TRI POINTE GROUP, INC., 10-K filed on 2/26/2016
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2015
Feb. 19, 2016
Jun. 30, 2015
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2015 
 
 
Document Fiscal Year Focus
2015 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
TPH 
 
 
Entity Registrant Name
TRI Pointe Group, Inc. 
 
 
Entity Central Index Key
0001561680 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
161,910,115 
 
Entity Public Float
 
 
$ 2,238,080,435 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2015
Dec. 31, 2014
Assets
 
 
Cash and cash equivalents
$ 214,485 
$ 170,629 
Receivables
43,710 
20,118 
Real estate inventories
2,519,273 
2,280,183 
Investments in unconsolidated entities
18,999 
16,805 
Goodwill and other intangible assets, net
162,029 
162,563 
Deferred tax assets, net
130,657 
157,821 
Other assets
48,918 
81,719 
Total assets
3,138,071 
2,889,838 
Liabilities
 
 
Accounts payable
64,840 
68,860 
Accrued expenses and other liabilities
216,263 
210,009 
Unsecured revolving credit facility
299,392 
260,000 
Seller financed loans
2,434 
14,677 
Senior notes, net
868,679 
863,816 
Total liabilities
1,451,608 
1,417,362 
Commitments and contingencies (Note 15)
   
   
Stockholders’ Equity:
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued and outstanding as of December 31, 2015 and 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 December 31, 2015 and 2014, respectively
1,618 
1,614 
Additional paid-in capital
911,197 
906,159 
Retained earnings
751,868 
546,407 
Total stockholders’ equity
1,664,683 
1,454,180 
Noncontrolling interests
21,780 
18,296 
Total equity
1,686,463 
1,472,476 
Total liabilities and equity
$ 3,138,071 
$ 2,889,838 
Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2015
Dec. 31, 2014
Statement Of Financial Position [Abstract]
 
 
Preferred stock, par value
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
50,000,000 
50,000,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
500,000,000 
500,000,000 
Common stock, shares issued
161,813,750 
161,355,490 
Common stock, shares outstanding
161,813,750 
161,355,490 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Homebuilding:
 
 
 
Home sales revenue
$ 2,291,264 
$ 1,646,274 
$ 1,218,430 
Land and lot sales revenue
101,284 
47,660 
52,261 
Other operations
7,601 
9,682 
4,021 
Total revenues
2,400,149 
1,703,616 
1,274,712 
Cost of home sales
1,807,091 
1,316,470 
948,561 
Cost of land and lot sales
34,844 
37,560 
38,052 
Other operations
4,360 
3,324 
2,854 
Impairments and lot option abandonments
1,930 
2,515 
345,448 
Sales and marketing
116,217 
103,600 
94,521 
General and administrative
117,496 
82,358 
74,244 
Restructuring charges
3,329 
10,543 
10,938 
Homebuilding income (loss) from operations
314,882 
147,246 
(239,906)
Equity in income (loss) of unconsolidated entities
1,460 
(278)
Transaction expenses
 
(17,960)
 
Other income (loss), net
858 
(1,019)
2,450 
Homebuilding income (loss) from continuing operations before taxes
317,200 
127,989 
(237,454)
Financial Services:
 
 
 
Revenues
1,010 
 
 
Expenses
181 
15 
 
Equity in income (loss) of unconsolidated entities
1,231 
(10)
 
Financial services income (loss) from continuing operations before taxes
2,060 
(25)
 
Income (loss) from continuing operations before taxes
319,260 
127,964 
(237,454)
(Provision) benefit for income taxes
(112,079)
(43,767)
86,161 
Income (loss) from continuing operations
207,181 
84,197 
(151,293)
Discontinued operations, net of income taxes
 
 
1,838 
Net income (loss)
207,181 
84,197 
(149,455)
Net income attributable to noncontrolling interests
(1,720)
 
 
Net income (loss) available to common stockholders
205,461 
84,197 
(149,455)
Amounts attributable to TRI Pointe Group, Inc. common stockholders:
 
 
 
Income (loss) from continuing operations
205,461 
84,197 
(151,293)
Income from discontinued operations
 
 
1,838 
Net income (loss) available to common stockholders
$ 205,461 
$ 84,197 
$ (149,455)
Basic
 
 
 
Continuing operations
$ 1.27 
$ 0.58 
$ (1.17)
Discontinued operations
 
 
$ 0.02 
Net earnings (loss) per share
$ 1.27 
$ 0.58 
$ (1.15)
Diluted
 
 
 
Continuing operations
$ 1.27 
$ 0.58 
$ (1.17)
Discontinued operations
 
 
$ 0.02 
Net earnings (loss) per share
$ 1.27 
$ 0.58 
$ (1.15)
Weighted average shares outstanding
 
 
 
Basic
161,692,152 
145,044,351 
129,700,000 
Diluted
162,319,758 
145,531,289 
129,700,000 
Consolidated Statements of Equity (USD $)
In Thousands, except Share data
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
TRI Pointe [Member]
Noncontrolling Interests [Member]
Beginning Balance at Dec. 31, 2012
$ 993,727 
$ 1,297 
$ 340,817 
$ 611,665 
$ 953,779 
$ 39,948 
Beginning Balance, Shares at Dec. 31, 2012
 
