10-Q 1 ccs-20151105x10q.htm 10-Q CCS 09302015 Form 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2015

 

or

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 001-36491

 

Century Communities, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

Delaware

 

68-0521411

(State of other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
identification No.)

 

 

8390 East Crescent Parkway, Suite 650
Greenwood Village, Colorado

 

80111

(Address of principal executive offices)

 

(Zip code)

 

(Registrant’s telephone number, including area code): (303) 770-8300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

   (Do not check if a smaller reporting company)

 

Smaller reporting company

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

On November 2, 2015,  21,304,139 shares of common stock, par value 0.01 per share, were outstanding.  

 

 

 


 

CENTURY COMMUNITIES, INC.

FORM 10-Q

For the three and nine months ended September 30, 2015

 

Index

 

 

 

Page No.

PART I 

Item 1. Unaudited Condensed Consolidated Financial Statements 

 

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014 

3

Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2015  and 2014 

4

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2015 and 2014 

5

Notes to Unaudited Condensed Consolidated Financial Statements - September 30, 2015 

6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

23

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

34

Item 4. Controls and Procedures 

34

PART II 

Item 1. Legal Proceedings 

36

Item 1A. Risk Factors 

36

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

36

Item 3. Defaults Upon Senior Securities 

36

Item 4. Mine Safety Disclosures 

36

Item 5. Other Information 

36

Item 6. Exhibits 

37

Signatures 

38

 

 

 

 

2 

 


 

PART I

ITEM 1.     FINANCIAL STATEMENTS.

 

 

Century Communities, Inc.

Unaudited Condensed Consolidated Balance Sheets

As of September 30, 2015 and December 31, 2014

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2015

 

2014

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,785 

 

$

33,462 

Accounts receivable

 

 

29,561 

 

 

13,799 

Inventories

 

 

741,554 

 

 

556,323 

Prepaid expenses and other assets

 

 

36,634 

 

 

28,796 

Property and equipment, net

 

 

7,365 

 

 

12,471 

Deferred tax asset, net

 

 

5,363 

 

 

1,359 

Amortizable intangible assets, net

 

 

5,428 

 

 

8,632 

Goodwill

 

 

21,365 

 

 

21,137 

Total assets

 

$

860,055 

 

$

675,979 

Liabilities and stockholders' equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

8,303 

 

$

17,135 

Accrued expenses and other liabilities

 

 

94,484 

 

 

64,029 

Notes payable and revolving line of credit

 

 

362,326 

 

 

229,610 

Total liabilities

 

 

465,113 

 

 

310,774 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value, 50,000,000 shares authorized, none outstanding

 

 

 —

 

 

 —

Common stock, $0.01 par value, 100,000,000 shares authorized, 21,306,722 and 20,875,547 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively

 

 

213 

 

 

209 

Additional paid-in capital

 

 

339,574 

 

 

336,573 

Retained earnings

 

 

55,155 

 

 

28,423 

Total stockholders' equity

 

 

394,942 

 

 

365,205 

Total liabilities and stockholders' equity

 

$

860,055 

 

$

675,979 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

 

3 

 


 

Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2015 and 2014

(in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2015

 

2014

 

2015

 

2014

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

179,775 

 

$

90,735 

 

$

520,918 

 

$

217,734 

Land sales revenues

 

 

2,257 

 

 

 —

 

 

2,627 

 

 

 —

Golf course and other revenue

 

 

700 

 

 

1,226 

 

 

4,679 

 

 

3,750 

Total revenue

 

 

182,732 

 

 

91,961 

 

 

528,224 

 

 

221,484 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

Cost of home sales revenues

 

 

141,452 

 

 

70,896 

 

 

416,483 

 

 

166,367 

Cost of land sales revenues

 

 

2,250 

 

 

 —

 

 

2,615 

 

 

 —

Cost of golf course and other revenue

 

 

1,046 

 

 

2,175 

 

 

4,214 

 

 

4,329 

Selling, general, and administrative

 

 

22,175 

 

 

12,584 

 

 

65,919 

 

 

30,906 

Total operating costs and expenses

 

 

166,923 

 

 

85,655 

 

 

489,231 

 

 

201,602 

Operating income

 

 

15,809 

 

 

6,306 

 

 

38,993 

 

 

19,882 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

51 

 

 

130 

 

 

88 

 

 

267 

Interest expense

 

 

(2)

 

 

(2)

 

 

(8)

 

 

(13)

Acquisition expense

 

 

(323)

 

 

(119)

 

 

(338)

 

 

(923)

Other income

 

 

434 

 

 

327 

 

 

1,059 

 

 

585 

Gain (loss) on disposition of assets

 

 

(24)

 

 

55 

 

 

106 

 

 

145 

Income before income tax expense

 

 

15,945 

 

 

6,697 

 

 

39,900 

 

 

19,943 

Income tax expense

 

 

5,362 

 

 

2,570 

 

 

13,168 

 

 

7,109 

Net income

 

$

10,583 

 

$

4,127 

 

$

26,732 

 

$

12,834 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.50 

 

$

0.19 

 

$

1.26 

 

$

0.68 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

20,601,218 

 

 

21,133,708 

 

 

20,556,146 

 

 

18,635,986 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

 

4 

 


 

Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2015 and 2014

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30,

 

 

2015

 

2014

Operating activities

 

 

 

 

 

 

Net income

 

$

26,732 

 

$

12,834 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

3,512 

 

 

1,790 

Stock-based compensation expense

 

 

3,865 

 

 

1,453 

Deferred income tax benefit

 

 

(4,004)

 

 

(1,631)

Excess tax benefit on stock-based compensation

 

 

 —

 

 

(37)

Gain on disposition of assets

 

 

(106)

 

 

(145)

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(15,762)

 

 

(11,094)

