BMC Stock (BMCH) 10-Q 2015 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________

Form 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission file number 001-36050

Stock Building Supply Holdings, Inc.

(Exact name of Registrant as specified in its charter)

Delaware	26-4687975
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
8020 Arco Corporate Drive, Suite 400 Raleigh, North Carolina	27617
(Address of principal executive offices)	(Zip Code)

(919) 431-1000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	x
Non-accelerated filer	o  (Do not check if a smaller reporting company)	Smaller reporting company	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

The number of shares outstanding of the Registrant’s common stock, par value $0.01 per share, at November 4, 2015 was 26,186,111 shares.

STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

Table of Contents to Form 10-Q

	PART I - FINANCIAL INFORMATION
Item 1	Unaudited Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014	2
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4	Controls and Procedures	24
	PART II - OTHER INFORMATION
Item 1	Legal Proceedings	25
Item 1A	Risk Factors	25
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3	Defaults Upon Senior Securities	25
Item 4	Mine Safety Disclosures	25
Item 5	Other Information	25
Item 6	Exhibits	26
	Signature	27

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PART I. FINANCIAL INFORMATION

ITEM 1    FINANCIAL STATEMENTS

STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share and per share amounts)	September 30, 2015			December 31, 2014
Assets
Current assets
Cash and cash equivalents	$	5,382		$	5,806
Restricted assets	523			1,076
Accounts receivable, net	138,405			114,448
Inventories, net	108,726			98,259
Costs in excess of billings on uncompleted contracts	10,501			7,981
Current income taxes receivable	—			4,863
Prepaid expenses and other current assets	13,858			11,718
Deferred income taxes	2,063			4,081
Total current assets	279,458			248,232
Property and equipment, net of accumulated depreciation	88,295			90,611
Intangible assets, net of accumulated amortization	20,780			22,536
Goodwill	7,186			7,186
Restricted assets	1,104			861
Other assets	1,109			1,792
Total assets	$	397,932		$	371,218
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	83,376		$	72,029
Accrued expenses and other liabilities	40,203			32,957
Income taxes payable	4,640			—
Current portion of restructuring reserve	845			892
Current portion of capital lease obligation	3,306			1,706
Billings in excess of costs on uncompleted contracts	1,064			592
Total current liabilities	133,434			108,176
Revolving line of credit	76,464			90,114
Long-term portion of capital lease obligation	12,217			5,955
Deferred income taxes	13,079			18,880
Other long-term liabilities	9,450			7,222
Total liabilities	244,644			230,347
Commitments and contingencies (Note 10)
Stockholders' equity
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding at September 30, 2015 and December 31, 2014	—			—
Common stock, $0.01 par value, 300,000,000 shares authorized, 26,195,627 shares issued and 26,186,111 shares outstanding at September 30, 2015, and 26,176,056 shares issued and outstanding at December 31, 2014	262			262
Additional paid-in capital	149,479			147,340
Retained earnings (deficit)	3,729			(6,731		)
Treasury stock, at cost, 9,516 shares at September 30, 2015	(182		)	—
Total stockholders' equity	153,288			140,871
Total liabilities and stockholders' equity	$	397,932		$	371,218

The accompanying notes are an integral part of these condensed consolidated financial statements.

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STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except share and per share amounts)	2015			2014			2015			2014
Net sales	$	358,540		$	354,060		$	1,006,225		$	978,629
Cost of goods sold	269,401			269,668			759,354			746,781
Gross profit	89,139			84,392			246,871			231,848
Selling, general and administrative expenses	75,286			73,665			219,866			211,878
Depreciation expense	2,493			1,681			6,811			4,790
Amortization expense	596			563			1,756			1,690
Impairment of assets held for sale	—			—			—			48
Merger-related costs	1,183			—			4,652			—
Public offering transaction-related costs	—			60			—			508
Restructuring expense	(14		)	2			383			11
	79,544			75,971			233,468			218,925
Income from operations	9,595			8,421			13,403			12,923
Other income (expense)
Interest expense	(745		)	(712		)	(2,133		)	(2,011		)
Other income, net	194			197			1,002			610
Income from continuing operations before income taxes	9,044			7,906			12,272			11,522
Income tax expense	3,020			2,972			1,866			4,417
Income from continuing operations	6,024			4,934			10,406			7,105
Income from discontinued operations, net of income tax expense of $4, $25, $33 and $133, respectively	7			40			54			208
Net income	$	6,031		$	4,974		$	10,460		$	7,313
Weighted average common shares outstanding
Basic	26,123,202			25,733,833			26,104,425			25,713,688
Diluted	26,354,070			26,229,323			26,317,488			26,218,405
Basic earnings per share
Income from continuing operations	$	0.23		$	0.19		$	0.40		$	0.27
Income from discontinued operations	—			—			—			0.01
Net income per share	$	0.23		$	0.19		$	0.40		$	0.28
Diluted earnings per share
Income from continuing operations	$	0.23		$	0.19		$	0.40		$	0.27
Income from discontinued operations	—			—			—			0.01
Net income per share	$	0.23		$	0.19		$	0.40		$	0.28

The accompanying notes are an integral part of these condensed consolidated financial statements.

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STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended September 30,
(in thousands)	2015			2014
Cash flows from operating activities
Net income	$	10,460		$	7,313
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation expense	10,074			8,054
Amortization of intangible assets	1,756			1,690
Amortization of debt issuance costs	339			353
Deferred income taxes	(3,783		)	(4,030		)
Non-cash stock compensation expense	2,101			1,848
Impairment of assets held for sale	—			96
Gain on sale of property, equipment and real estate	(370		)	(1,076		)
Bad debt expense	1,801			417
Change in assets and liabilities
Accounts receivable	(24,535		)	(19,756		)
Inventories, net	(9,693		)	(23,445		)
Accounts payable	11,871			26,951
Other assets and liabilities	13,461			6,396
Net cash provided by operating activities	13,482			4,811
Cash flows from investing activities
Purchases of property and equipment	(12,329		)	(20,795		)
Purchase of business	(2,025		)	—
Proceeds from sale-leaseback transactions, net	15,296			—
Proceeds from sale of property, equipment and real estate	1,005			3,493
Change in restricted assets	310			2
Net cash provided by (used in) investing activities	2,257			(17,300		)
Cash flows from financing activities
Proceeds from revolving line of credit	1,055,182			1,046,220
Repayments of proceeds from revolving line of credit	(1,068,832		)	(1,023,476		)
Payments on capital leases	(2,419		)	(1,177		)
Other financing activities	(94		)	(1,972		)
Net cash (used in) provided by financing activities	(16,163		)	19,595
Net (decrease) increase in cash and cash equivalents	(424		)	7,106
Cash and cash equivalents
Beginning of period	5,806			1,138
End of period	$	5,382		$	8,244
Supplemental disclosure of cash flow information
Non-cash investing and financing transactions
Assets acquired under capital lease obligations	$	10,298		$	1,783

The accompanying notes are an integral part of these condensed consolidated financial statements.

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STOCK BUILDING SUPPLY HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.    Organization

Stock Building Supply Holdings, Inc. and its subsidiaries (the “Company,” “we,” “us” and “our”) distributes lumber and building materials to new construction and repair and remodeling contractors. Additionally, we provide solution-based services to our customers, including component design, product specification and installation management services.

Due to the seasonal nature of our industry, sales are usually lower in the first and fourth quarters than in the second and third quarters.

