.3 million and (2) 10.0% of the Line Cap under the Credit Agreement until the date that under the Credit Agreement is less than or equal to the greater of (1) $33.3 million and (2) 10.0% of the Line Cap under the Credit Agreement until the date that Excess Availability has been greater than the greater of (i) $33.3 million and (ii) 10.0% of the Line Cap for a period of at least 30 consecutive days. The Credit Excess Availability has been greater than the greater of (i) $33.3 million and (ii) 10.0% of the Line Cap for a period of at least 30 consecutive days. The Credit Agreement and Indenture also contain various customary representations and warranties, financial and collateral reporting requirements and other affirmative and Agreement and Indenture also contain various customary representations and warranties, financial and collateral reporting requirements and other affirmative and negative covenants. Amounts owed under the Credit Agreement and Indenture may be accelerated and the lenders may exercise other remedies available to them negative covenants. Amounts owed under the Credit Agreement and Indenture may be accelerated and the lenders may exercise other remedies available to them upon the occurrence of various events of default set forth in the Credit Agreement and Indenture, including the failure to make principal or interest payments when upon the occurrence of various events of default set forth in the Credit Agreement and Indenture, including the failure to make principal or interest payments when due, breaches of covenants, representations and warranties set forth in the Credit Agreement and Indenture and defaults under other debt obligations. Acceleration due, breaches of covenants, representations and warranties set forth in the Credit Agreement and Indenture and defaults under other debt obligations. Acceleration of amounts owed under the Credit Agreement or the Indenture, or the exercise of other remedies available to holders of our debt, could materially and negatively of amounts owed under the Credit Agreement or the Indenture, or the exercise of other remedies available to holders of our debt, could materially and negatively impact our business, financial condition, operating results and cash flows. impact our business, financial condition, operating results and cash flows. Risks Related to Ownership of Our Common Stock Risks Related to Ownership of Our Common Stock The price of our common stock may fluctuate significantly. The price of our common stock may fluctuate significantly. Volatility in the market price of our common stock may prevent you from being able to sell your shares of our common stock at or above the price you paid for Volatility in the market price of our common stock may prevent you from being able to sell your shares of our common stock at or above the price you paid for them. The market price for our common stock could fluctuate significantly for various reasons, including but not limited to: them. The market price for our common stock could fluctuate significantly for various reasons, including but not limited to: our operating and financial performance and prospects; our operating and financial performance and prospects; our quarterly or annual earnings or those of other companies in our industry; our quarterly or annual earnings or those of other companies in our industry; the public’s reaction to our press releases, our other public announcements and our filings with the SEC; the public’s reaction to our press releases, our other public announcements and our filings with the SEC; changes in, or failure to meet, earnings estimates or recommendations by research analysts who track our common stock or the stock of other companies changes in, or failure to meet, earnings estimates or recommendations by research analysts who track our common stock or the stock of other companies changes in the frequency of coverage or the failure of research analysts to cover, or downgrades in analyst recommendations regarding, our common changes in the frequency of coverage or the failure of research analysts to cover, or downgrades in analyst recommendations regarding, our common in our industry; in our industry; stock; stock; general economic, industry and market conditions; general economic, industry and market conditions; strategic actions by us, our customers or our competitors, such as acquisitions or restructurings; strategic actions by us, our customers or our competitors, such as acquisitions or restructurings; sales of common stock by us or members of our management team; sales of common stock by us or members of our management team; the granting or exercise of employee stock options or other equity compensation; the granting or exercise of employee stock options or other equity compensation; volume of trading in our common stock; and volume of trading in our common stock; and the impact of the factors described elsewhere in “Risk Factors.” the impact of the factors described elsewhere in “Risk Factors.” • • • • • • • • • • • • • • • • • • • • • • In addition, in recent years, the stock market has regularly experienced significant price and volume fluctuations. This volatility has had a significant impact on the In addition, in recent years, the stock market has regularly experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. The changes have at times occurred without regard to the operating market price of securities issued by many companies, including companies in our industry. The changes have at times occurred without regard to the operating performance of the affected companies. Hence, the price of our common stock could fluctuate based upon factors that have little or nothing to do with us and these performance of the affected companies. Hence, the price of our common stock could fluctuate based upon factors that have little or nothing to do with us and these fluctuations could materially impact our share price. fluctuations could materially impact our share price. We do not currently intend to pay dividends on our common stock. We do not currently intend to pay dividends on our common stock. We do not anticipate paying any cash dividends on our common stock for the foreseeable future. Instead, we intend to retain future earnings to fund our growth. In We do not anticipate paying any cash dividends on our common stock for the foreseeable future. Instead, we intend to retain future earnings to fund our growth. In addition, our existing indebtedness restricts, and we anticipate our future indebtedness may restrict, our ability to pay dividends. Any determination to pay addition, our existing indebtedness restricts, and we anticipate our future indebtedness may restrict, our ability to pay dividends. Any determination to pay dividends in the future will be at the discretion of our Board and will depend upon many factors, including our financial condition, operating results, projections, dividends in the future will be at the discretion of our Board and will depend upon many factors, including our financial condition, operating results, projections, cash flows, earnings, legal requirements, restrictions in our indebtedness and agreements governing any other indebtedness we may enter into and other factors that cash flows, earnings, legal requirements, restrictions in our indebtedness and agreements governing any other indebtedness we may enter into and other factors that our Board deems relevant. Accordingly, holders of our common stock may need to sell their shares to realize a return on their investment, and may not be able to our Board deems relevant. Accordingly, holders of our common stock may need to sell their shares to realize a return on their investment, and may not be able to sell their shares at or above the price paid for them. sell their shares at or above the price paid for them. Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the price of our Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could adversely affect the price of our common stock and could impair our ability to raise capital through the sale of additional shares. common stock and could impair our ability to raise capital through the sale of additional shares. There are 5.6 million shares authorized for issuance under the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan ("SBS 2013 Incentive There are 5.6 million shares authorized for issuance under the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan ("SBS 2013 Incentive Plan"), all of which are registered. As of January 31, 2018 , approximately 3.4 million of these shares were available for issuance, not including shares underlying Plan"), all of which are registered. As of January 31, 2018 , approximately 3.4 million of these shares were available for issuance, not including shares underlying outstanding unvested restricted stock awards and restricted stock units ("RSUs") and outstanding vested and unvested stock options. In addition, as of January 31, outstanding unvested restricted stock awards and restricted stock units ("RSUs") and outstanding vested and unvested stock options. In addition, as of January 31, 2018 , there were issued and outstanding approximately (i) 0.1 million shares of nonvested stock, (ii) 0.7 million RSUs that convert into common stock upon 2018 , there were issued and outstanding approximately (i) 0.1 million shares of nonvested stock, (ii) 0.7 million RSUs that convert into common stock upon vesting, and (iii) 0.7 million options for the purchase of common stock under the SBS 2013 Incentive Plan. Upon vesting, conversion or exercise as applicable, vesting, and (iii) 0.7 million options for the purchase of common stock under the SBS 2013 Incentive Plan. Upon vesting, conversion or exercise as applicable, such registered shares can be freely sold in the public market. If a large number of these shares are sold in the public market, the sales could reduce the trading such registered shares can be freely sold in the public market. If a large number of these shares are sold in the public market, the sales could reduce the trading price of our common stock. price of our common stock. Our future operating results may fluctuate significantly and our current operating results may not be a good indication of our future performance. Our future operating results may fluctuate significantly and our current operating results may not be a good indication of our future performance. Fluctuations in our financial results could affect our stock price in the future. Fluctuations in our financial results could affect our stock price in the future. Our revenues and operating results have historically varied from period-to-period and we expect that they will continue to do so as a result of a number of factors, Our revenues and operating results have historically varied from period-to-period and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control. Any volatility in our financial results may make it more difficult for us to raise capital in the future or pursue acquisitions many of which are outside of our control. Any volatility in our financial results may make it more difficult for us to raise capital in the future or pursue acquisitions that involve issuances of our stock. Our operating results for prior periods may not be effective predictors of future performance. that involve issuances of our stock. Our operating results for prior periods may not be effective predictors of future performance. Factors associated with our industry, the operation of our business and the markets for our products and services may cause our quarterly financial results to Factors associated with our industry, the operation of our business and the markets for our products and services may cause our quarterly financial results to fluctuate, including: fluctuate, including: • • • • • • • • • • • • • • • • • • • • • • • • the seasonal and cyclical nature of the homebuilding industry; the seasonal and cyclical nature of the homebuilding industry; the highly competitive nature of our industry; the highly competitive nature of our industry; the volatility of prices, availability and affordability of raw materials, including lumber, wood products and other building products; the volatility of prices, availability and affordability of raw materials, including lumber, wood products and other building products; shortages of skilled and technical labor, increased labor costs and labor disruptions; shortages of skilled and technical labor, increased labor costs and labor disruptions; the production schedules of our customers; the production schedules of our customers; general economic conditions, including but not limited to housing starts, repair and remodeling activity and light commercial construction, inventory general economic conditions, including but not limited to housing starts, repair and remodeling activity and light commercial construction, inventory levels of new and existing homes for sale, foreclosure rates, interest rates, unemployment rates, relative currency values, mortgage availability and levels of new and existing homes for sale, foreclosure rates, interest rates, unemployment rates, relative currency values, mortgage availability and pricing, as well as other consumer financing mechanisms, that ultimately affect demand for our products; pricing, as well as other consumer financing mechanisms, that ultimately affect demand for our products; actions of suppliers, customers and competitors, including merger and acquisition activities, plant closures and financial failures; actions of suppliers, customers and competitors, including merger and acquisition activities, plant closures and financial failures; litigation, claims and investigations involving us; litigation, claims and investigations involving us; the financial condition and creditworthiness of our customers; the financial condition and creditworthiness of our customers; cost of compliance with government laws and regulations; cost of compliance with government laws and regulations; weather patterns; and weather patterns; and severe weather phenomena such as drought, hurricanes, tornadoes and fire. severe weather phenomena such as drought, hurricanes, tornadoes and fire. Any one of the factors above or the cumulative effect of some of the factors referred to above may result in significant fluctuations in our financial and other Any one of the factors above or the cumulative effect of some of the factors referred to above may result in significant fluctuations in our financial and other operating results, including fluctuations in our key metrics. The variability and unpredictability could result in our failing to meet our internal operating plan or the operating results, including fluctuations in our key metrics. The variability and unpredictability could result in our failing to meet our internal operating plan or the expectations of securities analysts or investors for any period. This volatility could cause the market price of our shares to fall substantially and we could face expectations of securities analysts or investors for any period. This volatility could cause the market price of our shares to fall substantially and we could face costly lawsuits, including securities class action suits. costly lawsuits, including securities class action suits. Certain provisions of our organizational documents and other contractual provisions may make it difficult for stockholders to change the composition of Certain provisions of our organizational documents and other contractual provisions may make it difficult for stockholders to change the composition of our Board of Directors and may discourage hostile takeover attempts. our Board of Directors and may discourage hostile takeover attempts. Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing changes in control if our Board determines that such changes in control are not in the best interests of us and our stockholders. The provisions in our amended and changes in control if our Board determines that such changes in control are not in the best interests of us and our stockholders. The provisions in our amended and restated certificate of incorporation and amended and restated bylaws include, among other things, the following: restated certificate of incorporation and amended and restated bylaws include, among other things, the following: 18 18 • • a classified Board with three-year staggered terms; a classified Board with three-year staggered terms; 19 19 • • • • • • • • • • • • the ability of our Board, without stockholder approval, to issue shares of preferred stock and to determine the price and other terms, including preferences the ability of our Board, without stockholder approval, to issue shares of preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder approval; and voting rights, of those shares without stockholder approval; stockholder action can only be taken at a special or regular meeting and not by written consent; stockholder action can only be taken at a special or regular meeting and not by written consent; advance notice procedures for nominating candidates to our Board or presenting matters at stockholder meetings; advance notice procedures for nominating candidates to our Board or presenting matters at stockholder meetings; removal of directors only for cause; removal of directors only for cause; allowing only our Board to fill vacancies on our Board; and allowing only our Board to fill vacancies on our Board; and super-majority voting requirements to amend our amended and restated bylaws and certain provisions of our amended and restated certificate of super-majority voting requirements to amend our amended and restated bylaws and certain provisions of our amended and restated certificate of incorporation (the "Charter"). incorporation (the "Charter"). Our Charter opts us out of being subject to Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”), an anti-takeover law. In general, Our Charter opts us out of being subject to Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”), an anti-takeover law. In general, Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a business combination, such as a merger, with a person or group Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a business combination, such as a merger, with a person or group owning 15% or more of the corporation’s voting stock for a period of three years following the date the person became an interested stockholder, unless (with owning 15% or more of the corporation’s voting stock for a period of three years following the date the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. However, certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. However, our Charter contains anti-takeover provisions that are substantially similar in effect to Section 203 of the DGCL. The anti-takeover provisions in the Charter our Charter contains anti-takeover provisions that are substantially similar in effect to Section 203 of the DGCL. The anti-takeover provisions in the Charter prohibit us from engaging in a business combination, such as a merger, with a person or group owning 15% or more of our voting stock for a period of three years prohibit us from engaging in a business combination, such as a merger, with a person or group owning 15% or more of our voting stock for a period of three years following the date the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person following the date the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. The Charter includes specified exceptions from anti-takeover provisions, which provide that became an interested stockholder is approved in a prescribed manner. The Charter includes specified exceptions from anti-takeover provisions, which provide that (i) in certain circumstances (as described below), Davidson Kempner Capital Management LP, The Gores Group, LLC and their respective affiliates or associates (i) in certain circumstances (as described below), Davidson Kempner Capital Management LP, The Gores Group, LLC and their respective affiliates or associates (the “Grandfathered Stockholders”), and (ii) any person who would otherwise be an interested stockholder because of a transfer, assignment, conveyance, (the “Grandfathered Stockholders”), and (ii) any person who would otherwise be an interested stockholder because of a transfer, assignment, conveyance, hypothecation, encumbrance or other disposition of 5% or more of our outstanding voting stock by any Grandfathered Stockholder to such person will be excluded hypothecation, encumbrance or other disposition of 5% or more of our outstanding voting stock by any Grandfathered Stockholder to such person will be excluded from the “interested stockholder” definition in the Charter. At any time during the period beginning on the closing date of the Merger and ending on the third from the “interested stockholder” definition in the Charter. At any time during the period beginning on the closing date of the Merger and ending on the third anniversary thereof, each Grandfathered Stockholder is permitted to own any amount less than 20% of our outstanding voting stock and will not be deemed an anniversary thereof, each Grandfathered Stockholder is permitted to own any amount less than 20% of our outstanding voting stock and will not be deemed an interested stockholder unless such Grandfathered Stockholder’s ownership level meets or exceeds 20% of our outstanding voting stock during such three-year interested stockholder unless such Grandfathered Stockholder’s ownership level meets or exceeds 20% of our outstanding voting stock during such three-year period. From and after the third anniversary of the closing date of the Merger, each Grandfathered Stockholder is permitted to continue owning its respective period. From and after the third anniversary of the closing date of the Merger, each Grandfathered Stockholder is permitted to continue owning its respective ownership amount that it owns, together with its affiliates and associates, on such anniversary and will not be deemed an interested stockholder unless such ownership amount that it owns, together with its affiliates and associates, on such anniversary and will not be deemed an interested stockholder unless such Grandfathered Stockholder’s ownership level later exceeds such ownership amount of our outstanding voting stock. Moreover, each Grandfathered Stockholder, Grandfathered Stockholder’s ownership level later exceeds such ownership amount of our outstanding voting stock. Moreover, each Grandfathered Stockholder, together with its affiliates and associates, may reduce its ownership amount at any time from and after the third anniversary of the effective time of the Merger; together with its affiliates and associates, may reduce its ownership amount at any time from and after the third anniversary of the effective time of the Merger; provided that, if such Grandfathered Stockholder reduces its ownership amount below the ownership amount of such Grandfathered Stockholder that exists on the provided that, if such Grandfathered Stockholder reduces its ownership amount below the ownership amount of such Grandfathered Stockholder that exists on the third anniversary of the effective time of the Merger, such Grandfathered Stockholder may not increase its ownership amount above such reduced amount; third anniversary of the effective time of the Merger, such Grandfathered Stockholder may not increase its ownership amount above such reduced amount; provided, further, that if such Grandfathered Stockholder reduces its ownership amount below 15% of our outstanding voting stock after the third anniversary of provided, further, that if such Grandfathered Stockholder reduces its ownership amount below 15% of our outstanding voting stock after the third anniversary of the effective time of the Merger, such Grandfathered Stockholder may own any amount of voting stock below 15% of our outstanding voting stock, in the case of the effective time of the Merger, such Grandfathered Stockholder may own any amount of voting stock below 15% of our outstanding voting stock, in the case of each of the foregoing provisos, without being deemed an interested stockholder. each of the foregoing provisos, without being deemed an interested stockholder. While these provisions have the effect of encouraging persons seeking to acquire control of us to negotiate with our Board, they could enable the Board to hinder While these provisions have the effect of encouraging persons seeking to acquire control of us to negotiate with our Board, they could enable the Board to hinder or frustrate a transaction that some, or a majority, of the stockholders might believe to be in their best interests and, in that case, may prevent or discourage or frustrate a transaction that some, or a majority, of the stockholders might believe to be in their best interests and, in that case, may prevent or discourage attempts to remove and replace incumbent directors. attempts to remove and replace incumbent directors. These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board, which is responsible for appointing the members of our management. stockholders to replace members of our Board, which is responsible for appointing the members of our management. Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on us and Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on us and our stock price. our stock price. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected. Therefore, our internal control over financial reporting will not prevent or detect all errors occur or that all control issues and instances of fraud will be detected. Therefore, our internal control over financial reporting will not prevent or detect all errors and all fraud. and all fraud. Ensuring that the Company has adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely Ensuring that the Company has adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be reevaluated frequently. Implementing appropriate changes to the internal controls of the Company may basis is a costly and time-consuming effort that needs to be reevaluated frequently. Implementing appropriate changes to the internal controls of the Company may take a significant period of time to complete, may distract directors, officers and employees, and may entail substantial costs in order to modify existing accounting take a significant period of time to complete, may distract directors, officers and employees, and may entail substantial costs in order to modify existing accounting systems. systems. 20 20 Additionally, the Company may experience material weaknesses or significant deficiencies in its internal control over financial reporting in the future. Any failure Additionally, the Company may experience material weaknesses or significant deficiencies in its internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit the Company’s ability to accurately report its cash flows, results of operations or to maintain internal control over financial reporting could severely inhibit the Company’s ability to accurately report its cash flows, results of operations or financial condition. If the Company is unable to conclude that its internal control over financial reporting is effective, or if its independent registered public financial condition. If the Company is unable to conclude that its internal control over financial reporting is effective, or if its independent registered public accounting firm determines the Company has a material weakness or significant deficiency in its internal control over financial reporting, the Company could lose accounting firm determines the Company has a material weakness or significant deficiency in its internal control over financial reporting, the Company could lose investor confidence in the accuracy and completeness of its financial reports, the market price of its common stock could decline and the Company could be investor confidence in the accuracy and completeness of its financial reports, the market price of its common stock could decline and the Company could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in the Company’s internal subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in the Company’s internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict its future access to the control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict its future access to the capital markets and negatively impact the price and trading market for our common stock. capital markets and negatively impact the price and trading market for our common stock. Our Charter includes an exclusive forum clause, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. Our Charter includes an exclusive forum clause, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. Our Charter provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and Our Charter provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owned by any exclusive forum for (i) any derivative action brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owned by any director, officer or other employee of the Company to the Company or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the director, officer or other employee of the Company to the Company or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, our Charter or our bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise DGCL, our Charter or our bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the foregoing provisions. The exclusive forum clause may limit acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the foregoing provisions. The exclusive forum clause may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. It is also possible that, notwithstanding such exclusive forum clause, a court our stockholders’ ability to obtain a favorable judicial forum for disputes with us. It is also possible that, notwithstanding such exclusive forum clause, a court could rule that such a provision is inapplicable or unenforceable. could rule that such a provision is inapplicable or unenforceable. We are a holding company and depend on the cash flow of our subsidiaries. We are a holding company and depend on the cash flow of our subsidiaries. We are a holding company with no material assets other than the equity interests of our subsidiaries. Our subsidiaries conduct substantially all of our operations We are a holding company with no material assets other than the equity interests of our subsidiaries. Our subsidiaries conduct substantially all of our operations and own substantially all of our assets. Consequently, our cash flow and our ability to meet our obligations and pay any future dividends to our stockholders and own substantially all of our assets. Consequently, our cash flow and our ability to meet our obligations and pay any future dividends to our stockholders depends upon the cash flow of our subsidiaries and their ability to make payments, directly or indirectly, to us in the form of dividends, distributions and other depends upon the cash flow of our subsidiaries and their ability to make payments, directly or indirectly, to us in the form of dividends, distributions and other payments. Any inability on the part of our subsidiaries to make payments to us could have a material adverse effect on our business, financial condition and results payments. Any inability on the part of our subsidiaries to make payments to us could have a material adverse effect on our business, financial condition and results of operations. of operations. None. None. Item 1B. Unresolved Staff Comments Item 1B. Unresolved Staff Comments 21 21 Additionally, the Company may experience material weaknesses or significant deficiencies in its internal control over financial reporting in the future. Any failure Additionally, the Company may experience material weaknesses or significant deficiencies in its internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit the Company’s ability to accurately report its cash flows, results of operations or to maintain internal control over financial reporting could severely inhibit the Company’s ability to accurately report its cash flows, results of operations or financial condition. If the Company is unable to conclude that its internal control over financial reporting is effective, or if its independent registered public financial condition. If the Company is unable to conclude that its internal control over financial reporting is effective, or if its independent registered public accounting firm determines the Company has a material weakness or significant deficiency in its internal control over financial reporting, the Company could lose accounting firm determines the Company has a material weakness or significant deficiency in its internal control over financial reporting, the Company could lose investor confidence in the accuracy and completeness of its financial reports, the market price of its common stock could decline and the Company could be investor confidence in the accuracy and completeness of its financial reports, the market price of its common stock could decline and the Company could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in the Company’s internal subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in the Company’s internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict its future access to the control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict its future access to the capital markets and negatively impact the price and trading market for our common stock. capital markets and negatively impact the price and trading market for our common stock. Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a business combination, such as a merger, with a person or group Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a business combination, such as a merger, with a person or group Our Charter includes an exclusive forum clause, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. Our Charter includes an exclusive forum clause, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. Our Charter provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and Our Charter provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owned by any exclusive forum for (i) any derivative action brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owned by any director, officer or other employee of the Company to the Company or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the director, officer or other employee of the Company to the Company or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, our Charter or our bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise DGCL, our Charter or our bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the foregoing provisions. The exclusive forum clause may limit acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the foregoing provisions. The exclusive forum clause may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. It is also possible that, notwithstanding such exclusive forum clause, a court our stockholders’ ability to obtain a favorable judicial forum for disputes with us. It is also possible that, notwithstanding such exclusive forum clause, a court could rule that such a provision is inapplicable or unenforceable. could rule that such a provision is inapplicable or unenforceable. from the “interested stockholder” definition in the Charter. At any time during the period beginning on the closing date of the Merger and ending on the third from the “interested stockholder” definition in the Charter. At any time during the period beginning on the closing date of the Merger and ending on the third We are a holding company and depend on the cash flow of our subsidiaries. We are a holding company and depend on the cash flow of our subsidiaries. We are a holding company with no material assets other than the equity interests of our subsidiaries. Our subsidiaries conduct substantially all of our operations We are a holding company with no material assets other than the equity interests of our subsidiaries. Our subsidiaries conduct substantially all of our operations and own substantially all of our assets. Consequently, our cash flow and our ability to meet our obligations and pay any future dividends to our stockholders and own substantially all of our assets. Consequently, our cash flow and our ability to meet our obligations and pay any future dividends to our stockholders depends upon the cash flow of our subsidiaries and their ability to make payments, directly or indirectly, to us in the form of dividends, distributions and other depends upon the cash flow of our subsidiaries and their ability to make payments, directly or indirectly, to us in the form of dividends, distributions and other payments. Any inability on the part of our subsidiaries to make payments to us could have a material adverse effect on our business, financial condition and results payments. Any inability on the part of our subsidiaries to make payments to us could have a material adverse effect on our business, financial condition and results of operations. of operations. third anniversary of the effective time of the Merger, such Grandfathered Stockholder may not increase its ownership amount above such reduced amount; third anniversary of the effective time of the Merger, such Grandfathered Stockholder may not increase its ownership amount above such reduced amount; Item 1B. Unresolved Staff Comments Item 1B. Unresolved Staff Comments provided, further, that if such Grandfathered Stockholder reduces its ownership amount below 15% of our outstanding voting stock after the third anniversary of provided, further, that if such Grandfathered Stockholder reduces its ownership amount below 15% of our outstanding voting stock after the third anniversary of the effective time of the Merger, such Grandfathered Stockholder may own any amount of voting stock below 15% of our outstanding voting stock, in the case of the effective time of the Merger, such Grandfathered Stockholder may own any amount of voting stock below 15% of our outstanding voting stock, in the case of None. None. each of the foregoing provisos, without being deemed an interested stockholder. each of the foregoing provisos, without being deemed an interested stockholder. 21 21 • • • • • • • • • • • • the ability of our Board, without stockholder approval, to issue shares of preferred stock and to determine the price and other terms, including preferences the ability of our Board, without stockholder approval, to issue shares of preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder approval; and voting rights, of those shares without stockholder approval; stockholder action can only be taken at a special or regular meeting and not by written consent; stockholder action can only be taken at a special or regular meeting and not by written consent; advance notice procedures for nominating candidates to our Board or presenting matters at stockholder meetings; advance notice procedures for nominating candidates to our Board or presenting matters at stockholder meetings; removal of directors only for cause; removal of directors only for cause; allowing only our Board to fill vacancies on our Board; and allowing only our Board to fill vacancies on our Board; and incorporation (the "Charter"). incorporation (the "Charter"). super-majority voting requirements to amend our amended and restated bylaws and certain provisions of our amended and restated certificate of super-majority voting requirements to amend our amended and restated bylaws and certain provisions of our amended and restated certificate of Our Charter opts us out of being subject to Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”), an anti-takeover law. In general, Our Charter opts us out of being subject to Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”), an anti-takeover law. In general, owning 15% or more of the corporation’s voting stock for a period of three years following the date the person became an interested stockholder, unless (with owning 15% or more of the corporation’s voting stock for a period of three years following the date the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. However, certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. However, our Charter contains anti-takeover provisions that are substantially similar in effect to Section 203 of the DGCL. The anti-takeover provisions in the Charter our Charter contains anti-takeover provisions that are substantially similar in effect to Section 203 of the DGCL. The anti-takeover provisions in the Charter prohibit us from engaging in a business combination, such as a merger, with a person or group owning 15% or more of our voting stock for a period of three years prohibit us from engaging in a business combination, such as a merger, with a person or group owning 15% or more of our voting stock for a period of three years following the date the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person following the date the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. The Charter includes specified exceptions from anti-takeover provisions, which provide that became an interested stockholder is approved in a prescribed manner. The Charter includes specified exceptions from anti-takeover provisions, which provide that (i) in certain circumstances (as described below), Davidson Kempner Capital Management LP, The Gores Group, LLC and their respective affiliates or associates (i) in certain circumstances (as described below), Davidson Kempner Capital Management LP, The Gores Group, LLC and their respective affiliates or associates (the “Grandfathered Stockholders”), and (ii) any person who would otherwise be an interested stockholder because of a transfer, assignment, conveyance, (the “Grandfathered Stockholders”), and (ii) any person who would otherwise be an interested stockholder because of a transfer, assignment, conveyance, hypothecation, encumbrance or other disposition of 5% or more of our outstanding voting stock by any Grandfathered Stockholder to such person will be excluded hypothecation, encumbrance or other disposition of 5% or more of our outstanding voting stock by any Grandfathered Stockholder to such person will be excluded anniversary thereof, each Grandfathered Stockholder is permitted to own any amount less than 20% of our outstanding voting stock and will not be deemed an anniversary thereof, each Grandfathered Stockholder is permitted to own any amount less than 20% of our outstanding voting stock and will not be deemed an interested stockholder unless such Grandfathered Stockholder’s ownership level meets or exceeds 20% of our outstanding voting stock during such three-year interested stockholder unless such Grandfathered Stockholder’s ownership level meets or exceeds 20% of our outstanding voting stock during such three-year period. From and after the third anniversary of the closing date of the Merger, each Grandfathered Stockholder is permitted to continue owning its respective period. From and after the third anniversary of the closing date of the Merger, each Grandfathered Stockholder is permitted to continue owning its respective ownership amount that it owns, together with its affiliates and associates, on such anniversary and will not be deemed an interested stockholder unless such ownership amount that it owns, together with its affiliates and associates, on such anniversary and will not be deemed an interested stockholder unless such Grandfathered Stockholder’s ownership level later exceeds such ownership amount of our outstanding voting stock. Moreover, each Grandfathered Stockholder, Grandfathered Stockholder’s ownership level later exceeds such ownership amount of our outstanding voting stock. Moreover, each Grandfathered Stockholder, together with its affiliates and associates, may reduce its ownership amount at any time from and after the third anniversary of the effective time of the Merger; together with its affiliates and associates, may reduce its ownership amount at any time from and after the third anniversary of the effective time of the Merger; provided that, if such Grandfathered Stockholder reduces its ownership amount below the ownership amount of such Grandfathered Stockholder that exists on the provided that, if such Grandfathered Stockholder reduces its ownership amount below the ownership amount of such Grandfathered Stockholder that exists on the While these provisions have the effect of encouraging persons seeking to acquire control of us to negotiate with our Board, they could enable the Board to hinder While these provisions have the effect of encouraging persons seeking to acquire control of us to negotiate with our Board, they could enable the Board to hinder or frustrate a transaction that some, or a majority, of the stockholders might believe to be in their best interests and, in that case, may prevent or discourage or frustrate a transaction that some, or a majority, of the stockholders might believe to be in their best interests and, in that case, may prevent or discourage attempts to remove and replace incumbent directors. attempts to remove and replace incumbent directors. These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board, which is responsible for appointing the members of our management. stockholders to replace members of our Board, which is responsible for appointing the members of our management. Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on us and Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on us and A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected. Therefore, our internal control over financial reporting will not prevent or detect all errors occur or that all control issues and instances of fraud will be detected. Therefore, our internal control over financial reporting will not prevent or detect all errors Ensuring that the Company has adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely Ensuring that the Company has adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be reevaluated frequently. Implementing appropriate changes to the internal controls of the Company may basis is a costly and time-consuming effort that needs to be reevaluated frequently. Implementing appropriate changes to the internal controls of the Company may take a significant period of time to complete, may distract directors, officers and employees, and may entail substantial costs in order to modify existing accounting take a significant period of time to complete, may distract directors, officers and employees, and may entail substantial costs in order to modify existing accounting our stock price. our stock price. and all fraud. and all fraud. systems. systems. 20 20 Item 2. Properties Item 2. Properties PART II PART II We have a broad network of distribution and manufacturing operations across 149 facilities in 18 states throughout the eastern, southern and western United We have a broad network of distribution and manufacturing operations across 149 facilities in 18 states throughout the eastern, southern and western United States. These branches are supported from our headquarters in Atlanta, Georgia and our main operating center in Raleigh, North Carolina. Many of our operations States. These branches are supported from our headquarters in Atlanta, Georgia and our main operating center in Raleigh, North Carolina. Many of our operations are co-located within a single facility: we have 101 distribution operations, 48 millwork fabrication operations, 51 structural component fabrication operations, and are co-located within a single facility: we have 101 distribution operations, 48 millwork fabrication operations, 51 structural component fabrication operations, and 8 flooring distribution operations. 8 flooring distribution operations. Distribution facilities generally include five to 25 acres of outside storage, a 30,000 to 60,000 square foot warehouse, office and product display space, and 15,000 Distribution facilities generally include five to 25 acres of outside storage, a 30,000 to 60,000 square foot warehouse, office and product display space, and 15,000 to 30,000 square feet of covered storage. The outside area provides space for lumber storage and a staging area for delivery while the warehouse stores millwork, to 30,000 square feet of covered storage. The outside area provides space for lumber storage and a staging area for delivery while the warehouse stores millwork, doors and windows. The distribution facilities are usually located in industrial areas with low cost real estate and easy access to freeways to maximize distribution doors and windows. The distribution facilities are usually located in industrial areas with low cost real estate and easy access to freeways to maximize distribution efficiency and convenience. In most markets, at least one of the distribution facilities is situated on a rail line to facilitate the procurement of dimensional lumber in efficiency and convenience. In most markets, at least one of the distribution facilities is situated on a rail line to facilitate the procurement of dimensional lumber in rail car quantities and minimize our cost of goods. rail car quantities and minimize our cost of goods. Our fabrication operations produce roof and floor trusses, wall panels, pre-cut engineered wood, stairs, windows, pre-hung interior and exterior doors and custom Our fabrication operations produce roof and floor trusses, wall panels, pre-cut engineered wood, stairs, windows, pre-hung interior and exterior doors and custom millwork. In most cases, they are located on the same premises as our distribution facilities, which facilitates the efficient distribution of product to customers. millwork. In most cases, they are located on the same premises as our distribution facilities, which facilitates the efficient distribution of product to customers. Millwork fabrication operations typically vary in size from 5,000 to 50,000 square feet of warehouse space to accommodate fabrication lines and the storage of Millwork fabrication operations typically vary in size from 5,000 to 50,000 square feet of warehouse space to accommodate fabrication lines and the storage of base components and finished goods. Structural component fabrication operations vary in size from 20,000 to 50,000 square feet with five to 25 acres of outside base components and finished goods. Structural component fabrication operations vary in size from 20,000 to 50,000 square feet with five to 25 acres of outside storage for lumber and for finished goods. storage for lumber and for finished goods. As of January 31, 2018 , we lease 95 facilities, including our corporate and branch support offices, and own 54 facilities. Many of our leases are non-cancellable As of January 31, 2018 , we lease 95 facilities, including our corporate and branch support offices, and own 54 facilities. Many of our leases are non-cancellable and typically have an initial operating lease term of five to ten years and most provide options to renew for specified periods of time. A majority of our leases and typically have an initial operating lease term of five to ten years and 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 provisions for escalating rent, as an example, based on changes in the consumer price index. Most of provide for fixed annual rentals. Certain of our leases include provisions for escalating rent, as an example, based on changes in the consumer price index. Most of the leases require us to pay taxes, insurance and maintenance expenses associated with the properties. the leases require us to pay taxes, insurance and maintenance expenses associated with the properties. Item 3. Legal Proceedings Item 3. Legal Proceedings We are currently involved in various claims, legal proceedings and lawsuits incidental to the conduct of our business in the ordinary course. We are a defendant in We are currently involved in various claims, legal proceedings and lawsuits incidental to the conduct of our business in the ordinary course. We are a defendant in various pending lawsuits, legal proceedings and claims arising from assertions of alleged product liability, warranty, casualty, construction defect, contract, tort, various pending lawsuits, legal proceedings and claims arising from assertions of alleged product liability, warranty, casualty, construction defect, contract, tort, employment and other claims. We carry insurance in such amounts in excess of our self-insurance retentions and/or deductibles as we believe to be reasonable employment and other claims. We carry insurance in such amounts in excess of our self-insurance retentions and/or deductibles as we believe to be reasonable under the circumstances although insurance may or may not cover any or all of our liabilities in respect of claims and lawsuits. We do not believe that the ultimate under the circumstances although insurance may or may not cover any or all of our liabilities in respect of claims and lawsuits. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our consolidated financial position, cash flows or operating results. resolution of these matters will have a material adverse effect on our consolidated financial position, cash flows or operating results. On August 30, 2017, Region 10 of the U.S. Environmental Protection Agency (the “EPA”) sent a notice of intent to us, alleging certain violations of the Clean On August 30, 2017, Region 10 of the U.S. Environmental Protection Agency (the “EPA”) sent a notice of intent to us, alleging certain violations of the Clean Water Act with respect to industrial stormwater permitting regarding monitoring, inspections, benchmarks and record keeping at our Everett, Washington facility. Water Act with respect to industrial stormwater permitting regarding monitoring, inspections, benchmarks and record keeping at our Everett, Washington facility. The EPA asserted that the alleged violations may subject us to administrative or civil penalties. On January 9, 2018, the Company and the EPA reached a The EPA asserted that the alleged violations may subject us to administrative or civil penalties. On January 9, 2018, the Company and the EPA reached a settlement in an amount of less than $0.1 million. A consent agreement is being prepared and, once finalized, the EPA will publish notice of the Consent settlement in an amount of less than $0.1 million. A consent agreement is being prepared and, once finalized, the EPA will publish notice of the Consent Agreement for a 30-day comment period. Agreement for a 30-day comment period. Item 4. Mine Safety Disclosures Item 4. Mine Safety Disclosures Not applicable. Not applicable. 2017 2017 First quarter First quarter Second quarter Second quarter Third quarter Third quarter Fourth quarter Fourth quarter 2016 2016 First quarter First quarter Second quarter Second quarter Third quarter Third quarter Fourth quarter Fourth quarter Holders of Record Holders of Record Dividend Policy Dividend Policy Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Market Information for Common Stock stock for the periods indicated: stock for the periods indicated: Our common stock is traded on the Nasdaq Stock Market under the symbol “BMCH”. The table below sets forth the high and low sales prices of our common Our common stock is traded on the Nasdaq Stock Market under the symbol “BMCH”. The table below sets forth the high and low sales prices of our common High High $23.10 $23.10 $23.90 $23.90 $22.55 $22.55 $25.70 $25.70 $17.06 $17.06 $19.99 $19.99 $21.50 $21.50 $20.15 $20.15 Low Low $17.45 $17.45 $19.27 $19.27 $18.20 $18.20 $20.10 $20.10 $12.14 $12.14 $16.01 $16.01 $17.34 $17.34 $15.45 $15.45 As of January 31, 2018 , there were approximately 80 stockholders of record of our common stock. Because many of our shares of common stock are held by As of January 31, 2018 , there were approximately 80 stockholders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners represented by these record holders. brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners represented by these record holders. We do not plan to pay a regular dividend on our common stock. The declaration and payment of all future dividends, if any, will be at the discretion of our Board We do not plan to pay a regular dividend on our common stock. The declaration and payment of all future dividends, if any, will be at the discretion of our Board and will depend upon our financial condition, earnings, contractual conditions, restrictions imposed by the Credit Agreement and Indenture or the agreements and will depend upon our financial condition, earnings, contractual conditions, restrictions imposed by the Credit Agreement and Indenture or the agreements governing any indebtedness we may incur in the future, applicable laws and other factors that our Board may deem relevant. governing any indebtedness we may incur in the future, applicable laws and other factors that our Board may deem relevant. Securities Authorized for Issuance Under Equity Compensation Plans Securities Authorized for Issuance Under Equity Compensation Plans For information on securities authorized for issuance under our equity compensation plans, see "Item 12. Security Ownership of Certain Beneficial Owners and For information on securities authorized for issuance under our equity compensation plans, see "Item 12. Security Ownership of Certain Beneficial Owners and Management." Management." 22 22 23 23 We have a broad network of distribution and manufacturing operations across 149 facilities in 18 states throughout the eastern, southern and western United We have a broad network of distribution and manufacturing operations across 149 facilities in 18 states throughout the eastern, southern and western United States. These branches are supported from our headquarters in Atlanta, Georgia and our main operating center in Raleigh, North Carolina. Many of our operations States. These branches are supported from our headquarters in Atlanta, Georgia and our main operating center in Raleigh, North Carolina. Many of our operations are co-located within a single facility: we have 101 distribution operations, 48 millwork fabrication operations, 51 structural component fabrication operations, and are co-located within a single facility: we have 101 distribution operations, 48 millwork fabrication operations, 51 structural component fabrication operations, and 8 flooring distribution operations. 8 flooring distribution operations. Distribution facilities generally include five to 25 acres of outside storage, a 30,000 to 60,000 square foot warehouse, office and product display space, and 15,000 Distribution facilities generally include five to 25 acres of outside storage, a 30,000 to 60,000 square foot warehouse, office and product display space, and 15,000 to 30,000 square feet of covered storage. The outside area provides space for lumber storage and a staging area for delivery while the warehouse stores millwork, to 30,000 square feet of covered storage. The outside area provides space for lumber storage and a staging area for delivery while the warehouse stores millwork, doors and windows. The distribution facilities are usually located in industrial areas with low cost real estate and easy access to freeways to maximize distribution doors and windows. The distribution facilities are usually located in industrial areas with low cost real estate and easy access to freeways to maximize distribution efficiency and convenience. In most markets, at least one of the distribution facilities is situated on a rail line to facilitate the procurement of dimensional lumber in efficiency and convenience. In most markets, at least one of the distribution facilities is situated on a rail line to facilitate the procurement of dimensional lumber in rail car quantities and minimize our cost of goods. rail car quantities and minimize our cost of goods. Our fabrication operations produce roof and floor trusses, wall panels, pre-cut engineered wood, stairs, windows, pre-hung interior and exterior doors and custom Our fabrication operations produce roof and floor trusses, wall panels, pre-cut engineered wood, stairs, windows, pre-hung interior and exterior doors and custom millwork. In most cases, they are located on the same premises as our distribution facilities, which facilitates the efficient distribution of product to customers. millwork. In most cases, they are located on the same premises as our distribution facilities, which facilitates the efficient distribution of product to customers. Millwork fabrication operations typically vary in size from 5,000 to 50,000 square feet of warehouse space to accommodate fabrication lines and the storage of Millwork fabrication operations typically vary in size from 5,000 to 50,000 square feet of warehouse space to accommodate fabrication lines and the storage of base components and finished goods. Structural component fabrication operations vary in size from 20,000 to 50,000 square feet with five to 25 acres of outside base components and finished goods. Structural component fabrication operations vary in size from 20,000 to 50,000 square feet with five to 25 acres of outside storage for lumber and for finished goods. storage for lumber and for finished goods. As of January 31, 2018 , we lease 95 facilities, including our corporate and branch support offices, and own 54 facilities. Many of our leases are non-cancellable As of January 31, 2018 , we lease 95 facilities, including our corporate and branch support offices, and own 54 facilities. Many of our leases are non-cancellable and typically have an initial operating lease term of five to ten years and most provide options to renew for specified periods of time. A majority of our leases and typically have an initial operating lease term of five to ten years and 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 provisions for escalating rent, as an example, based on changes in the consumer price index. Most of provide for fixed annual rentals. Certain of our leases include provisions for escalating rent, as an example, based on changes in the consumer price index. Most of the leases require us to pay taxes, insurance and maintenance expenses associated with the properties. the leases require us to pay taxes, insurance and maintenance expenses associated with the properties. Item 3. Legal Proceedings Item 3. Legal Proceedings We are currently involved in various claims, legal proceedings and lawsuits incidental to the conduct of our business in the ordinary course. We are a defendant in We are currently involved in various claims, legal proceedings and lawsuits incidental to the conduct of our business in the ordinary course. We are a defendant in various pending lawsuits, legal proceedings and claims arising from assertions of alleged product liability, warranty, casualty, construction defect, contract, tort, various pending lawsuits, legal proceedings and claims arising from assertions of alleged product liability, warranty, casualty, construction defect, contract, tort, employment and other claims. We carry insurance in such amounts in excess of our self-insurance retentions and/or deductibles as we believe to be reasonable employment and other claims. We carry insurance in such amounts in excess of our self-insurance retentions and/or deductibles as we believe to be reasonable under the circumstances although insurance may or may not cover any or all of our liabilities in respect of claims and lawsuits. We do not believe that the ultimate under the circumstances although insurance may or may not cover any or all of our liabilities in respect of claims and lawsuits. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our consolidated financial position, cash flows or operating results. resolution of these matters will have a material adverse effect on our consolidated financial position, cash flows or operating results. On August 30, 2017, Region 10 of the U.S. Environmental Protection Agency (the “EPA”) sent a notice of intent to us, alleging certain violations of the Clean On August 30, 2017, Region 10 of the U.S. Environmental Protection Agency (the “EPA”) sent a notice of intent to us, alleging certain violations of the Clean Water Act with respect to industrial stormwater permitting regarding monitoring, inspections, benchmarks and record keeping at our Everett, Washington facility. Water Act with respect to industrial stormwater permitting regarding monitoring, inspections, benchmarks and record keeping at our Everett, Washington facility. The EPA asserted that the alleged violations may subject us to administrative or civil penalties. On January 9, 2018, the Company and the EPA reached a The EPA asserted that the alleged violations may subject us to administrative or civil penalties. On January 9, 2018, the Company and the EPA reached a settlement in an amount of less than $0.1 million. A consent agreement is being prepared and, once finalized, the EPA will publish notice of the Consent settlement in an amount of less than $0.1 million. A consent agreement is being prepared and, once finalized, the EPA will publish notice of the Consent Agreement for a 30-day comment period. Agreement for a 30-day comment period. Item 4. Mine Safety Disclosures Item 4. Mine Safety Disclosures Not applicable. Not applicable. Item 2. Properties Item 2. Properties PART II PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Market Information for Common Stock Our common stock is traded on the Nasdaq Stock Market under the symbol “BMCH”. The table below sets forth the high and low sales prices of our common Our common stock is traded on the Nasdaq Stock Market under the symbol “BMCH”. The table below sets forth the high and low sales prices of our common stock for the periods indicated: stock for the periods indicated: 2017 2017 First quarter First quarter Second quarter Second quarter Third quarter Third quarter Fourth quarter Fourth quarter 2016 2016 First quarter First quarter Second quarter Second quarter Third quarter Third quarter Fourth quarter Fourth quarter Holders of Record Holders of Record High High $23.10 $23.10 $23.90 $23.90 $22.55 $22.55 $25.70 $25.70 $17.06 $17.06 $19.99 $19.99 $21.50 $21.50 $20.15 $20.15 Low Low $17.45 $17.45 $19.27 $19.27 $18.20 $18.20 $20.10 $20.10 $12.14 $12.14 $16.01 $16.01 $17.34 $17.34 $15.45 $15.45 As of January 31, 2018 , there were approximately 80 stockholders of record of our common stock. Because many of our shares of common stock are held by As of January 31, 2018 , there were approximately 80 stockholders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners represented by these record holders. brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners represented by these record holders. Dividend Policy Dividend Policy We do not plan to pay a regular dividend on our common stock. The declaration and payment of all future dividends, if any, will be at the discretion of our Board We do not plan to pay a regular dividend on our common stock. The declaration and payment of all future dividends, if any, will be at the discretion of our Board and will depend upon our financial condition, earnings, contractual conditions, restrictions imposed by the Credit Agreement and Indenture or the agreements and will depend upon our financial condition, earnings, contractual conditions, restrictions imposed by the Credit Agreement and Indenture or the agreements governing any indebtedness we may incur in the future, applicable laws and other factors that our Board may deem relevant. governing any indebtedness we may incur in the future, applicable laws and other factors that our Board may deem relevant. Securities Authorized for Issuance Under Equity Compensation Plans Securities Authorized for Issuance Under Equity Compensation Plans For information on securities authorized for issuance under our equity compensation plans, see "Item 12. Security Ownership of Certain Beneficial Owners and For information on securities authorized for issuance under our equity compensation plans, see "Item 12. Security Ownership of Certain Beneficial Owners and Management." Management." 22 22 23 23 Stock Performance Graph Stock Performance Graph Item 6. Selected Financial Data Item 6. Selected Financial Data The following graph shows a comparison from August 9, 2013 (the date trading commenced on our common stock on the Nasdaq) through December 31, 2017 of The following graph shows a comparison from August 9, 2013 (the date trading commenced on our common stock on the Nasdaq) through December 31, 2017 of the cumulative return for our common stock, the Russell 2000 Index and the S&P 600 Building Products Index (ticker symbol "^SP600-201020"). The graph tracks the cumulative return for our common stock, the Russell 2000 Index and the S&P 600 Building Products Index (ticker symbol "^SP600-201020"). The graph tracks the performance of a $100 investment in our common stock and in each of the indices (with the reinvestment of dividends). the performance of a $100 investment in our common stock and in each of the indices (with the reinvestment of dividends). 24 24 On December 1, 2015, BMHC and SBS completed the Merger. As the Merger constituted a reverse acquisition for accounting purposes under generally accepted On December 1, 2015, BMHC and SBS completed the Merger. As the Merger constituted a reverse acquisition for accounting purposes under generally accepted accounting principles in the United States, the historical financial statements of the Company reflect only the operations and financial condition of BMHC. The accounting principles in the United States, the historical financial statements of the Company reflect only the operations and financial condition of BMHC. The operating results of SBS are reported as part of the Company beginning on the closing date of the Merger. The selected consolidated financial data as of December operating results of SBS are reported as part of the Company beginning on the closing date of the Merger. The selected consolidated financial data as of December 31, 2017 and 2016 and for the years ended December 31, 2017 , 2016 and 2015 have been derived from our audited consolidated financial statements included as 31, 2017 and 2016 and for the years ended December 31, 2017 , 2016 and 2015 have been derived from our audited consolidated financial statements included as Item 8 of this Annual Report on Form 10-K. Selected consolidated financial data as of December 31, 2015 , 2014 and 2013 and for the years ended December 31, Item 8 of this Annual Report on Form 10-K. Selected consolidated financial data as of December 31, 2015 , 2014 and 2013 and for the years ended December 31, 2014 and 2013 were derived from BMHC's consolidated financial statements, which are not included herein. 2014 and 2013 were derived from BMHC's consolidated financial statements, which are not included herein. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in 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 as Item 8 of this Annual Report on Form 10- Item 7 of this Annual Report on Form 10-K and with our consolidated financial statements and related notes included as Item 8 of this Annual Report on Form 10- K: K: (in thousands, except per share data) (in thousands, except per share data) Statement of operations data: Statement of operations data: Net sales Net sales Gross profit Gross profit Selling, general and administrative expenses Selling, general and administrative expenses Net income (loss) Net income (loss) Net income (loss) per share - basic Net income (loss) per share - basic Net income (loss) per share - diluted Net income (loss) per share - diluted Statement of cash flows data: Statement of cash flows data: Net cash provided by (used in): Net cash provided by (used in): Operating activities Operating activities Investing activities Investing activities Financing activities Financing activities Other financial data: Other financial data: Depreciation and amortization Depreciation and amortization Capital expenditures Capital expenditures Balance sheet data (at period end): Balance sheet data (at period end): Total current assets Total current assets $ $ $ $ $ $ $ $ 2017 2017 2016 2016 2015 2015 2014 2014 2013 2013 Year Ended December 31, Year Ended December 31, $ $ 3,365,968 $ 3,365,968 $ 3,093,743 $ 3,093,743 $ 1,576,746 $ 1,576,746 $ 1,311,498 $ 1,311,498 $ 1,210,156 1,210,156 795,515 795,515 619,546 619,546 57,425 57,425 741,965 741,965 571,799 571,799 30,880 30,880 361,410 361,410 306,843 306,843 (4,831) (4,831) 295,074 295,074 229,316 229,316 94,032 94,032 0.86 0.86 0.85 $ 0.85 $ 0.47 0.47 0.46 $ 0.46 $ (0.12) (0.12) (0.12) $ (0.12) $ 2.42 2.42 2.39 $ 2.39 $ 256,547 256,547 200,588 200,588 21,655 21,655 0.57 0.57 0.56 0.56 93,934 $ 93,934 $ 106,888 $ 106,888 $ 743 $ 743 $ 30,732 $ 30,732 $ (88,271) (88,271) (2,830) (2,830) (33,729) (33,729) (65,331) (65,331) (135,076) (135,076) 72,160 72,160 (16,262) (16,262) (424) (424) 15,357 15,357 (63,999) (63,999) 96,098 96,098 69,217 $ 69,217 $ 63,278 63,278 68,680 $ 68,680 $ 38,067 38,067 24,589 $ 24,589 $ 31,319 31,319 15,457 $ 15,457 $ 28,275 28,275 13,767 13,767 15,057 15,057 Property and equipment, net of accumulated depreciation Property and equipment, net of accumulated depreciation 295,820 295,820 286,741 286,741 295,978 295,978 Total debt and capital lease obligations (including current Total debt and capital lease obligations (including current Total assets Total assets portion) portion) Total stockholders' equity Total stockholders' equity 1,473,350 1,473,350 1,395,014 1,395,014 1,371,139 1,371,139 371,636 371,636 746,899 746,899 376,563 376,563 680,601 680,601 426,840 426,840 628,932 628,932 140,435 140,435 581,853 581,853 263,449 263,449 179,078 179,078 323,262 323,262 122,930 122,930 459,805 459,805 257,276 257,276 82,229 82,229 734,137 $ 734,137 $ 666,942 $ 666,942 $ 613,960 $ 613,960 $ 358,095 $ 358,095 $ 25 25 Stock Performance Graph Stock Performance Graph Item 6. Selected Financial Data Item 6. Selected Financial Data The following graph shows a comparison from August 9, 2013 (the date trading commenced on our common stock on the Nasdaq) through December 31, 2017 of The following graph shows a comparison from August 9, 2013 (the date trading commenced on our common stock on the Nasdaq) through December 31, 2017 of the cumulative return for our common stock, the Russell 2000 Index and the S&P 600 Building Products Index (ticker symbol "^SP600-201020"). The graph tracks the cumulative return for our common stock, the Russell 2000 Index and the S&P 600 Building Products Index (ticker symbol "^SP600-201020"). The graph tracks the performance of a $100 investment in our common stock and in each of the indices (with the reinvestment of dividends). the performance of a $100 investment in our common stock and in each of the indices (with the reinvestment of dividends). On December 1, 2015, BMHC and SBS completed the Merger. As the Merger constituted a reverse acquisition for accounting purposes under generally accepted On December 1, 2015, BMHC and SBS completed the Merger. As the Merger constituted a reverse acquisition for accounting purposes under generally accepted accounting principles in the United States, the historical financial statements of the Company reflect only the operations and financial condition of BMHC. The accounting principles in the United States, the historical financial statements of the Company reflect only the operations and financial condition of BMHC. The operating results of SBS are reported as part of the Company beginning on the closing date of the Merger. The selected consolidated financial data as of December operating results of SBS are reported as part of the Company beginning on the closing date of the Merger. The selected consolidated financial data as of December 31, 2017 and 2016 and for the years ended December 31, 2017 , 2016 and 2015 have been derived from our audited consolidated financial statements included as 31, 2017 and 2016 and for the years ended December 31, 2017 , 2016 and 2015 have been derived from our audited consolidated financial statements included as Item 8 of this Annual Report on Form 10-K. Selected consolidated financial data as of December 31, 2015 , 2014 and 2013 and for the years ended December 31, Item 8 of this Annual Report on Form 10-K. Selected consolidated financial data as of December 31, 2015 , 2014 and 2013 and for the years ended December 31, 2014 and 2013 were derived from BMHC's consolidated financial statements, which are not included herein. 2014 and 2013 were derived from BMHC's consolidated financial statements, which are not included herein. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in 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 as Item 8 of this Annual Report on Form 10- Item 7 of this Annual Report on Form 10-K and with our consolidated financial statements and related notes included as Item 8 of this Annual Report on Form 10- K: K: 24 24 (in thousands, except per share data) (in thousands, except per share data) Statement of operations data: Statement of operations data: Net sales Net sales Gross profit Gross profit Selling, general and administrative expenses Selling, general and administrative expenses Net income (loss) Net income (loss) Net income (loss) per share - basic Net income (loss) per share - basic Net income (loss) per share - diluted Net income (loss) per share - diluted Statement of cash flows data: Statement of cash flows data: Net cash provided by (used in): Net cash provided by (used in): Operating activities Operating activities Investing activities Investing activities Financing activities Financing activities Other financial data: Other financial data: Depreciation and amortization Depreciation and amortization Capital expenditures Capital expenditures Balance sheet data (at period end): Balance sheet data (at period end): Total current assets Total current assets 2017 2017 2016 2016 2015 2015 2014 2014 2013 2013 Year Ended December 31, Year Ended December 31, $ $ 3,365,968 $ 3,365,968 $ 3,093,743 $ 3,093,743 $ 1,576,746 $ 1,576,746 $ 1,311,498 $ 1,311,498 $ 1,210,156 1,210,156 795,515 795,515 619,546 619,546 57,425 57,425 741,965 741,965 571,799 571,799 30,880 30,880 361,410 361,410 306,843 306,843 (4,831) (4,831) 295,074 295,074 229,316 229,316 94,032 94,032 0.86 0.86 0.85 $ 0.85 $ 0.47 0.47 0.46 $ 0.46 $ (0.12) (0.12) (0.12) $ (0.12) $ 2.42 2.42 2.39 $ 2.39 $ 256,547 256,547 200,588 200,588 21,655 21,655 0.57 0.57 0.56 0.56 93,934 $ 93,934 $ 106,888 $ 106,888 $ 743 $ 743 $ 30,732 $ 30,732 $ (88,271) (88,271) (2,830) (2,830) (33,729) (33,729) (65,331) (65,331) (135,076) (135,076) 72,160 72,160 (16,262) (16,262) (424) (424) 15,357 15,357 (63,999) (63,999) 96,098 96,098 69,217 $ 69,217 $ 63,278 63,278 68,680 $ 68,680 $ 38,067 38,067 24,589 $ 24,589 $ 31,319 31,319 15,457 $ 15,457 $ 28,275 28,275 13,767 13,767 15,057 15,057 $ $ $ $ $ $ $ $ 734,137 $ 734,137 $ 666,942 $ 666,942 $ 613,960 $ 613,960 $ 358,095 $ 358,095 $ Property and equipment, net of accumulated depreciation Property and equipment, net of accumulated depreciation 295,820 295,820 286,741 286,741 295,978 295,978 Total assets Total assets 1,473,350 1,473,350 1,395,014 1,395,014 1,371,139 1,371,139 Total debt and capital lease obligations (including current Total debt and capital lease obligations (including current portion) portion) Total stockholders' equity Total stockholders' equity 371,636 371,636 746,899 746,899 376,563 376,563 680,601 680,601 426,840 426,840 628,932 628,932 140,435 140,435 581,853 581,853 263,449 263,449 179,078 179,078 25 25 323,262 323,262 122,930 122,930 459,805 459,805 257,276 257,276 82,229 82,229 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with Item 6. “Selected Financial Data” and our consolidated financial statements and the The following discussion and analysis should be read in conjunction with Item 6. “Selected Financial Data” and our consolidated financial statements and the related notes to those statements included in Item 8. “Financial Statements and Supplementary Data.” The following discussion contains, in addition to historical related notes to those statements included in Item 8. “Financial Statements and Supplementary Data.” The following discussion contains, in addition to historical information, forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these information, forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under the heading Item 1A. “Risk Factors” and elsewhere in this report. forward-looking statements as a result of many factors, including those set forth under the heading Item 1A. “Risk Factors” and elsewhere in this report. Overview Overview On December 1, 2015, SBS completed the Merger with privately-held BMHC in accordance with the terms of the Merger Agreement, pursuant to which BMHC On December 1, 2015, SBS completed the Merger with privately-held BMHC in accordance with the terms of the Merger Agreement, pursuant to which BMHC merged with and into SBS. SBS survived the Merger and in connection therewith changed its name to “BMC Stock Holdings, Inc.” The financial statements merged with and into SBS. SBS survived the Merger and in connection therewith changed its name to “BMC Stock Holdings, Inc.” The financial statements represent the financial statements of BMC Stock Holdings, Inc. and its subsidiaries. represent the financial statements of BMC Stock Holdings, Inc. and its subsidiaries. Under generally accepted accounting principles in the United States, the Merger was treated as a “reverse merger” under the acquisition method of accounting. For Under generally accepted accounting principles in the United States, the Merger was treated as a “reverse merger” under the acquisition method of accounting. For accounting purposes, BMHC is considered to have acquired SBS. Consequently, the historical financial statements of the Company reflect only the operations and accounting purposes, BMHC is considered to have acquired SBS. Consequently, the historical financial statements of the Company reflect only the operations and financial condition of BMHC prior to the Merger. The operating results of SBS are included as part of the Company's reported results beginning on the closing date financial condition of BMHC prior to the Merger. The operating results of SBS are included as part of the Company's reported results beginning on the closing date of the Merger. of the Merger. We are one of the leading providers of diversified building products and services in the U.S. residential construction market. Our objective is to provide best-in- We are one of the leading providers of diversified building products and services in the U.S. residential construction market. Our objective is to provide best-in- class customer service and value-added products to our customers, which are primarily single- and multi-family home builders and professional remodelers. Our class customer service and value-added products to our customers, which are primarily single- and multi-family home builders and professional remodelers. Our product offerings include lumber and lumber sheet goods and an array of value-added products including millwork, doors, windows and structural components product offerings include lumber and lumber sheet goods and an array of value-added products including millwork, doors, windows and structural components such as EWP, floor and roof trusses and wall panels. Our whole-house framing solution, Ready-Frame ®, which is one of our fastest growing product offerings, such as EWP, floor and roof trusses and wall panels. Our whole-house framing solution, Ready-Frame ®, which is one of our fastest growing product offerings, saves builders both time and money and improves job site safety. We also offer our customers important services such as design, product specification, installation saves builders both time and money and improves job site safety. We also offer our customers important services such as design, product specification, installation and installation management. and installation management. respectively. respectively. As part of our initiatives to execute our strategic plan, including growing our value-added product and service offerings and expanding our presence in the As part of our initiatives to execute our strategic plan, including growing our value-added product and service offerings and expanding our presence in the professional remodeling space, we plan to expand our business through organic and acquisitive means. The 18 states in which we operate accounted for professional remodeling space, we plan to expand our business through organic and acquisitive means. The 18 states in which we operate accounted for approximately 65% of 2017 U.S. single-family housing permits according to the U.S. Census Bureau. In these 18 states, we operate in 43 metropolitan areas, approximately 65% of 2017 U.S. single-family housing permits according to the U.S. Census Bureau. In these 18 states, we operate in 43 metropolitan areas, which accounted for approximately half of the permits issued in those states, according to the U.S. Census Bureau, providing significant opportunity for growth. which accounted for approximately half of the permits issued in those states, according to the U.S. Census Bureau, providing significant opportunity for growth. Our net sales for the year ended December 31, 2017 increased 8.8% compared to the year ended December 31, 2016 . We estimate net sales increased 2.8% due to Our net sales for the year ended December 31, 2017 increased 8.8% compared to the year ended December 31, 2016 . We estimate net sales increased 2.8% due to organic sales volume, 1.8% due to the acquisitions of Code Plus Components, LLC ("Code Plus") and Texas Plywood & Lumber Company, Inc. ("TexPly") and organic sales volume, 1.8% due to the acquisitions of Code Plus Components, LLC ("Code Plus") and Texas Plywood & Lumber Company, Inc. ("TexPly") and 4.2% due to commodity price inflation. Our gross margin was 23.6% for the year ended December 31, 2017 compared to 24.0% for the prior year period. We 4.2% due to commodity price inflation. Our gross margin was 23.6% for the year ended December 31, 2017 compared to 24.0% for the prior year period. We recorded income from operations of $101.2 million during the year ended December 31, 2017 , compared with $83.7 million during the year ended December 31, recorded income from operations of $101.2 million during the year ended December 31, 2017 , compared with $83.7 million during the year ended December 31, 2016 . See further discussion in “-Operating Results” below. 2016 . See further discussion in “-Operating Results” below. On September 1, 2015, BMHC purchased certain assets and assumed certain liabilities of Marietta, Georgia-based Robert Bowden Inc. ("RBI") for a purchase On September 1, 2015, BMHC purchased certain assets and assumed certain liabilities of Marietta, Georgia-based Robert Bowden Inc. ("RBI") for a purchase price of $102.4 million. RBI has three locations in the Atlanta, Georgia area and sells millwork and window products to homebuilders and residential contractors. price of $102.4 million. RBI has three locations in the Atlanta, Georgia area and sells millwork and window products to homebuilders and residential contractors. On May 1, 2015, BMHC completed the acquisition of Vidalia, Georgia-based VNS Corporation ("VNS") for a purchase price of $47.1 million. VNS has nine On May 1, 2015, BMHC completed the acquisition of Vidalia, Georgia-based VNS Corporation ("VNS") for a purchase price of $47.1 million. VNS has nine locations in southern Georgia and sells building materials and provides construction services in the southeastern United States. locations in southern Georgia and sells building materials and provides construction services in the southeastern United States. Net sales increased by approximately $54.3 million for the year ended December 31, 2017 as a result of the acquisitions of TexPly and Code Plus. For the year Net sales increased by approximately $54.3 million for the year ended December 31, 2017 as a result of the acquisitions of TexPly and Code Plus. For the year ended December 31, 2016, net sales increased by approximately $1.4 billion as a result of the Merger and acquisitions of RBI and VNS. ended December 31, 2016, net sales increased by approximately $1.4 billion as a result of the Merger and acquisitions of RBI and VNS. See Note 3 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion of our acquisitions. See Note 3 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion of our acquisitions. Conditions in the housing and construction market Conditions in the housing and construction market The building products supply and services industry is highly dependent on new single-family home and multi-family construction and repair and remodeling The building products supply and services industry is highly dependent on new single-family home and multi-family construction and repair and remodeling activity, which in turn are dependent upon a number of factors, including, among other things, interest rates, consumer confidence, employment rates, wage rates, activity, which in turn are dependent upon a number of factors, including, among other things, interest rates, consumer confidence, employment rates, wage rates, foreclosure rates, housing inventory levels, housing demand, the availability of land, local zoning and permitting processes, the availability of construction foreclosure rates, housing inventory levels, housing demand, the availability of land, local zoning and permitting processes, the availability of construction financing, the availability of qualified trade laborers, the health of the economy and mortgage markets and the availability of personal income tax deductions financing, the availability of qualified trade laborers, the health of the economy and mortgage markets and the availability of personal income tax deductions related to home ownership, some of which were limited by the 2017 Tax Act. According to the U.S. Census Bureau, single-family housing starts in the South and related to home ownership, some of which were limited by the 2017 Tax Act. According to the U.S. Census Bureau, single-family housing starts in the South and West regions of the United States, which are our primary operating regions, were 0.55 million, 0.60 million and 0.66 million in 2015 , 2016 and 2017 , West regions of the United States, which are our primary operating regions, were 0.55 million, 0.60 million and 0.66 million in 2015 , 2016 and 2017 , As of November 2017, Dodge Data & Analytics (formerly McGraw-Hill) forecasted that U.S. single-family housing starts will increase approximately 7% in 2018. As of November 2017, Dodge Data & Analytics (formerly McGraw-Hill) forecasted that U.S. single-family housing starts will increase approximately 7% in 2018. Additionally, the S&P Corelogic Case-Shiller Home Price Index, a leading measure of pricing for the U.S. residential housing market, has increased on a year- Additionally, the S&P Corelogic Case-Shiller Home Price Index, a leading measure of pricing for the U.S. residential housing market, has increased on a year- over-year basis for 67 straight months as of November 2017 and in November 2017, the index reached its highest levels ever. over-year basis for 67 straight months as of November 2017 and in November 2017, the index reached its highest levels ever. According to the U.S. Census Bureau, multi-family housing starts in the United States reached a low of 0.11 million in 2009, but reached levels of 0.40 million, According to the U.S. Census Bureau, multi-family housing starts in the United States reached a low of 0.11 million in 2009, but reached levels of 0.40 million, 0.39 million and 0.35 million in 2015 , 2016 and 2017 , respectively. While this end market has receded since 2015, the multi-family space represents a significant 0.39 million and 0.35 million in 2015 , 2016 and 2017 , respectively. While this end market has receded since 2015, the multi-family space represents a significant opportunity for us to capture additional market share and provide value-added solutions. opportunity for us to capture additional market share and provide value-added solutions. The professional remodeling space, when compared to new home construction, tends to be less price sensitive and more resilient to broader economic conditions. The professional remodeling space, when compared to new home construction, tends to be less price sensitive and more resilient to broader economic conditions. As of September 2017, the Home Improvement Research Institute estimated 2017 and 2018 U.S. sales of home maintenance, repair and improvement products to As of September 2017, the Home Improvement Research Institute estimated 2017 and 2018 U.S. sales of home maintenance, repair and improvement products to the professional market would reach approximately $103 billion and $106 billion, respectively, compared to sales of approximately $94 billion and $100 billion in the professional market would reach approximately $103 billion and $106 billion, respectively, compared to sales of approximately $94 billion and $100 billion in 2015 and 2016, respectively. Several factors, including the overall age of the U.S. housing stock, rising home prices, availability of consumer capital at historically 2015 and 2016, respectively. Several factors, including the overall age of the U.S. housing stock, rising home prices, availability of consumer capital at historically low interest rates and focus on energy efficiency may drive long-term growth in repair and remodeling expenditures. low interest rates and focus on energy efficiency may drive long-term growth in repair and remodeling expenditures. Factors Affecting Our Operating Results Factors Affecting Our Operating Results Overall economic conditions in the markets where we operate Overall economic conditions in the markets where we operate Our operating results and financial performance are influenced by a variety of factors, including, among others, acquisitions, conditions in the housing market and Our operating results and financial performance are influenced by a variety of factors, including, among others, acquisitions, conditions in the housing market and economic conditions generally, changes in the cost of the products we sell (particularly commodity products), pricing policies of our competitors, production economic conditions generally, changes in the cost of the products we sell (particularly commodity products), pricing policies of our competitors, production schedules of our customers and seasonality. Some of the more important factors are briefly discussed below. schedules of our customers and seasonality. Some of the more important factors are briefly discussed below. Merger and acquisitions Merger and acquisitions On April 3, 2017, the Company completed the acquisition of TexPly, a supplier of production millwork and doors in the Dallas-Fort Worth area, for a purchase On April 3, 2017, the Company completed the acquisition of TexPly, a supplier of production millwork and doors in the Dallas-Fort Worth area, for a purchase price of $31.7 million , including the purchase of real estate. price of $31.7 million , including the purchase of real estate. Commodity nature of our products Commodity nature of our products Economic changes both nationally and locally in our markets impact our financial performance. Unfavorable changes in demographics, credit markets, consumer Economic changes both nationally and locally in our markets impact our financial performance. Unfavorable changes in demographics, credit markets, consumer confidence, health care costs, housing affordability, housing inventory levels, a weakening of the national economy or of any regional or local economy in which confidence, health care costs, housing affordability, housing inventory levels, a weakening of the national economy or of any regional or local economy in which we operate and other factors beyond our control could adversely affect consumer spending, result in decreased demand for homes and adversely affect our we operate and other factors beyond our control could adversely affect consumer spending, result in decreased demand for homes and adversely affect our business. We believe continued strong employment levels, access to financing and strong consumer confidence will be necessary to increase household formation business. We believe continued strong employment levels, access to financing and strong consumer confidence will be necessary to increase household formation rates. We believe improved household formation rates in turn will increase demand for housing and stimulate new construction. rates. We believe improved household formation rates in turn will increase demand for housing and stimulate new construction. On March 27, 2017, the Company completed the acquisition of Code Plus, a truss manufacturer located in Martinsburg, West Virginia serving the Washington DC On March 27, 2017, the Company completed the acquisition of Code Plus, a truss manufacturer located in Martinsburg, West Virginia serving the Washington DC market, for a purchase price of $7.1 million . market, for a purchase price of $7.1 million . As discussed above, on December 1, 2015, SBS completed the Merger with privately-held BMHC in accordance with the terms of the Merger Agreement, pursuant As discussed above, on December 1, 2015, SBS completed the Merger with privately-held BMHC in accordance with the terms of the Merger Agreement, pursuant to which BMHC merged with and into SBS. to which BMHC merged with and into SBS. 26 26 Many of the building products we distribute, including lumber, OSB, plywood and particleboard, are commodities that are widely available from other Many of the building products we distribute, including lumber, OSB, plywood and particleboard, are commodities that are widely available from other manufacturers or distributors with prices and volumes determined frequently based on participants’ perceptions of short-term supply and demand factors. manufacturers or distributors with prices and volumes determined frequently based on participants’ perceptions of short-term supply and demand factors. 27 27 On September 1, 2015, BMHC purchased certain assets and assumed certain liabilities of Marietta, Georgia-based Robert Bowden Inc. ("RBI") for a purchase On September 1, 2015, BMHC purchased certain assets and assumed certain liabilities of Marietta, Georgia-based Robert Bowden Inc. ("RBI") for a purchase price of $102.4 million. RBI has three locations in the Atlanta, Georgia area and sells millwork and window products to homebuilders and residential contractors. price of $102.4 million. RBI has three locations in the Atlanta, Georgia area and sells millwork and window products to homebuilders and residential contractors. On May 1, 2015, BMHC completed the acquisition of Vidalia, Georgia-based VNS Corporation ("VNS") for a purchase price of $47.1 million. VNS has nine On May 1, 2015, BMHC completed the acquisition of Vidalia, Georgia-based VNS Corporation ("VNS") for a purchase price of $47.1 million. VNS has nine locations in southern Georgia and sells building materials and provides construction services in the southeastern United States. locations in southern Georgia and sells building materials and provides construction services in the southeastern United States. Net sales increased by approximately $54.3 million for the year ended December 31, 2017 as a result of the acquisitions of TexPly and Code Plus. For the year Net sales increased by approximately $54.3 million for the year ended December 31, 2017 as a result of the acquisitions of TexPly and Code Plus. For the year ended December 31, 2016, net sales increased by approximately $1.4 billion as a result of the Merger and acquisitions of RBI and VNS. ended December 31, 2016, net sales increased by approximately $1.4 billion as a result of the Merger and acquisitions of RBI and VNS. See Note 3 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion of our acquisitions. See Note 3 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further discussion of our acquisitions. Conditions in the housing and construction market Conditions in the housing and construction market The building products supply and services industry is highly dependent on new single-family home and multi-family construction and repair and remodeling The building products supply and services industry is highly dependent on new single-family home and multi-family construction and repair and remodeling activity, which in turn are dependent upon a number of factors, including, among other things, interest rates, consumer confidence, employment rates, wage rates, activity, which in turn are dependent upon a number of factors, including, among other things, interest rates, consumer confidence, employment rates, wage rates, foreclosure rates, housing inventory levels, housing demand, the availability of land, local zoning and permitting processes, the availability of construction foreclosure rates, housing inventory levels, housing demand, the availability of land, local zoning and permitting processes, the availability of construction financing, the availability of qualified trade laborers, the health of the economy and mortgage markets and the availability of personal income tax deductions financing, the availability of qualified trade laborers, the health of the economy and mortgage markets and the availability of personal income tax deductions related to home ownership, some of which were limited by the 2017 Tax Act. According to the U.S. Census Bureau, single-family housing starts in the South and related to home ownership, some of which were limited by the 2017 Tax Act. According to the U.S. Census Bureau, single-family housing starts in the South and West regions of the United States, which are our primary operating regions, were 0.55 million, 0.60 million and 0.66 million in 2015 , 2016 and 2017 , West regions of the United States, which are our primary operating regions, were 0.55 million, 0.60 million and 0.66 million in 2015 , 2016 and 2017 , respectively. respectively. As of November 2017, Dodge Data & Analytics (formerly McGraw-Hill) forecasted that U.S. single-family housing starts will increase approximately 7% in 2018. As of November 2017, Dodge Data & Analytics (formerly McGraw-Hill) forecasted that U.S. single-family housing starts will increase approximately 7% in 2018. Additionally, the S&P Corelogic Case-Shiller Home Price Index, a leading measure of pricing for the U.S. residential housing market, has increased on a year- Additionally, the S&P Corelogic Case-Shiller Home Price Index, a leading measure of pricing for the U.S. residential housing market, has increased on a year- over-year basis for 67 straight months as of November 2017 and in November 2017, the index reached its highest levels ever. over-year basis for 67 straight months as of November 2017 and in November 2017, the index reached its highest levels ever. According to the U.S. Census Bureau, multi-family housing starts in the United States reached a low of 0.11 million in 2009, but reached levels of 0.40 million, According to the U.S. Census Bureau, multi-family housing starts in the United States reached a low of 0.11 million in 2009, but reached levels of 0.40 million, 0.39 million and 0.35 million in 2015 , 2016 and 2017 , respectively. While this end market has receded since 2015, the multi-family space represents a significant 0.39 million and 0.35 million in 2015 , 2016 and 2017 , respectively. While this end market has receded since 2015, the multi-family space represents a significant opportunity for us to capture additional market share and provide value-added solutions. opportunity for us to capture additional market share and provide value-added solutions. The professional remodeling space, when compared to new home construction, tends to be less price sensitive and more resilient to broader economic conditions. The professional remodeling space, when compared to new home construction, tends to be less price sensitive and more resilient to broader economic conditions. As of September 2017, the Home Improvement Research Institute estimated 2017 and 2018 U.S. sales of home maintenance, repair and improvement products to As of September 2017, the Home Improvement Research Institute estimated 2017 and 2018 U.S. sales of home maintenance, repair and improvement products to the professional market would reach approximately $103 billion and $106 billion, respectively, compared to sales of approximately $94 billion and $100 billion in the professional market would reach approximately $103 billion and $106 billion, respectively, compared to sales of approximately $94 billion and $100 billion in 2015 and 2016, respectively. Several factors, including the overall age of the U.S. housing stock, rising home prices, availability of consumer capital at historically 2015 and 2016, respectively. Several factors, including the overall age of the U.S. housing stock, rising home prices, availability of consumer capital at historically low interest rates and focus on energy efficiency may drive long-term growth in repair and remodeling expenditures. low interest rates and focus on energy efficiency may drive long-term growth in repair and remodeling expenditures. Overall economic conditions in the markets where we operate Overall economic conditions in the markets where we operate Economic changes both nationally and locally in our markets impact our financial performance. Unfavorable changes in demographics, credit markets, consumer Economic changes both nationally and locally in our markets impact our financial performance. Unfavorable changes in demographics, credit markets, consumer confidence, health care costs, housing affordability, housing inventory levels, a weakening of the national economy or of any regional or local economy in which confidence, health care costs, housing affordability, housing inventory levels, a weakening of the national economy or of any regional or local economy in which we operate and other factors beyond our control could adversely affect consumer spending, result in decreased demand for homes and adversely affect our we operate and other factors beyond our control could adversely affect consumer spending, result in decreased demand for homes and adversely affect our business. We believe continued strong employment levels, access to financing and strong consumer confidence will be necessary to increase household formation business. We believe continued strong employment levels, access to financing and strong consumer confidence will be necessary to increase household formation rates. We believe improved household formation rates in turn will increase demand for housing and stimulate new construction. rates. We believe improved household formation rates in turn will increase demand for housing and stimulate new construction. Commodity nature of our products Commodity nature of our products Many of the building products we distribute, including lumber, OSB, plywood and particleboard, are commodities that are widely available from other Many of the building products we distribute, including lumber, OSB, plywood and particleboard, are commodities that are widely available from other manufacturers or distributors with prices and volumes determined frequently based on participants’ perceptions of short-term supply and demand factors. manufacturers or distributors with prices and volumes determined frequently based on participants’ perceptions of short-term supply and demand factors. As discussed above, on December 1, 2015, SBS completed the Merger with privately-held BMHC in accordance with the terms of the Merger Agreement, pursuant As discussed above, on December 1, 2015, SBS completed the Merger with privately-held BMHC in accordance with the terms of the Merger Agreement, pursuant 27 27 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with Item 6. “Selected Financial Data” and our consolidated financial statements and the The following discussion and analysis should be read in conjunction with Item 6. “Selected Financial Data” and our consolidated financial statements and the related notes to those statements included in Item 8. “Financial Statements and Supplementary Data.” The following discussion contains, in addition to historical related notes to those statements included in Item 8. “Financial Statements and Supplementary Data.” The following discussion contains, in addition to historical information, forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these information, forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under the heading Item 1A. “Risk Factors” and elsewhere in this report. forward-looking statements as a result of many factors, including those set forth under the heading Item 1A. “Risk Factors” and elsewhere in this report. Overview Overview of the Merger. of the Merger. On December 1, 2015, SBS completed the Merger with privately-held BMHC in accordance with the terms of the Merger Agreement, pursuant to which BMHC On December 1, 2015, SBS completed the Merger with privately-held BMHC in accordance with the terms of the Merger Agreement, pursuant to which BMHC merged with and into SBS. SBS survived the Merger and in connection therewith changed its name to “BMC Stock Holdings, Inc.” The financial statements merged with and into SBS. SBS survived the Merger and in connection therewith changed its name to “BMC Stock Holdings, Inc.” The financial statements represent the financial statements of BMC Stock Holdings, Inc. and its subsidiaries. represent the financial statements of BMC Stock Holdings, Inc. and its subsidiaries. Under generally accepted accounting principles in the United States, the Merger was treated as a “reverse merger” under the acquisition method of accounting. For Under generally accepted accounting principles in the United States, the Merger was treated as a “reverse merger” under the acquisition method of accounting. For accounting purposes, BMHC is considered to have acquired SBS. Consequently, the historical financial statements of the Company reflect only the operations and accounting purposes, BMHC is considered to have acquired SBS. Consequently, the historical financial statements of the Company reflect only the operations and financial condition of BMHC prior to the Merger. The operating results of SBS are included as part of the Company's reported results beginning on the closing date financial condition of BMHC prior to the Merger. The operating results of SBS are included as part of the Company's reported results beginning on the closing date We are one of the leading providers of diversified building products and services in the U.S. residential construction market. Our objective is to provide best-in- We are one of the leading providers of diversified building products and services in the U.S. residential construction market. Our objective is to provide best-in- class customer service and value-added products to our customers, which are primarily single- and multi-family home builders and professional remodelers. Our class customer service and value-added products to our customers, which are primarily single- and multi-family home builders and professional remodelers. Our product offerings include lumber and lumber sheet goods and an array of value-added products including millwork, doors, windows and structural components product offerings include lumber and lumber sheet goods and an array of value-added products including millwork, doors, windows and structural components such as EWP, floor and roof trusses and wall panels. Our whole-house framing solution, Ready-Frame ®, which is one of our fastest growing product offerings, such as EWP, floor and roof trusses and wall panels. Our whole-house framing solution, Ready-Frame ®, which is one of our fastest growing product offerings, saves builders both time and money and improves job site safety. We also offer our customers important services such as design, product specification, installation saves builders both time and money and improves job site safety. We also offer our customers important services such as design, product specification, installation and installation management. and installation management. As part of our initiatives to execute our strategic plan, including growing our value-added product and service offerings and expanding our presence in the As part of our initiatives to execute our strategic plan, including growing our value-added product and service offerings and expanding our presence in the professional remodeling space, we plan to expand our business through organic and acquisitive means. The 18 states in which we operate accounted for professional remodeling space, we plan to expand our business through organic and acquisitive means. The 18 states in which we operate accounted for approximately 65% of 2017 U.S. single-family housing permits according to the U.S. Census Bureau. In these 18 states, we operate in 43 metropolitan areas, approximately 65% of 2017 U.S. single-family housing permits according to the U.S. Census Bureau. In these 18 states, we operate in 43 metropolitan areas, which accounted for approximately half of the permits issued in those states, according to the U.S. Census Bureau, providing significant opportunity for growth. which accounted for approximately half of the permits issued in those states, according to the U.S. Census Bureau, providing significant opportunity for growth. Our net sales for the year ended December 31, 2017 increased 8.8% compared to the year ended December 31, 2016 . We estimate net sales increased 2.8% due to Our net sales for the year ended December 31, 2017 increased 8.8% compared to the year ended December 31, 2016 . We estimate net sales increased 2.8% due to organic sales volume, 1.8% due to the acquisitions of Code Plus Components, LLC ("Code Plus") and Texas Plywood & Lumber Company, Inc. ("TexPly") and organic sales volume, 1.8% due to the acquisitions of Code Plus Components, LLC ("Code Plus") and Texas Plywood & Lumber Company, Inc. ("TexPly") and 4.2% due to commodity price inflation. Our gross margin was 23.6% for the year ended December 31, 2017 compared to 24.0% for the prior year period. We 4.2% due to commodity price inflation. Our gross margin was 23.6% for the year ended December 31, 2017 compared to 24.0% for the prior year period. We recorded income from operations of $101.2 million during the year ended December 31, 2017 , compared with $83.7 million during the year ended December 31, recorded income from operations of $101.2 million during the year ended December 31, 2017 , compared with $83.7 million during the year ended December 31, 2016 . See further discussion in “-Operating Results” below. 