Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm		41
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2016, 2015 and 2014		42
Consolidated Balance Sheets at December 31, 2016 and 2015		43
Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014		44
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2016, 2015 and 2014		45
Notes to Consolidated Financial Statements		46

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Builders FirstSource, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Builders FirstSource, Inc. and its subsidiaries at December 31, 2016 and December 31, 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Dallas, Texas

March 1, 2017

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

		Years Ended December 31,
		2016				2015				2014
		(In thousands, except per share amounts)
Sales		$	6,367,284			$	3,564,425			$	1,604,096
Cost of sales			4,770,536				2,662,967				1,247,099
Gross margin			1,596,748				901,458				356,997
Selling, general and administrative expenses			1,360,412				810,703				307,387
Income from operations			236,336				90,755				49,610
Interest expense, net			214,667				109,199				30,349
Income (loss) before income taxes			21,669				(18,444	)			19,261
Income tax expense (benefit)			(122,672	)			4,387				1,111
Net income (loss)		$	144,341			$	(22,831	)		$	18,150
Comprehensive income (loss)		$	144,341			$	(22,831	)		$	18,150
Net income (loss) per share:
Basic		$	1.30			$	(0.22	)		$	0.19
Diluted		$	1.27			$	(0.22	)		$	0.18
Weighted average common shares outstanding:
Basic			110,754				103,190				98,050
Diluted			113,585				103,190				100,522

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

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

		December 31,
		2016				2015
		(In thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents		$	14,449			$	65,063
Accounts receivable, less allowances of $11,571 and $8,049 at December 31, 2016 and 2015, respectively			569,208				528,544
Other receivables			55,781				57,778
Inventories, net			541,771				513,045
Other current assets			34,772				29,899
Total current assets			1,215,981				1,194,329
Property, plant and equipment, net			656,101				734,329
Assets held for sale			4,361				5,585
Goodwill			740,411				739,625
Intangible assets, net			159,373				189,604
Deferred income taxes			115,320				2,035
Other assets, net			18,340				16,531
Total assets		$	2,909,887			$	2,882,038
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Checks outstanding		$	35,606			$	46,833
Accounts payable			409,759				365,347
Accrued liabilities			293,115				293,905
Current maturities of long-term debt and lease obligations			16,217				29,153
Total current liabilities			754,697				735,238
Long-term debt and lease obligations, net of current maturities, debt discount, and debt issuance costs			1,785,835				1,922,518
Deferred income taxes			—				11,502
Other long-term liabilities			59,735				63,585
Total liabilities			2,600,267				2,732,843
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, $0.01 par value, 10,000 shares authorized; zero shares issued and outstanding at December 31, 2016 and 2015			—				—
Common stock, $0.01 par value, 200,000 shares authorized; 111,564 and 109,726 shares issued and outstanding at December 31, 2016 and 2015, respectively			1,115				1,097
Additional paid-in capital			527,868				511,802
Accumulated deficit			(219,363	)			(363,704	)
Total stockholders’ equity			309,620				149,195
Total liabilities and stockholders’ equity		$	2,909,887			$	2,882,038

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

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Years Ended December 31,
		2016				2015				2014
		(In thousands)
Cash flows from operating activities:
Net income (loss)		$	144,341			$	(22,831	)		$	18,150
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			109,793				58,280				9,519
Asset impairments			4,616				2,114				—
Amortization of deferred loan costs			6,863				18,630				2,432
Amortization of debt discount			639				299				—
Loss on extinguishment of debt			55,776				—				—
Payment of original issue discount			(1,259	)			—				—
Accretion of lease finance obligations			813				—				—
Fair value adjustment of stock warrants			—				4,563				(456	)
Deferred income taxes			(124,787	)			3,287				524
Bad debt expense			1,390				2,285				(274	)
Stock compensation expense			10,549				6,848				6,157
Net gain on sales of assets			(4,952	)			(801	)			(114	)
Changes in assets and liabilities, net of assets acquired and liabilities assumed:
Receivables			(45,942	)			74,089				1,113
Inventories			(33,965	)			46,854				(9,103	)
Other current assets			(4,873	)			(6,320	)			(4,791	)
Other assets and liabilities			(1,641	)			5,314				(660	)
Accounts payable and checks outstanding			36,585				(45,286	)			(5,410	)
Accrued liabilities			4,281				29,709				10,406
Net cash provided by operating activities			158,227				177,034				27,493
Cash flows from investing activities:
Purchases of property, plant and equipment			(42,662	)			(43,811	)			(25,716	)
Proceeds from sale of property, plant and equipment			8,305				4,275				213
Cash used for acquisitions, net			(3,970	)			(1,468,511	)			(69,337	)
Net cash used in investing activities			(38,327	)			(1,508,047	)			(94,840	)
Cash flows from financing activities:
Borrowings under revolving credit facility			907,000				320,000				30,000
Payments under revolving credit facility			(967,000	)			(290,000	)			—
Proceeds from issuance of notes			750,000				700,000				—
Proceeds from term loan			—				594,000				—
Repayments of long-term debt and other loans			(807,517	)			(4,213	)			(67	)
Payments of debt extinguishment costs			(42,869	)			—				—
Payments of loan costs			(15,663	)			(58,525	)			(34	)
Proceeds from public offering of common stock, net of issuance costs			—				111,309				—
Exercise of stock options			6,627				6,718				1,831
Repurchase of common stock			(1,092	)			(986	)			(1,306	)
Net cash provided by (used in) financing activities			(170,514	)			1,378,303				30,424
Net increase (decrease) in cash and cash equivalents			(50,614	)			47,290				(36,923	)
Cash and cash equivalents at beginning of period			65,063				17,773				54,696
Cash and cash equivalents at end of period		$	14,449			$	65,063			$	17,773

Supplemental disclosure of non-cash activities

For the years ended December 31, 2016 and 2015 the Company retired assets subject to lease finance obligations of $38.1 million and $1.4 million and extinguished the related lease finance obligation of $41.2 million and $1.5 million, respectively. There were no retirements of assets subject to lease finance obligations or extinguishment of lease finance obligations for the year ended December 31, 2014.

The Company purchased equipment which was financed through capital lease obligations of $8.1 million and $1.6 million in the years ended December 31, 2016 and 2015, respectively. There were no purchases of equipment financed through capital lease obligations for the year ended December 31, 2014.

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

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

										Additional Paid
		Common Stock								in				Accumulated
		Shares				Amount				Capital				Deficit				Total
		(In thousands)
Balance at December 31, 2013			97,905			$	973			$	373,418			$	(359,023	)		$	15,368
Vesting of restricted stock			—				6				(6	)			—				—
Stock compensation expense			—				—				6,157				—				6,157
Exercise of stock options			492				5				1,826				—				1,831
Repurchase of common stock			(171	)			(2	)			(1,304	)			—				(1,306	)
Net income			—				—				—				18,150				18,150
Balance at December 31, 2014			98,226				982				380,091				(340,873	)			40,200
Issuance of common stock from public offering, net of issuance costs			9,200				92				111,217				—				111,309
Vesting of restricted stock units			495				5				(5	)			—				—
Stock compensation expense			—				—				6,848				—				6,848
Exercise of stock options			1,388				14				6,704				—				6,718
Exercise of stock warrants			569				6				7,931				—				7,937
Repurchase of common stock			(152	)			(2	)			(984	)			—				(986	)
Net loss			—				—				—				(22,831	)			(22,831	)
Balance at December 31, 2015			109,726				1,097				511,802				(363,704	)			149,195
Vesting of restricted stock units			505				5				(5	)			—				—
Stock compensation expense			—				—				10,549				—				10,549
Exercise of stock options			1,496				15				6,612				—				6,627
Repurchase of common stock			(163	)			(2	)			(1,090	)			—				(1,092	)
Net income			—				—				—				144,341				144,341
Balance at December 31, 2016			111,564			$	1,115			$	527,868			$	(219,363	)		$	309,620

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

BUILDERS FIRSTSOURCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of the Business

Builders FirstSource, Inc., a Delaware corporation formed in 1998, is a leading supplier of building materials, manufactured components and construction services to professional contractors, sub-contractors, and consumers. Following our acquisition of ProBuild Holdings LLC (“ProBuild”) in July 2015, the company operates locations in 40 states across the United States.

In this annual report, references to the “Company,” “we,” “our,” “ours” or “us” refer to Builders FirstSource, Inc. and its consolidated subsidiaries (including ProBuild as of July 31, 2015), unless otherwise stated or the context otherwise requires.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements present the results of operations, financial position, and cash flows of Builders FirstSource, Inc. and its wholly-owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

Estimates are used when accounting for items such as revenue, vendor rebates, allowance for returns, discounts and doubtful accounts, employee compensation programs, depreciation and amortization periods, income taxes, inventory values, insurance programs, goodwill, other intangible assets and long-lived assets.

Sales Recognition

We recognize sales of building products upon delivery to the customer. For contracts with service elements, sales are generally recognized on the completed contract method as these contracts are usually completed within 30 days with the percentage of completion method applied on a limited basis to certain contracts. Percentage of completion revenue represents less than 2% of our consolidated sales for each year presented. Contract costs include all direct material and labor, equipment costs and those indirect costs related to contract performance. Provisions for estimated losses on uncompleted contracts are recognized in the period in which such losses are determined. Prepayments for materials or services are deferred until such materials have been delivered or services have been provided. All sales recognized are net of allowances for discounts and estimated returns, based on historical experience. We present all sales tax on a net basis in our consolidated financial statements. The Company records sales incentives provided to customers as a reduction of revenue.

Cash and Cash Equivalents & Checks Outstanding

Cash and cash equivalents consist of cash on hand and all highly liquid investments with an original maturity date of three months or less. Also included in cash and cash equivalents are proceeds due from credit card transactions that generally settle within two business days. We maintain cash at financial institutions in excess of federally insured limits. Further, we maintain various banking relationships with different financial institutions. Accordingly, when there is a negative book cash balance resulting from outstanding checks that had not yet been paid by any single financial institution; they are reflected in checks outstanding on the accompanying consolidated balance sheets.

Financial Instruments

We use financial instruments in the normal course of business as a tool to manage our assets and liabilities. We do not hold or issue financial instruments for trading purposes.

We issued detachable warrants in 2011, which were measured at fair value on a recurring basis until exercised in 2015 as discussed in Note 8.

Accounts Receivable

We extend credit to qualified professional homebuilders and contractors, in many cases on a non-collateralized basis. Accounts receivable potentially expose us to concentrations of credit risk. Because our customers are dispersed among our various markets, our credit risk to any one customer or state economy is not significant.

Our customer mix is a balance of large national homebuilders, regional homebuilders, local homebuilders and repair and remodeling contractors. For the year ended December 31, 2016, our top 10 customers accounted for approximately 16.8% of our sales, and no single customer accounted for more than 5% of sales.

The allowance for doubtful accounts is based on management’s assessment of the amount which may become uncollectible in the future and is estimated using specific review of problem accounts, overall portfolio quality, current economic conditions that may affect the borrower’s ability to pay, and historical experience. Accounts receivable are written off when deemed uncollectible. Other receivables consist primarily of vendor rebates receivable.

We also establish reserves for credit memos and customer returns. The reserve balance was $5.6 million and $3.8 million at December 31, 2016 and 2015, respectively. The activity in this reserve was not significant for each year presented.

Accounts receivable consisted of the following at December 31:

		2016				2015
		(In thousands)
Accounts Receivable		$	580,779			$	536,593
Less: allowances for returns and doubtful accounts			11,571				8,049
Accounts receivable, net		$	569,208			$	528,544

The following table shows the changes in our allowance for doubtful accounts:

		2016				2015				2014
		(In thousands)
Balance at January 1,		$	4,245			$	1,734			$	2,413
Additions			1,390				2,285				(274	)
Deductions (write-offs, net of recoveries)			287				226				(405	)
Balance at December 31,		$	5,922			$	4,245			$	1,734

Inventories

Inventories consist principally of materials purchased for resale, including lumber, sheet goods, windows, doors and millwork, as well as certain manufactured products and are stated at the lower of cost or market. Cost is determined using the weighted average method, the use of which approximates the first-in, first-out method. We accrue for shrink based on the actual historical shrink results of our most recent physical inventories adjusted, if necessary, for current economic conditions. These estimates are compared with actual results as physical inventory counts are taken and reconciled to the general ledger.

