You should read the following discussion in conjunction with Management's Discussion and Analysis included in our 2008 Annual Report on Form 10-K. Unless otherwise specifically indicated, all references to "2009" and "YTD 2009" refer to the three months (second quarter) and six months (year-to-date) ended March 31, 2009, respectively, of our fiscal year ending September 30, 2009, and all references to "2008" and "YTD 2008" refer to the three months (second quarter) and six months (year-to-date) ended March 31, 2008, respectively, of our fiscal year ended September 30, 2008. 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 169 branches in the United States and Canada. We had 2,272 employees as of March 31, 2009, including our sales and marketing team of 936 employees.

In fiscal year 2008, 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 March 31,             Six Months Ended March 31,
                                               2009                  2008               2009                2008

Net sales                                          100.0 %               100.0 %            100.0 %             100.0 %
Cost of products sold                               76.7                  77.5               75.7                77.2

Gross profit                                        23.3                  22.5               24.3                22.8

Operating expenses                                  22.8                  24.8               19.3                21.5

Income (loss) from operations                        0.5                  (2.3 )              5.0                 1.3
Interest expense                                    (1.8 )                (2.2 )             (1.5 )              (2.0 )

Income (loss) before income taxes                   (1.3 )                (4.5 )              3.5                (0.7 )
Income tax benefit (expense)                         0.5                   1.8               (1.4 )               0.3

Net income (loss)                                   (0.8 )%               (2.7 )%             2.1 %              (0.4 )%

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 have referred to growth in existing markets or internal growth in our prior filings, we included growth from existing and newly opened branches but excluded 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 March 31, 2009, we had a total of 169 branches in operation, all of which are considered existing-market branches.

Three Months Ended March 31, 2009 ("2009") Compared to the Three Months Ended March 31, 2008 ("2008")

Net Sales

Consolidated net sales increased $15.0 million, or 4.9%, to $319.3 million in 2009 from $304.3 million in 2008. We attribute the sales increase primarily to the following factors:

· higher year-over-year prices, especially in residential roofing products; and

· strong re-roofing activity in the areas affected by Hurricane Ike;

partially offset by the negative impact of:
· weakness in non-residential roofing activity, partially due to adverse winter conditions in our markets that have the largest concentration of commercial business;

· continued weakness in new residential roofing activity in most markets;

· continued weak complementary product sales in most markets; and

· eight fewer branches and one less business day than in 2008.

We closed two branches in this year's second quarter and one branch during last year's second quarter. We estimate inflation increased this year's sales by 13-15% of over last year's second quarter, indicating a drop in volume of 8-10%. In addition, we had 63 business days in 2009 compared to 64 in 2008, which we believe decreased our sales by approximately 1.7%. Our product group sales were as follows:

For the Three Months Ended

                                      March 31, 2009            March 31, 2008
                                     Sales         Mix         Sales         Mix              Change
                                                            (dollars in thousands)

Residential roofing products       $ 172,155        53.9 %   $ 125,493        41.2 %   $  46,662        37.2 %
Non-residential roofing products     101,302        31.7 %     115,905        38.1 %     (14,603 )     -12.6
Complementary building products       45,846        14.4 %      62,853        20.7 %     (17,007 )     -27.1

                                   $ 319,303       100.0 %   $ 304,251       100.0 %   $  15,052         4.9 %

Gross Profit

For the Three Months Ended

                             March 31,       March 31,
                               2009            2008                  Change
                                              (dollars in millions)

            Gross profit    $      74.3     $      68.4     $ 5.9                 8.6 %

            Gross margin           23.3 %          22.5 %               0.8 %

Our gross profit increased $5.9 million or 8.6% in 2009, while our gross margin increased to 23.3% in 2009 from 22.5% in 2008. The margin rate increase was largely the result of a product mix shift to more residential roofing products, which have substantially higher gross margins than the more competitive non-residential market. Gross margins in residential roofing, excluding vendor incentives, which represent our invoiced gross margin, decreased in 2009 compared to 2008, while invoiced gross margins in non-residential roofing increased and complementary margins were virtually flat to last year.

