You should read the following discussion in conjunction with Management's Discussion and Analysis included in our 2007 Annual Report on Form 10-K. Unless otherwise specifically indicated, all references to "2008" and "YTD 2008" refer to the three months (third quarter) and nine months (year-to-date) ended June 30, 2008, respectively, of our fiscal year ending September 30, 2008, and all references to "2007" and "YTD 2007" refer to the three months (third quarter) and nine months (year-to-date) ended June 30, 2007, respectively, of our fiscal year ended September 30, 2007. Certain tabular information may not foot due to rounding.

We are one of the largest distributors of residential and non-residential roofing materials in the United States and Canada. We are also a distributor of other complementary building products, including siding, windows, specialty lumber products and waterproofing systems for residential and non-residential building exteriors. We purchase products from a large number of manufacturers and then distribute these goods to a customer base consisting of contractors and, to a lesser extent, general contractors, retailers and building materials suppliers.

We distribute up to 10,000 SKUs through 176 branches in the United States and Canada. We had 2,503 employees as of June 30, 2008, including our sales and marketing team of 956 employees.

In fiscal year 2007, approximately 94% of our net sales were in the United States. We stock one of the most extensive assortments of high-quality branded products in the industry, enabling us to deliver products to our customers on a timely basis.

Execution of the operating plan at each of our branches drives our financial results. Revenues are impacted by the relative strength of the residential and non-residential roofing markets we serve. We allow each of our branches to develop its own marketing plan and mix of products based upon its local market. We differentiate ourselves from the competition by providing customer services, including job site delivery, tapered insulation layouts and design and metal fabrication, and by providing credit. We consider customer relations and our employees' knowledge of roofing and exterior building materials to be very important to our ability to increase customer loyalty and maintain customer satisfaction. We invest significant resources in training our employees in sales techniques, management skills and product knowledge. Although we consider these attributes important drivers of our business, we continually pay close attention to controlling operating costs.

Our growth strategy includes both internal growth (opening branches, growing sales with existing customers, adding new customers and introducing new products) and acquisition growth. Our main acquisition strategy is to target market leaders in geographic areas that we do not service. Our April 2007 acquisition of North Coast Commercial Roofing Systems, Inc. ("North Coast") is one example of this approach. North Coast is a distributor of commercial roofing systems and related accessories that operated 16 branches in eight states in the Midwest and Northeast. North Coast had minimal branch overlap with our existing operations at the time of the acquisition. In addition, we also acquire smaller companies to supplement branch openings within existing markets. Our August 2006 acquisition of Roof Depot, Inc. ("Roof Depot"), which operated two branches and was integrated into our Midwest region, is one example of such an acquisition.

  Results of Operations

The following table shows, for the periods indicated, information derived from
our consolidated statements of operations expressed as a percentage of net sales
for the periods presented. Percentages may not foot due to rounding.

                                 Three Months Ended June 30,         Nine Months Ended June 30,
                                  2008                2007             2008             2007
Net sales                              100.0 %             100.0 %         100.0 %          100.0 %
Cost of products sold                   76.6                77.8            77.0             76.9

Gross profit                            23.4                22.2            23.0             23.1

Operating expenses                      16.2                16.7            19.3             19.3

Income from operations                   7.2                 5.5             3.8              3.8
Interest expense                        (1.2 )              (1.5 )          (1.6 )           (1.7 )

Income before income taxes               6.0                 4.0             2.1              2.0
Income tax expense                      (2.5 )              (1.6 )          (0.9 )           (0.8 )

Net income                               3.5 %               2.4 %           1.3 %            1.2 %

In managing our business, we consider all growth, including the opening of new branches, to be internal (organic) growth unless it results from an acquisition. When we refer to growth in existing markets or internal growth in our discussion and analysis of financial condition and results of operations, we include growth from existing and newly opened branches but exclude growth from acquired branches until they have been under our ownership for at least four full fiscal quarters at the start of the fiscal reporting period. At June 30, 2008, we had a total of 177 branches in operation. Acquired markets for the quarter ended June 30, 2008 include only the one branch at Wholesale Roofing Supply. For YTD 2008, 160 of the 177 branches, along with two branches closed in October 2007 and February 2008, respectively, were included in our existing market calculations. The other 17 branches were excluded because they were acquired in fiscal 2007. Percentages in the tables below may not foot due to rounding.