During the year, we monitor our inventory levels by market and record provisions for excess inventories based on slower moving inventory. We define potential excess inventory as the amount of inventory on hand in excess of the historical usage, excluding special order items purchased in the last six months. We then apply our judgment as to forecasted demand and other factors, including liquidation value, to determine the required adjustments to net realizable value. Our inventories are generally not susceptible to technological obsolescence.

Our arrangements with vendors provide for rebates of a specified amount of consideration, payable when certain measures, generally related to a stipulated level of purchases, have been achieved. We account for estimated rebates as a reduction of the prices of the vendor’s inventory until the product is sold, at which time such rebates reduce cost of sales in the accompanying consolidated statements of operations and comprehensive loss. Throughout the year we estimate the amount of the rebates based upon the expected level of purchases. We continually revise these estimates based on actual purchase levels.

We source products from a large number of suppliers. No materials purchased from any single supplier represented more than 7% of our total materials purchased in 2016.

Shipping and Handling Costs

Handling costs incurred in manufacturing activities are included in cost of sales. All other shipping and handling costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss) and totaled $269.8 million, $171.9 million and $79.7 million in 2016, 2015 and 2014, respectively.

Income Taxes

We account for income taxes utilizing the liability method described in the Income Taxes topic of the FASB Accounting Standards Codification (“Codification”). Deferred income taxes are recorded to reflect consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which differences are expected to affect taxable earnings. We record a valuation allowance to reduce deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Warranty Expense

We have warranty obligations with respect to most manufactured products; however, the liability for the warranty obligations is not significant as a result of third-party inspection and acceptance processes.

Debt Issuance Costs and Debt Discount

Loan costs are capitalized upon the issuance of long-term debt and amortized over the life of the related debt. Debt issuance costs associated with term debt are presented as a reduction to long-term debt. Debt issuance costs associated with revolving debt arrangements are presented as a component of other assets. Debt issuance costs incurred in connection with revolving debt arrangements are amortized using the straight-line method. Debt issuance costs incurred in connection with term debt are amortized using the effective interest method. Debt discount is amortized over the life of the related debt using the effective interest method. Amortization of debt issuance costs and the debt discount are included in interest expense. Upon changes to our debt structure, we evaluate debt issuance costs in accordance with the Debt topic of the Codification. We adjust debt issuance costs as necessary based on the results of this evaluation, as discussed in Note 8.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. The estimated lives of the various classes of assets are as follows:

		Buildings and improvements		20 to 40 years
		Machinery and equipment		3 to 10 years
		Furniture and fixtures		3 to 5 years
		Leasehold improvements		The shorter of the estimated useful life or the remaining lease term

Major additions and improvements are capitalized, while maintenance and repairs that do not extend the useful life of the property are charged to expense as incurred. Gains or losses from dispositions of property, plant and equipment are recorded in the period incurred. We also capitalize certain costs of computer software developed or obtained for internal use, including interest, provided that those costs are not research and development, and certain other criteria are met. Internal use computer software costs are included in machinery and equipment and generally depreciated using the straight-line method over the estimated useful lives of the assets, generally three years.

We periodically evaluate the commercial and strategic operation of the land, related buildings and improvements of our facilities. In connection with these evaluations, some facilities may be consolidated, and others may be sold or leased. Nonoperating assets primarily related to land and building real estate assets associated with location closures that are actively being marketed for sale within a year are classified as assets held for sale and recorded at fair value, usually the quoted market price obtained from an independent third-party less the cost to sell. Until the assets are sold, an estimate of the fair value is reassessed at each reporting period. Net gains or losses related to the sale of real estate and equipment or impairment adjustments related to assets held for sale are recorded as selling, general and administrative expenses.

Long-Lived Assets

We evaluate our long-lived assets, other than goodwill, for impairment when events or changes in circumstances indicate, in our judgment, that the carrying value of such assets may not be recoverable. The determination of whether or not impairment exists is based on our estimate of undiscounted future cash flows before interest attributable to the assets as compared to the net carrying value of the assets. If impairment is indicated, the amount of the impairment recognized is determined by estimating the fair value of the assets based on estimated discounted future cash flows and recording a provision for loss if the carrying value is greater than estimated fair value. The net carrying value of assets identified to be disposed of in the future is compared to their estimated fair value, usually the quoted market price obtained from an independent third-party less the cost to sell, to determine if impairment exists. Until the assets are disposed of, an estimate of the fair value is reassessed when related events or circumstances change. Asset impairment charges are presented in the consolidated statements of operations and comprehensive income (loss) for the respective years.

Insurance

We have established insurance programs to cover certain insurable risks consisting primarily of physical loss to property, business interruptions resulting from such loss, workers’ compensation, employee healthcare, and comprehensive general and auto liability. Third party insurance coverage is obtained for exposures above predetermined deductibles as well as for those risks required to be insured by law or contract. Provisions for losses are developed from valuations that rely upon our past claims experience, which considers both the frequency and settlement of claims. We discount our workers’ compensation liability based upon estimated future payment streams at our risk-free rate. Our total insurance reserve balances were $80.4 million and $84.3 million as of December 31, 2016 and 2015, respectively. Of these balances $43.6 million and $40.3 million were recorded as other long-term liabilities as of December 31, 2016 and 2015, respectively. Included in these reserve balances as of December 31, 2016 and 2015, were approximately $9.4 million and $9.9 million, respectively, of claims that exceeded stop-loss limits and are expected to be recovered under insurance policies which are also recorded as other receivables and other assets in the accompanying consolidated balance sheets.

Net Income (Loss) per Common Share

Net income (loss) per common share, or earnings per share (“EPS”), is calculated in accordance with the Earnings per Share topic of the Codification which requires the presentation of basic and diluted EPS. Basic EPS is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential common shares.

The table below presents a reconciliation of weighted average common shares used in the calculation of basic and diluted EPS for the years ended December 31:

		2016				2015				2014
		(In thousands)
Weighted average shares for basic EPS			110,754				103,190				98,050
Dilutive effect of options, warrants, and RSUs			2,831				—				2,472
Weighted average shares for diluted EPS			113,585				103,190				100,522

Our restricted stock shares include rights to receive dividends that are not subject to the risk of forfeiture even if the underlying restricted stock shares on which the dividends were paid do not vest. In accordance with the Earnings Per Share topic of the Codification, unvested share-based payment awards that contain non-forfeitable rights to dividends are deemed participating securities and should be considered in the calculation of basic EPS. Since the restricted stock shares do not include an obligation to share in losses, they will be included in our basic EPS calculation in periods of net income and excluded from our basic EPS calculation in periods of net loss. Accordingly, there were 13,000 restricted stock shares excluded from the computation of basic EPS in 2015 because we generated a net loss. There were 27,000 restricted stock shares included in our basic EPS calculation for 2014 as we generated net income. There were no outstanding restricted stock shares as of December 31, 2016.

For the purpose of computing diluted EPS, weighted average shares outstanding have been adjusted for common shares underlying 3,515,000 options to purchase common stock and 2,177,000 restricted stock units (“RSUs”) for 2016. Options to purchase 4,998,000 shares of common stock and 1,516,000 RSUs were not included in the computation of diluted EPS for 2015 because their effect was anti-dilutive. Incremental shares attributable to average warrants outstanding during 2015 were not included in the computation of diluted EPS for 2015 as their effect was anti-dilutive. There were no warrants outstanding at December 31, 2016 as all of the remaining warrants were exercised in April 2015. Weighted average shares outstanding have been adjusted for common shares underlying 6,246,000 options, 700,000 warrants, and 1,855,000 RSUs for 2014. In addition, $0.5 million of income due to fair value adjustments related to the warrants was excluded from net income in the computation of diluted EPS for 2014.

Goodwill and Other Intangible Assets

Intangibles subject to amortization

We recognize an acquired intangible asset apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or whenever it can be separated or divided from the acquired entity and sold, transferred, licensed, rented, or exchanged, either individually or in combination with a related contract, asset or liability. Impairment losses are recognized if the carrying value of an intangible asset subject to amortization is not recoverable from expected future cash flows and its carrying amount exceeds its estimated fair value.

Goodwill

We recognize goodwill as the excess cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed. Goodwill is tested for impairment on an annual basis and between annual tests whenever impairment is indicated. This annual test takes place as of December 31 each year. Impairment losses are recognized whenever the implied fair value of goodwill is less than its carrying value.

Stock-based Compensation

We have four stock-based employee compensation plans, which are described more fully in Note 10. We issue new common stock shares upon exercises of stock options, grants of restricted stock, and vesting of RSUs.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for the year ended December 31:

		2016			2015			2014
Expected life		6.0 years			6.0 years			5.8 years
Expected volatility		60.88%			75.2%			92.1%
Expected dividend yield		0.00%			0.00%			0.00%
Risk-free rate		1.41%			1.75%			1.83%

The expected life represents the period of time the options are expected to be outstanding. We used the simplified method for determining the expected life assumption due to limited historical exercise experience on our stock options. The expected volatility is based on the historical volatility of our common stock over the most recent period equal to the expected life of the option. The expected dividend yield is based on our history of not paying regular dividends in the past and our current intention to not pay regular dividends in the foreseeable future. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant and has a term equal to the expected life of the options.

The fair value of RSU awards subject to market conditions is estimated on the date of grant using the Monte Carlo simulation model with the following weighted average assumptions for the year ended December 31:

		2016
Expected volatility (company)		53.6%
Expected volatility (peer group median)		17.3%
Correlation between the company and peer group median		0.47
Expected dividend yield		0.00%
Risk-free rate		1.29%

The expected volatilities are based on the historical volatilities of our common stock and the common stocks of the constituents of the Company’s peer group over the most recent period equal to the measurement period. The expected dividend yield is based on our history of not paying regular dividends in the past and our current intention to not pay regular dividends in the foreseeable future. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant and has a term equal to the measurement period. We did not grant any RSUs subject to market conditions in 2015 or 2014.

Fair Value

The Fair Value Measurements and Disclosures topic of the Codification provides a framework for measuring the fair value of assets and liabilities and establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy can be summarized as follows:

Level 1 — unadjusted quoted prices for identical assets or liabilities in active markets accessible by us

Level 2 — inputs that are observable in the marketplace other than those inputs classified as Level 1

Level 3 — inputs that are unobservable in the marketplace and significant to the valuation

If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation. The only financial instruments measured at fair value on a recurring basis were our warrants as discussed in Note 8.

As of December 31, 2016 and 2015 the Company does not have any financial instruments which are measured at fair value on a recurring basis. We have elected to report the value of our 10.75% senior unsecured notes due 2023 (“2023 notes”), 5.625% senior secured notes due 2024 (“2024 notes”), and $600.0 million term loan facility due 2022 (“2015 term loan”) at amortized cost. The fair values of the 2023 notes, the 2024 notes and the 2015 term loan at December 31, 2016 were approximately $421.8 million, $758.0 million and $471.2 million, respectively, and were determined using Level 2 inputs based on market prices.

Supplemental Cash Flow Information

Supplemental cash flow information was as follows for the years ended December 31:

		2016				2015				2014
		(In thousands)
Cash payments for interest		$	197,384			$	55,028			$	28,338
Cash payments for income taxes			2,875				1,409				456

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It consists of net income (loss) and other gains and losses affecting stockholders’ equity that, under GAAP, are excluded from net income. We had no items of other comprehensive income (loss) for the years ended December 31, 2016, 2015, and 2014.

Recently Issued Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (“FASB”) issued an update to the existing guidance under the Intangibles-Goodwill and Other topic of the Accounting Standards Codification (“Codification”) to simplify the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All of the other goodwill impairment guidance will remain largely unchanged, including the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. This update is effective for annual and any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption of this guidance is permitted for annual or interim goodwill tests performed after January 1, 2017. This guidance will be applied on a prospective basis following adoption.

In January 2017, the FASB issued an update to the existing guidance under the Business Combinations topic of the Codification. This update revises the definition of a business. Under this guidance when substantially all of the assets acquired is concentrated in a single asset (or group of similar assets) the assets acquired would not be considered a business. If this initial screen is met the need for further assessment is eliminated. If this screen is not met in order to be considered a business an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs. This update is effective for public companies for annual and interim reporting periods beginning after December 15, 2017. Early adoption of this guidance is permitted. This guidance requires prospective application following adoption.

