As filed with the Securities and Exchange Commission on ~~November 9, 2018~~May 3, 2019

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2018~~March 31, 2019

¨ 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: 001-36293



CONTINENTAL BUILDING PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Delaware		61-1718923
(State or other jurisdiction of incorporation)		(I.R.S Employer Identification No.)
12950 Worldgate Drive, Suite 700, Herndon, VA		20170
(Address of principal executive offices)		(Zip Code)
(703) 480-3800
(Registrant's telephone number, including the area code)

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 ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No ¨

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

Large accelerated filer x Accelerated filer ¨

Non-accelerated filer ¨ Smaller reporting company ¨

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)

Yes ¨ No x



Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol (s)	Name of Exchange on Which Registered
Common Stock, $0.001 par value per share	CBPX	New York Stock Exchange

As of ~~November 5, 2018,~~May 1, 2019, the registrant had outstanding ~~36,841,935~~34,720,561 shares of the registrant’s common stock, which amount excludes ~~7,987,968~~9,751,653 shares of common stock held by the registrant as treasury shares.

Table of Contents to ~~Third~~First Quarter ~~2018~~2019 Form 10-Q



Part I - Financial Information		3
Item 1.	Financial Statements	3
	Consolidated Statements of Operations	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Balance Sheets	5
	Consolidated Statements of Cash Flows	6
	Consolidated Statement of Equity	7
	Notes to the Unaudited Consolidated Financial Statements	78
	1. Background and Nature of Operations	78
	2. Significant Accounting Policies	78
	3. Trade Receivables, Net	9
	4. Inventories, Net	910
	5. Property, Plant and Equipment, Net	10
	6. Customer Relationships and Other Intangibles, Net	10
	7. Investment in Seven Hills	11
	8. Accrued and Other Liabilities	11
	9. Debt	1112
	10. Derivative Instruments	1213
	11. ~~Treasury Stock~~	13
	~~12. Share-Based Compensation~~Leases	14
	~~13. Accumulated Other Comprehensive Loss~~	14
	~~14. Income Taxes~~	14
	~~15. Earnings Per Share~~12. Treasury Stock	15
	~~16. Commitments and Contingencies~~13. Share-Based Compensation	15
	~~17. Segment Reporting~~14. Accumulated Other Comprehensive Loss	16
	15. Income Taxes	16
	16. Earnings Per Share	17
	17. Commitments and Contingencies	17
	18. Segment Reporting	18
	19. Fair Value Disclosures	1820
	20. Buchanan Plant Outage	21
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1922
	Overview	1922
	Results of Operations	2023
	Liquidity and Capital Resources	2224
	Critical Accounting Policies and Estimates	2325
	Forward-Looking Statements	2426
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2527
Item 4.	Controls and Procedures	2527
Part II - Other Information		2628
Item 1.	Legal Proceedings	2628
Item 1A.	Risk Factors	2628
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2628
Item 3.	Defaults Upon Senior Securities	2629
Item 4.	Mine Safety ~~Disclosures~~Disclosure	2629
Item 5.	Other Information	2629
Item 6.	Exhibits	2730
	Signatures	2831

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Continental Building Products, Inc.

Consolidated Statements of Operations

(unaudited)


	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017			March 31, 2019			March 31, 2018
	(in thousands, except share data and per share amounts)												(in thousands, except share data and per share amounts)
Net sales	$	131,234		$	116,526		$	387,304		$	357,771		$	122,032		$	116,802
Costs, expenses and other income:
Cost of goods sold	94,306			87,952			279,185			267,393			90,786			86,616
Gross profit													31,246			30,186
Selling and administrative	9,957			8,867			29,826			27,364			9,653			9,424
Total costs and operating expenses	104,263			96,819			309,011			294,757
Gain from insurance recoveries, net													1,513			—
Operating income	26,971			19,707			78,293			63,014			23,106			20,762
Other (expense)/income, net	(29		)	146			(256		)	(633		)
Other expense, net													(36		)	(140		)
Interest expense, net	(2,549		)	(2,988		)	(7,963		)	(8,966		)	(2,492		)	(2,720		)
Income before losses from equity method investment and provision for income taxes	24,393			16,865			70,074			53,415			20,578			17,902
Losses from equity method investment	(393		)	(204		)	(1,148		)	(29		)	(45		)	(364		)
Income before provision for income taxes	24,000			16,661			68,926			53,386			20,533			17,538
Provision for income taxes	(5,436		)	(5,674		)	(14,821		)	(17,774		)	(4,607		)	(3,892		)
Net income	$	18,564		$	10,987		$	54,105		$	35,612		$	15,926		$	13,646

Net income per share:
Basic	$	0.51		$	0.29		$	1.46		$	0.91		$	0.45		$	0.36
Diluted	$	0.50		$	0.29		$	1.46		$	0.91		$	0.45		$	0.36
Weighted average shares outstanding:
Basic	36,732,746			38,212,869			37,012,536			38,966,575			35,248,280			37,432,782
Diluted	36,918,904			38,345,556			37,181,387			39,080,973			35,350,259			37,604,953

See accompanying notes to unaudited consolidated financial statements.

Continental Building Products, Inc.

Consolidated Statements of Comprehensive Income

(unaudited)


	For the Three Months Ended					For the Nine Months Ended						For the Three Months Ended
	September 30, 2018			September 30, 2017		September 30, 2018			September 30, 2017			March 31, 2019			March 31, 2018
	(in thousands)											(in thousands)
Net income	$	18,564		$	10,987	$	54,105		$	35,612		$	15,926		$	13,646
Foreign currency translation adjustment	298			695		(496		)	1,259			324			(481		)
Net (losses)/gains on derivatives, net of taxes	(8		)	127		1,489			(451		)
Other comprehensive income	290			822		993			808
Derivative instrument adjustments, net of taxes												(378		)	1,045
Other comprehensive (loss)/income												(54		)	564
Comprehensive income	$	18,854		$	11,809	$	55,098		$	36,420		$	15,872		$	14,210

See accompanying notes to unaudited consolidated financial statements.

Continental Building Products, Inc.

Consolidated Balance Sheets


	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
	(unaudited)						(unaudited)
	(in thousands)						(in thousands)
Assets:
Cash and cash equivalents	$	105,452		$	72,521		$	101,081		$	102,633
Trade receivables, net	39,597			38,769			43,985			38,454
Inventories, net	32,439			24,882			37,513			32,225
Prepaid and other current assets	11,605			11,267			5,264			19,805
Total current assets	189,093			147,439			187,843			193,117
Property, plant and equipment, net	290,670			294,003			285,701			288,368
Customer relationships and other intangibles, net	64,661			70,807			60,971			62,680
Goodwill	119,945			119,945			119,945			119,945
Equity method investment	8,194			9,263			7,832			7,975
Operating lease - right of use assets							918			—
Debt issuance costs	341			477			252			296
Total Assets	$	672,904		$	641,934		$	663,462		$	672,381
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable	$	32,253		$	30,809		$	34,706		$	48,060
Accrued and other liabilities	13,239			11,940			5,595			12,815
Notes payable, current portion	1,670			1,702
Debt, current portion							1,720			1,669
Operating lease liabilities, current portion							625			—
Total current liabilities	47,162			44,451			42,646			62,544
Deferred taxes and other long-term liabilities	15,392			15,847			19,651			20,204
Notes payable, non-current portion	262,400			263,610
Debt, non-current portion							261,420			261,886
Operating lease liabilities, non-current portion							978			—
Total Liabilities	324,954			323,908			324,695			344,634
Shareholders' Equity:
Undesignated preferred stock, par value $0.001 per share; 10,000,000 shares authorized, no shares issued and outstanding	—			—			—			—
Common stock, $0.001 par value per share; 190,000,000 shares authorized; 44,422,804 and 44,321,776 shares issued and 36,681,879 and 37,532,959 shares outstanding as of September 30, 2018 and December 31, 2017, respectively	44			44
Common stock, $0.001 par value per share; 190,000,000 shares authorized; 44,537,285 and 44,472,214 shares issued and 35,275,032 and 35,401,868 shares outstanding as of March 31, 2019 and December 31, 2018, respectively							44			44
Additional paid-in capital	327,643			325,391			327,668			327,515
Less: Treasury stock	(170,782		)	(143,357		)	(214,055		)	(209,050		)
Accumulated other comprehensive loss	(1,656		)	(2,649		)	(3,445		)	(3,391		)
Accumulated earnings	192,701			138,597			228,555			212,629
Total Shareholders' Equity	347,950			318,026			338,767			327,747
Total Liabilities and Shareholders' Equity	$	672,904		$	641,934		$	663,462		$	672,381

See accompanying notes to unaudited consolidated financial statements.

Continental Building Products, Inc.

