Acquisition

6 Months Ended

Jun. 30, 2018

On April 13, 2018, we completed our previously announced acquisition of Cedar Creek for a preliminary purchase price of approximately $361.8 million. The acquisition was completed pursuant to the terms of an Agreement and Plan of Merger (the "Merger Agreement"), dated as of March 9, 2018, by and among BlueLinx Corporation, one of our wholly owned subsidiaries, Panther Merger Sub, Inc., a wholly-owned subsidiary of BlueLinx Corporation ("Merger Sub"), Cedar Creek, and CharlesBank Equity Fund VII, Limited Partnership (“CharlesBank”). Upon closing the transactions contemplated by the Merger Agreement, among other things, Merger Sub was merged with and into Cedar Creek, with Cedar Creek surviving the acquisition as one of our indirect wholly-owned subsidiaries. As a result of the acquisition, we increased the number of our distribution facilities to approximately 70 facilities, and increased the number of our full-time employees to over 2,500 persons.

Cedar Creek was established in 1977 as a wholesale building materials distribution company, that distributes wood products across the United States. Its products include specialty lumber, oriented strand board, siding, cedar, spruce, engineered wood products and other building products.

The acquisition is being accounted for under the acquisition method of accounting. The assets acquired and liabilities assumed and the results of operations of the acquired business are included in our consolidated results for the period from April 13, 2018, to June 30, 2018.

The acquired business contributed net sales and net income of $358.1 million and $1.2 million, respectively, to the Company for the period from April 13, 2018, to June 30, 2018. The net income for the period from April 13, 2018, to June 30, 2018 included integration-related costs and the negative impact of selling a higher cost Cedar Creek inventory recorded at fair value. The following unaudited consolidated pro forma information presents consolidated information as if the acquisition had occurred on January 1, 2017:



	Proforma
	Three Months Ended				Six Months Ended
(In thousands, except per share data)	June 30, 2018		July 1, 2017		June 30, 2018			July 1, 2017
Net sales	$	948,555	$	848,644	$	1,732,822		$	1,618,383
Net income (loss)	9,180		5,963		(1,439		)	(30,290		)
Earnings (loss) per common share:
Basic	$	1.00	$	0.66	$	(0.16	)	$	(3.36	)
Diluted	0.98		0.65		(0.16		)	(3.36		)

The pro forma amounts above have been calculated in accordance with GAAP after applying the Company's accounting policies and adjusting: (i) the three and six months ending June 30, 2018, to reflect a $10.9 million charge related to an inventory step-up adjustment, and the three and six months ended July 1, 2017, for $0 and $11.6 million, respectively; (ii) the three and six months ending June 30, 2018, for $30.4 million and $34.0 million, respectively, for transaction related costs, and the three and six months ended July 1, 2017, for $0 and $34.0 million, respectively. Due to the net loss for the six-month periods ended June 30, 2018 and 2017, $0.1 million of incremental shares from share-based compensation arrangements were excluded from the computation of diluted weighted average shares outstanding, in both periods, because their effect would be anti-dilutive. The pro forma amounts do not include any potential synergies, cost savings or other expected benefits of the acquisition, are presented for illustrative purposes only, and are not necessarily indicative of results that would have been achieved had the acquisition occurred as of January 1, 2017, or of future operating performance.

The following table describes the payments to Cedar Creek’s equity holders and the debt paid and incurred in connection with the acquisition:



	(In thousands)
Consideration paid to shareholders and amounts paid to creditors:
Payments to Cedar Creek shareholders^[1]	$	166,447
Subordinated unsecured note (due to shareholder)^[2]		13,743
Seller’s transaction costs paid by Company		7,349
Add: pay off of Cedar Creek debt:
Credit agreement^[3]		174,213
Total preliminary cash purchase price	$	361,752

_____________



[1]	Payments to Cedar Creek’s shareholders include the purchase of common stock and certain escrow adjustments.



[2]	The Cedar Creek note payable to a shareholder of $13.7 million was paid in full upon the acquisition of Cedar Creek and included $10 million in subordinated debt and $3.7 million in accrued interest.



[3]	To finance the acquisition of Cedar Creek, the Company amended and restated its Revolving Credit Facility to increase the availability thereunder to $600.0 million, with an uncommitted accordion feature of up to $150.0 million, and also entered into a new $180.0 million senior secured Term Loan Facility (See Note 6).

The excess of total preliminary purchase price, which includes the aggregate cash consideration paid in excess of the fair value of the tangible and intangible assets acquired, was recorded as goodwill. The goodwill recognized is attributable to the expected operating synergies and growth potential that the Company expects to realize from the acquisition. Additional goodwill generated from the acquisition is not deductible for tax purposes.

When determining the fair values of assets acquired and liabilities assumed, management made significant estimates, judgments and assumptions. These estimates, judgments and assumptions are subject to change upon final valuation and should be treated as preliminary values. Changes to the preliminary estimates will be made as soon as practicable, but no later than one year following the acquisition date.

The final allocation of purchase consideration, based on final valuations, could include changes in the estimated fair value of inventories; property, plant and equipment; customer relationships, noncompete agreements, trade names, and other intangibles; and deferred income taxes. The information below represents the preliminary purchase price allocation:



	(In thousands)
Cash and net working capital assets (excluding inventory)	$	90,768
Inventory		159,041
Property and equipment		70,386
Other, net		8,045
Intangible assets and goodwill:
Customer relationships		26,500
Non-compete agreements		7,980
Trade names		6,826
Favorable leasehold interests		800
Goodwill		36,159
Capital leases and other liabilities		(44,753	)
Cash purchase price	$	361,752