In August 2016, the FASB issued an update to the existing guidance under the Statement of Cash Flows topic of the Codification. This update clarifies the classification of certain transactions in the statement of cash flows. This update requires application using a retrospective transition method. This update is effective for public companies for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted, provided that all of the amendments in this update are adopted in the same period. As a result of the Company’s election to early adopt this updated guidance in the fourth quarter of 2016, $42.9 million in payments of debt extinguishment costs made in 2016 which were previously reflected as operating cash outflows on our 2016 quarterly reports on Form 10-Q are now presented as financing cash outflows. Adoption of this guidance resulted in $1.1 million from the second quarter of 2016, $33.3 million from the third quarter of 2016 and $8.5 million from the fourth quarter of 2016 in payments of debt extinguishment costs being presented as cash outflows from financing activities for the year ended December 31, 2016. The adoption of this guidance had no impact to our statement of cash flows for the years ended December 31, 2015 or 2014

In March 2016, the FASB issued an update to the existing guidance under the Compensation-Stock Compensation topic of the Codification. This update simplifies several aspects of accounting for stock compensation including accounting for income taxes, classification of awards as liabilities or equity, forfeitures and classification on the statement of cash flows. This update is effective for public companies for annual and interim reporting periods beginning after December 15, 2016. Early adoption is permitted with adjustments reflected as of the beginning of the fiscal year of adoption. The various aspects of this guidance require prospective, retrospective, or modified retrospective application. This guidance will be effective for the Company in the first quarter of 2017. As of December 31, 2016 the Company had approximately $23.3 million of unrecognized gross windfall benefits. Upon adoption the Company will recognize any previously unrecorded windfall benefits on a modified retrospective basis through a cumulative-effect adjustment to the beginning balance of our accumulated deficit. Following adoption any windfalls or shortfalls will be recognized as a component of income tax expense in the period they occur. Additionally, the Company will elect to recognize the effect of pre-vesting forfeitures as they actually occur rather than estimating forfeitures each period. Any differential between the amount of compensation cost previously recorded and the amount that would have been recorded without assuming forfeitures will be recognized on a modified retrospective basis through a cumulative-effect adjustment to the beginning balance of our accumulated deficit.

In February 2016, the FASB issued an update to the existing guidance under Leases topic of the Codification. Under the new guidance, lessees will be required to recognize the following for all leases, with the exception of short-term leases, at the commencement date: (1) a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. This update requires a modified retrospective transition as of the beginning of the earliest comparative period presented in the financial statements. This update is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of this guidance on our financial statements.

In July 2015, the FASB issued an update to the existing guidance under the Inventory topic of the Codification. This update changes the subsequent measurement of inventory from lower of cost or market to lower of cost and net realizable value. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption of this guidance is permitted as of the beginning of an interim or annual reporting period. This guidance requires prospective application. We do not expect the adoption of this guidance to have an impact on our financial statements.

In August 2014, the FASB issued an update to the existing guidance under the Presentation of Financial Statements topic of the Codification. This update requires management to perform interim and annual assessments on whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year of the date the financial statements are issued and to provide related disclosures, if required. This new guidance is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. As such, the Company adopted this guidance for the annual reporting period ending December 31, 2016. The adoption of this guidance did not have an impact on our financial statements.

In May 2014, the FASB issued an update to the existing guidance under the Revenue Recognition topic of the Codification which is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This new guidance was originally effective for annual reporting periods beginning after December 15, 2016. However, in July 2015 the FASB approved an optional one year deferral of the effective date to annual reporting periods beginning after December 15, 2017. Early adoption is permitted; however, this guidance cannot be adopted earlier than the original effective date. The Company does not intend to adopt this guidance early, therefore it will be effective for us beginning on January 1, 2018. This guidance allows either full retrospective or modified retrospective methods of adoption. Subsequent to issuance of the original update the FASB issued several updates amending this new guidance. In April 2016, the FASB issued an update clarifying issues related to identifying performance obligations and licensing. In May 2016, the FASB issued an update regarding the assessment of collectability criteria, presentation of sales taxes, measurement of noncash consideration and transition guidance for completed contracts and contract modifications. While we are still evaluating the impact of these updates on our financial statements, we anticipate this guidance will primarily impact our contracts with service elements and certain classifications within the statement of operations.

3. Acquisitions

On June 30, 2014 the Company acquired certain assets and the operations of Slone Lumber Company, Inc. (“Slone”) for $8.7 million in cash (including certain adjustments). Based in Houston, Texas, Slone is a full-line building materials supplier. Slone’s product offerings include lumber, engineered beams, interior and exterior door units, moulding, trim, and cabinets. Slone also offers installation services on exterior doors, shutters, and cabinets.

On July 31, 2014 the Company acquired certain assets and the operations of West Orange Lumber Company, Inc. (“West Orange”) for $9.8 million in cash (including certain adjustments). Based in Groveland, Florida, West Orange supplies lumber, roof and floor trusses, custom windows and doors, as well as installation services, to both residential homebuilders and commercial contractors in central Florida.

On August 6, 2014 the Company acquired certain assets and the operations of Truss Rite, LLC (“Truss Rite”) for $14.6 million in cash (including certain adjustments). Based in Sherman, Texas Truss Rite primarily manufactures wood roof and floor trusses for large multi-family and commercial projects throughout Texas and parts of Oklahoma. Truss Rite predominately serves developers and general contractors in the multi-family residential housing sector.

On October 1, 2014 the Company acquired certain assets and the operations of Trim Tech of Austin, Inc. (“Trim Tech”) for $19.4 million in cash (including certain adjustments). Trim Tech is based in Hutto, Texas, which is approximately 30 miles north of downtown Austin. Trim Tech is a turn-key supplier of custom cabinets, interior and exterior doors, stair parts, and custom millwork and molding.

On December 22, 2014 the Company acquired certain assets and the operations of Empire Truss, Ltd. (“Empire”) for $16.8 million in cash (including certain adjustments). Empire is a Texas-based manufacturer of custom designed roof trusses and floor trusses, and a distributor of engineered wood products with its primary operations located in Huntsville, Texas, approximately 65 miles north of downtown Houston. Empire’s primary focus is on multi-family and light commercial customers.

On February 9, 2015, the Company acquired certain assets and the operations of Timber Tech Texas, Inc. and its affiliates (“Timber Tech”) for $5.8 million in cash (including certain adjustments). Timber Tech is based in Cibolo, Texas, which is approximately 25 miles northeast of downtown San Antonio. Timber Tech is a manufacturer of roof trusses, floor trusses, wall panels and sub-components, as well as a supplier of glue laminated timber and veneer lumber beams.

On July 31, 2015, the Company acquired all of the operating affiliates of ProBuild through the purchase of all issued and outstanding equity interests in ProBuild for $1.63 billion in cash, subject to certain adjustments. The purchase price was funded by the net proceeds received from the financing transactions described in Note 8. Previously headquartered in Denver, Colorado, ProBuild is one of the nation’s largest professional building materials suppliers. As a result of the ProBuild acquisition, the Company has a greater diversification of products and services and a significantly improved geographic footprint.

These acquisitions were accounted for by the acquisition method, and accordingly the results of operations were included in the Company’s consolidated financial statements from the acquisition date. The purchase price was allocated to the assets acquired based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill. The fair value of acquired intangible assets of $184.5 million, primarily related to tradenames, customer relationships and lease contract intangibles, was estimated by applying an income approach. That measure is based on significant Level 3 inputs not observable in the market. Key assumptions developed based on the Company’s historical experience, future projections and comparable market data include future cash flows, long-term growth rates, royalty rates, attrition rates and discount rates.

We incurred acquisition related costs of $20.9 million and $0.6 million related to these acquisitions during the years ended December 31, 2015 and 2014, respectively. These costs include due diligence costs and transaction costs to complete the acquisitions, and have been recognized in selling, general and administrative expense in the accompanying condensed consolidated statements of operations and comprehensive income (loss). We did not incur any acquisition costs related to these acquisitions during the year ended December 31, 2016.

The following table summarizes the aggregate fair values of the assets acquired and liabilities assumed for ProBuild and all other acquisitions, net of cash (in thousands) for the year ended:

			2015						2014
			ProBuild			All Other			All Other
Accounts receivable	$		470,105		$	306		$	9,544
Other receivables			34,718			—			—
Inventory			411,160			1,095			5,417
Other current assets			12,101			—			—
Property, plant and equipment			658,540			3,961			8,580
Assets held for sale			10,911			—			—
Goodwill (Note 5)			602,690			(2,839	)		28,581
Intangible assets (Note 6)			184,509			3,311			17,467
Other assets			2,016			—			34
Total assets acquired			2,386,750			5,834			69,623
Checks outstanding			(32,378	)		—			—
Current maturities of long term debt and lease obligations			(25,456	)		—			—
Accounts payable			(339,673	)		—			—
Accrued liabilities			(210,436	)		(37	)		(286	)
Other long-term liabilities			(53,703	)		—			—
Long-term debt and lease obligations, net of current maturities			(262,390	)		—			—
Total liabilities assumed			(924,036	)		(37	)		(286	)
Total net assets acquired	$		1,462,714		$	5,797		$	69,337

All of the goodwill and intangible assets recognized from the ProBuild and all other acquisitions are expected to be deductible for tax purposes, with the goodwill recognized from these acquisitions being amortized ratably over a 15 year period. The ProBuild acquisition was treated as an asset purchase for tax purposes.

The operating results of the acquisitions have been included in the consolidated statements of operations and comprehensive income (loss) from their acquisition dates through December 31, 2016. Net sales and net income attributable to ProBuild were approximately $4,520 million and $190 million, respectively for the year ended December 31, 2016. Net sales and net income attributable to ProBuild were approximately $1,860 million and $50 million, respectively, for the period of August 1, 2015 through December 31, 2015. Net income attributable to ProBuild does not include an allocation of the additional interest expense incurred by the Company as a result of the ProBuild acquisition financing transactions. Net sales and net income attributable to the other acquisitions are not material, individually or in the aggregate.

The following table reflects the pro forma operating results for the Company which gives effect to the acquisition of ProBuild as if it had occurred on January 1, 2014. The pro forma results are based on assumptions that the Company believes are reasonable under the circumstances. The pro forma results are not necessarily indicative of future results. The pro forma financial information includes the historical results of the Company and ProBuild adjusted for certain items, which are described below, and does not include the effects of any synergies or cost reduction initiatives related to the acquisition of ProBuild. Pro forma information for the other acquisitions is not presented as it is not material, individually or in the aggregate.

	Year Ended December 31,
	2015				2014
	(pro forma) (in thousands, except per share amounts)
Net sales	$	6,066,792			$	6,082,819
Net loss	$	(10,433	)		$	(127,880	)
Basic net loss per share	$	(0.10	)		$	(1.19	)
Diluted net loss per share	$	(0.10	)		$	(1.19	)

Pro forma net loss for the years ended December 31, 2015 and 2014 reflects adjustments primarily related to depreciation and amortization, the conversion from last-in, first-out to first-in, first out inventory valuation, and interest expense. Pro forma net loss for 2015 was adjusted to exclude transaction-related expenses of $46.9 million ($34.6 million incurred by the Company and $12.3 million incurred by ProBuild). Pro forma net loss for 2014 was adjusted to include these transaction-related expenses.

Alaska Truss Acquisition

On May 13, 2016, the Company acquired certain assets and the operations of Alaska Truss Manufacturing, LLC and ATM, LLC (collectively “Alaska Truss”) for cash of $4.0 million and $1.0 million of other consideration, subject to certain adjustments. Of the total consideration, $3.4 million was allocated to tangible assets acquired, primarily property, plant and equipment, $0.8 million was allocated to intangible assets and $0.8 million was allocated to goodwill.

Based in Chugiak, Alaska, Alaska Truss supplies roof trusses to both residential and commercial contractors throughout the greater Anchorage area. Acquisition costs related to Alaska Truss were not material in the year ended December 31, 2016. Pro forma results of operations are not presented as this acquisition is not material.

4. Property, Plant and Equipment

Property, plant and equipment consisted of the following at December 31:

		2016				2015
		(In thousands)
Land		$	195,064			$	214,302
Buildings and improvements			331,498				338,566
Machinery and equipment			329,529				314,446
Furniture and fixtures			56,571				47,456
Construction in progress			12,771				7,828
Property, plant and equipment			925,433				922,598
Less: accumulated depreciation			269,332				188,269
Property, plant and equipment, net		$	656,101			$	734,329

Depreciation expense was $87.2 million, $46.3 million and $8.5 million, of which $9.5 million, $5.3 million and $2.5 million was included in cost of sales, in 2016, 2015, and 2014, respectively.

