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Business Combinations and Dispositions | 12 Months Ended
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Dec. 31, 2021
Business Combinations [Abstract] |
Business Combinations and Dispositions | 3. Business Combinations and Dispositions On January 1, 2021, we completed our all stock merger transaction with BMC Stock Holdings, Inc., a Delaware corporation (“BMC”), pursuant to the Agreement and Plan of Merger, dated as of August 26, 2020 (as amended, restated, supplemented, or otherwise modified from time to time, the “Merger Agreement”), by and among Builders FirstSource, Inc., Boston Merger Sub I Inc., a Delaware corporation and direct wholly owned subsidiary of Builders FirstSource, Inc. (“Merger Sub”) and BMC. On the terms and subject to the conditions set forth in the Merger Agreement, on January 1, 2021, Merger Sub merged with and into BMC, with BMC continuing as the surviving corporation and a wholly owned subsidiary of Builders FirstSource, Inc. (the “BMC Merger”). On January 1, 2022, we completed a legal entity reorganization pursuant to which, among other things, BMC was merged with and into Builders FirstSource, Inc., with Builders FirstSource, Inc. continuing as the surviving corporation. The BMC Merger expands the Company’s geographic reach and value-added offerings. The BMC Merger was accounted for by the acquisition method, and accordingly the results of operations have been included in the Company’s consolidated financial statements from the acquisition date. Net sales and income before income taxes attributable to BMC were $6.5 billion and $789.5 million, respectively, for the year ended December 31, 2021. Income before income taxes attributable to BMC reflects an increase in depreciation and amortization expense related to the recording of these assets at fair value as of the acquisition date and is also impacted by changes in the business post-acquisition. The consideration transferred was allocated to the identifiable assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with the excess recorded as goodwill. The fair value of acquired intangible assets of $1.5 billion was primarily related to customer relationships. Immediately following the BMC Merger, the Company settled certain assumed long-term debt of $359.8 million using cash on hand. We incurred transaction-related costs of $17.6 million and $22.5 million related to the BMC Merger in the years ended December 31, 2021 and 2020, respectively, which are included in selling, general and administrative expenses in the accompanying consolidated statement of operations. The consideration transferred was determined as the sum of the following: (A) the price per share of the Company’s common stock (“BFS common stock”) of $40.81 (based on the closing price per share of BFS common stock on December 31, 2020), multiplied by each of: (1) the approximately 88.7 million shares of BFS common stock issued to BMC stockholders in the BMC Merger (based on the number of shares of BMC common stock outstanding on December 31, 2020, multiplied by the exchange ratio as set forth in the Merger Agreement); and (2) the approximately 0.9 million shares of BFS common stock issued to holders of outstanding BMC restricted stock awards in connection with the BMC Merger (based on the number of BMC restricted stock awards outstanding as of December 31, 2020 (with performance-based awards vesting at target level of performance), multiplied by the exchange ratio as set forth in the Merger Agreement); plus (B) the fair value attributable to fully vested, outstanding options for BMC common stock held by current BMC employees that were assumed by the Company at the effective time and became options to purchase BFS common stock, with the number of shares and exercise price adjusted by the exchange ratio. The calculation of consideration transferred is as follows (in thousands, except ratios and per share amounts):
Number of BMC common shares outstanding |  | 67,568 |
Exchange ratio for common shares outstanding per Merger Agreement |  | 1.3125 |
Shares of BFS common stock issued for BMC outstanding common stock |  | 88,683 |
Number of BMC stock awards that vested as a result of the BMC Merger |  | 688 |
Exchange ratio for stock awards expected to vest per Merger Agreement |  | 1.3125 |
Shares of BFS common stock issued for BMC vested restricted stock awards |  | 903 |
Price per share of BFS common stock | $ | 40.81 |
