0001592480-18-000021.txt : 20181109 0001592480-18-000021.hdr.sgml : 20181109 20181109160928 ACCESSION NUMBER: 0001592480-18-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 87 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181109 DATE AS OF CHANGE: 20181109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Continental Building Products, Inc. CENTRAL INDEX KEY: 0001592480 STANDARD INDUSTRIAL CLASSIFICATION: CONCRETE GYPSUM PLASTER PRODUCTS [3270] IRS NUMBER: 611718923 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-36293 FILM NUMBER: 181173177 BUSINESS ADDRESS: STREET 1: 12950 WORLDGATE DRIVE STREET 2: SUITE 700 CITY: HERNDON STATE: VA ZIP: 20170 BUSINESS PHONE: 703-480-3800 MAIL ADDRESS: STREET 1: 12950 WORLDGATE DRIVE STREET 2: SUITE 700 CITY: HERNDON STATE: VA ZIP: 20170 FORMER COMPANY: FORMER CONFORMED NAME: LSF8 Gypsum Holdings Company, LLC DATE OF NAME CHANGE: 20131120 10-Q 1 a2018q310-q93018cbpx.htm 10-Q Document

As filed with the Securities and Exchange Commission on November 9, 2018

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.

Commission File Number: 001-36293

cbpxa09.jpg

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes    x    No    ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes    x    No    ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer        x            Accelerated filer            ¨
Non-accelerated filer        ¨            Smaller reporting company        ¨
Emerging growth company        ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes    ¨    No    x
As of November 5, 2018, the registrant had outstanding 36,841,935 shares of the registrant’s common stock, which amount excludes 7,987,968 shares of common stock held by the registrant as treasury shares.

1


Table of Contents to Third Quarter 2018 Form 10-Q
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




2


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Continental Building Products, Inc.
Consolidated Statements of Operations
(unaudited)
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
 
(in thousands, except share data and per share amounts)
Net sales
$
131,234

 
$
116,526

 
$
387,304

 
$
357,771

Costs, expenses and other income:
 
 
 
 
 
 
 
Cost of goods sold
94,306

 
87,952

 
279,185

 
267,393

Selling and administrative
9,957

 
8,867

 
29,826

 
27,364

Total costs and operating expenses
104,263

 
96,819

 
309,011

 
294,757

Operating income
26,971

 
19,707

 
78,293

 
63,014

Other (expense)/income, net
(29
)
 
146

 
(256
)
 
(633
)
Interest expense, net
(2,549
)
 
(2,988
)
 
(7,963
)
 
(8,966
)
Income before losses from equity method investment and provision for income taxes
24,393

 
16,865

 
70,074

 
53,415

Losses from equity method investment
(393
)
 
(204
)
 
(1,148
)
 
(29
)
Income before provision for income taxes
24,000

 
16,661

 
68,926

 
53,386

Provision for income taxes
(5,436
)
 
(5,674
)
 
(14,821
)
 
(17,774
)
Net income
$
18,564

 
$
10,987

 
$
54,105

 
$
35,612

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.51

 
$
0.29

 
$
1.46

 
$
0.91

Diluted
$
0.50

 
$
0.29

 
$
1.46

 
$
0.91

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
36,732,746

 
38,212,869

 
37,012,536

 
38,966,575

Diluted
36,918,904

 
38,345,556

 
37,181,387

 
39,080,973

See accompanying notes to unaudited consolidated financial statements.


3


Continental Building Products, Inc.
Consolidated Statements of Comprehensive Income
(unaudited)
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
 
(in thousands)
Net income
$
18,564

 
$
10,987

 
$
54,105

 
$
35,612

Foreign currency translation adjustment
298

 
695

 
(496
)
 
1,259

Net (losses)/gains on derivatives, net of taxes
(8
)
 
127

 
1,489

 
(451
)
Other comprehensive income
290

 
822

 
993

 
808

Comprehensive income
$
18,854

 
$
11,809

 
$
55,098

 
$
36,420

See accompanying notes to unaudited consolidated financial statements.

4


Continental Building Products, Inc.
Consolidated Balance Sheets
 
September 30, 2018
 
December 31, 2017
 
(unaudited)
 
 
 
(in thousands)
Assets:
 
 
 
Cash and cash equivalents
$
105,452

 
$
72,521

Trade receivables, net
39,597

 
38,769

Inventories, net
32,439

 
24,882

Prepaid and other current assets
11,605

 
11,267

Total current assets
189,093

 
147,439

Property, plant and equipment, net
290,670

 
294,003

Customer relationships and other intangibles, net
64,661

 
70,807

Goodwill
119,945

 
119,945

Equity method investment
8,194

 
9,263

Debt issuance costs
341

 
477

Total Assets
$
672,904

 
$
641,934

Liabilities and Shareholders' Equity:
 
 
 
Liabilities:
 
 
 
Accounts payable
$
32,253

 
$
30,809

Accrued and other liabilities
13,239

 
11,940

Notes payable, current portion
1,670

 
1,702

Total current liabilities
47,162

 
44,451

Deferred taxes and other long-term liabilities
15,392

 
15,847

Notes payable, non-current portion
262,400

 
263,610

Total Liabilities
324,954

 
323,908

Shareholders' Equity:
 
 
 
Undesignated preferred stock, par value $0.001 per share; 10,000,000 shares authorized, no shares issued and outstanding

 

Common stock, $0.001 par value per share; 190,000,000 shares authorized; 44,422,804 and 44,321,776 shares issued and 36,681,879 and 37,532,959 shares outstanding as of September 30, 2018 and December 31, 2017, respectively
44

 
44

Additional paid-in capital
327,643

 
325,391

Less: Treasury stock
(170,782
)
 
(143,357
)
Accumulated other comprehensive loss
(1,656
)
 
(2,649
)
Accumulated earnings
192,701

 
138,597

Total Shareholders' Equity
347,950

 
318,026

Total Liabilities and Shareholders' Equity
$
672,904

 
$
641,934

See accompanying notes to unaudited consolidated financial statements.

5


Continental Building Products, Inc.
Consolidated Statements of Cash Flows
(unaudited)
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
(in thousands)
Cash flows from operating activities:
 
 
 
Net income
$
54,105

 
$
35,612

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
32,966

 
35,817

Amortization of debt issuance costs and debt discount
931

 
885

Losses from equity method investment
1,148

 
29

Amortization of deferred gain on terminated swaps
(632
)
 

Loss on debt extinguishment

 
686

Share-based compensation
2,459

 
2,101

Deferred taxes
(457
)
 
92

Change in assets and liabilities:
 
 
 
Trade receivables
(914
)
 
1,420

Inventories
(7,627
)
 
(872
)
Prepaid expenses and other current assets
1,264

 
(350
)
Accounts payable
(52
)
 
(87
)
Accrued and other current liabilities
1,089

 
4

Other long-term liabilities
(226
)
 
(245
)
Net cash provided by operating activities
84,054

 
75,092

Cash flows from investing activities:
 
 
 
Capital expenditures
(19,761
)
 
(14,077
)
Software purchased or developed
(1,359
)
 
(183
)
Proceeds from the sale of property, plant and equipment
125

 

Capital contributions to equity method investment
(548
)
 
(1,929
)
Distributions from equity method investment
468

 
641

Net cash used in investing activities
(21,075
)
 
(15,548
)
Cash flows from financing activities:
 
 
 
Proceeds from exercise of stock options
145

 
230

Tax withholdings on share-based compensation
(547
)
 
(240
)
Proceeds from debt refinancing

 
273,625

Disbursements for debt refinancing

 
(273,625
)
Payments of financing costs

 
(649
)
Principal payments for debt
(2,037
)
 
(2,052
)
Payments to repurchase common stock
(27,425
)
 
(49,128
)
Net cash used in financing activities
(29,864
)
 
(51,839
)
Effect of foreign exchange rates on cash and cash equivalents
(184
)
 
707

Net change in cash and cash equivalents
32,931

 
8,412

Cash, beginning of period
72,521

 
51,536

Cash, end of period
$
105,452

 
$
59,948

See accompanying notes to unaudited consolidated financial statements.

