Builders FirstSource (BLDR) 10-K risk factor changes: FY2017 vs FY2016

[removed: In addition, the building industry is subject to various local, state,] and [removed: federal statutes, ordinances, and] regulations concerning zoning, building design and safety, construction, energy and water conservation and similar matters, including regulations that impose restrictive zoning and density requirements in order to limit the number of homes that can be built within the boundaries of a particular area or in order to maintain certain areas as primarily or exclusively residential.

According to the U.S. Census Bureau, [removed: actual] [added: annual] U.S. [removed: single family] [added: total and single-family] housing starts [removed: in the U.S. during 2016] were [removed: 46.7% lower than] [added: 1,202,900 and 848,900, respectively,] in [removed: 2006.][added: 2017.]

The building supply industry is [removed: cyclical and] seasonal.

The building [removed: products] supply industry is subject to cyclical market pressures.

Our lumber and lumber sheet goods product category represented [removed: 33.5%] [added: 35.7%] of total sales for the year ended December 31, [removed: 2016.][added: 2017.]

[removed: In addition, although] [added: Although] weather patterns affect our operating results throughout the year, adverse weather historically has reduced construction activity in the first and fourth quarters in the regions where we operate.

Production homebuilders and multi-family builders historically have exerted and will continue to exert significant pressure on their outside suppliers to keep prices low because of their market share and their ability to leverage such market share in the highly [removed: fragmented building products supply industry.]

The housing industry downturn and its aftermath [removed: have] resulted in significantly increased pricing pressures from production homebuilders and other customers.

In addition, continued consolidation among production homebuilders or [added: multi-family and] commercial builders, [removed: and] [added: or] changes in [removed: production homebuilders’ or commercial] [added: such] builders’ purchasing policies or payment practices, could result in additional pricing pressure, and our financial condition, operating results and cash flows may be adversely affected.

As of December 31, [removed: 2016,] [added: 2017,] our debt totaled [removed: $1,831.2] [added: $1,803.5] million, [removed: including $246.0] [added: which includes $240.5] million of lease finance obligations and capital lease obligations.

We also have [removed: an $800] [added: a $900.0] million [removed: senior secured] revolving credit facility [removed: (“2015] [added: (“2022] facility”).

As of December 31, [removed: 2016,] [added: 2017,] we had [removed: $84.8] [added: $350.0] million of [added: outstanding borrowings and $84.9 million of] letters of credit outstanding under the [removed: 2015] [added: 2022] facility.

| | • | exposing us to the risk of increased interest rates, and corresponding increased interest expense, because borrowings under the [removed: 2015] [added: 2022] facility and the [removed: $600.0] [added: $467.7] million [added: senior secured] term loan [removed: credit agreement (“2015] [added: facility due 2024 (“2024] term loan”) are at variable rates of interest; |

In addition, some of our debt instruments, including those governing the [removed: 2015] [added: 2022] facility, the [removed: 2015] [added: 2024] term loan, [removed: the 10.75% senior unsecured notes due 2023 (“2023 notes”)] and the 5.625% senior secured notes due 2024 (“2024 notes”), contain cross-default provisions that could result in our debt being declared immediately due and payable under a number of debt instruments, even if we default on only one debt instrument.

The agreements governing the [removed: 2015] [added: 2022] facility and the [removed: 2015] [added: 2024] term loan and the [removed: indentures] [added: indenture] governing our [removed: 2023 notes and our] 2024 notes restrict our ability to dispose of assets and to use the proceeds from such dispositions.

We are substantially reliant on cash on hand and borrowing availability under the [removed: 2015] [added: 2022] facility, which totaled [removed: $681.6] [added: $494.3] million at December 31, [removed: 2016,] [added: 2017,] to provide working capital and fund our operations.

Our working capital requirements are likely to grow assuming the housing industry [removed: improves.][added: continues to improve.]

Our inability to renew, amend or replace the [removed: 2015] [added: 2022] facility, the [removed: 2015] [added: 2024] term [removed: loan, the 2023 notes] [added: loan] or the 2024 notes when required or when business conditions warrant could have a material adverse effect on our business, financial condition and results of operations.

[removed: Our ability to secure additional financing, if available, and to satisfy our financial obligations] under indebtedness outstanding from time to time will depend upon our future operating performance, the availability of credit, economic conditions and financial, business and other factors, many of which are beyond our control.

We may be unable to secure additional financing, financing on favorable terms or our operating cash flow may be insufficient to satisfy our financial obligations under indebtedness outstanding from time to time, including the [removed: 2015] [added: 2022] facility, the [removed: 2015] [added: 2024] term loan, [removed: the 2023 notes] and the 2024 notes.

The agreements governing the [removed: 2015] [added: 2022] facility and the [removed: 2015] [added: 2024] term loan and the [removed: indentures] [added: indenture] governing the [removed: 2023 notes and the] 2024 notes, moreover, restrict the amount of permitted indebtedness allowed.

We may incur additional indebtedness in the future, including collateralized debt, subject to the restrictions contained in the agreements governing the [removed: 2015] [added: 2022] facility and the [removed: 2015] [added: 2024] term loan and the [removed: indentures] [added: indenture] governing the [removed: 2023 notes and the] 2024 notes.

Our financing arrangements, including the agreements governing the [removed: 2015] [added: 2022] facility and the [removed: 2015] [added: 2024] term loan and the [removed: indentures] [added: indenture] governing the [removed: 2023 notes and the] 2024 notes, contain various provisions that limit our ability to, among other things:

The agreement governing the [removed: 2015] [added: 2022] facility contains a financial covenant requiring the satisfaction of a minimum fixed charge [removed: coverage] ratio of 1.00 to 1.00 if our excess availability falls below the greater of $80.0 million or 10% of the maximum borrowing [removed: amount.][added: amount, which was $87.2 million as of December 31, 2017.]

Our ability to comply with the agreements governing the [removed: 2015] [added: 2022] facility and the [removed: 2015] [added: 2024] term loan and the [removed: indentures] [added: indenture] governing the [removed: 2023 notes and the] 2024 notes may be affected by changes in our operating and financial performance, changes in general business and economic conditions, adverse regulatory developments, a change in control or other events beyond our control.

The breach of any of these provisions, including those contained in the [removed: 2015] [added: 2022] facility and the [removed: 2015] [added: 2024] term loan and the [removed: indentures] [added: indenture] governing the [removed: 2023 notes and the] 2024 notes, could result in a default under our indebtedness, which could cause those and other obligations to become due and payable.

As a result, interest rates on our [removed: 2015] [added: 2022] facility and our [removed: 2015] [added: 2024] term loan could be higher or lower than current levels.

As of December 31, [removed: 2016,] [added: 2017,] we had approximately [removed: $467.7] [added: $813.0] million, or [removed: 25.5%,] [added: 45.1%,] of our outstanding debt at variable interest rates.

At December 31, [removed: 2016,] [added: 2017,] a 1.0% increase in interest rates on the [removed: 2015] [added: 2024] term loan would, subject to the interest rate floor specified in the agreement, result in approximately [removed: $3.6] [added: $4.6] million in additional interest expense annually.

At December 31, [removed: 2016,] [added: 2017,] a 1.0% increase in interest rates on the [removed: 2015] [added: 2022] facility would result in [removed: no] [added: approximately $3.5 million in] additional interest expense [removed: annually as we had no outstanding borrowings.][added: annually.]

The [removed: 2015] [added: 2022] facility also assesses variable commitment and outstanding letter of credit fees based on quarterly average loan utilization.

Our ten largest customers generated approximately [removed: 16.8%] [added: 16.0%] of our sales for the year ended December 31, [removed: 2016.][added: 2017.]

[removed: Some] [added: Moreover, during the downturn and in subsequent years, some of our] homebuilder customers exited or severely curtailed building activity in certain of our [removed: regions during the downturn and in subsequent years.][added: regions.]

In addition, production homebuilders, [removed: commercial] [added: multi-family] builders and other customers may: (1) seek to purchase some of the products that we currently sell directly from manufacturers, (2) elect to establish their own building products manufacturing and distribution facilities or (3) give advantages to manufacturing or distribution intermediaries in which they have an economic stake.

We are involved in product liability, product warranty, casualty, construction defect, asbestos, vehicle and other claims relating to the products we manufacture and distribute, and services we provide [added: or have provided] that, if adversely determined, could adversely affect our financial condition, operating results, and cash flows.

[removed: In the fourth quarter of 2016, the] [added: The] Company has [removed: seen an increased occurrence] [added: a number] of known and threatened [removed: legal claims, primarily related to] construction defect [removed: type] [added: legal] claims.

During the period from 2007 through [removed: 2016,] [added: 2017,] we closed or idled a number of facilities for which we continue to remain liable.

The ability of our subsidiaries to pay dividends or make other payments or distributions to us will depend on their respective operating results and may be restricted by, among other things, the laws of their jurisdiction of organization (which may limit the amount of funds available for the payment of dividends and other distributions to us), the terms of existing and future indebtedness and other agreements of our subsidiaries, the [removed: 2015 facility, the 2015 term loan, the terms of the indentures governing the 2023 notes and the 2024 notes and the covenants of any future outstanding indebtedness we or our subsidiaries incur.]

We may encounter significant operational disruptions and higher than expected costs in connection with [removed: such] [added: the ongoing ERP] integration process, which could have a material adverse effect on our financial condition, operating results and cash flows.

Our business employs systems that allow for the secure storage and transmission of customers’ [added: and employees’] proprietary information.

In addition, the building industry is subject to various local, state, and federal statutes, ordinances,

However, both total and single-family housing starts remain well below the normalized historical averages (from 1959 through 2017) of 1.5 million and 1.0 million, respectively.

We believe the housing industry is currently experiencing a shortage of skilled construction labor, which is constraining housing activity.

Due to the lower levels in housing starts and increased competition for homebuilder business, we have seen and may continue to experience downward competitive pressure on our gross margins.

In addition, the building products industry is cyclical in nature.

The homebuilding industry has experienced growth in recent years and industry forecasters expect to see continued improvement in the housing market in the near term.

However, it is likely that we will face future downturns in the homebuilding industry which could have an adverse effect on our operating results, financial condition or cash flows.

We are not able to predict the timing, severity or duration of any future downturns in the housing market.

fragmented building products supply industry.

Our ability to secure additional financing, if available, and to satisfy our financial obligations

2022 facility, the 2024 term loan, the terms of the indentures governing the 2024 notes and the covenants of any future outstanding indebtedness we or our subsidiaries incur.

We are in the process of integrating ProBuild’s systems with ours and are expecting to complete that process in 2019.

that it takes for us to reopen or replace a damaged facility.

A negative impact on our financial condition, operating results and cash flows, or our decision to invest in strategic acquisitions or new facilities, could adversely affect our ability to reduce our substantial outstanding debt.

Recently enacted tax legislation as well as any future changes to tax laws and regulations could have an adverse impact on our business.

On December 22, 2017, legislation commonly referred to as the Tax Cuts and Jobs Act (“the 2017 Tax Act”) became enacted law.

The 2017 Tax Act substantially changes several aspects of the Internal Revenue Code, some of which may have an adverse impact on our business.

Certain aspects of the 2017 Tax Act may make purchasing a home less attractive and therefore could have an adverse impact on our business.

The 2017 Tax Act contains limitations on the ability of homeowners to deduct property taxes and mortgage interest as well as limitations on an individual taxpayer’s ability to deduct state and local income taxes.

The 2017 Tax Act also raises the standard deduction.

These changes could reduce the perceived affordability of homeownership, and therefore the demand for homes, and/or have a moderating impact on home sales prices in areas with relatively high housing prices and/or high state and local income taxes and real estate taxes, including in certain of our served markets such as California and New York.

As a

result, some communities in those locations could experience lower net orders and/or a tempering of average sales prices in future periods depending on how homebuyers react to the tax law changes under the 2017 Tax Act.

In addition, the 2017 Tax Act eliminates the ability for companies to carryback any future net operating losses (“NOLs”).

