TRI POINTE HOMES, INC., 10-Q filed on 5/8/2015
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2015
May 1, 2015
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Mar. 31, 2015 
 
Document Fiscal Year Focus
2015 
 
Document Fiscal Period Focus
Q1 
 
Trading Symbol
TPH 
 
Entity Registrant Name
TRI Pointe Homes, Inc. 
 
Entity Central Index Key
0001561680 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
161,644,412 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2015
Dec. 31, 2014
Assets
 
 
Cash and cash equivalents
$ 106,573 
$ 170,629 
Receivables
23,012 
20,118 
Real estate inventories
2,409,306 
2,280,183 
Investments in unconsolidated entities
17,730 
16,805 
Goodwill and other intangible assets, net
162,429 
162,563 
Deferred tax assets
155,803 
157,821 
Other assets
97,394 
105,405 
Total assets
2,972,247 
2,913,524 
Liabilities
 
 
Accounts payable
60,995 
68,860 
Accrued expenses and other liabilities
210,601 
210,009 
Notes payable and other borrowings
322,142 
274,677 
Senior notes
887,882 
887,502 
Total liabilities
1,481,620 
1,441,048 
Commitments and contingencies
   
   
Stockholders' Equity:
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued and outstanding as of March 31, 2015 and December 31, 2014, respectively
   
   
Common stock, $0.01 par value, 500,000,000 shares authorized; 161,602,883 and 161,355,490 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively
1,616 
1,614 
Additional paid-in capital
907,282 
906,159 
Retained earnings
561,704 
546,407 
Total stockholders' equity
1,470,602 
1,454,180 
Noncontrolling interests
20,025 
18,296 
Total equity
1,490,627 
1,472,476 
Total liabilities and equity
$ 2,972,247 
$ 2,913,524 
Consolidated Balance Sheets (Parenthetical) (USD $)
Mar. 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
161,602,883 
161,355,490 
Common stock, shares outstanding
161,602,883 
161,355,490 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 12 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Dec. 31, 2014
Revenues:
 
 
 
Home sales
$ 374,265 
$ 241,902 
 
Land and lot sales
2,000 
3,387 
 
Other operations
993 
2,843 
 
Total revenues
377,258 
248,132 
 
Expenses:
 
 
 
Cost of home sales
299,907 
191,268 
 
Cost of land and lot sales
2,308 
3,163 
 
Other operations
562 
1,632 
 
Sales and marketing
23,286 
20,905 
 
General and administrative
28,179 
18,005 
 
Restructuring charges
222 
1,716 
 
Total expenses
354,464 
236,689 
 
Income from operations
22,794 
11,443 
 
Equity in income (loss) of unconsolidated entities
74 
(68)
 
Other income, net
256 
735 
 
Income before taxes
23,124 
12,110 
 
Provision for income taxes
(7,827)
(4,529)
 
Net income
$ 15,297 
$ 7,581 
$ 84,197 
Earnings per share
 
 
 
Basic
$ 0.09 
$ 0.06 
 
Diluted
$ 0.09 
$ 0.06 
 
Weighted average shares outstanding
 
 
 
Basic
161,490,970 
129,700,000 
 
Diluted
162,807,376 
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, 2013
$ 825,517 
$ 1,297 
$ 333,589 
$ 462,210 
$ 797,096 
$ 28,421 
Beginning Balance, Shares at Dec. 31, 2013
129,700,000 
129,700,000 
 
 
 
 
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)
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 
 
Contributions from (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
15,297 
 
 
15,297 
15,297 
 
Shares issued under share-based awards
263 
261 
 
263 
 
Shares issued under share-based awards, Shares
 
247,393 
 
 
 
 
Excess tax benefit of share-based awards, net
308 
 
308 
 
308 
 
Minimum tax withholding paid on behalf of employees for restricted stock units
(1,827)
 
(1,827)
 
(1,827)
 
