Annual Statements Open main menu

Century Communities, Inc. - Quarter Report: 2015 June (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

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

 

For the quarterly period ended June 30, 2015

 

or

 

 

 

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

 

Commission File Number 001-36491

 

Century Communities, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

Delaware

 

68-0521411

(State of other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
identification No.)

 

 

8390 East Crescent Parkway, Suite 650
Greenwood Village, Colorado

 

80111

(Address of principal executive offices)

 

(Zip code)

 

(Registrant’s telephone number, including area code): (303) 770-8300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

   (Do not check if a smaller reporting company)

 

Smaller reporting company

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

On August 4, 2015,  21,330,428 shares of common stock, par value 0.01 per share, were outstanding.  

 

 

 


 

Table of Contents

 

 

CENTURY COMMUNITIES, INC.

FORM 10-Q

For the three and six months ended June 30, 2015

 

Index

 

 

 

Page No.

PART I 

Item 1. Unaudited Condensed Consolidated Financial Statements 

 

Unaudited Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 

3

Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2015  and 2014 

4

Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2015 and 2014 

5

Notes to Unaudited Condensed Consolidated Financial Statements June 30, 2015 

6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

22

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

32

Item 4. Controls and Procedures 

32

PART II 

Item 1. Legal Proceedings 

34

Item 1A. Risk Factors 

34

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

34

Item 3. Defaults Upon Senior Securities 

34

Item 4. Mine Safety Disclosures 

34

Item 5. Other Information 

34

Item 6. Exhibits 

35

Signatures 

36

 

 

 

 

2 

 


 

Table of Contents

 

 

PART I

ITEM 1.     FINANCIAL STATEMENTS.

 

 

Century Communities, Inc.

Unaudited Condensed Consolidated Balance Sheets

As of June 30, 2015 and December 31, 2014

(in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2015

 

2014

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,630 

 

$

33,462 

Accounts receivable

 

 

13,431 

 

 

13,799 

Inventories

 

 

661,728 

 

 

556,323 

Prepaid expenses and other assets

 

 

37,571 

 

 

28,796 

Property and equipment, net

 

 

5,374 

 

 

12,471 

Deferred tax asset, net

 

 

2,917 

 

 

1,359 

Amortizable intangible assets, net

 

 

6,103 

 

 

8,632 

Goodwill

 

 

21,365 

 

 

21,137 

Total assets

 

$

781,119 

 

$

675,979 

Liabilities and stockholders' equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

9,323 

 

$

17,135 

Accrued expenses and other liabilities

 

 

84,183 

 

 

64,029 

Notes payable and revolving line of credit

 

 

304,486 

 

 

229,610 

Total liabilities

 

 

397,992 

 

 

310,774 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value, 50,000,000 shares authorized, none outstanding

 

 

 —

 

 

 —

Common stock, $0.01 par value, 100,000,000 shares authorized, 21,335,580 and 20,875,547 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively

 

 

213 

 

 

209 

Additional paid-in capital

 

 

338,342 

 

 

336,573 

Retained earnings

 

 

44,572 

 

 

28,423 

Total stockholders' equity

 

 

383,127 

 

 

365,205 

Total liabilities and stockholders' equity

 

$

781,119 

 

$

675,979 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

 

3 

 


 

Table of Contents

 

 

Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2015 and 2014

(in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2015

 

2014

 

2015

 

2014

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

186,808 

 

$

77,328 

 

$

341,143 

 

$

126,999 

Land sales revenues

 

 

370 

 

 

 —

 

 

370 

 

 

 —

Golf course and other revenue

 

 

1,876 

 

 

2,525 

 

 

3,979 

 

 

2,525 

Total revenue

 

 

189,054 

 

 

79,853 

 

 

345,492 

 

 

129,524 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

Cost of home sales revenues

 

 

150,225 

 

 

58,197 

 

 

275,031 

 

 

95,470 

Cost of land sales revenues

 

 

365 

 

 

 —

 

 

365 

 

 

 —

Cost of golf course and other revenue

 

 

1,662 

 

 

2,154 

 

 

3,168 

 

 

2,154 

Selling, general, and administrative

 

 

22,812 

 

 

11,320 

 

 

43,744 

 

 

18,323 

Total operating costs and expenses

 

 

175,064 

 

 

71,671 

 

 

322,308 

 

 

115,947 

Operating income

 

 

13,990 

 

 

8,182 

 

 

23,184 

 

 

13,577 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

21 

 

 

68 

 

 

37 

 

 

137 

Interest expense

 

 

(3)

 

 

(11)

 

 

(6)

 

 

(11)

Acquisition expense

 

 

(15)

 

 

(408)

 

 

(15)

 

 

(803)

Other income

 

 

308 

 

 

129 

 

 

625 

 

 

257 

Gain on disposition of assets

 

 

130 

 

 

89 

 

 

130 

 

 

89 

Income before income tax expense

 

 

14,431 

 

 

8,049 

 

 

23,955 

 

 

13,246 

Income tax expense

 

 

4,633 

 

 

2,711 

 

 

7,806 

 

 

4,539 

Net income

 

$

9,798 

 

$

5,338 

 

$

16,149 

 

$

8,707 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.46 

 

$

0.30 

 

$

0.76 

 

$

0.50 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

20,556,536 

 

 

17,674,868 

 

 

20,533,237 

 

 

17,376,591 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

 

4 

 


 

Table of Contents

 

 

Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2015 and 2014

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30,

 

 

2015

 

2014

Operating activities

 

 

 

 

 

 

Net income

 

$

16,149 

 

$

8,707 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

2,270 

 

 

1,190 

Stock-based compensation expense

 

 

2,491 

 

 

741 

Deferred income tax benefit

 

 

(1,558)

 

 

(647)

Excess tax benefit on stock-based compensation

 

 

 —

 

 

(32)

Gain on disposition of assets

 

 

(130)

 

 

(89)

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

510 

 

 

(6,615)

Inventories

 

 

(80,878)

 

 

(58,110)

Prepaid expenses and other assets

 

 

520 

 

 

(2,826)

Accounts payable

 

 

(7,746)

 

 

880 

Accrued expenses and other liabilities

 

 

(3,788)

 

 

4,680 

Net cash used in operating activities

 

 

(72,160)

 

 

(52,121)

Investing activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,153)

 

 

(31)

Proceeds on sale of assets

 

 

1,148 

 

 

 —

Acquisitions of businesses

 

 

 —

 

 

(165,379)

Net cash used in investing activities

 

 

(1,005)

 

 

(165,410)

Financing activities

 

 

 

 

 

 

Borrowings under revolving credit facilities

 

 

75,000 

 

 

99,000 

Payments on revolving credit facilities

 

 

(55,000)

 

 

(99,000)

Proceeds from issuance of senior notes

 

 

58,956 

 

 

198,478 

Proceeds from issuances of insurance premium notes

 

 

448 

 

 

 —

Principal payments on notes payable

 

 

(4,570)

 

 

(263)

Debt issuance costs

 

 

(1,784)

 

 

(5,132)

Net proceeds from issuances of common stock

 

 

 —

 

 

82,141 

Repurchases of common stock upon vesting of restricted stock awards

 

 

(717)

 

 

 —

Excess tax benefit on stock-based compensation

 

 

 —

 

 

32 

Net cash provided by financing activities

 

 

72,333 

 

 

275,256 

Net increase (decrease) in cash and cash equivalents

 

$

(832)

 

$

57,725 

Cash and cash equivalents

 

 

 

 

 

 

Beginning of period

 

 

33,462 

 

 

109,998 

End of period

 

$

32,630 

 

$

167,723 

Non-cash investing and financing information

 

 

 

 

 

 

Note receivable from sale of Tuscany golf course

 

$

3,000 

 

$

 —

Supplemental cash flow disclosure

 

 

 

 

 

 

Cash paid for income taxes

 

$

9,273 

 

$

4,514 

Cash paid for interest, net of amounts capitalized

 

$

 

$

11 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

5 

 


 

Table of Contents

 

 

Century Communities, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2015

 

1. Basis of Presentation

Century Communities, Inc. (“we” or the Company”) is engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in metropolitan areas in Colorado, Austin and San Antonio, Texas (which we refer to as “Central Texas”), Houston, Texas, Las Vegas, Nevada, and Atlanta, Georgia.  Our homebuilding operations are organized into the following five operating segments based on the geographic markets in which we operate: Atlanta, Central Texas, Colorado, Houston and Nevada.  In many of our projects, in addition to building homes, we are responsible for the entitlement and development of the underlying land.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (which we refer to as “GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (which we refer to as the “SEC”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of its financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by GAAP and should be read in conjunction with the consolidated financial statements for the year ended December 31, 2014,  which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 that was filed with the SEC on March 6, 2015.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, as well as all subsidiaries in which we have a controlling interest, and variable interest entities (which we refer to as “VIE’s) for which the Company is deemed the primary beneficiary.  All intercompany accounts and transactions have been eliminated.