While the 2017 Tax Act provides for indefinite carryforwards of future NOLs, the utilization of these NOLs is limited to 80% of taxable income in a carryforward year.

Further, the 2017 Tax Act limits the ability for companies to deduct interest expense that exceeds 30% of adjusted taxable income with disallowed interest for a given year allowed to be carried forward to future years indefinitely.

These limitations on the utilization of future NOLs and the deductibility of interest expense could adversely impact us in the future.

Finally, there can be no assurance that any future changes in federal and state tax laws and regulations will not have an adverse impact on our financial condition, operating results and cash flows.

The homebuilding industry is still recovering from a significant downturn that began in mid-2006 and began to stabilize in late 2011.

Housing and remodeling activity has steadily strengthened since then.

In 2016, U.S. homebuilding activity increased to approximately 781,500 single-family starts although it remains well below the historical average (from 1959 through 2016) of approximately 1.0 million single-family starts per year.

We believe that the slow recovery of the housing market is due to a variety of factors including: a severe economic recession, followed by a gradual economic recovery; limited credit availability; shortages of suitable building lots in many regions; shortages of experienced labor; rising home prices in many markets resulting in affordability issues for potential buyers; and soft housing demand in certain markets.

The downturn in the homebuilding industry resulted in a substantial reduction in demand for our products and services.

During the downturn mortgage financing and commercial credit for smaller homebuilders was severely constrained and continues to slow a recovery in our industry despite some recent improvement.

Since the housing industry is dependent upon the economy as well as potential homebuyers’ access to mortgage financing and homebuilders’ access to commercial credit, it is likely that the housing industry will not fully recover until conditions in the economy and the credit markets further improve.

There were no outstanding borrowings under the 2015 facility as of December 31, 2016.

As of December 31, 2016, our excess availability was $667.2 million.

We do not anticipate excess availability falling below $80.0 million in 2017.

In connection with the ProBuild acquisition, we incurred significant additional indebtedness which could adversely affect us, including by decreasing our business flexibility, and increased our interest expense.

Our consolidated indebtedness as of December 31, 2016 was approximately $1,831.2 million.

We substantially increased our indebtedness in connection with the ProBuild acquisition, which has increased our interest expense and could have the effect of, among other things, reducing our flexibility to respond to changing business and economic conditions.

The amount of cash required to pay interest on our increased indebtedness level puts greater demands on our cash resources.

The increased levels of indebtedness could also reduce funds available for working capital, capital expenditures, acquisitions and other general corporate purposes and may create competitive disadvantages for us relative to other companies with lower debt levels.

If we do not achieve the expected benefits and cost savings from the ProBuild acquisition, or if the financial performance of the combined company does not meet current expectations, then our ability to service our indebtedness may be adversely impacted.

Moreover, we may be required to raise substantial additional financing to fund working capital, capital expenditures, acquisitions or other general corporate requirements.

Our ability to arrange additional financing or refinancing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control.

We cannot assure you that we will be able to obtain additional financing or refinancing on terms acceptable to us or at all.

Concluding the integration of Builders FirstSource and ProBuild may be more difficult, costly or time consuming than expected and the anticipated additional benefits and cost savings of the ProBuild acquisition may not be realized.

We continue to assess additional synergies that we may realize as a consolidated company, the realization of which will depend on a number of factors.

The success of the ProBuild acquisition, including expected additional benefits and cost savings, will depend, in part, on our ability to successfully conclude the integration of the two businesses.

It is possible that the integration process could result in the loss of key employees, higher than expected costs, diversion of management attention, the disruption of the combined company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the company’s ability to maintain relationships with customers, suppliers, vendors and employees or to achieve the expected additional benefits and cost savings of the ProBuild acquisition.

If we experience difficulties concluding the integration process, or if the operating or financial performance of the combined company is less than we expect, we may forfeit some or all of the cost savings achieved to date, and the expected additional benefits and costs savings of the ProBuild acquisition may not be realized fully or at all, or may take longer to realize than expected.

The integration planning and implementation process has resulted and will continue to result in significant costs and diversion of management attention and resources.

The integration process could have an adverse effect on the combined company for an undetermined period.

Further, the actual additional cost savings of the ProBuild acquisition could be less than anticipated.

We are continuing to incur significant costs in connection with the integration of ProBuild and we may not achieve all of the anticipated cost savings.

We have incurred substantial fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs.

At the time of the ProBuild acquisition in July 2015 we estimated these integration-related costs in the range of $90 to $100 million over the two-year period following the closing.

Through December 31, 2016, we had incurred approximately $71 million of integration-related costs.

The remainder of these costs are expected to be incurred in 2017.

We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in connection with the integration of the combined company’s businesses.

Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.

Due to the relatively weak housing market over the past several years, many of our homebuilder customers substantially reduced their construction activity.

We plan to integrate ProBuild’s systems with ours over time and have commenced that process.

The ownership position of affiliates of JLL Partners, Inc. limits other stockholders’ ability to influence corporate matters.

Affiliates of JLL Partners, Inc. (“JLL”) owned approximately 21.8% of our outstanding common stock as of December 31, 2016.

Two of our eight directors hold positions with affiliates of JLL.

Accordingly, JLL has significant influence over our management and affairs and over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or its assets.

[removed: Following our acquisition of ProBuild in July 2015, the] [added: The] Company operates [removed: 400] [added: 402] locations in 40 states across the United States.

| | • | Homebuilding Industry. Our business is driven primarily by the residential new construction [added: market and the residential repair and remodel] market, which [removed: is] [added: are] in turn dependent upon a number of factors, including demographic trends, interest rates, consumer confidence, employment rates, foreclosure rates, the availability of skilled construction labor, and the health of the economy and mortgage markets. [removed: During the housing downturn, which began in 2006, many homebuilders significantly decreased their starts because of lower demand and an excess of home inventory. The housing market started to strengthen in 2011.] According to the U.S. Census Bureau, annual U.S. [added: total and] single-family housing starts were [removed: 781,500] [added: 1,202,900 and 848,900, respectively,] in [removed: 2016.] [added: 2017.] However, [added: both total and] single-family housing starts remain well below the [added: normalized] historical [removed: average] [added: averages] (from 1959 through [removed: 2016)] [added: 2017)] of [removed: 1.0] [added: 1.5] million [removed: per year. The] [added: and 1.1 million, respectively. We believe the] housing industry is currently experiencing a shortage of skilled construction labor, which [removed: we believe] is constraining housing activity. Due to the lower levels in housing starts and increased competition for homebuilder business, we have [added: seen] and [removed: will] [added: may] continue to experience [added: downward competitive] pressure on our gross margins. In addition to these factors, there has been a trend of consolidation within the building products supply industry. However, our industry remains highly fragmented and competitive and we will continue to face significant competition from local and regional suppliers. We still believe there are several meaningful trends that indicate U.S. housing demand will recover to the historical average in the long term and that the downturn in the housing industry was a trough in the cyclical nature of the residential construction industry. These trends include relatively low interest rates, the aging of housing stock, and normal population growth due to immigration and birthrate exceeding death rate. Industry forecasters, including the [removed: National Association of Homebuilders (“NAHB”), expect to see continued improvement in housing demand over the next few years.] |

| | • | Repair and remodel end market. [removed: Following the acquisition of ProBuild,] [added: Although] the repair and remodel end market [removed: now comprises a larger portion of our business. Although it] is influenced by housing starts to a lesser degree than the homebuilding market, the repair and remodel end market is still dependent upon some of the same factors as the homebuilding market, including demographic trends, interest rates, consumer confidence, employment rates, foreclosure rates, and the health of the economy and home financing markets. We expect that our ability to remain competitive in this space as well as grow our market share will depend on our continued ability to provide a high level of customer service coupled with a broad product offering. |

| | • | Use of Prefabricated Components. Homebuilders are increasingly using prefabricated components in order to realize increased efficiency and improved quality. Shortening cycle time from start to completion is a key imperative of the homebuilders during periods of strong consumer demand. While the conversion of customers to this product offering slowed during the [removed: downturn] [added: downturn,] we see the demand for prefabricated components increasing as the residential new construction market continues to strengthen and the availability of skilled construction labor remains limited. |

| | • | Economic Conditions. Economic changes both nationally and locally in our markets impact our financial performance. The building products supply industry is highly dependent upon new home construction and subject to cyclical market changes. Our operations are subject to fluctuations arising from changes in supply and demand, national and local economic conditions, labor costs and availability, competition, government regulation, trade policies and other factors that affect the homebuilding industry such as demographic trends, interest rates, [removed: single-family] housing starts, [added: the availability of suitable building lots,] employment levels, consumer confidence, and the availability of credit to homebuilders, contractors, and homeowners. [removed: During the downturn mortgage financing and commercial credit for smaller homebuilders was severely constrained and continues to slow a recovery in our industry despite some recent improvement. As the housing industry is dependent upon the economy as well as potential homebuyers’ access to mortgage financing and homebuilders’ access to commercial credit, it is likely that the housing industry will not fully recover to the historical average until conditions in the economy and the credit markets further improve.] |

| | [removed: ▪] [added: •] | [removed: Expand into] Multi-Family and Light Commercial Business. Our primary focus has been, and continues to be, on single-family residential new construction and the repair and remodel end market. However, we will continue to identify opportunities for profitable growth in the multi-family and light commercial markets. |

During the year ended December 31, [removed: 2016,] [added: 2017,] the Company executed [removed: several] [added: three] debt transactions which are described in [removed: more detail below.][added: Note 8 to the consolidated financial statements included in Item 8 of this annual report on Form 10-K.]

These transactions [removed: have] [added: further] extended our debt maturity profile and reduced our annual cash interest on a go forward basis.

According to the U.S. Census Bureau, actual U.S. [removed: single-family] [added: total] housing starts for [removed: 2016] [added: 2017] were [removed: 781,500,] [added: 1,202,900,] an increase of [removed: 9.4%] [added: 2.5%] compared to [removed: 2015.][added: 2016.]

While the housing industry has strengthened over the past few years, the limited availability of credit to smaller homebuilders and potential homebuyers, as well as the high demand for a limited supply of skilled construction [removed: labor and the slow economic recovery,] [added: labor,] among other factors, have hampered a stronger recovery.

A composite of third party sources, including the NAHB, are forecasting [removed: 847,000] [added: 1,292,000] U.S. [added: total housing starts and 921,000 U.S.] single-family housing starts for [removed: 2017,] [added: 2018,] which [removed: is an increase] [added: are increases] of [removed: 8.4%] [added: 7.4% and 8.5%, respectively,] from [removed: 2016.][added: 2017.]

In [removed: addition] [added: addition,] the Home Improvement Research Institute (“HIRI”) is forecasting sales in the professional repair and remodel end market to increase approximately [removed: 4.2%] [added: 2.5%] in [removed: 2017] [added: 2018] compared to [removed: 2016.][added: 2017.]

Our net sales for the year ended December 31, [removed: 2016] [added: 2017] were up [removed: 78.6%] [added: 10.5%] over the same period last [removed: year largely due to the acquisition of ProBuild.][added: year.]

Our gross margin percentage decreased by [removed: 0.2%] [added: 0.5%] during the year ended December 31, [removed: 2016] [added: 2017] compared to the year ended December 31, [removed: 2015.][added: 2016.]

Our selling, general and administrative expenses, as a percentage of net sales, were [removed: 21.4%] [added: 20.5%] for the year ended December 31, [removed: 2016,] [added: 2017,] a [removed: 1.3%] [added: 0.9%] decrease from [removed: 22.7%] [added: 21.4%] in [removed: 2015.][added: 2016.]

We [removed: still] believe the long-term outlook for the housing industry is positive due to growth in the underlying demographics.