Stock-based compensation expense
2,381 
 
2,381 
 
2,381 
 
Contributions from (distributions to) noncontrolling interests, net
147 
 
 
 
 
147 
Net effect of consolidations, de- consolidations and other transactions
1,582 
 
 
 
 
1,582 
Ending Balance at Mar. 31, 2015
$ 1,490,627 
$ 1,616 
$ 907,282 
$ 561,704 
$ 1,470,602 
$ 20,025 
Ending Balance, Shares at Mar. 31, 2015
161,602,883 
161,602,883 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Cash flows from operating activities
 
 
Net income
$ 15,297 
$ 7,581 
Adjustments to reconcile net income to net cash used in operating activities:
 
 
Depreciation and amortization
1,481 
2,882 
Equity in (income) loss of unconsolidated entities, net
(74)
68 
Deferred income taxes, net
2,018 
1,029 
Amortization of stock-based compensation
2,381 
1,293 
Charges for impairments and lot option abandonments
360 
468 
Changes in assets and liabilities:
 
 
Real estate inventories
(127,304)
(67,902)
Receivables
(2,894)
24,972 
Other assets
6,963 
11,811 
Accounts payable
(7,865)
22,950 
Accrued expenses and other liabilities
1,323 
(33,370)
Income taxes receivable from or payable to Weyerhaeuser
 
3,014 
Other operating cash flows
 
31 
Net cash used in operating activities
(108,314)
(25,173)
Cash flows from investing activities:
 
 
Purchases of property and equipment
(378)
(1,663)
Proceeds from sale of property and equipment
 
Investments in unconsolidated entities
(978)
(473)
Net cash used in investing activities
(1,356)
(2,132)
Cash flows from financing activities:
 
 
Borrowings from notes payable
50,000 
 
Repayment of notes payable
(2,535)
 
Changes in debt payable to Weyerhaeuser
 
34,220 
Change in book overdrafts
 
(5,639)
Net repayments of debt held by variable interest entities
(742)
(803)
Contributions from noncontrolling interests
873 
854 
Distributions to noncontrolling interests
(726)
(2,985)
Proceeds from issuance of common stock under share-based awards
263 
 
Excess tax benefits of share-based awards
308 
486 
Minimum tax withholding paid on behalf of employees for restricted stock units
(1,827)
 
Net cash provided by financing activities
45,614 
26,133 
Net decrease in cash and cash equivalents
(64,056)
(1,172)
Cash and cash equivalents - beginning of period
170,629 
4,510 
Cash and cash equivalents - end of period
$ 106,573 
$ 3,338 
Organization, Basis of Presentation and Summary of Significant Accounting Policies
Organization, Basis of Presentation and Summary of Significant Accounting Policies

1.

Organization, Basis of Presentation and Summary of Significant Accounting Policies

Organization

TRI Pointe Homes, Inc. 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.

Basis of Presentation

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

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

The Company has historically experienced, and expects to continue to experience, variability in quarterly results. The results of operations for the three months ended March 31, 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 United States generally accepted accounting principles 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 United States generally accepted accounting principles 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.

Unless the context otherwise requires, the terms “TRI Pointe”, “we”, “us”, “our” and “the Company” refer to TRI Pointe Homes, Inc. (and its consolidated subsidiaries). Because the accompanying notes to consolidated financial statements are condensed, they should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10‑K for the year ended December 31, 2014.  

Reverse Acquisition

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

Use of Estimates

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

Recently Issued Accounting Standards

In April 2014, the FASB issued amendments to Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The update requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. We adopted ASU 2014-08 on January 1, 2015 and the adoption has 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. ASU 2014-09 is effective for public entities for the annual periods ending after December 15, 2017, and for annual and interim periods thereafter. Early adoption is not permitted. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. We are currently evaluating the approach for implementation and the potential impact of adopting this guidance on our consolidated financial statements.