Fair value of BFS common stock issued for BMC outstanding common stock and vested equity awards | $ | 3,655,988 |
Fair value of modified BMC fully vested, unexercised options |  | 2,374 |
Total consideration transferred | $ | 3,658,362 |
On May 3, 2021, we acquired certain assets and operations of John’s Lumber and Hardware Co. (“John’s Lumber”) for a purchase price of $24.8 million. Located in Detroit, Michigan, John’s Lumber is a supplier of lumber and sheet goods, windows, doors, millwork, siding, decking, kitchen and bath and installation services to homebuilders, remodel contractors and retail consumers. This acquisition was funded with a combination of cash on hand and borrowings under our 2026 facility. On July 1, 2021, we acquired all of the operating affiliates of Cornerstone Building Alliance SW, LLC (“Alliance”) for a purchase price of, $408.9 million, net of cash acquired. Alliance operates in Arizona, primarily serving the greater Phoenix, Tucson, and Prescott Valley metropolitan areas. Alliance manufactures roof trusses and distributes lumber and related products to residential homebuilders and commercial contractors. This acquisition was funded with a combination of cash on hand and borrowings under our 2026 facility. On August 16, 2021, we acquired certain assets and operations of WTS Paradigm, LLC (“Paradigm”), a software solutions and services provider for the building products industry for a purchase price of $449.6 million, net of cash acquired. Located in Middleton, Wisconsin, Paradigm enhances the Company’s digital capabilities and aligns with our broader vision to provide digital solutions that improve efficiency and solve pain points in the homebuilding process. This acquisition was funded with cash on hand. On September 1, 2021, we acquired certain assets and operations of CTF Holdings Limited Partnership (“CTF”) for a purchase price of $182.5 million, net of cash acquired. Prior to the acquisition, CTF was the largest independent truss manufacturer in California, supplying framing contractors and builders in both the single and multifamily markets. This acquisition was funded with cash on hand. On December 6, 2021, we acquired certain assets and operations of Truss Technologies, Inc. (“TTI”) for a purchase price of $29.8 million. TTI operates in Michigan, primarily in the greater Grand Rapids area and manufactures roof and floor trusses and engineered wood products. This acquisition was funded with cash on hand. On December 31, 2021, we acquired certain assets and operations of National Lumber Massachusetts Business Trust and its subsidiary, as well as the affiliated corporation Oxford Lumber and Materials, Inc. (collectively “National Lumber”) for a combined purchase price of $278.3 million, net of cash acquired. National Lumber is the largest independent lumber and building materials platform in New England, distributing lumber and lumber sheet goods, manufacturing prefabricated components and trusses, and providing various service offerings. The purchase agreement for National Lumber contains an earn-out provision contingent upon the achievement of specified profitability targets through fiscal year 2022 and includes certain employment restrictions. This earn-out provision could result in an additional cash payment ranging from zero to $21.5 million depending on the level of achievement of the specified targets. This acquisition was funded with cash on hand and borrowings under the 2026 facility. These six transactions were accounted for by the acquisition method, and accordingly the results of operations have been included in the Company’s consolidated financial statements from each respective acquisition date. The purchase price was allocated to the assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill. The fair value of acquired intangible assets of $372.1 million was primarily related to customer relationships, and developed technology acquired from Paradigm. Customer relationships associated with John’s Lumber, Alliance, Paradigm, CTF, TTI and National were $2.6 million, $108.2 million, $22.3 million, $52.8 million, $10.8 million and $53.6 million, respectively. Developed Technology associated with Paradigm was $95.6 million. We recorded goodwill for John’s Lumber, Alliance, Paradigm, CTF, TTI and National of $8.4 million, $181.5 million, $318.2 million, $98.1 million, $9.7 million and $127.5 million, respectively. Pro forma results of operations as well as net sales and income attributable to the