Included in property, plant and equipment are certain assets held under capital leases and lease finance obligations. These assets are recorded at the present value of minimum lease payments and include land, buildings and equipment. Amortization charges associated with assets held under capital leases and lease finance obligations are included in depreciation expense. The following balances held under capital lease and lease finance obligations, net of accumulated amortization of $9.2 million and $4.9 million at December 31, 2016 and 2015, respectively, are included on the accompanying combined balance sheet:

		2016				2015
		(In thousands)
Land		$	119,287			$	124,987
Buildings and improvements			151,862				183,390
Machinery and equipment			11,012				14,168
		$	282,161			$	322,545

5. Goodwill

The following table sets forth the changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2016 and 2015 (in thousands):

			Northeast			Southeast			South			West			Total
Balance as of January 1, 2015
Goodwill		$	13,609		$	49,591		$	121,210		$	—		$	184,410
Accumulated impairment losses			(494	)		(615	)		(43,527	)		—			(44,636	)
			13,115			48,976			77,683			—			139,774
Acquisitions and other purchase price adjustments			83,493			11,100			208,452			296,806			599,851
Balance as of December 31, 2015
Goodwill		$	97,102		$	60,691		$	329,662		$	296,806		$	784,261
Accumulated impairment losses			(494	)		(615	)		(43,527	)		—			(44,636	)
			96,608			60,076			286,135			296,806			739,625
Acquisitions and other purchase price adjustments			—			—			—			786			786
Balance as of December 31, 2016
Goodwill		$	97,102		$	60,691		$	329,662		$	297,592		$	785,047
Accumulated impairment losses			(494	)		(615	)		(43,527	)		—			(44,636	)
		$	96,608		$	60,076		$	286,135		$	297,592		$	740,411

In 2016, the change in the carrying amount of goodwill is attributable to our acquisition of Alaska Truss. In 2015, the change in the carrying amount of goodwill is attributable to our acquisitions of ProBuild and Timber Tech. The amount allocated to goodwill is attributable to the assembled workforce of the acquired companies as well as the diversification of products and services, the significantly improved geographic footprint, and the synergies expected to arise as a result of these acquisitions.

We closely monitor trends in economic factors and their effects on operating results to determine if an impairment trigger was present that would warrant a reassessment of the recoverability of the carrying amount of goodwill prior to the required annual impairment test in accordance with the Intangibles – Goodwill and Other topic of the Codification.

The process of evaluating goodwill for impairment involves the determination of fair value of our reporting units. Inherent in such fair value determinations are certain judgments and estimates relating to future cash flows, including our interpretation of current economic indicators and market valuations and assumptions about our strategic plans with regard to our operations. Due to the uncertainties associated with such estimates, actual results could differ from such estimates resulting in further impairment of goodwill.

In performing our impairment analysis, we developed a range of fair values for our reporting units using a discounted cash flow methodology. The discounted cash flow methodology establishes fair value by estimating the present value of the projected future cash flows to be generated from the reporting unit. The discount rate applied to the projected future cash flows to arrive at the present value is intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows. The discounted cash flow methodology uses our projections of financial performance for a five-year period. The most significant assumptions used in the discounted cash flow methodology are the discount rate, the terminal value and the expected future revenues, gross margins and operating expenses, which vary among reporting units. Significant assumptions used in our financial projections include housing starts, lumber commodity prices, and market share gains.

We recorded no goodwill impairment charges in 2016, 2015, and 2014.

6. Intangible Assets

The following table presents intangible assets as of December 31:

		2016								2015
		Gross Carrying Amount				Accumulated Amortization				Gross Carrying Amount				Accumulated Amortization
		(In thousands)
Customer relationships		$	149,046			$	(33,023	)		$	148,910			$	(12,968	)
Non-compete agreements			1,379				(375	)			766				(170	)
Trade names			51,361				(13,286	)			51,361				(4,155	)
Favorable lease intangibles			6,408				(2,137	)			6,408				(548	)
Total intangible assets		$	208,194			$	(48,821	)		$	207,445			$	(17,841	)
Unfavorable lease obligations (included in Accrued liabilities and Other long-term liabilities)		$	(19,597	)		$	8,746			$	(19,547	)		$	2,072

In connection with the acquisition of ProBuild, we recorded intangible assets of $184.5 million, which includes $50.1 million of trade names, $128.0 million of customer relationships and $6.4 million of favorable lease intangibles. We also recorded $19.5 million of unfavorable lease obligations. The weighted average useful lives of the acquired assets are 9.7 years for trade names, 13.5 years for customer relationships, and 10.0 years for both the favorable and unfavorable lease intangibles.

During the years ended December 31, 2016, 2015, and 2014, we recorded amortization expense in relation to the above-listed intangible assets of $22.6 million, $11.9 million, and $1.1 million, respectively. In addition, as a result of the facility closure activities following the ProBuild acquisition, we recorded impairment charges of $1.7 million and $1.4 million against our intangible assets during the years ended December 31, 2016 and 2015, respectively. We recognized these impairment charges in selling, general, and administrative expense in the accompanying consolidated statement of operations and comprehensive income (loss). The following table presents the estimated amortization expense for these intangible assets for the years ending December 31 (in thousands):

2017		$	21,869
2018			18,651
2019			17,748
2020			14,817
2021			11,935
Thereafter			63,502
Total future net intangible amortization expense		$	148,522

7. Accrued Liabilities

Accrued liabilities consisted of the following at December 31:

		2016				2015
		(In thousands)
Accrued payroll and other employee related expenses		$	127,485			$	120,138
Accrued business taxes			30,177				29,054
Self-insurance reserves			36,817				44,085
Accrued interest			28,570				33,712
Facility closure reserves			3,910				5,228
Customer obligations			38,448				38,173
Unfavorable lease obligations (Note 6)			4,921				5,096
Other			22,787				18,419
Total accrued liabilities		$	293,115			$	293,905

8. Long-Term Debt

Long-term debt and lease obligations consisted of the following (in thousands):

	December 31, 2016				December 31, 2015
2021 notes	$	—			$	350,000
2023 notes		367,608				700,000
2024 notes		750,000				—
2015 facility		—				60,000
2015 term loan		467,650				598,625
Lease finance obligations		238,539				280,909
Capital lease obligations (Note 9)		7,427				8,159
		1,831,224				1,997,693
Unamortized debt discount and debt issuance costs		(29,172	)			(46,022	)
		1,802,052				1,951,671
Less: current maturities of long-term debt and lease obligations		16,217				29,153
Long-term debt and lease obligations, net of current maturities	$	1,785,835			$	1,922,518

ProBuild Acquisition Financing

As described in Note 3, we acquired all of the operating affiliates of ProBuild on July 31, 2015 through the purchase of all issued and outstanding equity interests of ProBuild for $1.63 billion in cash, subject to certain adjustments. The purchase price was funded with the net cash proceeds from (i) the sale of $700.0 million in aggregate principal amount of 10.75% senior unsecured notes due 2023 (the “2023 notes”), (ii) entry into a $600.0 million term loan credit agreement (the “2015 term loan”) provided by a syndicate of financial institutions led by Deutsche Bank AG, New York Branch, as administrative and collateral agent, (iii) a $295.0 million draw on an amended and restated $800.0 million senior secured revolving credit facility (the “2015 facility”) provided by a syndicate of financial institutions led by SunTrust Bank as administrative and collateral agent, and (iv) a public offering of 9.2 million new shares of our common stock at an offering price of $12.80 per share (the “equity offering”).

In connection with the financing transactions described above, we incurred approximately $65.0 million of various third-party fees and expenses. Of these costs, $18.1 million were allocated to the 2023 notes, $16.0 million were allocated to the 2015 term loan, $11.2 million were allocated to the 2015 facility and $6.5 million were allocated to the equity offering. The costs allocated to the 2023 notes and the 2015 term loan were recorded as reductions to long-term debt and are being amortized over their respective terms using the effective interest method. The costs allocated to the 2015 facility were recorded as other assets and are being amortized over its term on a straight-line basis. The costs allocated to the equity offering were recorded as a reduction to additional paid-in capital. In addition, $13.2 million in costs relate to commitment fees paid for bridge and backstop financing facilities entered into in connection with these financing transactions, neither of which was utilized. As such, these fees were recorded as interest expense in the third quarter of 2015. At the closing of these transactions, there were approximately $3.0 million in unamortized debt issuance costs associated with our previous revolving credit facility, of which approximately $0.9 million were recorded as interest expense in the third quarter of 2015. The remaining $2.1 million in unamortized costs associated with our previous revolving credit facility are being amortized over the term of the 2015 facility.

2016 Debt Transactions

During the year ended December 31, 2016, the Company executed several debt transactions which are described in more detail below. These transactions include two debt exchanges, complete extinguishment of our 7.625% senior secured notes due 2021 (the “2021 notes”), repricing and partially repaying our 2015 term loan and a cash tender offer in which we further reduced the aggregate principal amount of outstanding 2023 notes. These transactions have extended our debt maturity profile and reduced our annual cash interest on a go forward basis.

Note Exchange Transactions

On February 12, 2016, we completed separate privately negotiated note exchange transactions in which $218.6 million in aggregate principal amount of our 2023 notes was exchanged for $207.6 million in aggregate principal amount of our previously outstanding 2021 notes. On February 29, 2016, we completed additional separate privately negotiated note exchange transactions in which $63.8 million in aggregate principal amount of our 2023 notes was exchanged for $60.0 million in aggregate principal amount of our previously outstanding 2021 notes.

The note exchange transactions were considered to be debt extinguishments. As such, we recognized a net gain of $7.8 million which was recorded as an offset to interest expense in the accompanying consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2016. Of this $7.8 million gain, $14.8 million was attributable to the reduction in outstanding principal which was partially offset by the write-off of $7.0 million of unamortized debt issuance costs associated with the 2023 notes which were extinguished in the exchange transactions.

In connection with issuance of the 2021 notes in the exchange transactions, we incurred $4.9 million of various third-party fees and expenses. These costs were previously recorded as a reduction to long-term debt and were subsequently written off to interest expense in the third quarter of 2016 in connection with the extinguishment of the 2021 notes as described in the “2016 Refinancing Transactions” section below.

Note Redemption Transaction

In May 2016, the Company exercised its contractual right to redeem $35.0 million in aggregate principal amount of 2021 notes at a price of 103.0%, plus accrued and unpaid interest. The redemption transaction was considered to be a debt extinguishment. As such, we recognized a loss of $1.7 million which was recorded as a component of interest expense in the accompanying consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2016. Of this $1.7 million loss, $1.1 million was attributable to the payment of the redemption premium and $0.6 million was attributable to the write-off of unamortized debt issuance costs associated with the redeemed notes.

2016 Refinancing Transactions

In August 2016, we completed a private offering of $750.0 million in aggregate principal amount of 5.625% senior secured notes due 2024 (“2024 notes”) at an issue price equal to 100% of their face value. At the same time the Company also repriced its 2015 term loan. This repricing lowered the applicable margin to 3.75% in the case of Eurodollar loans and 2.75% in the case of base rate loans. This reduction represents a 1.25% decrease in the applicable margin for both Eurodollar and base rate loans. In connection with the repricing, the mandatory quarterly principal repayments were reduced from $1.375 million to $1.175 million. All other material terms of the 2015 term loan remain unchanged.

The proceeds from the issuance of the 2024 notes were used, together with cash on hand and borrowings on the 2015 facility, to fully redeem the $582.6 million in aggregate outstanding principal amount of 2021 notes, to pay down $125.9 million of the 2015 term loan and to pay related transaction fees and expenses.

The redemption of the 2021 notes was considered to be a debt extinguishment. As such, we recognized a loss of $43.9 million which was recorded as a component of interest expense in the accompanying consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2016. Of this $43.9 million loss, $33.3 million was attributable to the payment of the redemption premium and $10.6 million was attributable to the write-off of unamortized debt issuance costs associated with the redeemed notes. In addition, in connection with the repricing and pay down of the 2015 term loan we recognized $8.2 million in interest expense in the third quarter of 2016 related to the write-off of unamortized debt discount and debt issuance costs.