Reclassifications

Certain prior period amounts have been reclassified to conform to our current year’s presentation.

Use of Estimates

The preparation of 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 contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Accordingly, actual results could differ from those estimates.

Recently Issued Accounting Standards

In January 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-01, “Income Statement — Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” ASU 2015-01 eliminates the concept of extraordinary items from GAAP, but the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. ASU 2015-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. A reporting entity may apply ASU 2015-01 prospectively. A reporting entity may also apply ASU 2015-01 retrospectively to all periods presented in the financial statements. Our adoption of ASU 2015-01 is not expected to have a material effect on our consolidated financial statements and related disclosures.

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” ASU 2015-02 updates the analysis that a reporting entity must perform to determine whether to 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 do not intend to adopt ASU 2015-02 early, and the adoption thereof is not expected to have a material effect on our consolidated financial statements and related disclosures.

In April 2015, the FASB issued ASU No. 2015-03, “Interest — Imputation of Interest (Subtopic 835-30). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016.  Early adoption is permitted for financial statements that have not been previously

6 

 


 

Table of Contents

 

 

issued and the guidance should be applied retrospectively to each period presented. The adoption of ASU 2015-03 will require us to adjust our current presentation of debt issuance costs related to our Senior Notes on our consolidated balance sheets  from prepaid expenses and other assets to a reduction of the related liability. We do not intend to adopt ASU 2015-03 early.

In May 2015, the FASB issued ASU No. 2015-05, “Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40).” ASU 2015-05 will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. ASU 2015-05 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2015.  Early adoption is permitted. We do not intend to adopt ASU 2015-05 early, and the adoption thereof is not expected to have a material effect on our consolidated financial statements.

 

2. Reporting Segments

We have identified our Atlanta, Central Texas, Colorado, Houston, and Nevada divisions as reportable operating segments.  Corporate is a non-operating segment, as it serves to support our homebuilding operations through functions such as our executive, finance, treasury, human resources, and accounting departments. 

The following tables summarize total revenue and income before income tax expense by operating segment (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Atlanta

 

$

70,260 

 

$

 —

 

$

126,900 

 

$

 —

Central Texas

 

 

16,537 

 

 

12,466 

 

 

33,573 

 

 

26,286 

Colorado

 

 

75,309 

 

 

48,347 

 

 

131,128 

 

 

84,198 

Houston

 

 

7,085 

 

 

 —

 

 

17,490 

 

 

 —

Nevada

 

 

19,863 

 

 

19,040 

 

 

36,401 

 

 

19,040 

Total revenue

 

$

189,054 

 

$

79,853 

 

$

345,492 

 

$

129,524 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total income before income tax expense:

 

 

 

 

 

 

 

 

 

 

 

 

Atlanta

 

$

6,591 

 

$

 —

 

$

9,804 

 

$

 —

Central Texas

 

 

1,089 

 

 

878 

 

 

3,250 

 

 

2,115 

Colorado

 

 

9,624 

 

 

7,947 

 

 

17,519 

 

 

14,236 

Houston

 

 

(239)

 

 

 —

 

 

(654)

 

 

 —

Nevada

 

 

2,953 

 

 

2,681 

 

 

4,770 

 

 

2,681 

Corporate

 

 

(5,587)

 

 

(3,457)

 

 

(10,734)

 

 

(5,786)

Total income before income tax expense

 

$

14,431 

 

$

8,049 

 

$

23,955 

 

$

13,246 

 

The following table summarizes total assets by operating segment (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2015

 

2014

Atlanta

 

$

108,682 

 

$

75,434 

Central Texas

 

 

102,971 

 

 

85,083 

Colorado

 

 

291,925 

 

 

280,361 

Houston

 

 

41,955 

 

 

28,875 

Nevada

 

 

195,549 

 

 

168,401 

Corporate

 

 

40,037 

 

 

37,825 

Total assets

 

$

781,119 

 

$

675,979 

 

Corporate assets include certain cash and cash equivalents, prepaid insurance, deferred financing costs, and certain property and equipment.

7 

 


 

Table of Contents

 

 

3. Inventories

Inventories included the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2015

 

2014

Homes under construction

 

$

337,189 

 

$

250,104 

Land and land development

 

 

308,798 

 

 

294,917 

Capitalized interest

 

 

15,741 

 

 

11,302 

Total inventories

 

$

661,728 

 

$

556,323 

 

 

 

4. Prepaid Expenses and Other Assets

Prepaid expenses and other assets included the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2015

 

2014

Prepaid insurance

 

$

6,315 

 

$

8,481 

Lot option and escrow deposits

 

 

6,654 

 

 

4,716 

Performance deposits

 

 

4,350 

 

 

5,365 

Deferred financing costs, net

 

 

7,145 

 

 

6,378 

Restricted cash

 

 

1,055 

 

 

518 

Secured note receivable

 

 

3,000 

 

 

 —

Assets held for sale

 

 

5,744 

 

 

 —

Other

 

 

3,308 

 

 

3,338 

Total prepaid expenses and other assets

 

$

37,571 

 

$

28,796 

 

 

5. Accrued Expenses and Other Liabilities

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2015

 

2014

Earnest money deposits

 

$

8,334 

 

$

6,703 

Warranty reserve

 

 

2,432 

 

 

2,194 

Accrued compensation costs

 

 

6,005 

 

 

6,632 

Land development and home construction accruals

 

 

60,011 

 

 

34,994 

Accrued interest

 

 

2,353 

 

 

1,935 

Income taxes payable

 

 

 —

 

 

217 

Billings in excess of collections

 

 

229 

 

 

68 

Real estate taxes payable

 

 

191 

 

 

3,875 

Earnout liability

 

 

1,773 

 

 

2,426 

Liabilities related to assets held for sale

 

 

405 

 

 

 —

Other

 

 

2,450 

 

 

4,985 

Total accrued expenses and other liabilities

 

$

84,183 

 

$

64,029 

 

 

 

6. Warranty Reserve

Estimated future direct warranty costs are accrued and charged to cost of home sales revenues in the period when the related home sales revenues are recognized. Amounts accrued, which are included in accrued expenses and other liabilities on the consolidated balance sheets, are based upon historical experience rates. We subsequently assess the adequacy of our warranty accrual on a quarterly basis through an internal model that incorporates historical payment trends and adjust the amounts recorded if necessary. Based on favorable warranty payment trends relative to our estimates at the time of home closing, we reduced our warranty reserve by $0.6 million during the three months ended June 30, 2015, which is included as a reduction to cost of homes sales revenues on our consolidated statement

8 

 


 

Table of Contents

 

 

of operations. The following table summarizes the changes in our warranty accrual for the three and six months ended June 30, 2015 and 2014 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2015

 

2014

 

2015

 

2014

Beginning balance

 

$

2,527 

 

$

1,230 

 

$

2,194 

 

$

1,150 

Warranty reserves assumed in business combinations

 

 

 —

 

 

141 

 

 

 —

 

 

141 

Warranty expense provisions

 

 

810 

 

 

371 

 

 

1,429 

 

 

639 

Payments

 

 

(309)

 

 

(196)

 

 