Consolidated Statements of Cash Flows

(unaudited)


	For the Nine Months Ended						For the Three Months Ended
	September 30, 2018			September 30, 2017			March 31, 2019			March 31, 2018
	(in thousands)						(in thousands)
Cash flows from operating activities:
Net income	$	54,105		$	35,612		$	15,926		$	13,646
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	32,966			35,817			10,520			10,581
Amortization of debt issuance costs and debt discount	931			885			309			334
Gain from insurance recoveries							(1,513		)	—
Losses from equity method investment	1,148			29			45			364
Amortization of deferred gain on terminated swaps	(632		)	—			(288		)	—
Loss on debt extinguishment	—			686
Share-based compensation	2,459			2,101			570			600
Deferred taxes	(457		)	92
Change in assets and liabilities:
Trade receivables	(914		)	1,420			(5,553		)	(7,562		)
Inventories	(7,627		)	(872		)	(5,244		)	(2,913		)
Prepaid expenses and other current assets	1,264			(350		)	14,562			1,144
Accounts payable	(52		)	(87		)	(12,107		)	(1,353		)
Accrued and other current liabilities	1,089			4			(6,537		)	(1,042		)
Other long-term liabilities	(226		)	(245		)	(54		)	(56		)
Net cash provided by operating activities	84,054			75,092			10,636			13,743
Cash flows from investing activities:
Capital expenditures	(19,761		)	(14,077		)
Software purchased or developed	(1,359		)	(183		)
Proceeds from the sale of property, plant and equipment	125			—
Payments for property, plant and equipment							(6,656		)	(5,955		)
Payments for intangible assets							(701		)	(482		)
Proceeds from insurance recoveries							1,589			—
Capital contributions to equity method investment	(548		)	(1,929		)	(58		)	(251		)
Distributions from equity method investment	468			641			156			78
Net cash used in investing activities	(21,075		)	(15,548		)	(5,670		)	(6,610		)
Cash flows from financing activities:
Proceeds from exercise of stock options	145			230			118			11
Tax withholdings on share-based compensation	(547		)	(240		)	(1,137		)	(421		)
Proceeds from debt refinancing	—			273,625
Disbursements for debt refinancing	—			(273,625		)
Payments of financing costs	—			(649		)
Principal payments for debt	(2,037		)	(2,052		)	(679		)	(679		)
Payments to repurchase common stock	(27,425		)	(49,128		)	(5,005		)	(14,550		)
Net cash used in financing activities	(29,864		)	(51,839		)	(6,703		)	(15,639		)
Effect of foreign exchange rates on cash and cash equivalents	(184		)	707			185			(167		)
Net change in cash and cash equivalents	32,931			8,412			(1,552		)	(8,673		)
Cash, beginning of period	72,521			51,536			102,633			72,521
Cash, end of period	$	105,452		$	59,948		$	101,081		$	63,848

See accompanying notes to unaudited consolidated financial statements.

Continental Building Products, Inc.

Consolidated Statements of Changes in Shareholders' Equity

(unaudited)



										Accumulated Other Comprehensive Loss
	Common Stock				Additional Paid-In Capital		Treasury Stock						Accumulated Earnings		Total Equity
	Shares		Amount		Additional Paid-In Capital		Treasury Stock						Accumulated Earnings		Total Equity
	(in thousands, except share data)
Balance as of December 31, 2017	37,532,959		$	44	$	325,391	$	(143,357	)	$	(2,649	)	$	138,597	$	318,026
Net income	—		—		—		—			—			13,646		13,646
Other comprehensive income, net of tax	—		—		—		—			564			—		564
Purchase of treasury shares	(530,600	)	—		—		(14,550		)	—			—		(14,550		)
Stock option exercise	781		—		11		—			—			—		11
Stock-based compensation	85,838		—		213		—			—			—		213
Balance as of March 31, 2018	37,088,978		$	44	$	325,615	$	(157,907	)	$	(2,085	)	$	152,243	$	317,910



										Accumulated Other Comprehensive Loss
	Common Stock				Additional Paid-In Capital		Treasury Stock						Accumulated Earnings		Total Equity
	Shares		Amount		Additional Paid-In Capital		Treasury Stock						Accumulated Earnings		Total Equity
	(in thousands, except share data)
Balance as of December 31, 2018	35,401,868		$	44	$	327,515	$	(209,050	)	$	(3,391	)	$	212,629	$	327,747
Net income	—		—		—		—			—			15,926		15,926
Other comprehensive loss, net of tax	—		—		—		—			(54		)	—		(54		)
Purchase of treasury shares	(191,907	)	—		—		(5,005		)	—			—		(5,005		)
Stock option exercise	6,500		—		118		—			—			—		118
Stock-based compensation	58,571		—		35		—			—			—		35
Balance as of March 31, 2019	35,275,032		$	44	$	327,668	$	(214,055	)	$	(3,445	)	$	228,555	$	338,767

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, the Company's former controlling stockholder 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.

2. SIGNIFICANT ACCOUNTING POLICIES


(a)	Basis of Presentation

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.


(b)	Basis of Presentation for Interim Periods

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, ~~2018.~~2019. 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, ~~2017~~2018 included in the Company's Annual Report on Form 10-K for the fiscal year then ~~ended.~~ended (the "2018 10-K"). The Company has continued to follow the accounting policies set forth in those financial statements.


(c)	~~Revenue~~Supplemental Cash Flow Disclosure

~~Revenue from the sale of gypsum products is recognized when control of the promised products is transferred to the Company's customers, in an amount that reflects the consideration the~~



Table 2.1: Certain Cash Transactions and Other Activity
	For the Three Months Ended,
	March 31, 2019		March 31, 2018
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating lease cash outflows	$	152	$	148
Other activity:
Acquisition of property, plant and equipment included in liabilities	$	1,813	$	3,684

(d) Recent Accounting Pronouncements

Accounting Standards Recently Adopted

The Company expects to be entitled to in exchange for those products (the transaction price). A performance obligation is a promise in a contract to transfer a distinct product to a customer and is the unit of account underadopted Financial Accounting Standards Board ("FASB") Accounting Standards ~~Codification~~Update ("~~ASC"~~ASU") Topic 606. Control transfers to the customer at a point in time. To indicate the transfer of control, the Company must have a present right to payment, legal title must have passed to the customer and the customer must have the significant risks and rewards of ownership. Generally, the Company satisfies its performance obligations within a number of days from the time the contract is executed.

~~The Company records estimated reductions to revenue for customer programs and incentive offerings, including promotions and other volume-based incentives, in the period in which the sale occurs.~~

Amounts billed to a customer at the transaction price are included in net sales, and costs incurred for shipping and handling are treated as fulfillment costs and are classified as cost of goods sold in the Consolidated Statements of Operations. See Note 17, Segment reporting, for disaggregation of revenue by segment.

As of September 30, 2018, accounts receivables were $39.6 million. The Company had no material contract assets, contract liabilities or deferred contract costs recorded on the Consolidated Balance Sheets as of September 30, 2018. The Company does not have any material payment terms as payment is received shortly after the point of sale.


~~(d)~~	~~Supplemental Cash Flow Disclosure~~

Table 2.1: Certain Cash Transactions and Other Activity
For the Nine Months Ended
September 30, 2018 September 30, 2017
(in thousands)
Cash paid during the period for:
Interest paid on term loan, net $ 8,049
$ 7,582
Income taxes paid, net 15,903
16,338
Other activity:
Amounts in accounts payable for capital expenditures 1,538
1,123


~~(e)~~	~~Recent Accounting Pronouncements~~

~~Accounting Standards Recently Adopted~~

~~In May 2014, the FASB issued ASU No. 2014-9,~~ ~~"Revenue from Contracts with Customers (Topic 606),"~~ which provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers. In August 2015, the FASB issued ASU No. 2015-14, ~~"Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,"~~ which deferred the effective date of ASU No. 2014-9 for all entities by one year to annual reporting periods beginning after December 15, 2017. The ASU requires retroactive application on either a full or modified basis. The Company adopted the standard on January 1, 2018 using the modified retrospective approach. Based on its evaluation, the Company has concluded it has one revenue stream and the adoption of this new guidance did not have a material impact on its Consolidated Financial Statements.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~"Classification of Certain Cash Receipts and Cash Payments."~~ This ASU reduces existing diversity in the classification of certain cash receipts and cash payments on the statements of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company's Consolidated Financial Statements.

~~In October 2016, the FASB issued ASU 2016-16,~~ ~~"Intra-Entity Transfers of Assets Other Than Inventory."~~ The new standard requires companies to recognize the income tax effects of intercompany sales or transfers of assets, other than inventory, in the income statement as income tax expense (or benefit) in the period the sales or transfer occurs. The standard requires companies to apply a modified retrospective approach with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. The provisions of this standard are effective for fiscal years beginning after December 15, 2017, and early adoption is permitted. The adoption of this standard did not have a material impact on the Company's Consolidated Financial Statements.

~~Accounting Standards Not Yet Adopted~~

~~In February 2016, the FASB issued ASU~~ 2016-02, "Leases.", ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. as of January 1, 2019. The Company ~~will adopt the standard on January 1, 2019.~~

~~The Company will take advantage of~~elected the transition package of practical expedients permitted within ~~the new standard,~~ASU 2016-02, which among other things, ~~allows companies~~allowed the Company to carryforward the historical lease classification. In addition, the Company ~~is electing~~elected the comparative period practical expedient, which ~~allows~~allowed the Company to implement the guidance as of the effective date without having to adjust the comparative financial statements. Instead, under this expedient, companies ~~will~~ recognize the cumulative effect adjustment in equity. The Company ~~will~~ also ~~make~~made an accounting policy election that leases with an initial term of 12 months or less will not be recorded on the balance sheet and will result in the recognition of those lease payments in the Consolidated Statements of Operations on a straight-line basis over the lease term. ~~While~~The adoption of the standard resulted in recognition of approximately $1.0 million in right of use assets and $1.7 million in lease liabilities for

operating leases on the Company's Consolidated Balance Sheet, with no impact to its retained earnings, Consolidated Statement of Operations and Consolidated Statement of Cash Flows.

The Company ~~is continuing~~adopted ASU 2017-12, "Derivatives and Hedging (Topic 815), Targeted Improvements to ~~evaluate~~Accounting for Hedging Activities," as of January 1, 2019. This ASU expands an entity's ability to hedge non-financial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the ~~impact~~requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The adoption ~~it is~~of the standard did not ~~expected to~~ have a material impact on ~~its~~the Company's Consolidated Financial Statements.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments." This ASU is intended to introduce a revised approach to the recognition and measurement of credit 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.~~

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~"Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities."~~ This ASU expands an entity's ability to hedge non-financial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The provisions of this standard are effective in 2019 for calendar-year public business entities and in 2020 for all other calendar-year companies. Early adoption of the standard is permitted. The Company is currently evaluating the impact that this guidance may have on its Consolidated Financial Statements.