We [removed: will also continue to work diligently] [added: strive] to achieve the appropriate balance of short-term expense control while maintaining the expertise and capacity to grow the business as market conditions improve.

| | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Cost of sales | | | [removed: 74.9] [added: 75.4] | % | | | [removed: 74.7] [added: 74.9] | % | | | [removed: 77.7] [added: 74.7] | % |

| Gross margin | | | [removed: 25.1] [added: 24.6] | % | | | [removed: 25.3] [added: 25.1] | % | | | [removed: 22.3] [added: 25.3] | % |

| Selling, general and administrative expenses | | | [removed: 21.4] [added: 20.5] | % | | | [removed: 22.7] [added: 21.4] | % | | | [removed: 19.2] [added: 22.7] | % |

| Income from operations | | | [removed: 3.7] [added: 4.1] | % | | | [removed: 2.6] [added: 3.7] | % | | | [removed: 3.1] [added: 2.6] | % |

| Interest expense, net | | | [removed: 3.3] [added: 2.7] | % | | | [removed: 3.1] [added: 3.3] | % | | | [removed: 1.9] [added: 3.1] | % |

| Income tax expense (benefit) | | | [removed: (1.9] [added: 0.8] | [removed: )%] [added: %] | | | [removed: 0.1] [added: (1.9] | [removed: %] [added: )%] | | | 0.1 | % |

| Net income (loss) | | | [removed: 2.3] [added: 0.6] | % | | | [removed: (0.6] [added: 2.3] | [removed: )%] [added: %] | | | [removed: 1.1] [added: (0.6] | [removed: %] [added: )%] |

[removed: Due to the ProBuild acquisition, we] [added: We] achieved increased net sales across all [added: of our] product categories.

Sales for the year ended December 31, [removed: 2015] [added: 2017] were [removed: $3,564.4] [added: $7,034.2] million, a [removed: 122.2%] [added: 10.5%] increase from sales of [removed: $1,604.1] [added: $6,367.3] million for [removed: 2014.][added: 2016.]

Gross margin increased [removed: $544.5] [added: $130.6] million to [removed: $901.5] [added: $1,727.4] million.

Selling, general and administrative expenses increased [removed: $503.9] [added: $81.9] million, or [removed: 164.1%.][added: 6.0%.]

We recorded [removed: an increase in the after-tax, non-cash valuation allowance on our net deferred tax assets] [added: reductions] of [removed: $9.7] [added: $2.8] million [removed: in 2015] and [removed: a $7.2] [added: $131.7] million [removed: reduction] in the [removed: after-tax,] [added: after tax] non-cash valuation allowance on our net deferred tax assets [removed: in 2014.][added: for the years ended December 31, 2017 and 2016, respectively.]

Absent the [added: effect of the 2017 Tax Act and the changes to our] valuation allowance, our effective [removed: tax] rate would have been [removed: 28.5%] [added: 29.4%] and [removed: 42.1%] [added: 41.8%] for [removed: 2015] [added: the years ended December 31, 2017] and [removed: 2014,] [added: 2016,] respectively.

The following tables show net sales and income before income taxes by reportable segment [added: excluding the “All Other” caption as shown in Note 14 to the consolidated financial statements included in Item 8 of this annual report on Form 10-K] (dollars in thousands):

| Northeast | | $ | [removed: 1,204,099] [added: 1,204,100] | | | | 19.4 | % | | $ | 626,985 | | | | [removed: 18.4] [added: 18.9] | % | | | 92.0 | % | | $ | [removed: 35,356] [added: 35,347] | | | | 2.9 | % | | $ | [removed: 28,862] [added: 28,843] | | | | 4.6 | % | | | 22.5 | % |

[removed: As a result of our reorganization following the ProBuild acquisition, we] [added: We] have four reportable segments based on an aggregation of the geographic regions in which we operate.

[removed: Our] [added: While there is some geographic similarity between our] reportable segments [added: and the regions as defined by the U.S. Census Bureau, our reportable segments] do not necessarily [added: fully] align with any single [removed: region as defined by the U.S] [added: U.S.] Census [removed: Bureau.][added: Bureau region.]

For the year ended December 31, 2016, we achieved increased net sales and profitability [added: compared to 2015] across all our reportable segments, primarily due to the ProBuild acquisition and sales volume increases.

Our capital resources at December 31, [removed: 2016] [added: 2017] consist of cash on hand and borrowing availability under our [removed: 2015] [added: 2022] facility.

Our [removed: 2015] [added: 2022] facility will be primarily used for working capital, general corporate purposes, and funding acquisitions.

In addition, we may use the [removed: 2015] [added: 2022] facility to facilitate debt repayment and consolidation.

Availability under the [removed: 2015] [added: 2022] facility is determined by a borrowing base.

Given the span and depth of our geographical reach, our locations are organized into nine geographical regions (Regions 1 through 9), which are also our operating segments, and these are further aggregated into four reportable segments: Northeast, Southeast, South and West.

All of our segments have similar customers, products and services, and distribution methods.

Our financial statements contain additional information regarding segment performance which is discussed in Note 14 to the consolidated financial statements included in Item 8 of this annual report on Form 10-K.

| | | National Association of Homebuilders (“NAHB”), expect to see continued improvement in housing demand over the next few years. |

| | • | Reduction of Debt: As a result of our historical growth through acquisitions, we have substantial indebtedness. Debt reduction will continue to be a key area of focus for the Company. |

| --- | --- | --- |

On December 22, 2017, the 2017 Tax Act became enacted law.

The effects of the 2017 Tax Act on our financial statements for the year ended December 31, 2017 are discussed in more detail below as well as in Note 11 to the consolidated financial statements included in Item 8 of this annual report on Form 10-K.

The 2017 Tax Act, among several other substantial changes, reduces the statutory federal income tax rate from 35% to 21% for periods beginning after December 31, 2017.

We generally expect the 2017 Tax Act to have a positive impact on our business due to the anticipated reduction in federal cash tax payments.

Actual U.S. single-family housing starts for 2017 were 848,900, an increase of 8.6% compared to 2016.

We estimate that our sales volume increased 4.3%, while commodity price inflation resulted in an additional 6.2% increase in sales in 2017 compared to 2016.

For the year ended December 31, 2017 sales volume growth in single-family and the repair and remodel end market were partially offset by declines in multi-family.

Our gross margin percentage decreased primarily due to gross profit margin compression on commodity products resulting from inflation in the lumber and lumber sheet goods markets during most of 2017.

The decrease in selling, general and administrative expenses, as a percentage of net sales, was due to cost leverage as well as the decline in depreciation and amortization on acquired ProBuild assets, partially offset by investments the Company made towards growth initiatives, including additional sales associates and new locations.

2017 Compared with 2016

We estimate that our sales volume increased 4.3%, while commodity price inflation resulted in an additional 6.2% increase in sales in 2017 compared to 2016.

For the year ended December 31, 2017, sales volume growth in single-family and the repair and remodel end market were partially offset by declines in multi-family.

| | | 2017 | | | | | | | | 2016 | | | | | | | | | | |

| Lumber & lumber sheet goods | | $ | 2,510.9 | | | | 35.7 | % | | $ | 2,131.4 | | | | 33.5 | % | | | 17.8 | % |

| Manufactured products | | | 1,208.5 | | | | 17.2 | % | | | 1,097.7 | | | | 17.2 | % | | | 10.1 | % |

| Windows, doors & millwork | | | 1,360.6 | | | | 19.4 | % | | | 1,286.2 | | | | 20.2 | % | | | 5.8 | % |

| Gypsum, roofing & insulation | | | 538.4 | | | | 7.6 | % | | | 520.0 | | | | 8.2 | % | | | 3.5 | % |

| Siding, metal & concrete products | | | 655.9 | | | | 9.3 | % | | | 622.3 | | | | 9.8 | % | | | 5.4 | % |

| Other building products & services | | | 759.9 | | | | 10.8 | % | | | 709.7 | | | | 11.1 | % | | | 7.1 | % |

| Total sales | | $ | 7,034.2 | | | | 100.0 | % | | $ | 6,367.3 | | | | 100.0 | % | | | 10.5 | % |

The impact of commodity price inflation in 2017 resulted in the sales growth of our lumber and lumber sheet goods category exceeding the sales growth of our other product categories.

Our gross margin percentage decreased to 24.6% in 2017 from 25.1% in 2016, a 0.5% decrease.

Our gross margin percentage decreased primarily due to gross profit margin compression on commodity products resulting from inflation in the lumber and lumber sheet goods markets during most of 2017.

Our salaries and benefits expense was $935.5 million, an increase of $41.1 million from 2016, and stock compensation increased $3.0 million.

Office general and administrative increased $13.9 million, delivery expense increased $10.1 million and occupancy expense increased $5.9 million.

In addition, we recognized a $4.2 million loss on the disposal of assets during the year ended December 31, 2017 compared to a gain of $5.0 million during the year ended December 31, 2016.

As a percentage of net sales, selling, general and administrative expenses decreased from 21.4% in 2016 to 20.5% in 2017 due to cost leverage as well as the decline in depreciation and amortization on acquired ProBuild assets, partially offset by investments the Company made towards growth initiatives, including additional sales associates and new locations.

Interest expense was $193.2 million in 2017, a decrease of $21.5 million from 2016.

This decrease was largely attributable to the positive results of our debt transactions executed in fiscal years 2016 and 2017.

Interest expense for the years ended December 31, 2017 and 2016 included one-time charges related to the debt financing transactions of $58.7 million and $57.0 million, respectively.

We recorded income tax expense of $53.1 million during the year ended December 31, 2017 compared to an income tax benefit of $122.7 million during the year ended December 31, 2016.

Due to the enactment of the 2017 Tax Act, we recorded income tax expense of $29.0 million for the year ended December 31, 2017 related to the revaluation of our net deferred tax assets.

For the year ended December 31, 2017, our effective tax rate was 57.8% largely due to the impact of the additional income tax expense recognized in connection with the enactment of the 2017 Tax Act.

Our effective rate for the year ended December 31, 2016 was (566.1%) primarily due to the release of the valuation allowance against our net federal and some state deferred tax assets in that period.

| | ▪ | Successful integration of the ProBuild business: The acquisition of ProBuild has substantially increased the scale of our company. Successfully integrating ProBuild will be critical to achieving our future objectives. Combining our two companies may be more difficult, costly, or time consuming than expected, which could result in the acquisition not achieving its intended results, including the expected operational synergies and cost savings. In addition, as a result of the ProBuild acquisition we have substantially increased indebtedness. Reduction of our outstanding debt will be a key imperative as we work to achieve the intended results of the acquisition. |

These transactions include two debt exchanges, complete extinguishment of our 7.625% senior secured notes due 2021 (“2021 notes”), as well as repricing and partially repaying our $600.0 million term loan facility due 2022 (“2015 term loan”) and the repurchase of $50.0 million in aggregate principal amount of our 2023 notes.

On February 12, 2016, we completed separate privately negotiated note exchange transactions in which $218.6 million in outstanding aggregate principal amount of our 10.75% senior unsecured notes due 2023 (“2023 notes”) was exchanged for $207.6 million in aggregate principal amount of our 2021 notes.

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

The additional 2021 notes were issued under the existing indenture dated as of May 29, 2013.

These transactions resulted in a $7.8 million net gain on debt extinguishment, reducing interest expense in the first quarter of 2016.

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%.

This transaction resulted in a $1.7 million loss on debt extinguishment, which increased interest expense in the second quarter of 2016.

In August 2016, the Company issued $750.0 million in aggregate principal amount of 5.625% senior secured notes due 2024 (“2024 notes”) in a private offering.

At the same time the Company also repriced its $600.0 million term loan facility (“2015 term loan”).

This repricing lowered the 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.

The proceeds from the issuance of the 2024 notes were used, together with cash on hand and borrowings on our $800.0 million senior secured revolving credit facility (“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.

We recognized a $43.9 million loss on extinguishment of the 2021 notes and $8.2 million in write off of debt discount and debt issuance costs related to the 2015 term loan repricing as components of interest expense in the third quarter of 2016.

In October 2016, we repurchased $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.

This transaction resulted in a $9.7 million loss on debt extinguishment which was recognized in interest expense in the fourth quarter of 2016.

Following this transaction, we have $367.6 million in 2023 notes outstanding.

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 transactions described above will allow the Company to reduce its annual cash interest expense by approximately $37 million going forward.

U.S single-family units under construction increased 12.4% during this same time period.

