~~Table of Contents~~

As filed with the Securities and Exchange Commission on ~~August 2,~~November 12, 2019

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

~~FORM~~ ~~10-Q~~

FORM 10-Q

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

For the quarterly period ended ~~June~~September 30, 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

20170

(Address of principal executive offices)

(Zip Code)

(703)

480-3800

(Registrant's telephone number, including the area code)

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

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☒

As of ~~August 1,~~November 10, 2019, the registrant had outstanding 34,688,206 shares of the registrant’s common stock, which amount excludes 9,851,553 shares of common stock held by the registrant as treasury shares.

Table of Contents

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



Part I - Financial Information			34
Item 1.	Financial Statements	34
	Consolidated Statements of Operations	34
	Consolidated Statements of Comprehensive Income	45
	Consolidated Balance Sheets	56
	Consolidated Statements of Cash Flows	67
	Consolidated Statement of Equity	78
	Notes to the Unaudited Consolidated Financial Statements	810
	1. Background and Nature of Operations	810
	2. Significant Accounting Policies	810
	3. Trade Receivables, Net	911
	4. Inventories, Net	1012
	5. Property, Plant and Equipment, Net	1012
	6. Customer Relationships and Other Intangibles, Net	1012
	7. Investment in Seven Hills	1113
	8. Accrued and Other Liabilities	1113
	9. Debt	1214
	10. Derivative Instruments	1315
	11. Leases	1416
	12. Treasury Stock	1517
	13. Share-Based Compensation	1618
	14. Accumulated Other Comprehensive Loss	1618
	15. Income Taxes	1618
	16. Earnings Per Share	1618
	17. Commitments and Contingencies	1719
	18. Segment Reporting	1820
	19. Fair Value Disclosures	1921
	20. Buchanan Plant Outage	2123
	21. Subsequent Event	25
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2224
	Overview	2224
	Results of Operations	2426
	Liquidity and Capital Resources	2628
	Critical Accounting Policies and Estimates	2629
	Forward-Looking Statements	2729
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2830
Item 4.	Controls and Procedures	2830
Part II - Other Information			2931
Item 1.	Legal Proceedings	2931
Item 1A.	Risk Factors	2931
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2931
Item 3.	Defaults Upon Senior Securities	3031
Item 4.	Mine Safety Disclosures	3031
Item 5.	Other Information	3031
Item 6.	Exhibits	3132
	Signatures	3233

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Continental Building Products, Inc.

Consolidated Statements of Operations

(unaudited)


	For the Three Months Ended						For the Six Months Ended							For the Three Months Ended						For the Nine Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018				September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
	(in thousands, except share data and per share amounts)													(in thousands, except share data and per share amounts)
Net sales	$	124,206		$	139,268		$	246,238		$	256,070		Net sales	$	127,439	$	131,234	$	373,677	$	387,304
Cost of goods sold	95,970			98,263			186,756			184,879			Cost of goods sold	99,532		94,306		286,288		279,185
Gross profit	28,236			41,005			59,482			71,191			Gross profit	27,907		36,928		87,389		108,119
Selling and administrative expense	9,118			10,445			18,771			19,869			Selling and administrative expense	9,626		9,957		28,397		29,826
Loss on intangible asset impairment	2,911			—			2,911			—			Loss on intangible asset impairment	—		—		2,911		—
Gain from insurance recoveries, net	—			—			1,513			—			Gain from insurance recoveries, net	—		—		1,513		—
Gain from business interruption insurance	3,238			—			3,238			—			Gain from business interruption insurance	1,623		—		4,861		—
Operating income	19,445			30,560			42,551			51,322			Operating income	19,904		26,971		62,455		78,293
Other expense, net	(66		)	(87		)	(102		)	(227		)	Other expense, net	(66)		(29)		(168)		(256)
Interest expense, net	(2,395		)	(2,694		)	(4,887		)	(5,414		)	Interest expense, net	(2,220)		(2,549)		(7,107)		(7,963)
Income before losses from equity method investment and provision for income taxes	16,984			27,779			37,562			45,681			Income before losses from equity method investment and provision for income taxes	17,618		24,393		55,180		70,074
Losses from equity method investment	(367		)	(391		)	(412		)	(755		)	Losses from equity method investment	(191)		(393)		(603)		(1,148)
Income before provision for income taxes	16,617			27,388			37,150			44,926			Income before provision for income taxes	17,427		24,000		54,577		68,926
Provision for income taxes	(3,769		)	(5,493		)	(8,376		)	(9,385		)	Provision for income taxes	(3,979)		(5,436)		(12,355)		(14,821)
Net income	$	12,848		$	21,895		$	28,774		$	35,541		Net income	$	13,448	$	18,564	$	42,222	$	54,105

Net income per share:													Net income per share:
Basic	$	0.37		$	0.59		$	0.82		$	0.96		Basic	$	0.39	$	0.51	$	1.21	$	1.46
Diluted	$	0.37		$	0.59		$	0.82		$	0.95		Diluted	$	0.39	$	0.50	$	1.21	$	1.46
Weighted average shares outstanding:													Weighted average shares outstanding:
Basic	34,804,588			36,879,774			35,025,208			37,154,750			Basic	34,688,206		36,732,746		34,911,640		37,012,536
Diluted	34,870,525			37,027,997			35,109,165			37,314,947			Diluted	34,775,451		36,918,904		34,996,694		37,181,387

See accompanying notes to unaudited consolidated financial statements.

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Continental Building Products, Inc.

Consolidated Statements of Comprehensive Income

(unaudited)


	For the Three Months Ended						For the Six Months Ended							For the Three Months Ended						For the Nine Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018				September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
	(in thousands)													(in thousands)
Net income	$	12,848		$	21,895		$	28,774		$	35,541		Net income	$	13,448	$	18,564	$	42,222	$	54,105
Foreign currency translation adjustment	305			(313		)	629			(795		)	Foreign currency translation adjustment	(179)		298		450		(496)
Derivative instrument adjustments, net of taxes	(1,662		)	452			(2,040		)	1,498			Derivative instrument adjustments, net of taxes	(7)		(8)		(2,047)		1,489
Other comprehensive (loss)/income	(1,357		)	139			(1,411		)	703			Other comprehensive (loss)/income	(186)		290		(1,597)		993
Comprehensive income	$	11,491		$	22,034		$	27,363		$	36,244		Comprehensive income	$	13,262	$	18,854	$	40,625	$	55,098

See accompanying notes to unaudited consolidated financial statements.

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Continental Building Products, Inc.

Consolidated Balance Sheets


	June 30, 2019			December 31, 2018				September 30, 2019		December 31, 2018
	(unaudited)							(unaudited)
	(in thousands)							(in thousands)
Assets:							Assets:
Cash and cash equivalents	$	110,612		$	102,633		Cash and cash equivalents	$	126,433	$	102,633
Trade receivables, net	39,926			38,454			Trade receivables, net	43,098		38,454
Inventories, net	33,938			32,225			Inventories, net	35,486		32,225
Prepaid and other current assets	6,742			19,805			Prepaid and other current assets	7,275		19,805
Total current assets	191,218			193,117			Total current assets	212,292		193,117
Property, plant and equipment, net	284,413			288,368			Property, plant and equipment, net	281,802		288,368
Customer relationships and other intangibles, net	56,051			62,680			Customer relationships and other intangibles, net	54,450		62,680
Goodwill	119,945			119,945			Goodwill	119,945		119,945
Equity method investment	7,263			7,975			Equity method investment	7,216		7,975
Operating lease - right of use assets	840			—			Operating lease - right of use assets	760		—
Debt issuance costs	206			296			Debt issuance costs	160		296
Total Assets	$	659,936		$	672,381		Total Assets	$	676,625	$	672,381
Liabilities and Shareholders' Equity:							Liabilities and Shareholders' Equity:
Liabilities:							Liabilities:
Accounts payable	$	31,650		$	48,060		Accounts payable	$	31,037	$	48,060
Accrued and other liabilities	9,137			12,815			Accrued and other liabilities	13,165		12,815
Debt, current portion	1,709			1,669			Debt, current portion	1,695		1,669
Operating lease liabilities, current portion	629			—			Operating lease liabilities, current portion	633		—
Total current liabilities	43,125			62,544			Total current liabilities	46,530		62,544
Deferred taxes and other long-term liabilities	19,175			20,204			Deferred taxes and other long-term liabilities	19,173		20,204
Debt, non-current portion	261,014			261,886			Debt, non-current portion	260,617		261,886
Operating lease liabilities, non-current portion	834			—			Operating lease liabilities, non-current portion	690		—
Total Liabilities	324,148			344,634			Total Liabilities	327,010		344,634
Shareholders' Equity:							Shareholders' Equity:
Undesignated preferred stock, par value $0.001 per share; 10,000,000 shares authorized, no shares issued and outstanding	—			—			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; 44,539,759 and 44,472,214 shares issued and 34,688,206 and 35,401,868 shares outstanding as of June 30, 2019 and December 31, 2018, respectively	44			44
Common stock, $0.001 par value per share; 190,000,000 shares authorized; 44,539,759 and 44,472,214 shares issued and 34,688,206 and 35,401,868 shares outstanding as of September 30, 2019 and December 31, 2018, respectively							Common stock, $0.001 par value per share; 190,000,000 shares authorized; 44,539,759 and 44,472,214 shares issued and 34,688,206 and 35,401,868 shares outstanding as of September 30, 2019 and December 31, 2018, respectively	44		44
Additional paid-in capital	328,216			327,515			Additional paid-in capital	328,781		327,515
Less: Treasury stock	(229,073		)	(209,050		)	Less: Treasury stock	(229,073)		(209,050)
Accumulated other comprehensive loss	(4,802		)	(3,391		)	Accumulated other comprehensive loss	(4,988)		(3,391)
Accumulated earnings	241,403			212,629			Accumulated earnings	254,851		212,629
Total Shareholders' Equity	335,788			327,747			Total Shareholders' Equity	349,615		327,747
Total Liabilities and Shareholders' Equity	$	659,936		$	672,381		Total Liabilities and Shareholders' Equity	$	676,625	$	672,381

