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EX-32.2 - EX-32.2 - TRI Pointe Group, Inc.tph-ex322_10.htm
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EX-32.1 - EX-32.1 - TRI Pointe Group, Inc.tph-ex321_9.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

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

For the quarterly period ended June 30, 2015

or

o

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

For the transition period from              to             

Commission File Number 1-35796

 

TRI Pointe Group, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

61-1763235

(State or other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

19540 Jamboree Road, Suite 300

Irvine, California 92612

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (949) 438-1400

 

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  x    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  x    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

x

 

 

 

 

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  x

Registrant’s shares of common stock outstanding at August 1, 2015: 161,737,684

 

 

 


NOTE REGARDING THIS QUARTERLY REPORT

On July 7, 2015, TRI Pointe Homes, Inc., a Delaware corporation (“TRI Pointe Homes”), reorganized its corporate structure (the “Reorganization”) whereby TRI Pointe Homes became a direct, wholly owned subsidiary of TRI Pointe Group, Inc., a Delaware corporation (“TRI Pointe Group”).  As a result of the reorganization, each share of common stock, par value $0.01 per share, of TRI Pointe Homes (“Homes Common Stock”) was cancelled and converted automatically into the right to receive one validly issued, fully paid and non-assessable share of common stock, par value $0.01 per share, of TRI Pointe Group (“Group Common Stock”), each share having the same designations, rights, powers and preferences, and the qualifications, limitations and restrictions thereof as the shares of Homes Common Stock being so converted.  TRI Pointe Group, as the successor issuer to TRI Pointe Homes (pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), began making filings under the Securities Act of 1933, as amended, and the Exchange Act on July 7, 2015.

In connection with the Reorganization, TRI Pointe Group (i) became a co-issuer of TRI Pointe Homes' 4.375% Senior Notes due 2019 and TRI Pointe Homes' 5.875% Senior Notes due 2024; and (ii) replaced TRI Pointe Homes as the borrower under TRI Pointe Homes' existing unsecured revolving credit facility.

The business, executive officers and directors of TRI Pointe Group, and the rights and limitations of the holders of Group Common Stock immediately following the Reorganization were identical to the business, executive officers and directors of TRI Pointe Homes, and the rights and limitations of holders of Homes Common Stock immediately prior to the Reorganization.

References to “TRI Pointe”, “ the Company”, “we”, “us”, or “our” in this Quarterly Report on Form 10-Q (including in the  consolidated financial statements and condensed notes thereto in this report) have the following meanings, unless the context otherwise requires:

·

For periods prior to July 7, 2015: TRI Pointe Homes and its subsidiaries

·

For periods from and after July 7, 2015: TRI Pointe Group and its subsidiaries

 

 

 


 

TRI POINTE GROUP, INC.

FORM 10-Q

INDEX

June 30, 2015

 

 

 

Page
Number

PART I.  FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements for TRI Pointe Homes, Inc.

3

 

 

 

 

Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014

3

 

 

 

 

Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2015 and 2014)

4

 

 

 

 

Consolidated Statements of Equity for the Year Ended December 31, 2014 and the Six Months Ended June 30, 2015 (unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014 (unaudited)

6

 

 

 

 

Condensed Notes to Consolidated Financial Statements (unaudited)

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

 

 

 

Item 4.

Controls and Procedures

48

 

Part II.  OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

49

 

 

 

Item 1A.

Risk Factors

49

 

 

 

Item 6.