(595)

 

 

(384)

Warranty adjustment

 

 

(596)

 

 

 —

 

 

(596)

 

 

 —

Ending balance

 

$

2,432 

 

$

1,546 

 

$

2,432 

 

$

1,546 

 

 

7. Notes Payable and Revolving Line of Credit

Notes payable and revolving line of credit included the following as of June 30, 2015 and December 31, 2014 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2015

 

2014

6.875% senior notes

 

$

257,693 

 

$

198,605 

Revolving line of credit

 

 

40,000 

 

 

20,000 

Land development notes

 

 

4,350 

 

 

5,737 

Insurance premium notes

 

 

2,443 

 

 

5,135 

Capital lease obligations

 

 

 —

 

 

133 

Total notes payable and revolving line of credit

 

$

304,486 

 

$

229,610 

 

 

 

 

6.875% senior notes

In May 2014, we completed a private offering of $200.0 million in aggregate principal amount of 6.875% senior notes due 2022 (which we refer to as the “Initial Senior Notes”).  The Initial Senior Notes were issued at a price equal to 99.239% of their principal amount, and we received net proceeds of approximately $193.3 million.  In February 2015, we completed an offer to exchange $200.0 million in aggregate principal amount of our 6.875% senior notes due 2022, which are registered under the Securities Act (which we refer to as the “Exchange Notes”), for all of the Initial Senior Notes.  The terms of the Exchange Notes are identical in all material respects to the Initial Senior Notes, except that the Exchange Notes are registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions applicable to the Initial Senior Notes do not apply to the Exchange Notes.  The Exchange Notes carry a coupon of 6.875% per annum.  The Exchange Notes are unsecured senior obligations which are guaranteed on an unsecured senior basis by certain of our current and future subsidiaries. The Exchange Notes contain certain restrictive covenants on issuing future secured debt and other transactions but do not contain financial covenants. The principal balance of the Exchange Notes is due May 2022, with interest only payments due semi-annually in May and November of each year.

In April 2015, we completed a private offering of an additional $60 million in aggregate principal amount of our 6.875% senior notes due 2022 (which we refer to as the "Additional Senior Notes") in reliance on Rule 144A and Regulation S under the Securities Act of 1933, as amended.  The Additional Senior Notes were issued at a price equal to 98.26% of their principal amount, and we received net proceeds of approximately $58.6 million.  The Additional Senior Notes are additional notes issued under the indenture pursuant to which the initial $200 million in aggregate principal amount of Initial Senior Notes were issued.  In connection with the sale and issuance of the Additional Senior Notes, we entered into a registration rights agreement pursuant to which we agreed to effect a registered offer to exchange the Additional Senior Notes for new senior notes (which we refer to as the “Additional Exchange Notes”) having terms substantially identical in all material respects to the Additional Senior Notes, except that the Additional Exchange Notes will be registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions applicable to the Additional Senior Notes will not apply to the Additional Exchange Notes.  The Exchange Notes and the Additional Senior Notes have substantially identical terms and are treated as a single series of notes under the indenture.  Following consummation of the exchange offer contemplated under the registration rights agreement, we expect that the Additional Exchange Notes will bear the same CUSIP number as the Exchange Notes and will be fungible with the Exchange Notes.  We refer to the Exchange Notes and the Additional Senior Notes, collectively, as the “Senior Notes.”

 

9 

 


 

Table of Contents

 

 

Revolving line of credit

On October 21, 2014, we entered into a credit agreement with Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, and the lenders from time to time party thereto (which we refer to as the “Credit Agreement”). The Credit Agreement provides us with a revolving line of credit of up to $120 million (which we refer to as the “Revolving Credit Facility”). Unless terminated earlier, the Revolving Credit Facility will mature on October 21, 2017, and the principal amount thereunder, together with all accrued unpaid interest and other amounts owing thereunder, if any, will be payable in full on such date. We may request a 12-month extension of the maturity date subject to the approval of the lenders and the Administrative Agent.

Under the terms of the Credit Agreement, we are entitled to request an increase in the size of the Revolving Credit Facility by an amount not exceeding $80 million. If the existing lenders elect not to provide the full amount of a requested increase, we may invite one or more other lender(s) to become a party to the Credit Agreement, subject to the approval of the Administrative Agent and L/C Issuer. The Credit Agreement includes a letter of credit sublimit of $20 million. The obligations under the Revolving Credit Facility are guaranteed by substantially all of our operating subsidiaries.

Borrowings under the Revolving Credit Facility bear interest at a floating rate equal to LIBOR plus an applicable margin between 2.75% and 3.25% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.75% and 2.25% per annum.

At June 30, 2015, we had $40 million outstanding under the Credit Agreement, which accrued interest at 2.93%.  

Other financing obligations

The Company has four land development notes with maturity dates ranging from September 2015 to April 2016, with interest only payments ranging from 0.5% to 5.0%, and four insurance premium notes which accrue interest at 3.89% and have maturity dates ranging from November 2015 to March 2016.    

 

 

8. Interest

Interest is capitalized to inventories while the related communities are being actively developed and until homes are completed.  As our qualifying assets exceeded our outstanding debt during the three and six months ended June 30, 2015 and 2014, we capitalized all interest costs incurred during these periods, except for interest incurred on capital leases of equipment related to our golf course operations.

Our interest costs are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2015

 

2014

 

2015

 

2014

Interest capitalized beginning of period

 

$

13,600 

 

$

2,803 

 

$

11,302 

 

$

2,820 

Interest capitalized during period

 

 

4,971 

 

 

3,499 

 

 

8,890 

 

 

3,558 

Less: capitalized interest in cost of sales

 

 

(2,830)

 

 

(452)

 

 

(4,451)

 

 

(528)

Interest capitalized end of period

 

$

15,741 

 

$

5,850 

 

$

15,741 

 

$

5,850 

 

 

 

 

9. 2014 Business Combinations 

Acquisition of Las Vegas Land Holdings, LLC

On April 1, 2014, we purchased substantially all of the assets and operations of Las Vegas Land Holdings, LLC (which we refer to as “LVLH”), a homebuilder with operations in Las Vegas, Nevada, for a purchase price of approximately $165 million. The acquired assets consisted of 1,761 lots within five single-family communities in the greater Las Vegas, Nevada metropolitan area. The 1,761 lots included 57 homes in backlog, 17 model homes and three custom lots. In addition, we acquired two fully operational golf courses and two one-acre commercial plots.  As the acquired assets and processes have the ability to create outputs in the form of revenue from the sale of single family residences, we concluded that the acquisition represents a business combination. We incurred $0.8 million in acquisition-related costs in connection with the purchase of LVLH.

The following table summarizes the final estimate of the fair value of assets acquired and liabilities assumed as of the acquisition date (in thousands):    

 

 

 

 

 

 

 

10 

 


 

 

 

 

 

Assets acquired and liabilities assumed

 

 

 

Accounts receivable

 

$

347 

Inventories

 

 

145,599 

Prepaid expenses and other assets

 

 

1,876 

Property and equipment

 

 

8,619 

Amortizable intangible assets

 

 

3,042 

Goodwill

 

 

11,283 

Total assets

 

$

170,766 

 

 

 

 

Accounts payable

 

 

2,074 

Accrued expenses and other liabilities

 

 

1,816 

Notes payable and capital lease obligations

 

 

1,497 

Total liabilities

 

$

5,387 

 

 

 

 

Acquired inventories consist of both acquired land and work in process inventories.  We determined the estimate of fair value for acquired land inventory with the assistance of a third party appraiser primarily using a forecasted cash flow approach for the development, marketing, and sale of each community acquired. Significant assumptions included in our estimate include future per lot development costs, construction and overhead costs, mix of products sold in each community as well as average sales price, and absorption rates. We estimated the fair value of acquired work in process inventories based upon the stage of production of each unit and a gross margin that we believe a market participant would require to complete the remaining development and requisite selling efforts.  The stage of production, as of the acquisition date, ranged from finished lots to fully completed single family residences.  We estimated a market participant would require a gross margin ranging from 7% to 24% based upon the stage of production of the individual lot. 