Inventories

 

 

(156,544)

 

 

(116,078)

Prepaid expenses and other assets

 

 

1,668 

 

 

(10,894)

Accounts payable

 

 

(8,766)

 

 

(285)

Accrued expenses and other liabilities

 

 

2,502 

 

 

14,816 

Net cash used in operating activities

 

 

(146,903)

 

 

(109,271)

Investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(4,204)

 

 

(393)

Proceeds on sale of assets

 

 

1,441 

 

 

 —

Proceeds from secured note receivable

 

 

76 

 

 

 —

Acquisitions of businesses

 

 

 —

 

 

(178,235)

Net cash used in investing activities

 

 

(2,687)

 

 

(178,628)

Financing activities

 

 

 

 

 

 

Borrowings under revolving credit facilities

 

 

135,000 

 

 

99,000 

Payments on revolving credit facilities

 

 

(55,000)

 

 

(99,000)

Proceeds from issuance of senior notes

 

 

58,956 

 

 

198,478 

Proceeds from issuances of notes payable

 

 

448 

 

 

5,894 

Principal payments on notes payable

 

 

(6,815)

 

 

(1,562)

Debt issuance costs

 

 

(2,817)

 

 

(5,132)

Net proceeds from issuances of common stock

 

 

 —

 

 

81,890 

Repurchases of common stock upon vesting of restricted stock awards

 

 

(859)

 

 

 —

Excess tax benefit on stock-based compensation

 

 

 —

 

 

37 

Net cash provided by financing activities

 

 

128,913 

 

 

279,605 

Net decrease in cash and cash equivalents

 

$

(20,677)

 

$

(8,294)

Cash and cash equivalents

 

 

 

 

 

 

Beginning of period

 

 

33,462 

 

 

109,998 

End of period

 

$

12,785 

 

$

101,704 

Non-cash investing and financing information

 

 

 

 

 

 

Secured note receivable from sale of Tuscany golf course

 

$

3,000 

 

$

 —

Supplemental cash flow disclosure

 

 

 

 

 

 

Cash paid for income taxes

 

$

18,439 

 

$

13,289 

Cash paid for interest, net of amounts capitalized

 

$

 

$

13 

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

5 

 


 

Century Communities, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2015

 

1. Basis of Presentation

Century Communities, Inc. (“we” or the Company”) is engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in metropolitan areas in Colorado, Austin and San Antonio, Texas (which we refer to as “Central Texas”), Houston, Texas, Las Vegas, Nevada, and Atlanta, Georgia.  Our homebuilding operations are organized into the following five operating segments based on the geographic markets in which we operate: Atlanta, Central Texas, Colorado, Houston and Nevada.  In many of our projects, in addition to building homes, we are responsible for the entitlement and development of the underlying land.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (which we refer to as “GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (which we refer to as the “SEC”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of its financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by GAAP and should be read in conjunction with the consolidated financial statements for the year ended December 31, 2014,  which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 that was filed with the SEC on March 6, 2015.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, as well as all subsidiaries in which we have a controlling interest, and variable interest entities (which we refer to as “VIE’s) for which the Company is deemed the primary beneficiary.  All intercompany accounts and transactions have been eliminated.

 Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Accordingly, actual results could differ from those estimates.

Recently Issued Accounting Standards

In January 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-01, “Income Statement — Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” ASU 2015-01 eliminates the concept of extraordinary items from GAAP, but the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. ASU 2015-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. A reporting entity may apply ASU 2015-01 prospectively. A reporting entity may also apply ASU 2015-01 retrospectively to all periods presented in the financial statements. Our adoption of ASU 2015-01 is not expected to have a material effect on our consolidated financial statements and related disclosures.

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” ASU 2015-02 updates the analysis that a reporting entity must perform to determine whether to consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. We do not intend to adopt ASU 2015-02 early, and the adoption thereof is not expected to have a material effect on our consolidated financial statements and related disclosures.

In April 2015, the FASB issued ASU No. 2015-03, “Interest — Imputation of Interest (Subtopic 835-30). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016.  Early adoption is permitted for financial statements that have not been previously issued and the guidance should be applied retrospectively to each period presented. The adoption of ASU 2015-03 will require us to adjust our current presentation of debt issuance costs related to our Senior Notes on our consolidated balance sheets  from prepaid expenses and other assets to a reduction of the related liability. We do not intend to adopt ASU 2015-03 early.

6 

 


 

In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606).” ASU 2015-14 defers the effective date of ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” for public entities by one year to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted as of annual reporting periods beginning after December 15, 2016. We are currently evaluating the impact ASU 2015-14 will have on our consolidated financial statements. We do not intend to adopt ASU 2015-14 early.

In August 2015, the FASB issued ASU No. 2015-15, “Interest — Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements — Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting.” ASU 2015-15 clarifies the treatment of debt issuance costs from line-of-credit arrangements after the adoption of ASU 2015-03. Specifically, ASU 2015-15 clarifies that the SEC staff would not object to an entity deferring and presenting debt issuance costs related to a line-of-credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of such arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The adoption of ASU 2015-15 will not have a material effect on our consolidated financial statements.

In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations (Topic 805).” ASU 2015-16 requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. ASU 2015-16 eliminates the requirement to retrospectively account for measurement period adjustments. The update is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2015.  ASU 2015-14 should be applied prospectively to adjustments to provisional amounts that occur after the effective date with early adoption permitted for financial statements that have not been issued. We do not intend to adopt ASU 2015-16 early, and the adoption thereof is not expected to have a material effect on our consolidated financial statements.

 

2. Reporting Segments

We have identified our Atlanta, Central Texas, Colorado, Houston, and Nevada divisions as reportable operating segments.  Corporate is a non-operating segment, as it serves to support our homebuilding operations through functions such as our executive, finance, treasury, human resources, and accounting departments. 

