On April 8, 2019, the Company, through one of its recently formed subsidiaries, acquired 100% of the shares of South Pacific Financial Corporation, a California corporation ("SPFC"), for a net purchase price of $8.9 million pursuant to a stock purchase agreement (the “SPFC Acquisition”). The aggregate purchase price includes holdback provisions relating to certain amounts that may be incurred by the Company relating to previously existing obligations of the sellers and indemnity provisions. SPFC is an independent retail mortgage banking company based in Irvine, CA that is licensed in all of the Company’s existing homebuilding markets and has all of the GSE seller and servicer approvals, as well as Ginnie Mae authorization. Subsequent to the transaction, the Company changed the entity name of SPFC to ClosingMark Home Loans, Inc. ("ClosingMark Home Loans").

The Company financed the SPFC Acquisition with cash on hand of $3.9 million (net of cash received) at the time of closing. Up to the remaining $5.0 million will be paid to the sellers in two installments, subject to the terms of certain holdback and indemnity provisions, with the final balance being paid on November 1, 2021.

As a result of the SPFC Acquisition, SPFC and its subsidiary became wholly-owned indirect subsidiaries of the Company, and its results are included in our condensed consolidated financial statements and related disclosures from the date of the SPFC Acquisition.

The SPFC Acquisition was accounted for as a business combination in accordance with ASC 805. Under ASC 805, the Company recorded the acquired assets and assumed liabilities of SPFC at their estimated fair values, with the excess allocated to Goodwill, as shown below. Goodwill represents the value the Company expects to achieve through the operational synergies and the expansion of the Company into new markets. The Company estimates that the entire $4.5 million of goodwill resulting from the SPFC Acquisition will be tax deductible. Goodwill will be allocated to the Financial Services operating segment. A reconciliation of the consideration transferred as of the acquisition date is as follows:

As of June 30, 2019 the Company had not completed its final estimate of the fair value of the net assets of SPFC due to the timing of the SPFC Acquisition. As such, the estimates used as of June 30, 2019 are subject to change. The following table summarizes the preliminary amounts for acquired assets and liabilities recorded at their fair values as of the acquisition date (in thousands):



Assets Acquired
	Receivables	$	1,908
	Mortgages held for sale	17,597
	Derivative hedge portfolio	1,519
	Goodwill	4,500
	Other	1,426
	Total Assets	$	26,950

Liabilities Assumed
	Accounts payable	$	206
	Accrued expenses	3,053
	Warehouse facilities	14,791
	Total liabilities	18,050
	Net assets acquired	$	8,900

The fair values of Mortgages held for sale are based on the fair value of the collateral less estimated cost to sell or discounted cash flows, if estimable. The fair value of the Derivative hedge portfolio is based on quoted market prices, if available. The fair values for instruments that do not have quoted market prices are estimated by the Company on the basis of discounted cash flows or other financial information.

The Company recorded $1.0 million of acquisition related costs for the three and six months ended June 30, 2019, which are included in the Condensed Consolidated Statement of Operations in Transaction expenses in the Financial services segment. Such costs were expensed as incurred in accordance with ASC 805.

The following table presents unaudited pro forma amounts for the three and six months ended and June 30, 2019 and June 30, 2018 as if the SPFC Acquisition, had been completed as of January 1, 2018 (amounts in thousands, except per share data):



	Three Months Ended June 30, 2019		Three Months Ended June 30, 2018		Six Months Ended June 30, 2019		Six Months Ended June 30, 2018
Operating revenues	$	465,469	$	519,452	$	921,333	$	892,820
Net income available to common stockholders	$	10,271	$	22,532	$	17,147	$	31,260
Income per share - basic	$	0.27	$	0.59	$	0.45	$	0.82
Income per share - diluted	$	0.26	$	0.57	$	0.44	$	0.79

The unaudited pro forma operating results have been determined after adjusting the unaudited operating results of SPFC, but including acquisition costs. The unaudited pro forma results presented above do not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the acquired entity, the costs to combine the operations of the Company and the acquired entity or the costs necessary to achieve any of the foregoing cost savings, operating synergies or revenue enhancements. As such, the unaudited pro forma amounts are for comparative purposes only and may not necessarily reflect the results of operations which would have resulted had the acquisition been completed at the beginning of the applicable period or indicative of the results that will be attained in the future.

