BUSINESS COMBINATION

On April 26, 2018, the Company acquired substantially all of the assets of GHO Homes in a series of transactions that resulted in the Company owning an 80% controlling equity interest in GHO Homes. The previous owner of GHO Homes continues to serve as president and is a 20% partner in GHO Homes. GHO Homes operates primarily in the Vero Beach, Florida market and is engaged in land and lot development, as well as all aspects of the homebuilding process. The acquisition allowed us to expand our operations into a new geographic market, constructing single family homes and patio homes.

The total consideration of $33.9 million consisted of $33.2 million in cash paid to the previous owner of GHO Homes and $0.6 million of contingent consideration. The purchase price is subject to adjustment based on the audited equity of GHO Homes as of the closing date, which is pending completion as of August 6, 2018. Under the terms of the purchase agreement, we may be obligated to pay the contingent consideration if certain annual performance targets are met over the three-year period following the acquisition date.

In accordance with ASC 805, all material assets and liabilities, including contingent consideration, are measured and recognized at fair value as of the date of the acquisition to reflect the purchase price.

The Company has completed a preliminary allocation of the purchase price as of the acquisition date and expects to finalize the allocation within one year from the date of acquisition. The following is a summary of our provisional estimate of the fair value of assets acquired and liabilities assumed (in thousands):



Assets acquired
Cash	$	7,895
Inventory	42,711
Property and equipment	1,376
Goodwill ⁽¹⁾	1,725
Home construction contracts	300
Other assets	957
Total assets	$	54,964
Liabilities assumed
Note payable	$	300
Accrued expenses and other liabilities	5,375
Customer deposits	9,073
Total liabilities	$	14,748
Redeemable noncontrolling interest	$	6,346
Net assets acquired ⁽²⁾	$	33,870


(1)	Goodwill is expected to be fully deductible for tax purposes.


(2)	Contingent consideration of $0.6 million is included in the fair value of net assets acquired.

The purchase price allocation reflected above is preliminary and is based upon estimates and assumptions that are subject to change within the measurement period (up to one year from the acquisition date). The measurement period remains open pending the completion of valuation procedures related to the acquired assets and assumed liabilities. The estimated cash flows and ultimate valuation are significantly affected by the discount rate, estimates related to expected average selling prices and sales incentives, expected sales pace and cancellation rates, expected land development and construction timelines, and anticipated land development, construction, and overhead costs and may vary significantly between communities. The valuation of redeemable noncontrolling interest is based on a market approach, considering the equity contribution made by the 20% partner, adjusted for control and marketability factors.

Acquired inventory consists of both land under development and work in process inventory, as well as completed homes held for sale. The valuation of inventory, acquired trade name and the final determination of value of redeemable noncontrolling interest are pending completion of independent third-party appraisals and other valuation procedures. The valuation of the remaining assets and liabilities is pending the completion of an audit of the April 26, 2018 balance sheet of GHO Homes. The allocation to goodwill represents the excess of the purchase price, including contingent consideration, over the estimated fair value of assets acquired and liabilities assumed.

GHO Homes' results of operations, which include homebuilding revenues of $10.9 million and income before tax of $0.9 million, are included in the accompanying condensed consolidated statements of income for the period from April 26, 2018 through June 30, 2018.

The supplemental pro forma information for revenue and earnings of the Company as though the above business combination had occurred as of January 1, 2017 is impractical to provide due to the fact that consolidated reporting for the specific group of entities acquired had not existed prior to the acquisition.

As of June 30, 2018, we had incurred integration costs of approximately $0.2 million related to the acquisition, which have been expensed as incurred and are included in selling, general and administrative expense.