The following tables summarize total revenue and income before income tax expense by operating segment (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Atlanta

 

$

61,175 

 

$

 —

 

$

188,075 

 

$

 —

Central Texas

 

 

19,186 

 

 

16,460 

 

 

52,759 

 

 

42,746 

Colorado

 

 

60,566 

 

 

40,291 

 

 

191,694 

 

 

124,490 

Houston

 

 

9,354 

 

 

7,365 

 

 

26,844 

 

 

7,365 

Nevada

 

 

32,451 

 

 

27,845 

 

 

68,852 

 

 

46,883 

Total revenue

 

$

182,732 

 

$

91,961 

 

$

528,224 

 

$

221,484 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income tax expense:

 

 

 

 

 

 

 

 

 

 

 

 

Atlanta

 

$

4,195 

 

$

 —

 

$

13,999 

 

$

 —

Central Texas

 

 

463 

 

 

2,172 

 

 

3,713 

 

 

4,287 

Colorado

 

 

9,806 

 

 

5,620 

 

 

27,325 

 

 

19,856 

Houston

 

 

(59)

 

 

(87)

 

 

(713)

 

 

(87)

Nevada

 

 

5,108 

 

 

2,731 

 

 

9,878 

 

 

5,412 

Corporate

 

 

(3,568)

 

 

(3,739)

 

 

(14,302)

 

 

(9,525)

Total income before income tax expense

 

$

15,945 

 

$

6,697 

 

$

39,900 

 

$

19,943 

 

7 

 


 

The following table summarizes total assets by operating segment (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2015

 

2014

Atlanta

 

$

150,910 

 

$

75,434 

Central Texas

 

 

114,239 

 

 

85,083 

Colorado

 

 

306,642 

 

 

280,361 

Houston

 

 

47,787 

 

 

28,875 

Nevada

 

 

216,624 

 

 

168,401 

Corporate

 

 

23,853 

 

 

37,825 

Total assets

 

$

860,055 

 

$

675,979 

Corporate assets include certain cash and cash equivalents, prepaid insurance, deferred financing costs, and certain property and equipment.

 

3. Inventories

Inventories included the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2015

 

2014

Homes under construction

 

$

392,062 

 

$

250,104 

Land and land development

 

 

331,036 

 

 

294,917 

Capitalized interest

 

 

18,456 

 

 

11,302 

Total inventories

 

$

741,554 

 

$

556,323 

 

 

 

4. Prepaid Expenses and Other Assets

Prepaid expenses and other assets included the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2015

 

2014

Prepaid insurance

 

$

5,886 

 

$

8,481 

Lot option and escrow deposits

 

 

6,318 

 

 

4,716 

Performance deposits

 

 

3,526 

 

 

5,365 

Deferred financing costs, net

 

 

8,112 

 

 

6,378 

Restricted cash

 

 

809 

 

 

518 

Secured note receivable

 

 

2,971 

 

 

 —

Assets held for sale

 

 

5,769 

 

 

 —

Other

 

 

3,243 

 

 

3,338 

Total prepaid expenses and other assets

 

$

36,634 

 

$

28,796 

 

8 

 


 

5. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities included the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2015

 

2014

Earnest money deposits

 

$

7,901 

 

$

6,703 

Warranty reserve

 

 

2,670 

 

 

2,194 

Accrued compensation costs

 

 

8,315 

 

 

6,632 

Land development and home construction accruals

 

 

64,228 

 

 

34,994 

Accrued interest

 

 

6,977 

 

 

1,935 

Income taxes payable

 

 

 —

 

 

217 

Real estate taxes payable

 

 

130 

 

 

3,875 

Earnout liability

 

 

504 

 

 

2,426 

Liabilities related to assets held for sale

 

 

338 

 

 

 —

Other

 

 

3,421 

 

 

5,053 

Total accrued expenses and other liabilities

 

$

94,484 

 

$

64,029 

 

 

 

6. Warranty Reserve

Estimated future direct warranty costs are accrued and charged to cost of home sales revenues in the period when the related home sales revenues are recognized. Amounts accrued, which are included in accrued expenses and other liabilities on the consolidated balance sheets, are based upon historical experience rates. We subsequently assess the adequacy of our warranty accrual on a quarterly basis through an internal model that incorporates historical payment trends and adjust the amounts recorded if necessary. Based on favorable warranty payment trends relative to our estimates at the time of home closing, we reduced our warranty reserve by $0.1 million and $0.7 million during the three and nine months ended September 30, 2015,  respectively, which is included as a reduction to cost of homes sales revenues on our consolidated statement of operations. The following table summarizes the changes in our warranty accrual for the three and nine months ended September 30, 2015 and 2014 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2015

 

2014

 

2015

 

2014

Beginning balance

 

$

2,432 

 

$

1,546 

 

$

2,194 

 

$

1,150 

Warranty reserves assumed in business combinations

 

 

 —

 

 

200 

 

 

 —

 

 

341 

Warranty expense provisions

 

 

668 

 

 

715 

 

 

2,097 

 

 

1,354 

Payments

 

 

(318)

 

 

(347)

 

 

(913)

 

 

(731)

Warranty adjustment

 

 

(112)

 

 

 —

 

 

(708)

 

 

 —

Ending balance

 

$

2,670 

 

$

2,114 

 

$

2,670 

 

$

2,114 

 

 

7. Notes Payable and Revolving Line of Credit

Notes payable and revolving line of credit included the following as of September 30, 2015 and December 31, 2014 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2015

 

2014

6.875% senior notes

 

$

257,777 

 

$

198,605 

Revolving line of credit

 

 

100,000 

 

 

20,000 

Land development notes

 

 

3,528 

 