In connection with the issuance of the 2024 notes and the 2015 term loan repricing, we incurred approximately $12.0 million of various third-party fees and expenses. Of these costs $10.5 million were allocated to the 2024 notes and have been recorded as a reduction to long-term debt. These costs are being amortized over the contractual life of the 2024 notes using the effective interest method. The remaining $1.5 million in costs incurred were allocated to the 2015 term loan. Of this $1.5 million, $1.2 million was recorded to interest expense in the third quarter of 2016. The remaining $0.3 million of new third-party costs together with $10.9 million in remaining unamortized debt discount and debt issuance costs have been recorded as a reduction of long-term debt and are being be amortized over the remaining contractual life of the 2015 term loan using the effective interest method.

Tender Offer

In October 2016, we purchased $50.0 million in aggregate principal amount of our 2023 notes pursuant to the terms of a cash tender offer at a price of 117.0% of par value plus accrued and unpaid interest. The purchase of the 2023 notes was funded with cash on hand and borrowings under our 2015 facility.

The tender offer transaction was considered to be a debt extinguishment. As such, we recognized a loss on extinguishment of $9.7 million which was recorded as a component of interest expense in the accompanying consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2016. Of this loss, approximately $8.5 million was attributable to the purchase premium paid to the lenders and $1.2 million was attributable to the write-off of unamortized debt issuance costs associated with the redeemed notes. In addition to the loss described above, we incurred approximately $0.1 million in third party costs which were recorded to selling, general, and administrative expense in the fourth quarter of 2016.

Senior Unsecured Notes due 2023

As of December 31, 2016, we have $367.6 million outstanding in aggregate principal amount of the 2023 notes that mature on August 15, 2023. The 2023 notes were sold in a private offering at an issue price equal to 100% of their face value. Interest accrues on the 2023 notes at a rate of 10.75% per annum and is payable semi-annually on March 1 and September 1 of each year, commencing on March 1, 2016.

The terms of the notes are governed by an indenture and a supplemental indenture, each dated as of July 31, 2015, among the Company, the guarantors named therein and Wilmington Trust, National Association, as trustee (the “trustee”). Pursuant to the indenture and supplemental indenture, the company’s significant operating subsidiaries serve as guarantors of the 2023 notes. The 2023 notes are the Company’s senior unsecured obligations and will rank equally with all of its existing and future senior unsecured debt and will be senior to all of its existing and future subordinated debt.

The indenture contains certain restrictive covenants, which among other things, limit the ability of the Company to incur additional debt, issue preferred stock, create liens, pay dividends, make certain investments, sell certain assets, enter into certain types of transactions with affiliates, and effect mergers and consolidations. At any time prior to August 15, 2018, the Company may redeem the 2023 notes in whole or in part at a redemption price equal to 100% of the principal amount of the 2023 notes plus a premium as specified in the indenture. At any time on or after August 15, 2018, the Company may redeem the 2023 notes at the redemption prices set forth in the indenture plus accrued and unpaid interest. In addition, the Company may redeem up to 40% of the aggregate principal amount of the 2023 notes with the net cash proceeds of one or more equity offerings, as described in the indenture, at a price equal to 110.75% of the principal amount thereof, plus accrued and unpaid interest. In the event of a change in control, we may be required to repurchase all or part of the 2023 notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest.

2015 Term Loan Credit Agreement

As of December 31, 2016, we have $467.7 million outstanding under the 2015 term loan, which matures on July 31, 2022. The 2015 term loan, which was issued at 99%, bears interest, at our option, at either a eurodollar rate or a base rate, plus, in each case an applicable margin. The margin will be 3.75% per annum in the case of eurodollar rate loans and 2.75% per annum in the case of base rate loans. The 2015 term loan has mandatory principal repayments of $1.175 million which are payable in March, June, September, and December of each year provided that each such payment is subject to reduction as a result of certain prepayments of the loans in accordance with the loan documentation. The weighted average interest rate of the term loan was 5.6% during the year ended December 31, 2016.

2015 Senior Secured Revolving Credit Facility

The 2015 facility provides for an $800.0 million revolving credit line to be used for working capital and general corporate purposes. The available borrowing capacity, or borrowing base, is derived from a percentage of the Company’s eligible receivables and inventory, as defined by the agreement, subject to certain reserves. As of December 31, 2016, the net borrowing availability under the 2015 facility is $667.2 million after being reduced by outstanding letters of credit of $84.8 million. During the year ended December 31, 2016, we borrowed $907.0 million and repaid $967.0 million at a weighted average interest rate of 2.5%. There were no outstanding borrowings under the 2015 facility as of December 31, 2016. The 2015 facility matures on July 31, 2020.

Borrowings under the 2015 facility bear interest, at our option, at either a eurodollar rate or a base rate, plus, in each case an applicable margin. The applicable margin ranges from 1.25% to 1.75% per annum in the case of eurodollar rate loans and 0.25% to 0.75% per annum in the case of base rate loans. The margin in either case is based on a measure of availability under the 2015 facility. A variable commitment fee, currently 0.375% per annum, is charged on the unused amount of the revolver based on quarterly average loan utilization. Letters of credit under the 2015 facility are assessed at a rate equal to the applicable eurodollar margin, currently 1.5%, as well as a fronting fee at a rate of 0.125% per annum. These fees are payable quarterly in arrears at the end of March, June, September, and December.

All obligations under the 2015 term loan and 2015 facility will be guaranteed jointly and severally by the Company and all other subsidiaries that guarantee the 2024 notes. All obligations and the guarantees of those obligations will be secured by substantially all of the assets of the Company and the guarantors subject to certain exceptions and permitted liens, including (i) with respect to the 2015 term loan, a first-priority security interest in such assets that constitute Notes Collateral (as defined below) and a second priority security interest in such assets that constitute ABL Collateral (as defined below), and (ii) with respect to the 2015 facility, a first-priority security interest in such assets that constitute ABL Collateral and a second-priority security interest in such assets that constitute Notes Collateral.

“ABL Collateral” includes substantially all presently owned and after-acquired accounts receivable, inventory, rights of unpaid vendors with respect to inventory, deposit accounts, commodity accounts, securities accounts and lock boxes, investment property, cash and cash equivalents, and general intangibles, books and records, supporting obligations and documents and related letters of credit, commercial tort claims or other claims related to and proceeds of each of the foregoing. “Notes Collateral” includes all collateral which is not ABL collateral.

The 2015 term loan and the 2015 facility contain restrictive covenants which, among other things, limit the Company’s ability to incur additional indebtedness, incur liens, engage in mergers or other fundamental changes, sell certain assets, pay dividends, make acquisitions or investments, prepay certain indebtedness, change the nature of our business, and engage in certain transactions with affiliates. In addition, the 2015 facility also contains a financial covenant requiring the satisfaction of a minimum fixed charge ratio of 1.00 to 1.00 in the event that the Company does not meet a minimum measure of availability, currently the larger of $80.0 million or 10% of the maximum borrowing amount under the 2015 facility.

Senior Secured Notes due 2024

As of December 31, 2016 we have $750.0 million outstanding in aggregate principal amount of the 2024 notes which mature on September 1, 2024. Interest accrues on the 2024 notes at a rate of 5.625% per annum and is payable semi-annually on March 1 and September 1 of each year, commencing on March 1, 2017.

The terms of the 2024 notes are governed by the indenture, dated as of August 22, 2016 (the “Indenture”), among the Company, the guarantors named therein (the “Guarantors”) and Wilmington Trust, National Association, as trustee (the “Trustee”) and notes collateral agent (the “Notes Collateral Agent”). The 2024 notes, subject to certain exceptions, are guaranteed, jointly and severally, on a senior secured basis, by certain of our direct and indirect wholly owned subsidiaries. All obligations under the 2024 notes, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and the Guarantors subject to certain exceptions and permitted liens, including a first-priority security interest in such assets that constitute Notes Collateral (as defined above) and a second-priority security interest in such assets that constitute ABL Collateral (as defined above).

The Notes Collateral Agent became a party to the ABL/Bond Intercreditor Agreement, dated as of May 29, 2013, among SunTrust Bank, as agent under the Company’s 2015 facility, the Wilmington Trust, National Association, the Company and the Guarantors, and the Pari Passu Intercreditor Agreement, dated as of July 31, 2015, among Deutsche Bank AG New York Branch, as term collateral agent under the Company’s 2015 term loan, Wilmington Trust, National Association, the Company and the Guarantors. These documents govern all arrangements in respect of the priority of the security interests in the ABL Collateral and the Notes Collateral among the parties to the Indenture, the 2015 facility and the 2015 term loan. The 2024 notes constitute senior secured obligations of the Company and Guarantors, rank senior in right of payment to all future debt of the Company and Guarantors that is expressly subordinated in right of payment to the 2024 notes, and rank equally in right of payment with all existing and future liabilities of the Company and Guarantors that are not so subordinated, including the 2015 facility.

The Indenture contains restrictive covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, incur additional debt or issue preferred stock; create liens; create restrictions on the Company’s subsidiaries’ ability to make payments to the Company; pay dividends and make other distributions in respect of the Company’s and its subsidiaries’ capital stock; make certain investments or certain other restricted payments; guarantee indebtedness; designate unrestricted subsidiaries; sell certain kinds of assets; enter into certain types of transactions with affiliates; and effect mergers and consolidations.

At any time prior to September 1, 2019, the Company may redeem the 2024 notes in whole or in part at a redemption price equal to 100% of the principal amount of the 2024 notes plus the “applicable premium” set forth in the Indenture. At any time on or after September 1, 2019, the Company may redeem the 2024 notes at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to the redemption date. At any time and from time to time during the 36-month period following August 22, 2016 (“the Closing Date”), the Company may redeem up to 10% of the aggregate principal amount of the 2024 notes during each twelve-month period commencing on the Closing Date at a redemption price of 103% of the aggregate principal amount thereof plus accrued and unpaid interest to the redemption date. In addition, at any time prior to September 1, 2019, the Company may redeem up to 40% of the aggregate principal amount of the 2024 notes with the net cash proceeds of one or more equity offerings, as described in the Indenture, at a price equal to 105.625% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date. If the Company experiences certain change of control events, holders of the 2024 notes may require it to repurchase all or part of their 2024 notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date.

As of December 31, 2016 we were not in violation of any covenants or restrictions imposed by any of our debt agreements.

Future maturities of long-term debt as of December 31, 2016 were as follows (in thousands):

Year ending December 31,
2017		$	4,700
2018			4,700
2019			4,700
2020			4,700
2021			4,700
Thereafter			1,561,758
Total long-term debt (including current maturities)		$	1,585,258

Warrants

Our previous term loan included detachable warrants that allowed for the purchase of up to 1.6 million shares of our common stock at a price of $2.50 per share. In April 2015, the remaining 0.7 million of outstanding, detachable warrants were exercised. The warrants were considered to be derivative financial instruments and were classified as liabilities. As such, they were measured at fair value on a recurring basis. Our share price and, to a lesser extent, the historical volatility of our common stock were the primary factors in the changes to our fair value measurements related to the warrants. All other inputs being equal, an increase or decrease in our share price or volatility resulted in an increase or decrease in the fair value of our warrants and an increase or decrease in interest expense.

Non-cash fair value adjustments related to our derivative financial instrument recorded as interest expense in the consolidated statements of operations and comprehensive income (loss) for the years ended December 31 (in thousands) were as follows:

Derivative Not Designated as Hedging Instruments		Location of Gain (Loss) Recognized in Income		Amount of Gain (Loss) Recognized in Income
		2016				2015				2014
Warrants		Interest expense, net			—				(4,563)				456

We used the income approach to value our warrants by using the Black-Scholes option-pricing model. Using this model, the risk-free interest rate was based on the U.S. Treasury yield curve in effect on the valuation date. The expected life was based on the period of time until the expiration of the warrants. Expected volatility was based on the historical volatility of our common stock over the most recent period equal to the expected life of the warrants. The expected dividend yield was based on our history of not paying regular dividends in the past.

These techniques incorporated Level 1 and Level 2 inputs. Significant inputs to the derivative valuation for the warrants were observable in the active markets and are classified as Level 2 in the hierarchy.

