Business Combinations

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Business Combinations

BUSINESS COMBINATIONS

On January 8, 2016, we acquired Acadia Homes, an Atlanta based homebuilder, for total consideration of $83.6 million (including $19.7 million of seller financing holdbacks and contingent consideration). We acquired JEH Homes, an Atlanta based homebuilder, on April 30, 2015 and three divisions of Orleans Homes in Charlotte, Raleigh and Chicago on July 21, 2015 for combined total consideration of $233.7 million (including seller financing and contingent consideration). In accordance with ASC Topic 805, Business Combinations, all material assets and liabilities, including contingent consideration were measured and recognized at fair value as of the date of the acquisition to reflect the purchase price paid, which resulted in goodwill for each transaction. Unaudited pro forma results of the business combinations as if they had been acquired on January 1, 2015 have not been provided as they are immaterial to the total Company's consolidated results of operations.

We determined the estimated fair value of real estate inventory on a community-by-community basis primarily using the sales comparison and income approaches. The sales comparison approach was used for all inventory in process. The income approach derives a value using a discounted cash flow for income-producing real property. This approach was used exclusively for finished lots. The income approach using discounted cash flows was also used to value lot option contracts acquired. These 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 paces and cancellation rates, expected land development and construction timelines, and anticipated land development, construction, overhead costs and may vary significantly between communities.

2016 Acquisition

For Acadia Homes, the Company performed an allocation of purchase price as of the acquisition date. The following is a summary of the fair value of assets acquired, liabilities assumed, and liabilities created (in thousands):

	Acadia Homes
Acquisition Date	January 8, 2016
Assets acquired
Real estate inventory	$	76,152
Land deposits	984
Prepaid expenses and other assets	816
Property and equipment	204
Goodwill (1)	8,500
Total assets	$	86,656
Less liabilities assumed
Accrued expenses and other liabilities	$	2,562
Customer deposits	463
Net assets acquired	$	83,631

⁽¹⁾Goodwill is fully deductible for tax purposes. The goodwill was allocated to our East homebuilding segment.

2015 Acquisitions

For JEH Homes or the divisions of Orleans Homes, the Company performed an allocation of purchase price as of each acquisition date. The following is a summary of the fair value of assets acquired, liabilities assumed, and liabilities created (in thousands):

	JEH Homes		Orleans Homes		Total
Acquisition Date	April 30, 2015		July 21, 2015
Assets Acquired
Real estate inventory	$	55,559	$	140,602	$	196,161
Land deposits	—		2,236		2,236
Prepaid expenses and other assets	1,301		2,436		3,737
Property and equipment	395		623		1,018
Goodwill(1)	9,125		25,198		34,323
Total assets	$	66,380	$	171,095	$	237,475
Less Liabilities Assumed
Accrued expenses and other liabilities	$	—	$	2,700	$	2,700
Customer deposits	—		1,081		1,081
Net assets acquired	$	66,380	$	167,314	$	233,694

⁽¹⁾Goodwill is fully deductible for tax purposes. We allocated $27.8 million and $6.5 million of goodwill to our East and West homebuilding segments, respectively.