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Acquisitions, Dispositions and Closure

12 Months Ended

Dec. 31, 2019

Acquisitions, Dispositions and Closure

For all acquisitions, the Company allocates the purchase price to assets acquired and liabilities assumed as of the date of acquisition based on the estimated fair values at the date of acquisition. The excess of the fair value of the purchase consideration over the fair values of the identifiable assets and liabilities is recorded as goodwill. Management makes significant estimates and assumptions when determining the fair value of assets acquired and liabilities assumed. These estimates include, but are not limited to, discount rates, projected future net sales, projected future expected cash flows and useful lives.

The Company accounts for all acquisitions using the acquisition method of accounting under ASC 805, Business Combinations (“ASC 805”), whereby the results of operations of the acquired company are included in the Company’s consolidated financial statements beginning on the acquisition date.

2019 Acquisitions

The Company completed the following acquisitions during the year ended December 31, 2019:


•	On January 14, 2019, the Company acquired substantially all of the assets and assumed certain liabilities of Barefoot and Company (“Barefoot”), a supplier of windows, exterior doors, hardware, specialty products and installation services in the Charlotte, North Carolina metropolitan area.


•	On February 8, 2019, the Company acquired substantially all of the assets and assumed certain liabilities of Locust Lumber, a supplier of lumber products and building materials primarily to custom homebuilders and professional remodeling contractors in the Charlotte, North Carolina metropolitan area.


•	On August 1, 2019, the Company acquired substantially all of the assets and assumed certain liabilities of Kingston Lumber, a supplier of lumber products, trusses and other building materials primarily to custom homebuilders and professional remodeling contractors in the Seattle, Washington metropolitan area.


•	On September 3, 2019, the Company acquired substantially all of the assets and assumed certain liabilities of Heritage One Door & Carpentry (“Heritage One”), a supplier of pre-hung doors, millwork, hardware and finish carpentry services in the Sacramento, California metropolitan area.


•	On September 16, 2019, the Company acquired substantially all of the assets and assumed certain liabilities of Colorado Fasteners, a supplier of fasteners, tools and other related products in the Denver, Colorado metropolitan area.


•	On December 2, 2019, the Company acquired substantially all of the assets and assumed certain liabilities of DeFord Lumber (“DeFord”), a supplier of millwork, doors, windows, structural components and other building materials primarily to custom and regional homebuilders in the Dallas-Fort Worth metropolitan area.

The Barefoot, Locust Lumber, Kingston Lumber, Heritage One, Colorado Fasteners and DeFord acquisitions (the “2019 Acquisitions”) enhance the Company’s value-added offerings and footprint in the respective metropolitan areas.

The preliminary purchase price, in aggregate, for the 2019 Acquisitions was $132.5 million. The preliminary purchase price includes holdbacks which, after certain post-closing adjustments, require the Company to pay up to $8.5 million, in aggregate, to the sellers of Barefoot, Kingston Lumber, Heritage One, Colorado Fasteners and DeFord one year from the respective closing dates. The holdback amounts may be further reduced under certain circumstances. The Company funded the 2019 Acquisitions through available cash.

The preliminary purchase price allocation for the 2019 Acquisitions, in aggregate, resulted in the initial recognition of goodwill of $34.8 million, customer relationship intangible assets of $44.6 million, non-compete agreement intangible assets of $0.5 million, accounts receivable of $28.0 million, inventory of $22.8 million and property and equipment of $8.7 million, as well as other operating assets and liabilities. The customer relationship and non-compete agreement intangible assets have a weighted average useful life of 9 years and 4 years, respectively. Goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. All of the goodwill is expected to be deductible for tax purposes.

The purchase price allocations for the 2019 Acquisitions are preliminary and based upon all information available to the Company at the present time, and are subject to change. The Company is in the process of finalizing its valuation of the acquired intangible assets, property and equipment and inventory, and therefore, the initial purchase accounting for the 2019 Acquisitions is not

complete. As the Company receives additional information during the measurement period, the fair values assigned to the assets and liabilities may be adjusted.

For the year ended December 31, 2018, the 2019 Acquisitions generated net sales, in aggregate, of approximately $274 million. The Company incurred transaction costs of $0.8 million for the year ended December 31, 2019 related to the 2019 Acquisitions, which are included in selling, general and administrative expenses in the consolidated statements of operations.