Lease Finance Obligations

As a result of the ProBuild acquisition, the Company is party to 150 individual property lease agreements with a single lessor as of December 31, 2016. These lease agreements have initial terms ranging from nine to fifteen years (expiring from 2016 through 2021) and renewal options in five-year increments providing for up to approximately 30-year remaining total lease terms. A related agreement between the lessor and the Company gives the Company the right to acquire a limited number of the leased facilities at fair market value. As a result of these purchase rights, the Company treats all of the properties that it leases from this lessor as a financing arrangement. The Company is also party to certain additional agreements with the same lessor which commit the Company to perform certain repair and maintenance obligations under the leases in a specified manner and timeframe.

In 2006, we completed construction on a new multi-purpose facility. Based on the evaluation of the construction project in accordance with the Leases topic of the Codification, we were deemed the owner of the facility during the construction period. Effectively, a sale and leaseback of the facility occurred when construction was completed and the lease term began. This transaction did not qualify for sale-leaseback accounting. As a result the Company treats the lease of this facility as a financing arrangement.

As of December 31, 2016, lease finance obligations consist of $238.5 million, with cash payments of $23.8 million for the year ended December 31, 2016. These lease finance obligations are included on the consolidated balance sheet as a component of long-term debt and lease obligations. The related assets are recorded as components of property, plant, and equipment on the consolidated balance sheet.

Future minimum commitments for lease finance obligations as of December 31, 2016 were as follows (in thousands):

Year ending December 31,
2017		$	19,009
2018			18,974
2019			18,975
2020			18,893
2021			18,230
Thereafter			262,481
Total		$	356,562

9. Capital Lease Obligations

The Company leases certain property and equipment under capital leases expiring through 2020. These leases require monthly payments of principal and interest, imputed at various interest rates. Future minimum lease payments as of December 31, 2016 are as follows (in thousands):

Years ending December 31,
2017		$	3,426
2018			2,045
2019			2,391
2020			89
Thereafter			—
Total minimum lease payments			7,951
Less: amount representing interest			(524	)
Present value of net minimum payments			7,427
Less: current portion			(3,130	)
Long-term capital lease obligations, net of current portion		$	4,297

10. Employee Stock-Based Compensation

2014 Incentive Plan

Under our 2014 Incentive Plan (“2014 Plan”), the Company is authorized to grant awards in the form of incentive stock options, non-qualified stock options, restricted stock shares, restricted stock units, other common stock-based awards and cash-based awards. In May 2016, our shareholders approved an amendment to our 2014 Plan that increased the number of shares of common stock reserved for the grant of awards under the 2014 Plan from 5.0 million shares to 8.5 million shares, subject to adjustment as provided by the 2014 Plan. All 8.5 million shares under the Plan may be made subject to options, stock appreciation rights (“SARs”), or stock-based awards. Stock options and SARs granted under the 2014 Plan may not have a term exceeding 10 years from the date of grant. The 2014 Plan also provides that all awards will become fully vested and/or exercisable upon a change in control (as defined in the 2014 Plan) if those awards (i) are not assumed or equitably substituted by the surviving entity or (ii) have been assumed or equitably substituted by the surviving entity, and the grantee’s employment is terminated under certain circumstances. Other specific terms for awards granted under the 2014 Plan shall be determined by our Compensation Committee (or the board of directors if so determined by the board of directors). Awards granted under the 2014 Plan generally vest ratably over a three to four year period. As of December 31, 2016, 6.0 million shares were available for issuance under the 2014 Plan.

2007 Incentive Plan

Under our 2007 Incentive Plan (“2007 Plan”), the Company is authorized to grant awards in the form of incentive stock options, non-qualified stock options, restricted stock, other common stock-based awards and cash-based awards. In January 2010, our shareholders approved an amendment to our 2007 Plan which increased the number of shares of common stock that may be granted pursuant to awards under the 2007 Plan from 2.5 million shares to 7.0 million shares. The maximum number of common shares reserved for the grant of awards under the 2007 Plan is 7.0 million, subject to adjustment as provided by the 2007 Plan. No more than 7.0 million shares may be made subject to options or SARs granted under the 2007 Plan, and no more than 3.5 million shares may be made subject to stock-based awards other than options or SARs. Stock options and SARs granted under the 2007 Plan may not have a term exceeding 10 years from the date of grant. The 2007 Plan also provides that all awards will become fully vested and/or exercisable upon a change in control (as defined in the 2007 Plan). Other specific terms for awards granted under the 2007 Plan shall be determined by our Compensation Committee (or the board of directors if so determined by the board of directors). Historically, awards granted under the 2007 Plan generally vest ratably over a three to four-year period. As of December 31, 2016, 94,000 shares were available for issuance under the 2007 Plan, 94,000 of which may be made subject to stock-based awards other than options or SARs.

2005 Equity Incentive Plan

Under our 2005 Equity Incentive Plan (“2005 Plan”), we were authorized to grant stock-based awards in the form of incentive stock options, non-qualified stock options, restricted stock and other common stock-based awards. Stock options and SARs granted under the 2005 Plan could not have a term exceeding 10 years from the date of grant. The 2005 Plan also provided that all awards become fully vested and/or exercisable upon a change in control (as defined in the 2005 Plan). Historically, awards granted under the 2005 Plan generally vest ratably over a three-year period. As of June 27, 2015, no further grants will be made under the 2005 Plan.

1998 Stock Incentive Plan

Under the Builders FirstSource, Inc. 1998 Stock Incentive Plan (“1998 Plan”), we were authorized to issue shares of common stock pursuant to awards granted in various forms, including incentive stock options, non-qualified stock options and other stock-based awards. The 1998 Plan also authorized the sale of common stock on terms determined by our board of directors. Stock options granted under the 1998 Plan generally cliff vest after a period of seven to nine years with certain option grants subject to acceleration if certain financial targets were met. The expiration date is generally 10 years subsequent to date of issuance. As of January 1, 2005, no further grants will be made under the 1998 Plan.

Stock Options

The following table summarizes our stock option activity:

		Options				Weighted Average Exercise Price				Weighted Average Remaining Years				Aggregate Intrinsic Value
		(In thousands)												(In thousands)
Outstanding at December 31, 2015			4,998			$	5.19
Granted			63			$	6.59
Exercised			(1,496	)		$	4.43
Forfeited			(50	)		$	7.49
Outstanding at December 31, 2016			3,515			$	5.51				5.4			$	19,184
Exercisable at December 31, 2016			2,489			$	4.71				4.6			$	15,592

The outstanding options at December 31, 2016 include options to purchase 203,000 shares under the 2014 plan, 2,342,000 shares granted under the 2007 Plan, 554,000 shares granted under the 2005 Plan and 416,000 shares granted under the 1998 Plan. As of December 31, 2016, options to purchase 35,000 shares under the 2014 Plan, 1,759,000 shares under the 2007 Plan, 279,000 shares under the 2005 Plan and 416,000 shares under the 1998 Plan were exercisable. The weighted average grant date fair value of options granted during the years ended December 31, 2016, 2015 and 2014 were $3.71, $4.20 and $5.71, respectively. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015, and 2014 were $11.6 million, $12.8 million and $2.0 million, respectively. We realized no excess tax benefits for stock options exercised during the years ended December 31, 2016, 2015 and 2014. Vesting of all of our stock options is contingent solely on continuous employment over the requisite service period.

Outstanding and exercisable stock options at December 31, 2016 were as follows (shares in thousands):

		Outstanding												Exercisable
Range of Exercise Prices		Shares				Weighted Average Exercise Price				Weighted Average Remaining Years				Shares				Weighted Average Exercise Price
$3.15			416			$	3.15				6.1				416			$	3.15
$3.19 - $3.72			1,189			$	3.20				3.1				1,189			$	3.20
$6.35 - $6.70			286			$	6.50				6.3				117			$	6.60
$7.15- $7.67			1,624			$	7.63				6.7				767			$	7.59
$3.15 - $7.67			3,515			$	5.51				5.4				2,489			$	4.71

Restricted Stock Shares

The following table summarizes restricted stock activity for the year ended December 31, 2016 (shares in thousands):

		Shares				Weighted Average Grant Date Fair Value
Nonvested at December 31, 2015			13			$	3.72
Granted			—			$	—
Vested			(13	)		$	3.72
Forfeited			—			$	—
Nonvested at December 31, 2016			—			$	—

Restricted Stock Units

The outstanding restricted stock units (“RSUs”) at December 31, 2016 include 1,864,000 units granted under the 2014 Plan and 313,000 units granted under the 2007 Plan.

The following table summarizes activity for RSUs subject solely to service conditions for the year ended December 31, 2016 (shares in thousands):

		Shares				Weighted Average Grant Date Fair Value
Nonvested at December 31, 2015			1,516			$	7.49
Granted			705			$	10.68
Vested			(505	)		$	7.69
Forfeited			(59	)		$	8.14
Nonvested at December 31, 2016			1,657			$	8.77

The weighted average grant date fair value of RSUs for which vesting is subject solely to service conditions granted during the years ended December 31, 2016, 2015 and 2014 were $10.68, $7.26, and $7.48, respectively.

The following table summarizes activity for RSUs subject to both performance and service conditions for the year ended December 31, 2016 (shares in thousands):

		Shares				Weighted Average Grant Date Fair Value
Nonvested at December 31, 2015			—			$	—
Granted			265			$	10.96
Vested			—			$	—
Forfeited			(5	)		$	11.09
Nonvested at December 31, 2016			260			$	10.95

The weighted average grant date fair value of RSUs for which vesting is subject to both performance and service conditions granted during the year ended December 31, 2016 was $10.96. There were no RSUs granted in 2015 or 2014 which were subject to both performance and service conditions.

The following table summarizes activity for RSUs subject to both market and service conditions for the year ended December 31, 2016 (shares in thousands):

		Shares				Weighted Average Grant Date Fair Value
Nonvested at December 31, 2015			—			$	—
Granted			265			$	7.58
Vested			—			$	—
Forfeited			(5	)		$	7.72
Nonvested at December 31, 2016			260			$	7.58

The weighted average grant date fair value of RSUs for which vesting is subject to both market and service conditions granted during the year ended December 31, 2016 was $7.58. There were no RSUs granted in 2015 or 2014 which were subject to both market and service conditions.

Our results of operations include stock compensation expense of $10.5 million ($6.3 million net of taxes), $6.9 million ($6.9 million net of taxes) and $6.2 million ($6.2 million net of taxes) for the years ended December 31, 2016, 2015 and 2014, respectively. The total fair value of options vested during the years ended December 31, 2016, 2015, and 2014 were $2.8 million, $2.7 million and $3.0 million, respectively. The total fair value of restricted stock vested during the years ended December 31, 2016, 2015 and 2014 were $49,600, $49,600 and $2.0 million, respectively. The total fair value of RSUs vested during the years ended December 31, 2016 and 2015 were $3.9 million and $3.7 million, respectively. There were no RSUs which vested in 2014.

As of December 31, 2016, there was $14.1 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plans. That cost is expected to be recognized over a weighted-average period of 1.6 years.

11. Facility Closure Costs

When we close certain facilities, primarily related to location consolidation initiatives, we recognize expense related to the minimum future lease obligations over the remaining lease terms on closed facilities, net of estimated sub-rental income as well as employee severance costs. These expenses are recorded in selling, general, and administrative expense in the accompanying consolidated statement of operations and comprehensive income (loss).

An analysis of our facility closure reserves for the periods reflected is as follows:

		2014							Additions				Assumed in Acquisition					Payments					2015				Additions				Payments				2016
						(In thousands)
Facility and other exit costs, net of estimated sub-lease rental income		$	1,147						$	2,836			$	12,494			$	(3,942	)		$	12,535				$	464			$	(4,776	)		$		8,223
Employee severance and termination benefits			—							1,434				—				(1,181	)			253					117				(358	)				12
Total facility closure reserve		$	1,147						$	4,270			$	12,494			$	(5,123	)		$	12,788				$	581			$	(5,134	)		$		8,235

The Company assumed $12.5 million of exit cost reserves as part of the ProBuild acquisition during 2015. The facility and other exit cost reserves of $8.2 million at December 31, 2016, of which $4.3 million is recorded as other long-term liabilities, are primarily related to future minimum lease payments on vacated facilities.