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

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

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, (“ASU 2015-03”), Interest - Imputation of Interest (Subtopic 835-30).  ASU 2015-03 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The impact of ASU 2015-03 for the periods ended March 31, 2015 and December 31, 2014 would be a balance sheet reclassification of $22.9 million and $23.7 million of deferred loan costs on Senior Notes, currently included in Other Assets, which would be reclassified as a reduction to Senior Notes in the liabilities section of the balance sheet.

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, 79.6% of the then outstanding TRI Pointe common stock, (ii) the TRI Pointe common stock outstanding immediately prior to the consummation of the Merger represented 19.4% of the then outstanding TRI Pointe common stock, and (iii) the outstanding equity awards of WRECO and TRI Pointe employees represented the remaining 1.0% of the then outstanding TRI Pointe common stock. On the Closing Date, the former direct parent entity of WRECO paid TRI Pointe $31.5 million in cash in accordance with the Transaction Agreement.  Following the Merger, WRECO changed its name to TRI Pointe Holdings, Inc.

Assumption of Senior Notes

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

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

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 has completed its business combination accounting as of March 31, 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, 2014 (in thousands, except per share amounts):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2014

 

Total revenues

 

$

320,944

 

Net income

 

$

13,421

 

Earnings per share - basic

 

$

0.10

 

Earnings per share - diluted

 

$

0.10

 

 

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
Restructuring

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 March 31,

 

 

 

2015

 

 

2014

 

Employee-related costs

 

$

112

 

 

$

1,247

 

Lease termination costs

 

 

110

 

 

 

411

 

Other costs

 

 

 

 

 

58

 

Total

 

$

222

 

 

$

1,716

 

 

Employee retention and severance-related expenses were $112,000 and $1.2 million for the three months ended March 31, 2015 and 2014, respectively. Lease termination costs were $110,000 and $411,000 for the three months ended March 31, 2015, and 2014, respectively, and relate to contract terminations as a result of general cost reduction initiatives.

 

Other costs are primarily comprised of one-time charges incurred to prepare for the integration of WRECO and TRI Pointe.

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

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

 

2014

 

Accrued employee-related costs, beginning of period

 

$

3,844

 

 

$

4,336

 

Current year charges

 

 

112

 

 

 

1,247

 

Payments

 

 

(3,423

)

 

 

(5,583

)

Accrued employee-related costs, end of period

 

$

533

 

 

$

 

 

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

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

 

2014

 

Accrued lease termination costs, beginning of period

 

$

1,394

 

 

$

3,506

 

Current year charges

 

 

110

 

 

 

411

 

Payments

 

 

(578

)

 

 

(1,159

)

Accrued lease termination costs, end of period

 

$

926

 

 

$

2,758

 

 

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

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

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

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

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

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

 

2014

 

Total revenues

 

 

 

 

 

 

 

 

Maracay

 

$

32,477

 

 

$

35,230

 

Pardee

 

 

85,658

 

 

 

72,462

 

Quadrant

 

 

45,629

 

 

 

32,254

 

Trendmaker

 

 

56,208

 

 

 

61,400

 

TRI Pointe

 

 

106,858

 

 

 

 

Winchester

 

 

50,428

 

 

 

46,786

 

Total

 

$

377,258

 

 

$

248,132

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

 

 

 

 

 

 

 

Maracay

 

$

1,040

 

 

$

3,623

 

Pardee

 

 

13,559

 

 

 

7,137

 

Quadrant

 

 

1,580

 

 

 

781

 

Trendmaker

 

 

4,360

 

 

 

6,377

 

TRI Pointe

 

 

11,132

 

 

 

 

Winchester

 

 

381

 

 

 

4,169

 

Corporate

 

 

(8,928

)

 

 

(9,977

)

Total

 

$

23,124

 

 

$

12,110

 

 

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Real estate inventories

 

 

 

 

 

 

 

 

Maracay

 

$

157,862

 

 

$

153,577

 

