bld_Current Folio

UNITED STATES

SECURITIES AND EXCHANGE

COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2017


☐	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: 1-36870

TopBuild Corp.

(Exact name of Registrant as Specified in its Charter)

Delaware

(State or Other Jurisdiction of Incorporation or
Organization)

47-3096382

(I.R.S. Employer
Identification No.)

475 North Williamson Boulevard

Daytona Beach, Florida

(Address of Principal Executive Offices)

32114

(Zip Code)

(386) 304-2200

(Registrant's telephone number, including 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 ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☒ Accelerated filer ☐ Smaller reporting company ☐ Non-accelerated filer ☐ (Do not check if a 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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Shares Outstanding at November 1, 2017
Common stock, par value $0.01 per share		35,579,350

GLOSSARY

We use acronyms, abbreviations, and other defined terms throughout this quarterly report on form 10-Q, as defined in the glossary below:


Term		Definition
2015 LTIP		2015 TopBuild Long-Term Incentive Plan, as amended from time to time
2016 Repurchase Program		$50 million share repurchase program authorized by the Board on March 1, 2016
2017 ASR Agreement		$100 million accelerated share repurchase agreement with Bank of America, N.A.
2017 Repurchase Program		$200 million share repurchase program authorized by the Board on February 24, 2017
ASC		Accounting Standards Codification
ASR		Accelerated share repurchase
ASU		Accounting Standards Update
Board		Board of Directors
BofA		Bank of America, N.A.
Canyon		Canyon Insulation, Inc.
Capital		Capital Insulation, Inc.
EBITDA		Earnings before income taxes, depreciation, and amortization
EcoFoam		Bella Insulutions Inc., DBA EcoFoam/Insulutions
Effective Date		June 30, 2015, the date of the "Separation"
ETR		Effective tax rate
Exchange Act		The Securities Exchange Act of 1934, as amended
FASB		Financial Accounting Standards Board
FCCR		Fixed charge coverage ratio
GAAP		Generally accepted accounting principles in the United States of America
Guarantors		Certain wholly-owned domestic subsidiaries of TopBuild Corp.
Lenders		Bank of America, N.A., together with the other lenders party to the "New Credit Agreement"
LIBOR		London interbank offered rate
Masco		Masco Corporation
Midwest		Midwest Fireproofing, LLC
MR Insulfoam		MR Insulfoam, LLC
Net Leverage Ratio		As defined in the “New Credit Agreement,” the ratio of outstanding indebtedness, less up to $75 million of unrestricted cash, to EBITDA
New Credit Agreement		Senior secured credit agreement and related security and pledge agreement dated May 5, 2017, with the "Lenders"
NYSE		New York Stock Exchange
Old Credit Agreement		Senior secured credit agreement, as amended, and related collateral and guarantee documentation dated June 9, 2015, with PNC Bank, N.A. as administrative agent, and the other lenders and agents party thereto
Options		Stock option awards
Owens Corning		Owens Corning Sales, LLC
Revolving Facility		Senior secured revolving credit facilities available under the credit agreements. With respect to the Old Credit Agreement, a $125 million facility with applicable sublimits for letters of credit and swingline loans. With respect to the New Credit Agreement, a $250 million facility with applicable sublimits for letters of credit and swingline loans.
RSA		Restricted stock award
SEC		United States Securities and Exchange Commission
Separation		Distribution of 100 percent of the outstanding capital stock of TopBuild to holders of Masco common stock
Services Business		Masco's Installation and Other Services segment, spun-off as TopBuild
Superior		Superior Insulation Products, LLC
TopBuild		TopBuild Corp. and its wholly-owned consolidated domestic subsidiaries. Also, the "Company," "we," "us," and "our"
Total Leverage Ratio		As defined in the “New Credit Agreement,” the ratio of outstanding indebtedness, including letters of credit, to EBITDA

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

TOPBUILD CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands except share data)


	As of
	September 30,		December 31,
	2017		2016
ASSETS
Current assets:
Cash and cash equivalents	$	18,460	$	134,375
Receivables, net of an allowance for doubtful accounts of $3,729 and $3,374 at September 30, 2017, and December 31, 2016, respectively		315,382		252,624
Inventories, net		116,781		116,190
Prepaid expenses and other current assets		15,043		23,364
Total current assets		465,666		526,553