129,700,000 
 
 
 
 
Net income (loss)
(149,455)
 
 
(149,455)
(149,455)
 
Capital contribution (return of capital) to Weyerhaeuser
(13,920)
 
(13,920)
 
(13,920)
 
Excess tax benefit of share-based awards, net
1,690 
 
1,690 
 
1,690 
 
Stock-based compensation expense
5,002 
 
5,002 
 
5,002 
 
Distributions to noncontrolling interests, net
(7,121)
 
 
 
 
(7,121)
Net effect of consolidations, de-consolidations and other transactions
(4,406)
 
 
 
 
(4,406)
Ending Balance at Dec. 31, 2013
825,517 
1,297 
333,589 
462,210 
797,096 
28,421 
Ending Balance, Shares at Dec. 31, 2013
129,700,000 
129,700,000 
 
 
 
 
Net income (loss)
84,197 
 
 
84,197 
84,197 
 
Capital contribution (return of capital) to Weyerhaeuser
63,355 
 
63,355 
 
63,355 
 
Common shares issued in connection with the Merger (Note 2)
498,973 
317 
498,656 
 
498,973 
 
Common shares issued in connection with the Merger (Note 2), Shares
 
31,632,533 
 
 
 
 
Shares issued under share-based awards
176 
 
176 
 
176 
 
Shares issued under share-based awards, Shares
 
22,957 
 
 
 
 
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 
Ending Balance at Dec. 31, 2014
1,472,476 
1,614 
906,159 
546,407 
1,454,180 
18,296 
Ending Balance, Shares at Dec. 31, 2014
161,355,490 
161,355,490 
 
 
 
 
Net income (loss)
207,181 
 
 
205,461 
205,461 
1,720 
Capital contribution (return of capital) to Weyerhaeuser
(6,747)
 
(6,747)
 
(6,747)
 
Shares issued under share-based awards
1,616 
1,612 
 
1,616 
 
Shares issued under share-based awards, Shares
 
458,260 
 
 
 
 
Excess tax benefit of share-based awards, net
428 
 
428 
 
428 
 
Minimum tax withholding paid on behalf of employees for restricted stock units
(2,190)
 
(2,190)
 
(2,190)
 
Stock-based compensation expense
11,935 
 
11,935 
 
11,935 
 
Distributions to noncontrolling interests, net
(3,833)
 
 
 
 
(3,833)
Net effect of consolidations, de-consolidations and other transactions
5,597 
 
 
 
 
5,597 
Ending Balance at Dec. 31, 2015
$ 1,686,463 
$ 1,618 
$ 911,197 
$ 751,868 
$ 1,664,683 
$ 21,780 
Ending Balance, Shares at Dec. 31, 2015
161,813,750 
161,813,750 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Cash flows from operating activities
 
 
 
Net income (loss)
$ 207,181 
$ 84,197 
$ (149,455)
Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Depreciation and amortization
8,274 
11,423 
13,489 
Equity in (income) loss of unconsolidated entities, net
(2,691)
288 
(2)
Deferred income taxes, net
27,164 
5,716 
(108,869)
Amortization of stock-based compensation
11,935 
8,626 
5,002 
Charges for impairments and lot option abandonments
1,930 
2,515 
345,448 
Net gain on sale of discontinued operations
 
 
(1,946)
Charge for early extinguishment of debt
 
 
645 
Bridge commitment fee
 
10,322 
 
Changes in assets and liabilities:
 
 
 
Real estate inventories
(235,030)
(276,315)
(165,471)
Receivables
(23,592)
40,933 
44,689 
Other assets
35,360 
(6,680)
(19,391)
Accounts payable
(4,020)
5,571 
(6,538)
Accrued expenses and other liabilities
4,494 
(46)
20,200 
Returns on investments in unconsolidated entities, net
 
80 
1,111 
Other operating cash flows
 
 
84 
Net cash provided by (used in) operating activities
31,005 
(113,370)
(21,004)
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(809)
(7,850)
(10,350)
Cash acquired in the Merger
 
53,800 
 
Proceeds from sale of property and equipment
 
23 
Investments in unconsolidated entities
(1,468)
(1,311)
(1,571)
Proceeds from the sale of discontinued operations
 
 
3,623 
Distributions from unconsolidated entities
1,415 
 
 
Net cash (used in) provided by investing activities
(862)
44,662 
(8,293)
Cash flows from financing activities:
 
 
 
Borrowings from debt
140,000 
100,600 
 
Repayment of debt
(112,851)
(53,051)
(109,900)
Debt issuance costs
(2,688)
(23,000)
 
Proceeds from issuance of senior notes
 
886,698 
 
Bridge commitment fee
 
(10,322)
 
Repayment of debt payable to Weyerhaeuser
 
(623,589)
145,036 
Decrease in book overdrafts
 
(22,491)
6,821 
Distributions to Weyerhaeuser
 
(8,606)
(13,920)
Net (repayments) proceeds of debt held by variable interest entities
(6,769)
3,903 
5,582 
Contributions from noncontrolling interests
5,990 
1,895 
925 
Distributions to noncontrolling interests
(9,823)
(19,143)
(8,046)
Proceeds from issuance of common stock under share-based awards
1,616 
176 
 
Excess tax benefits of share-based awards
428 
1,757 
2,097 
Minimum tax withholding paid on behalf of employees for share-based awards
(2,190)
 
 
Net cash provided by financing activities
13,713 
234,827 
28,595 
Net increase (decrease) in cash and cash equivalents
43,856 
166,119 
(702)
Cash and cash equivalents - beginning of year
170,629 
4,510 
5,212 
Cash and cash equivalents - end of year
$ 214,485 
$ 170,629 
$ 4,510 
Organization and Summary of Significant Accounting Policies
Organization and Summary of Significant Accounting Policies

1.