As plans to close facilities are developed and executed, assets that can be used at other facilities are transferred and assets to be abandoned or sold are written down to their net realizable value, including any long-lived assets. In situations where multiple facilities serve the same market we may temporarily close, or idle, facilities with plans to reopen these facilities once demand returns to the market. In these situations, finite lived assets continue to be depreciated and assessed for impairment. Should conditions in our markets worsen, or recovery take significantly longer than forecasted, we may temporarily idle or permanently close additional facilities, at which time we may incur additional facility closure costs or asset impairment charges. Future non-cash impairment charges would have the effect of decreasing our earnings or increasing our losses in such period, but would not impact our current outstanding debt obligations or compliance with covenants contained in the related debt agreements. We continuously monitor economic conditions in all of our markets and changes in market conditions may warrant future closings or idling of facilities. In addition, as we continue the integration of ProBuild we may close or idle other facilities.

12. Income Taxes

The components of income tax expense (benefit) included in continuing operations were as follows for the years ended December 31:

		2016				2015				2014
		(In thousands)
Current:
Federal		$	—			$	—			$	—
State			2,115				1,100				587
			2,115				1,100				587
Deferred:
Federal			(110,720	)			2,530				457
State			(14,067	)			757				67
			(124,787	)			3,287				524
Income tax expense (benefit)		$	(122,672	)		$	4,387			$	1,111

Temporary differences, which give rise to deferred tax assets and liabilities, were as follows as of December 31:

		2016				2015
		(In thousands)
Deferred tax assets related to:
Accrued expenses		$	13,100			$	6,786
Insurance reserves			15,128				7,156
Facility closure reserves			564				429
Stock-based compensation expense			7,429				7,284
Accounts receivable			5,023				1,358
Inventories			24,628				8,200
Operating loss and credit carryforwards			87,610				110,425
Goodwill and other intangible assets			—				9,176
Other			—				4,494
			153,482				155,308
Valuation allowance			(4,821	)			(136,548	)
Total deferred tax assets			148,661				18,760
Deferred tax liabilities related to:
Prepaid expenses			(3,799	)			(6,344	)
Goodwill and other intangible assets			(15,956	)			(11,502	)
Property, plant and equipment			(13,058	)			(10,381	)
Other			(528	)			—
Total deferred tax liabilities			(33,341	)			(28,227	)
Net deferred tax asset (liability)		$	115,320			$	(9,467	)

A reconciliation of the statutory federal income tax rate to our effective rate for continuing operations is provided below for the years ended December 31:

		2016				2015				2014
Statutory federal income tax rate			35.0	%			35.0	%			35.0	%
State income taxes, net of federal income tax			6.1				8.3				5.2
Valuation allowance			(607.9	)			(52.1	)			(36.5	)
Permanent difference – 162(m) limitation			0.6				(5.4	)			0.7
Permanent difference – Warrant mark to market			—				(8.6	)			(0.8	)
Permanent difference – Other			(0.8	)			(0.9	)			2.0
Other			0.9				0.1				—
			(566.1	)%			(23.6	)%			5.6	%

Section 382 of the Internal Revenue Code imposes annual limitations on the utilization of net operating loss (“NOL”) carryforwards, other tax carryforwards, and certain built-in losses upon an ownership change as defined under that section. In general terms, an ownership change may result from transactions that increase the aggregate ownership of certain stockholders in the Company’s stock by more than 50 percentage points over a three year testing period (“Section 382 Ownership Change”). If the Company were to experience a Section 382 Ownership Change, an annual limitation would be imposed on certain of the Company’s tax attributes, including NOL and capital loss carryforwards, and certain other losses, credits, deductions or tax basis.

At December 31, 2016 and 2015, the Company had deferred tax assets, net of deferred tax liabilities, of $120.1 million and $127.1 million, respectively, offset by valuation allowances of $4.8 million and $136.5 million, respectively. We have $411.4 million of state net operating loss carry-forwards, which includes $2.5 million of state tax credit carry-forwards expiring at various dates through 2036. We also have $226.5 million of federal net operating loss carry-forwards that will expire at various dates through 2036. The federal and state net operating loss carry-forwards include approximately $23.3 million of gross windfall tax benefits from stock option exercises that have not been recorded as of December 31, 2016. At December 31, 2016, the Company needed to generate approximately $287.6 million of pre-tax income in future periods to realize its federal deferred tax assets.

We evaluate our deferred tax assets on a quarterly basis to determine whether a valuation allowance is required. In accordance with the Income Taxes topic of the Codification, we assess whether it is more likely than not that some or all of our deferred tax assets will not be realized. Significant judgment is required in estimating valuation allowances for deferred tax assets and in making this determination, we consider all available positive and negative evidence. In the Company’s evaluation of its ability to realize its deferred tax assets, we gave more significant weight to evidence that was objective in nature as compared to subjective evidence. Also, more significant weight was given to evidence that relates to the Company’s current financial performance. The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in the applicable carryback or carryforward periods. We consider the nature, frequency, and severity of current and cumulative losses, as well as historical and forecasted financial results, the overall business environment, our industry's historic cyclicality, the reversal of existing deferred tax liabilities, and tax planning strategies in our assessment. Changes in our estimates of future taxable income and tax planning strategies will affect our estimate of the realization of the tax benefits of these tax carryforwards.

We recorded a full valuation allowance in 2008 due to our cumulative three-year loss position at that time, compounded by the negative industry-wide business trends and outlook. At December 31, 2015, the Company had given significant weight to the negative objective evidence of the historically weak housing market conditions during the housing downturn that contributed to our three-year cumulative pre-tax loss position when reporting a valuation allowance of $136.5 million against our deferred income tax assets, representing a valuation allowance against substantially all of our net deferred income tax assets.

In the second quarter of 2016, we moved from a cumulative loss position over the previous three years to a cumulative income position for the first time since we established the full valuation allowance in 2008. We continued to maintain a cumulative income position over the previous three years into the third quarter of 2016. In the Company’s evaluation at September 30, 2016, we gave the most significant weight to this objective positive evidence related to its recent financial results. Additionally, even conservative projections of the Company’s estimated future annual pre-tax income would indicate realization of all of its federal net operating losses well in advance of the expiration of the Company’s NOL carryforwards and it would also absorb all federal deductible temporary differences as they reverse in future years. The Company considered, at a lower weighting, the subjective positive evidence that it expects to increase its pre-tax income in future years as the homebuilding industry continues to recover and strengthen as currently projected by a composite of third-party sources, including the NAHB. Therefore, at September 30, 2016, with this positive historical evidence and the projection of future profitability, management determined that there was sufficient positive evidence to conclude that it is more likely than not that we would realize our net federal and certain state deferred tax assets, resulting in a $117.6 million and $3.2 million benefit being recognized in our provision for income taxes for the third and fourth quarter of 2016, respectively.

Prior to the quarter ended June 30, 2016, the Company had given significant weight to the negative objective evidence of its three-year cumulative pre-tax loss position as a result of losses incurred in prior years during the housing downturn. As of June 30, 2016 and September 30, 2016, the Company had generated positive cumulative pre-tax income for the past three years and therefore, the prior year losses were weighted less than the recent positive financial results in the Company’s evaluation at September 30, 2016. Other negative subjective evidence, such as the cyclical, slower-than-anticipated housing market recovery, was considered at a lower weighting because the Company’s recent financial performance has been achieved in this environment.

As of December 31, 2016, we have certain states where we are not currently projecting future taxable income levels that would be sufficient to utilize the carryover net operating losses and as such continue to maintain a valuation allowance against certain of these state deferred tax assets. We will continue to assess quarterly whether it is more likely than not that some or all of these state deferred tax assets will be realizable in the future. Changes in the positive and negative evidence, including differences in the Company’s future operating results as compared to the estimates utilized in the determination of the valuation allowance, could result in changes in the Company’s estimate of the valuation allowance related to its tax benefits for state net operating loss carryforwards.

In 2016 we recorded a reduction to the valuation allowance of $131.7 million against our net deferred tax assets as we released valuation allowances on our net deferred tax assets as noted above. In 2015, we recorded a valuation allowance of $9.7 million related to our continuing operations. In 2014, we reduced our valuation allowance by $7.2 million due to the utilization of net operating losses against federal and state taxable income.

We base our estimate of deferred tax assets and liabilities on current tax laws and rates. In certain cases, we also base our estimate on business plan forecasts and other expectations about future outcomes. Changes in existing tax laws or rates could affect our actual tax results, and future business results may affect the amount of our deferred tax liabilities or the valuation of our deferred tax assets over time. Due to uncertainties in the estimation process, particularly with respect to changes in facts and circumstances in future reporting periods, as well as the residential homebuilding industry’s cyclicality and sensitivity to changes in economic conditions, it is possible that actual results could differ from the estimates used in previous analyses.

Accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on our consolidated results of operations or financial position.

The following table shows the changes in our valuation allowance:

		2016				2015				2014
		(In thousands)
Balance at January 1,		$	136,548			$	133,183			$	143,682
Additions charged to expense:
Continuing operations			—				9,679				—
Discontinued operations			—				—				131
Reductions credited to expense:
Continuing operations			(131,727	)			—				(7,178	)
Discontinued operations			—				(55	)			—
Deductions			—				(6,259	)			(3,452	)
Balance at December 31,		$	4,821			$	136,548			$	133,183

We accrue interest and penalties on our uncertain tax positions as a component of our provision for income taxes. We accrued no significant interest and penalties in 2016, 2015 or 2014. We had a total of $0.3 million and $0.3 million accrued for interest and penalties for our uncertain tax positions as of December 31, 2016 and 2015, respectively.

The following table shows the changes in the amount of our uncertain tax positions (exclusive of the effect of interest and penalties):

		2016				2015				2014
		(In thousands)
Balance at January 1,		$	208			$	378			$	950
Tax positions taken in prior periods:
Gross increases			18				—				2
Gross decreases			—				—				—
Tax positions taken in current period:
Gross increases			23				12				13
Settlements with taxing authorities			—				—				—
Lapse of applicable statute of limitations			(0	)			(182	)			(587	)
Balance at December 31,		$	249			$	208			$	378

The balance for uncertain tax positions was $0.2 million as of December 31, 2016 excluding penalties and interest.

We are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. Based on completed examinations and the expiration of statutes of limitations, we have concluded all U.S. federal income tax matters for years through 2012. We report in 41 states with various years open to examination.

13. Employee Benefit Plans

As a result of the ProBuild acquisition we maintain two active defined contribution 401(k) plans. Our employees are eligible to participate in the plans subject to certain employment eligibility provisions. Participants can contribute up to 15% of their annual compensation, subject to federally mandated maximums. Participants are immediately vested in their own contributions. We match a certain percentage of the contributions made by participating employees, subject to IRS limitations. Our matching contributions are subject to a pro-rata five-year vesting schedule. We recognized expense of $4.6 million, $6.5 million and $0.4 million in 2016, 2015 and 2014, respectively, for contributions to the plan.

Through the ProBuild acquisition, the Company acquired a defined benefit plan, the ProBuild Retirement Plan, which was terminated as of January 30, 2015. The Company has made all remaining plan benefit distributions and the plan was fully terminated and settled as of December 31, 2015.

The Company contributes to multiple collectively bargained union retirement plans including multiemployer plans. The Company does not administer the multiemployer plans, and contributions are determined in accordance with the provisions of negotiated labor contracts. The risks of participating in multiemployer plans are different from single-employer plans. Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to a multiemployer plan, the unfunded obligations of that multiemployer plan may be borne by the remaining participating employers. If the Company chooses to stop participating in a multiemployer plan, the Company may be required to pay that plan an amount (“withdrawal liability”) based on the plan’s formula and the underfunded status of the plan attributable to the Company. Contributions to the plans for the years ended December 31, 2016 and 2015 were not significant.

14. Commitments and Contingencies

We lease certain land, buildings and equipment used in operations. These leases are generally accounted for as operating leases with initial terms ranging from one to 20 years and they generally contain renewal options. Certain operating leases are subject to contingent rentals based on various measures, primarily consumer price index increases. We also lease certain properties from related parties, including current employees and non-affiliate stockholders. Total rent expense under operating leases was approximately $68.7 million, $43.6 million and $25.4 million for the years ended December 31, 2016, 2015, and 2014, respectively.

In addition, we have residual value guarantees on certain equipment leases. Under these leases we have the option of (a) purchasing the equipment at the end of the lease term, (b) arranging for the sale of the equipment to a third party, or (c) returning the equipment to the lessor to sell the equipment. If the sales proceeds in any case are less than the residual value, we are required to reimburse the lessor for the deficiency up to a specified level as stated in each lease agreement. If the sales proceeds exceed the residual value, we are entitled to all of such excess amounts. The guarantees under these leases for the residual values of equipment at the end of the respective operating lease periods approximated $3.9 million as of December 31, 2016. Based upon the expectation that none of these leased assets will have a residual value at the end of the lease term that is materially less than the value specified in the related operating lease agreement or that we will purchase the equipment at the end of the lease term, we do not believe it is probable that we will be required to fund any amounts under the terms of these guarantee arrangements. Accordingly, no accruals have been recognized for these guarantees.