6


Continental Building Products, Inc.
Notes to the Unaudited Consolidated Financial Statements
1. BACKGROUND AND NATURE OF OPERATIONS
Description of Business
Continental Building Products, Inc. (the "Company") is a Delaware corporation. Prior to the acquisition of the gypsum division of Lafarge North America Inc. ("Lafarge N.A.") described below, the Company had no operating activity. The Company manufactures gypsum wallboard related products for commercial and residential buildings and houses. The Company operates a network of three highly efficient wallboard facilities, all located in the eastern United States, and produces joint compound at one plant in the United States and at another plant in Canada.
The Acquisition
On June 24, 2013, the Company's former controlling stockholder entered into a definitive agreement with Lafarge N.A. to purchase the assets of its North American gypsum division for an aggregate purchase price of approximately $703 million (the "Acquisition") in cash. The closing of the Acquisition occurred on August 30, 2013.
2. SIGNIFICANT ACCOUNTING POLICIES
(a)
Basis of Presentation
The accompanying consolidated financial statements for the Company have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated.
(b)
Basis of Presentation for Interim Periods
Certain information and footnote disclosures normally included for the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted for the interim periods presented. Management believes that the unaudited interim financial statements include all adjustments (which are normal and recurring in nature) necessary to present fairly the financial position of the Company and the results of operations and cash flows for the periods presented.
The results of operations for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. Seasonal changes and other conditions can affect the sales volumes of the Company's products. Therefore, the financial results for any interim period do not necessarily indicate the expected results for the year.
The financial statements should be read in conjunction with Company's audited consolidated financial statements and the notes thereto for the year ended December 31, 2017 included in the Company's Annual Report on Form 10-K for the fiscal year then ended. The Company has continued to follow the accounting policies set forth in those financial statements.
(c)
Revenue Disclosure
Revenue from the sale of gypsum products is recognized when control of the promised products is transferred to the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products (the transaction price). A performance obligation is a promise in a contract to transfer a distinct product to a customer and is the unit of account under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 606. Control transfers to the customer at a point in time. To indicate the transfer of control, the Company must have a present right to payment, legal title must have passed to the customer and the customer must have the significant risks and rewards of ownership. Generally, the Company satisfies its performance obligations within a number of days from the time the contract is executed.
The Company records estimated reductions to revenue for customer programs and incentive offerings, including promotions and other volume-based incentives, in the period in which the sale occurs.
Amounts billed to a customer at the transaction price are included in net sales, and costs incurred for shipping and handling are treated as fulfillment costs and are classified as cost of goods sold in the Consolidated Statements of Operations. See Note 17, Segment reporting, for disaggregation of revenue by segment.
As of September 30, 2018, accounts receivables were $39.6 million. The Company had no material contract assets, contract liabilities or deferred contract costs recorded on the Consolidated Balance Sheets as of September 30, 2018. The Company does not have any material payment terms as payment is received shortly after the point of sale.

7


(d)
Supplemental Cash Flow Disclosure
Table 2.1: Certain Cash Transactions and Other Activity
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
(in thousands)
Cash paid during the period for:
 
 
 
Interest paid on term loan, net
$
8,049

 
$
7,582

Income taxes paid, net
15,903

 
16,338

Other activity:
 
 
 
Amounts in accounts payable for capital expenditures
1,538

 
1,123

(e)
Recent Accounting Pronouncements
Accounting Standards Recently Adopted
In May 2014, the FASB issued ASU No. 2014-9, "Revenue from Contracts with Customers (Topic 606)," which provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers. In August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which deferred the effective date of ASU No. 2014-9 for all entities by one year to annual reporting periods beginning after December 15, 2017. The ASU requires retroactive application on either a full or modified basis. The Company adopted the standard on January 1, 2018 using the modified retrospective approach. Based on its evaluation, the Company has concluded it has one revenue stream and the adoption of this new guidance did not have a material impact on its Consolidated Financial Statements.
In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments." This ASU reduces existing diversity in the classification of certain cash receipts and cash payments on the statements of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company's Consolidated Financial Statements.
In October 2016, the FASB issued ASU 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory." The new standard requires companies to recognize the income tax effects of intercompany sales or transfers of assets, other than inventory, in the income statement as income tax expense (or benefit) in the period the sales or transfer occurs. The standard requires companies to apply a modified retrospective approach with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. The provisions of this standard are effective for fiscal years beginning after December 15, 2017, and early adoption is permitted. The adoption of this standard did not have a material impact on the Company's Consolidated Financial Statements.
Accounting Standards Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, "Leases." ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company will adopt the standard on January 1, 2019.
The Company will take advantage of the transition package of practical expedients permitted within the new standard, which among other things, allows companies to carryforward the historical lease classification. In addition, the Company is electing the comparative period practical expedient, which allows the Company to implement the guidance as of the effective date without having to adjust the comparative financial statements. Instead, under this expedient, companies will recognize the cumulative effect adjustment in equity. The Company will also make an accounting policy election that leases with an initial term of 12 months or less will not be recorded on the balance sheet and will result in the recognition of those lease payments in the Consolidated Statements of Operations on a straight-line basis over the lease term. While the Company is continuing to evaluate the impact of adoption, it is not expected to have a material impact on its Consolidated Financial Statements.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments." This ASU is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. The provisions of this standard are effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its Consolidated Financial Statements.

8


In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities." This ASU expands an entity's ability to hedge non-financial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The provisions of this standard are effective in 2019 for calendar-year public business entities and in 2020 for all other calendar-year companies. Early adoption of the standard is permitted. The Company is currently evaluating the impact that this guidance may have on its Consolidated Financial Statements.
In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This ASU allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The provisions of this standard are effective for reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurements (Topic 820), Changes to the Disclosure Requirements for Fair Value Measurement." This ASU eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The provisions of this standard are effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." This ASU requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification 350-40 to determine which implementation costs to defer and recognize as an asset. The provisions of this standard are effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. The Company is currently evaluating the impact that this guidance may have on its Consolidated Financial Statements.
(f)
Reclassifications
Certain reclassifications of prior year information were made to conform to the 2018 presentation. These reclassifications had no material impact on the Company's Consolidated Financial Statements.
3. TRADE RECEIVABLES, NET
Table 3: Details of Trade Receivables, Net
 
September 30, 2018
 
December 31, 2017
 
(in thousands)
Trade receivables, gross
$
40,447

 
$
39,577

Allowance for cash discounts and doubtful accounts
(850
)
 
(808
)
Trade receivables, net
$
39,597

 
$
38,769

Trade receivables are recorded net of credit memos issued during the normal course of business.
4. INVENTORIES, NET
Table 4: Details of Inventories, Net
 
September 30, 2018
 
December 31, 2017
 
(in thousands)
Finished products
$
8,195

 
$
5,893

Raw materials
16,821

 
11,663

Supplies and other
7,423

 
7,326

Inventories, net
$
32,439

 
$
24,882


9


5. PROPERTY, PLANT AND EQUIPMENT, NET
Table 5: Details of Property, Plant and Equipment, Net
 
September 30, 2018
 
December 31, 2017
 
(in thousands)
Land
$
13,187

 
$
13,187

Buildings
115,422

 
114,051

Plant machinery
284,151

 
281,786

Mobile equipment
12,828

 
10,366

Construction in progress
32,186

 
20,291

Property, plant and equipment, at cost
457,774

 
439,681

Accumulated depreciation
(167,104
)
 
