BUSINESS COMBINATIONS

3 Months Ended

Mar. 31, 2020

BUSINESS COMBINATIONS

In accordance with ASC Topic 805, Business Combinations, all assets acquired and liabilities assumed from our acquisition of WLH on February 6, 2020 were measured and recognized at fair value as of the date of the acquisition to reflect the purchase price paid. Total purchase consideration of the WLH acquisition was $1.1 billion, consisting of multiple components: (i) cash of $95.6 million, (ii) the issuance of approximately 30.6 million shares of TMHC Common Stock with a value of $836.1 million, (iii) the repayment of $160.8 million of borrowings under WLH's Revolving Credit Facility, and (iv) the conversion of WLH issued equity instruments consisting of restricted stock units, restricted stock awards, options and warrants to TMHC awards and warrants with a value of $24.1 million.

We performed a preliminary allocation of purchase price as of the acquisition date based on management's estimates of fair value. We determined the preliminary fair value of inventory on a community level basis, using a reasonable range of market comparable gross margins based on the inventory geography and product type. These estimates are significantly impacted by assumptions related to expected average home selling prices and sales incentives, expected sales paces and cancellation rates, expected land development and construction timelines, and anticipated land development, construction, and overhead costs. Such estimates were made for each individual community and varied significantly between communities. We believe our estimates and assumptions are reasonable; however, the preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation. The final determination of the fair value of certain assets and liabilities will be completed as soon as the necessary information is available, but no later than one year from the acquisition date.

The following is a summary of management's estimate of the fair value of assets acquired and liabilities assumed. In addition, we incur various costs and expenses in connection with our acquisitions. For the acquisition of WLH such costs primarily consisted of investment banking fees, severance, compensation, and legal fees, among other items, and for the three months ended March 31, 2020, totaled $86.4 million which are presented in Transaction expenses on the condensed consolidated statement of operations.



(Dollars in thousands)
Acquisition Date	February 6, 2020
Assets acquired
Real estate inventory	$	2,134,146
Prepaid expenses and other assets⁽¹⁾	261,651
Deferred tax assets, net	128,226
Goodwill⁽²⁾	462,651
Total assets	$	2,986,674

Less liabilities assumed
Accrued expenses and other liabilities	$	447,291
Total debt⁽³⁾	1,306,578
Non-controlling interest	116,157
Net assets acquired	$	1,116,648

⁽¹⁾ Includes cash acquired.

⁽²⁾Goodwill is not deductible for tax purposes. We allocated $423.5 million and $39.2 million of goodwill to the West and Central homebuilding segments, respectively.

⁽³⁾ See Note 9 - Debt for discussion relating to acquired debt

Unaudited Pro Forma Results of Business Combinations

The following unaudited pro forma information for the periods presented include the results of operations of our acquisition of WLH as if it had been completed on January 1, 2019. The pro forma results are presented for informational purposes only and do not purport to be indicative of the results of operations or future results that would have been achieved if the acquisition had taken place one year prior to the acquisition year. The pro forma information combines the historical results of the Company with the historical results of WLH for the periods presented.

The unaudited pro forma results do not give effect to any synergies, operating efficiencies, or other costs savings that may result from the acquisition, or other significant non-reoccurring expenses or transactions that do not have a continuing impact. Earnings per share utilizes pro forma net income available to TMHC and total weighted average shares of common stock. The pro forma amounts are based on available information and certain assumptions that we believe are reasonable.



	For the three months ended March 31,
(Dollars in thousands except per share data)	2020 (Pro forma)			2019 (Pro forma)
Total revenues	$	1,432,797		$	1,380,956

Net income/(loss) before allocation to non-controlling interests	$	9,027		$	2,339
Net income attributable to non-controlling interests — joint ventures	(988		)	(7,165		)
Net income/(loss) available to TMHC	$	8,039		$	(4,826	)

Weighted average shares - Basic	133,643			139,175
Weighted average shares - Diluted	134,935			139,175

Earnings/(loss) per share - Basic	$	0.06		$	(0.03	)
Earnings/(loss) per share - Diluted	$	0.06		$	(0.03	)

For the period ended March 31, 2020, total revenue on the condensed consolidated statement of operations included $282.6 million of revenues and loss before income taxes included of $31.7 million from WLH since the date of acquisition.