 

5,737 

Insurance premium notes

 

 

1,021 

 

 

5,135 

Capital lease obligations

 

 

 —

 

 

133 

Total notes payable and revolving line of credit

 

$

362,326 

 

$

229,610 

 

 

 

6.875% senior notes

In May 2014, we completed a private offering of $200.0 million in aggregate principal amount of 6.875% senior notes due 2022 (which we refer to as the “Initial Senior Notes”) in reliance on Rule 144A and Regulation S under the Securities Act of 1933, as amended

9 

 


 

(which we refer to as the “Securities Act”).  The Initial Senior Notes were issued at a price equal to 99.239% of their principal amount, and we received net proceeds of approximately $193.3 million.  In February 2015, we completed an offer to exchange $200.0 million in aggregate principal amount of our 6.875% senior notes due 2022, which are registered under the Securities Act (which we refer to as the “Initial Exchange Notes”), for all of the Initial Senior Notes.  The terms of the Initial Exchange Notes are identical in all material respects to the Initial Senior Notes, except that the Initial Exchange Notes are registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions applicable to the Initial Senior Notes do not apply to the Initial Exchange Notes. 

In April 2015, we completed a private offering of an additional $60 million in aggregate principal amount of our 6.875% senior notes due 2022 (which we refer to as the “Additional Senior Notes”) in reliance on Rule 144A and Regulation S under the Securities Act.  The Additional Senior Notes were issued at a price equal to 98.26% of their principal amount, and we received net proceeds of approximately $58.5 million.  The Additional Senior Notes are additional notes issued under the indenture pursuant to which the initial $200 million in aggregate principal amount of Initial Senior Notes were issued.  In connection with the sale and issuance of the Additional Senior Notes, we entered into a registration rights agreement pursuant to which we agreed to effect a registered offer to exchange the Additional Senior Notes for new senior notes (which we refer to as the “Additional Exchange Notes”) having terms substantially identical in all material respects to the Additional Senior Notes, except that the Additional Exchange Notes will be registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions applicable to the Additional Senior Notes will not apply to the Additional Exchange Notes. 

The Initial Exchange Notes and the Additional Senior Notes have substantially identical terms and are treated as a single series of notes under the indenture.  Following consummation of the exchange offer contemplated under the registration rights agreement, the Additional Exchange Notes will bear the same CUSIP number as the Initial Exchange Notes and will be fungible with the Initial Exchange Notes.  We refer to the Initial Exchange Notes and the Additional Senior Notes, collectively, as the “Senior Notes.”  The Senior Notes carry a coupon of 6.875% per annum.  The Senior Notes are unsecured senior obligations which are guaranteed on an unsecured senior basis by certain of our current and future subsidiaries. The Senior Notes contain certain restrictive covenants on issuing future secured debt and other transactions.  The aggregate principal balance of the Senior Notes is due May 2022, with interest only payments due semi-annually in May and November of each year.

Revolving line of credit

On October 21, 2014, we entered into a credit agreement with Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, and the lenders from time to time party thereto (which we refer to as the “Credit Agreement”). The Credit Agreement provides us with a revolving line of credit of up to $120 million (which we refer to as the “Revolving Credit Facility”).  The Credit Agreement includes a letter of credit sublimit of $20 million. The obligations under the Revolving Credit Facility are guaranteed by substantially all of our operating subsidiaries.

On July 31, 2015, we entered into a First Modification Agreement, which modified the Credit Agreement.  The First Modification Agreement, among other things, (i) increases the Credit Facility from $120 million to $200 million, (ii) extends the maturity date of the Credit Facility from October 21, 2017 to October 21, 2018, (iii) admits Bank of America, N.A. as a new lender under the Credit Facility, and (iv) provides an option for the Company to request, from time to time, an additional increase in the amount of the Credit Facility of up to $100 million, subject to the terms and conditions of the First Modification Agreement and the Credit Agreement.  

Unless terminated earlier, on October 21, 2018, the maturity date of the Revolving Credit Facility, the principal amount thereunder, together with all accrued unpaid interest and other amounts owing thereunder, if any, will be payable in full on such date.  Borrowings under the Revolving Credit Facility bear interest at a floating rate equal to LIBOR plus an applicable margin between 2.75% and 3.25% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.75% and 2.25% per annum.

At September 30, 2015, we had $100 million outstanding under the Credit Agreement, which accrued interest at 2.95%.  

Other financing obligations

The Company has four land development notes with maturity dates ranging from October 2015 to April 2016, with interest only payments ranging from 0.5% to 5.0%, and four insurance premium notes which accrue interest at 3.89% and have maturity dates ranging from November 2015 to March 2016

As of September 30, 2015, we had $3.5 million and $1.0 million of outstanding land development notes and insurance premium notes, respectively.

 

10 

 


 

 

8. Interest

Interest is capitalized to inventories while the related communities are being actively developed and until homes are completed.  As our qualifying assets exceeded our outstanding debt during the three and nine months ended September 30, 2015 and 2014, we capitalized all interest costs incurred during these periods, except for interest incurred on capital leases of equipment related to our golf course operations.