See accompanying notes to unaudited consolidated financial statements.

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Continental Building Products, Inc.

Consolidated Statements of Cash Flows

(unaudited)


	For the Six Months Ended							For the Nine Months Ended
	June 30, 2019			June 30, 2018				September 30, 2019		September 30, 2018
	(in thousands)							(in thousands)
Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	28,774		$	35,541		Net income	$	42,222	$	54,105
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	21,091			21,386			Depreciation and amortization	32,234		32,966
Amortization of debt issuance costs and debt discount	616			629			Amortization of debt issuance costs and debt discount	930		931
Gain from insurance recoveries, net	(1,513		)	—			Gain from insurance recoveries, net	(1,513)		—
Loss on intangible asset impairment	2,911			—			Loss on intangible asset impairment	2,911		—
Losses from equity method investment	412			755			Losses from equity method investment	603		1,148
Amortization of deferred gain on terminated swaps	(579		)	(317		)	Amortization of deferred gain on terminated swaps	(873)		(632)
Share-based compensation	1,144			1,611			Share-based compensation	1,706		2,459
Deferred taxes							Deferred taxes	—		(457)
Change in assets and liabilities:							Change in assets and liabilities:
Trade receivables	(1,492		)	(4,647		)	Trade receivables	(4,678)		(914)
Inventories	(1,614		)	(2,896		)	Inventories	(3,190)		(7,627)
Prepaid expenses and other current assets	12,989			4,369			Prepaid expenses and other current assets	12,453		1,264
Accounts payable	(16,320		)	(2,078		)	Accounts payable	(16,451)		(52)
Accrued and other current liabilities	(4,753		)	(955		)	Accrued and other current liabilities	(433)		1,089
Other long-term liabilities	(116		)	(622		)	Other long-term liabilities	(176)		(226)
Net cash provided by operating activities	41,550			52,776			Net cash provided by operating activities	65,745		84,054
Cash flows from investing activities:							Cash flows from investing activities:
Payments for property, plant and equipment	(12,346		)	(13,006		)	Payments for property, plant and equipment	(19,287)		(19,761)
Payments for intangible assets	(1,019		)	(790		)	Payments for intangible assets	(1,551)		(1,359)
Proceeds from insurance recoveries	1,589			—			Proceeds from insurance recoveries	1,589		125
Capital contributions to equity method investment	(90		)	(438		)	Capital contributions to equity method investment	(407)		(548)
Distributions from equity method investment	390			78			Distributions from equity method investment	564		468
Net cash used in investing activities	(11,476		)	(14,156		)	Net cash used in investing activities	(19,092)		(21,075)
Cash flows from financing activities:							Cash flows from financing activities:
Proceeds from exercise of stock options	118			11			Proceeds from exercise of stock options	118		145
Tax withholdings on share-based compensation	(1,165		)	(547		)	Tax withholdings on share-based compensation	(1,165)		(547)
Principal payments for debt	(1,358		)	(1,358		)	Principal payments for debt	(2,037)		(2,037)
Payments to repurchase common stock	(20,023		)	(24,562		)	Payments to repurchase common stock	(20,023)		(27,425)
Net cash used in financing activities	(22,428		)	(26,456		)	Net cash used in financing activities	(23,107)		(29,864)
Effect of foreign exchange rates on cash and cash equivalents	333			(320		)	Effect of foreign exchange rates on cash and cash equivalents	254		(184)
Net change in cash and cash equivalents	7,979			11,844			Net change in cash and cash equivalents	23,800		32,931
Cash, beginning of period	102,633			72,521			Cash, beginning of period	102,633		72,521
Cash, end of period	$	110,612		$	84,365		Cash, end of period	$	126,433	$	105,452

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

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
	(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
Net income	—	—		—		—		—			21,895		21,895
Other comprehensive income, net of tax	—	—		—		—		139			—		139
Purchase of treasury shares	(344,908)	—		—		(10,012)		—			—		(10,012)
Stock option exercise	2,706	—		—		—		—			—		—
Stock-based compensation	2,103	—		979		—		—			—		979
Balance as of June 30, 2018	36,748,879	$	44	$	326,594	$	(167,919)	$	(1,946)		$	174,138	$	330,911
Net income	—	—		—		—		—			18,564		18,564
Other comprehensive income, net of tax	—	—		—		—		290			—		290
Purchase of treasury shares	(76,600)	—		—		(2,863)		—			—		(2,863)
Stock option exercise	9,600	—		199		—		—			—		199
Stock-based compensation	—	—		850		—		—			—		850
Balance as of September 30, 2018	36,681,879	$	44	$	327,643	$	(170,782)	$	(1,656)		$	192,702	$	347,951

Accumulated Other Comprehensive Loss
Common Stock Additional Paid-In Capital Treasury Stock Accumulated Earnings Total Equity
Shares Amount
(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
Net income —
—
—
—
—
21,895
21,895
Other comprehensive income, net of tax —
—
—
—
139
—
139
Purchase of treasury shares (344,908 ) —
—
(10,012 ) —
—
(10,012 )
Stock option exercise 2,706
—
—
—
—
—
—
Stock-based compensation 2,103
—
979
—
—
—
979
Balance as of June 30, 2018 36,748,879
$ 44
$ 326,594
$ (167,919 ) $ (1,946 ) $ 174,138
$ 330,911

Accumulated Other Comprehensive Loss
Common Stock Additional Paid-In Capital Treasury Stock Accumulated Earnings Total Equity
Shares Amount
(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
Net income —
—
—
—
—
12,848
12,848
Other comprehensive loss, net of tax —
—
—
—
(1,357 ) —
(1,357 )
Purchase of treasury shares (589,300 ) —
—
(15,018 ) —
—
(15,018 )
Stock option exercise —
—
—
—
—
—
—
Stock-based compensation 2,474
—
548
—
—
—
548
Balance as of June 30, 2019 34,688,206
$ 44
$ 328,216
$ (229,073 ) $ (4,802 ) $ 241,403
$ 335,788

See accompanying notes to unaudited consolidated financial statements.

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Continental Building Products, Inc.

Consolidated Statements of Changes in Shareholders' Equity - continued

(unaudited)


								Accumulated Other Comprehensive Loss
	Common Stock					Additional Paid-In Capital				Treasury Stock					Accumulated Earnings	Total Equity
	Shares	Amount
	(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
Net income	—	—		—		—		—			12,848		12,848
Other comprehensive loss, net of tax	—	—		—		—		(1,357)			—		(1,357)
Purchase of treasury shares	(589,300)	—		—		(15,018)		—			—		(15,018)
Stock-based compensation	2,474	—		548		—		—			—		548
Balance as of June 30, 2019	34,688,206	$	44	$	328,216	$	(229,073)	$	(4,802)		$	241,403	$	335,788
Net income	—	—		—		—		—			13,448		13,448
Other comprehensive loss, net of tax	—	—		—		—		(186)			—		(186)
Stock-based compensation	—	—		565		—		—			—		565
Balance as of September 30, 2019	34,688,206	$	44	$	328,781	$	(229,073)	$	(4,988)		$	254,851	$	349,615

See accompanying notes to unaudited consolidated financial statements.