2.    Basis of Presentation

The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) that permit reduced disclosure for interim periods. The condensed consolidated balance sheet as of December 31, 2014 was derived from audited financial statements, but does not include all necessary disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The unaudited condensed consolidated financial statements include all accounts of the Company and its subsidiaries and, in the opinion of management, include all recurring adjustments and normal accruals necessary for a fair statement of the Company’s financial position, results of operations and cash flows for the dates and periods presented. These unaudited financial statements should be read in conjunction with the Company’s 2014 Annual Report on Form 10-K. Results for interim periods are not necessarily indicative of the results to be expected during the remainder of the current year or for any future period. All material intercompany accounts and transactions have been eliminated in consolidation.

Comprehensive income

Comprehensive income is equal to the net income for all periods presented.

Recently issued accounting pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 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. 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 periods beginning on January 1, 2018. Early application is permitted, but only for the Company’s annual and interim periods beginning on January 1, 2017. The guidance permits the use of either a retrospective or cumulative effect transition method. We have not yet selected a transition method and are evaluating the impact of the standard on our financial statements.

In April 2015, the FASB issued Accounting Standards Update No. 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement ("ASU 2015-05"). ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer's accounting for service contracts. ASU 2015-05 is effective for the Company’s annual and interim periods beginning on January 1, 2016. Early adoption is permitted. We are evaluating the impact of the standard on our financial statements.

In July 2015, the FASB issued Accounting Standards Update No. 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 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 impacted by the new guidance. Prospective application is required and early adoption is permitted. ASU 2015-11 is effective for the Company’s annual and interim periods beginning on January 1, 2017. We are evaluating the impact of the standard on our financial statements.

In August 2015, the FASB issued Accounting Standards Update No. 2015-15, Interest - Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs

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Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (“ASU 2015-15”). ASU 2015-15 clarifies the treatment of debt issuance costs for line-of-credit arrangements, which was not addressed in Accounting Standards Update 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU 2015-15 clarifies that the SEC staff would not object to an entity deferring and presenting debt issuance costs related to a line-of-credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of such arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-15 is effective for the Company’s annual and interim periods beginning on January 1, 2016. Early adoption is permitted. We are evaluating the impact of the standard on our financial statements.

In September 2015, the FASB issued Accounting Standards Update No. 2015-16, Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, including the cumulative effect of the change in provisional amount as if the accounting had been completed at the acquisition date. The adjustments related to previous reporting periods since the acquisition date must be disclosed by income statement line item either on the face of the income statement or in the notes. Prospective application is required and early adoption is permitted. ASU 2015-16 is effective for the Company’s annual and interim periods beginning on January 1, 2016. We are evaluating the impact of the standard on our financial statements.

3.    Merger Agreement with Building Materials Holding Corporation

On June 2, 2015, the Company and Building Materials Holding Corporation, a Delaware corporation (“BMC”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which BMC, subject to certain conditions, will be merged with and into the Company, with the Company surviving the merger (the “Merger”).

Under the terms of the Merger Agreement, which has been unanimously approved by the board of directors of each company, BMC stockholders will receive 0.5231 newly issued Company shares for each BMC share. Upon the closing of the transaction, BMC stockholders will own approximately 60% of the merged entity, with stockholders of the Company immediately prior to the closing of the Merger owning approximately 40%. The transaction is structured to be tax-free to the stockholders of both companies, and is expected to close in the fourth quarter of 2015, subject to approval by the stockholders of the Company and BMC and typical regulatory clearances.

The Merger Agreement contains customary representations and warranties from both the Company and BMC, and each party has agreed to customary covenants, including, among others, covenants relating to the conduct of its business during the interim period between the execution of the Merger Agreement and the effective time of the Merger. In addition, the Company and BMC have made customary non-solicitation covenants prohibiting each from (i) soliciting, providing non-public information or engaging or participating in any discussions or negotiations concerning proposals relating to alternative business combination transactions or (ii) entering into an acquisition agreement in connection with such an alternative business combination transaction, in each case, except as permitted under the Merger Agreement.

The Merger Agreement contains certain termination rights for the Company and BMC, including in the event that (i) the Merger is not consummated on or before December 31, 2015, (ii) the approval of the stockholders of the Company is not obtained at a stockholder meeting, (iii) the approval of the stockholders of BMC is not obtained pursuant to written consent, (iv) the other party’s board of directors changes its recommendation to its stockholders due to an intervening event or (v) either the Company or BMC terminates the Merger Agreement to enter into a binding agreement providing for a superior alternative transaction. The Merger Agreement further provides that, upon termination of the Merger Agreement under specified circumstances, including in connection with a change in the recommendation of the board of directors of the Company or BMC or a termination of the Merger Agreement by the Company or BMC to enter into a binding agreement providing for a superior alternative transaction, the Company or BMC, as the case may be, will pay to the other party a termination fee. The termination fee payable by the Company equals $15.7 million in cash. The termination fee payable by BMC equals $23.6 million in cash.

The Company incurred Merger-related costs of $1.2 million and $4.7 million for the three and nine months ended September 30, 2015, respectively.

4.    Acquisition of Guilford Builders Supply

On June 1, 2015, the Company acquired certain assets and assumed certain liabilities of Guilford Builders Supply (“GBS”), a provider of building materials and custom millwork located in Greensboro, North Carolina, for a preliminary purchase price of $2.2 million. The purchase price includes an initial holdback of $0.2 million due to the sellers on June 1, 2016. The holdback amount may be reduced under certain circumstances, including the Company’s inability to collect upon acquired receivables.

5

The acquisition was accounted for by the acquisition method, whereby the results of operations of GBS are included in the Company’s consolidated financial statements beginning on the acquisition date. The purchase price was allocated to the assets acquired and liabilities assumed. No goodwill resulted from the acquisition. The impact of the acquisition on our operating results was not significant for the reporting of pro forma financial information.

The Company incurred transaction costs of $0.1 million for the nine months ended September 30, 2015, which are included in selling, general and administrative expenses on the condensed consolidated statements of operations.

5.    Discontinued Operations

The results of operations for the Company’s discontinued operations, which include certain operations that were sold or exited in certain prior years, are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2015		2014		2015		2014
Net sales	$	—	$	—	$	—	$	—
Restructuring charges	—		3		—		18
Gain before income taxes	11		65		87		341
Income tax expense	4		25		33		133
Net income	7		40		54		208

The assets and liabilities of discontinued operations reflected on the consolidated balance sheets at September 30, 2015 and December 31, 2014 are as follows:

(in thousands)	September 30,   2015		December 31,   2014
Prepaid expenses and other current assets	$	—	$	7
Current assets of discontinued operations	—		7
Accrued expenses and other liabilities	—		175
Current portion of restructuring reserve	—		71
Current liabilities of discontinued operations	$	—	$	246

6.    Restructuring Costs

In addition to the discontinued operations, the Company has instituted store closures, store relocations and reductions in headcount in certain markets (collectively, the “Restructurings”) in an effort to: (i) strengthen the Company’s competitive position, (ii) reduce costs and (iii) improve operating margins within these markets. No significant additional costs are expected to be incurred related to the Restructurings.

The following table summarizes the restructuring expenses incurred in connection with the Restructurings and the remaining reserves as of September 30, 2015:

(in thousands)	Lease Termination Costs			Other Exit Costs			One-Time Employee Termination Benefits			Total
Restructuring reserve, December 31, 2014	$	1,810		$	—		$	14		$	1,824
Restructuring charges incurred	70			313			—			383
Cash payments	(742		)	(313		)	(14		)	(1,069		)
Restructuring reserve, September 30, 2015	$	1,138		$	—		$	—		$	1,138

The remaining accrual for lease termination costs, which includes costs that will continue to be incurred under lease agreements without economic benefit to the Company, is expected to be fully paid by January 2017 as the related leases expire.

The restructuring reserve at September 30, 2015 consists of a current portion of $0.8 million and a long-term portion of $0.3 million. The long-term portion is included in other long-term liabilities on the condensed consolidated balance sheets.