Pardee

 

 

964,332

 

 

 

924,362

 

Quadrant

 

 

151,234

 

 

 

153,493

 

Trendmaker

 

 

183,157

 

 

 

176,696

 

TRI Pointe

 

 

677,010

 

 

 

613,666

 

Winchester

 

 

275,711

 

 

 

258,389

 

Total

 

$

2,409,306

 

 

$

2,280,183

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

 

 

 

 

 

 

Maracay

 

$

170,872

 

 

$

170,932

 

Pardee

 

 

1,045,570

 

 

 

1,000,489

 

Quadrant

 

 

168,509

 

 

 

167,796

 

Trendmaker

 

 

211,780

 

 

 

195,829

 

TRI Pointe

 

 

817,180

 

 

 

764,001

 

Winchester

 

 

300,678

 

 

 

281,547

 

Corporate

 

 

257,658

 

 

 

332,930

 

Total

 

$

2,972,247

 

 

$

2,913,524

 

 

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):

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

 

2014

 

Numerator:

 

 

 

 

 

 

 

 

Net income

 

$

15,297

 

 

$

7,581

 

Denominator:

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

 

161,490,970

 

 

 

129,700,000

 

Effect of dilutive shares:

 

 

 

 

 

 

 

 

Stock options and unvested restricted stock units

 

 

1,316,406

 

 

 

 

Diluted weighted-average shares outstanding

 

 

162,807,376

 

 

 

129,700,000

 

Earnings per share

 

 

 

 

 

 

 

 

Basic

 

$

0.09

 

 

$

0.06

 

Diluted

 

$

0.09

 

 

$

0.06

 

Antidilutive stock options not included in diluted earnings

   per share

 

 

1,266,863

 

 

 

 

 

Receivables
Receivables

6.

Receivables

Receivables consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Accounts receivable, net

 

$

12,980

 

 

$

9,771

 

Warranty insurance receivable (Note 15)

 

 

9,732

 

 

 

10,047

 

Notes and contracts receivable

 

 

300

 

 

 

300

 

Total receivables

 

$

23,012

 

 

$

20,118

 

 

Real Estate Inventories
Real Estate Inventories

7.

Real Estate Inventories

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Real estate inventories owned:

 

 

 

 

 

 

 

 

Homes completed or under construction

 

$

565,916

 

 

$

461,712

 

Land under development

 

 

1,406,944

 

 

 

1,391,303

 

Land held for future development

 

 

246,957

 

 

 

245,673

 

Model homes

 

 

120,308

 

 

 

103,270

 

Total real estate inventories owned

 

 

2,340,125

 

 

 

2,201,958

 

Real estate inventories not owned:

 

 

 

 

 

 

 

 

Land purchase and land option deposits

 

 

34,959

 

 

 

44,155

 

Consolidated inventory held by VIEs

 

 

34,222

 

 

 

34,070

 

Total real estate inventories not owned

 

 

69,181

 

 

 

78,225

 

Total real estate inventories

 

$

2,409,306

 

 

$

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 variable interest entity (VIE). For further details, see Note 9, Variable Interest Entities.

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

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

 

2014

 

Interest incurred

 

$

15,176

 

 

$

4,038

 

Interest capitalized

 

 

(15,176

)

 

 

(3,809

)

Interest expensed

 

$

 

 

$

229

 

Capitalized interest in beginning inventory

 

$

124,461

 

 

$

138,233

 

Interest capitalized as a cost of inventory

 

 

15,176

 

 

 

3,809

 

Interest previously capitalized as a cost of inventory,

   included in cost of sales

 

 

(6,765

)

 

 

(4,063

)

Capitalized interest in ending inventory

 

$

132,872

 

 

$

137,979

 

 

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 (expense).