(145,678
)
Property, plant and equipment, net
$
290,670

 
$
294,003

Depreciation expense was $9.1 million and $25.4 million for the three and nine months ended September 30, 2018, respectively, compared to $9.0 million and $26.5 million for the three and nine months ended September 30, 2017, respectively.
6. CUSTOMER RELATIONSHIPS AND OTHER INTANGIBLES, NET
Table 6.1: Details of Customer Relationships and Other Intangibles, Net
 
September 30, 2018
 
December 31, 2017
 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
 
(in thousands)
Customer relationships
$
116,529

 
$
(64,041
)
 
$
52,488

 
$
116,711

 
$
(57,811
)
 
$
58,900

Purchased and internally developed software
7,718

 
(5,340
)
 
2,378

 
6,226

 
(4,871
)
 
1,355

Trademarks
14,816

 
(5,021
)
 
9,795

 
14,839

 
(4,287
)
 
10,552

Total
$
139,063

 
$
(74,402
)
 
$
64,661

 
$
137,776

 
$
(66,969
)
 
$
70,807

Amortization expense was $2.5 million and $7.5 million for the three and nine months ended September 30, 2018, respectively, compared to $3.0 million and $9.3 million for the three and nine months ended September 30, 2017, respectively.
Table 6.2: Details of Future Amortization Expense of Customer Relationships and Other Intangibles
 
As of September 30, 2018
 
(in thousands)
October 1, 2018 through December 31, 2018
$
2,766

2019
8,907

2020
8,150

2021
7,410

2022
6,746

Thereafter
30,682

Total
$
64,661


10


7. INVESTMENT IN SEVEN HILLS
The Company is a party with an unaffiliated third party to a paperboard liner venture named Seven Hills Paperboard, LLC ("Seven Hills") that, pursuant to a paper supply agreement, provides the Company with a continuous supply of high-quality recycled paperboard liner to meet its ongoing production requirements.
The Company has evaluated the characteristics of its investment and determined that Seven Hills is a variable interest entity, but that it does not have the power to direct the principal activities most impacting the economic performance of Seven Hills, and is thus not the primary beneficiary. As such, the Company accounts for this investment in Seven Hills under the equity method of accounting.
Paperboard liner purchased from Seven Hills was $12.3 million and $37.4 million for the three and nine months ended September 30, 2018, respectively, compared to $15.5 million and $42.3 million for the three and nine months ended September 30, 2017, respectively. As of September 30, 2018, the Company had certain purchase commitments for paper totaling $29.2 million through 2021.
8. ACCRUED AND OTHER LIABILITIES
Table 8: Details of Accrued and Other Liabilities
 
September 30, 2018
 
December 31, 2017
 
(in thousands)
Employee-related costs
$
8,471

 
$
9,258

Property taxes
2,321

 
472

Other taxes
562

 
466

Other
1,885

 
1,744

Accrued and other liabilities
$
13,239

 
$
11,940

9. DEBT 
Table 9.1: Details of Debt
 
September 30, 2018
 
December 31, 2017
 
(in thousands)
Amended and Restated Credit Agreement (1)
$
269,536

 
$
271,573

Less: Original issue discount (net of amortization)
(1,442
)
 
(1,681
)
Less: Debt issuance costs
(4,024
)
 
(4,580
)
Total debt
264,070

 
265,312

Less: Current portion of long-term debt
(1,670
)
 
(1,702
)
Long-term debt
$
262,400

 
$
263,610

(1)
As of September 30, 2018 and December 31, 2017, the Amended and Restated Credit Agreement, as amended, had a maturity date of August 18, 2023 and an interest rate of LIBOR (with a 0.75% floor) plus 2.25%.
On August 18, 2016, the Company, Continental Building Products Operating Company, LLC and Continental Building Products Canada Inc. and the lenders party thereto and Credit Suisse, as Administrative Agent, entered into an Amended and Restated Credit Agreement amending and restating the Company's First Lien Credit Agreement (the "Amended and Restated Credit Agreement"). The Amended and Restated Credit Agreement provides for a $275 million senior secured first lien term loan facility and a $75 million senior secured revolving credit facility (the "Revolver"), which mature on August 18, 2023 and August 18, 2021, respectively. The interest rate under the Amended and Restated Credit Agreement was a spread over LIBOR of 2.75% and floor of 0.75%.
On February 21, 2017, the Company repriced its term loan under the Amended and Restated Credit Agreement lowering its interest rate by 25 basis points to LIBOR plus 2.50%. Subsequently, on December 6, 2017, the Company further repriced its term loan under the Amended and Restated Credit Agreement lowering its interest rate by an additional 25 basis points to LIBOR plus 2.25%. The Company may further reduce its interest rate to LIBOR plus 2.00% based on the attainment of a total leverage ratio of 1.1 or better. All other terms and conditions under the Amended and Restated Credit Agreement remained the same.

11


During both the nine months ended September 30, 2018 and 2017, the Company made $2.0 million of scheduled mandatory principal payments. As of September 30, 2018, the annual effective interest rate, including original issue discount and amortization of debt issuance costs, was 5.0%.
There were no amounts outstanding under the Revolver as of September 30, 2018 or 2017. During the nine months ended September 30, 2018 and 2017, the Company did not have any draws under the Revolver. Interest under the Revolver is floating, based on LIBOR plus 2.25%. In addition, the Company pays a facility fee of 50 basis points per annum on the total capacity under the Revolver. Availability under the Revolver as of September 30, 2018, based on draws and outstanding letters of credit and absence of violations of covenants, was $73.6 million.
Table 9.2: Details of Future Minimum Principal Payments Due Under the Amended and Restated Credit Agreement
 
Amount Due
 
(in thousands)
October 1, 2018 through December 31, 2018
$
679

2019
2,716

2020
2,716

2021
2,716

2022
2,716

Thereafter
257,993

Total Payments
$
269,536

Under the terms of the Amended and Restated Credit Agreement, the Company is required to comply with certain covenants, including among others, the limitation of indebtedness, limitation on liens, and limitations on certain cash distributions. One single financial covenant governs all of the Company's debt and only applies if the outstanding borrowings of the Revolver plus outstanding letters of credit are greater than $22.5 million as of the end of the quarter. The financial covenant is a total leverage ratio calculation, in which total debt less outstanding cash is divided by adjusted earnings before interest, taxes, depreciation and amortization. As the sum of outstanding borrowings under the Revolver and outstanding letters of credit were less than $22.5 million at September 30, 2018, the total leverage ratio of no greater than 5.0 under the financial covenant was not applicable at September 30, 2018. The Company was in compliance with all applicable covenants under the Amended and Restated Credit Agreement as of September 30, 2018.
10. DERIVATIVE INSTRUMENTS
Commodity Derivative Instruments
As of September 30, 2018, the Company had 2.1 million mmBTUs (millions of British Thermal Units) in aggregate notional amount outstanding natural gas swap contracts to manage commodity price exposures. All of these contracts mature by July 31, 2019. The Company elected to designate these derivative instruments as cash flow hedges in accordance with ASC 815-20, "Derivatives – Hedging". No ineffectiveness was recorded on these contracts during the three and nine months ended September 30, 2018 and 2017.
Interest Rate Derivative Instrument
In September 2016, the Company entered into interest rate swap agreements for a combined notional amount of $100.0 million with a term of four years, which hedged the floating LIBOR on a portion of the term loan under the Amended and Restated Credit Agreement to an average fixed rate of 1.323% and LIBOR floor of 0.75%. The Company elected to designate these interest rate swaps as cash flow hedges for accounting purposes.
On March 29, 2018, the Company terminated its interest rate swap agreements that were previously designated as a cash flow hedge and received $3.2 million in cash, the fair value of the swap on the termination date. The unrealized gain at termination remains in accumulated other comprehensive income and will be amortized into interest expense over the life of the original hedged instrument. On the same date, the Company entered into new interest rate swap agreements for a combined notional amount of $100.0 million, which expire on September 30, 2020 and hedge the floating LIBOR on a portion of the term loan under the Amended and Restated Credit Agreement to an average fixed rate of 2.46% and LIBOR floor of 0.75%. The Company elected to designate these interest rate swaps as cash flow hedges for accounting purposes. No ineffectiveness was recorded on these contracts during the three and nine months ended September 30, 2018 and 2017.

