UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

or

For the transition period from __________ to __________.

Commission File Number: 001-36293

PART I - FINANCIAL INFORMATION

Continental Building Products, Inc.

Consolidated Statements of Operations

See accompanying notes to unaudited consolidated financial statements.

Continental Building Products, Inc.

Consolidated Statements of Comprehensive Income

See accompanying notes to unaudited consolidated financial statements.

Continental Building Products, Inc.

Consolidated Balance Sheets

See accompanying notes to unaudited consolidated financial statements.

Continental Building Products, Inc.

Consolidated Statements of Cash Flows

See accompanying notes to unaudited consolidated financial statements.

Continental Building Products, Inc.

Notes to the Unaudited Consolidated Financial Statements

1. BACKGROUND AND NATURE OF OPERATIONS

Description of Business

Continental Building Products, Inc. (the "Company") is a Delaware corporation. Prior to the acquisition of the gypsum division of Lafarge North America Inc. ("Lafarge N.A.") described below, the Company had no operating activity. The Company manufactures gypsum wallboard related products for commercial and residential buildings and houses. The Company operates a network of three highly efficient wallboard facilities, all located in the eastern United States, and produces joint compound at one plant in the United States and at another plant in Canada.

The Acquisition

On June 24, 2013, Lone Star Fund VIII (U.S.), L.P., (along with its affiliates and associates, but excluding the companies that it owns as a result of its investment activity, “Lone Star”), entered into a definitive agreement with Lafarge N.A. to purchase the assets of its North American gypsum division for an aggregate purchase price of approximately $703 million (the "Acquisition") in cash. The closing of the Acquisition occurred on August 30, 2013.

Secondary Public Offerings

On March 18, 2016, following a series of secondary offerings, LSF8 Gypsum Holdings, L.P. ("LSF8") sold its remaining 5,106,803 shares of the Company’s common stock at a price per share of $16.10. Following the March 18, 2016 transaction and the concurrent repurchase by the Company of 900,000 shares of Company’s common stock from LSF8, to the best of the Company's knowledge, neither LSF8 nor any other affiliate of Lone Star held any shares of Company common stock. (See Note 11, Treasury Stock).

2. SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements for the Company have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated.

Certain information and footnote disclosures normally included for the annual financial statements prepared in accordance with

U.S. GAAP have been condensed or omitted for the interim periods presented. Management believes that the unaudited interim

financial statements include all adjustments (which are normal and recurring in nature) necessary to present fairly the financial

position of the Company and the results of operations and cash flows for the periods presented.

The results of operations for the periods presented are not necessarily indicative of the results that may be expected for the year

ending December 31, 2017. Seasonal changes and other conditions can affect the sales volumes of the Company’s products.

Therefore, the financial results for any interim period do not necessarily indicate the expected results for the year.

The financial statements should be read in conjunction with Company’s audited consolidated financial statements and the notes

thereto for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K for the fiscal year then

ended (the "2016 10-K"). The Company has continued to follow the accounting policies set forth in those financial statements.

Accounting Standards Adopted During the Period

In July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-11, "Inventory: Simplifying the Measurement of Inventory." This guidance applies to inventory valued at first-in, first-out (FIFO) or average cost and requires inventory to be measured at the lower of cost and net realizable value, rather than at the lower of cost or market. ASU 2015-11 is effective on a prospective basis for annual periods, including interim reporting periods within those periods, beginning after December 15, 2016. The Company values its inventory under the average cost method and thus will bewas required to adopt the standard. The Company adopted the new standard in the first quarter of 2017. The adoption of this standard did not have a material impact on the Company's Consolidated Financial Statements.

Accounting Standards Not Yet Adopted

losses, emphasizing an updated model based on expected losses rather than incurred losses. The provisions of this standard are effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its Consolidated Financial Statements.

3. RECEIVABLES, NET

Trade receivables are recorded net of credit memos issued during the normal course of business.

4. INVENTORIES, NET

5. PROPERTY, PLANT AND EQUIPMENT, NET

Depreciation expense was $9.4$9.0 million and $17.5$26.5 million for the three and sixnine months ended JuneSeptember 30, 2017, respectively, compared to $8.3$8.5 million and $16.7$25.2 million for the three and sixnine months ended JuneSeptember 30, 2016, respectively.