Three Months Ended June 30, 2008 ("2008") Compared to the Three Months Ended June 30, 2007 ("2007")

Existing and Acquired Markets

For the Three Months Ended
(Dollars in thousands)

                         Existing Markets         Acquired Markets           Consolidated
                             June 30,                 June 30,                 June 30,
                            2008        2007         2008         2007        2008        2007
   Net Sales           $ 512,491   $ 483,979   $    2,156    $     891   $ 514,647   $ 484,870

   Gross Profit          119,541     107,629          632          205     120,173     107,834
   Gross Margin             23.3 %      22.2 %       29.3 %       23.0 %      23.4 %      22.2 %

   Operating
   Expenses               82,875      81,031          365          152      83,240      81,183
   Operating
   Expenses as a %
   of Net Sales             16.2 %      16.7 %       16.9 %       17.1 %      16.2 %      16.7 %

   Operating Income    $  36,666   $  26,598   $      267    $      53   $  36,933   $  26,651
   Operating Margin          7.2 %       5.5 %       12.4 %        5.9 %       7.2 %       5.5 %

Net Sales

Consolidated net sales increased $29.8 million, or 6.1%, to $514.6 million in 2008 from $484.9 million in 2007. Both this year's and last year's third quarter had 64 business days. Existing market sales increased $28.5 million or 5.9%, while acquired markets contributed an increase of $1.3 million. We attribute the existing market sales increase primarily to the following factors:

· a rapid rise in prices, especially in residential roofing products;
· strong re-roofing activity in storm-affected regions; and
· continued strength in non-residential roofing activity in most markets;

partially offset by the negative impact of:
· continued weakness in new residential roofing activity in most markets; and
· weak complementary product sales in certain markets where we have had historically higher levels of new residential construction.

We did not open or close any branches in our existing markets during the third quarter of 2008, but opened one branch in existing markets during the third quarter of 2007. For 2008, our acquired markets had combined product group sales of $1.9 and $0.2 million in residential roofing products and non-residential roofing products, respectively, while the product group sales for our existing markets were as follows:

Existing Markets

For the Three Months Ended

                               June 30, 2008           June 30, 2007
                             Sales        Mix        Sales        Mix             Change
                                                  (dollars in thousands)
Residential roofing
products                   $ 221,510        43.2 % $ 197,139        40.7 % $  24,371        12.4 %
Non-residential roofing
products                     209,999        41.0 %   195,587        40.4 %    14,412         7.4
Complementary building
products                      80,982        15.8 %    91,253        18.9 %   (10,271 )     -11.3

                           $ 512,491       100.0 % $ 483,979       100.0 % $  28,512         5.9 %

Note: Total 2008 existing market sales of $512.5 million plus 2008 sales from acquired markets of $2.1 million equal $514.6 million of total 2008 sales. Total 2007 existing market sales of $484.0 million plus 2007 sales from acquired markets of $0.9 million equal $484.9 million of total 2007 sales. We believe the existing market information is useful to investors because it helps explain organic growth or decline.

Gross Profit

For the Three Months Ended

                    June 30,     June 30,
                      2008         2007              Change
                                 (dollars in millions)
Gross profit       $    120.2   $    107.8   $ 12.4             11.5 %
Existing Markets        119.5        107.6     11.9             11.1 %

Gross margin             23.4 %       22.2 %            1.2 %
Existing Markets         23.3 %       22.2 %            1.1 %

Our existing markets' gross profit increased $11.9 million or 11.1% in 2008, while our acquired markets' gross profit increased $0.4 million. Our overall gross margin increased to 23.4% from 22.2%, while our existing markets' gross margin increased to 23.3% in 2008 from 22.2% in 2007. These increases were mostly in residential roofing products and resulted principally from the pass-through of increases in shingle prices as we were notified of price increases from our vendors. However, our cost of goods sold did not increase at the same time or rate due to favorable buying programs and the lower cost inventory on hand before the price increases. Our existing market gross margin in non-residential roofing and complementary products, excluding vendor incentives, which represents our invoiced gross margin, was relatively consistent with 2007. If price increases do not continue in the future, existing market gross margins could decrease somewhat from current levels. The gross margin increases were also helped somewhat by an increase of residential roofing products in our product sales mix, which have substantially higher gross margins than the more competitive non-residential market.