~~In February 2018, the FASB issued ASU 2018-02,~~ ~~"Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income."~~ This ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The provisions of this standard are effective for reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurements (Topic 820), Changes to the Disclosure Requirements for Fair Value Measurement." This ASU eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. 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.

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." This ASU requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. 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.


~~(f)~~	~~Reclassifications~~

(e) Reclassifications

Certain reclassifications of prior year information were made to conform to the ~~2018~~2019 presentation. These reclassifications had no material impact on the Company's Consolidated Financial Statements.

3. TRADE RECEIVABLES, NET

													Table 3: Details of Trade Receivables, Net
	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
	(in thousands)						(in thousands)
Trade receivables, gross	$	40,447		$	39,577		$	44,695		$	39,426
Allowance for cash discounts and doubtful accounts	(850		)	(808		)	(710		)	(972		)
Trade receivables, net	$	39,597		$	38,769		$	43,985		$	38,454

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

4. INVENTORIES, NET

									Table 4: Details of Inventories, Net
	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
	(in thousands)				(in thousands)
Finished products	$	8,195	$	5,893	$	7,760	$	6,700
Raw materials	16,821		11,663		22,297		18,388
Supplies and other	7,423		7,326		7,456		7,137
Inventories, net	$	32,439	$	24,882	$	37,513	$	32,225

5. PROPERTY, PLANT AND EQUIPMENT, NET

													Table 5: Details of Property, Plant and Equipment, Net
	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
	(in thousands)						(in thousands)
Land	$	13,187		$	13,187		$	13,186		$	13,185
Buildings	115,422			114,051			120,118			118,076
Plant machinery	284,151			281,786			293,313			292,219
Mobile equipment	12,828			10,366			15,468			15,163
Construction in progress	32,186			20,291			25,520			23,566
Property, plant and equipment, at cost	457,774			439,681			467,605			462,209
Accumulated depreciation	(167,104		)	(145,678		)	(181,904		)	(173,841		)
Property, plant and equipment, net	$	290,670		$	294,003		$	285,701		$	288,368

Depreciation expense was ~~$9.1~~$8.2 million and ~~$25.4~~$8.1 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~respectively, compared to $9.0 million and $26.5 million for the three and nine months ended September 30, 2017,~~ respectively.

6. CUSTOMER RELATIONSHIPS AND OTHER INTANGIBLES, NET

																													Table 6.1: Details of Customer Relationships and Other Intangibles, Net
	September 30, 2018							December 31, 2017							March 31, 2019							December 31, 2018
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
	(in thousands)														(in thousands)
Customer relationships	$	116,529	$	(64,041	)	$	52,488	$	116,711	$	(57,811	)	$	58,900	$	116,310	$	(67,702	)	$	48,608	$	116,180	$	(65,738	)	$	50,442
Purchased and internally developed software	7,718		(5,340		)	2,378		6,226		(4,871		)	1,355
Purchased software															8,736		(5,657		)	3,079		8,225		(5,507		)	2,718
Trademarks	14,816		(5,021		)	9,795		14,839		(4,287		)	10,552		14,789		(5,505		)	9,284		14,772		(5,252		)	9,520
Total	$	139,063	$	(74,402	)	$	64,661	$	137,776	$	(66,969	)	$	70,807	$	139,835	$	(78,864	)	$	60,971	$	139,177	$	(76,497	)	$	62,680

Amortization expense was ~~$2.5~~$2.3 million and ~~$7.5~~$2.5 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~respectively, compared to $3.0 million and $9.3 million for the three and nine months ended September 30, 2017,~~ respectively.

					Table 6.2: Details of Future Amortization Expense of Customer Relationships and Other Intangibles
	As of September 30, 2018		As of March 31, 2019
	(in thousands)		(in thousands)
October 1, 2018 through December 31, 2018	$	2,766
2019	8,907
April 1, 2019 through December 31, 2019			$	6,935
2020	8,150		8,662
2021	7,410		7,761
2022	6,746		6,987
2023			6,104
Thereafter	30,682		24,522
Total	$	64,661	$	60,971

7. INVESTMENT IN SEVEN HILLS

The Company is a party with an unaffiliated third party to a paperboard liner venture named Seven Hills Paperboard, LLC ("Seven Hills") that, pursuant to a paper supply agreement, provides the Company with a continuous supply of high-quality recycled paperboard liner to meet its ongoing production requirements.

The Company has evaluated the characteristics of its investment and determined that Seven Hills is a variable interest entity, but that it does not have the power to direct the principal activities most impacting the economic performance of Seven Hills, and is thus not the primary beneficiary. As such, the Company accounts for this investment in Seven Hills under the equity method of accounting.

Paperboard liner purchased from Seven Hills was ~~$12.3~~$13.5 million and ~~$37.4~~$12.2 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~respectively, compared to $15.5 million and $42.3 million for the three and nine months ended September 30, 2017,~~ respectively. As of ~~September 30, 2018,~~March 31, 2019, the Company had certain purchase commitments for paper totaling ~~$29.2~~$35.5 million through ~~2021.~~2022.

8. ACCRUED AND OTHER LIABILITIES

									Table 8: Details of Accrued and Other Liabilities
	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
	(in thousands)				(in thousands)
Employee-related costs	$	8,471	$	9,258	$	3,497	$	10,768
Property taxes	2,321		472		664		82
Other taxes	562		466		477		351
Other	1,885		1,744		957		1,614
Accrued and other liabilities	$	13,239	$	11,940	$	5,595	$	12,815

9. DEBT

													Table 9.1: Details of Debt
	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
	(in thousands)						(in thousands)
Amended and Restated Credit Agreement (1)	$	269,536		$	271,573
Amended and Restated Credit Agreement (1)							$	251,978		$	252,658
Industrial revenue bonds (2)							16,200			16,200
Less: Original issue discount (net of amortization)	(1,442		)	(1,681		)	(1,223		)	(1,285		)
Less: Debt issuance costs	(4,024		)	(4,580		)	(3,815		)	(4,018		)
Total debt	264,070			265,312			263,140			263,555
Less: Current portion of long-term debt	(1,670		)	(1,702		)	(1,720		)	(1,669		)
Long-term debt	$	262,400		$	263,610		$	261,420		$	261,886


(1)	As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Amended and Restated Credit Agreement, as amended, had a maturity date of August 18, 2023 and an interest rate of LIBOR (with a 0.75% floor) plus ~~2.25%~~2.00%.


(2)	As of March 31, 2019 and December 31, 2018, Industrial revenue bonds had a maturity date of December 1, 2025 and an interest rate of LIBOR plus 1.50%less an approximate 20 percent reduction in the rate related to the tax-free interest income to the bond holders.

On August 18, 2016, the Company, Continental Building Products Operating Company, LLC 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 Company's ~~First Lien Credit Agreement~~existing 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 (the "Term Loan") and a ~~$75~~$75.0 million senior secured revolving credit facility (the "Revolver"), which mature on August 18, 2023 and August 18, 2021, respectively. The interest rate under the Amended and Restated Credit Agreement was a spread over LIBOR of 2.75% and floor of 0.75%.

On February 21, 2017, the Company repriced its ~~term loan~~Term Loan under the Amended and Restated Credit Agreement lowering its interest rate by 25 basis points to LIBOR plus 2.50%. Subsequently, on December 6, 2017, the Company further repriced its term loan under the Amended and Restated Credit Agreement lowering its interest rate by an additional 25 basis points to LIBOR plus 2.25%~~. The Company may~~ and allowing for a further ~~reduce its~~reduction in the interest rate to LIBOR plus 2.00% based on the attainment of a total leverage ratio of 1.1 or better. All other terms and conditions under the Amended and Restated Credit Agreement remained the same.

During both the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ the Company made ~~$2.0~~$0.7 million of scheduled mandatory principal payments. Because the Company attained a total leverage ratio of less than 1.1 to 1 during the fourth quarter of 2018, the interest rate was further reduced pursuant to the terms of the Amended and Restated Credit Agreement to LIBOR plus 2.00% as of December 31, 2018. As of ~~September 30, 2018,~~March 31, 2019, the annual effective interest rate, including original issue discount and amortization of debt issuance costs, was 5.0%.

In December 2018, the Company completed a financing of industrial revenue bonds due 2025 with a total commitment of $28 million. The bonds were issued by the County of Campbell, Kentucky and Putnam County Development Authority, pursuant to a trust indenture between the issuers and Huntington National Bank, as trustee. Proceeds of the bonds are loaned by the issuers to the Company under a loan agreement, whereby the Company is obligated to make loan payments to the issuers sufficient to pay all debt service and expenses related to the bonds. The Company's obligations under the loan agreement and related note bear interest at a fluctuating rate based on LIBOR plus 1.50% less an approximate 20 percent reduction in the rate related to the tax-free interest income to the bond holders. The loan agreement contains restrictions and covenants on our operations that are consistent with those contained in the Amended and Restated Credit Agreement mentioned below.

There were no amounts outstanding under the Revolver as of ~~September 30, 2018~~March 31, 2019 or ~~2017. During the nine months ended September 30, 2018 and 2017, the Company did not have any draws under the Revolver.~~2018. Interest under the Revolver is floating, based on LIBOR plus 2.25%. 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 ~~September 30, 2018,~~March 31, 2019, based on draws and outstanding letters of credit and absence of violations of covenants, was $73.6 million.