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7.    Accounts Receivable

Accounts receivable consist of the following at September 30, 2015 and December 31, 2014:

(in thousands)	September 30,   2015			December 31,   2014
Trade receivables	$	142,928		$	118,531
Allowance for doubtful accounts	(2,376		)	(2,101		)
Allowance for sales returns and discounts	(2,147		)	(1,982		)
	$	138,405		$	114,448

8.    Secured Credit Agreement

On June 30, 2009, the Company entered into a Secured Credit Agreement (the “Credit Agreement”) with Wells Fargo Capital Finance (“WFCF”), which includes a revolving line of credit (the “Revolver”). The Revolver has been amended for changes in financial covenants, maximum availability, maturity date, interest rate and other terms. The following is a summary of the significant terms of the Revolver as of September 30, 2015:

Maturity	December 31, 2017
Interest/Usage Rate	Company’s option of Base Rate(a) plus a Base Rate Margin (ranges from 0.50%–1.00% based on Revolver availability) or LIBOR plus a LIBOR Rate Margin (ranges from 1.50%–2.00% based on Revolver availability)
Maximum Availability	Lesser of $200 million or the borrowing base(b)
Periodic Principal Payments	None

(a) Base Rate is the higher of (i) the Federal Funds Rate plus 0.5% or (ii) the prime rate.

(b) The Revolver’s borrowing base is calculated as the sum of (i) 85% of the Company’s eligible accounts receivable plus (ii) the lesser of 90% of the eligible credit card receivables and $5 million plus (iii) the lesser of $150 million, 65% of the eligible inventory or 85% of the net liquidation value of eligible inventory as defined in the Credit Agreement plus (iv) the lesser of $30 million, 85% of the net liquidation value of eligible fixed assets or the net book value of fixed assets, all as defined in the Credit Agreement, minus (v) reserves from time to time set by the administrative agent. The Company’s borrowing base can also be increased pursuant to certain terms outlined in the Credit Agreement.

The Credit Agreement provides that the Company can use the Revolver availability to issue letters of credit. The fees on any outstanding letters of credit issued under the Revolver include a participation fee equal to the LIBOR Rate Margin. The fee on the unused portion of the Revolver is 0.25%. The Revolver includes a financial covenant that requires the Company to maintain a minimum Fixed Charge Coverage Ratio of 1.00:1.00 as defined by the Credit Agreement. The Fixed Charge Coverage Ratio requirement is only applicable if Adjusted Liquidity, defined as the sum of (i) availability under the Revolver and (ii) Qualified Cash (which includes cash and cash equivalents in deposit accounts or securities accounts or any combination thereof that are subject to a control agreement), is less than $20 million, and remains in effect until the date on which Adjusted Liquidity has been greater than or equal to $20 million for a period of 30 consecutive days. While there can be no assurances, based upon the Company’s forecast, the Company does not expect the financial covenants to become applicable during the year ending December 31, 2015.

The Company had outstanding borrowings of $76.5 million and $90.1 million with net availability of $112.9 million and $72.6 million as of September 30, 2015 and December 31, 2014, respectively. The interest rate on outstanding LIBOR Rate borrowings of $76.0 million was 1.7% and the interest rate on outstanding Base Rate borrowings of $0.5 million was 3.8% as of September 30, 2015. The Company had $9.5 million and $8.2 million in letters of credit outstanding under the Credit Agreement as of September 30, 2015 and December 31, 2014, respectively. The Revolver is collateralized by substantially all assets of the Company. The carrying value of the Revolver at September 30, 2015 and December 31, 2014 approximates fair value as the Revolver contains a variable interest rate. As such, the fair value of the Revolver was classified as a Level 2 measurement in accordance with ASC 820, Fair Value Measurement.

9.    Income Taxes

The Company evaluates its deferred tax assets quarterly 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 will not be realized.

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The Company has valuation allowances of $1.6 million and $1.8 million against its deferred tax assets related to certain state tax jurisdictions as of September 30, 2015 and December 31, 2014, respectively. The Company is not permitted to carry back any of its existing tax net operating losses related to certain state tax jurisdictions; therefore, to the extent the Company generates future tax net operating losses, the Company may be required to increase the valuation allowance on deferred tax assets, which may increase the effective tax rate. However, given the Company’s current earnings and anticipated future earnings, there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow the Company to reach a conclusion that a significant portion, or all, of the valuation allowance will no longer be needed. Release of the valuation allowance would result in a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that the Company is able to actually achieve.

As of December 31, 2014, the Company recognized a liability for uncertain tax positions of $2.9 million within accrued expenses and other liabilities on the condensed consolidated balance sheets related to a payment during 2013 to The Gores Group, LLC (“Gores”) to terminate our management services agreement with Gores (the “Gores Termination Fee”). During the three months ended March 31, 2015, the Company received new information, including a favorable tax ruling from the Internal Revenue Service. With this new information, the Company believes it is more likely than not that its recognition of the payment of the Gores Termination Fee as a deduction will be sustained under examination. During the three months ended March 31, 2015, the Company recognized a $3.0 million tax benefit (the “Gores Termination Fee Tax Benefit”), which resulted from the removal of the liability for uncertain tax positions of $2.9 million and an increase in its deferred tax assets of $0.2 million related to state net operating loss carry-forwards, which were offset by an increase in a valuation allowance of $0.1 million related to the expected realization of these state net operating loss carry-forwards. As of September 30, 2015, the Company has no remaining liabilities for uncertain tax positions.

For the three and nine months ended September 30, 2015, the effective tax rate from continuing operations was 33.4% and 15.2%, respectively. Excluding the discrete tax impact related to the Gores Termination Fee Tax Benefit and non-deductible Merger-related costs of $1.0 million and $3.4 million for the three and nine months ended September 30, 2015, respectively, the effective tax rate from continuing operations was 29.3% and 29.9% for the three and nine months ended September 30, 2015, respectively, which varied from the federal statutory rate of 35% primarily due to a permanent domestic manufacturing deduction under Internal Revenue Code Section 199 (the “Manufacturing Deduction”). For the three and nine months ended September 30, 2014, the effective tax rate from continuing operations was 37.6% and 38.3%, respectively, which varied from the federal statutory rate of 35% primarily due to state taxes.

10.    Commitments and Contingencies

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 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. However, the Company does not currently 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.

In February 2015, the Company completed a sale-leaseback transaction under which it sold an operating facility, which had been purchased in 2014, to an unrelated third party for net proceeds of $15.3 million and entered into an operating lease with an initial term of 15 years. The Company recorded a deferred gain of $0.5 million, which will be amortized as a reduction to rent expense over the lease term.

11.    Stock Based Compensation

The following table highlights the expense related to stock based compensation for the three and nine months ended September 30, 2015 and 2014:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2015		2014		2015		2014
Nonvested stock	$	141	$	263	$	382	$	651
Stock options	625		537		1,595		1,072
Restricted stock units	9		68		124		125
Stock based compensation	$	775	$	868	$	2,101	$	1,848

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The following is a summary of nonvested stock and restricted stock unit activity for the nine months ended September 30, 2015.

	Nonvested Stock				Restricted Stock Units
	Number of Shares Outstanding		Weighted Average Grant Date Fair Value		Number of Units Outstanding		Weighted Average Grant Date Fair Value
December 31, 2014	83,940		$	17.46	16,124		$	17.02
Granted	—		—		—		—
Vested	(29,031	)	17.20		(16,124	)	17.02
Forfeited	—		—		—		—
September 30, 2015	54,909		$	17.59	—		$	—

During the nine months ended September 30, 2015, certain employees elected to surrender a total of 9,516 shares to the Company to satisfy their tax withholding obligations in connection with the vesting of restricted stock awards. These surrendered shares are reflected as treasury stock on the condensed consolidated balance sheets.