Exhibits

50

 

 

 

SIGNATURES

52

 

 

 

 

 

 

 

- 2 -


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TRI POINTE HOMES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

121,907

 

 

$

170,629

 

Receivables

 

 

34,189

 

 

 

20,118

 

Real estate inventories

 

 

2,535,753

 

 

 

2,280,183

 

Investments in unconsolidated entities

 

 

17,325

 

 

 

16,805

 

Goodwill and other intangible assets, net

 

 

162,296

 

 

 

162,563

 

Deferred tax assets

 

 

148,367

 

 

 

157,821

 

Other assets

 

 

87,350

 

 

 

105,405

 

Total assets

 

$

3,107,187

 

 

$

2,913,524

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

51,009

 

 

$

68,860

 

Accrued expenses and other liabilities

 

 

205,422

 

 

 

210,009

 

Unsecured revolving credit facility

 

 

399,392

 

 

 

260,000

 

Seller financed loans

 

 

12,390

 

 

 

14,677

 

Senior notes

 

 

888,267

 

 

 

887,502

 

Total liabilities

 

 

1,556,480

 

 

 

1,441,048

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 50,000,000 shares authorized;

   no shares issued and outstanding as of June 30, 2015 and December 31, 2014,

   respectively

 

 

 

 

 

 

Common stock, $0.01 par value, 500,000,000 shares authorized; 161,737,684 and

   161,355,490 shares issued and outstanding at June 30, 2015 and

   December 31, 2014, respectively

 

 

1,617

 

 

 

1,614

 

Additional paid-in capital

 

 

910,520

 

 

 

906,159

 

Retained earnings

 

 

616,634

 

 

 

546,407

 

Total stockholders' equity

 

 

1,528,771

 

 

 

1,454,180

 

Noncontrolling interests

 

 

21,936

 

 

 

18,296

 

Total equity

 

 

1,550,707

 

 

 

1,472,476

 

Total liabilities and equity

 

$

3,107,187

 

 

$

2,913,524

 

 

See accompanying condensed notes to the unaudited consolidated financial statements.

 

 

 

 

- 3 -


 

TRI POINTE HOMES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share amounts)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales

 

$

427,238

 

 

$

309,609

 

 

$

801,503

 

 

$

551,511

 

Land and lot sales

 

 

67,490

 

 

 

27,512

 

 

 

69,490

 

 

 

30,899

 

Other operations

 

 

789

 

 

 

5,442

 

 

 

1,782

 

 

 

8,285

 

 

 

 

495,517

 

 

 

342,563

 

 

 

872,775

 

 

 

590,695

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of home sales

 

 

341,742

 

 

 

242,709

 

 

 

641,648

 

 

 

433,977

 

Cost of land and lot sales

 

 

11,564

 

 

 

24,765

 

 

 

13,873

 

 

 

27,928

 

Other operations

 

 

592

 

 

 

567

 

 

 

1,154

 

 

 

2,199

 

Sales and marketing

 

 

25,634

 

 

 

23,798

 

 

 

48,920

 

 

 

44,703

 

General and administrative

 

 

28,299

 

 

 

18,184

 

 

 

56,478

 

 

 

36,189

 

Restructuring charges

 

 

498

 

 

 

520

 

 

 

720

 

 

 

2,178

 

Total expenses

 

 

408,329

 

 

 

310,543

 

 

 

762,793

 

 

 

547,174

 

Income from operations

 

 

87,188

 

 

 

32,020

 

 

 

109,982

 

 

 

43,521

 

Equity in loss of unconsolidated entities

 

 

(155

)

 

 

(69

)

 

 

(81

)

 

 

(137

)

Transaction expenses

 

 

 

 

 

(448

)

 

 

 

 

 

(506

)

Other income (loss), net

 

 

(31

)

 

 

(1,476

)

 

 

225

 

 

 

(741

)

Income before taxes

 

 

87,002

 

 

 

30,027

 

 

 

110,126

 

 

 

42,137

 

Provision for income taxes

 

 

(30,240

)

 

 

(5,802

)

 

 

(38,067

)

 

 

(10,331

)

Net income

 

 

56,762

 

 

 

24,225

 

 

 

72,059

 

 

 

31,806

 

Less: net income attributable to noncontrolling interests

 

 

(1,832

)

 

 

 

 

 

(1,832

)

 

 

 

Net income available to common stockholders

 