Our gross margin percentage decreased primarily due to the impact of commodity price inflation relative to our short-term customer pricing commitments during the year ended December 31, 2016.

However, this decrease was mostly offset by an increase in our gross margin percentage largely attributable to the ProBuild acquisition, the result of ProBuild’s higher mix of higher margin repair & remodel and retail sales.

The decrease in selling, general and administrative expenses, as a percentage of net sales, was largely due to the benefit of synergy cost savings.

Synergy cost savings were primarily attributable to reduced payroll and benefits expense, as well as decreased delivery costs and location consolidations.

We want to create long-term shareholder value and avoid taking steps that will limit our ability to compete.

According to the U.S. Census Bureau, actual U.S. single-family housing starts increased 9.4% and single-family units under construction increased 12.4% in 2016 compared to 2015.

Our sales classification by product categories has shifted as we diversified our product offerings to support a broader customer base across 40 states through the ProBuild acquisition.

As a percentage of net sales, salaries and benefits expense decreased 0.3%, office general and administrative expense decreased 0.6% and delivery expense decreased 0.4%.

These decreases were partially offset by occupancy expense, as a percentage of net sales, increasing 0.1%.

2015 Compared with 2014

Net sales increased $1,910.9 million, or 119.1%, due to recent acquisitions, primarily ProBuild.

Excluding the impact of acquisitions, net sales increased $49.4 million, or 8.5% due to increased volume, which was partially offset by a 5.4% decrease due to the impact of commodity price deflation on net sales.

According to the U.S. Census Bureau, actual U.S. single-family housing starts increased 10.3% and single-family units under construction increased 11.1% in 2015 compared to 2014.

| | | 2015 | | | | | | | | 2014 | | | | | | | | | | |

| Lumber & lumber sheet goods | | $ | 1,129.7 | | | | 31.7 | % | | $ | 535.3 | | | | 33.4 | % | | | 111.0 | % |

| Windows, doors & millwork | | | 818.1 | | | | 23.0 | % | | | 446.4 | | | | 27.8 | % | | | 83.3 | % |

| Manufactured products | | | 635.3 | | | | 17.8 | % | | | 312.0 | | | | 19.5 | % | | | 103.6 | % |

| Gypsum, roofing & insulation | | | 264.9 | | | | 7.4 | % | | | 61.1 | | | | 3.8 | % | | | 333.4 | % |

Our [removed: 2023 notes and our] 2024 notes bear interest at a fixed rate, therefore, our interest expense related to these notes would not be affected by an increase in market interest rates.

Borrowings under the [removed: 2015] [added: 2022] facility and the [removed: 2015] [added: 2024] term loan bear interest at either a base rate or eurodollar rate, plus, in each case, an applicable margin.

At December 31, [removed: 2016,] [added: 2017,] a 1.0% increase in interest rates on the [removed: 2015] [added: 2024] term loan would, subject to the interest rate floor specified in the agreement, result in approximately [removed: $3.6] [added: $4.6] million in additional interest expense annually.

At December 31, [removed: 2016,] [added: 2017,] a 1.0% increase in interest rates on the [removed: 2015] [added: 2022] facility would result in [removed: no] [added: approximately $3.5 million in] additional interest expense [removed: annually as we had no outstanding borrowings.][added: annually.]

The [removed: 2015] [added: 2022] facility also assesses variable commitment and outstanding letter of credit fees based on quarterly average loan utilization.

[removed: Our delayed] [added: Delays in our] ability to pass on material price increases to our customers can adversely impact our operating results.

[removed: Following our acquisition of ProBuild in July 2015, the] [added: The] Company operates [removed: 400] [added: 402] locations in 40 states across the United States.

Our financial statements contain additional information regarding segment performance which is discussed in Note [removed: 15] [added: 14] to the consolidated financial statements included in Item 8 of this annual report on Form 10-K.

There were only [removed: five non-specialty] [added: seven] building product suppliers [added: with manufacturing capabilities] in the Pro Segment that generated more than $500 million in sales, according to ProSales magazine’s [removed: 2015] [added: 2016] ProSales 100 list.

We were the largest [removed: non-specialty] building product supplier [added: with manufacturing capabilities] on this list.

| | • | Turn\-key services: Many homebuilders have taken a more limited role in the homebuilding process and have outsourced certain key elements of the construction process, including process management, product selection, order input, scheduling, framing and installation. As such, we believe that many homebuilders are increasingly looking to suppliers in the Pro Segment to perform these critical functions, resulting in greater demand for integrated project [removed: services; and] [added: services.] |

| | • | Consolidation of suppliers by homebuilders: We believe that homebuilders are increasingly looking to consolidate their supplier base. Many homebuilders are seeking a more strategic relationship with suppliers that are able to offer a broad range of products and services and, as a result, are allocating a greater share of wallet to a select number of larger, full service suppliers. We believe this trend accelerated during the [removed: recent] downturn [added: which began in 2006] and continues in the current housing market recovery. |

According to the U.S. Census Bureau, the single-family residential construction market was an estimated [removed: $243.4] [added: $264.1] billion in [removed: 2016,] [added: 2017,] which was [removed: 4.8%] [added: 8.9%] higher than [removed: 2015,] [added: 2016,] though still down significantly from the historical high of $413.2 billion in 2006.

Further, according to the Home Improvement Research [removed: institute] [added: Institute] (“HIRI”), the professional repair and remodel end market was an estimated [removed: $98.1] [added: $103.4] billion in [removed: 2016,] [added: 2017,] which was [removed: 6.1%] [added: 3.4%] higher than [removed: 2015.][added: 2016.]

We have a diverse geographic footprint as we have operations in 75 of the top 100 U.S. Metropolitan Statistical Areas (“MSAs”), as ranked by single family housing permits based on [removed: 2016] [added: 2017] U.S. Census data.

In addition, approximately 83% of U.S. [added: single-family] housing permits in [removed: 2016] [added: 2017] were issued in MSAs in which we operate.

For the year ended December 31, [removed: 2016,] [added: 2017,] our top 10 customers accounted for approximately [removed: 16.8%] [added: 16.0%] of sales, and no single customer accounted for more than 5% of sales.

Our top 10 customers are comprised primarily of the largest production homebuilders, including publicly traded companies such as D.R. Horton, Inc., Pulte Homes, Inc., Lennar Corporation, [added: Beazer Homes USA, Inc.,] Hovnanian [removed: Enterprises] [added: Enterprises, Inc., Taylor Morrison Home Corporation] and [removed: CalAtlantic Group.][added: M/I Homes, Inc.]

We maintain an electronic master file of trusses and wall panels for each builder’s prototype [removed: houses.]

Our manufactured custom millwork consists primarily of [removed: synthetic] exterior trim, [added: interior and exterior doors,] custom windows, features and box [removed: columns that we sell under our Synboard brand name and throughout our company.][added: columns.]

[removed: Utilize] [added: Leverage] our competitive strengths to capitalize on housing market [removed: recovery and] growth

Our [removed: Pro Segment homebuilding] customers continue to emphasize the importance of competitive pricing, a broad product portfolio, sales force knowledge, [added: labor-saving manufactured products,] on-site services and overall “ease of use” [removed: of] [added: with] their building products suppliers.

Our comprehensive product offering, [removed: experienced] [added: best in class] sales [removed: force] [added: force, strong strategic vendor relationships,] and tenured senior management team position us well to capitalize on strong demand in the new home construction market [removed: as well as] [added: and] the repair and remodel segment.

We believe that [removed: homebuilders] [added: customers] will continue to place an increased value on these capabilities, which [removed: will] further [removed: differentiate] [added: differentiates] us from our competitors.

By focusing on [removed: and developing] our differentiated [removed: “one-stop-shop” strategy, which includes broadening our] [added: platform and broad] product mix, we [removed: will be] [added: are] able to offer a complete array of products and services that would otherwise need to be sourced from various [removed: distributors.][added: distributors, providing us an opportunity to capture a greater share of wallet.]

Additionally, [removed: as the largest non-specialty distributor of building products, we will be capable of providing] [added: our national footprint provides] customers with a consistent partner on projects regardless of where they are located.

This operational platform often will make us a preferred distributor [removed: relationship] for large scale national homebuilders while still providing value to local and custom homebuilders looking for [removed: assistance with product selection, on-site installation and project management.][added: more efficient ways to build a home.]

Optimize [removed: cash flow with] [added: our] highly scalable cost structure [added: with operational excellence initiatives]

[removed: Through the downturn we focused] [added: We continue to focus] on standardizing processes and technology-based workflows to minimize costs, streamline our operations and enhance working capital efficiency.

At December 31, [removed: 2016,] [added: 2017,] we employed approximately [removed: 1,700] [added: 1,900] sales representatives, who are typically paid a commission based on gross margin dollars collected and work with approximately [removed: 1,400] [added: 1,600] sales coordinators and product specialists.

The key materials we purchase include dimensional [removed: lumber, plywood,] OSB, [added: lumber and plywood along with] engineered wood, windows, doors, [added: millwork, gypsum] and [removed: millwork.][added: roofing.]

Our largest suppliers are national companies such as [removed: Weyerhaeuser Company,] Boise Cascade Company, [added: Weyerhaeuser Company,] Canfor Corporation, Norbord, Inc., James Hardie Industries plc, National Gypsum Company, PlyGem Holdings, Inc., M I Windows and Doors, Inc., Andersen Corporation, Masonite International Corporation and JELD-WEN Inc. We believe there is sufficient supply in the marketplace to competitively source most of our requirements without reliance on any particular supplier and that our diversity of suppliers affords us purchasing flexibility.

Although no purchases from any single supplier represented more than [removed: 7%] [added: 8%] of our total materials purchases for the year ended December 31, [removed: 2016,] [added: 2017,] we believe we are one of the largest customers for many suppliers, and therefore have significant purchasing leverage.

We will continue to pursue additional procurement cost savings [removed: and purchasing synergies] which would further enhance our margins and cash flow.

The principal methods of competition in the Pro Segment are the development of long-term relationships with professional builders and retaining such customers by (i) delivering a full range of high-quality products on time, and (ii) offering trade credit, competitive [removed: pricing, flexibility in transaction processing,] [added: pricing] and integrated service and product packages, such as turn-key framing and shell construction, as well as manufactured components and installation.

At December 31, [removed: 2016,] [added: 2017,] we had approximately [removed: 14,000 full-time equivalent] [added: 15,000] employees.

Approximately 2% of the workforce at our company are members of [removed: ten] [added: nine] different unions.

Our primary enterprise resource planning (“ERP”) system, which we currently use for [added: operations representing] approximately [removed: half] [added: 72%] of [removed: our operations, is a proprietary system that has been highly customized by our computer programmers.]

These programs assist in [added: various aspects of our business such as] analyzing blueprints to generate material [removed: lists and in] [added: lists,] purchasing lumber products at the lowest [removed: cost.][added: cost, delivery management and resource planning and scheduling.]

We are in the process of integrating the legacy ProBuild information technology systems with [removed: ours,] [added: ours] which [removed: we expect will be a] [added: is an ongoing,] multi-year process.

[removed: Sherman,] [added: Chad Crow, President,] Chief Executive Officer and Director, age [removed: 77.][added: 49.]

Mr. [removed: Sherman is currently a director of PGT, Inc. Mr. Sherman] [added: Robins] has [removed: over 40] [added: 30] years of experience in the building products [removed: industry.][added: business.]

[removed: Chad Crow,] [added: Tolly, Senior Vice] President and Chief Operating [removed: Officer,] [added: Officer – East,] age [removed: 48.][added: 74.]

Mr. Crow joined the Company in September [removed: 1999 as Assistant Controller.][added: 1999, and has held several roles of increasing responsibility.]

In [removed: November 2014, he] [added: 2009, Mr. Crow] was [removed: appointed to the position of President,] [added: named Senior Vice President and] Chief [removed: Operating] [added: Financial] Officer and [added: in 2014 was promoted to President and] Chief [removed: Financial] [added: Operating] Officer.

Mr. Crow [removed: is a C.P.A. and] received his B.B.A. degree from Texas Tech University.

houses.

