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1. | Organization and Basis of Presentation |
Organization
TRI Pointe Homes, Inc. is engaged in the design, construction and sale of innovative single-family homes in planned communities in major metropolitan areas located throughout Southern and Northern California and Colorado.
Initial Public Offering
In January 2013, the Company completed its initial public offering (“IPO”) in which it issued and sold 10,000,000 shares of common stock at the public offering price of $17.00 per share. The company received proceeds of $155.4 million in net proceeds after deducting underwriting discounts and commissions of $11.9 million and other net offering expenses of $2.7 million. The offering also included 5,742,350 shares of our common stock sold by a selling stockholder for $90.8 million, in net proceeds after deducting underwriting discounts and commissions of $6.8 million. In preparation of the IPO, the Company reorganized from a Delaware limited liability company into a Delaware corporation and was renamed TRI Pointe Homes, Inc. Upon the close of the IPO and as of June 30, 2013, the Company had 31,597,907 common shares outstanding.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts have been eliminated upon consolidation. Subsequent events have been evaluated through the date the financial statements were issued.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012. The accompanying unaudited condensed financial statements include all adjustments (consisting of normal recurring entries) necessary for the fair presentation of our results for the interim period presented. Results for the interim period are not necessarily indicative of the results to be expected for the full year.
Unless the context otherwise requires, the terms “we”, “us”, “our” and “the Company” refer to TRI Pointe Homes, Inc. (and its consolidated subsidiaries).
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies. Accordingly, actual results could differ materially from these estimates.
Recently Issued Accounting Standards
On February 5, 2013, the FASB issued Accounting Standards Update 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”), which adds additional disclosure requirements for items reclassified out of accumulated other comprehensive income (loss). We adopted ASU 2013-02 during the six months ended June 30, 2013.
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3. | Real Estate Inventories and Capitalized Interest |
Real estate inventories consisted of the following (in thousands):
June 30, | December 31, | |||||||
2013 | 2012 | |||||||
Inventories owned: |
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Deposits and pre-acquisition costs |
$ | 14,931 | $ | 12,285 | ||||
Land held and land under development |
199,031 | 129,621 | ||||||
Homes completed or under construction |
77,863 | 40,955 | ||||||
Model homes |
10,006 | 11,222 | ||||||
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$ | 301,831 | $ | 194,083 | |||||
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Model homes, homes completed, and homes under construction include all costs associated with home construction, including land, development, indirects, permits, and vertical construction. Land under development includes costs incurred during site development such as land, development, indirects, and permits. Land is classified as held for future development if no significant development has occurred.
Interest incurred, capitalized and expensed were as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Interest incurred |
$ | 579 | $ | 475 | $ | 1,313 | $ | 647 | ||||||||
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Interest expensed |
— | — | — | — | ||||||||||||
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Capitalized interest in beginning inventory |
$ | 1,842 | $ | 274 | $ | 1,364 | $ | 159 | ||||||||
Interest capitalized as a cost of inventory |
579 | 475 | 1,313 | 647 | ||||||||||||
Interest previously capitalized as a cost of inventory, included in cost of sales |
(502 | ) | (69 | ) | (758 | ) | (126 | ) | ||||||||
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Capitalized interest in ending inventory |
$ | 1,919 | $ | 680 | $ | 1,919 | $ | 680 | ||||||||
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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 sales as related units are closed.
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4. | Warranty Reserves |
Warranty reserves consisted of the following (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Warranty reserves, beginning of period |
$ | 1,575 | $ | 965 | $ | 1,593 | $ | 985 | ||||||||
Warranty reserves accrued |
621 | 75 | 728 | 122 | ||||||||||||
Warranty expenditures |
(257 | ) | (49 | ) | (382 | ) | (116 | ) | ||||||||
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Warranty reserves, end of period |
$ | 1,939 | $ | 991 | $ | 1,939 | $ | 991 | ||||||||
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Estimated future direct warranty costs are accrued and charged to cost of sales in the period when the related homebuilding revenues are recognized. Amounts accrued are based upon historical experience rates. Indirect warranty overhead salaries and related costs are charged to the reserve in the period incurred. We assess the adequacy of our warranty accrual on a quarterly basis and adjust the amounts recorded if necessary. Our warranty accrual is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets.