On March 9, 2018, the Company completed its acquisition of RSI Communities, a Southern California- and Texas-based homebuilder, pursuant to the Purchase and Sale Agreement (the “Purchase Agreement”) dated February 19, 2018 among California Lyon, RSI Communities, RS Equity Management L.L.C., Class B Sellers of RSI Communities, and RS Equity Management L.L.C. as the sellers’ representative, and its acquisition of three additional related real estate assets (the “Legacy Assets”) pursuant to each of the separate asset purchase agreements with each of RG Onion Creek, LLC, RSI Trails at Leander LLC and RSI Prado LLC (collectively referred to herein as "RSI Communities"), for an aggregate cash purchase price of $479.3 million, which is inclusive of approximately $15.2 million of net asset related adjustments at closing (collectively, the "RSI Acquisition"). Part of the acquired entities specific to the Southern California region now operate under the Company’s existing California segment. The remaining acquired entities now operate as a new segment of the Company in Texas, with core markets of Austin and San Antonio.

The Company financed the RSI Acquisition with a combination of proceeds from its issuance of $350 million in aggregate principal amount of 6.00% senior notes due 2023, cash on hand, and approximately $194.3 million of aggregate proceeds from a land banking arrangement with respect to land parcels in various stages of development.

As a result of the RSI Acquisition, the entities comprising the business of RSI Communities became wholly-owned direct or indirect subsidiaries of the Company, and its results are included in our condensed consolidated financial statements and related disclosures from the date of the RSI Acquisition.

The RSI Acquisition was accounted for as a business combination in accordance with ASC 805. Under ASC 805, the Company recorded the acquired assets and assumed liabilities of RSI Communities at their estimated fair values, with the excess allocated to Goodwill, as shown below. Goodwill represents the value the Company expects to achieve through the operational synergies and the expansion of the Company into new markets. The Company estimates that the entire $56.8 million of goodwill resulting from the RSI Acquisition will be tax deductible. Goodwill will be allocated to the California and Texas operating segments (see Note 6). A reconciliation of the consideration transferred as of the acquisition date is as follows:

The Company completed its final estimate of the fair value of the net assets of RSI Communities during December 2018. The following table summarizes the amounts for acquired assets and liabilities recorded at their fair values as of the acquisition date (in thousands):



Assets Acquired
	Real estate inventories	$	434,628
	Goodwill	56,793
	Other	7,771
	Total Assets	$	499,192

Liabilities Assumed
	Accounts payable	$	9,315
	Accrued expenses	8,244
	Notes payable	2,305
	Total liabilities	19,864
	Net assets acquired	$	479,328

The Company determined the fair value of real estate inventories on a project level basis using a combination of discounted cash flow models, and market comparable land transactions, where available. These methods are significantly impacted by estimates relating to i) expected selling prices, ii) anticipated sales pace, iii) cost to complete estimates, iv) highest and best use of projects prior to acquisition, and v) comparable land values. These estimates were developed and used at the individual project level, and may vary significantly between projects.

The Company recorded no acquisition related costs for the three and six months ended June 30, 2019 (excluding the transaction expenses incurred for the acquisition of South Pacific Financial Corporation, discussed in Note 2), and $0.8 million and $3.1 million in acquisition related costs for the three and six months ended June 30, 2018, respectively, which are included in the Condensed Consolidated Statement of Operations in Transaction expenses. Such costs were expensed as incurred in accordance with ASC 805.



	Three Months Ended June 30, 2018		Six Months Ended June 30, 2018
Operating revenues	$	519,452	$	933,255
Net income available to common stockholders	$	22,455	$	30,587
Income per share - basic	$	0.59	$	0.81
Income per share - diluted	$	0.57	$	0.77

The unaudited pro forma operating results have been determined after adjusting the unaudited operating results of RSI Communities, excluding the Legacy Assets, but including acquisition costs, to reflect the estimated purchase accounting and other acquisition adjustments. The unaudited pro forma results presented above do not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the acquired entity, the costs to combine the operations of the Company and the acquired entity or the costs necessary to achieve any of the foregoing cost savings, operating synergies or revenue enhancements. As such, the unaudited pro forma amounts are for comparative purposes only and may not necessarily reflect the results of operations which would have resulted had the acquisition been completed at the beginning of the applicable period or indicative of the results that will be attained in the future.