In addition, we sell many of these custom millwork products in a synthetic material that we sell under our Synboard brand name.

By pursuing the following strategies, we intend to build on our advantaged market position to create value for our shareholders by increasing profits and net cash flow generation, while making us a more valuable partner to our customers.

The resulting cash flow should provide meaningful opportunities for debt reduction and increased investment in organic and acquisitive growth.

As the U.S. housing market returns to a historically normalized level, we intend to leverage our core business strengths including size, national footprint, unmatched scale in manufacturing capability, breadth of product portfolio, and end market exposure to expand our sales and profit margins.

Our large delivery fleet, professional drivers, and comprehensive inventory management enable us to provide “just-in-time” product delivery, ensuring a smoother and faster production cycle for the homebuilder.

Our comprehensive network of products, services and facilities provides a strategically advantaged service model which enhances our value to our customers and provides a strong platform to capture above market growth.

Maximize our share of wallet by capturing above-market growth in our higher margin value added products

We believe our national manufacturing footprint and differentiated capabilities will allow us to capture above market growth in our higher margin value-added products with single family homebuilders.

We believe our value-added products address the growing demand for ways to build homes more efficiently, addressing labor constraints and rising costs.

We plan to accelerate this growth by further expansion of our national manufacturing footprint to serve locations that do not currently have adequate access to these high margin products.

We are implementing operational excellence initiatives that are designed to further improve efficiency as well as customer service.

These initiatives, including distribution and logistics, pricing and margin management, back office efficiencies, customer integration and systems-enabled process improvements, should yield significant cost savings.

The scope and scale of our existing infrastructure, customer base, and logistical capabilities mean that improvements in efficiency, when replicated across our network, can yield substantial profit margin expansion.

our sales, is a proprietary system that has been highly customized by our computer programmers.

We are currently expecting to complete the ERP integration process in 2019.

Mr. Crow became a director in 2017 and President and CEO on December 29, 2017.

Prior to joining Builders FirstSource, he served in a variety of positions at Pier One Imports and Price Waterhouse LLP.

Mr. Tolly has served as a Senior Vice President and Chief Operating Officer- East since February 2018.

Scott L.

Robins, Senior Vice President and Chief Operating Officer – West, age 51.

Mr. Robins was appointed to his current position on February 20, 2018.

He had been a Senior Vice President – Operations of the Company since the acquisition of ProBuild Holdings LLC by the Company in July 2015 and with ProBuild prior to that since 2007.

At the time of his promotion, he had supervisory responsibility for 93 locations in eight states.

Mr. Robins joined Hope Lumber Company in 2004 as a Vice President of Operations, overseeing numerous operations in a three-state area, and continued in that role when Hope was acquired by ProBuild Holdings LLC in 2007.

Before then, he had worked in various operational and supply chain management positions with Andersen Lumber and Stock Building Supply since 1988.

He holds a B.A. in Finance from Weber State University.

His previous positions at Lennox also included Vice President, Finance - Financial Planning and Analysis and Mergers and Acquisitions as well as Vice President and Chief Financial Officer of Lennox’s Residential Heating and Cooling Segment.

During the downturn mortgage financing and commercial credit for smaller homebuilders was severely constrained and continues to slow a recovery in our industry despite some recent improvement.

However, we believe there are several meaningful trends that indicate U.S. housing demand will likely continue to recover to levels consistent with the historical average of the past fifty years.

These trends include relatively low interest rates, the aging of housing stock, and population growth due to immigration and birthrate exceeding death rate.

According to the U.S Census Bureau, U.S. single-family housing starts increased 9.4% in 2016 compared to 2015.

A composite of third party sources, including the National Association of Homebuilders (“NAHB”), are predicting that U.S. single-family housing starts will increase to approximately 847,000 in 2017, which would represent an 8.4% increase from 2016 actual U.S. single-family housing starts of 781,500.

In addition, the HIRI is forecasting sales in the professional repair and remodel end market to increase approximately 4.2% in 2017 compared to 2016.

We intend to build on our strong market positions and increase our sales and profits by pursuing the following strategies:

As the U.S. housing market recovery continues, we intend to increase sales through our scale, product portfolio and structural efficiencies.

Our acquisition of ProBuild further developed the suite of products and services we provide to our customers, in addition to substantially expanding our national footprint.

This comprehensive network of products, services and facilities provides a platform which we believe enhances our “one-stop-shop” strategy and more evenly distributes and promotes additional “pull through” of our value added products.

Execute on identified cost saving strategies

Our management has shown the capability to effectively and efficiently integrate newly acquired businesses, ramping up productivity and driving value.

Prior to the ProBuild acquisition, we successfully integrated 33 acquisitions since 1998.

These integration capabilities should enable us to achieve annual run rate cost savings of $100 to $120 million within two years of the close date of the ProBuild acquisition.

We have realized approximately $74 million in 2016 and $10 million in 2015 of the anticipated synergy cost savings.

One-time costs to achieve these cost savings is estimated to be $90-$100 million, of which we incurred approximately $28 million and $43 million in 2016 and 2015, respectively.

The remainder of these costs are expected to be incurred in 2017.

Maximize our share of wallet with individual customers across our service areas

We believe that Pro Segment customers will continue to consolidate the number of supplier relationships they utilize in the future.

As a result, this will create the opportunity to win a greater share of wallet for remaining suppliers.

Continue to leverage strategic vendor relationships

Our acquisition of ProBuild made us the largest non-specialty distributor in the Pro Segment.

We believe we will be able to leverage this size and our strong homebuilder relationships to provide our vendors access to a large customer base.

We believe that our size, purchasing power, and strong financial position allows us to negotiate favorable pricing (including back-end rebates), savings in procurement costs and to receive a higher priority with our vendors when product supply is limited.

We strive to continually enhance our role as a preferred partner for vendors and our size, strong liquidity position, and access to capital markets is expected to mitigate natural credit concerns.

Furthermore, our broad product portfolio includes a variety of higher-margin products, which we believe will enhance our preferred partner status.

This preferred status enables us to participate in mutually beneficial joint marketing programs with our vendors.

These incremental efficiencies in procurement provide an opportunity to pass on additional value to our customers.

Significant investments in our technology infrastructure and reengineering of our business processes enabled us to centralize many corporate and field tasks.

This standardization helps us to optimize our cost structure, allows our centralized operating team to make better purchasing and pricing decisions based on an accurate, up-to-the-minute understanding of costs and trends, and enables us to redeploy capital more strategically.

We believe that these efficiencies will drive enhanced profit margins and cash flow conversion across our entire platform as we continue to grow with improving market conditions.

Our initial area of focus has been where we have operations within the same geographic market.

Once overlapping markets have been addressed, we will begin integration of the broader geographic footprint of our company.

Floyd F.

Mr. Sherman has been our Chief Executive Officer and a director since 2001, when he joined the Company.

He served as President of the Company from 2001 until October 2006 and also served from February 2008 until November 2014.

Prior to joining the Company, he spent 28 years at Triangle Pacific/Armstrong Flooring, the last nine of which he served as Chairman and Chief Executive Officer.

A native of Kerhonkson, New York and a veteran of the U.S. Army, Mr. Sherman is a graduate of the New York State College of Forestry at Syracuse University.

He also holds an M.B.A. degree from Georgia State University.

He served as Vice President – Controller of the Company from May 2000 and was promoted to Senior Vice President and Chief Financial Officer in November 2009.

[removed: We] [added: In addition, we] are involved in various [added: other] claims and lawsuits incidental to the conduct of our business in the ordinary course.

We carry insurance coverage in such amounts in excess of our self-insured retention as we believe to be reasonable under the [removed: circumstances, but such insurance does] [added: circumstances and that may or may] not cover [added: any or] all of our liabilities in respect of [removed: most] [added: such] claims and lawsuits.

Although our business and facilities are subject to federal, state and local environmental regulation, environmental regulation does not have a material [removed: effect] [added: impact] on our operations.

Our current expenditures with respect to environmental investigation and remediation at our facilities are minimal, although no assurance can be provided that more significant remediation may not be required in the future as a result of spills or releases of petroleum products or hazardous substances or the discovery of unknown environmental [removed: conditions, or changes in legislation, laws, rules or regulations.][added: conditions.]

The Company has a number of known and threatened construction defect legal claims.

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 a material adverse effect on the Company's financial position, results of operations or cash flows.

Although the ultimate disposition of these other proceedings cannot be predicted with certainty, management believes the outcome of any such claims that are 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.

We do not believe that the ultimate resolution of these matters will have a material adverse effect on our consolidated financial position, cash flows or operating results.

10-K 1 [removed: bldr-10k_20161231.htm] [added: bldr-10k_20171231.htm] 10-K

For the fiscal year ended December 31, [removed: 2016][added: 2017]

| [added: Emerging growth company ☐] | | (Do not check if a smaller reporting company) | | | | |

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, [removed: 2016] [added: 2017] was approximately [removed: $961.1] [added: $1,486.8] million based on the closing price per share on that date of [removed: $11.25] [added: $15.32] as reported on the NASDAQ Stock Market LLC.

The number of shares of the registrant’s common stock, par value $0.01, outstanding as of February [removed: 24, 2017] [added: 26, 2018] was [removed: 112,040,464.][added: 114,120,308.]

Portions of the registrant’s definitive proxy statement for its annual meeting of stockholders to be held on May [removed: 24, 2017] [added: 23, 2018] are incorporated by reference into Part II and Part III of this Form 10-K.

| Item 1A. | | [Risk [removed: Factors](#Item_1A_Risk_Factors)] [added: Factors](#ITEM_1A_RISK_FACTORS)] | | [removed: 11] [added: 10] |

| Item 1B. | | [Unresolved Staff Comments](#Item_1B_Unresolved_Staff_Comments) | | [removed: 21] [added: 19] |

| Item 2. | | [Properties](#Item_2_Properties) | | [removed: 21] [added: 19] |

| Item 3. | | [Legal Proceedings](#Item_3_Legal_Proceedings) | | [removed: 22] [added: 20] |

| Item 4. | | [Mine Safety Disclosures](#Item_4_Mine_Safety_Disclosures) | | [removed: 22] [added: 20] |

| Item 5. | | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](#Item_5) | | [removed: 23] [added: 21] |

| Item 6. | | [Selected Financial Data](#Item_6) | | [removed: 25] [added: 23] |

| Item 7. | | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#Item_7) | | [removed: 26] [added: 24] |

| Item 7A. | | [Quantitative and Qualitative Disclosures About Market Risk](#Item_7A) | | [removed: 39] [added: 33] |

| Item 8. | | [Financial Statements and Supplementary Data](#Item_8) | | [removed: 40] [added: 34] |

| Item 9. | | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#Item_9) | | [removed: 76] [added: 66] |

| Item 9A. | | [Controls and Procedures](#Item_9A) | | [removed: 76] [added: 66] |

| Item 9B. | | [Other Information](#Item_9B) | | [removed: 77] [added: 67] |

| Item 10. | | [Directors, Executive Officers and Corporate Governance](#Item_10_Directors_Executive_Officers) | | [removed: 78] [added: 68] |

| Item 11. | | [Executive Compensation](#Item_11_Executive_Compensation) | | [removed: 78] [added: 68] |

| Item 12. | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#Item_12) | | [removed: 78] [added: 68] |

| Item 13. | | [Certain Relationships and Related Transactions, and Director Independence](#Item_13) | | [removed: 79] [added: 69] |

| Item 14. | | [Principal Accountant Fees and Services](#Item_14) | | [removed: 79] [added: 69] |

| Item 15. | | [Exhibits and Financial Statement Schedules](#ITEM_15_EXHIBITS_FINANCIAL_STATEMENT_SCH) | | [removed: 80] [added: 70] |

| Item 16 | | [Form 10-K Summary](#ITEM_16_FORM_10K_SUMMARY) | | [removed: 84] [added: 73] |

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

We have a broad network of distribution and manufacturing facilities in 40 states throughout the U.S. Based on [removed: 2016] [added: 2017] U.S. Census data, we have operations in 75 of the top 100 U.S. Metropolitan Statistical Areas, as ranked by single family housing permits in [removed: 2016.][added: 2017.]