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5. | Notes Payable |
Notes payable consisted of the following (in thousands):
June 30, 2013 |
December 31, 2012 |
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Revolving credit facility |
$ | — | $ | 6,855 | ||||
Acquisition and development loans |
37,181 | 37,996 | ||||||
Construction loans |
25,376 | 12,517 | ||||||
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$ | 62,557 | $ | 57,368 | |||||
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As of June 30, 2013, the Company had a secured revolving credit facility which has a maximum loan commitment of $30.0 million, an initial maturity date of April 19, 2014 and a final maturity date of April 19, 2015. The Company may borrow under its facility in the ordinary course of business to fund its operations, including its land development and home building activities. The amount the Company may borrow is subject to applicable borrowing base provisions and concentration limitations, which may also limit the amount available or outstanding under the facility. The facility is secured by deeds of trust on the real property and improvements thereon, and the borrowings are repaid with the net sales proceeds from the sales of homes, subject to a minimum release price. Interest rates charged under the facility include applicable LIBOR and prime rate pricing options, subject to a minimum interest rate floor. During the three months ended June 30, 2013, the interest rate floor was lowered from 5.0% to 3.75%. As of June 30, 2013, there was no outstanding principal balance and the Company had $28.1 million of availability under the facility after considering the borrowing base provisions and outstanding letters of credit.
The Company enters into secured acquisition and development loan agreements to purchase and develop land parcels. In addition, the Company enters into secured construction loan agreements for the construction of its model and production homes. The acquisition and development loans will be repaid as lots are released from the loans based upon a specific release price, as defined in each respective loan agreement. The construction loans will be repaid with proceeds from home closings based upon a specific release price, as defined in each respective loan agreement.
As of June 30, 2013, the Company had $56.9 million of aggregate acquisition and development loan commitments and $46.9 million of aggregate construction loan commitments, of which $37.2 million and $25.4 million was outstanding, respectively. The loans have maturity dates ranging from August 2013 to January 2016, including the six month extensions which are at our election (subject to certain conditions). The interest rate on certain loans were lowered during the three months ended June 30, 2013 and now bear interest at a rate based on applicable LIBOR or Prime Rate pricing options plus an applicable margin, with certain loans containing a minimum interest rate floor of 4.0%. As of June 30, 2013, the weighted average interest rate was 3.1% per annum.
As of December 31, 2012, the Company’s secured revolving credit facility with a maximum loan commitment of $30.0 million, of which $6.9 million was outstanding, had $21.4 million of availability and an interest rate of 5.5% per annum. In addition, the Company had $68.1 million of aggregate acquisition and development loan commitments and $25.4 million of aggregate construction loan commitments, of which $38.0 million and $12.5 million were outstanding, respectively. The loans had maturity dates ranging from August 2013 to February 2015, including the six month extensions which are at our election (subject to certain conditions) and bear interest at a rate based on applicable LIBOR or Prime Rate pricing options, with interest rate floors ranging from 4.0% to 6.0%. As of December 31, 2012, the weighted average interest rate was 5.2% per annum.
During the three months ended June 30, 2013 and 2012, the Company incurred interest of $579,000 and $475,000, respectively, related to its notes payable. During the six months ended June 30, 2013 and 2012, the Company incurred interest of $1.3 million and $647,000, respectively, related to its notes payable. All interest incurred during the three and six months ended June 30, 2013 and 2012 was capitalized to real estate inventories.
Under the revolving credit facility and construction notes payable, the Company is required to comply with certain financial covenants, including but not limited to (i) a minimum tangible net worth; (ii) a maximum total liabilities to tangible net worth ratio; and (iii) a minimum liquidity amount. The Company was in compliance with all financial covenants as of June 30, 2013 and December 31, 2012.