Real estate inventory impairments and land option abandonments

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

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

 

2014

 

Real estate inventory impairments

 

$

 

 

$

10

 

Land option abandonments and pre-acquisition costs

 

 

360

 

 

 

458

 

Total

 

$

360

 

 

$

468

 

 

Impairments of homebuilding assets and related charges relate primarily to projects or communities held for development. Within a community that is held for development, 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. Charges for such forfeitures are expensed to cost of sales.

 

Investments in Unconsolidated Entities
Investments in Unconsolidated Entities

8.

Investments in Unconsolidated Entities

As of March 31, 2015, we held equity investments in six active real estate partnerships or limited liability companies. 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):

 

 

 

March 31,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Limited partnership and limited liability company interests

 

$

14,374

 

 

$

13,710

 

General partnership interests

 

 

3,356

 

 

 

3,095

 

Total

 

$

17,730

 

 

$

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):

 

 

 

March 31,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

 

Cash

 

$

13,897

 

 

$

17,154

 

Receivables

 

 

10,192

 

 

 

9,550

 

Real estate inventories

 

 

89,275

 

 

 

95,500

 

Other assets

 

 

772

 

 

 

620

 

Total assets

 

$

114,136

 

 

$

122,824

 

Liabilities and equity

 

 

 

 

 

 

 

 

Accounts payable and other liabilities

 

$

13,517

 

 

$

10,914

 

Company's equity

 

 

17,730

 

 

 

16,805

 

Outside interests' equity

 

 

82,889

 

 

 

95,105

 

Total liabilities and equity

 

$

114,136

 

 

$

122,824

 

 

Results of operations from unconsolidated entities (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

 

2014

 

Net sales

 

$

76

 

 

$

71

 

Other operating expense

 

 

(736

)

 

 

(1,011

)

Other income

 

 

2

 

 

 

2

 

Net loss

 

$

(658

)

 

$

(938

)

Company's equity in income (loss) of unconsolidated entities

 

$

74

 

 

$

(68

)

 

Variable Interest Entities
Variable Interest Entities

9.

Variable Interest Entities

In the ordinary course of business, we enter into land option agreements in order to procure land and residential lots for future development and the construction of homes. The use of such land option agreements generally allows us to reduce the risks associated with direct land ownership and development, and reduces our capital and financial commitments. Pursuant to these land option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. Such deposits are recorded as land purchase and land option deposits under real estate inventories not owned in the accompanying consolidated balance sheets.

We analyze each of our land option agreements and other similar contracts under the provisions of ASC 810 to determine whether the land seller is a VIE and, if so, whether we are the primary beneficiary. Although we do not have legal title to the underlying land, if we are determined to be the primary beneficiary of the VIE, we will consolidate the VIE in our financial statements and reflect its assets as real estate inventory not owned included in our real estate inventories, its liabilities as debt (nonrecourse) held by VIEs in accrued expenses and other liabilities and the net equity of the VIE owners as noncontrolling interests on our consolidated balance sheets. In determining whether we are the primary beneficiary, we consider, among other things, whether we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE.

Creditors of the entities with which we have land option agreements have no recourse against us. The maximum exposure to loss under our land option agreements is limited to non-refundable option deposits and any capitalized pre-acquisition costs. In some cases, we have also contracted to complete development work at a fixed cost on behalf of the land owner and budget shortfalls and savings will be borne by us.

The following provides a summary of our interests in land option agreements (in thousands):

 

 

 

March 31, 2015

 

 

December 31, 2014

 

 

 

 

 

 

 

Remaining

 

 

Consolidated

 

 

 

 

 

 

Remaining

 

 

Consolidated

 

 

 

 

 

 

 

Purchase

 

 

Inventory

 

 

 

 

 

 

Purchase

 

 

Inventory

 

 

 

Deposits

 

 

Price

 

 

Held by VIEs

 

 

Deposits

 

 

Price

 

 

Held by VIEs

 

Consolidated VIEs

 

$

7,237

 

 

$

39,395

 

 

$

34,222

 

 

$

8,071

 

 