Future minimum commitments for noncancelable operating leases with initial or remaining lease terms in excess of one year are as follows:

		Related Party				Total*
		(In thousands)
Year ending December 31,
2017		$	1,010			$	67,213
2018			336				57,619
2019			350				46,536
2020			360				33,056
2021			375				22,915
Thereafter			1,019				56,192
		$	3,450			$	283,531

*	Includes related party future minimum commitments for noncancelable operating leases.

As of December 31, 2016, we had outstanding letters of credit totaling $84.8 million under our 2015 facility that principally support our self-insurance programs.

Beginning in the fourth quarter, the Company has seen an increased occurrence of known and threatened construction defect legal claims primarily in two states. While these claims are generally covered under the Company’s existing insurance programs to the extent any loss exceeds the deductible, there is a reasonable possibility of loss that is not able to be estimated at this time because (i) many of the proceedings are in the discovery stage, (ii) the outcome of future litigation is uncertain, and/or (iii) the complex nature of the claims. Although the Company cannot estimate a reasonable range of loss based on currently available information, the resolution of these matters could have an adverse effect on the Company's financial position, results of operations or cash flows.

We are a party to various legal proceedings in the ordinary course of business. Although the ultimate disposition of these proceedings cannot be predicted with certainty, management believes the outcome of any claim that is pending or threatened, either individually or on a combined basis, will not have a material adverse effect on our consolidated financial position, cash flows or

results of operations. However, there can be no assurances that future adverse judgments and costs would not be material to our results of operations or liquidity for a particular period.

15. Segment and Product Information

We offer an integrated solution to our customers providing manufacturing, supply, and installation of a full range of structural and related building products. We provide a wide variety of building products and services directly to homebuilder customers. We manufacture floor trusses, roof trusses, wall panels, stairs, millwork, windows, and doors. We also provide a full range of construction services. These product and service offerings are distributed across 400 locations operating in 40 states across the United States, which have been reorganized into nine geographical regions following the ProBuild acquisition. Centralized financial and operational oversight, including resource allocation and assessment of performance on an income (loss) from continuing operations before income taxes basis, is performed by our CEO, whom we have determined to be our chief operating decision maker (“CODM”).

As a result of the reorganization following the ProBuild acquisition, the Company has nine operating segments aligned with its nine geographical regions (Regions 1 through 9). While all of our operating segments have similar nature of products, distribution methods and customers, certain of our operating segments have been aggregated due to also containing similar economic characteristics, resulting in the following composition of reportable segments:

	•	Regions 1 and 2 have been aggregated to form the “Northeast” reportable segment

	•	Regions 3 and 5 have been aggregated to form the “Southeast” reportable segment

	•	Regions 4 and 6 have been aggregated to form the “South” reportable segment

	•	Region 7, 8 and 9 have been aggregated to form the “West” reportable segment

In addition to our reportable segments, our consolidated results include corporate overhead, other various operating activities that are not internally allocated to a geographical region nor separately reported to the CODM, and certain reconciling items primarily related to allocations of corporate overhead and rent expense, which have collectively been presented as “All Other”. The accounting policies of the segments are consistent with those described in Note 2, except for noted reconciling items.

The following tables present Net sales, Income (loss) before income taxes and certain other measures for the reportable segments, reconciled to consolidated total operations, for the years ended December 31, (in thousands):

		2016
Reportable segments		Net Sales				Depreciation & Amortization				Interest				Income (loss) before income taxes
Northeast		$	1,204,099			$	18,220			$	18,660			$	35,356
Southeast			1,367,933				11,384				19,956				37,158
South			1,704,753				22,139				22,331				69,846
West			1,939,206				33,775				27,143				72,649
Total reportable segments			6,215,991				85,518				88,090				215,009
All other			151,293				24,275				126,577				(193,340	)
Total consolidated		$	6,367,284			$	109,793			$	214,667			$	21,669
		2015
Reportable segments		Net Sales				Depreciation & Amortization				Interest				Income (loss) before income taxes
Northeast		$	626,985			$	4,201			$	7,508			$	28,862
Southeast			917,022				5,296				14,598				14,607
South			1,073,240				10,649				12,707				50,878
West			786,476				5,824				6,118				35,170
Total reportable segments			3,403,723				25,970				40,931				129,517
All other			160,702				32,310				68,268				(147,961	)
Total consolidated		$	3,564,425			$	58,280			$	109,199			$	(18,444)

		2014
Reportable segments		Net Sales				Depreciation & Amortization				Interest				Income (loss) before income taxes
Northeast		$	229,998			$	1,068			$	3,634			$	3,464
Southeast			672,059				2,743				11,925				5,465
South			558,446				2,621				7,666				17,804
West			—				—				—				—
Total reportable segments			1,460,503				6,432				23,225				26,733
All other			143,593				3,087				7,124				(7,472	)
Total consolidated		$	1,604,096			$	9,519			$	30,349			$	19,261

Asset information by segment is not reported internally or otherwise reviewed by the CODM nor does the company earn revenues or have long-lived assets located in foreign countries. The Company’s net sales by product category for the periods indicated were as follows (in thousands):

Sales by product category were as follows for the years ended December 31:

		2016				2015				2014
		(In thousands)
Lumber & lumber sheet goods		$	2,131,394			$	1,129,684			$	535,279
Windows, doors & millwork			1,286,151				818,131				446,433
Manufactured products			1,097,665				635,338				311,994
Gypsum, roofing & insulation			520,007				264,894				61,114
Siding, metal & concrete products			622,344				319,618				81,894
Other building & product services			709,723				396,760				167,382
Total sales		$	6,367,284			$	3,564,425			$	1,604,096

In the above presentation of the Company’s net sales by product category, prior periods have been revised to reflect a re-categorization of certain product sales within the respective product categories to be consistent with how management views the business after further refinement from the ongoing evaluations following the ProBuild acquisition. Install labor sales are reflected in the “Other building products & services” category.

16. Related Party Transactions

Floyd F. Sherman, our chief executive officer, and Brett Milgrim, a member of the Company’s board of directors, serve on the board of directors for PGT, Inc.. We purchased windows from PGT, Inc. totaling $11.4 million, $9.3 million and $6.3 million in 2016, 2015 and 2014, respectively. We had accounts payable to PGT, Inc. in the amounts of $1.4 million and $1.1 million as of December 31, 2016 and 2015, respectively.

In 2016, 2015 and 2014, we paid approximately $0.7 million, $1.0 million and $0.9 million, respectively, in rental expense to employees or our non-affiliate stockholders for leases of land and buildings.

Transactions between the Company and other related parties occur in the ordinary course of business. However, the Company carefully monitors and assesses related party relationships. Management does not believe that any of these transactions with related parties had a material impact on the Company’s results for the years ended December 31, 2016, 2015 or 2014.

17. Unaudited Quarterly Financial Data

The following tables summarize the consolidated quarterly results of operations for 2016 and 2015 (in thousands, except per share amounts):

				2016
		First Quarter						Second Quarter				Third Quarter				Fourth Quarter
Net sales		$	1,397,114					$	1,677,300			$	1,745,958			$	1,546,912
Gross margin			349,748						418,331				437,094				391,575
Net income (loss)			(16,980		)	(1)			29,441	(2)			125,469	(3)			6,411	(4)
Net income (loss) per share
Basic		$	(0.15		)	(1)		$	0.27	(2)		$	1.13	(3)		$	0.06	(4)
Diluted		$	(0.15		)	(1)		$	0.26	(2)		$	1.10	(3)		$	0.06	(4)

				2015
		First Quarter						Second Quarter				Third Quarter				Fourth Quarter
Net sales		$	370,986					$	461,521			$	1,276,063			$	1,455,855
Gross margin			83,733						110,614				324,774				382,337
Net income (loss)			(7,070		)	(5)			3,576	(6)			(8,757	)	(7)		(10,580	)	(8)
Net income (loss) per share
Basic		$	(0.07		)	(5)		$	0.04	(6)		$	(0.08	)	(7)	$	(0.10	)	(8)
Diluted		$	(0.07		)	(5)		$	0.03	(6)		$	(0.08	)	(7)	$	(0.10	)	(8)

(1)	Includes a gain on debt extinguishment of $7.8 million as discussed in Note 8 and a valuation allowance of $5.1 million as discussed in Note 12.

(2)	Includes a loss on debt extinguishment of $1.7 million as discussed in Note 8 and a valuation allowance of $(16.0) million as discussed in Note 12.

(3)	Includes a loss on debt extinguishment and financing costs of $53.3 million as discussed in Note 8 and a valuation allowance of $(117.6) million as discussed in Note 12.

(4)	Includes a loss on debt extinguishment of $9.7 million as discussed in Note 8 and a valuation allowance of $(3.2) million as discussed in Note 12.

(5)	Includes acquisition costs of $5.5 million as discussed in Note 3, fair value adjustments for the warrants of $0.2 million as discussed in Note 8 and a valuation allowance of $3.1 million as discussed in Note 12.

(6)	Includes acquisition costs of $6.4 million as discussed in Note 3, fair value adjustments for the warrants of $4.7 million as discussed in Note 8 and a valuation allowance of $(1.3) million as discussed in Note 12.

(7)	Includes acquisition costs of $8.8 million as discussed in Note 3, financing costs of $13.2 million as discussed in Note 8 and a valuation allowance of $1.1 million as discussed in Note 12.

(8)	Includes acquisition costs of $0.2 million as discussed in Note 3 and a valuation allowance of $6.8 million as discussed in Note 12.

Earnings per share is computed independently for each of the quarters presented; therefore, the sum of the quarterly earnings per share may not equal the annual earnings per share.

In the below presentation of the Company’s net sales by product category, prior quarterly periods for 2016 and 2015 have been revised to reflect a re-categorization of certain product sales within the respective product categories to be consistent with how management views the business after further refinement from the ongoing evaluations following the ProBuild acquisition. Install labor sales are reflected in the “Other building products & services” category.

Sales by product category were as follows (in thousands):

		Three Months Ended
		March 31, 2016				June 30, 2016				September 30, 2016				December 31, 2016
Lumber & lumber sheet goods		$	461,415			$	560,877			$	592,770			$	516,332
Windows, doors & millwork			296,668				329,424				337,155				322,904
Manufactured products			236,233				286,446				301,563				273,423
Gypsum, roofing & insulation			112,302				138,662				145,618				123,425
Siding, metal & concrete products			131,966				168,070				176,557				145,751
Other building products & services			158,530				193,821				192,295				165,077
Net Sales		$	1,397,114			$	1,677,300			$	1,745,958			$	1,546,912

		Three Months Ended
		March 31, 2015				June 30, 2015				September 30, 2015				December 31, 2015
Lumber & lumber sheet goods		$	117,927			$	144,974			$	409,492			$	457,291
Windows, doors & millwork			108,796				129,215				268,029				312,091
Manufactured products			74,307				98,634				223,258				239,139
Gypsum, roofing & insulation			13,690				17,394				108,045				125,765
Siding, metal & concrete products			18,595				25,152				127,930				147,941
Other building products & services			37,671				46,152				139,309				173,628
Net Sales		$	370,986			$	461,521			$	1,276,063			$	1,455,855

18. Subsequent Event

On February 23, 2017, we repriced our existing 2015 term loan through an amendment and extension of the term loan credit agreement providing for a $467.7 million senior secured term loan facility due 2024 (“2024 term loan”). This repricing reduces the interest rate by 0.75% and extends the maturity by 19 months to February 29, 2024.

The 2024 term loan bears interest based on either a eurodollar or base rate (a rate equal to the highest of an agreed commercially available benchmark rate, the federal funds effective rate plus 0.50% or the eurodollar rate plus 1.0%, as selected by the Company) plus, in each case, an applicable margin. The applicable margin in the 2024 term loan is (x) 3% in the case of Eurodollar rate loans and (y) 2% in the case of base rate loans. These rates represents a 0.75% reduction from the 2015 term loan. Deutsche Bank AG New York Branch continues to serve as administrative agent and collateral agent under the 2024 term loan.