Business Combinations | NOTE 13 – BUSINESS COMBINATIONS As part of our ongoing strategy to increase market share in certain markets, we completed seven business combinations during the nine months ended September 30, 2017 and six business combinations during the nine months ended September 30, 2016 in which we acquired 100% of the voting equity interests in each. The largest of these acquisitions were Alpha, Columbia Shelving & Mirror Inc. and Charleston Shelving & Mirror, Inc. (collectively, “Columbia”) and All In Insulation, LLC d/b/a Astro Insulation (collectively, “Astro”). The remaining acquisitions were individually insignificant but material in the aggregate, as follows (in thousands): Fair Value Total Three months ended Nine months ended 2017 Acquisitions Date Acquisition Cash Paid Seller of Common Purchase Revenue Net (Loss) Revenue Net Income Alpha(1) 1/5/2017 Share $ 103,810 $ 2,002 $ 10,859 $ 116,671 $ 29,334 $ (271 ) $ 87,830 $ 190 Columbia 6/26/2017 Asset 8,768 225 — 8,993 3,026 73 3,241 80 Astro 9/18/2017 Asset 8,851 490 — 9,341 264 46 264 46 Other Various Asset 9,812 1,042 — 10,854 6,499 84 11,671 366 Total $ 131,241 $ 3,759 $ 10,859 $ 145,859 $ 39,123 $ (68 ) $ 103,006 $ 682 (1) The cash paid included $21.7 million in contingent consideration to satisfy purchase price adjustments related to cash and net working capital requirements, earnout consideration based on Alpha’s change in EBITDA from 2015 and a customary holdback. We issued 282,577 shares of our common stock with a fair value of $10.9 million. Three months ended Nine months ended 2016 Acquisitions Date Acquisition Cash Paid Seller Total Revenue Net Income Revenue Net Income Alpine Insulation Co., Inc. 4/12/2016 Asset $ 21,151 $ 1,560 $ 22,711 $ 7,957 $ 806 $ 14,734 $ 1,238 Other Various Asset 15,276 1,289 16,565 5,519 (200 ) 12,283 (664 ) Total $ 36,427 $ 2,849 $ 39,276 $ 13,476 $ 606 $ 27,017 $ 574 Acquisition-related costs recorded within administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income amounted to $0.9 million and $0.5 million for the three months ended September 30, 2017 and 2016, respectively, and $2.3 million and $1.3 million for the nine months ended September 30, 2017 and 2016, respectively. The goodwill recognized in conjunction with these business combinations is attributable to expected improvement in the business of these acquired companies. We expect to deduct approximately $45.6 million of goodwill for tax purposes as a result of 2017 acquisitions. Purchase Price Allocations The estimated fair values of the assets acquired and liabilities assumed for the acquisitions, as well as total purchase prices and cash paid, approximated the following as of September 30, 2017 and 2016 and may be adjusted during the valuation period since acquisition (in thousands): 2017 2016 Alpha Columbia Astro Other Total Alpine Other Total Estimated fair values: Cash $ 247 $ — $ — $ — $ 247 $ — $ — $ — Accounts receivable 30,361 990 924 2,137 34,412 3,959 2,080 6,039 Inventories 1,851 704 296 1,014 3,865 700 888 1,588 Other current assets 4,827 8 36 8 4,879 — 12 12 Property and equipment 1,528 659 640 1,144 3,971 656 1,188 1,844 Intangibles 57,100 4,760 4,966 5,939 72,765 12,800 8,492 21,292 Goodwill 38,679 2,211 2,808 2,361 46,059 6,642 5,270 11,912 Other non-current 150 31 — 191 372 — 94 94 Accounts payable and other current liabilities (18,072 ) (370 ) (329 ) (1,940 ) (20,711 ) (2,046 ) (1,459 ) (3,505 ) Fair value of assets acquired and purchase price 116,671 8,993 9,341 10,854 145,859 22,711 16,565 39,276 Less fair value of common stock issued 10,859 — — — 10,859 — — — Less seller obligations 2,002 225 490 1,042 3,759 1,560 1,289 2,849 Cash paid $ 103,810 $ 8,768 $ 8,851 $ 9,812 $ 131,241 $ 21,151 $ 15,276 $ 36,427 Further adjustments to the allocation for each acquisition still under its measurement period are expected as third-party and internal valuations are finalized, certain tax aspects of the transaction are completed and customary post-closing reviews are concluded during the measurement period attributable to each individual business combination. As a result, insignificant adjustments to the fair value of assets acquired, and in some cases total purchase price, have been made to certain business combinations since the date of acquisition and future adjustments may be made through the end of each measurement period. Goodwill and intangibles per the above table do not agree to the total gross increases of these assets as shown in Note 4, Goodwill and Intangibles, during the nine months ended September 30, 2017 due to minor adjustments to goodwill for the allocation of certain acquisitions still under measurement as well as other immaterial intangible assets added and written off during the ordinary course of business. In addition, goodwill and intangibles increased during the nine months ended September 30, 2017 due to three immaterial tuck-in The provisional amounts for Alpha originally reported in our Condensed Consolidated Balance Sheets included in our Quarterly Report on Form 10-Q The provisional amounts for Columbia originally reported in our Condensed Consolidated Balance Sheets included in our Quarterly Report on Form 10-Q Estimates of acquired intangible assets related to the acquisitions are as follows for the nine months ended September 30 (dollars in thousands): 2017 2016 Acquired intangibles assets Estimated Weighted Estimated Weighted Customer relationships $ 37,533 8 $ 12,862 9 Trademarks and trade names 19,403 15 6,116 15 Non-competition 2,429 5 2,315 5 Backlog 13,400 1.5 — — Pro Forma Information The unaudited pro forma information for the combined results of the Company has been prepared as if the 2017 acquisitions had taken place on January 1, 2016 and the 2016 acquisitions had taken place on January 1, 2015. The unaudited pro forma information is not necessarily indicative of the results that we would have achieved had the transactions actually taken place on January 1, 2016 and 2015, respectively, and the unaudited pro forma information does not purport to be indicative of future financial operating results. See Note 12, Business Combinations, to our audited financial statements in Item 8 of Part II of our 2016 Form 10-K Pro forma for the three months Pro forma for the nine months 2017 2016 2017 2016 Net revenue $ 297,820 $ 272,010 $ 853,897 $ 771,313 Net income 11,836 12,328 31,544 32,117 Basic net income per share 0.37 0.39 1.00 1.02 Diluted net income per share 0.37 0.39 0.99 1.02 Unaudited pro forma net income reflects additional intangible asset amortization expense of $0.1 million and $0.9 million for the three and nine months ended September 30, 2017 and $4.2 million and $13.1 million for the three and nine months ended September 30, 2016, respectively, as well as additional income tax (benefit) expense of ($0.1) million and $0.6 million for the three and nine months ended September 30, 2017, and $0.5 million and $2.6 million for the three and nine months ended September 30, 2016, respectively, and additional interest expense of $0.5 million and $1.4 million for the three and nine months ended September 30, 2016, respectively, that would have been recorded had the 2017 acquisitions taken place on January 1, 2016 and the 2016 acquisitions taken place on January 1, 2015. There was no additional interest expense for the three or nine months ended September 30, 2017. In addition, we included 282,577 shares of our common stock issued upon acquisition of Alpha in the weighted average shares used to calculate unaudited basic and diluted net income per share for the three and nine months ended September 30, 2016 that would have been recorded had the acquisition taken place on January 1, 2016. |