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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. The Company manufactures gypsum wallboard related products for commercial and residential buildings and houses. The Company operates a network of ~~three~~3 highly efficient wallboard facilities, all located in the eastern United States, and produces joint compound at ~~one~~1 plant in the United States and at another plant in Canada.

2. SIGNIFICANT ACCOUNTING POLICIES


~~(a)~~	~~Basis of Presentation~~

(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~~

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


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

(c)Supplemental Cash Flow Disclosure

Table 2.1: Certain Cash Transactions and Other Activity
For the Six Months Ended,
June 30, 2019 June 30, 2018
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating lease cash outflows $ 307
$ 299
Other activity:
Acquisition of property, plant and equipment included in liabilities $ 2,960
$ 3,657


Table 2.1: Certain Cash Transactions and Other Activity
	For the Nine Months Ended
	September 30, 2019		September 30, 2018
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating lease cash outflows	$	464	$	451
Other activity:
Acquisition of property, plant and equipment included in liabilities	$	2,486	$	3,432

(d) Recent Accounting Pronouncements

Accounting Standards Recently Adopted

The Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2016-02, "~~Leases.~~Leases,", as of January 1, 2019. The Company elected the transition package of practical expedients permitted within ASU 2016-02, which among other things, allowed the Company to carryforward the historical lease classification. In addition, the Company elected the comparative period practical expedient, which 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 recognize the cumulative effect adjustment in equity. The Company also 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. 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

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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 adopted ASU 2017-12, "Derivatives and Hedging (Topic 815), Targeted Improvements to 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 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 of the standard did not have a material impact on 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 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 early adopted this ASU. The adoption of the standard did not have a material impact on 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 ~~currently~~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 in the process of evaluating the impact ~~that~~of adoption, which is not expected to have a material impact on the Company's 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 ~~guidance may~~standard are effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is in the process of evaluating the impact of adoption, which is not expected to have a material impact on ~~its~~the Company's Consolidated Financial Statements.

(e) Reclassifications

Certain reclassifications of prior year information were made to conform to the 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
June 30, 2019 December 31, 2018
(in thousands)
Trade receivables, gross $ 40,773
$ 39,426
Allowance for cash discounts and doubtful accounts (847 ) (972 )
Trade receivables, net $ 39,926
$ 38,454


Table 3: Details of Trade Receivables, Net
	September 30, 2019		December 31, 2018
	(in thousands)
Trade receivables, gross	$	44,042	$	39,426
Allowance for cash discounts and doubtful accounts	(944)		(972)
Trade receivables, net	$	43,098	$	38,454

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

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4. INVENTORIES, NET


Table 4: Details of Inventories, Net
	September 30, 2019		December 31, 2018
	(in thousands)
Finished products	$	6,385	$	6,700
Raw materials	21,474		18,388
Supplies and other	7,627		7,137
Inventories, net	$	35,486	$	32,225

Table 4: Details of Inventories, Net
June 30, 2019 December 31, 2018
(in thousands)
Finished products $ 7,937
$ 6,700
Raw materials 18,525
18,388
Supplies and other 7,476
7,137
Inventories, net $ 33,938
$ 32,225

5. PROPERTY, PLANT AND EQUIPMENT, NET

Table 5: Details of Property, Plant and Equipment, Net
June 30, 2019 December 31, 2018
(in thousands)
Land $ 13,186
$ 13,185
Buildings 120,411
118,076
Plant machinery 311,739
292,219
Mobile equipment 15,551
15,163
Construction in progress 13,622
23,566
Property, plant and equipment, at cost 474,509
462,209
Accumulated depreciation (190,096 ) (173,841 )
Property, plant and equipment, net $ 284,413
$ 288,368


Table 5: Details of Property, Plant and Equipment, Net
	September 30, 2019		December 31, 2018
	(in thousands)
Land	$	13,186	$	13,185
Buildings	120,837		118,076
Plant machinery	311,257		292,219
Mobile equipment	16,538		15,163
Construction in progress	16,070		23,566
Property, plant and equipment, at cost	477,888		462,209
Accumulated depreciation	(196,086)		(173,841)
Property, plant and equipment, net	$	281,802	$	288,368

Depreciation expense was ~~$8.3~~$9.0 million and ~~$16.5~~$25.5 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, compared to ~~$8.3~~$9.1 million and ~~$16.3~~$25.4 million for the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively.

6. CUSTOMER RELATIONSHIPS AND OTHER INTANGIBLES, NET

Table 6.1: Details of Customer Relationships and Other Intangibles, Net
June 30, 2019 December 31, 2018
Gross Accumulated Amortization Net Gross Accumulated Amortization Net
(in thousands)
Customer relationships $ 116,435
$ (69,668 ) $ 46,767
$ 116,180
$ (65,738 ) $ 50,442
Purchased software 8,987
(5,837 ) 3,150
8,225
(5,507 ) 2,718
Trademarks 10,038
(3,904 ) 6,134
14,772
(5,252 ) 9,520
Total $ 135,460
$ (79,409 ) $ 56,051
$ 139,177
$ (76,497 ) $ 62,680


Table 6.1: Details of Customer Relationships and Other Intangibles, Net
	September 30, 2019										December 31, 2018
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
	(in thousands)
Customer relationships	$	116,363	$	(71,453)	$	44,910	$	116,180	$	(65,738)	$	50,442
Purchased software	9,561		(5,984)		3,577		8,225		(5,507)		2,718
Trademarks	10,032		(4,069)		5,963		14,772		(5,252)		9,520
Total	$	135,956	$	(81,506)	$	54,450	$	139,177	$	(76,497)	$	62,680

Amortization expense was ~~$2.3~~$2.1 million and ~~$4.6~~$6.8 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, compared to $2.5 million and ~~$5.1~~$7.5 million for the three and ~~six~~nine months ended ~~June,~~September 30, 2018, respectively. ~~During three months ended June 30, 2019, the Company recognized a non-cash impairment loss~~

Table of ~~$2.9 million related to two trademarks, which the company discontinued the use of in the branding of its products in the current quarter.~~Contents


Table 6.2: Details of Future Amortization Expense of Customer Relationships and Other Intangibles
	As of September 30, 2019
	(in thousands)
October 1, 2019 through December 31, 2019	$	2,395
2020	8,432
2021	7,677
2022	7,107
2023	5,789
Thereafter	23,050
Total	$	54,450

Table 6.2: Details of Future Amortization Expense of Customer Relationships and Other Intangibles
As of June 30, 2019
(in thousands)
July 1, 2019 through December 31, 2019 $ 4,627
2020 8,354
2021 7,491
2022 6,724
2023 5,794
Thereafter 23,061
Total $ 56,051

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 ~~$11.8~~$12.8 million and ~~$25.3~~$38.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, compared to ~~$12.9~~$12.3 million and ~~$25.1~~$37.4 million for the three and ~~six~~nine months ended ~~June,~~September 30, 2018, respectively. As of ~~June~~September 30, 2019, the Company had certain purchase commitments for paper from Seven Hills totaling ~~$37.9~~$29.5 million through 2022.

8. ACCRUED AND OTHER LIABILITIES


Table 8: Details of Accrued and Other Liabilities
	September 30, 2019		December 31, 2018
	(in thousands)
Employee-related costs	$	6,656	$	10,768
Property taxes	1,731		82
Income tax	2,011		—
Other taxes	461		351
Other	2,306		1,614
Accrued and other liabilities	$	13,165	$	12,815

Table 8: Details of Accrued and Other Liabilities
June 30, 2019 December 31, 2018
(in thousands)
Employee-related costs $ 4,438
$ 10,768
Property taxes 1,164
82
Income tax 286
—
Other taxes 552
351
Other 2,697
1,614
Accrued and other liabilities $ 9,137
$ 12,815

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9. DEBT


Table 9.1: Details of Debt
	September 30, 2019		December 31, 2018
	(in thousands)
Amended and Restated Credit Agreement (1)	$	250,620	$	252,658
Industrial revenue bonds (2)	16,200		16,200
Less: Original issue discount (net of amortization)	(1,092)		(1,285)
Less: Debt issuance costs	(3,416)		(4,018)
Total debt	262,312		263,555
Less: Current portion of long-term debt	(1,695)		(1,669)
Long-term debt	$	260,617	$	261,886

Table 9.1: Details of Debt
June 30, 2019 December 31, 2018
(in thousands)
Amended and Restated Credit Agreement (1) $ 251,299
$ 252,658
Industrial revenue bonds (2) 16,200
16,200
Less: Original issue discount (net of amortization) (1,159 ) (1,285 )
Less: Debt issuance costs (3,617 ) (4,018 )
Total debt 262,723
263,555
Less: Current portion of long-term debt (1,709 ) (1,669 )
Long-term debt $ 261,014
$ 261,886

(1)As of September 30, 2019 and December 31, 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 2.00%.