6. CUSTOMER RELATIONSHIPS AND OTHER INTANGIBLES, NET

Amortization expense was $3.1$3.0 million and $6.3$9.3 million for the three and sixnine months ended JuneSeptember 30, 2017, respectively, compared to $3.5$3.4 million and $7.1$10.4 million for the three and sixnine months ended JuneSeptember 30, 2016, respectively.

Customer relationship assets are amortized over a 15 year period using an accelerated method that reflects the expected future cash flows from the acquired customer list intangible asset. Trademarks are amortized on a straight-line basis over the estimated useful life of 15 years. Software development costs are amortized over a 3 year life with the expense recorded in selling and administrative expense.

7. INVESTMENT IN SEVEN HILLS

Paperboard liner purchased from Seven Hills was $14.8$15.5 million and $26.8$42.3 million for the three and sixnine months ended JuneSeptember 30, 2017, respectively, compared to $11.1 million and $22.9$34.0 million for the three and sixnine months ended JuneSeptember 30, 2016, respectively. As of JuneSeptember 30, 2017, the Company had certain purchase commitments for paper totaling $35.6$32.1 million through 2020.

8. ACCRUED AND OTHER LIABILITIES

9. DEBT 

In connection with the Acquisition, the Company purchased certain assets from Lafarge N.A. with cash. In order to finance a portion of the consideration payable to Lafarge N.A., the Company and its subsidiary, Continental Building Products Operating Company, LLC ("OpCo"), entered into a first lien credit agreement with Credit Suisse AG, as administrative agent, Credit Suisse Securities (USA) LLC and RBC Capital Markets, as joint lead arrangers and joint bookrunners, and Royal Bank of Canada, as syndication agent (as amended on December 2, 2013, the "First Lien Credit Agreement") and a second lien credit agreement with Credit Suisse AG, as administrative agent, Credit Suisse Securities (USA) LLC and RBC Capital Markets, as joint lead arrangers and joint bookrunners, and Royal Bank of Canada, as syndication agent, for term loan borrowings of $320 million and $120 million, respectively, and drew $25 million under a $50 million revolving credit facility under the First Lien Credit Agreement. The available amount under the First Lien Credit Agreement term loan was subsequently increased to $415 million. In conjunction with the initial issuance of this debt, the Company incurred $15.3 million of debt issuance costs which were being amortized using the effective interest rate method or the straight-line method which approximates the effective interest rate method, over the estimated life of the related debt. Interest under the First Lien Credit Agreement was

floating. The margin applicable to the borrowing was reduced in the third quarter 2014 to 3.00% after the Company achieved a B2 rating with a stable outlook by Moody’s.

On August 18, 2016, the Company, OpCo and Continental Building Products Canada Inc. and the lenders party thereto and Credit Suisse, as Administrative Agent, entered into an Amended and Restated Credit Agreement amending and restating the First Lien Credit Agreement (the "Amended and Restated Credit Agreement"). The Amended and Restated Credit Agreement provides for a $275 million senior secured first lien term loan facility and a $75 million senior secured revolving credit facility (the "Revolver"), which mature on August 18, 2023 and August 18, 2021, respectively. Related to this debt refinancing, the Company incurred $4.7 million of discount and debt issuance costs, of which $2.5 million was recorded in Other expense, net on the Consolidated Statements of Operations in 2016, and $2.2 million will be amortized over the term of the Amended and Restated Credit Agreement. Upon completion of this debt refinancing, the Company recognized an additional expense of $3.3 million related to losses resulting from debt extinguishment which is also reported in Other expense, net on the Consolidated Statements of Operations.Operations in 2016. The interest rate under the Amended and Restated Credit Agreement remained floating but was reduced to a spread over LIBOR of 2.75% and floor of 0.75%.

The First Lien Credit Agreement was, and the Amended and Restated Credit Agreement is, secured by the underlying property and equipment of the Company. During the sixnine months ended JuneSeptember 30, 2017, the Company made no voluntary prepayment of principal, compared to $25.0$25.7 million of voluntary prepayments in the same period of 2016. As of JuneSeptember 30, 2017, the annual effective interest rate on the Amended and Restated Credit Agreement, including original issue discount and amortization of debt issuance costs, was 4.1%4.3%.