We determined the estimate of fair value for amortizable intangible assets, which includes a non-solicitation agreement, cell phone tower leases, and home plans, with the assistance of a third party valuation firm.  Our estimate of the fair value of the non-solicitation agreement, cell phone tower leases, and homes plans was $1.4 million, $1.4 million and $0.3 million, respectively, which will be amortized over 2 years, 16.6 years, and 7 years, respectively.  In total, amortizable intangible assets will be amortized over a weighted average life of 9.1 years.

We determined that LVLH’s carrying costs approximated fair value for all other acquired assets and assumed liabilities. 

Goodwill includes the anticipated economic value of the acquired workforce. Approximately $10.5 million of goodwill is expected to be deductible for tax purposes.

Acquisition of Grand View Builders

On August 12, 2014, we purchased substantially all of the assets and operations of Grand View Builders (which we refer to as “Grand View”) in Houston, Texas for a purchase price of approximately $13 million and annual earnout payments based on a percentage of adjusted pre-tax income over the next two years.  As the acquired assets and processes have the ability to create outputs in the form of revenue from the sale of single family residences, we concluded that the acquisition represents a business combination. We incurred $0.1 million in acquisition-related costs in connection with the purchase of Grand View.

The following table summarizes the final estimate of the fair value of assets acquired and liabilities assumed as of the acquisition date (in thousands):    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets acquired and liabilities assumed

 

 

 

Accounts receivable

 

$

188 

Inventories

 

 

12,070 

Prepaid expenses and other assets

 

 

295 

Property and equipment

 

 

185 

Amortizable intangible assets

 

 

1,748 

Goodwill

 

 

1,746 

Total assets

 

$

16,232 

 

 

 

 

Accrued expenses and other liabilities (inclusive of earnout liability)

 

 

3,376 

Total liabilities

 

$

3,376 

11 

 


 

Table of Contents

 

 

 

 

Acquired inventories consist of both acquired land, work in process and model inventories.  We determined the fair value for acquired inventories on a lot by lot basis primarily using a forecasted cash flow approach for the development, marketing, and sale of each lot acquired. Significant assumptions included in our estimate include future construction and overhead costs, sales price, and absorption rates.  We estimated the fair value of acquired work in process inventories based upon the stage of production of each unit and a gross margin that we believe a market participant would require to complete the remaining development and requisite selling efforts.  The stage of production, as of the acquisition date, ranged from finished lots to fully completed single family residences.  We estimated a market participant would require a gross margin ranging from 6% to 18% based upon the stage of production of the individual lot. 

We determined the estimate of fair value for amortizable intangible assets, which includes a non-compete agreement, a  trade name, home plans, and a  backlog associated with certain custom home contracts, with the assistance of a third party valuation firm.  Our estimate of the fair value of the non-compete agreement, trade name, home plans and backlog was $0.5 million, $1.0 million, $0.1 million, and $0.2 million respectively, which will be amortized over 4 years, 2 years, 7 years, and 1.5 years, respectively.  In total, amortizable intangible assets will be amortized over a weighted average life of 2.8 years.

The fair value of the earnout on the acquisition date of $2.5 million was determined with the assistance of a third party valuation firm based on probability weighting scenarios and discounting the potential payments which range from $0 to a maximum of $5.3 million.  The maximum earnout amount is subject to downward reductions of up to $1.5 million based on the number of future lots acquired over the next two years in our Houston division.  The earnout liability is included in accrued expenses and other liabilities on the consolidated balance sheets.

We determined that Grand View’s carrying costs approximated fair value for all other acquired assets and assumed liabilities.

Goodwill includes the anticipated economic value of the acquired workforce. Approximately $3.7 million of goodwill is expected to be deductible for tax purposes. 

During the six months ended June 30, 2015, we recorded measurement period adjustments, which decreased the estimated value of amortizable intangible assets by $0.5 million and decreased the estimated value of inventories by $0.2 million, resulting in an increase in goodwill of $0.7 million.  The measurement period adjustments also resulted in a decrease of $0.1 million for the six months ended June 30, 2015 to selling, general, and administrative expenses and a reduction of $0.2 million to cost of home sales revenues on the consolidated statements of operations.  

Acquisition of Peachtree 

On November 13, 2014, we acquired substantially all the assets and operations of Peachtree Communities Group, Inc. and its affiliates and subsidiaries (which we refer to as “Peachtree”), a leading homebuilder in Atlanta, Georgia, for approximately $57 million in cash. The acquired assets include land, homes under construction, model homes and lot option contacts in 36 communities in the greater Atlanta area. As a result of the acquisition, we obtained ownership or control of 2,120 lots in the greater Atlanta market. As the acquired assets and processes have the ability to create outputs in the form of revenue from the sale of single family residences, we concluded that the acquisition represents a business combination. We incurred $0.5 million in acquisition-related costs in connection with the purchase of Peachtree.

The following table summarizes the final estimate of the fair value of the assets acquired and liabilities assumed as of the acquisition date (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Assets acquired and liabilities assumed

 

 

 

Accounts receivable

 

$

11 

Inventories

 

 

48,034 

Prepaid expenses and other assets

 

 

762 

Property and equipment

 

 

54 

Amortizable intangible assets

 

 

4,044 

Goodwill

 

 

7,857 

Total assets

 

$

60,762 

 

 

 

 

Accounts payable

 

 

3,304 

Accrued expenses and other liabilities

 

 

3,108 

Total liabilities

 

$

6,412 

12 

 


 

Table of Contents

 

 

 

Acquired inventories primarily consist of work in process homebuilding inventory in various stages of construction and do not include significant amounts of land held for future development.  Accordingly, we estimated the fair value based upon the stage of production of each unit and a gross margin that we believe a market participant would require to complete the remaining development and requisite selling efforts.  The stage of production, as of the acquisition date, ranged from finished lots to fully completed single family residences.  We estimated a market participant would require a gross margin ranging from 6% to 18% based upon the stage of production of the individual lot.  Due to the nature of these estimates combined with uncertainties in the estimation process and the significant volatility in demand for new housing, actual results could differ significantly from such estimates.  

 

Intangible assets consist of a non-compete agreement with the former owner of Peachtree, acquired home plans and acquired lot option agreements.  The non-compete agreement was valued using a with and with-out approach which estimates the impact on future cash flows with and with-out the non-compete agreement. The difference between the projected cash flows is then discounted in order to estimate the fair value of the non-compete agreement. We estimated a fair value of $3.2 million for the non-compete agreement.  Acquired home plans were valued using a replacement cost approach, which resulted in an estimated fair value of $0.2 million.  The fair value of the acquired lot option agreements of  $0.6 million was estimated based upon the difference between the contractual lot option purchase prices and the estimated fair value of similar lots on the acquisition date.  The non-compete agreement,  home plans and lot option agreements will be amortized over 5,  7 and 3 years, respectively.  In total, amortizable intangible assets will be amortized over a weighted average life of 4.8 years. 

We determined that Peachtree’s carrying costs approximated fair value for all other acquired assets and assumed liabilities. 

 

Goodwill includes the anticipated economic value of the acquired workforce.  Approximately $17.1 million of goodwill is expected to be deductible for tax purposes. 

 

During the three months ended June 30, 2015, we recorded a  measurement period adjustment, which increased the estimated value of amortizable intangible assets and decreased the fair value of goodwill by $0.6 million. The measurement period adjustment also resulted in an increase of $0.1 million for the three and six months ended June 30, 2015 to cost of home sales revenues on our consolidated statements of operations.

 

Pro forma Financial Information

No pro forma financial information is required for the three and six months ended June 30, 2015, as our acquisitions of LVLH, Grand View, and Peachtree occurred during 2014.

Pro forma financial information for the three and six months ended June 30, 2014 gives effect to and includes the results of our acquisitions of LVLH, Grand View, and Peachtree as if the acquisitions occurred at January 1, 2014.  Pro forma income before income tax expense adjusts the operating results of LVLH, Grand View, and Peachtree to reflect the additional costs that would have been recorded assuming the fair value adjustments had been applied as of the beginning of the period presented.