Organization and Summary of Significant Accounting Policies

Organization

TRI Pointe Group, Inc. is engaged in the design, construction and sale of innovative single-family attached and detached 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.

Formation of TRI Pointe Group

On July 7, 2015, TRI Pointe Homes reorganized its corporate structure (the “Reorganization”) whereby TRI Pointe Homes became a direct, wholly-owned subsidiary of 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.

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 December 31, 2015 and 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.

As a result of the adoption of ASU 2015-03, $20.4 million and $23.7 million of deferred loan costs at December 31, 2015 and 2014, respectively, were reclassified from “Other assets” to “Senior notes” in our Consolidated Balance Sheets.  See Note 13, Senior Notes and Notes Payable and Other Borrowings, for additional information.    

Unless the context otherwise requires, the terms “we”, “us”, “our” and “the Company” have the following meanings:

 

·

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

 

·

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

Reverse Acquisition

On July 7, 2014 (the “Closing Date”), TRI Pointe Homes, Inc. 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”), the Company, 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.

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.

Reclassifications

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

Financial Services Reporting Segment

During the three months ended December 31, 2015, we revised our comparative segment information to reflect our new reportable segment structure.  The adjusted segment information constitutes a reclassification for our financial services revenues, expenses and equity in income (loss) of unconsolidated entities previously reported in other operations and has no impact on reported net income (loss) or earnings (loss) per share for preceding periods. This change does not restate information previously reported in the consolidated balance sheets, consolidated statements of equity or consolidated statements of cash flows for the preceding periods. See Note 4. Segment Information, for additional information.

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.

Cash and Cash Equivalents and Concentration of Credit Risk

We define cash and cash equivalents as cash on hand, demand deposits with financial institutions, and short-term liquid investments with an initial maturity date of less than three months. The Company’s cash balances exceed federally insurable limits. The Company monitors the cash balances in its operating accounts and adjusts the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to cash in its operating accounts.

Real Estate Inventories and Cost of Sales

Real estate inventories consist of land, land under development, homes under construction, completed homes and model homes and are stated at cost, net of impairment losses. We capitalize direct carrying costs, including interest, property taxes and related development costs to inventories. Field construction supervision and related direct overhead are also included in the capitalized cost of inventories. Direct construction costs are specifically identified and allocated to homes while other common costs, such as land, land improvements and carrying costs, are allocated to homes within a community based upon their anticipated relative sales or fair value. In accordance with ASC Topic 835, Interest (“ASC 835”), homebuilding interest capitalized as a cost of inventories owned is included in costs of sales as related units or lots are sold. To the extent our debt exceeds our qualified assets as defined in ASC 835, we expense a portion of the interest incurred by us. Qualified assets represent projects that are actively under development. Homebuilding cost of sales is recognized at the same time revenue is recognized and is recorded based upon total estimated costs to be allocated to each home within a community. Any changes to the estimated costs are allocated to the remaining undelivered lots and homes within their respective community. The estimation and allocation of these costs require a substantial degree of judgment by management.

The estimation process involved in determining relative sales or fair values is inherently uncertain because it involves estimating future sales values of homes before delivery. Additionally, in determining the allocation of costs to a particular land parcel or individual home, we rely on project budgets that are based on a variety of assumptions, including assumptions about construction schedules and future costs to be incurred. It is common that actual results differ from budgeted amounts for various reasons, including construction delays, increases in costs that have not been committed or unforeseen issues encountered during construction that fall outside the scope of existing contracts, or costs that come in less than originally anticipated. While the actual results for a particular construction project are accurately reported over time, a variance between the budget and actual costs could result in the understatement or overstatement of costs and have a related impact on gross margins between reporting periods. To reduce the potential for such variances, we have procedures that have been applied on a consistent basis, including assessing and revising project budgets on a periodic basis, obtaining commitments from subcontractors and vendors for future costs to be incurred and utilizing the most recent information available to estimate costs.

If there are indications of impairment, we perform a detailed budget and cash flow review of our real estate assets to determine whether the estimated remaining undiscounted future cash flows of the community are more or less than the asset’s carrying value. If the undiscounted cash flows are more than the asset’s carrying value, no impairment adjustment is required. However, if the undiscounted cash flows are less than the asset’s carrying value, the asset is deemed impaired and is written down to fair value. These impairment evaluations require us to make estimates and assumptions regarding future conditions, including timing and amounts of development costs and sales prices of real estate assets, to determine if expected future undiscounted cash flows will be sufficient to recover the asset’s carrying value.

