Attached files

file filename
EX-31.1 - EX-31.1 - TRI Pointe Group, Inc.tph-ex311_8.htm
EX-31.2 - EX-31.2 - TRI Pointe Group, Inc.tph-ex312_7.htm
EX-32.1 - EX-32.1 - TRI Pointe Group, Inc.tph-ex321_6.htm
EX-32.2 - EX-32.2 - TRI Pointe Group, Inc.tph-ex322_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 September 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 November 1, 2015: 161,813,750

 

 

 

 


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

September 30, 2015

 

 

 

Page
Number

PART I.  FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements for TRI Pointe Group, Inc.

3

 

 

 

 

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

3

 

 

 

 

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

4

 

 

 

 

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

5

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 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

34

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

52

 

 

 

Item 4.

Controls and Procedures

52

 

Part II.  OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

53

 

 

 

Item 1A.

Risk Factors

53

 

 

 

Item 6.

Exhibits

54

 

 

 

SIGNATURES

56

 

 

 

 

- 2 -


 

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

TRI POINTE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

96,993

 

 

$

170,629

 

Receivables

 

 

32,921

 

 

 

20,118

 

Real estate inventories

 

 

2,576,402

 

 

 

2,280,183

 

Investments in unconsolidated entities

 

 

17,340

 

 

 

16,805

 

Goodwill and other intangible assets, net

 

 

162,162

 

 

 

162,563

 

Deferred tax assets

 

 

141,479

 

 

 

157,821

 

Other assets

 

 

84,516

 

 

 

105,405

 

Total assets

 

$

3,111,813

 

 

$

2,913,524

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

67,747

 

 

$

68,860

 

Accrued expenses and other liabilities

 

 

210,707

 

 

 

210,009

 

Unsecured revolving credit facility

 

 

349,392

 

 

 

260,000

 

Seller financed loans

 

 

7,572

 

 

 

14,677

 

Senior notes

 

 

888,657

 

 

 

887,502

 

Total liabilities

 

 

1,524,075

 

 

 

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 September 30, 2015 and December 31, 2014,  respectively

 

 

 

 

 

 

Common stock, $0.01 par value, 500,000,000 shares authorized; 161,813,750 and

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

   December 31, 2014, respectively

 

 

1,618

 

 

 

1,614

 

Additional paid-in capital

 

 

907,762

 

 

 

906,159

 

Retained earnings

 

 

666,796

 

 

 

546,407

 

Total stockholders’ equity

 

 

1,576,176

 

 

 

1,454,180

 

Noncontrolling interests

 

 

11,562

 

 

 

18,296

 

Total equity

 

 

1,587,738

 

 

 

1,472,476

 

Total liabilities and equity

 

$

3,111,813

 

 

$

2,913,524

 

 

See accompanying condensed notes to the unaudited consolidated financial statements.

 

 

 

 

- 3 -


 

TRI POINTE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share amounts)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales

 

$

642,352

 

 

$

471,801

 

 

$

1,443,855

 

 

$

1,023,312

 

Land and lot sales

 

 

4,876

 

 

 

5,550

 

 

 

74,366

 

 

 

36,449

 

Other operations

 

 

913

 

 

 

569

 

 

 

2,695

 

 

 

8,854

 

Total revenues

 

 

648,141

 

 

 

477,920

 

 

 

1,520,916

 

 

 

1,068,615

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of home sales

 

 

507,543

 

 

 

385,400

 

 

 

1,149,191

 

 

 

819,377

 

Cost of land and lot sales

 

 

3,451

 

 

 

2,317

 

 

 

17,324

 

 

 

30,245

 

Other operations

 

 

570

 

 

 

556

 

 

 

1,724

 

 

 

2,755

 

Sales and marketing

 

 

30,038

 

 

 

28,393

 

 

 

78,958

 

 

 

73,096

 

General and administrative

 

 

26,783

 

 

 

20,951

 

 

 

83,261

 

 

 

57,140

 

Restructuring charges

 

 

2,010

 

 

 

7,024

 

 

 

2,730

 

 

 

9,202

 

Total expenses

 

 

570,395

 

 

 

444,641

 

 

 

1,333,188

 

 

 

991,815

 

Income from operations

 

 

77,746

 

 

 

33,279

 

 

 

187,728

 

 

 

76,800

 

Equity in loss of unconsolidated entities

 

 

(3

)

 

 

(82

)

 

 

(84

)

 

 

(219

)

Transaction expenses

 

 

 

 

 

(16,710

)

 

 

 

 

 

(17,216

)

Other income (loss), net

 

 

47

 

 

 

499

 

 

 

272

 

 

 

(242

)

Income before taxes

 

 

77,790

 

 

 

16,986

 

 

 

187,916

 

 

 

59,123

 

Provision for income taxes

 

 

(28,021

)

 

 

(6,021

)

 

 

(66,088

)

 

 

(16,352

)

Net income

 