The following summarizes pro forma financial information for the three and six months ended June 30, 2014 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2014

 

2014

Pro forma revenue

 

$

138,885 

 

$

254,322 

Pro forma income before income tax expense

 

 

9,355 

 

 

16,086 

Pro forma income tax expense

 

 

3,274 

 

 

5,630 

Pro forma net income

 

 

6,081 

 

 

10,456 

 

 

 

10. Income Taxes

 

At the end of each interim period we are required to estimate our annual effective tax rate for the fiscal year, and use that rate to provide for income taxes for the current year-to-date reporting period. Accordingly, we recorded income tax expense of $4.6 million, and $2.7 million for the three months ended June 30, 2015 and 2014, respectively. For the six months ended June 30, 2015 and 2014,  we recorded $7.8 million and $4.5 million of income tax expense,  respectively. Our income tax expense for the three and six months ended June 30, 2015 is based on our estimated annual effective tax rate of approximately 34.4% and certain discreet items, which benefited our effective tax rate by approximately 1.9% and 1.4% for the three and six months ended June 30, 2015, respectively. 

 

 

13 

 


 

Table of Contents

 

 

11. Fair Value Disclosures

ASC 820, Fair Value Measurement, 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 2Quoted 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.

The following table presents carrying values and estimated fair values of financial instruments (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

December 31, 2014

 

 

Hierarchy 

 

Carrying 

 

Fair Value

 

Carrying 

 

Fair Value

Secured note receivable(1)

 

Level 2

 

$

3,000 

 

$

3,000 

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6.875% senior notes(2)

 

Level 2

 

$

257,693 

 

$

257,400 

 

$

198,605 

 

$

203,013 

Revolving line of credit(3)

 

Level 2

 

 

40,000 

 

 

40,000 

 

 

20,000 

 

 

20,000 

Land development notes(4)

 

Level 2

 

 

4,350 

 

 

4,343 

 

 

5,737 

 

 

5,724 

Insurance premium notes(3)

 

Level 2

 

 

2,443 

 

 

2,443 

 

 

5,135 

 

 

5,135 

Capital lease obligations(3)

 

Level 2

 

 

 —

 

 

 —

 

 

133 

 

 

133 

Total notes payable and revolving line of credit

 

 

 

$

304,486 

 

$

304,186 

 

$

229,610 

 

$

234,005 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnout liability(5)

 

Level 3

 

$

1,773 

 

$

1,773 

 

$

2,426 

 

$

2,426 

 

 

(1)

The carrying amount approximates fair value as the secured note was received in connection with the disposition of the golf course in our Tuscany community in our Nevada operating segment in May 2015 at terms that considered the underlying risks of the note.

(2)

Estimated fair value of the Initial Senior Notes at December 31, 2014 was based on a cash flow model discounted at market interest rates that considered underlying risks of the debt. At June 30, 2015, the fair values of the Senior Notes also incorporated recent trading activity of the Exchange Notes and Additional Senior Notes in inactive markets.

(3)

Carrying amount approximates fair value due to short-term nature and interest rate terms.

(4)

The estimated fair values of the land development notes at June 30, 2015 and December 31, 2014 were based on cash flow models discounted at market interest rates that considered underlying risks of the debt. 

(5)

Recognized in connection with the acquisition of Grand View on August 12, 2014.  A Monte Carlo model was used to value the earnout by simulating earnings, applying the terms of the earnout in each simulated path, determining the average payment in each year across all the trials of the simulation, and calculating the sum of the present values of the payments in each year. The primary inputs and key assumptions of this Monte Carlo model included a range of forecasted revenue and gross margin scenarios which increased and decreased by 10.1% from our base case and discount rates ranging from 5.1% to 6.3%. We decreased the liability by $0.5 million and $0.7 million during the three and six months ended June 30, 2015, respectively, to adjust the carrying value of the earnout to fair value. The decrease is included as a reduction to selling, general and administrative expense on our consolidated statement of operations.

The carrying amount of cash and cash equivalents approximates fair value. Non-financial 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.

 

12. Stock-Based Compensation

Our authorized capital stock consists of 100.0 million shares of common stock, $0.01 par value per share, and 50.0 million shares of preferred stock, $0.01 par value. As of June 30, 2015 and December 31, 2014, there were 20.6 and 20.5 million shares of common stock issued and outstanding, respectively, exclusive of the restricted common stock issued. We also have reserved a total of 1.8 million shares of our common stock for issuance under our First Amended & Restated 2013 Long-Term Incentive Plan, including outstanding awards.

14 

 


 

Table of Contents

 

 

During the three months ended June 30, 2015, we issued 15 thousand shares of restricted common stock awards with a weighted average grant date fair value of $19.41 per share. The awards vest over a three year period from the grant date.

During the six months ended June 30, 2015, we issued 0.5 million shares of restricted common stock awards with a weighted average grant date fair value of $16.92 per share. The awards vest over a three year period from the grant date.

As of June 30, 2015, 0.8 million shares of restricted common stock were unvested, and $11.8 million of unrecognized compensation costs is expected to be recognized over a weighted average period of 2.3 years.

During the three months ended June 30, 2015 and 2014, we recognized stock-based compensation expense of $1.4 million and $0.4 million, respectively. During the six months ended June 30, 2015 and 2014, we recognized stock-based compensation expense of $2.5 million and $0.7 million, respectively. Stock-based compensation expense is included in selling, general, and administrative on our consolidated statements of operations.

 

 

13. Earnings Per Share

We use the two-class method of calculating earnings per share (which we refer to as “EPS”) as our non-vested restricted stock awards have non-forfeitable rights to dividends and, accordingly, represent a participating security. The two-class method is an earnings allocation method under which EPS is calculated for each class of common stock and participating security considering both dividends declared (or accumulated) and participation rights in undistributed earnings as if all such earnings had been distributed during the period.

The following table sets forth the computation of basic and diluted EPS for the three and six months ended June 30, 2015 and 2014 (in thousands, except share and per share information):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2015

 

2014

 

2015

 

2014

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

9,798 

 

$

5,338 

 

$

16,149 

 

$

8,707 

Less: Undistributed earnings allocated to participating securities

 

 

(361)

 

 

(72)

 

 

(533)

 

 

(105)

Net income allocable to common stockholders

 

$

9,437 

 

$

5,266 

 

$

15,616 

 

$

8,602 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted:

 

 

20,556,536 

 

 

17,674,868 

 

 

20,533,237 

 

 

17,376,591 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.46 

 

$

0.30 

 

$

0.76 

 

$

0.50 

 

 

 

14. Commitments and Contingencies

Letters of Credit and Performance Bonds

In the normal course of business, the Company posts letters of credit and performance bonds related to our land development performance obligations with local municipalities. As of June 30, 2015 and December 31, 2014, we had $39.3 million and $34.0 million, respectively, in letters of credit and performance bonds issued and outstanding.

 

Litigation

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business, which consist primarily of construction defect claims. It is the opinion of management that if the claims have merit, parties other than the Company would be, at least in part, liable for the claims, and eventual outcome of these claims will not have a material adverse effect upon our consolidated financial condition, results of operations, or cash flows. When we believe that a loss is probable and estimable, we record a charge to selling, general, and administrative on our consolidated statements of operations for our estimated loss.

 

15 

 


 

Table of Contents

 

 

We do not believe that the ultimate resolution of any claims and lawsuits will have a material adverse effect upon our consolidated financial position, results of operations, or cash flow.

 

 

 

 

15. Disposition of Golf Courses

 

On May 26, 2015, we disposed of the operations of the golf course in our Tuscany community in our Nevada operating segment for total consideration of $4.0 million, which included $1.0 million in cash and a $3.0 million secured note, and resulted in a gain on sale of $2 thousand. The secured note accrues interest at rates ranging from 4.5% to 5.5% per annum and requires monthly payments of principal and interest with a balloon payment of $2.5 million of principal in May of 2020.  