Table 9.2: Details of Future Minimum Principal Payments Due Under the Amended and Restated Credit Agreement
Table 9.2: Details of Future Minimum Principal Payments Due			Table 9.2: Details of Future Minimum Principal Payments Due
	Amount Due		Amount Due
	(in thousands)		(in thousands)
October 1, 2018 through December 31, 2018	$	679
2019	2,716
April 1, 2019 through December 31, 2019			$	2,036
2020	2,716		5,326
2021	2,716		6,196
2022	2,716		6,196
2023			245,074
Thereafter	257,993		3,350
Total Payments	$	269,536	$	268,178

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 ~~September 30, 2018,~~March 31, 2019, the total leverage ratio of no greater than 5.0 under the financial covenant was not applicable at ~~September 30, 2018.~~March 31, 2019. The Company was in compliance with all applicable covenants under the Amended and Restated Credit Agreement as of ~~September 30, 2018.~~March 31, 2019.

10. DERIVATIVE INSTRUMENTS

Commodity Derivative Instruments

As of ~~September 30, 2018,~~March 31, 2019, the Company had ~~2.1~~2.4 million mmBTUs (millions of British Thermal Units) in aggregate notional amount outstanding natural gas swap contracts to manage commodity price exposures. All of these contracts mature by ~~July~~January 31, ~~2019.~~2020. The Company elected to designate these derivative instruments as cash flow hedges in accordance with ASC 815-20, "Derivatives – Hedging". No ineffectiveness was recorded on these contracts during the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018.

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.

On March 29, 2018, the Company terminated its interest rate swap agreements that were previously designated as a cash flow hedge and received $3.2 million in cash, the fair value of the swap on the termination date. The unrealized gain at termination remains in accumulated other comprehensive income and will be amortized into interest expense over the life of the original hedged instrument. ~~On the same date,~~During three months ended March 31, 2019, $0.2 million of unrealized gain, net of tax was amortized into interest expense. Also on March 29, 2018, the Company entered into new interest rate swap agreements for a combined notional amount of $100.0 million, which expire on September 30, 2020 and hedge the floating LIBOR on a portion of the ~~term loan under the Amended and Restated Credit Agreement~~Term Loan to an average fixed rate of 2.46% and LIBOR floor of 0.75%. The Company elected to designate these interest rate swaps as cash flow hedges for accounting purposes. No ineffectiveness was recorded on these contracts during the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018.

									Table 10.1: Details of Derivatives Fair Value
	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
	(in thousands)				(in thousands)
Assets
Interest rate swap	$	697	$	2,148	$	—	$	86
Commodity hedges	77		11		101		61
Total assets	$	774	$	2,159	$	101	$	147
Liabilities
Interest rate swap	$	—	$	—	$	223	$	—
Commodity hedges	5		613		27		105
Total liabilities	$	5	$	613	$	250	$	105


Table 10.2: Gains/(Losses) on Derivatives
Table 10.2: Gains/(losses) on Derivatives																							Table 10.2: Gains/(losses) on Derivatives
	For the Three Months Ended September 30,											For the Nine Months Ended September 30,											For the Three Months Ended
	2018		2017			2018			2017			2018		2017			2018			2017			March 31, 2019			March 31, 2018		March 31, 2019			March 31, 2018
	Gain/(loss) recognized in Other comprehensive income on derivatives (effective portion), net of tax					Gain/(loss) reclassified from Accumulated other comprehensive loss into income (effective portion), net of tax						Gain/(loss) recognized in Other comprehensive income on derivatives (effective portion), net of tax					Gain/(loss) reclassified from Accumulated other comprehensive loss into income (effective portion), net of tax						Gain/(loss) recognized in AOCI on derivatives (effective portion), net of tax					Gain/(loss) reclassified from AOCI into income (effective portion), net of tax
	(in thousands)																						(in thousands)
Interest rate swap	$	145	$	37		$	169		$	(7	)	$	1,413	$	(318	)	$	379		$	(133	)	$	(161	)	$	831	$	303		$	70
Commodity hedges	7		(44		)	(9		)	(127		)	251		(304		)	(204		)	(38		)	41			241		(45		)	(97		)
Total	$	152	$	(7	)	$	160		$	(134	)	$	1,664	$	(622	)	$	175		$	(171	)	$	(120	)	$	1,072	$	258		$	(27	)

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 ~~September 30, 2018,~~March 31, 2019, the Company's derivatives were in a ~~$0.8~~$0.1 million net ~~asset~~liability position and recorded in Other current ~~assets.~~assets and Other current liabilities. 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 ~~September 30, 2018,~~March 31, 2019, the Company had no collateral posted with its counterparties related to the derivatives.

11. LEASES

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. Certain building leases also include options to renew, with renewal terms that can extend the lease term up to 5 years. The exercise of lease renewal options is at the Company's sole discretion.



Table 11.1: Components of lease expense
	For the Three Months Ended,
	March 31, 2019		March 31, 2018
	(in thousands)
Operating lease cost	$	101	$	99
Short term lease cost	511		735
Total lease cost	$	612	$	834



Table 11.2: Maturities of lease liabilities
	Operating leases
	(in thousands)
April 1, 2019 through December 31, 2019	$	468
2020	637
2021	600
2022	—
2023	—
Total lease payments	$	1,705
Less imputed interest	(102		)
Present value of lease liabilities	$	1,603



Table 11.3: Details of lease term and discount rate
	As of March 31, 2019
Weighted-average remaining lease term
Operating leases	3 years
Weighted-average discount rate
Operating leases	4.52	%

12. 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, the Company has repurchased shares of its common stock in the open market and in private transactions.

~~During 2017~~Since the initial authorization, the Company' Board of Directors has expanded and ~~2018,~~extended the ~~Company announced two expansions and extensions of its~~ stock repurchase program. The most recent authorization on February 21, 2018 expanded the program to a total of $300 million and also extended the expiration date to December 31, 2019. As of March 31, 2019, there was approximately $126.0 million of capacity remaining under this repurchase authorization.

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.


Table 11: Details of Treasury Stock Activity
Table 12: Details of Treasury Stock Activity											Table 12: Details of Treasury Stock Activity
	September 30, 2018					September 30, 2017					March 31, 2019					March 31, 2018
	Shares	Amount (1)		Average Share Price (1)		Shares	Amount (1)		Average Share Price (1)		Shares	Amount (1)		Average Share Price (1)		Shares	Amount (1)		Average Share Price (1)
	(in thousands, except share data)										(in thousands, except share data)
For the Three Months Ended:
Beginning Balance	7,664,325	$	167,919	$	21.91	5,648,778	$	116,592	$	20.64	9,070,346	$	209,050	$	23.05	6,788,817	$	143,357	$	21.12
Repurchases on open market	76,600	2,863		37.38		941,039	21,292		22.63		191,907	5,005		26.08		530,600	14,550		27.42
Ending Balance	7,740,925	$	170,782	$	22.06	6,589,817	$	137,884	$	20.92	9,262,253	$	214,055	$	23.11	7,319,417	$	157,907	$	21.57

For the Nine Months Ended:
Beginning Balance	6,788,817	$	143,357	$	21.12	4,499,655	$	88,756	$	19.73
Repurchases on open market	952,108	27,425		28.80		2,090,162	49,128		23.50
Ending Balance	7,740,925	$	170,782	$	22.06	6,589,817	$	137,884	$	20.92

(1) Includes commissions paid for repurchases on open market.

~~12.~~13. SHARE-BASED COMPENSATION

On February 19, 2019, the Company granted certain employees 63,772 Restricted Stock Units ("RSUs") that vest ratably over four years from the grant date. All of these grants had a market price on the date of grant of $27.32. Additionally, on February 20, 2019, the Company granted an employee and members of the Board of Directors 23,936 RSUs and 17,100 RSUs, respectively, that vest ratably over a period of four years for the employee and one year for the members of the Board of Directors from the grant date and had a market price on the date of grant of $27.24.

On February 19, 2019 and February 20, 2019, the Company also granted certain employees 30,172 Performance Based RSUs ("PRSUs") and 23,936 PRSUs, respectively. The PRSUs vest on December 31, 2021, with the exact number of PRSUs vesting subject to the achievement of certain performance conditions through December 31, 2020. The number of PRSUs earned will vary from 0% to 240% of the number of PRSUs awarded. The market price on February 19, 2019 was $27.32, and the market price on February 20, 2019 was $27.24.

For both the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, the Company recognized share-based compensation expenses of ~~$0.8 million and $2.5~~$0.6 million in ~~expense, respectively, compared to $0.6 million and $2.1 million for the three and nine months ended September 30, 2017, respectively.~~expense. The expenses related to share-based compensation awards that were recorded in selling and administrative expenses. As of ~~September 30, 2018,~~March 31, 2019, there was ~~$5.5~~$6.9 million of total unrecognized compensation cost related to non-vested stock options, restricted stock awards, ~~restricted stock units~~RSUs and ~~performance-based restricted stock units.~~PRSUs. This cost is expected to be recognized over a weighted average period of ~~2.3~~2.7 years.