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6. | Fair Value Disclosures |
ASC 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:
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Level 1—Quoted prices for identical instruments in active markets |
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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 |
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Level 3—Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date |
The following table presents book values and estimated fair values of financial instruments (in thousands):
Hierarchy | June 30, 2013 | December 31, 2012 | ||||||||||||||||||
Cost | Fair Value |
Cost | Fair Value |
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Marketable Securities(1) |
Level 1 | $ | 40,019 | $ | 39,837 | $ | — | $ | — | |||||||||||
Notes payable |
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Revolving credit facility(2) |
Level 3 | $ | — | $ | — | $ | 6,855 | $ | 6,855 | |||||||||||
Acquisition and development loans(2) |
Level 3 | 37,181 | 37,181 | 37,996 | 37,996 | |||||||||||||||
Construction loans(2) |
Level 3 | 25,376 | 25,376 | 12,517 | 12,517 | |||||||||||||||
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Total notes payable |
$ | 62,557 | $ | 62,557 | $ | 57,368 | $ | 57,368 | ||||||||||||
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(1) |
Marketable securities consist of mutual fund equity securities with quoted prices in active markets. As of June 30, 2013, the Company’s marketable securities were treated as available-for-sale investments and changes in fair value were recorded as a component of accumulated other comprehensive income. As of June 30, 2013, the Company’s marketable securities were in an unrealized loss position of $(182,000). During the three and six months ended June 30, 2013, the Company realized a $(21,000) loss and $19,000 gain, respectively, from the sale of marketable securities that were recorded to other income (expense), net in the consolidated statements of operations. The Company did not hold any marketable securities as of December 31, 2012. |
(2) |
Estimated fair values of the outstanding revolving credit facility, acquisition and development loans, and construction loans at June 30, 2013 and December 31, 2012 were based on cash flow models discounted at market interest rates that considered underlying risks of the debt. Due to the short term nature of the revolving credit facility, acquisition and development loans and construction loans, book value approximated fair value at June 30, 2013 and December 31, 2012. |
Nonfinancial assets and liabilities include items such as inventory and long lived assets that are measured at fair value when acquired and resulting from impairment, if deemed necessary. During the three and six months ended June 30, 2013 and 2012, the Company did not record any fair value adjustments to those financial and nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.
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7. | Commitments and Contingencies |
Lawsuits, claims and proceedings have been or may be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices and environmental protection. As a result, we are subject to periodic examinations or inquiry by agencies administering these laws and regulations.
We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. We accrue for these matters based on facts and circumstances specific to each matter and revise these estimates when necessary.
In view of the inherent difficulty of predicting outcomes of legal claims and related contingencies, we generally cannot predict their ultimate resolution, related timing or eventual loss. If our evaluations indicate loss contingencies that could be material are not probable, but are reasonably possible, we will disclose their nature with an estimate of possible range of losses or a statement that such loss is not reasonably estimable. At June 30, 2013 and December 31, 2012, the Company did not have any accruals for asserted or unasserted matters.
We obtain surety bonds in the normal course of business to ensure completion of certain infrastructure improvements of our projects. As of June 30, 2013 and December 31, 2012, the Company had outstanding surety bonds totaling $21.1 million and $11.9 million, respectively. The beneficiaries of the bonds are various municipalities. In the unlikely event that any such surety bond issued by third parties are called because the required improvements are not completed, the Company could be obligated to reimburse the issuer of the bond.
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8. | Stock-Based Compensation |
The Company’s stock compensation plan, the 2013 Long-Term Incentive Plan (“2013 Incentive Plan”), was adopted by our board of directors in January 2013. The 2013 Incentive Plan provides for the grant of equity-based awards, including options to purchase shares of common stock, stock appreciation rights, common stock, restricted stock, restricted stock units and performance awards. The 2013 Incentive Plan will automatically expire on the tenth anniversary of its effective date. Our board of directors may terminate or amend the 2013 Incentive Plan at any time, subject to any requirement of stockholder approval required by applicable law, rule or regulation.
The number of shares of our common stock that may be issued under the 2013 Incentive Plan is 2,527,833 shares. To the extent that shares of our common stock subject to an outstanding option, stock appreciation right, stock award or performance award granted under the 2013 Incentive Plan or any predecessor plan are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or the settlement of such award in cash, then such shares of our common stock generally shall again be available under our the 2013 Incentive Plan.
The Company has issued stock option awards and restricted stock unit awards against the 2013 Incentive Plan. The exercise price of our stock-based awards may not be less than the market value of our common stock on the date of grant. The fair value for stock options is established at the date of grant using the Black-Scholes model for time based vesting awards. Our stock option awards typically vest over a one to three year period and expire ten years from the date of grant. Our restricted stock awards are valued based on the closing price of our common stock on the date of grant and typically vest over a one to three year period.
On January 31, 2013, the Company granted an aggregate of 282,201 stock options, with an exercise price per share of $17, and 71,176 restricted stock units to members of the management team, officers and directors. On March 1, 2013, the Company granted an aggregate of 72,300 restricted stock units to its employees. Each of the aforementioned awards vest ratably annually on the anniversary of the grant date over a three year period. On March 21, 2013, the Company granted an aggregate of 3,699 stock options with an exercise price per share of $19.95 and 4,512 restricted stock units to members of our independent Board of Directors as part of their annual compensation as directors. 100% of the awards cliff vest on the one year anniversary of the grant date. There were no stock option exercises or restricted stock unit vesting during the three and six months ended June 30, 2013. There were 800 restricted stock units that were forfeited during the six months ended June 30, 2013.