~~(1)~~	~~As of June 30, 2019 and December 31, 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 2.00%.~~


~~(2)~~	~~As of June~~ (2)As of September 30, 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 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 $75.0 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 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 lowering its interest rate by an additional 25 basis points to LIBOR plus 2.25% and allowing for a further 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 ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, the Company made ~~$1.4~~$2.0 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 ~~June~~September 30, 2019, the annual effective interest rate, including original issue discount and amortization of debt issuance costs, was ~~4.9%~~4.5%.

In December 2018, the Company completed a financing of industrial revenue bonds due December 1, 2025 with a total commitment of ~~$28~~$28.0 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 no0 amounts outstanding under the Revolver as of ~~June~~September 30, 2019 or December 31, 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 ~~June~~September 30, 2019, based on draws and outstanding letters of credit and absence of violations of covenants, was ~~$73.6~~$73.7 million.

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Table 9.2: Details of Future Minimum Principal Payments Due
Amount Due
(in thousands)
July 1, 2019 through December 31, 2019 $ 1,357
2020 5,326
2021 6,196
2022 6,196
2023 245,074
Thereafter 3,350
Total Payments $ 267,499


Table 9.2: Details of Future Minimum Principal Payments Due
	Amount Due
	(in thousands)
October 1, 2019 through December 31, 2019	$	678
2020	5,326
2021	6,196
2022	6,196
2023	245,074
Thereafter	3,350
Total Payments	$	266,820

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~~NaN 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 ~~June~~September 30, 2019, the total leverage ratio of no greater than 5.0 under the financial covenant was not applicable at ~~June~~September 30, 2019. The Company was in compliance with all applicable covenants under the Amended and Restated Credit Agreement and the loan agreement related to the industrial revenue bonds as of ~~June~~September 30, 2019.

10. DERIVATIVE INSTRUMENTS

Commodity Derivative Instruments

As of ~~June~~September 30, 2019, the Company had ~~3.6~~3.0 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 ~~June~~September 30, 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 ~~six~~nine months ended ~~June~~September 30, 2019 and 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. During the three and ~~six~~nine months ended ~~June~~September 30, 2019, $0.2 million and ~~$0.5~~$0.7 million of the unrealized gain, net of tax related to the terminated swaps was amortized into interest expense, compared to $0.2 million and $0.5 million for ~~both three and six months ended June 30,~~the same periods of 2018. 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 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 ~~six~~nine months ended ~~June~~September 30, 2019 and 2018.

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Table 10.1: Details of Derivatives Fair Value
	September 30, 2019		December 31, 2018
	(in thousands)
Assets
Interest rate swap	$	—	$	86
Commodity hedges	1		61
Total assets	$	1	$	147
Liabilities
Interest rate swap	$	777	$	—
Commodity hedges	934		105
Total liabilities	$	1,711	$	105

Table 10.1: Details of Derivatives Fair Value
June 30, 2019 December 31, 2018
(in thousands)
Assets
Interest rate swap $ —
$ 86
Commodity hedges —
61
Total assets $ —
$ 147
Liabilities
Interest rate swap $ 786
$ —
Commodity hedges 1,210
105
Total liabilities $ 1,996
$ 105

Table 10.2: Gains/(losses) on Derivatives
For the Three Months Ended June 30, For the Six Months Ended June 30,
2019 2018 2019 2018 2019 2018 2019 2018
Gain/(loss) recognized in AOCI on derivatives (effective portion), net of tax Gain/(loss) reclassified from AOCI 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)
Interest rate swap $ (372 ) $ 297
$ 292
$ 139
$ (533 ) $ 1,268
$ 595
$ 209
Commodity hedges (1,019 ) 197
(21 ) (97 ) (977 ) 245
(65 ) (194 )
Total $ (1,391 ) $ 494
$ 271
$ 42
$ (1,510 ) $ 1,513
$ 530
$ 15


Table 10.2: Gains/(losses) on Derivatives
	For the Three Months Ended September 30,														For the Nine Months Ended September 30,
	2019		2018		2019		2018		2019		2018		2019		2018
	Gain/(loss) recognized in AOCI on derivatives (effective portion), net of tax						Gain/(loss) reclassified from AOCI 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)
Interest rate swap	$	(32)	$	145	$	190	$	169	$	(693)	$	1,413	$	657	$	379
Commodity hedges	(212)		7		(427)		(9)		(1,190)		251		(493)		(204)
Total	$	(244)	$	152	$	(237)	$	160	$	(1,883)	$	1,664	$	164	$	175

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 ~~June~~September 30, 2019, the Company's derivatives were in a ~~$2.0~~$1.7 million net liability position and recorded in ~~Other~~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 ~~June~~September 30, 2019, the Company had no0 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, For the Six Months Ended,
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
(in thousands)
Operating lease cost $ 100
$ 99
$ 201
$ 198
Short term lease cost 564
711
1,075
1,446
Total lease cost $ 664
$ 810
$ 1,276
$ 1,644


Table 11.1: Components of lease expense
	For the Three Months Ended						For the Nine Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
	(in thousands)
Operating lease cost	$	118	$	98	$	319	$	296
Short term lease cost	519		468		1,594		1,914
Total lease cost	$	637	$	566	$	1,913	$	2,210

Table 11.2: Maturities of lease liabilities
Operating leases
(in thousands)
July 1, 2019 through December 31, 2019 $ 311
2020 637
2021 600
2022 —
2023 —
Total lease payments $ 1,548
Less imputed interest (85 )
Present value of lease liabilities $ 1,463

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Table 11.2: Maturities of lease liabilities
	Operating leases
	(in thousands)
October 1, 2019 through December 31, 2019	$	156
2020	637
2021	600
2022	—
2023	—
Total lease payments	$	1,393
Less imputed interest	(70)
Present value of lease liabilities	$	1,323



Table 11.3: Details of lease term and discount rate
	As of ~~June~~September 30, 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.

Since the initial authorization, the Company' Board of Directors has expanded and extended the 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 ~~June~~September 30, 2019, there was approximately $111.0 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 12: Details of Treasury Stock Activity
	September 30, 2019								September 30, 2018
	Shares	Amount (1)		Average Share Price (1)		Shares	Amount (1)		Average Share Price (1)
	(in thousands, except share and share price data)
For the Three Months Ended:
Beginning Balance	9,851,553	$	229,073	$	23.25	7,664,325	$	167,919	$	21.91
Repurchases on open market	—	—		—		76,600	2,863		37.38
Ending Balance	9,851,553	$	229,073	$	23.25	7,740,925	$	170,782	$	22.06

For the Nine Months Ended:
Beginning Balance	9,070,346	$	209,050	$	23.05	6,788,817	$	143,357	$	21.12
Repurchases on open market	781,207	20,023		25.63		952,108	27,425		28.80
Ending Balance	9,851,553	$	229,073	$	23.25	7,740,925	$	170,782	$	22.06

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

Table 12: Details of Treasury Stock Activity
June 30, 2019 June 30, 2018
Shares Amount (1) Average Share Price (1) Shares Amount (1) Average Share Price (1)
(in thousands, except share data)
For the Three Months Ended:
Beginning Balance 9,262,253
$ 214,055
$ 23.11
7,319,417
$ 157,907
$ 21.57
Repurchases on open market 589,300
15,018
25.48
344,908
10,012
29.03
Ending Balance 9,851,553
$ 229,073
$ 23.25
7,664,325
$ 167,919
$ 21.91

For the Six Months Ended:
Beginning Balance 9,070,346
$ 209,050
$ 23.05
6,788,817
$ 143,357
$ 21.12
Repurchases on open market 781,207
20,023
25.63
875,508
24,562
28.05
Ending Balance 9,851,553
$ 229,073
$ 23.25
7,664,325
$ 167,919
$ 21.91

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

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13. SHARE-BASED COMPENSATION

For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the Company recognized share-based compensation expenses of $0.6 million and ~~$1.1~~$1.7 million, respectively, compared to ~~$1.0~~$0.8 million and ~~$1.6~~$2.5 million for the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively. The expenses related to share-based compensation awards were recorded in selling and administrative expenses. As of ~~June~~September 30, 2019, there was ~~$5.6~~$4.2 million of total unrecognized compensation cost related to non-vested stock options, restricted stock awards, restricted stock units and performance-based restricted stock units. This cost is expected to be recognized over a weighted average period of ~~2.6~~2.5 years.