2016 . See further discussion in “-Operating Results” below. Factors Affecting Our Operating Results Factors Affecting Our Operating Results Our operating results and financial performance are influenced by a variety of factors, including, among others, acquisitions, conditions in the housing market and Our operating results and financial performance are influenced by a variety of factors, including, among others, acquisitions, conditions in the housing market and economic conditions generally, changes in the cost of the products we sell (particularly commodity products), pricing policies of our competitors, production economic conditions generally, changes in the cost of the products we sell (particularly commodity products), pricing policies of our competitors, production schedules of our customers and seasonality. Some of the more important factors are briefly discussed below. schedules of our customers and seasonality. Some of the more important factors are briefly discussed below. On April 3, 2017, the Company completed the acquisition of TexPly, a supplier of production millwork and doors in the Dallas-Fort Worth area, for a purchase On April 3, 2017, the Company completed the acquisition of TexPly, a supplier of production millwork and doors in the Dallas-Fort Worth area, for a purchase price of $31.7 million , including the purchase of real estate. price of $31.7 million , including the purchase of real estate. On March 27, 2017, the Company completed the acquisition of Code Plus, a truss manufacturer located in Martinsburg, West Virginia serving the Washington DC On March 27, 2017, the Company completed the acquisition of Code Plus, a truss manufacturer located in Martinsburg, West Virginia serving the Washington DC Merger and acquisitions Merger and acquisitions market, for a purchase price of $7.1 million . market, for a purchase price of $7.1 million . to which BMHC merged with and into SBS. to which BMHC merged with and into SBS. 26 26 The following table reflects changes in the average composite framing lumber prices (per thousand board feet) and average composite structural panel prices (per The following table reflects changes in the average composite framing lumber prices (per thousand board feet) and average composite structural panel prices (per thousand square feet). These prices represent transactions between manufacturers and their customers as reported by Random Lengths and may differ in magnitude thousand square feet). These prices represent transactions between manufacturers and their customers as reported by Random Lengths and may differ in magnitude or timing from the actual selling prices or cost of goods reported in our operating results. The average composite structural panel prices are based on index prices or timing from the actual selling prices or cost of goods reported in our operating results. The average composite structural panel prices are based on index prices for OSB and plywood. for OSB and plywood. Changes in customer sales mix Changes in customer sales mix Framing lumber prices Framing lumber prices Structural panel prices Structural panel prices Year Ended December 31, Year Ended December 31, 2017 Versus 2017 Versus 2016 2016 2017 Average 2017 Average Price Price 2016 Versus 2016 Versus 2015 2015 2016 Average 2016 Average Price Price 2015 Versus 2015 Versus 2014 2014 2015 Average 2015 Average Price Price 19% $ 19% $ 18% $ 18% $ 413 413 437 437 5% $ 5% $ 1% $ 1% $ 346 346 370 370 (14)% $ (14)% $ (5)% $ (5)% $ 330 330 365 365 Periods of increasing prices provide the opportunity for higher sales and increased gross profit, while periods of declining prices may result in declines in sales and Periods of increasing prices provide the opportunity for higher sales and increased gross profit, while periods of declining prices may result in declines in sales and profitability. In particular, low market prices for wood products over a sustained period can adversely affect our financial condition, operating results and cash profitability. In particular, low market prices for wood products over a sustained period can adversely affect our financial condition, operating results and cash flows, as can excessive spikes in market prices. For further discussion of the impact of commodity prices on historical periods, see “-Operating Results.” flows, as can excessive spikes in market prices. For further discussion of the impact of commodity prices on historical periods, see “-Operating Results.” Consolidation of production homebuilders Consolidation of production homebuilders Over the past ten years, the homebuilding industry has undergone consolidation and many production homebuilders have increased their market share. We expect Over the past ten years, the homebuilding industry has undergone consolidation and many production homebuilders have increased their market share. We expect that trend to continue as larger homebuilders have better liquidity and land positions relative to the smaller, less capitalized homebuilders. Our focus is on that trend to continue as larger homebuilders have better liquidity and land positions relative to the smaller, less capitalized homebuilders. Our focus is on maintaining relationships and market share with these customers while balancing the competitive pressures we face in our markets with certain profitability maintaining relationships and market share with these customers while balancing the competitive pressures we face in our markets with certain profitability expectations. We expect that our ability to maintain strong relationships with the largest production homebuilders will be vital to our ability to expand into new expectations. We expect that our ability to maintain strong relationships with the largest production homebuilders will be vital to our ability to expand into new markets as well as grow our market share. While we generate significant sales from these homebuilders, our gross margins on sales to them tend to be lower than markets as well as grow our market share. While we generate significant sales from these homebuilders, our gross margins on sales to them tend to be lower than our gross margins on sales to other market segments. This could impact our gross margins if the market share held by the largest production homebuilders our gross margins on sales to other market segments. This could impact our gross margins if the market share held by the largest production homebuilders continues to increase. continues to increase. Freight costs and fuel charges Freight costs and fuel charges Our ability to control expenses Our ability to control expenses We pay close attention to managing our working capital and operating expenses. We employ a LEAN process operating philosophy, which encourages continuous We pay close attention to managing our working capital and operating expenses. We employ a LEAN process operating philosophy, which encourages continuous improvement in our core processes to minimize waste, improve customer service, increase expense productivity, improve working capital and maximize improvement in our core processes to minimize waste, improve customer service, increase expense productivity, improve working capital and maximize profitability and cash flow. We regularly analyze our workforce productivity to achieve the optimum, cost-efficient labor mix for our facilities. Further, we pay profitability and cash flow. We regularly analyze our workforce productivity to achieve the optimum, cost-efficient labor mix for our facilities. Further, we pay careful attention to our logistics function and have implemented GPS-enabled telematics technology across our delivery fleet to improve customer service, driver careful attention to our logistics function and have implemented GPS-enabled telematics technology across our delivery fleet to improve customer service, driver safety and the productivity of our shipping and handling costs. safety and the productivity of our shipping and handling costs. Mix of products sold Mix of products sold We typically realize greater gross margins on more highly engineered and customized products, or ancillary products that are often purchased based on We typically realize greater gross margins on more highly engineered and customized products, or ancillary products that are often purchased based on convenience and are therefore less price sensitive to our customers. For example, sales of lumber & lumber sheet goods tend to generate lower gross margins due convenience and are therefore less price sensitive to our customers. For example, sales of lumber & lumber sheet goods tend to generate lower gross margins due to their commodity nature and the relatively low switching costs of sourcing those products from different suppliers. Structural components and millwork, doors & to their commodity nature and the relatively low switching costs of sourcing those products from different suppliers. Structural components and millwork, doors & windows often generate higher gross margins relative to other products. Homebuilders often use structural components in order to realize increased efficiency and windows often generate higher gross margins relative to other products. Homebuilders often use structural components in order to realize increased efficiency and improved quality. We believe shortening cycle time from start to completion is a key goal of homebuilders during periods of strong consumer demand or limited improved quality. We believe shortening cycle time from start to completion is a key goal of homebuilders during periods of strong consumer demand or limited availability of framing labor. As the residential new construction market continues to strengthen, we expect the use of structural components by homebuilders to availability of framing labor. As the residential new construction market continues to strengthen, we expect the use of structural components by homebuilders to increase. increase. 28 28 Our operating results may vary according to the amount and type of products we sell to each of our primary customer types: new single-family homebuilders, Our operating results may vary according to the amount and type of products we sell to each of our primary customer types: new single-family homebuilders, professional remodeling contractors, and multi-family builders and light commercial builders. The following table reflects our estimate of net sales by each professional remodeling contractors, and multi-family builders and light commercial builders. The following table reflects our estimate of net sales by each customer type. Certain prior year amounts have been reclassified to conform to the current year presentation. customer type. Certain prior year amounts have been reclassified to conform to the current year presentation. (in thousands) (in thousands) Single-family homebuilders Single-family homebuilders Professional remodeling contractors Professional remodeling contractors Other (including multi-family & light Other (including multi-family & light commercial builders) commercial builders) Total net sales Total net sales 2017 2017 2016 2016 2015 2015 Net Sales Net Sales % of Sales % of Sales Net Sales Net Sales % of Sales % of Sales Net Sales Net Sales % of Sales % of Sales % Change % Change vs. 2016 vs. 2016 % Change % Change vs. 2015 vs. 2015 $ $ 2,523,572 2,523,572 379,933 379,933 75.0% 75.0% 11.3% 11.3% 11.6% $ 11.6% $ 2,262,124 2,262,124 2.4% 2.4% 371,018 371,018 73.1% 73.1% 12.0% 12.0% 79.7% $ 79.7% $ 1,258,938 1,258,938 174.5% 174.5% 135,184 135,184 462,463 462,463 13.7% 13.7% 0.4% 0.4% 460,601 460,601 14.9% 14.9% 152.2% 152.2% 182,624 182,624 79.8% 79.8% 8.6% 8.6% 11.6% 11.6% $ $ 3,365,968 3,365,968 100.0% 100.0% 8.8% $ 8.8% $ 3,093,743 3,093,743 100.0% 100.0% 96.2% $ 96.2% $ 1,576,746 1,576,746 100.0% 100.0% We tend to realize higher gross margins on sales to remodeling contractors due to the smaller product volumes purchased by those customers, as well as the more We tend to realize higher gross margins on sales to remodeling contractors due to the smaller product volumes purchased by those customers, as well as the more customized nature of the projects those customers generally undertake. Gross margins on sales to single-family, multi-family and light commercial customers can customized nature of the projects those customers generally undertake. Gross margins on sales to single-family, multi-family and light commercial customers can vary based on a variety of factors, including the purchase volumes of the individual customer, the mix of products sold to that customer, the size and selling price vary based on a variety of factors, including the purchase volumes of the individual customer, the mix of products sold to that customer, the size and selling price of the project being constructed and the number of upgrades added to the project before or during its construction. of the project being constructed and the number of upgrades added to the project before or during its construction. A portion of our shipping and handling costs is comprised of diesel and other fuels purchased for our delivery fleet and handling equipment. According to the U.S. A portion of our shipping and handling costs is comprised of diesel and other fuels purchased for our delivery fleet and handling equipment. According to the U.S. Energy Information Administration, the average retail price per gallon for No. 2 diesel fuel was $2.65, $2.31 and $2.71 for the years ended December 31, 2017 , Energy Information Administration, the average retail price per gallon for No. 2 diesel fuel was $2.65, $2.31 and $2.71 for the years ended December 31, 2017 , 2016 and 2015 , respectively. For the year ended December 31, 2017 , we incurred costs of approximately $14.8 million within selling, general and administrative 2016 and 2015 , respectively. For the year ended December 31, 2017 , we incurred costs of approximately $14.8 million within selling, general and administrative expenses for diesel and other fuels used for our delivery fleet and handling equipment. Future increases in the cost of fuel, or inbound freight costs for the products expenses for diesel and other fuels used for our delivery fleet and handling equipment. Future increases in the cost of fuel, or inbound freight costs for the products we purchase, could impact our operating results and cash flows if we are unable to pass along these cost increases to our customers through increased prices. we purchase, could impact our operating results and cash flows if we are unable to pass along these cost increases to our customers through increased prices. 29 29 The following table reflects changes in the average composite framing lumber prices (per thousand board feet) and average composite structural panel prices (per The following table reflects changes in the average composite framing lumber prices (per thousand board feet) and average composite structural panel prices (per Changes in customer sales mix Changes in customer sales mix thousand square feet). These prices represent transactions between manufacturers and their customers as reported by Random Lengths and may differ in magnitude thousand square feet). These prices represent transactions between manufacturers and their customers as reported by Random Lengths and may differ in magnitude or timing from the actual selling prices or cost of goods reported in our operating results. The average composite structural panel prices are based on index prices or timing from the actual selling prices or cost of goods reported in our operating results. The average composite structural panel prices are based on index prices for OSB and plywood. for OSB and plywood. Framing lumber prices Framing lumber prices Structural panel prices Structural panel prices Year Ended December 31, Year Ended December 31, 2017 Versus 2017 Versus 2017 Average 2017 Average 2016 Versus 2016 Versus 2016 Average 2016 Average 2015 Versus 2015 Versus 2015 Average 2015 Average 2016 2016 Price Price 2015 2015 Price Price 2014 2014 Price Price 19% $ 19% $ 18% $ 18% $ 413 413 437 437 5% $ 5% $ 1% $ 1% $ 346 346 370 370 (14)% $ (14)% $ (5)% $ (5)% $ 330 330 365 365 Periods of increasing prices provide the opportunity for higher sales and increased gross profit, while periods of declining prices may result in declines in sales and Periods of increasing prices provide the opportunity for higher sales and increased gross profit, while periods of declining prices may result in declines in sales and profitability. In particular, low market prices for wood products over a sustained period can adversely affect our financial condition, operating results and cash profitability. In particular, low market prices for wood products over a sustained period can adversely affect our financial condition, operating results and cash flows, as can excessive spikes in market prices. For further discussion of the impact of commodity prices on historical periods, see “-Operating Results.” flows, as can excessive spikes in market prices. For further discussion of the impact of commodity prices on historical periods, see “-Operating Results.” Consolidation of production homebuilders Consolidation of production homebuilders Over the past ten years, the homebuilding industry has undergone consolidation and many production homebuilders have increased their market share. We expect Over the past ten years, the homebuilding industry has undergone consolidation and many production homebuilders have increased their market share. We expect that trend to continue as larger homebuilders have better liquidity and land positions relative to the smaller, less capitalized homebuilders. Our focus is on that trend to continue as larger homebuilders have better liquidity and land positions relative to the smaller, less capitalized homebuilders. Our focus is on maintaining relationships and market share with these customers while balancing the competitive pressures we face in our markets with certain profitability maintaining relationships and market share with these customers while balancing the competitive pressures we face in our markets with certain profitability expectations. We expect that our ability to maintain strong relationships with the largest production homebuilders will be vital to our ability to expand into new expectations. We expect that our ability to maintain strong relationships with the largest production homebuilders will be vital to our ability to expand into new markets as well as grow our market share. While we generate significant sales from these homebuilders, our gross margins on sales to them tend to be lower than markets as well as grow our market share. While we generate significant sales from these homebuilders, our gross margins on sales to them tend to be lower than our gross margins on sales to other market segments. This could impact our gross margins if the market share held by the largest production homebuilders our gross margins on sales to other market segments. This could impact our gross margins if the market share held by the largest production homebuilders continues to increase. continues to increase. Our ability to control expenses Our ability to control expenses We pay close attention to managing our working capital and operating expenses. We employ a LEAN process operating philosophy, which encourages continuous We pay close attention to managing our working capital and operating expenses. We employ a LEAN process operating philosophy, which encourages continuous improvement in our core processes to minimize waste, improve customer service, increase expense productivity, improve working capital and maximize improvement in our core processes to minimize waste, improve customer service, increase expense productivity, improve working capital and maximize profitability and cash flow. We regularly analyze our workforce productivity to achieve the optimum, cost-efficient labor mix for our facilities. Further, we pay profitability and cash flow. We regularly analyze our workforce productivity to achieve the optimum, cost-efficient labor mix for our facilities. Further, we pay careful attention to our logistics function and have implemented GPS-enabled telematics technology across our delivery fleet to improve customer service, driver careful attention to our logistics function and have implemented GPS-enabled telematics technology across our delivery fleet to improve customer service, driver safety and the productivity of our shipping and handling costs. safety and the productivity of our shipping and handling costs. Mix of products sold Mix of products sold We typically realize greater gross margins on more highly engineered and customized products, or ancillary products that are often purchased based on We typically realize greater gross margins on more highly engineered and customized products, or ancillary products that are often purchased based on convenience and are therefore less price sensitive to our customers. For example, sales of lumber & lumber sheet goods tend to generate lower gross margins due convenience and are therefore less price sensitive to our customers. For example, sales of lumber & lumber sheet goods tend to generate lower gross margins due to their commodity nature and the relatively low switching costs of sourcing those products from different suppliers. Structural components and millwork, doors & to their commodity nature and the relatively low switching costs of sourcing those products from different suppliers. Structural components and millwork, doors & windows often generate higher gross margins relative to other products. Homebuilders often use structural components in order to realize increased efficiency and windows often generate higher gross margins relative to other products. Homebuilders often use structural components in order to realize increased efficiency and improved quality. We believe shortening cycle time from start to completion is a key goal of homebuilders during periods of strong consumer demand or limited improved quality. We believe shortening cycle time from start to completion is a key goal of homebuilders during periods of strong consumer demand or limited availability of framing labor. As the residential new construction market continues to strengthen, we expect the use of structural components by homebuilders to availability of framing labor. As the residential new construction market continues to strengthen, we expect the use of structural components by homebuilders to increase. increase. 28 28 Our operating results may vary according to the amount and type of products we sell to each of our primary customer types: new single-family homebuilders, Our operating results may vary according to the amount and type of products we sell to each of our primary customer types: new single-family homebuilders, professional remodeling contractors, and multi-family builders and light commercial builders. The following table reflects our estimate of net sales by each professional remodeling contractors, and multi-family builders and light commercial builders. The following table reflects our estimate of net sales by each customer type. Certain prior year amounts have been reclassified to conform to the current year presentation. customer type. Certain prior year amounts have been reclassified to conform to the current year presentation. (in thousands) (in thousands) Single-family homebuilders Single-family homebuilders Professional remodeling contractors Professional remodeling contractors Other (including multi-family & light Other (including multi-family & light commercial builders) commercial builders) 2017 2017 2016 2016 2015 2015 Net Sales Net Sales % of Sales % of Sales % Change % Change vs. 2016 vs. 2016 Net Sales Net Sales % of Sales % of Sales % Change % Change vs. 2015 vs. 2015 Net Sales Net Sales % of Sales % of Sales $ $ 2,523,572 2,523,572 379,933 379,933 75.0% 75.0% 11.3% 11.3% 11.6% $ 11.6% $ 2,262,124 2,262,124 2.4% 2.4% 371,018 371,018 73.1% 73.1% 12.0% 12.0% 79.7% $ 79.7% $ 1,258,938 1,258,938 174.5% 174.5% 135,184 135,184 462,463 462,463 13.7% 13.7% 0.4% 0.4% 460,601 460,601 14.9% 14.9% 152.2% 152.2% 182,624 182,624 79.8% 79.8% 8.6% 8.6% 11.6% 11.6% Total net sales Total net sales $ $ 3,365,968 3,365,968 100.0% 100.0% 8.8% $ 8.8% $ 3,093,743 3,093,743 100.0% 100.0% 96.2% $ 96.2% $ 1,576,746 1,576,746 100.0% 100.0% We tend to realize higher gross margins on sales to remodeling contractors due to the smaller product volumes purchased by those customers, as well as the more We tend to realize higher gross margins on sales to remodeling contractors due to the smaller product volumes purchased by those customers, as well as the more customized nature of the projects those customers generally undertake. Gross margins on sales to single-family, multi-family and light commercial customers can customized nature of the projects those customers generally undertake. Gross margins on sales to single-family, multi-family and light commercial customers can vary based on a variety of factors, including the purchase volumes of the individual customer, the mix of products sold to that customer, the size and selling price vary based on a variety of factors, including the purchase volumes of the individual customer, the mix of products sold to that customer, the size and selling price of the project being constructed and the number of upgrades added to the project before or during its construction. of the project being constructed and the number of upgrades added to the project before or during its construction. Freight costs and fuel charges Freight costs and fuel charges A portion of our shipping and handling costs is comprised of diesel and other fuels purchased for our delivery fleet and handling equipment. According to the U.S. A portion of our shipping and handling costs is comprised of diesel and other fuels purchased for our delivery fleet and handling equipment. According to the U.S. Energy Information Administration, the average retail price per gallon for No. 2 diesel fuel was $2.65, $2.31 and $2.71 for the years ended December 31, 2017 , Energy Information Administration, the average retail price per gallon for No. 2 diesel fuel was $2.65, $2.31 and $2.71 for the years ended December 31, 2017 , 2016 and 2015 , respectively. For the year ended December 31, 2017 , we incurred costs of approximately $14.8 million within selling, general and administrative 2016 and 2015 , respectively. For the year ended December 31, 2017 , we incurred costs of approximately $14.8 million within selling, general and administrative expenses for diesel and other fuels used for our delivery fleet and handling equipment. Future increases in the cost of fuel, or inbound freight costs for the products expenses for diesel and other fuels used for our delivery fleet and handling equipment. Future increases in the cost of fuel, or inbound freight costs for the products we purchase, could impact our operating results and cash flows if we are unable to pass along these cost increases to our customers through increased prices. we purchase, could impact our operating results and cash flows if we are unable to pass along these cost increases to our customers through increased prices. 29 29 Operating Results Operating Results The impact of commodity price inflation during the year ended December 31, 2017 contributed to the increase in net sales in our lumber & lumber sheet goods and The impact of commodity price inflation during the year ended December 31, 2017 contributed to the increase in net sales in our lumber & lumber sheet goods and The following tables set forth our operating results in dollars and as a percentage of net sales for the periods indicated: The following tables set forth our operating results in dollars and as a percentage of net sales for the periods indicated: (in thousands) (in thousands) Net sales Net sales Cost of sales Cost of sales Gross profit Gross profit Operating expenses: Operating expenses: Year Ended December 31, Year Ended December 31, 2017 2017 2016 2016 2015 2015 $ $ 3,365,968 3,365,968 100.0 % $ 100.0 % $ 3,093,743 3,093,743 100.0 % $ 100.0 % $ 1,576,746 1,576,746 100.0 % 100.0 % 2,570,453 2,570,453 795,515 795,515 76.4 % 76.4 % 23.6 % 23.6 % 2,351,778 2,351,778 741,965 741,965 76.0 % 76.0 % 24.0 % 24.0 % 1,215,336 1,215,336 361,410 361,410 77.1 % 77.1 % 22.9 % 22.9 % For the year ended December 31, 2017 , cost of sales increased $218.7 million , or 9.3% , to $2,570.5 million from $2,351.8 million during the year ended For the year ended December 31, 2017 , cost of sales increased $218.7 million , or 9.3% , to $2,570.5 million from $2,351.8 million during the year ended December 31, 2016 . Cost of sales for the year ended December 31, 2016 includes $2.9 million of expense incurred in relation to the sell-through of inventory December 31, 2016 . Cost of sales for the year ended December 31, 2016 includes $2.9 million of expense incurred in relation to the sell-through of inventory which was stepped up in value in connection with the Merger. We estimate our cost of sales increased approximately 5.0% as a result of commodity cost inflation, which was stepped up in value in connection with the Merger. We estimate our cost of sales increased approximately 5.0% as a result of commodity cost inflation, 2.8% as a result of increased sales volumes related to existing operations and 1.6% related to the acquisitions of Code Plus and TexPly, partially offset by a 0.1% 2.8% as a result of increased sales volumes related to existing operations and 1.6% related to the acquisitions of Code Plus and TexPly, partially offset by a 0.1% decrease as a result of the sell-through of inventory which was stepped up in value. decrease as a result of the sell-through of inventory which was stepped up in value. Selling, general and administrative expenses Selling, general and administrative expenses 619,546 619,546 18.4 % 18.4 % 571,799 571,799 18.5 % 18.5 % 306,843 306,843 19.5 % 19.5 % Depreciation expense Depreciation expense Amortization expense Amortization expense Merger and integration costs Merger and integration costs Impairment of assets Impairment of assets Income from operations Income from operations Other income (expenses) Other income (expenses) Interest expense Interest expense Loss on debt extinguishment Loss on debt extinguishment Other income, net Other income, net Income (loss) before income taxes Income (loss) before income taxes Income tax expense (benefit) Income tax expense (benefit) Net income (loss) Net income (loss) $ $ 2017 compared to 2016 2017 compared to 2016 Net sales Net sales 43,022 43,022 16,003 16,003 15,336 15,336 435 435 101,173 101,173 1.3 % 1.3 % 0.5 % 0.5 % 0.5 % 0.5 % 0.0 % 0.0 % 3.0 % 3.0 % (25,036) (25,036) (0.7)% (0.7)% — — 5,690 5,690 81,827 81,827 24,402 24,402 57,425 57,425 0.0 % 0.0 % 0.2 % 0.2 % 2.4 % 2.4 % 0.7 % 0.7 % 1.7 % $ 1.7 % $ 38,441 38,441 20,721 20,721 15,340 15,340 11,928 11,928 83,736 83,736 (30,131) (30,131) (12,529) (12,529) 4,070 4,070 45,146 45,146 14,266 14,266 30,880 30,880 1.2 % 1.2 % 0.7 % 0.7 % 0.5 % 0.5 % 0.4 % 0.4 % 2.7 % 2.7 % (1.0)% (1.0)% (0.4)% (0.4)% 0.1 % 0.1 % 1.5 % 1.5 % 0.5 % 0.5 % 1.0 % $ 1.0 % $ 15,700 15,700 3,626 3,626 22,993 22,993 — — 12,248 12,248 (27,552) (27,552) — — 784 784 (14,520) (14,520) (9,689) (9,689) (4,831) (4,831) 1.0 % 1.0 % 0.2 % 0.2 % 1.5 % 1.5 % 0.0 % 0.0 % 0.8 % 0.8 % (1.7)% (1.7)% 0.0 % 0.0 % 0.0 % 0.0 % (0.9)% (0.9)% (0.6)% (0.6)% (0.3)% (0.3)% For the year ended December 31, 2017 , net sales increased $272.2 million , or 8.8% , to $3,366.0 million from $3,093.7 million during the year ended December For the year ended December 31, 2017 , net sales increased $272.2 million , or 8.8% , to $3,366.0 million from $3,093.7 million during the year ended December 31, 2016 . The increase in net sales was primarily driven by the impact of commodity price inflation of approximately 4.2% and increased volume of 31, 2016 . The increase in net sales was primarily driven by the impact of commodity price inflation of approximately 4.2% and increased volume of approximately 2.8% related to existing operations, while the acquisitions of Code Plus and TexPly increased net sales by approximately 1.8% . approximately 2.8% related to existing operations, while the acquisitions of Code Plus and TexPly increased net sales by approximately 1.8% . We estimate approximately 75% of our net sales for the year ended December 31, 2017 were to customers engaged in new single-family construction. According We estimate approximately 75% of our net sales for the year ended December 31, 2017 were to customers engaged in new single-family construction. According to the U.S. Census Bureau, single-family housing starts in the South and West regions of the United States, which are our primary operating regions, increased to the U.S. Census Bureau, single-family housing starts in the South and West regions of the United States, which are our primary operating regions, increased approximately 9.4% for the year ended December 31, 2017 as compared to the prior year, while single-family houses completed increased 8.7% during the same approximately 9.4% for the year ended December 31, 2017 as compared to the prior year, while single-family houses completed increased 8.7% during the same time period. Increases in net sales from Texas and California accounted for approximately 42% of the total increase in net sales for the year ended December 31, time period. Increases in net sales from Texas and California accounted for approximately 42% of the total increase in net sales for the year ended December 31, 2017 , while the Company experienced a decrease in net sales in Georgia of less than 1% of overall net sales. 2017 , while the Company experienced a decrease in net sales in Georgia of less than 1% of overall net sales. The following table shows net sales classified by major product category. Certain prior year amounts have been reclassified to conform to the current year The following table shows net sales classified by major product category. Certain prior year amounts have been reclassified to conform to the current year presentation. presentation. (in thousands) (in thousands) Structural components Structural components Lumber & lumber sheet goods Lumber & lumber sheet goods Millwork, doors & windows Millwork, doors & windows Other building products & services Other building products & services Total net sales Total net sales 2017 2017 2016 2016 Net Sales Net Sales % of Sales % of Sales Net Sales Net Sales % of Sales % of Sales % Change % Change $ $ 522,619 522,619 1,114,219 1,114,219 907,377 907,377 821,753 821,753 15.5% $ 15.5% $ 33.1% 33.1% 27.0% 27.0% 24.4% 24.4% 461,761 461,761 938,563 938,563 894,889 894,889 798,530 798,530 14.9% 14.9% 30.3% 30.3% 28.9% 28.9% 25.9% 25.9% $ $ 3,365,968 3,365,968 100.0% $ 100.0% $ 3,093,743 3,093,743 100.0% 100.0% 13.2% 13.2% 18.7% 18.7% 1.4% 1.4% 2.9% 2.9% 8.8% 8.8% 30 30 structural components product categories. structural components product categories. Cost of sales Cost of sales Gross profit Gross profit with the Merger. with the Merger. Operating expenses Operating expenses For the year ended December 31, 2017 : For the year ended December 31, 2017 : For the year ended December 31, 2017 , gross profit increased $53.6 million , or 7.2% , to $795.5 million from $742.0 million for the year ended December 31, For the year ended December 31, 2017 , gross profit increased $53.6 million , or 7.2% , to $795.5 million from $742.0 million for the year ended December 31, 2016 , driven primarily by increased sales volumes and commodity price inflation. Our gross margin was 23.6% for the year ended December 31, 2017 and 24.0% 2016 , driven primarily by increased sales volumes and commodity price inflation. Our gross margin was 23.6% for the year ended December 31, 2017 and 24.0% for the year ended December 31, 2016 . This decline resulted primarily from a decline in gross margin in lumber & lumber sheet goods and structural components for the year ended December 31, 2016 . This decline resulted primarily from a decline in gross margin in lumber & lumber sheet goods and structural components and a greater percentage of total net sales derived from lumber & lumber sheet goods, which generally generate lower margins. Gross profit for the year ended and a greater percentage of total net sales derived from lumber & lumber sheet goods, which generally generate lower margins. Gross profit for the year ended December 31, 2016 was impacted by $2.9 million, or 0.1% of net sales, in relation to the sell-through of inventory which was stepped up in value in connection December 31, 2016 was impacted by $2.9 million, or 0.1% of net sales, in relation to the sell-through of inventory which was stepped up in value in connection • • selling, general and administrative expenses increased $47.7 million , or 8.4% , to $619.5 million , or 18.4% of net sales, from $571.8 million , or 18.5% selling, general and administrative expenses increased $47.7 million , or 8.4% , to $619.5 million , or 18.4% of net sales, from $571.8 million , or 18.5% of net sales, for the year ended December 31, 2016 . Approximately $16.5 million of this increase related to increased shipping and handling costs to of net sales, for the year ended December 31, 2016 . Approximately $16.5 million of this increase related to increased shipping and handling costs to serve higher sales volumes related to existing operations, $12.5 million related to selling, general and administrative expenses of TexPly and Code Plus, serve higher sales volumes related to existing operations, $12.5 million related to selling, general and administrative expenses of TexPly and Code Plus, $5.6 million related to an increase in the provision for workers' compensation claims and $5.5 million related to increased health care costs. The $5.6 million related to an increase in the provision for workers' compensation claims and $5.5 million related to increased health care costs. The remaining increase was primarily due to costs associated with five newly-opened facilities of approximately $4.7 million. remaining increase was primarily due to costs associated with five newly-opened facilities of approximately $4.7 million. • • • • • • depreciation expense increased $4.6 million , or 11.9% , to $43.0 million from $38.4 million during the year ended December 31, 2016 . This increase depreciation expense increased $4.6 million , or 11.9% , to $43.0 million from $38.4 million during the year ended December 31, 2016 . This increase primarily relates to replacements and additions of delivery fleet, material handling equipment and operating equipment. primarily relates to replacements and additions of delivery fleet, material handling equipment and operating equipment. amortization expense was $16.0 million compared to $20.7 million in the prior year. This decrease resulted from certain intangible assets that became amortization expense was $16.0 million compared to $20.7 million in the prior year. This decrease resulted from certain intangible assets that became fully amortized in 2016, partially offset by the amortization of intangible assets acquired in the Code Plus and TexPly acquisitions. fully amortized in 2016, partially offset by the amortization of intangible assets acquired in the Code Plus and TexPly acquisitions. the Company incurred $15.3 million of Merger and integration costs related to the ongoing integration of BMHC and SBS, consisting primarily of the Company incurred $15.3 million of Merger and integration costs related to the ongoing integration of BMHC and SBS, consisting primarily of severance, system integration costs and professional fees compared to $15.3 million for the year ended December 31, 2016 . During the year ended severance, system integration costs and professional fees compared to $15.3 million for the year ended December 31, 2016 . During the year ended December 31, 2017, the Company recognized approximately $2.8 million of expense related to the discontinuance of the new third-party software BMHC December 31, 2017, the Company recognized approximately $2.8 million of expense related to the discontinuance of the new third-party software BMHC selected in 2013 for its planned Enterprise Resource Planning system ("New ERP") (see Note 6 to the consolidated financial statements included in Item 8 selected in 2013 for its planned Enterprise Resource Planning system ("New ERP") (see Note 6 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further description of the New ERP). of this Annual Report on Form 10-K for further description of the New ERP). • • the Company recognized asset impairment charges of $0.4 million related to the write down of real estate held for sale to the lower of depreciated cost or the Company recognized asset impairment charges of $0.4 million related to the write down of real estate held for sale to the lower of depreciated cost or estimated fair value less expected disposition costs. During the year ended December 31, 2016, the Company decided to integrate all operations under the estimated fair value less expected disposition costs. During the year ended December 31, 2016, the Company decided to integrate all operations under the ERP system utilized by Legacy SBS, and to discontinue use of the New ERP (see Note 6 to the consolidated financial statements included in Item 8 of ERP system utilized by Legacy SBS, and to discontinue use of the New ERP (see Note 6 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further description of the New ERP). In connection with this decision, the Company impaired capitalized software this Annual Report on Form 10-K for further description of the New ERP). In connection with this decision, the Company impaired capitalized software costs that had previously been recorded as construction-in-progress within property and equipment on the consolidated balance sheets. costs that had previously been recorded as construction-in-progress within property and equipment on the consolidated balance sheets. 31 31 The following tables set forth our operating results in dollars and as a percentage of net sales for the periods indicated: The following tables set forth our operating results in dollars and as a percentage of net sales for the periods indicated: Year Ended December 31, Year Ended December 31, Cost of sales Cost of sales 2017 2017 2016 2016 2015 2015 $ $ 3,365,968 3,365,968 100.0 % $ 100.0 % $ 3,093,743 3,093,743 100.0 % $ 100.0 % $ 1,576,746 1,576,746 100.0 % 100.0 % 2,570,453 2,570,453 795,515 795,515 76.4 % 76.4 % 23.6 % 23.6 % 2,351,778 2,351,778 741,965 741,965 76.0 % 76.0 % 24.0 % 24.0 % 1,215,336 1,215,336 361,410 361,410 77.1 % 77.1 % 22.9 % 22.9 % For the year ended December 31, 2017 , cost of sales increased $218.7 million , or 9.3% , to $2,570.5 million from $2,351.8 million during the year ended For the year ended December 31, 2017 , cost of sales increased $218.7 million , or 9.3% , to $2,570.5 million from $2,351.8 million during the year ended December 31, 2016 . Cost of sales for the year ended December 31, 2016 includes $2.9 million of expense incurred in relation to the sell-through of inventory December 31, 2016 . Cost of sales for the year ended December 31, 2016 includes $2.9 million of expense incurred in relation to the sell-through of inventory which was stepped up in value in connection with the Merger. We estimate our cost of sales increased approximately 5.0% as a result of commodity cost inflation, which was stepped up in value in connection with the Merger. We estimate our cost of sales increased approximately 5.0% as a result of commodity cost inflation, 2.8% as a result of increased sales volumes related to existing operations and 1.6% related to the acquisitions of Code Plus and TexPly, partially offset by a 0.1% 2.8% as a result of increased sales volumes related to existing operations and 1.6% related to the acquisitions of Code Plus and TexPly, partially offset by a 0.1% decrease as a result of the sell-through of inventory which was stepped up in value. decrease as a result of the sell-through of inventory which was stepped up in value. The impact of commodity price inflation during the year ended December 31, 2017 contributed to the increase in net sales in our lumber & lumber sheet goods and The impact of commodity price inflation during the year ended December 31, 2017 contributed to the increase in net sales in our lumber & lumber sheet goods and structural components product categories. structural components product categories. Selling, general and administrative expenses Selling, general and administrative expenses 619,546 619,546 18.4 % 18.4 % 571,799 571,799 18.5 % 18.5 % 306,843 306,843 19.5 % 19.5 % Gross profit Gross profit For the year ended December 31, 2017 , gross profit increased $53.6 million , or 7.2% , to $795.5 million from $742.0 million for the year ended December 31, For the year ended December 31, 2017 , gross profit increased $53.6 million , or 7.2% , to $795.5 million from $742.0 million for the year ended December 31, 2016 , driven primarily by increased sales volumes and commodity price inflation. Our gross margin was 23.6% for the year ended December 31, 2017 and 24.0% 2016 , driven primarily by increased sales volumes and commodity price inflation. Our gross margin was 23.6% for the year ended December 31, 2017 and 24.0% for the year ended December 31, 2016 . This decline resulted primarily from a decline in gross margin in lumber & lumber sheet goods and structural components for the year ended December 31, 2016 . This decline resulted primarily from a decline in gross margin in lumber & lumber sheet goods and structural components and a greater percentage of total net sales derived from lumber & lumber sheet goods, which generally generate lower margins. Gross profit for the year ended and a greater percentage of total net sales derived from lumber & lumber sheet goods, which generally generate lower margins. Gross profit for the year ended December 31, 2016 was impacted by $2.9 million, or 0.1% of net sales, in relation to the sell-through of inventory which was stepped up in value in connection December 31, 2016 was impacted by $2.9 million, or 0.1% of net sales, in relation to the sell-through of inventory which was stepped up in value in connection with the Merger. with the Merger. Operating expenses Operating expenses For the year ended December 31, 2017 : For the year ended December 31, 2017 : • • • • • • • • • • selling, general and administrative expenses increased $47.7 million , or 8.4% , to $619.5 million , or 18.4% of net sales, from $571.8 million , or 18.5% selling, general and administrative expenses increased $47.7 million , or 8.4% , to $619.5 million , or 18.4% of net sales, from $571.8 million , or 18.5% of net sales, for the year ended December 31, 2016 . Approximately $16.5 million of this increase related to increased shipping and handling costs to of net sales, for the year ended December 31, 2016 . Approximately $16.5 million of this increase related to increased shipping and handling costs to serve higher sales volumes related to existing operations, $12.5 million related to selling, general and administrative expenses of TexPly and Code Plus, serve higher sales volumes related to existing operations, $12.5 million related to selling, general and administrative expenses of TexPly and Code Plus, $5.6 million related to an increase in the provision for workers' compensation claims and $5.5 million related to increased health care costs. The $5.6 million related to an increase in the provision for workers' compensation claims and $5.5 million related to increased health care costs. The remaining increase was primarily due to costs associated with five newly-opened facilities of approximately $4.7 million. remaining increase was primarily due to costs associated with five newly-opened facilities of approximately $4.7 million. depreciation expense increased $4.6 million , or 11.9% , to $43.0 million from $38.4 million during the year ended December 31, 2016 . This increase depreciation expense increased $4.6 million , or 11.9% , to $43.0 million from $38.4 million during the year ended December 31, 2016 . This increase primarily relates to replacements and additions of delivery fleet, material handling equipment and operating equipment. primarily relates to replacements and additions of delivery fleet, material handling equipment and operating equipment. amortization expense was $16.0 million compared to $20.7 million in the prior year. This decrease resulted from certain intangible assets that became amortization expense was $16.0 million compared to $20.7 million in the prior year. This decrease resulted from certain intangible assets that became fully amortized in 2016, partially offset by the amortization of intangible assets acquired in the Code Plus and TexPly acquisitions. fully amortized in 2016, partially offset by the amortization of intangible assets acquired in the Code Plus and TexPly acquisitions. the Company incurred $15.3 million of Merger and integration costs related to the ongoing integration of BMHC and SBS, consisting primarily of the Company incurred $15.3 million of Merger and integration costs related to the ongoing integration of BMHC and SBS, consisting primarily of severance, system integration costs and professional fees compared to $15.3 million for the year ended December 31, 2016 . During the year ended severance, system integration costs and professional fees compared to $15.3 million for the year ended December 31, 2016 . During the year ended December 31, 2017, the Company recognized approximately $2.8 million of expense related to the discontinuance of the new third-party software BMHC December 31, 2017, the Company recognized approximately $2.8 million of expense related to the discontinuance of the new third-party software BMHC selected in 2013 for its planned Enterprise Resource Planning system ("New ERP") (see Note 6 to the consolidated financial statements included in Item 8 selected in 2013 for its planned Enterprise Resource Planning system ("New ERP") (see Note 6 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further description of the New ERP). of this Annual Report on Form 10-K for further description of the New ERP). the Company recognized asset impairment charges of $0.4 million related to the write down of real estate held for sale to the lower of depreciated cost or the Company recognized asset impairment charges of $0.4 million related to the write down of real estate held for sale to the lower of depreciated cost or estimated fair value less expected disposition costs. During the year ended December 31, 2016, the Company decided to integrate all operations under the estimated fair value less expected disposition costs. During the year ended December 31, 2016, the Company decided to integrate all operations under the ERP system utilized by Legacy SBS, and to discontinue use of the New ERP (see Note 6 to the consolidated financial statements included in Item 8 of ERP system utilized by Legacy SBS, and to discontinue use of the New ERP (see Note 6 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further description of the New ERP). In connection with this decision, the Company impaired capitalized software this Annual Report on Form 10-K for further description of the New ERP). In connection with this decision, the Company impaired capitalized software costs that had previously been recorded as construction-in-progress within property and equipment on the consolidated balance sheets. costs that had previously been recorded as construction-in-progress within property and equipment on the consolidated balance sheets. 31 31 Operating Results Operating Results (in thousands) (in thousands) Net sales Net sales Cost of sales Cost of sales Gross profit Gross profit Operating expenses: Operating expenses: Depreciation expense Depreciation expense Amortization expense Amortization expense Merger and integration costs Merger and integration costs Impairment of assets Impairment of assets Income from operations Income from operations Other income (expenses) Other income (expenses) Interest expense Interest expense Loss on debt extinguishment Loss on debt extinguishment Other income, net Other income, net Income (loss) before income taxes Income (loss) before income taxes Income tax expense (benefit) Income tax expense (benefit) Net income (loss) Net income (loss) $ $ 2017 compared to 2016 2017 compared to 2016 Net sales Net sales 43,022 43,022 16,003 16,003 15,336 15,336 435 435 101,173 101,173 — — 5,690 5,690 81,827 81,827 24,402 24,402 57,425 57,425 1.3 % 1.3 % 0.5 % 0.5 % 0.5 % 0.5 % 0.0 % 0.0 % 3.0 % 3.0 % 0.0 % 0.0 % 0.2 % 0.2 % 2.4 % 2.4 % 0.7 % 0.7 % 1.7 % $ 1.7 % $ (25,036) (25,036) (0.7)% (0.7)% 38,441 38,441 20,721 20,721 15,340 15,340 11,928 11,928 83,736 83,736 (30,131) (30,131) (12,529) (12,529) 4,070 4,070 45,146 45,146 14,266 14,266 30,880 30,880 1.2 % 1.2 % 0.7 % 0.7 % 0.5 % 0.5 % 0.4 % 0.4 % 2.7 % 2.7 % (1.0)% (1.0)% (0.4)% (0.4)% 0.1 % 0.1 % 1.5 % 1.5 % 0.5 % 0.5 % 1.0 % $ 1.0 % $ 15,700 15,700 3,626 3,626 22,993 22,993 — — 12,248 12,248 (27,552) (27,552) — — 784 784 (14,520) (14,520) (9,689) (9,689) (4,831) (4,831) 1.0 % 1.0 % 0.2 % 0.2 % 1.5 % 1.5 % 0.0 % 0.0 % 0.8 % 0.8 % (1.7)% (1.7)% 0.0 % 0.0 % 0.0 % 0.0 % (0.9)% (0.9)% (0.6)% (0.6)% (0.3)% (0.3)% For the year ended December 31, 2017 , net sales increased $272.2 million , or 8.8% , to $3,366.0 million from $3,093.7 million during the year ended December For the year ended December 31, 2017 , net sales increased $272.2 million , or 8.8% , to $3,366.0 million from $3,093.7 million during the year ended December 31, 2016 . The increase in net sales was primarily driven by the impact of commodity price inflation of approximately 4.2% and increased volume of 31, 2016 . The increase in net sales was primarily driven by the impact of commodity price inflation of approximately 4.2% and increased volume of approximately 2.8% related to existing operations, while the acquisitions of Code Plus and TexPly increased net sales by approximately 1.8% . approximately 2.8% related to existing operations, while the acquisitions of Code Plus and TexPly increased net sales by approximately 1.8% . We estimate approximately 75% of our net sales for the year ended December 31, 2017 were to customers engaged in new single-family construction. According We estimate approximately 75% of our net sales for the year ended December 31, 2017 were to customers engaged in new single-family construction. According to the U.S. Census Bureau, single-family housing starts in the South and West regions of the United States, which are our primary operating regions, increased to the U.S. Census Bureau, single-family housing starts in the South and West regions of the United States, which are our primary operating regions, increased approximately 9.4% for the year ended December 31, 2017 as compared to the prior year, while single-family houses completed increased 8.7% during the same approximately 9.4% for the year ended December 31, 2017 as compared to the prior year, while single-family houses completed increased 8.7% during the same time period. Increases in net sales from Texas and California accounted for approximately 42% of the total increase in net sales for the year ended December 31, time period. Increases in net sales from Texas and California accounted for approximately 42% of the total increase in net sales for the year ended December 31, 2017 , while the Company experienced a decrease in net sales in Georgia of less than 1% of overall net sales. 2017 , while the Company experienced a decrease in net sales in Georgia of less than 1% of overall net sales. The following table shows net sales classified by major product category. Certain prior year amounts have been reclassified to conform to the current year The following table shows net sales classified by major product category. Certain prior year amounts have been reclassified to conform to the current year presentation. presentation. (in thousands) (in thousands) Structural components Structural components Lumber & lumber sheet goods Lumber & lumber sheet goods Millwork, doors & windows Millwork, doors & windows Other building products & services Other building products & services Total net sales Total net sales 2017 2017 2016 2016 Net Sales Net Sales % of Sales % of Sales Net Sales Net Sales % of Sales % of Sales % Change % Change $ $ 522,619 522,619 1,114,219 1,114,219 907,377 907,377 821,753 821,753 15.5% $ 15.5% $ 33.1% 33.1% 27.0% 27.0% 24.4% 24.4% 461,761 461,761 938,563 938,563 894,889 894,889 798,530 798,530 14.9% 14.9% 30.3% 30.3% 28.9% 28.9% 25.9% 25.9% $ $ 3,365,968 3,365,968 100.0% $ 100.0% $ 3,093,743 3,093,743 100.0% 100.0% 13.2% 13.2% 18.7% 18.7% 1.4% 1.4% 2.9% 2.9% 8.8% 8.8% 30 30 Interest expense Interest expense The following table shows net sales classified by major product category. Certain prior year amounts have been reclassified to conform to the current year The following table shows net sales classified by major product category. Certain prior year amounts have been reclassified to conform to the current year 2016 2016 2015 2015 Net Sales Net Sales % of Sales % of Sales Net Sales Net Sales % of Sales % of Sales % Change % Change $ $ 461,761 461,761 938,563 938,563 894,889 894,889 798,530 798,530 14.9% $ 14.9% $ 30.3% 30.3% 28.9% 28.9% 25.9% 25.9% 249,371 249,371 459,446 459,446 442,675 442,675 425,254 425,254 15.8% 15.8% 29.1% 29.1% 28.1% 28.1% 27.0% 27.0% $ $ 3,093,743 3,093,743 100.0% $ 100.0% $ 1,576,746 1,576,746 100.0% 100.0% 85.2% 85.2% 104.3% 104.3% 102.2% 102.2% 87.8% 87.8% 96.2% 96.2% For the year ended December 31, 2017 , interest expense was $25.0 million compared to $30.1 million for the year ended December 31, 2016 . This decrease For the year ended December 31, 2017 , interest expense was $25.0 million compared to $30.1 million for the year ended December 31, 2016 . This decrease relates primarily to reduced average borrowings under the revolving line of credit under the Credit Agreement (the "Revolver") and a decrease in interest expense relates primarily to reduced average borrowings under the revolving line of credit under the Credit Agreement (the "Revolver") and a decrease in interest expense on the Senior Notes after the Company redeemed $250.0 million of 9.0% senior secured notes (the "Extinguished Senior Notes") with the proceeds from the on the Senior Notes after the Company redeemed $250.0 million of 9.0% senior secured notes (the "Extinguished Senior Notes") with the proceeds from the issuance of $350.0 million of 5.5% Senior Notes during September 2016. Non-cash amortization of debt issuance costs, which is included in interest expense, was issuance of $350.0 million of 5.5% Senior Notes during September 2016. Non-cash amortization of debt issuance costs, which is included in interest expense, was $1.7 million and $3.1 million for the years ended December 31, 2017 and 2016 , respectively. $1.7 million and $3.1 million for the years ended December 31, 2017 and 2016 , respectively. Loss on debt extinguishment Loss on debt extinguishment For the year ended December 31, 2016, the Company incurred a loss on debt extinguishment of $12.5 million related to the redemption of the Extinguished Senior For the year ended December 31, 2016, the Company incurred a loss on debt extinguishment of $12.5 million related to the redemption of the Extinguished Senior Notes. The loss is made up of a call premium of $8.4 million and the write off of unamortized debt issuance costs and original issue discount of $4.1 million. There Notes. The loss is made up of a call premium of $8.4 million and the write off of unamortized debt issuance costs and original issue discount of $4.1 million. There were no similar costs in 2017. were no similar costs in 2017. Other income, net Other income, net presentation. presentation. (in thousands) (in thousands) Structural components Structural components Lumber & lumber sheet goods Lumber & lumber sheet goods Millwork, doors & windows Millwork, doors & windows Other building products & services Other building products & services Total net sales Total net sales Cost of sales Cost of sales For the year ended December 31, 2017 , other income, net was $5.7 million , which consisted primarily of income related to the final settlement of insurance For the year ended December 31, 2017 , other income, net was $5.7 million , which consisted primarily of income related to the final settlement of insurance claims made by the Company for a fire at one of the Company's facilities during 2015, income from tax incentive programs and service charges assessed on past claims made by the Company for a fire at one of the Company's facilities during 2015, income from tax incentive programs and service charges assessed on past due accounts receivable. For the year ended December 31, 2016 , other income, net was $4.1 million , which consisted primarily of insurance proceeds received due accounts receivable. For the year ended December 31, 2016 , other income, net was $4.1 million , which consisted primarily of insurance proceeds received during the year ended December 31, 2016 related to a fire at one of the Company's facilities during 2015 and service charges assessed on past due accounts during the year ended December 31, 2016 related to a fire at one of the Company's facilities during 2015 and service charges assessed on past due accounts receivable. receivable. Gross profit Gross profit Income tax Income tax For the years ended December 31, 2017 and 2016, income tax expense was $24.4 million and $14.3 million , respectively. The effective tax rate for the year ended For the years ended December 31, 2017 and 2016, income tax expense was $24.4 million and $14.3 million , respectively. The effective tax rate for the year ended December 31, 2017 was 29.8% compared to 31.6% for the year ended December 31, 2016 . For the year ended December 31, 2017, the Company's effective tax December 31, 2017 was 29.8% compared to 31.6% for the year ended December 31, 2016 . For the year ended December 31, 2017, the Company's effective tax rate was lower than the Company's federal and state statutory rates primarily due to the enactment of the 2017 Tax Act, an Internal Revenue Code ("IRC") section rate was lower than the Company's federal and state statutory rates primarily due to the enactment of the 2017 Tax Act, an Internal Revenue Code ("IRC") section 199 manufacturing deduction, and excess windfall tax benefits of stock compensation deductions. Excluding the impacts of the 2017 Tax Act, our effective income 199 manufacturing deduction, and excess windfall tax benefits of stock compensation deductions. Excluding the impacts of the 2017 Tax Act, our effective income tax rate in 2017 would have been 34.2%. The 2017 Tax Act, among other things, reduces the federal corporate income tax rate to 21% from 35%, effective January tax rate in 2017 would have been 34.2%. The 2017 Tax Act, among other things, reduces the federal corporate income tax rate to 21% from 35%, effective January 1, 2018, resulting in a net income tax benefit of $3.6 million in 2017 primarily related to a reduction of our net deferred tax liability. For the year ended December 1, 2018, resulting in a net income tax benefit of $3.6 million in 2017 primarily related to a reduction of our net deferred tax liability. For the year ended December 31, 2016, the Company's effective tax rate was lower than the Company's federal and state statutory rates primarily due to the adoption of a state tax position 31, 2016, the Company's effective tax rate was lower than the Company's federal and state statutory rates primarily due to the adoption of a state tax position related to IRC section 382 limitations on a state net operating loss carryforward, excess windfall tax benefits of stock compensation deductions, and an IRC section related to IRC section 382 limitations on a state net operating loss carryforward, excess windfall tax benefits of stock compensation deductions, and an IRC section 199 manufacturing deduction. 199 manufacturing deduction. The Company expects our 2018 annual effective tax rate to be lower than our current year effective tax rate primarily due to a reduction in the federal corporate The Company expects our 2018 annual effective tax rate to be lower than our current year effective tax rate primarily due to a reduction in the federal corporate income tax rate to 21%. In addition to the lower corporate income tax rate, other tax law changes related to the 2017 Tax Act that may impact our Company's tax income tax rate to 21%. In addition to the lower corporate income tax rate, other tax law changes related to the 2017 Tax Act that may impact our Company's tax provision in subsequent years include, but are not limited to, the acceleration of tax depreciation for certain assets, repeal of the section 199 manufacturing provision in subsequent years include, but are not limited to, the acceleration of tax depreciation for certain assets, repeal of the section 199 manufacturing deduction, additional limitations on executive compensation and limitations on the deductibility of interest. deduction, additional limitations on executive compensation and limitations on the deductibility of interest. supplier agreements. supplier agreements. Operating expenses Operating expenses For the year ended December 31, 2016 : For the year ended December 31, 2016 : 2016 compared to 2015 2016 compared to 2015 Net sales Net sales For the year ended December 31, 2016 , net sales increased $1,517.0 million , or 96.2% , to $3,093.7 million from $1,576.7 million during the year ended For the year ended December 31, 2016 , net sales increased $1,517.0 million , or 96.2% , to $3,093.7 million from $1,576.7 million during the year ended December 31, 2015 . The increase in net sales was driven primarily by increased volume of approximately 6.3% related to existing operations and 88.7% related to December 31, 2015 . The increase in net sales was driven primarily by increased volume of approximately 6.3% related to existing operations and 88.7% related to the Merger and acquisitions of VNS and RBI, while the impact of commodity price inflation increased net sales by approximately 1.2%. the Merger and acquisitions of VNS and RBI, while the impact of commodity price inflation increased net sales by approximately 1.2%. We estimate approximately 73% of our net sales for the year ended December 31, 2016 were to customers engaged in new single-family construction. According We estimate approximately 73% of our net sales for the year ended December 31, 2016 were to customers engaged in new single-family construction. According to the U.S. Census Bureau, single-family housing starts in the South and West regions of the United States, which are our primary operating regions, increased to the U.S. Census Bureau, single-family housing starts in the South and West regions of the United States, which are our primary operating regions, increased approximately 8.7% for the year ended December 31, 2016 as compared to the prior year, while single-family houses completed increased 13.6% during the same approximately 8.7% for the year ended December 31, 2016 as compared to the prior year, while single-family houses completed increased 13.6% during the same time period. time period. For the year ended December 31, 2016 , cost of sales increased $1,136.4 million , or 93.5% , to $2,351.8 million from $1,215.3 million during the year ended For the year ended December 31, 2016 , cost of sales increased $1,136.4 million , or 93.5% , to $2,351.8 million from $1,215.3 million during the year ended December 31, 2015 . We estimate our cost of sales increased approximately 92.1% as a result of the Merger and acquisitions of VNS and RBI, while organic December 31, 2015 . We estimate our cost of sales increased approximately 92.1% as a result of the Merger and acquisitions of VNS and RBI, while organic change accounted for an increase of 1.4%. Cost of sales for the years ended December 31, 2016 and 2015 includes $2.9 million and $10.3 million, respectively, of change accounted for an increase of 1.4%. Cost of sales for the years ended December 31, 2016 and 2015 includes $2.9 million and $10.3 million, respectively, of expense incurred in relation to the sell-through of Legacy SBS inventory which was stepped up in value in connection with the Merger. expense incurred in relation to the sell-through of Legacy SBS inventory which was stepped up in value in connection with the Merger. For the year ended December 31, 2016 , gross profit increased $380.6 million , or 105.3% , to $742.0 million from $361.4 million for the year ended December 31, For the year ended December 31, 2016 , gross profit increased $380.6 million , or 105.3% , to $742.0 million from $361.4 million for the year ended December 31, 2015 , driven primarily by the Merger and the acquisitions of VNS and RBI, as well as increased sales volumes. Our gross margin was 24.0% for the year ended 2015 , driven primarily by the Merger and the acquisitions of VNS and RBI, as well as increased sales volumes. Our gross margin was 24.0% for the year ended December 31, 2016 and 22.9% for the year ended December 31, 2015 . This increase was primarily driven by a higher percentage of total net sales being derived December 31, 2016 and 22.9% for the year ended December 31, 2015 . This increase was primarily driven by a higher percentage of total net sales being derived from millwork, doors & windows, which generally are sold at a higher gross margin than our other product categories, as well as increased consideration from from millwork, doors & windows, which generally are sold at a higher gross margin than our other product categories, as well as increased consideration from • • • • • • • • selling, general and administrative expenses increased $265.0 million , or 86.3% , to $571.8 million , or 18.5% of net sales, from $306.8 million , or selling, general and administrative expenses increased $265.0 million , or 86.3% , to $571.8 million , or 18.5% of net sales, from $306.8 million , or 19.5% of net sales, for the year ended December 31, 2015 , primarily as a result of the Merger and acquisitions of VNS and RBI. 19.5% of net sales, for the year ended December 31, 2015 , primarily as a result of the Merger and acquisitions of VNS and RBI. depreciation expense increased $22.7 million , or 144.8% , to $38.4 million from $15.7 million during the year ended December 31, 2015 , primarily as a depreciation expense increased $22.7 million , or 144.8% , to $38.4 million from $15.7 million during the year ended December 31, 2015 , primarily as a result of fixed assets acquired through the Merger and acquisitions of VNS and RBI, as well as replacements and additions of delivery fleet, material result of fixed assets acquired through the Merger and acquisitions of VNS and RBI, as well as replacements and additions of delivery fleet, material handling equipment and operating equipment. handling equipment and operating equipment. amortization expense was $20.7 million compared to $3.6 million in the prior year. The amortization expense recognized for the year ended December 31, amortization expense was $20.7 million compared to $3.6 million in the prior year. The amortization expense recognized for the year ended December 31, 2016 relates to intangible assets acquired through the Merger and acquisitions of VNS and RBI. 2016 relates to intangible assets acquired through the Merger and acquisitions of VNS and RBI. the Company recognized asset impairment charges of $11.9 million. During the first quarter of 2016, the Company decided to integrate all operations the Company recognized asset impairment charges of $11.9 million. During the first quarter of 2016, the Company decided to integrate all operations under the Legacy SBS ERP system, and to discontinue use of the New ERP (see Note 6 to the consolidated financial statements included in Item 8 of this under the Legacy SBS ERP system, and to discontinue use of the New ERP (see Note 6 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further description of the New ERP). In connection with this decision, the Company impaired capitalized software costs Annual Report on Form 10-K for further description of the New ERP). In connection with this decision, the Company impaired capitalized software costs that had previously been recorded as construction-in-progress within property and equipment on the consolidated balance sheets. that had previously been recorded as construction-in-progress within property and equipment on the consolidated balance sheets. • • the Company incurred $15.3 million of Merger and integration costs related to the ongoing integration of BMHC and SBS, consisting primarily of the Company incurred $15.3 million of Merger and integration costs related to the ongoing integration of BMHC and SBS, consisting primarily of severance, system integration costs and professional fees compared to $23.0 million for the year ended December 31, 2015 . severance, system integration costs and professional fees compared to $23.0 million for the year ended December 31, 2015 . 32 32 33 33 Interest expense Interest expense Loss on debt extinguishment Loss on debt extinguishment were no similar costs in 2017. were no similar costs in 2017. Other income, net Other income, net receivable. receivable. Income tax Income tax 2016 compared to 2015 2016 compared to 2015 Net sales Net sales For the year ended December 31, 2017 , interest expense was $25.0 million compared to $30.1 million for the year ended December 31, 2016 . This decrease For the year ended December 31, 2017 , interest expense was $25.0 million compared to $30.1 million for the year ended December 31, 2016 . This decrease relates primarily to reduced average borrowings under the revolving line of credit under the Credit Agreement (the "Revolver") and a decrease in interest expense relates primarily to reduced average borrowings under the revolving line of credit under the Credit Agreement (the "Revolver") and a decrease in interest expense on the Senior Notes after the Company redeemed $250.0 million of 9.0% senior secured notes (the "Extinguished Senior Notes") with the proceeds from the on the Senior Notes after the Company redeemed $250.0 million of 9.0% senior secured notes (the "Extinguished Senior Notes") with the proceeds from the issuance of $350.0 million of 5.5% Senior Notes during September 2016. Non-cash amortization of debt issuance costs, which is included in interest expense, was issuance of $350.0 million of 5.5% Senior Notes during September 2016. Non-cash amortization of debt issuance costs, which is included in interest expense, was $1.7 million and $3.1 million for the years ended December 31, 2017 and 2016 , respectively. $1.7 million and $3.1 million for the years ended December 31, 2017 and 2016 , respectively. For the year ended December 31, 2016, the Company incurred a loss on debt extinguishment of $12.5 million related to the redemption of the Extinguished Senior For the year ended December 31, 2016, the Company incurred a loss on debt extinguishment of $12.5 million related to the redemption of the Extinguished Senior Notes. The loss is made up of a call premium of $8.4 million and the write off of unamortized debt issuance costs and original issue discount of $4.1 million. There Notes. The loss is made up of a call premium of $8.4 million and the write off of unamortized debt issuance costs and original issue discount of $4.1 million. There The following table shows net sales classified by major product category. Certain prior year amounts have been reclassified to conform to the current year The following table shows net sales classified by major product category. Certain prior year amounts have been reclassified to conform to the current year presentation. presentation. (in thousands) (in thousands) Structural components Structural components Lumber & lumber sheet goods Lumber & lumber sheet goods Millwork, doors & windows Millwork, doors & windows Other building products & services Other building products & services Total net sales Total net sales Cost of sales Cost of sales 2016 2016 2015 2015 Net Sales Net Sales % of Sales % of Sales Net Sales Net Sales % of Sales % of Sales % Change % Change $ $ 461,761 461,761 938,563 938,563 894,889 894,889 798,530 798,530 14.9% $ 14.9% $ 30.3% 30.3% 28.9% 28.9% 25.9% 25.9% 249,371 249,371 459,446 459,446 442,675 442,675 425,254 425,254 15.8% 15.8% 29.1% 29.1% 28.1% 28.1% 27.0% 27.0% $ $ 3,093,743 3,093,743 100.0% $ 100.0% $ 1,576,746 1,576,746 100.0% 100.0% 85.2% 85.2% 104.3% 104.3% 102.2% 102.2% 87.8% 87.8% 96.2% 96.2% For the year ended December 31, 2017 , other income, net was $5.7 million , which consisted primarily of income related to the final settlement of insurance For the year ended December 31, 2017 , other income, net was $5.7 million , which consisted primarily of income related to the final settlement of insurance claims made by the Company for a fire at one of the Company's facilities during 2015, income from tax incentive programs and service charges assessed on past claims made by the Company for a fire at one of the Company's facilities during 2015, income from tax incentive programs and service charges assessed on past due accounts receivable. For the year ended December 31, 2016 , other income, net was $4.1 million , which consisted primarily of insurance proceeds received due accounts receivable. For the year ended December 31, 2016 , other income, net was $4.1 million , which consisted primarily of insurance proceeds received during the year ended December 31, 2016 related to a fire at one of the Company's facilities during 2015 and service charges assessed on past due accounts during the year ended December 31, 2016 related to a fire at one of the Company's facilities during 2015 and service charges assessed on past due accounts For the year ended December 31, 2016 , cost of sales increased $1,136.4 million , or 93.5% , to $2,351.8 million from $1,215.3 million during the year ended For the year ended December 31, 2016 , cost of sales increased $1,136.4 million , or 93.5% , to $2,351.8 million from $1,215.3 million during the year ended December 31, 2015 . We estimate our cost of sales increased approximately 92.1% as a result of the Merger and acquisitions of VNS and RBI, while organic December 31, 2015 . We estimate our cost of sales increased approximately 92.1% as a result of the Merger and acquisitions of VNS and RBI, while organic change accounted for an increase of 1.4%. Cost of sales for the years ended December 31, 2016 and 2015 includes $2.9 million and $10.3 million, respectively, of change accounted for an increase of 1.4%. Cost of sales for the years ended December 31, 2016 and 2015 includes $2.9 million and $10.3 million, respectively, of expense incurred in relation to the sell-through of Legacy SBS inventory which was stepped up in value in connection with the Merger. expense incurred in relation to the sell-through of Legacy SBS inventory which was stepped up in value in connection with the Merger. For the years ended December 31, 2017 and 2016, income tax expense was $24.4 million and $14.3 million , respectively. The effective tax rate for the year ended For the years ended December 31, 2017 and 2016, income tax expense was $24.4 million and $14.3 million , respectively. The effective tax rate for the year ended December 31, 2017 was 29.8% compared to 31.6% for the year ended December 31, 2016 . For the year ended December 31, 2017, the Company's effective tax December 31, 2017 was 29.8% compared to 31.6% for the year ended December 31, 2016 . For the year ended December 31, 2017, the Company's effective tax rate was lower than the Company's federal and state statutory rates primarily due to the enactment of the 2017 Tax Act, an Internal Revenue Code ("IRC") section rate was lower than the Company's federal and state statutory rates primarily due to the enactment of the 2017 Tax Act, an Internal Revenue Code ("IRC") section 199 manufacturing deduction, and excess windfall tax benefits of stock compensation deductions. Excluding the impacts of the 2017 Tax Act, our effective income 199 manufacturing deduction, and excess windfall tax benefits of stock compensation deductions. Excluding the impacts of the 2017 Tax Act, our effective income tax rate in 2017 would have been 34.2%. The 2017 Tax Act, among other things, reduces the federal corporate income tax rate to 21% from 35%, effective January tax rate in 2017 would have been 34.2%. The 2017 Tax Act, among other things, reduces the federal corporate income tax rate to 21% from 35%, effective January 1, 2018, resulting in a net income tax benefit of $3.6 million in 2017 primarily related to a reduction of our net deferred tax liability. For the year ended December 1, 2018, resulting in a net income tax benefit of $3.6 million in 2017 primarily related to a reduction of our net deferred tax liability. For the year ended December 31, 2016, the Company's effective tax rate was lower than the Company's federal and state statutory rates primarily due to the adoption of a state tax position 31, 2016, the Company's effective tax rate was lower than the Company's federal and state statutory rates primarily due to the adoption of a state tax position related to IRC section 382 limitations on a state net operating loss carryforward, excess windfall tax benefits of stock compensation deductions, and an IRC section related to IRC section 382 limitations on a state net operating loss carryforward, excess windfall tax benefits of stock compensation deductions, and an IRC section 199 manufacturing deduction. 199 manufacturing deduction. The Company expects our 2018 annual effective tax rate to be lower than our current year effective tax rate primarily due to a reduction in the federal corporate The Company expects our 2018 annual effective tax rate to be lower than our current year effective tax rate primarily due to a reduction in the federal corporate income tax rate to 21%. In addition to the lower corporate income tax rate, other tax law changes related to the 2017 Tax Act that may impact our Company's tax income tax rate to 21%. In addition to the lower corporate income tax rate, other tax law changes related to the 2017 Tax Act that may impact our Company's tax provision in subsequent years include, but are not limited to, the acceleration of tax depreciation for certain assets, repeal of the section 199 manufacturing provision in subsequent years include, but are not limited to, the acceleration of tax depreciation for certain assets, repeal of the section 199 manufacturing deduction, additional limitations on executive compensation and limitations on the deductibility of interest. deduction, additional limitations on executive compensation and limitations on the deductibility of interest. For the year ended December 31, 2016 , net sales increased $1,517.0 million , or 96.2% , to $3,093.7 million from $1,576.7 million during the year ended For the year ended December 31, 2016 , net sales increased $1,517.0 million , or 96.2% , to $3,093.7 million from $1,576.7 million during the year ended December 31, 2015 . The increase in net sales was driven primarily by increased volume of approximately 6.3% related to existing operations and 88.7% related to December 31, 2015 . The increase in net sales was driven primarily by increased volume of approximately 6.3% related to existing operations and 88.7% related to the Merger and acquisitions of VNS and RBI, while the impact of commodity price inflation increased net sales by approximately 1.2%. the Merger and acquisitions of VNS and RBI, while the impact of commodity price inflation increased net sales by approximately 1.2%. We estimate approximately 73% of our net sales for the year ended December 31, 2016 were to customers engaged in new single-family construction. According We estimate approximately 73% of our net sales for the year ended December 31, 2016 were to customers engaged in new single-family construction. According to the U.S. Census Bureau, single-family housing starts in the South and West regions of the United States, which are our primary operating regions, increased to the U.S. Census Bureau, single-family housing starts in the South and West regions of the United States, which are our primary operating regions, increased approximately 8.7% for the year ended December 31, 2016 as compared to the prior year, while single-family houses completed increased 13.6% during the same approximately 8.7% for the year ended December 31, 2016 as compared to the prior year, while single-family houses completed increased 13.6% during the same time period. time period. Gross profit Gross profit For the year ended December 31, 2016 , gross profit increased $380.6 million , or 105.3% , to $742.0 million from $361.4 million for the year ended December 31, For the year ended December 31, 2016 , gross profit increased $380.6 million , or 105.3% , to $742.0 million from $361.4 million for the year ended December 31, 2015 , driven primarily by the Merger and the acquisitions of VNS and RBI, as well as increased sales volumes. Our gross margin was 24.0% for the year ended 2015 , driven primarily by the Merger and the acquisitions of VNS and RBI, as well as increased sales volumes. Our gross margin was 24.0% for the year ended December 31, 2016 and 22.9% for the year ended December 31, 2015 . This increase was primarily driven by a higher percentage of total net sales being derived December 31, 2016 and 22.9% for the year ended December 31, 2015 . This increase was primarily driven by a higher percentage of total net sales being derived from millwork, doors & windows, which generally are sold at a higher gross margin than our other product categories, as well as increased consideration from from millwork, doors & windows, which generally are sold at a higher gross margin than our other product categories, as well as increased consideration from supplier agreements. supplier agreements. Operating expenses Operating expenses For the year ended December 31, 2016 : For the year ended December 31, 2016 : • • • • • • • • • • selling, general and administrative expenses increased $265.0 million , or 86.3% , to $571.8 million , or 18.5% of net sales, from $306.8 million , or selling, general and administrative expenses increased $265.0 million , or 86.3% , to $571.8 million , or 18.5% of net sales, from $306.8 million , or 19.5% of net sales, for the year ended December 31, 2015 , primarily as a result of the Merger and acquisitions of VNS and RBI. 19.5% of net sales, for the year ended December 31, 2015 , primarily as a result of the Merger and acquisitions of VNS and RBI. depreciation expense increased $22.7 million , or 144.8% , to $38.4 million from $15.7 million during the year ended December 31, 2015 , primarily as a depreciation expense increased $22.7 million , or 144.8% , to $38.4 million from $15.7 million during the year ended December 31, 2015 , primarily as a result of fixed assets acquired through the Merger and acquisitions of VNS and RBI, as well as replacements and additions of delivery fleet, material result of fixed assets acquired through the Merger and acquisitions of VNS and RBI, as well as replacements and additions of delivery fleet, material handling equipment and operating equipment. handling equipment and operating equipment. amortization expense was $20.7 million compared to $3.6 million in the prior year. The amortization expense recognized for the year ended December 31, amortization expense was $20.7 million compared to $3.6 million in the prior year. The amortization expense recognized for the year ended December 31, 2016 relates to intangible assets acquired through the Merger and acquisitions of VNS and RBI. 2016 relates to intangible assets acquired through the Merger and acquisitions of VNS and RBI. the Company recognized asset impairment charges of $11.9 million. During the first quarter of 2016, the Company decided to integrate all operations the Company recognized asset impairment charges of $11.9 million. During the first quarter of 2016, the Company decided to integrate all operations under the Legacy SBS ERP system, and to discontinue use of the New ERP (see Note 6 to the consolidated financial statements included in Item 8 of this under the Legacy SBS ERP system, and to discontinue use of the New ERP (see Note 6 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further description of the New ERP). In connection with this decision, the Company impaired capitalized software costs Annual Report on Form 10-K for further description of the New ERP). In connection with this decision, the Company impaired capitalized software costs that had previously been recorded as construction-in-progress within property and equipment on the consolidated balance sheets. that had previously been recorded as construction-in-progress within property and equipment on the consolidated balance sheets. the Company incurred $15.3 million of Merger and integration costs related to the ongoing integration of BMHC and SBS, consisting primarily of the Company incurred $15.3 million of Merger and integration costs related to the ongoing integration of BMHC and SBS, consisting primarily of severance, system integration costs and professional fees compared to $23.0 million for the year ended December 31, 2015 . severance, system integration costs and professional fees compared to $23.0 million for the year ended December 31, 2015 . 32 32 33 33 Interest expense Interest expense Historical Cash Flow Information Historical Cash Flow Information For the year ended December 31, 2016 , interest expense was $30.1 million compared to $27.6 million for the year ended December 31, 2015 . This increase For the year ended December 31, 2016 , interest expense was $30.1 million compared to $27.6 million for the year ended December 31, 2015 . This increase relates primarily to SBS borrowings that were assumed by the Company as of the date of the Merger and borrowings used to fund the acquisition of RBI. This relates primarily to SBS borrowings that were assumed by the Company as of the date of the Merger and borrowings used to fund the acquisition of RBI. This increase was partially offset by reduced borrowing levels on the Revolver after repaying approximately $74 million of Revolver borrowings from proceeds increase was partially offset by reduced borrowing levels on the Revolver after repaying approximately $74 million of Revolver borrowings from proceeds received from the Company's refinancing of its Senior Notes in September 2016. Non-cash amortization of debt issuance costs, which is included in interest received from the Company's refinancing of its Senior Notes in September 2016. Non-cash amortization of debt issuance costs, which is included in interest expense, was $3.1 million and $2.5 million for the years ended December 31, 2016 and 2015 , respectively. expense, was $3.1 million and $2.5 million for the years ended December 31, 2016 and 2015 , respectively. Net current assets Net current assets in the following table: in the following table: Loss on debt extinguishment Loss on debt extinguishment For the year ended December 31, 2016 , the Company incurred a loss on debt extinguishment of $12.5 million related to the redemption of the Extinguished Senior For the year ended December 31, 2016 , the Company incurred a loss on debt extinguishment of $12.5 million related to the redemption of the Extinguished Senior Notes. The loss is made up of a call premium of $8.4 million and the write off of unamortized debt issuance costs and original issue discount of $4.1 million. Notes. The loss is made up of a call premium of $8.4 million and the write off of unamortized debt issuance costs and original issue discount of $4.1 million. Other income, net Other income, net (in thousands) (in thousands) Cash and cash equivalents Cash and cash equivalents Accounts receivable, net of allowances Accounts receivable, net of allowances Inventories, net Inventories, net Other current assets Other current assets For the year ended December 31, 2016 , other income, net increased $3.3 million compared to the year ended December 31, 2015 . Approximately $1.9 million of For the year ended December 31, 2016 , other income, net increased $3.3 million compared to the year ended December 31, 2015 . Approximately $1.9 million of this increase was due to insurance proceeds received during the year ended December 31, 2016 related to a fire at one of the Company's facilities during 2015. The this increase was due to insurance proceeds received during the year ended December 31, 2016 related to a fire at one of the Company's facilities during 2015. The remaining increase relates primarily to service charges assessed on past due accounts receivable for Legacy SBS operations. remaining increase relates primarily to service charges assessed on past due accounts receivable for Legacy SBS operations. Accounts payable, accrued expenses and other current liabilities Accounts payable, accrued expenses and other current liabilities Current portion of long-term debt and capital lease obligations Current portion of long-term debt and capital lease obligations Total net current assets Total net current assets December 31, December 31, December 31, December 31, 2017 2017 2016 2016 $ $ 11,750 $ 11,750 $ 322,892 322,892 309,060 309,060 90,435 90,435 (307,538) (307,538) (7,739) (7,739) $ $ 418,860 $ 418,860 $ 8,917 8,917 313,304 313,304 272,276 272,276 72,445 72,445 (291,657) (291,657) (11,155) (11,155) 364,130 364,130 Net current assets (current assets less current liabilities) were $418.9 million and $364.1 million as of December 31, 2017 and 2016 , respectively, as summarized Net current assets (current assets less current liabilities) were $418.9 million and $364.1 million as of December 31, 2017 and 2016 , respectively, as summarized Income tax Income tax For the year ended December 31, 2016 , income tax expense was $14.3 million compared to income tax benefit of $9.7 million for the year ended December 31, For the year ended December 31, 2016 , income tax expense was $14.3 million compared to income tax benefit of $9.7 million for the year ended December 31, 2015 . The effective tax rate for the year ended December 31, 2016 was 31.6% compared to 66.7% for the year ended December 31, 2015 . For the year ended 2015 . The effective tax rate for the year ended December 31, 2016 was 31.6% compared to 66.7% for the year ended December 31, 2015 . For the year ended December 31, 2016, the Company's effective tax rate was lower than the Company's federal and state statutory rates primarily due to the adoption of a state tax December 31, 2016, the Company's effective tax rate was lower than the Company's federal and state statutory rates primarily due to the adoption of a state tax position related to IRC section 382 limitations on a state net operating loss carryforward, excess windfall tax benefits of stock compensation deductions, and an position related to IRC section 382 limitations on a state net operating loss carryforward, excess windfall tax benefits of stock compensation deductions, and an IRC section 199 manufacturing deduction. For the year ended December 31, 2015, the Company's effective tax rate was higher than the Company's federal and IRC section 199 manufacturing deduction. For the year ended December 31, 2015, the Company's effective tax rate was higher than the Company's federal and state statutory rates primarily due to adopting a tax position related to IRC section 382 limitations on its federal and state net operating loss carryforwards and other state statutory rates primarily due to adopting a tax position related to IRC section 382 limitations on its federal and state net operating loss carryforwards and other built-in losses. built-in losses. 2017 . 2017 . Accounts receivable, net, increased $9.6 million from December 31, 2016 to December 31, 2017 primarily due to increases in sales, partially offset by a decrease Accounts receivable, net, increased $9.6 million from December 31, 2016 to December 31, 2017 primarily due to increases in sales, partially offset by a decrease in days sales outstanding (measured against net sales in the fourth quarter of each period), which were 38 days at December 31, 2016 and 35 days at December 31, in days sales outstanding (measured against net sales in the fourth quarter of each period), which were 38 days at December 31, 2016 and 35 days at December 31, Inventories, net, increased $36.8 million from December 31, 2016 to December 31, 2017 primarily due to commodity price inflation and increases in sales. Inventories, net, increased $36.8 million from December 31, 2016 to December 31, 2017 primarily due to commodity price inflation and increases in sales. Inventory days on hand (measured against cost of sales in the fourth quarter of each period) were 43 days at December 31, 2017 and 2016 . Inventory days on hand (measured against cost of sales in the fourth quarter of each period) were 43 days at December 31, 2017 and 2016 . Accounts payable, accrued expenses and other current liabilities increased $15.9 million from December 31, 2016 to December 31, 2017 primarily due to an Accounts payable, accrued expenses and other current liabilities increased $15.9 million from December 31, 2016 to December 31, 2017 primarily due to an increase in accounts payable related to increased inventory purchases in connection with higher sales volume. increase in accounts payable related to increased inventory purchases in connection with higher sales volume. Liquidity and Capital Resources Liquidity and Capital Resources Cash flows from operating activities Cash flows from operating activities Our primary capital requirements are to fund working capital needs and operating expenses, meet required interest and principal payments and fund capital Our primary capital requirements are to fund working capital needs and operating expenses, meet required interest and principal payments and fund capital expenditures. During 2017 and 2016 , our capital resources have primarily consisted of cash and cash equivalents generated through operating cash flows, proceeds expenditures. During 2017 and 2016 , our capital resources have primarily consisted of cash and cash equivalents generated through operating cash flows, proceeds from the September 2016 issuance of the Senior Notes and borrowings under our Revolver. from the September 2016 issuance of the Senior Notes and borrowings under our Revolver. Net cash provided by operating activities was $93.9 million , $106.9 million and $0.7 million for the years ended December 31, 2017 , 2016 and 2015 , Net cash provided by operating activities was $93.9 million , $106.9 million and $0.7 million for the years ended December 31, 2017 , 2016 and 2015 , respectively, as summarized in the following table: respectively, as summarized in the following table: Our liquidity at December 31, 2017 was $320.0 million , which includes $11.8 million in cash and cash equivalents and $308.2 million of unused borrowing Our liquidity at December 31, 2017 was $320.0 million , which includes $11.8 million in cash and cash equivalents and $308.2 million of unused borrowing capacity under our Revolver. capacity under our Revolver. We believe that our cash flows from operations, combined with our current cash levels and available borrowing capacity, will be adequate to fund debt service We believe that our cash flows from operations, combined with our current cash levels and available borrowing capacity, will be adequate to fund debt service requirements and provide cash, as required, to support our ongoing operations, capital expenditures, lease obligations and working capital for at least the next requirements and provide cash, as required, to support our ongoing operations, capital expenditures, lease obligations and working capital for at least the next 12 months. 12 months. 34 34 (in thousands) (in thousands) Net income (loss) Net income (loss) Non-cash expenses Non-cash expenses Change in deferred income taxes Change in deferred income taxes Impairment of assets Impairment of assets Loss on debt extinguishment Loss on debt extinguishment Change in working capital and other assets and liabilities Change in working capital and other assets and liabilities Net cash provided by operating activities Net cash provided by operating activities Year Ended December 31, Year Ended December 31, 2017 2017 2016 2016 2015 2015 $ $ 57,425 $ 57,425 $ 30,880 $ 30,880 $ 74,548 74,548 2,318 2,318 435 435 — — (40,792) (40,792) 79,629 79,629 (3,571) (3,571) 11,928 11,928 12,529 12,529 (24,507) (24,507) $ $ 93,934 $ 93,934 $ 106,888 $ 106,888 $ (4,831) (4,831) 39,895 39,895 (5,892) (5,892) — — — — (28,429) (28,429) 743 743 Net cash provided by operating activities decreased by $13.0 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016. Net cash provided by operating activities decreased by $13.0 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016. This decrease was primarily related to an increase in cash paid for income taxes, net of refunds, of $14.6 million , which resulted from an increase in taxable This decrease was primarily related to an increase in cash paid for income taxes, net of refunds, of $14.6 million , which resulted from an increase in taxable income and the utilization during the year ended December 31, 2016 of income tax overpayments made during the year ended December 31, 2015. Changes in income and the utilization during the year ended December 31, 2016 of income tax overpayments made during the year ended December 31, 2015. Changes in other assets and liabilities relate primarily to the timing of cash received from customers and cash paid to vendors. other assets and liabilities relate primarily to the timing of cash received from customers and cash paid to vendors. Net cash provided by operating activities increased by $106.1 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015. Net cash provided by operating activities increased by $106.1 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase was primarily related to improved profitability and the effects of the Merger, whereby the year ended December 31, 2016 contains a full year of This increase was primarily related to improved profitability and the effects of the Merger, whereby the year ended December 31, 2016 contains a full year of Legacy SBS cash flows, while the year ended December 31, 2015 only contains the cash flows of Legacy SBS beginning on the date that the Merger was Legacy SBS cash flows, while the year ended December 31, 2015 only contains the cash flows of Legacy SBS beginning on the date that the Merger was completed, December 1, 2015. completed, December 1, 2015. 35 35 Loss on debt extinguishment Loss on debt extinguishment Other income, net Other income, net Income tax Income tax built-in losses. built-in losses. Liquidity and Capital Resources Liquidity and Capital Resources capacity under our Revolver. capacity under our Revolver. 12 months. 12 months. Interest expense Interest expense Historical Cash Flow Information Historical Cash Flow Information For the year ended December 31, 2016 , interest expense was $30.1 million compared to $27.6 million for the year ended December 31, 2015 . This increase For the year ended December 31, 2016 , interest expense was $30.1 million compared to $27.6 million for the year ended December 31, 2015 . This increase Net current assets Net current assets relates primarily to SBS borrowings that were assumed by the Company as of the date of the Merger and borrowings used to fund the acquisition of RBI. This relates primarily to SBS borrowings that were assumed by the Company as of the date of the Merger and borrowings used to fund the acquisition of RBI. This increase was partially offset by reduced borrowing levels on the Revolver after repaying approximately $74 million of Revolver borrowings from proceeds increase was partially offset by reduced borrowing levels on the Revolver after repaying approximately $74 million of Revolver borrowings from proceeds received from the Company's refinancing of its Senior Notes in September 2016. Non-cash amortization of debt issuance costs, which is included in interest received from the Company's refinancing of its Senior Notes in September 2016. Non-cash amortization of debt issuance costs, which is included in interest expense, was $3.1 million and $2.5 million for the years ended December 31, 2016 and 2015 , respectively. expense, was $3.1 million and $2.5 million for the years ended December 31, 2016 and 2015 , respectively. Net current assets (current assets less current liabilities) were $418.9 million and $364.1 million as of December 31, 2017 and 2016 , respectively, as summarized Net current assets (current assets less current liabilities) were $418.9 million and $364.1 million as of December 31, 2017 and 2016 , respectively, as summarized in the following table: in the following table: For the year ended December 31, 2016 , the Company incurred a loss on debt extinguishment of $12.5 million related to the redemption of the Extinguished Senior For the year ended December 31, 2016 , the Company incurred a loss on debt extinguishment of $12.5 million related to the redemption of the Extinguished Senior Notes. The loss is made up of a call premium of $8.4 million and the write off of unamortized debt issuance costs and original issue discount of $4.1 million. Notes. The loss is made up of a call premium of $8.4 million and the write off of unamortized debt issuance costs and original issue discount of $4.1 million. (in thousands) (in thousands) Cash and cash equivalents Cash and cash equivalents Accounts receivable, net of allowances Accounts receivable, net of allowances Inventories, net Inventories, net Other current assets Other current assets For the year ended December 31, 2016 , other income, net increased $3.3 million compared to the year ended December 31, 2015 . Approximately $1.9 million of For the year ended December 31, 2016 , other income, net increased $3.3 million compared to the year ended December 31, 2015 . Approximately $1.9 million of this increase was due to insurance proceeds received during the year ended December 31, 2016 related to a fire at one of the Company's facilities during 2015. The this increase was due to insurance proceeds received during the year ended December 31, 2016 related to a fire at one of the Company's facilities during 2015. The remaining increase relates primarily to service charges assessed on past due accounts receivable for Legacy SBS operations. remaining increase relates primarily to service charges assessed on past due accounts receivable for Legacy SBS operations. Accounts payable, accrued expenses and other current liabilities Accounts payable, accrued expenses and other current liabilities Current portion of long-term debt and capital lease obligations Current portion of long-term debt and capital lease obligations Total net current assets Total net current assets December 31, December 31, 2017 2017 December 31, December 31, 2016 2016 $ $ 11,750 $ 11,750 $ 322,892 322,892 309,060 309,060 90,435 90,435 (307,538) (307,538) (7,739) (7,739) $ $ 418,860 $ 418,860 $ 8,917 8,917 313,304 313,304 272,276 272,276 72,445 72,445 (291,657) (291,657) (11,155) (11,155) 364,130 364,130 For the year ended December 31, 2016 , income tax expense was $14.3 million compared to income tax benefit of $9.7 million for the year ended December 31, For the year ended December 31, 2016 , income tax expense was $14.3 million compared to income tax benefit of $9.7 million for the year ended December 31, 2015 . The effective tax rate for the year ended December 31, 2016 was 31.6% compared to 66.7% for the year ended December 31, 2015 . For the year ended 2015 . The effective tax rate for the year ended December 31, 2016 was 31.6% compared to 66.7% for the year ended December 31, 2015 . For the year ended December 31, 2016, the Company's effective tax rate was lower than the Company's federal and state statutory rates primarily due to the adoption of a state tax December 31, 2016, the Company's effective tax rate was lower than the Company's federal and state statutory rates primarily due to the adoption of a state tax position related to IRC section 382 limitations on a state net operating loss carryforward, excess windfall tax benefits of stock compensation deductions, and an position related to IRC section 382 limitations on a state net operating loss carryforward, excess windfall tax benefits of stock compensation deductions, and an IRC section 199 manufacturing deduction. For the year ended December 31, 2015, the Company's effective tax rate was higher than the Company's federal and IRC section 199 manufacturing deduction. For the year ended December 31, 2015, the Company's effective tax rate was higher than the Company's federal and state statutory rates primarily due to adopting a tax position related to IRC section 382 limitations on its federal and state net operating loss carryforwards and other state statutory rates primarily due to adopting a tax position related to IRC section 382 limitations on its federal and state net operating loss carryforwards and other Accounts receivable, net, increased $9.6 million from December 31, 2016 to December 31, 2017 primarily due to increases in sales, partially offset by a decrease Accounts receivable, net, increased $9.6 million from December 31, 2016 to December 31, 2017 primarily due to increases in sales, partially offset by a decrease in days sales outstanding (measured against net sales in the fourth quarter of each period), which were 38 days at December 31, 2016 and 35 days at December 31, in days sales outstanding (measured against net sales in the fourth quarter of each period), which were 38 days at December 31, 2016 and 35 days at December 31, 2017 . 