Property and equipment, net		98,144		92,760
Goodwill		1,077,102		1,045,058
Other intangible assets, net		34,280		2,656
Deferred tax assets, net		19,469		19,469
Other assets		3,033		3,623
Total assets	$	1,697,694	$	1,690,119

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	242,617	$	241,534
Revolving credit facility		5,000		—
Current portion of long-term debt		12,500		20,000
Accrued liabilities		81,199		64,399
Total current liabilities		341,316		325,933

Long-term debt		232,405		158,800
Deferred tax liabilities, net		193,980		193,715
Long-term portion of insurance reserves		37,396		38,691
Other liabilities		3,196		433
Total liabilities		808,293		717,572

Commitments and contingencies

Equity:
Preferred stock, $0.01 par value: 10,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2017, and December 31, 2016		—		—
Common stock, $0.01 par value: 250,000,000 shares authorized; 38,619,002 issued and 35,579,540 outstanding at September 30, 2017, and 38,488,825 shares issued and 37,815,199 outstanding at December 31, 2016		386		385
Treasury stock, 3,039,462 shares at September 30, 2017, and 673,626 shares at December 31, 2016, at cost		(141,582)		(22,296)
Additional paid-in capital		828,474		845,476
Retained earnings		202,123		148,982
Total equity		889,401		972,547
Total liabilities and equity	$	1,697,694	$	1,690,119

See notes to our unaudited condensed consolidated financial statements.

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands except per common share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Net sales	$	489,044	$	453,102	$	1,404,865	$	1,298,715
Cost of sales		368,205		344,963		1,065,789		1,003,433
Gross profit		120,839		108,139		339,076		295,282

Selling, general, and administrative expense (exclusive of significant legal settlement, shown separately below)		71,277		69,038		222,181		209,623
Significant legal settlement		—		—		30,000		—
Operating profit		49,562		39,101		86,895		85,659

Other income (expense), net:
Interest expense		(2,479)		(1,271)		(5,767)		(4,315)
Loss on extinguishment of debt		—		—		(1,086)		—
Other, net		27		65		239		201
Other expense, net		(2,452)		(1,206)		(6,614)		(4,114)
Income from continuing operations before income taxes		47,110		37,895		80,281		81,545

Income tax expense from continuing operations		(15,717)		(13,329)		(27,139)		(30,246)
Income from continuing operations		31,393		24,566		53,142		51,299

Net income	$	31,393	$	24,566	$	53,142	$	51,299

Income per common share:
Basic:
Income from continuing operations	$	0.90	$	0.65	$	1.47	$	1.36
Net income	$	0.90	$	0.65	$	1.47	$	1.36

Diluted:
Income from continuing operations	$	0.88	$	0.65	$	1.44	$	1.35
Net income	$	0.88	$	0.65	$	1.44	$	1.35

See notes to our unaudited condensed consolidated financial statements.

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2017		2016
Net Cash Provided by (Used in) Operating Activities:
Net income	$	53,142	$	51,299
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		11,753		8,923
Share-based compensation		7,473		5,743
Loss on extinguishment of debt		1,086		—
Loss on sale or abandonment of property and equipment		614		2,399
Amortization of debt issuance costs		293		257
Amortization of contingent consideration		98		—
Provision for bad debt expense		2,498		2,696
Loss from inventory obsolescence		1,390		970
Deferred income taxes, net		266		476
Changes in certain assets and liabilities:
Receivables, net		(43,931)		(32,294)
Inventories, net		249		12,103
Prepaid expenses and other current assets		8,362		(3,162)
Accounts payable		(2,280)		(35,023)
Long-term portion of insurance reserves		—		(1,599)
Accrued liabilities		13,633		15,159
Other, net		(28)		(13)
Net cash provided by operating activities		54,618		27,934

Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment		(13,088)		(10,083)
Acquisition of businesses		(84,040)		(3,476)
Proceeds from sale of property and equipment		453		379
Other, net		178		93
Net cash used in investing activities		(96,497)		(13,087)

Cash Flows Provided by (Used in) Financing Activities:
Net transfer to Former Parent		—		(153)
Proceeds from issuance of long-term debt		250,000		—
Repayment of long-term debt		(183,125)		(10,000)
Payment of debt issuance costs		(2,150)		—
Proceeds from revolving credit facility		170,000		—
Repayments of revolving credit facility		(165,000)		—
Taxes withheld and paid on employees' equity awards		(4,475)		(1,668)
Repurchase of shares of common stock		(139,286)		(11,377)
Net cash used in financing activities		(74,036)		(23,198)

Cash and Cash Equivalents
Decrease for the period		(115,915)		(8,351)
Beginning of year		134,375		112,848
End of period	$	18,460	$	104,497

Supplemental disclosure of noncash investing activities:
Accruals for property and equipment	$	154	$	110

See notes to our unaudited condensed consolidated financial statements.