14. ACCUMULATED OTHER COMPREHENSIVE LOSS


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	450		(1,883)		(1,433)
Amounts reclassified from accumulated other comprehensive loss	—		(164)		(164)
Net current period other comprehensive income/(loss)	450		(2,047)		(1,597)
Balance as of September 30, 2019	$	(4,577)	$	(411)	$	(4,988)

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 629
(1,510 ) (881 )
Amounts reclassified from accumulated other comprehensive loss —
(530 ) (530 )
Net current period other comprehensive income/(loss) 629
(2,040 ) (1,411 )
Balance as of June 30, 2019 $ (4,398 ) $ (404 ) $ (4,802 )

15. INCOME TAXES

The Company’s estimated annual effective tax rate is ~~22.5%~~22.4%. The Company is subject to federal income taxes and various state, provincial and local income 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.

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 the three months ended September 30, 2019 and 2018. For the ~~three and six~~nine months ended ~~June~~September 30, 2019 ~~approximately 1,923~~ and ~~42,088 share-based compensation~~2018, awards ~~were~~that had an anti-dilutive impact on the Company's dilutive earnings per share computation excluded from the weighted average shares outstanding ~~because their impact would be anti-dilutive in the computation~~were 28,000 and 21,000, respectively.

Table of ~~dilutive earnings per share. Awards excluded for the same periods in 2018 were zero and 31,474, respectively.~~Contents


Table 16: Details of Basic and Dilutive Earnings Per Share
	For the Three Months Ended						For the Nine Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
	(dollars in thousands, except for share and per share amounts)
Net income	$	13,448	$	18,564	$	42,222	$	54,105

Weighted average number of shares outstanding - basic	34,688,206		36,732,746		34,911,640		37,012,536
Effect of dilutive securities:
Restricted stock awards	—		—		—		1,170
Restricted stock units	37,656		89,750		37,308		72,650
Performance-based restricted stock units	33,809		68,384		31,679		67,231
Stock options	15,780		28,024		16,067		27,800
Total effect of dilutive securities	87,245		186,158		85,054		168,851
Weighted average number of shares outstanding - diluted	34,775,451		36,918,904		34,996,694		37,181,387

Basic earnings per share	$	0.39	$	0.51	$	1.21	$	1.46
Diluted earnings per share	$	0.39	$	0.50	$	1.21	$	1.46

Table 16: Details of Basic and Dilutive Earnings Per Share
For the Three Months Ended For the Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
(dollars in thousands, except for share and per share amounts)
Net income $ 12,848
$ 21,895
$ 28,774
$ 35,541

Weighted average number of shares outstanding - basic 34,804,588
36,879,774
35,025,208
37,154,750
Effect of dilutive securities:
Restricted stock awards —
—
—
1,755
Restricted stock units 18,753
56,188
37,134
64,100
Performance-based restricted stock units 31,452
63,799
30,613
66,654
Stock options 15,732
28,236
16,210
27,688
Total effect of dilutive securities 65,937
148,223
83,957
160,197
Weighted average number of shares outstanding - diluted 34,870,525
37,027,997
35,109,165
37,314,947

Basic earnings per share $ 0.37
$ 0.59
$ 0.82
$ 0.96
Diluted earnings per share $ 0.37
$ 0.59
$ 0.82
$ 0.95

17. COMMITMENTS AND CONTINGENCIES

Commitments

The Company has non-capital purchase commitments that primarily relate to gas, gypsum, paper and other raw materials. The total amounts purchased under such commitments were ~~$19.5~~$20.8 million and ~~$41.4~~$62.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, compared to ~~$23.3~~$22.7 million and ~~$43.5~~$69.5 million for the three and ~~six~~nine months ended ~~June~~September 30, 2018, respectively.


Table 17: Details of Purchase Commitments	Table 17: Details of Purchase Commitments		Table 17: Details of Purchase Commitments
	As of June 30, 2019			As of September 30, 2019
	(in thousands)			(in thousands)
July 1, 2019 through December 31, 2019	$	20,311
October 1, 2019 through December 31, 2019			October 1, 2019 through December 31, 2019	$	11,460
2020	38,906		2020	44,533
2021	36,591		2021	42,358
2022	28,035		2022	28,033
2023	12,254		2023	12,254
Thereafter	48,144		Thereafter	48,144
Total	$	184,241	Total	$	186,782

Contingent obligations

Under certain circumstances, the Company provides letters of credit related to its natural gas and other supply purchases. As of ~~June~~September 30, 2019 and December 31, 2018, the Company had outstanding letters of credit of approximately $1.3 million and $1.4 ~~million.~~million, respectively.

Legal Matters

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

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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 ~~June~~September 30, 2019 and December 31, 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.

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 ~~97.2%~~97.4% of the Company's revenues for both the three and nine months ended September 30, 2019, compared to 97.6% and 97.3% of the Company's revenues for the three and ~~six~~nine months ended ~~June 30, 2019, respectively, compared to 97.4% and 97.1% of the Company's revenues for the three and six months ended June~~September 30, 2018, 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~~2 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 18.1: Segment Reporting
For the Three Months Ended For the Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
(in thousands)
Net Sales:
Wallboard $ 120,748
$ 135,667
$ 239,692
$ 248,638
Other 3,458
3,601
6,546
7,432
Total net sales $ 124,206
$ 139,268
$ 246,238
$ 256,070
Operating Income:
Wallboard $ 19,886
$ 31,122
$ 43,481
$ 52,152
Other (441 ) (562 ) (930 ) (830 )
Total operating income $ 19,445
$ 30,560
$ 42,551
$ 51,322
Adjustments:
Interest expense $ (2,395 ) $ (2,694 ) $ (4,887 ) $ (5,414 )
Losses from equity investment (367 ) (391 ) (412 ) (755 )
Other expense, net (66 ) (87 ) (102 ) (227 )
Income before provision for income taxes $ 16,617
$ 27,388
$ 37,150
$ 44,926
Depreciation and Amortization:
Wallboard $ 10,328
$ 10,411
$ 20,603
$ 20,717
Other 243
394
488
669
Total depreciation and amortization $ 10,571
$ 10,805
$ 21,091
$ 21,386


Table 18.1: Segment Reporting
	For the Three Months Ended						For the Nine Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
	(in thousands)
Net Sales:
Wallboard	$	124,145	$	128,101	$	363,837	$	376,739
Other	3,294		3,133		9,840		10,565
Total net sales	$	127,439	$	131,234	$	373,677	$	387,304
Operating Income:
Wallboard	$	20,635	$	27,551	$	64,116	$	79,702
Other	(731)		(580)		(1,661)		(1,409)
Total operating income	$	19,904	$	26,971	$	62,455	$	78,293
Adjustments:
Interest expense	$	(2,220)	$	(2,549)	$	(7,107)	$	(7,963)
Losses from equity investment	(191)		(393)		(603)		(1,148)
Other expense, net	(66)		(29)		(168)		(256)
Income before provision for income taxes	$	17,427	$	24,000	$	54,577	$	68,926
Depreciation and Amortization:
Wallboard	$	10,837	$	11,299	$	31,440	$	32,016
Other	306		281		794		950
Total depreciation and amortization	$	11,143	$	11,580	$	32,234	$	32,966

Table 18.2: Details of Net Sales By Geographic Region
For the Three Months Ended For the Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
(in thousands)
United States $ 118,195
$ 132,513
$ 234,906
$ 242,488
Canada 6,011
6,755
11,332
13,582
Net sales $ 124,206
$ 139,268
$ 246,238
$ 256,070

Table 18.3: Details of Assets By Geographic Region
Fixed Assets Total Assets
June 30, 2019 December 31, 2018 June 30, 2019 December 31, 2018
(in thousands)
United States $ 281,268
$ 285,202
$ 642,840
$ 655,849
Canada 3,145
3,166
17,096
16,532
Total $ 284,413
$ 288,368
$ 659,936
$ 672,381

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Table 18.2: Details of Net Sales By Geographic Region
	For the Three Months Ended						For the Nine Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
	(in thousands)
United States	$	120,900	$	125,430	$	355,807	$	367,917
Canada	6,539		5,804		17,870		19,387
Net sales	$	127,439	$	131,234	$	373,677	$	387,304


Table 18.3: Details of Assets By Geographic Region
	Fixed Assets						Total Assets
	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
	(in thousands)
United States	$	278,792	$	285,202	$	659,829	$	655,849
Canada	3,010		3,166		16,796		16,532
Total	$	281,802	$	288,368	$	676,625	$	672,381

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 ~~June~~September 30, 2019 and December 31, 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 ~~June~~September 30, 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 19.1: Fair Value Hierarchy - 2019
	As of September 30, 2019
	Level 1		Level 2		Level 3		Balance
	(in thousands)
Asset
Interest rate swap	$	—	$	—	$	—	$	—
Commodity derivatives	—		1		—		1
Total assets	$	—	$	1	$	—	$	1

Liabilities
Interest rate swap	$	—	$	777	$	—	$	777
Commodity derivatives	—		934		—		934
Total liabilities	$	—	$	1,711	$	—	$	1,711

Table 19.1: Fair Value Hierarchy - 2019
As of June 30, 2019
Level 1 Level 2 Level 3 Balance
(in thousands)
Asset
Interest rate swap $ —
$ —
$ —
$ —
Commodity derivatives —
—
—
—
Total assets $ —
$ —
$ —
$ —

Liabilities
Interest rate swap $ —
$ 786
$ —
$ 786
Commodity derivatives —
1,210
—
1,210
Total liabilities $ —
$ 1,996
$ —
$ 1,996

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

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

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

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

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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.