$

54,930

 

 

$

24,225

 

 

$

70,227

 

 

$

31,806

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.34

 

 

$

0.19

 

 

$

0.43

 

 

$

0.25

 

Diluted

 

$

0.34

 

 

$

0.19

 

 

$

0.43

 

 

$

0.25

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

161,686,570

 

 

 

129,700,000

 

 

 

161,589,310

 

 

 

129,700,000

 

Diluted

 

 

162,308,099

 

 

 

129,700,000

 

 

 

162,265,155

 

 

 

129,700,000

 

 

See accompanying condensed notes to the unaudited consolidated financial statements.

 

 

 

 

- 4 -


 

TRI POINTE HOMES, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)

(in thousands, except share amounts)

 

 

 

Number of

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Common

 

 

Paid-in

 

 

Retained

 

 

Stockholders'

 

 

Noncontrolling

 

 

Total

 

 

 

Shares (Note 1)

 

 

Stock

 

 

Capital

 

 

Earnings

 

 

Equity

 

 

Interests

 

 

Equity

 

Balance at December 31, 2013

 

 

129,700,000

 

 

$

1,297

 

 

$

333,589

 

 

$

462,210

 

 

$

797,096

 

 

$

28,421

 

 

$

825,517

 

Net income

 

 

 

 

 

 

 

 

 

 

 

84,197

 

 

 

84,197

 

 

 

 

 

 

84,197

 

Capital contribution by Weyerhaeuser, net

 

 

 

 

 

 

 

 

63,355

 

 

 

 

 

 

63,355

 

 

 

 

 

 

63,355

 

Common shares issued in connection

   with the Merger (Note 2)

 

 

31,632,533

 

 

 

317

 

 

 

498,656

 

 

 

 

 

 

498,973

 

 

 

 

 

 

498,973

 

Shares issued under share-based awards

 

 

22,957

 

 

 

 

 

 

176

 

 

 

 

 

 

176

 

 

 

 

 

 

176

 

Excess tax benefit of share-based awards, net

 

 

 

 

 

 

 

 

1,757

 

 

 

 

 

 

1,757

 

 

 

 

 

 

1,757

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

8,626

 

 

 

 

 

 

8,626

 

 

 

 

 

 

8,626

 

Distributions to noncontrolling interests, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,248

)

 

 

(17,248

)

Net effect of consolidations, de-

   consolidations and other transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,123

 

 

 

7,123

 

Balance at December 31, 2014

 

 

161,355,490

 

 

 

1,614

 

 

 

906,159

 

 

 

546,407

 

 

 

1,454,180

 

 

 

18,296

 

 

 

1,472,476

 

Net income

 

 

 

 

 

 

 

 

 

 

 

70,227

 

 

 

70,227

 

 

 

1,832

 

 

 

72,059

 

Shares issued under share-based awards

 

 

382,194

 

 

 

3

 

 

 

657

 

 

 

 

 

 

660

 

 

 

 

 

 

660

 

Excess tax benefit of share-based awards, net

 

 

 

 

 

 

 

 

352

 

 

 

 

 

 

352

 

 

 

 

 

 

352

 

Minimum tax withholding paid on behalf of

    employees for restricted stock units

 

 

 

 

 

 

 

 

(2,190

)

 

 

 

 

 

(2,190

)

 

 

 

 

 

(2,190

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,542

 

 

 

 

 

 

5,542

 

 

 

 

 

 

5,542

 

Distributions to noncontrolling interests, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,121

)

 

 

(2,121

)

Net effect of consolidations, de-

   consolidations and other transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,929

 

 

 

3,929

 

Balance at June 30, 2015

 

 

161,737,684

 

 

$

1,617

 

 

$

910,520

 

 

$

616,634

 

 

$

1,528,771

 

 

$

21,936

 

 

$

1,550,707

 

 

See accompanying condensed notes to the unaudited consolidated financial statements.