 

49,769

 

 

 

10,965

 

 

 

121,828

 

 

 

42,771

 

Net (income) loss attributable to noncontrolling interests

 

 

393

 

 

 

 

 

 

(1,439

)

 

 

 

Net income available to common stockholders

 

$

50,162

 

 

$

10,965

 

 

$

120,389

 

 

$

42,771

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.31

 

 

$

0.07

 

 

$

0.74

 

 

$

0.31

 

Diluted

 

$

0.31

 

 

$

0.07

 

 

$

0.74

 

 

$

0.31

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

161,772,893

 

 

 

158,931,450

 

 

 

161,651,177

 

 

 

139,550,891

 

Diluted

 

 

162,366,744

 

 

 

159,158,706

 

 

 

162,299,282

 

 

 

140,213,655

 

 

See accompanying condensed notes to the unaudited consolidated financial statements.

 

 

 

 

- 4 -


 

TRI POINTE GROUP, 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

 

 

 

 

 

 

 

 

 

 

 

120,389

 

 

 

120,389

 

 

 

1,439

 

 

 

121,828

 

Adjustment to capital contribution by

   Weyerhaeuser, net

 

 

 

 

 

 

 

 

(6,747

)

 

 

 

 

 

(6,747

)

 

 

 

 

 

(6,747

)

Shares issued under share-based awards

 

 

458,260

 

 

 

4

 

 

 

1,612

 

 

 

 

 

 

1,616

 

 

 

 

 

 

1,616

 

Excess tax benefit of share-based awards, net

 

 

 

 

 

 

 

 

392

 

 

 

 

 

 

392

 

 

 

 

 

 

392

 

Minimum tax withholding paid on behalf of

   employees for restricted stock units

 

 

 

 

 

 

 

 

(2,190

)

 

 

 

 

 

(2,190

)

 

 

 

 

 

(2,190

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

8,536

 

 

 

 

 

 

8,536

 

 

 

 

 

 

8,536

 

Distributions to noncontrolling interests, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,917

)

 

 

(4,917

)

Net effect of consolidations, de-consolidations

   and other transactions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,256

)

 

 

(3,256

)

Balance at September 30, 2015

 

 

161,813,750

 

 

$

1,618

 

 

$

907,762

 

 

$

666,796

 

 

$

1,576,176

 

 

$

11,562

 

 

$

1,587,738

 

 

See accompanying condensed notes to the unaudited consolidated financial statements.

 

 

 

 

- 5 -


 

TRI POINTE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

121,828

 

 

$

42,771

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,416

 

 

 

10,578

 

Equity in loss of unconsolidated entities, net

 

 

84

 

 

 

219

 

Deferred income taxes, net

 

 

16,342

 

 

 

21,937

 

Amortization of stock-based compensation

 

 

8,536

 

 

 

7,518

 

Charges for impairments and lot option abandonments

 

 

1,903

 

 

 

1,124

 

Bridge commitment fee

 

 

 

 

 

10,322

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Real estate inventories

 

 

(305,889

)

 

 

(249,890

)

Receivables

 

 

(12,803

)

 

 

34,107

 

Other assets

 

 

25,490

 

 

 

(6,484

)

Accounts payable

 

 

(1,113

)

 

 

(822

)

Accrued expenses and other liabilities

 

 

195

 

 

 

(11,874

)

Other operating cash flows

 

 

 

 

 

65

 

Net cash used in operating activities

 

 

(140,011

)

 

 

(140,429

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,059

)

 

 

(6,068

)

Cash acquired in the Merger

 

 

 

 

 

53,800

 

Proceeds from sale of property and equipment

 

 

 

 

 

22

 

Investments in unconsolidated entities

 

 

(1,458

)

 

 

(573

)

Distributions from unconsolidated entities

 

 

319

 

 

 

 

Net cash (used in) provided by investing activities

 

 

(2,198

)

 

 

47,181

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings from debt

 

 

140,000

 

 

 

50,000

 

Repayment of debt

 

 

(57,713

)

 

 

 

Debt issuance costs

 

 

(2,688

)

 

 

(23,003

)

Proceeds from issuance of senior notes

 

 

 

 

 

886,698

 

Bridge commitment fee

 

 

 

 

 

(10,322

)

Repayment of debt payable to Weyerhaeuser

 

 

 

 

 

(623,589

)

Decrease in book overdrafts

 

 

 

 

 

(22,492

)

Distributions to Weyerhaeuser

 

 

 

 

 

(8,860

)

Net (repayments) proceeds of debt held by variable interest entities

 

 

(5,927

)

 

 

5,120

 

Contributions from noncontrolling interests

 

 

4,281

 

 

 

 

Distributions to noncontrolling interests

 

 

(9,198

)

 

 

(18,703

)

Proceeds from issuance of common stock under share-based awards

 

 

1,616

 

 

 

 

Excess tax benefits of share-based awards

 

 

392

 

 

 

1,572

 

Minimum tax withholding paid on behalf of employees for share-based awards

 

 

(2,190

)

 

 

 

Net cash provided by financing activities

 

 

68,573

 

 

 

236,421

 

Net (decrease) increase in cash and cash equivalents

 

 

(73,636

)

 

 

143,173

 

Cash and cash equivalents - beginning of period

 

 

170,629

 

 

 

4,510

 

Cash and cash equivalents - end of period

 

$

96,993

 

 

$

147,683

 

 

See accompanying condensed notes to the unaudited consolidated financial statements.