During the ~~three~~nine months ended ~~June~~September 30, 2019, the Company recorded ~~$3.2~~a $4.9 million gain from business interruption insurance. As of September 30, 2019, the Company has fully settled all claims related to ~~compensate for operating income~~the outage and has received all anticipated insurance payments associated with the ~~lost sales from~~outage.


Table 20.1: Details of Insurance Claims and Cash Payments Related to Buchanan Outage
	Claim Details										Cash Details
	Claim Amount		Insurance Deductible		Net recovery recorded in nine months ended September 30, 2019		Cash received in the nine months ended September 30, 2019		Receivable Recorded as of September 30, 2019
	(in thousands)
Rebuild property, plant and equipment damaged (a)	$	1,839	$	250	$	1,589	$	1,589	$	—
Directs costs associated with business interruption (b)	3,015		—		3,015		3,015		—
Lost operating income associated with lost sales from business interruption (c)	4,861		—		4,861		4,861		—
	$	9,715	$	250	$	9,465	$	9,465	$	—

(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 ~~otherwise would~~were incurred as a result of the Buchanan outage and have been ~~made if~~covered by the ~~plant had been operating normally.~~Company's insurance policy. The ~~Company is working closely with its insurance advisers and carrier to finalize the claim~~net recovery of direct costs associated with business interruption ~~coverage.~~were netted against actual costs incurred resulting in a net impact of zero to the income statement.

(c)This represents the insurance proceeds for the lost operating income the Company received related to the Buchanan outage.

Table 20.1: Details of Insurance Claims and Cash Payments Related to Buchanan Outage Excluding Amounts Received from Business Interruption for Lost Operating Income Associated with Lost Sales
Claim Details Cash Details
Claim Amount Insurance Deductible Net recovery recorded in six months ended June 30, 2019 Cash received in the six months ended June 30, 2019 Receivable Recorded as of June 30, 2019
(in thousands)
Rebuild property, plant and equipment damaged (a) $ 1,839
$ 250
$ 1,589
$ 1,589
$ —
Directs costs associated with business interruption (b) 3,015
—
3,015
2,377
638
$ 4,854
$ 250
$ 4,604
$ 3,966
$ 638


~~(a)~~Table 20.2: Details of Gain from Insurance Recoveries, Net			~~The~~
	For the Nine Months Ended
	September 30, 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 ~~damaged and related net recovery resulted in a net gain of $1.5 million.~~

	76
~~(b)~~Gain from insurance recoveries, net			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.$	1,513

Table 20.2: Details of Gain from Insurance Recoveries, Net
For the Six Months Ended
June 30, 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

21. SUBSEQUENT EVENT

On November 12, 2019, the Company announced that it has entered into a definitive merger agreement with CertainTeed Gypsum and Ceilings USA, Inc., Cupertino Merger Sub, Inc. ("Merger Sub") and Compagnie de Saint-Gobain S.A. pursuant to which the Company will be merged with and into Merger Sub and each issued and outstanding share of the Company's common stock will be converted into the right to receive $37 in cash per share. Consummation of the transaction is subject to certain closing conditions, including approval by antitrust authorities and approval by the holders of a majority of the Company's issued and outstanding shares of common stock.

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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 2018 filed with the Securities and Exchange Commission on February 22, 2019 (the "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 ~~97.2%~~97.4% of our net sales for both the three and nine months ended September 30, 2019, compared to 97.6% and 97.3% of our net sales for the three and ~~six~~nine months ended ~~June 30, 2019, respectively, compared to 97.4% and 97.1% of our net sales for the three and six months ended June~~September 30, 2018, respectively. We also operate other business activities, primarily the production of finishing products, which complement our full range of wallboard products. See Note 18 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 77% and ~~75%~~76% for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, compared to ~~81%~~73% and 74% for the same period of 2018.

Market Outlook

Industry Analysts' forecasts for 2019 housing starts in the United States included in the ~~June~~October 2019 Blue Chip Economic Indicators are ~~1.17~~1.22 million to 1.28 million units, based on the average of the bottom ten and top ten forecasts included in the report, respectively. This forecast range represents a decrease of 6%2% to an increase of 2% over the 2018 housing starts of 1.25 million. We expect that the R&R and new commercial markets will grow in percentage by low single digits from 2018 to 2019.

Industry shipments of gypsum wallboard in the United States as reported by the Gypsum Association were an estimated ~~6.5~~6.6 billion square feet and ~~6.9~~6.2 billion square feet for the three months ended ~~June~~September 30, 2019 and 2018, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2019, industry shipments were ~~12.8~~19.4 billion square feet, up ~~1.6%~~3.3% from the same prior year period. We estimate that industry shipments in the United States for all of 2019 will increase in percentage by low single digits from 24.9 billion square feet in 2018.

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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 65% and 64% of our costs of goods sold for ~~both~~ the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, compared to 63% and ~~2018.~~64% for the same periods of 2018, respectively. Depreciation and amortization represented 11% of our costs of goods sold for both the three and ~~six~~nine months ended ~~June~~September 30, 2019, compared to 12% and ~~2018.~~11% for the same periods of 2018, respectively. Distribution costs to deliver products to our customers represented 24% and 25% of our costs of goods sold for both the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, compared to 25% for both three and nine months ended September 30, 2018.

Variable manufacturing costs, including inputs such as paper, gypsum, natural gas, and other raw materials, represented ~~69%~~68% of our manufacturing cash costs for both the three and ~~six~~nine months ended ~~June~~September 30, 2019, compared to 67% and ~~2018.~~68% for the same periods of 2018, respectively. Fixed production costs excluding depreciation and amortization consisted of labor, maintenance, and other costs that represented ~~31%~~32% of our manufacturing cash costs for both the three and ~~six~~nine months ended ~~June~~September 30, 2019, compared to 33% and ~~2018.~~32% for the same periods of 2018, respectively. Recently we have experienced increases in the costs of gypsum related to the need to 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.

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Results of Operations


Table M1: Results of Operations
	For the Three Months Ended						For the Nine Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
	(dollars in thousands, except mill net)
Net sales	$	127,439	$	131,234	$	373,677	$	387,304
Cost of goods sold	99,532		94,306		286,288		279,185
Gross profit	27,907		36,928		87,389		108,119
Selling and administrative expense	9,626		9,957		28,397		29,826
Loss on intangible asset impairment	—		—		2,911		—
Gain from insurance recoveries, net	—		—		1,513		—
Gain from business interruption insurance	1,623		—		4,861		—
Operating income	19,904		26,971		62,455		78,293
Other expense, net	(66)		(29)		(168)		(256)
Interest expense, net	(2,220)		(2,549)		(7,107)		(7,963)
Income before losses from equity method investment and provision for income taxes	17,618		24,393		55,180		70,074
Losses from equity method investment	(191)		(393)		(603)		(1,148)
Income before provision for income taxes	17,427		24,000		54,577		68,926
Provision for income taxes	(3,979)		(5,436)		(12,355)		(14,821)
Net income	$	13,448	$	18,564	$	42,222	$	54,105
Other operating data:
Capital expenditures and software purchased or developed	$	7,473	$	7,324	$	20,838	$	21,120
Wallboard sales volume (million square feet)	705		674		2,032		2,011
Mill net sales price (a)	$	142.41	$	155.43	$	145.13	$	153.70

Table M1: Results of Operations
For the Three Months Ended For the Six Months Ended
June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
(dollars in thousands, except mill net)
Net sales $ 124,206
$ 139,268
$ 246,238
$ 256,070
Cost of goods sold 95,970
98,263
186,756
184,879
Gross profit 28,236
41,005
59,482
71,191
Selling and administrative expense 9,118
10,445
18,771
19,869
Loss on intangible asset impairment 2,911
—
2,911
—
Gain from insurance recoveries, net —
—
1,513
—
Gain from business interruption insurance 3,238
—
3,238
—
Operating income 19,445
30,560
42,551
51,322
Other expense, net (66 ) (87 ) (102 ) (227 )
Interest expense, net (2,395 ) (2,694 ) (4,887 ) (5,414 )
Income before losses from equity method investment and provision for income taxes 16,984
27,779
37,562
45,681
Losses from equity method investment (367 ) (391 ) (412 ) (755 )
Income before provision for income taxes 16,617
27,388
37,150
44,926
Provision for income taxes (3,769 ) (5,493 ) (8,376 ) (9,385 )
Net income $ 12,848
$ 21,895
$ 28,774
$ 35,541
Other operating data:
Capital expenditures and software purchased or developed $ 6,008
$ 7,359
$ 13,365
$ 13,796
Wallboard sales volume (million square feet) 678
722
1,327
1,337
Mill net sales price (1) $ 143.77
$ 153.88
$ 146.57
$ 152.83
(a)Mill net sales price represents average selling price per thousand square feet net of freight and delivery costs.