The following is a summary of stock options award activity for the nine months ended September 30, 2015:

	Number of Options Outstanding		Weighted Average Exercise Price
December 31, 2014	1,023,637		$	13.59
Granted	—		—
Exercised	(3,447	)	14.00
Forfeited	(22,793	)	17.68
Expired	(3,328	)	14.41
September 30, 2015	994,069		$	13.49

12.    Segments

ASC 280, Segment Reporting, 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 in deciding how to allocate resources and in assessing performance.

The Company’s operating segments consist of the East and West divisions along with Coleman Floor, which offers professional flooring installation services. Due to the similar economic characteristics, nature of products, distribution methods and customers, the Company has aggregated our East and West operating segments into one reportable segment, “Geographic divisions.”

In addition to our reportable segment, the Company’s consolidated results include “Coleman Floor” and “Other reconciling items.” Other reconciling items is comprised of our corporate activities.

The following tables present Net Sales, Adjusted EBITDA and certain other measures for the reportable segment and total continuing operations for the three and nine months ended September 30, 2015 and 2014:

	Three Months Ended September 30, 2015
(in thousands)	Net Sales		Gross Profit		Depreciation & Amortization		Adjusted EBITDA
Geographic divisions	$	343,895	$	86,258	$	3,774	$	25,380
Coleman Floor	14,645		2,881		35		522
Other reconciling items	—		—		377		(9,461		)
	$	358,540	$	89,139	$	4,186

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	Three Months Ended September 30, 2014
(in thousands)	Net Sales		Gross Profit		Depreciation & Amortization		Adjusted EBITDA
Geographic divisions	$	338,998	$	81,844	$	2,963	$	21,684
Coleman Floor	15,062		2,548		30		208
Other reconciling items	—		—		305		(8,684		)
	$	354,060	$	84,392	$	3,298

	Nine Months Ended September 30, 2015
(in thousands)	Net Sales		Gross Profit		Depreciation & Amortization		Adjusted EBITDA
Geographic divisions	965,416		238,645		10,733		61,714
Coleman Floor	40,809		8,226		117		1,329
Other reconciling items	—		—		980		(28,336	)
	$	1,006,225	$	246,871	$	11,830

	Nine Months Ended September 30, 2014
(in thousands)	Net Sales		Gross Profit		Depreciation & Amortization		Adjusted EBITDA
Geographic divisions	938,841		224,964		8,927		51,872
Coleman Floor	39,788		6,884		84		(389	)
Other reconciling items	—		—		733		(25,225	)
	$	978,629	$	231,848	$	9,744

Reconciliation to consolidated financial statements:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2015			2014			2015			2014
Income from continuing operations before income taxes	$	9,044		$	7,906		$	12,272		$	11,522
Interest expense	745			712			2,133			2,011
Depreciation and amortization	4,186			3,298			11,830			9,744
Impairment of assets held for sale	—			—			—			48
Merger-related costs	1,183			—			4,652			—
Public offering transaction-related costs	—			60			—			508
Restructuring expense	(14		)	2			383			11
Non-cash stock compensation expense	775			868			2,101			1,848
Severance and other items related to store closures	490			325			1,083			440
Other items	32			37			253			126
Adjusted EBITDA of Coleman Floor	(522		)	(208		)	(1,329		)	389
Adjusted EBITDA of other reconciling items	9,461			8,684			28,336			25,225
Adjusted EBITDA of geographic divisions reportable segment	$	25,380		$	21,684		$	61,714		$	51,872

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13.    Earnings Per Share

Basic net income per share (“EPS”) is calculated by dividing net income 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, determined using the treasury-stock method. For purposes of the diluted EPS calculation, stock options, nonvested stock and restricted stock unit awards are considered to be potential common shares.

The basic and diluted EPS calculations for the three and nine months ended September 30, 2015 and 2014 are presented below:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except share and per share amounts)	2015		2014		2015		2014
Income from continuing operations	$	6,024	$	4,934	$	10,406	$	7,105
Income from discontinued operations, net of tax	7		40		54		208
Net income	$	6,031	$	4,974	$	10,460	$	7,313
Weighted average outstanding shares of common stock	26,123,202		25,733,833		26,104,425		25,713,688
Effect of dilutive securities:
Nonvested stock	29,064		357,177		27,659		359,941
Stock options	199,629		133,604		177,152		140,395
Restricted stock units	2,175		4,709		8,252		4,381
Weighted average shares and dilutive shares	26,354,070		26,229,323		26,317,488		26,218,405
Basic EPS
Income from continuing operations	$	0.23	$	0.19	$	0.40	$	0.27
Income from discontinued operations	—		—		—		0.01
Net income per share	$	0.23	$	0.19	$	0.40	$	0.28
Diluted EPS
Income from continuing operations	$	0.23	$	0.19	$	0.40	$	0.27
Income from discontinued operations	—		—		—		0.01
Net income per share	$	0.23	$	0.19	$	0.40	$	0.28

The following table provides the securities that could potentially dilute basic earnings per share in the future, but were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2015	2014	2015	2014
Stock options	366,359	823,566	366,359	820,517
Nonvested stock awards	—	44,245	—	44,245

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ITEM 2    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our historical consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements included in our 2014 Annual Report on Form 10-K.

Cautionary Statement with Respect to Forward-Looking Statements

Some of the statements contained in this Quarterly Report on Form 10-Q constitute forward-looking statements. 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 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.

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 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 include without limitation:

• the state of the homebuilding industry and repair and remodeling activity, the economy and the credit markets;

• seasonality and cyclicality of the building products supply and services industry;

• competitive industry pressures and competitive pricing pressure from our customers and competitors;

• inflation or deflation of prices of our products;

• our exposure to product liability, warranty, casualty, construction defect, contract, tort, employment and other claims and legal proceedings;

• our ability to maintain profitability;

• our concentration of business in the Texas, North Carolina, California, Georgia and Utah markets;

• the potential negative impacts from the recent significant decline in oil prices on employment, home construction and remodeling activity in Texas and other markets dependent on the energy industry;

• failure of residential renovation and improvement activities to return to historic levels;

• 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 manufacturers;

• the implementation of our supply chain and technology initiatives;

• the impact of long-term non-cancelable leases at our facilities;

• our ability to effectively manage inventory and working capital;

• the credit risk from our customers;

• our ability to identify or respond effectively to consumer needs, expectations or trends;

• our ability to successfully implement our growth strategy;

• the impact of federal, state, local and other laws and regulations;

• the potential loss of significant customers;

• our ability to obtain additional financing on acceptable terms;

• the various financial covenants in our secured credit agreement;

• disruptions in our information technology (“IT”) systems;

• natural or man-made disruptions to our distribution and manufacturing facilities;

• our exposure to environmental liabilities and subjection to environmental laws and regulation; and

• cybersecurity risks.

Certain of these and other factors are discussed in more detail in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2014 and our subsequently filed Quarterly Reports on Form 10-Q. The forward-looking statements included herein are made only as of the date of this Quarterly Report on Form 10-Q and we undertake no obligation to publicly update or review 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.

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Overview

We are a diversified lumber and building materials distributor and solutions provider that sells to new construction and repair and remodeling contractors. We carry a broad line of products and have operations in 20 metropolitan areas within 13 states throughout the United States. The 13 states in which we operate accounted for approximately 49% of 2014 U.S. single-family housing permits according to the U.S. Census Bureau. Our primary products are lumber & lumber sheet goods, millwork, doors, flooring, windows, structural components such as engineered wood products, trusses and wall panels and other exterior products. Additionally, we provide solution-based services to our customers, including design, product specification and installation management services. We serve a broad customer base, including large-scale production homebuilders, custom homebuilders and repair and remodeling contractors. We offer a broad range of products sourced through a strategic network of suppliers, which together with our various solution-based services, represent approximately 50% of the construction cost of a typical new home.