TOPBUILD CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)

(In thousands except share data)


	Common		Treasury		Additional
	Stock		Stock		Paid-in		Retained
	($0.01 par value)		at cost		Capital		Earnings		Equity
Balance at December 31, 2015	$	377	$	—	$	838,976	$	76,376	$	915,729
Net income		—		—		—		51,299		51,299
Separation-related adjustments		—		—		(153)		—		(153)
Share-based compensation		—		—		5,743		—		5,743
Issuance of restricted share awards under long-term equity incentive plan		8		—		(8)		—		—
Repurchase of 341,500 shares of common stock pursuant to Share Repurchase Program		—		(11,377)		—		—		(11,377)
61,906 shares of common stock withheld to pay taxes on employees' equity awards		—		—		(1,668)		—		(1,668)
Balance at September 30, 2016	$	385	$	(11,377)	$	842,890	$	127,675	$	959,573

Balance at December 31, 2016	$	385	$	(22,296)	$	845,476	$	148,982	$	972,547
Net income		—		—		—		53,142		53,142
Share-based compensation		—		—		7,473		—		7,473
Issuance of 158,900 restricted share awards under long-term equity incentive plan		1		—		(1)		—		—
Repurchase of 858,393 shares of common stock pursuant to Share Repurchase Program		—		(39,286)		—		—		(39,286)
Repurchase of 1,507,443 shares of common stock pursuant to Accelerated Share Repurchase Program		—		(80,000)		(20,000)		—		(100,000)
113,087 shares of common stock withheld to pay taxes on employees' equity awards		—		—		(4,475)		—		(4,475)
Balance at September 30, 2017	$	386	$	(141,582)	$	828,473	$	202,124	$	889,401

See notes to our unaudited condensed consolidated financial statements.

1. BASIS OF PRESENTATION

On the Effective Date, Masco completed the Separation of its Services Business from its other businesses. On the Effective Date, TopBuild became an independent public company which holds, through its consolidated subsidiaries, the assets and liabilities of the Services Business. The Separation was achieved through the distribution of 100 percent of the outstanding capital stock of TopBuild to holders of Masco common stock. TopBuild is a Delaware corporation and trades on the NYSE under the symbol “BLD.”

These condensed consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

We report our business in two segments: Installation and Distribution. Our Installation segment primarily installs insulation and other building products. Our Distribution segment primarily sells and distributes insulation and other building products. Our segments are based on our operating units, for which financial information is regularly evaluated by our corporate operating executives.

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to state fairly our financial position as of September 30, 2017, our results of operations for the three and nine months ended September 30, 2017 and 2016, and cash flows for the nine months ended September 30, 2017 and 2016. The Condensed Consolidated Balance Sheet at December 31, 2016, was derived from our audited financial statements, but does not include all disclosures required by GAAP.

2. ACCOUNTING POLICIES

Financial Statement Presentation. The condensed consolidated financial statements have been developed in conformity with GAAP, which requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from these estimates. All intercompany transactions between TopBuild entities have been eliminated. Certain reclassifications have been made in the 2016 condensed consolidated financial statements to conform to the 2017 classifications with no impact on previously reported net income or equity.

Business Combinations. The purchase price for business combinations is allocated to the estimated fair values of acquired tangible and intangible assets, including goodwill, and assumed liabilities, where applicable. Additionally, we recognize customer relationships, trademarks and trade names, and non-competition agreements as identifiable intangible assets. These assets are recorded at fair value as of the transaction date. The fair value of these intangible assets is determined primarily using the income approach and using current industry information. Goodwill is recorded when consideration transferred exceeds the fair value of identifiable assets and liabilities. Measurement-period adjustments are recorded in the period they occur. Contingent consideration is recorded at fair value at the acquisition date.

Share-based Compensation. Our share-based compensation program currently consists of RSAs and Options. Share-based compensation expense is reported in selling, general, and administrative expense. We do not capitalize any compensation cost related to share-based compensation awards. The income tax benefits and deficiencies associated with share-based awards are reported as a component of income tax expense. Excess tax benefits and deficiencies are included in cash provided by (used in) operating activities while shares withheld for tax-withholding are reported in financing activities under the caption “Taxes withheld and paid on employees’ equity awards” in our Condensed Consolidated Statements of Cash Flows. Award forfeitures are accounted for in the period they occur.