We contractually lease [removed: 309] [added: 311] facilities and own 91 facilities.

As described in Note 8 to the consolidated financial statements included in Item 8 of this annual report on Form 10-K, [removed: 150] [added: 141] of our leased facilities are subject to a sales-lease back transaction that is accounted for in our financial statements as owned assets with offsetting lease financing obligations.

We operate a fleet of approximately [removed: 10,700] [added: 10,800] rolling stock units, which [removed: primarily] includes [removed: forklifts, trailers and] approximately 4,600 trucks [added: as well as forklifts and trailers] to deliver products from our distribution and manufacturing centers to our customer’s job sites.

On February [removed: 24, 2017,] [added: 26, 2018,] the closing price of our common stock as reported on the NASDAQ Stock Market LLC was [removed: $12.24.][added: $20.51.]

The approximate number of stockholders of record of our common stock on that date was [removed: 117,] [added: 100,] although we believe that the number of beneficial owners of our common stock is substantially greater.

The graph assumes that the value of the investment in our common [removed: stock and] [added: stock,] in each [removed: index] [added: index, and in the peer group] (including reinvestment of dividends) was $100 on [removed: December 31, 2011] [added: 12/31/2012] and tracks it through [removed: December 31, 2016.][added: 12/31/2017.]

[removed: ][added: ]

The information regarding securities authorized for issuance under equity compensation plans appears in our definitive proxy statement for our annual meeting of stockholders to be held on May [removed: 24, 2017] [added: 23, 2018] under the caption “Equity Compensation Plan Information,” which information is incorporated herein by reference.

| 2017 | | | | | | | | |

| First quarter | | $ | 15.85 | | | $ | 10.57 | |

| Second quarter | | $ | 16.50 | | | $ | 13.33 | |

| Third quarter | | $ | 18.08 | | | $ | 14.39 | |

| Fourth quarter | | $ | 22.08 | | | $ | 16.52 | |

Company Stock Repurchases

The following table provides information with respect to our purchases of Builders FirstSource, Inc. common stock during the fourth quarter of fiscal year 2017:

| Period | | Total Number of Shares Purchased | | | | Average Price Paid per Share | | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | | Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| October 1, 2017 — October 31, 2017 | | | — | | | $ | — | | | | — | | | | — | |

| November 1, 2017 — November 30, 2017 | | | 9,214 | | | | 18.27 | | | | — | | | | — | |

| December 1, 2017 — December 31, 2017 | | | — | | | | — | | | | — | | | | — | |

| Total | | | 9,214 | | | $ | 18.27 | | | | — | | | | — | |

The shares presented in the above table represent stock tendered in order to meet tax withholding requirements for restricted stock units vested.

| | | 12/12 | | | | 12/13 | | | | 12/14 | | | | 12/15 | | | | 12/16 | | | | 12/17 | | |

| Builders FirstSource, Inc. | | | 100.00 | | | | 127.78 | | | | 123.12 | | | | 198.57 | | | | 196.60 | | | | 390.50 | |

| Russell 2000 | | | 100.00 | | | | 138.82 | | | | 145.62 | | | | 139.19 | | | | 168.85 | | | | 193.58 | |

| S&P 600 Building Products Index | | | 100.00 | | | | 145.13 | | | | 150.68 | | | | 176.65 | | | | 243.14 | | | | 292.49 | |

| 2015 | | | | | | | | |

| First quarter | | $ | 7.06 | | | $ | 5.71 | |

| Second quarter | | $ | 14.24 | | | $ | 6.54 | |

| Third quarter | | $ | 16.69 | | | $ | 11.98 | |

| Fourth quarter | | $ | 15.72 | | | $ | 10.02 | |

| | | 12/11 | | | | 12/12 | | | | 12/13 | | | | 12/14 | | | | 12/15 | | | | 12/16 | | |

| Builders FirstSource, Inc. | | | 100.00 | | | | 273.53 | | | | 349.51 | | | | 336.76 | | | | 543.14 | | | | 537.75 | |

| Russell 2000 | | | 100.00 | | | | 116.35 | | | | 161.52 | | | | 169.43 | | | | 161.95 | | | | 196.45 | |

| S&P 600 Building Products Index | | | 100.00 | | | | 130.78 | | | | 189.80 | | | | 197.06 | | | | 231.02 | | | | 317.98 | |

The following selected consolidated financial data for the years ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014] [added: 2015] and as of December 31, [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] were derived from our consolidated financial statements [removed: that have been audited by PricewaterhouseCoopers LLP, independent registered public accounting firm, and] [added: which] are included [removed: as] [added: in] Item 8 of this annual report on Form 10-K.

Selected consolidated financial data as of December 31, [removed: 2014] [added: 2015] and as of and for the years ended December 31, [removed: 2013] [added: 2014] and [removed: 2012] [added: 2013] were derived from our consolidated financial [removed: statements that have been audited by PricewaterhouseCoopers LLP,] [added: statements,] but are not included herein.

The following data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Item 7 of this annual report on Form 10-K and with our consolidated financial statements and related notes included [removed: as] [added: in] Item 8 of this annual report on Form 10-K.

| | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | | |

| Sales | | $ | [removed: 6,367,284] [added: 7,034,209] | | | $ | [removed: 3,564,425] [added: 6,367,284] | | | $ | [removed: 1,604,096] [added: 3,564,425] | | | $ | [removed: 1,489,892] [added: 1,604,096] | | | $ | [removed: 1,070,676] [added: 1,489,892] | | |

| Gross margin | | | [removed: 1,596,748] [added: 1,727,391] | | | | [removed: 901,458] [added: 1,596,748] | | | | [removed: 356,997] [added: 901,458] | | | | [removed: 319,920] [added: 356,997] | | | | [removed: 214,566] [added: 319,920] | | |

| Selling, general and administrative expenses | | | [removed: 1,360,412] [added: 1,442,288] | | | | [removed: 810,703] [added: 1,360,412] | | | | [removed: 307,387] [added: 810,703] | | | | [removed: 272,204] [added: 307,387] | | | | [removed: 225,706] [added: 272,204] | | |

| Net income (loss) (1)(2) | | | [added: 38,781 | | | |] 144,341 | | | | (22,831 | ) | | | 18,150 | | | | (42,691 | ) | | [removed: | (56,856 | ) | |]

| Net income (loss) per share — basic | | $ | [removed: 1.30] [added: 0.34] | | | $ | [removed: (0.22] [added: 1.30] | [removed: )] | | $ | [removed: 0.19] [added: (0.22] | [added: )] | | $ | [removed: (0.44] [added: 0.19] | [removed: )] | | $ | [removed: (0.60] [added: (0.44] | ) | |

| Net income (loss) per share — diluted | | $ | [removed: 1.27] [added: 0.34] | | | $ | [removed: (0.22] [added: 1.27] | [removed: )] | | $ | [removed: 0.18] [added: (0.22] | [added: )] | | $ | [removed: (0.44] [added: 0.18] | [removed: )] | | $ | [removed: (0.60] [added: (0.44] | ) | |

| Cash and cash equivalents | | $ | [removed: 14,449] [added: 57,533] | | | $ | [removed: 65,063] [added: 14,449] | | | $ | [removed: 17,773] [added: 65,063] | | | $ | [removed: 54,696] [added: 17,773] | | | $ | [removed: 131,432] [added: 54,696] | | |

| Total assets | | | [removed: 2,909,887] [added: 3,006,124] | | | | [removed: 2,882,038] [added: 2,909,887] | | | | [removed: 574,065] [added: 2,882,038] | | | | [removed: 505,436] [added: 574,065] | | | | [removed: 548,369] [added: 505,436] | | |

| Total debt (including current portion) | | | [removed: 1,802,052] [added: 1,784,420] | | | | [removed: 1,951,671] [added: 1,802,052] | | | | [removed: 374,903] [added: 1,951,671] | | | | [removed: 343,567] [added: 374,903] | | | | [removed: 358,483] [added: 343,567] | | |

| Stockholders’ equity | | | [removed: 309,620] [added: 376,209] | | | | [removed: 149,195] [added: 309,620] | | | | [removed: 40,200] [added: 149,195] | | | | [removed: 15,368] [added: 40,200] | | | | [removed: 48,096] [added: 15,368] | | |

| Depreciation and amortization | | $ | [removed: 109,793] [added: 92,993] | | | $ | [removed: 58,280] [added: 109,793] | | | $ | [removed: 9,519] [added: 58,280] | | | $ | [removed: 9,305] [added: 9,519] | | | $ | [removed: 11,120] [added: 9,305] | | |

| (1) | As discussed in Note [removed: 12] [added: 11] to the consolidated financial statements included in Item 8 of this annual report on Form 10-K, net income [removed: included] [added: includes $29.0 million in income tax expense attributable to revaluation of our net deferred tax assets resulting from the enactment of the 2017 Tax Act. Net income includes] a reduction to our valuation allowance of $131.7 million as we released the valuation allowance against our net federal and certain state deferred tax assets for the year ended December 31, 2016. Net loss [removed: included] [added: includes] a valuation allowance of $9.7 million against primarily all of our deferred tax assets for the year ended December 31, 2015. Net income [removed: included] [added: includes] a reduction to our valuation allowance of $7.2 million due to the utilization of net operating loss carryforwards to reduce taxable income for the year ended December 31, 2014. Net loss [removed: included] [added: includes] a valuation allowance of $15.3 million [removed: and $19.6 million] against primarily all of our deferred tax assets for the [removed: years] [added: year] ended December 31, [removed: 2013 and 2012, respectively.] [added: 2013.] |

| (2) | Net income for the [removed: year] [added: years] ended December 31, [added: 2017 and] 2016 includes [removed: a loss] [added: losses] on debt extinguishment and other financing costs of [removed: $56.9] [added: $58.7] million [added: and $56.9 million, respectively,] resulting from multiple debt transactions executed in [removed: the current year.] [added: 2017 and 2016.] Our [added: 2017 and] 2016 debt transactions are discussed in detail in Note 8 to the consolidated financial statements included in Item 8 of this annual report on Form 10-K. Net loss for the year ended December 31, 2015 includes $38.6 million of acquisition and transaction related costs associated with the ProBuild acquisition, including $13.2 million in commitment fees related to bridge and backstop financing facilities incurred in connection with the financing of the ProBuild acquisition. In addition, net loss for the year ended December 31, 2015 also includes $10.3 million related to non-cash interest expense from the amortization of debt discount and deferred loan costs, and fair value adjustments related to our warrants. Net loss for the year ended December 31, 2013 [removed: included] [added: includes] a $39.5 million prepayment penalty. |

| [Report of Independent Registered Public Accounting Firm](#Report_of_Independent_Registered_Public) | | [removed: 41] [added: 35] |

| [Consolidated [removed: Statements] [added: Statement] of Operations and Comprehensive Income (Loss) for the years ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014](#COMPREHENSIVE_LOSS)] [added: 2015](#COMPREHENSIVE_LOSS)] | | [removed: 42] [added: 37] |

| [Consolidated Balance [removed: Sheets] [added: Sheet] at December 31, [removed: 2016] [added: 2017] and [removed: 2015](#BALANCE_SHEETS)] [added: 2016](#BALANCE_SHEETS)] | | [removed: 43] [added: 38] |

| [Consolidated [removed: Statements] [added: Statement] of Cash Flows for the years ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014](#CASH_FLOWS)] [added: 2015](#CASH_FLOWS)] | | [removed: 44] [added: 39] |

| [Consolidated [removed: Statements] [added: Statement] of Changes in Stockholders’ Equity for the years ended December 31, [removed: 2016, 2015] [added: 2017, 2016] and [removed: 2014](#STOCKHOLDERS_EQUITY)] [added: 2015](#STOCKHOLDERS_EQUITY)] | | [removed: 45] [added: 40] |

| [Notes to Consolidated Financial Statements](#NOTES_TO) | | [removed: 46] [added: 41] |

In our opinion, the [removed: accompanying] consolidated [removed: balance sheets and the related consolidated] [added: financial] statements [removed: of operations and comprehensive income (loss), stockholders’ equity and cash flows] [added: referred to above] present fairly, in all material respects, the financial position of [removed: Builders FirstSource, Inc. and its subsidiaries at] [added: the Company as of] December 31, [removed: 2016] [added: 2017] and [removed: December 31, 2015,] [added: 2016,] and the results of their operations and their cash flows for each of the three years in the period ended December 31, [removed: 2016] [added: 2017] 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, [removed: 2016,] [added: 2017,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the [removed: Committee of Sponsoring Organizations of the Treadway Commission (COSO).][added: COSO.]