Primarily as a result of the improving conditions in the residential construction market, our net sales for the three months ended September 30, 2015 increased 1.3% compared to the prior year period. We estimate sales increased 4.5% due to volume but were partially offset by 3.2% due to commodity price deflation. Our gross profit as a percentage of net sales (“gross margin”) was 24.9% for the three months ended September 30, 2015 compared to 23.8% for the prior year period. We recorded income from operations of $9.6 million during the three months ended September 30, 2015 compared to $8.4 million during the three months ended September 30, 2014. Income from operations for the three months ended September 30, 2015 was impacted by $1.2 million of Merger-related costs. See further discussion in “-Operating Results” below.

Factors Affecting Our Operating Results

Our operating results and financial performance are influenced by a variety of factors, including, among others, 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 schedules of our customers and seasonality. Some of the more important factors are briefly discussed below.

Conditions in the housing and construction market

The building products supply and services industry is highly dependent on new home construction and repair and remodeling activity, which in turn are dependent upon a number of factors, including interest rates, consumer confidence, employment rates, foreclosure rates, housing inventory levels, housing demand, the availability of land, the availability of construction financing and the health of the economy and mortgage markets. According to the U.S. Census Bureau, single-family housing starts increased approximately 14.5% for the three months ended September 30, 2015 as compared to the same period in the prior year, while single-family houses under construction as of September 30, 2015 increased 14.0% as compared to September 30, 2014.

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 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 demand for homes and adversely affect our business. We believe continued employment growth, prospective home buyers’ access to financing and improved consumer confidence will be necessary to increase household formation rates. We believe improved household formation rates should increase demand for housing and stimulate new construction.

Commodity nature of our products

Many of the building products we distribute, including lumber, oriented strand board (“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.

The table below reflects changes in 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 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.

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2015 versus 2014		2015 average price		2015 versus 2014		2015 average price
Framing lumber prices	(19	)%	$	320	(13	)%	$	334
Structural panel prices	(12	)%	$	353	(3	)%	$	366

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 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 large homebuilders

Over the past ten years, the homebuilding industry has undergone consolidation and many larger homebuilders have increased their market share. We currently expect that trend to continue as larger homebuilders have better liquidity and land positions relative to the smaller, less capitalized homebuilders. Our focus is on maintaining relationships and market share with these customers while balancing the competitive pressures we face in our markets with certain profitability expectations. 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 trend could impact our gross margins as homebuilding recovers if the market share held by the production homebuilders continues to increase.

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 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 careful attention to our logistics function and have implemented GPS-based technology to improve customer service and improve productivity of our shipping and handling costs.

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 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 & other interior products 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 availability of framing labor. As the residential new construction market continues to strengthen, we expect the use of structural components by homebuilders to increase.

Changes in sales mix among construction segments

Our operating results may vary according to the amount and type of products we sell to each of our four primary construction segments: new single-family construction; remodeling; multi-family and light commercial. We tend to realize higher gross margins on sales to the remodeling segment 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 within the new single-family, multi-family and light commercial construction segments 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 project before or during its construction. 

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Merger Agreement with Building Materials Holding Corporation

On June 2, 2015, the Company and BMC entered into the Merger Agreement, pursuant to which BMC, subject to certain conditions, will be merged with and into the Company, with the Company surviving the Merger.

Under the terms of the Merger Agreement, which has been unanimously approved by the board of directors of each company, BMC stockholders will receive 0.5231 newly issued Company shares for each BMC share. Upon the closing of the transaction, BMC stockholders will own approximately 60% of the merged entity, with stockholders of the Company immediately prior to the closing of the Merger owning approximately 40%. The transaction is structured to be tax-free to the stockholders of both companies, and is expected to close in the fourth quarter of 2015, subject to approval by the stockholders of the Company and BMC and typical regulatory clearances.

The Merger Agreement contains customary representations and warranties from both the Company and BMC, and each party has agreed to customary covenants, including, among others, covenants relating to the conduct of its business during the interim period between the execution of the Merger Agreement and the effective time of the Merger. In addition, the Company and BMC have made customary non-solicitation covenants prohibiting each from (i) soliciting, providing non-public information or engaging or participating in any discussions or negotiations concerning proposals relating to alternative business combination transactions or (ii) entering into an acquisition agreement in connection with such an alternative business combination transaction, in each case, except as permitted under the Merger Agreement.

The Merger Agreement contains certain termination rights for the Company and BMC, including in the event that (i) the Merger is not consummated on or before December 31, 2015, (ii) the approval of the stockholders of the Company is not obtained at a stockholder meeting, (iii) the approval of the stockholders of BMC is not obtained pursuant to written consent, (iv) the other party’s board of directors changes its recommendation to its stockholders due to an intervening event or (v) either the Company or BMC terminates the Merger Agreement to enter into a binding agreement providing for a superior alternative transaction. The Merger Agreement further provides that, upon termination of the Merger Agreement under specified circumstances, including in connection with a change in the recommendation of the board of directors of the Company or BMC or a termination of the Merger Agreement by the Company or BMC to enter into a binding agreement providing for a superior alternative transaction, the Company or BMC, as the case may be, will pay to the other party a termination fee. The termination fee payable by the Company equals $15.7 million in cash. The termination fee payable by BMC equals $23.6 million in cash.

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Operating Results

The following table sets forth our operating results in dollars and as a percentage of net sales for the periods indicated:

	Three Months Ended September 30,										Nine Months Ended September 30,
(in thousands)	2015					2014					2015					2014
Net sales	$	358,540		100.0	%	$	354,060		100.0	%	$	1,006,225		100.0	%	$	978,629		100.0	%
Cost of goods sold	269,401			75.1	%	269,668			76.2	%	759,354			75.5	%	746,781			76.3	%
Gross profit	89,139			24.9	%	84,392			23.8	%	246,871			24.5	%	231,848			23.7	%
Operating expenses:
Selling, general and administrative expenses	75,286			21.0	%	73,665			20.8	%	219,866			21.9	%	211,878			21.7	%
Depreciation expense	2,493			0.7	%	1,681			0.5	%	6,811			0.7	%	4,790			0.5	%
Amortization expense	596			0.2	%	563			0.2	%	1,756			0.2	%	1,690			0.2	%
Impairment of assets held for sale	—			0.0	%	—			0.0	%	—			0.0	%	48			0.0	%
Merger-related costs	1,183			0.3	%	—			0.0	%	4,652			0.5	%	—			0.0	%
Public offering transaction-related costs	—			0.0	%	60			0.0	%	—			0.0	%	508			0.1	%
Restructuring expense	(14		)	0.0	%	2			0.0	%	383			0.0	%	11			0.0	%
Income from operations	9,595			2.7	%	8,421			2.4	%	13,403			1.3	%	12,923			1.3	%
Other income (expense)
Interest expense	(745		)	(0.2	)%	(712		)	(0.2	)%	(2,133		)	(0.2	)%	(2,011		)	(0.2	)%
Other income, net	194			0.1	%	197			0.1	%	1,002			0.1	%	610			0.1	%
Income from continuing operations before income taxes	9,044			2.5	%	7,906			2.2	%	12,272			1.2	%	11,522			1.2	%
Income tax expense	3,020			0.8	%	2,972			0.8	%	1,866			0.2	%	4,417			0.5	%
Income from continuing operations	6,024			1.7	%	4,934			1.4	%	10,406			1.0	%	7,105			0.7	%
Income from discontinued operations, net of income tax expense of $4, $25, $33 and $133, respectively	7			0.0	%	40			0.0	%	54			0.0	%	208			0.0	%
Net income	$	6,031		1.7	%	$	4,974		1.4	%	$	10,460		1.0	%	$	7,313		0.7	%