acquisitions discussed above are not presented as these acquisitions did not have a material impact on our results of operations, individually or in the aggregate. We incurred $9.3 million of acquisition related costs attributable to these acquisitions in the year ended December 31, 2021, which is included in selling, general and administrative expenses in the consolidated statements of operations. On July 26, 2021, we completed the sale of our standalone Eastern U.S. gypsum distribution operations (“Gypsum Divestiture”) for total cash proceeds of $76.2 million, resulting in a gain on sale totaling $26.3 million. The disposition does not meet the criteria for discontinued operations classification, thus the results of operations for this divestiture are reported within the Company’s one reportable segment, and the gain on sale is included within selling, general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2021. The following table summarizes the aggregate fair values of the assets acquired and liabilities assumed for these acquisitions during the year ended December 31, 2021, (in thousands):
|  | BMC Merger |  |  | All Other Acquisitions |  |  | Total |
Cash and cash equivalents |  | $ | 167,490 |  |  | $ | 44,469 |  |  | $ | 211,959 |
Accounts receivable |  |  | 428,221 |  |  |  | 146,742 |  |  |  | 574,963 |
Other receivables |  |  | 36,704 |  |  |  | 6,660 |  |  |  | 43,364 |
Inventories |  |  | 460,146 |  |  |  | 116,571 |  |  |  | 576,717 |
Contract assets |  |  | 40,983 |  |  |  | 6,014 |  |  |  | 46,997 |
Other current assets |  |  | 32,891 |  |  |  | 3,716 |  |  |  | 36,607 |
Property, plant and equipment |  |  | 555,170 |  |  |  | 70,419 |  |  |  | 625,589 |
Operating lease right-of-use assets |  |  | 179,133 |  |  |  | 44,083 |  |  |  | 223,216 |
Goodwill |  |  | 1,751,604 |  |  |  | 743,207 |  |  |  | 2,494,811 |
Intangible assets |  |  | 1,470,000 |  |  |  | 372,100 |  |  |  | 1,842,100 |
Other assets |  |  | 6,244 |  |  |  | 641 |  |  |  | 6,885 |
Total assets |  | $ | 5,128,586 |  |  | $ | 1,554,622 |  |  | $ | 6,683,208 |
Accounts payable |  | $ | 279,980 |  |  | $ | 19,808 |  |  | $ | 299,788 |
Accrued liabilities |  |  | 201,046 |  |  |  | 47,407 |  |  |  | 248,453 |
Contract liabilities |  |  | 45,072 |  |  |  | 22,436 |  |  |  | 67,508 |
Operating lease liabilities |  |  | 180,650 |  |  |  | 44,083 |  |  |  | 224,733 |
Long-term debt |  |  | 366,797 |  |  |  | 42 |  |  |  | 366,839 |
Deferred income taxes |  |  | 349,971 |  |  |  | 1,881 |  |  |  | 351,852 |
Other long-term liabilities |  |  | 46,707 |  |  |  | 535 |  |  |  | 47,242 |
Total liabilities |  | $ | 1,470,224 |  |  | $ | 136,192 |  |  | $ | 1,606,416 |
Total consideration transferred |  | $ | 3,658,363 |  |  | $ | 1,418,430 |  |  | $ | 5,076,793 |
The following table reflects the unaudited pro forma operating results for the Company which gives effect to the BMC Merger as if it had occurred on January 1, 2020 (in thousands). The pro forma results are based on assumptions that the Company believes are reasonable under the circumstances. The pro forma results are not necessarily indicative of future results. The pro forma financial information includes the historical results of the Company and BMC adjusted for certain items, which are described below, and does not include the effects of any synergies or cost reduction initiatives related to the BMC Merger.
|  |  |  | Twelve Months Ended December 31, |
|  |  |  |  |  | 2021 |  |  | 2020 |
|  |  |  |  |  | (in thousands) |
Net sales |  |  |  |  |  | $ | 19,893,856 |  |  | $ | 12,766,114 |
Net income |  |  |  |  |  |  | 1,874,632 |  |  |  | 240,699 |
Pro forma net income reflects the following adjustments:
| • | Property, plant and equipment and intangible assets are assumed to be recorded at their estimated fair values as of January 1, 2020, and are depreciated or amortized over their estimated useful lives from that date.
| • | Transaction-related expenses of $17.6 million incurred in 2021 are assumed to have occurred on January 1, 2020, and are presented as an expense during the twelve months ended December 31, 2020.
| • | Interest expense related to certain assumed long-term debt settled in connection with the BMC Merger has been adjusted.
| • | Cost of sales related to the sell-through of inventory stepped-up in value in connection with the BMC Merger has been adjusted and is presented as cost of sales for the year ended December 31, 2020.

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