2017 . Inventories, net, increased $36.8 million from December 31, 2016 to December 31, 2017 primarily due to commodity price inflation and increases in sales. Inventories, net, increased $36.8 million from December 31, 2016 to December 31, 2017 primarily due to commodity price inflation and increases in sales. Inventory days on hand (measured against cost of sales in the fourth quarter of each period) were 43 days at December 31, 2017 and 2016 . Inventory days on hand (measured against cost of sales in the fourth quarter of each period) were 43 days at December 31, 2017 and 2016 . Accounts payable, accrued expenses and other current liabilities increased $15.9 million from December 31, 2016 to December 31, 2017 primarily due to an Accounts payable, accrued expenses and other current liabilities increased $15.9 million from December 31, 2016 to December 31, 2017 primarily due to an increase in accounts payable related to increased inventory purchases in connection with higher sales volume. increase in accounts payable related to increased inventory purchases in connection with higher sales volume. Cash flows from operating activities Cash flows from operating activities Our primary capital requirements are to fund working capital needs and operating expenses, meet required interest and principal payments and fund capital Our primary capital requirements are to fund working capital needs and operating expenses, meet required interest and principal payments and fund capital expenditures. During 2017 and 2016 , our capital resources have primarily consisted of cash and cash equivalents generated through operating cash flows, proceeds expenditures. During 2017 and 2016 , our capital resources have primarily consisted of cash and cash equivalents generated through operating cash flows, proceeds from the September 2016 issuance of the Senior Notes and borrowings under our Revolver. from the September 2016 issuance of the Senior Notes and borrowings under our Revolver. Net cash provided by operating activities was $93.9 million , $106.9 million and $0.7 million for the years ended December 31, 2017 , 2016 and 2015 , Net cash provided by operating activities was $93.9 million , $106.9 million and $0.7 million for the years ended December 31, 2017 , 2016 and 2015 , respectively, as summarized in the following table: respectively, as summarized in the following table: Our liquidity at December 31, 2017 was $320.0 million , which includes $11.8 million in cash and cash equivalents and $308.2 million of unused borrowing Our liquidity at December 31, 2017 was $320.0 million , which includes $11.8 million in cash and cash equivalents and $308.2 million of unused borrowing We believe that our cash flows from operations, combined with our current cash levels and available borrowing capacity, will be adequate to fund debt service We believe that our cash flows from operations, combined with our current cash levels and available borrowing capacity, will be adequate to fund debt service requirements and provide cash, as required, to support our ongoing operations, capital expenditures, lease obligations and working capital for at least the next requirements and provide cash, as required, to support our ongoing operations, capital expenditures, lease obligations and working capital for at least the next 34 34 (in thousands) (in thousands) Net income (loss) Net income (loss) Non-cash expenses Non-cash expenses Change in deferred income taxes Change in deferred income taxes Impairment of assets Impairment of assets Loss on debt extinguishment Loss on debt extinguishment Change in working capital and other assets and liabilities Change in working capital and other assets and liabilities Net cash provided by operating activities Net cash provided by operating activities Year Ended December 31, Year Ended December 31, 2017 2017 2016 2016 2015 2015 $ $ 57,425 $ 57,425 $ 30,880 $ 30,880 $ 74,548 74,548 2,318 2,318 435 435 — — (40,792) (40,792) 79,629 79,629 (3,571) (3,571) 11,928 11,928 12,529 12,529 (24,507) (24,507) $ $ 93,934 $ 93,934 $ 106,888 $ 106,888 $ (4,831) (4,831) 39,895 39,895 (5,892) (5,892) — — — — (28,429) (28,429) 743 743 Net cash provided by operating activities decreased by $13.0 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016. Net cash provided by operating activities decreased by $13.0 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016. This decrease was primarily related to an increase in cash paid for income taxes, net of refunds, of $14.6 million , which resulted from an increase in taxable This decrease was primarily related to an increase in cash paid for income taxes, net of refunds, of $14.6 million , which resulted from an increase in taxable income and the utilization during the year ended December 31, 2016 of income tax overpayments made during the year ended December 31, 2015. Changes in income and the utilization during the year ended December 31, 2016 of income tax overpayments made during the year ended December 31, 2015. Changes in other assets and liabilities relate primarily to the timing of cash received from customers and cash paid to vendors. other assets and liabilities relate primarily to the timing of cash received from customers and cash paid to vendors. Net cash provided by operating activities increased by $106.1 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015. Net cash provided by operating activities increased by $106.1 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase was primarily related to improved profitability and the effects of the Merger, whereby the year ended December 31, 2016 contains a full year of This increase was primarily related to improved profitability and the effects of the Merger, whereby the year ended December 31, 2016 contains a full year of Legacy SBS cash flows, while the year ended December 31, 2015 only contains the cash flows of Legacy SBS beginning on the date that the Merger was Legacy SBS cash flows, while the year ended December 31, 2015 only contains the cash flows of Legacy SBS beginning on the date that the Merger was completed, December 1, 2015. completed, December 1, 2015. 35 35 For the year ended December 31, 2017, the Company had proceeds from the Revolver, net of repayments, of $4.5 million . The Company made net repayments of For the year ended December 31, 2017, the Company had proceeds from the Revolver, net of repayments, of $4.5 million . The Company made net repayments of $152.3 million on the Revolver during the year ended December 31, 2016. Approximately $74 million of this repayment was funded through net proceeds from the $152.3 million on the Revolver during the year ended December 31, 2016. Approximately $74 million of this repayment was funded through net proceeds from the September 2016 Senior Notes issuance, after payment of accrued interest, debt issuance costs and the call premium. Proceeds from the Revolver, net of September 2016 Senior Notes issuance, after payment of accrued interest, debt issuance costs and the call premium. Proceeds from the Revolver, net of repayments, of $84.5 million for the year ended December 31, 2015 relates primarily to amounts borrowed to purchase RBI in September 2015, as well as repayments, of $84.5 million for the year ended December 31, 2015 relates primarily to amounts borrowed to purchase RBI in September 2015, as well as purchases of property and equipment. purchases of property and equipment. Payments on capital leases and other notes increased during the years ended December 31, 2017 and 2016 compared to the year ended December 31, 2015 due Payments on capital leases and other notes increased during the years ended December 31, 2017 and 2016 compared to the year ended December 31, 2015 due primarily to new financing of handling equipment to support higher sales volumes as well as one-time payments made during the year ended December 31, 2017 primarily to new financing of handling equipment to support higher sales volumes as well as one-time payments made during the year ended December 31, 2017 related to the payoff of certain other notes. related to the payoff of certain other notes. During September 2016, the Company completed an issuance of $350.0 million of Senior Notes and utilized a portion of the cash proceeds from the issuance to During September 2016, the Company completed an issuance of $350.0 million of Senior Notes and utilized a portion of the cash proceeds from the issuance to redeem in full the $250.0 million Extinguished Senior Notes. The Company incurred $6.7 million of debt issuance costs related to the Senior Notes, and paid a call redeem in full the $250.0 million Extinguished Senior Notes. The Company incurred $6.7 million of debt issuance costs related to the Senior Notes, and paid a call premium of $8.4 million related to the Extinguished Senior Notes. The debt issuance costs incurred during 2015 relate primarily to third-party and lender costs premium of $8.4 million related to the Extinguished Senior Notes. The debt issuance costs incurred during 2015 relate primarily to third-party and lender costs incurred in relation to the Credit Agreement. incurred in relation to the Credit Agreement. During May 2016, the Company commenced a public offering of 5,700,000 shares of its common stock by certain stockholders. In connection with the offering, During May 2016, the Company commenced a public offering of 5,700,000 shares of its common stock by certain stockholders. In connection with the offering, the Company granted the underwriters an option to purchase up to an additional 855,000 shares of common stock. The underwriters exercised this option, which the Company granted the underwriters an option to purchase up to an additional 855,000 shares of common stock. The underwriters exercised this option, which generated gross proceeds of $14.5 million and net proceeds of $13.8 million, after subtracting $0.7 million of underwriting commissions and other fees. generated gross proceeds of $14.5 million and net proceeds of $13.8 million, after subtracting $0.7 million of underwriting commissions and other fees. Borrowings under other notes for the year ended December 31, 2015 relate to notes secured by certain operating equipment. No such borrowings were made during Borrowings under other notes for the year ended December 31, 2015 relate to notes secured by certain operating equipment. No such borrowings were made during Cash flows from investing activities Cash flows from investing activities Net cash used in investing activities was $88.3 million , $33.7 million and $135.1 million for the years ended December 31, 2017 , 2016 and 2015 , respectively, as Net cash used in investing activities was $88.3 million , $33.7 million and $135.1 million for the years ended December 31, 2017 , 2016 and 2015 , respectively, as summarized in the following table: summarized in the following table: (in thousands) (in thousands) Purchases of property, equipment and real estate Purchases of property, equipment and real estate Purchases of businesses, net of cash acquired Purchases of businesses, net of cash acquired Proceeds from sale of property, equipment and real estate Proceeds from sale of property, equipment and real estate Insurance proceeds Insurance proceeds Change in restricted assets Change in restricted assets Cash acquired in the Merger Cash acquired in the Merger Year Ended December 31, Year Ended December 31, 2017 2017 2016 2016 2015 2015 $ $ (63,278) $ (63,278) $ (38,067) $ (38,067) $ (38,438) (38,438) 13,445 13,445 — — — — — — — — 3,187 3,187 1,151 1,151 — — — — (31,319) (31,319) (149,485) (149,485) 3,280 3,280 — — 36,106 36,106 6,342 6,342 Net cash used in investing activities Net cash used in investing activities $ $ (88,271) $ (88,271) $ (33,729) $ (33,729) $ (135,076) (135,076) Cash used for the purchase of property, equipment and real estate for the years ended December 31, 2017 , 2016 and 2015 resulted primarily from the purchase of Cash used for the purchase of property, equipment and real estate for the years ended December 31, 2017 , 2016 and 2015 resulted primarily from the purchase of vehicles and equipment to support increased sales volume and replace aged assets, and facility and technology investments to support our operations. Proceeds vehicles and equipment to support increased sales volume and replace aged assets, and facility and technology investments to support our operations. Proceeds from the sale of property, equipment and real estate during the year ended December 31, 2017 relates primarily to the sale of real estate of $12.7 million . from the sale of property, equipment and real estate during the year ended December 31, 2017 relates primarily to the sale of real estate of $12.7 million . the years ended December 31, 2017 and 2016. the years ended December 31, 2017 and 2016. Purchases of businesses, net of cash acquired, for the year ended December 31, 2017 relate to the acquisitions of Code Plus and TexPly and for the year ended Purchases of businesses, net of cash acquired, for the year ended December 31, 2017 relate to the acquisitions of Code Plus and TexPly and for the year ended December 31, 2015, relate to the acquisitions of VNS and RBI, as discussed in "Factors Affecting our Operating Results" above. December 31, 2015, relate to the acquisitions of VNS and RBI, as discussed in "Factors Affecting our Operating Results" above. Proceeds from the exercise of stock options, which are included in other financing activities, net, were $3.4 million , $1.3 million and $0 for the years ended Proceeds from the exercise of stock options, which are included in other financing activities, net, were $3.4 million , $1.3 million and $0 for the years ended December 31, 2017 , 2016 and 2015 , respectively. Other financing activities, net also includes net activity related to secured borrowings and purchases of treasury December 31, 2017 , 2016 and 2015 , respectively. Other financing activities, net also includes net activity related to secured borrowings and purchases of treasury stock in connection with shares withheld on vesting and exercises of equity awards. stock in connection with shares withheld on vesting and exercises of equity awards. During the year ended December 31, 2016, the Company received insurance proceeds related to a fire at one of the Company's facilities during 2015, of which $1.2 During the year ended December 31, 2016, the Company received insurance proceeds related to a fire at one of the Company's facilities during 2015, of which $1.2 million related to property, plant and equipment damaged in the fire. million related to property, plant and equipment damaged in the fire. Capital expenditures Capital expenditures During 2013, BMHC deposited $46.4 million in a separate bank account to collateralize letters of credit related to insurance claims for periods prior to January During 2013, BMHC deposited $46.4 million in a separate bank account to collateralize letters of credit related to insurance claims for periods prior to January 2010. During 2015, BMHC was able to release the majority of these amounts into unrestricted cash as a result of reductions in claims and the transfer of the risk of 2010. During 2015, BMHC was able to release the majority of these amounts into unrestricted cash as a result of reductions in claims and the transfer of the risk of loss of certain claims to a reinsurer in January 2015. In connection with the Credit Agreement entered into on December 1, 2015, the Company was able to release loss of certain claims to a reinsurer in January 2015. In connection with the Credit Agreement entered into on December 1, 2015, the Company was able to release the remaining cash collateral into unrestricted cash. the remaining cash collateral into unrestricted cash. Capital expenditures vary depending on prevailing business factors, including current and anticipated market conditions. We expect our 2018 capital expenditures, Capital expenditures vary depending on prevailing business factors, including current and anticipated market conditions. We expect our 2018 capital expenditures, including the incurrence of capital lease obligations and net of proceeds from the sale of property, equipment and real estate to be approximately $55.0 million to including the incurrence of capital lease obligations and net of proceeds from the sale of property, equipment and real estate to be approximately $55.0 million to $65.0 million primarily related to vehicles and equipment, including lease buyouts, and facility and technology investments to support our operations. We are still $65.0 million primarily related to vehicles and equipment, including lease buyouts, and facility and technology investments to support our operations. We are still evaluating the impact of the 2017 Tax Act on our level of capital expenditures, which may incentivize us to increase our level of capital spending during 2018. evaluating the impact of the 2017 Tax Act on our level of capital expenditures, which may incentivize us to increase our level of capital spending during 2018. Cash acquired in the Merger of $6.3 million represents cash and cash equivalents of SBS on the closing date of the Merger. Cash acquired in the Merger of $6.3 million represents cash and cash equivalents of SBS on the closing date of the Merger. Senior secured notes Senior secured notes Cash flows from financing activities Cash flows from financing activities Net cash (used in) provided by financing activities was $(2.8) million , $(65.3) million and $72.2 million for the years ended December 31, 2017 , 2016 and 2015 , Net cash (used in) provided by financing activities was $(2.8) million , $(65.3) million and $72.2 million for the years ended December 31, 2017 , 2016 and 2015 , respectively, as summarized in the following table: respectively, as summarized in the following table: (in thousands) (in thousands) Net proceeds from (repayments of) Revolver Net proceeds from (repayments of) Revolver Payments on capital leases and other notes Payments on capital leases and other notes Payments of debt issuance costs Payments of debt issuance costs Proceeds from issuance of Senior Notes Proceeds from issuance of Senior Notes Redemption of Extinguished Senior Notes Redemption of Extinguished Senior Notes Proceeds from issuance of common stock, net of offering costs Proceeds from issuance of common stock, net of offering costs Payments of debt extinguishment costs Payments of debt extinguishment costs Borrowings under other notes Borrowings under other notes Other financing activities, net Other financing activities, net Net cash (used in) provided by financing activities Net cash (used in) provided by financing activities Year Ended December 31, Year Ended December 31, 2017 2017 2016 2016 2015 2015 $ $ 4,462 $ 4,462 $ (152,260) $ (152,260) $ (12,553) (12,553) (38) (38) — — — — — — — — — — $ $ 5,299 5,299 (2,830) $ (2,830) $ (12,103) (12,103) (7,011) (7,011) 350,000 350,000 (250,000) (250,000) 13,776 13,776 (8,438) (8,438) — — 705 705 (65,331) $ (65,331) $ 84,546 84,546 (10,623) (10,623) (3,567) (3,567) — — — — — — — — 2,491 2,491 (687) (687) 72,160 72,160 36 36 On September 15, 2016, the Company issued $350.0 million of Senior Notes. The Senior Notes mature on October 1, 2024 and are secured by a first priority lien On September 15, 2016, the Company issued $350.0 million of Senior Notes. The Senior Notes mature on October 1, 2024 and are secured by a first priority lien on certain assets of the Company and a second priority lien on the collateral that secures the Credit Agreement, which collectively approximates substantially all on certain assets of the Company and a second priority lien on the collateral that secures the Credit Agreement, which collectively approximates substantially all assets of the Company. The interest rate is fixed at 5.5% and is payable semiannually on April 1 and October 1. The Indenture contains customary nonfinancial assets of the Company. The interest rate is fixed at 5.5% and is payable semiannually on April 1 and October 1. The Indenture contains customary nonfinancial covenants, including restrictions on new indebtedness, issuance of liens and guarantees, investments, distributions to equityholders, asset sales and affiliate covenants, including restrictions on new indebtedness, issuance of liens and guarantees, investments, distributions to equityholders, asset sales and affiliate transactions. The Senior Notes were issued by BMC East, LLC, a 100% owned subsidiary of the Company, and are guaranteed by the Company and the other transactions. The Senior Notes were issued by BMC East, LLC, a 100% owned subsidiary of the Company, and are guaranteed by the Company and the other subsidiaries that guarantee the Credit Agreement. Each of the subsidiary guarantors is 100% owned, directly or indirectly, by the Company, and all guarantees are subsidiaries that guarantee the Credit Agreement. Each of the subsidiary guarantors is 100% owned, directly or indirectly, by the Company, and all guarantees are full and unconditional and joint and several. We were in compliance with all covenants under the Indenture as of December 31, 2017. full and unconditional and joint and several. We were in compliance with all covenants under the Indenture as of December 31, 2017. Revolving credit agreement Revolving credit agreement On December 1, 2015, in connection with the Merger, the Company entered into the Credit Agreement with Wells Fargo Capital Finance, as administrative agent, On December 1, 2015, in connection with the Merger, the Company entered into the Credit Agreement with Wells Fargo Capital Finance, as administrative agent, and certain other lenders. The Credit Agreement, as amended, which includes the Revolver, has an aggregate commitment of $375.0 million and a letters of credit and certain other lenders. The Credit Agreement, as amended, which includes the Revolver, has an aggregate commitment of $375.0 million and a letters of credit sublimit of $100.0 million. The Revolver matures at the earlier of (i) December 1, 2020 and (ii) the date that is three months prior to the maturity of the Senior sublimit of $100.0 million. The Revolver matures at the earlier of (i) December 1, 2020 and (ii) the date that is three months prior to the maturity of the Senior Notes, or if the Senior Notes are refinanced or repaid, the date that is three months prior to the new maturity date of the replacement notes or other indebtedness Notes, or if the Senior Notes are refinanced or repaid, the date that is three months prior to the new maturity date of the replacement notes or other indebtedness 37 37 Net cash used in investing activities was $88.3 million , $33.7 million and $135.1 million for the years ended December 31, 2017 , 2016 and 2015 , respectively, as Net cash used in investing activities was $88.3 million , $33.7 million and $135.1 million for the years ended December 31, 2017 , 2016 and 2015 , respectively, as Cash flows from investing activities Cash flows from investing activities summarized in the following table: summarized in the following table: (in thousands) (in thousands) Purchases of property, equipment and real estate Purchases of property, equipment and real estate Purchases of businesses, net of cash acquired Purchases of businesses, net of cash acquired Proceeds from sale of property, equipment and real estate Proceeds from sale of property, equipment and real estate Insurance proceeds Insurance proceeds Change in restricted assets Change in restricted assets Cash acquired in the Merger Cash acquired in the Merger Year Ended December 31, Year Ended December 31, 2017 2017 2016 2016 2015 2015 $ $ (63,278) $ (63,278) $ (38,067) $ (38,067) $ (38,438) (38,438) 13,445 13,445 — — — — — — — — 3,187 3,187 1,151 1,151 — — — — (31,319) (31,319) (149,485) (149,485) 3,280 3,280 — — 36,106 36,106 6,342 6,342 Net cash used in investing activities Net cash used in investing activities $ $ (88,271) $ (88,271) $ (33,729) $ (33,729) $ (135,076) (135,076) Cash used for the purchase of property, equipment and real estate for the years ended December 31, 2017 , 2016 and 2015 resulted primarily from the purchase of Cash used for the purchase of property, equipment and real estate for the years ended December 31, 2017 , 2016 and 2015 resulted primarily from the purchase of vehicles and equipment to support increased sales volume and replace aged assets, and facility and technology investments to support our operations. Proceeds vehicles and equipment to support increased sales volume and replace aged assets, and facility and technology investments to support our operations. Proceeds from the sale of property, equipment and real estate during the year ended December 31, 2017 relates primarily to the sale of real estate of $12.7 million . from the sale of property, equipment and real estate during the year ended December 31, 2017 relates primarily to the sale of real estate of $12.7 million . Purchases of businesses, net of cash acquired, for the year ended December 31, 2017 relate to the acquisitions of Code Plus and TexPly and for the year ended Purchases of businesses, net of cash acquired, for the year ended December 31, 2017 relate to the acquisitions of Code Plus and TexPly and for the year ended December 31, 2015, relate to the acquisitions of VNS and RBI, as discussed in "Factors Affecting our Operating Results" above. December 31, 2015, relate to the acquisitions of VNS and RBI, as discussed in "Factors Affecting our Operating Results" above. For the year ended December 31, 2017, the Company had proceeds from the Revolver, net of repayments, of $4.5 million . The Company made net repayments of For the year ended December 31, 2017, the Company had proceeds from the Revolver, net of repayments, of $4.5 million . The Company made net repayments of $152.3 million on the Revolver during the year ended December 31, 2016. Approximately $74 million of this repayment was funded through net proceeds from the $152.3 million on the Revolver during the year ended December 31, 2016. Approximately $74 million of this repayment was funded through net proceeds from the September 2016 Senior Notes issuance, after payment of accrued interest, debt issuance costs and the call premium. Proceeds from the Revolver, net of September 2016 Senior Notes issuance, after payment of accrued interest, debt issuance costs and the call premium. Proceeds from the Revolver, net of repayments, of $84.5 million for the year ended December 31, 2015 relates primarily to amounts borrowed to purchase RBI in September 2015, as well as repayments, of $84.5 million for the year ended December 31, 2015 relates primarily to amounts borrowed to purchase RBI in September 2015, as well as purchases of property and equipment. purchases of property and equipment. Payments on capital leases and other notes increased during the years ended December 31, 2017 and 2016 compared to the year ended December 31, 2015 due Payments on capital leases and other notes increased during the years ended December 31, 2017 and 2016 compared to the year ended December 31, 2015 due primarily to new financing of handling equipment to support higher sales volumes as well as one-time payments made during the year ended December 31, 2017 primarily to new financing of handling equipment to support higher sales volumes as well as one-time payments made during the year ended December 31, 2017 related to the payoff of certain other notes. related to the payoff of certain other notes. During September 2016, the Company completed an issuance of $350.0 million of Senior Notes and utilized a portion of the cash proceeds from the issuance to During September 2016, the Company completed an issuance of $350.0 million of Senior Notes and utilized a portion of the cash proceeds from the issuance to redeem in full the $250.0 million Extinguished Senior Notes. The Company incurred $6.7 million of debt issuance costs related to the Senior Notes, and paid a call redeem in full the $250.0 million Extinguished Senior Notes. The Company incurred $6.7 million of debt issuance costs related to the Senior Notes, and paid a call premium of $8.4 million related to the Extinguished Senior Notes. The debt issuance costs incurred during 2015 relate primarily to third-party and lender costs premium of $8.4 million related to the Extinguished Senior Notes. The debt issuance costs incurred during 2015 relate primarily to third-party and lender costs incurred in relation to the Credit Agreement. incurred in relation to the Credit Agreement. During May 2016, the Company commenced a public offering of 5,700,000 shares of its common stock by certain stockholders. In connection with the offering, During May 2016, the Company commenced a public offering of 5,700,000 shares of its common stock by certain stockholders. In connection with the offering, the Company granted the underwriters an option to purchase up to an additional 855,000 shares of common stock. The underwriters exercised this option, which the Company granted the underwriters an option to purchase up to an additional 855,000 shares of common stock. The underwriters exercised this option, which generated gross proceeds of $14.5 million and net proceeds of $13.8 million, after subtracting $0.7 million of underwriting commissions and other fees. generated gross proceeds of $14.5 million and net proceeds of $13.8 million, after subtracting $0.7 million of underwriting commissions and other fees. Borrowings under other notes for the year ended December 31, 2015 relate to notes secured by certain operating equipment. No such borrowings were made during Borrowings under other notes for the year ended December 31, 2015 relate to notes secured by certain operating equipment. No such borrowings were made during the years ended December 31, 2017 and 2016. the years ended December 31, 2017 and 2016. Proceeds from the exercise of stock options, which are included in other financing activities, net, were $3.4 million , $1.3 million and $0 for the years ended Proceeds from the exercise of stock options, which are included in other financing activities, net, were $3.4 million , $1.3 million and $0 for the years ended December 31, 2017 , 2016 and 2015 , respectively. Other financing activities, net also includes net activity related to secured borrowings and purchases of treasury December 31, 2017 , 2016 and 2015 , respectively. Other financing activities, net also includes net activity related to secured borrowings and purchases of treasury stock in connection with shares withheld on vesting and exercises of equity awards. stock in connection with shares withheld on vesting and exercises of equity awards. During the year ended December 31, 2016, the Company received insurance proceeds related to a fire at one of the Company's facilities during 2015, of which $1.2 During the year ended December 31, 2016, the Company received insurance proceeds related to a fire at one of the Company's facilities during 2015, of which $1.2 million related to property, plant and equipment damaged in the fire. million related to property, plant and equipment damaged in the fire. Capital expenditures Capital expenditures During 2013, BMHC deposited $46.4 million in a separate bank account to collateralize letters of credit related to insurance claims for periods prior to January During 2013, BMHC deposited $46.4 million in a separate bank account to collateralize letters of credit related to insurance claims for periods prior to January 2010. During 2015, BMHC was able to release the majority of these amounts into unrestricted cash as a result of reductions in claims and the transfer of the risk of 2010. During 2015, BMHC was able to release the majority of these amounts into unrestricted cash as a result of reductions in claims and the transfer of the risk of loss of certain claims to a reinsurer in January 2015. In connection with the Credit Agreement entered into on December 1, 2015, the Company was able to release loss of certain claims to a reinsurer in January 2015. In connection with the Credit Agreement entered into on December 1, 2015, the Company was able to release the remaining cash collateral into unrestricted cash. the remaining cash collateral into unrestricted cash. Capital expenditures vary depending on prevailing business factors, including current and anticipated market conditions. We expect our 2018 capital expenditures, Capital expenditures vary depending on prevailing business factors, including current and anticipated market conditions. We expect our 2018 capital expenditures, including the incurrence of capital lease obligations and net of proceeds from the sale of property, equipment and real estate to be approximately $55.0 million to including the incurrence of capital lease obligations and net of proceeds from the sale of property, equipment and real estate to be approximately $55.0 million to $65.0 million primarily related to vehicles and equipment, including lease buyouts, and facility and technology investments to support our operations. We are still $65.0 million primarily related to vehicles and equipment, including lease buyouts, and facility and technology investments to support our operations. We are still evaluating the impact of the 2017 Tax Act on our level of capital expenditures, which may incentivize us to increase our level of capital spending during 2018. evaluating the impact of the 2017 Tax Act on our level of capital expenditures, which may incentivize us to increase our level of capital spending during 2018. Cash acquired in the Merger of $6.3 million represents cash and cash equivalents of SBS on the closing date of the Merger. Cash acquired in the Merger of $6.3 million represents cash and cash equivalents of SBS on the closing date of the Merger. Senior secured notes Senior secured notes Cash flows from financing activities Cash flows from financing activities Net cash (used in) provided by financing activities was $(2.8) million , $(65.3) million and $72.2 million for the years ended December 31, 2017 , 2016 and 2015 , Net cash (used in) provided by financing activities was $(2.8) million , $(65.3) million and $72.2 million for the years ended December 31, 2017 , 2016 and 2015 , respectively, as summarized in the following table: respectively, as summarized in the following table: On September 15, 2016, the Company issued $350.0 million of Senior Notes. The Senior Notes mature on October 1, 2024 and are secured by a first priority lien On September 15, 2016, the Company issued $350.0 million of Senior Notes. The Senior Notes mature on October 1, 2024 and are secured by a first priority lien on certain assets of the Company and a second priority lien on the collateral that secures the Credit Agreement, which collectively approximates substantially all on certain assets of the Company and a second priority lien on the collateral that secures the Credit Agreement, which collectively approximates substantially all assets of the Company. The interest rate is fixed at 5.5% and is payable semiannually on April 1 and October 1. The Indenture contains customary nonfinancial assets of the Company. The interest rate is fixed at 5.5% and is payable semiannually on April 1 and October 1. The Indenture contains customary nonfinancial covenants, including restrictions on new indebtedness, issuance of liens and guarantees, investments, distributions to equityholders, asset sales and affiliate covenants, including restrictions on new indebtedness, issuance of liens and guarantees, investments, distributions to equityholders, asset sales and affiliate transactions. The Senior Notes were issued by BMC East, LLC, a 100% owned subsidiary of the Company, and are guaranteed by the Company and the other transactions. The Senior Notes were issued by BMC East, LLC, a 100% owned subsidiary of the Company, and are guaranteed by the Company and the other subsidiaries that guarantee the Credit Agreement. Each of the subsidiary guarantors is 100% owned, directly or indirectly, by the Company, and all guarantees are subsidiaries that guarantee the Credit Agreement. Each of the subsidiary guarantors is 100% owned, directly or indirectly, by the Company, and all guarantees are full and unconditional and joint and several. We were in compliance with all covenants under the Indenture as of December 31, 2017. full and unconditional and joint and several. We were in compliance with all covenants under the Indenture as of December 31, 2017. $ $ 4,462 $ 4,462 $ (152,260) $ (152,260) $ Revolving credit agreement Revolving credit agreement On December 1, 2015, in connection with the Merger, the Company entered into the Credit Agreement with Wells Fargo Capital Finance, as administrative agent, On December 1, 2015, in connection with the Merger, the Company entered into the Credit Agreement with Wells Fargo Capital Finance, as administrative agent, and certain other lenders. The Credit Agreement, as amended, which includes the Revolver, has an aggregate commitment of $375.0 million and a letters of credit and certain other lenders. The Credit Agreement, as amended, which includes the Revolver, has an aggregate commitment of $375.0 million and a letters of credit sublimit of $100.0 million. The Revolver matures at the earlier of (i) December 1, 2020 and (ii) the date that is three months prior to the maturity of the Senior sublimit of $100.0 million. The Revolver matures at the earlier of (i) December 1, 2020 and (ii) the date that is three months prior to the maturity of the Senior Notes, or if the Senior Notes are refinanced or repaid, the date that is three months prior to the new maturity date of the replacement notes or other indebtedness Notes, or if the Senior Notes are refinanced or repaid, the date that is three months prior to the new maturity date of the replacement notes or other indebtedness 37 37 (in thousands) (in thousands) Net proceeds from (repayments of) Revolver Net proceeds from (repayments of) Revolver Payments on capital leases and other notes Payments on capital leases and other notes Payments of debt issuance costs Payments of debt issuance costs Proceeds from issuance of Senior Notes Proceeds from issuance of Senior Notes Redemption of Extinguished Senior Notes Redemption of Extinguished Senior Notes Proceeds from issuance of common stock, net of offering costs Proceeds from issuance of common stock, net of offering costs Payments of debt extinguishment costs Payments of debt extinguishment costs Borrowings under other notes Borrowings under other notes Other financing activities, net Other financing activities, net Net cash (used in) provided by financing activities Net cash (used in) provided by financing activities Year Ended December 31, Year Ended December 31, 2017 2017 2016 2016 2015 2015 (12,553) (12,553) (38) (38) — — — — — — — — — — $ $ 5,299 5,299 (2,830) $ (2,830) $ (12,103) (12,103) (7,011) (7,011) 350,000 350,000 (250,000) (250,000) 13,776 13,776 (8,438) (8,438) — — 705 705 (65,331) $ (65,331) $ 84,546 84,546 (10,623) (10,623) (3,567) (3,567) — — — — — — — — 2,491 2,491 (687) (687) 72,160 72,160 36 36 that replaced or refinanced the Senior Notes. The Revolver is subject to an asset-based borrowing formula on eligible accounts receivable, credit card receivables that replaced or refinanced the Senior Notes. The Revolver is subject to an asset-based borrowing formula on eligible accounts receivable, credit card receivables and inventory, in each case reduced by certain reserves. and inventory, in each case reduced by certain reserves. Contractual Obligations and Commercial Commitments Contractual Obligations and Commercial Commitments Borrowings under the Revolver bear interest, at our option, at either the Base Rate (which means the higher of (i) the Federal Funds Rate plus 0.5%, (ii) the LIBOR Borrowings under the Revolver bear interest, at our option, at either the Base Rate (which means the higher of (i) the Federal Funds Rate plus 0.5%, (ii) the LIBOR rate plus 1.0% or (iii) the prime rate) plus a Base Rate Margin (which ranges from 0.25% to 0.75% based on Revolver availability) or LIBOR plus a LIBOR Rate rate plus 1.0% or (iii) the prime rate) plus a Base Rate Margin (which ranges from 0.25% to 0.75% based on Revolver availability) or LIBOR plus a LIBOR Rate Margin (which ranges from 1.25% to 1.75% based on Revolver availability).The fee on any outstanding letters of credit issued under the Revolver ranges from Margin (which ranges from 1.25% to 1.75% based on Revolver availability).The fee on any outstanding letters of credit issued under the Revolver ranges from 0.75% to 1.25%, depending on whether the letters of credit are fully cash collateralized. The fee on the unused portion of the Revolver is 0.25%. 0.75% to 1.25%, depending on whether the letters of credit are fully cash collateralized. The fee on the unused portion of the Revolver is 0.25%. The Credit Agreement contains customary nonfinancial covenants, including restrictions on new indebtedness, issuance of liens, investments, distributions to The Credit Agreement contains customary nonfinancial covenants, including restrictions on new indebtedness, issuance of liens, investments, distributions to equityholders, asset sales and affiliate transactions. The Credit Agreement includes a financial covenant that requires us to maintain a minimum Fixed Charge equityholders, asset sales and affiliate transactions. The Credit Agreement includes a financial covenant that requires us to maintain a minimum Fixed Charge Coverage Ratio of 1.00:1:00, as defined therein. However, the covenant is only applicable if excess availability under the Credit Agreement is less than or equal to Coverage Ratio of 1.00:1:00, as defined therein. However, the covenant is only applicable if excess availability under the Credit Agreement is less than or equal to the greater of (i) $33.3 million and (ii) 10% of the line cap, and remains in effect until excess availability has been greater than the greater of (i) $33.3 million and the greater of (i) $33.3 million and (ii) 10% of the line cap, and remains in effect until excess availability has been greater than the greater of (i) $33.3 million and (ii) 10% of the line cap for 30 consecutive days. While there can be no assurances, based upon our forecast, we do not expect the financial covenant to become (ii) 10% of the line cap for 30 consecutive days. While there can be no assurances, based upon our forecast, we do not expect the financial covenant to become applicable during the year ended December 31, 2018 . We were in compliance with all covenants under the Credit Agreement as of December 31, 2017 . applicable during the year ended December 31, 2018 . We were in compliance with all covenants under the Credit Agreement as of December 31, 2017 . Obligations under the Credit Agreement are guaranteed by our material subsidiaries. Obligations under the Credit Agreement, and the guarantees of those Obligations under the Credit Agreement are guaranteed by our material subsidiaries. Obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of our assets and those of the guarantors, subject to certain exceptions and permitted liens, including a first-priority obligations, are secured by substantially all of our assets and those of the guarantors, subject to certain exceptions and permitted liens, including a first-priority security interest in certain accounts receivable, inventory and certain other assets of the Company and a second-priority security interest in substantially all other security interest in certain accounts receivable, inventory and certain other assets of the Company and a second-priority security interest in substantially all other assets of the Company that secure the Senior Notes on a first-priority basis. assets of the Company that secure the Senior Notes on a first-priority basis. We had outstanding borrowings of $4.5 million with net availability of $308.2 million as of December 31, 2017 . The interest rate on borrowings outstanding as of We had outstanding borrowings of $4.5 million with net availability of $308.2 million as of December 31, 2017 . The interest rate on borrowings outstanding as of December 31, 2017 , all of which were Base Rate borrowings, was 4.75% . We had $62.3 million in letters of credit outstanding under the Credit Agreement as of December 31, 2017 , all of which were Base Rate borrowings, was 4.75% . We had $62.3 million in letters of credit outstanding under the Credit Agreement as of December 31, 2017 . December 31, 2017 . 38 38 In the table below, we set forth our enforceable and legally binding obligations as of December 31, 2017 . Some of the amounts included in the table are based on In the table below, we set forth our enforceable and legally binding obligations as of December 31, 2017 . Some of the amounts included in the table are based on management's estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties and other management's estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties and other factors. Because these estimates and assumptions are necessarily subjective, our actual payments may vary from those reflected in the table. We have not included factors. Because these estimates and assumptions are necessarily subjective, our actual payments may vary from those reflected in the table. We have not included liabilities related to self-insurance reserves in the table below, as these reserves represent an estimate of our future obligations and do not represent cash liabilities related to self-insurance reserves in the table below, as these reserves represent an estimate of our future obligations and do not represent cash requirements arising from contractual payment obligations. Purchase orders made in the ordinary course of business and commitments that are cancellable on 30 requirements arising from contractual payment obligations. Purchase orders made in the ordinary course of business and commitments that are cancellable on 30 days' notice are excluded from the table below. Any amounts for which we are liable under purchase orders are reflected on the consolidated balance sheets as days' notice are excluded from the table below. Any amounts for which we are liable under purchase orders are reflected on the consolidated balance sheets as accounts payable and accrued liabilities. accounts payable and accrued liabilities. (in millions) (in millions) Senior Notes obligations (1) Senior Notes obligations (1) Revolver obligations (2) Revolver obligations (2) Capital lease obligations (3) Capital lease obligations (3) Operating lease obligations (4) Operating lease obligations (4) Purchase commitments (5) Purchase commitments (5) Other long-term debt (6) Other long-term debt (6) Total Total Total Total 2018 2018 2019-2020 2019-2020 2021-2022 2021-2022 Thereafter Thereafter $ $ 484.8 $ 484.8 $ 19.3 $ 19.3 $ Payments Due by Period Payments Due by Period 5.1 5.1 24.4 24.4 138.6 138.6 7.1 7.1 0.4 0.4 0.2 0.2 8.5 8.5 27.6 27.6 7.1 7.1 0.1 0.1 38.5 $ 38.5 $ 4.9 $ 4.9 $ 12.4 12.4 44.4 44.4 — — 0.3 0.3 38.5 $ 38.5 $ — $ — $ 2.8 2.8 29.3 29.3 — — — — $ $ 660.4 $ 660.4 $ 62.8 $ 62.8 $ 100.5 $ 100.5 $ 70.6 $ 70.6 $ 388.5 388.5 — — 0.7 0.7 37.3 37.3 — — — — 426.5 426.5 (1) Represents principal of $350.0 million and semi-annual interest payments at a 5.5% interest rate. The Senior Notes mature in October 2024. For further information, (1) Represents principal of $350.0 million and semi-annual interest payments at a 5.5% interest rate. The Senior Notes mature in October 2024. For further information, refer to Note 9 to our audited financial statements included in Item 8 of this Annual Report on Form 10-K. refer to Note 9 to our audited financial statements included in Item 8 of this Annual Report on Form 10-K. (2) Represents principal of $4.5 million and interest payments of $0.6 million, based on outstanding borrowings and interest rates in effect under the Revolver as of (2) Represents principal of $4.5 million and interest payments of $0.6 million, based on outstanding borrowings and interest rates in effect under the Revolver as of December 31, 2017. To the extent that a decrease in eligible accounts receivable, credit card receivables and inventory reduces the maximum availability under the December 31, 2017. To the extent that a decrease in eligible accounts receivable, credit card receivables and inventory reduces the maximum availability under the Revolver below the amount then outstanding, amounts outstanding could become due sooner than reflected in the table. The Revolver matures at the earlier of December Revolver below the amount then outstanding, amounts outstanding could become due sooner than reflected in the table. The Revolver matures at the earlier of December 1, 2020 or the date that is three months prior to the maturity date of the Senior Notes. For purposes of this table, as the Senior Notes mature on October 1, 2024, we have 1, 2020 or the date that is three months prior to the maturity date of the Senior Notes. For purposes of this table, as the Senior Notes mature on October 1, 2024, we have assumed a maturity date of December 1, 2020. For further information, refer to Note 9 to our audited financial statements included in Item 8 of this Annual Report on assumed a maturity date of December 1, 2020. For further information, refer to Note 9 to our audited financial statements included in Item 8 of this Annual Report on (3) Represents payments under our capital leases for real estate, fleet vehicles and various equipment. For further information, refer to Note 12 to our audited financial (3) Represents payments under our capital leases for real estate, fleet vehicles and various equipment. For further information, refer to Note 12 to our audited financial (4) Represents payments under our operating leases, primarily for buildings, improvements and equipment. For further information, refer to Note 12 to our audited financial (4) Represents payments under our operating leases, primarily for buildings, improvements and equipment. For further information, refer to Note 12 to our audited financial Form 10-K. Form 10-K. statements included in Item 8 of this Annual Report on Form 10-K. statements included in Item 8 of this Annual Report on Form 10-K. statements included in Item 8 of this Annual Report on Form 10-K. statements included in Item 8 of this Annual Report on Form 10-K. that are short-term or cancellable. that are short-term or cancellable. (5) Consists primarily of obligations to purchase vehicles which are enforceable and legally binding on us. Excludes purchase orders made in the ordinary course of business (5) Consists primarily of obligations to purchase vehicles which are enforceable and legally binding on us. Excludes purchase orders made in the ordinary course of business (6) Represents payments on a term note secured by real property which matures in February 2021. The interest rate is 7.0%. For further information, refer to Note 9 to our (6) Represents payments on a term note secured by real property which matures in February 2021. The interest rate is 7.0%. For further information, refer to Note 9 to our audited financial statements included in Item 8 of this Annual Report on Form 10-K. audited financial statements included in Item 8 of this Annual Report on Form 10-K. 39 39 that replaced or refinanced the Senior Notes. The Revolver is subject to an asset-based borrowing formula on eligible accounts receivable, credit card receivables that replaced or refinanced the Senior Notes. The Revolver is subject to an asset-based borrowing formula on eligible accounts receivable, credit card receivables Contractual Obligations and Commercial Commitments Contractual Obligations and Commercial Commitments and inventory, in each case reduced by certain reserves. and inventory, in each case reduced by certain reserves. Borrowings under the Revolver bear interest, at our option, at either the Base Rate (which means the higher of (i) the Federal Funds Rate plus 0.5%, (ii) the LIBOR Borrowings under the Revolver bear interest, at our option, at either the Base Rate (which means the higher of (i) the Federal Funds Rate plus 0.5%, (ii) the LIBOR rate plus 1.0% or (iii) the prime rate) plus a Base Rate Margin (which ranges from 0.25% to 0.75% based on Revolver availability) or LIBOR plus a LIBOR Rate rate plus 1.0% or (iii) the prime rate) plus a Base Rate Margin (which ranges from 0.25% to 0.75% based on Revolver availability) or LIBOR plus a LIBOR Rate Margin (which ranges from 1.25% to 1.75% based on Revolver availability).The fee on any outstanding letters of credit issued under the Revolver ranges from Margin (which ranges from 1.25% to 1.75% based on Revolver availability).The fee on any outstanding letters of credit issued under the Revolver ranges from 0.75% to 1.25%, depending on whether the letters of credit are fully cash collateralized. The fee on the unused portion of the Revolver is 0.25%. 0.75% to 1.25%, depending on whether the letters of credit are fully cash collateralized. The fee on the unused portion of the Revolver is 0.25%. The Credit Agreement contains customary nonfinancial covenants, including restrictions on new indebtedness, issuance of liens, investments, distributions to The Credit Agreement contains customary nonfinancial covenants, including restrictions on new indebtedness, issuance of liens, investments, distributions to equityholders, asset sales and affiliate transactions. The Credit Agreement includes a financial covenant that requires us to maintain a minimum Fixed Charge equityholders, asset sales and affiliate transactions. The Credit Agreement includes a financial covenant that requires us to maintain a minimum Fixed Charge Coverage Ratio of 1.00:1:00, as defined therein. However, the covenant is only applicable if excess availability under the Credit Agreement is less than or equal to Coverage Ratio of 1.00:1:00, as defined therein. However, the covenant is only applicable if excess availability under the Credit Agreement is less than or equal to the greater of (i) $33.3 million and (ii) 10% of the line cap, and remains in effect until excess availability has been greater than the greater of (i) $33.3 million and the greater of (i) $33.3 million and (ii) 10% of the line cap, and remains in effect until excess availability has been greater than the greater of (i) $33.3 million and (ii) 10% of the line cap for 30 consecutive days. While there can be no assurances, based upon our forecast, we do not expect the financial covenant to become (ii) 10% of the line cap for 30 consecutive days. While there can be no assurances, based upon our forecast, we do not expect the financial covenant to become applicable during the year ended December 31, 2018 . We were in compliance with all covenants under the Credit Agreement as of December 31, 2017 . applicable during the year ended December 31, 2018 . We were in compliance with all covenants under the Credit Agreement as of December 31, 2017 . Obligations under the Credit Agreement are guaranteed by our material subsidiaries. Obligations under the Credit Agreement, and the guarantees of those Obligations under the Credit Agreement are guaranteed by our material subsidiaries. Obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of our assets and those of the guarantors, subject to certain exceptions and permitted liens, including a first-priority obligations, are secured by substantially all of our assets and those of the guarantors, subject to certain exceptions and permitted liens, including a first-priority security interest in certain accounts receivable, inventory and certain other assets of the Company and a second-priority security interest in substantially all other security interest in certain accounts receivable, inventory and certain other assets of the Company and a second-priority security interest in substantially all other assets of the Company that secure the Senior Notes on a first-priority basis. assets of the Company that secure the Senior Notes on a first-priority basis. We had outstanding borrowings of $4.5 million with net availability of $308.2 million as of December 31, 2017 . The interest rate on borrowings outstanding as of We had outstanding borrowings of $4.5 million with net availability of $308.2 million as of December 31, 2017 . The interest rate on borrowings outstanding as of December 31, 2017 , all of which were Base Rate borrowings, was 4.75% . We had $62.3 million in letters of credit outstanding under the Credit Agreement as of December 31, 2017 , all of which were Base Rate borrowings, was 4.75% . We had $62.3 million in letters of credit outstanding under the Credit Agreement as of December 31, 2017 . December 31, 2017 . 38 38 In the table below, we set forth our enforceable and legally binding obligations as of December 31, 2017 . Some of the amounts included in the table are based on In the table below, we set forth our enforceable and legally binding obligations as of December 31, 2017 . Some of the amounts included in the table are based on management's estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties and other management's estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties and other factors. Because these estimates and assumptions are necessarily subjective, our actual payments may vary from those reflected in the table. We have not included factors. Because these estimates and assumptions are necessarily subjective, our actual payments may vary from those reflected in the table. We have not included liabilities related to self-insurance reserves in the table below, as these reserves represent an estimate of our future obligations and do not represent cash liabilities related to self-insurance reserves in the table below, as these reserves represent an estimate of our future obligations and do not represent cash requirements arising from contractual payment obligations. Purchase orders made in the ordinary course of business and commitments that are cancellable on 30 requirements arising from contractual payment obligations. Purchase orders made in the ordinary course of business and commitments that are cancellable on 30 days' notice are excluded from the table below. Any amounts for which we are liable under purchase orders are reflected on the consolidated balance sheets as days' notice are excluded from the table below. Any amounts for which we are liable under purchase orders are reflected on the consolidated balance sheets as accounts payable and accrued liabilities. accounts payable and accrued liabilities. (in millions) (in millions) Senior Notes obligations (1) Senior Notes obligations (1) Revolver obligations (2) Revolver obligations (2) Capital lease obligations (3) Capital lease obligations (3) Operating lease obligations (4) Operating lease obligations (4) Purchase commitments (5) Purchase commitments (5) Other long-term debt (6) Other long-term debt (6) Total Total Total Total 2018 2018 2019-2020 2019-2020 2021-2022 2021-2022 Thereafter Thereafter Payments Due by Period Payments Due by Period $ $ 484.8 $ 484.8 $ 19.3 $ 19.3 $ 5.1 5.1 24.4 24.4 138.6 138.6 7.1 7.1 0.4 0.4 0.2 0.2 8.5 8.5 27.6 27.6 7.1 7.1 0.1 0.1 38.5 $ 38.5 $ 4.9 $ 4.9 $ 12.4 12.4 44.4 44.4 — — 0.3 0.3 38.5 $ 38.5 $ — $ — $ 2.8 2.8 29.3 29.3 — — — — $ $ 660.4 $ 660.4 $ 62.8 $ 62.8 $ 100.5 $ 100.5 $ 70.6 $ 70.6 $ 388.5 388.5 — — 0.7 0.7 37.3 37.3 — — — — 426.5 426.5 (1) Represents principal of $350.0 million and semi-annual interest payments at a 5.5% interest rate. The Senior Notes mature in October 2024. For further information, (1) Represents principal of $350.0 million and semi-annual interest payments at a 5.5% interest rate. The Senior Notes mature in October 2024. For further information, refer to Note 9 to our audited financial statements included in Item 8 of this Annual Report on Form 10-K. refer to Note 9 to our audited financial statements included in Item 8 of this Annual Report on Form 10-K. (2) Represents principal of $4.5 million and interest payments of $0.6 million, based on outstanding borrowings and interest rates in effect under the Revolver as of (2) Represents principal of $4.5 million and interest payments of $0.6 million, based on outstanding borrowings and interest rates in effect under the Revolver as of December 31, 2017. To the extent that a decrease in eligible accounts receivable, credit card receivables and inventory reduces the maximum availability under the December 31, 2017. To the extent that a decrease in eligible accounts receivable, credit card receivables and inventory reduces the maximum availability under the Revolver below the amount then outstanding, amounts outstanding could become due sooner than reflected in the table. The Revolver matures at the earlier of December Revolver below the amount then outstanding, amounts outstanding could become due sooner than reflected in the table. The Revolver matures at the earlier of December 1, 2020 or the date that is three months prior to the maturity date of the Senior Notes. For purposes of this table, as the Senior Notes mature on October 1, 2024, we have 1, 2020 or the date that is three months prior to the maturity date of the Senior Notes. For purposes of this table, as the Senior Notes mature on October 1, 2024, we have assumed a maturity date of December 1, 2020. For further information, refer to Note 9 to our audited financial statements included in Item 8 of this Annual Report on assumed a maturity date of December 1, 2020. For further information, refer to Note 9 to our audited financial statements included in Item 8 of this Annual Report on Form 10-K. Form 10-K. (3) Represents payments under our capital leases for real estate, fleet vehicles and various equipment. For further information, refer to Note 12 to our audited financial (3) Represents payments under our capital leases for real estate, fleet vehicles and various equipment. For further information, refer to Note 12 to our audited financial statements included in Item 8 of this Annual Report on Form 10-K. statements included in Item 8 of this Annual Report on Form 10-K. (4) Represents payments under our operating leases, primarily for buildings, improvements and equipment. For further information, refer to Note 12 to our audited financial (4) Represents payments under our operating leases, primarily for buildings, improvements and equipment. For further information, refer to Note 12 to our audited financial statements included in Item 8 of this Annual Report on Form 10-K. statements included in Item 8 of this Annual Report on Form 10-K. (5) Consists primarily of obligations to purchase vehicles which are enforceable and legally binding on us. Excludes purchase orders made in the ordinary course of business (5) Consists primarily of obligations to purchase vehicles which are enforceable and legally binding on us. Excludes purchase orders made in the ordinary course of business that are short-term or cancellable. that are short-term or cancellable. (6) Represents payments on a term note secured by real property which matures in February 2021. The interest rate is 7.0%. For further information, refer to Note 9 to our (6) Represents payments on a term note secured by real property which matures in February 2021. The interest rate is 7.0%. For further information, refer to Note 9 to our audited financial statements included in Item 8 of this Annual Report on Form 10-K. audited financial statements included in Item 8 of this Annual Report on Form 10-K. 39 39 Estimated losses on uncompleted contracts and changes in contract estimates reflect the Company's best estimate of probable losses of unbilled receivables, and are Estimated losses on uncompleted contracts and changes in contract estimates reflect the Company's best estimate of probable losses of unbilled receivables, and are recognized in the period such revisions are known and can be reasonably estimated. These estimates are recognized in cost of sales. Estimated losses on recognized in the period such revisions are known and can be reasonably estimated. These estimates are recognized in cost of sales. Estimated losses on uncompleted contracts and changes in contract estimates are established by assessing estimated costs to complete, change orders and claims for uncompleted uncompleted contracts and changes in contract estimates are established by assessing estimated costs to complete, change orders and claims for uncompleted contracts. Assumptions for estimated costs to complete include material prices, labor costs, labor productivity and contract claims. Such estimates are inherently contracts. Assumptions for estimated costs to complete include material prices, labor costs, labor productivity and contract claims. Such estimates are inherently uncertain and therefore it is possible that actual completion costs may vary from these estimates. uncertain and therefore it is possible that actual completion costs may vary from these estimates. Effective January 1, 2018, the Company adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), including Effective January 1, 2018, the Company adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), including subsequent amendments to the initial guidance, which provides a comprehensive revenue recognition model requiring companies to recognize revenue for the subsequent amendments to the initial guidance, which provides a comprehensive revenue recognition model requiring companies to recognize revenue for the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. Refer to Note 2 transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. Refer to Note 2 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information on the Company's adoption of ASU to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information on the Company's adoption of ASU 2014-09. 2014-09. Allowance for doubtful accounts Allowance for doubtful accounts Off-Balance Sheet Arrangements Off-Balance Sheet Arrangements completion, contract revenues and contract completion costs. Due to uncertainties inherent in the estimation process, it is possible that actual contract revenues and completion, contract revenues and contract completion costs. Due to uncertainties inherent in the estimation process, it is possible that actual contract revenues and At December 31, 2017 and 2016 , other than operating leases described above and letters of credit issued under the Credit Agreement, we had no material off- At December 31, 2017 and 2016 , other than operating leases described above and letters of credit issued under the Credit Agreement, we had no material off- balance sheet arrangements with unconsolidated entities. balance sheet arrangements with unconsolidated entities. completion costs may vary from estimates. completion costs may vary from estimates. Seasonality and Other Factors Seasonality and Other Factors Our first and fourth quarters have historically been, and are generally expected to continue to be, adversely affected by weather patterns in some of our markets, Our first and fourth quarters have historically been, and are generally expected to continue to be, adversely affected by weather patterns in some of our markets, causing reduced construction activity. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to causing reduced construction activity. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to period arising from the following: period arising from the following: • • • • • • • • • • • • the volatility of lumber prices; the volatility of lumber prices; the cyclical nature of the homebuilding industry; the cyclical nature of the homebuilding industry; general economic conditions in the markets in which we compete; general economic conditions in the markets in which we compete; the pricing policies of our competitors; the pricing policies of our competitors; the production schedules of our customers; and the production schedules of our customers; and the effects of weather. the effects of weather. The composition and level of working capital typically change during periods of increasing sales as we carry more inventory and receivables, although this is The composition and level of working capital typically change during periods of increasing sales as we carry more inventory and receivables, although this is generally offset in part by higher trade payables to our suppliers. Working capital levels typically increase in the second and third quarters of the year due to higher generally offset in part by higher trade payables to our suppliers. Working capital levels typically increase in the second and third quarters of the year due to higher sales during the peak residential construction season. These increases have in the past resulted in negative operating cash flows during this peak season, which sales during the peak residential construction season. These increases have in the past resulted in negative operating cash flows during this peak season, which historically have been financed through available cash or excess availability on our Revolver. Collection of receivables and reduction in inventory levels following historically have been financed through available cash or excess availability on our Revolver. Collection of receivables and reduction in inventory levels following the peak building and construction season have in the past positively impacted cash flow. In the past, we have also utilized our borrowing availability under credit the peak building and construction season have in the past positively impacted cash flow. In the past, we have also utilized our borrowing availability under credit facilities to cover working capital needs. facilities to cover working capital needs. Recently Issued Accounting Pronouncements Recently Issued Accounting Pronouncements We maintain an allowance for doubtful accounts for estimated losses due to the failure of our customers to make required payments. Management believes the We maintain an allowance for doubtful accounts for estimated losses due to the failure of our customers to make required payments. Management believes the accounting estimate related to the allowance for doubtful accounts is a “critical accounting estimate” as it involves judgments about our customers’ ability to pay. accounting estimate related to the allowance for doubtful accounts is a “critical accounting estimate” as it involves judgments about our customers’ ability to pay. The allowance for doubtful accounts is based on an assessment of individual past due accounts, historical write-off experience, accounts receivable aging, customer The allowance for doubtful accounts is based on an assessment of individual past due accounts, historical write-off experience, accounts receivable aging, customer disputes and the business environment. Account balances are charged off when the potential for recovery is considered remote. disputes and the business environment. Account balances are charged off when the potential for recovery is considered remote. Management believes the allowance amounts recorded, in each instance, represent its best estimate of future outcomes. If there is a deterioration of a major Management believes the allowance amounts recorded, in each instance, represent its best estimate of future outcomes. If there is a deterioration of a major customer’s financial condition, if the Company becomes aware of additional information related to the credit-worthiness of a major customer, or if future actual customer’s financial condition, if the Company becomes aware of additional information related to the credit-worthiness of a major customer, or if future actual default rates on trade receivables in general differ from those currently anticipated, the Company may have to adjust its allowance for doubtful accounts, which default rates on trade receivables in general differ from those currently anticipated, the Company may have to adjust its allowance for doubtful accounts, which would affect earnings in the period the adjustments were made. would affect earnings in the period the adjustments were made. Refer to Note 2 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for a summary of recently issued accounting Refer to Note 2 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for a summary of recently issued accounting pronouncements. pronouncements. Inventories Inventories Critical Accounting Policies Critical Accounting Policies Our discussion and analysis of operating results and financial condition are based upon our audited financial statements. The preparation of our financial Our discussion and analysis of operating results and financial condition are based upon our audited financial statements. The preparation of our financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are reasonable under the related disclosures of contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Our critical accounting policies are those that materially affect our financial statements and circumstances, and we evaluate these estimates on an ongoing basis. Our critical accounting policies are those that materially affect our financial statements and involve difficult, subjective or complex judgments by management. Although these estimates are based on management’s best knowledge of current events and involve difficult, subjective or complex judgments by management. Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, actual results may be materially different from the estimates. actions that may impact us in the future, actual results may be materially different from the estimates. We believe the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial We believe the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial statements and that the judgments and estimates are reasonable. statements and that the judgments and estimates are reasonable. Revenue recognition Revenue recognition Inventories consist primarily of materials purchased for resale, including lumber and sheet goods, millwork, doors and windows as well as certain manufactured Inventories consist primarily of materials purchased for resale, including lumber and sheet goods, millwork, doors and windows as well as certain manufactured products, and are carried at the lower of cost or net realizable value. The cost of substantially all of our inventories is determined by the weighted average cost products, and are carried at the lower of cost or net realizable value. The cost of substantially all of our inventories is determined by the weighted average cost method, which approximates the first-in, first-out approach. We evaluate our inventory value at the end of each quarter to ensure that it is carried at the lower of method, which approximates the first-in, first-out approach. We evaluate our inventory value at the end of each quarter to ensure that it is carried at the lower of cost or net realizable value. This evaluation includes an analysis of historical physical inventory results, a review of potential excess and obsolete inventories based cost or net realizable value. This evaluation includes an analysis of historical physical inventory results, a review of potential excess and obsolete inventories based on inventory aging and anticipated future demand. At least quarterly, each branch’s perpetual inventory records are adjusted to reflect any declines in net realizable on inventory aging and anticipated future demand. At least quarterly, each branch’s perpetual inventory records are adjusted to reflect any declines in net realizable value below inventory carrying cost. To the extent historical physical inventory results are not indicative of future results and if future events impact, either value below inventory carrying cost. To the extent historical physical inventory results are not indicative of future results and if future events impact, either favorably or unfavorably, the salability of our products or our relationships with certain key suppliers, our inventory reserves could differ significantly, resulting in favorably or unfavorably, the salability of our products or our relationships with certain key suppliers, our inventory reserves could differ significantly, resulting in either higher or lower future inventory provisions. either higher or lower future inventory provisions. Business combinations Business combinations For all acquisitions, we allocate the purchase price to the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition. The For all acquisitions, we allocate the purchase price to the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition. The excess of the fair value of the purchase consideration over the fair values of the identifiable assets and liabilities is recorded as goodwill. Management makes excess of the fair value of the purchase consideration over the fair values of the identifiable assets and liabilities is recorded as goodwill. Management makes significant estimates and assumptions when determining the fair value of assets acquired and liabilities assumed. These estimates include, but are not limited to, significant estimates and assumptions when determining the fair value of assets acquired and liabilities assumed. These estimates include, but are not limited to, discount rates, projected future net sales, projected future expected cash flows and useful lives. When necessary, we will engage third-party valuation firms to discount rates, projected future net sales, projected future expected cash flows and useful lives. When necessary, we will engage third-party valuation firms to We recognize revenue for sales of building products when products are delivered and the customer takes ownership and assumes risk of loss, collection of the We recognize revenue for sales of building products when products are delivered and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is reasonably assured, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. All sales recognized are net of relevant receivable is reasonably assured, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. All sales recognized are net of allowances for discounts and estimated returns, based on historical experience. Taxes assessed by governmental authorities that are directly imposed on our allowances for discounts and estimated returns, based on historical experience. Taxes assessed by governmental authorities that are directly imposed on our revenue-producing transactions are excluded from sales. revenue-producing transactions are excluded from sales. assist us in determining fair values of acquired assets and assumed liabilities. assist us in determining fair values of acquired assets and assumed liabilities. Valuation of goodwill, long-lived assets and amortizable other intangible assets Valuation of goodwill, long-lived assets and amortizable other intangible assets The percentage-of-completion method is used to recognize revenue for construction services. Periodic estimates of progress towards completion are made based on The percentage-of-completion method is used to recognize revenue for construction services. Periodic estimates of progress towards completion are made based on either a comparison of labor costs incurred to date with total estimated contract labor costs or total costs incurred to date with total estimated contract costs. The either a comparison of labor costs incurred to date with total estimated contract labor costs or total costs incurred to date with total estimated contract costs. The percentage-of-completion method requires the use of various estimates, including among others, the extent of progress towards completion, contract revenues and percentage-of-completion method requires the use of various estimates, including among others, the extent of progress towards completion, contract revenues and contract completion costs. Contract revenues and contract costs to be recognized are dependent on the accuracy of estimates, including quantities of materials, contract completion costs. Contract revenues and contract costs to be recognized are dependent on the accuracy of estimates, including quantities of materials, labor productivity and other cost estimates. The Company has a history of making reasonable estimates of the extent of progress towards labor productivity and other cost estimates. The Company has a history of making reasonable estimates of the extent of progress towards fair market value. fair market value. 41 41 Our long-lived assets consist primarily of property, equipment, purchased intangible assets and goodwill. The valuation and the impairment testing of these long- Our long-lived assets consist primarily of property, equipment, purchased intangible assets and goodwill. The valuation and the impairment testing of these long- lived assets involve significant judgments and assumptions, particularly as they relate to the identification of reporting units, asset groups and the determination of lived assets involve significant judgments and assumptions, particularly as they relate to the identification of reporting units, asset groups and the determination of 40 40 completion, contract revenues and contract completion costs. Due to uncertainties inherent in the estimation process, it is possible that actual contract revenues and completion, contract revenues and contract completion costs. Due to uncertainties inherent in the estimation process, it is possible that actual contract revenues and completion costs may vary from estimates. completion costs may vary from estimates. Estimated losses on uncompleted contracts and changes in contract estimates reflect the Company's best estimate of probable losses of unbilled receivables, and are Estimated losses on uncompleted contracts and changes in contract estimates reflect the Company's best estimate of probable losses of unbilled receivables, and are recognized in the period such revisions are known and can be reasonably estimated. These estimates are recognized in cost of sales. Estimated losses on recognized in the period such revisions are known and can be reasonably estimated. These estimates are recognized in cost of sales. Estimated losses on uncompleted contracts and changes in contract estimates are established by assessing estimated costs to complete, change orders and claims for uncompleted uncompleted contracts and changes in contract estimates are established by assessing estimated costs to complete, change orders and claims for uncompleted contracts. Assumptions for estimated costs to complete include material prices, labor costs, labor productivity and contract claims. Such estimates are inherently contracts. Assumptions for estimated costs to complete include material prices, labor costs, labor productivity and contract claims. Such estimates are inherently uncertain and therefore it is possible that actual completion costs may vary from these estimates. uncertain and therefore it is possible that actual completion costs may vary from these estimates. Effective January 1, 2018, the Company adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), including Effective January 1, 2018, the Company adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), including subsequent amendments to the initial guidance, which provides a comprehensive revenue recognition model requiring companies to recognize revenue for the subsequent amendments to the initial guidance, which provides a comprehensive revenue recognition model requiring companies to recognize revenue for the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. Refer to Note 2 transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. Refer to Note 2 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information on the Company's adoption of ASU to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information on the Company's adoption of ASU 2014-09. 2014-09. Allowance for doubtful accounts Allowance for doubtful accounts We maintain an allowance for doubtful accounts for estimated losses due to the failure of our customers to make required payments. Management believes the We maintain an allowance for doubtful accounts for estimated losses due to the failure of our customers to make required payments. Management believes the accounting estimate related to the allowance for doubtful accounts is a “critical accounting estimate” as it involves judgments about our customers’ ability to pay. accounting estimate related to the allowance for doubtful accounts is a “critical accounting estimate” as it involves judgments about our customers’ ability to pay. The allowance for doubtful accounts is based on an assessment of individual past due accounts, historical write-off experience, accounts receivable aging, customer The allowance for doubtful accounts is based on an assessment of individual past due accounts, historical write-off experience, accounts receivable aging, customer disputes and the business environment. Account balances are charged off when the potential for recovery is considered remote. disputes and the business environment. Account balances are charged off when the potential for recovery is considered remote. Management believes the allowance amounts recorded, in each instance, represent its best estimate of future outcomes. If there is a deterioration of a major Management believes the allowance amounts recorded, in each instance, represent its best estimate of future outcomes. If there is a deterioration of a major customer’s financial condition, if the Company becomes aware of additional information related to the credit-worthiness of a major customer, or if future actual customer’s financial condition, if the Company becomes aware of additional information related to the credit-worthiness of a major customer, or if future actual default rates on trade receivables in general differ from those currently anticipated, the Company may have to adjust its allowance for doubtful accounts, which default rates on trade receivables in general differ from those currently anticipated, the Company may have to adjust its allowance for doubtful accounts, which would affect earnings in the period the adjustments were made. would affect earnings in the period the adjustments were made. Refer to Note 2 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for a summary of recently issued accounting Refer to Note 2 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for a summary of recently issued accounting Inventories Inventories Inventories consist primarily of materials purchased for resale, including lumber and sheet goods, millwork, doors and windows as well as certain manufactured Inventories consist primarily of materials purchased for resale, including lumber and sheet goods, millwork, doors and windows as well as certain manufactured products, and are carried at the lower of cost or net realizable value. The cost of substantially all of our inventories is determined by the weighted average cost products, and are carried at the lower of cost or net realizable value. The cost of substantially all of our inventories is determined by the weighted average cost method, which approximates the first-in, first-out approach. We evaluate our inventory value at the end of each quarter to ensure that it is carried at the lower of method, which approximates the first-in, first-out approach. We evaluate our inventory value at the end of each quarter to ensure that it is carried at the lower of cost or net realizable value. This evaluation includes an analysis of historical physical inventory results, a review of potential excess and obsolete inventories based cost or net realizable value. This evaluation includes an analysis of historical physical inventory results, a review of potential excess and obsolete inventories based on inventory aging and anticipated future demand. At least quarterly, each branch’s perpetual inventory records are adjusted to reflect any declines in net realizable on inventory aging and anticipated future demand. At least quarterly, each branch’s perpetual inventory records are adjusted to reflect any declines in net realizable value below inventory carrying cost. To the extent historical physical inventory results are not indicative of future results and if future events impact, either value below inventory carrying cost. To the extent historical physical inventory results are not indicative of future results and if future events impact, either favorably or unfavorably, the salability of our products or our relationships with certain key suppliers, our inventory reserves could differ significantly, resulting in favorably or unfavorably, the salability of our products or our relationships with certain key suppliers, our inventory reserves could differ significantly, resulting in either higher or lower future inventory provisions. either higher or lower future inventory provisions. Business combinations Business combinations For all acquisitions, we allocate the purchase price to the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition. The For all acquisitions, we allocate the purchase price to the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition. The excess of the fair value of the purchase consideration over the fair values of the identifiable assets and liabilities is recorded as goodwill. Management makes excess of the fair value of the purchase consideration over the fair values of the identifiable assets and liabilities is recorded as goodwill. Management makes significant estimates and assumptions when determining the fair value of assets acquired and liabilities assumed. These estimates include, but are not limited to, significant estimates and assumptions when determining the fair value of assets acquired and liabilities assumed. These estimates include, but are not limited to, discount rates, projected future net sales, projected future expected cash flows and useful lives. When necessary, we will engage third-party valuation firms to discount rates, projected future net sales, projected future expected cash flows and useful lives. When necessary, we will engage third-party valuation firms to assist us in determining fair values of acquired assets and assumed liabilities. assist us in determining fair values of acquired assets and assumed liabilities. Valuation of goodwill, long-lived assets and amortizable other intangible assets Valuation of goodwill, long-lived assets and amortizable other intangible assets Our long-lived assets consist primarily of property, equipment, purchased intangible assets and goodwill. The valuation and the impairment testing of these long- Our long-lived assets consist primarily of property, equipment, purchased intangible assets and goodwill. The valuation and the impairment testing of these long- lived assets involve significant judgments and assumptions, particularly as they relate to the identification of reporting units, asset groups and the determination of lived assets involve significant judgments and assumptions, particularly as they relate to the identification of reporting units, asset groups and the determination of fair market value. fair market value. 41 41 At December 31, 2017 and 2016 , other than operating leases described above and letters of credit issued under the Credit Agreement, we had no material off- At December 31, 2017 and 2016 , other than operating leases described above and letters of credit issued under the Credit Agreement, we had no material off- Off-Balance Sheet Arrangements Off-Balance Sheet Arrangements balance sheet arrangements with unconsolidated entities. balance sheet arrangements with unconsolidated entities. Seasonality and Other Factors Seasonality and Other Factors Our first and fourth quarters have historically been, and are generally expected to continue to be, adversely affected by weather patterns in some of our markets, Our first and fourth quarters have historically been, and are generally expected to continue to be, adversely affected by weather patterns in some of our markets, causing reduced construction activity. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to causing reduced construction activity. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to period arising from the following: period arising from the following: The composition and level of working capital typically change during periods of increasing sales as we carry more inventory and receivables, although this is The composition and level of working capital typically change during periods of increasing sales as we carry more inventory and receivables, although this is generally offset in part by higher trade payables to our suppliers. Working capital levels typically increase in the second and third quarters of the year due to higher generally offset in part by higher trade payables to our suppliers. Working capital levels typically increase in the second and third quarters of the year due to higher sales during the peak residential construction season. These increases have in the past resulted in negative operating cash flows during this peak season, which sales during the peak residential construction season. These increases have in the past resulted in negative operating cash flows during this peak season, which historically have been financed through available cash or excess availability on our Revolver. Collection of receivables and reduction in inventory levels following historically have been financed through available cash or excess availability on our Revolver. Collection of receivables and reduction in inventory levels following the peak building and construction season have in the past positively impacted cash flow. In the past, we have also utilized our borrowing availability under credit the peak building and construction season have in the past positively impacted cash flow. In the past, we have also utilized our borrowing availability under credit • • • • • • • • • • • • the volatility of lumber prices; the volatility of lumber prices; the cyclical nature of the homebuilding industry; the cyclical nature of the homebuilding industry; general economic conditions in the markets in which we compete; general economic conditions in the markets in which we compete; the pricing policies of our competitors; the pricing policies of our competitors; the production schedules of our customers; and the production schedules of our customers; and the effects of weather. the effects of weather. facilities to cover working capital needs. facilities to cover working capital needs. Recently Issued Accounting Pronouncements Recently Issued Accounting Pronouncements pronouncements. pronouncements. Critical Accounting Policies Critical Accounting Policies Our discussion and analysis of operating results and financial condition are based upon our audited financial statements. The preparation of our financial Our discussion and analysis of operating results and financial condition are based upon our audited financial statements. The preparation of our financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are reasonable under the related disclosures of contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Our critical accounting policies are those that materially affect our financial statements and circumstances, and we evaluate these estimates on an ongoing basis. Our critical accounting policies are those that materially affect our financial statements and involve difficult, subjective or complex judgments by management. Although these estimates are based on management’s best knowledge of current events and involve difficult, subjective or complex judgments by management. Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, actual results may be materially different from the estimates. actions that may impact us in the future, actual results may be materially different from the estimates. We believe the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial We believe the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial statements and that the judgments and estimates are reasonable. statements and that the judgments and estimates are reasonable. Revenue recognition Revenue recognition We recognize revenue for sales of building products when products are delivered and the customer takes ownership and assumes risk of loss, collection of the We recognize revenue for sales of building products when products are delivered and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is reasonably assured, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. All sales recognized are net of relevant receivable is reasonably assured, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. All sales recognized are net of allowances for discounts and estimated returns, based on historical experience. Taxes assessed by governmental authorities that are directly imposed on our allowances for discounts and estimated returns, based on historical experience. Taxes assessed by governmental authorities that are directly imposed on our revenue-producing transactions are excluded from sales. revenue-producing transactions are excluded from sales. The percentage-of-completion method is used to recognize revenue for construction services. Periodic estimates of progress towards completion are made based on The percentage-of-completion method is used to recognize revenue for construction services. Periodic estimates of progress towards completion are made based on either a comparison of labor costs incurred to date with total estimated contract labor costs or total costs incurred to date with total estimated contract costs. The either a comparison of labor costs incurred to date with total estimated contract labor costs or total costs incurred to date with total estimated contract costs. The percentage-of-completion method requires the use of various estimates, including among others, the extent of progress towards completion, contract revenues and percentage-of-completion method requires the use of various estimates, including among others, the extent of progress towards completion, contract revenues and contract completion costs. Contract revenues and contract costs to be recognized are dependent on the accuracy of estimates, including quantities of materials, contract completion costs. Contract revenues and contract costs to be recognized are dependent on the accuracy of estimates, including quantities of materials, labor productivity and other cost estimates. The Company has a history of making reasonable estimates of the extent of progress towards labor productivity and other cost estimates. The Company has a history of making reasonable estimates of the extent of progress towards 40 40 We test our tangible and intangible long-lived assets subject to amortization for impairment whenever facts and circumstances indicate that the carrying amount of We test our tangible and intangible long-lived assets subject to amortization for impairment whenever facts and circumstances indicate that the carrying amount of an asset may not be recoverable. We test goodwill for impairment annually, or more frequently if triggering events occur indicating that there may be impairment. an asset may not be recoverable. We test goodwill for impairment annually, or more frequently if triggering events occur indicating that there may be impairment. Casualty and health insurance Casualty and health insurance We have recorded goodwill and perform testing for potential goodwill impairment at a reporting unit level. A reporting unit is an operating segment, or a business We have recorded goodwill and perform testing for potential goodwill impairment at a reporting unit level. A reporting unit is an operating segment, or a business unit one level below an operating segment, for which discrete financial information is available, and for which management regularly reviews the operating results. unit one level below an operating segment, for which discrete financial information is available, and for which management regularly reviews the operating results. Additionally, components within an operating segment are aggregated as a single reporting unit if they have similar economic characteristics. Beginning January 1, Additionally, components within an operating segment are aggregated as a single reporting unit if they have similar economic characteristics. Beginning January 1, 2017, following the realignment of certain markets which resulted in the consolidation of the Company's historical Mountain West division into the Intermountain 2017, following the realignment of certain markets which resulted in the consolidation of the Company's historical Mountain West division into the Intermountain division, the Company's five operating segments, which have been determined to be the Company's reporting units, are the Mid-Atlantic, Southeast, Texas, division, the Company's five operating segments, which have been determined to be the Company's reporting units, are the Mid-Atlantic, Southeast, Texas, Intermountain and Western divisions. Following the realignment, the chief operating decision maker continues to review aggregate information to allocate Intermountain and Western divisions. Following the realignment, the chief operating decision maker continues to review aggregate information to allocate resources and assess performance. Based on this, as well as the similar economic characteristics, nature of products, distribution methods and customers of the resources and assess performance. Based on this, as well as the similar economic characteristics, nature of products, distribution methods and customers of the divisions both before and after the realignment, the Company has aggregated its operating segments into one reportable segment. We complete our annual divisions both before and after the realignment, the Company has aggregated its operating segments into one reportable segment. We complete our annual impairment assessment during the third quarter of each year. We did not recognize any impairment for the years ended December 31, 2017 , 2016 and 2015 . impairment assessment during the third quarter of each year. We did not recognize any impairment for the years ended December 31, 2017 , 2016 and 2015 . For impairment testing of long-lived assets, we identify asset groups at the lowest level for which identifiable cash flows are largely independent of the cash flows For impairment testing of long-lived assets, we identify asset groups at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated of other groups of assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the assets. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment undiscounted future cash flows expected to be generated by the assets. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. charge is recognized by the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. As discussed above, changes in management intentions, market events or conditions, projected future net sales, operating results, cash flow of our reporting units As discussed above, changes in management intentions, market events or conditions, projected future net sales, operating results, cash flow of our reporting units and other similar circumstances could affect the assumptions used in the impairment tests. Although management currently believes that the estimates used in the and other similar circumstances could affect the assumptions used in the impairment tests. Although management currently believes that the estimates used in the evaluation of goodwill and other long-lived assets are reasonable, differences between actual and expected net sales, operating results and cash flow could cause evaluation of goodwill and other long-lived assets are reasonable, differences between actual and expected net sales, operating results and cash flow could cause these assets to be impaired. If any asset were determined to be impaired, this could have a material adverse effect on our results of operations and financial these assets to be impaired. If any asset were determined to be impaired, this could have a material adverse effect on our results of operations and financial position, but not our cash flow from operations. position, but not our cash flow from operations. Stock based compensation Stock based compensation During the year ended December 31, 2017, the Company granted restricted stock unit awards and performance restricted stock unit awards to certain employees During the year ended December 31, 2017, the Company granted restricted stock unit awards and performance restricted stock unit awards to certain employees and directors. and directors. We account for restricted stock unit awards by recording compensation expense over the requisite service period, using graded vesting, based on the award’s fair We account for restricted stock unit awards by recording compensation expense over the requisite service period, using graded vesting, based on the award’s fair value at the date of grant. The fair value of restricted stock unit awards is based on the price of our publicly traded common stock at the date of grant. For restricted value at the date of grant. The fair value of restricted stock unit awards is based on the price of our publicly traded common stock at the date of grant. For restricted stock unit awards with performance conditions, we record compensation expense based on the expected number of units that will vest, which is adjusted, as stock unit awards with performance conditions, we record compensation expense based on the expected number of units that will vest, which is adjusted, as appropriate, throughout the performance period. appropriate, throughout the performance period. We account for stock options granted to employees by recording compensation expense based on the award’s fair value, estimated on the date of grant using the We account for stock options granted to employees by recording compensation expense based on the award’s fair value, estimated on the date of grant using the Black-Scholes option-pricing model, which uses inputs including the fair value per share of our common stock, volatility, expected term of the awards, dividend Black-Scholes option-pricing model, which uses inputs including the fair value per share of our common stock, volatility, expected term of the awards, dividend yield and risk-free interest rate. The assumptions used in calculating the fair value of stock options represent our best estimates, based on management's judgment yield and risk-free interest rate. The assumptions used in calculating the fair value of stock options represent our best estimates, based on management's judgment and subjective future expectations. These estimates involve inherent uncertainties. If any of the assumptions used in the model change significantly, share-based and subjective future expectations. These estimates involve inherent uncertainties. If any of the assumptions used in the model change significantly, share-based compensation recorded for future awards may differ materially from that recorded for awards granted previously. compensation recorded for future awards may differ materially from that recorded for awards granted previously. The Company accounts for forfeitures as they occur. The Company accounts for forfeitures as they occur. 