The following table details our award types and accounting policies:


Award Type:	Fair Value Determination	Vesting	Expense Recognition‡	Expense Measurement
Restricted Share Awards
Service Condition	Closing stock price on date of grant	Ratably; 3 or 5 years	Straight-line	Fair value at grant date
Performance Condition	Closing stock price on date of grant	Cliff; 3 years	Straight-line; Adjusted based on meeting or exceeding performance targets	Evaluated quarterly; 0 - 200% of fair value at grant date depending on performance
Market Condition	Monte-Carlo Simulation	Cliff; 3 years	Straight-line; Recognized even if condition is not met	Fair value at grant date
Stock Options†	Black-Scholes Options Pricing Model	Ratably; 3 or 5 years	Straight-line	Fair value at grant date

†Stock options expire no later than 10 years after the grant date.

‡Expense is reversed if award is forfeited prior to vesting.

Recently Adopted Accounting Pronouncements:

In July 2015 the FASB issued ASU 2015-11 “Simplifying the Measurement of Inventory.” Under this guidance, inventory should be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We adopted this guidance in the beginning of the first quarter of 2017. The adoption of this amendment did not have a material impact on our financial position or results of operations.

Recently Issued Accounting Pronouncements Not Yet Adopted:

In May 2014 the FASB issued a new standard for revenue recognition, ASC 606. Subsequent to issuing ASC 606, the FASB issued a number of updates and technical improvements which do not change the core principles of the guidance. The purpose of ASC 606 is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability across industries. ASC 606 is effective for us beginning January 1, 2018, and allows for full retrospective or modified retrospective methods of adoption; early adoption is permitted. In determining the applicability of ASC 606, we considered the general nature of our orders is short-term, based on a single deliverable, and not accounted for under industry-specific guidance. We reviewed our revenue streams at both our Installation and Distribution segments. Our current assessment indicates that the adoption of the standard will likely not have a material impact on the amount or timing of our revenue recognition process. Additional disclosures related to our revenues, contract balances, and judgments affecting recognition will be required. We plan to apply the modified retrospective approach to transition to the new guidance, which would allow us to recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. We do not plan to early adopt the standard. We will continue to evaluate additional changes, modifications, clarifications, or interpretations issued by the FASB, which may impact our current conclusions.

In February 2016 the FASB issued ASU 2016-02, “Leases.” This standard requires a lessee to recognize most leases on its balance sheet. Companies are required to use a modified retrospective transition method for all existing leases. This standard is effective for us beginning January 1, 2019. Early adoption is permitted. We have not yet selected an adoption date and we are currently evaluating the effect on our financial position and results of operations.

In June 2016 the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses.” This guidance introduces a current expected credit loss (“CECL”) model for the recognition of impairment losses on financial assets, including trade receivables. The CECL model replaces current GAAP’s incurred loss model. Under CECL, companies will record an allowance through current earnings for the expected credit loss for the life of the financial asset upon initial recognition of the financial asset. This update is effective for us at the beginning of 2020 with early adoption permitted at the beginning of 2019. We have not yet selected an adoption date and we are currently evaluating the effect on our financial position and results of operations.

In January 2017 the FASB issued ASU 2017-01, “Clarifying the Definition of a Business. The new standard narrows the definition of a business and provides a framework for evaluation. This update is effective for us beginning January 1, 2018 and will be applied prospectively. We do not expect this update to have a material impact on our financial position or results of operations.

In January 2017 the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” The new standard simplifies the subsequent measurement of goodwill by eliminating the second step of the good will impairment test. This update is effective for us beginning January 1, 2020. Early adoption is permitted and the new standard will be applied on a prospective basis. We have not yet selected an adoption date and we are currently evaluating the effect on our financial position and results of operations.