When estimating undiscounted cash flows of a community, we make various assumptions, including: (i) expected sales prices and sales incentives to be offered, including the number of homes available, pricing and incentives being offered by us or other builders in other communities, and future sales price adjustments based on market and economic trends; (ii) expected sales pace and cancellation rates based on local housing market conditions, competition and historical trends; (iii) costs expended to date and expected to be incurred including, but not limited to, land and land development costs, home construction costs, interest costs, indirect construction and overhead costs, and selling and marketing costs; (iv) alternative product offerings that may be offered that could have an impact on sales pace, sales price and/or building costs; and (v) alternative uses for the property.

Many assumptions are interdependent and a change in one may require a corresponding change to other assumptions. For example, increasing or decreasing sales absorption rates has a direct impact on the estimated per unit sales price of a home, the level of time sensitive costs (such as indirect construction, overhead and carrying costs), and selling and marketing costs (such as model maintenance costs and advertising costs). Depending on the underlying objective of the community, assumptions could have a significant impact on the projected cash flow analysis. For example, if our objective is to preserve operating margins, our cash flow analysis will be different than if the objective is to increase sales. These objectives may vary significantly from community to community and over time. If assets are considered impaired, impairment is determined by the amount the asset’s carrying value exceeds its fair value. Fair value is determined based on estimated future cash flows discounted for inherent risks associated with real estate assets. These discounted cash flows are impacted by expected risk based on estimated land development, construction and delivery timelines; market risk of price erosion; uncertainty of development or construction cost increases; and other risks specific to the asset or market conditions where the asset is located when assessment is made. These factors are specific to each community and may vary among communities. We perform a quarterly review for indicators of impairment. For the years ended December 31, 2015, 2014 and 2013 we recorded impairment charges of $1.2 million, $931,000 and $341.1 million, respectively.  The impairment charge in 2013 was primarily related to the impairment of the Coyote Springs Property, which was an excluded asset per the Transaction Agreement.  

Revenue Recognition

In accordance with ASC Topic 360, Property, Plant, and Equipment, revenues from home sales and other real estate sales are recorded and a profit is recognized when the respective units are delivered. Home sales and other real estate sales are delivered when all conditions of escrow are met, including delivery of the home or other real estate asset, title passage, appropriate consideration is received and collection of associated receivables, if any, is reasonably assured. Sales incentives are a reduction of revenues when the respective unit is delivered. When it is determined that the earnings process is not complete, the sale and/or the related profit are deferred for recognition in future periods. The profit we record is based on the calculation of cost of sales, which is dependent on our allocation of costs, as described in more detail above in the section entitled “Real Estate Inventories and Cost of Sales.”

Warranty Reserves

In the normal course of business, we incur warranty-related costs associated with homes that have been delivered to homebuyers. Estimated future direct warranty costs are accrued and charged to cost of sales in the period when the related home sales revenues are recognized while indirect warranty overhead salaries and related costs are charged to cost of sales in the period incurred.  Factors that affect the warranty accruals include the number of homes delivered, historical and anticipated rates of warranty claims and cost per claim.  Our primary assumption in estimating the amounts we accrue for warranty costs is that historical claims experience is a strong indicator of future claims experience.  In addition, we maintain general liability insurance designed to protect us against a portion of our risk of loss from construction-related claims.  Included in our warranty reserve accrual are allowances to cover our estimated costs of self-insured retentions and deductible amounts under these policies and estimated costs for claims that may not be covered by applicable insurance or indemnities.  Estimation of these accruals include consideration of our claims history, including current claims and estimates of claims incurred but not yet reported. In 2015, we engaged a third-party actuary to analyze our warranty reserves and allowances to cover any current or future construction-related claims.  The third-party actuary used our historical expense and claim data, as well as industry data, to estimate a reserve amount.  As result of this analysis, we increased our warranty liability by $6.0 million during the fourth quarter of 2015.  Although we consider the warranty accruals reflected in our consolidated balance sheet to be adequate, actual future costs could differ significantly from our currently estimated amounts. Our warranty accrual is included in accrued expenses and other liabilities in the accompanying consolidated balance sheets.

 

Investments in Unconsolidated Entities

We have investments in unconsolidated entities over which we have significant influence that we account for using the equity method with taxes provided on undistributed earnings. We record earnings and accrue taxes in the period that the earnings are recorded by our affiliates. Under the equity method, our share of the unconsolidated entities’ earnings or loss is included in equity in income (loss) of unconsolidated entities in the accompanying consolidated statement of operations. We evaluate our investments in unconsolidated entities for impairment when events and circumstances indicate that the carrying value of the investment may not be recoverable.