 

On May 19, 2015, we initiated our rights under a fixed price put option to dispose of the golf course in our Rhodes Ranch community in our Nevada operating segment for $5.9 million. The fixed price put option requires closing to occur on or before June 1, 2016. Accordingly, the assets and liabilities of the Rhodes Ranch golf course have been classified as held for sale and presented in prepaid expenses and other assets and accrued expenses and other liabilities on the consolidated balance sheet as of June 30, 2015.

 

 

16. Supplemental Guarantor Information

In May 2014 and April 2015, we completed private offerings of $200.0 million and $60.0 million, respectively, in aggregate principal amount of our 6.875% senior notes due 2022 (which we refer to collectively as the Senior Notes”). The Senior Notes are unsecured senior obligations of the Company (which we refer to as “CCS”), which are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by substantially all of our operating subsidiaries (which we refer to as “Guarantors”), which are wholly owned subsidiaries of the Company.

The Indenture governing the Senior Notes provides that the guarantees of a Guarantor will be automatically and unconditionally released and discharged: (1) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the equity interests of such Guarantor after which the applicable Guarantor is no longer a “Restricted Subsidiary” (as defined in the Indenture), which sale, transfer, exchange or other disposition does not constitute an “Asset Sale” (as defined in the Indenture) or is made in compliance with applicable provisions of the Indenture; (2) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the assets of such Guarantor, which sale, transfer, exchange or other disposition does not constitute an Asset Sale or is made in compliance with applicable provisions of the Indenture; provided, that after such sale, transfer, exchange or other disposition, such Guarantor is an “Immaterial Subsidiary” (as defined in the Indenture); (3) unless a default has occurred and is continuing, upon the release or discharge of such Guarantor from its guarantee of any indebtedness for borrowed money of the Company and the Guarantors so long as such Guarantor would not then otherwise be required to provide a guarantee pursuant to the Indenture; provided that if such Guarantor has incurred any indebtedness in reliance on its status as a Guarantor in compliance with applicable provisions of the Indenture, such Guarantor’s obligations under such indebtedness, as the case may be, so incurred are satisfied in full and discharged or are otherwise permitted to be incurred by a Restricted Subsidiary (other than a Guarantor) in compliance with applicable provisions of the Indenture; (4) upon the designation of such Guarantor as an “Unrestricted Subsidiary” (as defined in the Indenture), in accordance with the Indenture; (5) if the Company exercises its legal defeasance option or covenant defeasance option under the Indenture or if the obligations of the Company and the Guarantors are discharged in compliance with applicable provisions of the Indenture, upon such exercise or discharge; or (6) in connection with the dissolution of such Guarantor under applicable law in accordance with the Indenture.

As the guarantees were made in connection with the May 2014 and April 2015 private offerings of the Senior Notes, the Guarantors’ condensed financial information is presented as if the guarantees existed during the periods presented. If any Guarantors are released from the guarantees in future periods, the changes are reflected prospectively.

In February 2015, we completed an offer to exchange $200.0 million in aggregate principal amount of our 6.875% Senior Notes due 2022, which are registered under the Securities Act (which we refer to as the “Exchange Notes”), for all of the Initial Senior Notes sold and issued in the May 2014 private offering.  The terms of the Exchange Notes are identical in all material respects to the Initial Senior Notes, except that the Exchange Notes are registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions applicable to the Initial Senior Notes do not apply to the Exchange Notes.

We have determined that separate, full financial statements of the Guarantors would not be material to investors and, accordingly, supplemental financial information is presented below:

16 

 


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Condensed Consolidated Balance Sheet

 

 

As of June 30, 2015  (in thousands)  

 

 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated

 

 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,057 

 

$

22,573 

 

$

 —

 

$

 —

 

$

32,630 

Accounts receivable

 

 

905 

 

 

12,526 

 

 

 —

 

 

 —

 

 

13,431 

Investment in subsidiaries

 

 

665,059 

 

 

 —

 

 

 —

 

 

(665,059)

 

 

 —

Inventories

 

 

 —

 

 

661,728 

 

 

 —

 

 

 —

 

 

661,728 

Prepaid expenses and other assets

 

 

7,955 

 

 

29,616 

 

 

 —

 

 

 —

 

 

37,571 

Property and equipment, net

 

 

736 

 

 

4,638 

 

 

 —

 

 

 —

 

 

5,374 

Deferred tax asset, net

 

 

2,917 

 

 

 —

 

 

 —

 

 

 —

 

 

2,917 

Amortizable intangible assets, net

 

 

 —

 

 

6,103 

 

 

 —

 

 

 —

 

 

6,103 

Goodwill

 

 

 —

 

 

21,365 

 

 

 —

 

 

 —

 

 

21,365 

Total assets

 

$

687,629 

 

$

758,549 

 

$

 —

 

$

(665,059)

 

$

781,119 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 —

 

$

9,323 

 

$

 —

 

$

 —

 

$

9,323 

Accrued expenses and other liabilities

 

 

6,809 

 

 

77,374 

 

 

 —

 

 

 —

 

 

84,183 

Note payable and revolving line of credit

 

 

297,693 

 

 

6,793 

 

 

 —

 

 

 —

 

 

304,486 

Total liabilities

 

 

304,502 

 

 

93,490 

 

 

 —

 

 

 —

 

 

397,992 

Stockholders’ equity:

 

 

383,127 

 

 

665,059 

 

 

 —

 

 

(665,059)

 

 

383,127 

Total liabilities and stockholders’ equity

 

$

687,629 

 

$

758,549 

 

$

 —

 

$

(665,059)

 

$

781,119 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Condensed Consolidated Balance Sheet

 

 

As of December 31, 2014 (in thousands)  

 

 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated

 

 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

22,710 

 

$

10,752 

 

$

 —

 

$

 —

 

$

33,462 

Accounts receivable

 

 

1,202 

 

 

12,597 

 

 

 —

 

 

 —

 

 

13,799 

Investment in subsidiaries

 

 

558,177 

 

 

 —

 

 

 —

 

 

(558,177)

 

 

 —

Inventories

 

 

 —

 

 

556,323 

 

 

 —

 

 

 —

 

 

556,323 

Prepaid expenses and other assets

 

 

7,286 

 

 

21,510 

 

 

 —

 

 

 —

 

 

28,796 

Property and equipment, net

 

 

641 

 

 

11,830 

 

 

 —

 

 

 —

 

 

12,471 

Deferred tax asset, net

 

 

1,359 

 

 

 —

 

 

 —

 

 

 —

 

 

1,359 

Amortizable intangible assets, net

 

 

 —

 

 

8,632 

 

 

 —

 

 

 —

 

 

8,632 

Goodwill

 

 

 —

 

 

21,137 

 

 

 —

 

 

 —

 

 

21,137 

Total assets

 

$

591,375 

 

$

642,781 

 

$

 —

 

$

(558,177)

 

$

675,979 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

70 

 

$

17,065 

 

$

 —

 

$

 —

 

$

17,135 

Accrued expenses and other liabilities

 

 

7,495 

 

 

56,534 

 

 

 —

 

 

 —

 

 

64,029 

Note payable and revolving line of credit

 

 

218,605 

 

 

11,005 

 

 

 —

 

 

 —

 

 

229,610 

Total liabilities

 

 

226,170 

 

 

84,604 

 

 

 —

 

 

 —

 

 

310,774 

Stockholders’ equity:

 

 

365,205 

 

 

558,177 

 

 

 —

 

 

(558,177)

 

 

365,205 

Total liabilities and stockholders’ equity

 

$

591,375 

 

$

642,781 

 

$

 —

 

$

(558,177)

 

$

675,979 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17 

 


 

 

 

Supplemental Condensed Consolidated Statement of Operations

 

For the Three Months Ended June 30, 2015  (in thousands)  

 

 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated

 

 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

 —

 

$

186,808 

 

$

 —

 

$

 —

 

$

186,808 

Land sales revenues

 

 

 —

 

 

370 

 

 

 —

 

 

 —

 

 

370 

Golf course and other revenue

 