3. GOODWILL AND OTHER INTANGIBLES

Changes in the carrying amount of goodwill for the nine months ended September 30, 2017, by segment, were as follows, in thousands:


	Gross Goodwill				Gross Goodwill		Accumulated		Net Goodwill
	at				at		Impairment		at
	December 31, 2016		Additions		September 30, 2017		Losses		September 30, 2017
Installation	$	1,390,792	$	32,044	$	1,422,836	$	(762,021)	$	660,815
Distribution		416,287		—		416,287		—		416,287
Total	$	1,807,079	$	32,044	$	1,839,123	$	(762,021)	$	1,077,102

Other intangible assets, net includes customer relationships, non-compete agreements, and trademarks. The following table sets forth our other intangible assets, in thousands:


	As of
	September 30,		December 31,
	2017		2016
Gross definite-lived intangible assets	$	54,511	$	20,932
Accumulated amortization		(20,638)		(18,683)
Net definite-lived intangible assets		33,873		2,249
Indefinite-lived intangible assets not subject to amortization		407		407
Other intangible assets, net	$	34,280	$	2,656

4. LONG-TERM DEBT

On May 5, 2017, we and the Guarantors entered into a New Credit Agreement with the Lenders. All obligations under the New Credit Agreement are guaranteed by the Guarantors, and all obligations under the New Credit Agreement, including the guarantees of those obligations, are secured by substantially all of the assets of us and the Guarantors.

Interest payable on borrowings under the New Credit Agreement is based on an applicable margin rate plus, at our option, either:

A base rate determined by reference to the highest of either (i) the federal funds rate plus 0.50 percent, (ii) Bank of America’s “prime rate,” or (iii) the LIBOR rate for U.S. dollar deposits with a term of one month, plus 1.00 percent; or

A LIBOR rate determined by reference to the costs of funds for deposits in U.S. dollars for the interest period relevant to such borrowings.

The applicable margin rate is determined based on our Total Leverage Ratio. In the case of base rate borrowings, the applicable margin rate ranges from 0.00 percent to 1.50 percent and in the case of LIBOR rate borrowings, the applicable margin ranges from 1.00 percent to 2.50 percent.

We are required to pay commitment fees to the Lenders in respect of any unutilized commitments. The commitment fees range from 0.15 percent to 0.275 percent per annum, depending on our Total Leverage Ratio. We must also pay customary fees on outstanding letters of credit.

We used a portion of the proceeds from the term loan under the New Credit Agreement to repay all amounts outstanding under the Old Credit Agreement. The remaining proceeds were used to fund our 2017 Repurchase program, to make additional acquisitions, and for general operating purposes. Upon executing the New Credit Agreement, we terminated the Old Credit Agreement and all associated agreements and instruments.

In conjunction with the New Credit Agreement, we recognized a loss on extinguishment of debt of $1.1 million for the nine months ended September 30, 2017, which is reflected under the caption, “Loss on extinguishment of debt” in our Condensed Consolidated Statements of Operations. The following table outlines the key terms of our New Credit Agreement, dollars in thousands:


	New Credit Agreement
Senior secured term loan facility (original borrowing) (a)	$	250,000
Additional term loan capacity under delayed draw feature (b)	$	100,000

Additional term loan and/or revolver capacity available under incremental facility (c)	$	200,000

Revolving Facility	$	250,000
Sublimit for issuance of letters of credit under Revolving Facility (d)	$	100,000
Sublimit for swingline loans under Revolving Facility (d)	$	20,000

Interest rate as of September 30, 2017		2.74	%
Scheduled maturity date		5/05/2022

(a)

The New Credit Agreement provides for a term loan limit of $350.0 million; $250.0 million was drawn on May 5, 2017.

(b)

We can access $100.0 million through a delayed draw term loan on the New Credit Agreement until May 5, 2018. We have not determined the timing or amounts of our delayed draws, if any.

(c)

Additional borrowing capacity is available under the incremental facility, subject to certain terms and conditions (including existing or new lenders providing commitments in respect of such additional borrowing capacity).

(d)

Use of the sublimits for the issuance of letters of credit and swingline loans reduces the availability under the Revolving Facility.

Borrowings under the New Credit Agreement are prepayable at the Company’s option without premium or penalty. The Company is required to make prepayments with the net cash proceeds of certain asset sales and certain extraordinary receipts.