12


Table 10.1: Details of Derivatives Fair Value
 
September 30, 2018
 
December 31, 2017
 
(in thousands)
Assets
 
 
 
Interest rate swap
$
697

 
$
2,148

Commodity hedges
77

 
11

Total assets
$
774

 
$
2,159

Liabilities
 
 
 
Interest rate swap
$

 
$

Commodity hedges
5

 
613

Total liabilities
$
5

 
$
613

Table 10.2: Gains/(Losses) on Derivatives
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
Gain/(loss) recognized in Other comprehensive income on derivatives (effective portion), net of tax
 
Gain/(loss) reclassified from Accumulated other comprehensive loss into income (effective portion), net of tax
 
Gain/(loss) recognized in Other comprehensive income on derivatives (effective portion), net of tax
 
Gain/(loss) reclassified from Accumulated other comprehensive loss into income (effective portion), net of tax
 
(in thousands)
Interest rate swap
$
145

 
$
37

 
$
169

 
$
(7
)
 
$
1,413

 
$
(318
)
 
$
379

 
$
(133
)
Commodity hedges
7

 
(44
)
 
(9
)
 
(127
)
 
251

 
(304
)
 
(204
)
 
(38
)
Total
$
152

 
$
(7
)
 
$
160

 
$
(134
)
 
$
1,664

 
$
(622
)
 
$
175

 
$
(171
)
Counterparty Risk
The Company is exposed to credit losses in the event of nonperformance by the counterparties to the Company's derivative instruments. As of September 30, 2018, the Company's derivatives were in a $0.8 million net asset position and recorded in Other current assets. All of the Company's counterparties have investment grade credit ratings; accordingly, the Company anticipates that the counterparties will be able to fully satisfy their obligations under the contracts. The Company's agreements outline the conditions upon which it or the counterparties are required to post collateral. As of September 30, 2018, the Company had no collateral posted with its counterparties related to the derivatives.
11. TREASURY STOCK
On November 4, 2015, the Company announced that the Board of Directors approved a new stock repurchase program authorizing the Company to repurchase up to $50 million of its common stock, at such times and prices as determined by management as market conditions warrant, through December 31, 2016. Pursuant to this authorization, the Company has repurchased shares of its common stock in the open market and in private transactions.
During 2017 and 2018, the Company announced two expansions and extensions of its stock repurchase program. The most recent authorization on February 21, 2018 expanded the program to a total of $300 million and also extended the expiration date to December 31, 2019.
All repurchased shares are held in treasury, reducing the number of shares of common stock outstanding and used in the Company's earnings per share calculation.

13


Table 11: Details of Treasury Stock Activity
 
September 30, 2018
 
September 30, 2017
 
Shares
 
Amount (1)
 
Average Share Price (1)
 
Shares
 
Amount (1)
 
Average Share Price (1)
 
(in thousands, except share data)
For the Three Months Ended:
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
7,664,325

 
$
167,919

 
$
21.91

 
5,648,778

 
$
116,592

 
$
20.64

Repurchases on open market
76,600

 
2,863

 
37.38

 
941,039

 
21,292

 
22.63

Ending Balance
7,740,925

 
$
170,782

 
$
22.06

 
6,589,817

 
$
137,884

 
$
20.92

 
 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended:
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
6,788,817

 
$
143,357

 
$
21.12

 
4,499,655

 
$
88,756

 
$
19.73

Repurchases on open market
952,108

 
27,425

 
28.80

 
2,090,162

 
49,128

 
23.50

Ending Balance
7,740,925

 
$
170,782

 
$
22.06

 
6,589,817

 
$
137,884

 
$
20.92

 
 
 
 
 
 
 
 
 
 
 
 
(1) Includes commissions paid for repurchases on open market.
12. SHARE-BASED COMPENSATION
For the three and nine months ended September 30, 2018, the Company recognized share-based compensation expenses of $0.8 million and $2.5 million in expense, respectively, compared to $0.6 million and $2.1 million for the three and nine months ended September 30, 2017, respectively. The expenses related to share-based compensation awards were recorded in selling and administrative expenses. As of September 30, 2018, there was $5.5 million of total unrecognized compensation cost related to non-vested stock options, restricted stock awards, restricted stock units and performance-based restricted stock units. This cost is expected to be recognized over a weighted average period of 2.3 years.
13. ACCUMULATED OTHER COMPREHENSIVE LOSS
Table 13: Details of Changes in Accumulated Other Comprehensive Loss by Category
 
Foreign currency translation adjustment
 
Net unrealized gain on derivatives, net of tax
 
Total
 
(in thousands)
Balance as of December 31, 2017
$
(3,636
)
 
$
987

 
$
(2,649
)
Other comprehensive (loss)/income before reclassifications
(496
)
 
1,664

 
1,168

Amounts reclassified from accumulated other comprehensive loss

 
(175
)
 
(175
)
Net current period other comprehensive (loss)/income
(496
)
 
1,489

 
993

Balance as of September 30, 2018
$
(4,132
)
 
$
2,476

 
$
(1,656
)
14. INCOME TAXES
The Company’s estimated annual effective tax rate is 22.3% before discrete items. For the nine months ended September 30, 2018, discrete items resulted in a tax benefit of $0.6 million, consisting of a stock compensation windfall of $0.1 million and a non-recurring benefit of $0.5 million related to re-measurement of deferred taxes resulting from state tax law change. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Cuts and Jobs Act of 2017 (the "Act"), the Company calculated its best estimate of the impact of the Act in its 2017 year end income tax provision in accordance with its understanding of the Act and guidance available as of the date of its Annual Report on Form 10-K for fiscal year 2017 and as a result had recorded a provisional $9.2 million reduction in income tax expense in the fourth quarter of 2017. No adjustment was made to the provisional amount as a result of additional information obtained for the nine months ended  September 30, 2018.
The Company is subject to audit examinations at federal, state and local levels by tax authorities in those jurisdictions. In addition, the Canadian operations are subject to audit examinations at federal and provincial levels by tax authorities in those jurisdictions. The tax matters challenged by the tax authorities are typically complex; therefore, the ultimate outcome of any

14


challenges would be subject to uncertainty. The Company has not identified any issues that did not meet the recognition threshold or would be impacted by the measurement provisions of the uncertain tax position guidance.
15. EARNINGS PER SHARE
The following table shows the weighted average number of shares used in computing earnings per share and the effect on the weighted average number of shares of potentially dilutive securities. Potentially dilutive common stock has no effect on income available to common stockholders. There were no anti-dilutive awards during the three months ended September 30, 2018 and 2017. For the nine months ended September 30, 2018 and 2017, awards that had an anti-dilutive impact on the Company's dilutive earnings per share computation excluded from the weighted average shares outstanding were 21,000 and 29,000, respectively.
Table 15: Details of Basic and Dilutive Earnings Per Share
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
 
(dollars in thousands, except for per share amounts)
Net income
$
18,564

 
$
10,987

 
$
54,105

 
$
35,612

 
 
 
 
 
 
 
 
Weighted average number of shares outstanding - basic
36,732,746

 
38,212,869

 
37,012,536

 
38,966,575

Effect of dilutive securities:
 
 
 
 
 
 
 