Variable Interest Entities

The Company accounts for variable interest entities in accordance with ASC Topic 810, Consolidation (“ASC 810”). Under ASC 810, a variable interest entity (“VIE”) is created when: (a) the equity investment at risk in the entity is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by other parties, including the equity holders; (b) the entity’s equity holders as a group (i) lack the direct or indirect ability to make decisions about the entity, (ii) are not obligated to absorb expected losses of the entity or (iii) do not have the right to receive expected residual returns of the entity; or (c) the entity’s equity holders have voting rights that are not proportionate to their economic interests, and the activities of the entity involve, or are conducted on behalf of, the equity holder with disproportionately few voting rights. If an entity is deemed to be a VIE pursuant to ASC 810, the enterprise that has both (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) the obligation to absorb the expected losses of the entity or right to receive benefits from the entity that could be potentially significant to the VIE is considered the primary beneficiary and must consolidate the VIE.

Under ASC 810, a non-refundable deposit paid to an entity is deemed to be a variable interest that will absorb some or all of the entity’s expected losses if they occur. Our land purchase and lot option deposits generally represent our maximum exposure to the land seller if we elect not to purchase the optioned property. In some instances, we may also expend funds for due diligence, development and construction activities with respect to optioned land prior to takedown. Such costs are classified as inventories owned, which we would have to write off should we not exercise the option. Therefore, whenever we enter into a land option or purchase contract with an entity and make a non-refundable deposit, a VIE may have been created. In accordance with ASC 810, we perform ongoing reassessments of whether we are the primary beneficiary of a VIE.

Stock-Based Compensation

We account for share-based awards in accordance with ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. ASC 718 requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees.  Share-based awards are expensed on a straight-line basis over the expected vesting period.

Sales and Marketing Expense

Sales and marketing costs incurred to sell real estate projects are capitalized if they are reasonably expected to be recovered from the sale of the project or from incidental operations and are incurred for tangible assets that are used directly through the selling period to aid in the sale of the project or services that have been performed to obtain regulatory approval of sales. All other selling expenses and other marketing costs are expensed in the period incurred.

Restructuring Charges

Restructuring charges are incurred related to the Merger in addition to general cost reduction initiatives.   These charges are comprised of employee retention and severance-related expenses and lease termination costs.  We account for restructuring charges in accordance with ASC Topic 420, Exit or Disposal Cost Obligations or ASC Topic 712 – Compensation – Nonretirement Postemployment Benefits.  

Income Taxes

We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities are recorded based on future tax consequences of both temporary differences between the amounts reported for financial reporting purposes and the amounts deductible for income tax purposes, and are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted.

Each quarter we assess our deferred tax assets to determine whether all or any portion of the assets is more likely than not unrealizable under ASC 740. We are required to establish a valuation allowance for any portion of the asset we conclude is more likely than not to be unrealizable. Our assessment considers, among other things, the nature, frequency and severity of our current and cumulative losses, forecasts of our future taxable income, the duration of statutory carryforward periods and tax planning alternatives. Due to uncertainties inherent in the estimation process, it is possible that actual results may vary from estimates.

We classify any interest and penalties related to income taxes as part of income tax expense. As of December 31, 2015 and 2014 the Company had liabilities for gross unrecognized tax benefits of $272,000 and $14.9 million, respectively, the majority of which were assumed in connection with the Merger.

Goodwill

In accordance with ASC Topic 350, Intangibles-Goodwill and Other (“ASC 350”), we evaluate goodwill for possible impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  Based on our qualitative analysis, we have concluded as of December 31, 2015, our goodwill was not impaired.

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.

In April 2015 and August 2015, the FASB issued Accounting Standards Update No. 2015-03, (“ASU 2015-03”), Interest - Imputation of Interest (Subtopic 835-30) and 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.  We adopted ASU 2015-03 on December 31, 2015 and applied the new guidance retrospectively to all prior periods presented in the financial statements. As a result of the adoption of ASU 2015-03, $20.4 million and $23.7 million of deferred loan costs at December 31, 2015 and 2014, respectively, were reclassified from “Other assets” to “Senior notes” in our Consolidated Balance Sheets.  See Note 13, Senior Notes and Notes Payable and Other Borrowings, for additional information.  

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, (“ASU 2015-17”), Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requires deferred tax liabilities and assets be classified as noncurrent in a classified statement of position.  ASU 2015-17 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017.  The adoption of ASU 2015-17 will not have a material effect on our consolidated financial statements.

 

Merger with Weyerhaeuser Real Estate Company
Merger with Weyerhaeuser Real Estate Company

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, approximately 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 approximately 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.

Transaction Expenses

Advisory, financing, integration and other transaction costs directly related to the Merger, excluding the impact of restructuring costs and purchase accounting adjustments, totaled $18.0 million for the year ended December 31, 2014. No additional transaction-related costs were incurred in 2015.

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 homebuyer 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.

Supplemental Pro Forma Information (Unaudited)

The following represents unaudited pro forma operating results as if the acquisition had been completed as of January 1, 2013 (in thousands, except per share amounts):

 

 

 

Year Ended December 31,

 

 

 

2014

 

 

2013

 

Total revenues

 

$

1,865,723

 

 

$

1,532,667

 

Net income

 

$

88,416

 

 

$

91,028

 

Earnings per share – basic

 

$

0.55

 

 

$

0.56

 

Earnings per share – diluted

 

$

0.55

 

 

$

0.56

 

 

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.

Restructuring Charges
Restructuring Charges

3.