Operating Expenses

For the Three Months Ended

                                       March 31,       March 31,
                                         2009            2008                   Change
                                                         (dollars in millions)

 Operating expenses                   $      72.8     $      75.3     $ (2.5 )               -3.3 %

 Operating expenses as a % of sales          22.8 %          24.8 %               -2.0%

Our operating expenses decreased by $2.5 million or 3.3% to $72.8 million in 2009 from $75.3 million in 2008. The following factors were the leading causes of our lower operating expenses:

· savings of $1.3 million in selling expenses, primarily from lower fuel costs;

· savings of $1.1 million in general & administrative expenses, primarily from lower insurances costs; and

· reduced depreciation and amortization expense of $1.0 million due to lower amortization of intangible assets and the impact of very low capital expenditures in fiscal year 2008;

partially offset by:
· an increase of $0.4 million in payroll and related costs, primarily from higher incentive-based pay accruals, partially offset by the benefit from a lower headcount; and

· an increase of $0.5 million in warehouse expenses, mostly due to costs associated with the closing of the two branches.

In 2009, we expensed a total of $3.0 million for the amortization of intangible assets recorded under purchase accounting compared to $3.7 million in 2008. Our operating expenses as a percentage of net sales decreased to 22.8% in 2009 from 24.8% in 2008 as we were able to control our variable costs related to the increased sales and better leverage our fixed costs.

Interest Expense

Interest expense decreased $1.1 million to $5.6 million in 2009 from $6.7 million in 2008. This decrease was primarily due to a paydown of debt and lower average interest rates, which affected the unhedged portion of our variable-rate debt. Interest expense would have been $2.3 and $0.1 million less in 2009 and 2008, respectively, without the impact of our derivatives.

Income Taxes

An income tax benefit of $1.7 million was recorded in 2009, an effective tax rate of 40.9%, compared to $5.5 million in 2008, an effective tax rate of 40.5%. The slight increase in the effective rate reflects changes in allocations of taxable income and losses among the states in which we are located.

Six Months Ended March 31, 2009 ("YTD 2009") Compared to the Six Months Ended March 31, 2008 ("YTD 2008")

Net Sales

    Consolidated net sales increased $80.0 million, or 11.4%, to $782.6 million
in YTD 2009 from $702.6 million in YTD 2008. We attribute the sales increase
primarily to the same factors mentioned above for the second quarter, including
approximately the same estimated inflation impact. We closed six branches in YTD
2009, while we opened one branch and closed two branches in YTD 2008. We had 125
business days in both YTD 2009 and YTD 2008. Our product group sales were as
follows:

For the Six Months Ended

                                       March 31, 2009             March 31, 2008
                                     Sales         Mix          Sales         Mix                Change
                                                              (dollars in thousands)

Residential roofing products       $ 406,637         52.0 %   $ 273,546         38.9 %   $ 133,091         48.7 %
Non-residential roofing products     266,015         34.0 %     288,649         41.1 %     (22,634 )       -7.8
Complementary building products      109,980         14.1 %     140,452         20.0 %     (30,472 )      -21.7

                                   $ 782,632        100.0 %   $ 702,647        100.0 %   $  79,985         11.4 %



Gross Profit

For the Six Months Ended

                             March 31,       March 31,
                               2009            2008                Change
                                            (dollars in millions)

             Gross Profit   $     190.3     $     160.1     $ 30.2           18.9 %

             Gross Margin          24.3 %          22.8 %            1.5 %

Our gross profit increased $30.2 million or 18.9% in YTD 2009, while our gross margin also increased to 24.3% in YTD 2009 from 22.8% in YTD 2008. The margin rate increase was largely the result of a product mix shift to more residential roofing products, which have substantially higher gross margins than the more competitive non-residential market. In addition, the benefit of lower weighted-average costs of residential roofing products in comparison to current prices of those products in the marketplace continued from the fourth quarter of fiscal YTD 2009 into the first quarter of this year. This weighted-average residential cost effect ended during the beginning of the second quarter of 2009, and we currently expect our future overall gross margin to range from 23-24.5%, dependant upon product mix.