42 42 We carry insurance for general liability, auto liability and workers' compensation exposures subject to deductibles or self-insured retentions that we believe to be We carry insurance for general liability, auto liability and workers' compensation exposures subject to deductibles or self-insured retentions that we believe to be reasonable under the circumstances, and we self-insure for employee and eligible dependent health care claims, with insurance purchased from independent reasonable under the circumstances, and we self-insure for employee and eligible dependent health care claims, with insurance purchased from independent carriers to cover individual claims in excess of the self-insured limits. The expected liability for unpaid claims, including incurred but not reported losses, is carriers to cover individual claims in excess of the self-insured limits. The expected liability for unpaid claims, including incurred but not reported losses, is determined using the assistance of third-party actuaries and is reflected on the consolidated balance sheets as a liability with current and long-term components. determined using the assistance of third-party actuaries and is reflected on the consolidated balance sheets as a liability with current and long-term components. We have elected not to discount this liability. The amount recoverable from insurance providers is reflected on the consolidated balance sheets in prepaid expenses We have elected not to discount this liability. The amount recoverable from insurance providers is reflected on the consolidated balance sheets in prepaid expenses and other current assets. Our accounting policy includes an internal evaluation and adjustment of our reserve for all insured losses on a quarterly basis. At least on and other current assets. Our accounting policy includes an internal evaluation and adjustment of our reserve for all insured losses on a quarterly basis. At least on an annual basis, we engage external actuarial professionals to independently assess and estimate the total liability outstanding, which is compared to the actual an annual basis, we engage external actuarial professionals to independently assess and estimate the total liability outstanding, which is compared to the actual reserve balance at that time and adjusted accordingly. reserve balance at that time and adjusted accordingly. Income taxes Income taxes tax assets. tax assets. In accordance with ASC 740 “ Income Taxes ,” we evaluate our deferred tax assets to determine if valuation allowances are required. In assessing the realizability In accordance with ASC 740 “ Income Taxes ,” we evaluate our deferred tax assets to determine if valuation allowances are required. In assessing the realizability of deferred tax assets, we consider both positive and negative evidence in determining whether it is more likely than not that some portion or all of the deferred tax of deferred tax assets, we consider both positive and negative evidence in determining whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The primary negative evidence considered includes the cumulative operating losses generated in prior periods. The primary positive assets will not be realized. The primary negative evidence considered includes the cumulative operating losses generated in prior periods. The primary positive evidence considered includes recent prior periods with cumulative operating income and the reversal of deferred tax liabilities related to depreciation and evidence considered includes recent prior periods with cumulative operating income and the reversal of deferred tax liabilities related to depreciation and amortization that would occur within the same jurisdiction and during the carry-forward period necessary to absorb the state net operating losses and other deferred amortization that would occur within the same jurisdiction and during the carry-forward period necessary to absorb the state net operating losses and other deferred During 2017, the Company evaluated the positive and negative evidence in assessing the realizability of its deferred tax assets. As of December 31, 2017, we During 2017, the Company evaluated the positive and negative evidence in assessing the realizability of its deferred tax assets. As of December 31, 2017, we concluded that it is more likely than not that we will realize the benefit of our deferred tax assets, net of a state tax valuation allowance of $0.1 million. concluded that it is more likely than not that we will realize the benefit of our deferred tax assets, net of a state tax valuation allowance of $0.1 million. ASC 740 also prescribes a recognition threshold and certain measurement principles for the financial statements related to tax positions taken or expected to be ASC 740 also prescribes a recognition threshold and certain measurement principles for the financial statements related to tax positions taken or expected to be taken on a tax return. Under ASC 740, the impact of an uncertain tax position on an income tax return must be recognized at the largest amount that is more likely taken on a tax return. Under ASC 740, the impact of an uncertain tax position on an income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740 provides guidance on derecognition, classification, interest and penalties associated with income taxes, accounting in being sustained. Additionally, ASC 740 provides guidance on derecognition, classification, interest and penalties associated with income taxes, accounting in interim periods, disclosures and transition requirements. As of December 31, 2017 and 2016, the Company recognizes no material uncertain tax positions. interim periods, disclosures and transition requirements. As of December 31, 2017 and 2016, the Company recognizes no material uncertain tax positions. On December 22, 2017, the President of the United States signed into law the 2017 Tax Act. This legislation significantly changes U.S. tax law by, among other On December 22, 2017, the President of the United States signed into law the 2017 Tax Act. This legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates from a maximum 35% to a flat 21% rate, effective January 1, 2018. The SEC staff issued Staff Accounting Bulletin things, lowering corporate income tax rates from a maximum 35% to a flat 21% rate, effective January 1, 2018. The SEC staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. The Company has recognized the net (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. The Company has recognized the net tax benefit of $3.6 million related to the impact of the 2017 Tax Act for the remeasurement of deferred tax assets and liabilities and included this amount in its tax benefit of $3.6 million related to the impact of the 2017 Tax Act for the remeasurement of deferred tax assets and liabilities and included this amount in its consolidated financial statements for the year ended December 31, 2017, on a provisional basis based on information currently available. The 2017 Tax Act may be consolidated financial statements for the year ended December 31, 2017, on a provisional basis based on information currently available. The 2017 Tax Act may be subject to technical amendments, as well as interpretations and implementing regulations by the Department of Treasury and Internal Revenue Service, any of subject to technical amendments, as well as interpretations and implementing regulations by the Department of Treasury and Internal Revenue Service, any of which could increase or decrease one or more impacts of the legislation. As such, we may record additional provisional amounts or adjustments to provisional which could increase or decrease one or more impacts of the legislation. As such, we may record additional provisional amounts or adjustments to provisional amounts during the measurement period ending no later than December 2018. amounts during the measurement period ending no later than December 2018. Consideration received from suppliers Consideration received from suppliers We enter into arrangements with many of our suppliers providing for inventory purchase rebates (“supplier rebates”) upon achievement of specified volume We enter into arrangements with many of our suppliers providing for inventory purchase rebates (“supplier rebates”) upon achievement of specified volume purchasing levels. We accrue estimated supplier rebates monthly as part of cost of goods sold based on progress toward earning the supplier rebates, taking into purchasing levels. We accrue estimated supplier rebates monthly as part of cost of goods sold based on progress toward earning the supplier rebates, taking into consideration cumulative purchases of inventory to date and projected purchases through the end of the year. We estimate the rebates applicable to inventory on- consideration cumulative purchases of inventory to date and projected purchases through the end of the year. We estimate the rebates applicable to inventory on- hand at each period end based on the inventory turns of the related items. hand at each period end based on the inventory turns of the related items. Under certain circumstances, including if market conditions were to change, suppliers may change the terms of some or all of these programs. Although these Under certain circumstances, including if market conditions were to change, suppliers may change the terms of some or all of these programs. Although these changes would not affect the amounts which we have recorded related to product already purchased, it may impact our gross margins in future periods. changes would not affect the amounts which we have recorded related to product already purchased, it may impact our gross margins in future periods. 43 43 We have recorded goodwill and perform testing for potential goodwill impairment at a reporting unit level. A reporting unit is an operating segment, or a business We have recorded goodwill and perform testing for potential goodwill impairment at a reporting unit level. A reporting unit is an operating segment, or a business unit one level below an operating segment, for which discrete financial information is available, and for which management regularly reviews the operating results. unit one level below an operating segment, for which discrete financial information is available, and for which management regularly reviews the operating results. Additionally, components within an operating segment are aggregated as a single reporting unit if they have similar economic characteristics. Beginning January 1, Additionally, components within an operating segment are aggregated as a single reporting unit if they have similar economic characteristics. Beginning January 1, 2017, following the realignment of certain markets which resulted in the consolidation of the Company's historical Mountain West division into the Intermountain 2017, following the realignment of certain markets which resulted in the consolidation of the Company's historical Mountain West division into the Intermountain division, the Company's five operating segments, which have been determined to be the Company's reporting units, are the Mid-Atlantic, Southeast, Texas, division, the Company's five operating segments, which have been determined to be the Company's reporting units, are the Mid-Atlantic, Southeast, Texas, Intermountain and Western divisions. Following the realignment, the chief operating decision maker continues to review aggregate information to allocate Intermountain and Western divisions. Following the realignment, the chief operating decision maker continues to review aggregate information to allocate resources and assess performance. Based on this, as well as the similar economic characteristics, nature of products, distribution methods and customers of the resources and assess performance. Based on this, as well as the similar economic characteristics, nature of products, distribution methods and customers of the divisions both before and after the realignment, the Company has aggregated its operating segments into one reportable segment. We complete our annual divisions both before and after the realignment, the Company has aggregated its operating segments into one reportable segment. We complete our annual For impairment testing of long-lived assets, we identify asset groups at the lowest level for which identifiable cash flows are largely independent of the cash flows For impairment testing of long-lived assets, we identify asset groups at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated of other groups of assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the assets. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment undiscounted future cash flows expected to be generated by the assets. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. charge is recognized by the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. As discussed above, changes in management intentions, market events or conditions, projected future net sales, operating results, cash flow of our reporting units As discussed above, changes in management intentions, market events or conditions, projected future net sales, operating results, cash flow of our reporting units and other similar circumstances could affect the assumptions used in the impairment tests. Although management currently believes that the estimates used in the and other similar circumstances could affect the assumptions used in the impairment tests. Although management currently believes that the estimates used in the evaluation of goodwill and other long-lived assets are reasonable, differences between actual and expected net sales, operating results and cash flow could cause evaluation of goodwill and other long-lived assets are reasonable, differences between actual and expected net sales, operating results and cash flow could cause these assets to be impaired. If any asset were determined to be impaired, this could have a material adverse effect on our results of operations and financial these assets to be impaired. If any asset were determined to be impaired, this could have a material adverse effect on our results of operations and financial position, but not our cash flow from operations. position, but not our cash flow from operations. Stock based compensation Stock based compensation and directors. and directors. During the year ended December 31, 2017, the Company granted restricted stock unit awards and performance restricted stock unit awards to certain employees During the year ended December 31, 2017, the Company granted restricted stock unit awards and performance restricted stock unit awards to certain employees We account for restricted stock unit awards by recording compensation expense over the requisite service period, using graded vesting, based on the award’s fair We account for restricted stock unit awards by recording compensation expense over the requisite service period, using graded vesting, based on the award’s fair value at the date of grant. The fair value of restricted stock unit awards is based on the price of our publicly traded common stock at the date of grant. For restricted value at the date of grant. The fair value of restricted stock unit awards is based on the price of our publicly traded common stock at the date of grant. For restricted stock unit awards with performance conditions, we record compensation expense based on the expected number of units that will vest, which is adjusted, as stock unit awards with performance conditions, we record compensation expense based on the expected number of units that will vest, which is adjusted, as appropriate, throughout the performance period. appropriate, throughout the performance period. We account for stock options granted to employees by recording compensation expense based on the award’s fair value, estimated on the date of grant using the We account for stock options granted to employees by recording compensation expense based on the award’s fair value, estimated on the date of grant using the Black-Scholes option-pricing model, which uses inputs including the fair value per share of our common stock, volatility, expected term of the awards, dividend Black-Scholes option-pricing model, which uses inputs including the fair value per share of our common stock, volatility, expected term of the awards, dividend yield and risk-free interest rate. The assumptions used in calculating the fair value of stock options represent our best estimates, based on management's judgment yield and risk-free interest rate. The assumptions used in calculating the fair value of stock options represent our best estimates, based on management's judgment and subjective future expectations. These estimates involve inherent uncertainties. If any of the assumptions used in the model change significantly, share-based and subjective future expectations. These estimates involve inherent uncertainties. If any of the assumptions used in the model change significantly, share-based compensation recorded for future awards may differ materially from that recorded for awards granted previously. compensation recorded for future awards may differ materially from that recorded for awards granted previously. The Company accounts for forfeitures as they occur. The Company accounts for forfeitures as they occur. 42 42 We test our tangible and intangible long-lived assets subject to amortization for impairment whenever facts and circumstances indicate that the carrying amount of We test our tangible and intangible long-lived assets subject to amortization for impairment whenever facts and circumstances indicate that the carrying amount of Casualty and health insurance Casualty and health insurance an asset may not be recoverable. We test goodwill for impairment annually, or more frequently if triggering events occur indicating that there may be impairment. an asset may not be recoverable. We test goodwill for impairment annually, or more frequently if triggering events occur indicating that there may be impairment. We carry insurance for general liability, auto liability and workers' compensation exposures subject to deductibles or self-insured retentions that we believe to be We carry insurance for general liability, auto liability and workers' compensation exposures subject to deductibles or self-insured retentions that we believe to be reasonable under the circumstances, and we self-insure for employee and eligible dependent health care claims, with insurance purchased from independent reasonable under the circumstances, and we self-insure for employee and eligible dependent health care claims, with insurance purchased from independent carriers to cover individual claims in excess of the self-insured limits. The expected liability for unpaid claims, including incurred but not reported losses, is carriers to cover individual claims in excess of the self-insured limits. The expected liability for unpaid claims, including incurred but not reported losses, is determined using the assistance of third-party actuaries and is reflected on the consolidated balance sheets as a liability with current and long-term components. determined using the assistance of third-party actuaries and is reflected on the consolidated balance sheets as a liability with current and long-term components. We have elected not to discount this liability. The amount recoverable from insurance providers is reflected on the consolidated balance sheets in prepaid expenses We have elected not to discount this liability. The amount recoverable from insurance providers is reflected on the consolidated balance sheets in prepaid expenses and other current assets. Our accounting policy includes an internal evaluation and adjustment of our reserve for all insured losses on a quarterly basis. At least on and other current assets. Our accounting policy includes an internal evaluation and adjustment of our reserve for all insured losses on a quarterly basis. At least on an annual basis, we engage external actuarial professionals to independently assess and estimate the total liability outstanding, which is compared to the actual an annual basis, we engage external actuarial professionals to independently assess and estimate the total liability outstanding, which is compared to the actual reserve balance at that time and adjusted accordingly. reserve balance at that time and adjusted accordingly. impairment assessment during the third quarter of each year. We did not recognize any impairment for the years ended December 31, 2017 , 2016 and 2015 . impairment assessment during the third quarter of each year. We did not recognize any impairment for the years ended December 31, 2017 , 2016 and 2015 . Income taxes Income taxes In accordance with ASC 740 “ Income Taxes ,” we evaluate our deferred tax assets to determine if valuation allowances are required. In assessing the realizability In accordance with ASC 740 “ Income Taxes ,” we evaluate our deferred tax assets to determine if valuation allowances are required. In assessing the realizability of deferred tax assets, we consider both positive and negative evidence in determining whether it is more likely than not that some portion or all of the deferred tax of deferred tax assets, we consider both positive and negative evidence in determining whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The primary negative evidence considered includes the cumulative operating losses generated in prior periods. The primary positive assets will not be realized. The primary negative evidence considered includes the cumulative operating losses generated in prior periods. The primary positive evidence considered includes recent prior periods with cumulative operating income and the reversal of deferred tax liabilities related to depreciation and evidence considered includes recent prior periods with cumulative operating income and the reversal of deferred tax liabilities related to depreciation and amortization that would occur within the same jurisdiction and during the carry-forward period necessary to absorb the state net operating losses and other deferred amortization that would occur within the same jurisdiction and during the carry-forward period necessary to absorb the state net operating losses and other deferred tax assets. tax assets. During 2017, the Company evaluated the positive and negative evidence in assessing the realizability of its deferred tax assets. As of December 31, 2017, we During 2017, the Company evaluated the positive and negative evidence in assessing the realizability of its deferred tax assets. As of December 31, 2017, we concluded that it is more likely than not that we will realize the benefit of our deferred tax assets, net of a state tax valuation allowance of $0.1 million. concluded that it is more likely than not that we will realize the benefit of our deferred tax assets, net of a state tax valuation allowance of $0.1 million. ASC 740 also prescribes a recognition threshold and certain measurement principles for the financial statements related to tax positions taken or expected to be ASC 740 also prescribes a recognition threshold and certain measurement principles for the financial statements related to tax positions taken or expected to be taken on a tax return. Under ASC 740, the impact of an uncertain tax position on an income tax return must be recognized at the largest amount that is more likely taken on a tax return. Under ASC 740, the impact of an uncertain tax position on an income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740 provides guidance on derecognition, classification, interest and penalties associated with income taxes, accounting in being sustained. Additionally, ASC 740 provides guidance on derecognition, classification, interest and penalties associated with income taxes, accounting in interim periods, disclosures and transition requirements. As of December 31, 2017 and 2016, the Company recognizes no material uncertain tax positions. interim periods, disclosures and transition requirements. As of December 31, 2017 and 2016, the Company recognizes no material uncertain tax positions. On December 22, 2017, the President of the United States signed into law the 2017 Tax Act. This legislation significantly changes U.S. tax law by, among other On December 22, 2017, the President of the United States signed into law the 2017 Tax Act. This legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates from a maximum 35% to a flat 21% rate, effective January 1, 2018. The SEC staff issued Staff Accounting Bulletin things, lowering corporate income tax rates from a maximum 35% to a flat 21% rate, effective January 1, 2018. The SEC staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. The Company has recognized the net (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. The Company has recognized the net tax benefit of $3.6 million related to the impact of the 2017 Tax Act for the remeasurement of deferred tax assets and liabilities and included this amount in its tax benefit of $3.6 million related to the impact of the 2017 Tax Act for the remeasurement of deferred tax assets and liabilities and included this amount in its consolidated financial statements for the year ended December 31, 2017, on a provisional basis based on information currently available. The 2017 Tax Act may be consolidated financial statements for the year ended December 31, 2017, on a provisional basis based on information currently available. The 2017 Tax Act may be subject to technical amendments, as well as interpretations and implementing regulations by the Department of Treasury and Internal Revenue Service, any of subject to technical amendments, as well as interpretations and implementing regulations by the Department of Treasury and Internal Revenue Service, any of which could increase or decrease one or more impacts of the legislation. As such, we may record additional provisional amounts or adjustments to provisional which could increase or decrease one or more impacts of the legislation. As such, we may record additional provisional amounts or adjustments to provisional amounts during the measurement period ending no later than December 2018. amounts during the measurement period ending no later than December 2018. Consideration received from suppliers Consideration received from suppliers We enter into arrangements with many of our suppliers providing for inventory purchase rebates (“supplier rebates”) upon achievement of specified volume We enter into arrangements with many of our suppliers providing for inventory purchase rebates (“supplier rebates”) upon achievement of specified volume purchasing levels. We accrue estimated supplier rebates monthly as part of cost of goods sold based on progress toward earning the supplier rebates, taking into purchasing levels. We accrue estimated supplier rebates monthly as part of cost of goods sold based on progress toward earning the supplier rebates, taking into consideration cumulative purchases of inventory to date and projected purchases through the end of the year. We estimate the rebates applicable to inventory on- consideration cumulative purchases of inventory to date and projected purchases through the end of the year. We estimate the rebates applicable to inventory on- hand at each period end based on the inventory turns of the related items. hand at each period end based on the inventory turns of the related items. Under certain circumstances, including if market conditions were to change, suppliers may change the terms of some or all of these programs. Although these Under certain circumstances, including if market conditions were to change, suppliers may change the terms of some or all of these programs. Although these changes would not affect the amounts which we have recorded related to product already purchased, it may impact our gross margins in future periods. changes would not affect the amounts which we have recorded related to product already purchased, it may impact our gross margins in future periods. 43 43 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8 Financial Statements and Supplementary Data Item 8 Financial Statements and Supplementary Data In the normal course of business, we are exposed to financial risks such as changes in interest rates and commodity price risk. In the normal course of business, we are exposed to financial risks such as changes in interest rates and commodity price risk. Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm Interest Rate Risk Interest Rate Risk When we have loan amounts under our Revolver, we are exposed to interest rate risk arising from fluctuations in interest rates. During 2017 , 2016 and 2015 , we When we have loan amounts under our Revolver, we are exposed to interest rate risk arising from fluctuations in interest rates. During 2017 , 2016 and 2015 , we did not use any interest rate swap contracts to manage this risk. An increase (decrease) in interest rates of 100 basis points on our variable-rate debt would increase did not use any interest rate swap contracts to manage this risk. An increase (decrease) in interest rates of 100 basis points on our variable-rate debt would increase (decrease) our annual interest expense by less than $0.1 million (based on our borrowings as of December 31, 2017 ). (decrease) our annual interest expense by less than $0.1 million (based on our borrowings as of December 31, 2017 ). Commodity Price Risk Commodity Price Risk Many of the products we purchase and resell are commodities whose price is determined by the market's supply and demand for such products. Price fluctuations Many of the products we purchase and resell are commodities whose price is determined by the market's supply and demand for such products. Price fluctuations in our selling prices and key costs have a significant effect on our financial performance. The markets for most of these commodities are cyclical and are affected in our selling prices and key costs have a significant effect on our financial performance. The markets for most of these commodities are cyclical and are affected by factors such as global economic conditions, including the strength of the U.S. housing market, changes in, or disruptions to, industry production capacity and by factors such as global economic conditions, including the strength of the U.S. housing market, changes in, or disruptions to, industry production capacity and changes in inventory levels and other factors beyond our control. During 2017 , 2016 and 2015 , we did not manage commodity price risk with derivative changes in inventory levels and other factors beyond our control. During 2017 , 2016 and 2015 , we did not manage commodity price risk with derivative instruments, except for immaterial lumber future contracts. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— instruments, except for immaterial lumber future contracts. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Factors Affecting Our Operating Results—Commodity nature of our products" for further discussion. We estimate that a 1% increase (decrease) in the cost of Factors Affecting Our Operating Results—Commodity nature of our products" for further discussion. We estimate that a 1% increase (decrease) in the cost of lumber & lumber sheet goods, assuming no offsetting pricing changes, would decrease (increase) our annual operating income by approximately $9.4 million lumber & lumber sheet goods, assuming no offsetting pricing changes, would decrease (increase) our annual operating income by approximately $9.4 million (based on our operating results for the year ended December 31, 2017 ). However, we would likely adjust our pricing to offset any significant changes in our cost (based on our operating results for the year ended December 31, 2017 ). However, we would likely adjust our pricing to offset any significant changes in our cost of goods. of goods. 44 44 To the Board of Directors and Stockholders of To the Board of Directors and Stockholders of BMC Stock Holdings, Inc. BMC Stock Holdings, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of BMC Stock Holdings, Inc. and its subsidiaries as of December 31, 2017 and December 31, We have audited the accompanying consolidated balance sheets of BMC Stock Holdings, Inc. and its subsidiaries as of December 31, 2017 and December 31, 2016, and the related consolidated statements of operations, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2016, and the related consolidated statements of operations, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over 2017, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and December 31, 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in 31, 2017 and December 31, 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. by the COSO. Basis for Opinions Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's annual report on internal control over financial reporting its assessment of the effectiveness of internal control over financial reporting, included in Management's annual report on internal control over financial reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 45 45 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8 Financial Statements and Supplementary Data Item 8 Financial Statements and Supplementary Data In the normal course of business, we are exposed to financial risks such as changes in interest rates and commodity price risk. In the normal course of business, we are exposed to financial risks such as changes in interest rates and commodity price risk. Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm Interest Rate Risk Interest Rate Risk Commodity Price Risk Commodity Price Risk When we have loan amounts under our Revolver, we are exposed to interest rate risk arising from fluctuations in interest rates. During 2017 , 2016 and 2015 , we When we have loan amounts under our Revolver, we are exposed to interest rate risk arising from fluctuations in interest rates. During 2017 , 2016 and 2015 , we did not use any interest rate swap contracts to manage this risk. An increase (decrease) in interest rates of 100 basis points on our variable-rate debt would increase did not use any interest rate swap contracts to manage this risk. An increase (decrease) in interest rates of 100 basis points on our variable-rate debt would increase (decrease) our annual interest expense by less than $0.1 million (based on our borrowings as of December 31, 2017 ). (decrease) our annual interest expense by less than $0.1 million (based on our borrowings as of December 31, 2017 ). Many of the products we purchase and resell are commodities whose price is determined by the market's supply and demand for such products. Price fluctuations Many of the products we purchase and resell are commodities whose price is determined by the market's supply and demand for such products. Price fluctuations in our selling prices and key costs have a significant effect on our financial performance. The markets for most of these commodities are cyclical and are affected in our selling prices and key costs have a significant effect on our financial performance. The markets for most of these commodities are cyclical and are affected by factors such as global economic conditions, including the strength of the U.S. housing market, changes in, or disruptions to, industry production capacity and by factors such as global economic conditions, including the strength of the U.S. housing market, changes in, or disruptions to, industry production capacity and changes in inventory levels and other factors beyond our control. During 2017 , 2016 and 2015 , we did not manage commodity price risk with derivative changes in inventory levels and other factors beyond our control. During 2017 , 2016 and 2015 , we did not manage commodity price risk with derivative instruments, except for immaterial lumber future contracts. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— instruments, except for immaterial lumber future contracts. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Factors Affecting Our Operating Results—Commodity nature of our products" for further discussion. We estimate that a 1% increase (decrease) in the cost of Factors Affecting Our Operating Results—Commodity nature of our products" for further discussion. We estimate that a 1% increase (decrease) in the cost of lumber & lumber sheet goods, assuming no offsetting pricing changes, would decrease (increase) our annual operating income by approximately $9.4 million lumber & lumber sheet goods, assuming no offsetting pricing changes, would decrease (increase) our annual operating income by approximately $9.4 million (based on our operating results for the year ended December 31, 2017 ). However, we would likely adjust our pricing to offset any significant changes in our cost (based on our operating results for the year ended December 31, 2017 ). However, we would likely adjust our pricing to offset any significant changes in our cost of goods. of goods. 44 44 To the Board of Directors and Stockholders of To the Board of Directors and Stockholders of BMC Stock Holdings, Inc. BMC Stock Holdings, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of BMC Stock Holdings, Inc. and its subsidiaries as of December 31, 2017 and December 31, We have audited the accompanying consolidated balance sheets of BMC Stock Holdings, Inc. and its subsidiaries as of December 31, 2017 and December 31, 2016, and the related consolidated statements of operations, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2016, and the related consolidated statements of operations, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over 2017, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and December 31, 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in 31, 2017 and December 31, 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. by the COSO. Basis for Opinions Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's annual report on internal control over financial reporting its assessment of the effectiveness of internal control over financial reporting, included in Management's annual report on internal control over financial reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 45 45 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. the policies or procedures may deteriorate. BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS CONSOLIDATED BALANCE SHEETS /s/ PricewaterhouseCoopers LLP /s/ PricewaterhouseCoopers LLP Atlanta, Georgia Atlanta, Georgia March 1, 2018 March 1, 2018 We have served as the Company’s auditor since 2015. We have served as the Company’s auditor since 2015. 46 46 Customer relationship intangible assets, net of accumulated amortization Customer relationship intangible assets, net of accumulated amortization Other intangible assets, net of accumulated amortization Other intangible assets, net of accumulated amortization (in thousands, except share and per share amounts) (in thousands, except share and per share amounts) Assets Assets Current assets Current assets Cash and cash equivalents Cash and cash equivalents Accounts receivable, net of allowances Accounts receivable, net of allowances Inventories, net Inventories, net Costs in excess of billings on uncompleted contracts Costs in excess of billings on uncompleted contracts Income taxes receivable Income taxes receivable Prepaid expenses and other current assets Prepaid expenses and other current assets Total current assets Total current assets Property and equipment, net of accumulated depreciation Property and equipment, net of accumulated depreciation Deferred income taxes Deferred income taxes Goodwill Goodwill Other long-term assets Other long-term assets Total assets Total assets Current liabilities Current liabilities Accounts payable Accounts payable Liabilities and Stockholders' Equity Liabilities and Stockholders' Equity Accrued expenses and other liabilities Accrued expenses and other liabilities Billings in excess of costs on uncompleted contracts Billings in excess of costs on uncompleted contracts Long-term debt and capital lease obligations Long-term debt and capital lease obligations Interest payable Interest payable Current portion: Current portion: Insurance reserves Insurance reserves Total current liabilities Total current liabilities Insurance reserves Insurance reserves Long-term debt Long-term debt Deferred income taxes Deferred income taxes Other long-term liabilities Other long-term liabilities Total liabilities Total liabilities and December 31, 2016 and December 31, 2016 Additional paid-in capital Additional paid-in capital Retained earnings Retained earnings Long-term portion of capital lease obligations Long-term portion of capital lease obligations Commitments and contingencies (Note 12) Commitments and contingencies (Note 12) Stockholders' equity Stockholders' equity Total stockholders' equity Total stockholders' equity Total liabilities and stockholders' equity Total liabilities and stockholders' equity Preferred stock, $0.01 par value, 50.0 million shares authorized, no shares issued and outstanding at December 31, 2017 Preferred stock, $0.01 par value, 50.0 million shares authorized, no shares issued and outstanding at December 31, 2017 Common stock, $0.01 par value, 300.0 million shares authorized, 67.3 million and 66.8 million shares issued, and 67.1 Common stock, $0.01 par value, 300.0 million shares authorized, 67.3 million and 66.8 million shares issued, and 67.1 million and 66.7 million outstanding at December 31, 2017 and December 31, 2016, respectively million and 66.7 million outstanding at December 31, 2017 and December 31, 2016, respectively Treasury stock, at cost, 0.2 million and 0.1 million shares at December 31, 2017 and December 31, 2016, respectively Treasury stock, at cost, 0.2 million and 0.1 million shares at December 31, 2017 and December 31, 2016, respectively The accompanying notes are an integral part of these consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. 47 47 $ $ 1,473,350 $ 1,473,350 $ December 31, December 31, December 31, December 31, 2017 2017 2016 2016 $ $ 11,750 $ 11,750 $ $ $ 1,473,350 $ 1,473,350 $ 1,395,014 1,395,014 $ $ 174,583 $ 174,583 $ 322,892 322,892 309,060 309,060 28,738 28,738 3,748 3,748 57,949 57,949 734,137 734,137 295,820 295,820 — — 166,306 166,306 1,306 1,306 261,792 261,792 13,989 13,989 96,262 96,262 18,428 18,428 4,769 4,769 7,739 7,739 13,496 13,496 315,277 315,277 38,470 38,470 349,059 349,059 14,838 14,838 1,768 1,768 7,039 7,039 726,451 726,451 — — 673 673 659,440 659,440 90,607 90,607 (3,821) (3,821) 746,899 746,899 8,917 8,917 313,304 313,304 272,276 272,276 26,373 26,373 2,437 2,437 43,635 43,635 666,942 666,942 286,741 286,741 550 550 164,191 164,191 3,024 3,024 254,832 254,832 18,734 18,734 165,540 165,540 88,786 88,786 15,691 15,691 5,619 5,619 11,155 11,155 16,021 16,021 302,812 302,812 39,184 39,184 344,827 344,827 20,581 20,581 — — 7,009 7,009 714,413 714,413 — — 668 668 649,280 649,280 33,182 33,182 (2,529) (2,529) 680,601 680,601 1,395,014 1,395,014 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS CONSOLIDATED BALANCE SHEETS the policies or procedures may deteriorate. the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP /s/ PricewaterhouseCoopers LLP Atlanta, Georgia Atlanta, Georgia March 1, 2018 March 1, 2018 We have served as the Company’s auditor since 2015. We have served as the Company’s auditor since 2015. 46 46 (in thousands, except share and per share amounts) (in thousands, except share and per share amounts) Assets Assets Current assets Current assets Cash and cash equivalents Cash and cash equivalents Accounts receivable, net of allowances Accounts receivable, net of allowances Inventories, net Inventories, net Costs in excess of billings on uncompleted contracts Costs in excess of billings on uncompleted contracts Income taxes receivable Income taxes receivable Prepaid expenses and other current assets Prepaid expenses and other current assets Total current assets Total current assets Property and equipment, net of accumulated depreciation Property and equipment, net of accumulated depreciation Deferred income taxes Deferred income taxes Customer relationship intangible assets, net of accumulated amortization Customer relationship intangible assets, net of accumulated amortization Other intangible assets, net of accumulated amortization Other intangible assets, net of accumulated amortization Goodwill Goodwill Other long-term assets Other long-term assets Total assets Total assets Liabilities and Stockholders' Equity Liabilities and Stockholders' Equity Current liabilities Current liabilities Accounts payable Accounts payable Accrued expenses and other liabilities Accrued expenses and other liabilities Billings in excess of costs on uncompleted contracts Billings in excess of costs on uncompleted contracts Interest payable Interest payable Current portion: Current portion: Long-term debt and capital lease obligations Long-term debt and capital lease obligations Insurance reserves Insurance reserves Total current liabilities Total current liabilities Insurance reserves Insurance reserves Long-term debt Long-term debt Long-term portion of capital lease obligations Long-term portion of capital lease obligations Deferred income taxes Deferred income taxes Other long-term liabilities Other long-term liabilities Total liabilities Total liabilities Commitments and contingencies (Note 12) Commitments and contingencies (Note 12) Stockholders' equity Stockholders' equity Preferred stock, $0.01 par value, 50.0 million shares authorized, no shares issued and outstanding at December 31, 2017 Preferred stock, $0.01 par value, 50.0 million shares authorized, no shares issued and outstanding at December 31, 2017 and December 31, 2016 and December 31, 2016 Common stock, $0.01 par value, 300.0 million shares authorized, 67.3 million and 66.8 million shares issued, and 67.1 Common stock, $0.01 par value, 300.0 million shares authorized, 67.3 million and 66.8 million shares issued, and 67.1 million and 66.7 million outstanding at December 31, 2017 and December 31, 2016, respectively million and 66.7 million outstanding at December 31, 2017 and December 31, 2016, respectively Additional paid-in capital Additional paid-in capital Retained earnings Retained earnings Treasury stock, at cost, 0.2 million and 0.1 million shares at December 31, 2017 and December 31, 2016, respectively Treasury stock, at cost, 0.2 million and 0.1 million shares at December 31, 2017 and December 31, 2016, respectively Total stockholders' equity Total stockholders' equity Total liabilities and stockholders' equity Total liabilities and stockholders' equity December 31, December 31, 2017 2017 December 31, December 31, 2016 2016 $ $ 11,750 $ 11,750 $ 322,892 322,892 309,060 309,060 28,738 28,738 3,748 3,748 57,949 57,949 734,137 734,137 295,820 295,820 — — 166,306 166,306 1,306 1,306 261,792 261,792 13,989 13,989 8,917 8,917 313,304 313,304 272,276 272,276 26,373 26,373 2,437 2,437 43,635 43,635 666,942 666,942 286,741 286,741 550 550 164,191 164,191 3,024 3,024 254,832 254,832 18,734 18,734 $ $ 1,473,350 $ 1,473,350 $ 1,395,014 1,395,014 $ $ 174,583 $ 174,583 $ 96,262 96,262 18,428 18,428 4,769 4,769 7,739 7,739 13,496 13,496 315,277 315,277 38,470 38,470 349,059 349,059 14,838 14,838 1,768 1,768 7,039 7,039 726,451 726,451 — — 673 673 659,440 659,440 90,607 90,607 (3,821) (3,821) 746,899 746,899 $ $ 1,473,350 $ 1,473,350 $ 165,540 165,540 88,786 88,786 15,691 15,691 5,619 5,619 11,155 11,155 16,021 16,021 302,812 302,812 39,184 39,184 344,827 344,827 20,581 20,581 — — 7,009 7,009 714,413 714,413 — — 668 668 649,280 649,280 33,182 33,182 (2,529) (2,529) 680,601 680,601 1,395,014 1,395,014 The accompanying notes are an integral part of these consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. 47 47 BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS CONSOLIDATED STATEMENTS OF OPERATIONS BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except per share amounts) (in thousands, except per share amounts) 2017 2017 2016 2016 2015 2015 (in thousands) (in thousands) Year Ended December 31, Year Ended December 31, Net sales Net sales Building products Building products Construction services Construction services Cost of sales Cost of sales Building products Building products Construction services Construction services Gross profit Gross profit Selling, general and administrative expenses Selling, general and administrative expenses Depreciation expense Depreciation expense Amortization expense Amortization expense Merger and integration costs Merger and integration costs Impairment of assets Impairment of assets Income from operations Income from operations Other income (expense) Other income (expense) Interest expense Interest expense Loss on debt extinguishment Loss on debt extinguishment Other income, net Other income, net Income (loss) before income taxes Income (loss) before income taxes Income tax expense (benefit) Income tax expense (benefit) Net income (loss) Net income (loss) Weighted average common shares outstanding Weighted average common shares outstanding Basic Basic Diluted Diluted Net income (loss) per common share Net income (loss) per common share Basic Basic Diluted Diluted $ $ 2,561,454 $ 2,561,454 $ 2,336,041 $ 2,336,041 $ 804,514 804,514 3,365,968 3,365,968 1,906,583 1,906,583 663,870 663,870 2,570,453 2,570,453 795,515 795,515 619,546 619,546 43,022 43,022 16,003 16,003 15,336 15,336 435 435 694,342 694,342 101,173 101,173 (25,036) (25,036) — — 5,690 5,690 81,827 81,827 24,402 24,402 757,702 757,702 3,093,743 3,093,743 1,725,843 1,725,843 625,935 625,935 2,351,778 2,351,778 741,965 741,965 571,799 571,799 38,441 38,441 20,721 20,721 15,340 15,340 11,928 11,928 658,229 658,229 83,736 83,736 (30,131) (30,131) (12,529) (12,529) 4,070 4,070 45,146 45,146 14,266 14,266 $ $ 57,425 $ 57,425 $ 30,880 $ 30,880 $ 66,900 66,900 67,404 67,404 66,055 66,055 66,609 66,609 $ $ $ $ 0.86 $ 0.86 $ 0.85 $ 0.85 $ 0.47 $ 0.47 $ 0.46 $ 0.46 $ 1,146,190 1,146,190 430,556 430,556 1,576,746 1,576,746 864,485 864,485 350,851 350,851 1,215,336 1,215,336 361,410 361,410 306,843 306,843 15,700 15,700 3,626 3,626 22,993 22,993 — — 349,162 349,162 12,248 12,248 (27,552) (27,552) — — 784 784 (14,520) (14,520) (9,689) (9,689) (4,831) (4,831) 41,260 41,260 41,260 41,260 (0.12) (0.12) (0.12) (0.12) The accompanying notes are an integral part of these consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. 48 48 Common Stock Common Stock Treasury Stock Treasury Stock Shares Shares Amount Amount Shares Shares Amount Amount Additional Additional Paid-in Paid-in Capital Capital Retained Retained Earnings Earnings 482 $ $ 482 (2,653) $ (2,653) $ 174,203 $ 174,203 $ 7,133 $ 7,133 $ — — 453,128 453,128 — — (434) (434) (126) (126) 103 103 — — — — 25 25 — — — — — — 119 119 4 4 — — — — — — 148 148 — — — — 59 59 — — — — 3,487 3,487 194 194 (1,454) (1,454) — — — — (426) (426) (2,023) (2,023) — — — — — — (80) (80) — — — — — — (2,529) (2,529) (1,292) (1,292) — — — — — — — — (3,483) (3,483) (195) (195) — — 2,749 2,749 — — 626,402 626,402 13,768 13,768 1,299 1,299 (4) (4) — — 80 80 7,252 7,252 483 483 — — 649,280 649,280 3,393 3,393 (2) (2) — — 6,769 6,769 — — Total Total 179,078 179,078 453,390 453,390 — — — — (1,454) (1,454) 2,749 2,749 (4,831) (4,831) 628,932 628,932 13,776 13,776 1,301 1,301 (2,023) (2,023) — — — — 7,252 7,252 483 483 30,880 30,880 680,601 680,601 3,396 3,396 — — (1,292) (1,292) 6,769 6,769 57,425 57,425 (4,831) (4,831) 2,302 2,302 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 30,880 30,880 33,182 33,182 57,425 57,425 Stockholders' equity as of December 31, 2014 Stockholders' equity as of December 31, 2014 Effect of reverse merger Effect of reverse merger Cancellation of BMHC treasury stock in connection with Cancellation of BMHC treasury stock in connection with the Merger the Merger Shares vested for long-term incentive plan Shares vested for long-term incentive plan Shares repurchased Shares repurchased Stock compensation expense Stock compensation expense Net loss Net loss Stockholders' equity as of December 31, 2015 Stockholders' equity as of December 31, 2015 Issuance of common stock, net of offering costs Issuance of common stock, net of offering costs Exercise of stock options Exercise of stock options Shares vested for long-term incentive plan Shares vested for long-term incentive plan Shares repurchased Shares repurchased Share withholdings made in satisfaction of exercise price Share withholdings made in satisfaction of exercise price Stock compensation expense Stock compensation expense Other Other Net income Net income Exercise of stock options Exercise of stock options Shares vested for long-term incentive plans Shares vested for long-term incentive plans Shares repurchased Shares repurchased Stock compensation expense Stock compensation expense Net income Net income 39,455 $ 39,455 $ 26,186 26,186 (434) (434) 153 153 — — — — — — 65,360 65,360 855 855 175 175 424 424 — — — — — — — — — — 260 260 212 212 — — — — — — Stockholders' equity as of December 31, 2016 Stockholders' equity as of December 31, 2016 66,814 66,814 395 395 262 262 (4) (4) 1 1 — — — — — — 654 654 8 8 2 2 4 4 — — — — — — — — — — 668 668 3 3 2 2 — — — — — — 49 49 Stockholders' equity as of December 31, 2017 Stockholders' equity as of December 31, 2017 67,286 $ 67,286 $ 673 673 207 $ 207 $ (3,821) $ (3,821) $ 659,440 $ 659,440 $ 90,607 $ 90,607 $ 746,899 746,899 The accompanying notes are an integral part of these consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, Year Ended December 31, $ $ 2,561,454 $ 2,561,454 $ 2,336,041 $ 2,336,041 $ (in thousands, except per share amounts) (in thousands, except per share amounts) 2017 2017 2016 2016 2015 2015 (in thousands) (in thousands) BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Stock Common Stock Treasury Stock Treasury Stock Shares Shares Amount Amount Shares Shares Amount Amount Additional Additional Paid-in Paid-in Capital Capital Retained Retained Earnings Earnings Net sales Net sales Building products Building products Construction services Construction services Cost of sales Cost of sales Building products Building products Construction services Construction services Gross profit Gross profit Selling, general and administrative expenses Selling, general and administrative expenses Depreciation expense Depreciation expense Amortization expense Amortization expense Merger and integration costs Merger and integration costs Impairment of assets Impairment of assets Income from operations Income from operations Other income (expense) Other income (expense) Interest expense Interest expense Loss on debt extinguishment Loss on debt extinguishment Other income, net Other income, net Income (loss) before income taxes Income (loss) before income taxes Income tax expense (benefit) Income tax expense (benefit) Net income (loss) Net income (loss) Weighted average common shares outstanding Weighted average common shares outstanding Basic Basic Diluted Diluted Basic Basic Diluted Diluted Net income (loss) per common share Net income (loss) per common share 804,514 804,514 3,365,968 3,365,968 1,906,583 1,906,583 663,870 663,870 2,570,453 2,570,453 795,515 795,515 619,546 619,546 43,022 43,022 16,003 16,003 15,336 15,336 435 435 694,342 694,342 101,173 101,173 (25,036) (25,036) — — 5,690 5,690 81,827 81,827 24,402 24,402 757,702 757,702 3,093,743 3,093,743 1,725,843 1,725,843 625,935 625,935 2,351,778 2,351,778 741,965 741,965 571,799 571,799 38,441 38,441 20,721 20,721 15,340 15,340 11,928 11,928 658,229 658,229 83,736 83,736 (30,131) (30,131) (12,529) (12,529) 4,070 4,070 45,146 45,146 14,266 14,266 $ $ 57,425 $ 57,425 $ 30,880 $ 30,880 $ 66,900 66,900 67,404 67,404 66,055 66,055 66,609 66,609 $ $ $ $ 0.86 $ 0.86 $ 0.85 $ 0.85 $ 0.47 $ 0.47 $ 0.46 $ 0.46 $ 1,146,190 1,146,190 430,556 430,556 1,576,746 1,576,746 864,485 864,485 350,851 350,851 1,215,336 1,215,336 361,410 361,410 306,843 306,843 15,700 15,700 3,626 3,626 22,993 22,993 — — 349,162 349,162 12,248 12,248 (27,552) (27,552) — — 784 784 (14,520) (14,520) (9,689) (9,689) (4,831) (4,831) 41,260 41,260 41,260 41,260 (0.12) (0.12) (0.12) (0.12) Stockholders' equity as of December 31, 2014 Stockholders' equity as of December 31, 2014 Effect of reverse merger Effect of reverse merger Cancellation of BMHC treasury stock in connection with Cancellation of BMHC treasury stock in connection with the Merger the Merger Shares vested for long-term incentive plan Shares vested for long-term incentive plan Shares repurchased Shares repurchased Stock compensation expense Stock compensation expense Net loss Net loss Stockholders' equity as of December 31, 2015 Stockholders' equity as of December 31, 2015 Issuance of common stock, net of offering costs Issuance of common stock, net of offering costs Exercise of stock options Exercise of stock options Shares vested for long-term incentive plan Shares vested for long-term incentive plan Shares repurchased Shares repurchased Share withholdings made in satisfaction of exercise price Share withholdings made in satisfaction of exercise price Stock compensation expense Stock compensation expense Other Other Net income Net income Stockholders' equity as of December 31, 2016 Stockholders' equity as of December 31, 2016 Exercise of stock options Exercise of stock options Shares vested for long-term incentive plans Shares vested for long-term incentive plans Shares repurchased Shares repurchased Stock compensation expense Stock compensation expense Net income Net income Stockholders' equity as of December 31, 2017 Stockholders' equity as of December 31, 2017 39,455 $ $ 39,455 26,186 26,186 (434) (434) 153 153 — — — — — — 65,360 65,360 855 855 175 175 424 424 — — — — — — — — — — 66,814 66,814 260 260 212 212 — — — — — — 67,286 $ $ 67,286 395 395 262 262 (4) (4) 1 1 — — — — — — 654 654 8 8 2 2 4 4 — — — — — — — — — — 668 668 3 3 2 2 — — — — — — 673 673 482 $ $ 482 — — (434) (434) (126) (126) 103 103 — — — — 25 25 — — — — — — 119 119 4 4 — — — — — — 148 148 — — — — 59 59 — — — — $ 207 $ 207 (2,653) $ (2,653) $ — — 3,487 3,487 194 194 (1,454) (1,454) — — — — (426) (426) — — — — — — (2,023) (2,023) (80) (80) — — — — — — (2,529) (2,529) — — — — (1,292) (1,292) — — — — (3,821) $ (3,821) $ 174,203 $ 174,203 $ 453,128 453,128 (3,483) (3,483) (195) (195) — — 2,749 2,749 — — 626,402 626,402 13,768 13,768 1,299 1,299 (4) (4) — — 80 80 7,252 7,252 483 483 — — 649,280 649,280 3,393 3,393 (2) (2) — — 6,769 6,769 — — 659,440 $ 659,440 $ 7,133 $ 7,133 $ — — — — — — — — — — (4,831) (4,831) 2,302 2,302 — — — — — — — — — — — — — — 30,880 30,880 33,182 33,182 — — — — — — — — 57,425 57,425 90,607 $ 90,607 $ The accompanying notes are an integral part of these consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. 49 49 Total Total 179,078 179,078 453,390 453,390 — — — — (1,454) (1,454) 2,749 2,749 (4,831) (4,831) 628,932 628,932 13,776 13,776 1,301 1,301 — — (2,023) (2,023) — — 7,252 7,252 483 483 30,880 30,880 680,601 680,601 3,396 3,396 — — (1,292) (1,292) 6,769 6,769 57,425 57,425 746,899 746,899 The accompanying notes are an integral part of these consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. 48 48 BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS CONSOLIDATED STATEMENTS OF CASH FLOWS BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (in thousands) Cash flows from operating activities Cash flows from operating activities Net income (loss) Net income (loss) Year Ended December 31, Year Ended December 31, 2017 2017 2016 2016 2015 2015 (in thousands) (in thousands) $ $ 57,425 $ 57,425 $ 30,880 $ 30,880 $ (4,831) (4,831) Proceeds from revolving line of credit Proceeds from revolving line of credit Cash flows from financing activities Cash flows from financing activities Adjustments to reconcile net income (loss) to net cash provided by operating activities Adjustments to reconcile net income (loss) to net cash provided by operating activities Repayments of proceeds from revolving line of credit Repayments of proceeds from revolving line of credit Depreciation expense Depreciation expense Amortization of intangible assets Amortization of intangible assets Amortization of debt issuance costs Amortization of debt issuance costs Deferred income taxes Deferred income taxes Non-cash stock compensation expense Non-cash stock compensation expense Gain on sale of property, equipment and real estate Gain on sale of property, equipment and real estate Gain on insurance proceeds Gain on insurance proceeds Impairment of assets Impairment of assets Loss on debt extinguishment Loss on debt extinguishment Amortization of inventory step-up charges Amortization of inventory step-up charges Other non-cash adjustments Other non-cash adjustments Change in assets and liabilities, net of effects of acquisitions Change in assets and liabilities, net of effects of acquisitions Accounts receivable, net of allowances Accounts receivable, net of allowances Inventories, net Inventories, net Costs in excess of billings on uncompleted contracts Costs in excess of billings on uncompleted contracts Income taxes receivable Income taxes receivable Prepaid expenses and other current assets Prepaid expenses and other current assets Other long-term assets Other long-term assets Accounts payable Accounts payable Accrued expenses and other liabilities Accrued expenses and other liabilities Billings in excess of costs on uncompleted contracts Billings in excess of costs on uncompleted contracts Insurance reserves Insurance reserves Other long-term liabilities Other long-term liabilities Net cash provided by operating activities Net cash provided by operating activities Cash flows from investing activities Cash flows from investing activities Purchases of property, equipment and real estate Purchases of property, equipment and real estate Purchases of businesses, net of cash acquired Purchases of businesses, net of cash acquired Proceeds from sale of property, equipment and real estate Proceeds from sale of property, equipment and real estate Insurance proceeds Insurance proceeds Change in restricted assets Change in restricted assets Cash acquired in the Merger Cash acquired in the Merger Payments on capital lease obligations Payments on capital lease obligations Principal payments on other notes Principal payments on other notes Secured borrowings Secured borrowings Proceeds from exercise of stock options Proceeds from exercise of stock options Purchase of treasury stock Purchase of treasury stock Payments of debt issuance costs Payments of debt issuance costs Proceeds from issuance of Senior Notes Proceeds from issuance of Senior Notes Redemption of Extinguished Senior Notes Redemption of Extinguished Senior Notes Proceeds from issuance of common stock, net of offering costs Proceeds from issuance of common stock, net of offering costs Payments of debt extinguishment costs Payments of debt extinguishment costs Borrowings under other notes Borrowings under other notes Net cash (used in) provided by financing activities Net cash (used in) provided by financing activities Net increase (decrease) in cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents Cash and cash equivalents Beginning of period Beginning of period End of period End of period Supplemental disclosure of cash flow information Supplemental disclosure of cash flow information Interest paid Interest paid Cash paid for income taxes, net Cash paid for income taxes, net Non-cash investing and financing transactions Non-cash investing and financing transactions Accrued purchases of property and equipment Accrued purchases of property and equipment Assets acquired under capital lease obligations Assets acquired under capital lease obligations Consideration transferred in connection with the Merger Consideration transferred in connection with the Merger 53,214 53,214 16,003 16,003 1,684 1,684 2,318 2,318 6,769 6,769 (1,683) (1,683) (1,991) (1,991) 435 435 — — — — 552 552 (3,252) (3,252) (32,297) (32,297) (2,364) (2,364) (1,311) (1,311) (13,191) (13,191) 3,458 3,458 3,477 3,477 5,417 5,417 2,737 2,737 (3,239) (3,239) (227) (227) 93,934 93,934 (63,278) (63,278) (38,438) (38,438) 13,445 13,445 — — — — — — 47,959 47,959 20,721 20,721 3,114 3,114 (3,571) (3,571) 7,252 7,252 (1,396) (1,396) (1,003) (1,003) 11,928 11,928 12,529 12,529 2,884 2,884 98 98 (10,128) (10,128) (31,200) (31,200) (3,845) (3,845) 9,627 9,627 (12,208) (12,208) (126) (126) 28,592 28,592 (5,859) (5,859) (197) (197) (16) (16) 853 853 106,888 106,888 (38,067) (38,067) — — 3,187 3,187 1,151 1,151 — — — — 20,963 20,963 3,626 3,626 2,525 2,525 (5,892) (5,892) 2,749 2,749 (497) (497) — — — — — — 10,285 10,285 244 244 (24,061) (24,061) (16,452) (16,452) (4,026) (4,026) (8,176) (8,176) (1,202) (1,202) 1,240 1,240 873 873 4,377 4,377 8,360 8,360 7,973 7,973 2,665 2,665 743 743 (31,319) (31,319) (149,485) (149,485) 3,280 3,280 — — 36,106 36,106 6,342 6,342 Net cash used in investing activities Net cash used in investing activities (88,271) (88,271) (33,729) (33,729) (135,076) (135,076) 51 51 50 50 Year Ended December 31, Year Ended December 31, 2017 2017 2016 2016 2015 2015 995,306 995,306 (990,844) (990,844) (9,926) (9,926) (2,627) (2,627) 2,880 2,880 3,396 3,396 (977) (977) (38) (38) — — — — — — — — — — (2,830) (2,830) 2,833 2,833 8,917 8,917 11,750 $ 11,750 $ 1,544,064 1,544,064 (1,696,324) (1,696,324) (8,800) (8,800) (3,303) (3,303) 1,427 1,427 1,301 1,301 (2,023) (2,023) (7,011) (7,011) 350,000 350,000 (250,000) (250,000) 13,776 13,776 (8,438) (8,438) — — (65,331) (65,331) 7,828 7,828 1,089 1,089 8,917 $ 8,917 $ 24,210 $ 24,210 $ 22,858 22,858 28,081 $ 28,081 $ 8,210 8,210 811 811 2,481 2,481 — — 505 505 15,089 15,089 — — 293,183 293,183 (208,637) (208,637) (4,542) (4,542) (6,081) (6,081) 767 767 — — (1,454) (1,454) (3,567) (3,567) — — — — — — — — 2,491 2,491 72,160 72,160 (62,173) (62,173) 63,262 63,262 1,089 1,089 23,970 23,970 4,310 4,310 1,968 1,968 2,342 2,342 453,390 453,390 $ $ $ $ The accompanying notes are an integral part of these consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS CONSOLIDATED STATEMENTS OF CASH FLOWS BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS CONSOLIDATED STATEMENTS OF CASH FLOWS Adjustments to reconcile net income (loss) to net cash provided by operating activities Adjustments to reconcile net income (loss) to net cash provided by operating activities Repayments of proceeds from revolving line of credit Repayments of proceeds from revolving line of credit Year Ended December 31, Year Ended December 31, 2017 2017 2016 2016 2015 2015 (in thousands) (in thousands) $ $ 57,425 $ 57,425 $ 30,880 $ 30,880 $ (4,831) (4,831) Proceeds from revolving line of credit Proceeds from revolving line of credit Cash flows from financing activities Cash flows from financing activities Payments on capital lease obligations Payments on capital lease obligations Principal payments on other notes Principal payments on other notes Secured borrowings Secured borrowings Proceeds from exercise of stock options Proceeds from exercise of stock options Purchase of treasury stock Purchase of treasury stock Payments of debt issuance costs Payments of debt issuance costs Proceeds from issuance of Senior Notes Proceeds from issuance of Senior Notes Redemption of Extinguished Senior Notes Redemption of Extinguished Senior Notes Proceeds from issuance of common stock, net of offering costs Proceeds from issuance of common stock, net of offering costs Payments of debt extinguishment costs Payments of debt extinguishment costs Borrowings under other notes Borrowings under other notes Net cash (used in) provided by financing activities Net cash (used in) provided by financing activities Net increase (decrease) in cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents Cash and cash equivalents Beginning of period Beginning of period End of period End of period Supplemental disclosure of cash flow information Supplemental disclosure of cash flow information Interest paid Interest paid Cash paid for income taxes, net Cash paid for income taxes, net Non-cash investing and financing transactions Non-cash investing and financing transactions Accrued purchases of property and equipment Accrued purchases of property and equipment Assets acquired under capital lease obligations Assets acquired under capital lease obligations Consideration transferred in connection with the Merger Consideration transferred in connection with the Merger Year Ended December 31, Year Ended December 31, 2017 2017 2016 2016 2015 2015 995,306 995,306 (990,844) (990,844) (9,926) (9,926) (2,627) (2,627) 2,880 2,880 3,396 3,396 (977) (977) (38) (38) — — — — — — — — — — (2,830) (2,830) 2,833 2,833 8,917 8,917 11,750 $ 11,750 $ 1,544,064 1,544,064 (1,696,324) (1,696,324) (8,800) (8,800) (3,303) (3,303) 1,427 1,427 1,301 1,301 (2,023) (2,023) (7,011) (7,011) 350,000 350,000 (250,000) (250,000) 13,776 13,776 (8,438) (8,438) — — (65,331) (65,331) 7,828 7,828 1,089 1,089 8,917 $ 8,917 $ 24,210 $ 24,210 $ 22,858 22,858 28,081 $ 28,081 $ 8,210 8,210 811 811 2,481 2,481 — — 505 505 15,089 15,089 — — 293,183 293,183 (208,637) (208,637) (4,542) (4,542) (6,081) (6,081) 767 767 — — (1,454) (1,454) (3,567) (3,567) — — — — — — — — 2,491 2,491 72,160 72,160 (62,173) (62,173) 63,262 63,262 1,089 1,089 23,970 23,970 4,310 4,310 1,968 1,968 2,342 2,342 453,390 453,390 $ $ $ $ Net cash used in investing activities Net cash used in investing activities (88,271) (88,271) (33,729) (33,729) (135,076) (135,076) 51 51 50 50 The accompanying notes are an integral part of these consolidated financial statements. The accompanying notes are an integral part of these consolidated financial statements. (in thousands) (in thousands) Cash flows from operating activities Cash flows from operating activities Net income (loss) Net income (loss) Depreciation expense Depreciation expense Amortization of intangible assets Amortization of intangible assets Amortization of debt issuance costs Amortization of debt issuance costs Deferred income taxes Deferred income taxes Non-cash stock compensation expense Non-cash stock compensation expense Gain on sale of property, equipment and real estate Gain on sale of property, equipment and real estate Gain on insurance proceeds Gain on insurance proceeds Impairment of assets Impairment of assets Loss on debt extinguishment Loss on debt extinguishment Amortization of inventory step-up charges Amortization of inventory step-up charges Other non-cash adjustments Other non-cash adjustments Change in assets and liabilities, net of effects of acquisitions Change in assets and liabilities, net of effects of acquisitions Accounts receivable, net of allowances Accounts receivable, net of allowances Inventories, net Inventories, net Costs in excess of billings on uncompleted contracts Costs in excess of billings on uncompleted contracts Income taxes receivable Income taxes receivable Prepaid expenses and other current assets Prepaid expenses and other current assets Other long-term assets Other long-term assets Accounts payable Accounts payable Accrued expenses and other liabilities Accrued expenses and other liabilities Billings in excess of costs on uncompleted contracts Billings in excess of costs on uncompleted contracts Insurance reserves Insurance reserves Other long-term liabilities Other long-term liabilities Net cash provided by operating activities Net cash provided by operating activities Cash flows from investing activities Cash flows from investing activities Purchases of property, equipment and real estate Purchases of property, equipment and real estate Purchases of businesses, net of cash acquired Purchases of businesses, net of cash acquired Proceeds from sale of property, equipment and real estate Proceeds from sale of property, equipment and real estate Insurance proceeds Insurance proceeds Change in restricted assets Change in restricted assets Cash acquired in the Merger Cash acquired in the Merger 53,214 53,214 16,003 16,003 1,684 1,684 2,318 2,318 6,769 6,769 (1,683) (1,683) (1,991) (1,991) 435 435 — — — — 552 552 (3,252) (3,252) (32,297) (32,297) (2,364) (2,364) (1,311) (1,311) (13,191) (13,191) 3,458 3,458 3,477 3,477 5,417 5,417 2,737 2,737 (3,239) (3,239) (227) (227) 93,934 93,934 (63,278) (63,278) (38,438) (38,438) 13,445 13,445 — — — — — — 47,959 47,959 20,721 20,721 3,114 3,114 (3,571) (3,571) 7,252 7,252 (1,396) (1,396) (1,003) (1,003) 11,928 11,928 12,529 12,529 2,884 2,884 98 98 (10,128) (10,128) (31,200) (31,200) (3,845) (3,845) 9,627 9,627 (12,208) (12,208) (126) (126) 28,592 28,592 (5,859) (5,859) (197) (197) (16) (16) 853 853 106,888 106,888 (38,067) (38,067) — — 3,187 3,187 1,151 1,151 — — — — 20,963 20,963 3,626 3,626 2,525 2,525 (5,892) (5,892) 2,749 2,749 (497) (497) — — — — — — 10,285 10,285 244 244 (24,061) (24,061) (16,452) (16,452) (4,026) (4,026) (8,176) (8,176) (1,202) (1,202) 1,240 1,240 873 873 4,377 4,377 8,360 8,360 7,973 7,973 2,665 2,665 743 743 (31,319) (31,319) (149,485) (149,485) 3,280 3,280 — — 36,106 36,106 6,342 6,342 BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company’s future results could be adversely affected by a number of factors including competitive pressure on sales and pricing, weather conditions, The Company’s future results could be adversely affected by a number of factors including competitive pressure on sales and pricing, weather conditions, consumer spending and debt levels, interest rates, existing residential home sales and new home construction, lumber prices and product mix. consumer spending and debt levels, interest rates, existing residential home sales and new home construction, lumber prices and product mix. (All amounts are presented in thousands except share and per share amounts.) (All amounts are presented in thousands except share and per share amounts.) Cash and cash equivalents Cash and cash equivalents 1. Organization 1. Organization On December 1, 2015, Stock Building Supply Holdings, Inc. (“SBS”) completed a business combination with privately-held Building Materials Holding On December 1, 2015, Stock Building Supply Holdings, Inc. (“SBS”) completed a business combination with privately-held Building Materials Holding Corporation (“BMHC”) in accordance with the terms of the Agreement and Plan of Merger, dated as of June 2, 2015, by and between SBS and BMHC (the Corporation (“BMHC”) in accordance with the terms of the Agreement and Plan of Merger, dated as of June 2, 2015, by and between SBS and BMHC (the “Merger Agreement”), pursuant to which BMHC merged with and into SBS (the “Merger”). As a result of the business combination, SBS survived the Merger and “Merger Agreement”), pursuant to which BMHC merged with and into SBS (the “Merger”). As a result of the business combination, SBS survived the Merger and in connection therewith changed its name to “BMC Stock Holdings, Inc.”. in connection therewith changed its name to “BMC Stock Holdings, Inc.”. These financial statements represent the financial statements of BMC Stock Holdings, Inc., and its subsidiaries. All references to “BMC,” “we,” “us,” “our” or the These financial statements represent the financial statements of BMC Stock Holdings, Inc., and its subsidiaries. All references to “BMC,” “we,” “us,” “our” or the “Company” in this Annual Report on Form 10-K mean BMC Stock Holdings, Inc. “Company” in this Annual Report on Form 10-K mean BMC Stock Holdings, Inc. Under U.S. generally accepted accounting principles ("U.S. GAAP"), the Merger was treated as a “reverse merger” under the acquisition method of accounting. Under U.S. generally accepted accounting principles ("U.S. GAAP"), the Merger was treated as a “reverse merger” under the acquisition method of accounting. For accounting purposes, BMHC is considered to have acquired SBS. Consequently, the historical financial statements of the Company reflect only the operations For accounting purposes, BMHC is considered to have acquired SBS. Consequently, the historical financial statements of the Company reflect only the operations and financial condition of BMHC prior to the date of the Merger. The operating results of SBS are reported as part of the Company beginning on the closing date and financial condition of BMHC prior to the date of the Merger. The operating results of SBS are reported as part of the Company beginning on the closing date of the Merger. of the Merger. purchase. purchase. Restricted assets Restricted assets Cash equivalents are highly liquid investments that are readily convertible to known amounts of cash and have a maturity of three months or less from the time of Cash equivalents are highly liquid investments that are readily convertible to known amounts of cash and have a maturity of three months or less from the time of Book overdrafts occur when purchases on corporate purchasing cards and checks written exceed available bank balances at a specific bank, despite there being Book overdrafts occur when purchases on corporate purchasing cards and checks written exceed available bank balances at a specific bank, despite there being cash at the Company's other financial institutions. For accounting purposes, the Company reclassifies these book overdrafts to accounts payable on the cash at the Company's other financial institutions. For accounting purposes, the Company reclassifies these book overdrafts to accounts payable on the consolidated balance sheets. Book overdrafts included in accounts payable were $0.1 million and $0.2 million at December 31, 2017 and 2016 , respectively. consolidated balance sheets. Book overdrafts included in accounts payable were $0.1 million and $0.2 million at December 31, 2017 and 2016 , respectively. Historically, the Company had restricted assets, which related to amounts deposited in a separate bank account to collateralize letters of credit related to insurance Historically, the Company had restricted assets, which related to amounts deposited in a separate bank account to collateralize letters of credit related to insurance claims for periods prior to January 2010. During the years ended December 31, 2015 and 2014, the Company was able to release the majority of these amounts into claims for periods prior to January 2010. During the years ended December 31, 2015 and 2014, the Company was able to release the majority of these amounts into unrestricted cash as a result of reductions in claims and the transfer of the risk of loss of certain claims to a reinsurer. In connection with the senior secured credit unrestricted cash as a result of reductions in claims and the transfer of the risk of loss of certain claims to a reinsurer. In connection with the senior secured credit agreement entered into on December 1, 2015 with Wells Fargo Capital Finance, described elsewhere in this document, the Company was able to release the agreement entered into on December 1, 2015 with Wells Fargo Capital Finance, described elsewhere in this document, the Company was able to release the remaining cash collateral into unrestricted cash. remaining cash collateral into unrestricted cash. Fair value of financial instruments Fair value of financial instruments The Company distributes lumber and building materials to new construction and repair and remodeling contractors. Additionally, the Company provides solution- The Company distributes lumber and building materials to new construction and repair and remodeling contractors. Additionally, the Company provides solution- based services to our customers, including component design, product specification and installation services. based services to our customers, including component design, product specification and installation services. ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), clarifies the definition of fair value, prescribes methods for measuring fair value, and ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows: establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows: 2. Summary of Significant Accounting Policies 2. Summary of Significant Accounting Policies Basis of presentation Basis of presentation The accompanying consolidated financial statements have been prepared by management in conformity with U.S. GAAP. The accompanying consolidated financial statements have been prepared by management in conformity with U.S. GAAP. Principles of consolidation Principles of consolidation The consolidated financial statements include all accounts of BMC and its wholly-owned subsidiaries. All material intercompany accounts and transactions have The consolidated financial statements include all accounts of BMC and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. been eliminated in consolidation. Use of estimates Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates these estimates and judgments on an ongoing basis and bases its estimates on historical experience, current during the reporting period. The Company evaluates these estimates and judgments on an ongoing basis and bases its estimates on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making conditions and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. The significant estimates which could change by a material amount in the near term include revenue recognition for construction services, accounts contingencies. The significant estimates which could change by a material amount in the near term include revenue recognition for construction services, accounts receivable reserves, estimated losses on uncompleted contracts and changes in contract estimates, inventory reserves, supplier rebates, goodwill impairment, receivable reserves, estimated losses on uncompleted contracts and changes in contract estimates, inventory reserves, supplier rebates, goodwill impairment, impairment of property and equipment, insurance reserves, warranties and share-based compensation. Actual results may differ materially from these estimates impairment of property and equipment, insurance reserves, warranties and share-based compensation. Actual results may differ materially from these estimates under different assumptions or conditions. under different assumptions or conditions. Business and credit concentrations Business and credit concentrations The Company maintains cash at financial institutions in excess of federally insured limits. Accounts receivable potentially expose the Company to concentrations The Company maintains cash at financial institutions in excess of federally insured limits. Accounts receivable potentially expose the Company to concentrations of credit risk. Mitigating this credit risk is collateral underlying certain accounts receivable (perfected liens or lien rights) as well as the Company’s analysis of a of credit risk. Mitigating this credit risk is collateral underlying certain accounts receivable (perfected liens or lien rights) as well as the Company’s analysis of a customer’s credit history prior to extending credit. Concentrations of credit risk with respect to accounts receivable are limited due to the Company’s large number customer’s credit history prior to extending credit. Concentrations of credit risk with respect to accounts receivable are limited due to the Company’s large number of customers and their dispersion across various regions of the United States. At December 31, 2017 and 2016 , no customer represented more than 10% of of customers and their dispersion across various regions of the United States. At December 31, 2017 and 2016 , no customer represented more than 10% of accounts receivable. For the years ended December 31, 2017 , 2016 and 2015 , no customer accounted for more than 10% of revenue. accounts receivable. For the years ended December 31, 2017 , 2016 and 2015 , no customer accounted for more than 10% of revenue. Level 1 Level 1 Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. Level 2 Level 2 Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. data. Level 3 Level 3 Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. pricing the asset or liability based on the best available information. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument is categorized based upon the lowest level of input that is significant If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument is categorized based upon the lowest level of input that is significant to the fair value calculation. to the fair value calculation. Accounts receivable Accounts receivable Accounts receivable result from the extending of credit to trade customers for the purchase of goods and services. The terms generally provide for payment within Accounts receivable result from the extending of credit to trade customers for the purchase of goods and services. The terms generally provide for payment within 30 days of being invoiced. On occasion, when necessary to compete in certain circumstances, the Company will sell product under extended payment terms. 30 days of being invoiced. On occasion, when necessary to compete in certain circumstances, the Company will sell product under extended payment terms. Accounts receivable are stated at estimated net realizable value. The allowance for doubtful accounts is based on an assessment of individual past due accounts, Accounts receivable are stated at estimated net realizable value. The allowance for doubtful accounts is based on an assessment of individual past due accounts, historical write-off experience, accounts receivable aging, customer disputes and the business environment. Account balances are charged off when the potential historical write-off experience, accounts receivable aging, customer disputes and the business environment. Account balances are charged off when the potential for recovery is considered remote. The Company grants trade discounts on a percentage basis. The Company records an allowance against accounts receivable for for recovery is considered remote. The Company grants trade discounts on a percentage basis. The Company records an allowance against accounts receivable for the amount of discounts it estimates will be taken by customers. The discounts are recorded as a reduction to revenue when products are sold. the amount of discounts it estimates will be taken by customers. The discounts are recorded as a reduction to revenue when products are sold. Consideration received from suppliers Consideration received from suppliers The Company enters into agreements with many of its suppliers providing for inventory purchase rebates (“supplier rebates”) upon achievement of specified The Company enters into agreements with many of its suppliers providing for inventory purchase rebates (“supplier rebates”) upon achievement of specified volume purchasing levels. Supplier rebates are accrued as part of cost of goods sold based on progress towards earning the supplier rebates, taking into volume purchasing levels. Supplier rebates are accrued as part of cost of goods sold based on progress towards earning the supplier rebates, taking into consideration cumulative purchases of inventory to date and projected purchases through the end of the year. The Company estimates the rebates applicable to consideration cumulative purchases of inventory to date and projected purchases through the end of the year. The Company estimates the rebates applicable to inventory on-hand at each period end based on the estimated percentage of supplier rebates to be earned. The Company also receives consideration from suppliers inventory on-hand at each period end based on the estimated percentage of supplier rebates to be earned. The Company also receives consideration from suppliers to promote their products ("marketing and advertising allowances"), which are accrued as part of cost of goods sold or selling, general and administrative expenses, to promote their products ("marketing and advertising allowances"), which are accrued as part of cost of goods sold or selling, general and administrative expenses, depending on the nature of the allowance. Total rebates and marketing and advertising allowances depending on the nature of the allowance. Total rebates and marketing and advertising allowances 52 52 53 53 BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES BMC STOCK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company’s future results could be adversely affected by a number of factors including competitive pressure on sales and pricing, weather conditions, The Company’s future results could be adversely affected by a number of factors including competitive pressure on sales and pricing, weather conditions, consumer spending and debt levels, interest rates, existing residential home sales and new home construction, lumber prices and product mix. consumer spending and debt levels, interest rates, existing residential home sales and new home construction, lumber prices and product mix. (All amounts are presented in thousands except share and per share amounts.) (All amounts are presented in thousands except share and per share amounts.) Cash and cash equivalents Cash and cash equivalents 1. Organization 1. Organization On December 1, 2015, Stock Building Supply Holdings, Inc. (“SBS”) completed a business combination with privately-held Building Materials Holding On December 1, 2015, Stock Building Supply Holdings, Inc. (“SBS”) completed a business combination with privately-held Building Materials Holding Corporation (“BMHC”) in accordance with the terms of the Agreement and Plan of Merger, dated as of June 2, 2015, by and between SBS and BMHC (the Corporation (“BMHC”) in accordance with the terms of the Agreement and Plan of Merger, dated as of June 2, 2015, by and between SBS and BMHC (the “Merger Agreement”), pursuant to which BMHC merged with and into SBS (the “Merger”). As a result of the business combination, SBS survived the Merger and “Merger Agreement”), pursuant to which BMHC merged with and into SBS (the “Merger”). As a result of the business combination, SBS survived the Merger and in connection therewith changed its name to “BMC Stock Holdings, Inc.”. in connection therewith changed its name to “BMC Stock Holdings, Inc.”. These financial statements represent the financial statements of BMC Stock Holdings, Inc., and its subsidiaries. All references to “BMC,” “we,” “us,” “our” or the These financial statements represent the financial statements of BMC Stock Holdings, Inc., and its subsidiaries. All references to “BMC,” “we,” “us,” “our” or the “Company” in this Annual Report on Form 10-K mean BMC Stock Holdings, Inc. “Company” in this Annual Report on Form 10-K mean BMC Stock Holdings, Inc. Under U.S. generally accepted accounting principles ("U.S. GAAP"), the Merger was treated as a “reverse merger” under the acquisition method of accounting. Under U.S. generally accepted accounting principles ("U.S. GAAP"), the Merger was treated as a “reverse merger” under the acquisition method of accounting. For accounting purposes, BMHC is considered to have acquired SBS. Consequently, the historical financial statements of the Company reflect only the operations For accounting purposes, BMHC is considered to have acquired SBS. Consequently, the historical financial statements of the Company reflect only the operations and financial condition of BMHC prior to the date of the Merger. The operating results of SBS are reported as part of the Company beginning on the closing date and financial condition of BMHC prior to the date of the Merger. The operating results of SBS are reported as part of the Company beginning on the closing date of the Merger. of the Merger. Cash equivalents are highly liquid investments that are readily convertible to known amounts of cash and have a maturity of three months or less from the time of Cash equivalents are highly liquid investments that are readily convertible to known amounts of cash and have a maturity of three months or less from the time of purchase. purchase. Book overdrafts occur when purchases on corporate purchasing cards and checks written exceed available bank balances at a specific bank, despite there being Book overdrafts occur when purchases on corporate purchasing cards and checks written exceed available bank balances at a specific bank, despite there being cash at the Company's other financial institutions. For accounting purposes, the Company reclassifies these book overdrafts to accounts payable on the cash at the Company's other financial institutions. For accounting purposes, the Company reclassifies these book overdrafts to accounts payable on the consolidated balance sheets. Book overdrafts included in accounts payable were $0.1 million and $0.2 million at December 31, 2017 and 2016 , respectively. consolidated balance sheets. Book overdrafts included in accounts payable were $0.1 million and $0.2 million at December 31, 2017 and 2016 , respectively. Restricted assets Restricted assets Historically, the Company had restricted assets, which related to amounts deposited in a separate bank account to collateralize letters of credit related to insurance Historically, the Company had restricted assets, which related to amounts deposited in a separate bank account to collateralize letters of credit related to insurance claims for periods prior to January 2010. During the years ended December 31, 2015 and 2014, the Company was able to release the majority of these amounts into claims for periods prior to January 2010. During the years ended December 31, 2015 and 2014, the Company was able to release the majority of these amounts into unrestricted cash as a result of reductions in claims and the transfer of the risk of loss of certain claims to a reinsurer. In connection with the senior secured credit unrestricted cash as a result of reductions in claims and the transfer of the risk of loss of certain claims to a reinsurer. In connection with the senior secured credit agreement entered into on December 1, 2015 with Wells Fargo Capital Finance, described elsewhere in this document, the Company was able to release the agreement entered into on December 1, 2015 with Wells Fargo Capital Finance, described elsewhere in this document, the Company was able to release the remaining cash collateral into unrestricted cash. remaining cash collateral into unrestricted cash. Fair value of financial instruments Fair value of financial instruments The Company distributes lumber and building materials to new construction and repair and remodeling contractors. Additionally, the Company provides solution- The Company distributes lumber and building materials to new construction and repair and remodeling contractors. Additionally, the Company provides solution- based services to our customers, including component design, product specification and installation services. based services to our customers, including component design, product specification and installation services. ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), clarifies the definition of fair value, prescribes methods for measuring fair value, and ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows: establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows: 2. Summary of Significant Accounting Policies 2. Summary of Significant Accounting Policies Basis of presentation Basis of presentation Principles of consolidation Principles of consolidation been eliminated in consolidation. been eliminated in consolidation. Use of estimates Use of estimates The accompanying consolidated financial statements have been prepared by management in conformity with U.S. GAAP. The accompanying consolidated financial statements have been prepared by management in conformity with U.S. GAAP. The consolidated financial statements include all accounts of BMC and its wholly-owned subsidiaries. All material intercompany accounts and transactions have The consolidated financial statements include all accounts of BMC and its wholly-owned subsidiaries. All material intercompany accounts and transactions have The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company evaluates these estimates and judgments on an ongoing basis and bases its estimates on historical experience, current during the reporting period. The Company evaluates these estimates and judgments on an ongoing basis and bases its estimates on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making conditions and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. The significant estimates which could change by a material amount in the near term include revenue recognition for construction services, accounts contingencies. The significant estimates which could change by a material amount in the near term include revenue recognition for construction services, accounts receivable reserves, estimated losses on uncompleted contracts and changes in contract estimates, inventory reserves, supplier rebates, goodwill impairment, receivable reserves, estimated losses on uncompleted contracts and changes in contract estimates, inventory reserves, supplier rebates, goodwill impairment, impairment of property and equipment, insurance reserves, warranties and share-based compensation. Actual results may differ materially from these estimates impairment of property and equipment, insurance reserves, warranties and share-based compensation. Actual results may differ materially from these estimates under different assumptions or conditions. under different assumptions or conditions. Business and credit concentrations Business and credit concentrations The Company maintains cash at financial institutions in excess of federally insured limits. Accounts receivable potentially expose the Company to concentrations The Company maintains cash at financial institutions in excess of federally insured limits. Accounts receivable potentially expose the Company to concentrations of credit risk. Mitigating this credit risk is collateral underlying certain accounts receivable (perfected liens or lien rights) as well as the Company’s analysis of a of credit risk. Mitigating this credit risk is collateral underlying certain accounts receivable (perfected liens or lien rights) as well as the Company’s analysis of a customer’s credit history prior to extending credit. Concentrations of credit risk with respect to accounts receivable are limited due to the Company’s large number customer’s credit history prior to extending credit. Concentrations of credit risk with respect to accounts receivable are limited due to the Company’s large number of customers and their dispersion across various regions of the United States. At December 31, 2017 and 2016 , no customer represented more than 10% of of customers and their dispersion across various regions of the United States. At December 31, 2017 and 2016 , no customer represented more than 10% of accounts receivable. For the years ended December 31, 2017 , 2016 and 2015 , no customer accounted for more than 10% of revenue. accounts receivable. For the years ended December 31, 2017 , 2016 and 2015 , no customer accounted for more than 10% of revenue. Level 1 Level 1 Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. Level 2 Level 2 Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. data. Level 3 Level 3 Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information. pricing the asset or liability based on the best available information. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument is categorized based upon the lowest level of input that is significant If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument is categorized based upon the lowest level of input that is significant to the fair value calculation. to the fair value calculation. Accounts receivable Accounts receivable Accounts receivable result from the extending of credit to trade customers for the purchase of goods and services. The terms generally provide for payment within Accounts receivable result from the extending of credit to trade customers for the purchase of goods and services. The terms generally provide for payment within 30 days of being invoiced. On occasion, when necessary to compete in certain circumstances, the Company will sell product under extended payment terms. 30 days of being invoiced. On occasion, when necessary to compete in certain circumstances, the Company will sell product under extended payment terms. Accounts receivable are stated at estimated net realizable value. The allowance for doubtful accounts is based on an assessment of individual past due accounts, Accounts receivable are stated at estimated net realizable value. The allowance for doubtful accounts is based on an assessment of individual past due accounts, historical write-off experience, accounts receivable aging, customer disputes and the business environment. Account balances are charged off when the potential historical write-off experience, accounts receivable aging, customer disputes and the business environment. Account balances are charged off when the potential for recovery is considered remote. The Company grants trade discounts on a percentage basis. The Company records an allowance against accounts receivable for for recovery is considered remote. The Company grants trade discounts on a percentage basis. The Company records an allowance against accounts receivable for the amount of discounts it estimates will be taken by customers. The discounts are recorded as a reduction to revenue when products are sold. the amount of discounts it estimates will be taken by customers. The discounts are recorded as a reduction to revenue when products are sold. Consideration received from suppliers Consideration received from suppliers The Company enters into agreements with many of its suppliers providing for inventory purchase rebates (“supplier rebates”) upon achievement of specified The Company enters into agreements with many of its suppliers providing for inventory purchase rebates (“supplier rebates”) upon achievement of specified volume purchasing levels. Supplier rebates are accrued as part of cost of goods sold based on progress towards earning the supplier rebates, taking into volume purchasing levels. Supplier rebates are accrued as part of cost of goods sold based on progress towards earning the supplier rebates, taking into consideration cumulative purchases of inventory to date and projected purchases through the end of the year. The Company estimates the rebates applicable to consideration cumulative purchases of inventory to date and projected purchases through the end of the year. The Company estimates the rebates applicable to inventory on-hand at each period end based on the estimated percentage of supplier rebates to be earned. The Company also receives consideration from suppliers inventory on-hand at each period end based on the estimated percentage of supplier rebates to be earned. The Company also receives consideration from suppliers to promote their products ("marketing and advertising allowances"), which are accrued as part of cost of goods sold or selling, general and administrative expenses, to promote their products ("marketing and advertising allowances"), which are accrued as part of cost of goods sold or selling, general and administrative expenses, depending on the nature of the allowance. Total rebates and marketing and advertising allowances depending on the nature of the allowance. Total rebates and marketing and advertising allowances 52 52 53 53 receivable at December 31, 2017 and 2016 are $23.3 million and $21.4 million , respectively, included in prepaid expenses and other current assets. receivable at December 31, 2017 and 2016 are $23.3 million and $21.4 million , respectively, included in prepaid expenses and other current assets. Goodwill and other intangible assets Goodwill and other intangible assets Revenue recognition Revenue recognition The Company recognizes revenue for sales of building products when products are delivered and the customer takes ownership and assumes risk of loss, collection The Company recognizes revenue for sales of building products when products are delivered and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is reasonably assured, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. All sales recognized are of the relevant receivable is reasonably assured, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. All sales recognized are net of allowances for discounts and estimated returns, based on historical experience. Taxes assessed by governmental authorities that are directly imposed on the net of allowances for discounts and estimated returns, based on historical experience. Taxes assessed by governmental authorities that are directly imposed on the Company's revenue-producing transactions are excluded from sales. Company's revenue-producing transactions are excluded from sales. The percentage-of-completion method is used to recognize revenue for construction services. Periodic estimates of progress towards completion are made based on The percentage-of-completion method is used to recognize revenue for construction services. Periodic estimates of progress towards completion are made based on either a comparison of labor costs incurred to date with total estimated contract labor costs or total costs incurred to date with total estimated contract costs. The either a comparison of labor costs incurred to date with total estimated contract labor costs or total costs incurred to date with total estimated contract costs. The percentage-of-completion method requires the use of various estimates, including among others, the extent of progress towards completion, contract revenues and percentage-of-completion method requires the use of various estimates, including among others, the extent of progress towards completion, contract revenues and contract completion costs. Contract revenues and contract costs to be recognized are dependent on the accuracy of estimates, including quantities of materials, contract completion costs. Contract revenues and contract costs to be recognized are dependent on the accuracy of estimates, including quantities of materials, labor productivity and other cost estimates. The Company has a history of making reasonable estimates of the extent of progress towards completion, contract labor productivity and other cost estimates. The Company has a history of making reasonable estimates of the extent of progress towards completion, contract revenues and contract completion costs. Due to uncertainties inherent in the estimation process, it is possible that actual contract revenues and completion costs revenues and contract completion costs. Due to uncertainties inherent in the estimation process, it is possible that actual contract revenues and completion costs may vary from estimates. Revenue recognized using the percentage-of-completion method for the years ended December 31, 2017 , 2016 and 2015 represented may vary from estimates. Revenue recognized using the percentage-of-completion method for the years ended December 31, 2017 , 2016 and 2015 represented approximately 95% , 94% and 92% of the total revenue for construction services for the respective periods. approximately 95% , 94% and 92% of the total revenue for construction services for the respective periods. Estimated losses on uncompleted contracts and changes in contract estimates reflect the Company's best estimate of probable losses of unbilled receivables, and are Estimated losses on uncompleted contracts and changes in contract estimates reflect the Company's best estimate of probable losses of unbilled receivables, and are recognized in the period such revisions are known and can be reasonably estimated. These estimates are recognized in cost of sales. Estimated losses on recognized in the period such revisions are known and can be reasonably estimated. These estimates are recognized in cost of sales. Estimated losses on uncompleted contracts and changes in contract estimates are established by assessing estimated costs to complete, change orders and claims for uncompleted uncompleted contracts and changes in contract estimates are established by assessing estimated costs to complete, change orders and claims for uncompleted contracts. Assumptions for estimated costs to complete include material prices, labor costs, labor productivity and contract claims. Such estimates are inherently contracts. Assumptions for estimated costs to complete include material prices, labor costs, labor productivity and contract claims. Such estimates are inherently uncertain and therefore it is possible that actual completion costs may vary from these estimates. uncertain and therefore it is possible that actual completion costs may vary from these estimates. Shipping and handling costs Shipping and handling costs The Company includes shipping and handling costs in selling, general and administrative expenses on the consolidated statements of operations. Shipping and The Company includes shipping and handling costs in selling, general and administrative expenses on the consolidated statements of operations. Shipping and handling costs were $172.2 million , $152.7 million and $81.6 million for the years ended December 31, 2017 , 2016 and 2015 , respectively. handling costs were $172.2 million , $152.7 million and $81.6 million for the years ended December 31, 2017 , 2016 and 2015 , respectively. carrying value of the reporting unit's goodwill. carrying value of the reporting unit's goodwill. Property and equipment Property and equipment Property and equipment are stated at cost. Expenditures for renewals and betterments, which extend the useful lives of assets, are capitalized while maintenance Property and equipment are stated at cost. Expenditures for renewals and betterments, which extend the useful lives of assets, are capitalized while maintenance and repairs are charged to expense as incurred. Property and equipment obtained through acquisition are stated at estimated fair market value as of the acquisition and repairs are charged to expense as incurred. Property and equipment obtained through acquisition are stated at estimated fair market value as of the acquisition date, and are depreciated over their estimated remaining useful lives, which may differ from the Company's stated policies for certain assets. Gains and losses date, and are depreciated over their estimated remaining useful lives, which may differ from the Company's stated policies for certain assets. Gains and losses related to the sale of property and equipment are recorded as selling, general and administrative expenses. related to the sale of property and equipment are recorded as selling, general and administrative expenses. Impairment of long-lived assets Impairment of long-lived assets Property and equipment are depreciated using the straight-line method and are generally depreciated over the following estimated service lives: Property and equipment are depreciated using the straight-line method and are generally depreciated over the following estimated service lives: Buildings and improvements Buildings and improvements Leasehold improvements Leasehold improvements Furniture, fixtures and equipment Furniture, fixtures and equipment Vehicles Vehicles Lesser of life of the asset or remaining Lesser of life of the asset or remaining 3–30 years 3–30 years lease term, and not to exceed 15 years lease term, and not to exceed 15 years amount of the asset exceeds the estimated fair value of the asset. amount of the asset exceeds the estimated fair value of the asset. 