There were no amounts outstanding under the Revolver as of JuneSeptember 30, 2017 or December 31, 2016. During the sixnine months ended JuneSeptember 30, 2017 the Company did not have any draws under the Revolver, compared to $22.0 million which the Company borrowed and repaid in full during the sixnine months ended JuneSeptember 30, 2016 under the applicable revolving credit facility. Interest under the Revolver is floating, based on LIBOR plus 225 basis points. In addition, the Company pays a facility fee of 50 basis points per annum on the total capacity under the Revolver. Availability under the Revolver as of JuneSeptember 30, 2017, based on draws and outstanding letters of credit and absence of violations of covenants, was $73.4 million.

Under the terms of the Amended and Restated Credit Agreement, the Company is required to comply with certain covenants, including among others, the limitation of indebtedness, limitation on liens, and limitations on certain cash distributions. One single financial covenant governs all of the Company’s debt and only applies if the outstanding borrowings of the Revolver plus outstanding letters of credit are greater than $22.5 million as of the end of the quarter. The financial covenant is a total leverage ratio calculation, in which total debt less outstanding cash is divided by adjusted earnings before interest, taxes, depreciation and amortization. As the sum of outstanding borrowings under the Revolver and outstanding letters of credit were less than $22.5 million at JuneSeptember 30, 2017, the total leverage ratio of no greater than 5.0 under the financial covenant was not applicable at JuneSeptember 30, 2017.

10. DERIVATIVE INSTRUMENTS

The Company uses derivative instruments to manage selected commodity price and interest rate exposures. The Company does not use derivative instruments for speculative trading purposes, and typically does not hedge beyond one year for commodity derivative instruments. Cash flows from derivative instruments are included in net cash provided by operating activities in the consolidated statements of cash flows.

Commodity Derivative Instruments

For the three and sixnine months ended JuneSeptember 30, 2017, approximately $0.3$0.1 million of loss,gain, net of $0.1 million$43,000 of tax, and $0.3 million of loss, net of $0.2$0.1 million of tax, respectively, were recognized in other comprehensive income for the commodity contracts. For both the three and sixnine months ended JuneSeptember 30, 2017, the amount of gainloss reclassified from accumulated other comprehensive loss into income was $0.1 million.million and $38,000, respectively. As of JuneSeptember 30, 2017, there was $0.1 million recorded in other current assets and $0.2$0.1 million was recorded in other current liabilities. For the three and sixnine months ended JuneSeptember 30, 2016, approximately $0.3$0.2 million of loss, net of $59,000 of tax benefit, and $0.1 million of gain, net of $0.2 million of tax expense, and $0.2 million of gain, net of $0.1 million$25,000 of tax expense, respectively, were recognized in other comprehensive income for the commodity contracts. For the three and sixnine months ended JuneSeptember 30, 2016, the amount of loss reclassified from accumulated other comprehensive loss into income was $0.2$0.1 million and $0.4$0.3 million, respectively. As of December 31, 2016, $0.4 million was recorded in other current assets.

Interest Rate Derivative Instrument

In September 2016, the Company entered into interest rate swap agreements for a combined notional amount of $100.0 million with a term of four years, which hedged the floating LIBOR on a portion of the term loan under the Amended and Restated Credit Agreement to an average fixed rate of 1.323% and LIBOR floor of 0.75%. The Company elected to designate these interest rate swaps as cash flow hedges for accounting purposes. The net unrealized gain that remained in accumulated other comprehensive loss as of JuneSeptember 30, 2017 was $1.0 million which is net of a tax amount of $0.5 million. The net unrealized gain that remained in accumulated other comprehensive loss as of December 31, 2016 was $1.2 million which is net of a tax amount of $0.6 million. For the three and sixnine months ended JuneSeptember 30, 2017, the amount of loss reclassified from accumulated other comprehensive loss into income was $44,000$7,000 and $0.1 million, respectively. For the three and sixnine months ended JuneSeptember 30, 2017, approximately $0.3 million$44,000 of loss,gain, net of tax expense of $0.2 million$20,000, and $0.2 million of loss, net of tax expense of $0.1 million, respectively, were recognized in other comprehensive income for the interest rate swaps. For both the three and nine months ended September, 2016, approximately $8,000 of gains, net of tax expense of $4,000, were recognized in other comprehensive income for the interest rate swaps. As of JuneSeptember 30, 2017, there was $1.5 million recorded in other current assets. No ineffectiveness was recorded on these contracts during the three and sixnine months ended JuneSeptember 30, 2017.2017 and 2016.