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

Three Months Ended ~~June~~September 30, 2019 Compared to Three Months Ended ~~June~~September 30, 2018

Net Sales. Net sales decreased by ~~$15.1~~$3.8 million, down ~~10.8%~~2.9% from ~~$139.3~~$131.2 million for the three months ended ~~June~~September 30, 2018, to ~~$124.2~~$127.4 million for the three months ended ~~June~~September 30, 2019. The decrease was primarily attributable to a ~~$8.4 million unfavorable impact of lower wallboard volumes driven by lower demand in the United States and Canada and a $6.4~~$9.7 million unfavorable impact of a decrease in the average net selling price for gypsum wallboard at constant exchange rates. ~~The remaining~~This decrease iswas partially offset by a $5.8 million favorable impact of higher wallboard volumes driven by higher demand and a favorable impact of $0.1 million related to ~~unfavorable impacts of changes in foreign currency exchange rates and lower~~higher non-wallboard products sales.

Cost of Goods Sold. Cost of goods sold ~~decreased $2.3~~increased $5.2 million, ~~down 2.3%~~up 5.5% from ~~$98.3~~$94.3 million for the three months ended ~~June~~September 30, 2018, to ~~$96.0~~$99.5 million for the three months ended ~~June~~September 30, 2019. ~~Lower~~Higher input costs increased cost of goods sold by $2.4 million and higher wallboard volumes ~~decreased~~increased input costs and freight costs by $2.6 million and $1.5 million, respectively. In addition, lower depreciation and amortization decreased cost of goods sold by $0.3 million. The overall decrease was partially offset by higher per unit freight and input costs, which increased cost of goods sold by $2.1$2.8 million.

Selling and Administrative Expense. Selling and administrative expense decreased ~~$1.3~~$0.4 million, down ~~12.5%~~4.0% from ~~$10.4~~$10.0 million for the three months ended ~~June~~September 30, 2018, to ~~$9.1~~$9.6 million for the three months ended ~~June~~September 30, 2019. The decrease was primarily driven by lower bonus and stock compensation expenses.

Gain from Business Interruption Insurance. During the third quarter of 2019, the Company recorded a gain of $1.6 million related to business interruption insurance proceeds for lost profits as a result of the Buchanan plant outage in the first quarter of 2019. See Note 20 to the Consolidated Financial Statements for further details.

Operating Income. Operating income of $19.9 million for the three months ended September 30, 2019 decreased by $7.1 million or 26.3% from operating income of $27.0 million for the three months ended September 30, 2018 primarily due to lower average net sales price and cost inflation, partially offset by higher wallboard volumes, insurance proceeds for business interruption and lower bonus and stock compensation expenses.

Other Expense, Net.Other expense, net, was materially consistent when compared to prior year.

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Interest Expense, Net. Interest expense, net, was $2.2 million for the three months ended September 30, 2019, a decrease of $0.3 million from $2.5 million for the three months ended September 30, 2018. The decrease was primarily driven by a $0.1 million increase in interest income on short term liquid investments and a $0.2 million decrease in interest expense on our Term Loan primarily related to decrease in the spread.

See Note 9 to the Consolidated Financial Statements for further details on the repricing.

Provision for Income Taxes. Provision for income taxes decreased $1.4 million to $4.0 million for the three months ended September 30, 2019, compared to $5.4 million in the prior period. The lower provision for income taxes was primarily driven by lower pretax income.

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Net Sales.Net sales decreased by $13.6 million, down 3.5% from $387.3 million for the nine months ended September 30, 2018, to $373.7 million for the nine months ended September 30, 2019. The decrease was primarily attributable to a $16.2 million unfavorable impact of a lower average net selling price for gypsum wallboard at constant exchange rates. In addition, there were unfavorable impacts of $0.6 million related to non-wallboard products and $0.6 million related to foreign currency exchange rates. This overall decrease was partially offset by a $3.8 million favorable impact of higher wallboard volumes.

Cost of Goods Sold. Cost of goods sold increased $7.1 million, up 2.5% from $279.2 million for the nine months ended September 30, 2018, to $286.3 million for the nine months ended September 30, 2019. Higher per unit freight and input costs increased cost of goods sold by $4.5 million and higher wallboard volumes increased input costs and freight costs by $1.9 million. In addition, labor cost increased cost of goods sold by $1.1 million. Changes in other components of cost of goods sold resulted in a net decrease of $0.4 million.

Selling and Administrative Expense. Selling and administrative expense decreased $1.4 million, down 4.7% from $29.8 million for the nine months ended September 30, 2018, to $28.4 million for the nine months ended September 30, 2019. The decrease was primarily driven by lower bonus and stock compensation expenses.

Loss on ~~intangible asset impairment.~~Intangible Asset Impairment. During the second quarter of 2019, the Company recorded a $2.9 million non-cash impairment loss related to two of its trademarks, which it discontinued the use of in the branding of its products.

Gain from ~~business interruption insurance.~~ During the second quarter of 2019, the Company recorded a gain of $3.2 million related to lost profits as a result of Buchanan plant outage in the first quarter of 2019. See Note 20 to the Consolidated Financial Statements for further details.

~~Operating Income.~~ Operating income of $19.4 million for the three months ended June 30, 2019 decreased by $11.2 million or 36.6% from operating income of $30.6 million for the three months ended June 30, 2018 primarily due to lower volume and

average net sales price, cost inflation, and the recognition of a one time non-cash impairment loss, partially offset by insurance proceeds for business interruption and lower bonus and stock compensation expenses.

~~Other Expense, Net.Other expense, net, was materially consistent when compared to prior year.~~

~~Interest Expense, Net.~~ Interest expense, net, was $2.4 million for the three months ended June 30, 2019, a decrease of $0.3 million from $2.7 million for the three months ended June 30, 2018. The decrease was primarily driven by a $0.2 million increase in 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, a $0.1 million decrease due to the replacement of some of the Term Loan with industrial revenue bonds that have lower interest rates, and a $0.1 million increase in capitalized interest. These decreases were partially offset by a $0.3 million increase on the unhedged portion of the Term Loan as a result of the rise in 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 $1.7 million to $3.8 million for the three months ended June 30, 2019, compared to $5.5 million in the prior period. The lower provision for income taxes was primarily driven by lower pretax income.

~~Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~

Insurance Recoveries, Net ~~Sales.~~Net sales decreased by $9.9 million, down 3.9% from $256.1 million for the six months ended June 30, 2018, to $246.2 million for the six months ended June 30, 2019. The decrease was primarily attributable to a $6.7 million unfavorable impact of a lower average net selling price for gypsum wallboard at constant exchange rates and a $1.9 million unfavorable impact of lower wallboard volumes. In addition, there were unfavorable impacts of $0.9 million related to non-wallboard products and $0.4 million related to foreign currency exchange rates.

~~Cost of Goods Sold.~~ Cost of goods sold increased $1.9 million, up 1.0% from $184.9 million for the six months ended June 30, 2018, to $186.8 million for the six months ended June 30, 2019. Higher per unit freight and input costs increased cost of goods sold by $2.8 million. The overall increase was partially offset by lower wallboard volumes which had favorable impact on input costs and freight costs of $0.6 million and $0.3 million, respectively.

~~Selling and Administrative Expense.~~ Selling and administrative expense decreased $1.1 million, down 5.5% from $19.9 million for the six months ended June 30, 2018, to $18.8 million for the six months ended June 30, 2019. The decrease was primarily driven by lower bonus and stock compensation expenses.

~~Loss on intangible asset impairment.During the second quarter of 2019, the Company recorded a $2.9 million non-cash impairment loss related to two of its trademarks, which it discontinued the use of in the branding of its products.~~

~~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 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 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.