Restructuring Charges

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):

 

 

 

Year Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Employee-related costs

 

$

1,546

 

 

$

9,211

 

 

$

5,736

 

Lease termination costs

 

 

1,783

 

 

 

1,332

 

 

 

5,202

 

Total

 

$

3,329

 

 

$

10,543

 

 

$

10,938

 

 

Employee-related costs incurred during the year ended December 31, 2015 included severance-related expenses of $1.5 million.  Employee-related costs incurred during the year ended December 31, 2014 included employee retention and severance-related expenses of $8.3 million and stock-based compensation expense of $947,000 for employees terminated during the period.  Employee retention and severance-related expenses were $5.7 million for the year ended December 31, 2013. Lease termination costs of $1.8 million, $1.3 million and $5.2 million during the years ended December 31, 2015, 2014 and 2013, respectively, relate to contract terminations as a result of general cost reduction initiatives.

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

 

 

 

Year Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Accrued employee-related costs, beginning of period

 

$

3,844

 

 

$

4,336

 

 

$

28

 

Current year charges

 

 

1,546

 

 

 

8,264

 

 

 

5,736

 

Payments

 

 

(5,170

)

 

 

(8,756

)

 

 

(1,428

)

Accrued employee-related costs, end of period

 

$

220

 

 

$

3,844

 

 

$

4,336

 

 

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

 

 

 

Year Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Accrued lease termination costs, beginning of period

 

$

1,394

 

 

$

3,506

 

 

$

2,335

 

Current year charges

 

 

1,783

 

 

 

1,332

 

 

 

5,202

 

Payments

 

 

(2,410

)

 

 

(3,444

)

 

 

(4,031

)

Accrued lease termination costs, end of period

 

$

767

 

 

$

1,394

 

 

$

3,506

 

 

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

 

Segment Information
Segment Information

4.

Segment Information

We operate two principal businesses: homebuilding and financial services.

Our homebuilding operations consist of six homebuilding companies where we acquire and develop land and construct and sell single-family detached and attached 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 upon the above factors, our homebuilding operations are comprised of 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.

Our financial services operation (“TRI Pointe Solutions”) is comprised of mortgage financing operations and title services operations.  Our mortgage financing operation (“TRI Pointe Connect”) provides mortgage financing to our homebuyers in all of the markets in which we operate.  TRI Pointe Connect was formed as a joint venture with imortgage and is accounted for under the equity method of accounting.  Our title services operation (“TRI Pointe Assurance”) provides title examinations for our homebuyers in our Trendmaker Homes and Winchester Homes brands.  TRI Pointe Assurance is a wholly-owned subsidiary of TRI Pointe Group and acts as a title agency for First American Title Insurance Company.

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, internal audit 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 from continuing operations before income taxes for each of our reportable segments were as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

 

2015

 

 

2014

 

 

2013

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Maracay Homes

 

$

185,645

 

 

$

150,689

 

 

$

145,822

 

 

Pardee Homes

 

 

670,063

 

 

 

525,381

 

 

 

519,074

 

 

Quadrant Homes

 

 

189,401

 

 

 

145,377

 

 

 

127,237

 

 

Trendmaker Homes

 

 

278,759

 

 

 

281,270

 

 

 

260,566

 

 

TRI Pointe Homes

 

 

774,005

 

 

 

324,208

 

 

 

 

 

Winchester Homes

 

 

302,276

 

 

 

276,691

 

 

 

222,013

 

 

Total homebuilding revenues

 

 

2,400,149

 

 

 

1,703,616

 

 

 

1,274,712

 

 

Financial services

 

 

1,010

 

 

 

 

 

 

 

 

Total

 

$

2,401,159

 

 

$

1,703,616

 

 

$

1,274,712

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

Maracay Homes

 

$

9,849

 

 

$

10,845

 

 

$

10,438

 

 

Pardee Homes

 

 

183,077

 

 

 

74,898

 

 

 

(258,138

)

 

Quadrant Homes

 

 

10,478

 

 

 

9,028

 

 

 

1,504

 

 

Trendmaker Homes

 

 

25,004

 

 

 

31,684

 

 

 

28,452

 

 

TRI Pointe Homes

 

 

104,970

 

 

 

19,272

 

 

 

 

 

Winchester Homes

 

 

22,411

 

 

 

24,612

 

 

 

24,561

 

 

Corporate (1)

 

 

(38,589

)

 

 

(42,350

)

 

 

(44,271

)

 

Total homebuilding income (loss) before taxes

 

 

317,200

 

 

 

127,989

 

 

 

(237,454

)

 

Financial services

 

 

2,060

 

 

 

(25

)

 

 

 

 

Total

 

$

319,260

 

 

$

127,964

 

 

$

(237,454

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairments and lot option abandonments

 

 

 

 

 

 

 

 

 

 

 

 

 

Maracay Homes

 

$

86

 

 

$

443

 

 

$

203

 

 

Pardee Homes

 

 

35

 

 

 

306

 

 

 

343,661

 

(2)

Quadrant Homes

 

 

25

 

 

 

1,059

 

 

 

1,146

 

 

Trendmaker Homes

 

 

118

 

 

 

45

 

 

 

7

 

 

TRI Pointe Homes

 

 

460

 

 

 

49

 

 

 

 

 

Winchester Homes

 

 

1,206

 

 

 

613

 

 

 

431

 

 

Total

 

$

1,930

 

 

$

2,515

 

 

$

345,448

 

 

 

 

(1)

Includes $18.0 million of Merger related transaction costs and $5.5 million of restructuring charges for the year ended December 31, 2014. No similar costs were incurred for the year ended December 31, 2015.