Restricted stock awards

 
6,852

 
1,170

 
7,598

Restricted stock units
89,750

 
48,175

 
72,650

 
54,171

Performance restricted stock units
68,384

 
58,199

 
67,231

 
30,853

Stock options
28,024

 
19,461

 
27,800

 
21,776

Total effect of dilutive securities
186,158

 
132,687

 
168,851

 
114,398

Weighted average number of shares outstanding - diluted
36,918,904

 
38,345,556

 
37,181,387

 
39,080,973

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.51

 
$
0.29

 
$
1.46

 
$
0.91

Diluted earnings per share
$
0.50

 
$
0.29

 
$
1.46

 
$
0.91

16. COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases certain buildings and equipment. The Company's facility and equipment leases may provide for escalations of rent or rent abatements and payment of pro rata portions of building operating expenses. Minimum lease payments are recognized on a straight-line basis over the minimum lease term. The total expenses under operating leases for the three and nine months ended September 30, 2018 were $0.6 million and $2.2 million, respectively, compared to $0.8 million and $2.5 million for the same periods in 2017, respectively. The Company also has non-capital purchase commitments that primarily relate to gas, gypsum, paper and other raw materials. The total amounts purchased under such commitments were $22.7 million and $69.5 million for the three and nine months ended September 30, 2018, respectively, compared to $22.0 million and $64.8 million for the three and nine months ended September 30, 2017, respectively.

15


Table 16: Details of Future Minimum Lease Payments Due Under Noncancellable Operating Leases and Purchase Commitments
 
Future Minimum Lease Payments
 
Purchase Commitments
 
(in thousands)
October 1, 2018 - December 31, 2018
$
180

 
$
17,958

2019
1,658

 
47,287

2020
48

 
46,141

2021

 
28,097

2022

 
25,069

2023

 
12,284

Thereafter

 
53,621

Total
$
1,886

 
$
230,457

Contingent obligations
Under certain circumstances, the Company provides letters of credit related to its natural gas and other supply purchases. As of September 30, 2018 and December 31, 2017, the Company had outstanding letters of credit of approximately $1.4 million.
Legal Matters
In the ordinary course of business, the Company executes contracts involving indemnifications standard in the industry. These indemnifications might include claims relating to any of the following: environmental and tax matters; intellectual property rights; governmental regulations and employment-related matters; customer, supplier, and other commercial contractual relationships; and financial matters. While the maximum amount to which the Company may be exposed under such agreements cannot be estimated, it is the opinion of management that these guarantees and indemnifications are not expected to have a material adverse effect on the Company's financial condition, results of operations or liquidity.
In the ordinary course of business, the Company is involved in certain legal actions and claims, including proceedings under laws and regulations relating to environmental and other matters. Because such matters are subject to many uncertainties and the outcomes are not predictable with assurance, the total liability for these legal actions and claims cannot be determined with certainty. When the Company determines that it is probable that a liability for environmental matters, legal actions or other contingencies has been incurred and the amount of the loss is reasonably estimable, an estimate of the costs to be incurred is recorded as a liability in the financial statements. As of September 30, 2018 and December 31, 2017, such liabilities were not expected to have a material adverse effect on the Company's financial condition, results of operations or liquidity. While management believes its accruals for such liabilities are adequate, the Company may incur costs in excess of the amounts provided. Although the ultimate amount of liability that may result from these matters or actions is not ascertainable, any amounts exceeding the recorded accruals are not expected to have a material adverse effect on the Company's financial condition, results of operations or liquidity.
17. SEGMENT REPORTING
Segment information is presented in accordance with ASC 280, Segment Reporting, which establishes standards for reporting information about operating segments. It also establishes standards for related disclosures about products and geographic areas. The Company's primary reportable segment is wallboard, which represented approximately 97.6% and 97.3% of the Company's revenues for the three and nine months ended September 30, 2018, respectively, compared to 96.8% of the Company's revenues for both the three and nine months ended September 30, 2017, respectively. This segment produces wallboard for the commercial and residential construction sectors. The Company also manufactures finishing products, which complement the Company's full range of wallboard products.
Revenues from the major products sold to external customers include gypsum wallboard and finishing products.
The Company's two geographic areas consist of the United States and Canada for which it reports net sales, fixed assets and total assets.
The Company evaluates operating performance based on profit or loss from operations before certain adjustments as shown below. Revenues are attributed to geographic areas based on the location of the customer generating the revenue. The Company did not provide asset information by segment as its Chief Operating Decision Maker does not use such information for purposes of allocating resources and assessing segment performance.

16


Table 17.1: Segment Reporting
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
 
(in thousands)
Net Sales:
 
 
 
 
 
 
 
Wallboard
$
128,101

 
$
112,796

 
$
376,739

 
$
346,466

Other
3,133

 
3,730

 
10,565

 
11,305

Total net sales
$
131,234

 
$
116,526

 
$
387,304

 
$
357,771

Operating Income:
 
 
 
 
 
 
 
Wallboard
$
27,551

 
$
19,992

 
$
79,702

 
$
63,402

Other
(580
)
 
(285
)
 
(1,409
)
 
(388
)
Total operating income
$
26,971

 
$
19,707

 
$
78,293

 
$
63,014

Adjustments:
 
 
 
 
 
 
 
Interest expense
$
(2,549
)
 
$
(2,988
)
 
$
(7,963
)
 
$
(8,966
)
Losses from equity investment
(393
)
 
(204
)
 
(1,148
)
 
(29
)
Other (expense)/income, net
(29
)
 
146

 
(256
)
 
(633
)
Income before provision for income taxes
$
24,000

 
$
16,661

 
$
68,926

 
$
53,386

Depreciation and Amortization:
 
 
 
 
 
 
 
Wallboard
$
11,299

 
$
11,793

 
$
32,016

 
$
34,992

Other
281

 
264

 
950

 
825

Total depreciation and amortization
$
11,580

 
$
12,057

 
$
32,966

 
$
35,817

Table 17.2: Details of Net Sales By Geographic Region
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
 
(in thousands)
United States
$
125,430

 
$
110,430

 
$
367,917

 
$
334,481

Canada
5,804

 
6,096

 
19,387

 
23,290

Net sales
$
131,234

 
$
116,526

 
$
387,304

 
$
357,771

Table 17.3: Details of Assets By Geographic Region
 
Fixed Assets
 
Total Assets
 
September 30, 2018
 
December 31, 2017
 
September 30, 2018
 
December 31, 2017
 
(in thousands)
United States
$
287,255

 
$
290,324

 
$
654,965

 
$
622,836

Canada
3,415

 
3,679

 
17,939

 
19,098

Total
$
290,670

 
$
294,003

 
$
672,904

 
$
641,934


17


18. FAIR VALUE DISCLOSURES
The Company estimates the fair value of its debt by discounting the future cash flows of each instrument using estimated market rates of debt instruments with similar maturities and credit profiles. These inputs are classified as Level 3 within the fair value hierarchy. As of September 30, 2018 and December 31, 2017, the carrying value reported in the consolidated balance sheet for the Company's notes payable approximated its fair value. The only assets or liabilities the Company had at September 30, 2018 that are recorded at fair value on a recurring basis are the natural gas hedges and interest rate swaps. Generally, the Company obtains its Level 2 pricing inputs from its counterparties. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Assets and liabilities that are measured at fair value on a non-recurring basis include intangible assets and goodwill. These items are recognized at fair value when they are considered to be impaired.
There were no fair value adjustments for assets and liabilities measured on a non-recurring basis. The Company discloses fair value information about financial instruments for which it is practicable to estimate that value.
Table 18.1: Fair Value Hierarchy - 2018
 
As of September 30, 2018
 
Level 1
 
Level 2
 
Level 3
 
Balance
 
(in thousands)
Asset
 
 
 