Operating Expenses

For the Three Months Ended

                                          June 30,     June 30,
                                            2008         2007              Change
                                                      (dollars in millions)

    Operating expenses                   $     83.2   $     81.2   $ 2.0              2.5 %
    Existing Markets                           82.9         81.0     1.9              2.3 %

    Operating expenses as a % of sales         16.2 %       16.7 %           -0.5 %
    Existing Markets                           16.2 %       16.7 %           -0.5 %

Our existing markets' operating expenses increased by $1.9 million or 2.3% to $82.9 million in 2008 from $81.0 million in 2007, while our acquired markets' operating expenses increased $0.2 million. The following factors were the leading causes of our higher existing market operating expenses:

· payroll and related costs increased by $1.6 million primarily from higher incentive-based pay accruals, partially offset by a lower headcount and favorable medical insurance claims; and
· an increase of $1.9 million in selling expenses due primarily to higher transportation expenses resulting from significantly higher petroleum costs;

partially offset by:
· savings of $0.4 million in other expenses from cost-reduction initiatives; and
· reduced depreciation and amortization of $1.2 million due to lower amortization amounts of intangible assets and somewhat from substantially lower capital expenditures in 2008.

Existing markets' operating expenses as a percentage of net sales decreased to 16.2% in 2008 from 16.7% in 2007 as we were able to control our variable costs and leverage our fixed costs. Overall operating expenses decreased to 16.2% of net sales from 16.7% due to the same factors. In 2008, we expensed a total of $3.7 million for the amortization of intangible assets recorded under purchase accounting in our existing markets compared to $4.5 million in 2007.

Interest Expense

Interest expense decreased $1.4 million to $6.0 million in 2008 from $7.4 million in 2007. This decrease was primarily due to a paydown of debt and a decline in average interest rates since 2007, which affected the unhedged portion of our variable-rate debt.

Income Taxes

Income tax expense of $12.7 million was recorded in 2008, an effective tax rate of 41.0%, compared to $7.7 million in 2007, an effective tax rate of 40.2%. The slight increase in the effective rate reflects changes in allocations of taxable income and losses among the states in which we are located.

Nine Months Ended June 30, 2008 ("YTD 2008") Compared to the Nine Months Ended June 30, 2007 ("YTD 2007")

Existing and Acquired Markets

For the Nine Months Ended
(Dollars in thousands)

                                Existing Markets          Acquired Markets           Consolidated
                                    June 30,                  June 30,                 June 30,
                               2008          2007         2008        2007        2008          2007

Net Sales                   $ 1,030,976   $ 1,081,633   $ 186,318   $ 70,391   $ 1,217,294   $ 1,152,024

Gross Profit                    249,239       254,904      31,020     10,832       280,259       265,736
Gross Margin                       24.2 %        23.6 %      16.6 %     15.4 %        23.0 %        23.1 %

Operating Expenses              205,104       212,242      29,385     10,007       234,489       222,249
Operating Expenses as a %
of Net Sales                       19.9 %        19.6 %      15.8 %     14.2 %        19.3 %        19.3 %

Operating Income            $    44,135   $    42,662   $   1,635   $    825   $    45,770   $    43,487
Operating Margin                    4.3 %         3.9 %       0.9 %      1.2 %         3.8 %         3.8 %

Net Sales

Consolidated net sales increased $65.3 million, or 5.7%, to $1.22 billion in YTD 2008 from $1.15 billion in YTD 2007. Both this year and last year had 189 business days. Existing market sales declined $50.7 million or 4.7%, while acquired markets contributed an increase of $115.9 million. We attribute the existing market sales decline primarily to a decline in new residential construction and somewhat from weaker residential re-roofing and remodeling activity, partially offset by the recent favorable factors we discussed for the third quarter.