2–10 years 2–10 years 4–10 years 4–10 years Merger and integration costs Merger and integration costs Property and equipment that is expected to be sold within the next twelve months, is actively marketed in its current condition for a price that is reasonable in Property and equipment that is expected to be sold within the next twelve months, is actively marketed in its current condition for a price that is reasonable in comparison to its estimated fair value and meets other relevant held-for-sale criteria are classified as assets held for sale. Assets held for sale are measured at the comparison to its estimated fair value and meets other relevant held-for-sale criteria are classified as assets held for sale. Assets held for sale are measured at the lower of carrying amount or fair value less costs to sell and are no longer depreciated. An impairment for assets held for sale is recognized if the carrying amount is lower of carrying amount or fair value less costs to sell and are no longer depreciated. An impairment for assets held for sale is recognized if the carrying amount is not recoverable. Assets held for sale were not presented separately and were classified as other long-term assets in the consolidated balance sheets and were $2.3 not recoverable. Assets held for sale were not presented separately and were classified as other long-term assets in the consolidated balance sheets and were $2.3 million and $2.0 million at December 31, 2017 and 2016 , respectively. million and $2.0 million at December 31, 2017 and 2016 , respectively. professional fees. professional fees. Income taxes Income taxes 54 54 55 55 At least annually, or more frequently as changes in circumstances indicate, the Company tests goodwill for impairment. To the extent that the carrying value of the At least annually, or more frequently as changes in circumstances indicate, the Company tests goodwill for impairment. To the extent that the carrying value of the net assets of any of the reporting units having goodwill is greater than their estimated fair value, the Company may be required to record impairment charges. net assets of any of the reporting units having goodwill is greater than their estimated fair value, the Company may be required to record impairment charges. Beginning January 1, 2017, following the realignment of certain markets which resulted in the consolidation of the Company's historical Mountain West division Beginning January 1, 2017, following the realignment of certain markets which resulted in the consolidation of the Company's historical Mountain West division into the Intermountain division, the Company's five operating segments, which have been determined to be the Company's reporting units, are the Mid-Atlantic, into the Intermountain division, the Company's five operating segments, which have been determined to be the Company's reporting units, are the Mid-Atlantic, Southeast, Texas, Intermountain and Western divisions. Following the realignment, the chief operating decision maker continues to review aggregate information Southeast, Texas, Intermountain and Western divisions. Following the realignment, the chief operating decision maker continues to review aggregate information to allocate resources and assess performance. Based on this, as well as the similar economic characteristics, nature of products, distribution methods and customers to allocate resources and assess performance. Based on this, as well as the similar economic characteristics, nature of products, distribution methods and customers of the divisions both before and after the realignment, the Company has aggregated its operating segments into one reportable segment. The Company is required of the divisions both before and after the realignment, the Company has aggregated its operating segments into one reportable segment. The Company is required to make certain assumptions and estimates regarding the fair value of the reporting units containing goodwill when assessing for impairment. Changes in the fact to make certain assumptions and estimates regarding the fair value of the reporting units containing goodwill when assessing for impairment. Changes in the fact patterns underlying such assumptions and estimates could ultimately result in the recognition of additional impairment losses. patterns underlying such assumptions and estimates could ultimately result in the recognition of additional impairment losses. The Company completes its annual impairment assessment during the third quarter of each year. The Company did not recognize any impairment for the years The Company completes its annual impairment assessment during the third quarter of each year. The Company did not recognize any impairment for the years ended December 31, 2017 , 2016 and 2015 . The Company may consider qualitative factors as part of its annual impairment assessment to determine whether it is ended December 31, 2017 , 2016 and 2015 . The Company may consider qualitative factors as part of its annual impairment assessment to determine whether it is more likely than not that a reporting unit's carrying value exceeds its fair value. If the Company's qualitative assessment indicates that goodwill impairment is more more likely than not that a reporting unit's carrying value exceeds its fair value. If the Company's qualitative assessment indicates that goodwill impairment is more likely than not, the Company performs the two-step impairment test. Alternatively, the Company may bypass the qualitative test and initiate goodwill impairment likely than not, the Company performs the two-step impairment test. Alternatively, the Company may bypass the qualitative test and initiate goodwill impairment testing with the first step of the two-step goodwill impairment test. During the first step of the goodwill impairment test, the fair value of the reporting unit is testing with the first step of the two-step goodwill impairment test. During the first step of the goodwill impairment test, the fair value of the reporting unit is compared to its carrying value, including goodwill. The Company may derive a reporting unit's fair value through a combination of the market approach (a compared to its carrying value, including goodwill. The Company may derive a reporting unit's fair value through a combination of the market approach (a guideline transaction method) and the income approach. The income approach uses a reporting unit’s projection of estimated future cash flows that is discounted at guideline transaction method) and the income approach. The income approach uses a reporting unit’s projection of estimated future cash flows that is discounted at a market derived weighted average cost of capital. The projection uses management’s best estimates of economic and market conditions over the projected period a market derived weighted average cost of capital. The projection uses management’s best estimates of economic and market conditions over the projected period including growth rates in sales, costs, estimates of future expected changes in operating margins and cash expenditures. including growth rates in sales, costs, estimates of future expected changes in operating margins and cash expenditures. If the fair value of a reporting unit exceeds its carrying value, then the Company concludes no goodwill impairment has occurred. If the carrying value of the If the fair value of a reporting unit exceeds its carrying value, then the Company concludes no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, the Company performs the second step of the goodwill impairment test to measure possible goodwill impairment loss. During reporting unit exceeds its fair value, the Company performs the second step of the goodwill impairment test to measure possible goodwill impairment loss. During the second step, the implied fair value of the reporting unit's goodwill is compared to the carrying value of its goodwill. If the carrying value of the reporting unit's the second step, the implied fair value of the reporting unit's goodwill is compared to the carrying value of its goodwill. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the goodwill, the Company would recognize an impairment loss in an amount equal to the excess, not to exceed the goodwill exceeds the implied fair value of the goodwill, the Company would recognize an impairment loss in an amount equal to the excess, not to exceed the Acquired intangible assets other than goodwill are amortized over their weighted average amortization period unless they are determined to be indefinite. Acquired Acquired intangible assets other than goodwill are amortized over their weighted average amortization period unless they are determined to be indefinite. Acquired intangible assets are carried at cost, less accumulated amortization. For intangible assets purchased in a business combination, the estimated fair values of the intangible assets are carried at cost, less accumulated amortization. For intangible assets purchased in a business combination, the estimated fair values of the assets received are used to establish the carrying value. The fair value of acquired intangible assets is determined using common valuation techniques, and the assets received are used to establish the carrying value. The fair value of acquired intangible assets is determined using common valuation techniques, and the Company employs assumptions developed using the perspective of a market participant. Company employs assumptions developed using the perspective of a market participant. Long-lived assets, such as property, equipment and purchased intangible assets subject to amortization, are reviewed for impairment whenever facts and Long-lived assets, such as property, equipment and purchased intangible assets subject to amortization, are reviewed for impairment whenever facts and circumstances indicate that the carrying amount of an asset may not be recoverable. For impairment testing of long-lived assets, the Company identifies asset circumstances indicate that the carrying amount of an asset may not be recoverable. For impairment testing of long-lived assets, the Company identifies asset groups at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Recoverability of groups at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the assets. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying the assets. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying Merger and integration costs related to the ongoing integration of BMHC and SBS consist primarily of severance, rebranding, system integration costs and Merger and integration costs related to the ongoing integration of BMHC and SBS consist primarily of severance, rebranding, system integration costs and The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes ("ASC 740"), which requires an asset and liability approach for The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes ("ASC 740"), which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax basis measuring deferred taxes based on temporary differences between the financial statement and tax basis Revenue recognition Revenue recognition The Company recognizes revenue for sales of building products when products are delivered and the customer takes ownership and assumes risk of loss, collection The Company recognizes revenue for sales of building products when products are delivered and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is reasonably assured, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. All sales recognized are of the relevant receivable is reasonably assured, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. All sales recognized are net of allowances for discounts and estimated returns, based on historical experience. Taxes assessed by governmental authorities that are directly imposed on the net of allowances for discounts and estimated returns, based on historical experience. Taxes assessed by governmental authorities that are directly imposed on the Company's revenue-producing transactions are excluded from sales. Company's revenue-producing transactions are excluded from sales. The percentage-of-completion method is used to recognize revenue for construction services. Periodic estimates of progress towards completion are made based on The percentage-of-completion method is used to recognize revenue for construction services. Periodic estimates of progress towards completion are made based on either a comparison of labor costs incurred to date with total estimated contract labor costs or total costs incurred to date with total estimated contract costs. The either a comparison of labor costs incurred to date with total estimated contract labor costs or total costs incurred to date with total estimated contract costs. The percentage-of-completion method requires the use of various estimates, including among others, the extent of progress towards completion, contract revenues and percentage-of-completion method requires the use of various estimates, including among others, the extent of progress towards completion, contract revenues and contract completion costs. Contract revenues and contract costs to be recognized are dependent on the accuracy of estimates, including quantities of materials, contract completion costs. Contract revenues and contract costs to be recognized are dependent on the accuracy of estimates, including quantities of materials, labor productivity and other cost estimates. The Company has a history of making reasonable estimates of the extent of progress towards completion, contract labor productivity and other cost estimates. The Company has a history of making reasonable estimates of the extent of progress towards completion, contract revenues and contract completion costs. Due to uncertainties inherent in the estimation process, it is possible that actual contract revenues and completion costs revenues and contract completion costs. Due to uncertainties inherent in the estimation process, it is possible that actual contract revenues and completion costs may vary from estimates. Revenue recognized using the percentage-of-completion method for the years ended December 31, 2017 , 2016 and 2015 represented may vary from estimates. Revenue recognized using the percentage-of-completion method for the years ended December 31, 2017 , 2016 and 2015 represented approximately 95% , 94% and 92% of the total revenue for construction services for the respective periods. approximately 95% , 94% and 92% of the total revenue for construction services for the respective periods. Estimated losses on uncompleted contracts and changes in contract estimates reflect the Company's best estimate of probable losses of unbilled receivables, and are Estimated losses on uncompleted contracts and changes in contract estimates reflect the Company's best estimate of probable losses of unbilled receivables, and are recognized in the period such revisions are known and can be reasonably estimated. These estimates are recognized in cost of sales. Estimated losses on recognized in the period such revisions are known and can be reasonably estimated. These estimates are recognized in cost of sales. Estimated losses on uncompleted contracts and changes in contract estimates are established by assessing estimated costs to complete, change orders and claims for uncompleted uncompleted contracts and changes in contract estimates are established by assessing estimated costs to complete, change orders and claims for uncompleted contracts. Assumptions for estimated costs to complete include material prices, labor costs, labor productivity and contract claims. Such estimates are inherently contracts. Assumptions for estimated costs to complete include material prices, labor costs, labor productivity and contract claims. Such estimates are inherently uncertain and therefore it is possible that actual completion costs may vary from these estimates. uncertain and therefore it is possible that actual completion costs may vary from these estimates. The Company includes shipping and handling costs in selling, general and administrative expenses on the consolidated statements of operations. Shipping and The Company includes shipping and handling costs in selling, general and administrative expenses on the consolidated statements of operations. Shipping and handling costs were $172.2 million , $152.7 million and $81.6 million for the years ended December 31, 2017 , 2016 and 2015 , respectively. handling costs were $172.2 million , $152.7 million and $81.6 million for the years ended December 31, 2017 , 2016 and 2015 , respectively. Property and equipment are stated at cost. Expenditures for renewals and betterments, which extend the useful lives of assets, are capitalized while maintenance Property and equipment are stated at cost. Expenditures for renewals and betterments, which extend the useful lives of assets, are capitalized while maintenance and repairs are charged to expense as incurred. Property and equipment obtained through acquisition are stated at estimated fair market value as of the acquisition and repairs are charged to expense as incurred. Property and equipment obtained through acquisition are stated at estimated fair market value as of the acquisition date, and are depreciated over their estimated remaining useful lives, which may differ from the Company's stated policies for certain assets. Gains and losses date, and are depreciated over their estimated remaining useful lives, which may differ from the Company's stated policies for certain assets. Gains and losses Property and equipment are depreciated using the straight-line method and are generally depreciated over the following estimated service lives: Property and equipment are depreciated using the straight-line method and are generally depreciated over the following estimated service lives: Shipping and handling costs Shipping and handling costs Property and equipment Property and equipment Buildings and improvements Buildings and improvements Leasehold improvements Leasehold improvements Furniture, fixtures and equipment Furniture, fixtures and equipment Vehicles Vehicles Lesser of life of the asset or remaining Lesser of life of the asset or remaining lease term, and not to exceed 15 years lease term, and not to exceed 15 years 3–30 years 3–30 years 2–10 years 2–10 years 4–10 years 4–10 years Property and equipment that is expected to be sold within the next twelve months, is actively marketed in its current condition for a price that is reasonable in Property and equipment that is expected to be sold within the next twelve months, is actively marketed in its current condition for a price that is reasonable in comparison to its estimated fair value and meets other relevant held-for-sale criteria are classified as assets held for sale. Assets held for sale are measured at the comparison to its estimated fair value and meets other relevant held-for-sale criteria are classified as assets held for sale. Assets held for sale are measured at the lower of carrying amount or fair value less costs to sell and are no longer depreciated. An impairment for assets held for sale is recognized if the carrying amount is lower of carrying amount or fair value less costs to sell and are no longer depreciated. An impairment for assets held for sale is recognized if the carrying amount is not recoverable. Assets held for sale were not presented separately and were classified as other long-term assets in the consolidated balance sheets and were $2.3 not recoverable. Assets held for sale were not presented separately and were classified as other long-term assets in the consolidated balance sheets and were $2.3 million and $2.0 million at December 31, 2017 and 2016 , respectively. million and $2.0 million at December 31, 2017 and 2016 , respectively. receivable at December 31, 2017 and 2016 are $23.3 million and $21.4 million , respectively, included in prepaid expenses and other current assets. receivable at December 31, 2017 and 2016 are $23.3 million and $21.4 million , respectively, included in prepaid expenses and other current assets. Goodwill and other intangible assets Goodwill and other intangible assets At least annually, or more frequently as changes in circumstances indicate, the Company tests goodwill for impairment. To the extent that the carrying value of the At least annually, or more frequently as changes in circumstances indicate, the Company tests goodwill for impairment. To the extent that the carrying value of the net assets of any of the reporting units having goodwill is greater than their estimated fair value, the Company may be required to record impairment charges. net assets of any of the reporting units having goodwill is greater than their estimated fair value, the Company may be required to record impairment charges. Beginning January 1, 2017, following the realignment of certain markets which resulted in the consolidation of the Company's historical Mountain West division Beginning January 1, 2017, following the realignment of certain markets which resulted in the consolidation of the Company's historical Mountain West division into the Intermountain division, the Company's five operating segments, which have been determined to be the Company's reporting units, are the Mid-Atlantic, into the Intermountain division, the Company's five operating segments, which have been determined to be the Company's reporting units, are the Mid-Atlantic, Southeast, Texas, Intermountain and Western divisions. Following the realignment, the chief operating decision maker continues to review aggregate information Southeast, Texas, Intermountain and Western divisions. Following the realignment, the chief operating decision maker continues to review aggregate information to allocate resources and assess performance. Based on this, as well as the similar economic characteristics, nature of products, distribution methods and customers to allocate resources and assess performance. Based on this, as well as the similar economic characteristics, nature of products, distribution methods and customers of the divisions both before and after the realignment, the Company has aggregated its operating segments into one reportable segment. The Company is required of the divisions both before and after the realignment, the Company has aggregated its operating segments into one reportable segment. The Company is required to make certain assumptions and estimates regarding the fair value of the reporting units containing goodwill when assessing for impairment. Changes in the fact to make certain assumptions and estimates regarding the fair value of the reporting units containing goodwill when assessing for impairment. Changes in the fact patterns underlying such assumptions and estimates could ultimately result in the recognition of additional impairment losses. patterns underlying such assumptions and estimates could ultimately result in the recognition of additional impairment losses. The Company completes its annual impairment assessment during the third quarter of each year. The Company did not recognize any impairment for the years The Company completes its annual impairment assessment during the third quarter of each year. The Company did not recognize any impairment for the years ended December 31, 2017 , 2016 and 2015 . The Company may consider qualitative factors as part of its annual impairment assessment to determine whether it is ended December 31, 2017 , 2016 and 2015 . The Company may consider qualitative factors as part of its annual impairment assessment to determine whether it is more likely than not that a reporting unit's carrying value exceeds its fair value. If the Company's qualitative assessment indicates that goodwill impairment is more more likely than not that a reporting unit's carrying value exceeds its fair value. If the Company's qualitative assessment indicates that goodwill impairment is more likely than not, the Company performs the two-step impairment test. Alternatively, the Company may bypass the qualitative test and initiate goodwill impairment likely than not, the Company performs the two-step impairment test. Alternatively, the Company may bypass the qualitative test and initiate goodwill impairment testing with the first step of the two-step goodwill impairment test. During the first step of the goodwill impairment test, the fair value of the reporting unit is testing with the first step of the two-step goodwill impairment test. During the first step of the goodwill impairment test, the fair value of the reporting unit is compared to its carrying value, including goodwill. The Company may derive a reporting unit's fair value through a combination of the market approach (a compared to its carrying value, including goodwill. The Company may derive a reporting unit's fair value through a combination of the market approach (a guideline transaction method) and the income approach. The income approach uses a reporting unit’s projection of estimated future cash flows that is discounted at guideline transaction method) and the income approach. The income approach uses a reporting unit’s projection of estimated future cash flows that is discounted at a market derived weighted average cost of capital. The projection uses management’s best estimates of economic and market conditions over the projected period a market derived weighted average cost of capital. The projection uses management’s best estimates of economic and market conditions over the projected period including growth rates in sales, costs, estimates of future expected changes in operating margins and cash expenditures. including growth rates in sales, costs, estimates of future expected changes in operating margins and cash expenditures. If the fair value of a reporting unit exceeds its carrying value, then the Company concludes no goodwill impairment has occurred. If the carrying value of the If the fair value of a reporting unit exceeds its carrying value, then the Company concludes no goodwill impairment has occurred. If the carrying value of the reporting unit exceeds its fair value, the Company performs the second step of the goodwill impairment test to measure possible goodwill impairment loss. During reporting unit exceeds its fair value, the Company performs the second step of the goodwill impairment test to measure possible goodwill impairment loss. During the second step, the implied fair value of the reporting unit's goodwill is compared to the carrying value of its goodwill. If the carrying value of the reporting unit's the second step, the implied fair value of the reporting unit's goodwill is compared to the carrying value of its goodwill. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the goodwill, the Company would recognize an impairment loss in an amount equal to the excess, not to exceed the goodwill exceeds the implied fair value of the goodwill, the Company would recognize an impairment loss in an amount equal to the excess, not to exceed the carrying value of the reporting unit's goodwill. carrying value of the reporting unit's goodwill. Acquired intangible assets other than goodwill are amortized over their weighted average amortization period unless they are determined to be indefinite. Acquired Acquired intangible assets other than goodwill are amortized over their weighted average amortization period unless they are determined to be indefinite. Acquired intangible assets are carried at cost, less accumulated amortization. For intangible assets purchased in a business combination, the estimated fair values of the intangible assets are carried at cost, less accumulated amortization. For intangible assets purchased in a business combination, the estimated fair values of the assets received are used to establish the carrying value. The fair value of acquired intangible assets is determined using common valuation techniques, and the assets received are used to establish the carrying value. The fair value of acquired intangible assets is determined using common valuation techniques, and the Company employs assumptions developed using the perspective of a market participant. Company employs assumptions developed using the perspective of a market participant. related to the sale of property and equipment are recorded as selling, general and administrative expenses. related to the sale of property and equipment are recorded as selling, general and administrative expenses. Impairment of long-lived assets Impairment of long-lived assets Long-lived assets, such as property, equipment and purchased intangible assets subject to amortization, are reviewed for impairment whenever facts and Long-lived assets, such as property, equipment and purchased intangible assets subject to amortization, are reviewed for impairment whenever facts and circumstances indicate that the carrying amount of an asset may not be recoverable. For impairment testing of long-lived assets, the Company identifies asset circumstances indicate that the carrying amount of an asset may not be recoverable. For impairment testing of long-lived assets, the Company identifies asset groups at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Recoverability of groups at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the assets. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying the assets. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. amount of the asset exceeds the estimated fair value of the asset. Merger and integration costs Merger and integration costs Merger and integration costs related to the ongoing integration of BMHC and SBS consist primarily of severance, rebranding, system integration costs and Merger and integration costs related to the ongoing integration of BMHC and SBS consist primarily of severance, rebranding, system integration costs and professional fees. professional fees. Income taxes Income taxes The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes ("ASC 740"), which requires an asset and liability approach for The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes ("ASC 740"), which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax basis measuring deferred taxes based on temporary differences between the financial statement and tax basis 54 54 55 55 of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered. of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered. Lease obligations Lease obligations The Company evaluates its deferred tax assets on a quarterly basis to determine whether a valuation allowance is required. In accordance with ASC 740, the The Company evaluates its deferred tax assets on a quarterly basis to determine whether a valuation allowance is required. In accordance with ASC 740, the Company assesses whether a valuation allowance should be established based on its determination of whether it is more likely than not that some portion or all of Company assesses whether a valuation allowance should be established based on its determination of whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends primarily on: (i) the Company's ability to carry back net the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends primarily on: (i) the Company's ability to carry back net operating losses to tax years where it has previously paid income taxes based on applicable federal law; (ii) the timing of the reversal of deferred tax liabilities and operating losses to tax years where it has previously paid income taxes based on applicable federal law; (ii) the timing of the reversal of deferred tax liabilities and (iii) the Company's ability to generate future taxable income during the periods in which the related deferred tax assets are deductible. The assessment of a (iii) the Company's ability to generate future taxable income during the periods in which the related deferred tax assets are deductible. The assessment of a valuation allowance includes giving appropriate consideration to all positive and negative evidence related to the realization of the deferred tax asset. This valuation allowance includes giving appropriate consideration to all positive and negative evidence related to the realization of the deferred tax asset. This assessment considers, among other things, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of assessment considers, among other things, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, the Company's experience with operating loss and tax credit carryforwards not expiring unused and tax planning alternatives. statutory carryforward periods, the Company's experience with operating loss and tax credit carryforwards not expiring unused and tax planning alternatives. Significant judgment is required in determining the future tax consequences of events that have been recognized in the Company's consolidated financial Significant judgment is required in determining the future tax consequences of events that have been recognized in the Company's consolidated financial statements and/or tax returns. Actual outcomes of these future tax consequences could differ materially from the outcomes that the Company currently anticipates. statements and/or tax returns. Actual outcomes of these future tax consequences could differ materially from the outcomes that the Company currently anticipates. ASC 740 defines the methodology for recognizing the benefits of uncertain tax return positions as well as guidance regarding the measurement of the resulting tax ASC 740 defines the methodology for recognizing the benefits of uncertain tax return positions as well as guidance regarding the measurement of the resulting tax benefits. These provisions require an enterprise to recognize the financial statement effects of a tax position when it is more likely than not, which is defined as a benefits. These provisions require an enterprise to recognize the financial statement effects of a tax position when it is more likely than not, which is defined as a likelihood of more than 50%, based on technical merits, that the position will be sustained upon examination. The evaluation of whether a tax position meets the likelihood of more than 50%, based on technical merits, that the position will be sustained upon examination. The evaluation of whether a tax position meets the more likely than not recognition threshold requires a substantial degree of judgment by management based on the individual facts and circumstances. Actual results more likely than not recognition threshold requires a substantial degree of judgment by management based on the individual facts and circumstances. Actual results could differ from estimates. The Company had no material uncertain tax positions as of December 31, 2017. could differ from estimates. The Company had no material uncertain tax positions as of December 31, 2017. The Company’s policy is to recognize interest and penalties related to income tax liabilities and unrecognized tax benefits in income tax expense. The Company’s policy is to recognize interest and penalties related to income tax liabilities and unrecognized tax benefits in income tax expense. Casualty and health insurance Casualty and health insurance The Company carries insurance for general liability, auto liability and workers' compensation exposures subject to deductibles or self-insured retentions it believes The Company carries insurance for general liability, auto liability and workers' compensation exposures subject to deductibles or self-insured retentions it believes to be reasonable under the circumstances, and the Company self-insures for employee and eligible dependent health care claims, with insurance purchased from to be reasonable under the circumstances, and the Company self-insures for employee and eligible dependent health care claims, with insurance purchased from independent carriers to cover individual claims in excess of the self-insured limits. The expected liability for unpaid claims, including incurred but not reported independent carriers to cover individual claims in excess of the self-insured limits. The expected liability for unpaid claims, including incurred but not reported losses, is reflected on the consolidated balance sheets as a liability with current and long-term components. The amount recoverable from insurance providers is losses, is reflected on the consolidated balance sheets as a liability with current and long-term components. The amount recoverable from insurance providers is reflected on the consolidated balance sheets in prepaid expenses and other current assets. Provisions for losses are developed from actuarial valuations that rely reflected on the consolidated balance sheets in prepaid expenses and other current assets. Provisions for losses are developed from actuarial valuations that rely upon the Company’s past claims experience, which considers both the frequency and settlement of claims. The casualty and health insurance liabilities are upon the Company’s past claims experience, which considers both the frequency and settlement of claims. The casualty and health insurance liabilities are recorded at their undiscounted value. recorded at their undiscounted value. In January 2015, the Company entered into a retroactive reinsurance contract to transfer the risk of loss of certain insurance reserves for workers’ compensation In January 2015, the Company entered into a retroactive reinsurance contract to transfer the risk of loss of certain insurance reserves for workers’ compensation claims incurred from 2006 to 2011 to a reinsurer. As a part of the contract, the Company paid $11.1 million to the reinsurer to assume $8.3 million of insurance claims incurred from 2006 to 2011 to a reinsurer. As a part of the contract, the Company paid $11.1 million to the reinsurer to assume $8.3 million of insurance reserves. The $2.8 million difference between the amount paid to the reinsurer and the reserves transferred was recorded in selling, general and administrative reserves. The $2.8 million difference between the amount paid to the reinsurer and the reserves transferred was recorded in selling, general and administrative expenses on the consolidated statement of operations for the year ended December 31, 2015. Pursuant to the reinsurance contract, the reinsurer is obligated to pay expenses on the consolidated statement of operations for the year ended December 31, 2015. Pursuant to the reinsurance contract, the reinsurer is obligated to pay an aggregate maximum of $17.5 million for these claims with any excess borne by the Company. an aggregate maximum of $17.5 million for these claims with any excess borne by the Company. The Company recognizes lease obligations with fixed escalations of rental payments on a straight-line basis over the lease term, with the amount of rental expense The Company recognizes lease obligations with fixed escalations of rental payments on a straight-line basis over the lease term, with the amount of rental expense in excess of lease payments recorded as a deferred rent liability. As of December 31, 2017 and 2016 , the Company had a deferred rent liability of $4.2 million and in excess of lease payments recorded as a deferred rent liability. As of December 31, 2017 and 2016 , the Company had a deferred rent liability of $4.2 million and $3.6 million , respectively, included in accrued expenses and other liabilities and other long-term liabilities on the consolidated balance sheets. $3.6 million , respectively, included in accrued expenses and other liabilities and other long-term liabilities on the consolidated balance sheets. Advertising and promotion Advertising and promotion Costs associated with advertising and promoting products and services are expensed in the period incurred. Cooperative advertising allowances that are Costs associated with advertising and promoting products and services are expensed in the period incurred. Cooperative advertising allowances that are reimbursement of specific, incremental and identifiable costs incurred to promote vendors' products are recorded as an offset against advertising expenses in reimbursement of specific, incremental and identifiable costs incurred to promote vendors' products are recorded as an offset against advertising expenses in selling, general and administrative expenses. If those conditions are not met, the cooperative advertising allowances are recorded as a reduction in inventory and a selling, general and administrative expenses. If those conditions are not met, the cooperative advertising allowances are recorded as a reduction in inventory and a subsequent reduction in cost of goods sold when the related product is sold. For the years ended December 31, 2017 and 2016 , the Company recorded $5.8 million subsequent reduction in cost of goods sold when the related product is sold. For the years ended December 31, 2017 and 2016 , the Company recorded $5.8 million and $3.7 million , respectively, of advertising and promotion expenses, net of cooperative advertising allowances, in selling, general and administrative expenses. and $3.7 million , respectively, of advertising and promotion expenses, net of cooperative advertising allowances, in selling, general and administrative expenses. Advertising and promotion expenses, net of cooperative advertising allowances, were not material for the year ended December 31, 2015. Advertising and promotion expenses, net of cooperative advertising allowances, were not material for the year ended December 31, 2015. In accordance with the requirements of ASC 718, Compensation—Stock Compensation (“ASC 718”), the Company measures and recognizes compensation In accordance with the requirements of ASC 718, Compensation—Stock Compensation (“ASC 718”), the Company measures and recognizes compensation expense for all share-based payment awards made to employees using a fair value based pricing model. The compensation expense is recognized over the requisite expense for all share-based payment awards made to employees using a fair value based pricing model. The compensation expense is recognized over the requisite Stock-based compensation Stock-based compensation service period, using graded vesting. service period, using graded vesting. Exit or disposal costs Exit or disposal costs The Company accounts for costs associated with exit or disposal in accordance with ASC 420, Exit or Disposal Cost Obligations (“ASC 420”), which requires The Company accounts for costs associated with exit or disposal in accordance with ASC 420, Exit or Disposal Cost Obligations (“ASC 420”), which requires that: (i) liabilities associated with exit and disposal activities be measured at fair value; (ii) one-time termination benefits be expensed at the date the entity notifies that: (i) liabilities associated with exit and disposal activities be measured at fair value; (ii) one-time termination benefits be expensed at the date the entity notifies the employee, unless the employee must provide future service, in which case the benefits are expensed ratably over the future service period; (iii) liabilities related the employee, unless the employee must provide future service, in which case the benefits are expensed ratably over the future service period; (iii) liabilities related to an operating lease/contract be recognized and measured at its fair value when the contract does not have any future economic benefit to the entity (i.e., the entity to an operating lease/contract be recognized and measured at its fair value when the contract does not have any future economic benefit to the entity (i.e., the entity ceases to utilize the rights conveyed by the contract) and (iv) all other costs related to an exit or disposal activity be expensed as incurred. ceases to utilize the rights conveyed by the contract) and (iv) all other costs related to an exit or disposal activity be expensed as incurred. Costs incurred in connection with the Company’s revolving line of credit and senior secured notes are capitalized and amortized over the term of the agreement. Costs incurred in connection with the Company’s revolving line of credit and senior secured notes are capitalized and amortized over the term of the agreement. Total debt issuance costs, net of accumulated amortization, were $8.1 million and $9.8 million as of December 31, 2017 and 2016 , respectively. Debt issuance Total debt issuance costs, net of accumulated amortization, were $8.1 million and $9.8 million as of December 31, 2017 and 2016 , respectively. Debt issuance costs related to the Company's revolving line of credit and senior secured notes are included in other long-term assets and long-term debt, respectively, on the costs related to the Company's revolving line of credit and senior secured notes are included in other long-term assets and long-term debt, respectively, on the consolidated balance sheets. Amortization of debt issuance costs for the years ended December 31, 2017 , 2016 and 2015 was $1.7 million , $3.1 million and $2.5 consolidated balance sheets. Amortization of debt issuance costs for the years ended December 31, 2017 , 2016 and 2015 was $1.7 million , $3.1 million and $2.5 million , respectively, and is included in interest expense on the consolidated statements of operations. million , respectively, and is included in interest expense on the consolidated statements of operations. The Company maintains the insurance reserves related to these claims as a liability on its consolidated balance sheet with an offsetting reinsurance receivable, The Company maintains the insurance reserves related to these claims as a liability on its consolidated balance sheet with an offsetting reinsurance receivable, which includes current and long-term components. As of December 31, 2017 and 2016 , the carrying value of the insurance reserves related to these claims and the which includes current and long-term components. As of December 31, 2017 and 2016 , the carrying value of the insurance reserves related to these claims and the offsetting reinsurance receivable was $4.5 million and $5.6 million , respectively. Changes in these claims are recorded as an increase or decrease in the insurance offsetting reinsurance receivable was $4.5 million and $5.6 million , respectively. Changes in these claims are recorded as an increase or decrease in the insurance reserves and corresponding increase or decrease in the reinsurance receivable. Additionally, the Company monitors the financial condition of the reinsurer to reserves and corresponding increase or decrease in the reinsurance receivable. Additionally, the Company monitors the financial condition of the reinsurer to minimize its exposure to significant losses from reinsurer insolvency. minimize its exposure to significant losses from reinsurer insolvency. The Company will occasionally enter into derivative instruments to offset existing or expected risks associated with fluctuations in commodity prices. The The Company will occasionally enter into derivative instruments to offset existing or expected risks associated with fluctuations in commodity prices. The Company does not enter into derivative instruments for speculative or trading purposes. The Company recognizes all derivative instruments as assets or liabilities Company does not enter into derivative instruments for speculative or trading purposes. The Company recognizes all derivative instruments as assets or liabilities in the Company’s balance sheets at fair value. Changes in the fair value of derivative instruments that are not designated as hedges or that do not meet the hedge in the Company’s balance sheets at fair value. Changes in the fair value of derivative instruments that are not designated as hedges or that do not meet the hedge accounting criteria are reported in earnings. The Company elected not to designate any new derivative instruments as hedges for the years 2017 , 2016 or 2015 , accounting criteria are reported in earnings. The Company elected not to designate any new derivative instruments as hedges for the years 2017 , 2016 or 2015 , and therefore, all changes in the fair market value of the derivative instruments have been reported in cost of goods sold on the consolidated statements of and therefore, all changes in the fair market value of the derivative instruments have been reported in cost of goods sold on the consolidated statements of Retirement savings program Retirement savings program The Company sponsors a defined contribution retirement savings plan. The Company has recorded expense of $5.2 million , $4.6 million and $2.4 million related The Company sponsors a defined contribution retirement savings plan. The Company has recorded expense of $5.2 million , $4.6 million and $2.4 million related to employer contributions for the years ended December 31, 2017 , 2016 and 2015 , respectively. These expenses are recorded to either selling, general and to employer contributions for the years ended December 31, 2017 , 2016 and 2015 , respectively. These expenses are recorded to either selling, general and administrative expenses or cost of sales on the consolidated statements of operations, depending on the classification of the employee. administrative expenses or cost of sales on the consolidated statements of operations, depending on the classification of the employee. The Company has warranty obligations with respect to most manufactured products. As of December 31, 2017 and 2016 , the Company had warranty liabilities of The Company has warranty obligations with respect to most manufactured products. As of December 31, 2017 and 2016 , the Company had warranty liabilities of $2.5 million and $1.8 million , respectively, included in accrued expenses and other liabilities on the consolidated balance sheets. $2.5 million and $1.8 million , respectively, included in accrued expenses and other liabilities on the consolidated balance sheets. Debt issuance costs Debt issuance costs Derivatives Derivatives operations. operations. Warranty expense Warranty expense Reclassifications Reclassifications 56 56 Certain prior year amounts have been reclassified to conform to the current year presentation. Certain prior year amounts have been reclassified to conform to the current year presentation. 57 57 of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered. of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered. Lease obligations Lease obligations The Company evaluates its deferred tax assets on a quarterly basis to determine whether a valuation allowance is required. In accordance with ASC 740, the The Company evaluates its deferred tax assets on a quarterly basis to determine whether a valuation allowance is required. In accordance with ASC 740, the Company assesses whether a valuation allowance should be established based on its determination of whether it is more likely than not that some portion or all of Company assesses whether a valuation allowance should be established based on its determination of whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends primarily on: (i) the Company's ability to carry back net the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends primarily on: (i) the Company's ability to carry back net operating losses to tax years where it has previously paid income taxes based on applicable federal law; (ii) the timing of the reversal of deferred tax liabilities and operating losses to tax years where it has previously paid income taxes based on applicable federal law; (ii) the timing of the reversal of deferred tax liabilities and (iii) the Company's ability to generate future taxable income during the periods in which the related deferred tax assets are deductible. The assessment of a (iii) the Company's ability to generate future taxable income during the periods in which the related deferred tax assets are deductible. The assessment of a valuation allowance includes giving appropriate consideration to all positive and negative evidence related to the realization of the deferred tax asset. This valuation allowance includes giving appropriate consideration to all positive and negative evidence related to the realization of the deferred tax asset. This assessment considers, among other things, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of assessment considers, among other things, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, the Company's experience with operating loss and tax credit carryforwards not expiring unused and tax planning alternatives. statutory carryforward periods, the Company's experience with operating loss and tax credit carryforwards not expiring unused and tax planning alternatives. Significant judgment is required in determining the future tax consequences of events that have been recognized in the Company's consolidated financial Significant judgment is required in determining the future tax consequences of events that have been recognized in the Company's consolidated financial statements and/or tax returns. Actual outcomes of these future tax consequences could differ materially from the outcomes that the Company currently anticipates. statements and/or tax returns. Actual outcomes of these future tax consequences could differ materially from the outcomes that the Company currently anticipates. ASC 740 defines the methodology for recognizing the benefits of uncertain tax return positions as well as guidance regarding the measurement of the resulting tax ASC 740 defines the methodology for recognizing the benefits of uncertain tax return positions as well as guidance regarding the measurement of the resulting tax benefits. These provisions require an enterprise to recognize the financial statement effects of a tax position when it is more likely than not, which is defined as a benefits. These provisions require an enterprise to recognize the financial statement effects of a tax position when it is more likely than not, which is defined as a likelihood of more than 50%, based on technical merits, that the position will be sustained upon examination. The evaluation of whether a tax position meets the likelihood of more than 50%, based on technical merits, that the position will be sustained upon examination. The evaluation of whether a tax position meets the more likely than not recognition threshold requires a substantial degree of judgment by management based on the individual facts and circumstances. Actual results more likely than not recognition threshold requires a substantial degree of judgment by management based on the individual facts and circumstances. Actual results could differ from estimates. The Company had no material uncertain tax positions as of December 31, 2017. could differ from estimates. The Company had no material uncertain tax positions as of December 31, 2017. The Company recognizes lease obligations with fixed escalations of rental payments on a straight-line basis over the lease term, with the amount of rental expense The Company recognizes lease obligations with fixed escalations of rental payments on a straight-line basis over the lease term, with the amount of rental expense in excess of lease payments recorded as a deferred rent liability. As of December 31, 2017 and 2016 , the Company had a deferred rent liability of $4.2 million and in excess of lease payments recorded as a deferred rent liability. As of December 31, 2017 and 2016 , the Company had a deferred rent liability of $4.2 million and $3.6 million , respectively, included in accrued expenses and other liabilities and other long-term liabilities on the consolidated balance sheets. $3.6 million , respectively, included in accrued expenses and other liabilities and other long-term liabilities on the consolidated balance sheets. Advertising and promotion Advertising and promotion Costs associated with advertising and promoting products and services are expensed in the period incurred. Cooperative advertising allowances that are Costs associated with advertising and promoting products and services are expensed in the period incurred. Cooperative advertising allowances that are reimbursement of specific, incremental and identifiable costs incurred to promote vendors' products are recorded as an offset against advertising expenses in reimbursement of specific, incremental and identifiable costs incurred to promote vendors' products are recorded as an offset against advertising expenses in selling, general and administrative expenses. If those conditions are not met, the cooperative advertising allowances are recorded as a reduction in inventory and a selling, general and administrative expenses. If those conditions are not met, the cooperative advertising allowances are recorded as a reduction in inventory and a subsequent reduction in cost of goods sold when the related product is sold. For the years ended December 31, 2017 and 2016 , the Company recorded $5.8 million subsequent reduction in cost of goods sold when the related product is sold. For the years ended December 31, 2017 and 2016 , the Company recorded $5.8 million and $3.7 million , respectively, of advertising and promotion expenses, net of cooperative advertising allowances, in selling, general and administrative expenses. and $3.7 million , respectively, of advertising and promotion expenses, net of cooperative advertising allowances, in selling, general and administrative expenses. Advertising and promotion expenses, net of cooperative advertising allowances, were not material for the year ended December 31, 2015. Advertising and promotion expenses, net of cooperative advertising allowances, were not material for the year ended December 31, 2015. Stock-based compensation Stock-based compensation In accordance with the requirements of ASC 718, Compensation—Stock Compensation (“ASC 718”), the Company measures and recognizes compensation In accordance with the requirements of ASC 718, Compensation—Stock Compensation (“ASC 718”), the Company measures and recognizes compensation expense for all share-based payment awards made to employees using a fair value based pricing model. The compensation expense is recognized over the requisite expense for all share-based payment awards made to employees using a fair value based pricing model. The compensation expense is recognized over the requisite service period, using graded vesting. service period, using graded vesting. The Company’s policy is to recognize interest and penalties related to income tax liabilities and unrecognized tax benefits in income tax expense. The Company’s policy is to recognize interest and penalties related to income tax liabilities and unrecognized tax benefits in income tax expense. Exit or disposal costs Exit or disposal costs Casualty and health insurance Casualty and health insurance The Company carries insurance for general liability, auto liability and workers' compensation exposures subject to deductibles or self-insured retentions it believes The Company carries insurance for general liability, auto liability and workers' compensation exposures subject to deductibles or self-insured retentions it believes to be reasonable under the circumstances, and the Company self-insures for employee and eligible dependent health care claims, with insurance purchased from to be reasonable under the circumstances, and the Company self-insures for employee and eligible dependent health care claims, with insurance purchased from independent carriers to cover individual claims in excess of the self-insured limits. The expected liability for unpaid claims, including incurred but not reported independent carriers to cover individual claims in excess of the self-insured limits. The expected liability for unpaid claims, including incurred but not reported losses, is reflected on the consolidated balance sheets as a liability with current and long-term components. The amount recoverable from insurance providers is losses, is reflected on the consolidated balance sheets as a liability with current and long-term components. The amount recoverable from insurance providers is reflected on the consolidated balance sheets in prepaid expenses and other current assets. Provisions for losses are developed from actuarial valuations that rely reflected on the consolidated balance sheets in prepaid expenses and other current assets. Provisions for losses are developed from actuarial valuations that rely upon the Company’s past claims experience, which considers both the frequency and settlement of claims. The casualty and health insurance liabilities are upon the Company’s past claims experience, which considers both the frequency and settlement of claims. The casualty and health insurance liabilities are recorded at their undiscounted value. recorded at their undiscounted value. In January 2015, the Company entered into a retroactive reinsurance contract to transfer the risk of loss of certain insurance reserves for workers’ compensation In January 2015, the Company entered into a retroactive reinsurance contract to transfer the risk of loss of certain insurance reserves for workers’ compensation claims incurred from 2006 to 2011 to a reinsurer. As a part of the contract, the Company paid $11.1 million to the reinsurer to assume $8.3 million of insurance claims incurred from 2006 to 2011 to a reinsurer. As a part of the contract, the Company paid $11.1 million to the reinsurer to assume $8.3 million of insurance reserves. The $2.8 million difference between the amount paid to the reinsurer and the reserves transferred was recorded in selling, general and administrative reserves. The $2.8 million difference between the amount paid to the reinsurer and the reserves transferred was recorded in selling, general and administrative expenses on the consolidated statement of operations for the year ended December 31, 2015. Pursuant to the reinsurance contract, the reinsurer is obligated to pay expenses on the consolidated statement of operations for the year ended December 31, 2015. Pursuant to the reinsurance contract, the reinsurer is obligated to pay an aggregate maximum of $17.5 million for these claims with any excess borne by the Company. an aggregate maximum of $17.5 million for these claims with any excess borne by the Company. The Company maintains the insurance reserves related to these claims as a liability on its consolidated balance sheet with an offsetting reinsurance receivable, The Company maintains the insurance reserves related to these claims as a liability on its consolidated balance sheet with an offsetting reinsurance receivable, which includes current and long-term components. As of December 31, 2017 and 2016 , the carrying value of the insurance reserves related to these claims and the which includes current and long-term components. As of December 31, 2017 and 2016 , the carrying value of the insurance reserves related to these claims and the offsetting reinsurance receivable was $4.5 million and $5.6 million , respectively. Changes in these claims are recorded as an increase or decrease in the insurance offsetting reinsurance receivable was $4.5 million and $5.6 million , respectively. Changes in these claims are recorded as an increase or decrease in the insurance reserves and corresponding increase or decrease in the reinsurance receivable. Additionally, the Company monitors the financial condition of the reinsurer to reserves and corresponding increase or decrease in the reinsurance receivable. Additionally, the Company monitors the financial condition of the reinsurer to minimize its exposure to significant losses from reinsurer insolvency. minimize its exposure to significant losses from reinsurer insolvency. The Company accounts for costs associated with exit or disposal in accordance with ASC 420, Exit or Disposal Cost Obligations (“ASC 420”), which requires The Company accounts for costs associated with exit or disposal in accordance with ASC 420, Exit or Disposal Cost Obligations (“ASC 420”), which requires that: (i) liabilities associated with exit and disposal activities be measured at fair value; (ii) one-time termination benefits be expensed at the date the entity notifies that: (i) liabilities associated with exit and disposal activities be measured at fair value; (ii) one-time termination benefits be expensed at the date the entity notifies the employee, unless the employee must provide future service, in which case the benefits are expensed ratably over the future service period; (iii) liabilities related the employee, unless the employee must provide future service, in which case the benefits are expensed ratably over the future service period; (iii) liabilities related to an operating lease/contract be recognized and measured at its fair value when the contract does not have any future economic benefit to the entity (i.e., the entity to an operating lease/contract be recognized and measured at its fair value when the contract does not have any future economic benefit to the entity (i.e., the entity ceases to utilize the rights conveyed by the contract) and (iv) all other costs related to an exit or disposal activity be expensed as incurred. ceases to utilize the rights conveyed by the contract) and (iv) all other costs related to an exit or disposal activity be expensed as incurred. Debt issuance costs Debt issuance costs Costs incurred in connection with the Company’s revolving line of credit and senior secured notes are capitalized and amortized over the term of the agreement. Costs incurred in connection with the Company’s revolving line of credit and senior secured notes are capitalized and amortized over the term of the agreement. Total debt issuance costs, net of accumulated amortization, were $8.1 million and $9.8 million as of December 31, 2017 and 2016 , respectively. Debt issuance Total debt issuance costs, net of accumulated amortization, were $8.1 million and $9.8 million as of December 31, 2017 and 2016 , respectively. Debt issuance costs related to the Company's revolving line of credit and senior secured notes are included in other long-term assets and long-term debt, respectively, on the costs related to the Company's revolving line of credit and senior secured notes are included in other long-term assets and long-term debt, respectively, on the consolidated balance sheets. Amortization of debt issuance costs for the years ended December 31, 2017 , 2016 and 2015 was $1.7 million , $3.1 million and $2.5 consolidated balance sheets. Amortization of debt issuance costs for the years ended December 31, 2017 , 2016 and 2015 was $1.7 million , $3.1 million and $2.5 million , respectively, and is included in interest expense on the consolidated statements of operations. million , respectively, and is included in interest expense on the consolidated statements of operations. Derivatives Derivatives The Company will occasionally enter into derivative instruments to offset existing or expected risks associated with fluctuations in commodity prices. The The Company will occasionally enter into derivative instruments to offset existing or expected risks associated with fluctuations in commodity prices. The Company does not enter into derivative instruments for speculative or trading purposes. The Company recognizes all derivative instruments as assets or liabilities Company does not enter into derivative instruments for speculative or trading purposes. The Company recognizes all derivative instruments as assets or liabilities in the Company’s balance sheets at fair value. Changes in the fair value of derivative instruments that are not designated as hedges or that do not meet the hedge in the Company’s balance sheets at fair value. Changes in the fair value of derivative instruments that are not designated as hedges or that do not meet the hedge accounting criteria are reported in earnings. The Company elected not to designate any new derivative instruments as hedges for the years 2017 , 2016 or 2015 , accounting criteria are reported in earnings. The Company elected not to designate any new derivative instruments as hedges for the years 2017 , 2016 or 2015 , and therefore, all changes in the fair market value of the derivative instruments have been reported in cost of goods sold on the consolidated statements of and therefore, all changes in the fair market value of the derivative instruments have been reported in cost of goods sold on the consolidated statements of operations. operations. Retirement savings program Retirement savings program Warranty expense Warranty expense The Company sponsors a defined contribution retirement savings plan. The Company has recorded expense of $5.2 million , $4.6 million and $2.4 million related The Company sponsors a defined contribution retirement savings plan. The Company has recorded expense of $5.2 million , $4.6 million and $2.4 million related to employer contributions for the years ended December 31, 2017 , 2016 and 2015 , respectively. These expenses are recorded to either selling, general and to employer contributions for the years ended December 31, 2017 , 2016 and 2015 , respectively. These expenses are recorded to either selling, general and administrative expenses or cost of sales on the consolidated statements of operations, depending on the classification of the employee. administrative expenses or cost of sales on the consolidated statements of operations, depending on the classification of the employee. The Company has warranty obligations with respect to most manufactured products. As of December 31, 2017 and 2016 , the Company had warranty liabilities of The Company has warranty obligations with respect to most manufactured products. As of December 31, 2017 and 2016 , the Company had warranty liabilities of $2.5 million and $1.8 million , respectively, included in accrued expenses and other liabilities on the consolidated balance sheets. $2.5 million and $1.8 million , respectively, included in accrued expenses and other liabilities on the consolidated balance sheets. 56 56 Certain prior year amounts have been reclassified to conform to the current year presentation. Certain prior year amounts have been reclassified to conform to the current year presentation. Reclassifications Reclassifications 57 57 Comprehensive income (loss) Comprehensive income (loss) Comprehensive income (loss) is equal to the net income (loss) for all periods presented. Comprehensive income (loss) is equal to the net income (loss) for all periods presented. Recently adopted accounting pronouncements Recently adopted accounting pronouncements In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2015-11, Simplifying the Measurement of Inventory In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value. Prior to the (“ASU 2015-11”). ASU 2015-11 requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value. Prior to the issuance of the standard, inventory was measured at the lower of cost or market, where market was defined as replacement cost, with a ceiling of net realizable issuance of the standard, inventory was measured at the lower of cost or market, where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin. Inventory measured using last-in, first-out (LIFO) and the retail inventory method are not value and floor of net realizable value less a normal profit margin. Inventory measured using last-in, first-out (LIFO) and the retail inventory method are not impacted by the new guidance. Prospective application is required and early adoption is permitted. ASU 2015-11 became effective for the Company’s annual and impacted by the new guidance. Prospective application is required and early adoption is permitted. ASU 2015-11 became effective for the Company’s annual and interim periods beginning on January 1, 2017. The adoption of the guidance did not have a material impact on the Company's financial statements. interim periods beginning on January 1, 2017. The adoption of the guidance did not have a material impact on the Company's financial statements. Recently issued accounting pronouncements not yet adopted Recently issued accounting pronouncements not yet adopted In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), and issued subsequent In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), and issued subsequent amendments to the initial guidance within Accounting Standards Update 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations amendments to the initial guidance within Accounting Standards Update 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations (“ASU 2016-08”) issued in March 2016, Accounting Standards Update 2016-10, Revenue from Contracts with Customers, Identifying Performance Obligations (“ASU 2016-08”) issued in March 2016, Accounting Standards Update 2016-10, Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing (“ASU 2016-10”) issued in April 2016, Accounting Standards Update 2016-12, Revenue from Contracts with Customers, Narrow-Scope and Licensing (“ASU 2016-10”) issued in April 2016, Accounting Standards Update 2016-12, Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”) issued in May 2016 and Accounting Standards Update 2016-20, Technical Corrections and Improvements and Practical Expedients (“ASU 2016-12”) issued in May 2016 and Accounting Standards Update 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20”) issued in December 2016 (ASU 2014-09, ASU 2016-08, ASU 2016-10, Improvements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20”) issued in December 2016 (ASU 2014-09, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 collectively “Topic 606”). Topic 606 provides a comprehensive revenue recognition model requiring companies to recognize ASU 2016-12 and ASU 2016-20 collectively “Topic 606”). Topic 606 provides a comprehensive revenue recognition model requiring companies to recognize revenue for the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. revenue for the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In July 2015, the FASB voted to defer the effective date of ASU 2014-09 by one year, and therefore, the standard is effective for the Company’s annual and interim July 2015, the FASB voted to defer the effective date of ASU 2014-09 by one year, and therefore, the standard is effective for the Company’s annual and interim periods beginning on January 1, 2018. The guidance permits the use of either a full retrospective or modified retrospective transition method. The Company will periods beginning on January 1, 2018. The guidance permits the use of either a full retrospective or modified retrospective transition method. The Company will utilize the modified retrospective transition method, which recognizes the cumulative effect of initially applying the standard in retained earnings on the date of utilize the modified retrospective transition method, which recognizes the cumulative effect of initially applying the standard in retained earnings on the date of adoption, utilizing certain practical expedients as defined in Topic 606. The Company has evaluated the new standard against its existing accounting policies and adoption, utilizing certain practical expedients as defined in Topic 606. The Company has evaluated the new standard against its existing accounting policies and practices, including reviewing purchase orders, invoices, shipping terms, conducting questionnaires with finance and operations personnel and reviewing contracts practices, including reviewing purchase orders, invoices, shipping terms, conducting questionnaires with finance and operations personnel and reviewing contracts with customers. The adoption of the standard is not expected to have a material impact on the timing of revenue recognition or amount of revenue recognized from with customers. The adoption of the standard is not expected to have a material impact on the timing of revenue recognition or amount of revenue recognized from the Company's building products contracts. Revenue for building products contracts will continue to be recognized at a point in time, when control of the promised the Company's building products contracts. Revenue for building products contracts will continue to be recognized at a point in time, when control of the promised goods is transferred to the customer, with the exception of certain product offerings which are customized to customer specifications and meet the criteria to be goods is transferred to the customer, with the exception of certain product offerings which are customized to customer specifications and meet the criteria to be recognized over time, which is consistent with the Company’s current accounting. The Company has not identified any information to date that would indicate that recognized over time, which is consistent with the Company’s current accounting. The Company has not identified any information to date that would indicate that the adoption of Topic 606 will have a material impact on the accounting for the Company’s construction services contracts. Revenue for construction services the adoption of Topic 606 will have a material impact on the accounting for the Company’s construction services contracts. Revenue for construction services contracts will generally continue to be recognized over time as the Company satisfies the performance obligations in the contracts. The Company is also prepared contracts will generally continue to be recognized over time as the Company satisfies the performance obligations in the contracts. The Company is also prepared to meet the disclosure requirements of the standard, which are significant and incremental to the current disclosures. to meet the disclosure requirements of the standard, which are significant and incremental to the current disclosures. In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for the Company’s either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for the Company’s annual and interim periods beginning on January 1, 2019. A modified retrospective transition approach is required for lessees for capital and operating leases annual and interim periods beginning on January 1, 2019. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of the standard on the Company's financial statements. As a lessee, certain of the Company's various leases The Company is in the process of evaluating the impact of the standard on the Company's financial statements. As a lessee, certain of the Company's various leases under existing guidance are classified as operating leases that are not recorded on the balance sheet but are recorded in the statement of operations as expense is under existing guidance are classified as operating leases that are not recorded on the balance sheet but are recorded in the statement of operations as expense is incurred. Upon adoption of the standard, the Company will be required to record substantially all leases on the balance sheet as a ROU asset and a lease liability. incurred. Upon adoption of the standard, the Company will be required to record substantially all leases on the balance sheet as a ROU asset and a lease liability. The timing of expense recognition and classification in the statement of operations could change based on the classification of leases as either operating or The timing of expense recognition and classification in the statement of operations could change based on the classification of leases as either operating or financing. financing. In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 was issued to decrease the diversity in practice of how certain cash receipts and cash payments are presented and Payments (“ASU 2016-15”). ASU 2016-15 was issued to decrease the diversity in practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flows by providing guidance on classified in the statement of cash flows by providing guidance on eight specific cash flow issues. ASU 2016-15 is effective for the Company’s annual and interim periods beginning on January 1, 2018, with retrospective eight specific cash flow issues. ASU 2016-15 is effective for the Company’s annual and interim periods beginning on January 1, 2018, with retrospective application required. The adoption of the standard is not expected to have a material impact on the Company's financial statements. application required. The adoption of the standard is not expected to have a material impact on the Company's financial statements. In November 2016, the FASB issued Accounting Standards Update 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016- In November 2016, the FASB issued Accounting Standards Update 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016- 18 requires that the statement of cash flows include restricted cash in the beginning and end-of-period total amounts shown and that the statement of cash flows 18 requires that the statement of cash flows include restricted cash in the beginning and end-of-period total amounts shown and that the statement of cash flows explain the changes in restricted cash during the period. ASU 2016-18 is effective for the Company's annual and interim periods beginning on January 1, 2018. explain the changes in restricted cash during the period. ASU 2016-18 is effective for the Company's annual and interim periods beginning on January 1, 2018. Retrospective application is required. The adoption of the standard is not expected to have a material impact on the Company's financial statements. Retrospective application is required. The adoption of the standard is not expected to have a material impact on the Company's financial statements. In January 2017, the FASB issued Accounting Standards Update 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU In January 2017, the FASB issued Accounting Standards Update 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 provides guidance in determining when a set of assets and activities meets the definition of a business. ASU 2017-01 is effective for the 2017-01”). ASU 2017-01 provides guidance in determining when a set of assets and activities meets the definition of a business. ASU 2017-01 is effective for the Company's annual and interim periods beginning on January 1, 2018. Prospective application is required. The adoption of the standard is not expected to have a Company's annual and interim periods beginning on January 1, 2018. Prospective application is required. The adoption of the standard is not expected to have a material impact on the Company's financial statements. material impact on the Company's financial statements. In January 2017, the FASB issued Accounting Standards Update 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill In January 2017, the FASB issued Accounting Standards Update 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires computation of the implied fair value of a reporting unit's goodwill. The amount of a goodwill impairment will now be the amount by which a reporting requires computation of the implied fair value of a reporting unit's goodwill. The amount of a goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for the Company's annual goodwill unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for the Company's annual goodwill impairment test and any interim tests during the Company's annual and interim periods beginning on January 1, 2020. Early adoption is permitted for goodwill impairment test and any interim tests during the Company's annual and interim periods beginning on January 1, 2020. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. Prospective application is required. The adoption of the standard is not expected to have a impairment tests performed on testing dates after January 1, 2017. Prospective application is required. The adoption of the standard is not expected to have a material impact on the Company's financial statements. material impact on the Company's financial statements. In February 2017, the FASB issued Accounting Standards Update 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets In February 2017, the FASB issued Accounting Standards Update 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”). ASU 2017- (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”). ASU 2017- 05 clarifies the scope of Subtopic 610-20, which provides guidance for recognizing gains and losses from the sale or transfer of nonfinancial assets in contracts 05 clarifies the scope of Subtopic 610-20, which provides guidance for recognizing gains and losses from the sale or transfer of nonfinancial assets in contracts with noncustomers. ASU 2017-05 also provides guidance for partial sales of nonfinancial assets. ASU 2017-05 is effective for the Company’s annual and interim with noncustomers. ASU 2017-05 also provides guidance for partial sales of nonfinancial assets. ASU 2017-05 is effective for the Company’s annual and interim periods beginning on January 1, 2018. The guidance permits the use of either a retrospective or cumulative effect transition method. The adoption of the standard is periods beginning on January 1, 2018. The guidance permits the use of either a retrospective or cumulative effect transition method. The adoption of the standard is not expected to have a material impact on the Company's financial statements. not expected to have a material impact on the Company's financial statements. In May 2017, the FASB issued Accounting Standards Update 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting In May 2017, the FASB issued Accounting Standards Update 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply (“ASU 2017-09”). ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting under ASC 718. ASU 2017-09 is effective for the Company’s annual and interim periods beginning on January 1, 2018. ASU 2017-09 is modification accounting under ASC 718. ASU 2017-09 is effective for the Company’s annual and interim periods beginning on January 1, 2018. ASU 2017-09 is to be applied prospectively to an award modified on or after the adoption date. The adoption of the standard is not expected to have a material impact on the to be applied prospectively to an award modified on or after the adoption date. The adoption of the standard is not expected to have a material impact on the Company's financial statements. Company's financial statements. 3. Acquisitions 3. Acquisitions For all acquisitions, the Company allocates the purchase price to assets acquired and liabilities assumed as of the date of acquisition based on the estimated fair For all acquisitions, the Company allocates the purchase price to assets acquired and liabilities assumed as of the date of acquisition based on the estimated fair values at the date of acquisition. The excess of the fair value of the purchase consideration over the fair values of the identifiable assets and liabilities is recorded as values at the date of acquisition. The excess of the fair value of the purchase consideration over the fair values of the identifiable assets and liabilities is recorded as goodwill. Management makes significant estimates and assumptions when determining the fair value of assets acquired and liabilities assumed. These estimates goodwill. Management makes significant estimates and assumptions when determining the fair value of assets acquired and liabilities assumed. These estimates include, but are not limited to, discount rates, projected future net sales, projected future expected cash flows and useful lives. include, but are not limited to, discount rates, projected future net sales, projected future expected cash flows and useful lives. Acquisition of Texas Plywood & Lumber Company, Inc. Acquisition of Texas Plywood & Lumber Company, Inc. On April 3, 2017 , the Company acquired substantially all of the assets and assumed certain liabilities of Texas Plywood & Lumber Company, Inc. (“TexPly”), a On April 3, 2017 , the Company acquired substantially all of the assets and assumed certain liabilities of Texas Plywood & Lumber Company, Inc. (“TexPly”), a supplier of production millwork and doors in the Dallas-Fort Worth area, for a purchase price of $31.7 million , of which $2.5 million was deposited in an escrow supplier of production millwork and doors in the Dallas-Fort Worth area, for a purchase price of $31.7 million , of which $2.5 million was deposited in an escrow account to fund post-closing adjustments and other indemnification obligations for a period of one year from the closing date of the acquisition. This acquisition account to fund post-closing adjustments and other indemnification obligations for a period of one year from the closing date of the acquisition. This acquisition enhances the Company’s value-added offerings and footprint in the Dallas-Fort Worth market. enhances the Company’s value-added offerings and footprint in the Dallas-Fort Worth market. The acquisition was accounted for using the acquisition method of accounting under ASC 805, Business Combinations ("ASC 805"), whereby the results of The acquisition was accounted for using the acquisition method of accounting under ASC 805, Business Combinations ("ASC 805"), whereby the results of operations of TexPly are included in the Company’s consolidated financial statements beginning on the acquisition date. The purchase price allocation resulted in operations of TexPly are included in the Company’s consolidated financial statements beginning on the acquisition date. The purchase price allocation resulted in the recognition of goodwill of $3.6 million , a customer relationship the recognition of goodwill of $3.6 million , a customer relationship 58 58 59 59 Comprehensive income (loss) Comprehensive income (loss) Comprehensive income (loss) is equal to the net income (loss) for all periods presented. Comprehensive income (loss) is equal to the net income (loss) for all periods presented. Recently adopted accounting pronouncements Recently adopted accounting pronouncements In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2015-11, Simplifying the Measurement of Inventory In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value. Prior to the (“ASU 2015-11”). ASU 2015-11 requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value. Prior to the issuance of the standard, inventory was measured at the lower of cost or market, where market was defined as replacement cost, with a ceiling of net realizable issuance of the standard, inventory was measured at the lower of cost or market, where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin. Inventory measured using last-in, first-out (LIFO) and the retail inventory method are not value and floor of net realizable value less a normal profit margin. Inventory measured using last-in, first-out (LIFO) and the retail inventory method are not impacted by the new guidance. Prospective application is required and early adoption is permitted. ASU 2015-11 became effective for the Company’s annual and impacted by the new guidance. Prospective application is required and early adoption is permitted. ASU 2015-11 became effective for the Company’s annual and interim periods beginning on January 1, 2017. The adoption of the guidance did not have a material impact on the Company's financial statements. interim periods beginning on January 1, 2017. The adoption of the guidance did not have a material impact on the Company's financial statements. Recently issued accounting pronouncements not yet adopted Recently issued accounting pronouncements not yet adopted In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), and issued subsequent In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), and issued subsequent amendments to the initial guidance within Accounting Standards Update 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations amendments to the initial guidance within Accounting Standards Update 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations (“ASU 2016-08”) issued in March 2016, Accounting Standards Update 2016-10, Revenue from Contracts with Customers, Identifying Performance Obligations (“ASU 2016-08”) issued in March 2016, Accounting Standards Update 2016-10, Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing (“ASU 2016-10”) issued in April 2016, Accounting Standards Update 2016-12, Revenue from Contracts with Customers, Narrow-Scope and Licensing (“ASU 2016-10”) issued in April 2016, Accounting Standards Update 2016-12, Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”) issued in May 2016 and Accounting Standards Update 2016-20, Technical Corrections and Improvements and Practical Expedients (“ASU 2016-12”) issued in May 2016 and Accounting Standards Update 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20”) issued in December 2016 (ASU 2014-09, ASU 2016-08, ASU 2016-10, Improvements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20”) issued in December 2016 (ASU 2014-09, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 collectively “Topic 606”). Topic 606 provides a comprehensive revenue recognition model requiring companies to recognize ASU 2016-12 and ASU 2016-20 collectively “Topic 606”). Topic 606 provides a comprehensive revenue recognition model requiring companies to recognize revenue for the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. revenue for the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In July 2015, the FASB voted to defer the effective date of ASU 2014-09 by one year, and therefore, the standard is effective for the Company’s annual and interim July 2015, the FASB voted to defer the effective date of ASU 2014-09 by one year, and therefore, the standard is effective for the Company’s annual and interim periods beginning on January 1, 2018. The guidance permits the use of either a full retrospective or modified retrospective transition method. The Company will periods beginning on January 1, 2018. The guidance permits the use of either a full retrospective or modified retrospective transition method. The Company will utilize the modified retrospective transition method, which recognizes the cumulative effect of initially applying the standard in retained earnings on the date of utilize the modified retrospective transition method, which recognizes the cumulative effect of initially applying the standard in retained earnings on the date of adoption, utilizing certain practical expedients as defined in Topic 606. The Company has evaluated the new standard against its existing accounting policies and adoption, utilizing certain practical expedients as defined in Topic 606. The Company has evaluated the new standard against its existing accounting policies and practices, including reviewing purchase orders, invoices, shipping terms, conducting questionnaires with finance and operations personnel and reviewing contracts practices, including reviewing purchase orders, invoices, shipping terms, conducting questionnaires with finance and operations personnel and reviewing contracts with customers. The adoption of the standard is not expected to have a material impact on the timing of revenue recognition or amount of revenue recognized from with customers. The adoption of the standard is not expected to have a material impact on the timing of revenue recognition or amount of revenue recognized from the Company's building products contracts. Revenue for building products contracts will continue to be recognized at a point in time, when control of the promised the Company's building products contracts. Revenue for building products contracts will continue to be recognized at a point in time, when control of the promised goods is transferred to the customer, with the exception of certain product offerings which are customized to customer specifications and meet the criteria to be goods is transferred to the customer, with the exception of certain product offerings which are customized to customer specifications and meet the criteria to be recognized over time, which is consistent with the Company’s current accounting. The Company has not identified any information to date that would indicate that recognized over time, which is consistent with the Company’s current accounting. The Company has not identified any information to date that would indicate that the adoption of Topic 606 will have a material impact on the accounting for the Company’s construction services contracts. Revenue for construction services the adoption of Topic 606 will have a material impact on the accounting for the Company’s construction services contracts. Revenue for construction services contracts will generally continue to be recognized over time as the Company satisfies the performance obligations in the contracts. The Company is also prepared contracts will generally continue to be recognized over time as the Company satisfies the performance obligations in the contracts. The Company is also prepared to meet the disclosure requirements of the standard, which are significant and incremental to the current disclosures. to meet the disclosure requirements of the standard, which are significant and incremental to the current disclosures. In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for the Company’s either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for the Company’s annual and interim periods beginning on January 1, 2019. A modified retrospective transition approach is required for lessees for capital and operating leases annual and interim periods beginning on January 1, 2019. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of the standard on the Company's financial statements. As a lessee, certain of the Company's various leases The Company is in the process of evaluating the impact of the standard on the Company's financial statements. As a lessee, certain of the Company's various leases under existing guidance are classified as operating leases that are not recorded on the balance sheet but are recorded in the statement of operations as expense is under existing guidance are classified as operating leases that are not recorded on the balance sheet but are recorded in the statement of operations as expense is incurred. Upon adoption of the standard, the Company will be required to record substantially all leases on the balance sheet as a ROU asset and a lease liability. incurred. Upon adoption of the standard, the Company will be required to record substantially all leases on the balance sheet as a ROU asset and a lease liability. The timing of expense recognition and classification in the statement of operations could change based on the classification of leases as either operating or The timing of expense recognition and classification in the statement of operations could change based on the classification of leases as either operating or financing. financing. In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 was issued to decrease the diversity in practice of how certain cash receipts and cash payments are presented and Payments (“ASU 2016-15”). ASU 2016-15 was issued to decrease the diversity in practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flows by providing guidance on classified in the statement of cash flows by providing guidance on eight specific cash flow issues. ASU 2016-15 is effective for the Company’s annual and interim periods beginning on January 1, 2018, with retrospective eight specific cash flow issues. ASU 2016-15 is effective for the Company’s annual and interim periods beginning on January 1, 2018, with retrospective application required. The adoption of the standard is not expected to have a material impact on the Company's financial statements. application required. The adoption of the standard is not expected to have a material impact on the Company's financial statements. In November 2016, the FASB issued Accounting Standards Update 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016- In November 2016, the FASB issued Accounting Standards Update 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016- 18 requires that the statement of cash flows include restricted cash in the beginning and end-of-period total amounts shown and that the statement of cash flows 18 requires that the statement of cash flows include restricted cash in the beginning and end-of-period total amounts shown and that the statement of cash flows explain the changes in restricted cash during the period. ASU 2016-18 is effective for the Company's annual and interim periods beginning on January 1, 2018. explain the changes in restricted cash during the period. ASU 2016-18 is effective for the Company's annual and interim periods beginning on January 1, 2018. Retrospective application is required. The adoption of the standard is not expected to have a material impact on the Company's financial statements. Retrospective application is required. The adoption of the standard is not expected to have a material impact on the Company's financial statements. In January 2017, the FASB issued Accounting Standards Update 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU In January 2017, the FASB issued Accounting Standards Update 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 provides guidance in determining when a set of assets and activities meets the definition of a business. ASU 2017-01 is effective for the 2017-01”). ASU 2017-01 provides guidance in determining when a set of assets and activities meets the definition of a business. ASU 2017-01 is effective for the Company's annual and interim periods beginning on January 1, 2018. Prospective application is required. The adoption of the standard is not expected to have a Company's annual and interim periods beginning on January 1, 2018. Prospective application is required. The adoption of the standard is not expected to have a material impact on the Company's financial statements. material impact on the Company's financial statements. In January 2017, the FASB issued Accounting Standards Update 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill In January 2017, the FASB issued Accounting Standards Update 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires computation of the implied fair value of a reporting unit's goodwill. The amount of a goodwill impairment will now be the amount by which a reporting requires computation of the implied fair value of a reporting unit's goodwill. The amount of a goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for the Company's annual goodwill unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for the Company's annual goodwill impairment test and any interim tests during the Company's annual and interim periods beginning on January 1, 2020. Early adoption is permitted for goodwill impairment test and any interim tests during the Company's annual and interim periods beginning on January 1, 2020. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. Prospective application is required. The adoption of the standard is not expected to have a impairment tests performed on testing dates after January 1, 2017. Prospective application is required. The adoption of the standard is not expected to have a material impact on the Company's financial statements. material impact on the Company's financial statements. In February 2017, the FASB issued Accounting Standards Update 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets In February 2017, the FASB issued Accounting Standards Update 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”). ASU 2017- (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”). ASU 2017- 05 clarifies the scope of Subtopic 610-20, which provides guidance for recognizing gains and losses from the sale or transfer of nonfinancial assets in contracts 05 clarifies the scope of Subtopic 610-20, which provides guidance for recognizing gains and losses from the sale or transfer of nonfinancial assets in contracts with noncustomers. ASU 2017-05 also provides guidance for partial sales of nonfinancial assets. ASU 2017-05 is effective for the Company’s annual and interim with noncustomers. ASU 2017-05 also provides guidance for partial sales of nonfinancial assets. ASU 2017-05 is effective for the Company’s annual and interim periods beginning on January 1, 2018. The guidance permits the use of either a retrospective or cumulative effect transition method. The adoption of the standard is periods beginning on January 1, 2018. The guidance permits the use of either a retrospective or cumulative effect transition method. The adoption of the standard is not expected to have a material impact on the Company's financial statements. not expected to have a material impact on the Company's financial statements. In May 2017, the FASB issued Accounting Standards Update 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting In May 2017, the FASB issued Accounting Standards Update 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply (“ASU 2017-09”). ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting under ASC 718. ASU 2017-09 is effective for the Company’s annual and interim periods beginning on January 1, 2018. ASU 2017-09 is modification accounting under ASC 718. ASU 2017-09 is effective for the Company’s annual and interim periods beginning on January 1, 2018. ASU 2017-09 is to be applied prospectively to an award modified on or after the adoption date. The adoption of the standard is not expected to have a material impact on the to be applied prospectively to an award modified on or after the adoption date. The adoption of the standard is not expected to have a material impact on the Company's financial statements. Company's financial statements. 3. Acquisitions 3. Acquisitions For all acquisitions, the Company allocates the purchase price to assets acquired and liabilities assumed as of the date of acquisition based on the estimated fair For all acquisitions, the Company allocates the purchase price to assets acquired and liabilities assumed as of the date of acquisition based on the estimated fair values at the date of acquisition. The excess of the fair value of the purchase consideration over the fair values of the identifiable assets and liabilities is recorded as values at the date of acquisition. The excess of the fair value of the purchase consideration over the fair values of the identifiable assets and liabilities is recorded as goodwill. Management makes significant estimates and assumptions when determining the fair value of assets acquired and liabilities assumed. These estimates goodwill. Management makes significant estimates and assumptions when determining the fair value of assets acquired and liabilities assumed. These estimates include, but are not limited to, discount rates, projected future net sales, projected future expected cash flows and useful lives. include, but are not limited to, discount rates, projected future net sales, projected future expected cash flows and useful lives. Acquisition of Texas Plywood & Lumber Company, Inc. Acquisition of Texas Plywood & Lumber Company, Inc. On April 3, 2017 , the Company acquired substantially all of the assets and assumed certain liabilities of Texas Plywood & Lumber Company, Inc. (“TexPly”), a On April 3, 2017 , the Company acquired substantially all of the assets and assumed certain liabilities of Texas Plywood & Lumber Company, Inc. (“TexPly”), a supplier of production millwork and doors in the Dallas-Fort Worth area, for a purchase price of $31.7 million , of which $2.5 million was deposited in an escrow supplier of production millwork and doors in the Dallas-Fort Worth area, for a purchase price of $31.7 million , of which $2.5 million was deposited in an escrow account to fund post-closing adjustments and other indemnification obligations for a period of one year from the closing date of the acquisition. This acquisition account to fund post-closing adjustments and other indemnification obligations for a period of one year from the closing date of the acquisition. This acquisition enhances the Company’s value-added offerings and footprint in the Dallas-Fort Worth market. enhances the Company’s value-added offerings and footprint in the Dallas-Fort Worth market. The acquisition was accounted for using the acquisition method of accounting under ASC 805, Business Combinations ("ASC 805"), whereby the results of The acquisition was accounted for using the acquisition method of accounting under ASC 805, Business Combinations ("ASC 805"), whereby the results of operations of TexPly are included in the Company’s consolidated financial statements beginning on the acquisition date. The purchase price allocation resulted in operations of TexPly are included in the Company’s consolidated financial statements beginning on the acquisition date. The purchase price allocation resulted in the recognition of goodwill of $3.6 million , a customer relationship the recognition of goodwill of $3.6 million , a customer relationship 58 58 59 59 The final allocated fair values of acquired assets and assumed liabilities is summarized as follows: The final allocated fair values of acquired assets and assumed liabilities is summarized as follows: intangible asset of $13.6 million , accounts receivable of $5.2 million , inventory of $3.9 million and real property of $5.4 million , as well as other operating assets intangible asset of $13.6 million , accounts receivable of $5.2 million , inventory of $3.9 million and real property of $5.4 million , as well as other operating assets and liabilities. The customer relationship intangible asset has a useful life of 13 years . Goodwill represents the future economic benefits expected to arise from and liabilities. The customer relationship intangible asset has a useful life of 13 years . Goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. All of the goodwill recognized is expected to be deductible for tax purposes. future synergies. All of the goodwill recognized is expected to be deductible for tax purposes. For the year ended December 31, 2016, TexPly generated net sales of approximately $55.2 million . The Company incurred transaction costs of $0.3 million for the For the year ended December 31, 2016, TexPly generated net sales of approximately $55.2 million . The Company incurred transaction costs of $0.3 million for the year ended December 31, 2017 , which are included in selling, general and administrative expenses in the consolidated statements of operations. year ended December 31, 2017 , which are included in selling, general and administrative expenses in the consolidated statements of operations. Deemed (for accounting purposes only) issuance of BMC stock to SBS shareholders Deemed (for accounting purposes only) issuance of BMC stock to SBS shareholders The final calculation of consideration transferred is as follows: The final calculation of consideration transferred is as follows: (in thousands, except share and per share data) (in thousands, except share and per share data) Number of SBS shares outstanding on the closing date of the Merger Number of SBS shares outstanding on the closing date of the Merger SBS common stock price per share on the closing date of the Merger SBS common stock price per share on the closing date of the Merger Acquisition of Code Plus Components, LLC Acquisition of Code Plus Components, LLC On March 27, 2017 , the Company acquired substantially all of the assets and assumed certain liabilities of Code Plus Components, LLC (“Code Plus”), a On March 27, 2017 , the Company acquired substantially all of the assets and assumed certain liabilities of Code Plus Components, LLC (“Code Plus”), a manufacturer of structural components located in Martinsburg, West Virginia, for a purchase price of $7.1 million . This acquisition allowed the Company to add manufacturer of structural components located in Martinsburg, West Virginia, for a purchase price of $7.1 million . This acquisition allowed the Company to add truss manufacturing capability to its value-added offerings in the Washington, DC metro area. The purchase price includes an initial holdback of $0.4 million due truss manufacturing capability to its value-added offerings in the Washington, DC metro area. The purchase price includes an initial holdback of $0.4 million due to the sellers one year from the closing date. The holdback amount may be reduced under certain circumstances. Additionally, the acquisition includes an earnout to the sellers one year from the closing date. The holdback amount may be reduced under certain circumstances. Additionally, the acquisition includes an earnout provision that would require the Company to pay the sellers up to an additional $0.8 million upon the acquired operations achieving certain performance targets provision that would require the Company to pay the sellers up to an additional $0.8 million upon the acquired operations achieving certain performance targets from the acquisition date through December 31, 2018. The Company funded the transaction through borrowings on the Company’s revolving line of credit. from the acquisition date through December 31, 2018. The Company funded the transaction through borrowings on the Company’s revolving line of credit. The acquisition was accounted for using the acquisition method of accounting under ASC 805, whereby the results of operations of Code Plus are included in the The acquisition was accounted for using the acquisition method of accounting under ASC 805, whereby the results of operations of Code Plus are included in the Company’s consolidated financial statements beginning on the acquisition date. The purchase price allocation resulted in the recognition of goodwill of $3.4 Company’s consolidated financial statements beginning on the acquisition date. The purchase price allocation resulted in the recognition of goodwill of $3.4 million , a customer relationship intangible asset of $2.3 million and a non-compete agreement intangible asset of $0.5 million , as well as other operating assets million , a customer relationship intangible asset of $2.3 million and a non-compete agreement intangible asset of $0.5 million , as well as other operating assets and liabilities. The purchase price allocation reflects a measurement period adjustment which increased goodwill and reduced the customer relationship intangible and liabilities. The purchase price allocation reflects a measurement period adjustment which increased goodwill and reduced the customer relationship intangible asset by $1.1 million . The customer relationship intangible asset and non-compete agreement intangible asset have useful lives of 12 years and 5 years , asset by $1.1 million . The customer relationship intangible asset and non-compete agreement intangible asset have useful lives of 12 years and 5 years , respectively. Goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, respectively. Goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. All of the goodwill recognized is expected to be deductible including assembled workforce and non-contractual relationships, as well as expected future synergies. All of the goodwill recognized is expected to be deductible for tax purposes. for tax purposes. For the year ended December 31, 2016, Code Plus generated net sales of approximately $14.2 million . The Company incurred transaction costs of $0.1 million for For the year ended December 31, 2016, Code Plus generated net sales of approximately $14.2 million . The Company incurred transaction costs of $0.1 million for the year ended December 31, 2017 , which are included in selling, general and administrative expenses in the consolidated statements of operations. the year ended December 31, 2017 , which are included in selling, general and administrative expenses in the consolidated statements of operations. Net sales for Code Plus and TexPly, in aggregate, included in the consolidated statements of operations were $54.3 million for the year ended December 31, 2017 . Net sales for Code Plus and TexPly, in aggregate, included in the consolidated statements of operations were $54.3 million for the year ended December 31, 2017 . Estimated pre-tax earnings of Code Plus and TexPly, in aggregate, included in the consolidated statements of operations were $3.2 million for the year ended Estimated pre-tax earnings of Code Plus and TexPly, in aggregate, included in the consolidated statements of operations were $3.2 million for the year ended December 31, 2017 . The impact of the Code Plus and TexPly acquisitions was not considered significant for the reporting of pro forma financial information. December 31, 2017 . The impact of the Code Plus and TexPly acquisitions was not considered significant for the reporting of pro forma financial information. Merger with Stock Building Supply Holdings, Inc. Merger with Stock Building Supply Holdings, Inc. As described in Note 1, BMHC and SBS were merged in an all-stock transaction on December 1, 2015 . The Merger was accounted for as a reverse acquisition As described in Note 1, BMHC and SBS were merged in an all-stock transaction on December 1, 2015 . The Merger was accounted for as a reverse acquisition with BMHC deemed to be the acquirer solely for accounting purposes. Accordingly, the consideration transferred has been allocated to the acquired assets and with BMHC deemed to be the acquirer solely for accounting purposes. Accordingly, the consideration transferred has been allocated to the acquired assets and liabilities of SBS based upon their estimated fair values. The consideration transferred was calculated as the number of SBS common shares outstanding liabilities of SBS based upon their estimated fair values. The consideration transferred was calculated as the number of SBS common shares outstanding immediately prior to the Merger multiplied by the closing stock price of SBS on the closing date of the Merger. In addition, consideration transferred includes the immediately prior to the Merger multiplied by the closing stock price of SBS on the closing date of the Merger. In addition, consideration transferred includes the fair value of outstanding SBS restricted stock units and stock options that vested upon consummation of the Merger, as well as the fair value of unvested SBS stock fair value of outstanding SBS restricted stock units and stock options that vested upon consummation of the Merger, as well as the fair value of unvested SBS stock options multiplied by the portion of the requisite service period that elapsed prior to the closing date of the Merger. options multiplied by the portion of the requisite service period that elapsed prior to the closing date of the Merger. 