On September 24, 2010, the Company granted equity based incentive units to management. In connection with the IPO, the incentive units converted into shares of common stock. The recipients of the equity based incentive units have all the rights of a stockholder, including the rights to vote those shares and receive any dividends or distributions made with respect to those shares and any shares or other property received in respect of those shares; provided, however, any non-cash dividend or distribution with respect to the common stock shall be subject to the same vesting provisions as the incentive units. The vesting terms of the equity based incentive units are as follows: (1)18.75% of such units vested, subject to limitation in (3) below on the date following the first-year anniversary of the date of such officer’s employment; (2) 56.25% of such units vest, subject to limitation in (3) below in equal quarterly installments between the first and fourth-year anniversary of the date of such officer’s employment; (3) 25% of the awards granted in (1) and (2) will vest upon a liquidity event as defined; and (4) 25% of such units will be converted into a number of shares of restricted stock prior to a liquidity event, as defined. The grant-date fair value of the equity based incentive units granted during the period ended December 31, 2010 was $3.3 million.
The following table presents compensation expense recognized related to all stock-based awards (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
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2013 | 2012 | 2013 | 2012 | |||||||||||||
Stock options |
$ | 170 | $ | — | $ | 279 | $ | — | ||||||||
Restricted stock units |
231 | — | 333 | — | ||||||||||||
Equity based incentive units |
116 | 116 | 232 | 232 | ||||||||||||
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Total stock-based compensation |
$ | 517 | $ | 116 | $ | 844 | $ | 232 | ||||||||
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The following table presents the remaining unrecognized compensation expense related to all stock-based awards and the weighted term over which the expense will be recognized (dollars in thousands):
June 30, 2013 | ||||||||
Unrecognized Expense |
Weighted Average Period (Years) |
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Stock options |
$ | 1,702 | 2.6 | |||||
Restricted stock units |
2,171 | 2.6 | ||||||
Equity based incentive units |
2,031 | 1.3 | ||||||
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Total stock-based compensation |
$ | 5,904 | 1.5 | |||||
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9. | Income Taxes |
The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statements and tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for the years in which taxes are expected to be paid or recovered. Further, we assess our deferred tax asset to determine whether all or any portion of the asset 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.
As discussed in Note 1, during 2012 and for the first 30 calendar days of 2013, the Company was a Delaware limited liability company which was treated as partnership for income tax purposes and was subject to certain minimal taxes and fees; however, income taxes on taxable income or losses realized by the Company were the obligation of the members. The Company has concluded that there were no significant uncertain tax positions requiring recognition in its financial statements, nor has the Company been assessed interest or penalties by any major tax jurisdictions related to the first 30 calendar days of 2013 or fiscal 2012.
On January 30, 2013, the Company reorganized from a Delaware limited liability company into a Delaware corporation and was renamed TRI Pointe Homes, Inc. As result of this change in tax status, the Company recorded $906,000 of deferred tax assets related to various temporary differences. We have recorded a full valuation allowance on all of our deferred assets, primarily due to our cumulative loss position. If the Company were to move into a cumulative income position, and based on other considerations, we may be able to reverse a portion or all of the valuation allowance which could benefit future periods.
The Company has recorded a tax provision of $1.5 million for the three months ended June 30, 2013 based on an effective tax rate of 42%. For six months ended June 30, 2013, the Company recorded a tax provision of $1.6 million based on an effective tax rate of 42% on the pretax income generated for the period from January 31, 2013 to June 30, 2013.
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10. | Segment Information |
The Company’s operations are organized into two reportable segments: homebuilding and construction services. In accordance with ASC 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.