$

43,432

 

 

$

34,070

 

Unconsolidated VIEs

 

 

7,044

 

 

 

65,660

 

 

N/A

 

 

 

13,309

 

 

 

129,637

 

 

N/A

 

Other land option agreements

 

 

27,915

 

 

 

287,559

 

 

N/A

 

 

 

30,846

 

 

 

284,819

 

 

N/A

 

Total

 

$

42,196

 

 

$

392,614

 

 

$

34,222

 

 

$

52,226

 

 

$

457,888

 

 

$

34,070

 

 

Unconsolidated VIEs represent land option agreements that were not consolidated because we were not the primary beneficiary. Other land option agreements were not considered VIEs.

In addition to the deposits presented in the table above, our exposure to loss related to our land option contracts consisted of capitalized pre-acquisition costs of $4.2 million and $5.3 million as of March 31, 2015 and December 31, 2014, respectively. These pre-acquisition costs were included in real estate inventories as land under development on our consolidated balance sheets.

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets

10.

Goodwill and Other Intangible Assets

In connection with the Merger, $139.3 million of goodwill has been recorded as of March 31, 2015.  For further details on the goodwill, see Note 2, Merger with Weyerhaeuser Real Estate Company.

We have two intangible assets recorded as of March 31, 2015, including an existing trade name from the acquisition of Maracay in 2006 which has a 20 year useful life and a new trade name, TRI Pointe Homes, resulting from the Merger which has an indefinite useful life. For further details on the TRI Pointe Homes trade name see Note 2, Merger with Weyerhaeuser Real Estate Company.

Goodwill and other intangible assets consisted of the following (in thousands):

 

 

 

March 31, 2015

 

 

December 31, 2014

 

 

 

Gross

 

 

 

 

 

 

Net

 

 

Gross

 

 

 

 

 

 

Net

 

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

 

Amount

 

 

Amortization

 

 

Amount

 

 

Amount

 

 

Amortization

 

 

Amount

 

Goodwill

 

$

139,304

 

 

$

 

 

$

139,304

 

 

$

139,304

 

 

$

 

 

$

139,304

 

Trade names

 

 

27,979

 

 

 

(4,854

)

 

 

23,125

 

 

 

27,979

 

 

 

(4,720

)

 

 

23,259

 

Total

 

$

167,283

 

 

$

(4,854

)

 

$

162,429

 

 

$

167,283

 

 

$

(4,720

)

 

$

162,563

 

The remaining useful life of our amortizing intangible asset related to Maracay was 10.9 and 11.2 years as of March 31, 2015 and December 31, 2014, respectively. Amortization expense related to this intangible asset was $134,000 for the three month period ended March 31, 2015 and 2014, respectively, and was charged to sales and marketing expense.  Our indefinite life intangible asset related to TRI Pointe Homes is not amortizing.

Expected amortization of our intangible asset related to Maracay for the next five years and thereafter is (in thousands):

 

 

 

March 31,

 

 

 

2015

 

Remainder of 2015

 

$

401

 

2016

 

 

534

 

2017

 

 

534

 

2018

 

 

534

 

2019

 

 

534

 

Thereafter

 

 

3,288

 

Total

 

$

5,825

 

 

Other Assets
Other Assets

11.

Other Assets

Other assets consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Prepaid expenses

 

$

26,200

 

 

$

29,111

 

Refundable fees and other deposits

 

 

15,976

 

 

 

15,581

 

Development rights, held for future use or sale

 

 

7,409

 

 

 

7,409

 

Deferred loan costs on Senior Notes

 

 

22,876

 

 

 

23,686

 

Operating properties and equipment, net

 

 

10,990

 

 

 

11,719

 

Income tax receivable

 

 

7,606

 

 

 

10,713

 

Other

 

 

6,337

 

 

 

7,186

 

Total

 

$

97,394

 

 

$

105,405

 

 

Accrued Expenses and Other Liabilities
Accrued Expenses and Other Liabilities

12.

