The following discussion of our financial condition and results of operations should be read in conjunction with the selected financial data and the consolidated financial statements and related notes contained in Item 6. Selected Financial Data and Item 8. Financial Statements and Supplementary Data of this annual report on Form 10-K, respectively. See "Risk Factors" contained in Item 1A. Risk Factors of this annual report on Form 10-K and "Cautionary Statement" contained in Item 1. Business of this annual report on Form 10-K for a discussion of the uncertainties, risks and assumptions associated with these statements.

OVERVIEW

We are a leading supplier and manufacturer of structural and related building products for residential new construction in the U.S. We offer an integrated solution to our customers providing manufacturing, supply and installation of a full range of structural and related building products. Our manufactured products include our factory-built roof and floor trusses, wall panels and stairs, aluminum and vinyl windows, custom millwork and trim, as well as engineered wood that we design and cut for each home. We also assemble interior and exterior doors into pre-hung units. Additionally, we supply our customers with a broad offering of professional grade building products not manufactured by us, such as dimensional lumber and lumber sheet goods, various window, door and millwork lines, as well as cabinets, roofing and gypsum wallboard. Our full range of construction-related services includes professional installation, turn-key framing and shell construction, and spans all our product categories.

We group our building products into five product categories:

• Prefabricated Components. Our prefabricated components consist of wood floor and roof trusses, steel roof trusses, wall panels, stairs, and engineered wood.

• Windows & Doors. Our windows & doors category is comprised of the manufacturing, assembly, and distribution of windows and the assembly and distribution of interior and exterior door units.

• Lumber & Lumber Sheet Goods. Lumber & lumber sheet goods include dimensional lumber, plywood, and OSB products used in on-site house framing.

• Millwork. Millwork includes interior trim, exterior trim, columns and posts that we distribute, as well as custom exterior features that we manufacture under the Synboard ® brand name.

• Other Building Products & Services. Other building products & services are comprised of products such as cabinets, gypsum, roofing and insulation and services such as turn-key framing, shell construction, design assistance, and professional installation spanning all of our product categories.

Our operating results are dependent on the following trends, events and uncertainties, some of which are beyond our control:

• Homebuilding Industry. Our business is driven primarily by the residential new construction market, which is in turn dependent upon a number of factors, including demographic trends, interest rates, consumer confidence, employment rates, foreclosure rates, and the health of the economy and mortgage markets. Since the downturn began in 2006 many homebuilders significantly decreased their starts because of lower demand and an excess of home inventory. However, U.S. single-family housing starts increased to 534,600 in 2012, which is the highest level achieved since 2008. Despite this increase, single-family housing starts remain well below the historical average of 1.1 million per year. Due to the lower levels in housing starts and increased competition for homebuilder business, we have and will continue to experience pressure on our gross margins. We still believe there are several meaningful trends that indicate U.S. housing demand will likely recover in the long term and that the recent downturn in the housing industry is likely a trough in the cyclical nature of the residential construction industry. These trends include relatively low interest rates, the aging of housing stock, and normal population growth due to immigration and birthrate exceeding death rate. Industry forecasters expect to see continued improvement in housing demand over the next few years.

• Targeting Large Production Homebuilders. Over the past ten years, the homebuilding industry has undergone consolidation, and the larger homebuilders have increased their market share. We expect that trend to continue as larger homebuilders have better liquidity and land positions relative to the smaller, less capitalized homebuilders. Our focus is on maintaining relationships and market share with these customers while balancing the competitive pressures we are facing in our markets

• Use of Prefabricated Components. Prior to the housing downturn, homebuilders were increasingly using prefabricated components in order to realize increased efficiency and improved quality. Shortening cycle time from start to completion was a key imperative of the homebuilders during periods of strong consumer demand. During the housing downturn, that trend decelerated as cycle time had less relevance. Customers who traditionally used prefabricated components, for the most part, still do. However, the conversion of customers to this product offering has slowed. We expect this trend to reverse as the residential new construction market continues to strengthen.