~~13.~~14. ACCUMULATED OTHER COMPREHENSIVE LOSS

Table 13: Details of Changes in Accumulated Other Comprehensive Loss by Category
Foreign currency translation adjustment Net unrealized gain on derivatives, net of tax Total
(in thousands)
Balance as of December 31, 2017 $ (3,636 ) $ 987
$ (2,649 )
Other comprehensive (loss)/income before reclassifications (496 ) 1,664
1,168
Amounts reclassified from accumulated other comprehensive loss —
(175 ) (175 )
Net current period other comprehensive (loss)/income (496 ) 1,489
993
Balance as of September 30, 2018 $ (4,132 ) $ 2,476
$ (1,656 )



Table 14: Details of Changes in Accumulated Other Comprehensive Loss by Category
	Foreign currency translation adjustment			Net unrealized gain on derivatives, net of tax			Total
	(in thousands)
Balance as of December 31, 2018	$	(5,027	)	$	1,636		$	(3,391	)
Other comprehensive income/(loss) before reclassifications	324			(120		)	204
Amounts reclassified from accumulated other comprehensive loss	—			(258		)	(258		)
Net current period other comprehensive income/(loss)	324			(378		)	(54		)
Balance as of March 31, 2019	$	(4,703	)	$	1,258		$	(3,445	)

~~14.~~15. INCOME TAXES

The Company’s estimated annual effective tax rate is ~~22.3% before discrete items. For the nine months ended September 30, 2018, discrete items resulted in a tax benefit of $0.6 million, consisting of a stock compensation windfall of $0.1 million~~22.5%. The Company is subject to federal income taxes and ~~a non-recurring benefit of $0.5 million related to re-measurement of deferred taxes resulting from~~various state, ~~tax law change. Due to the timing of the enactment~~provincial and ~~the complexity involved in applying the provisions of the Tax Cuts and Jobs Act of 2017 (the "Act"), the Company calculated its best estimate of the impact of the Act in its 2017 year end~~local income tax provision in accordance with its understanding of the Act and guidance available as of the date of its Annual Report on Form 10-K for fiscal year 2017 and as a result had recorded a provisional $9.2 million reduction in income tax expense in the fourth quarter of 2017. No adjustment was made to the provisional amount as a result of additional information obtained for the nine months ended September 30, 2018.

taxes. The Company is subject to audit examinations at the U.S. 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.~~16. EARNINGS PER SHARE

The following table shows the weighted average number of shares used in computing earnings per share and the effect on the weighted average number of shares of potentially dilutive securities. Potentially dilutive common stock has no effect on income available to common stockholders. ~~There were no anti-dilutive awards during~~For the three months ended ~~September 30,~~March 31, 2019 and 2018 respectively, approximately 82,253 and ~~2017. For the nine months ended September 30, 2018 and 2017,~~62,949 share-based compensation awards ~~that had an anti-dilutive impact on the Company's dilutive earnings per share computation~~were excluded from the weighted average shares outstanding ~~were 21,000 and 29,000, respectively.~~because their impact would be anti-dilutive in the computation of dilutive earnings per share


Table 15: Details of Basic and Dilutive Earnings Per Share
Table 16: Details of Basic and Dilutive Earnings Per Share									Table 16: Details of Basic and Dilutive Earnings Per Share
	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended
	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017		March 31, 2019		March 31, 2018
	(dollars in thousands, except for per share amounts)								(dollars in thousands, except for per share amounts)
Net income	$	18,564	$	10,987	$	54,105	$	35,612	$	15,926	$	13,646

Weighted average number of shares outstanding - basic	36,732,746		38,212,869		37,012,536		38,966,575		35,248,280		37,432,782
Effect of dilutive securities:
Restricted stock awards	—		6,852		1,170		7,598		—		3,509
Restricted stock units	89,750		48,175		72,650		54,171		55,515		72,012
Performance restricted stock units	68,384		58,199		67,231		30,853		29,775		69,509
Stock options	28,024		19,461		27,800		21,776		16,689		27,141
Total effect of dilutive securities	186,158		132,687		168,851		114,398		101,979		172,171
Weighted average number of shares outstanding - diluted	36,918,904		38,345,556		37,181,387		39,080,973		35,350,259		37,604,953

Basic earnings per share	$	0.51	$	0.29	$	1.46	$	0.91	$	0.45	$	0.36
Diluted earnings per share	$	0.50	$	0.29	$	1.46	$	0.91	$	0.45	$	0.36

~~16.~~17. 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 nine months ended September 30, 2018 were $0.6 million and $2.2 million, respectively, compared to $0.8 million and $2.5 million for the same periods in 2017, 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 ~~$22.7~~$20.4 million and ~~$69.5~~$22.4 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~respectively, compared to $22.0 million and $64.8 million for the three and nine months ended September 30, 2017,~~ respectively.


Table 16: Details of Future Minimum Lease Payments Due Under Noncancellable Operating Leases and Purchase Commitments
Table 17: Details of Purchase Commitments					Table 17: Details of Purchase Commitments
	Future Minimum Lease Payments		Purchase Commitments		As of March 31, 2019
	(in thousands)				(in thousands)
October 1, 2018 - December 31, 2018	$	180	$	17,958
2019	1,658		47,287
April 1, 2019 through December 31, 2019					$	26,734
2020	48		46,141		36,073
2021	—		28,097		35,363
2022	—		25,069		26,832
2023	—		12,284		11,054
Thereafter	—		53,621		48,144
Total	$	1,886	$	230,457	$	184,200

Contingent obligations

Under certain circumstances, the Company provides letters of credit related to its natural gas and other supply purchases. As of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, the Company had outstanding letters of credit of approximately $1.4 million.

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 ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, 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.~~18. SEGMENT REPORTING

Segment information is presented in accordance with ASC 280, Segment Reporting, which establishes standards for reporting information about operating segments. It also establishes standards for related disclosures about products and geographic areas. The Company's primary reportable segment is wallboard, which represented approximately ~~97.6%~~97.5% and ~~97.3%~~96.7% of the Company's revenues for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~respectively, compared to 96.8% of the Company's revenues for both the three and nine months ended September 30, 2017,~~ respectively. This segment produces wallboard for the commercial and residential construction sectors. The Company also manufactures finishing products, which complement the Company's full range of wallboard products.

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 customer generating the revenue. 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.


Table 17.1: Segment Reporting
Table 18.1: Segment Reporting													Table 18.1: Segment Reporting
	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017			March 31, 2019			March 31, 2018
	(in thousands)												(in thousands)
Net Sales:
Wallboard	$	128,101		$	112,796		$	376,739		$	346,466		$	118,944		$	112,971
Other	3,133			3,730			10,565			11,305			3,088			3,831
Total net sales	$	131,234		$	116,526		$	387,304		$	357,771		$	122,032		$	116,802
Operating Income:
Wallboard	$	27,551		$	19,992		$	79,702		$	63,402		$	23,595		$	21,030
Other	(580		)	(285		)	(1,409		)	(388		)	(489		)	(268		)
Total operating income	$	26,971		$	19,707		$	78,293		$	63,014		$	23,106		$	20,762
Adjustments:
Interest expense	$	(2,549	)	$	(2,988	)	$	(7,963	)	$	(8,966	)	$	(2,492	)	$	(2,720	)
Losses from equity investment	(393		)	(204		)	(1,148		)	(29		)	(45		)	(364		)
Other (expense)/income, net	(29		)	146			(256		)	(633		)
Other expense, net													(36		)	(140		)
Income before provision for income taxes	$	24,000		$	16,661		$	68,926		$	53,386		$	20,533		$	17,538
Depreciation and Amortization:
Wallboard	$	11,299		$	11,793		$	32,016		$	34,992		$	10,276		$	10,305
Other	281			264			950			825			244			276
Total depreciation and amortization	$	11,580		$	12,057		$	32,966		$	35,817		$	10,520		$	10,581


Table 17.2: Details of Net Sales By Geographic Region
Table 18.2: Details of Net Sales By Geographic Region									Table 18.2: Details of Net Sales By Geographic Region
	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended
	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017		March 31, 2019		March 31, 2018
	(in thousands)								(in thousands)
United States	$	125,430	$	110,430	$	367,917	$	334,481	$	116,712	$	109,975
Canada	5,804		6,096		19,387		23,290		5,320		6,827
Net sales	$	131,234	$	116,526	$	387,304	$	357,771	$	122,032	$	116,802


Table 17.3: Details of Assets By Geographic Region
Table 18.3: Details of Assets By Geographic Region									Table 18.3: Details of Assets By Geographic Region
	Fixed Assets				Total Assets				Fixed Assets				Total Assets
	September 30, 2018		December 31, 2017		September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018		March 31, 2019		December 31, 2018
	(in thousands)								(in thousands)
United States	$	287,255	$	290,324	$	654,965	$	622,836	$	282,541	$	285,202	$	646,228	$	655,849
Canada	3,415		3,679		17,939		19,098		3,160		3,166		17,234		16,532
Total	$	290,670	$	294,003	$	672,904	$	641,934	$	285,701	$	288,368	$	663,462	$	672,381

~~18.~~19. FAIR VALUE DISCLOSURES

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 ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, 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 ~~September 30, 2018~~March 31, 2019 that are recorded at fair value on a recurring basis are the natural gas hedges and interest rate swaps. 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.