Counterparty Risk

The Company is exposed to credit losses in the event of nonperformance by the counterparties to the Company’s derivative instruments. As of JuneSeptember 30, 2017, the Company’s derivatives were in a $1.3$1.5 million net asset position. All of the Company’s counterparties have investment grade credit ratings; accordingly, the Company anticipates that the counterparties will be able to fully satisfy their obligations under the contracts. The Company’s agreements outline the conditions upon which it or the counterparties are required to post collateral. As of JuneSeptember 30, 2017, the Company had no collateral posted with its counterparties related to the derivatives.

11. TREASURY STOCK

On November 4, 2015, the Company announced that the Board of Directors approved a new stock repurchase program authorizing the Company to repurchase up to $50 million of its common stock, at such times and prices as determined by management as market conditions warrant, through December 31, 2016. Pursuant to this authorization, on March 18, 2016, the Company repurchased 900,000 shares of its common stock from LSF8 in a private transaction at a price per share of $16.10, or an aggregate of approximately $14.5 million, pursuant to a stock purchase agreement dated March 14, 2016. The Company has also repurchased shares of its common stock in the open market under this authorization. On August 3, 2016, the Company announced the Board of Directors had approved an expansion of its stock repurchase program by $50 million, increasing the aggregate authorization from up to $50 million to up to $100 million. The program was also extended from the end of 2016 to the end of 2017.

All repurchased shares are held in treasury, reducing the number of shares of common stock outstanding and used in the Company’s earnings per share calculation.

12. SHARE-BASED COMPENSATION

13. ACCUMULATED OTHER COMPREHENSIVE LOSS

14. INCOME TAXES

The Company’s annual estimated effective tax rate is approximately 33.43%33.7%. The Company is subject to audit examinations at federal, state and local levels by tax authorities in those jurisdictions. In addition, the Canadian operations are subject to audit examinations at federal and provincial levels by tax authorities in those jurisdictions. The tax matters challenged by the tax authorities are typically complex; therefore, the ultimate outcome of any challenges would be subject to uncertainty. The Company has not identified any issues that did not meet the recognition threshold or would be impacted by the measurement provisions of the uncertain tax position guidance.

15. EARNINGS PER SHARE

16. COMMITMENTS AND CONTINGENCIES

Commitments

The Company leases certain buildings and equipment. The Company’s facility and equipment leases may provide for escalations of rent or rent abatements and payment of pro rata portions of building operating expenses. Minimum lease payments are recognized on a straight-line basis over the minimum lease term. The total expenses under operating leases for the three and sixnine months ended JuneSeptember 30, 2017 was $0.9$0.8 million and $1.7$2.5 million, respectively, compared to $1.1$1.0 million and $2.1$3.1 million for the same periods in 2016, respectively. The Company also has non-capital purchase commitments that primarily relate to gas, gypsum, paper and other raw materials. The total amounts purchased under such commitments were $21.7$22.0 million and $42.8$64.8 million for the three and sixnine months ended JuneSeptember 30, 2017, respectively, compared to $15.5$16.4 million and $33.1$49.5 million for the three and sixnine months ended JuneSeptember 30, 2016, respectively.

Contingent obligations

Under certain circumstances, the Company provides letters of credit related to its natural gas and other supply purchases. As of JuneSeptember 30, 2017 and December 31, 2016, the Company had outstanding letters of credit of approximately $1.6 million and $2.1 million, respectively.

Legal Matters

In the ordinary course of business, the Company executes contracts involving indemnifications standard in the industry. These indemnifications might include claims relating to any of the following: environmental and tax matters; intellectual property rights; governmental regulations and employment-related matters; customer, supplier, and other commercial contractual relationships; and financial matters. While the maximum amount to which the Company may be exposed under such agreements cannot be estimated, it is the opinion of management that these guarantees and indemnifications are not expected to have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

In the ordinary course of business, the Company is involved in certain legal actions and claims, including proceedings under laws and regulations relating to environmental and other matters. Because such matters are subject to many uncertainties and the outcomes are not predictable with assurance, the total liability for these legal actions and claims cannot be determined with certainty. When the Company determines that it is probable that a liability for environmental matters, legal actions or other contingencies has been incurred and the amount of the loss is reasonably estimable, an estimate of the costs to be incurred is recorded as a liability in the financial statements. As of JuneSeptember 30, 2017 and December 31, 2016, such liabilities were not expected to have a material adverse effect on the Company’s financial condition, results of operations or liquidity. While management believes its accruals for such liabilities are adequate, the Company may incur costs in excess of the amounts provided. Although the ultimate amount of liability that may result from these matters or actions is not ascertainable, any amounts exceeding the recorded accruals are not expected to have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

17. SEGMENT REPORTING

Revenues from the major products sold to external customers include gypsum wallboard and finishing products.