 

 

 

 

- 5 -


 

TRI POINTE HOMES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

72,059

 

 

$

31,806

 

Adjustments to reconcile net income to net cash (used in)

   provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,171

 

 

 

6,230

 

Equity in loss of unconsolidated entities, net

 

 

81

 

 

 

137

 

Deferred income taxes, net

 

 

9,454

 

 

 

120,822

 

Amortization of stock-based compensation

 

 

5,542

 

 

 

2,703

 

Charges for impairments and lot option abandonments

 

 

1,538

 

 

 

572

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Real estate inventories

 

 

(255,416

)

 

 

(88,352

)

Receivables

 

 

(14,071

)

 

 

23,578

 

Other assets

 

 

23,483

 

 

 

7,347

 

Accounts payable

 

 

(17,851

)

 

 

34,570

 

Pension and other postretirement benefits

 

 

 

 

 

1,624

 

Accrued expenses and other liabilities

 

 

(5,085

)

 

 

(34,888

)

Other operating cash flows

 

 

 

 

 

(1,574

)

Net cash (used in) provided by operating activities

 

 

(177,095

)

 

 

104,575

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(613

)

 

 

(4,256

)

Proceeds from sale of property and equipment

 

 

 

 

 

7

 

Investments in unconsolidated entities

 

 

(1,257

)

 

 

236

 

Net cash used in investing activities

 

 

(1,870

)

 

 

(4,013

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings from debt

 

 

140,000

 

 

 

 

Repayment of debt

 

 

(2,895

)

 

 

(25,508

)

Debt issuance costs

 

 

(2,688

)

 

 

 

Proceeds from issuance of senior notes

 

 

 

 

 

886,698

 

Change in book overdrafts

 

 

 

 

 

(5,534

)

Distributions to Weyerhaeuser

 

 

 

 

 

(8,606

)

Net repayments of debt held by variable interest entities

 

 

(875

)

 

 

3,145

 

Contributions from noncontrolling interests

 

 

2,034

 

 

 

1,385

 

Distributions to noncontrolling interests

 

 

(4,155

)

 

 

(9,334

)

Proceeds from issuance of common stock under share-based awards

 

 

660

 

 

 

 

Excess tax benefits of share-based awards

 

 

352

 

 

 

1,572

 

Minimum tax withholding paid on behalf of employees for restricted stock units

 

 

(2,190

)

 

 

 

Net cash provided by financing activities

 

 

130,243

 

 

 

843,818

 

Net (decrease) increase in cash and cash equivalents

 

 

(48,722

)

 

 

944,380

 

Cash and cash equivalents - beginning of period

 

 

170,629

 

 

 

4,510

 

Cash and cash equivalents - end of period

 

$

121,907

 

 

$

948,890

 

 

See accompanying condensed notes to the unaudited consolidated financial statements.

 

 

 

- 6 -


 

TRI POINTE HOMES, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

1.

Organization, Basis of Presentation and Summary of Significant Accounting Policies

Organization

The Company is engaged in the design, construction and sale of innovative single-family homes through its portfolio of six quality brands across eight states, including Maracay Homes in Arizona, Pardee Homes in California and Nevada, Quadrant Homes in Washington, Trendmaker Homes in Texas, TRI Pointe Homes in California and Colorado and Winchester Homes in Maryland and Virginia.  

On July 7, 2015, TRI Pointe Homes, Inc., a Delaware corporation, (“TRI Pointe Homes”) reorganized its corporate structure (the “Reorganization”) whereby TRI Pointe Homes became a direct, wholly owned subsidiary of TRI Pointe Group, Inc., a Delaware corporation (“TRI Pointe Group”).  See “Note Regarding This Quarterly Report” for information concerning the reorganization effected on July 7, 2015.