We opened one new branch and closed two branches in our existing markets during YTD 2008, while we opened seven new branches and closed two branches in existing markets in YTD 2007. For YTD 2008, our acquired markets had combined product group sales of $14.3, $165.7 and $6.3 million in residential roofing products, non-residential roofing products and complementary building products, respectively, while the product group sales for our existing markets were as follows:

Existing Markets

For the Nine Months Ended

                               June 30, 2008             June 30, 2007
                             Sales         Mix         Sales         Mix             Change
                                                   (dollars in thousands)

Residential roofing
products                  $   480,978        46.7 % $   498,996        46.1 % $ (18,018 )      -3.6 %
Non-residential roofing
products                      334,953        32.5 %     330,040        30.5 %     4,913         1.5
Complementary building
products                      215,045        20.9 %     252,597        23.4 %   (37,552 )     -14.9

                          $ 1,030,976       100.0 % $ 1,081,633       100.0 % $ (50,657 )      -4.7 %

Note: Total YTD 2008 existing market sales of $1,031.0 million plus YTD 2008 sales from acquired markets of $186.3 million equal $1,217.3 million of total YTD 2008 sales. Total YTD 2007 existing market sales of $1,081.6 million plus YTD 2007 sales from acquired markets of $70.4 million equal $1,152.0 million of total YTD 2007 sales. We believe the existing market information is useful to investors because it helps explain organic growth or decline.

Gross Profit

For the Nine Months Ended

                                June 30,    June 30,
                                  2008        2007               Change
                                              (dollars in millions)

             Gross Profit       $   280.3   $   265.7   $  14.6               5.5 %
             Existing Markets      249.24      254.90     (5.66 )            -2.2 %

             Gross Margin            23.0 %      23.1 %             -0.1 %
             Existing Markets        24.2 %      23.6 %              0.6 %

Our existing markets' gross profit declined $5.7 million or 2.2% in YTD 2008, while our acquired markets' gross profit increased $20.2 million. Existing markets' gross margin increased to 24.2% in YTD 2008 from 23.6% in YTD 2007. The existing market increase was caused by the factors we discussed for the quarter combined with higher calendar year-end vendor rebates offered by some of our vendors, partially offset by a negative impact from increased competitive conditions, mainly in our non-residential product group. Our overall gross margin decreased to 23.0% from 23.1% due primarily to the same factors and an increased sales mix of the traditionally lower gross margin non-residential roofing, mainly due to the addition of North Coast which sells mostly non-residential roofing.

Operating Expenses

For the Nine Months Ended

                                          June 30,     June 30,
                                            2008         2007              Change
                                                       (dollars in millions)

    Operating Expenses                   $    234.5   $    222.2   $ 12.3              5.5 %
    Existing Markets                     $    205.1   $    212.2   $ (7.1 )           -3.4 %

    Operating Expenses as a % of Sales         19.3 %       19.3 %            0.0 %
    Existing Markets                           19.9 %       19.6 %            0.3 %

Our existing markets' operating expenses declined by $7.1 million or 3.4% to $205.1 million in YTD 2008 from $212.2 million in YTD 2007, while our acquired markets' operating expenses increased $19.4 million. The following factors were the leading causes of our lower existing market operating expenses:

· payroll and related costs decreased by $5.9 million primarily from a lower headcount;
· savings of $2.8 million in general and administrative expenses from cost-saving measures and allocations to our acquired markets; and
· reduced depreciation and amortization of $1.4 million due to lower amortization amounts of intangible assets and somewhat from substantially lower capital expenditures in YTD 2008;

partially offset by:
· An increase in selling expenses of $1.2 million resulting primarily from higher petroleum costs; and
· a $1.8 million increase in our provision for bad debts as we increased our accounts receivable allowance due primarily to the first- half business slowdown.

Existing markets' operating expenses as a percentage of net sales increased slightly to 19.9% from 19.6%, primarily due to the lower existing market sales and the relatively fixed nature of our operating expenses. Overall operating expenses were consistent at 19.3% of net sales in YTD 2008 and YTD 2007, due to the same factors offset by the inclusion of North Coast, which had lower operating costs as a percentage of sales in YTD 2008. In YTD 2008, we expensed a total of $11.3 million for the amortization of intangible assets recorded under purchase accounting, including $4.9 million in our acquired markets, compared to a total of $9.7 million in YTD 2007.

Interest Expense

Interest expense decreased $0.4 million to $19.7 million in YTD 2008 from $20.1 million in YTD 2007. We were able to pay down our debt since June 2007 and there was a decline in average interest rates during YTD 2008, which affected the unhedged portion of our variable-rate debt.

Income Taxes

Income tax expense of $10.7 million was recorded in YTD 2008, an effective tax rate of 41.0%, compared to income tax expense of $9.4 million in YTD 2007, an effective tax rate of 40.2%. The increase in the effective rate reflects changes in allocations of taxable income and losses among the states in which we are located.