 

 —

 

 

1,876 

 

 

 —

 

 

 —

 

 

1,876 

Total revenue

 

 

 —

 

 

189,054 

 

 

 —

 

 

 —

 

 

189,054 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of homes sales revenues

 

 

 —

 

 

150,225 

 

 

 —

 

 

 —

 

 

150,225 

Cost of land sales revenues

 

 

 —

 

 

365 

 

 

 —

 

 

 —

 

 

365 

Cost of golf course and other revenue

 

 

 —

 

 

1,662 

 

 

 —

 

 

 —

 

 

1,662 

Selling, general and administrative

 

 

5,423 

 

 

17,389 

 

 

 —

 

 

 —

 

 

22,812 

Total operating costs and expenses

 

 

5,423 

 

 

169,641 

 

 

 —

 

 

 —

 

 

175,064 

Operating income

 

 

(5,423)

 

 

19,413 

 

 

 —

 

 

 —

 

 

13,990 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings from consolidated subsidiaries

 

 

12,905 

 

 

 —

 

 

 —

 

 

(12,905)

 

 

 —

Interest income

 

 

15 

 

 

 

 

 —

 

 

 —

 

 

21 

Interest expense

 

 

 —

 

 

(3)

 

 

 —

 

 

 —

 

 

(3)

Acquisition expense

 

 

(15)

 

 

 —

 

 

 —

 

 

 —

 

 

(15)

Other income

 

 

 —

 

 

308 

 

 

 —

 

 

 —

 

 

308 

Gain on disposition of assets

 

 

 —

 

 

130 

 

 

 —

 

 

 —

 

 

130 

Income before income tax expense

 

 

7,482 

 

 

19,854 

 

 

 —

 

 

(12,905)

 

 

14,431 

Income tax expense

 

 

(2,316)

 

 

6,949 

 

 

 —

 

 

 —

 

 

4,633 

Net income

 

$

9,798 

 

$

12,905 

 

$

 —

 

$

(12,905)

 

$

9,798 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Condensed Consolidated Statement of Operations

 

 

For the Three Months Ended June 30, 2014 (in thousands)

 

 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated

 

 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

 —

 

$

77,328 

 

$

 —

 

$

 —

 

$

77,328 

Land sales revenues

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Golf course and other revenue

 

 

 —

 

 

2,525 

 

 

 —

 

 

 —

 

 

2,525 

Total revenue

 

 

 —

 

 

79,853 

 

 

 —

 

 

 —

 

 

79,853 

Cost of home sale revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of homes sales revenues

 

 

 —

 

 

58,197 

 

 

 —

 

 

 —

 

 

58,197 

Cost of land sales revenues

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Cost of golf course and other revenue

 

 

 —

 

 

2,154 

 

 

 —

 

 

 —

 

 

2,154 

Selling, general and administrative

 

 

3,276 

 

 

8,044 

 

 

 —

 

 

 —

 

 

11,320 

Total operating costs and expenses

 

 

3,276 

 

 

68,395 

 

 

 —

 

 

 —

 

 

71,671 

Operating income

 

 

(3,276)

 

 

11,458 

 

 

 —

 

 

 —

 

 

8,182 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings from consolidated subsidiaries

 

 

7,627 

 

 

 —

 

 

 —

 

 

(7,627)

 

 

 —

Interest income

 

 

 —

 

 

68 

 

 

 —

 

 

 —

 

 

68 

Interest expense

 

 

 —

 

 

(11)

 

 

 —

 

 

 —

 

 

(11)

Acquisition expense

 

 

(408)

 

 

 —

 

 

 —

 

 

 —

 

 

(408)

Other income

 

 

 —

 

 

129 

 

 

 —

 

 

 —

 

 

129 

Gain on disposition of assets

 

 

 —

 

 

89 

 

 

 —

 

 

 —

 

 

89 

Income before income tax expense

 

 

3,943 

 

 

11,733 

 

 

 —

 

 

(7,627)

 

 

8,049 

Income tax expense

 

 

(1,395)

 

 

4,106 

 

 

 —

 

 

 —

 

 

2,711 

Net income

 

$

5,338 

 

$

7,627 

 

$

 —

 

$

(7,627)

 

$

5,338 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18 

 


 

 

 

Supplemental Condensed Consolidated Statement of Operations

 

For the Six Months Ended June 30, 2015  (in thousands)  

 

 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated

 

 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

 —

 

$

341,143 

 

$

 —

 

$

 —

 

$

341,143 

Land sales revenues

 

 

 —

 

 

370 

 

 

 —

 

 

 —

 

 

370 

Golf course and other revenue

 

 

 —

 

 

3,979 

 

 

 —

 

 

 —

 

 

3,979 

Total revenue

 

 

 —

 

 

345,492 

 

 

 —

 

 

 —

 

 

345,492 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of homes sales revenues

 

 

 —

 

 

275,031 

 

 

 —

 

 

 —

 

 

275,031 

Cost of land sales revenues

 

 

 —

 

 

365 

 

 

 —

 

 

 —

 

 

365 

Cost of golf course and other revenue

 

 

 —

 

 

3,168 

 

 

 —

 

 

 —

 

 

3,168 

Selling, general and administrative

 

 

10,440 

 

 

33,304 

 

 

 —

 

 

 —

 

 

43,744 

Total operating costs and expenses

 

 

10,440 

 

 

311,868 

 

 

 —

 

 

 —

 

 

322,308 

Operating income

 

 

(10,440)

 

 

33,624 

 

 

 —

 

 

 —

 

 

23,184 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings from consolidated subsidiaries

 

 

22,347 

 

 

 —

 

 

 —

 

 

(22,347)

 

 

 —

Interest income

 

 

30 

 

 

 

 

 —

 

 

 —

 

 

37 

Interest expense

 

 

 —

 

 

(6)

 

 

 —

 

 

 —

 

 

(6)

Acquisition expense

 

 

(15)

 

 

 —

 

 

 —

 

 

 —

 

 

(15)

Other income

 

 

 —

 

 

625 

 

 

 —

 

 

 —

 

 

625 

Gain on disposition of assets

 

 

 —

 

 

130 

 

 

 —

 

 

 —

 

 

130 

Income before income tax expense

 

 

11,922 

 

 

34,380 

 

 

 —

 

 

(22,347)

 

 

23,955 

Income tax expense

 

 

(4,227)

 

 

12,033 

 

 

 —

 

 

 —

 

 

7,806 

Net income

 

$

16,149 

 

$

22,347 

 

$

 —

 

$

(22,347)

 

$

16,149 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Condensed Consolidated Statement of Operations

 

 

For the Six Months Ended June 30, 2014 (in thousands)

 

 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated

 

 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

 —

 

$

126,999 

 

$

 —

 

$

 —

 

$

126,999 

Land sales revenues

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Golf course and other revenue

 

 

 —

 

 

2,525 

 

 

 —

 

 

 —

 

 

2,525 

Total revenue

 

 

 —

 

 

129,524 

 

 

 —

 

 

 —

 

 

129,524 

Cost of home sale revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of homes sales revenues

 

 

 —

 

 

95,470 

 

 

 —

 

 

 —

 

 

95,470 

Cost of land sales revenues

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Cost of golf course and other revenue

 

 

 —

 

 

2,154 

 

 

 —

 

 

 —

 

 

2,154 

Selling, general and administrative

 

 

5,320 

 

 

13,003 

 

 

 —

 

 

 —

 

 

18,323 

Total operating costs and expenses

 

 

5,320 

 

 

110,627 

 

 

 —

 

 

 —

 

 

115,947 

Operating income

 

 

(5,320)

 

 

18,897 

 

 

 —

 

 

 —

 

 

13,577 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings from consolidated subsidiaries

 

 

12,590 

 

 

 

 

 

 —

 

 

(12,590)

 

 

 —

Interest income

 

 

 —

 

 

137 

 

 

 —

 

 

 —

 

 

137 

Interest expense

 

 

 —

 

 

(11)

 

 

 —

 

 

 —

 

 

(11)