• Economic Conditions. Economic changes both nationally and locally in our markets impact our financial performance. The building products supply industry is highly dependent upon new home construction and subject to cyclical market changes. Our operations are subject to fluctuations arising from changes in supply and demand, national and local economic conditions, labor costs, competition, government regulation, trade policies and other factors that affect the homebuilding industry such as demographic trends, interest rates, single-family housing starts, employment levels, consumer confidence, and the availability of credit to homebuilders, contractors, and homeowners. Over the past few years, the mortgage markets have experienced substantial disruption due to increased defaults. This resulted in a stricter regulatory environment and reduced availability of mortgages for potential homebuyers due to an illiquid credit market and tighter standards to qualify for mortgages. Mortgage financing and commercial credit for smaller homebuilders continue to be constrained. As the housing industry is dependent upon the economy and employment levels as well as potential homebuyers' access to mortgage financing and homebuilders' access to commercial credit, it is likely that the housing industry will not fully recover until conditions in the economy and the credit markets improve and unemployment rates decline.

• Cost of Materials. Prices of wood products, which are subject to cyclical market fluctuations, may adversely impact operating income when prices rapidly rise or fall within a relatively short period of time. We purchase certain materials, including lumber products, which are then sold to customers as well as used as direct production inputs for our manufactured and prefabricated products. Short-term changes in the cost of these materials, some of which are subject to significant fluctuations, are sometimes passed on to our customers, but our pricing quotation periods may limit our ability to pass on such price changes. We may also be limited in our ability to pass on increases on in-bound freight costs on our products due to the price of fuel. Our inability to pass on material price increases to our customers could adversely impact our operating results.

• Controlling Expenses. Another important aspect of our strategy is controlling costs and enhancing our status as a low-cost building materials supplier in the markets we serve. We pay close attention to managing our working capital and operating expenses. We have a "best practices" operating philosophy, which encourages increasing efficiency, lowering costs, improving working capital, and maximizing profitability and cash flow. We constantly analyze our workforce productivity to achieve the optimum, cost-efficient labor mix for our facilities. Further, we pay careful attention to our logistics function and its effect on our shipping and handling costs.

• Expand into Multi-Family and Light Commercial Business. While our primary focus has been, and continues to be, on single-family residential new construction, over the past several years we expanded our multi-family and light commercial business to further diversify our customer base and lessen our dependence on the single-family housing market.

CURRENT OPERATING CONDITIONS AND OUTLOOK

Though the level of housing starts remains near historic lows, the homebuilding industry has shown improvement in the current year. According to the U.S. Census Bureau, actual U.S. single-family housing starts for 2012 were 534,600, an increase of 24.2% compared to 2011, but approximately 63.5% lower than when the downturn began in 2006. Actual single-family starts in the South Region, as defined by the U.S. Census Bureau and which encompasses our entire geographic footprint, increased to 282,100 in the current year, up 23.1% from 2011. However, single-family units under construction in the South Region increased only 7.7% in 2012 compared to 2011. While the housing industry has shown recent signs of improvement, the limited availability of credit to smaller homebuilders and potential homebuyers, a slow economic recovery, and high unemployment rates, among other factors could delay a stronger recovery. The National Association of Homebuilders ("NAHB") is forecasting 658,000 U.S. single-family housing starts for 2013, which is an increase of 23.1% from 2012, but still well below historical averages.

We achieved a 37.4% increase in sales during 2012 as compared to the prior year. We believe our broad offering of building products and construction services represents a value proposition to our customers that is superior to that of our competitors. We believe this allowed us to increase our sales volumes at a rate in excess of the increase in new residential construction during the current year as we gained market share by expanding our customer base and promoting our wide array of products and services to existing customers. However, our gross margin decreased by 0.3% during 2012 compared to 2011. Our gross margin decreased 1.1% largely due to commodity lumber inflation relative to customer pricing commitments; however, this was partially offset by a 0.8% gross margin improvement due to increased sales volume. We have continued to manage our operating expenses during 2012 with a key focus on conserving liquidity. Our selling, general, and administrative expenses, as a percentage of sales, decreased 4.0% in the current year compared to 2011. We have made significant changes to our business during the downturn that have improved our operating efficiency and allowed us to better leverage our operating costs against changes in sales.