In general, sales and net income are highest during our first, third and fourth fiscal quarters, which represent the peak months of construction and reroofing, especially in our branches in the northeastern U.S. and in Canada. Our sales are substantially lower during the second quarter, when we historically have incurred low net income levels or net losses.

We generally experience an increase in inventory, accounts receivable and accounts payable during the first, third and fourth quarters of the year as a result of the seasonality of our business. Our peak borrowing level generally occurs during the third quarter, primarily because dated accounts payable offered by our suppliers typically are payable in April, May and June, while our peak accounts receivable collections typically occur from June through November.

We generally experience a slowing of collections of our accounts receivable during our second quarter, mainly due to the inability of some of our customers to conduct their businesses effectively in inclement weather in certain of our regions. We continue to attempt to collect those receivables, which require payment under our standard terms. We do not provide any concessions to our customers during this quarter of the year, although we may take advantage of seasonal incentives from our vendors. Also during the second quarter, we generally experience our lowest availability under our senior secured credit facilities, which are asset-based lending facilities.

Certain Quarterly Financial Data

    The following table sets forth certain unaudited quarterly data for fiscal
years 2008 and 2007 which, in the opinion of management, reflect all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation of this data. Results of any one or more quarters are not
necessarily indicative of results for an entire fiscal year or of continuing
trends. Totals may not foot due to rounding.

                                    Fiscal year 2008                   Fiscal year 2007
                                Qtr 1     Qtr 2     Qtr 3     Qtr 1     Qtr 2     Qtr 3     Qtr 4
                                          (dollars in millions, except per share data)
                                                           (unaudited)
Net sales                      $ 398.4   $ 304.3   $ 514.6   $ 380.2   $ 286.9   $ 484.9   $ 493.8
Gross profit                      91.7      68.4     120.2      91.7      66.2     107.8     108.2
Income (loss) from
operations                        15.8      (6.9 )    36.9      21.1      (4.2 )    26.7      26.3
Net income (loss)              $   5.2   $  (8.1 ) $  18.3   $   8.8   $  (6.3 ) $  11.5   $  11.3

Earnings (loss) per share -
basic                          $  0.12   $ (0.18 ) $  0.41   $  0.20   $ (0.14 ) $  0.26   $  0.26
Earnings (loss) per share -
fully diluted                  $  0.12   $ (0.18 ) $  0.41   $  0.20   $ (0.14 ) $  0.26   $  0.25

Quarterly sales as % of
year's sales                                                    23.1 %    17.4 %    29.5 %    30.0 %
Quarterly gross profit as %
of year's gross profit                                          24.5 %    17.7 %    28.8 %    28.9 %
Quarterly income (loss) from
operations as % of year's
income (loss) from
operations                                                      30.2 %    -6.1 %    38.2 %    37.7 %

The calculations of the net loss per share for the second quarters of 2008 and 2007 did not include the effect of stock options since the impact would have been anti-dilutive.

We had cash and cash equivalents of $11.5 million at June 30, 2008 compared to $7.2 million at June 30, 2007 and $6.5 million at September 30, 2007. Our net working capital was $250.7 million at June 30, 2008 compared to $189.0 million at June 30, 2007 and $215.5 million at September 30, 2007.

YTD 2008 Compared to YTD 2007

Our net cash provided by operating activities was $29.2 million for YTD 2008 compared to $52.3 million for YTD 2007, as we built up our inventories by $37.5 million, especially in residential asphalt shingles, in reaction to announced price increases from our vendors and to ensure sufficient availability in the regions affected by storms in YTD 2008. Due to this build up, inventory turns were down in YTD 2008 as compared to YTD 2007, but we gained an advantage by having lower cost inventory to sell. Accounts receivable increased by $9.8 million in YTD 2008, primarily due to a normal seasonal increase and higher revenues. The number of days outstanding for accounts receivable, based upon year-to-date sales, increased slightly in YTD 2008 but is still within an acceptable range. The increases in inventory and accounts receivable were partially offset by a mostly seasonal increase of $34.9 million in accounts payable and accrued expenses. Prepaid expenses and other assets increased $1.9 million due primarily to some improved vendor rebates and a seasonal difference compared to last year in collections of the vendor rebates receivable.

. . .