 
 
 
 
Interest rate swap
$

 
$
697

 
$

 
$
697

Commodity derivatives

 
77

 

 
77

Total assets
$

 
$
774

 
$

 
$
774

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Interest rate swap
$

 
$

 
$

 
$

Commodity derivatives

 
5

 

 
5

Total liabilities
$

 
$
5

 
$

 
$
5

Table 18.2: Fair Value Hierarchy - 2017
 
As of December 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Balance
 
(in thousands)
Asset
 
 
 
 
 
 
 
Interest rate swap
$

 
$
2,148

 
$

 
$
2,148

Commodity derivatives

 
11

 

 
11

Total assets
$

 
$
2,159

 
$

 
$
2,159

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Interest rate swap
$

 
$

 
$

 
$

Commodity derivatives

 
613

 

 
613

Total liabilities
$

 
$
613

 
$

 
$
613


18


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is intended to help the reader understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with "Risk Factors," "Forward-Looking Statements," "Selected Historical Financial and Operating Data," and our financial statements and related notes included in our Annual Report on Form 10-K for fiscal year 2017 filed with the Securities and Exchange Commission on February 23, 2018 (the "2017 Form 10-K") and elsewhere in this Quarterly Report on Form 10-Q, as applicable.
Overview
We are a leading manufacturer of gypsum wallboard and complementary finishing products in the eastern United States and eastern Canada. We operate highly efficient and automated manufacturing facilities that produce a full range of gypsum wallboard products for our diversified customer base. We sell our products in the new residential, repair and remodel, or R&R, and commercial construction markets.
Our primary reportable segment is wallboard, which accounted for approximately 97.6% and 97.3% of our net sales for the three and nine months ended September 30, 2018, respectively, compared to 96.8% and 96.8% of our net sales for the three and nine months ended September 30, 2017, respectively. We also operate other business activities, primarily the production of finishing products, which complement our full range of wallboard products. See Note 17 to the Consolidated Financial Statements for additional information on our reporting segments.
Factors Affecting Our Results
Market
For the new residential construction market, housing starts are a good indicator of demand for our gypsum products. Installation of our gypsum products into a single family home typically follows a housing start by 90 to 120 days. The R&R market includes renovation of both residential and nonresidential buildings. Many buyers begin to remodel an existing home within two years of purchase. The generally rising levels of existing home sales and home resale values in recent years have contributed to an increase in demand for our products from the R&R market. The commercial construction market encompasses areas such as office, retail, heath care, hospitality, educational and government projects. Demand for our products from commercial construction typically follows signing of construction contracts by 12 to 18 months.
The rate of growth in the new residential construction market, R&R market, and the new nonresidential construction market remains uncertain and will depend on broader economic circumstances, including employment, household formation, the home ownership rate, existing home price trends, availability of mortgage financing, interest rates, consumer confidence, job growth, availability of skilled labor and discretionary business investment.
Wallboard pricing can be impacted by overall industry capacity in the United States. Currently, there is excess wallboard production capacity industry-wide in the United States which can lead to downward pressure on wallboard prices. We estimate that industry capacity utilization was approximately 73% and 74% for the three and nine months ended September 30, 2018, respectively, compared to 75% and 74% for the same periods of 2017.
Market Outlook
Most forecasts continue to project growth in housing starts. Industry Analysts' forecasts for 2018 housing starts in the United States included in the most recent Blue Chip Economic Indicators are 1.26 million to 1.30 million units, based on the average of the bottom ten and top ten forecasts included in the report, respectively. This forecast range represents an increase in the range of 5% and 8% over 2017 housing starts of 1.20 million. We also expect that the R&R and new commercial construction markets will continue to experience moderate growth.
Industry shipments of gypsum wallboard in the United States as reported by the Gypsum Association were an estimated 6.2 billion square feet for the three months ended September 30, 2018, down 1.8% from the same prior year period. For the nine months ended September 30, 2018, industry shipments were 18.8 billion square feet, up 1.4% from the same prior year period. We estimate that industry shipments in the United States for all of 2018 to increase in the low single digits from 25.3 billion square feet in 2017.

19


Manufacturing Costs
Paper and synthetic gypsum are our principal wallboard raw materials. Paper constitutes our most significant input cost and the most significant driver of our variable manufacturing costs. Energy costs, consisting of natural gas and electricity, are the other key input costs. In total, manufacturing cash costs represented 63% and 64% of our costs of goods sold for the three and nine months ended September 30, 2018, respectively, compared to 64% for both three and nine months ended September 30, 2017. Depreciation and amortization represented 12% and 11% of our costs of goods sold for the three and nine months ended September 30, 2018, respectively, compared to 13% of our cost of goods sold for both three and nine months ended September, 2017. Distribution costs to deliver products to our customers represented 25% of our costs of goods sold for the three and nine months ended September 30, 2018, compared to 23% for the same periods of 2017.
Variable manufacturing costs, including inputs such as paper, gypsum, natural gas, and other raw materials, represented 67% and 68% of our manufacturing cash costs for the three and nine months ended September 30, 2018, respectively, compared to 70% for both the three and nine months ended September 30, 2017. Fixed production costs excluding depreciation and amortization consisted of labor, maintenance, and other costs that represented 33% and 32% of our manufacturing cash costs for the three and nine months ended September 30, 2018, respectively, compared to 30% for both the three and nine months ended September 30, 2017. Recently we have experienced increases in the costs of production, including for certain raw materials such as gypsum, and in the costs of freight to deliver products to our customers. We expect to experience continued inflationary pressures for the foreseeable future.
We currently purchase most of our paperboard liner from Seven Hills, a joint venture between us and WestRock Company. Under the paper supply agreement with Seven Hills, the price of paper adjusts based on changes in the underlying costs of production of the paperboard liner, of which the two most significant are recovered waste paper and natural gas. The largest waste paper source used by the operation is old cardboard containers (known as OCC). Seven Hills has the capacity to supply us with approximately 80% of our paper needs at our full capacity utilization and most of our needs at current capacity utilization on market-based pricing terms. We also purchase additional paper on the spot market at competitive prices. See Note 7 to the Consolidated Financial Statements for additional information regarding our investment in Seven Hills.
Results of Operations
Table M1: Results of Operations
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
 
(dollars in thousands, except mill net)
Net sales
$
131,234

 
$
116,526

 
$
387,304

 
$
357,771

Costs, expenses and other income:
 
 
 
 
 
 
 
Cost of goods sold
94,306

 
87,952

 
279,185

 
267,393

Selling and administrative
9,957

 
8,867

 
29,826

 
27,364

Total costs and operating expenses
104,263

 
96,819

 
309,011

 
294,757

Operating income
26,971

 
19,707

 
78,293

 
63,014

Other (expense)/income, net
(29
)
 
146

 
(256
)
 
(633
)
Interest expense, net
(2,549
)
 
(2,988
)
 
(7,963
)
 
(8,966
)
Income before losses from equity method investment and provision for income taxes
24,393

 
16,865

 
70,074

 
53,415

Losses from equity method investment
(393
)
 
(204
)
 
(1,148
)
 
(29
)
Income before provision for income taxes
24,000

 
16,661

 
68,926

 
53,386

Provision for income taxes
(5,436
)
 
(5,674
)
 
(14,821
)
 
(17,774
)
Net income
$
18,564

 
$
10,987

 
$
54,105

 
$
35,612

Other operating data:
 
 
 
 
 
 
 