Gain from ~~business interruption insurance.~~Business Interruption Insurance. During the ~~second quarter~~nine months of 2019, the Company recorded a gain of ~~$3.2~~$4.9 million related to lost profits as a result of the Buchanan plant outage in the first quarter of 2019. See Note 20 to the Consolidated Financial Statements for further details.

Operating Income. Operating income of ~~$42.6~~$62.5 million for the ~~six~~nine months ended ~~June~~September 30, 2019 decreased by ~~$8.7~~$15.8 million or ~~17.0%~~20.2% from operating income of ~~$51.3~~$78.3 million for the ~~six~~nine months ended ~~June~~September 30, 2018 due to a lower average net sales price, cost inflation, and the recognition of a one time non-cash impairment loss, partially offset by the gain from insurance recoveries, higher wallboard volumes and a decrease in bonus and stock compensation expenses.

Other Expense, Net. Other expense, net, decreased by $0.1 million for the ~~six~~nine months ended ~~June~~September 30, 2019.

Interest Expense, Net. Interest expense, net, was ~~$4.9~~$7.1 million for the ~~six~~nine months ended ~~June~~September 30, 2019, a decrease of ~~$0.5~~$0.9 million from ~~$5.4~~$8.0 million for the ~~six~~nine months ended ~~June~~September 30, 2018. The decrease was primarily driven by a ~~$0.4~~$0.6 million increase in interest income on short term liquid investments, a ~~$0.3~~$0.5 million decrease in interest expense on our Term Loan primarily related to decrease in the spread, a $0.2 million increase in capitalized interest, a $0.1 million decrease related to lower average outstanding borrowings compared to 2018, and a ~~$0.1~~$0.2 million decrease due to the replacement of some of the

Term Loan with industrial revenue bonds that have lower interest rates. These decreases were partially offset by a ~~$0.6~~$0.7 million increase on the unhedged portion of the Term Loan as a result of the rise in LIBOR.

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

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Provision for Income Taxes. Provision for income taxes decreased ~~$1.0~~$2.4 million to ~~$8.4~~$12.4 million for the ~~six~~nine months ended ~~June~~September 30, 2019, compared to ~~$9.4~~$14.8 million in the prior period. The lower provision for income taxes was primarily driven by lower 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 ~~June~~September 30, 2019, we had ~~$110.6~~$126.4 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. 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	Table M2: Net Change in Cash and Cash Equivalents						Table M2: Net Change in Cash and Cash Equivalents
	For the Six Months Ended							For the Nine Months Ended
	June 30, 2019			June 30, 2018				September 30, 2019		September 30, 2018
	(in thousands)							(in thousands)
Net cash provided by operating activities	$	41,550		$	52,776		Net cash provided by operating activities	65,745		84,054
Net cash used in investing activities	(11,476		)	(14,156		)	Net cash used in investing activities	(19,092)		(21,075)
Net cash used in financing activities	(22,428		)	(26,456		)	Net cash used in financing activities	(23,107)		(29,864)
Effect of foreign exchange rates on cash and cash equivalents	333			(320		)	Effect of foreign exchange rates on cash and cash equivalents	254		(184)
Net change in cash and cash equivalents	$	7,979		$	11,844		Net change in cash and cash equivalents	$	23,800	$	32,931

Net Cash Provided By Operating Activities

Net cash provided by operating activities for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 was ~~$41.6~~$65.7 million and ~~$52.8~~$84.1 million, respectively. The decrease of ~~$11.2~~$18.3 million in 2019 compared to 2018 was primarily driven by a decrease in operating income due to ~~lower wallboard volumes and~~ a decrease in the average net selling price for gypsum wallboard. The remaining decrease is due to changes in working capital.

Net Cash Used In Investing Activities

Net cash used in investing activities for the ~~six~~nine months ended ~~June~~September 30, 2019 was ~~$11.5~~$19.1 million, compared to ~~$14.2~~$21.1 million for the ~~six~~nine months ended ~~June~~September 30, 2018. Capital expenditures and software purchased ~~decreased~~increased by ~~$0.4~~$0.3 million from ~~$13.8~~$21.1 million in 2018 to ~~$13.4~~$20.8 million in 2019. Capital expenditures in 2019 included $1.8 million to repair the Buchanan plant. The Company received $1.6 million of insurance proceeds, net of the deductible, for reimbursement of these repair costs. The remaining change 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 ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 was ~~$22.4~~$23.1 million and ~~$26.5~~$29.9 million, respectively. The change for the ~~six~~nine months ended ~~June~~September 30, 2019 primarily reflects an aggregate of $20.0 million deployed to repurchase common stock, compared to ~~$24.6~~$27.4 million in the same period 2018. See Note 12 to the Consolidated Financial Statements for more detailed discussion of share repurchase activity.

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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 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 ~~six~~nine months ended ~~June~~September 30, 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;

•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;

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

•our involvement in legal and regulatory proceedings;

•our ability to attract and retain key management employees;

•cybersecurity risks;

•disruptions in our information technology systems;

•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 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.

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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 2018 Form 10-K have not changed materially during the ~~six~~nine month period ended ~~June~~September 30, 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 ~~June~~September 30, 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 ~~June~~September 30, 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.

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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 17 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 ~~June~~September 30, 2019 to the risk factors previously disclosed in the 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. As of September 30, 2019, there was approximately $111.0 million of capacity remaining under the repurchase program.

Common Stock Repurchase Activity During the Three Months Ended June 30, 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
April 1 - April 30, 2019 489,400
$ 25.41
489,400
$ 113,543,831
May 1 - May 31, 2019 99,900
25.84
99,900
110,962,202
June 1 - June 30, 2019 —
—
—
110,962,202
Total 589,300
$ 25.48
589,300

Item 3. Defaults Upon Senior Securities

(a) None.

(b) None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits


Exhibit No.				Description of Exhibit

~~Exhibit~~ ~~No.~~31.1				~~Description of Exhibit~~

~~3.1~~	~~Second Amended and Restated Certificate of Incorporation.~~		~~(a)~~

~~3.2~~	~~Second Amended and Restated Bylaws.~~	~~(a)~~

~~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				Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.	*

101.SCH				Inline XBRL Taxonomy Extension Schema Document.	*

101.CAL				Inline XBRL Taxonomy Calculation Linkbase Document.	*

101.DEF				Inline XBRL Taxonomy Definition Linkbase Document.	*

101.LAB				Inline XBRL Taxonomy Label Linkbase Document.	*

101.PRE				Inline XBRL Taxonomy Presentation Linkbase Document.	*

104				Cover Page Interactive Data File - The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~June~~September 30, 2019 is formatted in Inline ~~XBRL.~~XBRL (included as Exhibit 101).	*

~~Filed herewith.~~

~~(a)~~

~~Previously filed on May 7, 2019 as an exhibit to the Company's Current Report on Form 8-K and incorporated herein by reference~~


*						Filed herewith.

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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.

~~CONTINENTAL BUILDING PRODUCTS, INC.~~

/s/ James Bachmann

~~August 2,~~November 12, 2019

By:

James Bachmann

President and Chief Executive Officer

(Principal Executive Officer)

/s/ Dennis Schemm

~~August 2,~~November 12, 2019

By:

Dennis Schemm

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)



Table 2.1: Certain Cash Transactions and Other Activity
	For the Six Months Ended,
	June 30, 2019		June 30, 2018
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating lease cash outflows	$	307	$	299
Other activity:
Acquisition of property, plant and equipment included in liabilities	$	2,960	$	3,657



Table 10.2: Gains/(losses) on Derivatives
	For the Three Months Ended June 30,											For the Six Months Ended June 30,
	2019			2018		2019			2018			2019			2018		2019			2018
	Gain/(loss) recognized in AOCI on derivatives (effective portion), net of tax					Gain/(loss) reclassified from AOCI 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)
Interest rate swap	$	(372	)	$	297	$	292		$	139		$	(533	)	$	1,268	$	595		$	209
Commodity hedges	(1,019		)	197		(21		)	(97		)	(977		)	245		(65		)	(194		)
Total	$	(1,391	)	$	494	$	271		$	42		$	(1,510	)	$	1,513	$	530		$	15



Table 11.1: Components of lease expense
	For the Three Months Ended,				For the Six Months Ended,
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	(in thousands)
Operating lease cost	$	100	$	99	$	201	$	198
Short term lease cost	564		711		1,075		1,446
Total lease cost	$	664	$	810	$	1,276	$	1,644



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

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



Common Stock Repurchase Activity During the Three Months Ended June 30, 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
April 1 - April 30, 2019	489,400	$	25.41	489,400	$	113,543,831
May 1 - May 31, 2019	99,900	25.84		99,900	110,962,202
June 1 - June 30, 2019	—	—		—	110,962,202
Total	589,300	$	25.48	589,300