Accrued Expenses and Other Liabilities

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Accrued payroll and related costs

 

$

16,558

 

 

$

24,717

 

Warranty reserves (Note 15)

 

 

33,965

 

 

 

33,270

 

Estimated cost for completion

 

 

53,737

 

 

 

54,437

 

Customer deposits

 

 

16,536

 

 

 

14,229

 

Debt (nonrecourse) held by VIEs (Note 9)

 

 

8,770

 

 

 

9,512

 

Income tax liability to Weyerhaeuser (Note 18)

 

 

15,747

 

 

 

15,659

 

Liability for uncertain tax positions (Note 17)

 

 

14,685

 

 

 

13,797

 

Accrued interest on Senior Notes and notes payable

 

 

14,683

 

 

 

3,059

 

Accrued insurance expense

 

 

6,508

 

 

 

9,180

 

Other

 

 

29,412

 

 

 

32,149

 

Total

 

$

210,601

 

 

$

210,009

 

 

Senior Notes and Notes Payable and Other Borrowings
Senior Notes and Notes Payable and Other Borrowings

13.

Senior Notes and Notes Payable and Other Borrowings

Senior Notes

Senior notes consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2015

 

 

2014

 

4.375% Senior Notes due June 15, 2019, net of discount

 

$

445,727

 

 

$

445,501

 

5.875% Senior Notes due June 15, 2024, net of discount

 

 

442,155

 

 

 

442,001

 

Total

 

$

887,882

 

 

$

887,502

 

 

As discussed in Note 2, Merger with Weyerhaeuser Real Estate Company, on the Closing Date, TRI Pointe assumed WRECO’s obligations as issuer of the 2019 Notes and the 2024 Notes (collectively, the “Senior Notes”). The 2019 Notes were issued at 98.89% of their aggregate principal amount and the 2024 Notes were issued at 98.15% of their aggregate principal amount. The net proceeds of $861.3 million, after debt issuance costs and discounts, from the offering were deposited into two separate escrow accounts following the closing of the offering on June 13, 2014.

The 2019 Notes and the 2024 Notes mature on June 15, 2019 and June 15, 2024, respectively. Interest is payable semiannually in arrears on June 15 and December 15. As of March 31, 2015, no principal has been paid on the Senior Notes, and there was $22.9 million of capitalized debt financing costs, included in other assets on our consolidated balance sheet, related to the Senior Notes that will amortize over the lives of the Senior Notes. Accrued interest related to the Senior Notes was $13.5 million as of March 31, 2015.

Notes Payable and Other Borrowings

Notes payable and other borrowings consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Unsecured revolving credit facility

 

$

309,392

 

 

$

260,000

 

Seller financed loans

 

 

12,750

 

 

 

14,677

 

Total

 

$

322,142

 

 

$

274,677

 

 

Unsecured Revolving Credit Facility

In June 2014, the Company entered into an unsecured $425 million revolving credit facility (the “Credit Facility”) with various lenders, with one lender serving as the administrative agent for the Credit Facility. The Credit Facility matures on July 1, 2018, and contains a sublimit of $75 million for letters of credit. The Company may borrow under the Credit Facility in the ordinary course of business to fund its operations, including its land development and homebuilding activities. Borrowings under the Credit Facility will be governed by, among other things, a borrowing base. Interest rates on borrowings under the Credit Facility will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 2.15% to 2.85%, depending on the Company’s leverage ratio. As of March 31, 2015, the outstanding balance under the Credit Facility was $309.4 million with an interest rate of 2.73% per annum and $103.8 million of availability after considering the borrowing base provisions and outstanding letters of credit.  Accrued interest related to the Credit Facility was $567,000 as of March 31, 2015.

At March 31, 2015 we had outstanding letters of credit of $11.8 million.  These letters of credit were issued to secure various financial obligations.  We believe it is not probable that any outstanding letters of credit will be drawn upon.