Capital expenditures and software purchased or developed
$
7,324

 
$
6,057

 
$
21,120

 
$
14,260

Wallboard sales volume (million square feet)
674

 
644

 
2,011

 
1,941

Mill net sales price (1)
$
155.43

 
$
144.90

 
$
153.70

 
$
147.72

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

20


Three Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017
Net Sales. Net sales increased by $14.7 million, up 12.6% from $116.5 million for the three months ended September 30, 2017, to $131.2 million for the three months ended September 30, 2018. The increase was primarily attributable to a $10.2 million favorable impact of an increase in the average net selling price for gypsum wallboard at constant exchange rates and a $5.3 million favorable impact of higher wallboard volumes driven by higher demand in the United States. This overall increase was partially offset by an unfavorable impact of $0.6 million related to non-wallboard products and $0.2 million related to foreign currency exchange rates.
Cost of Goods Sold. Cost of goods sold increased $6.3 million, up 7.2% from $88.0 million for the three months ended September 30, 2017, to $94.3 million for the three months ended September 30, 2018. Higher wallboard volumes increased input costs and freight costs by $1.7 million and $0.9 million, respectively. In addition, labor cost and maintenance cost increased cost of goods sold by $2.3 million. Higher per unit freight and input costs increased cost of goods sold by $1.5 million. Depreciation and amortization costs decreased $0.4 million. Changes in other components of cost of goods sold resulted in a net increase of $0.3 million.
Selling and Administrative Expense. Selling and administrative expense increased $1.1 million, up 12.4% from $8.9 million for the three months ended September 30, 2017, to $10.0 million for the three months ended September 30, 2018. The increase was mainly driven by a $0.9 million increase in salary, bonus and stock compensation expenses. The remaining increase was driven by other selling and administrative expense.
Operating Income. Operating income of $27.0 million for the three months ended September 30, 2018 increased by $7.3 million from operating income of $19.7 million for the three months ended September 30, 2017. The increase was primarily attributable to higher volumes and an increase in net selling price, which was partially offset by higher freight per unit costs and higher labor and maintenance costs.
Other (Expense)/income, Net.  Other (expense)/income, net, increased expense by $0.1 million for three months ended September 30, 2018 due to foreign currency exchange loss.
Interest Expense, Net. Interest expense was $2.5 million for the three months ended September 30, 2018, a decrease of $0.5 million from $3.0 million for the three months ended September 30, 2017. The decrease was primarily driven by a $0.3 million increase in investment income and a $0.2 million increase in capitalized interest as a result of capital spending. The rise in LIBOR rate was offset by the terminated interest rate swap gain amortization and lower average outstanding borrowings during third quarter 2018 compared to prior year quarter and a lower interest rate spread over LIBOR following the debt repricing on December 6, 2017. See Note 9 and Note 10 to the Consolidated Financial Statements for further details on the repricing and interest rate swap, respectively.
Provision for Income Taxes. Provision for income taxes decreased by $0.3 million to $5.4 million for three months ended September 30, 2018, compared to $5.7 million for the same period of 2017. The lower provision for income taxes was primarily driven by a decrease in certain state taxes as a result of new legislation passed in the second quarter and the federal tax rate from the 2017 tax reform. These regulatory changes resulted in an effective tax rate of approximately 22.7% during the three months ended September 30, 2018 as compared to 34.1% during the three months ended September 30, 2017. This decrease in the effective tax rate was partially offset by the higher pretax income.
Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017
Net Sales. Net sales increased by $29.5 million, up 8.2% from $357.8 million for the nine months ended September 30, 2017, to $387.3 million for the nine months ended September 30, 2018. The increase was primarily attributable to a favorable impact of $17.4 million due to an increase in the average net selling price for gypsum wallboard at constant exchange rates and a $12.5 million favorable impact of higher wallboard volumes driven by higher demand in the United States. In addition, there was a $0.4 million favorable impact of changes in foreign currency exchange rates. This overall increase was partially offset by a decrease in net sales of non-wallboard products of $0.8 million.
Cost of Goods Sold. Cost of goods sold increased $11.8 million, up 4.4% from $267.4 million for the nine months ended September 30, 2017, to $279.2 million for the nine months ended September 30, 2018. Higher wallboard volumes increased input costs and freight costs by $4.1 million and $2.2 million, respectively. In addition, labor cost and maintenance costs increased cost of goods sold by $4.6 million. Higher per unit freight and input costs increased cost of goods sold by $2.4 million. Depreciation and amortization decreased cost of goods sold by $2.2 million. Changes in other components of cost of goods sold resulted in a net increase of $0.7 million.

21


Selling and Administrative Expense. Selling and administrative expense increased $2.4 million, up 8.8% from $27.4 million for the nine months ended September 30, 2017, to $29.8 million for the nine months ended September 30, 2018. The increase was driven by a $1.9 million increase in salary, bonus and stock compensation expenses. The remaining increase was driven by other selling and administrative expense.
Operating Income. Operating income of $78.3 million for the nine months ended September 30, 2018 increased by $15.3 million from operating income of $63.0 million for the nine months ended September 30, 2017. The increase was primarily attributable to higher volumes and an increase in net selling price, which was partially offset by higher freight per unit costs and higher labor and maintenance costs.
Other Expense, Net.  Other expense, net, was $0.3 million for the nine months ended September 30, 2018 compared to other expense, net, of $0.6 million for the nine months ended September 30, 2017. The change mainly reflects the impact of non-recurring costs of $0.7 million related to the debt repricing in the first quarter 2017, which was partially offset by the impact of changes in foreign exchange transactions. See Note 9 to the Consolidated Financial Statements for further details on the repricing.
Interest Expense, Net. Interest expense was $8.0 million for the nine months ended September 30, 2018, a decrease of $1.0 million from $9.0 million for the nine months ended September 30, 2017. The decrease was primarily driven by a $0.7 million increase in investment income and a $0.5 million increase in capitalized interest as a result of capital spending. The rise in LIBOR rate was offset by lower average outstanding borrowings during the nine months of 2018 compared to prior year period, a lower interest rate spread over LIBOR following the debt repricing on December 6, 2017, and by the terminated interest rate swap gain amortization. See Note 9 and Note 10 to the Consolidated Financial Statements for further details on the repricing and interest rate swap, respectively.
Provision for Income Taxes. Provision for income taxes decreased $3.0 million to $14.8 million for the nine months ended September 30, 2018, compared to $17.8 million for the same period of 2017. The lower provision for income taxes was primarily driven by a decrease in certain state taxes as a result of new legislation passed in the second quarter and the federal tax rate from the 2017 tax reform. These regulatory changes resulted in an effective tax rate of approximately 21.5% during the nine months ended September 30, 2018 as compared to 33.3% during the nine months ended September 30, 2017. This decrease in the effective tax rate was partially offset by the higher pretax income.
Liquidity and Capital Resources
Our primary sources of liquidity are cash on hand, cash from operations, and borrowings under our debt financing arrangements. As of September 30, 2018, we had $105.5 million in cash and cash equivalents. We believe that our current cash position, access to the long-term debt capital markets and cash flow generated from operations should be sufficient not only for our operating requirements but also to enable us to complete our capital expenditure programs, fund share repurchases and any required long-term debt payments through the next several fiscal years. In addition, we have funds available from our revolving credit facilities and the ability to obtain alternative sources of financing. See Note 9 to the Consolidated Financial Statements for a more detailed discussion of our debt financing arrangements.
Table M2: Net Change in Cash and Cash Equivalents
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
(in thousands)
Net cash provided by operating activities
$
84,054

 
$
75,092

Net cash used in investing activities
(21,075
)
 
(15,548
)
Net cash used in financing activities
(29,864
)
 
(51,839
)
Effect of foreign exchange rates on cash and cash equivalents
(184
)
 
707

Net change in cash and cash equivalents
$
32,931

 
$
8,412

Net Cash Provided By Operating Activities
Net cash provided by operating activities for the nine months ended September 30, 2018 and 2017 was $84.1 million and $75.1 million, respectively. The increase of $9.0 million in 2018 compared to 2017 was primarily driven by an increase in operating income, primarily from higher revenues, partially offset by a decrease in cash from changes in working capital related to a larger build up of finished goods and paper inventory during 2018 compared to 2017.