Basis of Presentation

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries as described in “Reverse Acquisition” below, as well as other entities in which the Company has a controlling interest and variable interest entities (“VIE”) in which the Company is the primary beneficiary.  The noncontrolling interests as of June 30, 2015 and December 31, 2014 represent the outside owners’ interests in the Company’s consolidated entities and the net equity of the VIE owners.  All significant intercompany accounts have been eliminated upon consolidation.  Certain prior period amounts have been reclassified to conform to current period presentation.  Subsequent events have been evaluated through the date the financial statements were issued.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation with respect to interim financial statements, have been included.

The Company has historically experienced, and expects to continue to experience, variability in quarterly results. The results of operations for the three or six months ended June 30, 2015 are not necessarily indicative of the results to be expected for the full year.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with our consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014.

Because the accompanying notes to consolidated financial statements are condensed, they should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10‑K for the year ended December 31, 2014.  

Reverse Acquisition

On July 7, 2014 (the “Closing Date”), TRI Pointe consummated the previously announced merger (the “Merger”) of our wholly owned subsidiary, Topaz Acquisition, Inc. (“Merger Sub”), with and into Weyerhaeuser Real Estate Company (“WRECO”), with WRECO surviving the Merger and becoming our wholly owned subsidiary, as contemplated by the Transaction Agreement, dated as of November 3, 2013 (the “Transaction Agreement”), by and among us, Weyerhaeuser Company (“Weyerhaeuser”), WRECO and Merger Sub. The Merger is accounted for in accordance with ASC Topic 805, Business Combinations (“ASC 805”). For accounting purposes, the Merger is treated as a “reverse acquisition” and WRECO is considered the accounting acquirer. Accordingly, WRECO is reflected as the predecessor and acquirer and therefore the accompanying consolidated financial statements reflect the historical consolidated financial statements of WRECO for all periods presented and do not include the historical financial statements of TRI Pointe prior to the Closing Date. Subsequent to the Closing Date, the consolidated financial statements reflect the results of the combined company.

 

- 7 -


 

See Note 2, Merger with Weyerhaeuser Real Estate Company, for further information on the Merger. In the Merger, each issued and outstanding WRECO common share was converted into 1.297 shares of TRI Pointe common stock. The historical issued and outstanding WRECO common shares (100,000,000 common shares for all periods presented prior to the Merger) have been recast (as 129,700,000 common shares of the Company for all periods prior to the Merger) in all periods presented to reflect this conversion.

Use of Estimates

Our financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from our estimates.

Recently Issued Accounting Standards

In April 2014, the FASB issued amendments to Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The update requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. We adopted ASU 2014-08 on January 1, 2015 and the adoption had no impact on our current or prior year financial statements.

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: identify the contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 supersedes the revenue-recognition requirements in ASC Topic 605, Revenue Recognition, most industry-specific guidance throughout the industry topics of the accounting standards codification, and some cost guidance related to construction-type and production-type contracts. On July 9, 2015, the FASB voted to defer the effective date of ASU No. 2014-09 by one year and is now effective for public entities for the annual periods ending after December 15, 2017, and for annual and interim periods thereafter.  Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. We are currently evaluating the approach for implementation and the potential impact of adopting this guidance on our consolidated financial statements.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15 (“ASU 2014-15”), Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management to evaluate, in connection with preparing financial statements for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable) and provide related disclosures. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. We believe the adoption of this guidance will not have a material effect on our consolidated financial statements.

In February 2015, the FASB issued Accounting Standards Update No. 2015-02, (“ASU 2015-02”), Consolidation (Topic 810): Amendments to the Consolidation Analysis.   ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should 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 believe the adoption of ASU 2015-02 will not have a material effect on our consolidated financial statements.

