Note 3 - Business Acquisition

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Business Combination Disclosure [Text Block]

3.

Business Acquisitions

Effective

October

1,

2015,

pursuant to the terms and conditions of the Merger Agreement between Standard Pacific and Ryland, Ryland merged with and into Standard Pacific (the "Merger"), with Standard Pacific continuing as the surviving corporation.  At the same time: (i) Standard Pacific changed its name to "CalAtlantic Group, Inc." (the “Company") and effected a reverse stock split such that each

five

shares of common stock of Standard Pacific issued and outstanding immediately prior to the closing of the Merger were combined and converted into

one

issued and outstanding share of common stock of the Company, (ii) MP CA Homes, LLC ("MatlinPatterson"), the sole owner of the Company’s outstanding Series B Preferred Stock, converted all of its preferred stock to Common Stock, and (iii) each outstanding share of Ryland common stock, stock options and restricted stock units were converted into the right to receive, or the option to acquire, as applicable,

1.0191

shares of Company common stock. Cash was paid in lieu of all fractional shares. The primary purpose for our merger with Ryland was to gain both geographic and product diversification and expand our reach and enhance our growth prospects across the homebuilding spectrum, from entry level to luxury. In addition, the merger was intended to create production, purchasing and other synergies intended to result in cost savings and efficiencies.

The following table summarizes the components of common stock outstanding immediately following the Merger as of

October

1,

2015:

	As of		Split/Exchange		As Adjusted
	October 1, 2015		Ratio		October 1, 2015
Common Stock - Standard Pacific		277,220,324		5		55,444,065
Common Stock - Ryland		46,856,558		1.0191		47,751,518
Accelerated Vesting of Ryland Equity Awards		234,751		1.0191		239,235
Preferred Stock - Standard Pacific		87,812,786		5		17,562,557
Fractional Shares Paid Out		―				(1,041	)
Total		412,124,419				120,996,334

Based on an evaluation of the provisions of ASC Topic

805,

Business Combinations

, ("ASC

805")

Standard Pacific was determined to be the acquirer for accounting purposes. Under FASB ASC Topic

805,

Standard Pacific is treated as having acquired Ryland in an all-stock transaction for a total purchase price of approximately 

$2.0

billion. The calculation of the total purchase price was based on the outstanding shares of Ryland common stock as of the acquisition date multiplied by the

1.0191

exchange ratio and multiplied by the Company’s split-adjusted share price of 

$40.46

 on the date of acquisition. The purchase price also included

$30.6

million of consideration representing the fair value of replacement equity awards attributable to service prior to the closing of the Merger. The total purchase price was calculated as follows (dollars in thousands, except per share amounts):

Number of shares of CalAtlantic common stock issued to Ryland shareholders		47,989,812
Opening price per share of CalAtlantic common stock	$	40.46
Consideration attributable to common stock		1,941,668
Consideration attributable to CalAtlantic equity awards in exchange for Ryland equity awards		30,616
Total purchase price	$	1,972,284

The total purchase price was allocated to Ryland's assets and liabilities based upon fair values as determined by the Company, as follows (in thousands):

Cash and cash equivalents	$	268,517
Inventories		2,404,765
Investments in unconsolidated joint ventures		13,821
Deferred income taxes		120,615
Homebuilding other assets		77,124
Financial services assets, excluding cash		144,889
Goodwill		970,185
Total assets		3,999,916
Accounts payable and accrued liabilities		(495,425	)
Secured project debt and other notes payables		(22,213	)
Senior notes payable		(1,291,541	)
Financial services liabilities		(124,619	)
Additional paid-in capital		(93,834	)
Total purchase price	$	1,972,284

During

2016,

the Company completed a valuation of the

1.625%

convertible senior notes assumed in the merger with Ryland and determined that the value associated with the conversion feature was

$93.8

million, which is included in additional paid-in capital in the accompanying condensed consolidated balance sheet as of

December

31,

2016.

In connection with the valuation of the conversion feature, the related deferred tax asset was reduced by approximately

$35.9

million, with a corresponding increase in goodwill. The 

$970.2

million of goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed, and it is not deductible for income tax purposes. As of the merger date, goodwill primarily consisted of the following: (i) expected production, purchasing and other synergies resulting from the merger, (ii) savings in corporate and divisional overhead costs, (iii) the benefit of the combination of the best components of the operating practices of both legacy companies, (iv) the benefit of the combination of the best employees of each legacy company, (v) expected expanded opportunities for growth through greater geographic and customer segment diversity

. Goodwill has been allocated to the Company’s

four

homebuilding regions that were expected to benefit from the synergies of the merger. The allocation was based on the relative fair value of each acquired reporting unit in accordance with ASC

350.

The key drivers used in the fair value calculation included

10

-year regional level cash flow projections that were reviewed by a

third

party valuation expert, terminal growth rate and the weighted average cost of capital calculated for each acquired reporting unit based on regional specific assumptions.

Ryland's

2015

results of operations, which include homebuilding revenues of 

$772.3

million and net income of 

$1.8

million, are included in the accompanying consolidated statements of operations for the period of

October

1,

2015

through

December

31,

2015.

Net income includes adjustments for amortization expense of the acquired intangible assets, inventory step-up and restructuring expenses.

The following presents summarized unaudited supplemental pro forma operating results as if Ryland had been included in the Company's consolidated statements of operations as of the beginning of the fiscal years presented.

	Year Ended December 31,
	2015		2014
	(Dollars in thousands, except per share amounts)
Home sale revenues	$	5,280,297	$	4,922,721
Net income	$	321,239	$	387,123
Income per share:
Basic	$	2.65	$	3.19
Diluted	$	2.32	$	2.80

The supplemental pro forma operating results have been determined after adjusting the operating results of Ryland to reflect additional amortization that would have been recorded assuming the fair value adjustment to intangible assets had been applied beginning

January

1,

2014.

Certain other adjustments, including those related to conforming accounting policies and adjusting acquired inventory to fair value, have not been reflected in the supplemental pro forma operating results due to the impracticability of estimating such impacts.

Acquisition and integration expenses related to the Merger comprised of the following:

	Year Ended December 31,
	2016		2015
	(Dollars in thousands)
Severance and personnel costs	$	2,444	$	38,970
Professional service, real estate related, and other expenses		13,586		13,066
Total	$	16,030	$	52,036

The acquisition and integration costs are expensed as incurred and are presented in other homebuilding income (expense) within the accompanying consolidated statements of operations.