Our interest costs are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2015

 

2014

 

2015

 

2014

Interest capitalized beginning of period

 

$

15,741 

 

$

5,850 

 

$

11,302 

 

$

2,820 

Interest capitalized during period

 

 

5,189 

 

 

3,894 

 

 

14,079 

 

 

7,452 

Less: capitalized interest in cost of sales

 

 

(2,474)

 

 

(755)

 

 

(6,925)

 

 

(1,283)

Interest capitalized end of period

 

$

18,456 

 

$

8,989 

 

$

18,456 

 

$

8,989 

 

 

 

 

9. 2014 Business Combinations

Acquisition of Las Vegas Land Holdings, LLC

On April 1, 2014, we purchased substantially all of the assets and operations of Las Vegas Land Holdings, LLC (which we refer to as “LVLH”), a homebuilder with operations in Las Vegas, Nevada, for a purchase price of approximately $165 million. The acquired assets consisted of 1,761 lots within five single-family communities in the greater Las Vegas, Nevada metropolitan area. The 1,761 lots included 57 homes in backlog, 17 model homes and three custom lots. In addition, we acquired two fully operational golf courses and two one-acre commercial plots.  As the acquired assets and processes have the ability to create outputs in the form of revenue from the sale of single family residences, we concluded that the acquisition represents a business combination. We incurred $0.8 million in acquisition-related costs in connection with the purchase of LVLH.

The following table summarizes the final estimate of the fair value of assets acquired and liabilities assumed as of the acquisition date (in thousands):    

 

 

 

 

 

 

 

 

 

 

 

Assets acquired and liabilities assumed

 

 

 

Accounts receivable

 

$

347 

Inventories

 

 

145,599 

Prepaid expenses and other assets

 

 

1,876 

Property and equipment

 

 

8,619 

Amortizable intangible assets

 

 

3,042 

Goodwill

 

 

11,283 

Total assets

 

$

170,766 

 

 

 

 

Accounts payable

 

 

2,074 

Accrued expenses and other liabilities

 

 

1,816 

Notes payable and capital lease obligations

 

 

1,497 

Total liabilities

 

$

5,387 

 

 

 

 

Acquired inventories consist of both acquired land and work in process inventories.  We determined the estimate of fair value for acquired land inventory with the assistance of a third party appraiser primarily using a forecasted cash flow approach for the development, marketing, and sale of each community acquired. Significant assumptions included in our estimate include future per lot development costs, construction and overhead costs, mix of products sold in each community as well as average sales price, and absorption rates. We estimated the fair value of acquired work in process inventories based upon the stage of production of each unit and a gross margin that we believe a market participant would require to complete the remaining development and requisite selling efforts.  The stage of production, as of the acquisition date, ranged from finished lots to fully completed single family residences.  We

11 

 


 

estimated a market participant would require a gross margin ranging from 7% to 24% based upon the stage of production of the individual lot. 

We determined the estimate of fair value for amortizable intangible assets, which includes a non-solicitation agreement, cell phone tower leases, and home plans, with the assistance of a third party valuation firm.  Our estimate of the fair value of the non-solicitation agreement, cell phone tower leases, and homes plans was $1.4 million, $1.4 million and $0.3 million, respectively, which will be amortized over 2 years, 16.6 years, and 7 years, respectively.  In total, amortizable intangible assets will be amortized over a weighted average life of 9.1 years.

We determined that LVLH’s carrying costs approximated fair value for all other acquired assets and assumed liabilities.

Goodwill includes the anticipated economic value of the acquired workforce. Approximately $10.0 million of goodwill is expected to be deductible for tax purposes.

Acquisition of Grand View Builders

On August 12, 2014, we purchased substantially all of the assets and operations of Grand View Builders (which we refer to as “Grand View”) in Houston, Texas for a purchase price of approximately $13 million and annual earnout payments based on a percentage of adjusted pre-tax income over the next two years.  As the acquired assets and processes have the ability to create outputs in the form of revenue from the sale of single family residences, we concluded that the acquisition represents a business combination. We incurred $0.1 million in acquisition-related costs in connection with the purchase of Grand View.

The following table summarizes the final estimate of the fair value of assets acquired and liabilities assumed as of the acquisition date (in thousands):    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets acquired and liabilities assumed

 

 

 

Accounts receivable

 

$

188 

Inventories

 

 

12,070 

Prepaid expenses and other assets

 

 

295 

Property and equipment

 

 

185 

Amortizable intangible assets

 

 

1,748 

Goodwill

 

 

1,746 

Total assets

 

$

16,232 

 

 

 

 

Accrued expenses and other liabilities (inclusive of earnout liability)

 

 

3,376 

Total liabilities

 

$

3,376 

 

 

Acquired inventories consist of both acquired land, work in process and model inventories.  We determined the fair value for acquired inventories on a lot by lot basis primarily using a forecasted cash flow approach for the development, marketing, and sale of each lot acquired. Significant assumptions included in our estimate include future construction and overhead costs, sales price, and absorption rates.  We estimated the fair value of acquired work in process inventories based upon the stage of production of each unit and a gross margin that we believe a market participant would require to complete the remaining development and requisite selling efforts.  The stage of production, as of the acquisition date, ranged from finished lots to fully completed single family residences.  We estimated a market participant would require a gross margin ranging from 6% to 18% based upon the stage of production of the individual lot. 

We determined the estimate of fair value for amortizable intangible assets, which includes a non-compete agreement, a trade name, home plans, and a backlog associated with certain custom home contracts, with the assistance of a third party valuation firm.  Our estimate of the fair value of the non-compete agreement, trade name, home plans and backlog was $0.5 million, $1.0 million, $0.1 million, and $0.2 million respectively, which will be amortized over 4 years, 2 years, 7 years, and 1.5 years, respectively.  In total, amortizable intangible assets will be amortized over a weighted average life of 2.8 years.

The fair value of the earnout on the acquisition date of $2.5 million was determined with the assistance of a third party valuation firm based on probability weighting scenarios and discounting the potential payments which range from $0 to a maximum of $5.3 million.  The maximum earnout amount is subject to downward reductions of up to $1.5 million based on the number of future lots acquired over the next two years in our Houston division.  The earnout liability is included in accrued expenses and other liabilities on the consolidated balance sheets.

12 

 


 

We determined that Grand View’s carrying costs approximated fair value for all other acquired assets and assumed liabilities.