The Company's management is responsible for these [added: consolidated] financial statements, for maintaining effective internal control over financial [removed: reporting] [added: reporting,] and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial [removed: Reporting.][added: Reporting appearing under Item 9A.]

Our responsibility is to express opinions on [removed: these] [added: the Company’s consolidated] financial statements and on the Company's internal control over financial reporting based on our [removed: integrated] audits.

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the [added: consolidated] financial statements are free of material [removed: misstatement] [added: misstatement, whether due to error or fraud,] and whether effective internal control over financial reporting was maintained in all material respects.

Our audits [removed: of the financial statements] [added: also] included [removed: examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing] [added: evaluating] the accounting principles used and significant estimates made by management, [removed: and] [added: as well as] evaluating the overall [added: presentation of the consolidated] financial [removed: statement presentation.][added: statements.]

CONSOLIDATED [removed: STATEMENTS] [added: STATEMENT] OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

| | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Sales | | $ | [removed: 6,367,284] [added: 7,034,209] | | | $ | [removed: 3,564,425] [added: 6,367,284] | | | $ | [removed: 1,604,096] [added: 3,564,425] | |

| Cost of sales | | | [removed: 4,770,536] [added: 5,306,818] | | | | [removed: 2,662,967] [added: 4,770,536] | | | | [removed: 1,247,099] [added: 2,662,967] | |

| Gross margin | | | [removed: 1,596,748] [added: 1,727,391] | | | | [removed: 901,458] [added: 1,596,748] | | | | [removed: 356,997] [added: 901,458] | |

| Selling, general and administrative expenses | | | [removed: 1,360,412] [added: 1,442,288] | | | | [removed: 810,703] [added: 1,360,412] | | | | [removed: 307,387] [added: 810,703] | |

| Income from operations | | | [removed: 236,336] [added: 285,103] | | | | [removed: 90,755] [added: 236,336] | | | | [removed: 49,610] [added: 90,755] | |

| Interest expense, net | | | [removed: 214,667] [added: 193,174] | | | | [removed: 109,199] [added: 214,667] | | | | [removed: 30,349] [added: 109,199] | |

| Income (loss) before income taxes | | | [removed: 21,669] [added: 91,929] | | | | [removed: (18,444] [added: 21,669] | [removed: )] | | | [removed: 19,261] [added: (18,444] | [added: )] |

| Income tax expense (benefit) | | | [removed: (122,672] [added: 53,148] | [removed: )] | | | [removed: 4,387] [added: (122,672] | [added: )] | | | [removed: 1,111] [added: 4,387] | |

| Net income (loss) | | $ | [removed: 144,341] [added: 38,781] | | | $ | [removed: (22,831] [added: 144,341] | [removed: )] | | $ | [removed: 18,150] [added: (22,831] | [added: )] |

| Comprehensive income (loss) | | $ | [removed: 144,341] [added: 38,781] | | | $ | [removed: (22,831] [added: 144,341] | [removed: )] | | $ | [removed: 18,150] [added: (22,831] | [added: )] |

| Basic | | $ | [removed: 1.30] [added: 0.34] | | | $ | [removed: (0.22] [added: 1.30] | [removed: )] | | $ | [removed: 0.19] [added: (0.22] | [added: )] |

| Diluted | | $ | [removed: 1.27] [added: 0.34] | | | $ | [removed: (0.22] [added: 1.27] | [removed: )] | | $ | [removed: 0.18] [added: (0.22] | [added: )] |

| Basic | | | [removed: 110,754] [added: 112,587] | | | | [removed: 103,190] [added: 110,754] | | | | [removed: 98,050] [added: 103,190] | |

| Diluted | | | [removed: 113,585] [added: 115,597] | | | | [removed: 103,190] [added: 113,585] | | | | [removed: 100,522] [added: 103,190] | |

CONSOLIDATED BALANCE [removed: SHEETS][added: SHEET]

| | | [added: 2017 | | | |] 2016 | | | | 2015 | | |

| Cash and cash equivalents | | $ | [removed: 14,449] [added: 57,533] | | | $ | [removed: 65,063] [added: 14,449] | |

| Accounts receivable, less allowances of [removed: $11,571] [added: $11,771] and [removed: $8,049] [added: $11,571] at December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] respectively | | | [removed: 569,208] [added: 631,992] | | | | [removed: 528,544] [added: 569,208] | |

| Other receivables | | | [removed: 55,781] [added: 71,232] | | | | [removed: 57,778] [added: 55,781] | |

| Inventories, net | | | [removed: 541,771] [added: 601,547] | | | | [removed: 513,045] [added: 541,771] | |

| Other current assets | | | [removed: 34,772] [added: 33,564] | | | | [removed: 29,899] [added: 34,772] | |

| Total current assets | | | [removed: 1,215,981] [added: 1,395,868] | | | | [removed: 1,194,329] [added: 1,215,981] | |

| Property, plant and equipment, net | | | [removed: 656,101] [added: 639,303] | | | | [removed: 734,329] [added: 656,101] | |

| Assets held for sale | | | [removed: 4,361] [added: 5,273] | | | | [removed: 5,585] [added: 4,361] | |

| Goodwill | | | 740,411 | | | | [removed: 739,625] [added: 740,411] | |

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Builders FirstSource, Inc. and its subsidiaries (the “Company”) as of December 31, 2017 and 2016, and the related consolidated statements of operations and comprehensive income (loss), of changes in stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Basis for Opinions

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Definition and Limitations of Internal Control over Financial Reporting

March 1, 2018

We have served as the Company’s auditor since 1999.

| Net income (loss) | | $ | 38,781 | | | $ | 144,341 | | | $ | (22,831 | ) |

| Amortization and write-off of debt issuance costs and debt discount | | | 6,092 | | | | 7,502 | | | | 18,929 | |

| Net loss (gain) on sales of assets and asset impairments | | | 6,965 | | | | (336 | ) | | | 1,313 | |

| Exercise of stock options | | | 1,449 | | | | 15 | | | | 8,040 | | | | — | | | | 8,055 | |

| Repurchase of common stock | | | (213 | ) | | | (2 | ) | | | (2,642 | ) | | | — | | | | (2,644 | ) |

| Cumulative effect adjustment (Note 2) | | | — | | | | — | | | | — | | | | 8,889 | | | | 8,889 | |

| Balance at December 31, 2017 | | | 113,572 | | | $ | 1,136 | | | $ | 546,766 | | | $ | (171,693 | ) | | $ | 376,209 | |

On a quarterly basis, we engage an external actuarial professional to independently assess and estimate the total liability outstanding.

We recognize the effect of pre-vesting forfeitures in the period they actually occur.

| | | 2017 | | | 2016 |

| --- | --- | --- | --- | --- | --- |

The carrying value of the 2022 facility at December 31, 2017 approximates fair value as the rates are comparable to those at which we could currently borrow under similar terms, are variable and incorporate a measure of our credit risk.

As such, the fair value of the 2022 facility was also classified as Level 2 in the hierarchy.

| | | 2017 | | | | 2016 | | | | 2015 | | |

| | (1) | Includes $48.7 million and $42.9 million in payments of debt extinguishment costs which are classified as financing outflows in the accompanying consolidated statement of cash flows for the years ended December 31, 2017 and 2016, respectively. These payments were recorded to interest expense in the accompanying consolidated statement of operations and comprehensive income (loss) for their respective years. |

In May 2017, the Financial Accounting Standards Board (“FASB”) issued an update to the existing guidance under the Compensation-Stock Compensation topic of the Accounting Standards Codification (“Codification”) to clarify when modification accounting would be applied for a change to the terms or conditions of a share-based award.

Under this new guidance modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions.

This guidance is required to be adopted on a prospective basis for annual periods beginning on or after December 15, 2017 with early adoption permitted.

As we do not regularly modify the terms and conditions of our share-based awards we do not expect the adoption of this guidance to have a significant impact on our financial statements upon adoption.

As such, we adopted this guidance on a prospective basis in the fourth quarter of 2017 in connection with our annual goodwill impairment test.

The Company will adopt this guidance on January 1, 2018 and the impact on our financial statements will depend upon the occurrence of any future acquisition activity.

As such, we adopted this guidance effective January 1, 2017.

The Company has a significant number of leases, primarily related to real estate and rolling stock, which are accounted for as operating leases under existing guidance.

While we are currently evaluating the impact of this new guidance on our financial statements, we are expecting a significant impact to our balance sheet upon adoption related to the establishment of lease liabilities and the corresponding right-of-use assets.

We adopted this guidance effective January 1, 2017 on a prospective basis.

The Company will adopt this guidance beginning on January 1, 2018 on a modified retrospective basis.

Under current guidance, we recognize sales from contracts with service elements on the completed contract method when these contracts are completed within 30 days.

The remaining contracts with service elements are recognized under the percentage of completion method.

Under this updated guidance, revenue related to our contracts with service elements will generally be recognized over time based on the extent of progress towards completion of the performance obligation because of continuous transfer of control to the customer.

We have assessed and updated our business processes, systems and controls to ensure compliance with the recognition and disclosure requirements of the new standard upon adoption.

March 1, 2017

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Deferred income taxes | | | — | | | | 11,502 | |

| | | (In thousands) | | | | | | | | | | |

| Asset impairments | | | 4,616 | | | | 2,114 | | | | — | |

| Amortization of deferred loan costs | | | 6,863 | | | | 18,630 | | | | 2,432 | |

| Amortization of debt discount | | | 639 | | | | 299 | | | | — | |

| Accretion of lease finance obligations | | | 813 | | | | — | | | | — | |

| Net gain on sales of assets | | | (4,952 | ) | | | (801 | ) | | | (114 | ) |

There were no retirements of assets subject to lease finance obligations or extinguishment of lease finance obligations for the year ended December 31, 2014.

There were no purchases of equipment financed through capital lease obligations for the year ended December 31, 2014.

| Balance at December 31, 2013 | | | 97,905 | | | $ | 973 | | | $ | 373,418 | | | $ | (359,023 | ) | | $ | 15,368 | |

| Exercise of stock options | | | 492 | | | | 5 | | | | 1,826 | | | | — | | | | 1,831 | |

| Repurchase of common stock | | | (171 | ) | | | (2 | ) | | | (1,304 | ) | | | — | | | | (1,306 | ) |

Percentage of completion revenue represents less than 2% of our consolidated sales for each year presented.

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.

Asset impairment charges are presented in the consolidated statements of operations and comprehensive income (loss) for the respective years.

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.

There were no warrants outstanding at December 31, 2016 as all of the remaining warrants were exercised in April 2015.

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.

This guidance will be applied on a prospective basis following adoption.

This update clarifies the classification of certain transactions in the statement of cash flows.

This update requires application using a retrospective transition method.

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

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.

Based on the required evaluation of our disclosure controls and procedures, our CEO and CFO have concluded that, as of December 31, [removed: 2016,] [added: 2017,] we maintained disclosure controls and procedures that were effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Based on our evaluation under the framework set forth in Internal Control — Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, [removed: 2016.][added: 2017.]

The effectiveness of the Company’s internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

During the quarter ended December 31, [removed: 2016,] [added: 2017,] there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

None.

On February 23, 2017, we repriced our existing 2015 term loan with Deutsche Bank AG New York Branch, as administrative agent and collateral agent, and the lenders and financial institutions party thereto, pursuant to 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.