Operating Expenses

For the Six Months Ended

                                        March 31,       March 31,
                                          2009            2008                 Change
                                                       (dollars in millions)

  Operating Expenses                   $     151.1     $     151.2     $ (0.1 )          -0.1 %

  Operating Expenses as a % of Sales          19.3 %          21.5 %            -2.2 %

Our operating expenses decreased by $0.1 million to $151.1 million in YTD 2009 from $151.2 million in YTD 2008. The following factors were the leading causes of our lower operating expenses:

· savings of $1.1 million in selling expenses, primarily from lower fuel costs, partially offset by an increase in certain other selling expenses such as credit card fees (associated with the higher sales);

· savings of $1.2 million in general & administrative expenses, primarily from lower insurance costs; and

· reduced depreciation and amortization expense of $2.2 million due to lower amortization of intangible assets and the impact of very low capital expenditures in fiscal year 2008;

mostly offset by:
· an increase of $3.1 million in payroll and related costs primarily from higher incentive-based pay accruals, including profit-sharing, and less favorable medical insurance claims experience, partially offset by the benefit from a lower headcount; and

· an increase of $1.3 million in warehouse expenses, mostly due to costs associated with the closing of the six branches;

In YTD 2009, we expensed a total of $6.2 million for the amortization of intangible assets recorded under purchase accounting compared to $7.7 million in YTD 2008. Our operating expenses as a percentage of net sales decreased to 19.3% in YTD 2009 from 21.5% in YTD 2008 as we were able to control our variable costs related to the increased sales and better leverage our fixed costs.

Interest Expense

Interest expense decreased $2.0 million to $11.7 million in YTD 2009 from $13.7 million in YTD 2008. This decrease was primarily due to a pay down of debt and lower average interest rates, which affected the unhedged portion of our variable-rate debt. Interest expense would have been $2.8 million less in YTD 2009 without the impact of our derivatives, while there was no impact from the derivatives in YTD 2008.

Income Taxes

Income tax expense of $11.2 million was recorded in YTD 2009, an effective tax rate of 40.9%, compared to an income tax benefit of $2.0 million in YTD 2008, an effective tax rate of 41.0%.

Seasonality and Quarterly Fluctuations

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 2009 (ending September 30, 2009) and 2008 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 2009                     Fiscal Year 2008

                                     Qtr 1        Qtr 2       Qtr 1       Qtr 2       Qtr 3       Qtr 4
                                               (dollars in millions, except per share data)
                                                                (unaudited)
Net sales                          $   463.3     $ 319.3     $ 398.4     $ 304.3     $ 514.6     $ 567.2
Gross profit                           116.0        74.3        91.7        68.4       120.2       139.7
Income (loss) from operations           37.7         1.5        15.8        (6.9 )      36.9        48.9
Net income (loss)                  $    18.6     $  (2.4 )   $   5.2     $  (8.1 )   $  18.3     $  24.9

Earnings (loss) per share -
basic                              $    0.42     $ (0.05 )   $  0.12     $ (0.18 )   $  0.41     $  0.56
Earnings (loss) per share -
fully diluted                      $    0.41     $ (0.05 )   $  0.12     $ (0.18 )   $  0.41     $  0.55

Quarterly sales as % of year's
sales                                                           22.3 %      17.1 %      28.8 %      31.8 %
Quarterly gross profit as % of
year's gross profit                                             21.8 %      16.3 %      28.6 %      33.3 %
Quarterly income (loss) from
operations as % of
year's income (loss) from
operations                                                      16.7 %      -7.3 %      39.0 %      51.6 %

The calculations of the net loss per share for the second quarter of both years do not include the effect of stock options since the impact would have been anti-dilutive.

Liquidity and Capital Resources

We had cash and cash equivalents of $98.1 million at March 31, 2009 compared to $10.6 million at March 31, 2008 and $26.0 million at September 30, 2008. Our net working capital was $296.3 million at March 31, 2009 compared to $222.5 million at March 31, 2008 and $274.8 million at September 30, 2008.

YTD 2009 Compared to YTD 2008

Our net cash provided by operating activities was $84.8 million in YTD 2009 compared to $29.5 million in YTD 2008. In addition to the benefit from improved operating results, accounts receivable and prepaid expenses and other assets decreased in YTD 2009 by $113.4 and $7.3 million, respectively, primarily due to normal seasonal declines. The favorable impact from these changes were partially offset by a decrease of $69.6 million in accounts payable and accrued expenses, due principally to a normal seasonal decline and the payment of previously accrued income taxes. The number of days outstanding for accounts receivable, based upon year-to-date sales for each period, decreased in YTD 2009 from YTD 2008 mainly from the impact of the stronger sales, while inventory turns increased slightly in YTD 2009 as compared to YTD 2008.