Three months ended September 30, 2015 compared to three months ended September 30, 2014

Net sales

For the three months ended September 30, 2015, net sales increased $4.5 million, or 1.3%, to $358.5 million from $354.1 million during the three months ended September 30, 2014. The increase in net sales was primarily driven by increased volume of approximately 4.5%, while the impact of commodity price deflation decreased net sales by approximately 3.2%. We estimate approximately 74% of our net sales for the three months ended September 30, 2015 were to customers engaged in new single-family construction. According to the U.S. Census Bureau, single-family housing starts increased approximately 14.5% for the three months ended September 30, 2015 as compared to the same period in the prior year, while single-family houses under construction as of September 30, 2015 increased 14.0% as compared to September 30, 2014. Increases in net sales from California and Georgia accounted for the majority of the total increase in net sales for the three months ended September 30, 2015, while the Company experienced a decrease in net sales from Texas.

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The following table shows net sales classified by major product category:

	Three Months Ended   September 30, 2015				Three Months Ended   September 30, 2014
(in thousands)	Net Sales		% of Sales		Net Sales		% of Sales		% Change
Structural components	$	50,930	14.2	%	$	49,163	13.9	%	3.6	%
Millwork & other interior products	65,513		18.3	%	64,821		18.3	%	1.1	%
Lumber & lumber sheet goods	117,299		32.7	%	123,116		34.8	%	(4.7	)%
Windows & other exterior products	78,358		21.9	%	73,626		20.8	%	6.4	%
Other building products & services	46,440		12.9	%	43,334		12.2	%	7.2	%
Total net sales	$	358,540	100.0	%	$	354,060	100.0	%	1.3	%

Increased sales volume was achieved across all product categories. Average selling prices for lumber & lumber sheet goods were approximately 9.4% lower during the three months ended September 30, 2015 compared to the three months ended September 30, 2014.

Cost of goods sold

For the three months ended September 30, 2015, cost of goods sold decreased $0.3 million, or 0.1%, to $269.4 million from $269.7 million during the three months ended September 30, 2014. We estimate our cost of goods sold decreased approximately 3.6% as a result of commodity cost deflation, while the impact of sales volumes increased cost of sales by approximately 3.5%.

Gross profit

For the three months ended September 30, 2015, gross profit increased $4.7 million, or 5.6%, to $89.1 million from $84.4 million for the three months ended September 30, 2014, driven primarily by increased sales volumes. Our gross margin was 24.9% for the three months ended September 30, 2015 and 23.8% for the three months ended September 30, 2014. This increase was primarily driven by improved gross margins on sales of structural components and a higher percentage of total net sales being derived from non-commodity product offerings.

Operating expenses

For the three months ended September 30, 2015, selling, general and administrative expenses were $75.3 million, up $1.6 million, or 2.2%, from $73.7 million for the three months ended September 30, 2014. The increase was primarily related to higher salary, wage and incentive compensation costs to serve higher sales volume.

For the three months ended September 30, 2015, depreciation expense was $2.5 million compared to $1.7 million for the three months ended September 30, 2014. This increase primarily relates to replacements and additions of fleet and material handling equipment.

For the three months ended September 30, 2015, the Company incurred $1.2 million of Merger-related costs in relation to the Merger described in “-Merger Agreement with Building Materials Holding Corporation” above.

Income tax from continuing operations

Income tax expense from continuing operations was $3.0 million for the three months ended September 30, 2015 and the three months ended September 30, 2014. The effective tax rate from continuing operations for the three months ended September 30, 2015 was 33.4%. Excluding the discrete tax impact related to non-deductible Merger-related costs of $1.0 million, the effective tax rate from continuing operations for the three months ended September 30, 2015 was 29.3%, which varied from the federal statutory rate of 35% primarily due to the Manufacturing Deduction. The effective tax rate from continuing operations for the three months ended September 30, 2014 was 37.6%, which varied from the federal statutory rate of 35% primarily due to state taxes.

The Company has valuation allowances of $1.6 million against its deferred tax assets related to certain state tax jurisdictions as of September 30, 2015. Given the Company’s current earnings and anticipated future earnings, there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow the Company to reach a conclusion that a significant portion, or all, of the valuation allowance will no longer be needed. Release of the valuation allowance would result in a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that the Company is able to actually achieve.

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Nine months ended September 30, 2015 compared to nine months ended September 30, 2014

Net sales

For the nine months ended September 30, 2015, net sales increased $27.6 million, or 2.8%, to $1,006.2 million from $978.6 million during the nine months ended September 30, 2014. The increase in net sales was primarily driven by increased volume of approximately 5.5%, while the impact of commodity price deflation decreased net sales by approximately 2.7%. We estimate approximately 74% of our net sales for the nine months ended September 30, 2015 were to customers engaged in new single-family construction. According to the U.S. Census Bureau, single-family housing starts increased approximately 11.1% for the nine months ended September 30, 2015 as compared to the same period in the prior year, while single-family houses under construction as of September 30, 2015 increased 14.0% as compared to September 30, 2014. Increases in net sales from California, Georgia, Utah and Texas accounted for the majority of the total increase for the nine months ended September 30, 2015.

The following table shows net sales classified by major product category:

	Nine Months Ended   September 30, 2015				Nine Months Ended   September 30, 2014
(in thousands)	Net Sales		% of Sales		Net Sales		% of Sales		% Change
Structural components	$	141,981	14.1	%	$	132,846	13.6	%	6.9	%
Millwork & other interior products	187,455		18.6	%	178,528		18.2	%	5.0	%
Lumber & lumber sheet goods	335,310		33.3	%	343,279		35.1	%	(2.3	)%
Windows & other exterior products	211,552		21.0	%	201,921		20.6	%	4.8	%
Other building products & services	129,927		13.0	%	122,055		12.5	%	6.4	%
Total net sales	$	1,006,225	100.0	%	$	978,629	100.0	%	2.8	%

Increased sales volume was achieved across all product categories. Average selling prices for lumber & lumber sheet goods were approximately 7.7% lower during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014.

Cost of goods sold

For the nine months ended September 30, 2015, cost of goods sold increased $12.6 million, or 1.7%, to $759.4 million from $746.8 million during the nine months ended September 30, 2014. We estimate our cost of goods sold increased approximately 4.7% as a result of increased sales volumes, while commodity cost deflation resulted in a 3.0% decrease in cost of goods sold.

Gross profit

For the nine months ended September 30, 2015, gross profit increased $15.0 million, or 6.5%, to $246.9 million from $231.8 million for the nine months ended September 30, 2014, driven primarily by increased sales volumes. Our gross margin was 24.5% for the nine months ended September 30, 2015 and 23.7% for the nine months ended September 30, 2014. This increase was primarily driven by improved gross margins on sales of structural components and a higher percentage of total net sales being derived from non-commodity product offerings.

Operating expenses

For the nine months ended September 30, 2015, selling, general and administrative expenses increased $8.0 million, or 3.8%, to $219.9 million, or 21.9% of net sales, from $211.9 million, or 21.7% of net sales, for the nine months ended September 30, 2014. The increase was primarily related to higher salary, wage and incentive compensation costs to serve higher sales volumes, associate health care cost inflation, certain expenses related to previously closed store locations, bad debt expense and non-cash stock compensation.

For the nine months ended September 30, 2015, depreciation expense was $6.8 million compared to $4.8 million for the nine months ended September 30, 2014. This increase primarily relates to replacements and additions of fleet and material handling equipment.

