BUSINESS COMBINATIONS

9 Months Ended

Sep. 30, 2021

Business Combination and Asset Acquisition [Abstract]

In accordance with ASC Topic 805, Business Combinations, all assets acquired and liabilities assumed from our acquisition of William Lyon Homes (“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. Upon finalization, total purchase consideration of the WLH acquisition was $1.1 billion, consisting of multiple components: (i) cash of $157.8 million, (ii) the issuance of approximately 28.3 million shares of TMHC Common Stock with a value of $773.9 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 determined the estimated fair value of real estate 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.

The following is a summary of the final fair value of assets acquired and liabilities assumed.


(Dollars in thousands)
Acquisition Date	February 6, 2020
Assets acquired
Real estate inventory	$	2,069,323

Prepaid expenses and other assets(1)	265,729
Deferred tax assets, net	148,193

Goodwill(2)	513,768
Total assets	$	2,997,013

Less liabilities assumed
Accrued expenses and other liabilities	$	457,365

Total debt	1,306,578
Non-controlling interest	116,157
Net assets acquired	$	1,116,913

(1) Includes cash acquired.

(2) Goodwill is not deductible for tax purposes. We allocated $465.6 million and $48.2 million of goodwill to the West and Central homebuilding segments, respectively.

Unaudited Pro Forma Results of Business Combinations

The following unaudited pro forma information for the period presented includes 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 September 30,		For the nine months ended September 30,
(Dollars in thousands except per share data)	2020 (Pro forma)		2020 (Pro forma)
Total revenue	$	1,699,434	$	4,658,916

Net income before allocation to non-controlling interests	$	118,579	$	197,708
Net income attributable to non-controlling interests	(422)		(2,958)
Net income available to TMHC	$	118,157	$	194,750

Weighted average shares - Basic	130,110		131,274
Weighted average shares - Diluted	131,769		132,242

Earnings per share - Basic	$	0.91	$	1.48
Earnings per share - Diluted	$	0.90	$	1.47

For the three and nine months ended September 30, 2020, total revenue on the condensed consolidated statement of operations included $431.3 million and $1.1 billion, respectively, from WLH since the date of acquisition. For the three and nine months ended September 30, 2020, income before income taxes on the condensed consolidated statement of operations included losses of $23.1 million and $119.3 million, respectively, from WLH since the date of acquisition.