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, (“ASU 2015-03”), Interest - Imputation of Interest (Subtopic 835-30).  ASU 2015-03 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. The Company plans to early adopt this guidance at the beginning of the fourth quarter of 2015.  Had the Company early adopted ASU 2015-03, the impact for the period ended June 30, 2015 on our consolidated balance sheet would have been a balance sheet reclassification of deferred loan costs currently included in Other Assets resulting in a decrease to Other Assets of $24.7 million, a decrease to Senior Notes of $22.1 million and a decrease to unsecured revolving credit facility of $2.6 million. The impact for the period ended December 31, 2014, would have been a decrease to Other Assets of $23.7 million and a decrease to Senior Notes of $23.7 million.

 

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Reclassifications

Certain amounts in our consolidated financial statements for prior years have been reclassified to conform to the current period presentation.

 

 

2.

Merger with Weyerhaeuser Real Estate Company

In the Merger, TRI Pointe issued 129,700,000 shares of TRI Pointe common stock to the former holders of WRECO common shares, together with cash in lieu of any fractional shares. On the Closing Date, WRECO became a wholly owned subsidiary of TRI Pointe. Immediately following the consummation of the Merger, the ownership of TRI Pointe common stock on a fully diluted basis was as follows: (i) the WRECO common shares held by former Weyerhaeuser shareholders were converted into the right to receive, in the aggregate, 79.6% of the then outstanding TRI Pointe common stock, (ii) the TRI Pointe common stock outstanding immediately prior to the consummation of the Merger represented 19.4% of the then outstanding TRI Pointe common stock, and (iii) the outstanding equity awards of WRECO and TRI Pointe employees represented the remaining 1.0% of the then outstanding TRI Pointe common stock. On the Closing Date, the former direct parent entity of WRECO paid TRI Pointe $31.5 million in cash in accordance with the Transaction Agreement.  Following the Merger, WRECO changed its name to TRI Pointe Holdings, Inc.

Assumption of Senior Notes

On the Closing Date, TRI Pointe assumed WRECO’s obligations as issuer of $450 million aggregate principal amount of its 4.375% Senior Notes due 2019 (the “2019 Notes”) and $450 million aggregate principal amount of its 5.875% Senior Notes due 2024 (the “2024 Notes” and together with the 2019 Notes, the “Senior Notes”). Additionally, WRECO and certain of its subsidiaries (collectively, the “Guarantors”) entered into supplemental indentures pursuant to which they guaranteed TRI Pointe’s obligations with respect to the Senior Notes. The Guarantors also entered into a joinder agreement to the Purchase Agreement, dated as of June 4, 2014, among WRECO, TRI Pointe, and the initial purchasers of the Senior Notes (collectively, the “Initial Purchasers”), pursuant to which the Guarantors became parties to the Purchase Agreement. Additionally, TRI Pointe and the Guarantors entered into joinder agreements to the Registration Rights Agreements, dated as of June 13, 2014, among WRECO and the Initial Purchasers with respect to the Senior Notes, pursuant to which TRI Pointe and the Guarantors were joined as parties to the Registration Rights Agreements.

The net proceeds of $861.3 million from the offering of the Senior Notes were deposited into two separate escrow accounts following the closing of the offering on June 13, 2014. Upon release of the escrowed funds on the Closing Date and prior to the consummation of the Merger, WRECO paid $743.7 million in cash to its former direct parent, which cash was retained by Weyerhaeuser and its subsidiaries (other than WRECO and its subsidiaries). The payment consisted of the $739.0 million Payment Amount (as defined in the Transaction Agreement) as well as $4.7 million in payment of all unpaid interest on the debt payable to Weyerhaeuser that accrued from November 3, 2013 to the Closing Date. The remaining $117.6 million of proceeds was retained by TRI Pointe.