Goodwill includes the anticipated economic value of the acquired workforce. Approximately $1.2 million of goodwill is expected to be deductible for tax purposes.    

During the nine months ended September 30, 2015, we recorded measurement period adjustments, which decreased the estimated value of amortizable intangible assets by $0.5 million and decreased the estimated value of inventories by $0.2 million, resulting in an increase in goodwill of $0.7 million.  The measurement period adjustments also resulted in a decrease of $0.1 million for the nine months ended September 30, 2015 to selling, general, and administrative expenses and a reduction of $0.2 million to cost of home sales revenues on the consolidated statements of operations. 

Acquisition of Peachtree 

On November 13, 2014, we acquired substantially all the assets and operations of Peachtree Communities Group, Inc. and its affiliates and subsidiaries (which we refer to as “Peachtree”), a leading homebuilder in Atlanta, Georgia, for approximately $57 million in cash. The acquired assets include land, homes under construction, model homes and lot option contacts in 36 communities in the greater Atlanta area. As a result of the acquisition, we obtained ownership or control of 2,120 lots in the greater Atlanta market. As the acquired assets and processes have the ability to create outputs in the form of revenue from the sale of single family residences, we concluded that the acquisition represents a business combination. We incurred $0.5 million in acquisition-related costs in connection with the purchase of Peachtree.

The following table summarizes the final estimate of the fair value of the assets acquired and liabilities assumed as of the acquisition date (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Assets acquired and liabilities assumed

 

 

 

Accounts receivable

 

$

11 

Inventories

 

 

48,034 

Prepaid expenses and other assets

 

 

762 

Property and equipment

 

 

54 

Amortizable intangible assets

 

 

4,044 

Goodwill

 

 

7,857 

Total assets

 

$

60,762 

 

 

 

 

Accounts payable

 

 

3,304 

Accrued expenses and other liabilities

 

 

3,108 

Total liabilities

 

$

6,412 

 

Acquired inventories primarily consist of work in process homebuilding inventory in various stages of construction and do not include significant amounts of land held for future development.  Accordingly, we estimated the fair value based upon the stage of production of each unit and a gross margin that we believe a market participant would require to complete the remaining development and requisite selling efforts.  The stage of production, as of the acquisition date, ranged from finished lots to fully completed single family residences.  We estimated a market participant would require a gross margin ranging from 6% to 18% based upon the stage of production of the individual lot.  Due to the nature of these estimates combined with uncertainties in the estimation process and the significant volatility in demand for new housing, actual results could differ significantly from such estimates.  

Intangible assets consist of a non-compete agreement with the former owner of Peachtree, acquired home plans and acquired lot option agreements.  The non-compete agreement was valued using a with and with-out approach which estimates the impact on future cash flows with and with-out the non-compete agreement. The difference between the projected cash flows is then discounted in order to estimate the fair value of the non-compete agreement. We estimated a fair value of $3.2 million for the non-compete agreement.  Acquired home plans were valued using a replacement cost approach, which resulted in an estimated fair value of $0.2 million.  The fair value of the acquired lot option agreements of  $0.6 million was estimated based upon the difference between the contractual lot option purchase prices and the estimated fair value of similar lots on the acquisition date. The non-compete agreement, home plans and lot option agreements will be amortized over 5,  7 and 3 years, respectively.  In total, amortizable intangible assets will be amortized over a weighted average life of 4.8 years. 

We determined that Peachtree’s carrying costs approximated fair value for all other acquired assets and assumed liabilities. 

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Goodwill includes the anticipated economic value of the acquired workforce.  Approximately $15.4 million of goodwill is expected to be deductible for tax purposes.    

During the nine months ended September 30, 2015, we recorded a measurement period adjustment, which increased the estimated value of amortizable intangible assets and decreased the fair value of goodwill by $0.6 million. The measurement period adjustment also resulted in an increase of $0.1 million for the nine months ended September 30, 2015 to cost of home sales revenues on our consolidated statements of operations. 

Pro forma Financial Information

No pro forma financial information is required for the three and nine months ended September 30, 2015, as our acquisitions of LVLH, Grand View, and Peachtree occurred during 2014.  

Pro forma financial information for the three and nine months ended September 30, 2014 gives effect to and includes the results of our acquisitions of LVLH, Grand View, and Peachtree as if the acquisitions occurred at January 1, 2014.  Pro forma income before income tax expense adjusts the operating results of LVLH, Grand View, and Peachtree to reflect the additional costs that would have been recorded assuming the fair value adjustments had been applied as of the beginning of the period presented.

The following summarizes pro forma financial information for the three and nine months ended September 30, 2014 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2014

 

2014

Pro forma revenue

 

$

166,876 

 

$

416,288 

Pro forma income before income tax expense

 

 

12,349 

 

 

32,317 

Pro forma income tax expense

 

 

4,322 

 

 

11,311 

Pro forma net income

 

$

8,027 

 

$

21,006 

 

 

 

 

 

 

10. Income Taxes

At the end of each interim period we are required to estimate our annual effective tax rate for the fiscal year, and use that rate to provide for income taxes for the current year-to-date reporting period. Accordingly, we recorded income tax expense of $5.4 million, and $2.6 million for the three months ended September 30, 2015 and 2014, respectively. For the nine months ended September 30, 2015 and 2014,  we recorded $13.2 million and $7.1 million of income tax expense,  respectively. Our income tax expense for the three and nine months ended September 30, 2015 is based on our estimated annual effective tax rate of approximately 34.4% and certain discreet items, which benefited our effective tax rate by approximately 0.8% and 1.4% for the three and nine ended September 30, 2015, respectively. 

 

11. Fair Value Disclosures

ASC 820, Fair Value Measurement, defines fair value as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:

Level 1 — Quoted prices for identical instruments in active markets.