60 60 Fair value of SBS equity awards Fair value of SBS equity awards Total consideration transferred Total consideration transferred (in thousands) (in thousands) Cash and cash equivalents Cash and cash equivalents Accounts receivable Accounts receivable Inventories Inventories Other current assets Other current assets Property and equipment Property and equipment Customer relationships Customer relationships Trademarks Trademarks Non-compete agreements Non-compete agreements Favorable lease agreements Favorable lease agreements Other long-term assets Other long-term assets Accounts payable Accounts payable Accrued expenses and other liabilities Accrued expenses and other liabilities Unfavorable lease agreements Unfavorable lease agreements Current portion of capital lease obligations Current portion of capital lease obligations Long-term portion of capital lease obligations Long-term portion of capital lease obligations Other current liabilities Other current liabilities Long-term debt Long-term debt Deferred income taxes Deferred income taxes Other long-term liabilities Other long-term liabilities Identifiable net assets acquired Identifiable net assets acquired Goodwill Goodwill Total net assets acquired Total net assets acquired $ $ $ $ $ $ $ $ 26,186,111 26,186,111 16.99 16.99 444,902 444,902 8,488 8,488 453,390 453,390 6,342 6,342 124,526 124,526 115,888 115,888 26,504 26,504 125,717 125,717 129,800 129,800 4,500 4,500 6,112 6,112 5,050 5,050 1,302 1,302 (77,062) (77,062) (40,652) (40,652) (4,550) (4,550) (3,275) (3,275) (6,664) (6,664) (67,713) (67,713) (75,006) (75,006) (11,612) (11,612) (5,666) (5,666) 253,541 253,541 199,849 199,849 453,390 453,390 The gross contractual value and fair value of accounts receivable acquired were $129.2 million and $124.5 million , respectively. The gross contractual value and fair value of accounts receivable acquired were $129.2 million and $124.5 million , respectively. Inventory was valued at its estimated net realizable value, which is defined as expected sales price less cost to sell, plus a reasonable margin for the selling effort. Inventory was valued at its estimated net realizable value, which is defined as expected sales price less cost to sell, plus a reasonable margin for the selling effort. The step-up in the basis of SBS's inventory totaled $13.2 million , of which $2.9 million was recognized in cost of goods sold in the Company's consolidated The step-up in the basis of SBS's inventory totaled $13.2 million , of which $2.9 million was recognized in cost of goods sold in the Company's consolidated statements of operations during the year ended December 31, 2016 and $10.3 million was recognized during the year ended December 31, 2015. statements of operations during the year ended December 31, 2016 and $10.3 million was recognized during the year ended December 31, 2015. Personal property assets were valued using the cost approach and/or market approach, real property assets were valued using the sales comparison and/or cost Personal property assets were valued using the cost approach and/or market approach, real property assets were valued using the sales comparison and/or cost approach, customer relationships were valued using the excess earnings method, trademarks were valued using the relief from royalty method and non-compete approach, customer relationships were valued using the excess earnings method, trademarks were valued using the relief from royalty method and non-compete agreements were valued using the lost profit method. In estimating the fair value of favorable and unfavorable lease agreements, market rents were estimated for agreements were valued using the lost profit method. In estimating the fair value of favorable and unfavorable lease agreements, market rents were estimated for each of SBS’s leased locations. If the contractual rents were considered to be below/above the market rent, a favorable/unfavorable lease agreement was valued by each of SBS’s leased locations. If the contractual rents were considered to be below/above the market rent, a favorable/unfavorable lease agreement was valued by discounting the difference between the contractual rent and estimated market rates over the remaining lease term. discounting the difference between the contractual rent and estimated market rates over the remaining lease term. 61 61 intangible asset of $13.6 million , accounts receivable of $5.2 million , inventory of $3.9 million and real property of $5.4 million , as well as other operating assets intangible asset of $13.6 million , accounts receivable of $5.2 million , inventory of $3.9 million and real property of $5.4 million , as well as other operating assets The final calculation of consideration transferred is as follows: The final calculation of consideration transferred is as follows: and liabilities. The customer relationship intangible asset has a useful life of 13 years . Goodwill represents the future economic benefits expected to arise from and liabilities. The customer relationship intangible asset has a useful life of 13 years . Goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. All of the goodwill recognized is expected to be deductible for tax purposes. future synergies. All of the goodwill recognized is expected to be deductible for tax purposes. For the year ended December 31, 2016, TexPly generated net sales of approximately $55.2 million . The Company incurred transaction costs of $0.3 million for the For the year ended December 31, 2016, TexPly generated net sales of approximately $55.2 million . The Company incurred transaction costs of $0.3 million for the year ended December 31, 2017 , which are included in selling, general and administrative expenses in the consolidated statements of operations. year ended December 31, 2017 , which are included in selling, general and administrative expenses in the consolidated statements of operations. Acquisition of Code Plus Components, LLC Acquisition of Code Plus Components, LLC On March 27, 2017 , the Company acquired substantially all of the assets and assumed certain liabilities of Code Plus Components, LLC (“Code Plus”), a On March 27, 2017 , the Company acquired substantially all of the assets and assumed certain liabilities of Code Plus Components, LLC (“Code Plus”), a manufacturer of structural components located in Martinsburg, West Virginia, for a purchase price of $7.1 million . This acquisition allowed the Company to add manufacturer of structural components located in Martinsburg, West Virginia, for a purchase price of $7.1 million . This acquisition allowed the Company to add truss manufacturing capability to its value-added offerings in the Washington, DC metro area. The purchase price includes an initial holdback of $0.4 million due truss manufacturing capability to its value-added offerings in the Washington, DC metro area. The purchase price includes an initial holdback of $0.4 million due to the sellers one year from the closing date. The holdback amount may be reduced under certain circumstances. Additionally, the acquisition includes an earnout to the sellers one year from the closing date. The holdback amount may be reduced under certain circumstances. Additionally, the acquisition includes an earnout provision that would require the Company to pay the sellers up to an additional $0.8 million upon the acquired operations achieving certain performance targets provision that would require the Company to pay the sellers up to an additional $0.8 million upon the acquired operations achieving certain performance targets from the acquisition date through December 31, 2018. The Company funded the transaction through borrowings on the Company’s revolving line of credit. from the acquisition date through December 31, 2018. The Company funded the transaction through borrowings on the Company’s revolving line of credit. The acquisition was accounted for using the acquisition method of accounting under ASC 805, whereby the results of operations of Code Plus are included in the The acquisition was accounted for using the acquisition method of accounting under ASC 805, whereby the results of operations of Code Plus are included in the Company’s consolidated financial statements beginning on the acquisition date. The purchase price allocation resulted in the recognition of goodwill of $3.4 Company’s consolidated financial statements beginning on the acquisition date. The purchase price allocation resulted in the recognition of goodwill of $3.4 million , a customer relationship intangible asset of $2.3 million and a non-compete agreement intangible asset of $0.5 million , as well as other operating assets million , a customer relationship intangible asset of $2.3 million and a non-compete agreement intangible asset of $0.5 million , as well as other operating assets and liabilities. The purchase price allocation reflects a measurement period adjustment which increased goodwill and reduced the customer relationship intangible and liabilities. The purchase price allocation reflects a measurement period adjustment which increased goodwill and reduced the customer relationship intangible asset by $1.1 million . The customer relationship intangible asset and non-compete agreement intangible asset have useful lives of 12 years and 5 years , asset by $1.1 million . The customer relationship intangible asset and non-compete agreement intangible asset have useful lives of 12 years and 5 years , respectively. Goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, respectively. Goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. All of the goodwill recognized is expected to be deductible including assembled workforce and non-contractual relationships, as well as expected future synergies. All of the goodwill recognized is expected to be deductible for tax purposes. for tax purposes. For the year ended December 31, 2016, Code Plus generated net sales of approximately $14.2 million . The Company incurred transaction costs of $0.1 million for For the year ended December 31, 2016, Code Plus generated net sales of approximately $14.2 million . The Company incurred transaction costs of $0.1 million for the year ended December 31, 2017 , which are included in selling, general and administrative expenses in the consolidated statements of operations. the year ended December 31, 2017 , which are included in selling, general and administrative expenses in the consolidated statements of operations. Net sales for Code Plus and TexPly, in aggregate, included in the consolidated statements of operations were $54.3 million for the year ended December 31, 2017 . Net sales for Code Plus and TexPly, in aggregate, included in the consolidated statements of operations were $54.3 million for the year ended December 31, 2017 . Estimated pre-tax earnings of Code Plus and TexPly, in aggregate, included in the consolidated statements of operations were $3.2 million for the year ended Estimated pre-tax earnings of Code Plus and TexPly, in aggregate, included in the consolidated statements of operations were $3.2 million for the year ended December 31, 2017 . The impact of the Code Plus and TexPly acquisitions was not considered significant for the reporting of pro forma financial information. December 31, 2017 . The impact of the Code Plus and TexPly acquisitions was not considered significant for the reporting of pro forma financial information. Merger with Stock Building Supply Holdings, Inc. Merger with Stock Building Supply Holdings, Inc. As described in Note 1, BMHC and SBS were merged in an all-stock transaction on December 1, 2015 . The Merger was accounted for as a reverse acquisition As described in Note 1, BMHC and SBS were merged in an all-stock transaction on December 1, 2015 . The Merger was accounted for as a reverse acquisition with BMHC deemed to be the acquirer solely for accounting purposes. Accordingly, the consideration transferred has been allocated to the acquired assets and with BMHC deemed to be the acquirer solely for accounting purposes. Accordingly, the consideration transferred has been allocated to the acquired assets and liabilities of SBS based upon their estimated fair values. The consideration transferred was calculated as the number of SBS common shares outstanding liabilities of SBS based upon their estimated fair values. The consideration transferred was calculated as the number of SBS common shares outstanding immediately prior to the Merger multiplied by the closing stock price of SBS on the closing date of the Merger. In addition, consideration transferred includes the immediately prior to the Merger multiplied by the closing stock price of SBS on the closing date of the Merger. In addition, consideration transferred includes the fair value of outstanding SBS restricted stock units and stock options that vested upon consummation of the Merger, as well as the fair value of unvested SBS stock fair value of outstanding SBS restricted stock units and stock options that vested upon consummation of the Merger, as well as the fair value of unvested SBS stock options multiplied by the portion of the requisite service period that elapsed prior to the closing date of the Merger. options multiplied by the portion of the requisite service period that elapsed prior to the closing date of the Merger. 60 60 (in thousands, except share and per share data) (in thousands, except share and per share data) Number of SBS shares outstanding on the closing date of the Merger Number of SBS shares outstanding on the closing date of the Merger SBS common stock price per share on the closing date of the Merger SBS common stock price per share on the closing date of the Merger Deemed (for accounting purposes only) issuance of BMC stock to SBS shareholders Deemed (for accounting purposes only) issuance of BMC stock to SBS shareholders Fair value of SBS equity awards Fair value of SBS equity awards Total consideration transferred Total consideration transferred The final allocated fair values of acquired assets and assumed liabilities is summarized as follows: The final allocated fair values of acquired assets and assumed liabilities is summarized as follows: (in thousands) (in thousands) Cash and cash equivalents Cash and cash equivalents Accounts receivable Accounts receivable Inventories Inventories Other current assets Other current assets Property and equipment Property and equipment Customer relationships Customer relationships Trademarks Trademarks Non-compete agreements Non-compete agreements Favorable lease agreements Favorable lease agreements Other long-term assets Other long-term assets Accounts payable Accounts payable Accrued expenses and other liabilities Accrued expenses and other liabilities Unfavorable lease agreements Unfavorable lease agreements Current portion of capital lease obligations Current portion of capital lease obligations Other current liabilities Other current liabilities Long-term debt Long-term debt Deferred income taxes Deferred income taxes Long-term portion of capital lease obligations Long-term portion of capital lease obligations Other long-term liabilities Other long-term liabilities Identifiable net assets acquired Identifiable net assets acquired Goodwill Goodwill Total net assets acquired Total net assets acquired $ $ $ $ $ $ $ $ 26,186,111 26,186,111 16.99 16.99 444,902 444,902 8,488 8,488 453,390 453,390 6,342 6,342 124,526 124,526 115,888 115,888 26,504 26,504 125,717 125,717 129,800 129,800 4,500 4,500 6,112 6,112 5,050 5,050 1,302 1,302 (77,062) (77,062) (40,652) (40,652) (4,550) (4,550) (3,275) (3,275) (6,664) (6,664) (67,713) (67,713) (75,006) (75,006) (11,612) (11,612) (5,666) (5,666) 253,541 253,541 199,849 199,849 453,390 453,390 The gross contractual value and fair value of accounts receivable acquired were $129.2 million and $124.5 million , respectively. The gross contractual value and fair value of accounts receivable acquired were $129.2 million and $124.5 million , respectively. Inventory was valued at its estimated net realizable value, which is defined as expected sales price less cost to sell, plus a reasonable margin for the selling effort. Inventory was valued at its estimated net realizable value, which is defined as expected sales price less cost to sell, plus a reasonable margin for the selling effort. The step-up in the basis of SBS's inventory totaled $13.2 million , of which $2.9 million was recognized in cost of goods sold in the Company's consolidated The step-up in the basis of SBS's inventory totaled $13.2 million , of which $2.9 million was recognized in cost of goods sold in the Company's consolidated statements of operations during the year ended December 31, 2016 and $10.3 million was recognized during the year ended December 31, 2015. statements of operations during the year ended December 31, 2016 and $10.3 million was recognized during the year ended December 31, 2015. Personal property assets were valued using the cost approach and/or market approach, real property assets were valued using the sales comparison and/or cost Personal property assets were valued using the cost approach and/or market approach, real property assets were valued using the sales comparison and/or cost approach, customer relationships were valued using the excess earnings method, trademarks were valued using the relief from royalty method and non-compete approach, customer relationships were valued using the excess earnings method, trademarks were valued using the relief from royalty method and non-compete agreements were valued using the lost profit method. In estimating the fair value of favorable and unfavorable lease agreements, market rents were estimated for agreements were valued using the lost profit method. In estimating the fair value of favorable and unfavorable lease agreements, market rents were estimated for each of SBS’s leased locations. If the contractual rents were considered to be below/above the market rent, a favorable/unfavorable lease agreement was valued by each of SBS’s leased locations. If the contractual rents were considered to be below/above the market rent, a favorable/unfavorable lease agreement was valued by discounting the difference between the contractual rent and estimated market rates over the remaining lease term. discounting the difference between the contractual rent and estimated market rates over the remaining lease term. 61 61 The customer relationships, trademarks and non-compete agreements are being amortized over weighted average periods of 16.5 years , 3.8 years and 1.0 year , The customer relationships, trademarks and non-compete agreements are being amortized over weighted average periods of 16.5 years , 3.8 years and 1.0 year , respectively. Acquired property and equipment is being depreciated on a straight-line basis over the respective estimated remaining useful lives. respectively. Acquired property and equipment is being depreciated on a straight-line basis over the respective estimated remaining useful lives. Pro Forma Financial Information (Unaudited) Pro Forma Financial Information (Unaudited) Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed, and represents Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. None of the goodwill recognized is expected to be tax deductible. non-contractual relationships, as well as expected future synergies. None of the goodwill recognized is expected to be tax deductible. Net sales and estimated pre-tax loss of Legacy SBS included in the consolidated statements of operations for the year ended December 31, 2015 were $103.6 Net sales and estimated pre-tax loss of Legacy SBS included in the consolidated statements of operations for the year ended December 31, 2015 were $103.6 million and $18.6 million , respectively. million and $18.6 million , respectively. The following unaudited pro forma combined results of operations give effect to the Merger and acquisitions of RBI and VNS by the Company as if SBS, RBI and The following unaudited pro forma combined results of operations give effect to the Merger and acquisitions of RBI and VNS by the Company as if SBS, RBI and VNS had been acquired on January 1, 2014, the beginning of the comparable prior annual period, applying certain assumptions and pro forma adjustments. These VNS had been acquired on January 1, 2014, the beginning of the comparable prior annual period, applying certain assumptions and pro forma adjustments. These pro forma adjustments primarily relate to depreciation expense on stepped up fixed assets, amortization of acquired intangibles, cost of goods sold expense related pro forma adjustments primarily relate to depreciation expense on stepped up fixed assets, amortization of acquired intangibles, cost of goods sold expense related to the sale of stepped up inventory, interest expense related to additional debt that would be needed to fund the acquisitions and the estimated impact of these to the sale of stepped up inventory, interest expense related to additional debt that would be needed to fund the acquisitions and the estimated impact of these adjustments on the Company's income tax provision. The unaudited pro forma consolidated results of operations are provided for illustrative purposes only and are adjustments on the Company's income tax provision. The unaudited pro forma consolidated results of operations are provided for illustrative purposes only and are not indicative of the Company's actual consolidated results of operations or consolidated financial position. The unaudited pro forma results of operations do not not indicative of the Company's actual consolidated results of operations or consolidated financial position. The unaudited pro forma results of operations do not reflect any operating efficiencies or cost savings which resulted from the Merger and acquisitions of RBI and VNS or may be realized in the future. reflect any operating efficiencies or cost savings which resulted from the Merger and acquisitions of RBI and VNS or may be realized in the future. Acquisition of Robert Bowden, Inc. Acquisition of Robert Bowden, Inc. Unaudited pro forma financial information is as follows: Unaudited pro forma financial information is as follows: On September 1, 2015 , BMHC purchased certain assets (excluding cash) and assumed certain liabilities of Marietta, Georgia-based Robert Bowden Inc. ("RBI") On September 1, 2015 , BMHC purchased certain assets (excluding cash) and assumed certain liabilities of Marietta, Georgia-based Robert Bowden Inc. ("RBI") for a purchase price of $102.4 million in cash (subject to certain adjustments). RBI has three locations in the Atlanta, Georgia area, including its manufacturing for a purchase price of $102.4 million in cash (subject to certain adjustments). RBI has three locations in the Atlanta, Georgia area, including its manufacturing facility in Marietta. RBI sells millwork and window products to homebuilders and residential contractors primarily in the Atlanta metro market. BMHC funded the facility in Marietta. RBI sells millwork and window products to homebuilders and residential contractors primarily in the Atlanta metro market. BMHC funded the transaction through borrowings under BMHC's revolving line of credit (the "BMHC Revolver"). transaction through borrowings under BMHC's revolving line of credit (the "BMHC Revolver"). The acquisition was accounted for using the acquisition method of accounting under ASC 805. The purchase price allocation resulted in the recognition of The acquisition was accounted for using the acquisition method of accounting under ASC 805. The purchase price allocation resulted in the recognition of goodwill of $44.4 million , a customer relationship intangible asset of $39.9 million , a non-compete agreement intangible asset of $0.4 million , accounts goodwill of $44.4 million , a customer relationship intangible asset of $39.9 million , a non-compete agreement intangible asset of $0.4 million , accounts receivable of $8.3 million , inventory of $6.7 million and property and equipment of $5.5 million , as well as other operating assets and liabilities. The customer receivable of $8.3 million , inventory of $6.7 million and property and equipment of $5.5 million , as well as other operating assets and liabilities. The customer relationships and non-compete agreements are being amortized over periods of 10 years and 3 years , respectively. Goodwill represents the future economic relationships and non-compete agreements are being amortized over periods of 10 years and 3 years , respectively. Goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. All of the goodwill recognized is expected to be tax deductible. relationships, as well as expected future synergies. All of the goodwill recognized is expected to be tax deductible. Net sales and estimated pre-tax income of RBI included in the consolidated statements of operations for the year ended December 31, 2015 were $27.0 million and Net sales and estimated pre-tax income of RBI included in the consolidated statements of operations for the year ended December 31, 2015 were $27.0 million and $1.2 million , respectively. $1.2 million , respectively. Accounts receivable consist of the following at December 31, 2017 and 2016 : Accounts receivable consist of the following at December 31, 2017 and 2016 : Acquisition of VNS Corporation Acquisition of VNS Corporation On May 1, 2015 , BMHC completed the acquisition of Vidalia, Georgia-based VNS Corporation (“VNS”), enabling BMHC to expand its product offerings into the On May 1, 2015 , BMHC completed the acquisition of Vidalia, Georgia-based VNS Corporation (“VNS”), enabling BMHC to expand its product offerings into the southeastern United States. BMHC funded the transaction through the use of available cash and borrowings on the BMHC Revolver. The purchase price was $47.1 southeastern United States. BMHC funded the transaction through the use of available cash and borrowings on the BMHC Revolver. The purchase price was $47.1 million , net of $2.3 million of acquired cash. million , net of $2.3 million of acquired cash. The acquisition was accounted for using the acquisition method of accounting under ASC 805. The purchase price allocation resulted in the recognition of The acquisition was accounted for using the acquisition method of accounting under ASC 805. The purchase price allocation resulted in the recognition of goodwill of $9.4 million , a customer relationship intangible asset of $10.0 million , a trademark intangible asset of $0.9 million , accounts receivable of $19.5 goodwill of $9.4 million , a customer relationship intangible asset of $10.0 million , a trademark intangible asset of $0.9 million , accounts receivable of $19.5 million , property and equipment of $11.6 million , inventory of $10.7 million , and accounts payable of $7.5 million , as well as other operating assets and million , property and equipment of $11.6 million , inventory of $10.7 million , and accounts payable of $7.5 million , as well as other operating assets and liabilities. The customer relationships and trademarks are being amortized over periods of 10 years and 2 years , respectively. Goodwill represents the future liabilities. The customer relationships and trademarks are being amortized over periods of 10 years and 2 years , respectively. Goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non- economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non- contractual relationships, as well as expected future synergies. None of the goodwill recognized is expected to be deductible for tax purposes. contractual relationships, as well as expected future synergies. None of the goodwill recognized is expected to be deductible for tax purposes. Net sales and estimated pre-tax income of VNS included in the consolidated statements of operations for the year ended December 31, 2015 were $103.1 million Net sales and estimated pre-tax income of VNS included in the consolidated statements of operations for the year ended December 31, 2015 were $103.1 million and $4.7 million , respectively. and $4.7 million , respectively. 62 62 The following table shows the changes in the allowance for doubtful accounts: The following table shows the changes in the allowance for doubtful accounts: (in thousands) (in thousands) Net sales Net sales Net income Net income Basic net income per share Basic net income per share Diluted net income per share Diluted net income per share 4. Accounts Receivable 4. Accounts Receivable (in thousands) (in thousands) Trade receivables Trade receivables Allowance for doubtful accounts Allowance for doubtful accounts Other allowances Other allowances (in thousands) (in thousands) Balance at January 1 Balance at January 1 Write-offs Write-offs Recoveries Recoveries Increase in allowance Increase in allowance Balance at December 31 Balance at December 31 5. Inventories 5. Inventories respectively. respectively. Pro Forma Year Pro Forma Year Ended December Ended December 31, 31, 2015 2015 $ $ 2,890,163 2,890,163 15,098 15,098 0.23 0.23 0.23 0.23 323,725 323,725 (4,162) (4,162) (6,259) (6,259) 313,304 313,304 1,560 1,560 (558) (558) 236 236 1,119 1,119 2,357 2,357 2017 2017 2016 2016 $ $ $ $ 333,954 $ 333,954 $ (4,771) (4,771) (6,291) (6,291) 322,892 $ 322,892 $ 2017 2017 2016 2016 2015 2015 $ $ 4,162 $ 4,162 $ 2,357 $ 2,357 $ (3,665) (3,665) 960 960 3,314 3,314 (2,186) (2,186) 2,587 2,587 1,404 1,404 $ $ 4,771 $ 4,771 $ 4,162 $ 4,162 $ Inventories consist principally of materials purchased for resale, including lumber, sheet goods, millwork, doors and windows, as well as certain manufactured Inventories consist principally of materials purchased for resale, including lumber, sheet goods, millwork, doors and windows, as well as certain manufactured products and are valued at the lower of cost or net realizable value, with cost being measured using a weighted average cost approach, which approximates the products and are valued at the lower of cost or net realizable value, with cost being measured using a weighted average cost approach, which approximates the first-in, first-out approach. A provision for excess and obsolete inventory of $1.5 million and $1.7 million is recorded as of December 31, 2017 and 2016 , first-in, first-out approach. A provision for excess and obsolete inventory of $1.5 million and $1.7 million is recorded as of December 31, 2017 and 2016 , 63 63 The customer relationships, trademarks and non-compete agreements are being amortized over weighted average periods of 16.5 years , 3.8 years and 1.0 year , The customer relationships, trademarks and non-compete agreements are being amortized over weighted average periods of 16.5 years , 3.8 years and 1.0 year , Pro Forma Financial Information (Unaudited) Pro Forma Financial Information (Unaudited) respectively. Acquired property and equipment is being depreciated on a straight-line basis over the respective estimated remaining useful lives. respectively. Acquired property and equipment is being depreciated on a straight-line basis over the respective estimated remaining useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed, and represents Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. None of the goodwill recognized is expected to be tax deductible. non-contractual relationships, as well as expected future synergies. None of the goodwill recognized is expected to be tax deductible. Net sales and estimated pre-tax loss of Legacy SBS included in the consolidated statements of operations for the year ended December 31, 2015 were $103.6 Net sales and estimated pre-tax loss of Legacy SBS included in the consolidated statements of operations for the year ended December 31, 2015 were $103.6 million and $18.6 million , respectively. million and $18.6 million , respectively. Acquisition of Robert Bowden, Inc. Acquisition of Robert Bowden, Inc. The following unaudited pro forma combined results of operations give effect to the Merger and acquisitions of RBI and VNS by the Company as if SBS, RBI and The following unaudited pro forma combined results of operations give effect to the Merger and acquisitions of RBI and VNS by the Company as if SBS, RBI and VNS had been acquired on January 1, 2014, the beginning of the comparable prior annual period, applying certain assumptions and pro forma adjustments. These VNS had been acquired on January 1, 2014, the beginning of the comparable prior annual period, applying certain assumptions and pro forma adjustments. These pro forma adjustments primarily relate to depreciation expense on stepped up fixed assets, amortization of acquired intangibles, cost of goods sold expense related pro forma adjustments primarily relate to depreciation expense on stepped up fixed assets, amortization of acquired intangibles, cost of goods sold expense related to the sale of stepped up inventory, interest expense related to additional debt that would be needed to fund the acquisitions and the estimated impact of these to the sale of stepped up inventory, interest expense related to additional debt that would be needed to fund the acquisitions and the estimated impact of these adjustments on the Company's income tax provision. The unaudited pro forma consolidated results of operations are provided for illustrative purposes only and are adjustments on the Company's income tax provision. The unaudited pro forma consolidated results of operations are provided for illustrative purposes only and are not indicative of the Company's actual consolidated results of operations or consolidated financial position. The unaudited pro forma results of operations do not not indicative of the Company's actual consolidated results of operations or consolidated financial position. The unaudited pro forma results of operations do not reflect any operating efficiencies or cost savings which resulted from the Merger and acquisitions of RBI and VNS or may be realized in the future. reflect any operating efficiencies or cost savings which resulted from the Merger and acquisitions of RBI and VNS or may be realized in the future. Unaudited pro forma financial information is as follows: Unaudited pro forma financial information is as follows: On September 1, 2015 , BMHC purchased certain assets (excluding cash) and assumed certain liabilities of Marietta, Georgia-based Robert Bowden Inc. ("RBI") On September 1, 2015 , BMHC purchased certain assets (excluding cash) and assumed certain liabilities of Marietta, Georgia-based Robert Bowden Inc. ("RBI") for a purchase price of $102.4 million in cash (subject to certain adjustments). RBI has three locations in the Atlanta, Georgia area, including its manufacturing for a purchase price of $102.4 million in cash (subject to certain adjustments). RBI has three locations in the Atlanta, Georgia area, including its manufacturing facility in Marietta. RBI sells millwork and window products to homebuilders and residential contractors primarily in the Atlanta metro market. BMHC funded the facility in Marietta. RBI sells millwork and window products to homebuilders and residential contractors primarily in the Atlanta metro market. BMHC funded the transaction through borrowings under BMHC's revolving line of credit (the "BMHC Revolver"). transaction through borrowings under BMHC's revolving line of credit (the "BMHC Revolver"). The acquisition was accounted for using the acquisition method of accounting under ASC 805. The purchase price allocation resulted in the recognition of The acquisition was accounted for using the acquisition method of accounting under ASC 805. The purchase price allocation resulted in the recognition of goodwill of $44.4 million , a customer relationship intangible asset of $39.9 million , a non-compete agreement intangible asset of $0.4 million , accounts goodwill of $44.4 million , a customer relationship intangible asset of $39.9 million , a non-compete agreement intangible asset of $0.4 million , accounts receivable of $8.3 million , inventory of $6.7 million and property and equipment of $5.5 million , as well as other operating assets and liabilities. The customer receivable of $8.3 million , inventory of $6.7 million and property and equipment of $5.5 million , as well as other operating assets and liabilities. The customer relationships and non-compete agreements are being amortized over periods of 10 years and 3 years , respectively. Goodwill represents the future economic relationships and non-compete agreements are being amortized over periods of 10 years and 3 years , respectively. Goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. All of the goodwill recognized is expected to be tax deductible. relationships, as well as expected future synergies. All of the goodwill recognized is expected to be tax deductible. Net sales and estimated pre-tax income of RBI included in the consolidated statements of operations for the year ended December 31, 2015 were $27.0 million and Net sales and estimated pre-tax income of RBI included in the consolidated statements of operations for the year ended December 31, 2015 were $27.0 million and (in thousands) (in thousands) Net sales Net sales Net income Net income Basic net income per share Basic net income per share Diluted net income per share Diluted net income per share 4. Accounts Receivable 4. Accounts Receivable Pro Forma Year Pro Forma Year Ended December Ended December 31, 31, 2015 2015 $ $ 2,890,163 2,890,163 15,098 15,098 0.23 0.23 0.23 0.23 $1.2 million , respectively. $1.2 million , respectively. Acquisition of VNS Corporation Acquisition of VNS Corporation On May 1, 2015 , BMHC completed the acquisition of Vidalia, Georgia-based VNS Corporation (“VNS”), enabling BMHC to expand its product offerings into the On May 1, 2015 , BMHC completed the acquisition of Vidalia, Georgia-based VNS Corporation (“VNS”), enabling BMHC to expand its product offerings into the southeastern United States. BMHC funded the transaction through the use of available cash and borrowings on the BMHC Revolver. The purchase price was $47.1 southeastern United States. BMHC funded the transaction through the use of available cash and borrowings on the BMHC Revolver. The purchase price was $47.1 million , net of $2.3 million of acquired cash. million , net of $2.3 million of acquired cash. The acquisition was accounted for using the acquisition method of accounting under ASC 805. The purchase price allocation resulted in the recognition of The acquisition was accounted for using the acquisition method of accounting under ASC 805. The purchase price allocation resulted in the recognition of goodwill of $9.4 million , a customer relationship intangible asset of $10.0 million , a trademark intangible asset of $0.9 million , accounts receivable of $19.5 goodwill of $9.4 million , a customer relationship intangible asset of $10.0 million , a trademark intangible asset of $0.9 million , accounts receivable of $19.5 million , property and equipment of $11.6 million , inventory of $10.7 million , and accounts payable of $7.5 million , as well as other operating assets and million , property and equipment of $11.6 million , inventory of $10.7 million , and accounts payable of $7.5 million , as well as other operating assets and liabilities. The customer relationships and trademarks are being amortized over periods of 10 years and 2 years , respectively. Goodwill represents the future liabilities. The customer relationships and trademarks are being amortized over periods of 10 years and 2 years , respectively. Goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non- economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non- contractual relationships, as well as expected future synergies. None of the goodwill recognized is expected to be deductible for tax purposes. contractual relationships, as well as expected future synergies. None of the goodwill recognized is expected to be deductible for tax purposes. Net sales and estimated pre-tax income of VNS included in the consolidated statements of operations for the year ended December 31, 2015 were $103.1 million Net sales and estimated pre-tax income of VNS included in the consolidated statements of operations for the year ended December 31, 2015 were $103.1 million and $4.7 million , respectively. and $4.7 million , respectively. 62 62 Accounts receivable consist of the following at December 31, 2017 and 2016 : Accounts receivable consist of the following at December 31, 2017 and 2016 : (in thousands) (in thousands) Trade receivables Trade receivables Allowance for doubtful accounts Allowance for doubtful accounts Other allowances Other allowances The following table shows the changes in the allowance for doubtful accounts: The following table shows the changes in the allowance for doubtful accounts: (in thousands) (in thousands) Balance at January 1 Balance at January 1 Write-offs Write-offs Recoveries Recoveries Increase in allowance Increase in allowance Balance at December 31 Balance at December 31 5. Inventories 5. Inventories 2017 2017 2016 2016 $ $ $ $ 333,954 $ 333,954 $ (4,771) (4,771) (6,291) (6,291) 322,892 $ 322,892 $ 323,725 323,725 (4,162) (4,162) (6,259) (6,259) 313,304 313,304 2017 2017 2016 2016 2015 2015 $ $ 4,162 $ 4,162 $ 2,357 $ 2,357 $ (3,665) (3,665) 960 960 3,314 3,314 (2,186) (2,186) 2,587 2,587 1,404 1,404 $ $ 4,771 $ 4,771 $ 4,162 $ 4,162 $ 1,560 1,560 (558) (558) 236 236 1,119 1,119 2,357 2,357 Inventories consist principally of materials purchased for resale, including lumber, sheet goods, millwork, doors and windows, as well as certain manufactured Inventories consist principally of materials purchased for resale, including lumber, sheet goods, millwork, doors and windows, as well as certain manufactured products and are valued at the lower of cost or net realizable value, with cost being measured using a weighted average cost approach, which approximates the products and are valued at the lower of cost or net realizable value, with cost being measured using a weighted average cost approach, which approximates the first-in, first-out approach. A provision for excess and obsolete inventory of $1.5 million and $1.7 million is recorded as of December 31, 2017 and 2016 , first-in, first-out approach. A provision for excess and obsolete inventory of $1.5 million and $1.7 million is recorded as of December 31, 2017 and 2016 , respectively. respectively. 63 63 6. Property and Equipment 6. Property and Equipment 7. Goodwill and Intangible Assets, Net 7. Goodwill and Intangible Assets, Net Property and equipment consists of the following at December 31, 2017 and 2016 : Property and equipment consists of the following at December 31, 2017 and 2016 : (in thousands) (in thousands) Land Land Buildings and improvements Buildings and improvements Leasehold improvements Leasehold improvements Furniture, fixtures and equipment Furniture, fixtures and equipment Vehicles Vehicles Construction-in-progress Construction-in-progress Less: Accumulated depreciation Less: Accumulated depreciation 2017 2017 2016 2016 The following table details the goodwill activity for the years ended December 31, 2017 , 2016 and 2015 : The following table details the goodwill activity for the years ended December 31, 2017 , 2016 and 2015 : $ $ 51,009 $ 51,009 $ 104,752 104,752 19,750 19,750 161,014 161,014 120,855 120,855 14,519 14,519 471,899 471,899 (176,079) (176,079) 295,820 $ 295,820 $ $ $ 57,693 57,693 93,252 93,252 17,610 17,610 136,513 136,513 97,119 97,119 12,574 12,574 414,761 414,761 (128,020) (128,020) 286,741 286,741 Total depreciation expense for the years ended December 31, 2017 , 2016 and 2015 was $53.2 million , $48.0 million and $21.0 million , respectively, including Total depreciation expense for the years ended December 31, 2017 , 2016 and 2015 was $53.2 million , $48.0 million and $21.0 million , respectively, including amortization expense related to capital leases. These amounts include depreciation expense of $10.2 million , $9.5 million and $5.3 million included in cost of amortization expense related to capital leases. These amounts include depreciation expense of $10.2 million , $9.5 million and $5.3 million included in cost of goods sold in 2017 , 2016 and 2015 , respectively. goods sold in 2017 , 2016 and 2015 , respectively. Impairment of BMHC ERP System Impairment of BMHC ERP System During 2013, BMHC selected a new third-party software vendor for its planned Enterprise Resource Planning ("New ERP") system and began incurring costs During 2013, BMHC selected a new third-party software vendor for its planned Enterprise Resource Planning ("New ERP") system and began incurring costs related to design, development and implementation of the New ERP. BMHC also began paying an annual licensing fee. During March 2016, the Company decided related to design, development and implementation of the New ERP. BMHC also began paying an annual licensing fee. During March 2016, the Company decided to integrate all operations under the Enterprise Resource Planning system utilized by Legacy SBS (the "Legacy SBS ERP system") and to discontinue the use of the to integrate all operations under the Enterprise Resource Planning system utilized by Legacy SBS (the "Legacy SBS ERP system") and to discontinue the use of the New ERP. In connection with this decision, the Company recorded asset impairment charges of approximately $11.9 million in its consolidated statement of New ERP. In connection with this decision, the Company recorded asset impairment charges of approximately $11.9 million in its consolidated statement of operations for the year ended December 31, 2016 related to capitalized software development costs for New ERP functionality that the Company had intended to operations for the year ended December 31, 2016 related to capitalized software development costs for New ERP functionality that the Company had intended to implement in future periods. These costs had previously been recorded as construction-in-progress within property and equipment on the consolidated balance implement in future periods. These costs had previously been recorded as construction-in-progress within property and equipment on the consolidated balance sheets. sheets. During the year ended December 31, 2017, the Company determined that it had ceased receiving economic benefit from certain non-cancellable license and service During the year ended December 31, 2017, the Company determined that it had ceased receiving economic benefit from certain non-cancellable license and service contracts related to the New ERP. In accordance with ASC 420, Exit or Disposal Cost Obligations, as of the cease use date, the Company recognized contracts related to the New ERP. In accordance with ASC 420, Exit or Disposal Cost Obligations, as of the cease use date, the Company recognized approximately $2.8 million of expense within Merger and integration costs in its consolidated statements of operations for the year ended December 31, 2017, approximately $2.8 million of expense within Merger and integration costs in its consolidated statements of operations for the year ended December 31, 2017, consisting of $2.1 million for contractual payments due subsequent to the cease use date, all of which have been paid as of December 31, 2017, and the consisting of $2.1 million for contractual payments due subsequent to the cease use date, all of which have been paid as of December 31, 2017, and the acceleration of expense recognition of unamortized prepaid costs of $0.7 million . acceleration of expense recognition of unamortized prepaid costs of $0.7 million . 64 64 Goodwill Goodwill (in thousands) (in thousands) December 31, 2014 December 31, 2014 Acquisition of VNS Acquisition of VNS Acquisition of RBI Acquisition of RBI Merger with SBS Merger with SBS December 31, 2015 December 31, 2015 VNS measurement period adjustment VNS measurement period adjustment RBI measurement period adjustment RBI measurement period adjustment SBS measurement period adjustment SBS measurement period adjustment December 31, 2016 December 31, 2016 Acquisition of Code Plus Acquisition of Code Plus Acquisition of TexPly Acquisition of TexPly December 31, 2017 December 31, 2017 Intangible assets Intangible assets $ $ $ $ 1,137 1,137 9,287 9,287 44,541 44,541 199,699 199,699 254,664 254,664 142 142 (124) (124) 150 150 254,832 254,832 3,402 3,402 3,558 3,558 261,792 261,792 Intangible assets represent the value assigned to trademarks, customer relationships and non-compete agreements in connection with acquired companies. The Intangible assets represent the value assigned to trademarks, customer relationships and non-compete agreements in connection with acquired companies. The following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets. following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets. Trademarks Trademarks Customer Relationships Customer Relationships Non-Compete Agreements Non-Compete Agreements Gross Gross Carrying Carrying Amount Amount Accumulated Accumulated Amortization Amortization Gross Gross Carrying Carrying Amount Amount Accumulated Accumulated Amortization Amortization Gross Gross Carrying Carrying Amount Amount Accumulated Accumulated Amortization Amortization December 31, 2014 December 31, 2014 $ $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ (in thousands) (in thousands) Acquisition of VNS Acquisition of VNS Acquisition of RBI Acquisition of RBI Merger with SBS Merger with SBS Amortization Amortization December 31, 2015 December 31, 2015 Amortization Amortization December 31, 2016 December 31, 2016 Acquisition of Code Plus Acquisition of Code Plus Acquisition of TexPly Acquisition of TexPly Amortization Amortization 850 850 — — 4,500 4,500 — — 5,350 5,350 — — 5,350 5,350 — — — — — — — — — — — — (408) (408) (408) (408) (2,140) (2,140) (2,548) (2,548) — — — — — — — — — — (2,664) (2,664) (2,664) (2,664) (12,845) (12,845) (15,509) (15,509) — — — — — — 400 400 6,112 6,112 — — 6,512 6,512 — — 6,512 6,512 500 500 — — — — — $ — $ — — — — — — (554) (554) (554) (554) (5,736) (5,736) (6,290) (6,290) — — — — (208) (208) Total Total — — 10,850 10,850 40,300 40,300 140,412 140,412 (3,626) (3,626) 187,936 187,936 (20,721) (20,721) 167,215 167,215 2,800 2,800 13,600 13,600 (16,003) (16,003) December 31, 2107 December 31, 2107 $ $ 5,350 $ 5,350 $ (4,558) (4,558) $ $ 195,600 $ 195,600 $ (29,294) $ (29,294) $ 7,012 $ 7,012 $ (6,498) (6,498) $ $ 167,612 167,612 (2,010) (2,010) — — (13,785) (13,785) 10,000 10,000 39,900 39,900 129,800 129,800 179,700 179,700 — — — — 179,700 179,700 2,300 2,300 13,600 13,600 65 65 Property and equipment consists of the following at December 31, 2017 and 2016 : Property and equipment consists of the following at December 31, 2017 and 2016 : 6. Property and Equipment 6. Property and Equipment (in thousands) (in thousands) Land Land Buildings and improvements Buildings and improvements Leasehold improvements Leasehold improvements Furniture, fixtures and equipment Furniture, fixtures and equipment Vehicles Vehicles Construction-in-progress Construction-in-progress Less: Accumulated depreciation Less: Accumulated depreciation 2017 2017 2016 2016 $ $ 51,009 $ 51,009 $ 104,752 104,752 19,750 19,750 161,014 161,014 120,855 120,855 14,519 14,519 471,899 471,899 (176,079) (176,079) 295,820 $ 295,820 $ $ $ 57,693 57,693 93,252 93,252 17,610 17,610 136,513 136,513 97,119 97,119 12,574 12,574 414,761 414,761 (128,020) (128,020) 286,741 286,741 Total depreciation expense for the years ended December 31, 2017 , 2016 and 2015 was $53.2 million , $48.0 million and $21.0 million , respectively, including Total depreciation expense for the years ended December 31, 2017 , 2016 and 2015 was $53.2 million , $48.0 million and $21.0 million , respectively, including 7. Goodwill and Intangible Assets, Net 7. Goodwill and Intangible Assets, Net Goodwill Goodwill The following table details the goodwill activity for the years ended December 31, 2017 , 2016 and 2015 : The following table details the goodwill activity for the years ended December 31, 2017 , 2016 and 2015 : (in thousands) (in thousands) December 31, 2014 December 31, 2014 Acquisition of VNS Acquisition of VNS Acquisition of RBI Acquisition of RBI Merger with SBS Merger with SBS December 31, 2015 December 31, 2015 VNS measurement period adjustment VNS measurement period adjustment RBI measurement period adjustment RBI measurement period adjustment SBS measurement period adjustment SBS measurement period adjustment December 31, 2016 December 31, 2016 amortization expense related to capital leases. These amounts include depreciation expense of $10.2 million , $9.5 million and $5.3 million included in cost of amortization expense related to capital leases. These amounts include depreciation expense of $10.2 million , $9.5 million and $5.3 million included in cost of Acquisition of Code Plus Acquisition of Code Plus goods sold in 2017 , 2016 and 2015 , respectively. goods sold in 2017 , 2016 and 2015 , respectively. Impairment of BMHC ERP System Impairment of BMHC ERP System Acquisition of TexPly Acquisition of TexPly December 31, 2017 December 31, 2017 During 2013, BMHC selected a new third-party software vendor for its planned Enterprise Resource Planning ("New ERP") system and began incurring costs During 2013, BMHC selected a new third-party software vendor for its planned Enterprise Resource Planning ("New ERP") system and began incurring costs Intangible assets Intangible assets $ $ $ $ 1,137 1,137 9,287 9,287 44,541 44,541 199,699 199,699 254,664 254,664 142 142 (124) (124) 150 150 254,832 254,832 3,402 3,402 3,558 3,558 261,792 261,792 related to design, development and implementation of the New ERP. BMHC also began paying an annual licensing fee. During March 2016, the Company decided related to design, development and implementation of the New ERP. BMHC also began paying an annual licensing fee. During March 2016, the Company decided to integrate all operations under the Enterprise Resource Planning system utilized by Legacy SBS (the "Legacy SBS ERP system") and to discontinue the use of the to integrate all operations under the Enterprise Resource Planning system utilized by Legacy SBS (the "Legacy SBS ERP system") and to discontinue the use of the New ERP. In connection with this decision, the Company recorded asset impairment charges of approximately $11.9 million in its consolidated statement of New ERP. In connection with this decision, the Company recorded asset impairment charges of approximately $11.9 million in its consolidated statement of operations for the year ended December 31, 2016 related to capitalized software development costs for New ERP functionality that the Company had intended to operations for the year ended December 31, 2016 related to capitalized software development costs for New ERP functionality that the Company had intended to implement in future periods. These costs had previously been recorded as construction-in-progress within property and equipment on the consolidated balance implement in future periods. These costs had previously been recorded as construction-in-progress within property and equipment on the consolidated balance sheets. sheets. During the year ended December 31, 2017, the Company determined that it had ceased receiving economic benefit from certain non-cancellable license and service During the year ended December 31, 2017, the Company determined that it had ceased receiving economic benefit from certain non-cancellable license and service contracts related to the New ERP. In accordance with ASC 420, Exit or Disposal Cost Obligations, as of the cease use date, the Company recognized contracts related to the New ERP. In accordance with ASC 420, Exit or Disposal Cost Obligations, as of the cease use date, the Company recognized approximately $2.8 million of expense within Merger and integration costs in its consolidated statements of operations for the year ended December 31, 2017, approximately $2.8 million of expense within Merger and integration costs in its consolidated statements of operations for the year ended December 31, 2017, consisting of $2.1 million for contractual payments due subsequent to the cease use date, all of which have been paid as of December 31, 2017, and the consisting of $2.1 million for contractual payments due subsequent to the cease use date, all of which have been paid as of December 31, 2017, and the acceleration of expense recognition of unamortized prepaid costs of $0.7 million . acceleration of expense recognition of unamortized prepaid costs of $0.7 million . 64 64 Intangible assets represent the value assigned to trademarks, customer relationships and non-compete agreements in connection with acquired companies. The Intangible assets represent the value assigned to trademarks, customer relationships and non-compete agreements in connection with acquired companies. The following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets. following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible assets. Trademarks Trademarks Customer Relationships Customer Relationships Non-Compete Agreements Non-Compete Agreements Gross Gross Carrying Carrying Amount Amount Accumulated Accumulated Amortization Amortization Gross Gross Carrying Carrying Amount Amount Accumulated Accumulated Amortization Amortization Gross Gross Carrying Carrying Amount Amount Accumulated Accumulated Amortization Amortization (in thousands) (in thousands) December 31, 2014 December 31, 2014 $ $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — $ Acquisition of VNS Acquisition of VNS Acquisition of RBI Acquisition of RBI Merger with SBS Merger with SBS Amortization Amortization December 31, 2015 December 31, 2015 Amortization Amortization December 31, 2016 December 31, 2016 Acquisition of Code Plus Acquisition of Code Plus Acquisition of TexPly Acquisition of TexPly Amortization Amortization 850 850 — — 4,500 4,500 — — 5,350 5,350 — — 5,350 5,350 — — — — — — — — — — — — (408) (408) (408) (408) (2,140) (2,140) (2,548) (2,548) — — — — 10,000 10,000 39,900 39,900 129,800 129,800 — — 179,700 179,700 — — 179,700 179,700 2,300 2,300 13,600 13,600 — — — — — — (2,664) (2,664) (2,664) (2,664) (12,845) (12,845) (15,509) (15,509) — — — — (2,010) (2,010) — — (13,785) (13,785) — — 400 400 6,112 6,112 — — 6,512 6,512 — — 6,512 6,512 500 500 — — — — — $ — $ — — — — — — (554) (554) (554) (554) (5,736) (5,736) (6,290) (6,290) — — — — (208) (208) Total Total — — 10,850 10,850 40,300 40,300 140,412 140,412 (3,626) (3,626) 187,936 187,936 (20,721) (20,721) 167,215 167,215 2,800 2,800 13,600 13,600 (16,003) (16,003) December 31, 2107 December 31, 2107 $ $ 5,350 $ 5,350 $ (4,558) (4,558) $ $ 195,600 $ 195,600 $ (29,294) $ (29,294) $ 7,012 $ 7,012 $ (6,498) (6,498) $ $ 167,612 167,612 65 65 Aggregate amortization expense was $16.0 million , $20.7 million and $3.6 million for the years ended December 31, 2017 , 2016 and 2015 , respectively. Based Aggregate amortization expense was $16.0 million , $20.7 million and $3.6 million for the years ended December 31, 2017 , 2016 and 2015 , respectively. Based upon current assumptions, the Company expects that its definite-lived intangible assets will be amortized according to the following schedule: upon current assumptions, the Company expects that its definite-lived intangible assets will be amortized according to the following schedule: that guarantee the Credit Agreement (as defined below). Each of the subsidiary guarantors is 100% owned, directly or indirectly, by the Company, and all that guarantee the Credit Agreement (as defined below). Each of the subsidiary guarantors is 100% owned, directly or indirectly, by the Company, and all guarantees are full and unconditional and joint and several. The Senior Notes mature on October 1, 2024 and are secured by a first priority lien on certain assets of guarantees are full and unconditional and joint and several. The Senior Notes mature on October 1, 2024 and are secured by a first priority lien on certain assets of (in thousands) (in thousands) 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 Thereafter Thereafter $ $ 14,383 14,383 14,294 14,294 14,294 14,294 14,294 14,294 14,219 14,219 96,128 96,128 $ $ 167,612 167,612 8. Accrued Expenses and Other Liabilities 8. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consists of the following at December 31, 2017 and 2016 : Accrued expenses and other liabilities consists of the following at December 31, 2017 and 2016 : (in thousands) (in thousands) 2017 2017 2016 2016 Accrued payroll and other employee related expenses Accrued payroll and other employee related expenses $ $ the Company and a second priority lien on the collateral that secures the Credit Agreement on a first-priority basis, which collectively accounts for substantially all the Company and a second priority lien on the collateral that secures the Credit Agreement on a first-priority basis, which collectively accounts for substantially all assets of the Company. The interest rate is fixed at 5.5% and is payable semiannually on April 1 and October 1 . assets of the Company. The interest rate is fixed at 5.5% and is payable semiannually on April 1 and October 1 . The Indenture contains customary nonfinancial covenants, including restrictions on new indebtedness, issuance of liens and guarantees, investments, distributions The Indenture contains customary nonfinancial covenants, including restrictions on new indebtedness, issuance of liens and guarantees, investments, distributions to equityholders, asset sales and affiliate transactions. At any time prior to October 1, 2019, the Company may redeem the Senior Notes in whole or in part at a to equityholders, asset sales and affiliate transactions. At any time prior to October 1, 2019, the Company may redeem the Senior Notes in whole or in part at a price equal to 100% of the principal, plus accrued and unpaid interest, plus the greater of (a) 1% of the principal amount of such Senior Note and (b) on any price equal to 100% of the principal, plus accrued and unpaid interest, plus the greater of (a) 1% of the principal amount of such Senior Note and (b) on any redemption date, the excess (to the extent positive) of the present value of the redemption price of such Senior Note at October 1, 2019 (equal to 104.125% ) plus redemption date, the excess (to the extent positive) of the present value of the redemption price of such Senior Note at October 1, 2019 (equal to 104.125% ) plus all required interest payments due on such Senior Note to and including October 1, 2019 (excluding accrued but unpaid interest), computed upon the redemption all required interest payments due on such Senior Note to and including October 1, 2019 (excluding accrued but unpaid interest), computed upon the redemption date using a discount rate equal to the applicable treasury rate, as defined in the Indenture, at such redemption date plus 50 basis points, over the outstanding date using a discount rate equal to the applicable treasury rate, as defined in the Indenture, at such redemption date plus 50 basis points, over the outstanding principal amount of such Senior Note. Further, during any twelve month period prior to October 1, 2019, the Company may redeem up to 10% of the Senior Notes principal amount of such Senior Note. Further, during any twelve month period prior to October 1, 2019, the Company may redeem up to 10% of the Senior Notes at a redemption price equal to 103% plus accrued and unpaid interest. At any time on or after October 1, 2019, the Company may redeem the Senior Notes in at a redemption price equal to 103% plus accrued and unpaid interest. At any time on or after October 1, 2019, the Company may redeem the Senior Notes in whole or in part at the redemption prices set forth in the Indenture plus accrued and unpaid interest. In addition, at any time prior to October 1, 2019, the Company whole or in part at the redemption prices set forth in the Indenture plus accrued and unpaid interest. In addition, at any time prior to October 1, 2019, the Company may redeem up to 40% of the aggregate principal amount of the Senior Notes with the net cash proceeds of one or more equity offerings, as described in the may redeem up to 40% of the aggregate principal amount of the Senior Notes with the net cash proceeds of one or more equity offerings, as described in the Indenture, at a price equal to 105.5% plus accrued and unpaid interest. If the Company experiences certain change of control events, holders of the Senior Notes Indenture, at a price equal to 105.5% plus accrued and unpaid interest. If the Company experiences certain change of control events, holders of the Senior Notes may require the Company to repurchase all or part of their Senior Notes at a price equal to 101% plus accrued and unpaid interest. The Company was in may require the Company to repurchase all or part of their Senior Notes at a price equal to 101% plus accrued and unpaid interest. The Company was in compliance with all debt covenants under the Indenture for the year ended December 31, 2017 . compliance with all debt covenants under the Indenture for the year ended December 31, 2017 . The net cash proceeds from the Senior Notes were used to redeem in full $250.0 million of 9.0% senior secured notes that were issued by BMHC in September The net cash proceeds from the Senior Notes were used to redeem in full $250.0 million of 9.0% senior secured notes that were issued by BMHC in September 2013 and which were scheduled to mature in September 2018 (the “Extinguished Senior Notes”), and to pay accrued interest on the Extinguished Senior Notes of 2013 and which were scheduled to mature in September 2018 (the “Extinguished Senior Notes”), and to pay accrued interest on the Extinguished Senior Notes of $11.3 million . In connection with the redemption of the Extinguished Senior Notes, the Company incurred a loss on debt extinguishment of $12.5 million , $11.3 million . In connection with the redemption of the Extinguished Senior Notes, the Company incurred a loss on debt extinguishment of $12.5 million , consisting of a call premium of $8.4 million , and the write off of unamortized debt issuance costs and original issue discount of $4.1 million . The remaining consisting of a call premium of $8.4 million , and the write off of unamortized debt issuance costs and original issue discount of $4.1 million . The remaining proceeds were used to repay outstanding borrowings on the Revolver (as defined below) and to pay debt issuance costs of $6.7 million , which will be amortized proceeds were used to repay outstanding borrowings on the Revolver (as defined below) and to pay debt issuance costs of $6.7 million , which will be amortized over the term of the Senior Notes. over the term of the Senior Notes. As of December 31, 2017 , the estimated market value of the Senior Notes was $14.0 million higher than the carrying amount. The fair value is based on As of December 31, 2017 , the estimated market value of the Senior Notes was $14.0 million higher than the carrying amount. The fair value is based on institutional trading activity and was classified as a Level 2 measurement in accordance with ASC 820. institutional trading activity and was classified as a Level 2 measurement in accordance with ASC 820. Revolving Credit Agreement Revolving Credit Agreement On December 1, 2015 , in connection with the Merger, the Company entered into a senior secured credit agreement with Wells Fargo Capital Finance, as On December 1, 2015 , in connection with the Merger, the Company entered into a senior secured credit agreement with Wells Fargo Capital Finance, as administrative agent, and certain other lenders (the “Original Credit Agreement”) which includes a revolving line of credit (the “Revolver”). On September 15, administrative agent, and certain other lenders (the “Original Credit Agreement”) which includes a revolving line of credit (the “Revolver”). On September 15, 2016 , the Company entered into the second amendment to the Credit Agreement (the “Second Amendment” and, the Original Credit Agreement as amended by 2016 , the Company entered into the second amendment to the Credit Agreement (the “Second Amendment” and, the Original Credit Agreement as amended by the Second Amendment, the "Credit Agreement"), which reduced the aggregate commitment from $450.0 million to $375.0 million and increased the letters of the Second Amendment, the "Credit Agreement"), which reduced the aggregate commitment from $450.0 million to $375.0 million and increased the letters of credit commitment from $75.0 million to $100.0 million . The Revolver is subject to an asset-based borrowing formula on eligible accounts receivable, credit card credit commitment from $75.0 million to $100.0 million . The Revolver is subject to an asset-based borrowing formula on eligible accounts receivable, credit card receivables and inventory, in each case reduced by certain reserves. receivables and inventory, in each case reduced by certain reserves. Borrowings under the Revolver bear interest, at the Company's option, at either the Base Rate (which means the higher of (i) the Federal Funds Rate plus 0.5% , Borrowings under the Revolver bear interest, at the Company's option, at either the Base Rate (which means the higher of (i) the Federal Funds Rate plus 0.5% , (ii) the LIBOR rate plus 1.0% or (iii) the prime rate) plus a Base Rate Margin (which ranges from 0.25% to 0.75% based on Revolver availability) or LIBOR plus a (ii) the LIBOR rate plus 1.0% or (iii) the prime rate) plus a Base Rate Margin (which ranges from 0.25% to 0.75% based on Revolver availability) or LIBOR plus a LIBOR Rate Margin (which ranges from 1.25% to 1.75% based on Revolver availability). LIBOR Rate Margin (which ranges from 1.25% to 1.75% based on Revolver availability). The fee on any outstanding letters of credit issued under the Revolver ranges from 0.75% to 1.25% , depending on whether the letters of credit are fully cash The fee on any outstanding letters of credit issued under the Revolver ranges from 0.75% to 1.25% , depending on whether the letters of credit are fully cash collateralized. The fee on the unused portion of the Revolver is 0.25% . The Credit Agreement contains customary nonfinancial covenants, including restrictions on collateralized. The fee on the unused portion of the Revolver is 0.25% . The Credit Agreement contains customary nonfinancial covenants, including restrictions on new indebtedness, issuance of liens, investments, distributions to equityholders, asset sales and affiliate transactions. The Credit Agreement includes a financial new indebtedness, issuance of liens, investments, distributions to equityholders, asset sales and affiliate transactions. The Credit Agreement includes a financial covenant that requires us to maintain a Fixed Charge Coverage Ratio, as defined therein, of at least 1.00 :1:00, at the end of any fiscal quarter during the period covenant that requires us to maintain a Fixed Charge Coverage Ratio, as defined therein, of at least 1.00 :1:00, at the end of any fiscal quarter during the period from the date that Excess Availability, as defined therein, under the Credit Agreement is less than or equal to the greater of (1) $33.3 million and (2) 10% of the from the date that Excess Availability, as defined therein, under the Credit Agreement is less than or equal to the greater of (1) $33.3 million and (2) 10% of the line cap, and remains in effect until excess availability has been greater than the greater of (1) $33.3 million and (2) 10% of the line cap for a period of at least 30 line cap, and remains in effect until excess availability has been greater than the greater of (1) $33.3 million and (2) 10% of the line cap for a period of at least 30 consecutive days. consecutive days. 67 67 41,798 $ 41,798 $ 20,741 20,741 11,664 11,664 4,653 4,653 2,950 2,950 2,467 2,467 1,127 1,127 818 818 715 715 520 520 $ $ 8,809 8,809 96,262 $ 96,262 $ 41,728 41,728 19,083 19,083 10,062 10,062 2,564 2,564 — — 1,813 1,813 873 873 460 460 727 727 789 789 10,687 10,687 88,786 88,786 December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016 $ $ 350,000 $ 350,000 $ 4,462 4,462 336 336 354,798 354,798 (5,639) (5,639) 349,159 349,159 100 100 $ $ 349,059 $ 349,059 $ 350,000 350,000 — — 2,963 2,963 352,963 352,963 (6,474) (6,474) 346,489 346,489 1,662 1,662 344,827 344,827 Accrued taxes Accrued taxes Advances from customers Advances from customers Accrued rebates payable Accrued rebates payable Pending litigation accrual Pending litigation accrual Accrued warranty reserve Accrued warranty reserve Accrued credit card fees Accrued credit card fees Current portion of deferred rent Current portion of deferred rent Accrued professional fees Accrued professional fees Unfavorable leases Unfavorable leases Other Other 9. Debt 9. Debt Long-term debt at December 31, 2017 and 2016 consists of the following: Long-term debt at December 31, 2017 and 2016 consists of the following: (in thousands) (in thousands) Senior secured notes, due 2024 Senior secured notes, due 2024 Revolving credit agreement Revolving credit agreement Other Other Unamortized debt issuance costs related to senior secured notes Unamortized debt issuance costs related to senior secured notes Less: Current portion of long-term debt Less: Current portion of long-term debt Senior Secured Notes Senior Secured Notes On September 15, 2016 , the Company issued $350.0 million of senior secured notes due 2024 (the “Senior Notes”) under an unregistered private placement not On September 15, 2016 , the Company issued $350.0 million of senior secured notes due 2024 (the “Senior Notes”) under an unregistered private placement not subject to the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). The Senior Notes are governed by an indenture dated subject to the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). The Senior Notes are governed by an indenture dated September 15, 2016 (the “Indenture”). The Senior Notes were issued by BMC East, LLC, a 100% owned subsidiary of the Company, and are guaranteed by the September 15, 2016 (the “Indenture”). The Senior Notes were issued by BMC East, LLC, a 100% owned subsidiary of the Company, and are guaranteed by the Company and the other subsidiaries Company and the other subsidiaries 66 66 Aggregate amortization expense was $16.0 million , $20.7 million and $3.6 million for the years ended December 31, 2017 , 2016 and 2015 , respectively. Based Aggregate amortization expense was $16.0 million , $20.7 million and $3.6 million for the years ended December 31, 2017 , 2016 and 2015 , respectively. Based upon current assumptions, the Company expects that its definite-lived intangible assets will be amortized according to the following schedule: upon current assumptions, the Company expects that its definite-lived intangible assets will be amortized according to the following schedule: 8. Accrued Expenses and Other Liabilities 8. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consists of the following at December 31, 2017 and 2016 : Accrued expenses and other liabilities consists of the following at December 31, 2017 and 2016 : Accrued payroll and other employee related expenses Accrued payroll and other employee related expenses $ $ 2017 2017 2016 2016 (in thousands) (in thousands) 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 Thereafter Thereafter (in thousands) (in thousands) Accrued taxes Accrued taxes Advances from customers Advances from customers Accrued rebates payable Accrued rebates payable Pending litigation accrual Pending litigation accrual Accrued warranty reserve Accrued warranty reserve Accrued credit card fees Accrued credit card fees Current portion of deferred rent Current portion of deferred rent Accrued professional fees Accrued professional fees Unfavorable leases Unfavorable leases Other Other 9. Debt 9. Debt (in thousands) (in thousands) Senior secured notes, due 2024 Senior secured notes, due 2024 Revolving credit agreement Revolving credit agreement Other Other Long-term debt at December 31, 2017 and 2016 consists of the following: Long-term debt at December 31, 2017 and 2016 consists of the following: Unamortized debt issuance costs related to senior secured notes Unamortized debt issuance costs related to senior secured notes Less: Current portion of long-term debt Less: Current portion of long-term debt Senior Secured Notes Senior Secured Notes $ $ $ $ 167,612 167,612 14,383 14,383 14,294 14,294 14,294 14,294 14,294 14,294 14,219 14,219 96,128 96,128 41,728 41,728 19,083 19,083 10,062 10,062 2,564 2,564 — — 1,813 1,813 873 873 460 460 727 727 789 789 10,687 10,687 88,786 88,786 350,000 350,000 — — 2,963 2,963 352,963 352,963 (6,474) (6,474) 346,489 346,489 1,662 1,662 344,827 344,827 41,798 $ 41,798 $ 20,741 20,741 11,664 11,664 4,653 4,653 2,950 2,950 2,467 2,467 1,127 1,127 818 818 715 715 520 520 $ $ 8,809 8,809 96,262 $ 96,262 $ December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016 $ $ 350,000 $ 350,000 $ 4,462 4,462 336 336 354,798 354,798 (5,639) (5,639) 349,159 349,159 100 100 $ $ 349,059 $ 349,059 $ that guarantee the Credit Agreement (as defined below). Each of the subsidiary guarantors is 100% owned, directly or indirectly, by the Company, and all that guarantee the Credit Agreement (as defined below). Each of the subsidiary guarantors is 100% owned, directly or indirectly, by the Company, and all guarantees are full and unconditional and joint and several. The Senior Notes mature on October 1, 2024 and are secured by a first priority lien on certain assets of guarantees are full and unconditional and joint and several. The Senior Notes mature on October 1, 2024 and are secured by a first priority lien on certain assets of the Company and a second priority lien on the collateral that secures the Credit Agreement on a first-priority basis, which collectively accounts for substantially all the Company and a second priority lien on the collateral that secures the Credit Agreement on a first-priority basis, which collectively accounts for substantially all assets of the Company. The interest rate is fixed at 5.5% and is payable semiannually on April 1 and October 1 . assets of the Company. The interest rate is fixed at 5.5% and is payable semiannually on April 1 and October 1 . The Indenture contains customary nonfinancial covenants, including restrictions on new indebtedness, issuance of liens and guarantees, investments, distributions The Indenture contains customary nonfinancial covenants, including restrictions on new indebtedness, issuance of liens and guarantees, investments, distributions to equityholders, asset sales and affiliate transactions. At any time prior to October 1, 2019, the Company may redeem the Senior Notes in whole or in part at a to equityholders, asset sales and affiliate transactions. At any time prior to October 1, 2019, the Company may redeem the Senior Notes in whole or in part at a price equal to 100% of the principal, plus accrued and unpaid interest, plus the greater of (a) 1% of the principal amount of such Senior Note and (b) on any price equal to 100% of the principal, plus accrued and unpaid interest, plus the greater of (a) 1% of the principal amount of such Senior Note and (b) on any redemption date, the excess (to the extent positive) of the present value of the redemption price of such Senior Note at October 1, 2019 (equal to 104.125% ) plus redemption date, the excess (to the extent positive) of the present value of the redemption price of such Senior Note at October 1, 2019 (equal to 104.125% ) plus all required interest payments due on such Senior Note to and including October 1, 2019 (excluding accrued but unpaid interest), computed upon the redemption all required interest payments due on such Senior Note to and including October 1, 2019 (excluding accrued but unpaid interest), computed upon the redemption date using a discount rate equal to the applicable treasury rate, as defined in the Indenture, at such redemption date plus 50 basis points, over the outstanding date using a discount rate equal to the applicable treasury rate, as defined in the Indenture, at such redemption date plus 50 basis points, over the outstanding principal amount of such Senior Note. Further, during any twelve month period prior to October 1, 2019, the Company may redeem up to 10% of the Senior Notes principal amount of such Senior Note. Further, during any twelve month period prior to October 1, 2019, the Company may redeem up to 10% of the Senior Notes at a redemption price equal to 103% plus accrued and unpaid interest. At any time on or after October 1, 2019, the Company may redeem the Senior Notes in at a redemption price equal to 103% plus accrued and unpaid interest. At any time on or after October 1, 2019, the Company may redeem the Senior Notes in whole or in part at the redemption prices set forth in the Indenture plus accrued and unpaid interest. In addition, at any time prior to October 1, 2019, the Company whole or in part at the redemption prices set forth in the Indenture plus accrued and unpaid interest. In addition, at any time prior to October 1, 2019, the Company may redeem up to 40% of the aggregate principal amount of the Senior Notes with the net cash proceeds of one or more equity offerings, as described in the may redeem up to 40% of the aggregate principal amount of the Senior Notes with the net cash proceeds of one or more equity offerings, as described in the Indenture, at a price equal to 105.5% plus accrued and unpaid interest. If the Company experiences certain change of control events, holders of the Senior Notes Indenture, at a price equal to 105.5% plus accrued and unpaid interest. If the Company experiences certain change of control events, holders of the Senior Notes may require the Company to repurchase all or part of their Senior Notes at a price equal to 101% plus accrued and unpaid interest. The Company was in may require the Company to repurchase all or part of their Senior Notes at a price equal to 101% plus accrued and unpaid interest. The Company was in compliance with all debt covenants under the Indenture for the year ended December 31, 2017 . compliance with all debt covenants under the Indenture for the year ended December 31, 2017 . The net cash proceeds from the Senior Notes were used to redeem in full $250.0 million of 9.0% senior secured notes that were issued by BMHC in September The net cash proceeds from the Senior Notes were used to redeem in full $250.0 million of 9.0% senior secured notes that were issued by BMHC in September 2013 and which were scheduled to mature in September 2018 (the “Extinguished Senior Notes”), and to pay accrued interest on the Extinguished Senior Notes of 2013 and which were scheduled to mature in September 2018 (the “Extinguished Senior Notes”), and to pay accrued interest on the Extinguished Senior Notes of $11.3 million . In connection with the redemption of the Extinguished Senior Notes, the Company incurred a loss on debt extinguishment of $12.5 million , $11.3 million . In connection with the redemption of the Extinguished Senior Notes, the Company incurred a loss on debt extinguishment of $12.5 million , consisting of a call premium of $8.4 million , and the write off of unamortized debt issuance costs and original issue discount of $4.1 million . The remaining consisting of a call premium of $8.4 million , and the write off of unamortized debt issuance costs and original issue discount of $4.1 million . The remaining proceeds were used to repay outstanding borrowings on the Revolver (as defined below) and to pay debt issuance costs of $6.7 million , which will be amortized proceeds were used to repay outstanding borrowings on the Revolver (as defined below) and to pay debt issuance costs of $6.7 million , which will be amortized over the term of the Senior Notes. over the term of the Senior Notes. As of December 31, 2017 , the estimated market value of the Senior Notes was $14.0 million higher than the carrying amount. The fair value is based on As of December 31, 2017 , the estimated market value of the Senior Notes was $14.0 million higher than the carrying amount. The fair value is based on institutional trading activity and was classified as a Level 2 measurement in accordance with ASC 820. institutional trading activity and was classified as a Level 2 measurement in accordance with ASC 820. Revolving Credit Agreement Revolving Credit Agreement On December 1, 2015 , in connection with the Merger, the Company entered into a senior secured credit agreement with Wells Fargo Capital Finance, as On December 1, 2015 , in connection with the Merger, the Company entered into a senior secured credit agreement with Wells Fargo Capital Finance, as administrative agent, and certain other lenders (the “Original Credit Agreement”) which includes a revolving line of credit (the “Revolver”). On September 15, administrative agent, and certain other lenders (the “Original Credit Agreement”) which includes a revolving line of credit (the “Revolver”). On September 15, 2016 , the Company entered into the second amendment to the Credit Agreement (the “Second Amendment” and, the Original Credit Agreement as amended by 2016 , the Company entered into the second amendment to the Credit Agreement (the “Second Amendment” and, the Original Credit Agreement as amended by the Second Amendment, the "Credit Agreement"), which reduced the aggregate commitment from $450.0 million to $375.0 million and increased the letters of the Second Amendment, the "Credit Agreement"), which reduced the aggregate commitment from $450.0 million to $375.0 million and increased the letters of credit commitment from $75.0 million to $100.0 million . The Revolver is subject to an asset-based borrowing formula on eligible accounts receivable, credit card credit commitment from $75.0 million to $100.0 million . The Revolver is subject to an asset-based borrowing formula on eligible accounts receivable, credit card receivables and inventory, in each case reduced by certain reserves. receivables and inventory, in each case reduced by certain reserves. Borrowings under the Revolver bear interest, at the Company's option, at either the Base Rate (which means the higher of (i) the Federal Funds Rate plus 0.5% , Borrowings under the Revolver bear interest, at the Company's option, at either the Base Rate (which means the higher of (i) the Federal Funds Rate plus 0.5% , (ii) the LIBOR rate plus 1.0% or (iii) the prime rate) plus a Base Rate Margin (which ranges from 0.25% to 0.75% based on Revolver availability) or LIBOR plus a (ii) the LIBOR rate plus 1.0% or (iii) the prime rate) plus a Base Rate Margin (which ranges from 0.25% to 0.75% based on Revolver availability) or LIBOR plus a LIBOR Rate Margin (which ranges from 1.25% to 1.75% based on Revolver availability). LIBOR Rate Margin (which ranges from 1.25% to 1.75% based on Revolver availability). The fee on any outstanding letters of credit issued under the Revolver ranges from 0.75% to 1.25% , depending on whether the letters of credit are fully cash The fee on any outstanding letters of credit issued under the Revolver ranges from 0.75% to 1.25% , depending on whether the letters of credit are fully cash collateralized. The fee on the unused portion of the Revolver is 0.25% . The Credit Agreement contains customary nonfinancial covenants, including restrictions on collateralized. The fee on the unused portion of the Revolver is 0.25% . The Credit Agreement contains customary nonfinancial covenants, including restrictions on new indebtedness, issuance of liens, investments, distributions to equityholders, asset sales and affiliate transactions. The Credit Agreement includes a financial new indebtedness, issuance of liens, investments, distributions to equityholders, asset sales and affiliate transactions. The Credit Agreement includes a financial covenant that requires us to maintain a Fixed Charge Coverage Ratio, as defined therein, of at least 1.00 :1:00, at the end of any fiscal quarter during the period covenant that requires us to maintain a Fixed Charge Coverage Ratio, as defined therein, of at least 1.00 :1:00, at the end of any fiscal quarter during the period from the date that Excess Availability, as defined therein, under the Credit Agreement is less than or equal to the greater of (1) $33.3 million and (2) 10% of the from the date that Excess Availability, as defined therein, under the Credit Agreement is less than or equal to the greater of (1) $33.3 million and (2) 10% of the line cap, and remains in effect until excess availability has been greater than the greater of (1) $33.3 million and (2) 10% of the line cap for a period of at least 30 line cap, and remains in effect until excess availability has been greater than the greater of (1) $33.3 million and (2) 10% of the line cap for a period of at least 30 consecutive days. consecutive days. 67 67 On September 15, 2016 , the Company issued $350.0 million of senior secured notes due 2024 (the “Senior Notes”) under an unregistered private placement not On September 15, 2016 , the Company issued $350.0 million of senior secured notes due 2024 (the “Senior Notes”) under an unregistered private placement not subject to the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). The Senior Notes are governed by an indenture dated subject to the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). The Senior Notes are governed by an indenture dated September 15, 2016 (the “Indenture”). The Senior Notes were issued by BMC East, LLC, a 100% owned subsidiary of the Company, and are guaranteed by the September 15, 2016 (the “Indenture”). The Senior Notes were issued by BMC East, LLC, a 100% owned subsidiary of the Company, and are guaranteed by the Company and the other subsidiaries Company and the other subsidiaries 66 66 The components of income tax expense (benefit) for the years ended December, 31 2017 , 2016 and 2015 are as follows: The components of income tax expense (benefit) for the years ended December, 31 2017 , 2016 and 2015 are as follows: The Revolver matures at the earlier of (i) December 1, 2020 and (ii) the date that is three months prior to the maturity of the Senior Notes, or if the Senior Notes The Revolver matures at the earlier of (i) December 1, 2020 and (ii) the date that is three months prior to the maturity of the Senior Notes, or if the Senior Notes are refinanced or repaid, the date that is three months prior to the new maturity date of the replacement notes or other indebtedness that replaced or refinanced the are refinanced or repaid, the date that is three months prior to the new maturity date of the replacement notes or other indebtedness that replaced or refinanced the Senior Notes. Due to the redemption of the Extinguished Senior Notes during September 2016, the issuance of the Senior Notes which mature on October 1, 2024 Senior Notes. Due to the redemption of the Extinguished Senior Notes during September 2016, the issuance of the Senior Notes which mature on October 1, 2024 and the Company entering into the Second Amendment, the effective maturity date of the Revolver was extended from June 15, 2018, the date three months prior and the Company entering into the Second Amendment, the effective maturity date of the Revolver was extended from June 15, 2018, the date three months prior to the maturity date of the Extinguished Senior Notes, to December 1, 2020. After considering the increase to the remaining term and the reduction of the aggregate to the maturity date of the Extinguished Senior Notes, to December 1, 2020. After considering the increase to the remaining term and the reduction of the aggregate commitment resulting from the Second Amendment, the overall borrowing capacity of the Revolver increased. Accordingly, all existing unamortized debt issuance commitment resulting from the Second Amendment, the overall borrowing capacity of the Revolver increased. Accordingly, all existing unamortized debt issuance costs and new debt issuance costs related to the Second Amendment are being amortized through December 1, 2020. The Company was in compliance with all costs and new debt issuance costs related to the Second Amendment are being amortized through December 1, 2020. The Company was in compliance with all debt covenants under the Credit Agreement for the year ended December 31, 2017 . debt covenants under the Credit Agreement for the year ended December 31, 2017 . The Company had outstanding borrowings under the Revolver of $4.5 million with net availability of $308.2 million as of December 31, 2017 . The interest rate on The Company had outstanding borrowings under the Revolver of $4.5 million with net availability of $308.2 million as of December 31, 2017 . The interest rate on borrowings outstanding as of December 31, 2017 , all of which were Base Rate borrowings, was 4.75% . The Company had $62.3 million in letters of credit borrowings outstanding as of December 31, 2017 , all of which were Base Rate borrowings, was 4.75% . The Company had $62.3 million in letters of credit outstanding under the Credit Agreement as of December 31, 2017 . Obligations under the Credit Agreement are guaranteed by the Company's material subsidiaries. outstanding under the Credit Agreement as of December 31, 2017 . Obligations under the Credit Agreement are guaranteed by the Company's material subsidiaries. Obligations under the Credit Agreement and the guarantees of those obligations, are secured by substantially all of the Company's assets and those of the Obligations under the Credit Agreement and the guarantees of those obligations, are secured by substantially all of the Company's assets and those of the guarantors, subject to certain exceptions and permitted liens, including a first-priority security interest in certain accounts receivable, inventory and certain other guarantors, subject to certain exceptions and permitted liens, including a first-priority security interest in certain accounts receivable, inventory and certain other assets of the Company and a second-priority security interest in substantially all other assets of the Company that secure the Senior Notes on a first-priority basis. assets of the Company and a second-priority security interest in substantially all other assets of the Company that secure the Senior Notes on a first-priority basis. 11. Income Taxes 11. Income Taxes (in thousands) (in thousands) Current Current Federal Federal State State Deferred Deferred Federal Federal State State The carrying value of the Revolver at December 31, 2017 approximates fair value as the rates are comparable to those at which the Company could currently The carrying value of the Revolver at December 31, 2017 approximates fair value as the rates are comparable to those at which the Company could currently borrow under similar terms, are variable and incorporate a measure of the Company's credit risk. As such, the fair value of the Revolver was classified as a Level 2 borrow under similar terms, are variable and incorporate a measure of the Company's credit risk. As such, the fair value of the Revolver was classified as a Level 2 measurement in accordance with ASC 820. measurement in accordance with ASC 820. Other Other Other long-term debt consists of a $0.3 million term note secured by real property with a maturity of February 2021 . The interest rate is 7.0% and is paid monthly. Other long-term debt consists of a $0.3 million term note secured by real property with a maturity of February 2021 . The interest rate is 7.0% and is paid monthly. The estimated market value of other long-term debt approximates the carrying amount. The estimated market value of other long-term debt approximates the carrying amount. Scheduled maturities of long-term debt were as follows: Scheduled maturities of long-term debt were as follows: (in thousands) (in thousands) 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 Thereafter Thereafter 10. Other Long-term Liabilities 10. Other Long-term Liabilities Other long-term liabilities consists of the following at December 31, 2017 and 2016 : Other long-term liabilities consists of the following at December 31, 2017 and 2016 : (in thousands) (in thousands) Long-term deferred rent Long-term deferred rent Unfavorable leases Unfavorable leases Other Other 68 68 $ $ $ $ 100 100 107 107 4,577 4,577 14 14 — — 350,000 350,000 354,798 354,798 2017 2017 2016 2016 $ $ $ $ 3,428 $ 3,428 $ 2,298 2,298 1,313 1,313 7,039 $ 7,039 $ 3,170 3,170 2,907 2,907 932 932 7,009 7,009 Federal statutory rate Federal statutory rate State taxes, net of federal tax State taxes, net of federal tax Nondeductible capitalized transaction costs Nondeductible capitalized transaction costs Nondeductible compensation expense Nondeductible compensation expense Nondeductible (permanent) items Nondeductible (permanent) items IRC Section 199 manufacturing deduction IRC Section 199 manufacturing deduction Changes in tax rates, including 2017 Tax Act Changes in tax rates, including 2017 Tax Act Changes related to IRC section 382 limitations Changes related to IRC section 382 limitations Excess windfall benefit of stock compensation Excess windfall benefit of stock compensation Other items Other items Effective tax rate Effective tax rate 2017 2017 2016 2016 2015 2015 $ $ 20,215 $ 20,215 $ 1,869 1,869 22,084 22,084 1,797 1,797 521 521 2,318 2,318 16,713 $ 16,713 $ 1,124 1,124 17,837 17,837 (3,049) (3,049) (522) (522) (3,571) (3,571) $ $ 24,402 $ 24,402 $ 14,266 $ 14,266 $ 2017 2017 2016 2016 2015 2015 35.0 % 35.0 % 35.0 % 35.0 % 2.9 2.9 0.2 0.2 0.2 0.2 0.9 0.9 (2.5) (2.5) (4.4) (4.4) (2.3) (2.3) (0.2) (0.2) — — 2.7 2.7 1.4 1.4 0.5 0.5 1.0 1.0 (3.5) (3.5) 1.6 1.6 (3.9) (3.9) (3.7) (3.7) 0.5 0.5 (4,202) (4,202) 405 405 (3,797) (3,797) (4,176) (4,176) (1,716) (1,716) (5,892) (5,892) (9,689) (9,689) 35.0 % 35.0 % 1.7 1.7 (16.2) (16.2) — — (3.0) (3.0) — — (6.2) (6.2) 55.5 55.5 — — (0.1) (0.1) A reconciliation of differences between the statutory U.S. federal income tax rate of 35% and the Company’s effective tax rate from continuing operations for the A reconciliation of differences between the statutory U.S. federal income tax rate of 35% and the Company’s effective tax rate from continuing operations for the years ended December 31, 2017 , 2016 and 2015 follows: years ended December 31, 2017 , 2016 and 2015 follows: 29.8 % 29.8 % 31.6 % 31.6 % 66.7 % 66.7 % For the year ended December 31, 2017, the Company recognized $24.4 million of income tax expense, which included an income tax benefit of $3.6 million For the year ended December 31, 2017, the Company recognized $24.4 million of income tax expense, which included an income tax benefit of $3.6 million related to a reduction of the Company's net deferred tax liability due to the lowering of the U.S. corporate income tax rate to 21% from 35% within the Tax Cuts related to a reduction of the Company's net deferred tax liability due to the lowering of the U.S. corporate income tax rate to 21% from 35% within the Tax Cuts and Jobs Act of 2017 ("2017 Tax Act"), which was enacted on December 22, 2017. This legislation significantly changes U.S. tax law effective January 1, 2018 and Jobs Act of 2017 ("2017 Tax Act"), which was enacted on December 22, 2017. This legislation significantly changes U.S. tax law effective January 1, 2018 by, among other things, lowering corporate income tax rates, eliminating Internal Revenue Code ("IRC") Section 199 manufacturing deduction, accelerating tax by, among other things, lowering corporate income tax rates, eliminating Internal Revenue Code ("IRC") Section 199 manufacturing deduction, accelerating tax depreciation on certain acquired assets, further limiting executive compensation, and creating certain interest deduction limitations. The Securities and Exchange depreciation on certain acquired assets, further limiting executive compensation, and creating certain interest deduction limitations. The Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary Commission staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. The Company has recognized the net tax benefit of $3.6 million related to the impact of the 2017 Tax Act for the remeasurement of deferred tax assets Tax Act. The Company has recognized the net tax benefit of $3.6 million related to the impact of the 2017 Tax Act for the remeasurement of deferred tax assets and liabilities and included this amount in its consolidated financial statements for the year ended December 31, 2017, on a provisional basis based on information and liabilities and included this amount in its consolidated financial statements for the year ended December 31, 2017, on a provisional basis based on information currently available. The 2017 Tax Act may be subject to technical amendments, as well as interpretations and implementing regulations by the Department of currently available. The 2017 Tax Act may be subject to technical amendments, as well as interpretations and implementing regulations by the Department of Treasury and Internal Revenue Service, any of which could increase or decrease one or more impacts of the legislation. As such, we may record additional Treasury and Internal Revenue Service, any of which could increase or decrease one or more impacts of the legislation. As such, we may record additional provisional amounts or adjustments to provisional amounts during the measurement period ending no later than December 2018. provisional amounts or adjustments to provisional amounts during the measurement period ending no later than December 2018. For the year ended December 31, 2017, the Company's effective tax rate was lower than the Company's federal and state statutory rates primarily due to the For the year ended December 31, 2017, the Company's effective tax rate was lower than the Company's federal and state statutory rates primarily due to the enactment of the 2017 Tax Act, an IRC section 199 manufacturing deduction, and excess windfall tax benefits of stock compensation deductions. The effective tax enactment of the 2017 Tax Act, an IRC section 199 manufacturing deduction, and excess windfall tax benefits of stock compensation deductions. The effective tax rate for 2017 was 29.8% and excluding the impacts of the 2017 Tax Act, the Company's effective income tax rate in 2017 would have been 34.2% . rate for 2017 was 29.8% and excluding the impacts of the 2017 Tax Act, the Company's effective income tax rate in 2017 would have been 34.2% . 69 69 are refinanced or repaid, the date that is three months prior to the new maturity date of the replacement notes or other indebtedness that replaced or refinanced the are refinanced or repaid, the date that is three months prior to the new maturity date of the replacement notes or other indebtedness that replaced or refinanced the Senior Notes. Due to the redemption of the Extinguished Senior Notes during September 2016, the issuance of the Senior Notes which mature on October 1, 2024 Senior Notes. Due to the redemption of the Extinguished Senior Notes during September 2016, the issuance of the Senior Notes which mature on October 1, 2024 and the Company entering into the Second Amendment, the effective maturity date of the Revolver was extended from June 15, 2018, the date three months prior and the Company entering into the Second Amendment, the effective maturity date of the Revolver was extended from June 15, 2018, the date three months prior to the maturity date of the Extinguished Senior Notes, to December 1, 2020. After considering the increase to the remaining term and the reduction of the aggregate to the maturity date of the Extinguished Senior Notes, to December 1, 2020. After considering the increase to the remaining term and the reduction of the aggregate commitment resulting from the Second Amendment, the overall borrowing capacity of the Revolver increased. Accordingly, all existing unamortized debt issuance commitment resulting from the Second Amendment, the overall borrowing capacity of the Revolver increased. Accordingly, all existing unamortized debt issuance costs and new debt issuance costs related to the Second Amendment are being amortized through December 1, 2020. The Company was in compliance with all costs and new debt issuance costs related to the Second Amendment are being amortized through December 1, 2020. The Company was in compliance with all debt covenants under the Credit Agreement for the year ended December 31, 2017 . debt covenants under the Credit Agreement for the year ended December 31, 2017 . The Company had outstanding borrowings under the Revolver of $4.5 million with net availability of $308.2 million as of December 31, 2017 . The interest rate on The Company had outstanding borrowings under the Revolver of $4.5 million with net availability of $308.2 million as of December 31, 2017 . The interest rate on borrowings outstanding as of December 31, 2017 , all of which were Base Rate borrowings, was 4.75% . The Company had $62.3 million in letters of credit borrowings outstanding as of December 31, 2017 , all of which were Base Rate borrowings, was 4.75% . The Company had $62.3 million in letters of credit outstanding under the Credit Agreement as of December 31, 2017 . Obligations under the Credit Agreement are guaranteed by the Company's material subsidiaries. outstanding under the Credit Agreement as of December 31, 2017 . Obligations under the Credit Agreement are guaranteed by the Company's material subsidiaries. Obligations under the Credit Agreement and the guarantees of those obligations, are secured by substantially all of the Company's assets and those of the Obligations under the Credit Agreement and the guarantees of those obligations, are secured by substantially all of the Company's assets and those of the guarantors, subject to certain exceptions and permitted liens, including a first-priority security interest in certain accounts receivable, inventory and certain other guarantors, subject to certain exceptions and permitted liens, including a first-priority security interest in certain accounts receivable, inventory and certain other assets of the Company and a second-priority security interest in substantially all other assets of the Company that secure the Senior Notes on a first-priority basis. assets of the Company and a second-priority security interest in substantially all other assets of the Company that secure the Senior Notes on a first-priority basis. The carrying value of the Revolver at December 31, 2017 approximates fair value as the rates are comparable to those at which the Company could currently The carrying value of the Revolver at December 31, 2017 approximates fair value as the rates are comparable to those at which the Company could currently borrow under similar terms, are variable and incorporate a measure of the Company's credit risk. As such, the fair value of the Revolver was classified as a Level 2 borrow under similar terms, are variable and incorporate a measure of the Company's credit risk. As such, the fair value of the Revolver was classified as a Level 2 measurement in accordance with ASC 820. measurement in accordance with ASC 820. Other Other Scheduled maturities of long-term debt were as follows: Scheduled maturities of long-term debt were as follows: Other long-term debt consists of a $0.3 million term note secured by real property with a maturity of February 2021 . The interest rate is 7.0% and is paid monthly. Other long-term debt consists of a $0.3 million term note secured by real property with a maturity of February 2021 . The interest rate is 7.0% and is paid monthly. The estimated market value of other long-term debt approximates the carrying amount. The estimated market value of other long-term debt approximates the carrying amount. (in thousands) (in thousands) 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 Thereafter Thereafter (in thousands) (in thousands) Long-term deferred rent Long-term deferred rent Unfavorable leases Unfavorable leases Other Other 10. Other Long-term Liabilities 10. Other Long-term Liabilities Other long-term liabilities consists of the following at December 31, 2017 and 2016 : Other long-term liabilities consists of the following at December 31, 2017 and 2016 : 68 68 $ $ $ $ 100 100 107 107 4,577 4,577 14 14 — — 350,000 350,000 354,798 354,798 3,170 3,170 2,907 2,907 932 932 7,009 7,009 2017 2017 2016 2016 $ $ $ $ 3,428 $ 3,428 $ 2,298 2,298 1,313 1,313 7,039 $ 7,039 $ The Revolver matures at the earlier of (i) December 1, 2020 and (ii) the date that is three months prior to the maturity of the Senior Notes, or if the Senior Notes The Revolver matures at the earlier of (i) December 1, 2020 and (ii) the date that is three months prior to the maturity of the Senior Notes, or if the Senior Notes 11. Income Taxes 11. Income Taxes The components of income tax expense (benefit) for the years ended December, 31 2017 , 2016 and 2015 are as follows: The components of income tax expense (benefit) for the years ended December, 31 2017 , 2016 and 2015 are as follows: (in thousands) (in thousands) Current Current Federal Federal State State Deferred Deferred Federal Federal State State 2017 2017 2016 2016 2015 2015 $ $ 20,215 $ 20,215 $ 1,869 1,869 22,084 22,084 1,797 1,797 521 521 2,318 2,318 16,713 $ 16,713 $ 1,124 1,124 17,837 17,837 (3,049) (3,049) (522) (522) (3,571) (3,571) $ $ 24,402 $ 24,402 $ 14,266 $ 14,266 $ (4,202) (4,202) 405 405 (3,797) (3,797) (4,176) (4,176) (1,716) (1,716) (5,892) (5,892) (9,689) (9,689) A reconciliation of differences between the statutory U.S. federal income tax rate of 35% and the Company’s effective tax rate from continuing operations for the A reconciliation of differences between the statutory U.S. federal income tax rate of 35% and the Company’s effective tax rate from continuing operations for the years ended December 31, 2017 , 2016 and 2015 follows: years ended December 31, 2017 , 2016 and 2015 follows: Federal statutory rate Federal statutory rate State taxes, net of federal tax State taxes, net of federal tax Nondeductible capitalized transaction costs Nondeductible capitalized transaction costs Nondeductible compensation expense Nondeductible compensation expense Nondeductible (permanent) items Nondeductible (permanent) items IRC Section 199 manufacturing deduction IRC Section 199 manufacturing deduction Changes in tax rates, including 2017 Tax Act Changes in tax rates, including 2017 Tax Act Changes related to IRC section 382 limitations Changes related to IRC section 382 limitations Excess windfall benefit of stock compensation Excess windfall benefit of stock compensation Other items Other items Effective tax rate Effective tax rate 2017 2017 2016 2016 2015 2015 35.0 % 35.0 % 35.0 % 35.0 % 2.9 2.9 0.2 0.2 0.2 0.2 0.9 0.9 (2.5) (2.5) (4.4) (4.4) — — (2.3) (2.3) (0.2) (0.2) 29.8 % 29.8 % 2.7 2.7 1.4 1.4 0.5 0.5 1.0 1.0 (3.5) (3.5) 1.6 1.6 (3.9) (3.9) (3.7) (3.7) 0.5 0.5 31.6 % 31.6 % 66.7 % 66.7 % 35.0 % 35.0 % 1.7 1.7 (16.2) (16.2) — — (3.0) (3.0) — — (6.2) (6.2) 55.5 55.5 — — (0.1) (0.1) For the year ended December 31, 2017, the Company recognized $24.4 million of income tax expense, which included an income tax benefit of $3.6 million For the year ended December 31, 2017, the Company recognized $24.4 million of income tax expense, which included an income tax benefit of $3.6 million related to a reduction of the Company's net deferred tax liability due to the lowering of the U.S. corporate income tax rate to 21% from 35% within the Tax Cuts related to a reduction of the Company's net deferred tax liability due to the lowering of the U.S. corporate income tax rate to 21% from 35% within the Tax Cuts and Jobs Act of 2017 ("2017 Tax Act"), which was enacted on December 22, 2017. This legislation significantly changes U.S. tax law effective January 1, 2018 and Jobs Act of 2017 ("2017 Tax Act"), which was enacted on December 22, 2017. This legislation significantly changes U.S. tax law effective January 1, 2018 by, among other things, lowering corporate income tax rates, eliminating Internal Revenue Code ("IRC") Section 199 manufacturing deduction, accelerating tax by, among other things, lowering corporate income tax rates, eliminating Internal Revenue Code ("IRC") Section 199 manufacturing deduction, accelerating tax depreciation on certain acquired assets, further limiting executive compensation, and creating certain interest deduction limitations. The Securities and Exchange depreciation on certain acquired assets, further limiting executive compensation, and creating certain interest deduction limitations. The Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary Commission staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. The Company has recognized the net tax benefit of $3.6 million related to the impact of the 2017 Tax Act for the remeasurement of deferred tax assets Tax Act. The Company has recognized the net tax benefit of $3.6 million related to the impact of the 2017 Tax Act for the remeasurement of deferred tax assets and liabilities and included this amount in its consolidated financial statements for the year ended December 31, 2017, on a provisional basis based on information and liabilities and included this amount in its consolidated financial statements for the year ended December 31, 2017, on a provisional basis based on information currently available. The 2017 Tax Act may be subject to technical amendments, as well as interpretations and implementing regulations by the Department of currently available. The 2017 Tax Act may be subject to technical amendments, as well as interpretations and implementing regulations by the Department of Treasury and Internal Revenue Service, any of which could increase or decrease one or more impacts of the legislation. As such, we may record additional Treasury and Internal Revenue Service, any of which could increase or decrease one or more impacts of the legislation. As such, we may record additional provisional amounts or adjustments to provisional amounts during the measurement period ending no later than December 2018. provisional amounts or adjustments to provisional amounts during the measurement period ending no later than December 2018. For the year ended December 31, 2017, the Company's effective tax rate was lower than the Company's federal and state statutory rates primarily due to the For the year ended December 31, 2017, the Company's effective tax rate was lower than the Company's federal and state statutory rates primarily due to the enactment of the 2017 Tax Act, an IRC section 199 manufacturing deduction, and excess windfall tax benefits of stock compensation deductions. The effective tax enactment of the 2017 Tax Act, an IRC section 199 manufacturing deduction, and excess windfall tax benefits of stock compensation deductions. The effective tax rate for 2017 was 29.8% and excluding the impacts of the 2017 Tax Act, the Company's effective income tax rate in 2017 would have been 34.2% . rate for 2017 was 29.8% and excluding the impacts of the 2017 Tax Act, the Company's effective income tax rate in 2017 would have been 34.2% . 