For the nine months ended September 30, 2015, the Company incurred $4.7 million of Merger-related costs in relation to the Merger described in “-Merger Agreement with Building Materials Holding Corporation” above.

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For the nine months ended September 30, 2015, the Company incurred restructuring expenses of $0.4 million primarily related to costs to relocate a facility within one of our continuing markets.

Other income (expenses)

Other income, net. For the nine months ended September 30, 2015, other income, net, was $1.0 million compared to $0.6 million for the nine months ended September 30, 2014. During the nine months ended September 30, 2015, the Company granted a perpetual easement on one of its owned properties to a third party in exchange for $0.5 million.

Income tax from continuing operations

For the nine months ended September 30, 2015, the income tax expense from continuing operations was $1.9 million compared to income tax expense of $4.4 million for the nine months ended September 30, 2014. The effective tax rate from continuing operations for the nine months ended September 30, 2015 was 15.2%. Excluding the discrete tax impact related to the $3.0 million Gores Termination Fee Tax Benefit and non-deductible Merger-related costs of $3.4 million, the effective tax rate from continuing operations for the nine months ended September 30, 2015 was 29.9%, which varied from the federal statutory rate of 35% primarily due to the Manufacturing Deduction. The effective tax rate from continuing operations for the nine months ended September 30, 2014 was 38.3%, which varied from the federal statutory rate of 35% primarily due to state taxes.

Liquidity and Capital Resources

Our primary capital requirements are to fund working capital needs and operating expenses, meet required interest and principal payments and fund capital expenditures. During 2014 and the first nine months of 2015, our capital resources have primarily consisted of cash and cash equivalents and borrowings under our Revolver.

Our liquidity at September 30, 2015 was $118.3 million, which includes $5.4 million in cash and cash equivalents and $112.9 million of unused borrowing 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 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.

The Merger may impact our future liquidity. The Company and BMC received a joint commitment from Wells Fargo Bank, N.A. and Goldman Sachs Bank USA, contingent upon the closing of the Merger, to consolidate and increase the available borrowing limit under their existing revolving asset based loan facilities to $450 million for use by the combined company. Available funds will be used to refinance outstanding balances under the current revolving credit facilities, to support up to $75 million in letters of credit and fund transaction costs, general corporate purposes and working capital. Additionally, $250 million of existing BMC 9.0% Senior Secured Notes due in 2018 are expected to remain outstanding and shall be the obligation of the combined company following the closing of the Merger.

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Historical Cash Flow Information

Adjusted working capital* and net current assets

Adjusted working capital was $140.1 million and $133.2 million as of September 30, 2015 and December 31, 2014, respectively, and net current assets (current assets less current liabilities) were $146.0 million and $140.1 million as of September 30, 2015 and December 31, 2014, respectively, as summarized in the following table:

(in thousands)	September 30, 2015			December 31, 2014
Accounts receivable, net	$	138,405		$	114,448
Inventories, net	108,726			98,259
Other current assets	26,422			23,780
Income taxes (payable) receivable	(4,640		)	4,863
Accounts payable, accrued expenses and other current liabilities	(128,794		)	(108,176		)
Total adjusted working capital*	140,119			133,174
Cash and cash equivalents	5,382			5,806
Restricted assets	523			1,076
Total net current assets	$	146,024		$	140,056

*Adjusted working capital is a non-GAAP financial measure that management uses to assess the Company’s financial position and liquidity. Management believes adjusted working capital provides investors with an additional view of the Company’s liquidity and ability to repay current obligations. We calculate adjusted working capital as current assets, as determined under GAAP, excluding cash and cash equivalents and restricted assets, minus current liabilities, as determined under GAAP. The presentation of this additional information is not meant to be considered superior to, in isolation of or as a substitute for results prepared in accordance with GAAP or as an indication of our performance. Our calculation of adjusted working capital is not necessarily comparable to similarly titled measures reported by other companies.

Accounts receivable, net, increased $24.0 million from December 31, 2014 to September 30, 2015 and days sales outstanding (measured against net sales in the current fiscal quarter of each period) increased from 32 days at December 31, 2014 to 35 days at September 30, 2015 primarily due to seasonal increases in sales.

Inventories, net, increased $10.5 million from December 31, 2014 to September 30, 2015 primarily due to seasonal increases in inventory and inventory days on hand (measured against cost of goods sold in the current fiscal quarter of each period) decreased from 37 days at December 31, 2014 to 36 days at September 30, 2015.

Income taxes payable increased $9.5 million from December 31, 2014 to September 30, 2015. $3.7 million of the increase related to the payment of income tax net of refunds, and $5.8 million related primarily to the reduction in timing differences between our losses before income taxes under GAAP and our taxable income. The reduction in timing differences primarily resulted from a larger increase in depreciation expense for GAAP than for income tax purposes.

Accounts payable, accrued expenses and other liabilities increased $20.6 million from December 31, 2014 to September 30, 2015 primarily due to an increase in the volume of inventory purchases in connection with higher sales volume.

Cash flows from operating activities

Net cash provided by operating activities was $13.5 million and $4.8 million for the nine months ended September 30, 2015 and 2014, respectively, as summarized in the following table:

	Nine Months Ended September 30,
(in thousands)	2015			2014
Net income	$	10,460		$	7,313
Non-cash expenses	15,701			11,382
Change in deferred income taxes	(3,783		)	(4,030		)
Change in working capital and other	(8,896		)	(9,854		)
Net cash provided by operating activities	$	13,482		$	4,811

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Net cash provided by operating activities increased by $8.7 million for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014 primarily due to the following:

• Net income increased by $3.1 million as discussed in “-Operating Results,” above.

• Non-cash expenses increased by $4.3 million primarily as a result of increases in depreciation expense, stock compensation expense and bad debt expense.

• The decrease in deferred income taxes during the nine months ended September 30, 2015 and September 30, 2014 was due to a reduction in the timing differences between our losses before income taxes under GAAP and our taxable income. The reduction in timing differences primarily resulted from a larger increase in depreciation expense for GAAP than for income tax purposes.

• Cash outflows from changes in working capital and other of $8.9 million and $9.9 million for the nine months ended September 30, 2015 and September 30, 2014, respectively, are primarily attributable to seasonal increases in accounts receivable and inventory offset by increases in accounts payable. See “-Adjusted working capital* and net current assets” above for further discussion.

Cash flows from investing activities

Net cash provided by (used in) investing activities was $2.3 million and $(17.3) million for the nine months ended September 30, 2015 and 2014, respectively, as summarized in the following table:

	Nine Months Ended September 30,
(in thousands)	2015			2014
Purchases of property and equipment	$	(12,329	)	$	(20,795	)
Purchase of business	(2,025		)	—
Proceeds from sale-leaseback transactions, net	15,296			—
Proceeds from sale of property, equipment and real estate	1,005			3,493
Change in restricted assets	310			2
Net cash provided by (used in) investing activities	$	2,257		$	(17,300	)

Cash used for the purchase of property and equipment for the nine months ended September 30, 2015 and 2014 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. The decrease in cash used for the purchase of property and equipment is primarily due to a higher proportion of assets acquired under capital leases during the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014.

In June 2015, the Company acquired certain assets and assumed certain liabilities of Guilford Builders Supply, a provider of building materials and custom millwork located in Greensboro, North Carolina, for a preliminary purchase price of $2.2 million, less an initial holdback of $0.2 million.

In February 2015, the Company completed a sale-leaseback transaction under which it sold an operating facility, which had been purchased in 2014, to an unrelated third party for net proceeds of $15.3 million and entered into an operating lease with an initial term of 15 years.