 

(2)

Includes $343.3 million of impairment and related charges for Coyote Springs, a large master planned community north of Las Vegas, Nevada that was owned by Pardee Homes and excluded under the Transaction Agreement.

Total real estate inventories and total assets for each of our reportable segments, as of the date indicated, were as follows (in thousands):

 

 

 

December 31,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Real estate inventories

 

 

 

 

 

 

 

 

Maracay Homes

 

$

206,912

 

 

$

153,577

 

Pardee Homes

 

 

1,011,982

 

 

 

924,362

 

Quadrant Homes

 

 

190,038

 

 

 

153,493

 

Trendmaker Homes

 

 

199,398

 

 

 

176,696

 

TRI Pointe Homes

 

 

659,130

 

 

 

613,666

 

Winchester Homes

 

 

251,813

 

 

 

258,389

 

Total

 

$

2,519,273

 

 

$

2,280,183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

 

 

 

 

 

 

Maracay Homes

 

$

227,857

 

 

$

170,932

 

Pardee Homes

 

 

1,089,586

 

 

 

1,000,489

 

Quadrant Homes

 

 

202,024

 

 

 

167,796

 

Trendmaker Homes

 

 

213,562

 

 

 

195,829

 

TRI Pointe Homes

 

 

832,423

 

 

 

781,301

 

Winchester Homes

 

 

278,374

 

 

 

281,547

 

Corporate

 

 

292,169

 

 

 

291,944

 

Total homebuilding assets

 

 

3,135,995

 

 

 

2,889,838

 

Financial services

 

 

2,076

 

 

 

 

Total

 

$

3,138,071

 

 

$

2,889,838

 

 

Earnings Per Share
Earnings Per Share

5.

Earnings Per Share

The following table sets forth the components used in the computation of basic and diluted earnings per share (in thousands, except share and per share amounts):

 

 

 

Year Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

205,461

 

 

$

84,197

 

 

$

(151,293

)

Income from discontinued operations

 

 

 

 

 

 

 

 

1,838

 

Net income (loss) available to common stockholders

 

$

205,461

 

 

$

84,197

 

 

$

(149,455

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

 

161,692,152

 

 

 

145,044,351

 

 

 

129,700,000

 

Effect of dilutive shares:

 

 

 

 

 

 

 

 

 

 

 

 

Stock options and unvested restricted stock units

 

 

627,606

 

 

 

486,938

 

 

 

 

Diluted weighted-average shares outstanding

 

 

162,319,758

 

 

 

145,531,289

 

 

 

129,700,000

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

1.27

 

 

$

0.58

 

 

$

(1.17

)

Discontinued operations

 

 

 

 

 

 

 

 

0.02

 

Net earnings (loss) per share

 

$

1.27

 

 

$

0.58

 

 

$

(1.15

)

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

1.27

 

 

$

0.58

 

 

$

(1.17

)

Discontinued operations

 

 

 

 

 

 

 

 

0.02

 

Net earnings (loss) per share

 

$

1.27

 

 

$

0.58

 

 

$

(1.15

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Antidilutive stock options not included in diluted earnings per share

 

 

2,622,391

 

 

 

1,295,280

 

 

 

 

 

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.  See Note 2, Merger with Weyerhaeuser Real Estate Company, for further information on the Merger.

Receivables, Net
Receivables, Net

6.

Receivables, Net

Receivables, net consisted of the following (in thousands):

 

 

 

December 31,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Escrow proceeds and other accounts receivable, net

 

$

32,917

 

 

$

9,771

 

Warranty insurance receivable (Note 15)

 

 

10,493

 

 

 

10,047

 

Notes and contracts receivable

 

 

300

 

 

 

300

 

Total receivables

 

$

43,710

 

 

$

20,118

 

 

Each receivable is evaluated for collectability at least quarterly, and allowances for potential losses are established or maintained on applicable receivables when collection becomes doubtful.  Receivables were net of allowances for doubtful accounts of $1.7 million in 2015 and $1.4 million in 2014.

Real Estate Inventories
Real Estate Inventories

7.

Real Estate Inventories

Real estate inventories consisted of the following (in thousands):

 

 

December 31,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Real estate inventories owned:

 

 

 

 

 

 

 

 

Homes completed or under construction

 

$

575,076

 

 

$

461,712

 

Land under development

 

 

1,443,461

 

 

 

1,391,303

 

Land held for future development

 

 

295,241

 

 

 

245,673

 

Model homes

 

 

140,232

 

 

 

103,270

 

Total real estate inventories owned

 

 

2,454,010

 

 

 

2,201,958

 

Real estate inventories not owned:

 

 

 

 

 

 

 

 

Land purchase and land option deposits

 

 

39,055

 

 

 

44,155

 

Consolidated inventory held by VIEs

 

 

26,208

 

 

 

34,070

 

Total real estate inventories not owned

 

 

65,263

 

 

 

78,225

 

Total real estate inventories

 

$

2,519,273

 

 

$

2,280,183

 

 

Homes completed or under construction is comprised of costs associated with homes in various stages of construction and includes direct construction and related land acquisition and land development costs. Land under development primarily consists of land acquisition and land development costs, which include capitalized interest and real estate taxes, associated with land undergoing improvement activity. Land held for future development principally reflects land acquisition and land development costs related to land where development activity has not yet begun or has been suspended, but is expected to occur in the future.