The information required by this item appears in our definitive proxy statement for our annual meeting of stockholders to be held May [removed: 24, 2017] [added: 23, 2018] under the captions “Proposal 1 — Election of Directors,” “Continuing Directors,” “Information Regarding the Board and Its Committees,” “Corporate Governance,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Executive Officers of the Registrant,” which information is incorporated herein by reference.

| | • | Any amendment to a provision of our Code of Business Conduct and Ethics or our Supplemental Code of Ethics for Chief Executive Officer, President and Senior Financial Officers of Builders FirstSource, Inc. that applies to our chief executive officer, our chief financial officer or [removed: controller;] [added: chief accounting officer as it relates to one] or [added: more of the items set forth in Item 406(b) of Regulation S-K; or] |

The information required by this item appears in our definitive proxy statement for our annual meeting of stockholders to be held May [removed: 24, 2017] [added: 23, 2018] under the captions “Executive Compensation and Other Information,” “Information Regarding the Board and its Committees — Compensation of Directors,” and “Compensation Committee Interlocks and Insider Participation,” which information is incorporated herein by reference.

The information required by this item appears in our definitive proxy statement for our annual meeting of stockholders to be held on May [removed: 24, 2017] [added: 23, 2018] under the caption “Ownership of Securities” and “Equity Compensation Plan Information,” which information is incorporated herein by reference.

The information required by this item appears in our definitive proxy statement for our annual meeting of stockholders to be held May [removed: 24, 2017] [added: 23, 2018] under the caption “Election of Directors and Management Information,” “Information Regarding the Board and its Committees,” and “Certain Relationships and Related Party Transactions,” which information is incorporated herein by reference.

The information required by this item appears in our definitive proxy statement for our annual meeting of stockholders to be held May [removed: 24, 2017] [added: 23, 2018] under the caption “Proposal [removed: 4] [added: 3] — Ratification of Selection of Independent Registered Public Accounting Firm — Fees Paid to PricewaterhouseCoopers LLP,” which information is incorporated herein by reference.

| 3.1 | | [removed: Amended] [added: [Amended] and Restated Certificate of Incorporation of Builders FirstSource, Inc. (incorporated by reference to Exhibit 3.1 to Amendment No. 4 to the Registration Statement of the Company on Form S-1, filed with the Securities and Exchange Commission on June 6, 2005, File Number [removed: 333-122788)] [added: 333-122788)](http://www.sec.gov/Archives/edgar/data/1316835/000095012305007065/e05301a4exv3w1.txt)] |

| 3.2 | | [removed: Amended] [added: [Amended] and Restated By-Laws of Builders FirstSource, Inc. (incorporated by reference to Exhibit [removed: 3.2] [added: 3.1] to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on [removed: March 5, 2007,] [added: November 6, 2017,] File Number [removed: 0-51357)] [added: 0-51357)](http://www.sec.gov/Archives/edgar/data/1316835/000119312517334452/d471628dex31.htm)] |

| [removed: 4.1] [added: 10.17+] | | [removed: Registration Rights Agreement, dated as] [added: [2006 Form] of [removed: January 21, 2010, among] Builders FirstSource, [removed: Inc., JLL Partners Fund V, L.P., and Warburg Pincus Private] [added: Inc. 2005] Equity [removed: IX, L.P.] [added: Incentive Plan Nonqualified Stock Option Agreement] (incorporated by reference to Exhibit [removed: 10.2] [added: 99.1] to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on [removed: January 22, 2010,] [added: February 17, 2006,] File Number [removed: 0-51357)] [added: 0-51357)](http://www.sec.gov/Archives/edgar/data/1316835/000095013406003269/d33021exv99w1.htm)] |

| [removed: 4.2] [added: 4.1] | | [removed: Indenture,] [added: [Indenture,] dated as of [removed: July 31, 2015,] [added: August 22, 2016,] among Builders FirstSource, Inc., the guarantors party thereto, and Wilmington Trust, National Association, as trustee [added: and notes collateral agent] (form of Note included therein) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August [removed: 6, 2015,] [added: 23, 2016,] File Number [removed: 0-51357)] [added: 0-51357)](http://www.sec.gov/Archives/edgar/data/1316835/000119312516688065/d131759dex41.htm)] |

| [removed: 4.3] [added: 10.9] | | [removed: Supplemental Indenture to the Indenture dated as of July 31, 2015,] [added: [Notes Collateral Agreement,] dated as of [removed: July 31, 2015,] [added: August 22, 2016,] among Builders FirstSource, Inc., [removed: the guarantors party thereto,] [added: certain of its subsidiaries,] and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit [removed: 4.2] [added: 10.1] to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August [removed: 6, 2015,] [added: 23, 2016,] File Number [removed: 0-51357)] [added: 0-51357)](http://www.sec.gov/Archives/edgar/data/1316835/000119312516688065/d131759dex101.htm)] |

| [removed: 4.4] [added: 10.6] | | [removed: Indenture,] [added: [ABL/Bond Intercreditor Agreement,] dated as of [removed: August 22, 2016,] [added: May 29, 2013,] among Builders FirstSource, [removed: Inc., the guarantors party thereto,] [added: Inc.] and [added: certain of its subsidiaries, as grantors, SunTrust Bank, as ABL agent, and] Wilmington Trust, National Association, as [removed: trustee and] notes collateral agent [removed: (form of Note included therein)] (incorporated by reference to Exhibit [removed: 4.1] [added: 10.2] to the Company’s Current Report on Form 8-K, filed with the Securities [removed: and] Exchange Commission on [removed: August 23, 2016,] [added: June 3, 2013,] File Number [removed: 0-51357)] [added: 0-51357)](http://www.sec.gov/Archives/edgar/data/1316835/000119312513245434/d547322dex102.htm)] |

| 10.1 | | [removed: Term] [added: [Term] Loan Credit Agreement, dated as of July 31, 2015, among Builders FirstSource, Inc., Deutsche Bank AG, New York Branch, as administrative [removed: agent and collateral] agent, and the lenders and financial institutions party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities Exchange Commission on August 6, 2015, File Number [removed: 0-51357)] [added: 0-51357)](http://www.sec.gov/Archives/edgar/data/1316835/000119312515281152/d89945dex101.htm)] |

| 10.2 | | [removed: First] [added: [First] Amendment to Credit Agreement, dated as of August 22, 2016, by and among Builders FirstSource, Inc., Deutsche Bank [removed: AG] [added: AG,] New York Branch, as administrative agent, and the lenders and financial institutions party thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 23, 2016, File Number [removed: 0-51357)] [added: 0-51357)](http://www.sec.gov/Archives/edgar/data/1316835/000119312516688065/d131759dex102.htm)] |

| [removed: 10.3*] [added: 10.3] | | [removed: Second] [added: [Second] Amendment to Credit [removed: Facility,] [added: Agreement,] dated as of February 23, 2017, by and among Builders FirstSource, Inc., Deutsche Bank [removed: AG] [added: AG,] New York Branch, as administrative agent, and the lenders and financial institutions party thereto [added: (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 10-K for the year ended December 31, 2016, filed with the Securities Exchange Commission on March 1, 2017, File Number 0-51357)](http://www.sec.gov/Archives/edgar/data/1316835/000156459017003114/bldr-ex103_578.htm)] |

| 10.4 | | [removed: Amended] [added: [Amended] and Restated Senior Secured Revolving Credit Facility, dated as of July 31, 2015, among Builders FirstSource, Inc., SunTrust Bank, as administrative agent and collateral agent, and the lenders and financial institutions party thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities Exchange Commission on August 6, 2015, File Number [removed: 0-51357)] [added: 0-51357)](http://www.sec.gov/Archives/edgar/data/1316835/000119312515281152/d89945dex102.htm)] |

| [removed: 10.5] [added: 10.8] | | [removed: ABL/Bond Intercreditor] [added: [Amended and Restated ABL Collateral] Agreement, dated as of [removed: May 29, 2013,] [added: July 31, 2015,] among [removed: Builders FirstSource, Inc. and] [added: the Company,] certain of its subsidiaries, [removed: as grantors, SunTrust Bank, as ABL agent,] and [removed: Wilmington Trust, National Association, as notes collateral agent] [added: SunTrust Bank] (incorporated by reference to Exhibit [removed: 10.2] [added: 10.5] to the Company’s Current Report on Form 8-K, filed with the Securities Exchange Commission on [removed: June 3, 2013,] [added: August 6, 2015,] File Number [removed: 0-51357)] [added: 0-51357)](http://www.sec.gov/Archives/edgar/data/1316835/000119312515281152/d89945dex105.htm)] |

| [removed: 10.6] [added: 10.7] | | [removed: Collateral] [added: [Collateral] Agreement, dated as of July 31, 2015, among the Company, certain of its subsidiaries, and Deutsche Bank AG, New York Branch (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the Securities Exchange Commission on August 6, 2015, File Number [removed: 0-51357)] [added: 0-51357)](http://www.sec.gov/Archives/edgar/data/1316835/000119312515281152/d89945dex104.htm)] |

| [removed: 10.7] [added: 10.11] | | [removed: Amended] [added: [Amended] and Restated ABL [removed: Collateral] [added: Guarantee] Agreement, dated as of July 31, 2015, among the [removed: Company, certain of its subsidiaries,] [added: Guarantors (as defined therein)] and SunTrust Bank (incorporated by reference to Exhibit [removed: 10.5] [added: 10.7] to the Company’s Current Report on Form 8-K, filed with the Securities Exchange Commission on August 6, 2015, File Number [removed: 0-51357)] [added: 0-51357)](http://www.sec.gov/Archives/edgar/data/1316835/000119312515281152/d89945dex107.htm)] |

| [removed: 10.8] [added: 10.5] | | [removed: Notes Collateral] [added: [Amendment No. 1 to Credit] Agreement, dated as of [removed: August] [added: March] 22, [removed: 2016,] [added: 2017,] among Builders FirstSource, Inc., [removed: certain of its subsidiaries, and Wilmington Trust, National Association,] [added: SunTrust Bank,] as [removed: trustee] [added: administrative agent and collateral agent, and the lenders party thereto] (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on [removed: August 23, 2016,] [added: March 28, 2017,] File Number [removed: 0-51357)] [added: 0-51357)](http://www.sec.gov/Archives/edgar/data/1316835/000119312517098501/d366623dex101.htm)] |

| [removed: 10.9] [added: 10.10] | | [removed: Guarantee] [added: [Guarantee] Agreement, dated as of July 31, 2015, among the guarantors party thereto and Deutsche Bank AG, New York Branch (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed with the Securities Exchange Commission on August 6, 2015, File Number [removed: 0-51357)] [added: 0-51357)](http://www.sec.gov/Archives/edgar/data/1316835/000119312515281152/d89945dex106.htm)] |

| [removed: 10.11] [added: 10.12] | | [removed: Lease] [added: [Lease] and Master Agreement Guaranty, dated as of July 31, 2015, by the Company in favor of LN Real Estate LLC (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the Securities and Exchange Commission on November 9, 2015, File Number [removed: 0-51357)] [added: 0-51357)](http://www.sec.gov/Archives/edgar/data/1316835/000156459015010186/bldr-ex1010_344.htm)] |

| [removed: 10.12+] [added: 10.13+] | | [removed: Builders] [added: [Builders] FirstSource, Inc. 1998 Stock Incentive Plan, as amended, effective March 1, 2004 (incorporated by reference to Exhibit 10.4 to Amendment No. 1 to the Registration Statement of the Company on Form S-1, filed with the Securities and Exchange Commission on April 27, 2005, File Number [removed: 333-122788)] [added: 333-122788)](http://www.sec.gov/Archives/edgar/data/1316835/000095012305005102/y05301a1exv10w4.txt)] |

| [removed: 10.13+] [added: 10.14+] | | [removed: Amendment] [added: [Amendment] No. 7 to the Builders FirstSource, Inc. 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission on March 12, 2007, File Number [removed: 0-51357)] [added: 0-51357)](http://www.sec.gov/Archives/edgar/data/1316835/000095013407005357/d43878exv10w6.htm)] |