 

 

 

 

- 6 -


 

TRI POINTE GROUP, 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.  

Reorganization

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 (“VIEs”) in which the Company is the primary beneficiary.  The noncontrolling interests as of September 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.  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 nine months ended September 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.

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

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 it 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.  Early adoption is permitted, but can be no earlier than the original public entity effective date of fiscal years, and the interim periods within those years, beginning after December 15, 2016.  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. We believe the adoption of ASU 2015-02 will not have a material effect on our consolidated financial statements.

 

- 8 -


 

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, (“ASU 2015-03”), Interest - Imputation of Interest (Subtopic 835-30), and as amended in August 2015 by Accounting Standards Update No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which changes the presentation of debt issuance costs related to a recognized debt liability in financial statements. Under ASU 2015-03, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. The FASB will permit debt issuance costs related to line-of-credit agreements to be deferred and presented as an asset, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.  Amortization of the costs is reported as interest expense.  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 September 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 $23.6 million, a decrease to Senior Notes of $21.2 million and a decrease to unsecured revolving credit facility of $2.4 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.

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 Homes 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. In connection with the Reorganization, TRI Pointe Group became a co-issuer with TRI Pointe Homes of the Senior Notes.

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.

 

- 9 -


 

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.

 

- 10 -


 

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

September 30, 2014

 

 

Nine Months Ended

September 30, 2014

 

Total revenues

 

$

479,879

 

 

$

1,230,722

 

Net income

 

$

21,934

 

 

$

66,902

 

Earnings per share – basic

 

$

0.14

 

 

$

0.41

 

Earnings per share – diluted

 

$

0.14

 

 

$

0.41

 

 

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Employee-related costs

 

$

1,433

 

 

$

6,817

 

 

$

1,568

 

 

$

8,124

 

Lease termination costs

 

 

577

 

 

 

207

 

 

 

1,162

 

 

 

1,078

 

Total

 

$

2,010

 

 

$

7,024

 

 

$

2,730

 

 

$

9,202

 

 

Employee-related costs incurred during the three months ended September 30, 2014 included employee retention and severance-related expenses of $5.5 million and stock-based compensation expense of $1.3 million for employees terminated during the period.  Employee-related costs incurred during the nine months ended September 30, 2014 included employee retention and severance-related expenses of $6.8 million and stock-based compensation expense of $1.3 million for employees terminated during the period.  Lease termination costs for the three and nine months ended September 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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Accrued employee-related costs, beginning of

   period

 

$

109

 

 

$

 

 

$

3,844

 

 

$

4,336

 

Current year charges

 

 

1,433

 

 

 

5,550

 

 

 

1,568

 

 

 

6,857

 

Adjustments to pre-existing reserves

 

 

(83

)

 

 

 

 

 

(83

)

 

 

 

Payments

 

 

(1,004

)

 

 

(1,576

)

 

 

(4,874

)

 

 

(7,219

)

Accrued employee-related costs, end of period

 

$

455

 

 

$

3,974

 

 

$

455

 

 

$

3,974

 

 

 

- 11 -


 

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Accrued lease termination costs, beginning of

   period

 

$

644

 

 

$

2,454

 

 

$

1,394

 

 

$

3,506

 

Current year charges

 

 

577

 

 

 

207

 

 

 

1,162

 

 

 

1,078

 

Payments

 

 

(705

)

 

 

(902

)

 

 

(2,040

)

 

 

(2,825

)

Accrued lease termination costs, end of period

 

$

516

 

 

$

1,759

 

 

$

516

 

 

$

1,759

 

 

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

 

 

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 Homes, consisting of operations in Arizona; Pardee Homes, consisting of operations in California and Nevada; Quadrant Homes, consisting of operations in Washington; Trendmaker Homes, consisting of operations in Texas; TRI Pointe Homes, consisting of operations in California and Colorado; and Winchester Homes, 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.

 

- 12 -


 

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

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Total revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maracay Homes

 

$

50,505

 

 

$

37,301

 

 

$

116,556

 

 

$

107,576

 

Pardee Homes

 

 

172,957

 

 

 

134,409

 

 

 

424,680

 

 

 

352,118

 

Quadrant Homes

 

 

48,173

 

 

 

32,919

 

 

 

132,698

 

 

 

96,958

 

Trendmaker Homes

 

 

81,044

 

 

 

69,711