 

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Fair Value of Assets Acquired and Liabilities Assumed

The following table summarizes the calculation of the fair value of the total consideration transferred and the provisional amounts recognized as of the Closing Date (in thousands, except shares and closing stock price):

 

Calculation of consideration transferred

 

 

 

 

TRI Pointe shares outstanding

 

 

31,632,533

 

TRI Pointe closing stock price on July 7, 2014

 

$

15.85

 

Consideration attributable to common stock

 

$

501,376

 

Consideration attributable to TRI Pointe share-based
equity awards

 

 

1,072

 

Total consideration transferred

 

$

502,448

 

Assets acquired and liabilities assumed

 

 

 

 

Cash and cash equivalents

 

$

53,800

 

Accounts receivable

 

 

654

 

Real estate inventories

 

 

539,677

 

Intangible asset

 

 

17,300

 

Goodwill

 

 

139,304

 

Other assets

 

 

28,060

 

Total assets acquired

 

 

778,795

 

Accounts payable

 

 

26,105

 

Accrued expenses and other liabilities

 

 

23,114

 

Notes payable and other borrowings

 

 

227,128

 

Total liabilities assumed

 

 

276,347

 

Total net assets acquired

 

$

502,448

 

 

Cash and cash equivalents, accounts receivable, other assets, accounts payable, accrued payroll liabilities, and accrued expenses and other liabilities were generally stated at historical carrying values given the short-term nature of these assets and liabilities. Notes payable and other borrowings are stated at carrying value due to the limited amount of time since the notes payable and other borrowings were entered into prior to the Closing Date.

The Company determined the fair value of real estate inventories on a community-by-community basis primarily using a combination of market-comparable land transactions, land residual analysis and discounted cash flow models. The estimated fair value is significantly impacted by estimates related to expected average selling prices, sales pace, cancellation rates and construction and overhead costs. Such estimates must be made for each individual community and may vary significantly between communities.

The fair value of the acquired intangible asset was determined based on a valuation performed by an independent valuation specialist. The $17.3 million intangible asset is related to the TRI Pointe Homes trade name which is deemed to have an indefinite useful life.

Goodwill is primarily attributed to expected synergies from combining WRECO’s and TRI Pointe’s existing businesses, including, but not limited to, expected cost synergies from overhead savings resulting from streamlining certain redundant corporate functions, improved operating efficiencies, including provision of certain corporate level administrative and support functions at a lower cost than was historically allocated to WRECO for such services by its former direct parent, and growth of ancillary operations in various markets as permitted under applicable law, including a mortgage business, a title company and other ancillary operations. The Company also anticipates opportunities for growth through expanded geographic and customer segment diversity and the ability to leverage additional brands.  The acquired goodwill is not deductible for income tax purposes.

The Company completed its business combination accounting during the first quarter of 2015.

 

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Supplemental Pro Forma Information (Unaudited)

The following represents unaudited pro forma operating results as if the acquisition had been completed as of January 1, 2014 (in thousands, except per share amounts):

 

 

 

 

 

Three Months Ended

June 30, 2014

 

 

Six Months Ended

June 30, 2014

 

Total revenues

 

 

 

$

429,899

 

 

$

750,843

 

Net income

 

 

 

$

32,200

 

 

$

44,514

 

Earnings per share – basic

 

 

 

$

0.20

 

 

$

0.28

 

Earnings per share – diluted

 

 

 

$

0.20

 

 

$

0.27

 

 

The unaudited pro forma operating results have been determined after adjusting the operating results of TRI Pointe to reflect the purchase accounting and other acquisition adjustments including interest expense associated with the debt used to fund a portion of the Merger. The unaudited pro forma results do not reflect any cost savings, operating synergies or other enhancements that we may achieve as a result of the Merger or the costs necessary to integrate the operations to achieve these cost savings and synergies. Accordingly, the unaudited pro forma amounts are for comparative purposes only and may not necessarily reflect the results of operations had the Merger been completed at the beginning of the period or be indicative of the results we will achieve in the future.

 

 

3.