69 69 Significant components of the Company’s deferred tax assets and liabilities are as follows at December 31, 2017 and 2016 : Significant components of the Company’s deferred tax assets and liabilities are as follows at December 31, 2017 and 2016 : For the year ended December 31, 2016, the Company recognized $14.3 million of income tax expense, which included an income tax benefit of $1.7 million as a For the year ended December 31, 2016, the Company recognized $14.3 million of income tax expense, which included an income tax benefit of $1.7 million as a result of the Company adopting a state tax position related to IRC section 382 limitations on a state net operating loss carry-forward. For the year ended December result of the Company adopting a state tax position related to IRC section 382 limitations on a state net operating loss carry-forward. For the year ended December 31, 2016, the Company's effective tax rate, excluding the state tax position change, was lower than the Company’s federal and state statutory rates primarily due to 31, 2016, the Company's effective tax rate, excluding the state tax position change, was lower than the Company’s federal and state statutory rates primarily due to excess windfall tax benefits of stock compensation deductions and an IRC section 199 manufacturing deduction. excess windfall tax benefits of stock compensation deductions and an IRC section 199 manufacturing deduction. For the year ended December 31, 2015, the Company recognized a $9.7 million income tax benefit, which included an income tax benefit of $8.1 million as a For the year ended December 31, 2015, the Company recognized a $9.7 million income tax benefit, which included an income tax benefit of $8.1 million as a result of the Company adopting a tax position related to IRC section 382 limitations on its federal and state net operating loss carryforwards and other built-in result of the Company adopting a tax position related to IRC section 382 limitations on its federal and state net operating loss carryforwards and other built-in losses. IRC section 382 imposes annual limitations on the utilization of net operating loss carry-forwards, other tax carry-forwards and certain built-in losses losses. IRC section 382 imposes annual limitations on the utilization of net operating loss carry-forwards, other tax carry-forwards and certain built-in losses (collectively, “Tax Attributes”) upon an ownership change as defined under that section. In general terms, an ownership change may result from transactions that (collectively, “Tax Attributes”) upon an ownership change as defined under that section. In general terms, an ownership change may result from transactions that increase the aggregate ownership of certain stockholders in the Company’s stock by more than 50 percentage points over a three year testing period. If the increase the aggregate ownership of certain stockholders in the Company’s stock by more than 50 percentage points over a three year testing period. If the Company were to experience an IRC section 382 ownership change, an annual limitation could be imposed on certain Tax Attributes. Upon the Merger, the Company were to experience an IRC section 382 ownership change, an annual limitation could be imposed on certain Tax Attributes. Upon the Merger, the Company reviewed whether any of its Tax Attributes would be subject to IRC section 382 limitation and from such review, identified a tax position, which Company reviewed whether any of its Tax Attributes would be subject to IRC section 382 limitation and from such review, identified a tax position, which involves using a specific identification method, instead of the Company's previous ratable allocation method, to determine the amount of tax-deductible built-in involves using a specific identification method, instead of the Company's previous ratable allocation method, to determine the amount of tax-deductible built-in losses subject to IRC section 382 limitations. As a result of adopting this tax position in the fourth quarter of 2015, the Company more likely than not expects to losses subject to IRC section 382 limitations. As a result of adopting this tax position in the fourth quarter of 2015, the Company more likely than not expects to realize additional federal and state net operating loss carry-forwards that were previously limited under the prior method of determining IRC section 382 realize additional federal and state net operating loss carry-forwards that were previously limited under the prior method of determining IRC section 382 limitations against its Tax Attributes. The Company did not recognize any material unfavorable adjustments to its Tax Attributes specifically related to the change limitations against its Tax Attributes. The Company did not recognize any material unfavorable adjustments to its Tax Attributes specifically related to the change of control from the Merger on December 1, 2015. For the year ended December 31, 2015, the Company's effective tax rate, excluding the IRC section 382 tax of control from the Merger on December 1, 2015. For the year ended December 31, 2015, the Company's effective tax rate, excluding the IRC section 382 tax position change, was lower than the Company's federal and state statutory rates primarily due to non-deductible merger-related transaction costs. position change, was lower than the Company's federal and state statutory rates primarily due to non-deductible merger-related transaction costs. On December 1, 2015, BMHC and SBS completed the Merger. The Merger qualified as a tax-free reorganization within the meaning of IRC section 368(a), and On December 1, 2015, BMHC and SBS completed the Merger. The Merger qualified as a tax-free reorganization within the meaning of IRC section 368(a), and therefore, the Company assumed the carryover tax basis of the acquired assets and liabilities of SBS. As a result, the Company recorded a net deferred tax liability therefore, the Company assumed the carryover tax basis of the acquired assets and liabilities of SBS. As a result, the Company recorded a net deferred tax liability of $75.0 million and a tax payable of $3.2 million impacting goodwill as part of purchase accounting. None of the goodwill recognized as part of this transaction is of $75.0 million and a tax payable of $3.2 million impacting goodwill as part of purchase accounting. None of the goodwill recognized as part of this transaction is deductible for income tax purposes. deductible for income tax purposes. On May 1, 2015, BMHC completed its stock acquisition of VNS. The Company assumed the carryover tax basis of the acquired assets and liabilities of VNS. As a On May 1, 2015, BMHC completed its stock acquisition of VNS. The Company assumed the carryover tax basis of the acquired assets and liabilities of VNS. As a result, the Company recorded a net deferred tax liability of $4.4 million and a tax receivable of $0.4 million impacting goodwill as part of purchase accounting. result, the Company recorded a net deferred tax liability of $4.4 million and a tax receivable of $0.4 million impacting goodwill as part of purchase accounting. None of the goodwill recognized as part of this transaction is deductible for income tax purposes. None of the goodwill recognized as part of this transaction is deductible for income tax purposes. 70 70 (in thousands) (in thousands) Deferred tax assets related to: Deferred tax assets related to: Accounts receivable Accounts receivable Inventory Inventory Accrued compensation Accrued compensation Insurance reserves Insurance reserves Stock-based compensation Stock-based compensation Restructuring reserves Restructuring reserves Other accrued liabilities Other accrued liabilities Federal net operating loss carryforward Federal net operating loss carryforward State net operating loss carryforward State net operating loss carryforward Other Other Valuation allowance Valuation allowance Total deferred tax assets Total deferred tax assets Deferred tax liabilities related to: Deferred tax liabilities related to: Goodwill and intangibles Goodwill and intangibles Property and equipment Property and equipment Other assets Other assets Total deferred tax liabilities Total deferred tax liabilities Net deferred tax (liability) asset Net deferred tax (liability) asset operating losses if unused will expire as follows: operating losses if unused will expire as follows: • • • • • • $34.2 million in 2028; $34.2 million in 2028; $17.3 million in 2029; and $17.3 million in 2029; and $31.2 million in years 2030 through 2034. $31.2 million in years 2030 through 2034. through 2032. through 2032. 2017 2017 2016 2016 $ $ 2,061 $ 2,061 $ 1,931 1,931 2,981 2,981 10,778 10,778 2,388 2,388 365 365 1,149 1,149 17,372 17,372 5,559 5,559 1,633 1,633 46,217 46,217 (145) (145) 46,072 46,072 (21,030) (21,030) (25,440) (25,440) (1,370) (1,370) (47,840) (47,840) 2,951 2,951 2,857 2,857 6,044 6,044 17,126 17,126 3,210 3,210 1,868 1,868 665 665 30,664 30,664 5,593 5,593 2,398 2,398 73,376 73,376 (125) (125) 73,251 73,251 (31,808) (31,808) (38,836) (38,836) (2,057) (2,057) (72,701) (72,701) 550 550 At December 31, 2017 , due to IRC section 382 limitations, the Company estimates federal net operating loss carryforwards generated prior to November 2011 will At December 31, 2017 , due to IRC section 382 limitations, the Company estimates federal net operating loss carryforwards generated prior to November 2011 will be limited to approximately $4.8 million per year through 2034. These net operating losses may generally be carried forward 20 years. As a result, federal be limited to approximately $4.8 million per year through 2034. These net operating losses may generally be carried forward 20 years. As a result, federal $ $ (1,768) $ (1,768) $ In addition, at December 31, 2017, the Company had $108.5 million of state net operating loss carryforwards that expire at various dates commencing in 2017 In addition, at December 31, 2017, the Company had $108.5 million of state net operating loss carryforwards that expire at various dates commencing in 2017 During the first quarter of 2016, the Company elected to early adopt ASU 2016-09 and has prospectively recognized tax benefits of $1.9 million and $1.7 million During the first quarter of 2016, the Company elected to early adopt ASU 2016-09 and has prospectively recognized tax benefits of $1.9 million and $1.7 million during 2017 and 2016, respectively, from stock-based compensation deductions into its income tax expense. Deferred tax assets relating to tax benefits of stock- during 2017 and 2016, respectively, from stock-based compensation deductions into its income tax expense. Deferred tax assets relating to tax benefits of stock- based compensation were reduced to reflect exercises or vesting; however, some exercises or vesting resulted in tax deductions in excess of previously recorded based compensation were reduced to reflect exercises or vesting; however, some exercises or vesting resulted in tax deductions in excess of previously recorded deferred tax benefits based on the value at the time of grant ("windfalls"). Prior to the adoption of ASU 2016-09, the Company had excluded excess windfall tax deferred tax benefits based on the value at the time of grant ("windfalls"). Prior to the adoption of ASU 2016-09, the Company had excluded excess windfall tax benefits resulting from stock-based compensation vesting and exercises as components of the Company’s gross deferred tax assets, as Tax Attributes related to benefits resulting from stock-based compensation vesting and exercises as components of the Company’s gross deferred tax assets, as Tax Attributes related to such windfall tax benefits were not recognized until they resulted in a reduction of taxes payable. The tax effected amount of unrealized net operating loss such windfall tax benefits were not recognized until they resulted in a reduction of taxes payable. The tax effected amount of unrealized net operating loss carryforwards resulting from stock-based compensation awards vested and/or exercised was $0 , $0 and $0.4 million at December 31, 2017 , 2016 and 2015 , carryforwards resulting from stock-based compensation awards vested and/or exercised was $0 , $0 and $0.4 million at December 31, 2017 , 2016 and 2015 , respectively. When realized, these excess windfall tax benefits were credited to additional paid-in capital. Excess windfall tax benefits recognized as a component respectively. When realized, these excess windfall tax benefits were credited to additional paid-in capital. Excess windfall tax benefits recognized as a component of shareholders' equity were $0 , $0.4 million and $0 for December 31, 2017 , 2016 and 2015 , respectively. The Company had followed the "with-and-without" of shareholders' equity were $0 , $0.4 million and $0 for December 31, 2017 , 2016 and 2015 , respectively. The Company had followed the "with-and-without" allocation approach to determine when such net operating loss carryforwards have been realized. allocation approach to determine when such net operating loss carryforwards have been realized. The Company recognized a current income tax receivable of $3.7 million and $2.4 million at December 31, 2017 and 2016 , respectively. The Company paid The Company recognized a current income tax receivable of $3.7 million and $2.4 million at December 31, 2017 and 2016 , respectively. The Company paid federal and state income tax payments of $23.5 million and $8.8 million during 2017 and 2016 , respectively. The Company received tax refunds of $0.6 million federal and state income tax payments of $23.5 million and $8.8 million during 2017 and 2016 , respectively. The Company received tax refunds of $0.6 million and $0.6 million in 2017 and 2016 , respectively. and $0.6 million in 2017 and 2016 , respectively. 71 71 For the year ended December 31, 2016, the Company recognized $14.3 million of income tax expense, which included an income tax benefit of $1.7 million as a For the year ended December 31, 2016, the Company recognized $14.3 million of income tax expense, which included an income tax benefit of $1.7 million as a Significant components of the Company’s deferred tax assets and liabilities are as follows at December 31, 2017 and 2016 : Significant components of the Company’s deferred tax assets and liabilities are as follows at December 31, 2017 and 2016 : result of the Company adopting a state tax position related to IRC section 382 limitations on a state net operating loss carry-forward. For the year ended December result of the Company adopting a state tax position related to IRC section 382 limitations on a state net operating loss carry-forward. For the year ended December 31, 2016, the Company's effective tax rate, excluding the state tax position change, was lower than the Company’s federal and state statutory rates primarily due to 31, 2016, the Company's effective tax rate, excluding the state tax position change, was lower than the Company’s federal and state statutory rates primarily due to excess windfall tax benefits of stock compensation deductions and an IRC section 199 manufacturing deduction. excess windfall tax benefits of stock compensation deductions and an IRC section 199 manufacturing deduction. For the year ended December 31, 2015, the Company recognized a $9.7 million income tax benefit, which included an income tax benefit of $8.1 million as a For the year ended December 31, 2015, the Company recognized a $9.7 million income tax benefit, which included an income tax benefit of $8.1 million as a result of the Company adopting a tax position related to IRC section 382 limitations on its federal and state net operating loss carryforwards and other built-in result of the Company adopting a tax position related to IRC section 382 limitations on its federal and state net operating loss carryforwards and other built-in losses. IRC section 382 imposes annual limitations on the utilization of net operating loss carry-forwards, other tax carry-forwards and certain built-in losses losses. IRC section 382 imposes annual limitations on the utilization of net operating loss carry-forwards, other tax carry-forwards and certain built-in losses (collectively, “Tax Attributes”) upon an ownership change as defined under that section. In general terms, an ownership change may result from transactions that (collectively, “Tax Attributes”) upon an ownership change as defined under that section. In general terms, an ownership change may result from transactions that increase the aggregate ownership of certain stockholders in the Company’s stock by more than 50 percentage points over a three year testing period. If the increase the aggregate ownership of certain stockholders in the Company’s stock by more than 50 percentage points over a three year testing period. If the Company were to experience an IRC section 382 ownership change, an annual limitation could be imposed on certain Tax Attributes. Upon the Merger, the Company were to experience an IRC section 382 ownership change, an annual limitation could be imposed on certain Tax Attributes. Upon the Merger, the Company reviewed whether any of its Tax Attributes would be subject to IRC section 382 limitation and from such review, identified a tax position, which Company reviewed whether any of its Tax Attributes would be subject to IRC section 382 limitation and from such review, identified a tax position, which involves using a specific identification method, instead of the Company's previous ratable allocation method, to determine the amount of tax-deductible built-in involves using a specific identification method, instead of the Company's previous ratable allocation method, to determine the amount of tax-deductible built-in losses subject to IRC section 382 limitations. As a result of adopting this tax position in the fourth quarter of 2015, the Company more likely than not expects to losses subject to IRC section 382 limitations. As a result of adopting this tax position in the fourth quarter of 2015, the Company more likely than not expects to realize additional federal and state net operating loss carry-forwards that were previously limited under the prior method of determining IRC section 382 realize additional federal and state net operating loss carry-forwards that were previously limited under the prior method of determining IRC section 382 limitations against its Tax Attributes. The Company did not recognize any material unfavorable adjustments to its Tax Attributes specifically related to the change limitations against its Tax Attributes. The Company did not recognize any material unfavorable adjustments to its Tax Attributes specifically related to the change of control from the Merger on December 1, 2015. For the year ended December 31, 2015, the Company's effective tax rate, excluding the IRC section 382 tax of control from the Merger on December 1, 2015. For the year ended December 31, 2015, the Company's effective tax rate, excluding the IRC section 382 tax position change, was lower than the Company's federal and state statutory rates primarily due to non-deductible merger-related transaction costs. position change, was lower than the Company's federal and state statutory rates primarily due to non-deductible merger-related transaction costs. (in thousands) (in thousands) Deferred tax assets related to: Deferred tax assets related to: Accounts receivable Accounts receivable Inventory Inventory Accrued compensation Accrued compensation Insurance reserves Insurance reserves Stock-based compensation Stock-based compensation Restructuring reserves Restructuring reserves Other accrued liabilities Other accrued liabilities Federal net operating loss carryforward Federal net operating loss carryforward State net operating loss carryforward State net operating loss carryforward Other Other On December 1, 2015, BMHC and SBS completed the Merger. The Merger qualified as a tax-free reorganization within the meaning of IRC section 368(a), and On December 1, 2015, BMHC and SBS completed the Merger. The Merger qualified as a tax-free reorganization within the meaning of IRC section 368(a), and therefore, the Company assumed the carryover tax basis of the acquired assets and liabilities of SBS. As a result, the Company recorded a net deferred tax liability therefore, the Company assumed the carryover tax basis of the acquired assets and liabilities of SBS. As a result, the Company recorded a net deferred tax liability of $75.0 million and a tax payable of $3.2 million impacting goodwill as part of purchase accounting. None of the goodwill recognized as part of this transaction is of $75.0 million and a tax payable of $3.2 million impacting goodwill as part of purchase accounting. None of the goodwill recognized as part of this transaction is Valuation allowance Valuation allowance Total deferred tax assets Total deferred tax assets deductible for income tax purposes. deductible for income tax purposes. On May 1, 2015, BMHC completed its stock acquisition of VNS. The Company assumed the carryover tax basis of the acquired assets and liabilities of VNS. As a On May 1, 2015, BMHC completed its stock acquisition of VNS. The Company assumed the carryover tax basis of the acquired assets and liabilities of VNS. As a result, the Company recorded a net deferred tax liability of $4.4 million and a tax receivable of $0.4 million impacting goodwill as part of purchase accounting. result, the Company recorded a net deferred tax liability of $4.4 million and a tax receivable of $0.4 million impacting goodwill as part of purchase accounting. None of the goodwill recognized as part of this transaction is deductible for income tax purposes. None of the goodwill recognized as part of this transaction is deductible for income tax purposes. 70 70 Deferred tax liabilities related to: Deferred tax liabilities related to: Goodwill and intangibles Goodwill and intangibles Property and equipment Property and equipment Other assets Other assets Total deferred tax liabilities Total deferred tax liabilities Net deferred tax (liability) asset Net deferred tax (liability) asset 2017 2017 2016 2016 $ $ 2,061 $ 2,061 $ 1,931 1,931 2,981 2,981 10,778 10,778 2,388 2,388 365 365 1,149 1,149 17,372 17,372 5,559 5,559 1,633 1,633 46,217 46,217 (145) (145) 46,072 46,072 (21,030) (21,030) (25,440) (25,440) (1,370) (1,370) (47,840) (47,840) $ $ (1,768) $ (1,768) $ 2,951 2,951 2,857 2,857 6,044 6,044 17,126 17,126 3,210 3,210 1,868 1,868 665 665 30,664 30,664 5,593 5,593 2,398 2,398 73,376 73,376 (125) (125) 73,251 73,251 (31,808) (31,808) (38,836) (38,836) (2,057) (2,057) (72,701) (72,701) 550 550 At December 31, 2017 , due to IRC section 382 limitations, the Company estimates federal net operating loss carryforwards generated prior to November 2011 will At December 31, 2017 , due to IRC section 382 limitations, the Company estimates federal net operating loss carryforwards generated prior to November 2011 will be limited to approximately $4.8 million per year through 2034. These net operating losses may generally be carried forward 20 years. As a result, federal be limited to approximately $4.8 million per year through 2034. These net operating losses may generally be carried forward 20 years. As a result, federal operating losses if unused will expire as follows: operating losses if unused will expire as follows: • • • • • • $34.2 million in 2028; $34.2 million in 2028; $17.3 million in 2029; and $17.3 million in 2029; and $31.2 million in years 2030 through 2034. $31.2 million in years 2030 through 2034. In addition, at December 31, 2017, the Company had $108.5 million of state net operating loss carryforwards that expire at various dates commencing in 2017 In addition, at December 31, 2017, the Company had $108.5 million of state net operating loss carryforwards that expire at various dates commencing in 2017 through 2032. through 2032. During the first quarter of 2016, the Company elected to early adopt ASU 2016-09 and has prospectively recognized tax benefits of $1.9 million and $1.7 million During the first quarter of 2016, the Company elected to early adopt ASU 2016-09 and has prospectively recognized tax benefits of $1.9 million and $1.7 million during 2017 and 2016, respectively, from stock-based compensation deductions into its income tax expense. Deferred tax assets relating to tax benefits of stock- during 2017 and 2016, respectively, from stock-based compensation deductions into its income tax expense. Deferred tax assets relating to tax benefits of stock- based compensation were reduced to reflect exercises or vesting; however, some exercises or vesting resulted in tax deductions in excess of previously recorded based compensation were reduced to reflect exercises or vesting; however, some exercises or vesting resulted in tax deductions in excess of previously recorded deferred tax benefits based on the value at the time of grant ("windfalls"). Prior to the adoption of ASU 2016-09, the Company had excluded excess windfall tax deferred tax benefits based on the value at the time of grant ("windfalls"). Prior to the adoption of ASU 2016-09, the Company had excluded excess windfall tax benefits resulting from stock-based compensation vesting and exercises as components of the Company’s gross deferred tax assets, as Tax Attributes related to benefits resulting from stock-based compensation vesting and exercises as components of the Company’s gross deferred tax assets, as Tax Attributes related to such windfall tax benefits were not recognized until they resulted in a reduction of taxes payable. The tax effected amount of unrealized net operating loss such windfall tax benefits were not recognized until they resulted in a reduction of taxes payable. The tax effected amount of unrealized net operating loss carryforwards resulting from stock-based compensation awards vested and/or exercised was $0 , $0 and $0.4 million at December 31, 2017 , 2016 and 2015 , carryforwards resulting from stock-based compensation awards vested and/or exercised was $0 , $0 and $0.4 million at December 31, 2017 , 2016 and 2015 , respectively. When realized, these excess windfall tax benefits were credited to additional paid-in capital. Excess windfall tax benefits recognized as a component respectively. When realized, these excess windfall tax benefits were credited to additional paid-in capital. Excess windfall tax benefits recognized as a component of shareholders' equity were $0 , $0.4 million and $0 for December 31, 2017 , 2016 and 2015 , respectively. The Company had followed the "with-and-without" of shareholders' equity were $0 , $0.4 million and $0 for December 31, 2017 , 2016 and 2015 , respectively. The Company had followed the "with-and-without" allocation approach to determine when such net operating loss carryforwards have been realized. allocation approach to determine when such net operating loss carryforwards have been realized. The Company recognized a current income tax receivable of $3.7 million and $2.4 million at December 31, 2017 and 2016 , respectively. The Company paid The Company recognized a current income tax receivable of $3.7 million and $2.4 million at December 31, 2017 and 2016 , respectively. The Company paid federal and state income tax payments of $23.5 million and $8.8 million during 2017 and 2016 , respectively. The Company received tax refunds of $0.6 million federal and state income tax payments of $23.5 million and $8.8 million during 2017 and 2016 , respectively. The Company received tax refunds of $0.6 million and $0.6 million in 2017 and 2016 , respectively. and $0.6 million in 2017 and 2016 , respectively. 71 71 In accordance with ASC 740, the Company evaluates its deferred tax assets to determine if valuation allowances are required. In assessing the realizability of In accordance with ASC 740, the Company evaluates its deferred tax assets to determine if valuation allowances are required. In assessing the realizability of deferred tax assets, the Company considers both positive and negative evidence in determining whether it is more likely than not that some portion or all of the deferred tax assets, the Company considers both positive and negative evidence in determining whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. deferred tax assets will not be realized. As of December 31, 2017 and 2016 , the primary positive evidence considered to support the realization of the Company's deferred tax assets includes: (i) the As of December 31, 2017 and 2016 , the primary positive evidence considered to support the realization of the Company's deferred tax assets includes: (i) the cumulative pre-tax income over the last 36 months, (ii) the reversal of deferred tax liabilities related to depreciation and amortization that would occur within the cumulative pre-tax income over the last 36 months, (ii) the reversal of deferred tax liabilities related to depreciation and amortization that would occur within the same jurisdiction and during the carry forward period necessary to absorb the federal and state net operating losses and other deferred tax assets, (iii) current and same jurisdiction and during the carry forward period necessary to absorb the federal and state net operating losses and other deferred tax assets, (iii) current and prior year utilization of federal and state net operating losses, and (iv) no history of material expiring Tax Attributes. The primary negative evidence considered prior year utilization of federal and state net operating losses, and (iv) no history of material expiring Tax Attributes. The primary negative evidence considered includes: (i) the Company's cumulative losses prior to 2013, (ii) unsettled circumstances associated with the general economy and housing market, as well as includes: (i) the Company's cumulative losses prior to 2013, (ii) unsettled circumstances associated with the general economy and housing market, as well as mortgage credit availability, and (iii) no federal and state net operating loss carryback opportunities. To the extent the Company generates future net operating mortgage credit availability, and (iii) no federal and state net operating loss carryback opportunities. To the extent the Company generates future net operating losses, the Company may be required to increase the valuation allowance on its deferred tax assets and income tax benefit would be adversely affected. losses, the Company may be required to increase the valuation allowance on its deferred tax assets and income tax benefit would be adversely affected. Based upon the positive and negative evidence considered, the Company believes it is more likely than not that it will realize the benefit of the deferred tax assets, Based upon the positive and negative evidence considered, the Company believes it is more likely than not that it will realize the benefit of the deferred tax assets, net of the existing state tax valuation allowances of $0.1 million and $0.1 million as of December 31, 2017 and 2016, respectively. To the extent the Company net of the existing state tax valuation allowances of $0.1 million and $0.1 million as of December 31, 2017 and 2016, respectively. To the extent the Company generates sufficient taxable income in the future to fully utilize the tax benefits of the net deferred tax assets on which a valuation allowance was recorded, the generates sufficient taxable income in the future to fully utilize the tax benefits of the net deferred tax assets on which a valuation allowance was recorded, the Company’s effective tax rate would be impacted as the valuation allowance is reversed. The Company continues to evaluate its deferred tax asset on a quarterly Company’s effective tax rate would be impacted as the valuation allowance is reversed. The Company continues to evaluate its deferred tax asset on a quarterly basis and notes that, if economic conditions were to change such that the Company earns less taxable income than the amounts required to fully utilize its deferred basis and notes that, if economic conditions were to change such that the Company earns less taxable income than the amounts required to fully utilize its deferred tax asset, a portion of the asset may expire unused. tax asset, a portion of the asset may expire unused. The following table shows the changes in the amount of the Company’s valuation allowance: The following table shows the changes in the amount of the Company’s valuation allowance: (in thousands) (in thousands) Balance at January 1, Balance at January 1, Additions charged to expense Additions charged to expense Additions charged to Goodwill/Purchase Accounting Additions charged to Goodwill/Purchase Accounting Deductions - other Deductions - other Balance at December 31, Balance at December 31, 2017 2017 2016 2016 2015 2015 125 $ 125 $ 126 $ 126 $ 20 20 — — — — — — — — (1) (1) 145 $ 145 $ 125 $ 125 $ — — — — 126 126 — — 126 126 $ $ $ $ The Company has no material uncertain tax positions as of December 31, 2017 and December 31, 2016. The Company has no material uncertain tax positions as of December 31, 2017 and December 31, 2016. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (exclusive of the effect of interest and penalties) is as follows: A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (exclusive of the effect of interest and penalties) is as follows: of operations. of operations. (in thousands) (in thousands) 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 Thereafter Thereafter (in thousands) (in thousands) Balance at January 1, Balance at January 1, Tax positions taken in prior periods: Tax positions taken in prior periods: Gross increases Gross increases Gross decreases Gross decreases Tax positions taken in current period: Tax positions taken in current period: Gross increases Gross increases Settlements with taxing authorities Settlements with taxing authorities Lapse of applicable statute of limitations Lapse of applicable statute of limitations Balance at December 31, Balance at December 31, 2017 2017 2016 2016 $ $ — $ — $ 3,224 3,224 — — — — — — — — — — $ $ — $ — $ — — (3,224) (3,224) — — — — — — — — The Company‘s state tax returns are open to examination for an average of three years. However, certain jurisdictions remain open to examination longer than The Company‘s state tax returns are open to examination for an average of three years. However, certain jurisdictions remain open to examination longer than three years due to the existence of net operating losses. The Company’s federal returns are open to examination for three years; however, due to statutory waivers, three years due to the existence of net operating losses. The Company’s federal returns are open to examination for three years; however, due to statutory waivers, SBS' tax years ended July 31, 2008 and May 5, 2009 remain open until July 31, 2019 with the federal tax authorities. SBS is currently under examination by the SBS' tax years ended July 31, 2008 and May 5, 2009 remain open until July 31, 2019 with the federal tax authorities. SBS is currently under examination by the IRS for its tax years ended July 31, 2008 and May 5, 2009 . At December 31, 2017 and 2016 , the amount recognized related to expected tax, penalties and interest IRS for its tax years ended July 31, 2008 and May 5, 2009 . At December 31, 2017 and 2016 , the amount recognized related to expected tax, penalties and interest payments as a result of the IRS audits in income taxes receivable on the consolidated balance sheets was immaterial. payments as a result of the IRS audits in income taxes receivable on the consolidated balance sheets was immaterial. The Company’s policy is to recognize interest and penalties related to income tax liabilities and unrecognized tax benefits in income tax expense. During the years The Company’s policy is to recognize interest and penalties related to income tax liabilities and unrecognized tax benefits in income tax expense. During the years ended December 31, 2017 , 2016 and 2015 , penalties and interest related to income tax liabilities and uncertain tax benefits were not material. ended December 31, 2017 , 2016 and 2015 , penalties and interest related to income tax liabilities and uncertain tax benefits were not material. 12. Commitments and Contingencies 12. Commitments and Contingencies The Company is obligated under capital leases covering fleet vehicles and certain equipment, as well as one facility. The fleet vehicles and equipment leases The Company is obligated under capital leases covering fleet vehicles and certain equipment, as well as one facility. The fleet vehicles and equipment leases generally have terms ranging from three to six years and the facility lease has a remaining term of six years. The carrying value of property and equipment under generally have terms ranging from three to six years and the facility lease has a remaining term of six years. The carrying value of property and equipment under capital leases was $25.2 million and $32.6 million at December 31, 2017 and 2016 , respectively, net of accumulated depreciation of $37.1 million and $28.8 capital leases was $25.2 million and $32.6 million at December 31, 2017 and 2016 , respectively, net of accumulated depreciation of $37.1 million and $28.8 million , respectively. Amortization of assets held under capital leases is included within depreciation expense or cost of goods sold on the consolidated statements million , respectively. Amortization of assets held under capital leases is included within depreciation expense or cost of goods sold on the consolidated statements The Company also has noncancellable operating leases, primarily for buildings, improvements and equipment. These leases generally contain renewal options for The Company also has noncancellable operating leases, primarily for buildings, improvements and equipment. These leases generally contain renewal options for periods ranging from one to five years and require the Company to pay all executory costs such as property taxes, maintenance and insurance. periods ranging from one to five years and require the Company to pay all executory costs such as property taxes, maintenance and insurance. Future minimum lease payments under noncancellable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital Future minimum lease payments under noncancellable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of December 31, 2017 are as follows: lease payments as of December 31, 2017 are as follows: Capital Capital Leases Leases Operating Operating Leases Leases $ $ 8,450 $ 8,450 $ 7,073 7,073 5,412 5,412 1,934 1,934 873 873 660 660 24,402 $ 24,402 $ (1,925) (1,925) 22,477 22,477 (7,639) (7,639) 14,838 14,838 $ $ 27,640 27,640 25,323 25,323 19,022 19,022 16,500 16,500 12,809 12,809 37,269 37,269 138,563 138,563 (a) (a) Less: Amounts representing interest Less: Amounts representing interest Total obligation under capital leases Total obligation under capital leases Less: Current portion of capital lease obligation Less: Current portion of capital lease obligation Long-term capital lease obligation Long-term capital lease obligation the consumer price index. the consumer price index. enforceable and legally binding on us. enforceable and legally binding on us. (a) Minimum operating lease payments have not been reduced by minimum sublease rentals of $0.1 million due in the future under noncancelable subleases. (a) Minimum operating lease payments have not been reduced by minimum sublease rentals of $0.1 million due in the future under noncancelable subleases. Total rent expense under operating leases, excluding short-term rentals, for the years ended December 31, 2017 , 2016 and 2015 was $30.5 million , $29.3 million Total rent expense under operating leases, excluding short-term rentals, for the years ended December 31, 2017 , 2016 and 2015 was $30.5 million , $29.3 million and $8.1 million , respectively, which are included in either cost of sales or selling, general and administrative expenses on the consolidated statements of and $8.1 million , respectively, which are included in either cost of sales or selling, general and administrative expenses on the consolidated statements of operations, depending on the type of operations undertaken by the related facility or asset. Future payments for certain leases will be adjusted based on increases in operations, depending on the type of operations undertaken by the related facility or asset. Future payments for certain leases will be adjusted based on increases in As of December 31, 2017 , the Company had purchase commitments totaling $7.1 million related primarily to vehicles and certain IT equipment, which are As of December 31, 2017 , the Company had purchase commitments totaling $7.1 million related primarily to vehicles and certain IT equipment, which are From time to time, various claims, legal proceedings and litigation are asserted or commenced against the Company principally arising from alleged product From time to time, various claims, legal proceedings and litigation are asserted or commenced against the Company principally arising from alleged product liability, warranty, casualty, construction defect, contract, tort, employment and other disputes. In determining loss contingencies, management considers the liability, warranty, casualty, construction defect, contract, tort, employment and other disputes. In determining loss contingencies, management considers the likelihood of loss as well as the ability to reasonably estimate the amount of such loss or liability. An estimated loss is recorded when it is considered probable that likelihood of loss as well as the ability to reasonably estimate the amount of such loss or liability. An estimated loss is recorded when it is considered probable that such a liability has been incurred and when the amount of loss can be reasonably estimated. It is not certain that the Company will prevail in these matters. such a liability has been incurred and when the amount of loss can be reasonably estimated. It is not certain that the Company will prevail in these matters. However, the Company does not believe that the ultimate outcome of any pending matters will have a material adverse effect on its consolidated financial position, However, the Company does not believe that the ultimate outcome of any pending matters will have a material adverse effect on its consolidated financial position, results of operations or cash flows. The Company recorded $3.0 million of expense within selling, general and administrative expenses in its statements of results of operations or cash flows. The Company recorded $3.0 million of expense within selling, general and administrative expenses in its statements of operations for the year ended December 31, 2017 in relation to pending litigation. The amount accrued is based upon currently available information, however, the operations for the year ended December 31, 2017 in relation to pending litigation. The amount accrued is based upon currently available information, however, the ultimate obligation may be higher. ultimate obligation may be higher. 72 72 73 73 In accordance with ASC 740, the Company evaluates its deferred tax assets to determine if valuation allowances are required. In assessing the realizability of In accordance with ASC 740, the Company evaluates its deferred tax assets to determine if valuation allowances are required. In assessing the realizability of deferred tax assets, the Company considers both positive and negative evidence in determining whether it is more likely than not that some portion or all of the deferred tax assets, the Company considers both positive and negative evidence in determining whether it is more likely than not that some portion or all of the The Company’s policy is to recognize interest and penalties related to income tax liabilities and unrecognized tax benefits in income tax expense. During the years The Company’s policy is to recognize interest and penalties related to income tax liabilities and unrecognized tax benefits in income tax expense. During the years ended December 31, 2017 , 2016 and 2015 , penalties and interest related to income tax liabilities and uncertain tax benefits were not material. ended December 31, 2017 , 2016 and 2015 , penalties and interest related to income tax liabilities and uncertain tax benefits were not material. deferred tax assets will not be realized. deferred tax assets will not be realized. As of December 31, 2017 and 2016 , the primary positive evidence considered to support the realization of the Company's deferred tax assets includes: (i) the As of December 31, 2017 and 2016 , the primary positive evidence considered to support the realization of the Company's deferred tax assets includes: (i) the cumulative pre-tax income over the last 36 months, (ii) the reversal of deferred tax liabilities related to depreciation and amortization that would occur within the cumulative pre-tax income over the last 36 months, (ii) the reversal of deferred tax liabilities related to depreciation and amortization that would occur within the same jurisdiction and during the carry forward period necessary to absorb the federal and state net operating losses and other deferred tax assets, (iii) current and same jurisdiction and during the carry forward period necessary to absorb the federal and state net operating losses and other deferred tax assets, (iii) current and prior year utilization of federal and state net operating losses, and (iv) no history of material expiring Tax Attributes. The primary negative evidence considered prior year utilization of federal and state net operating losses, and (iv) no history of material expiring Tax Attributes. The primary negative evidence considered includes: (i) the Company's cumulative losses prior to 2013, (ii) unsettled circumstances associated with the general economy and housing market, as well as includes: (i) the Company's cumulative losses prior to 2013, (ii) unsettled circumstances associated with the general economy and housing market, as well as mortgage credit availability, and (iii) no federal and state net operating loss carryback opportunities. To the extent the Company generates future net operating mortgage credit availability, and (iii) no federal and state net operating loss carryback opportunities. To the extent the Company generates future net operating losses, the Company may be required to increase the valuation allowance on its deferred tax assets and income tax benefit would be adversely affected. losses, the Company may be required to increase the valuation allowance on its deferred tax assets and income tax benefit would be adversely affected. Based upon the positive and negative evidence considered, the Company believes it is more likely than not that it will realize the benefit of the deferred tax assets, Based upon the positive and negative evidence considered, the Company believes it is more likely than not that it will realize the benefit of the deferred tax assets, net of the existing state tax valuation allowances of $0.1 million and $0.1 million as of December 31, 2017 and 2016, respectively. To the extent the Company net of the existing state tax valuation allowances of $0.1 million and $0.1 million as of December 31, 2017 and 2016, respectively. To the extent the Company generates sufficient taxable income in the future to fully utilize the tax benefits of the net deferred tax assets on which a valuation allowance was recorded, the generates sufficient taxable income in the future to fully utilize the tax benefits of the net deferred tax assets on which a valuation allowance was recorded, the Company’s effective tax rate would be impacted as the valuation allowance is reversed. The Company continues to evaluate its deferred tax asset on a quarterly Company’s effective tax rate would be impacted as the valuation allowance is reversed. The Company continues to evaluate its deferred tax asset on a quarterly basis and notes that, if economic conditions were to change such that the Company earns less taxable income than the amounts required to fully utilize its deferred basis and notes that, if economic conditions were to change such that the Company earns less taxable income than the amounts required to fully utilize its deferred tax asset, a portion of the asset may expire unused. tax asset, a portion of the asset may expire unused. The following table shows the changes in the amount of the Company’s valuation allowance: The following table shows the changes in the amount of the Company’s valuation allowance: (in thousands) (in thousands) Balance at January 1, Balance at January 1, Additions charged to expense Additions charged to expense Deductions - other Deductions - other Balance at December 31, Balance at December 31, Additions charged to Goodwill/Purchase Accounting Additions charged to Goodwill/Purchase Accounting 2017 2017 2016 2016 2015 2015 125 $ 125 $ 126 $ 126 $ 20 20 — — — — 145 $ 145 $ 125 $ 125 $ $ $ $ $ The Company has no material uncertain tax positions as of December 31, 2017 and December 31, 2016. The Company has no material uncertain tax positions as of December 31, 2017 and December 31, 2016. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (exclusive of the effect of interest and penalties) is as follows: A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (exclusive of the effect of interest and penalties) is as follows: 2017 2017 2016 2016 $ $ — $ — $ 3,224 3,224 — — — — (1) (1) — — — — — — — — — — — — — — 126 126 — — 126 126 — — (3,224) (3,224) — — — — — — — — (in thousands) (in thousands) Balance at January 1, Balance at January 1, Tax positions taken in prior periods: Tax positions taken in prior periods: Gross increases Gross increases Gross decreases Gross decreases Gross increases Gross increases Tax positions taken in current period: Tax positions taken in current period: Settlements with taxing authorities Settlements with taxing authorities Lapse of applicable statute of limitations Lapse of applicable statute of limitations Balance at December 31, Balance at December 31, The Company‘s state tax returns are open to examination for an average of three years. However, certain jurisdictions remain open to examination longer than The Company‘s state tax returns are open to examination for an average of three years. However, certain jurisdictions remain open to examination longer than three years due to the existence of net operating losses. The Company’s federal returns are open to examination for three years; however, due to statutory waivers, three years due to the existence of net operating losses. The Company’s federal returns are open to examination for three years; however, due to statutory waivers, SBS' tax years ended July 31, 2008 and May 5, 2009 remain open until July 31, 2019 with the federal tax authorities. SBS is currently under examination by the SBS' tax years ended July 31, 2008 and May 5, 2009 remain open until July 31, 2019 with the federal tax authorities. SBS is currently under examination by the IRS for its tax years ended July 31, 2008 and May 5, 2009 . At December 31, 2017 and 2016 , the amount recognized related to expected tax, penalties and interest IRS for its tax years ended July 31, 2008 and May 5, 2009 . At December 31, 2017 and 2016 , the amount recognized related to expected tax, penalties and interest payments as a result of the IRS audits in income taxes receivable on the consolidated balance sheets was immaterial. payments as a result of the IRS audits in income taxes receivable on the consolidated balance sheets was immaterial. $ $ — $ — $ 12. Commitments and Contingencies 12. Commitments and Contingencies The Company is obligated under capital leases covering fleet vehicles and certain equipment, as well as one facility. The fleet vehicles and equipment leases The Company is obligated under capital leases covering fleet vehicles and certain equipment, as well as one facility. The fleet vehicles and equipment leases generally have terms ranging from three to six years and the facility lease has a remaining term of six years. The carrying value of property and equipment under generally have terms ranging from three to six years and the facility lease has a remaining term of six years. The carrying value of property and equipment under capital leases was $25.2 million and $32.6 million at December 31, 2017 and 2016 , respectively, net of accumulated depreciation of $37.1 million and $28.8 capital leases was $25.2 million and $32.6 million at December 31, 2017 and 2016 , respectively, net of accumulated depreciation of $37.1 million and $28.8 million , respectively. Amortization of assets held under capital leases is included within depreciation expense or cost of goods sold on the consolidated statements million , respectively. Amortization of assets held under capital leases is included within depreciation expense or cost of goods sold on the consolidated statements of operations. of operations. The Company also has noncancellable operating leases, primarily for buildings, improvements and equipment. These leases generally contain renewal options for The Company also has noncancellable operating leases, primarily for buildings, improvements and equipment. These leases generally contain renewal options for periods ranging from one to five years and require the Company to pay all executory costs such as property taxes, maintenance and insurance. periods ranging from one to five years and require the Company to pay all executory costs such as property taxes, maintenance and insurance. Future minimum lease payments under noncancellable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital Future minimum lease payments under noncancellable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of December 31, 2017 are as follows: lease payments as of December 31, 2017 are as follows: (in thousands) (in thousands) 2018 2018 2019 2019 2020 2020 2021 2021 2022 2022 Thereafter Thereafter Less: Amounts representing interest Less: Amounts representing interest Total obligation under capital leases Total obligation under capital leases Less: Current portion of capital lease obligation Less: Current portion of capital lease obligation Long-term capital lease obligation Long-term capital lease obligation Capital Capital Leases Leases Operating Operating Leases Leases 27,640 27,640 25,323 25,323 19,022 19,022 16,500 16,500 12,809 12,809 37,269 37,269 138,563 138,563 (a) (a) $ $ 8,450 $ 8,450 $ 7,073 7,073 5,412 5,412 1,934 1,934 873 873 660 660 24,402 $ 24,402 $ (1,925) (1,925) 22,477 22,477 (7,639) (7,639) 14,838 14,838 $ $ (a) Minimum operating lease payments have not been reduced by minimum sublease rentals of $0.1 million due in the future under noncancelable subleases. (a) Minimum operating lease payments have not been reduced by minimum sublease rentals of $0.1 million due in the future under noncancelable subleases. Total rent expense under operating leases, excluding short-term rentals, for the years ended December 31, 2017 , 2016 and 2015 was $30.5 million , $29.3 million Total rent expense under operating leases, excluding short-term rentals, for the years ended December 31, 2017 , 2016 and 2015 was $30.5 million , $29.3 million and $8.1 million , respectively, which are included in either cost of sales or selling, general and administrative expenses on the consolidated statements of and $8.1 million , respectively, which are included in either cost of sales or selling, general and administrative expenses on the consolidated statements of operations, depending on the type of operations undertaken by the related facility or asset. Future payments for certain leases will be adjusted based on increases in operations, depending on the type of operations undertaken by the related facility or asset. Future payments for certain leases will be adjusted based on increases in the consumer price index. the consumer price index. As of December 31, 2017 , the Company had purchase commitments totaling $7.1 million related primarily to vehicles and certain IT equipment, which are As of December 31, 2017 , the Company had purchase commitments totaling $7.1 million related primarily to vehicles and certain IT equipment, which are enforceable and legally binding on us. enforceable and legally binding on us. From time to time, various claims, legal proceedings and litigation are asserted or commenced against the Company principally arising from alleged product From time to time, various claims, legal proceedings and litigation are asserted or commenced against the Company principally arising from alleged product liability, warranty, casualty, construction defect, contract, tort, employment and other disputes. In determining loss contingencies, management considers the liability, warranty, casualty, construction defect, contract, tort, employment and other disputes. In determining loss contingencies, management considers the likelihood of loss as well as the ability to reasonably estimate the amount of such loss or liability. An estimated loss is recorded when it is considered probable that likelihood of loss as well as the ability to reasonably estimate the amount of such loss or liability. An estimated loss is recorded when it is considered probable that such a liability has been incurred and when the amount of loss can be reasonably estimated. It is not certain that the Company will prevail in these matters. such a liability has been incurred and when the amount of loss can be reasonably estimated. It is not certain that the Company will prevail in these matters. However, the Company does not believe that the ultimate outcome of any pending matters will have a material adverse effect on its consolidated financial position, However, the Company does not believe that the ultimate outcome of any pending matters will have a material adverse effect on its consolidated financial position, results of operations or cash flows. The Company recorded $3.0 million of expense within selling, general and administrative expenses in its statements of results of operations or cash flows. The Company recorded $3.0 million of expense within selling, general and administrative expenses in its statements of operations for the year ended December 31, 2017 in relation to pending litigation. The amount accrued is based upon currently available information, however, the operations for the year ended December 31, 2017 in relation to pending litigation. The amount accrued is based upon currently available information, however, the ultimate obligation may be higher. ultimate obligation may be higher. 72 72 73 73 13. Stockholders' Equity 13. Stockholders' Equity Merger Merger In connection with the Merger, each share of issued and outstanding BMHC common stock, par value $0.001 per share, excluding (i) any shares of BMHC In connection with the Merger, each share of issued and outstanding BMHC common stock, par value $0.001 per share, excluding (i) any shares of BMHC common stock held in treasury or by any wholly owned subsidiary of BMHC or (ii) any shares of BMHC common stock held by any BMHC stockholder who was common stock held in treasury or by any wholly owned subsidiary of BMHC or (ii) any shares of BMHC common stock held by any BMHC stockholder who was entitled to exercise, and properly exercised, appraisal rights with respect to such shares of BMHC common stock pursuant to the General Corporation Law of the entitled to exercise, and properly exercised, appraisal rights with respect to such shares of BMHC common stock pursuant to the General Corporation Law of the State of Delaware, was converted into the right to receive 0.5231 shares of Company common stock, par value $0.01 per share. As a result, approximately 39.2 State of Delaware, was converted into the right to receive 0.5231 shares of Company common stock, par value $0.01 per share. As a result, approximately 39.2 million shares of Company common stock were issued to BMHC stockholders. Each holder of BMHC common stock converted pursuant to the Merger who would million shares of Company common stock were issued to BMHC stockholders. Each holder of BMHC common stock converted pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of Company common stock received cash in lieu thereof in an amount each to such fractional amount otherwise have been entitled to receive a fraction of a share of Company common stock received cash in lieu thereof in an amount each to such fractional amount multiplied by $17.19 , the last reported sale price of SBS common stock on the last complete trading day prior to the Merger. multiplied by $17.19 , the last reported sale price of SBS common stock on the last complete trading day prior to the Merger. Shares and price per share of BMHC common stock for all prior periods have been restated to reflect the 0.5231 exchange ratio and BMC's par value of $0.01 per Shares and price per share of BMHC common stock for all prior periods have been restated to reflect the 0.5231 exchange ratio and BMC's par value of $0.01 per share. share. Treasury stock Treasury stock Employees have the option to surrender shares to the Company to satisfy their tax withholding obligations in connection with the vesting of restricted stock and Employees have the option to surrender shares to the Company to satisfy their tax withholding obligations in connection with the vesting of restricted stock and restricted stock unit awards. These surrendered shares are reflected as treasury stock, at cost, on the consolidated balance sheet as of December 31, 2017 and 2016 . restricted stock unit awards. These surrendered shares are reflected as treasury stock, at cost, on the consolidated balance sheet as of December 31, 2017 and 2016 . All BMHC treasury shares were canceled in connection with the Merger. All BMHC treasury shares were canceled in connection with the Merger. 14. Stock Based Compensation 14. Stock Based Compensation BMHC long-term incentive plans BMHC long-term incentive plans In March 2013, BMHC's Board of Directors approved the 2013 long-term incentive plan ("BMHC 2013 Incentive Plan") as subsequently approved by BMHC's In March 2013, BMHC's Board of Directors approved the 2013 long-term incentive plan ("BMHC 2013 Incentive Plan") as subsequently approved by BMHC's shareholders in May 2013. The BMHC 2013 Incentive Plan provided for grants of stock options, restricted stock and other stock-based awards. There were 1.6 shareholders in May 2013. The BMHC 2013 Incentive Plan provided for grants of stock options, restricted stock and other stock-based awards. There were 1.6 million common shares reserved for issuance under the plan. The awards granted under this plan vest immediately for directors and over a three year period for key million common shares reserved for issuance under the plan. The awards granted under this plan vest immediately for directors and over a three year period for key employees. employees. In March 2010, BMHC's Board of Directors approved the 2010 long-term incentive plan ("BMHC 2010 Incentive Plan") as approved by BMHC's reorganization In March 2010, BMHC's Board of Directors approved the 2010 long-term incentive plan ("BMHC 2010 Incentive Plan") as approved by BMHC's reorganization plan. The BMHC 2010 Incentive Plan provided for grants of restricted stock. There were 5.2 million common shares reserved for issuance under the plan. The plan. The BMHC 2010 Incentive Plan provided for grants of restricted stock. There were 5.2 million common shares reserved for issuance under the plan. The awards granted under this plan vest over a two year period for directors and a three year period for key employees. awards granted under this plan vest over a two year period for directors and a three year period for key employees. SBS long-term incentive plan SBS long-term incentive plan In connection with its initial public offering in August 2013, SBS adopted the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan ("SBS In connection with its initial public offering in August 2013, SBS adopted the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan ("SBS 2013 Incentive Plan"). The SBS 2013 Incentive Plan provides for grants of stock options, stock appreciation rights, restricted stock, other stock-based awards, 2013 Incentive Plan"). The SBS 2013 Incentive Plan provides for grants of stock options, stock appreciation rights, restricted stock, other stock-based awards, other cash-based compensation and performance awards. In general, if awards under the SBS 2013 Incentive Plan are for any reason canceled, or expire or other cash-based compensation and performance awards. In general, if awards under the SBS 2013 Incentive Plan are for any reason canceled, or expire or terminate unexercised, the shares covered by such awards may again be available for the grant of awards under the SBS 2013 Incentive Plan. Awards granted terminate unexercised, the shares covered by such awards may again be available for the grant of awards under the SBS 2013 Incentive Plan. Awards granted under the SBS 2013 Incentive Plan generally vest over a period of three or four years. Stock options granted under the SBS 2013 Incentive Plan have a maximum under the SBS 2013 Incentive Plan generally vest over a period of three or four years. Stock options granted under the SBS 2013 Incentive Plan have a maximum contractual term of 10 years from the date of grant. Shares awarded that revert to the Company as a result of forfeiture or termination, expiration or cancellation of contractual term of 10 years from the date of grant. Shares awarded that revert to the Company as a result of forfeiture or termination, expiration or cancellation of an award or that are used to exercise an award or for tax withholding, will be again available for issuance. an award or that are used to exercise an award or for tax withholding, will be again available for issuance. Effect of the Merger on stock based awards Effect of the Merger on stock based awards The SBS 2013 Incentive Plan remained in effect upon consummation of the Merger. In connection with the Merger, the Company amended the SBS 2013 The SBS 2013 Incentive Plan remained in effect upon consummation of the Merger. In connection with the Merger, the Company amended the SBS 2013 Incentive Plan in order to increase the number of shares of common stock authorized for issuance from 1.8 million to 5.6 million . As of December 31, 2017 , Incentive Plan in order to increase the number of shares of common stock authorized for issuance from 1.8 million to 5.6 million . As of December 31, 2017 , approximately 3.1 million common shares were available for issuance under the SBS 2013 Incentive Plan. approximately 3.1 million common shares were available for issuance under the SBS 2013 Incentive Plan. 74 74 Upon consummation of the Merger, the Company assumed all obligations of BMHC under the BMHC 2010 Incentive Plan and BMHC 2013 Incentive Plan, Upon consummation of the Merger, the Company assumed all obligations of BMHC under the BMHC 2010 Incentive Plan and BMHC 2013 Incentive Plan, including BMHC's time-vesting restricted stock and performance-vesting restricted stock. At the effective time of the Merger, (i) each BMHC time-vesting including BMHC's time-vesting restricted stock and performance-vesting restricted stock. At the effective time of the Merger, (i) each BMHC time-vesting restricted share outstanding immediately prior to such time was converted, on the same terms and conditions as were applicable to such BMHC time-vesting restricted share outstanding immediately prior to such time was converted, on the same terms and conditions as were applicable to such BMHC time-vesting restricted share at such time, into a restricted share with respect to the number of shares of BMC common stock determined by multiplying each BMHC time- restricted share at such time, into a restricted share with respect to the number of shares of BMC common stock determined by multiplying each BMHC time- vesting restricted share by the exchange ratio, rounded up to the nearest whole share. The performance goals of each award of BMHC performance-vesting vesting restricted share by the exchange ratio, rounded up to the nearest whole share. The performance goals of each award of BMHC performance-vesting restricted stock outstanding immediately prior to the Merger was deemed satisfied at maximum and was converted, on the same terms and conditions (other than restricted stock outstanding immediately prior to the Merger was deemed satisfied at maximum and was converted, on the same terms and conditions (other than the terms and conditions relating to achievement of performance goals), into a restricted share with respect to that number of shares of BMC common stock the terms and conditions relating to achievement of performance goals), into a restricted share with respect to that number of shares of BMC common stock determined by multiplying each BMHC performance-vesting restricted share by the exchange ratio, rounded up to the nearest whole share, provided that the determined by multiplying each BMHC performance-vesting restricted share by the exchange ratio, rounded up to the nearest whole share, provided that the vesting criteria applicable to such conversion will provide for vesting based solely on the holder's continuation of service through the time of vesting. vesting criteria applicable to such conversion will provide for vesting based solely on the holder's continuation of service through the time of vesting. Under the SBS 2013 Incentive Plan, the merger constituted a "change in control" of SBS. In connection with a "change in control," as defined in the SBS 2013 Under the SBS 2013 Incentive Plan, the merger constituted a "change in control" of SBS. In connection with a "change in control," as defined in the SBS 2013 Incentive Plan, the vesting of outstanding awards under the SBS 2013 Incentive Plan was accelerated, with the exception of 0.2 million outstanding stock options Incentive Plan, the vesting of outstanding awards under the SBS 2013 Incentive Plan was accelerated, with the exception of 0.2 million outstanding stock options and 0.3 million outstanding restricted stock units awarded to certain Legacy SBS employees during November 2015. The fair value of the vested awards on the and 0.3 million outstanding restricted stock units awarded to certain Legacy SBS employees during November 2015. The fair value of the vested awards on the Merger date of $8.3 million and the fair value of the non-vested awards on the closing date of the Merger related to pre-Merger service rendered of $0.2 million Merger date of $8.3 million and the fair value of the non-vested awards on the closing date of the Merger related to pre-Merger service rendered of $0.2 million were included in the calculation of consideration transferred. were included in the calculation of consideration transferred. Performance-based restricted stock units Performance-based restricted stock units During the year ended December 31, 2017, in addition to grants of service-based restricted stock unit awards, the Company granted performance-based restricted During the year ended December 31, 2017, in addition to grants of service-based restricted stock unit awards, the Company granted performance-based restricted stock units that vest on March 15, 2020 . The number of performance-based restricted stock units that are issued on the vesting date could range from zero to a stock units that vest on March 15, 2020 . The number of performance-based restricted stock units that are issued on the vesting date could range from zero to a maximum of 0.2 million , based 50% upon the Company’s average return on invested capital over the three year period from January 1, 2017 through maximum of 0.2 million , based 50% upon the Company’s average return on invested capital over the three year period from January 1, 2017 through December 31, 2019 and 50% upon the Company’s cumulative adjusted earnings per share (“Adjusted EPS”) over the same three year period. December 31, 2019 and 50% upon the Company’s cumulative adjusted earnings per share (“Adjusted EPS”) over the same three year period. During the year ended December 31, 2016, in addition to grants of service-based restricted stock unit awards, the Company granted performance-based restricted During the year ended December 31, 2016, in addition to grants of service-based restricted stock unit awards, the Company granted performance-based restricted stock units that vest on March 15, 2019 . The number of performance-based restricted stock units that are issued on the vesting date could range from zero to a stock units that vest on March 15, 2019 . The number of performance-based restricted stock units that are issued on the vesting date could range from zero to a maximum of 0.2 million , based upon the Company's cumulative Adjusted EBITDA over the three year period from January 1, 2016 through December 31, 2018 . maximum of 0.2 million , based upon the Company's cumulative Adjusted EBITDA over the three year period from January 1, 2016 through December 31, 2018 . Compensation cost for the performance-based restricted stock units is recorded based on the expected number of units that will vest and is adjusted, as appropriate, Compensation cost for the performance-based restricted stock units is recorded based on the expected number of units that will vest and is adjusted, as appropriate, Stock based compensation is included in selling, general and administrative expenses on the consolidated statements of operations. The following table highlights Stock based compensation is included in selling, general and administrative expenses on the consolidated statements of operations. The following table highlights stock based compensation for the years ended December 31, 2017 , 2016 and 2015 : stock based compensation for the years ended December 31, 2017 , 2016 and 2015 : throughout the performance period. throughout the performance period. Stock based compensation expense Stock based compensation expense (in thousands) (in thousands) Restricted stock units (a) Restricted stock units (a) Restricted stock Restricted stock Stock options Stock options Stock based compensation Stock based compensation (a) Includes service-based and performance-based restricted stock units. (a) Includes service-based and performance-based restricted stock units. 75 75 2017 2017 2016 2016 2015 2015 $ $ $ $ 6,006 $ 6,006 $ 436 436 327 327 6,769 $ 6,769 $ 4,643 $ 4,643 $ 1,559 1,559 1,050 1,050 7,252 $ 7,252 $ 100 100 2,607 2,607 42 42 2,749 2,749 13. Stockholders' Equity 13. Stockholders' Equity Merger Merger share. share. Treasury stock Treasury stock 14. Stock Based Compensation 14. Stock Based Compensation BMHC long-term incentive plans BMHC long-term incentive plans In connection with the Merger, each share of issued and outstanding BMHC common stock, par value $0.001 per share, excluding (i) any shares of BMHC In connection with the Merger, each share of issued and outstanding BMHC common stock, par value $0.001 per share, excluding (i) any shares of BMHC common stock held in treasury or by any wholly owned subsidiary of BMHC or (ii) any shares of BMHC common stock held by any BMHC stockholder who was common stock held in treasury or by any wholly owned subsidiary of BMHC or (ii) any shares of BMHC common stock held by any BMHC stockholder who was entitled to exercise, and properly exercised, appraisal rights with respect to such shares of BMHC common stock pursuant to the General Corporation Law of the entitled to exercise, and properly exercised, appraisal rights with respect to such shares of BMHC common stock pursuant to the General Corporation Law of the State of Delaware, was converted into the right to receive 0.5231 shares of Company common stock, par value $0.01 per share. As a result, approximately 39.2 State of Delaware, was converted into the right to receive 0.5231 shares of Company common stock, par value $0.01 per share. As a result, approximately 39.2 million shares of Company common stock were issued to BMHC stockholders. Each holder of BMHC common stock converted pursuant to the Merger who would million shares of Company common stock were issued to BMHC stockholders. Each holder of BMHC common stock converted pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of Company common stock received cash in lieu thereof in an amount each to such fractional amount otherwise have been entitled to receive a fraction of a share of Company common stock received cash in lieu thereof in an amount each to such fractional amount multiplied by $17.19 , the last reported sale price of SBS common stock on the last complete trading day prior to the Merger. multiplied by $17.19 , the last reported sale price of SBS common stock on the last complete trading day prior to the Merger. Shares and price per share of BMHC common stock for all prior periods have been restated to reflect the 0.5231 exchange ratio and BMC's par value of $0.01 per Shares and price per share of BMHC common stock for all prior periods have been restated to reflect the 0.5231 exchange ratio and BMC's par value of $0.01 per Employees have the option to surrender shares to the Company to satisfy their tax withholding obligations in connection with the vesting of restricted stock and Employees have the option to surrender shares to the Company to satisfy their tax withholding obligations in connection with the vesting of restricted stock and restricted stock unit awards. These surrendered shares are reflected as treasury stock, at cost, on the consolidated balance sheet as of December 31, 2017 and 2016 . restricted stock unit awards. These surrendered shares are reflected as treasury stock, at cost, on the consolidated balance sheet as of December 31, 2017 and 2016 . All BMHC treasury shares were canceled in connection with the Merger. All BMHC treasury shares were canceled in connection with the Merger. In March 2013, BMHC's Board of Directors approved the 2013 long-term incentive plan ("BMHC 2013 Incentive Plan") as subsequently approved by BMHC's In March 2013, BMHC's Board of Directors approved the 2013 long-term incentive plan ("BMHC 2013 Incentive Plan") as subsequently approved by BMHC's shareholders in May 2013. The BMHC 2013 Incentive Plan provided for grants of stock options, restricted stock and other stock-based awards. There were 1.6 shareholders in May 2013. The BMHC 2013 Incentive Plan provided for grants of stock options, restricted stock and other stock-based awards. There were 1.6 million common shares reserved for issuance under the plan. The awards granted under this plan vest immediately for directors and over a three year period for key million common shares reserved for issuance under the plan. The awards granted under this plan vest immediately for directors and over a three year period for key employees. employees. In March 2010, BMHC's Board of Directors approved the 2010 long-term incentive plan ("BMHC 2010 Incentive Plan") as approved by BMHC's reorganization In March 2010, BMHC's Board of Directors approved the 2010 long-term incentive plan ("BMHC 2010 Incentive Plan") as approved by BMHC's reorganization plan. The BMHC 2010 Incentive Plan provided for grants of restricted stock. There were 5.2 million common shares reserved for issuance under the plan. The plan. The BMHC 2010 Incentive Plan provided for grants of restricted stock. There were 5.2 million common shares reserved for issuance under the plan. The awards granted under this plan vest over a two year period for directors and a three year period for key employees. awards granted under this plan vest over a two year period for directors and a three year period for key employees. SBS long-term incentive plan SBS long-term incentive plan In connection with its initial public offering in August 2013, SBS adopted the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan ("SBS In connection with its initial public offering in August 2013, SBS adopted the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan ("SBS 2013 Incentive Plan"). The SBS 2013 Incentive Plan provides for grants of stock options, stock appreciation rights, restricted stock, other stock-based awards, 2013 Incentive Plan"). The SBS 2013 Incentive Plan provides for grants of stock options, stock appreciation rights, restricted stock, other stock-based awards, other cash-based compensation and performance awards. In general, if awards under the SBS 2013 Incentive Plan are for any reason canceled, or expire or other cash-based compensation and performance awards. In general, if awards under the SBS 2013 Incentive Plan are for any reason canceled, or expire or terminate unexercised, the shares covered by such awards may again be available for the grant of awards under the SBS 2013 Incentive Plan. Awards granted terminate unexercised, the shares covered by such awards may again be available for the grant of awards under the SBS 2013 Incentive Plan. Awards granted under the SBS 2013 Incentive Plan generally vest over a period of three or four years. Stock options granted under the SBS 2013 Incentive Plan have a maximum under the SBS 2013 Incentive Plan generally vest over a period of three or four years. Stock options granted under the SBS 2013 Incentive Plan have a maximum contractual term of 10 years from the date of grant. Shares awarded that revert to the Company as a result of forfeiture or termination, expiration or cancellation of contractual term of 10 years from the date of grant. Shares awarded that revert to the Company as a result of forfeiture or termination, expiration or cancellation of an award or that are used to exercise an award or for tax withholding, will be again available for issuance. an award or that are used to exercise an award or for tax withholding, will be again available for issuance. Effect of the Merger on stock based awards Effect of the Merger on stock based awards The SBS 2013 Incentive Plan remained in effect upon consummation of the Merger. In connection with the Merger, the Company amended the SBS 2013 The SBS 2013 Incentive Plan remained in effect upon consummation of the Merger. In connection with the Merger, the Company amended the SBS 2013 Incentive Plan in order to increase the number of shares of common stock authorized for issuance from 1.8 million to 5.6 million . As of December 31, 2017 , Incentive Plan in order to increase the number of shares of common stock authorized for issuance from 1.8 million to 5.6 million . As of December 31, 2017 , approximately 3.1 million common shares were available for issuance under the SBS 2013 Incentive Plan. approximately 3.1 million common shares were available for issuance under the SBS 2013 Incentive Plan. 74 74 Upon consummation of the Merger, the Company assumed all obligations of BMHC under the BMHC 2010 Incentive Plan and BMHC 2013 Incentive Plan, Upon consummation of the Merger, the Company assumed all obligations of BMHC under the BMHC 2010 Incentive Plan and BMHC 2013 Incentive Plan, including BMHC's time-vesting restricted stock and performance-vesting restricted stock. At the effective time of the Merger, (i) each BMHC time-vesting including BMHC's time-vesting restricted stock and performance-vesting restricted stock. At the effective time of the Merger, (i) each BMHC time-vesting restricted share outstanding immediately prior to such time was converted, on the same terms and conditions as were applicable to such BMHC time-vesting restricted share outstanding immediately prior to such time was converted, on the same terms and conditions as were applicable to such BMHC time-vesting restricted share at such time, into a restricted share with respect to the number of shares of BMC common stock determined by multiplying each BMHC time- restricted share at such time, into a restricted share with respect to the number of shares of BMC common stock determined by multiplying each BMHC time- vesting restricted share by the exchange ratio, rounded up to the nearest whole share. The performance goals of each award of BMHC performance-vesting vesting restricted share by the exchange ratio, rounded up to the nearest whole share. The performance goals of each award of BMHC performance-vesting restricted stock outstanding immediately prior to the Merger was deemed satisfied at maximum and was converted, on the same terms and conditions (other than restricted stock outstanding immediately prior to the Merger was deemed satisfied at maximum and was converted, on the same terms and conditions (other than the terms and conditions relating to achievement of performance goals), into a restricted share with respect to that number of shares of BMC common stock the terms and conditions relating to achievement of performance goals), into a restricted share with respect to that number of shares of BMC common stock determined by multiplying each BMHC performance-vesting restricted share by the exchange ratio, rounded up to the nearest whole share, provided that the determined by multiplying each BMHC performance-vesting restricted share by the exchange ratio, rounded up to the nearest whole share, provided that the vesting criteria applicable to such conversion will provide for vesting based solely on the holder's continuation of service through the time of vesting. vesting criteria applicable to such conversion will provide for vesting based solely on the holder's continuation of service through the time of vesting. Under the SBS 2013 Incentive Plan, the merger constituted a "change in control" of SBS. In connection with a "change in control," as defined in the SBS 2013 Under the SBS 2013 Incentive Plan, the merger constituted a "change in control" of SBS. In connection with a "change in control," as defined in the SBS 2013 Incentive Plan, the vesting of outstanding awards under the SBS 2013 Incentive Plan was accelerated, with the exception of 0.2 million outstanding stock options Incentive Plan, the vesting of outstanding awards under the SBS 2013 Incentive Plan was accelerated, with the exception of 0.2 million outstanding stock options and 0.3 million outstanding restricted stock units awarded to certain Legacy SBS employees during November 2015. The fair value of the vested awards on the and 0.3 million outstanding restricted stock units awarded to certain Legacy SBS employees during November 2015. The fair value of the vested awards on the Merger date of $8.3 million and the fair value of the non-vested awards on the closing date of the Merger related to pre-Merger service rendered of $0.2 million Merger date of $8.3 million and the fair value of the non-vested awards on the closing date of the Merger related to pre-Merger service rendered of $0.2 million were included in the calculation of consideration transferred. were included in the calculation of consideration transferred. Performance-based restricted stock units Performance-based restricted stock units During the year ended December 31, 2017, in addition to grants of service-based restricted stock unit awards, the Company granted performance-based restricted During the year ended December 31, 2017, in addition to grants of service-based restricted stock unit awards, the Company granted performance-based restricted stock units that vest on March 15, 2020 . The number of performance-based restricted stock units that are issued on the vesting date could range from zero to a stock units that vest on March 15, 2020 . The number of performance-based restricted stock units that are issued on the vesting date could range from zero to a maximum of 0.2 million , based 50% upon the Company’s average return on invested capital over the three year period from January 1, 2017 through maximum of 0.2 million , based 50% upon the Company’s average return on invested capital over the three year period from January 1, 2017 through December 31, 2019 and 50% upon the Company’s cumulative adjusted earnings per share (“Adjusted EPS”) over the same three year period. December 31, 2019 and 50% upon the Company’s cumulative adjusted earnings per share (“Adjusted EPS”) over the same three year period. During the year ended December 31, 2016, in addition to grants of service-based restricted stock unit awards, the Company granted performance-based restricted During the year ended December 31, 2016, in addition to grants of service-based restricted stock unit awards, the Company granted performance-based restricted stock units that vest on March 15, 2019 . The number of performance-based restricted stock units that are issued on the vesting date could range from zero to a stock units that vest on March 15, 2019 . The number of performance-based restricted stock units that are issued on the vesting date could range from zero to a maximum of 0.2 million , based upon the Company's cumulative Adjusted EBITDA over the three year period from January 1, 2016 through December 31, 2018 . maximum of 0.2 million , based upon the Company's cumulative Adjusted EBITDA over the three year period from January 1, 2016 through December 31, 2018 . Compensation cost for the performance-based restricted stock units is recorded based on the expected number of units that will vest and is adjusted, as appropriate, Compensation cost for the performance-based restricted stock units is recorded based on the expected number of units that will vest and is adjusted, as appropriate, throughout the performance period. throughout the performance period. Stock based compensation expense Stock based compensation expense Stock based compensation is included in selling, general and administrative expenses on the consolidated statements of operations. The following table highlights Stock based compensation is included in selling, general and administrative expenses on the consolidated statements of operations. The following table highlights stock based compensation for the years ended December 31, 2017 , 2016 and 2015 : stock based compensation for the years ended December 31, 2017 , 2016 and 2015 : (in thousands) (in thousands) Restricted stock units (a) Restricted stock units (a) Restricted stock Restricted stock Stock options Stock options Stock based compensation Stock based compensation 2017 2017 2016 2016 2015 2015 $ $ $ $ 6,006 $ 6,006 $ 436 436 327 327 6,769 $ 6,769 $ 4,643 $ 4,643 $ 1,559 1,559 1,050 1,050 7,252 $ 7,252 $ 100 100 2,607 2,607 42 42 2,749 2,749 (a) Includes service-based and performance-based restricted stock units. (a) Includes service-based and performance-based restricted stock units. 75 75 Stock based award activity Stock based award activity The following is a summary of stock option award activity. No stock options were granted by BMHC during any periods prior to the Merger. The following is a summary of stock option award activity. No stock options were granted by BMHC during any periods prior to the Merger. The following is a summary of restricted stock and restricted stock unit activity, excluding performance-based restricted stock units: The following is a summary of restricted stock and restricted stock unit activity, excluding performance-based restricted stock units: Restricted Stock Restricted Stock Restricted Stock Units Restricted Stock Units Number of Shares Number of Shares Outstanding Outstanding (in thousands) (in thousands) Weighted Average Weighted Average Grant Date Fair Grant Date Fair Value Value Number of Number of Units Units Outstanding (in Outstanding (in thousands) thousands) Weighted Weighted Average Average Grant Date Grant Date Fair Value Fair Value Outstanding at December 31, 2014 Outstanding at December 31, 2014 Legacy SBS stock options assumed Legacy SBS stock options assumed December 31, 2014 December 31, 2014 Legacy SBS restricted stock units assumed Legacy SBS restricted stock units assumed Granted Granted Vested Vested Forfeited Forfeited December 31, 2015 December 31, 2015 Granted Granted Vested Vested Forfeited Forfeited December 31, 2016 December 31, 2016 Granted Granted Vested Vested Forfeited Forfeited December 31, 2017 December 31, 2017 706 706 $ $ — — 206 206 (279) (279) (178) (178) 455 455 — — (301) (301) (37) (37) 117 117 — — (49) (49) (8) (8) 60 60 $ $ 10.15 10.15 — — 17.15 17.15 9.07 9.07 11.37 11.37 13.51 13.51 — — 11.95 11.95 13.69 13.69 17.42 17.42 — — 16.25 16.25 19.08 19.08 18.17 18.17 — $ — $ 318 318 — — — — (36) (36) 282 282 166 166 (123) (123) (27) (27) 298 298 396 396 (163) (163) (21) (21) 510 510 $ $ — — 16.99 16.99 — — — — 16.99 16.99 16.99 16.99 17.65 17.65 16.86 16.86 17.16 17.16 17.39 17.39 21.79 21.79 17.49 17.49 20.34 20.34 20.65 20.65 The following is a summary of the maximum number of performance-based restricted stock units which could be earned and related activity. There were no The following is a summary of the maximum number of performance-based restricted stock units which could be earned and related activity. There were no performance-based restricted stock units granted prior to December 31, 2015: performance-based restricted stock units granted prior to December 31, 2015: December 31, 2015 December 31, 2015 Granted (a) Granted (a) Vested Vested Forfeited Forfeited December 31, 2016 December 31, 2016 Granted (a) Granted (a) Vested Vested Forfeited Forfeited December 31, 2017 December 31, 2017 (a) Represents the maximum number of performance-based restricted stock units which could be earned. (a) Represents the maximum number of performance-based restricted stock units which could be earned. 76 76 Performance-Based Restricted Stock Units Performance-Based Restricted Stock Units Number of Number of Units Units Outstanding (in Outstanding (in thousands) thousands) Weighted Weighted Average Average Grant Date Grant Date Fair Value Fair Value — $ — $ 206 206 — — — — 206 206 255 255 — — (8) (8) 453 453 $ $ — — 16.35 16.35 — — — — 16.35 16.35 21.94 21.94 — — 22.90 22.90 19.37 19.37 Number of Options Number of Options Weighted Average Weighted Average (in thousands) (in thousands) Exercise Price Exercise Price Contractual Contractual Term Term (in years) (in years) Intrinsic Intrinsic Value Value (in thousands) (in thousands) Granted Granted Exercised Exercised Forfeited Forfeited Expired Expired Granted Granted Exercised Exercised Forfeited Forfeited Expired Expired Granted Granted Exercised Exercised Forfeited Forfeited Expired Expired Outstanding at December 31, 2015 Outstanding at December 31, 2015 Outstanding at December 31, 2016 Outstanding at December 31, 2016 Outstanding at December 31, 2017 Outstanding at December 31, 2017 — $ — $ 1,229 1,229 — — — — (1) (1) — — 1,228 1,228 3 3 (175) (175) (10) (10) (22) (22) 1,024 1,024 — — (260) (260) (14) (14) (45) (45) 705 705 $ $ — — 14.18 14.18 — — — — 17.04 17.04 — — 14.17 14.17 17.04 17.04 7.90 7.90 17.04 17.04 17.53 17.53 15.15 15.15 — — 13.05 13.05 17.04 17.04 19.89 19.89 15.59 15.59 Exercisable at December 31, 2017 Exercisable at December 31, 2017 646 646 $ $ 15.45 15.45 Vested and expected to vest at December 31, 2017 Vested and expected to vest at December 31, 2017 705 705 $ $ 15.59 15.59 The grant date fair value of Legacy SBS unvested stock options assumed in the Merger was $7.48 . The weighted average grant date fair value of stock options The grant date fair value of Legacy SBS unvested stock options assumed in the Merger was $7.48 . The weighted average grant date fair value of stock options granted during the year ended December 31, 2016 was $9.70 . granted during the year ended December 31, 2016 was $9.70 . During the years ended December 31, 2017 and 2016 , the aggregate intrinsic value of the stock options exercised was $2.3 million and $1.9 million , respectively. During the years ended December 31, 2017 and 2016 , the aggregate intrinsic value of the stock options exercised was $2.3 million and $1.9 million , respectively. The following table summarizes the Company’s total unrecognized compensation cost related to equity based compensation as of December 31, 2017 : The following table summarizes the Company’s total unrecognized compensation cost related to equity based compensation as of December 31, 2017 : 6.3 $ 6.3 $ 6.2 $ 6.2 $ 6.3 $ 6.3 $ 6,845 6,845 6,359 6,359 6,845 6,845 (in thousands, except period data) (in thousands, except period data) Stock options Stock options Restricted stock Restricted stock Restricted stock units Restricted stock units Performance-based restricted stock units Performance-based restricted stock units 77 77 Weighted Average Weighted Average Remaining Period of Remaining Period of Expense Expense Recognition Recognition (in years) (in years) Unrecognized Unrecognized Compensation Cost Compensation Cost $ $ $ $ 125 125 100 100 5,023 5,023 1,433 1,433 6,681 6,681 0.8 0.8 0.3 0.3 1.4 1.4 2.2 2.2 Stock based award activity Stock based award activity The following is a summary of stock option award activity. No stock options were granted by BMHC during any periods prior to the Merger. The following is a summary of stock option award activity. No stock options were granted by BMHC during any periods prior to the Merger. Number of Options Number of Options (in thousands) (in thousands) Weighted Average Weighted Average Exercise Price Exercise Price Contractual Contractual Term Term (in years) (in years) Intrinsic Intrinsic Value Value (in thousands) (in thousands) Outstanding at December 31, 2014 Outstanding at December 31, 2014 Legacy SBS stock options assumed Legacy SBS stock options assumed Granted Granted Exercised Exercised Forfeited Forfeited Expired Expired Outstanding at December 31, 2015 Outstanding at December 31, 2015 Granted Granted Exercised Exercised Forfeited Forfeited Expired Expired Outstanding at December 31, 2016 Outstanding at December 31, 2016 Granted Granted Exercised Exercised Forfeited Forfeited Expired Expired 510 510 $ $ Outstanding at December 31, 2017 Outstanding at December 31, 2017 — $ — $ 1,229 1,229 — — — — (1) (1) — — 1,228 1,228 3 3 (175) (175) (10) (10) (22) (22) 1,024 1,024 — — (260) (260) (14) (14) (45) (45) 705 705 $ $ — — 14.18 14.18 — — — — 17.04 17.04 — — 14.17 14.17 17.04 17.04 7.90 7.90 17.04 17.04 17.53 17.53 15.15 15.15 — — 13.05 13.05 17.04 17.04 19.89 19.89 15.59 15.59 The following is a summary of the maximum number of performance-based restricted stock units which could be earned and related activity. There were no The following is a summary of the maximum number of performance-based restricted stock units which could be earned and related activity. There were no Exercisable at December 31, 2017 Exercisable at December 31, 2017 646 646 $ $ 15.45 15.45 performance-based restricted stock units granted prior to December 31, 2015: performance-based restricted stock units granted prior to December 31, 2015: Vested and expected to vest at December 31, 2017 Vested and expected to vest at December 31, 2017 705 705 $ $ 15.59 15.59 6.3 $ 6.3 $ 6.2 $ 6.2 $ 6.3 $ 6.3 $ 6,845 6,845 6,359 6,359 6,845 6,845 The grant date fair value of Legacy SBS unvested stock options assumed in the Merger was $7.48 . The weighted average grant date fair value of stock options The grant date fair value of Legacy SBS unvested stock options assumed in the Merger was $7.48 . The weighted average grant date fair value of stock options granted during the year ended December 31, 2016 was $9.70 . granted during the year ended December 31, 2016 was $9.70 . During the years ended December 31, 2017 and 2016 , the aggregate intrinsic value of the stock options exercised was $2.3 million and $1.9 million , respectively. During the years ended December 31, 2017 and 2016 , the aggregate intrinsic value of the stock options exercised was $2.3 million and $1.9 million , respectively. The following table summarizes the Company’s total unrecognized compensation cost related to equity based compensation as of December 31, 2017 : The following table summarizes the Company’s total unrecognized compensation cost related to equity based compensation as of December 31, 2017 : (in thousands, except period data) (in thousands, except period data) Stock options Stock options Restricted stock Restricted stock Restricted stock units Restricted stock units Performance-based restricted stock units Performance-based restricted stock units 77 77 Weighted Average Weighted Average Remaining Period of Remaining Period of Expense Expense Recognition Recognition (in years) (in years) Unrecognized Unrecognized Compensation Cost Compensation Cost $ $ $ $ 125 125 100 100 5,023 5,023 1,433 1,433 6,681 6,681 0.8 0.8 0.3 0.3 1.4 1.4 2.2 2.2 The following is a summary of restricted stock and restricted stock unit activity, excluding performance-based restricted stock units: The following is a summary of restricted stock and restricted stock unit activity, excluding performance-based restricted stock units: Restricted Stock Restricted Stock Restricted Stock Units Restricted Stock Units Number of Shares Number of Shares Weighted Average Weighted Average Outstanding Outstanding (in thousands) (in thousands) Grant Date Fair Grant Date Fair Outstanding (in Outstanding (in Value Value thousands) thousands) Number of Number of Units Units Weighted Weighted Average Average Grant Date Grant Date Fair Value Fair Value December 31, 2014 December 31, 2014 Legacy SBS restricted stock units assumed Legacy SBS restricted stock units assumed Granted Granted Vested Vested Forfeited Forfeited Granted Granted Vested Vested Forfeited Forfeited Granted Granted Vested Vested Forfeited Forfeited December 31, 2015 December 31, 2015 December 31, 2016 December 31, 2016 December 31, 2017 December 31, 2017 December 31, 2015 December 31, 2015 Granted (a) Granted (a) Vested Vested Forfeited Forfeited Granted (a) Granted (a) Vested Vested Forfeited Forfeited December 31, 2016 December 31, 2016 December 31, 2017 December 31, 2017 706 706 $ $ — — 206 206 (279) (279) (178) (178) 455 455 (301) (301) (37) (37) 117 117 (49) (49) (8) (8) 60 60 — — — — $ $ 10.15 10.15 — — 17.15 17.15 9.07 9.07 11.37 11.37 13.51 13.51 — — 11.95 11.95 13.69 13.69 17.42 17.42 — — 16.25 16.25 19.08 19.08 18.17 18.17 — $ — $ 318 318 — — — — (36) (36) 282 282 166 166 (123) (123) (27) (27) 298 298 396 396 (163) (163) (21) (21) — $ — $ 206 206 — — — — 206 206 255 255 — — (8) (8) 453 453 $ $ 16.99 16.99 — — — — — — 16.99 16.99 16.99 16.99 17.65 17.65 16.86 16.86 17.16 17.16 17.39 17.39 21.79 21.79 17.49 17.49 20.34 20.34 20.65 20.65 16.35 16.35 — — — — — — 16.35 16.35 21.94 21.94 — — 22.90 22.90 19.37 19.37 Performance-Based Restricted Stock Units Performance-Based Restricted Stock Units Number of Number of Units Units Outstanding (in Outstanding (in thousands) thousands) Weighted Weighted Average Average Grant Date Grant Date Fair Value Fair Value (a) Represents the maximum number of performance-based restricted stock units which could be earned. (a) Represents the maximum number of performance-based restricted stock units which could be earned. 