The Company’s two geographic areas consist of the United States and Canada for which it reports net sales, fixed assets and total assets.

The Company evaluates operating performance based on profit or loss from operations before certain adjustments as shown below. Revenues are attributed to geographic areas based on the location of the assets producing the revenues. The Company did not provide asset information by segment as its Chief Operating Decision Maker does not use such information for purposes of allocating resources and assessing segment performance.

18. FAIR VALUE DISCLOSURES

U.S. GAAP provides a framework for measuring fair value, establishes a fair value hierarchy of the valuation techniques used to measure the fair value and requires certain disclosures relating to fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in a market with sufficient activity.

The three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, is as follows:

The Company evaluates assets and liabilities subject to fair value measurements on a recurring and non-recurring basis to determine the appropriate level to classify them for each reporting period. This determination requires significant judgments to be made by the Company. The fair values of receivables, accounts payable, accrued costs and other current liabilities approximate the carrying values as a result of the short-term nature of these instruments.

The Company estimates the fair value of its debt by discounting the future cash flows of each instrument using estimated market rates of debt instruments with similar maturities and credit profiles. These inputs are classified as Level 3 within the fair value hierarchy. As of JuneSeptember 30, 2017 and December 31, 2016, the carrying value reported in the consolidated balance sheet for the Company’s notes payable approximated its fair value.

The only assets or liabilities the Company had at JuneSeptember 30, 2017 that are recorded at fair value on a recurring basis are the natural gas hedges and interest rate swaps. The natural gas hedges had a negative fair value of $0.1 million$33,000 as of JuneSeptember 30, 2017, net of tax amount of $0.1 million,$17,000, compared to a positive fair value of 0.2$0.2 million, net of tax amount of $0.1 million as of December 31, 2016. Interest rate swaps had a positive fair value of $1.0 million as of JuneSeptember 30, 2017, net of tax amount of $0.5 million, compared to a positive fair value of $1.2 million as of December 31, 2016, net of tax amount of $0.6 million. Both the natural gas hedges and interest rate swaps are classified within Level 2 of the fair value hierarchy as they are valued using third party pricing models which contain inputs that are derived from observable market data. Generally, the Company obtains its Level 2 pricing inputs from its counterparties. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Assets and liabilities that are measured at fair value on a non-recurring basis include intangible assets and goodwill. These items are recognized at fair value when they are considered to be impaired.

There were no fair value adjustments for assets and liabilities measured on a non-recurring basis. The Company discloses fair value information about financial instruments for which it is practicable to estimate that value.

We are a leading manufacturer of gypsum wallboard and complementary finishing products in the eastern United States and eastern Canada. We operate highly efficient and automated manufacturing facilities that produce a full range of gypsum wallboard products for our diversified customer base. We sell our products in the new residential, repair and remodel, or R&R, and commercial construction markets.

Net Sales. Net sales increased by $3.5$1.9 million, up 3.0%1.7% from $117.1$114.6 million for the three months ended JuneSeptember 30, 2016, to $120.6$116.5 million for the three months ended JuneSeptember 30, 2017. The increase was primarily attributable to a favorable impact of $3.2 million due to an increase in the average net selling price for gypsum wallboard at constant exchange rates. In addition, there was a $0.7$1.7 million favorable impact of higher wallboard volumes driven by higher demand in the United States. In addition, there were favorable impacts of $0.5 million related to non-wallboard products and $0.2 million related to foreign currency exchange rates. The overall increase in net sales was partially offset by unfavorable impact of $0.3$0.5 million relateddue to foreign currencya decrease in the average net selling price for gypsum wallboard at constant exchange rates and $0.1 million related to non-wallboard products.rates.