We still believe the long-term outlook for the housing industry is positive due to growth in the underlying demographics. We feel we are well-positioned to take advantage of any construction activity in our markets and continue to increase our market share. We will continue to focus on working capital by closely monitoring the credit exposure of our customers and by working with our vendors to improve our payment terms and pricing on our products. We will also continue to work diligently to achieve the appropriate balance of short-term cost reductions while maintaining the expertise to grow the business as market conditions improve. We want to create long-term shareholder value and avoid taking steps that will limit our ability to compete.

SEASONALITY AND OTHER FACTORS

Our first and fourth quarters have historically been, and are generally expected to continue to be, adversely affected by weather patterns in some of our markets, causing reduced construction activity. Our fourth quarter 2012 financial results do not reflect the typical seasonality of our business due to improving housing demand, commodity lumber inflation and, to a lesser extent, favorable weather conditions in our markets. In addition, quarterly results historically have reflected, and are expected to continue to reflect, fluctuations from period to period arising from the following:

• The volatility of lumber prices;

• The cyclical nature of the homebuilding industry;

• General economic conditions in the markets in which we compete;

• The pricing policies of our competitors;

• The production schedules of our customers; and

• The effects of weather.

The composition and level of working capital typically change during periods of increasing sales as we carry more inventory and receivables. Working capital levels typically increase in the second and third quarters of the year due to higher sales during the peak residential construction season. These increases have in the past resulted in negative operating cash flows during this peak season, which historically have been financed through available cash. Collection of receivables and reduction in inventory levels following the peak building and construction season have in the past positively impacted cash flow. In the past, we have also utilized our borrowing availability under credit facilities to cover working capital needs. However, we do not have a revolving credit facility at this time.

RESULTS OF OPERATIONS

The following table sets forth the percentage relationship to sales of certain costs, expenses and income items for the years ended December 31:

                                                   2012          2011          2010
  Sales                                             100.0 %       100.0 %       100.0 %
  Cost of sales                                      80.0 %        79.7 %        81.2 %

  Gross margin                                       20.0 %        20.3 %        18.8 %
  Selling, general and administrative expenses       20.8 %        24.8 %        27.7 %
  Asset impairments                                   0.0 %         0.0 %         0.1 %
  Facility closure costs                              0.0 %         0.3 %         0.1 %

  Loss from operations                               (0.8 )%       (4.8 )%       (9.1 )%
  Interest expense, net                               4.2 %         3.2 %         4.5 %
  Income tax expense (benefit)                        0.1 %         0.3 %        (0.2 )%

  Loss from continuing operations                    (5.1 )%       (8.3 )%      (13.4 )%
  Loss from discontinued operations, net of tax      (0.2 )%       (0.0 )%       (0.2 )%

  Net loss                                           (5.3 )%       (8.3 )%      (13.6 )%

2012 Compared with 2011

Sales. Sales for the year ended December 31, 2012 were $1,070.7 million, a 37.4% increase from sales of $779.1 million for 2011. Actual U.S. single-family housing starts increased 24.2% in 2012 as compared to 2011. In the South Region, actual single-family starts increased 23.1% compared to 2011, however the number of single-family units under construction increased only 7.7% over this same time period. We achieved this increase in sales as we continued to expand our customer base while increasing sales to current customers. We estimate our sales volume increased approximately 32.2%, while commodity price inflation resulted in an additional 5.2% increase in sales during 2012 compared to 2011.

The following table shows sales classified by major product category (dollars in millions):

                                                   2012                           2011
                                          Sales        % of Sales        Sales       % of Sales        % Change
Prefabricated components                $   203.7             19.0 %    $ 147.6             18.9 %          38.0 %
Windows & doors                             233.1             21.8 %      183.3             23.5 %          27.2 %
Lumber & lumber sheet goods                 348.1             32.5 %      225.0             28.9 %          54.7 %
Millwork                                    104.2              9.7 %       81.6             10.5 %          27.7 %
Other building products & services          181.6             17.0 %      141.6             18.2 %          28.2 %

Total sales                             $ 1,070.7            100.0 %    $ 779.1            100.0 %          37.4 %

Increased sales volume was achieved across all product categories. Commodity prices for lumber and lumber sheet goods were on average 23.0% higher in 2012 compared to 2011. Prices have risen to levels not seen on a consistent basis since 2005 and 2006. This commodity price inflation has resulted in sales growth for lumber & lumber sheet goods and prefabricated components exceeding that of our other product categories.