Net sales and pre-tax earnings for the 2019 Acquisitions included in the consolidated statements of operations during the year ended December 31, 2019 were $136.9 million and $9.2 million, respectively. The impact of the 2019 Acquisitions was not considered significant for the reporting of pro forma financial information.

2019 Closure

As of December 31, 2019, the Company ceased conducting business in its Arkansas market (the "Arkansas Market"), which accounted for less than 1% of the Company's net sales for the year ended December 31, 2019. The exit from the Arkansas Market did not represent a strategic shift under ASC 205, Presentation of Financial Statements ("ASC 205"), and as such, is not reported as a discontinued operation in the Company’s consolidated financial statements. The Company recognized asset impairment charges of $1.3 million related to its exit from the Arkansas Market.

2018 Acquisition

On March 1, 2018, the Company acquired substantially all of the assets and assumed certain liabilities of W.E. Shone Co. (“Shone Lumber”), a supplier of building materials in the state of Delaware, for a purchase price of $22.4 million. This acquisition enhances the Company’s value-added offerings and footprint in the Mid-Atlantic region. The purchase price included a holdback that, after certain post-closing adjustments, required the Company to pay $1.4 million to the sellers during the year ended December 31, 2019. The Company funded the transaction through available cash and borrowings on the Company’s revolving line of credit.

The purchase price allocation resulted in the recognition of goodwill of $2.5 million, a customer relationship intangible asset of $7.0 million, accounts receivable of $6.4 million, inventory of $8.8 million, property and equipment of $2.9 million and total current liabilities of $5.3 million, as well as other operating assets. The customer relationship intangible asset has a useful life of 9 years. Goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. All of the goodwill recognized is expected to be deductible for tax purposes.

Net sales and pre-tax earnings for Shone Lumber included in the consolidated statements of operations from the March 1, 2018 acquisition date to December 31, 2018 were $60.9 million and $3.2 million, respectively. The impact of the acquisition was not considered significant for the reporting of pro forma financial information.

2018 Disposition

On November 1, 2018, the Company completed the sale of substantially all of the assets and certain liabilities of its Coleman Floor business (“Coleman Floor”) for a sale price of $7.7 million. For the year ended December 31, 2018, the net sales of Coleman Floor represented approximately 1% of the Company’s net sales. The sale did not represent a strategic shift under ASC 205, and as such, is not reported as a discontinued operation in the Company’s consolidated financial statements. Including certain customary post-closing adjustments recognized during the year ended December 31, 2019, the Company recognized a gain on the sale of $0.1 million, which is included in other income, net in the consolidated statements of operations.

2017 Acquisitions

The Company completed the following acquisitions during the year ended December 31, 2017:


•	On March 27, 2017, the Company acquired substantially all of the assets and assumed certain liabilities of Code Plus Components, LLC (“Code Plus”), a manufacturer of structural components located in Martinsburg, West Virginia.


•	On April 3, 2017, the Company acquired substantially all of the assets and assumed certain liabilities of Texas Plywood & Lumber Company, Inc. (“TexPly”), a supplier of production millwork and doors in the Dallas-Fort Worth area.

The Code Plus and TexPly acquisitions enhance the Company's value-added offerings and footprint in the respective metropolitan areas.

The purchase price, in aggregate, for the Code Plus and TexPly acquisitions was $38.8 million. The Code Plus acquisition included an earnout provision that required the Company to pay the sellers an additional $0.8 million during the year ended December 31, 2019, due to the acquired operations achieving certain performance targets from the acquisition date through December 31, 2018. The Company funded the Code Plus and TexPly acquisitions through borrowings on the Company's revolving line of credit.

The purchase price allocation for the Code Plus and TexPly acquisitions, in aggregate, resulted in the recognition of goodwill of $7.0 million, customer relationship intangible assets of $15.9 million, a non-compete agreement intangible asset of $0.5 million, accounts receivable of $6.1 million, inventory of $4.5 million and real property of $5.4 million, as well as other operating assets and liabilities. The customer relationship and non-compete agreement intangible assets have a weighted average useful life of 13 years and 5 years, respectively. Goodwill represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. All of the goodwill recognized is expected to be deductible for tax purposes.

Net sales and pre-tax earnings for Code Plus and TexPly, in aggregate, included in the consolidated statements of operations were $54.3 million and $3.2 million, respectively, for the year ended December 31, 2017. The impact of the Code Plus and TexPly acquisitions was not considered significant for the reporting of pro forma financial information.