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date.

Level 3 — Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date.

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The following table presents carrying values and estimated fair values of financial instruments (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

December 31, 2014

 

 

Hierarchy 

 

Carrying 

 

Fair Value

 

Carrying 

 

Fair Value

Secured note receivable(1)

 

Level 2

 

$

2,971 

 

$

2,984 

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6.875% senior notes(2)

 

Level 2

 

$

257,777 

 

$

247,000 

 

$

198,605 

 

$

203,013 

Revolving line of credit(3)

 

Level 2

 

 

100,000 

 

 

100,000 

 

 

20,000 

 

 

20,000 

Land development notes(4)

 

Level 2

 

 

3,528 

 

 

3,536 

 

 

5,737 

 

 

5,724 

Insurance premium notes(3)

 

Level 2

 

 

1,021 

 

 

1,021 

 

 

5,135 

 

 

5,135 

Capital lease obligations(3)

 

Level 2

 

 

 —

 

 

 —

 

 

133 

 

 

133 

Total notes payable and revolving line of credit

 

 

 

$

362,326 

 

$

351,557 

 

$

229,610 

 

$

234,005 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnout liability(5)

 

Level 3

 

$

504 

 

$

504 

 

$

2,426 

 

$

2,426 

 

 

(1)

The estimated fair value of the secured note received in connection with the disposition of the golf course in our Tuscany community in our Nevada operating segment as of September 30, 2015 was based on a cash flow model discounted at market interest rates that considered the underlying risks of the note.

(2)

Estimated fair value of the Initial Senior Notes at December 31, 2014 was based on a cash flow model discounted at market interest rates that considered underlying risks of the debt. At September 30, 2015, the fair values of the Senior Notes also incorporated recent trading activity of the Exchange Notes and Additional Senior Notes in inactive markets.

(3)

Carrying amount approximates fair value due to short-term nature and interest rate terms.

(4)

The estimated fair values of the land development notes at September 30, 2015 and December 31, 2014 were based on cash flow models discounted at market interest rates that considered underlying risks of the debt.

(5)

Recognized in connection with the acquisition of Grand View on August 12, 2014.  A Monte Carlo model was used to value the earnout by simulating earnings, applying the terms of the earnout in each simulated path, determining the average payment in each year across all the trials of the simulation, and calculating the sum of the present values of the payments in each year. The primary inputs and key assumptions of this Monte Carlo model included a range of forecasted revenue and gross margin scenarios which increased and decreased by 10.1% from our base case and discount rates ranging from 5.1% to 6.3%. We decreased the liability by $1.3 million and $1.9  million during the three and nine months ended September 30, 2015, respectively, to adjust the carrying value of the earnout to fair value. The decrease is included as a reduction to selling, general and administrative expense on our consolidated statement of operations.

The carrying amount of cash and cash equivalents approximates fair value. Non-financial assets and liabilities include items such as inventory and long-lived assets that are measured at fair value when acquired and resulting from impairment, if deemed necessary.

 

12. Stock-Based Compensation

Our authorized capital stock consists of 100.0 million shares of common stock, $0.01 par value per share, and 50.0 million shares of preferred stock, $0.01 par value. As of September 30, 2015 and December 31, 2014, there were 20.6 and 20.5 million shares of common stock issued and outstanding, respectively, exclusive of the restricted common stock issued. We also have reserved a total of 1.8 million shares of our common stock for issuance under our First Amended & Restated 2013 Long-Term Incentive Plan, including outstanding awards.

During the nine months ended September 30, 2015, we issued 0.5 million shares of restricted common stock awards with a weighted average grant date fair value of $16.92 per share. The awards vest over a three year period from the grant date.

As of September 30, 2015,  0.7 million shares of restricted common stock were unvested, and $10.1 million of unrecognized compensation costs is expected to be recognized over a weighted average period of 2.1 years.

During the three months ended September 30, 2015 and 2014, we recognized stock-based compensation expense of $1.4 million and $0.7 million, respectively. During the nine months ended September 30, 2015 and 2014, we recognized stock-based compensation expense of $3.9 million and $1.5 million, respectively. Stock-based compensation expense is included in selling, general, and administrative on our consolidated statements of operations.

 

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13. Earnings Per Share

We use the two-class method of calculating earnings per share (which we refer to as “EPS”) as our non-vested restricted stock awards have non-forfeitable rights to dividends and, accordingly, represent a participating security. The two-class method is an earnings allocation method under which EPS is calculated for each class of common stock and participating security considering both dividends declared (or accumulated) and participation rights in undistributed earnings as if all such earnings had been distributed during the period.

The following table sets forth the computation of basic and diluted EPS for the three and nine months ended September 30, 2015 and 2014 (in thousands, except share and per share information):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2015

 

2014

 

2015

 

2014

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

10,583 

 

$

4,127 

 

$

26,732 

 

$

12,834 

Less: Undistributed earnings allocated to participating securities

 

 

(358)

 

 

(70)

 

 

(890)

 

 

(179)

Net income allocable to common stockholders

 

$

10,225 

 

$

4,057 

 

$

25,842 

 

$

12,655 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted:

 

 

20,601,218 

 

 

21,133,708 

 

 

20,556,146 

 

 

18,635,986 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.50 

 

$

0.19 

 

$

1.26 

 

$

0.68 

 

 

 

 

 

14. Commitments and Contingencies

Letters of Credit and Performance Bonds

In the normal course of business, the Company posts letters of credit and performance bonds related to our land development performance obligations with local municipalities. As of September 30, 2015 and December 31, 2014, we had $53.7 million and $34.0 million, respectively, in letters of credit and performance bonds issued and outstanding.