Table 18.1: Fair Value Hierarchy - 2018
Table 19.1: Fair Value Hierarchy - 2019									Table 19.1: Fair Value Hierarchy - 2019
	As of September 30, 2018								As of March 31, 2019
	Level 1		Level 2		Level 3		Balance		Level 1		Level 2		Level 3		Balance
	(in thousands)								(in thousands)
Asset
Interest rate swap	$	—	$	697	$	—	$	697	$	—	$	—	$	—	$	—
Commodity derivatives	—		77		—		77		—		101		—		101
Total assets	$	—	$	774	$	—	$	774	$	—	$	101	$	—	$	101

Liabilities
Interest rate swap	$	—	$	—	$	—	$	—	$	—	$	223	$	—	$	223
Commodity derivatives	—		5		—		5		—		27		—		27
Total liabilities	$	—	$	5	$	—	$	5	$	—	$	250	$	—	$	250


Table 18.2: Fair Value Hierarchy - 2017
Table 19.2: Fair Value Hierarchy - 2018									Table 19.2: Fair Value Hierarchy - 2018
	As of December 31, 2017								As of December 31, 2018
	Level 1		Level 2		Level 3		Balance		Level 1		Level 2		Level 3		Balance
	(in thousands)								(in thousands)
Asset
Interest rate swap	$	—	$	2,148	$	—	$	2,148	$	—	$	86	$	—	$	86
Commodity derivatives	—		11		—		11		—		61		—		61
Total assets	$	—	$	2,159	$	—	$	2,159	$	—	$	147	$	—	$	147

Liabilities
Interest rate swap	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commodity derivatives	—		613		—		613		—		105		—		105
Total liabilities	$	—	$	613	$	—	$	613	$	—	$	105	$	—	$	105

20. BUCHANAN PLANT OUTAGE

On January 24, 2019, Company's Buchanan, New York plant experienced a significant equipment malfunction, resulting in an outage at the plant. The plant was off-line while repairs were made through March 15, 2019. While the Buchanan plant was down, the Company increased production at its plants in Silver Grove, Kentucky and Palatka, Florida to offset a portion of the lost production from the Buchanan plant.

The Company has standard insurance coverage that is intended to cover circumstances such as these, including business interruption insurance. The Company's insurance coverage is designed to cover the direct costs of rebuilding the damaged equipment, costs incurred to re-direct products from the Company's other plants, and the lost contribution margin of the sales that otherwise would have been made if the plant was operating normally.



Details of Insurance Claims and Cash Payments Related to Buchanan Outage
	Claim Details						Cash Details
	Claim Amount		Insurance Deductible		Net recovery recorded in first quarter 2019		Cash received in first quarter 2019		Receivable Recorded as of March 31, 2019
	(in thousands)
Rebuild of property, plant and equipment damaged (a)	$	1,839	$	250	$	1,589	$	1,589	$	—
Directs costs associated with business interruption (b)	2,932		—		2,932		2,661		271
	$	4,771	$	250	$	4,521	$	4,250	$	271


(a)	The rebuild of property, plant and equipment damaged and related net recovery resulted in a net gain of $1.5 million.

(b)

Direct costs associated with the business interruption include various expenses such as additional freight to ship to customers at greater distances from other plants, additional freight costs to reroute incoming raw materials and other various costs that were incurred as a result of the Buchanan outage and are expected to be covered by the Company's insurance policy. The net recovery of direct costs associated with business interruption were netted against actual costs incurred resulting in a net impact of zero to the income statement.



Details of Gain from insurance recoveries, net
	For the Three Months Ended
	March 31, 2019
	(in thousands)
Cost to rebuild property, plant and equipment (capitalized)	$	1,839
Insurance deductible	250
Net recoveries from insurance policy	1,589
Write-off of property, plant and equipment	76
Gain from insurance recoveries, net	$	1,513

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with "Risk Factors," "Forward-Looking Statements," "Selected Historical Financial and Operating Data," and our financial statements and related notes included in our Annual Report on Form 10-K for fiscal year ~~2017~~2018 filed with the Securities and Exchange Commission on February ~~23, 2018~~22, 2019 (the ~~"2017~~"2018 Form 10-K") and elsewhere in this Quarterly Report on Form 10-Q, as applicable.

Overview

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.

Our primary reportable segment is wallboard, which accounted for approximately ~~97.6%~~97.5% and ~~97.3%~~96.7% of our net sales for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, ~~respectively, compared to 96.8% and 96.8% of our net sales for the three and nine months ended September 30, 2017,~~ respectively. We also operate other business activities, primarily the production of finishing products, which complement our full range of wallboard products. See Note 1718 to the Consolidated Financial Statements for additional information on our reporting segments.

Factors Affecting Our Results

Market

For the new residential construction market, housing starts are a good indicator of demand for our gypsum products. Installation of our gypsum products into a single family home typically follows a housing start by 90 to 120 days. The R&R market includes renovation of both residential and nonresidential buildings. Many buyers begin to remodel an existing home within two years of purchase. The generally rising levels of existing home sales and home resale values in recent years have contributed to an increase in demand for our products from the R&R market. The commercial construction market encompasses areas such as office, retail, heath care, hospitality, educational and government projects. Demand for our products from commercial construction typically follows signing of construction contracts by 12 to 18 months.

The rate of growth in the new residential construction market, R&R market, and the new nonresidential construction market remains uncertain and will depend on broader economic circumstances, including employment, household formation, the home ownership rate, existing home price trends, availability of mortgage financing, interest rates, consumer confidence, job growth, availability of skilled labor and discretionary business investment.

Wallboard pricing can be impacted by overall industry capacity in the United States. Currently, there is excess wallboard production capacity industry-wide in the United States which can lead to downward pressure on wallboard prices. We estimate that industry capacity utilization was approximately ~~73% and~~ 74% for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, compared to ~~75% and 74%~~67% for the same ~~periods~~period of ~~2017.~~2018.

Market Outlook

~~Most forecasts continue to project growth in housing starts.~~ Industry Analysts' forecasts for ~~2018~~2019 housing starts in the United States included in the ~~most recent~~April 2019 Blue Chip Economic Indicators are ~~1.26~~1.21 million to 1.30 million units, based on the average of the bottom ten and top ten forecasts included in the report, respectively. This forecast range represents an increase inof 4% and a decrease of 3% over the ~~range of 5% and 8% over 2017~~2018 housing starts of ~~1.20~~1.25 million. We ~~also~~ expect that the R&R and new commercial ~~construction~~ markets will ~~continue~~grow in percentage by low single digits from 2018 to ~~experience moderate growth.~~2019.

Industry shipments of gypsum wallboard in the United States as reported by the Gypsum Association were an estimated ~~6.2~~6.3 billion square feet and 5.7 billion square feet for the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~down 1.8% from the same prior year period. For the nine months ended September 30, 2018, industry shipments~~respectively. The 2019 numbers were ~~18.8 billion square feet,~~ up ~~1.4% from the same prior year period.~~10.2% when compared to 2018. We estimate that industry shipments in the United States for all of ~~2018 to~~2019 will increase in ~~the~~percentage by low single digits from ~~25.3~~24.9 billion square feet in ~~2017.~~2018.

Manufacturing and Distribution Costs

Paper and synthetic gypsum are our principal wallboard raw materials. Paper constitutes our most significant input cost and the most significant driver of our variable manufacturing costs. Energy costs, consisting of natural gas and electricity, are the other key input costs. In total, manufacturing cash costs represented ~~63% and~~ 64% of our costs of goods sold for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, compared to ~~64%~~65% for ~~both~~the three ~~and nine~~ months ended ~~September 30, 2017.~~March 31, 2018. Depreciation and amortization represented ~~12% and~~ 11% of our costs of goods sold for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, compared to ~~13%~~12% of our cost of goods sold for ~~both~~the three ~~and nine~~ months ended ~~September, 2017.~~March 31, 2018. Distribution costs to deliver products to our customers represented 25% of our costs of goods sold for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2019, compared to 23% for the ~~same periods~~three months ended March 31, 2018. Recently we have experienced increases in the costs of ~~2017.~~freight to deliver products to our customers as a result of capacity issues in the trucking industry. We expect to experience continued inflationary pressures on these costs for the foreseeable future.

Variable manufacturing costs, including inputs such as paper, gypsum, natural gas, and other raw materials, represented ~~67% and~~ 68% of our manufacturing cash costs for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, compared to ~~70%~~69% for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2017.~~March 31, 2018. Fixed production costs excluding depreciation and amortization consisted of labor, maintenance, and other costs that represented ~~33% and~~ 32% of our manufacturing cash costs for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2019, compared to ~~30%~~31% for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2017.~~March 31, 2018. Recently we have experienced increases in the costs of ~~production, including for certain raw materials such as~~ gypsum ~~and in~~related to the ~~costs of freight~~need to ~~deliver products to our customers.~~source from additional suppliers at higher delivered costs. We expect to experience continued inflationary pressures on these costs for the foreseeable future.

We currently purchase most of our paperboard liner from Seven Hills, a joint venture between us and WestRock Company. Under the paper supply agreement with Seven Hills, the price of paper adjusts based on changes in the underlying costs of production of the paperboard liner, of which the two most significant are recovered waste paper and natural gas. The largest waste paper source used by the operation is old cardboard containers (known as OCC). Seven Hills has the capacity to supply us with approximately 80% of our paper needs at our full capacity utilization and most of our needs at current capacity utilization on market-based pricing terms. We also purchase additional paper on the spot market or under short-term contracts at competitive prices. See Note 7 to the Consolidated Financial Statements for additional information regarding our investment in Seven Hills.

Results of Operations

																			Table M1: Results of Operations
	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017			March 31, 2019			March 31, 2018
	(dollars in thousands, except mill net)												(dollars in thousands, except mill net)
Net sales	$	131,234		$	116,526		$	387,304		$	357,771		$	122,032		$	116,802
Costs, expenses and other income:
Cost of goods sold	94,306			87,952			279,185			267,393			90,786			86,616
Gross profit													31,246			30,186
Selling and administrative	9,957			8,867			29,826			27,364			9,653			9,424
Total costs and operating expenses	104,263			96,819			309,011			294,757
Gain from insurance recoveries, net of losses incurred													1,513			—
Operating income	26,971			19,707			78,293			63,014			23,106			20,762
Other (expense)/income, net	(29		)	146			(256		)	(633		)
Other expense, net													(36		)	(140		)
Interest expense, net	(2,549		)	(2,988		)	(7,963		)	(8,966		)	(2,492		)	(2,720		)
Income before losses from equity method investment and provision for income taxes	24,393			16,865			70,074			53,415			20,578			17,902
Losses from equity method investment	(393		)	(204		)	(1,148		)	(29		)	(45		)	(364		)
Income before provision for income taxes	24,000			16,661			68,926			53,386			20,533			17,538
Provision for income taxes	(5,436		)	(5,674		)	(14,821		)	(17,774		)	(4,607		)	(3,892		)
Net income	$	18,564		$	10,987		$	54,105		$	35,612		$	15,926		$	13,646
Other operating data:
Capital expenditures and software purchased or developed	$	7,324		$	6,057		$	21,120		$	14,260		$	7,357		$	6,437
Wallboard sales volume (million square feet)	674			644			2,011			1,941			649			615
Mill net sales price (1)	$	155.43		$	144.90		$	153.70		$	147.72		$	149.48		$	151.60


(1)	Mill net sales price represents average selling price per thousand square feet net of freight and delivery costs.