Gross Margin. Gross margin increased $56.6 million to $214.6 million. Our gross margin percentage decreased from 20.3% in 2011 to 20.0% in 2012, a 0.3% decrease. Our gross margin decreased 1.1% due to commodity lumber price inflation in 2012 relative to customer pricing commitments. However, this decrease was partially offset by a 0.8% gross margin improvement due to increased sales volume and our ability to leverage fixed costs within cost of goods sold.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $29.3 million, or 15.2%. Our salaries and benefits expense, excluding stock compensation expense, was $137.5 million for 2012, an increase of $27.1 million from 2011. Delivery expenses increased $4.0 million primarily due to higher fuel costs and increased maintenance costs on vehicles. Occupancy expenses decreased $0.6 million and our office general and administrative expense decreased $0.5 million, primarily due to $0.6 million in proceeds received from a litigation settlement.

As a percent of sales, selling, general and administrative expenses, excluding asset impairments and stock compensation expense, decreased from 24.2% in 2011 to 20.4% in 2012. Salaries and benefits expense, excluding stock compensation expense, decreased 1.3% and delivery costs decreased by 1.0%. Occupancy decreased by 0.7% due to the fixed nature of the category and our office general and administrative expense decreased 0.7%.

Interest Expense, net. Interest expense was $45.1 million in 2012, an increase of $20.2 million. The increase was primarily due to $17.5 million of interest expense on our term loan entered into in December 2011 and $4.3 million of fair value adjustments on the warrants issued as part of the term loan. These increases were partially offset by a $1.1 million reduction due to the termination of our revolving credit facility in 2011.

Income Tax Expense. We recorded income tax expense of $0.6 million and $2.2 million during 2012 and 2011, respectively. We recorded an after-tax, non-cash valuation allowance of $19.6 million and $26.1 million related to our net deferred tax assets for 2012 and 2011, respectively. Absent this valuation allowance, our effective tax rate would have been 35.3% and 38.3% for 2012 and 2011, respectively.

2011 Compared with 2010

Sales. Sales for the year ended December 31, 2011 were $779.1 million, an 11.2% increase from sales of $700.3 million for 2010. We achieved this increase in sales despite an 8.6% decline in U.S. single-family housing starts through our ability to increase market share with our existing customers and by adding a significant number of new customers. We estimate our sales volume increased approximately 12% during 2011, which was partially offset by commodity price deflation.

The following table shows sales classified by major product category (dollars in millions):

                                                   2011                          2010
                                          Sales       % of Sales        Sales       % of Sales        % Change
Prefabricated components                 $ 147.6             18.9 %    $ 135.5             19.3 %           9.0 %
Windows & doors                            183.3             23.5 %      161.1             23.0 %          13.8 %
Lumber & lumber sheet goods                225.0             28.9 %      201.4             28.8 %          11.7 %
Millwork                                    81.6             10.5 %       75.8             10.8 %           7.6 %
Other building products & services         141.6             18.2 %      126.5             18.1 %          11.9 %

Total sales                              $ 779.1            100.0 %    $ 700.3            100.0 %          11.2 %

Increased sales volume was achieved across all product categories. Sales of our windows and doors increased $22.2 million, which was primarily attributable to an increase in our sales of assembled and distributed vinyl and aluminum window products. For the lumber and lumber sheet goods category, unit volume increases of approximately $27.8 million were the main driver of the increase, partially offset by approximately $4.2 million in lower customer pricing. Sales of other building products & services increased approximately $15.1 million due largely to increased sales in roofing, hardware and installation services.