Seller Financed Loans

As of March 31, 2015, the Company had $12.8 million outstanding related to seller financed loans to acquire lots for the construction of homes.  Principal and interest payments on these loans are due at various maturity dates, including at the time individual homes associated with the acquired land are delivered.  The seller financed loans accrue interest at a weighted average rate of 6.95% per annum, with interest calculated on a daily basis. Any remaining unpaid balance on these loans is due in May 2016.  Accrued interest on these loans were $654,000 as of March 31, 2015.

Interest Incurred

During the three month periods ended March 31, 2015 and 2014, the Company incurred interest of $15.2 million and $4.0 million, respectively, related to all notes payable, Senior Notes and debt payable to Weyerhaeuser outstanding during the period. Of the interest incurred, $15.2 million and $3.8 million was capitalized to inventory for the period ended March 31, 2015 and 2014, respectively. Included in interest incurred was amortization of deferred financing and Senior Note discount costs of $1.2 million for the period ended March 31, 2015.  Accrued interest related to all outstanding debt at March 31, 2015 and December 31, 2014 was $14.7 million and $3.1 million, respectively.  

Covenant Requirements

The Senior Notes contain covenants that restrict our ability to, among other things, create liens or other encumbrances, enter into sale and leaseback transactions, or merge or sell all or substantially all of our assets. These limitations are subject to a number of qualifications and exceptions.

Under the Credit Facility, the Company is required to comply with certain financial covenants, including but not limited to (i) a minimum consolidated tangible net worth; (ii) a maximum total leverage ratio; and (iii) a minimum interest coverage ratio.

The Company was in compliance with all applicable financial covenants as of March 31, 2015 and December 31, 2014.

Fair Value Disclosures
Fair Value Disclosures

14.

Fair Value Disclosures

Fair Value Measurements

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

·

Level 1—Quoted prices for identical instruments in active markets

·

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

·

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

Fair Value of Financial Instruments

A summary of assets and liabilities at March 31, 2015 and December 31, 2014, related to our financial instruments, measured at fair value on a recurring basis, is set forth below (in thousands):

 

 

 

 

 

March 31, 2015

 

 

December 31, 2014

 

 

 

Hierarchy

 

Book Value

 

 

Fair Value

 

 

Book Value

 

 

Fair Value

 

Receivables (1)

 

Level 3

 

$

23,012

 

 

$

23,012

 

 

$

20,118

 

 

$

20,118

 

Senior Notes (2)

 

Level 2

 

 

887,882

 

 

 

880,875

 

 

 

887,502

 

 

 

896,625

 

Notes payable and other borrowings (3)

 

Level 3

 

 

322,142

 

 

 

322,142

 

 

 

274,677

 

 

 

274,677

 

At March 31, 2015 and December 31, 2014, the carrying value of cash and cash equivalents approximated fair value.

 

(1)

The estimated fair value of our receivables was based on the discounted value of the expected future cash flows using current rates for similar receivables. The book value of our receivables equaled the fair value as of March 31, 2015 and December 31, 2014 due to the short-term nature of the remaining receivables.

(2)

The estimated fair value of our Senior Notes at March 31, 2015 and December 31, 2014 is based on quoted market prices.

(3)

We believe that the carrying value of our notes payable and other borrowings approximates fair value.

Fair Value of Nonfinancial Assets

Nonfinancial assets include items such as real estate inventories and long-lived assets that are measured at fair value on a nonrecurring basis when events and circumstances indicate the carrying value is not recoverable. The following table presents impairment charges and the remaining net fair value for nonfinancial assets that were measured during the periods presented (in thousands):

 

 

 

 

 

Year Ended

 

 

Year Ended

 

 

 

 

 

March 31, 2015

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

Fair Value

 

 

 

 

 

 

Fair Value

 

 

 

 

 

Impairment

 

 

Net of