Real estate inventories not owned represents deposits related to land purchase and land option agreements as well as consolidated inventory held by a VIE. For further details, see Note 9, Variable Interest Entities.

Interest incurred, capitalized and expensed were as follows (in thousands):

 

 

Year Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Interest incurred

 

$

60,964

 

 

$

41,706

 

 

$

22,674

 

Interest capitalized

 

 

(60,964

)

 

 

(38,975

)

 

 

(19,081

)

Interest expensed

 

$

 

 

$

2,731

 

 

$

3,593

 

Capitalized interest in beginning inventory

 

$

124,461

 

 

$

138,233

 

 

$

155,823

 

Interest capitalized as a cost of inventory

 

 

60,964

 

 

 

38,975

 

 

 

19,081

 

Interest previously capitalized as a cost of inventory, included in

   cost of sales

 

 

(45,114

)

 

 

(52,747

)

 

 

(36,671

)

Capitalized interest in ending inventory

 

$

140,311

 

 

$

124,461

 

 

$

138,233

 

 

Interest is capitalized to real estate inventory during development and other qualifying activities. Interest that is capitalized to real estate inventory is included in cost of home sales as related units are delivered. Interest that is expensed as incurred is included in other income (loss), net on the consolidated statements of operations.

Real estate inventory impairments and land option abandonments

Real estate inventory impairments and land option abandonments consisted of the following (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Real estate inventory impairments

 

$

1,167

 

 

$

931

 

 

$

341,086

 

Land and lot option abandonments and pre-acquisition costs

 

 

763

 

 

 

1,584

 

 

 

4,362

 

Total

 

$

1,930

 

 

$

2,515

 

 

$

345,448

 

 

Impairments of real estate inventory relate primarily to projects or communities that include homes completed or under construction. Within a project or community, there may be individual homes or parcels of land that are currently held for sale. Impairment charges recognized as a result of adjusting individual held-for-sale assets within a community to estimated fair value less cost to sell are also included in the total impairment charges above.  

In addition to owning land and residential lots, we also have option agreements to purchase land and lots at a future date. We have option deposits and capitalized pre-acquisition costs associated with the optioned land and lots. When the economics of a project no longer support acquisition of the land or lots under option, we may elect not to move forward with the acquisition. Option deposits and capitalized pre-acquisition costs associated with the assets under option may be forfeited at that time.

The real estate inventory impairment charge in 2013 is primarily related to the $340.3 million impairment of the Coyote Springs Property in December 2013. Under the terms of the Transaction Agreement, certain assets and liabilities of WRECO and its subsidiaries were excluded from the transaction and retained by Weyerhaeuser, including assets and liabilities relating to the Coyote Springs Property.

Investments in Unconsolidated Entities
Investments in Unconsolidated Entities

8.

Investments in Unconsolidated Entities

As of December 31, 2015, we held equity investments in six active homebuilding partnerships or limited liability companies and one financial services limited liability company. Our participation in these entities may be as a developer, a builder, or an investment partner. Our ownership percentage varies from 7% to 55%, depending on the investment, with no controlling interest held in any of these investments.

Investments Held

Our cumulative investment in entities accounted for on the equity method, including our share of earnings and losses, consisted of the following (in thousands):

 

 

 

December 31,

 

 

 

2015

 

 

2014

 

Limited liability company interests

 

$

15,739

 

 

$

13,710

 

General partnership interests

 

 

3,260

 

 

 

3,095

 

Total

 

$

18,999

 

 

$

16,805

 

 

Unconsolidated Financial Information

Aggregated assets, liabilities and operating results of the entities we account for as equity-method investments are provided below. Because our ownership interest in these entities varies, a direct relationship does not exist between the information presented below and the amounts that are reflected on our consolidated balance sheets as our investment in unconsolidated entities or on our consolidated statement of operations as equity in income (loss) of unconsolidated entities.

Assets and liabilities of unconsolidated entities (in thousands):

 

 

 

December 31,

 

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

 

Cash

 

$

18,641

 

 

$

17,154

 

Receivables

 

 

13,108

 

 

 

9,550

 

Real estate inventories

 

 

92,881

 

 

 

95,500

 

Other assets

 

 

1,180

 

 

 

620

 

Total assets

 

$

125,810

 

 

$

122,824

 

Liabilities and equity

 

 

 

 

 

 

 

 

Accounts payable and other liabilities

 

$

14,443

 

 

$

10,914

 

Company’s equity

 

 

18,999

 

 

 

16,805

 

Outside interests' equity

 

 

92,368