NOTE 13 – BUSINESS COMBINATIONS

As part of our ongoing strategy to increase market share in certain markets, we completed four business combinations during the six months ended June 30, 2017 and four business combinations during the six months ended June 30, 2016. Acquisition-related costs recorded within administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income amounted to $0.7 million and $0.4 million for the three months ended June 30, 2017 and 2016, respectively, and $1.3 million and $0.8 million for the six months ended June 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 $40.0 million of goodwill for tax purposes as a result of 2017 acquisitions.

2017

On January 5, 2017, we consummated our previously announced acquisition of all of the outstanding shares of Alpha for consideration of approximately $103.8 million in cash, including $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, $10.9 million by issuing 282,577 shares of our common stock and other seller obligations totaling $2.0 million. Revenue and net income since the date of acquisition included in our Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended June 30, 2017 were $30.3 million and $0.2 million, respectively, and $58.5 million and $0.5 million, respectively, for the six months ended June 30, 2017.

On March 20, 2017, we acquired substantially all of the assets of Custom Glass Atlanta, Inc. and Atlanta Commercial Glazing, Inc. The purchase price consisted of cash of $3.4 million and seller obligations of $0.3 million. Revenue and net income since the date of acquisition included in our Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended June 30, 2017 were $3.6 million and $0.2 million, respectively, and $4.1 million and $0.3 million, respectively, for the six months ended June 30, 2017.

On May 1, 2017, we acquired substantially all of the assets of Legacy Glass & Supply, Inc. The purchase price consisted of cash of $2.1 million and seller obligations of $0.1 million. Revenue and net income since the date of acquisition included in our Condensed Consolidated Statements of Operations and Comprehensive Income for both the three and six months ended June 30, 2017 were $1.1 million and $16 thousand, respectively.

On June 26, 2017, we acquired substantially all of the assets of Columbia Shelving & Mirror, Inc. and Charleston Shelving & Mirror, Inc. (collectively, “Columbia”). The purchase price consisted of cash of $7.8 million and seller obligations of $0.6 million, subject to a working capital adjustment. Revenue and net income since the date of acquisition included in our Condensed Consolidated Statements of Operations and Comprehensive Income for both the three and six months ended June 30, 2017 were $0.2 million and $7 thousand, respectively.

2016

On January 25, 2016, we acquired substantially all of the assets of Key Green Builder Services, LLC d/b/a Key Insulation. The purchase price consisted of cash of $5.0 million and seller obligations of $0.7 million. Revenue and net (loss) since the date of acquisition included in our Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended June 30, 2016 were $2.2 million and $(0.1) million, respectively, and $4.3 million and $(0.2) million, respectively, for the six months ended June 30, 2016.

On February 2, 2016, we acquired substantially all of the assets of Marshall Insulation, LLC. The purchase price consisted of cash of $0.9 million and seller obligations of $0.1 million. Revenue and net loss since the date of acquisition included in our Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended June 30, 2016 were $0.9 million and $(76) thousand, respectively, and $1.5 million and $(0.2) million, respectively, for the six months ended June 30, 2016.

On February 29, 2016, we acquired substantially all of the assets of Kern Door Company, Inc. The purchase price consisted of cash of $2.9 million and seller obligations of $0.1 million. Revenue and net income since the date of acquisition included in our Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended June 30, 2016 were $0.7 million and $0.2 million, respectively, and $1.0 million and $0.1 million, respectively, for the six months ended June 30, 2016.

On April 12, 2016, we acquired substantially all of the assets of Alpine Insulation Co., Inc. The purchase price consisted of cash of $21.2 million and seller obligations of $1.6 million. Revenue and net income since the date of acquisition included in our Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2016 were $6.8 million and $0.4 million, respectively.

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 June 30 and may be adjusted during the valuation period since acquisition (in thousands):


	2017												2016
	Alpha			Columbia			Other			Total			Alpine			Other			Total
Estimated fair values:
Cash	$	247		$	—		$	—		$	247		$	—		$	—		$	—
Accounts receivable		30,405			990			1,130			32,525			3,959			1,518			5,477
Inventories		1,751			650			880			3,281			700			311			1,011
Other current assets		5,566			—			3			5,569			—			8			8
Property and equipment		1,528			659			686			2,873			656			789			1,445
Intangibles		57,100			4,760			3,321			65,181			12,800			5,036			17,836
Goodwill		37,825			1,699			963			40,487			6,642			3,220			9,862
Other non-current assets		150			31			129			310			—			24			24
Accounts payable and other current liabilities		(17,901	)		(348	)		(1,210	)		(19,459	)		(2,046	)		(1,239	)		(3,285	)

Fair value of assets acquired and purchase price		116,671			8,441			5,902			131,014			22,711			9,667			32,378
Less fair value of common stock issued		10,859			—			—			10,859			—			—			—
Less seller obligations		2,002			623			400			3,025			1,560			870			2,430

Cash paid	$	103,810		$	7,818		$	5,502		$	117,130		$	21,151		$	8,797		$	29,948

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 six months ended June 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 six months ended June 30, 2017 due to two immaterial tuck-in acquisitions that do not appear in the above table.

Estimates of acquired intangible assets related to the acquisitions are as follows for the six months ended June 30 (dollars in thousands):


	2017				2016
Acquired intangibles assets	Estimated Fair Value		Weighted Average Estimated Useful Life (yrs.)		Estimated Fair Value		Weighted Average Estimated Useful Life (yrs.)
Customer relationships	$	32,744		8	$	10,667		9
Trademarks and trade names		17,190		15		5,235		15
Non-competition agreements		1,847		5		1,934		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 for additional information on 2016 acquisitions included in the table below (in thousands, except per share data):


	Pro forma for the three months ended June 30,				Pro forma for the six months ended June 30,
	2017		2016		2017		2016
Net revenue	$	285,346	$	255,626	$	548,299	$	492,239
Net income	$	12,371	$	12,399	$	19,502	$	19,372
Basic and diluted net income per share	$	0.39	$	0.39	$	0.62	$	0.61

Unaudited pro forma net income reflects additional intangible asset amortization expense of $0.2 million and $0.4 million for the three and six months ended June 30, 2017 and $4.1 million and $8.5 million for the three and six months ended 2016, respectively, as well as additional income tax expense of $0.2 million and $0.6 million for the three and six months ended June 30, 2017, and $1.1 million and $1.8 million for the three and six months ended June 30, 2016, respectively, and additional interest expense of $0.5 million for the three months ended June 30, 2016 and $0.9 million for the six months ended June 30, 2016 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 six months ended June 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 six months ended June 30, 2016 that would have been recorded had the acquisition taken place on January 1, 2016.