22


Net Cash Used In Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2018 was $21.1 million, compared to $15.5 million for the nine months ended September 30, 2017. The increase in investing activities for the nine months ended September 30, 2018 primarily reflects an aggregate of $21.1 million in capital expenditures and software purchased or developed, compared to $14.3 million for 2017.
Net Cash Used In Financing Activities
Net cash used in financing activities for the nine months ended September 30, 2018 was $29.9 million, compared to $51.8 million for nine months ended September 30, 2017. The decrease in financing activities for the nine months ended September 30, 2018 primarily reflects an aggregate of $27.4 million deployed to repurchase common stock, compared to $49.1 million for 2017. See Note 11 to the Consolidated Financial Statements for more detailed discussion of share repurchase activity. During the nine months ended September 30, 2017, we refinanced our amended and restated credit agreement, resulting in a net outflow of $0.6 million. See Note 9 to the Consolidated Financial Statements for a more detailed discussion of the repricing. We made principal payments on our outstanding debt of $2.0 million for both the nine months ended September 30, 2018 and 2017.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires us to make estimates, judgments and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses during the periods presented. The 2017 Form 10-K includes a summary of the critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities, revenues or expenses during the nine months ended September 30, 2018.


23


Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements are included throughout this Quarterly Report on Form 10-Q, and relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity, capital resources and other financial and operating information. We have used the words "anticipate," "assume," "believe," "contemplate," "continue," "could," "estimate," "expect," "future," "intend," "may," "plan," "potential," "predict," "project," "seek," "should," "target," "will" and similar terms and phrases to identify forward-looking statements in this Quarterly Report on Form 10-Q. All of our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we are expecting, including:
 
cyclicality in our markets, especially the new residential construction market;
the highly competitive nature of our industry and the substitutability of competitors' products;
disruptions in our supply of synthetic gypsum due to regulatory changes or coal-fired power plants ceasing or reducing operations or switching to natural gas;
significant buying power of certain customers;
potential losses of customers;
changes to environmental and safety laws and regulations requiring modifications to our manufacturing systems;
material disruptions at our facilities or the facilities of our suppliers;
disruptions to our supply of paperboard liner, including termination of the WestRock contract;
changes in energy, transportation and other input costs;
changes in, cost of compliance with or the failure or inability to comply with governmental laws and regulations, in particular environmental regulations;
disruption in transportation network;
our involvement in legal and regulatory proceedings;
our ability to attract and retain key management employees;
disruptions in our information technology systems;
cybersecurity risks;
labor disruptions;
seasonal nature of our business; and
additional factors discussed under the sections captioned Risk Factors, Management's Discussion and Analysis of Financial Condition and Results of Operations and Business in our SEC filings.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on historical performance and management's current plans, estimates and expectations in light of information currently available to us and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control. We believe that these factors include those described in Item 1A. Risk Factors in the 2017 Form 10-K. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove to be incorrect, our actual results may vary in material respects from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable securities laws.

24


Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's market rate risk disclosures set forth in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" on the 2017 Form 10-K have not changed materially during the nine month period ended September 30, 2018.
Item 4. Controls and Procedures
Management's Evaluation of Disclosure Controls and Procedures. The Company's management carried out the evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined under Rule 13a-15(e) of the Exchange Act), required by paragraph (b) of Exchange Act Rules 13a-15, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2018.
Changes in Internal Control Over Financial Reporting. There were no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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

25


PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time we have been, and may in the future become involved in, litigation or other legal proceedings relating to claims arising in the normal course of business. In the opinion of management, there are no pending or threatened legal proceedings which would reasonably be expected to have a material adverse effect on our business or results of operations. We may become involved in material legal proceedings in the future.
See Note 16 to the Consolidated Financial Statements for a description of certain legal proceedings.
Item 1A. Risk Factors
There were no material changes during the three months ended September 30, 2018 to the risk factors previously disclosed in the 2017 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
(b) None.
(c) On November 4, 2015, our Board of Directors approved a new stock repurchase program authorizing us to repurchase up to $50 million of our common stock, at such times and prices as determined by management as market conditions warrant, through December 31, 2016. On August 3, 2016, our Board of Directors increased the aggregate authorization from up to $50 million to up to $100 million and extended the expiration date to December 31, 2017. On February 21, 2017, the Board of Directors further expanded the Company's share repurchase program by an additional $100 million up to a total of $200 million of its common stock and extended the expiration date to December 31, 2018. On February 21, 2018, the Board of Directors further expanded the Company's share repurchase program by an additional $100 million up to a total of $300 million of its common stock and extended the expiration date to December 31, 2019.
Common Stock Repurchase Activity During the Three Months Ended September 30, 2018
Period
 
Total Number of Shares Purchased
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of the Publicly Announced Plans or Programs
 
Maximum Dollar Value That May Yet Be Purchased Under the Plans or Programs
July 1 - July 31, 2018
 

 
$

 

 
$
172,116,117

August 1 - August 31, 2018
 
13,300

 
37.34

 
13,300

 
171,619,467

September 1 - September 30, 2018
 
63,300

 
37.38

 
63,300

 
169,253,003

Total
 
76,600

 
$
37.38

 
76,600

 
 
Item 3. Defaults Upon Senior Securities
(a) None.
(b) None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.


26


Item 6. Exhibits

Exhibit
No.
  
Description of Exhibit
 
 
 
 
 
 
*
 
 
 
 
 
*
 
 
 
 
 
*
 
 
 
 
101.INS
 
XBRL Instance Document.
*
 
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
*
 
 
 
 
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document.
*
 
 
 
 
101.DEF
 
XBRL Taxonomy Definition Linkbase Document.
*
 
 
 
 
101.LAB
 
XBRL Taxonomy Label Linkbase Document.
*
 
 
 
 
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document.
*

*
 
Filed herewith.




27


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CONTINENTAL BUILDING PRODUCTS, INC.
 
 
 
 
 
 
 
/s/ James Bachmann
 
November 9, 2018
By:
James Bachmann
 
 
 
President and Chief Executive Officer
 
 
 
(Principal Executive Officer)
 
 
 
 
 
 
 
/s/ Dennis Schemm
 
November 9, 2018
By:
Dennis Schemm
 
 
 
Senior Vice President and Chief Financial Officer
 
 
 
(Principal Financial Officer)
 
 



28
EX-31.1 2 exhibit3112018q310q.htm EXHIBIT 31.1 Exhibit


Exhibit 31.1
CERTIFICATION
I, James Bachmann, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Continental Building Products, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ James Bachmann
 
November 9, 2018
James Bachmann
 
Date
President and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 


EX-31.2 3 exhibit3122018q310q.htm EXHIBIT 31.2 Exhibit


Exhibit 31.2
CERTIFICATION
I, Dennis Schemm, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Continental Building Products, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ Dennis Schemm
 
November 9, 2018
Dennis Schemm
 
Date
Senior Vice President and Chief Financial Officer
 
 
(Principal Financial Officer)
 
 



EX-32.1 4 exhibit3212018q310q.htm EXHIBIT 32.1 Exhibit


Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Continental Building Products, Inc. (the “Company”) on Form 10-Q for the fiscal quarterly period ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, James Bachmann, President and Chief Executive Officer of the Company, and Dennis Schemm, Senior Vice President and Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to his knowledge:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ James Bachmann
 
November 9, 2018
James Bachmann
 
Date
President and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
 
 
/s/ Dennis Schemm
 
November 9, 2018
Dennis Schemm
 
Date
Senior Vice President and Chief Financial Officer
 
 
(Principal Financial Officer)
 
 



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