Other Income/(Expense)/Income,, Net.  Other income/(expense)/income,, net, was a net expenseincome of $0.1 million for the three months ended JuneSeptember 30, 2017 compared to a net incomeexpense of $6,000$5.9 million for the three months ended JuneSeptember 30, 2016. The decrease mainly reflects the non-recurring costs related to the debt refinancing incurred during the third quarter of 2016. See Note 9 to the Consolidated Financial Statements for further details on the refinancing.

Net Sales. Net sales increased by $12.6$14.6 million, up 5.5%4.3% from $228.6$343.2 million for the sixnine months ended JuneSeptember 30, 2016, to $241.2$357.8 million for the sixnine months ended JuneSeptember 30, 2017. The increase was primarily attributable to a $6.5$8.2 million favorable impact of higher wallboard volumes driven by higher demand in the United States and a favorable impact of $6.1$5.6 million due to an increase in the average net selling price for gypsum wallboard at constant exchange rates. The remaining increase was attributable to $0.7 million and $0.1 million favorable impact related to our non-wallboard products and foreign currency exchange rates, respectively.

Other Income/(Expense)/Income,, Net.  Other income/(expense)/income,, net, was a net expense of $0.8$0.6 million for the sixnine months ended JuneSeptember 30, 2017 compared to a net incomeexpense of $0.2$5.7 million for the sixnine months ended JuneSeptember 30, 2016. The $1.0$5.1 million increasedecrease in expense was primarily driven by $0.7 million in additional expenses associated withreflects the non-recurring costs related to the debt repricing inrefinancing incurred during the first quarter 2017.nine months ended September 30, 2016. See Note 9 to the Consolidated Financial Statements for further details on the repricing.refinancing.

EBITDA has been presented in this Quarterly Report on Form 10-Q as a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We have presented EBITDA as a supplemental performance measure because we believe that it facilitates a comparative assessment of our operating performance relative to our performance based on our results under GAAP while isolating the effects of some items that vary from period to period without any correlation to core operating performance and eliminates certain charges that we believe do not reflect our operations and underlying operational performance. Management also believes that EBITDA is useful to investors because it allows investors to view our business through the eyes of management and the board of directors, facilitating comparison of results across historical periods.

EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculate EBITDA in the same manner as we do. EBITDA is not a measurement of our financial performance under GAAP and should not be considered in isolation from or as an alternative to net income calculated in accordance with GAAP or any other financial statement data presented as an indicator of financial performance or liquidity, as calculated and presented in accordance with GAAP.

Our primary sources of liquidity are cash on hand, cash from operations, and borrowings under our debt financing arrangements. We believe these sources will be sufficient to fund our planned operations and capital expenditures. See Note 9 to the Consolidated Financial Statements for a more detailed discussion of our debt financing arrangements.

Net Cash Provided By Operating Activities

Net cash provided by operating activities for the sixnine months ended JuneSeptember 30, 2017 and 2016 was $42.5$75.1 million and $49.5$85.1 million, respectively. The decrease of $7.0$10.0 million in 2017 compared to 2016 was primarily driven by a decrease in net income and a decrease in cash from changes in working capital.

Net Cash Used In Investing Activities

Net cash used in investing activities for the sixnine months ended JuneSeptember 30, 2017 was $8.6$15.5 million, compared to $2.0$4.9 million for the sixnine months ended JuneSeptember 30, 2016. The investing activities for the sixnine months ended JuneSeptember 30, 2017 primarily reflect an aggregate of $8.2$14.3 million in capital expenditures and software purchased or developed, compared to $2.1$5.2 million for the sixnine months ended JuneSeptember 30, 2016. The remaining increase iswas driven by distributions and contributions related to our equity investment in Seven Hills.

Net Cash Used In Financing Activities

Net cash used in financing activities for the sixnine months ended JuneSeptember 30, 2017 was $29.9$51.8 million, compared to $47.0$60.5 million for the sixnine months ended JuneSeptember 30, 2016. During the sixnine months ended JuneSeptember 30, 2017, we repriced the Amended and Restated Credit Agreement, resulting in a net outflow of $0.6 million. See Note 9 to the Consolidated Financial Statements for a more detailed discussion of the repricing. We made principal payments on our outstanding debt of $1.4$2.1 million and $25.0$25.7 million for the sixnine months ended JuneSeptember 30, 2017 and 2016, respectively. We also deployed $27.8$49.1 million and $22.0$33.4 million during sixnine months ended JuneSeptember 30, 2017 and 2016, respectively, to repurchase common stock.

amounts of assets, liabilities, revenues and expenses during the periods presented. Our 2016 10-K includes a summary of the

critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no

changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities,

revenues or expenses during the sixnine months ended JuneSeptember 30, 2017.