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. Financial information relating to reportable segments was as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Revenues |
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Homebuilding |
$ | 47,457 | $ | 7,736 | $ | 71,314 | $ | 12,324 | ||||||||
Fee building |
3,630 | 72 | 7,661 | 137 | ||||||||||||
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Total |
$ | 51,087 | $ | 7,808 | $ | 78,975 | $ | 12,461 | ||||||||
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Gross profit |
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Homebuilding |
$ | 9,139 | $ | 929 | $ | 13,547 | $ | 1,445 | ||||||||
Fee building |
235 | 26 | 641 | 26 | ||||||||||||
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Total |
$ | 9,374 | $ | 955 | $ | 14,188 | $ | 1,471 | ||||||||
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June 30, | December 31, | |||||||||||||||
2013 | 2012 | |||||||||||||||
Assets |
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Homebuilding |
$ | 381,708 | $ | 216,667 | ||||||||||||
Fee building |
1,251 | 849 | ||||||||||||||
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Total |
$ | 382,959 | $ | 217,516 | ||||||||||||
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11. | Subsequent Events |
Subsequent to June 30, 2013, the Company entered into a $125 million three-year secured revolving credit facility (the “$125 million Revolving Credit Facility”). We expect to use the $125 million Revolving Credit Facility primarily to fund the acquisition and development of lots and the construction of homes. Borrowings under the $125 million Revolving Credit Facility are secured by a first priority lien on borrowing base properties and will be subject to, among other things, a borrowing base formula. In addition to customary representations and warranties, affirmative and negative covenants and events of default, the $125 million Revolving Credit Facility contains specific financial covenants requiring the Company to maintain on a quarterly basis. The interest rate on borrowings will be at a rate based on LIBOR plus an applicable margin, ranging from 250 to 370 basis points depending on the Company’s leverage ratio.
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Organization
TRI Pointe Homes, Inc. is engaged in the design, construction and sale of innovative single-family homes in planned communities in major metropolitan areas located throughout Southern and Northern California and Colorado.
Initial Public Offering
In January 2013, the Company completed its initial public offering (“IPO”) in which it issued and sold 10,000,000 shares of common stock at the public offering price of $17.00 per share. The company received proceeds of $155.4 million in net proceeds after deducting underwriting discounts and commissions of $11.9 million and other net offering expenses of $2.7 million. The offering also included 5,742,350 shares of our common stock sold by a selling stockholder for $90.8 million, in net proceeds after deducting underwriting discounts and commissions of $6.8 million. In preparation of the IPO, the Company reorganized from a Delaware limited liability company into a Delaware corporation and was renamed TRI Pointe Homes, Inc. Upon the close of the IPO and as of June 30, 2013, the Company had 31,597,907 common shares outstanding.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts have been eliminated upon consolidation. Subsequent events have been evaluated through the date the financial statements were issued.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012. The accompanying unaudited condensed financial statements include all adjustments (consisting of normal recurring entries) necessary for the fair presentation of our results for the interim period presented. Results for the interim period are not necessarily indicative of the results to be expected for the full year.
Unless the context otherwise requires, the terms “we”, “us”, “our” and “the Company” refer to TRI Pointe Homes, Inc. (and its consolidated subsidiaries).
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies. Accordingly, actual results could differ materially from these estimates.
Recently Issued Accounting Standards
On February 5, 2013, the FASB issued Accounting Standards Update 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”), which adds additional disclosure requirements for items reclassified out of accumulated other comprehensive income (loss). We adopted ASU 2013-02 during the six months ended June 30, 2013.
ASC 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:
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Level 1—Quoted prices for identical instruments in active markets |
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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 |
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Level 3—Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date |
In accordance with ASC 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.
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Real estate inventories consisted of the following (in thousands):
June 30, | December 31, | |||||||
2013 | 2012 | |||||||
Inventories owned: |
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Deposits and pre-acquisition costs |
$ | 14,931 | $ | 12,285 | ||||
Land held and land under development |
199,031 | 129,621 | ||||||
Homes completed or under construction |
77,863 | 40,955 | ||||||
Model homes |
10,006 | 11,222 | ||||||
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$ | 301,831 | $ | 194,083 | |||||
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Interest incurred, capitalized and expensed were as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Interest incurred |
$ | 579 | $ | 475 | $ | 1,313 | $ | 647 | ||||||||
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Interest expensed |
— | — | — | — | ||||||||||||