Gross Margin. Gross margin increased $26.2 million to $157.9 million. Our gross margin percentage increased from 18.8% in 2010 to 20.3% in 2011, a 1.5% increase. Our gross margin percentage increased by 0.9% due to increased sales volume and our ability to leverage fixed costs within cost of goods sold. The remaining increase in our gross margin percentage was primarily due to improved customer pricing, coupled with less volatility in the commodity markets during 2011.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $1.1 million, or 0.6%. Our salaries and benefits expense, excluding stock compensation expense, was $110.5 million for 2011, a decline of $2.0 million from 2010, as we focused on controlling operating costs. Our office general and administrative expense increased $1.1 million, primarily due to the benefit of the $1.2 million litigation settlement we received in 2010. While delivery expenses were relatively flat in total, fuel costs increased due to higher prices and increased sales volume but were offset by lower vehicle and equipment lease expense.

As a percent of sales, selling, general and administrative expenses, excluding stock compensation expense and the benefit of the litigation settlement recorded in 2010, decreased from 27.3% in 2010 to 24.2% in 2011. Salaries and benefits expense, excluding stock compensation expense, as a percentage of sales decreased 1.9% and delivery costs as a percentage of sales decreased by 0.6%. Our office general and administrative expense, excluding the litigation settlement recorded in 2010, as a percentage of sales decreased 0.3% and occupancy decreased by 0.2% due to the fixed nature of the category.

Interest Expense, net. Interest expense was $24.9 million in 2011, a decrease of $6.7 million. The decrease was primarily due to the write-off of $1.6 million of unamortized debt issuance costs related to long-term debt repaid in 2010, $2.5 million of costs incurred related to our recapitalization transaction in 2010, and the write-off of $0.6 million in debt issuance costs related to the capacity reduction of our revolving credit facility in 2010. In addition, interest expense related to our interest rate swaps, which expired during 2011, decreased $4.3 million from 2010. These decreases were partially offset by $1.5 million of interest expense on our term loan agreement entered into in December 2011 and $0.7 million of fair value adjustments on the warrants issued as part of the term loan.

Income Tax Expense (Benefit). We recorded income tax expense of $2.2 million during 2011 compared to income tax benefit of $1.1 million during 2010. We recorded an after-tax, non-cash valuation allowance of $26.1 million and $35.4 million related to our net deferred tax assets for 2011 and 2010, respectively. Absent this valuation allowance, our effective tax rate would have been 38.3% for both 2011 and 2010.

LIQUIDITY AND CAPITAL RESOURCES

Our primary capital requirements are to fund working capital needs and operating expenses, meet required interest and principal payments, and fund capital expenditures. In the past, our capital resources have primarily consisted of cash flows from operations and, more so in recent years, borrowings under our various credit facilities.

In December of 2012, we amended our $160.0 million first-lien term loan to enhance our liquidity position to support both current and anticipated increases in sales volume. Terms of the amendment included increasing the principal amount by $65.0 million, reducing the minimum cash requirement from $35.0 million to $15.0 million, adding a new $15.0 million letter of credit sub-facility, and increasing the minimum specified collateral value to $225.0 million, contingent upon maintaining certain levels of qualified cash. The additional $65.0 million principal amount, which was issued at 95.5%, provided $60.9 million of net proceeds after paying fees and expenses related to the transaction. In January 2013, we finalized our letter of credit sub-facility and at the same time, transferred the $12.4 million of outstanding letters of credit from our $20.0 million stand-alone letter of credit facility over to the new sub-facility. As such, we were able to eliminate the cash collateral requirement for our outstanding letters of credit, thus increasing our liquidity by $13.0 million of restricted cash that was collateralizing our outstanding letters of credit. We also amended the stand-alone facility from $20.0 million to $10.0 million. For more information on our capital resources, see Note 8 to the consolidated financial statements included in Item 8 of this annual report on Form 10-K .

The homebuilding industry, and therefore our business, experienced a significant downturn that started in 2006. However, activity in the current year improved as 2012 saw the first meaningful increase in housing starts since the downturn began. We are expecting increased stability and continued improvement in the housing industry in 2013. Beyond 2013, it is difficult for us to predict what will happen as our industry is dependent on a number of factors, including national economic conditions, employment levels, the availability of credit for homebuilders and potential home buyers, the level of foreclosures, existing home inventory, and interest rates. Due to the lingering effects of the significant housing industry downturn, our operations are no longer providing positive cash flows, and we are not expecting our cash flows from operations to be positive in 2013.

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