 

The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on historical performance and management’s current plans, estimates and expectations in light of information currently available to us and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control. We believe that these factors include those described in the section captioned "Risk Factors" in the 2016 10-K. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove to be incorrect, our actual results may vary in material respects from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable securities laws.

In the normal course of business, we are exposed to financial risks such as changes in interest rates, foreign currency exchange rates, commodity price risk associated with our input costs and counterparty risk. We use derivative instruments to manage selected commodity price and interest rate exposures.

Our exposure to market risk for changes in interest rates relates primarily to our outstanding debt, and cash and cash equivalents. As of JuneSeptember 30, 2017, we had $55.8$59.9 million in cash and cash equivalents. The interest expense associated with the term loan and revolving credit facility under the Amended and Restated Credit Agreement will vary with market rates.

Our exposure to market risk for changes in interest rates related to our outstanding debt is somewhat mitigated as the term loan under the Amended and Restated Credit Agreement has a LIBOR floor of 0.75%. A rise of interest rate levels would increase our interest expense and a reduction in interest rates to the floor would decrease our interest expense slightly as the LIBOR specified in the calculation of interest during the secondthird quarter was slightly above the floor. A hypothetical 1.00% increase in interest rates would have increased interest expense by approximately $0.4 million for the three months ended JuneSeptember 30, 2017, while a hypothetical 1.00% decrease in interest rate would have decreased interest expense by $0.2 million. We based this sensitivity calculation on the three month LIBOR rate of 1.15%1.3% as of MarchJune 30, 2017 in accordance with the measurement date specified in the Amended and Restated Credit Agreement.

As of JuneSeptember 30, 2017, we had interest rate swaps with a combined notional amount of $100.0 million and a 3-year remaining term, which swapped the floating interest rate on a portion of the term loan under the Amended and Restated Credit Agreement to an average fixed rate of 1.323%. The fair value of these interest rate swaps was $1.5 million as of JuneSeptember 30, 2017.

The return on our cash equivalents balance was less than 1%. Therefore, if investment interest rates decrease in the future, the corresponding impact to our interest income, and likewise to our income and cash flow, would not be material.

Approximately 5.8%5.2% and 7.1%6.5% of our net sales for the three and sixnine months ended JuneSeptember 30, 2017, respectively, were in Canada, compared to 8.0%8.6% and 7.6%7.9% of our net sales for the three and sixnine months ended JuneSeptember 30, 2016, respectively. As a result, we are exposed to movements in foreign exchange rates between the U.S. dollar and Canadian dollar. We estimate that a 1% change in the exchange rate between the U.S. and Canadian currencies would impact net sales by approximately $0.1 million based on results for the three months ended JuneSeptember 30, 2017. This may differ from actual results depending on the level of sales volumes in Canada. During the reported periods we did not use foreign currency hedges to manage this risk.

Some of our key production inputs, such as paper and natural gas, are commodities whose prices are determined by the market’s supply and demand for such products. Price fluctuations on our key input costs have a significant effect on our financial performance. The markets for most of these commodities are cyclical and are affected by factors such as global economic conditions, changes in or disruptions to industry production capacity, changes in inventory levels and other factors beyond our control. As of JuneSeptember 30, 2017, the Company had natural gas swap contracts for a portion of its natural gas usage. The contracts mature between JulyOctober 31, 2017 and July 31,September 30, 2018. Other than the natural gas swap contracts described above, we did not manage commodity price risk with derivative instruments. We may in the future enter into derivative financial instruments from time to time to manage our exposure related to these market risks.

The Company is exposed to credit losses in the event of nonperformance by the counterparties to the Company’s derivative instruments. All of the Company’s counterparties have investment grade credit ratings; accordingly, the Company anticipates that the counterparties will be able to fully satisfy their obligations under the contracts. The Company’s agreements outline the conditions upon which it or the counterparties are required to post collateral. As of JuneSeptember 30, 2017, the Company had no collateral posted with its counterparties related to the derivatives.

Sales of our wallboard products are seasonal, similar to many building products, in that sales are generally slightly higher from spring through autumn when construction activity is greatest in our markets.

PART II - OTHER INFORMATION