Cash provided by the sale of property, equipment and real estate for the nine months ended September 30, 2015 resulted primarily from the sale of vehicles, while cash provided by the sale of property, equipment and real estate for the nine months ended September 30, 2014 resulted primarily from the sale of real estate and vehicles.

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Cash flows from financing activities

Net cash (used in) provided by financing activities was $(16.2) million and $19.6 million for the nine months ended September 30, 2015 and 2014, respectively, as summarized in the following table:

	Nine Months Ended September 30,
(in thousands)	2015			2014
Proceeds from Revolver, net of repayments	$	(13,650	)	$	22,744
Payments on capital leases	(2,419		)	(1,177		)
Other financing activities, net	(94		)	(1,972		)
Net cash (used in) provided by financing activities	$	(16,163	)	$	19,595

The Company made net repayments of $13.7 million on the Revolver during the nine months ended September 30, 2015, which resulted primarily from cash generated from operations and proceeds from the sale-leaseback transaction described above, offset by purchases of property and equipment and the purchase of Guilford Builders Supply. Proceeds from the Revolver were primarily used to fund purchases of property and equipment for the nine months ended September 30, 2014.

Payments on capital leases increased by $1.2 million for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 due primarily to $10.6 million of capital lease additions during the twelve months ended September 30, 2015.

Other financing activities, net, for the nine months ended September 30, 2014 consist primarily of debt issuance costs and the repayment of secured borrowings.

Capital expenditures

Capital expenditures vary depending on prevailing business factors, including current and anticipated market conditions. Historically, capital expenditures have for the most part remained at relatively low levels in comparison to the operating cash flows generated during the corresponding periods. We currently expect our 2015 capital expenditures to be approximately $25 to $31 million (including the incurrence of capital lease obligations) primarily related to vehicles and equipment, including lease buyouts, and facility and technology investments to support our operations.

Revolving credit facility

On June 30, 2009, we entered into the Credit Agreement with WFCF, which includes the Revolver. The Credit Agreement has subsequently been amended thirteen times. We were in compliance with all debt covenants for the quarter ended September 30, 2015. We are subject to a financial covenant requiring a minimum Fixed Charge Coverage Ratio of 1.00:1.00 if Adjusted Liquidity is less than $20 million. 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, 2015.

We had outstanding borrowings of $76.5 million with net availability of $112.9 million as of September 30, 2015. The interest rate on outstanding LIBOR Rate borrowings of $76.0 million was 1.7% and the interest rate on outstanding Base Rate borrowings of $0.5 million was 3.8% as of September 30, 2015. We had $9.5 million in letters of credit outstanding under the Credit Agreement as of September 30, 2015. The Revolver is collateralized by substantially all of our assets.

Contractual Obligations and Commercial Commitments

Outstanding borrowings under the Revolver decreased to $76.5 million at September 30, 2015 from $90.1 million at December 31, 2014.

During the nine months ended September 30, 2015, the Company acquired assets under capital leases totaling $10.3 million.

In February 2015, the Company completed a sale-leaseback transaction under which it sold an operating facility, which had been purchased in 2014, to an unrelated third party for net proceeds of $15.3 million and entered into an operating lease with an initial term of 15 years. Future minimum lease payments under this lease total $14.6 million.

The Company has entered into contracts to purchase or lease fleet and certain equipment, which are non-cancellable, enforceable and legally binding on us. As of September 30, 2015, these purchase obligations totaled $6.2 million.

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Off-Balance Sheet Arrangements

At September 30, 2015 and December 31, 2014, other than operating leases and letters of credit issued under the Credit Agreement, we had no material off-balance sheet arrangements with unconsolidated entities.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 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. 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 periods beginning on January 1, 2018. Early application is permitted, but only for the Company’s annual and interim periods beginning on January 1, 2017. The guidance permits the use of either a retrospective or cumulative effect transition method. We have not yet selected a transition method and are evaluating the impact of the standard on our financial statements.

In April 2015, the FASB issued Accounting Standards Update No. 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement ("ASU 2015-05"). ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer's accounting for service contracts. ASU 2015-05 is effective for the Company’s annual and interim periods beginning on January 1, 2016. Early adoption is permitted. We are evaluating the impact of the standard on our financial statements.

In July 2015, the FASB issued Accounting Standards Update No. 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 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 impacted by the new guidance. Prospective application is required and early adoption is permitted. ASU 2015-11 is effective for the Company’s annual and interim periods beginning on January 1, 2017. We are evaluating the impact of the standard on our financial statements

In August 2015, the FASB issued Accounting Standards Update No. 2015-15, Interest - Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements - Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (“ASU 2015-15”). ASU 2015-15 clarifies the treatment of debt issuance costs for line-of-credit arrangements, which was not addressed in Accounting Standards Update 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU 2015-15 clarifies that the SEC staff would not object to an entity deferring and presenting debt issuance costs related to a line-of-credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of such arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-15 is effective for the Company’s annual and interim periods beginning on January 1, 2016. Early adoption is permitted. We are evaluating the impact of the standard on our financial statements.

In September 2015, the FASB issued Accounting Standards Update No. 2015-16, Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, including the cumulative effect of the change in provisional amount as if the accounting had been completed at the acquisition date. The adjustments related to previous reporting periods since the acquisition date must be disclosed by income statement line item either on the face of the income statement or in the notes. Prospective application is required and early adoption is permitted. ASU 2015-16 is effective for the Company’s annual and interim periods beginning on January 1, 2016. We are evaluating the impact of the standard on our financial statements.

Critical Accounting Policies

There have been no significant material changes to the critical accounting policies as disclosed in the Company’s 2014 Annual Report on Form 10-K.

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ITEM 3     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no significant material changes to the market risks as disclosed in the Company’s 2014 Annual Report on Form 10-K.

ITEM 4    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 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 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 its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required 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 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 effective as of September 30, 2015.

Changes in internal control over financial reporting

There was no change in our internal control over financial reporting during the three months ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1    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 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 for general liability, auto liability and workers’ compensation exposures subject to deductibles we believe to be reasonable under the circumstances, and we self-insure for employee claims with insurance purchased from independent carriers to cover claims in excess of the self-insured limits. However, insurance may or may not cover any or all of our liabilities in respect of claims and lawsuits. We do not currently believe that the ultimate resolution of any of these matters will have a material adverse effect on our consolidated financial position, cash flows or operating results.

ITEM 1A    RISK FACTORS

Please refer to “Part I, Item 1A., Risk Factors” in our 2014 Annual Report on Form 10-K, as supplemented by the information in “Part II, Item 1A., Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 5, 2015 (“Form 10-Q for the quarter ended June 30, 2015”), for information regarding factors that could affect our financial condition and operating results. There have been no other material changes to our risk factors from the risk factors disclosed in the 2014 Annual Report on Form 10-K, as amended and supplemented by such information in our Form 10-Q for the quarter ended June 30, 2015. The risks described in our 2014 Annual Report on Form 10-K and our Form 10-Q for the quarter ended June 30, 2015, in addition to the other information set forth in this report, are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3    DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4    MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5    OTHER INFORMATION

None.

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ITEM 6    EXHIBITS

EXHIBIT INDEX

Exhibit No.	Description
31.1	Certification by Jeffrey G. Rea, President and Chief Executive Officer, pursuant to Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification by James F. Major, Jr., Executive Vice President, Chief Financial Officer and Treasurer, pursuant to Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

_________________

* 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.

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SIGNATURE

Pursuant to the requirements 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.

	STOCK BUILDING SUPPLY HOLDINGS, INC.
Date: November 5, 2015	By:	/s/ James F. Major, Jr.
		Executive Vice President, Chief Financial Officer and Treasurer
		(Principal financial and accounting officer and duly authorized officer)

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