~~Three Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017~~

Net Sales. Net sales increased by ~~$14.7~~$5.2 million, up ~~12.6%~~4.5% from ~~$116.5~~$116.8 million for the three months ended ~~September 30, 2017,~~March 31, 2018, to ~~$131.2~~$122.0 million for the three months ended ~~September 30, 2018.~~March 31, 2019. The increase was primarily attributable to a ~~$10.2~~$6.3 million favorable impact of ~~an increase~~higher wallboard volumes, which was partially offset by a $0.7 million decrease in ~~the~~net sales of non-wallboard products, $0.2 million unfavorable impact of changes in foreign currency exchange rates and $0.2 million unfavorable impact due to a lower average net selling price for gypsum wallboard at constant exchange rates and a $5.3 million favorable impact of higher wallboard volumes driven by higher demand in the United States. This overall increase was partially offset by an unfavorable impact of $0.6 million related to non-wallboard products and $0.2 million related to foreign currency exchange rates.

Cost of Goods Sold. Cost of goods sold increased ~~$6.3~~$4.2 million, up ~~7.2%~~4.8% from ~~$88.0~~$86.6 million for the three months ended ~~September 30, 2017,~~March 31, 2018, to ~~$94.3~~$90.8 million for the three months ended ~~September 30, 2018.~~March 31, 2019. Higher wallboard volumes increased input costs and freight costs by ~~$1.7~~$2.0 million and ~~$0.9~~$1.1 million, respectively. In addition, labor cost and maintenance ~~cost~~costs increased cost of goods sold by ~~$2.3~~$0.9 million. Higher per unit freight and input costs increased cost of goods sold by ~~$1.5~~$0.7 million. Depreciation and amortization ~~costs~~ decreased ~~$0.4~~cost of goods sold by $0.1 million. Changes in other components of cost of goods sold resulted in a net ~~increase~~decrease of ~~$0.3~~$0.4 million.

Selling and Administrative Expense. Selling and administrative expense increased ~~$1.1~~$0.3 million, up ~~12.4%~~3.2% from ~~$8.9~~$9.4 million for the three months ended ~~September 30, 2017,~~March 31, 2018, to ~~$10.0~~$9.7 million for the three months ended ~~September 30, 2018.~~March 31, 2019. The increase was ~~mainly~~primarily driven by ~~a $0.9 million~~an increase in salary ~~bonus~~ and ~~stock compensation~~employee benefit expenses.

Gain from insurance recoveries, net . On January 24, 2019, the Company's Buchanan, New York plant experienced a significant equipment malfunction, and operations at the facility were temporarily suspended while the equipment was repaired and replaced. The ~~remaining increase was driven by other selling~~Company resumed operations on March 15, 2019. Gain from insurance recoveries, net of losses incurred, relate to $1.8 million of insurance proceeds received for repairs to the Buchanan plant in excess of the $0.3 million for insurance deductible and ~~administrative expense.~~asset write-off. Various additional expenditures related to the plant outage were netted against insurance coverage on a dollar for dollar basis. See Note 20 to the Consolidated Financial Statements for further details.

Operating Income. Operating income of ~~$27.0~~$23.1 million for the three months ended ~~September 30, 2018~~March 31, 2019 increased by ~~$7.3~~$2.3 million or 11.1% from operating income of ~~$19.7~~$20.8 million for the three months ended ~~September 30, 2017. The increase was primarily attributable~~March 31, 2018 due to higher ~~volumes and an increase~~net sales, despite the effects of the Buchanan outage. The Company estimates the operating income lost as a result of the outage to be in ~~net selling price, which was partially offset by higher freight per unit costs and higher labor and maintenance costs.~~the range of $4.0 to $5.0 million.

Other ~~(Expense)/income,~~Expense, Net. Other ~~(expense)/income,~~expense, net, ~~increased expense~~decreased by $0.1 million for the three months ended ~~September 30, 2018~~March 31, 2019 due to a decrease in foreign currency exchange loss.

Interest Expense, Net. Interest expense, net, was $2.5 million for the three months ended ~~September 30, 2018,~~March 31, 2019, a decrease of ~~$0.5~~$0.2 million from ~~$3.0~~$2.7 million for the three months ended ~~September 30, 2017.~~March 31, 2018. The decrease was primarily driven by a $0.3 million increase in ~~investment~~interest income on short term liquid investments, a $0.2 million decrease in interest expense on our Term Loan primarily related to decrease in the spread and a ~~$0.2~~$0.1 million increase in capitalized ~~interest~~interest. These decreases were partially offset by a $0.4 million increase on the unhedged portion of the Term Loan as a result of ~~capital spending. The~~the rise in LIBOR rate was offset by the terminated interest rate swap gain amortization and lower average outstanding borrowings during third quarter 2018 compared to prior year quarter and a lower interest rate spread over LIBOR following the debt repricing on December 6, 2017. LIBOR.

See Note 9 and Note 10 to the Consolidated Financial Statements for further details on the repricing and interest rate swap, respectively.

Provision for Income Taxes. Provision for income taxes ~~decreased by $0.3~~increased $0.7 million to ~~$5.4~~$4.6 million for the three months ended ~~September 30, 2018,~~March 31, 2019, compared to ~~$5.7~~$3.9 million ~~for~~in the ~~same period of 2017.~~prior period. The ~~lower~~higher provision for income taxes was primarily driven by a decrease in certain state taxes as a result of new legislation passed in the second quarter and the federal tax rate from the 2017 tax reform. These regulatory changes resulted in an effective tax rate of approximately 22.7% during the three months ended September 30, 2018 as compared to 34.1% during the three months ended September 30, 2017. This decrease in the effective tax rate was partially offset by the higher pretax income.

~~Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017~~

~~Net Sales.~~Net sales increased by $29.5 million, up 8.2% from $357.8 million for the nine months ended September 30, 2017, to $387.3 million for the nine months ended September 30, 2018. The increase was primarily attributable to a favorable impact of $17.4 million due to an increase in the average net selling price for gypsum wallboard at constant exchange rates and a $12.5 million favorable impact of higher wallboard volumes driven by higher demand in the United States. In addition, there was a $0.4 million favorable impact of changes in foreign currency exchange rates. This overall increase was partially offset by a decrease in net sales of non-wallboard products of $0.8 million.

~~Cost of Goods Sold.~~ Cost of goods sold increased $11.8 million, up 4.4% from $267.4 million for the nine months ended September 30, 2017, to $279.2 million for the nine months ended September 30, 2018. Higher wallboard volumes increased input costs and freight costs by $4.1 million and $2.2 million, respectively. In addition, labor cost and maintenance costs increased cost of goods sold by $4.6 million. Higher per unit freight and input costs increased cost of goods sold by $2.4 million. Depreciation and amortization decreased cost of goods sold by $2.2 million. Changes in other components of cost of goods sold resulted in a net increase of $0.7 million.

~~Selling and Administrative Expense.~~ Selling and administrative expense increased $2.4 million, up 8.8% from $27.4 million for the nine months ended September 30, 2017, to $29.8 million for the nine months ended September 30, 2018. The increase was driven by a $1.9 million increase in salary, bonus and stock compensation expenses. The remaining increase was driven by other selling and administrative expense.

~~Operating Income.~~ Operating income of $78.3 million for the nine months ended September 30, 2018 increased by $15.3 million from operating income of $63.0 million for the nine months ended September 30, 2017. The increase was primarily attributable to higher volumes and an increase in net selling price, which was partially offset by higher freight per unit costs and higher labor and maintenance costs.

~~Other Expense, Net.~~Other expense, net, was $0.3 million for the nine months ended September 30, 2018 compared to other expense, net, of $0.6 million for the nine months ended September 30, 2017. The change mainly reflects the impact of non-recurring costs of $0.7 million related to the debt repricing in the first quarter 2017, which was partially offset by the impact of changes in foreign exchange transactions. See Note 9 to the Consolidated Financial Statements for further details on the repricing.

~~Interest Expense, Net.~~ Interest expense was $8.0 million for the nine months ended September 30, 2018, a decrease of $1.0 million from $9.0 million for the nine months ended September 30, 2017. The decrease was primarily driven by a $0.7 million increase in investment income and a $0.5 million increase in capitalized interest as a result of capital spending. The rise in LIBOR rate was offset by lower average outstanding borrowings during the nine months of 2018 compared to prior year period, a lower interest rate spread over LIBOR following the debt repricing on December 6, 2017, and by the terminated interest rate swap gain amortization. See Note 9 and Note 10 to the Consolidated Financial Statements for further details on the repricing and interest rate swap, respectively.