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Capitalized interest in beginning inventory |
$ | 1,842 | $ | 274 | $ | 1,364 | $ | 159 | ||||||||
Interest capitalized as a cost of inventory |
579 | 475 | 1,313 | 647 | ||||||||||||
Interest previously capitalized as a cost of inventory, included in cost of sales |
(502 | ) | (69 | ) | (758 | ) | (126 | ) | ||||||||
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Capitalized interest in ending inventory |
$ | 1,919 | $ | 680 | $ | 1,919 | $ | 680 | ||||||||
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Warranty reserves consisted of the following (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Warranty reserves, beginning of period |
$ | 1,575 | $ | 965 | $ | 1,593 | $ | 985 | ||||||||
Warranty reserves accrued |
621 | 75 | 728 | 122 | ||||||||||||
Warranty expenditures |
(257 | ) | (49 | ) | (382 | ) | (116 | ) | ||||||||
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Warranty reserves, end of period |
$ | 1,939 | $ | 991 | $ | 1,939 | $ | 991 | ||||||||
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Notes payable consisted of the following (in thousands):
June 30, 2013 |
December 31, 2012 |
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Revolving credit facility |
$ | — | $ | 6,855 | ||||
Acquisition and development loans |
37,181 | 37,996 | ||||||
Construction loans |
25,376 | 12,517 | ||||||
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$ | 62,557 | $ | 57,368 | |||||
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The following table presents book values and estimated fair values of financial instruments (in thousands):
Hierarchy | June 30, 2013 | December 31, 2012 | ||||||||||||||||||
Cost | Fair Value |
Cost | Fair Value |
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Marketable Securities(1) |
Level 1 | $ | 40,019 | $ | 39,837 | $ | — | $ | — | |||||||||||
Notes payable |
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Revolving credit facility(2) |
Level 3 | $ | — | $ | — | $ | 6,855 | $ | 6,855 | |||||||||||
Acquisition and development loans(2) |
Level 3 | 37,181 | 37,181 | 37,996 | 37,996 | |||||||||||||||
Construction loans(2) |
Level 3 | 25,376 | 25,376 | 12,517 | 12,517 | |||||||||||||||
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Total notes payable |
$ | 62,557 | $ | 62,557 | $ | 57,368 | $ | 57,368 | ||||||||||||
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(1) |
Marketable securities consist of mutual fund equity securities with quoted prices in active markets. As of June 30, 2013, the Company’s marketable securities were treated as available-for-sale investments and changes in fair value were recorded as a component of accumulated other comprehensive income. As of June 30, 2013, the Company’s marketable securities were in an unrealized loss position of $(182,000). During the three and six months ended June 30, 2013, the Company realized a $(21,000) loss and $19,000 gain, respectively, from the sale of marketable securities that were recorded to other income (expense), net in the consolidated statements of operations. The Company did not hold any marketable securities as of December 31, 2012. |
(2) |
Estimated fair values of the outstanding revolving credit facility, acquisition and development loans, and construction loans at June 30, 2013 and December 31, 2012 were based on cash flow models discounted at market interest rates that considered underlying risks of the debt. Due to the short term nature of the revolving credit facility, acquisition and development loans and construction loans, book value approximated fair value at June 30, 2013 and December 31, 2012. |
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The following table presents compensation expense recognized related to all stock-based awards (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Stock options |
$ | 170 | $ | — | $ | 279 | $ | — | ||||||||
Restricted stock units |
231 | — | 333 | — | ||||||||||||
Equity based incentive units |
116 | 116 | 232 | 232 | ||||||||||||
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Total stock-based compensation |
$ | 517 | $ | 116 | $ | 844 | $ | 232 | ||||||||
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The following table presents the remaining unrecognized compensation expense related to all stock-based awards and the weighted term over which the expense will be recognized (dollars in thousands):
June 30, 2013 | ||||||||
Unrecognized Expense |
Weighted Average Period (Years) |
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Stock options |
$ | 1,702 | 2.6 | |||||
Restricted stock units |
2,171 | 2.6 | ||||||
Equity based incentive units |
2,031 | 1.3 | ||||||
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Total stock-based compensation |
$ | 5,904 | 1.5 | |||||
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Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Revenues |
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Homebuilding |
$ | 47,457 | $ | 7,736 | $ | 71,314 | $ | 12,324 | ||||||||
Fee building |
3,630 | 72 | 7,661 | 137 | ||||||||||||
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Total |
$ | 51,087 | $ | 7,808 | $ | 78,975 | $ | 12,461 | ||||||||
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Gross profit |
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Homebuilding |
$ | 9,139 | $ | 929 | $ | 13,547 | $ | 1,445 | ||||||||
Fee building |
235 | 26 | 641 | 26 | ||||||||||||
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Total |
$ | 9,374 | $ | 955 | $ | 14,188 | $ | 1,471 | ||||||||
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June 30, | December 31, | |||||||||||||||
2013 | 2012 | |||||||||||||||
Assets |
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Homebuilding |
$ | 381,708 | $ | 216,667 | ||||||||||||
Fee building |
1,251 | 849 | ||||||||||||||
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Total |
$ | 382,959 | $ | 217,516 | ||||||||||||
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