Net cash used in investing activities increased by $3.6 million in YTD 2009 to $4.8 million from $1.2 million in YTD 2008, due to increased capital spending. We are closely managing our capital expenditures during these challenging economic times and we expect full fiscal year 2009 capital expenditures to total 0.5% to 0.7% of net sales.

Net cash used by financing activities was $7.9 million in YTD 2009 compared to $23.9 million in YTD 2008. These quarterly amounts primarily reflected repayments under our revolving lines of credit and term loan. As discussed further below, there was a $7 million accelerated payment due under the term loan at March 31, 2009 that was paid in April 2009.

Capital Resources

Our principal source of liquidity at March 31, 2009 was our cash and cash equivalents of $98.1 million and our available borrowings of $130.7 million under revolving lines of credit, subject to compliance with the maximum consolidated leverage ratio below. Our borrowing base availability is determined primarily by trade accounts receivable, less outstanding borrowings and letters of credit. Borrowings outstanding under the revolving lines of credit in the accompanying balance sheets have been classified as short-term debt since there were no current expectations of a minimum level of outstanding revolver borrowings in the following twelve months.

Liquidity is defined as the current amount of readily available cash and the ability to generate adequate amounts of cash to meet the current needs for cash. We assess our liquidity in terms of our cash and cash equivalents on hand and the ability to generate cash to fund our operating activities, taking into consideration the seasonal nature of our business.

Significant factors which could affect future liquidity include the following:

· the adequacy of available bank lines of credit;

· the ability to attract long-term capital with satisfactory terms;

· cash flows generated from operating activities;

· acquisitions; and

· capital expenditures.

Our primary capital needs are for working capital obligations and other general corporate purposes, including acquisitions and capital expenditures. Our primary sources of working capital are cash from operations and cash equivalents supplemented by bank borrowings. In the past, we have financed acquisitions initially through increased bank borrowings, the issuance of common stock and other borrowings. We then repay any such borrowings with cash flows from operations. We have funded most of our past capital expenditures with cash on hand or through increased bank borrowings, including equipment financing, and then have reduced those obligations with cash flows from operations.

We believe we have adequate current liquidity and availability of capital to fund our present operations, meet our commitments on our existing debt and fund anticipated growth, including expansion in existing and targeted market areas. We seek potential acquisitions from time to time and hold discussions with certain acquisition candidates. If suitable acquisition opportunities or working capital needs arise that would require additional financing, we believe that our financial position and earnings history provide a sufficient base for obtaining additional financing resources at reasonable rates and terms, as we have in the past. We may also issue additional shares of common stock to raise funds, which we did in December 2005, or we may issue preferred stock.

Indebtedness

We currently have the following credit facilities:

• a senior secured credit facility in the U.S.;

• a Canadian senior secured credit facility; and

• an equipment financing facility.

Senior Secured Credit Facilities

On November 2, 2006, we entered into an amended and restated seven-year $500 million U.S. senior secured credit facility and a C$15 million senior secured Canadian credit facility with GE Antares Capital ("GE Antares") and a syndicate of other lenders (combined, the "Credit Facility"). The Credit Facility refinanced the prior $370 million credit facilities that also were provided through GE Antares. The Credit Facility provides us with lower interest rates and available funds for future acquisitions and ongoing working capital requirements. In addition, the Credit Facility increased the allowable total equipment financing and/or capital lease financing to $35 million. The Credit Facility provides for a cash receipts lock-box arrangement that gives us sole control over the funds in lock-box accounts, unless excess availability is less than $10 million or an event of default occurs, in which case the senior secured lenders would have the right to take control over such funds and to apply such funds to repayment of the senior debt.

The Credit Facility consists of a U.S. revolving credit facility of $150 million (the "US Revolver"), which includes a sub-facility of $20 million for letters of credit, and provided an initial $350 million term loan (the "Term Loan"). The Credit Facility also includes a C$15 million senior secured revolving credit facility provided by GE Canada Finance Holding Company (the "Canada Revolver"). There was a combined $130.7 million available for revolver borrowings at March 31, 2009, subject to compliance with the maximum consolidated leverage ratio below, with $0.1 million outstanding under the US Revolver that carried an interest rate of 3.25%. Borrowings outstanding under the revolving lines of credit in the accompanying balance sheets were classified as short-term debt since there were no current expectations of a minimum level of outstanding revolver borrowings in the following twelve months. There were . . .