Litigation

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business, which consist primarily of construction defect claims. It is the opinion of management that if the claims have merit, parties other than the Company would be, at least in part, liable for the claims, and eventual outcome of these claims will not have a material adverse effect upon our consolidated financial condition, results of operations, or cash flows. When we believe that a loss is probable and estimable, we record a charge to selling, general, and administrative on our consolidated statements of operations for our estimated loss.

We do not believe that the ultimate resolution of any claims and lawsuits will have a material adverse effect upon our consolidated financial position, results of operations, or cash flow.

 

 

 

15. Disposition of Golf Courses

On May 26, 2015, we disposed of the operations of the golf course in our Tuscany community in our Nevada operating segment for total consideration of $4.0 million, which included $1.0 million in cash and a $3.0 million secured note, and resulted in a gain on sale of $2 thousand. The secured note accrues interest at rates ranging from 4.5% to 5.5% per annum and requires monthly payments of principal and interest with a balloon payment of $2.5 million of principal in May of 2020.  

On May 19, 2015, we initiated our rights under a fixed price put option to dispose of the golf course in our Rhodes Ranch community in our Nevada operating segment for $5.9 million. The fixed price put option requires closing to occur on or before June 1, 2016. Accordingly, the assets and liabilities of the Rhodes Ranch golf course have been classified as held for sale and presented in prepaid expenses and other assets and accrued expenses and other liabilities on the consolidated balance sheet as of September 30, 2015.

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16. Supplemental Guarantor Information

In May 2014, we completed a private offering of $200.0 million in aggregate principal amount of our 6.875% senior notes due 2022 (which we refer to as the “Initial Senior Notes”).  In February 2015, we completed an offer to exchange $200.0 million in aggregate principal amount of our 6.875% Senior Notes due 2022, which are registered under the Securities Act (which we refer to as the “Initial Exchange Notes”), for all of the Initial Senior Notes sold and issued in the May 2014 private offering.  The terms of the Initial Exchange Notes are identical in all material respects to the Initial Senior Notes, except that the Initial Exchange Notes are registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions applicable to the Initial Senior Notes do not apply to the Initial Exchange Notes.    

In April 2015, we completed a private offering of an additional $60 million in aggregate principal amount of our 6.875% senior notes due 2022 (which we refer to as the “Additional Senior Notes”).  The Additional Senior Notes are additional notes issued under the indenture pursuant to which the Initial Senior Notes and Initial Exchange Notes were issued.  The Initial Exchange Notes and the Additional Senior Notes have substantially identical terms and are treated as a single series of notes under the indenture.  We refer to the Initial Exchange Notes and the Additional Senior Notes, collectively, as the “Senior Notes.”

The Senior Notes are unsecured senior obligations of the Company (which we refer to as “CCS”), which are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by substantially all of our operating subsidiaries (which we refer to as “Guarantors”), which are wholly owned subsidiaries of the Company.

The Indenture governing the Senior Notes provides that the guarantees of a Guarantor will be automatically and unconditionally released and discharged: (1) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the equity interests of such Guarantor after which the applicable Guarantor is no longer a “Restricted Subsidiary” (as defined in the Indenture), which sale, transfer, exchange or other disposition does not constitute an “Asset Sale” (as defined in the Indenture) or is made in compliance with applicable provisions of the Indenture; (2) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the assets of such Guarantor, which sale, transfer, exchange or other disposition does not constitute an Asset Sale or is made in compliance with applicable provisions of the Indenture; provided, that after such sale, transfer, exchange or other disposition, such Guarantor is an “Immaterial Subsidiary” (as defined in the Indenture); (3) unless a default has occurred and is continuing, upon the release or discharge of such Guarantor from its guarantee of any indebtedness for borrowed money of the Company and the Guarantors so long as such Guarantor would not then otherwise be required to provide a guarantee pursuant to the Indenture; provided that if such Guarantor has incurred any indebtedness in reliance on its status as a Guarantor in compliance with applicable provisions of the Indenture, such Guarantor’s obligations under such indebtedness, as the case may be, so incurred are satisfied in full and discharged or are otherwise permitted to be incurred by a Restricted Subsidiary (other than a Guarantor) in compliance with applicable provisions of the Indenture; (4) upon the designation of such Guarantor as an “Unrestricted Subsidiary” (as defined in the Indenture), in accordance with the Indenture; (5) if the Company exercises its legal defeasance option or covenant defeasance option under the Indenture or if the obligations of the Company and the Guarantors are discharged in compliance with applicable provisions of the Indenture, upon such exercise or discharge; or (6) in connection with the dissolution of such Guarantor under applicable law in accordance with the Indenture.

As the guarantees were made in connection with the May 2014 private offering of the Initial Senior Notes and April 2015 private offering of the Additional Senior Notes, the Guarantors’ condensed financial information is presented as if the guarantees existed during the periods presented. If any Guarantors are released from the guarantees in future periods, the changes are reflected prospectively.

We have determined that separate, full financial statements of the Guarantors would not be material to investors and, accordingly, supplemental financial information is presented below:

17 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Condensed Consolidated Balance Sheet

 

 

As of September 30, 2015  (in thousands)  

 

 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated

 

 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,155 

 

$

8,630 

 

$

 —

 

$

 —

 

$

12,785 

Accounts receivable

 

 

2,260 

 

 

27,301 

 

 

 —

 

 

 —

 

 

29,561 

Investment in subsidiaries

 

 

743,534 

 

 

 —

 

 

 —

 

 

(743,534)

 

 

 —

Inventories

 

 

 —

 

 

741,554 

 

 

 —

 

 

 —

 

 

741,554 

Prepaid expenses and other assets

 

 

9,348 

 

 

27,286 

 

 

 —

 

 

 —

 

 

36,634 

Property and equipment, net

 

 

802 

 

 

6,563 

 

 

 —

 

 

 —

 

 

7,365