~~Provision for Income Taxes.~~ Provision for income taxes decreased $3.0 million to $14.8 million for the nine months ended September 30, 2018, compared to $17.8 million for the same period of 2017. The lower provision for income taxes was primarily driven by a decrease in certain state taxes as a result of new legislation passed in the second quarter and the federal tax rate from the 2017 tax reform. These regulatory changes resulted in an effective tax rate of approximately 21.5% during the nine months ended September 30, 2018 as compared to 33.3% during the nine months ended September 30, 2017. This decrease in the effective tax rate was partially offset by the higher pretax income.

Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, cash from operations, and borrowings under our debt financing arrangements. As of ~~September 30, 2018,~~March 31, 2019, we had ~~$105.5~~$101.1 million in cash and cash equivalents. We believe that our current cash position, availability under our Revolver, access to the long-term debt capital markets and cash flow generated from operations should be sufficient not only for our operating requirements but also to enable us to complete our capital expenditure programs, fund share repurchases and any required long-term debt payments through the next several fiscal years. ~~In addition, we have funds available from our revolving credit facilities and the ability to obtain alternative sources of financing.~~ See Note 9 to the Consolidated Financial Statements for a more detailed discussion of our debt financing arrangements.

													Table M2: Net Change in Cash and Cash Equivalents
	For the Nine Months Ended						For the Three Months Ended
	September 30, 2018			September 30, 2017			March 31, 2019			March 31, 2018
	(in thousands)						(in thousands)
Net cash provided by operating activities	$	84,054		$	75,092		$	10,636		$	13,743
Net cash used in investing activities	(21,075		)	(15,548		)	(5,670		)	(6,610		)
Net cash used in financing activities	(29,864		)	(51,839		)	(6,703		)	(15,639		)
Effect of foreign exchange rates on cash and cash equivalents	(184		)	707			185			(167		)
Net change in cash and cash equivalents	$	32,931		$	8,412		$	(1,552	)	$	(8,673	)

Net Cash Provided By Operating Activities

Net cash provided by operating activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ was ~~$84.1~~$10.6 million and ~~$75.1~~$13.7 million, respectively. The ~~increase~~decrease of ~~$9.0~~$3.1 million in ~~2018~~2019 compared to ~~2017~~2018 was primarily driven ~~by an increase in operating income, primarily from higher revenues, partially offset~~ by a decrease in cash from changes in working capital related to a larger build up of ~~finished goods~~gypsum and paper inventory ~~during 2018~~as a result of the Buchanan plant outage in 2019 compared to ~~2017.~~

2018. The overall decrease was partially offset by an increase in operating income, primarily from higher revenues.

Net Cash Used In Investing Activities

Net cash used in investing activities for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 was ~~$21.1~~$5.7 million, compared to ~~$15.5~~$6.6 million for the ~~nine~~three months ended ~~September 30, 2017. The increase in investing activities for~~March 31, 2018. During the ~~nine~~three months ended ~~September 30, 2018 primarily reflects an aggregate of $21.1~~March 31, 2019, we received $1.6 million ~~in capital~~from insurance recoveries related to the Buchanan plant outage. Capital expenditures and software purchased ~~or developed, compared~~increased by $1.0 million from $6.4 million in 2018 to ~~$14.3~~$7.4 million ~~for 2017.~~in 2019. The remaining increase was 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 ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018 was ~~$29.9~~$6.7 million ~~compared to $51.8~~and $15.6 million, respectively. The change for ~~nine~~the three months ended ~~September 30, 2017. The decrease in financing activities for the nine months ended September 30, 2018~~March 31, 2019 primarily reflects an aggregate of ~~$27.4~~$5.0 million deployed to repurchase common stock in the first quarter 2019, compared to ~~$49.1~~$14.6 million ~~for 2017.~~in the same period 2018. See Note 1112 to the Consolidated Financial Statements for more detailed discussion of share repurchase activity. During the nine months ended September 30, 2017, we refinanced our 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 $2.0 million for both the nine months ended September 30, 2018 and 2017.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires us to make estimates, judgments and assumptions that affect the reported

amounts of assets, liabilities, revenues and expenses during the periods presented. The ~~2017~~2018 Form 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 ~~nine~~three months ended ~~September 30, 2018.~~

March 31, 2019.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements are included throughout this Quarterly Report on Form 10-Q, and relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity, capital resources and other financial and operating information. We have used the words "anticipate," "assume," "believe," "contemplate," "continue," "could," "estimate," "expect," "future," "intend," "may," "plan," "potential," "predict," "project," "seek," "should," "target," "will" and similar terms and phrases to identify forward-looking statements in this Quarterly Report on Form 10-Q. All of our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we are expecting, including:

cyclicality in our markets, especially the new residential construction market;

~~the highly competitive nature of our industry and the substitutability of competitors' products;~~

disruptions in our supply of synthetic gypsum due to regulatory changes or coal-fired power plants ceasing or reducing operations or switching to natural gas;

changes in the costs and availability of transportation;

the competitive labor market and resulting employee turnover;

disruptions to our supply of paperboard liner, including termination of the WestRock contract;

significant buying power of certain customers;

potential losses of customers;

the highly competitive nature of our industry and the substitutability of competitors' products;

material disruptions at our facilities or the facilities of our suppliers;

changes in energy, transportation and other input costs;

changes to environmental and safety laws and regulations requiring modifications to our manufacturing systems;

~~material disruptions at our facilities or the facilities of our suppliers;~~

~~disruptions to our supply of paperboard liner, including termination of the WestRock contract;~~

~~changes in energy, transportation and other input costs;~~

changes in, cost of compliance with or the failure or inability to comply with governmental laws and regulations, in particular environmental regulations;

~~disruption in transportation network;~~

our involvement in legal and regulatory proceedings;

our ability to attract and retain key management employees;

cybersecurity risks;

disruptions in our information technology systems;

~~cybersecurity risks;~~

labor disruptions;

seasonal nature of our business; and

additional factors discussed under the sections captioned Risk Factors, Management's Discussion and Analysis of Financial Condition and Results of Operations and Business in our SEC filings.

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 Item 1A. Risk Factors in the ~~2017~~2018 Form 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company's market rate risk disclosures set forth in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" on the ~~2017~~2018 Form 10-K have not changed materially during the ~~nine~~three month period ended ~~September 30, 2018.~~March 31, 2019.

Item 4. Controls and Procedures

Management's Evaluation of Disclosure Controls and Procedures. The Company's management carried out the evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined under Rule 13a-15(e) of the Exchange Act), required by paragraph (b) of Exchange Act Rules 13a-15, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of ~~September 30, 2018.~~March 31, 2019.

Changes in Internal Control Over Financial Reporting. There were no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended ~~September 30, 2018~~March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Limitations in Control Systems. The design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all future events, no matter how remote, or that the degree of compliance with the policies or procedures may not deteriorate. Because of their inherent limitations, disclosure controls and procedures may not prevent or detect all misstatements. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we have been, and may in the future become involved in, litigation or other legal proceedings relating to claims arising in the normal course of business. In the opinion of management, there are no pending or threatened legal proceedings which would reasonably be expected to have a material adverse effect on our business or results of operations. We may become involved in material legal proceedings in the future.

See Note 1617 to the Consolidated Financial Statements for a description of certain legal proceedings.

Item 1A. Risk Factors

There were no material changes during the three months ended ~~September 30, 2018~~March 31, 2019 to the risk factors previously disclosed in the ~~2017~~2018 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) None.

(c) On November 4, 2015, our Board of Directors approved a new stock repurchase program authorizing us to repurchase up to $50 million of our common stock, at such times and prices as determined by management as market conditions warrant, through December 31, 2016. On August 3, 2016, our Board of Directors increased the aggregate authorization from up to $50 million to up to $100 million and extended the expiration date to December 31, 2017. On February 21, 2017, the Board of Directors further expanded the Company's share repurchase program by an additional $100 million up to a total of $200 million of its common stock and extended the expiration date to December 31, 2018. On February 21, 2018, the Board of Directors further expanded the Company's share repurchase program by an additional $100 million up to a total of $300 million of its common stock and extended the expiration date to December 31, 2019.

Common Stock Repurchase Activity During the Three Months Ended September 30, 2018
Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of the Publicly Announced Plans or Programs Maximum Dollar Value That May Yet Be Purchased Under the Plans or Programs
July 1 - July 31, 2018 —
$ —
—
$ 172,116,117
August 1 - August 31, 2018 13,300
37.34
13,300
171,619,467
September 1 - September 30, 2018 63,300
37.38
63,300
169,253,003
Total 76,600
$ 37.38
76,600



Common Stock Repurchase Activity During the Three Months Ended March 31, 2019
Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of the Publicly Announced Plans or Programs	Maximum Dollar Value That May Yet Be Purchased Under the Plans or Programs
January 1 - January 31, 2019	191,907	$	26.08	191,907	$	125,979,872
February 1 - February 28, 2019	—	—		—	125,979,872
March 1 - March 31, 2019	—	—		—	125,979,872
Total	191,907	$	26.08	191,907

Item 3. Defaults Upon Senior Securities

(a) None.

(b) None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits



Exhibit No.	Description of Exhibit

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	*

31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	*

32.1	Certification of Chief Executive Officer and Chief Financial Officer 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 Calculation Linkbase Document.	*

101.DEF	XBRL Taxonomy Definition Linkbase Document.	*

101.LAB	XBRL Taxonomy Label Linkbase Document.	*

101.PRE	XBRL Taxonomy Presentation Linkbase Document.	*



*		Filed herewith.

SIGNATURES

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.



CONTINENTAL BUILDING PRODUCTS, INC.

	/s/ James Bachmann	~~November 9, 2018~~May 3, 2019
By:	James Bachmann
	President and Chief Executive Officer
	(Principal Executive Officer)

	/s/ Dennis Schemm	~~November 9, 2018~~May 3, 2019
By:	Dennis Schemm
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)

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