76 76 (in thousands) (in thousands) Income (loss) before income taxes Income (loss) before income taxes Interest expense Interest expense Depreciation and amortization Depreciation and amortization Merger and integration costs Merger and integration costs Non-cash stock compensation expense Non-cash stock compensation expense Impairment of assets Impairment of assets Inventory step-up charges Inventory step-up charges Loss on debt extinguishment Loss on debt extinguishment Headquarters relocation (a) Headquarters relocation (a) Loss portfolio transfer Loss portfolio transfer Acquisition costs Acquisition costs Other items (b) Other items (b) 15. Segments 15. Segments Reconciliation to consolidated financial statements: Reconciliation to consolidated financial statements: ASC 280, Segment Reporting (“ASC 280”) defines operating segments as components of an enterprise about which separate financial information is available that ASC 280, Segment Reporting (“ASC 280”) defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker ("CODM") in deciding how to allocate resources and in assessing performance. is evaluated regularly by the chief operating decision maker ("CODM") in deciding how to allocate resources and in assessing performance. Beginning January 1, 2017, following the realignment of certain markets which resulted in the consolidation of the Company's historical Mountain West division Beginning January 1, 2017, following the realignment of certain markets which resulted in the consolidation of the Company's historical Mountain West division into the Intermountain division, the Company's five operating segments are the Mid-Atlantic, Southeast, Texas, Intermountain and Western divisions. Following into the Intermountain division, the Company's five operating segments are the Mid-Atlantic, Southeast, Texas, Intermountain and Western divisions. Following the realignment, the CODM continues to review aggregate information to allocate resources and assess performance. Based on this, as well as the similar economic the realignment, the CODM continues to review aggregate information to allocate resources and assess performance. Based on this, as well as the similar economic characteristics, nature of products, distribution methods and customers of the divisions both before and after the realignment, the Company has aggregated its characteristics, nature of products, distribution methods and customers of the divisions both before and after the realignment, the Company has aggregated its operating segments into one reportable segment, "Geographic divisions." operating segments into one reportable segment, "Geographic divisions." In addition to the Company's reportable segment, the Company's consolidated results include "Other reconciling items." Other reconciling items is comprised of In addition to the Company's reportable segment, the Company's consolidated results include "Other reconciling items." Other reconciling items is comprised of the Company's corporate activities and other income and expenses not allocated to the operating segments. the Company's corporate activities and other income and expenses not allocated to the operating segments. The following tables present Net sales, Adjusted EBITDA and certain other measures for the reportable segment and total Company operations for the periods The following tables present Net sales, Adjusted EBITDA and certain other measures for the reportable segment and total Company operations for the periods indicated. Adjusted EBITDA is used as a performance metric by the CODM in determining how to allocate resources and assess performance. indicated. Adjusted EBITDA is used as a performance metric by the CODM in determining how to allocate resources and assess performance. (in thousands) (in thousands) Geographic divisions Geographic divisions Other reconciling items Other reconciling items (in thousands) (in thousands) Geographic divisions Geographic divisions Other reconciling items Other reconciling items (in thousands) (in thousands) Geographic divisions Geographic divisions Other reconciling items Other reconciling items $ $ $ $ $ $ $ $ $ $ $ $ Adjusted EBITDA of other reconciling items Adjusted EBITDA of other reconciling items 50,058 50,058 50,726 50,726 Adjusted EBITDA of geographic divisions reportable segment Adjusted EBITDA of geographic divisions reportable segment $ $ 250,061 $ 250,061 $ 244,616 $ 244,616 $ (a) Represents expenses incurred to relocate BMHC's headquarters to Atlanta, Georgia, including employee retention, severance, recruiting, relocation and (a) Represents expenses incurred to relocate BMHC's headquarters to Atlanta, Georgia, including employee retention, severance, recruiting, relocation and professional fees. professional fees. (b) For the year ended December 31, 2017, represents expense incurred related to pending litigation of $3.0 million and income related to the final settlement of (b) For the year ended December 31, 2017, represents expense incurred related to pending litigation of $3.0 million and income related to the final settlement of insurance claims made by the Company for a fire at one of the Company's facilities during 2015 of $2.0 million . For the year ended December 31, 2015, represents insurance claims made by the Company for a fire at one of the Company's facilities during 2015 of $2.0 million . For the year ended December 31, 2015, represents adjustments to insurance reserves for workers compensation, general liability, automobile and construction claims incurred prior to BMHC's restructuring and a adjustments to insurance reserves for workers compensation, general liability, automobile and construction claims incurred prior to BMHC's restructuring and a Year Ended December 31, 2017 Year Ended December 31, 2017 December 31, 2017 December 31, 2017 Net Sales Net Sales Gross Profit Gross Profit 3,365,968 $ 3,365,968 $ 795,515 $ 795,515 $ — — — — 3,365,968 $ 3,365,968 $ 795,515 $ 795,515 $ Depreciation & Depreciation & Amortization Amortization Adjusted EBITDA Adjusted EBITDA Total Assets Total Assets 66,809 $ 66,809 $ 2,408 2,408 69,217 69,217 250,061 $ 250,061 $ (50,058) (50,058) $ $ 1,435,970 1,435,970 37,380 37,380 1,473,350 1,473,350 Year Ended December 31, 2016 Year Ended December 31, 2016 December 31, 2016 December 31, 2016 Net Sales Net Sales Gross Profit Gross Profit 3,093,743 $ 3,093,743 $ 741,965 $ 741,965 $ — — — — 3,093,743 $ 3,093,743 $ 741,965 $ 741,965 $ Depreciation & Depreciation & Amortization Amortization Adjusted EBITDA Adjusted EBITDA Total Assets Total Assets casualty loss related to a fire at one of the Company’s facilities during 2015. casualty loss related to a fire at one of the Company’s facilities during 2015. 66,592 $ 66,592 $ 2,088 2,088 68,680 68,680 244,616 $ 244,616 $ (50,726) (50,726) $ $ 1,345,475 1,345,475 49,539 49,539 1,395,014 1,395,014 The Company does not earn revenues or have long-lived assets located in foreign countries. In accordance with the enterprise-wide disclosure requirements of the The Company does not earn revenues or have long-lived assets located in foreign countries. In accordance with the enterprise-wide disclosure requirements of the accounting standard, the Company's net sales from external customers by main product lines are as follows for the years ended December 31, 2017 , 2016 and 2015 accounting standard, the Company's net sales from external customers by main product lines are as follows for the years ended December 31, 2017 , 2016 and 2015 . Certain prior year amounts have been reclassified to conform to the current year presentation. . Certain prior year amounts have been reclassified to conform to the current year presentation. Year Ended December 31, 2015 Year Ended December 31, 2015 December 31, 2015 December 31, 2015 Net Sales Net Sales Gross Profit Gross Profit 1,576,746 $ 1,576,746 $ 361,410 $ 361,410 $ — — — — 1,576,746 $ 1,576,746 $ 361,410 $ 361,410 $ Depreciation & Depreciation & Amortization Amortization Adjusted EBITDA Adjusted EBITDA Total Assets Total Assets 23,726 $ 23,726 $ 863 863 24,589 24,589 122,914 $ 122,914 $ (36,872) (36,872) $ $ 1,305,545 1,305,545 65,594 65,594 1,371,139 1,371,139 78 78 (in thousands) (in thousands) Structural components Structural components Lumber & lumber sheet goods Lumber & lumber sheet goods Millwork, doors & windows Millwork, doors & windows Other building products & services Other building products & services Total net sales Total net sales 16. Earnings Per Common Share 16. Earnings Per Common Share Basic net income (loss) per share (“EPS”) is calculated by dividing net income (loss) attributable to common stockholders by the weighted average shares Basic net income (loss) per share (“EPS”) is calculated by dividing net income (loss) attributable to common stockholders by the weighted average shares outstanding during the period. Diluted EPS is calculated by adjusting weighted average shares outstanding for the dilutive effect of potential common shares, outstanding during the period. Diluted EPS is calculated by adjusting weighted average shares outstanding for the dilutive effect of potential common shares, determined using the treasury-stock method. For purposes of the diluted EPS calculation, stock options, restricted stock and restricted stock unit awards are determined using the treasury-stock method. For purposes of the diluted EPS calculation, stock options, restricted stock and restricted stock unit awards are considered to be potential common shares. During periods of net loss, no effect is given to potential common shares as they are anti-dilutive. Performance-based considered to be potential common shares. During periods of net loss, no effect is given to potential common shares as they are anti-dilutive. Performance-based restricted stock units are not included in the calculation of diluted EPS until they are contingently issuable. restricted stock units are not included in the calculation of diluted EPS until they are contingently issuable. 79 79 Year Ended December 31, Year Ended December 31, 2017 2017 2016 2016 2015 2015 $ $ 81,827 $ 81,827 $ 45,146 $ 45,146 $ (14,520) (14,520) 25,036 25,036 69,217 69,217 15,336 15,336 6,769 6,769 435 435 — — — — — — — — 424 424 959 959 30,131 30,131 68,680 68,680 15,340 15,340 7,252 7,252 11,928 11,928 2,884 2,884 12,529 12,529 — — — — — — — — 27,552 27,552 24,589 24,589 22,993 22,993 2,749 2,749 10,285 10,285 — — — — 3,865 3,865 2,826 2,826 2,604 2,604 3,099 3,099 36,872 36,872 122,914 122,914 2017 2017 2016 2016 2015 2015 $ $ 522,619 $ 522,619 $ 461,761 $ 461,761 $ 1,114,219 1,114,219 907,377 907,377 821,753 821,753 938,563 938,563 894,889 894,889 798,530 798,530 249,371 249,371 459,446 459,446 442,675 442,675 425,254 425,254 $ $ 3,365,968 $ 3,365,968 $ 3,093,743 $ 3,093,743 $ 1,576,746 1,576,746 15. Segments 15. Segments Reconciliation to consolidated financial statements: Reconciliation to consolidated financial statements: (in thousands) (in thousands) Income (loss) before income taxes Income (loss) before income taxes Interest expense Interest expense Depreciation and amortization Depreciation and amortization Merger and integration costs Merger and integration costs Non-cash stock compensation expense Non-cash stock compensation expense Impairment of assets Impairment of assets Inventory step-up charges Inventory step-up charges Loss on debt extinguishment Loss on debt extinguishment Headquarters relocation (a) Headquarters relocation (a) Loss portfolio transfer Loss portfolio transfer Acquisition costs Acquisition costs Other items (b) Other items (b) ASC 280, Segment Reporting (“ASC 280”) defines operating segments as components of an enterprise about which separate financial information is available that ASC 280, Segment Reporting (“ASC 280”) defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker ("CODM") in deciding how to allocate resources and in assessing performance. is evaluated regularly by the chief operating decision maker ("CODM") in deciding how to allocate resources and in assessing performance. Beginning January 1, 2017, following the realignment of certain markets which resulted in the consolidation of the Company's historical Mountain West division Beginning January 1, 2017, following the realignment of certain markets which resulted in the consolidation of the Company's historical Mountain West division into the Intermountain division, the Company's five operating segments are the Mid-Atlantic, Southeast, Texas, Intermountain and Western divisions. Following into the Intermountain division, the Company's five operating segments are the Mid-Atlantic, Southeast, Texas, Intermountain and Western divisions. Following the realignment, the CODM continues to review aggregate information to allocate resources and assess performance. Based on this, as well as the similar economic the realignment, the CODM continues to review aggregate information to allocate resources and assess performance. Based on this, as well as the similar economic characteristics, nature of products, distribution methods and customers of the divisions both before and after the realignment, the Company has aggregated its characteristics, nature of products, distribution methods and customers of the divisions both before and after the realignment, the Company has aggregated its operating segments into one reportable segment, "Geographic divisions." operating segments into one reportable segment, "Geographic divisions." In addition to the Company's reportable segment, the Company's consolidated results include "Other reconciling items." Other reconciling items is comprised of In addition to the Company's reportable segment, the Company's consolidated results include "Other reconciling items." Other reconciling items is comprised of the Company's corporate activities and other income and expenses not allocated to the operating segments. the Company's corporate activities and other income and expenses not allocated to the operating segments. The following tables present Net sales, Adjusted EBITDA and certain other measures for the reportable segment and total Company operations for the periods The following tables present Net sales, Adjusted EBITDA and certain other measures for the reportable segment and total Company operations for the periods indicated. Adjusted EBITDA is used as a performance metric by the CODM in determining how to allocate resources and assess performance. indicated. Adjusted EBITDA is used as a performance metric by the CODM in determining how to allocate resources and assess performance. (in thousands) (in thousands) Geographic divisions Geographic divisions Other reconciling items Other reconciling items (in thousands) (in thousands) Geographic divisions Geographic divisions Other reconciling items Other reconciling items (in thousands) (in thousands) Geographic divisions Geographic divisions Other reconciling items Other reconciling items Year Ended December 31, 2017 Year Ended December 31, 2017 December 31, 2017 December 31, 2017 Depreciation & Depreciation & Net Sales Net Sales Gross Profit Gross Profit Amortization Amortization Adjusted EBITDA Adjusted EBITDA Total Assets Total Assets 3,365,968 $ 3,365,968 $ 795,515 $ 795,515 $ — — — — 3,365,968 $ 3,365,968 $ 795,515 $ 795,515 $ 66,809 $ 66,809 $ 2,408 2,408 69,217 69,217 250,061 $ 250,061 $ (50,058) (50,058) $ $ 1,435,970 1,435,970 37,380 37,380 1,473,350 1,473,350 Year Ended December 31, 2016 Year Ended December 31, 2016 December 31, 2016 December 31, 2016 Depreciation & Depreciation & Net Sales Net Sales Gross Profit Gross Profit Amortization Amortization Adjusted EBITDA Adjusted EBITDA Total Assets Total Assets 3,093,743 $ 3,093,743 $ 741,965 $ 741,965 $ — — — — 3,093,743 $ 3,093,743 $ 741,965 $ 741,965 $ 66,592 $ 66,592 $ 2,088 2,088 68,680 68,680 244,616 $ 244,616 $ (50,726) (50,726) $ $ 1,345,475 1,345,475 49,539 49,539 1,395,014 1,395,014 Year Ended December 31, 2015 Year Ended December 31, 2015 December 31, 2015 December 31, 2015 Depreciation & Depreciation & Net Sales Net Sales Gross Profit Gross Profit Amortization Amortization Adjusted EBITDA Adjusted EBITDA Total Assets Total Assets 1,576,746 $ 1,576,746 $ 361,410 $ 361,410 $ — — — — 1,576,746 $ 1,576,746 $ 361,410 $ 361,410 $ 23,726 $ 23,726 $ 863 863 24,589 24,589 122,914 $ 122,914 $ (36,872) (36,872) $ $ 1,305,545 1,305,545 65,594 65,594 1,371,139 1,371,139 $ $ $ $ $ $ $ $ $ $ $ $ 78 78 Year Ended December 31, Year Ended December 31, 2017 2017 2016 2016 2015 2015 $ $ 81,827 $ 81,827 $ 45,146 $ 45,146 $ (14,520) (14,520) 25,036 25,036 69,217 69,217 15,336 15,336 6,769 6,769 435 435 — — — — — — — — 424 424 959 959 30,131 30,131 68,680 68,680 15,340 15,340 7,252 7,252 11,928 11,928 2,884 2,884 12,529 12,529 — — — — — — — — 27,552 27,552 24,589 24,589 22,993 22,993 2,749 2,749 — — 10,285 10,285 — — 3,865 3,865 2,826 2,826 2,604 2,604 3,099 3,099 36,872 36,872 122,914 122,914 Adjusted EBITDA of other reconciling items Adjusted EBITDA of other reconciling items 50,058 50,058 50,726 50,726 Adjusted EBITDA of geographic divisions reportable segment Adjusted EBITDA of geographic divisions reportable segment $ $ 250,061 $ 250,061 $ 244,616 $ 244,616 $ (a) Represents expenses incurred to relocate BMHC's headquarters to Atlanta, Georgia, including employee retention, severance, recruiting, relocation and (a) Represents expenses incurred to relocate BMHC's headquarters to Atlanta, Georgia, including employee retention, severance, recruiting, relocation and professional fees. professional fees. (b) For the year ended December 31, 2017, represents expense incurred related to pending litigation of $3.0 million and income related to the final settlement of (b) For the year ended December 31, 2017, represents expense incurred related to pending litigation of $3.0 million and income related to the final settlement of insurance claims made by the Company for a fire at one of the Company's facilities during 2015 of $2.0 million . For the year ended December 31, 2015, represents insurance claims made by the Company for a fire at one of the Company's facilities during 2015 of $2.0 million . For the year ended December 31, 2015, represents adjustments to insurance reserves for workers compensation, general liability, automobile and construction claims incurred prior to BMHC's restructuring and a adjustments to insurance reserves for workers compensation, general liability, automobile and construction claims incurred prior to BMHC's restructuring and a casualty loss related to a fire at one of the Company’s facilities during 2015. casualty loss related to a fire at one of the Company’s facilities during 2015. The Company does not earn revenues or have long-lived assets located in foreign countries. In accordance with the enterprise-wide disclosure requirements of the The Company does not earn revenues or have long-lived assets located in foreign countries. In accordance with the enterprise-wide disclosure requirements of the accounting standard, the Company's net sales from external customers by main product lines are as follows for the years ended December 31, 2017 , 2016 and 2015 accounting standard, the Company's net sales from external customers by main product lines are as follows for the years ended December 31, 2017 , 2016 and 2015 . Certain prior year amounts have been reclassified to conform to the current year presentation. . Certain prior year amounts have been reclassified to conform to the current year presentation. (in thousands) (in thousands) Structural components Structural components Lumber & lumber sheet goods Lumber & lumber sheet goods Millwork, doors & windows Millwork, doors & windows Other building products & services Other building products & services Total net sales Total net sales 16. Earnings Per Common Share 16. Earnings Per Common Share 2017 2017 2016 2016 2015 2015 $ $ 522,619 $ 522,619 $ 461,761 $ 461,761 $ 1,114,219 1,114,219 907,377 907,377 821,753 821,753 938,563 938,563 894,889 894,889 798,530 798,530 249,371 249,371 459,446 459,446 442,675 442,675 425,254 425,254 $ $ 3,365,968 $ 3,365,968 $ 3,093,743 $ 3,093,743 $ 1,576,746 1,576,746 Basic net income (loss) per share (“EPS”) is calculated by dividing net income (loss) attributable to common stockholders by the weighted average shares Basic net income (loss) per share (“EPS”) is calculated by dividing net income (loss) attributable to common stockholders by the weighted average shares outstanding during the period. Diluted EPS is calculated by adjusting weighted average shares outstanding for the dilutive effect of potential common shares, outstanding during the period. Diluted EPS is calculated by adjusting weighted average shares outstanding for the dilutive effect of potential common shares, determined using the treasury-stock method. For purposes of the diluted EPS calculation, stock options, restricted stock and restricted stock unit awards are determined using the treasury-stock method. For purposes of the diluted EPS calculation, stock options, restricted stock and restricted stock unit awards are considered to be potential common shares. During periods of net loss, no effect is given to potential common shares as they are anti-dilutive. Performance-based considered to be potential common shares. During periods of net loss, no effect is given to potential common shares as they are anti-dilutive. Performance-based restricted stock units are not included in the calculation of diluted EPS until they are contingently issuable. restricted stock units are not included in the calculation of diluted EPS until they are contingently issuable. 79 79 The basic and diluted EPS calculations for the years ended December 31, 2017 , 2016 and 2015 are presented below: The basic and diluted EPS calculations for the years ended December 31, 2017 , 2016 and 2015 are presented below: 18. Subsequent Events 18. Subsequent Events (in thousands, except per share amounts) (in thousands, except per share amounts) 2017 2017 2016 2016 2015 2015 transaction through available cash and borrowings on the Company’s Revolver. For the year ended December 31, 2017, Shone Lumber generated net sales of transaction through available cash and borrowings on the Company’s Revolver. For the year ended December 31, 2017, Shone Lumber generated net sales of Income (loss) attributable to common stockholders Income (loss) attributable to common stockholders $ $ 57,425 $ 57,425 $ 30,880 $ 30,880 $ (4,831) (4,831) approximately $70 million . approximately $70 million . Year Ended December 31, Year Ended December 31, On March 1, 2018 , the Company acquired substantially all of the assets and assumed certain liabilities of W.E. Shone Co. (“Shone Lumber”), a supplier of On March 1, 2018 , the Company acquired substantially all of the assets and assumed certain liabilities of W.E. Shone Co. (“Shone Lumber”), a supplier of building materials in the state of Delaware, for a purchase price of $23 million , subject to a holdback and working capital adjustments. The Company funded the building materials in the state of Delaware, for a purchase price of $23 million , subject to a holdback and working capital adjustments. The Company funded the Weighted average common shares outstanding, basic Weighted average common shares outstanding, basic 66,900 66,900 66,055 66,055 41,260 41,260 The results of operations of Shone Lumber will be included in the Company’s consolidated financial statements beginning on the acquisition date. The results of operations of Shone Lumber will be included in the Company’s consolidated financial statements beginning on the acquisition date. Effect of dilutive securities: Effect of dilutive securities: Restricted stock Restricted stock Restricted stock units Restricted stock units Stock options Stock options 65 65 235 235 204 204 207 207 129 129 218 218 — — — — — — 81 81 Weighted average common shares outstanding, diluted Weighted average common shares outstanding, diluted 67,404 67,404 66,609 66,609 41,260 41,260 Basic income (loss) per common share Basic income (loss) per common share Diluted income (loss) per common share Diluted income (loss) per common share $ $ $ $ 0.86 $ 0.86 $ 0.85 $ 0.85 $ 0.47 $ 0.47 $ 0.46 $ 0.46 $ (0.12) (0.12) (0.12) (0.12) The following table provides the securities that could potentially dilute EPS in the future, but were not included in the computation of diluted EPS because to do so The following table provides the securities that could potentially dilute EPS in the future, but were not included in the computation of diluted EPS because to do so would have been anti-dilutive. The amounts included in this table exclude performance-based restricted stock units. The number of currently outstanding would have been anti-dilutive. The amounts included in this table exclude performance-based restricted stock units. The number of currently outstanding performance-based restricted stock units that are issued upon vesting could range from zero to a maximum of 0.5 million . performance-based restricted stock units that are issued upon vesting could range from zero to a maximum of 0.5 million . (in thousands) (in thousands) Restricted stock units Restricted stock units Stock options Stock options Restricted stock Restricted stock 17. Unaudited Quarterly Financial Data 17. Unaudited Quarterly Financial Data The following tables summarize the consolidated quarterly results of operations for 2017 and 2016 : The following tables summarize the consolidated quarterly results of operations for 2017 and 2016 : Year Ended December 31, Year Ended December 31, 2017 2017 2016 2016 2015 2015 5 5 469 469 — — 282 282 1,228 1,228 455 455 — — — — — — 2017 2017 (in thousands, except per share amounts) (in thousands, except per share amounts) First First Quarter Quarter Second Second Quarter Quarter Third Third Quarter Quarter Fourth Fourth Quarter Quarter Net sales Net sales Gross profit Gross profit Net income Net income Basic income per share Basic income per share Diluted income per share Diluted income per share (in thousands, except per share amounts) (in thousands, except per share amounts) Net sales Net sales Gross profit Gross profit Net (loss) income Net (loss) income Basic (loss) income per share Basic (loss) income per share Diluted (loss) income per share Diluted (loss) income per share $ $ $ $ $ $ $ $ $ $ $ $ 757,700 $ 757,700 $ 886,375 $ 886,375 $ 881,012 $ 881,012 $ 178,197 178,197 3,744 3,744 0.06 $ 0.06 $ 0.06 $ 0.06 $ 209,545 209,545 18,443 18,443 0.28 $ 0.28 $ 0.27 $ 0.27 $ 211,687 211,687 17,596 17,596 0.26 $ 0.26 $ 0.26 $ 0.26 $ 2016 2016 840,881 840,881 196,086 196,086 17,642 17,642 0.26 0.26 0.26 0.26 First First Quarter Quarter Second Second Quarter Quarter Third Third Quarter Quarter Fourth Fourth Quarter Quarter 727,418 $ 727,418 $ 797,547 $ 797,547 $ 821,204 $ 821,204 $ 191,655 191,655 17,982 17,982 0.27 $ 0.27 $ 0.27 $ 0.27 $ 202,966 202,966 9,236 9,236 0.14 $ 0.14 $ 0.14 $ 0.14 $ 166,617 166,617 (6,756) (6,756) (0.10) $ (0.10) $ (0.10) $ (0.10) $ 80 80 747,574 747,574 180,727 180,727 10,418 10,418 0.16 0.16 0.16 0.16 The basic and diluted EPS calculations for the years ended December 31, 2017 , 2016 and 2015 are presented below: The basic and diluted EPS calculations for the years ended December 31, 2017 , 2016 and 2015 are presented below: 18. Subsequent Events 18. Subsequent Events (in thousands, except per share amounts) (in thousands, except per share amounts) Income (loss) attributable to common stockholders Income (loss) attributable to common stockholders $ $ 57,425 $ 57,425 $ 30,880 $ 30,880 $ (4,831) (4,831) Year Ended December 31, Year Ended December 31, 2017 2017 2016 2016 2015 2015 On March 1, 2018 , the Company acquired substantially all of the assets and assumed certain liabilities of W.E. Shone Co. (“Shone Lumber”), a supplier of On March 1, 2018 , the Company acquired substantially all of the assets and assumed certain liabilities of W.E. Shone Co. (“Shone Lumber”), a supplier of building materials in the state of Delaware, for a purchase price of $23 million , subject to a holdback and working capital adjustments. The Company funded the building materials in the state of Delaware, for a purchase price of $23 million , subject to a holdback and working capital adjustments. The Company funded the transaction through available cash and borrowings on the Company’s Revolver. For the year ended December 31, 2017, Shone Lumber generated net sales of transaction through available cash and borrowings on the Company’s Revolver. For the year ended December 31, 2017, Shone Lumber generated net sales of approximately $70 million . approximately $70 million . Weighted average common shares outstanding, basic Weighted average common shares outstanding, basic 66,900 66,900 66,055 66,055 41,260 41,260 The results of operations of Shone Lumber will be included in the Company’s consolidated financial statements beginning on the acquisition date. The results of operations of Shone Lumber will be included in the Company’s consolidated financial statements beginning on the acquisition date. 65 65 235 235 204 204 207 207 129 129 218 218 — — — — — — 81 81 Effect of dilutive securities: Effect of dilutive securities: Restricted stock Restricted stock Restricted stock units Restricted stock units Stock options Stock options (in thousands) (in thousands) Restricted stock units Restricted stock units Stock options Stock options Restricted stock Restricted stock (in thousands, except per share amounts) (in thousands, except per share amounts) Net sales Net sales Gross profit Gross profit Net income Net income Basic income per share Basic income per share Diluted income per share Diluted income per share (in thousands, except per share amounts) (in thousands, except per share amounts) Net sales Net sales Gross profit Gross profit Net (loss) income Net (loss) income Basic (loss) income per share Basic (loss) income per share Diluted (loss) income per share Diluted (loss) income per share Weighted average common shares outstanding, diluted Weighted average common shares outstanding, diluted 67,404 67,404 66,609 66,609 41,260 41,260 Basic income (loss) per common share Basic income (loss) per common share Diluted income (loss) per common share Diluted income (loss) per common share $ $ $ $ 0.86 $ 0.86 $ 0.85 $ 0.85 $ 0.47 $ 0.47 $ 0.46 $ 0.46 $ (0.12) (0.12) (0.12) (0.12) The following table provides the securities that could potentially dilute EPS in the future, but were not included in the computation of diluted EPS because to do so The following table provides the securities that could potentially dilute EPS in the future, but were not included in the computation of diluted EPS because to do so would have been anti-dilutive. The amounts included in this table exclude performance-based restricted stock units. The number of currently outstanding would have been anti-dilutive. The amounts included in this table exclude performance-based restricted stock units. The number of currently outstanding performance-based restricted stock units that are issued upon vesting could range from zero to a maximum of 0.5 million . performance-based restricted stock units that are issued upon vesting could range from zero to a maximum of 0.5 million . 17. Unaudited Quarterly Financial Data 17. Unaudited Quarterly Financial Data The following tables summarize the consolidated quarterly results of operations for 2017 and 2016 : The following tables summarize the consolidated quarterly results of operations for 2017 and 2016 : Year Ended December 31, Year Ended December 31, 2017 2017 2016 2016 2015 2015 5 5 469 469 — — 282 282 1,228 1,228 455 455 — — — — — — 2017 2017 211,687 211,687 17,596 17,596 0.26 $ 0.26 $ 0.26 $ 0.26 $ 2016 2016 191,655 191,655 17,982 17,982 0.27 $ 0.27 $ 0.27 $ 0.27 $ First First Quarter Quarter Second Second Quarter Quarter Third Third Quarter Quarter Fourth Fourth Quarter Quarter 757,700 $ 757,700 $ 886,375 $ 886,375 $ 881,012 $ 881,012 $ First First Quarter Quarter Second Second Quarter Quarter Third Third Quarter Quarter Fourth Fourth Quarter Quarter 727,418 $ 727,418 $ 797,547 $ 797,547 $ 821,204 $ 821,204 $ 209,545 209,545 18,443 18,443 0.28 $ 0.28 $ 0.27 $ 0.27 $ 202,966 202,966 9,236 9,236 0.14 $ 0.14 $ 0.14 $ 0.14 $ 840,881 840,881 196,086 196,086 17,642 17,642 0.26 0.26 0.26 0.26 747,574 747,574 180,727 180,727 10,418 10,418 0.16 0.16 0.16 0.16 $ $ $ $ $ $ $ $ $ $ $ $ 178,197 178,197 3,744 3,744 0.06 $ 0.06 $ 0.06 $ 0.06 $ 166,617 166,617 (6,756) (6,756) (0.10) $ (0.10) $ (0.10) $ (0.10) $ 80 80 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures PART III PART III None. None. Item 9A. Controls and Procedures Item 9A. Controls and Procedures Disclosure controls and procedures Disclosure controls and procedures Our management is responsible for establishing and maintaining disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Our management is responsible for establishing and maintaining disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These disclosure controls and procedures are designed to ensure that information required to Securities Exchange Act of 1934, as amended (the “Exchange Act”). These disclosure controls and procedures are designed to ensure that information required 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 periods specified 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 periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. disclosure. We have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end We have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report, with the participation of our Chief Executive Officer and Chief Financial Officer, as well as other key members of our of the period covered by this report, with the participation of our Chief Executive Officer and Chief Financial Officer, as well as other key members of our management. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were management. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2017 . effective as of December 31, 2017 . The design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will The design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all future events, no matter how remote, or that the degree of compliance with the policies or procedures may not succeed in achieving its stated objectives under all future events, no matter how remote, or that the degree of compliance with the policies or procedures may not deteriorate. Because of their inherent limitations, disclosure controls and procedures may not prevent or detect all misstatements. Accordingly, even effective deteriorate. Because of their inherent limitations, disclosure controls and procedures may not prevent or detect all misstatements. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Management's annual report on internal control over financial reporting Management's annual report on internal control over financial reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management, with the participation of our principal executive officer and principal financial officer, conducted an assessment of the effectiveness Exchange Act). Management, with the participation of our principal executive officer and principal financial officer, conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring of our internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on the assessment, management has concluded that the internal control over financial Organizations of the Treadway Commission (2013 framework). Based on the assessment, management has concluded that the internal control over financial reporting of BMC Stock Holdings, Inc. was effective as of December 31, 2017 to provide reasonable assurance regarding the reliability of financial reporting and reporting of BMC Stock Holdings, Inc. was effective as of December 31, 2017 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. the preparation of financial statements in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. the policies or procedures may deteriorate. Plan Category Plan Category Our independent registered public accounting firm, PricewaterhouseCoopers LLP, has issued an audit report with respect to the effectiveness of our internal control Our independent registered public accounting firm, PricewaterhouseCoopers LLP, has issued an audit report with respect to the effectiveness of our internal control over financial reporting as of December 31, 2017 , which appears in Part II, Item 8 of this Annual Report on Form 10-K. over financial reporting as of December 31, 2017 , which appears in Part II, Item 8 of this Annual Report on Form 10-K. Changes in internal control over financial reporting Changes in internal control over financial reporting There was no change in our internal control over financial reporting during the three months ended December 31, 2017 that has materially affected, or is There was no change in our internal control over financial reporting during the three months ended December 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information Item 9B. Other Information None. None. 82 82 Item 10. Directors, Executive Officers and Corporate Governance Item 10. Directors, Executive Officers and Corporate Governance Code of Business Conduct and Ethics for Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. We have adopted a Code of Ethics which Code of Business Conduct and Ethics for Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. We have adopted a Code of Ethics which applies to our chief executive officer, chief financial officer, chief accounting officer and all our other employees, and which can be found through our website, applies to our chief executive officer, chief financial officer, chief accounting officer and all our other employees, and which can be found through our website, www.buildwithbmc.com under the Investors section. We are not including this or any other information on our website as a part of, nor incorporating it by www.buildwithbmc.com under the Investors section. We are not including this or any other information on our website as a part of, nor incorporating it by reference into, this Annual Report on Form 10-K or any of our other SEC filings. reference into, this Annual Report on Form 10-K or any of our other SEC filings. In the event the Company makes any amendment to, or grants any waiver from, a provision of the Code of Business Conduct and Ethics that applies to the In the event the Company makes any amendment to, or grants any waiver from, a provision of the Code of Business Conduct and Ethics that applies to the principal executive officer, principal financial officer or principal accounting officer that requires disclosure under applicable SEC rules, the Company will principal executive officer, principal financial officer or principal accounting officer that requires disclosure under applicable SEC rules, the Company will disclose such amendment or waiver and reasons therefore within four business days of such event on its website at buildwithbmc.com. disclose such amendment or waiver and reasons therefore within four business days of such event on its website at buildwithbmc.com. Except as set forth above, the information required by this Item 10 is herein incorporated by reference to the Company's definitive proxy statement relating to the Except as set forth above, the information required by this Item 10 is herein incorporated by reference to the Company's definitive proxy statement relating to the 2018 Annual Meeting of Stockholders (the “2018 Proxy Statement”), which will be filed with the SEC not later than 120 days after December 31, 2017. 2018 Annual Meeting of Stockholders (the “2018 Proxy Statement”), which will be filed with the SEC not later than 120 days after December 31, 2017. Item 11. Executive Compensation Item 11. Executive Compensation Except as specifically set forth below, the information required by this Item 11 is herein incorporated by reference to the 2018 Proxy Statement, which will be filed Except as specifically set forth below, the information required by this Item 11 is herein incorporated by reference to the 2018 Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2017. with the SEC not later than 120 days after December 31, 2017. The information required by Item 407(e)(5) of Regulation S-K will be included under the caption “Compensation Committee Report” in the 2018 Proxy Statement, The information required by Item 407(e)(5) of Regulation S-K will be included under the caption “Compensation Committee Report” in the 2018 Proxy Statement, which section is incorporated in this item by reference; however, such information is only “furnished” hereunder and not deemed “filed” for purposes of Section 18 which section is incorporated in this item by reference; however, such information is only “furnished” hereunder and not deemed “filed” for purposes of Section 18 of the Exchange Act. of the Exchange Act. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Except as set forth below, the information required by this Item 12 is herein incorporated by reference to the 2018 Proxy Statement, which will be filed with the Except as set forth below, the information required by this Item 12 is herein incorporated by reference to the 2018 Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2017. SEC not later than 120 days after December 31, 2017. The following table provides information as of December 31, 2017, with respect to the Company's existing equity compensation plans: The following table provides information as of December 31, 2017, with respect to the Company's existing equity compensation plans: Number of Securities Number of Securities To Be Issued Upon To Be Issued Upon Exercise of Exercise of Outstanding Options, Outstanding Options, Warrants and Rights Warrants and Rights Weighted-Average Weighted-Average Exercise Price of Exercise Price of Outstanding Options, Outstanding Options, Warrants and Rights Warrants and Rights Number of Securities Number of Securities Remaining Available Remaining Available for Future Issuance for Future Issuance under Equity under Equity Compensation Compensation Plans (Excluding Plans (Excluding Securities Reflected in Securities Reflected in Column (a)) Column (a)) Equity compensation plan approved by security holders Equity compensation plan approved by security holders (2013 Incentive Plan) (3) (2013 Incentive Plan) (3) Equity compensation plan not approved by security holders Equity compensation plan not approved by security holders (Pre-IPO incentive program) (4) (Pre-IPO incentive program) (4) Total Total 1,662,798 (1) 1,662,798 (1) $ $ 17.06 (2) 17.06 (2) 3,103,798 3,103,798 64,671 64,671 1,727,469 1,727,469 $ $ 0.97 0.97 15.59 (2) 15.59 (2) — — 3,103,798 3,103,798 (1) Includes 639,968 options, 60,165 restricted shares and 962,665 restricted stock units, including service-based and performance-based restricted stock units, (1) Includes 639,968 options, 60,165 restricted shares and 962,665 restricted stock units, including service-based and performance-based restricted stock units, outstanding under the 2013 Incentive Plan. Performance-based restricted stock units are presented assuming vesting of the maximum number of performance-based outstanding under the 2013 Incentive Plan. Performance-based restricted stock units are presented assuming vesting of the maximum number of performance-based (2) Represents the weighted average exercise price of the outstanding options only and does not reflect outstanding restricted stock and restricted stock units, which (2) Represents the weighted average exercise price of the outstanding options only and does not reflect outstanding restricted stock and restricted stock units, which restricted stock units which could be earned. restricted stock units which could be earned. have no exercise price. have no exercise price. (3) The material features of the plan are described in Note 14 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. (3) The material features of the plan are described in Note 14 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. 83 83 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures PART III PART III None. None. Item 9A. Controls and Procedures Item 9A. Controls and Procedures Disclosure controls and procedures Disclosure controls and procedures Our management is responsible for establishing and maintaining disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Our management is responsible for establishing and maintaining disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These disclosure controls and procedures are designed to ensure that information required to Securities Exchange Act of 1934, as amended (the “Exchange Act”). These disclosure controls and procedures are designed to ensure that information required 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 periods specified 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 periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. disclosure. We have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end We have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report, with the participation of our Chief Executive Officer and Chief Financial Officer, as well as other key members of our of the period covered by this report, with the participation of our Chief Executive Officer and Chief Financial Officer, as well as other key members of our management. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were management. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2017 . effective as of December 31, 2017 . The design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will The design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all future events, no matter how remote, or that the degree of compliance with the policies or procedures may not succeed in achieving its stated objectives under all future events, no matter how remote, or that the degree of compliance with the policies or procedures may not deteriorate. Because of their inherent limitations, disclosure controls and procedures may not prevent or detect all misstatements. Accordingly, even effective deteriorate. Because of their inherent limitations, disclosure controls and procedures may not prevent or detect all misstatements. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Management's annual report on internal control over financial reporting Management's annual report on internal control over financial reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management, with the participation of our principal executive officer and principal financial officer, conducted an assessment of the effectiveness Exchange Act). Management, with the participation of our principal executive officer and principal financial officer, conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring of our internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on the assessment, management has concluded that the internal control over financial Organizations of the Treadway Commission (2013 framework). Based on the assessment, management has concluded that the internal control over financial reporting of BMC Stock Holdings, Inc. was effective as of December 31, 2017 to provide reasonable assurance regarding the reliability of financial reporting and reporting of BMC Stock Holdings, Inc. was effective as of December 31, 2017 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. the preparation of financial statements in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. the policies or procedures may deteriorate. Our independent registered public accounting firm, PricewaterhouseCoopers LLP, has issued an audit report with respect to the effectiveness of our internal control Our independent registered public accounting firm, PricewaterhouseCoopers LLP, has issued an audit report with respect to the effectiveness of our internal control over financial reporting as of December 31, 2017 , which appears in Part II, Item 8 of this Annual Report on Form 10-K. over financial reporting as of December 31, 2017 , which appears in Part II, Item 8 of this Annual Report on Form 10-K. Changes in internal control over financial reporting Changes in internal control over financial reporting There was no change in our internal control over financial reporting during the three months ended December 31, 2017 that has materially affected, or is There was no change in our internal control over financial reporting during the three months ended December 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information Item 9B. Other Information None. None. 82 82 Item 10. Directors, Executive Officers and Corporate Governance Item 10. Directors, Executive Officers and Corporate Governance Code of Business Conduct and Ethics for Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. We have adopted a Code of Ethics which Code of Business Conduct and Ethics for Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. We have adopted a Code of Ethics which applies to our chief executive officer, chief financial officer, chief accounting officer and all our other employees, and which can be found through our website, applies to our chief executive officer, chief financial officer, chief accounting officer and all our other employees, and which can be found through our website, www.buildwithbmc.com under the Investors section. We are not including this or any other information on our website as a part of, nor incorporating it by www.buildwithbmc.com under the Investors section. We are not including this or any other information on our website as a part of, nor incorporating it by reference into, this Annual Report on Form 10-K or any of our other SEC filings. reference into, this Annual Report on Form 10-K or any of our other SEC filings. In the event the Company makes any amendment to, or grants any waiver from, a provision of the Code of Business Conduct and Ethics that applies to the In the event the Company makes any amendment to, or grants any waiver from, a provision of the Code of Business Conduct and Ethics that applies to the principal executive officer, principal financial officer or principal accounting officer that requires disclosure under applicable SEC rules, the Company will principal executive officer, principal financial officer or principal accounting officer that requires disclosure under applicable SEC rules, the Company will disclose such amendment or waiver and reasons therefore within four business days of such event on its website at buildwithbmc.com. disclose such amendment or waiver and reasons therefore within four business days of such event on its website at buildwithbmc.com. Except as set forth above, the information required by this Item 10 is herein incorporated by reference to the Company's definitive proxy statement relating to the Except as set forth above, the information required by this Item 10 is herein incorporated by reference to the Company's definitive proxy statement relating to the 2018 Annual Meeting of Stockholders (the “2018 Proxy Statement”), which will be filed with the SEC not later than 120 days after December 31, 2017. 2018 Annual Meeting of Stockholders (the “2018 Proxy Statement”), which will be filed with the SEC not later than 120 days after December 31, 2017. Item 11. Executive Compensation Item 11. Executive Compensation Except as specifically set forth below, the information required by this Item 11 is herein incorporated by reference to the 2018 Proxy Statement, which will be filed Except as specifically set forth below, the information required by this Item 11 is herein incorporated by reference to the 2018 Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2017. with the SEC not later than 120 days after December 31, 2017. The information required by Item 407(e)(5) of Regulation S-K will be included under the caption “Compensation Committee Report” in the 2018 Proxy Statement, The information required by Item 407(e)(5) of Regulation S-K will be included under the caption “Compensation Committee Report” in the 2018 Proxy Statement, which section is incorporated in this item by reference; however, such information is only “furnished” hereunder and not deemed “filed” for purposes of Section 18 which section is incorporated in this item by reference; however, such information is only “furnished” hereunder and not deemed “filed” for purposes of Section 18 of the Exchange Act. of the Exchange Act. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Except as set forth below, the information required by this Item 12 is herein incorporated by reference to the 2018 Proxy Statement, which will be filed with the Except as set forth below, the information required by this Item 12 is herein incorporated by reference to the 2018 Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2017. SEC not later than 120 days after December 31, 2017. The following table provides information as of December 31, 2017, with respect to the Company's existing equity compensation plans: The following table provides information as of December 31, 2017, with respect to the Company's existing equity compensation plans: Plan Category Plan Category Equity compensation plan approved by security holders Equity compensation plan approved by security holders (2013 Incentive Plan) (3) (2013 Incentive Plan) (3) Equity compensation plan not approved by security holders Equity compensation plan not approved by security holders (Pre-IPO incentive program) (4) (Pre-IPO incentive program) (4) Total Total Number of Securities Number of Securities To Be Issued Upon To Be Issued Upon Exercise of Exercise of Outstanding Options, Outstanding Options, Warrants and Rights Warrants and Rights Weighted-Average Weighted-Average Exercise Price of Exercise Price of Outstanding Options, Outstanding Options, Warrants and Rights Warrants and Rights Number of Securities Number of Securities Remaining Available Remaining Available for Future Issuance for Future Issuance under Equity under Equity Compensation Compensation Plans (Excluding Plans (Excluding Securities Reflected in Securities Reflected in Column (a)) Column (a)) 1,662,798 (1) 1,662,798 (1) $ $ 17.06 (2) 17.06 (2) 3,103,798 3,103,798 64,671 64,671 1,727,469 1,727,469 $ $ 0.97 0.97 15.59 (2) 15.59 (2) — — 3,103,798 3,103,798 (1) Includes 639,968 options, 60,165 restricted shares and 962,665 restricted stock units, including service-based and performance-based restricted stock units, (1) Includes 639,968 options, 60,165 restricted shares and 962,665 restricted stock units, including service-based and performance-based restricted stock units, outstanding under the 2013 Incentive Plan. Performance-based restricted stock units are presented assuming vesting of the maximum number of performance-based outstanding under the 2013 Incentive Plan. Performance-based restricted stock units are presented assuming vesting of the maximum number of performance-based restricted stock units which could be earned. restricted stock units which could be earned. (2) Represents the weighted average exercise price of the outstanding options only and does not reflect outstanding restricted stock and restricted stock units, which (2) Represents the weighted average exercise price of the outstanding options only and does not reflect outstanding restricted stock and restricted stock units, which have no exercise price. have no exercise price. (3) The material features of the plan are described in Note 14 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. (3) The material features of the plan are described in Note 14 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. 83 83 (4) Pre-IPO incentive program of SBS that provided for grants of stock options and restricted stock to certain employees and directors. Awards granted under the (4) Pre-IPO incentive program of SBS that provided for grants of stock options and restricted stock to certain employees and directors. Awards granted under the program vested over such periods as were approved at the time of the grant of the award. Only options remain outstanding under the Pre-IPO incentive program. program vested over such periods as were approved at the time of the grant of the award. Only options remain outstanding under the Pre-IPO incentive program. PART IV PART IV Item 13. Certain Relationships and Related Transactions, and Director Independence Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item 13 is herein incorporated by reference to the 2018 Proxy Statement, which will be filed with the SEC not later than 120 days The information required by this Item 13 is herein incorporated by reference to the 2018 Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2017. after December 31, 2017. Item 14. Principal Accountant Fees and Services Item 14. Principal Accountant Fees and Services The information required by this Item 14 is herein incorporated by reference to the 2018 Proxy Statement, which will be filed with the SEC not later than 120 days The information required by this Item 14 is herein incorporated by reference to the 2018 Proxy Statement, which will be filed with the SEC not later than 120 days after December 31, 2017. after December 31, 2017. Item 15. Exhibits and Financial Statement Schedules Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this report: (a) The following documents are filed as part of this report: 1. The list of consolidated financial statements and related notes, together with the report of PricewaterhouseCoopers LLP, appear in Part II, Item 8 1. The list of consolidated financial statements and related notes, together with the report of PricewaterhouseCoopers LLP, appear in Part II, Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K and are hereby incorporated by reference. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K and are hereby incorporated by reference. 2. Financial statement schedules have been omitted because they are not applicable, not material or the required information is otherwise included. 2. Financial statement schedules have been omitted because they are not applicable, not material or the required information is otherwise included. 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. 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. 84 84 Exhibit No. Exhibit No. Description Description 2.1 + 2.1 + Agreement and Plan of Merger, dated as of June 2, 2015, by and between Stock Building Supply Holdings, Inc. and Building Materials Agreement and Plan of Merger, dated as of June 2, 2015, by and between Stock Building Supply Holdings, Inc. and Building Materials Holding Corporation (incorporated by reference to Exhibit 2.1 to the Form 8-K filed with the SEC on June 5, 2015 in Commission File No. Holding Corporation (incorporated by reference to Exhibit 2.1 to the Form 8-K filed with the SEC on June 5, 2015 in Commission File No. 001-36050) 001-36050) Amended and Restated Certificate of Incorporation Amended and Restated Certificate of Incorporation 3.1 3.1 3.2 3.2 4.1 4.1 4.2 4.2 10.1 # 10.1 # 10.2 # 10.2 # 10.3 # 10.3 # 10.4 # 10.4 # 10.5 # 10.5 # 10.6 # 10.6 # 10.7 # 10.7 # 10.8 # 10.8 # 10.9 # 10.9 # Amended and Restated Bylaws of Stock Building Supply Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Amended and Restated Bylaws of Stock Building Supply Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on August 15, 2013 in Commission File No. 001-36050) Report on Form 8-K filed with the Commission on August 15, 2013 in Commission File No. 001-36050) Form of stock certificate (incorporated by reference to Exhibit 4.1 to the Stock Building Supply Holdings, Inc. Registration Statement on Form Form of stock certificate (incorporated by reference to Exhibit 4.1 to the Stock Building Supply Holdings, Inc. Registration Statement on Form S-1, as amended, filed with the Commission on June 14, 2013 in Commission File No. 333-189368) S-1, as amended, filed with the Commission on June 14, 2013 in Commission File No. 333-189368) Indenture, dated as of September 15, 2016, among BMC East, LLC, the Guarantors named therein and Wilmington Trust, National Indenture, dated as of September 15, 2016, among BMC East, LLC, the Guarantors named therein and Wilmington Trust, National Association, as Trustee and Notes Collateral Agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K Association, as Trustee and Notes Collateral Agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 16, 2016 in Commission File No. 001-36050). filed with the Commission on September 16, 2016 in Commission File No. 001-36050). Separation Agreement, dated as of January 9, 2018, by and between Peter C. Alexander and BMC Stock Holdings, Inc. Separation Agreement, dated as of January 9, 2018, by and between Peter C. Alexander and BMC Stock Holdings, Inc. Amended and Restated Employment Agreement, dated as of April 1, 2016, by and between Peter C. Alexander and BMC Stock Holdings, Inc. Amended and Restated Employment Agreement, dated as of April 1, 2016, by and between Peter C. Alexander and BMC Stock Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed with the Commission on April 7, 2016 in Commission File No. (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed with the Commission on April 7, 2016 in Commission File No. 001-36050) 001-36050) 001-36050) 001-36050) Amended and Restated Employment Agreement, dated as of October 9, 2014, between Stock Building Supply Holdings, Inc. and James F. Amended and Restated Employment Agreement, dated as of October 9, 2014, between Stock Building Supply Holdings, Inc. and James F. Major, Jr. (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed with the Commission on October 10, 2014 in Major, Jr. (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed with the Commission on October 10, 2014 in Commission File No. 001-36050) Commission File No. 001-36050) Employment Agreement Amendment, dated as of June 2, 2015, by and between James F. Major, Jr. and Stock Building Supply Holdings, Inc. Employment Agreement Amendment, dated as of June 2, 2015, by and between James F. Major, Jr. and Stock Building Supply Holdings, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed with the Commission on June 5, 2015 in Commission File No. (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed with the Commission on June 5, 2015 in Commission File No. Amended and Restated Employment Agreement, dated as of February 21, 2017, by and between Lisa M. Hamblet and BMC Stock Holdings, Amended and Restated Employment Agreement, dated as of February 21, 2017, by and between Lisa M. Hamblet and BMC Stock Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on May 8, 2017 Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on May 8, 2017 Amended and Restated Employment Agreement, dated as of August 1, 2017, by and between Lisa M. Hamblet and BMC Stock Holdings, Inc. Amended and Restated Employment Agreement, dated as of August 1, 2017, by and between Lisa M. Hamblet and BMC Stock Holdings, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 8, 2017 in (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 8, 2017 in Employment Agreement, dated as of October 9, 2014, between Stock Building Supply Holdings, Inc. and C. Lowell Ball (incorporated by Employment Agreement, dated as of October 9, 2014, between Stock Building Supply Holdings, Inc. and C. Lowell Ball (incorporated by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on October 28, 2014 in Commission reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on October 28, 2014 in Commission Employment Agreement Amendment, dated as of June 2, 2015, by and between C. Lowell Ball and Stock Building Supply Holdings, Inc. Employment Agreement Amendment, dated as of June 2, 2015, by and between C. Lowell Ball and Stock Building Supply Holdings, Inc. (incorporated by reference to Exhibit 10.6 to the Registrant’s Form 8-K filed with the Commission on June 5, 2015 in Commission File No. (incorporated by reference to Exhibit 10.6 to the Registrant’s Form 8-K filed with the Commission on June 5, 2015 in Commission File No. Consulting Agreement, dated as of September 16, 2017, by and between Paul Street and BMC Corporate Services (incorporated by reference Consulting Agreement, dated as of September 16, 2017, by and between Paul Street and BMC Corporate Services (incorporated by reference to Exhibit 99.1 to the Registrant’s Form 8-K filed with the Commission on September 19, 2017 in Commission File No. 001-36050) to Exhibit 99.1 to the Registrant’s Form 8-K filed with the Commission on September 19, 2017 in Commission File No. 001-36050) in Commission File No. 001-36050) in Commission File No. 001-36050) Commission File No. 001-36050) Commission File No. 001-36050) File No. 001-36050) File No. 001-36050) 001-36050) 001-36050) 85 85 (4) Pre-IPO incentive program of SBS that provided for grants of stock options and restricted stock to certain employees and directors. Awards granted under the (4) Pre-IPO incentive program of SBS that provided for grants of stock options and restricted stock to certain employees and directors. Awards granted under the program vested over such periods as were approved at the time of the grant of the award. Only options remain outstanding under the Pre-IPO incentive program. program vested over such periods as were approved at the time of the grant of the award. Only options remain outstanding under the Pre-IPO incentive program. PART IV PART IV Item 13. Certain Relationships and Related Transactions, and Director Independence Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item 13 is herein incorporated by reference to the 2018 Proxy Statement, which will be filed with the SEC not later than 120 days The information required by this Item 13 is herein incorporated by reference to the 2018 Proxy Statement, which will be filed with the SEC not later than 120 days (a) The following documents are filed as part of this report: (a) The following documents are filed as part of this report: Item 15. Exhibits and Financial Statement Schedules Item 15. Exhibits and Financial Statement Schedules after December 31, 2017. after December 31, 2017. Item 14. Principal Accountant Fees and Services Item 14. Principal Accountant Fees and Services after December 31, 2017. after December 31, 2017. The information required by this Item 14 is herein incorporated by reference to the 2018 Proxy Statement, which will be filed with the SEC not later than 120 days The information required by this Item 14 is herein incorporated by reference to the 2018 Proxy Statement, which will be filed with the SEC not later than 120 days 1. The list of consolidated financial statements and related notes, together with the report of PricewaterhouseCoopers LLP, appear in Part II, Item 8 1. The list of consolidated financial statements and related notes, together with the report of PricewaterhouseCoopers LLP, appear in Part II, Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K and are hereby incorporated by reference. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K and are hereby incorporated by reference. 2. Financial statement schedules have been omitted because they are not applicable, not material or the required information is otherwise included. 2. Financial statement schedules have been omitted because they are not applicable, not material or the required information is otherwise included. 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. 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. 84 84 Exhibit No. Exhibit No. Description Description 2.1 + 2.1 + 3.1 3.1 3.2 3.2 4.1 4.1 4.2 4.2 10.1 # 10.1 # 10.2 # 10.2 # 10.3 # 10.3 # 10.4 # 10.4 # 10.5 # 10.5 # 10.6 # 10.6 # 10.7 # 10.7 # 10.8 # 10.8 # 10.9 # 10.9 # Agreement and Plan of Merger, dated as of June 2, 2015, by and between Stock Building Supply Holdings, Inc. and Building Materials Agreement and Plan of Merger, dated as of June 2, 2015, by and between Stock Building Supply Holdings, Inc. and Building Materials Holding Corporation (incorporated by reference to Exhibit 2.1 to the Form 8-K filed with the SEC on June 5, 2015 in Commission File No. Holding Corporation (incorporated by reference to Exhibit 2.1 to the Form 8-K filed with the SEC on June 5, 2015 in Commission File No. 001-36050) 001-36050) Amended and Restated Certificate of Incorporation Amended and Restated Certificate of Incorporation Amended and Restated Bylaws of Stock Building Supply Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Amended and Restated Bylaws of Stock Building Supply Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on August 15, 2013 in Commission File No. 001-36050) Report on Form 8-K filed with the Commission on August 15, 2013 in Commission File No. 001-36050) Form of stock certificate (incorporated by reference to Exhibit 4.1 to the Stock Building Supply Holdings, Inc. Registration Statement on Form Form of stock certificate (incorporated by reference to Exhibit 4.1 to the Stock Building Supply Holdings, Inc. Registration Statement on Form S-1, as amended, filed with the Commission on June 14, 2013 in Commission File No. 333-189368) S-1, as amended, filed with the Commission on June 14, 2013 in Commission File No. 333-189368) Indenture, dated as of September 15, 2016, among BMC East, LLC, the Guarantors named therein and Wilmington Trust, National Indenture, dated as of September 15, 2016, among BMC East, LLC, the Guarantors named therein and Wilmington Trust, National Association, as Trustee and Notes Collateral Agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K Association, as Trustee and Notes Collateral Agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 16, 2016 in Commission File No. 001-36050). filed with the Commission on September 16, 2016 in Commission File No. 001-36050). Separation Agreement, dated as of January 9, 2018, by and between Peter C. Alexander and BMC Stock Holdings, Inc. Separation Agreement, dated as of January 9, 2018, by and between Peter C. Alexander and BMC Stock Holdings, Inc. Amended and Restated Employment Agreement, dated as of April 1, 2016, by and between Peter C. Alexander and BMC Stock Holdings, Inc. Amended and Restated Employment Agreement, dated as of April 1, 2016, by and between Peter C. Alexander and BMC Stock Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed with the Commission on April 7, 2016 in Commission File No. (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed with the Commission on April 7, 2016 in Commission File No. 001-36050) 001-36050) Amended and Restated Employment Agreement, dated as of October 9, 2014, between Stock Building Supply Holdings, Inc. and James F. Amended and Restated Employment Agreement, dated as of October 9, 2014, between Stock Building Supply Holdings, Inc. and James F. Major, Jr. (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed with the Commission on October 10, 2014 in Major, Jr. (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed with the Commission on October 10, 2014 in Commission File No. 001-36050) Commission File No. 001-36050) Employment Agreement Amendment, dated as of June 2, 2015, by and between James F. Major, Jr. and Stock Building Supply Holdings, Inc. Employment Agreement Amendment, dated as of June 2, 2015, by and between James F. Major, Jr. and Stock Building Supply Holdings, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed with the Commission on June 5, 2015 in Commission File No. (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed with the Commission on June 5, 2015 in Commission File No. 001-36050) 001-36050) Amended and Restated Employment Agreement, dated as of February 21, 2017, by and between Lisa M. Hamblet and BMC Stock Holdings, Amended and Restated Employment Agreement, dated as of February 21, 2017, by and between Lisa M. Hamblet and BMC Stock Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on May 8, 2017 Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on May 8, 2017 in Commission File No. 001-36050) in Commission File No. 001-36050) Amended and Restated Employment Agreement, dated as of August 1, 2017, by and between Lisa M. Hamblet and BMC Stock Holdings, Inc. Amended and Restated Employment Agreement, dated as of August 1, 2017, by and between Lisa M. Hamblet and BMC Stock Holdings, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 8, 2017 in (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 8, 2017 in Commission File No. 001-36050) Commission File No. 001-36050) Employment Agreement, dated as of October 9, 2014, between Stock Building Supply Holdings, Inc. and C. Lowell Ball (incorporated by Employment Agreement, dated as of October 9, 2014, between Stock Building Supply Holdings, Inc. and C. Lowell Ball (incorporated by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on October 28, 2014 in Commission reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q filed with the Commission on October 28, 2014 in Commission File No. 001-36050) File No. 001-36050) Employment Agreement Amendment, dated as of June 2, 2015, by and between C. Lowell Ball and Stock Building Supply Holdings, Inc. Employment Agreement Amendment, dated as of June 2, 2015, by and between C. Lowell Ball and Stock Building Supply Holdings, Inc. (incorporated by reference to Exhibit 10.6 to the Registrant’s Form 8-K filed with the Commission on June 5, 2015 in Commission File No. (incorporated by reference to Exhibit 10.6 to the Registrant’s Form 8-K filed with the Commission on June 5, 2015 in Commission File No. 001-36050) 001-36050) Consulting Agreement, dated as of September 16, 2017, by and between Paul Street and BMC Corporate Services (incorporated by reference Consulting Agreement, dated as of September 16, 2017, by and between Paul Street and BMC Corporate Services (incorporated by reference to Exhibit 99.1 to the Registrant’s Form 8-K filed with the Commission on September 19, 2017 in Commission File No. 001-36050) to Exhibit 99.1 to the Registrant’s Form 8-K filed with the Commission on September 19, 2017 in Commission File No. 001-36050) 85 85 Exhibit No. Exhibit No. Description Description Exhibit No. Exhibit No. Description Description 10.10 # 10.10 # 10.11 # 10.11 # 10.12 # 10.12 # 10.13 # 10.13 # 10.14 # 10.14 # 10.15 # 10.15 # 10.16 # 10.16 # 10.17 # 10.17 # 10.18 # 10.18 # 10.19 # 10.19 # 10.20 # 10.20 # 10.21 # 10.21 # 10.22 10.22 10.23 10.23 10.24 10.24 Offer of Employment, dated as of October 16, 2015, by and between Thomas J. Barnes and Building Materials Holding Corporation Offer of Employment, dated as of October 16, 2015, by and between Thomas J. Barnes and Building Materials Holding Corporation (incorporated by reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 1, 2017 in (incorporated by reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 1, 2017 in Commission File No. 001-36050) Commission File No. 001-36050) 10.25 10.25 Registration Rights Agreement, effective as of December 1, 2015, by and among Stock Building Supply Holdings, Inc. and certain Registration Rights Agreement, effective as of December 1, 2015, by and among Stock Building Supply Holdings, Inc. and certain stockholders affiliated with Davidson Kempner Capital Management LP, Robotti & Company Advisors, LLC and The Gores Group, LLC stockholders affiliated with Davidson Kempner Capital Management LP, Robotti & Company Advisors, LLC and The Gores Group, LLC (incorporated by reference to Annex G to the definitive Joint Proxy and Consent Solicitation Statement/Prospectus filed with the SEC on (incorporated by reference to Annex G to the definitive Joint Proxy and Consent Solicitation Statement/Prospectus filed with the SEC on Supplemental Retention Agreement, dated as of February 22, 2016, by and between Thomas J. Barnes and BMC Stock Holdings, Inc. Supplemental Retention Agreement, dated as of February 22, 2016, by and between Thomas J. Barnes and BMC Stock Holdings, Inc. (incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 1, 2017 in (incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 1, 2017 in Commission File No. 001-36050) Commission File No. 001-36050) Employment Agreement, dated as of January 7, 2017, by and between Michael McGaugh and BMC Stock Holdings, Inc. (incorporated by Employment Agreement, dated as of January 7, 2017, by and between Michael McGaugh and BMC Stock Holdings, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on May 8, 2017 in Commission File reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on May 8, 2017 in Commission File No. 001-36050) No. 001-36050) Amended and Restated Employment Agreement, dated as of August 1, 2017, by and between Michael McGaugh and BMC Stock Holdings, Amended and Restated Employment Agreement, dated as of August 1, 2017, by and between Michael McGaugh and BMC Stock Holdings, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 8, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 8, 2017 in Commission File No. 001-36050) 2017 in Commission File No. 001-36050) Employment Agreement, dated as of June 1, 2017, by and between Lanesha Minnix and BMC Stock Holdings, Inc. (incorporated by reference Employment Agreement, dated as of June 1, 2017, by and between Lanesha Minnix and BMC Stock Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 8, 2017 in Commission File No. 001- to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 8, 2017 in Commission File No. 001- 36050) 36050) Form of Indemnification Agreement (incorporated by reference to Exhibit 10.20 to the Stock Building Supply Holdings, Inc. Registration Form of Indemnification Agreement (incorporated by reference to Exhibit 10.20 to the Stock Building Supply Holdings, Inc. Registration Statement on Form S-1, as amended, filed with the Commission on June 14, 2013 in Commission File No. 333-189368) Statement on Form S-1, as amended, filed with the Commission on June 14, 2013 in Commission File No. 333-189368) Form of Indemnification Agreement Entered into with Certain Directors and Officers (incorporated by reference to Exhibit 10.1 to the Form of Indemnification Agreement Entered into with Certain Directors and Officers (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 9, 2017 in Commission File No. 001-36050) Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 9, 2017 in Commission File No. 001-36050) Form of Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.21 to the Stock Form of Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.21 to the Stock Building Supply Holdings, Inc. Registration Statement on Form S-1, as amended, filed with the Commission on June 14, 2013 in Commission Building Supply Holdings, Inc. Registration Statement on Form S-1, as amended, filed with the Commission on June 14, 2013 in Commission File No. 333-189368) File No. 333-189368) Amendment to the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan, (incorporated by reference to Annex B to the Amendment to the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan, (incorporated by reference to Annex B to the definitive Joint Proxy and Consent Solicitation Statement/Prospectus filed with the SEC on November 2, 2015 in Commission File No. 333- definitive Joint Proxy and Consent Solicitation Statement/Prospectus filed with the SEC on November 2, 2015 in Commission File No. 333- 206421) 206421) Form of Nonqualified Stock Option Agreement Pursuant to the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan Form of Nonqualified Stock Option Agreement Pursuant to the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.23 to Amendment 2 to the Stock Building Supply Holdings, Inc. Registration Statement on Form S-1, (incorporated by reference to Exhibit 10.23 to Amendment 2 to the Stock Building Supply Holdings, Inc. Registration Statement on Form S-1, as amended, filed with the Commission on July 29, 2013 in Commission File No. 333-189368) as amended, filed with the Commission on July 29, 2013 in Commission File No. 333-189368) Form of Restricted Stock Agreement Pursuant to the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan (incorporated Form of Restricted Stock Agreement Pursuant to the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.24 to Amendment 2 to the Stock Building Supply Holdings, Inc. Registration Statement on Form S-1, as amended, by reference to Exhibit 10.24 to Amendment 2 to the Stock Building Supply Holdings, Inc. Registration Statement on Form S-1, as amended, filed with the Commission on July 29, 2013 in Commission File No. 333-189368) filed with the Commission on July 29, 2013 in Commission File No. 333-189368) Form of Restricted Stock Unit Agreement Pursuant to the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan Form of Restricted Stock Unit Agreement Pursuant to the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.25 to Amendment 2 to the Stock Building Supply Holdings, Inc. Registration Statement on Form S-1, (incorporated by reference to Exhibit 10.25 to Amendment 2 to the Stock Building Supply Holdings, Inc. Registration Statement on Form S-1, as amended, filed with the Commission on July 29, 2013 in Commission File No. 333-189368) as amended, filed with the Commission on July 29, 2013 in Commission File No. 333-189368) Second Amended and Restated Senior Secured Credit Agreement, dated as of December 1, 2015, by and among Building Materials Holding Second Amended and Restated Senior Secured Credit Agreement, dated as of December 1, 2015, by and among Building Materials Holding Corporation, Stock Building Supply Holdings, Inc., certain subsidiaries of Building Materials Holding Corporation and Stock Building Supply Corporation, Stock Building Supply Holdings, Inc., certain subsidiaries of Building Materials Holding Corporation and Stock Building Supply Holdings, Inc. parties thereto, Wells Fargo Capital Finance, LLC as agent for the lenders, joint lead arranger, and joint book runner, Goldman Holdings, Inc. parties thereto, Wells Fargo Capital Finance, LLC as agent for the lenders, joint lead arranger, and joint book runner, Goldman Sachs Bank USA, as joint lead arranger and joint book runner, and the lenders parties thereto (incorporated by reference to Exhibit 4.3 to the Sachs Bank USA, as joint lead arranger and joint book runner, and the lenders parties thereto (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Commission on December 7, 2015 in Commission File No. 001-36050) Registrant’s Current Report on Form 8-K filed with the Commission on December 7, 2015 in Commission File No. 001-36050) Amendment Number One to Second Amended and Restated Senior Secured Credit Agreement and Consent, dated as of January 28, 2016, by Amendment Number One to Second Amended and Restated Senior Secured Credit Agreement and Consent, dated as of January 28, 2016, by and among BMC Stock Holdings, Inc., as parent, the subsidiaries of parent party thereto, as borrowers, the lenders party thereto, and Wells and among BMC Stock Holdings, Inc., as parent, the subsidiaries of parent party thereto, as borrowers, the lenders party thereto, and Wells Fargo Capital Finance, LLC, as agent for the lenders (incorporated by reference to Exhibit 10.18 to the Registrant's Annual Report on Form Fargo Capital Finance, LLC, as agent for the lenders (incorporated by reference to Exhibit 10.18 to the Registrant's Annual Report on Form 10-K filed with the Commission on March 15, 2016 in Commission File No. 001-36050) 10-K filed with the Commission on March 15, 2016 in Commission File No. 001-36050) Amendment Number Two to Second Amended and Restated Senior Secured Credit Agreement and Amendment Number One to Second Amendment Number Two to Second Amended and Restated Senior Secured Credit Agreement and Amendment Number One to Second Amended and Restated Security Agreement, dated as of September 15, 2016, by and among BMC Stock Holdings, Inc., the subsidiaries party Amended and Restated Security Agreement, dated as of September 15, 2016, by and among BMC Stock Holdings, Inc., the subsidiaries party thereto, the lenders identified on the signature page thereto and Wells Fargo Capital Finance, LLC, as agent for the lenders (incorporated by thereto, the lenders identified on the signature page thereto and Wells Fargo Capital Finance, LLC, as agent for the lenders (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 16, 2016 in Commission reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 16, 2016 in Commission File No. 001-36050) File No. 001-36050) 86 86 November 2, 2015 in Commission File No. 333-206421) November 2, 2015 in Commission File No. 333-206421) 10.26 10.26 First Supplement to the Registration Rights Agreement, dated as of May 18, 2016, by and among the Registrant and certain stockholders First Supplement to the Registration Rights Agreement, dated as of May 18, 2016, by and among the Registrant and certain stockholders affiliated with Davidson Kempner Capital Management LP, Robotti & Company Advisors, LLC and The Gores Group, LLC (incorporated by affiliated with Davidson Kempner Capital Management LP, Robotti & Company Advisors, LLC and The Gores Group, LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on May 24, 2016 in Commission File No. reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on May 24, 2016 in Commission File No. 001-36050). 001-36050). List of subsidiaries of BMC Stock Holdings, Inc. List of subsidiaries of BMC Stock Holdings, Inc. Consent of PricewaterhouseCoopers LLP Consent of PricewaterhouseCoopers LLP Powers of Attorney (included on the signature page) Powers of Attorney (included on the signature page) 21.1 21.1 23.1 23.1 24.1 24.1 31.1 31.1 31.2 31.2 32.1 32.1 32.2 32.2 Certification by David L. Keltner, Interim President and Chief Executive Officer, pursuant to Exchange Act Rule 13a-14/15d-14(a), as adopted Certification by David L. Keltner, Interim President and Chief Executive Officer, pursuant to Exchange Act Rule 13a-14/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification by James F. Major, Jr., Executive Vice President, Chief Financial Officer and Treasurer, pursuant to Exchange Act Rule 13a- Certification by James F. Major, Jr., Executive Vice President, Chief Financial Officer and Treasurer, pursuant to Exchange Act Rule 13a- 14/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 14/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS* 101.INS* XBRL Instance Document XBRL Instance Document 101.SCH* 101.SCH* XBRL Taxonomy Extension Schema Document XBRL Taxonomy Extension Schema Document 101.CAL* 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* 101.LAB* XBRL Taxonomy Extension Label Linkbase Document XBRL Taxonomy Extension Label Linkbase Document 101.PRE* 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document XBRL Taxonomy Extension Presentation Linkbase Document _________________ _________________ upon request. upon request. # Denotes management compensatory plan or arrangement. # Denotes management compensatory plan or arrangement. Item 16. Form 10-K Summary Item 16. Form 10-K Summary None. None. 87 87 + Certain schedules to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedules will be furnished supplementally to the SEC + Certain schedules to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedules will be furnished supplementally to the SEC * XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities * XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. 10.10 # 10.10 # 10.11 # 10.11 # 10.12 # 10.12 # 10.13 # 10.13 # 10.14 # 10.14 # 10.15 # 10.15 # 10.16 # 10.16 # 10.17 # 10.17 # 10.18 # 10.18 # 10.19 # 10.19 # 10.20 # 10.20 # 10.21 # 10.21 # Commission File No. 001-36050) Commission File No. 001-36050) Commission File No. 001-36050) Commission File No. 001-36050) No. 001-36050) No. 001-36050) Employment Agreement, dated as of January 7, 2017, by and between Michael McGaugh and BMC Stock Holdings, Inc. (incorporated by Employment Agreement, dated as of January 7, 2017, by and between Michael McGaugh and BMC Stock Holdings, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on May 8, 2017 in Commission File reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on May 8, 2017 in Commission File Amended and Restated Employment Agreement, dated as of August 1, 2017, by and between Michael McGaugh and BMC Stock Holdings, Amended and Restated Employment Agreement, dated as of August 1, 2017, by and between Michael McGaugh and BMC Stock Holdings, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 8, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 8, 2017 in Commission File No. 001-36050) 2017 in Commission File No. 001-36050) Employment Agreement, dated as of June 1, 2017, by and between Lanesha Minnix and BMC Stock Holdings, Inc. (incorporated by reference Employment Agreement, dated as of June 1, 2017, by and between Lanesha Minnix and BMC Stock Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 8, 2017 in Commission File No. 001- to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 8, 2017 in Commission File No. 001- 36050) 36050) Form of Indemnification Agreement (incorporated by reference to Exhibit 10.20 to the Stock Building Supply Holdings, Inc. Registration Form of Indemnification Agreement (incorporated by reference to Exhibit 10.20 to the Stock Building Supply Holdings, Inc. Registration Statement on Form S-1, as amended, filed with the Commission on June 14, 2013 in Commission File No. 333-189368) Statement on Form S-1, as amended, filed with the Commission on June 14, 2013 in Commission File No. 333-189368) Form of Indemnification Agreement Entered into with Certain Directors and Officers (incorporated by reference to Exhibit 10.1 to the Form of Indemnification Agreement Entered into with Certain Directors and Officers (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 9, 2017 in Commission File No. 001-36050) Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 9, 2017 in Commission File No. 001-36050) Form of Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.21 to the Stock Form of Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.21 to the Stock File No. 333-189368) File No. 333-189368) 206421) 206421) Amendment to the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan, (incorporated by reference to Annex B to the Amendment to the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan, (incorporated by reference to Annex B to the definitive Joint Proxy and Consent Solicitation Statement/Prospectus filed with the SEC on November 2, 2015 in Commission File No. 333- definitive Joint Proxy and Consent Solicitation Statement/Prospectus filed with the SEC on November 2, 2015 in Commission File No. 333- Form of Nonqualified Stock Option Agreement Pursuant to the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan Form of Nonqualified Stock Option Agreement Pursuant to the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.23 to Amendment 2 to the Stock Building Supply Holdings, Inc. Registration Statement on Form S-1, (incorporated by reference to Exhibit 10.23 to Amendment 2 to the Stock Building Supply Holdings, Inc. Registration Statement on Form S-1, as amended, filed with the Commission on July 29, 2013 in Commission File No. 333-189368) as amended, filed with the Commission on July 29, 2013 in Commission File No. 333-189368) Form of Restricted Stock Agreement Pursuant to the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan (incorporated Form of Restricted Stock Agreement Pursuant to the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.24 to Amendment 2 to the Stock Building Supply Holdings, Inc. Registration Statement on Form S-1, as amended, by reference to Exhibit 10.24 to Amendment 2 to the Stock Building Supply Holdings, Inc. Registration Statement on Form S-1, as amended, filed with the Commission on July 29, 2013 in Commission File No. 333-189368) filed with the Commission on July 29, 2013 in Commission File No. 333-189368) Exhibit No. Exhibit No. Description Description Exhibit No. Exhibit No. Description Description Offer of Employment, dated as of October 16, 2015, by and between Thomas J. Barnes and Building Materials Holding Corporation Offer of Employment, dated as of October 16, 2015, by and between Thomas J. Barnes and Building Materials Holding Corporation 10.25 10.25 (incorporated by reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 1, 2017 in (incorporated by reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 1, 2017 in Supplemental Retention Agreement, dated as of February 22, 2016, by and between Thomas J. Barnes and BMC Stock Holdings, Inc. Supplemental Retention Agreement, dated as of February 22, 2016, by and between Thomas J. Barnes and BMC Stock Holdings, Inc. (incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 1, 2017 in (incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 1, 2017 in 10.26 10.26 Registration Rights Agreement, effective as of December 1, 2015, by and among Stock Building Supply Holdings, Inc. and certain Registration Rights Agreement, effective as of December 1, 2015, by and among Stock Building Supply Holdings, Inc. and certain stockholders affiliated with Davidson Kempner Capital Management LP, Robotti & Company Advisors, LLC and The Gores Group, LLC stockholders affiliated with Davidson Kempner Capital Management LP, Robotti & Company Advisors, LLC and The Gores Group, LLC (incorporated by reference to Annex G to the definitive Joint Proxy and Consent Solicitation Statement/Prospectus filed with the SEC on (incorporated by reference to Annex G to the definitive Joint Proxy and Consent Solicitation Statement/Prospectus filed with the SEC on November 2, 2015 in Commission File No. 333-206421) November 2, 2015 in Commission File No. 333-206421) First Supplement to the Registration Rights Agreement, dated as of May 18, 2016, by and among the Registrant and certain stockholders First Supplement to the Registration Rights Agreement, dated as of May 18, 2016, by and among the Registrant and certain stockholders affiliated with Davidson Kempner Capital Management LP, Robotti & Company Advisors, LLC and The Gores Group, LLC (incorporated by affiliated with Davidson Kempner Capital Management LP, Robotti & Company Advisors, LLC and The Gores Group, LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on May 24, 2016 in Commission File No. reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on May 24, 2016 in Commission File No. 001-36050). 001-36050). 21.1 21.1 23.1 23.1 24.1 24.1 31.1 31.1 31.2 31.2 32.1 32.1 32.2 32.2 List of subsidiaries of BMC Stock Holdings, Inc. List of subsidiaries of BMC Stock Holdings, Inc. Consent of PricewaterhouseCoopers LLP Consent of PricewaterhouseCoopers LLP Powers of Attorney (included on the signature page) Powers of Attorney (included on the signature page) Certification by David L. Keltner, Interim President and Chief Executive Officer, pursuant to Exchange Act Rule 13a-14/15d-14(a), as adopted Certification by David L. Keltner, Interim President and Chief Executive Officer, pursuant to Exchange Act Rule 13a-14/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification by James F. Major, Jr., Executive Vice President, Chief Financial Officer and Treasurer, pursuant to Exchange Act Rule 13a- Certification by James F. Major, Jr., Executive Vice President, Chief Financial Officer and Treasurer, pursuant to Exchange Act Rule 13a- 14/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 14/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS* 101.INS* XBRL Instance Document XBRL Instance Document 101.SCH* 101.SCH* XBRL Taxonomy Extension Schema Document XBRL Taxonomy Extension Schema Document Building Supply Holdings, Inc. Registration Statement on Form S-1, as amended, filed with the Commission on June 14, 2013 in Commission Building Supply Holdings, Inc. Registration Statement on Form S-1, as amended, filed with the Commission on June 14, 2013 in Commission 101.CAL* 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* 101.LAB* XBRL Taxonomy Extension Label Linkbase Document XBRL Taxonomy Extension Label Linkbase Document 101.PRE* 101.PRE* _________________ _________________ XBRL Taxonomy Extension Presentation Linkbase Document XBRL Taxonomy Extension Presentation Linkbase Document # Denotes management compensatory plan or arrangement. # Denotes management compensatory plan or arrangement. + Certain schedules to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedules will be furnished supplementally to the SEC + Certain schedules to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedules will be furnished supplementally to the SEC upon request. upon request. * XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities * XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. Form of Restricted Stock Unit Agreement Pursuant to the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan Form of Restricted Stock Unit Agreement Pursuant to the Stock Building Supply Holdings, Inc. 2013 Incentive Compensation Plan (incorporated by reference to Exhibit 10.25 to Amendment 2 to the Stock Building Supply Holdings, Inc. Registration Statement on Form S-1, (incorporated by reference to Exhibit 10.25 to Amendment 2 to the Stock Building Supply Holdings, Inc. Registration Statement on Form S-1, Item 16. Form 10-K Summary Item 16. Form 10-K Summary as amended, filed with the Commission on July 29, 2013 in Commission File No. 333-189368) as amended, filed with the Commission on July 29, 2013 in Commission File No. 333-189368) 10.22 10.22 Second Amended and Restated Senior Secured Credit Agreement, dated as of December 1, 2015, by and among Building Materials Holding Second Amended and Restated Senior Secured Credit Agreement, dated as of December 1, 2015, by and among Building Materials Holding Corporation, Stock Building Supply Holdings, Inc., certain subsidiaries of Building Materials Holding Corporation and Stock Building Supply Corporation, Stock Building Supply Holdings, Inc., certain subsidiaries of Building Materials Holding Corporation and Stock Building Supply Holdings, Inc. parties thereto, Wells Fargo Capital Finance, LLC as agent for the lenders, joint lead arranger, and joint book runner, Goldman Holdings, Inc. parties thereto, Wells Fargo Capital Finance, LLC as agent for the lenders, joint lead arranger, and joint book runner, Goldman Sachs Bank USA, as joint lead arranger and joint book runner, and the lenders parties thereto (incorporated by reference to Exhibit 4.3 to the Sachs Bank USA, as joint lead arranger and joint book runner, and the lenders parties thereto (incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed with the Commission on December 7, 2015 in Commission File No. 001-36050) Registrant’s Current Report on Form 8-K filed with the Commission on December 7, 2015 in Commission File No. 001-36050) 10.23 10.23 Amendment Number One to Second Amended and Restated Senior Secured Credit Agreement and Consent, dated as of January 28, 2016, by Amendment Number One to Second Amended and Restated Senior Secured Credit Agreement and Consent, dated as of January 28, 2016, by and among BMC Stock Holdings, Inc., as parent, the subsidiaries of parent party thereto, as borrowers, the lenders party thereto, and Wells and among BMC Stock Holdings, Inc., as parent, the subsidiaries of parent party thereto, as borrowers, the lenders party thereto, and Wells Fargo Capital Finance, LLC, as agent for the lenders (incorporated by reference to Exhibit 10.18 to the Registrant's Annual Report on Form Fargo Capital Finance, LLC, as agent for the lenders (incorporated by reference to Exhibit 10.18 to the Registrant's Annual Report on Form 10-K filed with the Commission on March 15, 2016 in Commission File No. 001-36050) 10-K filed with the Commission on March 15, 2016 in Commission File No. 001-36050) 10.24 10.24 Amendment Number Two to Second Amended and Restated Senior Secured Credit Agreement and Amendment Number One to Second Amendment Number Two to Second Amended and Restated Senior Secured Credit Agreement and Amendment Number One to Second Amended and Restated Security Agreement, dated as of September 15, 2016, by and among BMC Stock Holdings, Inc., the subsidiaries party Amended and Restated Security Agreement, dated as of September 15, 2016, by and among BMC Stock Holdings, Inc., the subsidiaries party thereto, the lenders identified on the signature page thereto and Wells Fargo Capital Finance, LLC, as agent for the lenders (incorporated by thereto, the lenders identified on the signature page thereto and Wells Fargo Capital Finance, LLC, as agent for the lenders (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 16, 2016 in Commission reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 16, 2016 in Commission File No. 001-36050) File No. 001-36050) None. None. 86 86 87 87 SIGNATURES SIGNATURES Signature Signature Title Title Date Date Pursuant 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 its behalf by Pursuant 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 its behalf by the undersigned, thereunto duly authorized. the undersigned, thereunto duly authorized. Date: Date: March 1, 2018 March 1, 2018 BMC STOCK HOLDINGS, INC. BMC STOCK HOLDINGS, INC. By: By: /s/ James F. Major, Jr. /s/ James F. Major, Jr. Executive Vice President, Chief Financial Officer and Treasurer Executive Vice President, Chief Financial Officer and Treasurer (Principal financial and accounting officer and duly authorized officer) (Principal financial and accounting officer and duly authorized officer) POWER OF ATTORNEY POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Lanesha Minnix, his true and lawful attorney-in-fact and agent, with full power of substitution Each person whose signature appears below constitutes and appoints Lanesha Minnix, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and all other documents in connection therewith, with the SEC, granting unto each said attorney-in-fact and agents full file the same, with all exhibits thereto and all other documents in connection therewith, with the SEC, granting unto each said attorney-in-fact and agents full power and authority to do and perform each and every act in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or power and authority to do and perform each and every act in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. of the registrant and in the capacities and on the dates indicated. 88 88 /s/ David L. Keltner /s/ David L. Keltner David L. Keltner David L. Keltner /s/ James F. Major, Jr. /s/ James F. Major, Jr. James F. Major, Jr. James F. Major, Jr. /s/ David Bullock /s/ David Bullock David Bullock David Bullock /s/ Mark Alexander /s/ Mark Alexander Mark Alexander Mark Alexander /s/ Henry Buckley /s/ Henry Buckley Henry Buckley Henry Buckley /s/ Barry J. Goldstein /s/ Barry J. Goldstein Barry J. Goldstein Barry J. Goldstein /s/ Michael Miller /s/ Michael Miller Michael Miller Michael Miller /s/ James O'Leary /s/ James O'Leary James O'Leary James O'Leary /s/ Jeffrey G. Rea /s/ Jeffrey G. Rea Jeffrey G. Rea Jeffrey G. Rea /s/ Carl R. Vertuca, Jr. /s/ Carl R. Vertuca, Jr. Carl R. Vertuca, Jr. Carl R. Vertuca, Jr. Interim President and Chief Executive Officer (principal Interim President and Chief Executive Officer (principal March 1, 2018 March 1, 2018 executive officer) executive officer) Executive Vice President, Chief Financial Officer and Executive Vice President, Chief Financial Officer and Treasurer (principal financial and accounting officer) Treasurer (principal financial and accounting officer) March 1, 2018 March 1, 2018 Director and Chairman of the Board Director and Chairman of the Board March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 Director Director Director Director Director Director Director Director Director Director Director Director Director Director 89 89 Pursuant 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 its behalf by Pursuant 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 its behalf by SIGNATURES SIGNATURES Signature Signature Title Title the undersigned, thereunto duly authorized. the undersigned, thereunto duly authorized. Date: Date: March 1, 2018 March 1, 2018 BMC STOCK HOLDINGS, INC. BMC STOCK HOLDINGS, INC. By: By: /s/ James F. Major, Jr. /s/ James F. Major, Jr. Executive Vice President, Chief Financial Officer and Treasurer Executive Vice President, Chief Financial Officer and Treasurer (Principal financial and accounting officer and duly authorized officer) (Principal financial and accounting officer and duly authorized officer) POWER OF ATTORNEY POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Lanesha Minnix, his true and lawful attorney-in-fact and agent, with full power of substitution Each person whose signature appears below constitutes and appoints Lanesha Minnix, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and all other documents in connection therewith, with the SEC, granting unto each said attorney-in-fact and agents full file the same, with all exhibits thereto and all other documents in connection therewith, with the SEC, granting unto each said attorney-in-fact and agents full power and authority to do and perform each and every act in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or power and authority to do and perform each and every act in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. of the registrant and in the capacities and on the dates indicated. 88 88 /s/ David L. Keltner /s/ David L. Keltner David L. Keltner David L. Keltner /s/ James F. Major, Jr. /s/ James F. Major, Jr. James F. Major, Jr. James F. Major, Jr. /s/ David Bullock /s/ David Bullock David Bullock David Bullock /s/ Mark Alexander /s/ Mark Alexander Mark Alexander Mark Alexander /s/ Henry Buckley /s/ Henry Buckley Henry Buckley Henry Buckley /s/ Barry J. Goldstein /s/ Barry J. Goldstein Barry J. Goldstein Barry J. Goldstein /s/ Michael Miller /s/ Michael Miller Michael Miller Michael Miller /s/ James O'Leary /s/ James O'Leary James O'Leary James O'Leary /s/ Jeffrey G. Rea /s/ Jeffrey G. Rea Jeffrey G. Rea Jeffrey G. Rea /s/ Carl R. Vertuca, Jr. /s/ Carl R. Vertuca, Jr. Carl R. Vertuca, Jr. Carl R. Vertuca, Jr. Interim President and Chief Executive Officer (principal Interim President and Chief Executive Officer (principal executive officer) executive officer) Date Date March 1, 2018 March 1, 2018 Executive Vice President, Chief Financial Officer and Executive Vice President, Chief Financial Officer and Treasurer (principal financial and accounting officer) Treasurer (principal financial and accounting officer) March 1, 2018 March 1, 2018 Director and Chairman of the Board Director and Chairman of the Board Director Director Director Director Director Director Director Director Director Director Director Director Director Director 89 89 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 March 1, 2018 This page intentionally left blank. This page intentionally left blank. This page intentionally left blank. This page intentionally left blank. This page intentionally left blank. This page intentionally left blank. This page intentionally left blank. This page intentionally left blank. This page intentionally left blank. This page intentionally left blank. SHAREHOLDER AND CORPORATE INFORMATION SHAREHOLDER AND CORPORATE INFORMATION MANAGEMENT MANAGEMENT DAVID L. KELTNER DAVID L. KELTNER Director Director JIM MAJOR JIM MAJOR Treasurer Treasurer MIKE FARMER MIKE FARMER LISA M. HAMBLET LISA M. HAMBLET Remodeler Segment Remodeler Segment MIKE McGAUGH MIKE McGAUGH Interim President and Chief Executive Officer and Interim President and Chief Executive Officer and Executive Vice President, Chief Financial Officer and Executive Vice President, Chief Financial Officer and Senior Vice President, Human Resources Senior Vice President, Human Resources Executive Vice President, eBusiness and Pro Executive Vice President, eBusiness and Pro Executive Vice President and Chief Operating Officer Executive Vice President and Chief Operating Officer LANESHA MINNIX LANESHA MINNIX Corporate Secretary Corporate Secretary Senior Vice President, General Counsel and Senior Vice President, General Counsel and CORPORATE HEADQUARTERS CORPORATE HEADQUARTERS Two Lakeside Commons Two Lakeside Commons 980 Hammond Drive NE, Suite 500 980 Hammond Drive NE, Suite 500 Atlanta, GA 30328 Atlanta, GA 30328 678.222.1219 678.222.1219 CORPORATE WEBSITE CORPORATE WEBSITE www.BuildWithBMC.com www.BuildWithBMC.com STOCK EXCHANGE LISTING STOCK EXCHANGE LISTING The Company’s common stock is listed on The Company’s common stock is listed on the Nasdaq Stock Exchange. the Nasdaq Stock Exchange. Ticker symbol: BMCH Ticker symbol: BMCH TRANSFER AGENT AND REGISTRAR TRANSFER AGENT AND REGISTRAR Computershare Computershare P.O. Box 30170 P.O. Box 30170 877.373.6374 877.373.6374 College Station, TX 77842-3170 College Station, TX 77842-3170 www.computershare.com/investor www.computershare.com/investor INDEPENDENT AUDITORS INDEPENDENT AUDITORS PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP INVESTOR RELATIONS INVESTOR RELATIONS Shareholders, Investors and Security Analysts are Shareholders, Investors and Security Analysts are invited to contact: invited to contact: Carey Phelps, Director, Investor Relations Carey Phelps, Director, Investor Relations 678.222.1228 678.222.1228 Carey.Phelps@BuildWithBMC.com Carey.Phelps@BuildWithBMC.com FINANCIAL INFORMATION FINANCIAL INFORMATION For financial reports, filings with the Securities For financial reports, filings with the Securities and Exchange Commission (including Form 10-K), and Exchange Commission (including Form 10-K), news releases and other investor information, news releases and other investor information, please visit our investor website at: please visit our investor website at: ir.buildwithbmc.com ir.buildwithbmc.com BOARD OF DIRECTORS BOARD OF DIRECTORS DAVID W. BULLOCK DAVID W. BULLOCK (Chairman of Board) (Chairman of Board) MARK ALEXANDER MARK ALEXANDER CORY J. BOYDSTON CORY J. BOYDSTON HENRY BUCKLEY HENRY BUCKLEY BARRY J. GOLDSTEIN* BARRY J. GOLDSTEIN* DAVID L. KELTNER DAVID L. KELTNER (Interim President and CEO) (Interim President and CEO) MICHAEL T. MILLER MICHAEL T. MILLER JAMES O’LEARY JAMES O’LEARY JEFFREY G. REA JEFFREY G. REA CARL R. VERTUCA, JR. CARL R. VERTUCA, JR. Y Y Y Y Y Y Y Y Y Y N N Y Y Y Y N N Y Y *Mr. Goldstein is retiring from the Board as of the 2018 Annual Meeting of Stockholders *Mr. Goldstein is retiring from the Board as of the 2018 Annual Meeting of Stockholders DIRECTOR DIRECTOR INDEPENDENT (Y/N) INDEPENDENT (Y/N) AUDIT COMMITTEE AUDIT COMMITTEE COMPENSATION COMMITTEE COMPENSATION COMMITTEE AND NOMINATING COMMITTEE AND NOMINATING COMMITTEE ORGANIZATION AND ORGANIZATION AND CORPORATE GOVERNANCE CORPORATE GOVERNANCE X X X X X (Chair) X (Chair) X (Chair) X (Chair) X X X X X X X X X X X X X (Chair) X (Chair) This page intentionally left blank. This page intentionally left blank. SHAREHOLDER AND CORPORATE INFORMATION SHAREHOLDER AND CORPORATE INFORMATION CORPORATE HEADQUARTERS CORPORATE HEADQUARTERS Two Lakeside Commons Two Lakeside Commons 980 Hammond Drive NE, Suite 500 980 Hammond Drive NE, Suite 500 Atlanta, GA 30328 Atlanta, GA 30328 678.222.1219 678.222.1219 CORPORATE WEBSITE CORPORATE WEBSITE www.BuildWithBMC.com www.BuildWithBMC.com STOCK EXCHANGE LISTING STOCK EXCHANGE LISTING The Company’s common stock is listed on The Company’s common stock is listed on the Nasdaq Stock Exchange. the Nasdaq Stock Exchange. Ticker symbol: BMCH Ticker symbol: BMCH TRANSFER AGENT AND REGISTRAR TRANSFER AGENT AND REGISTRAR Computershare Computershare P.O. Box 30170 P.O. Box 30170 College Station, TX 77842-3170 College Station, TX 77842-3170 877.373.6374 877.373.6374 www.computershare.com/investor www.computershare.com/investor INDEPENDENT AUDITORS INDEPENDENT AUDITORS PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP INVESTOR RELATIONS INVESTOR RELATIONS Shareholders, Investors and Security Analysts are Shareholders, Investors and Security Analysts are invited to contact: invited to contact: Carey Phelps, Director, Investor Relations Carey Phelps, Director, Investor Relations 678.222.1228 678.222.1228 Carey.Phelps@BuildWithBMC.com Carey.Phelps@BuildWithBMC.com FINANCIAL INFORMATION FINANCIAL INFORMATION For financial reports, filings with the Securities For financial reports, filings with the Securities and Exchange Commission (including Form 10-K), and Exchange Commission (including Form 10-K), news releases and other investor information, news releases and other investor information, please visit our investor website at: please visit our investor website at: ir.buildwithbmc.com ir.buildwithbmc.com BOARD OF DIRECTORS BOARD OF DIRECTORS DIRECTOR DIRECTOR INDEPENDENT (Y/N) INDEPENDENT (Y/N) AUDIT COMMITTEE AUDIT COMMITTEE DAVID W. BULLOCK DAVID W. BULLOCK (Chairman of Board) (Chairman of Board) MARK ALEXANDER MARK ALEXANDER CORY J. BOYDSTON CORY J. BOYDSTON HENRY BUCKLEY HENRY BUCKLEY BARRY J. GOLDSTEIN* BARRY J. GOLDSTEIN* DAVID L. KELTNER DAVID L. KELTNER (Interim President and CEO) (Interim President and CEO) MICHAEL T. MILLER MICHAEL T. MILLER JAMES O’LEARY JAMES O’LEARY JEFFREY G. REA JEFFREY G. REA CARL R. VERTUCA, JR. CARL R. VERTUCA, JR. Y Y Y Y Y Y Y Y Y Y N N Y Y Y Y N N Y Y X X X X X (Chair) X (Chair) X X X X *Mr. Goldstein is retiring from the Board as of the 2018 Annual Meeting of Stockholders *Mr. Goldstein is retiring from the Board as of the 2018 Annual Meeting of Stockholders MANAGEMENT MANAGEMENT DAVID L. KELTNER DAVID L. KELTNER Interim President and Chief Executive Officer and Interim President and Chief Executive Officer and Director Director JIM MAJOR JIM MAJOR Executive Vice President, Chief Financial Officer and Executive Vice President, Chief Financial Officer and Treasurer Treasurer MIKE FARMER MIKE FARMER Senior Vice President, Human Resources Senior Vice President, Human Resources LISA M. HAMBLET LISA M. HAMBLET Executive Vice President, eBusiness and Pro Executive Vice President, eBusiness and Pro Remodeler Segment Remodeler Segment MIKE McGAUGH MIKE McGAUGH Executive Vice President and Chief Operating Officer Executive Vice President and Chief Operating Officer LANESHA MINNIX LANESHA MINNIX Senior Vice President, General Counsel and Senior Vice President, General Counsel and Corporate Secretary Corporate Secretary ORGANIZATION AND ORGANIZATION AND COMPENSATION COMMITTEE COMPENSATION COMMITTEE CORPORATE GOVERNANCE CORPORATE GOVERNANCE AND NOMINATING COMMITTEE AND NOMINATING COMMITTEE X X X X X (Chair) X (Chair) X X X X X (Chair) X (Chair) Two Lakeside Commons 980 Hammond Drive NE, Suite 500 • Atlanta, GA 30328 678.222.1219 • BuildWithBMC.com 

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