The following table sets forth our remaining principal payments for our outstanding term loan balance as of September 30, 2017, in thousands:


	Future Principal
	Payments
Schedule of Debt Maturity by Years:
2017	$	3,125
2018		12,500
2019		15,625
2020		18,750
2021		21,875
2022		175,000
Total principal maturities	$	246,875

The following table reconciles the principal balance of our outstanding debt to our Condensed Consolidated Balance Sheets, in thousands:


	As of
	September 30,		December 31,
	2017		2016
Revolving credit facility	$	5,000	$	—
Current portion of long-term debt		12,500		20,000
Long-term portion of long-term debt		234,375		160,000
Unamortized debt issuance costs		(1,970)		(1,200)
Total debt	$	249,905	$	178,800

The Company has outstanding standby letters of credit that secure our financial obligations related to our workers’ compensation, general insurance, and auto liability programs. These standby letters of credit, as well as any outstanding amount borrowed under our revolving credit facility, reduce the availability under the Revolving Facility. The following table summarizes our availability under the Revolving Facility, in thousands:


	As of
	September 30,		December 31,
	2017		2016
Revolving Facility	$	250,000	$	125,000
Less: revolving credit facility		(5,000)		—
Less: standby letters of credit		(47,055)		(49,080)
Capacity under Revolving Facility	$	197,945	$	75,920

The New Credit Agreement contains certain covenants that limit, among other things, the ability of the Company to incur additional indebtedness or liens; to make certain investments or loans; to make certain restricted payments; to enter into consolidations, mergers, sales of material assets, and other fundamental changes; to transact with affiliates; to enter into agreements restricting the ability of subsidiaries to incur liens or pay dividends; or to make certain accounting changes. The New Credit Agreement contains customary affirmative covenants and events of default.

The New Credit Agreement requires us to maintain a Net Leverage Ratio and minimum FCCR throughout the term of the agreement. The following table sets forth the maximum Net Leverage Ratios and minimum FCCR:


Quarter Ending	Maximum Net Leverage Ratio	Minimum FCCR
September 30, 2017	3.50:1.00	1.25:1.00
December 31, 2017 through September 30, 2018	3.25:1.00	1.25:1.00
December 31, 2018 and each quarter thereafter	3.00:1.00	1.25:1.00

6. SEGMENT INFORMATION

The following table sets forth our net sales and operating results by segment, in thousands:


	Three Months Ended September 30,
	2017		2016		2017		2016
	Net Sales				Operating Profit (b)
Our operations by segment were (a):
Installation	$	333,238	$	300,005	$	40,862	$	32,196
Distribution		181,146		174,123		18,300		15,536
Intercompany eliminations		(25,340)		(21,026)		(4,413)		(3,665)
Total	$	489,044	$	453,102		54,749		44,067
General corporate expense, net (c)						(5,187)		(4,966)
Operating profit, as reported						49,562		39,101
Other expense, net						(2,452)		(1,206)
Income from continuing operations before income taxes					$	47,110	$	37,895


	Nine Months Ended September 30,
	2017		2016		2017		2016
	Net Sales				Operating Profit (b)
Our operations by segment were (a):
Installation (exclusive of significant legal settlement, shown separately below)	$	945,109	$	860,924	$	96,985	$	68,499
Significant legal settlement (Installation segment) (d)		—		—		(30,000)		—
Distribution		526,452		499,268		50,806		43,416
Intercompany eliminations		(66,696)		(61,477)		(11,393)		(10,540)
Total	$	1,404,865	$	1,298,715		106,398		101,375
General corporate expense, net (c)						(19,503)		(15,716)
Operating profit, as reported						86,895		85,659
Other expense, net						(6,614)		(4,114)
Income from continuing operations before income taxes					$	80,281	$	81,545

(a)

All of our operations are located in the United States.

(b)

Segment operating profit for the three and nine months ended September 30, 2017 and 2016, includes an allocation of general corporate expenses attributable to the operating segments which is based on direct benefit or usage (such as salaries of corporate employees who directly support the segment).

(c)

General corporate expense, net included expenses not specifically attributable to our segments for functions such as corporate human resources, finance, and legal, including salaries, benefits, and other related costs.

(d)

Significant legal settlement expense of $30 million incurred for the nine months ended September 30, 2017, related to the settlement agreement with Owens Corning. For more information see Note 7 – Other Commitments and Contingencies.


		Page No.
Part I.	Financial Information

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets	4

	Condensed Consolidated Statements of Operations	5

	Condensed Consolidated Statements of Cash Flows	6

	Condensed Consolidated Statements of Changes in Equity	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	33

Part II.	Other Information

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3.	Defaults upon Senior Securities	34

Item 4.	Mine Safety Disclosures	34

Item 5.	Other Information	34

Item 6.	Exhibits	34

Index to Exhibits		35

Signature		36


		As of September 30, 2017
Maximum Net Leverage Ratio		3.50:1.00
Minimum FCCR		1.25:1.00
Compliance as of period end		In Compliance