Restructuring

In connection with the Merger, the Company initiated a restructuring plan to reduce duplicate corporate and divisional overhead costs and expenses. In addition, WRECO previously recognized restructuring expenses related to general cost reduction initiatives. Restructuring costs were comprised of the following (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Employee-related costs

 

$

23

 

 

$

60

 

 

$

135

 

 

$

1,307

 

Lease termination costs

 

 

475

 

 

 

460

 

 

 

585

 

 

 

871

 

Total

 

$

498

 

 

$

520

 

 

$

720

 

 

$

2,178

 

 

Lease termination costs for the three and six months ended June 30, 2015, and 2014, respectively, relate to contract terminations as a result of general cost reduction initiatives.

Changes in employee-related restructuring reserves were as follows (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Accrued employee-related costs, beginning of period

 

$

533

 

 

$

 

 

$

3,844

 

 

$

4,336

 

Current year charges

 

 

23

 

 

 

60

 

 

 

135

 

 

 

1,307

 

Payments

 

 

(447

)

 

 

(60

)

 

 

(3,870

)

 

 

(5,643

)

Accrued employee-related costs, end of period

 

$

109

 

 

$

 

 

$

109

 

 

$

 

 

Changes in lease termination related restructuring reserves were as follows (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Accrued lease termination costs, beginning of period

 

$

926

 

 

$

2,758

 

 

$

1,394

 

 

$

3,506

 

Current year charges

 

 

475

 

 

 

460

 

 

 

585

 

 

 

871

 

Payments

 

 

(757

)

 

 

(764

)

 

 

(1,335

)

 

 

(1,923

)

Accrued lease termination costs, end of period

 

$

644

 

 

$

2,454

 

 

$

644

 

 

$

2,454

 

 

Employee and lease termination restructuring reserves are included in accrued expenses and other liabilities on our consolidated balance sheets.

 

 

 

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4.

Segment Information

Our operations consist of six homebuilding companies that acquire and develop land and construct and sell single-family homes.  In accordance with ASC Topic 280, Segment Reporting, in determining the most appropriate reportable segments, we considered similar economic and other characteristics, including product types, average selling prices, gross profits, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, and underlying demand and supply.  Based on our aggregation analysis, we have not exercised any aggregation of our operating segments, which are represented by the following six reportable segments: Maracay, consisting of operations in Arizona; Pardee, consisting of operations in California and Nevada; Quadrant, consisting of operations in Washington; Trendmaker, consisting of operations in Texas; TRI Pointe, consisting of operations in California and Colorado; and Winchester, consisting of operations in Maryland and Virginia.

Corporate is a non-operating segment that develops and implements company-wide strategic initiatives and provides support to our homebuilding reporting segments by centralizing certain administrative functions, such as marketing, legal, accounting, treasury, insurance and risk management, information technology and human resources, to benefit from economies of scale. Our Corporate non-operating segment also includes general and administrative expenses related to operating our corporate headquarters. A portion of the expenses incurred by Corporate is allocated to the homebuilding reporting segments.

The reportable segments follow the same accounting policies as our consolidated financial statements described in Note 1. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented.

Total revenues and income before taxes for each of our reportable segments were as follows (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Total revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maracay

 

$

33,574

 

 

$

35,045

 

 

$

66,051

 

 

$

70,275

 

Pardee

 

 

166,064

 

 

 

145,247

 

 

 

251,723

 

 

 

217,709

 

Quadrant

 

 

38,896

 

 

 

31,785

 

 

 

84,525

 

 

 

64,039

 

Trendmaker

 

 

65,982

 

 

 

67,756

 

 

 

122,191

 

 

 

129,156

 

TRI Pointe

 

 

130,735

 

 

 

 

 

 

237,592

 

 

 

 

Winchester

 

 

60,266

 

 

 

62,730

 

 

 

110,693

 

 

 

109,516

 

Total

 

$

495,517

 

 

$

342,563

 

 

$

872,775

 

 

$

590,695

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maracay

 

$

1,068

 

 

$

2,387

 

 

$

2,108

 

 

$

6,010

 

Pardee

 

 

67,734

 

 

 

18,656

 

 

 

81,292

 

 

 

25,793

 

Quadrant

 

 

766