Acquisition expense

 

 

(803)

 

 

 —

 

 

 —

 

 

 —

 

 

(803)

Other income

 

 

 —

 

 

257 

 

 

 —

 

 

 —

 

 

257 

Gain on disposition of assets

 

 

 —

 

 

89 

 

 

 —

 

 

 —

 

 

89 

Income before income tax expense

 

 

6,467 

 

 

19,369 

 

 

 —

 

 

(12,590)

 

 

13,246 

Income tax expense

 

 

(2,240)

 

 

6,779 

 

 

 —

 

 

 —

 

 

4,539 

Net income

 

$

8,707 

 

$

12,590 

 

$

 —

 

$

(12,590)

 

$

8,707 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19 

 


 

 

 

Supplemental Condensed Consolidated Statement of Cash Flows

 

 

For the Six Months Ended June 30, 2015 (in thousands)  

 

 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated

 

 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

Net cash used in operating activities

 

$

(5,139)

 

$

(67,021)

 

$

 —

 

$

 —

 

$

(72,160)

Net cash used in investing activities

 

$

(83,969)

 

$

(796)

 

$

 —

 

$

83,760 

 

$

(1,005)

Financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings under revolving credit facilities

 

$

75,000 

 

$

 —

 

$

 —

 

$

 —

 

$

75,000 

Payments on revolving credit facilities

 

 

(55,000)

 

 

 —

 

 

 —

 

 

 —

 

 

(55,000)

Proceeds from issuance of senior notes

 

 

58,956 

 

 

 —

 

 

 —

 

 

 —

 

 

58,956 

Proceeds from issuance of insurance premium notes

 

 

 —

 

 

448 

 

 

 —

 

 

 —

 

 

448 

Principal payments on notes payable

 

 

 —

 

 

(4,570)

 

 

 —

 

 

 —

 

 

(4,570)

Debt issuance costs

 

 

(1,784)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,784)

Repurchases of common stock upon vesting of restricted stock awards

 

 

(717)

 

 

 —

 

 

 —

 

 

 —

 

 

(717)

Payments from (and advances to) parent/subsidiary

 

 

 —

 

 

83,760 

 

 

 —

 

 

(83,760)

 

 

 —

Net cash provided by financing activities

 

$

76,455 

 

$

79,638 

 

$

 —

 

$

(83,760)

 

$

72,333 

Net increase (decrease) in cash and cash equivalents

 

$

(12,653)

 

$

11,821 

 

$

 —

 

$

 —

 

$

(832)

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

$

22,710 

 

$

10,752 

 

$

 —

 

$

 

 

$

33,462 

End of period

 

$

10,057 

 

$

22,573 

 

$

 —

 

$

 —

 

$

32,630 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Condensed Consolidated Statement of Cash Flows

 

 

For the Six Months Ended June 30, 2014 (in thousands)

 

 

 

 

 

Guarantor

 

Non Guarantor

 

Elimination

 

Consolidated

 

 

CCS

 

Subsidiaries

 

Subsidiaries

 

Entries

 

CCS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

$

(836)

 

$

(51,285)

 

$

 —

 

$

 —

 

$

(52,121)

Net cash used in investing activities

 

$

(221,004)

 

$

(165,410)

 

$

 —

 

$

221,004 

 

$

(165,410)

Financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings under revolving credit facilities

 

$

99,000 

 

$

 —

 

$

 —

 

$

 —

 

$

99,000 

Payments on revolving credit facilities

 

 

(99,000)

 

 

 

 

 

 —

 

 

 

 

 

(99,000)

Proceeds from issuance of senior notes

 

 

198,478 

 

 

 

 

 

 

 

 

 

 

 

198,478 

Principal payments on notes payable

 

 

 —

 

 

(263)

 

 

 —

 

 

 —

 

 

(263)

Debt issuance costs

 

 

(5,132)

 

 

 —

 

 

 —

 

 

 —

 

 

(5,132)

Net proceeds from issuances of common stock

 

 

82,141 

 

 

 

 

 

 —

 

 

 

 

 

82,141 

Excess tax benefit on stock-based compensation

 

 

32 

 

 

 

 

 

 

 

 

 

 

 

32 

Payments from (and advances to) parent/subsidiary

 

 

 —

 

 

221,004 

 

 

 —

 

 

(221,004)

 

 

 —

Net cash provided by financing activities

 

$

275,519 

 

$

220,741 

 

$

 —

 

$

(221,004)

 

$

275,256 

Net increase (decrease) in cash and cash equivalents

 

$

53,679 

 

$

4,046 

 

$

 —

 

$

 —

 

$

57,725 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

 

106,614 

 

 

3,384 

 

 

 —

 

 

 —

 

 

109,998 

End of period

 

$

160,293 

 

$

7,430 

 

$

 —

 

$

 —

 

$

167,723 

 

 

 

 

 

 

20 

 


 

Table of Contents

 

 

17. Subsequent Events

 

 

On July 31, 2015, we entered into a First Modification Agreement (the “First Modification Agreement”) with Texas Capital Bank, National Association, as Administrative Agent, the lenders party thereto, and the subsidiary guarantors of the Company party thereto.  The First Modification Agreement modifies the Credit Agreement, which provided us with a revolving line of credit of up to $120 million.  The First Modification Agreement, among other things, (i) increases the Credit Facility from $120 million to $200 million, (ii) extends the maturity date of the Credit Facility from October 21, 2017 to October 21, 2018, (iii) admits Bank of America, N.A. as a new lender under the Credit Facility, and (iv) provides an option for the Company to request, from time to time, an additional increase in the amount of the Credit Facility of up to $100 million, subject to the terms and conditions of the First Modification Agreement and the Credit Agreement.  

 

21 

 


 

Table of Contents

 

 

ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Some of the statements included in this Quarterly Report on Form 10-Q (which we refer to as this “Form 10-Q”) constitute forward-looking statements within the meaning of the federal securities laws.  Forward-looking statements relate to expectations, beliefs, projections, forecasts, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.  These statements are only predictions.  We caution that forward-looking statements are not guarantees.  Actual events and results of operations could differ materially from those expressed or implied in the forward-looking statements.  Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.  You can also identify forward-looking statements by discussions of strategy, plans or intentions.  Actual results and the timing of events may differ materially from those contained in these forward-looking statements due a number of factors.

The forward-looking statements included in this Form 10-Q reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement.  Statements regarding the following subjects, among others, may be forward-looking:

·

economic changes either nationally or in the markets in which we operate, including declines in employment, volatility of mortgage interest rates and inflation;

·

continued or increased downturn in the homebuilding industry;

·

changes in assumptions used to make industry forecasts;

·

continued volatility and uncertainty in the credit markets and broader financial markets;

·

our future operating results and financial condition;

·

our business operations;

·

changes in our business and investment strategy;

·

availability of land to acquire and our ability to acquire such land on favorable terms or at all;

·

availability, terms and deployment of capital;

·

continued or increased disruption in the availability of mortgage financing or the number of foreclosures in the market;

·

shortages of or increased prices for labor, land or raw materials used in housing construction;

·

delays in land development or home construction resulting from adverse weather conditions or other events outside our control;

·

changes in, or the failure or inability to comply with, governmental laws and regulations;

·

the timing of receipt of regulatory approvals and the opening of projects;

·

the degree and nature of our competition;

·

our leverage and debt service obligations; and

·

availability of qualified personnel and our ability to retain our key personnel.

 

The forward-looking statements are based on our beliefs, assumptions and expectations of future events, taking into account all information currently available to us.  Forward-looking statements are not guarantees of future events or of our performance.  These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us.  Some of these events and factors are described in “Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Part II, Item 1A.  Risk Factors” in this Form 10-Q, and other risks and uncertainties detailed in this and our other reports and filings with the SEC.  If a change occurs, our business, financial condition, liquidity, cash flows and results of operations may vary materially from those expressed in or implied by our forward-looking statements.  New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us.  Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  Therefore, you should not rely on these forward-looking statements as of any date subsequent to the date of this Form 10-Q.

As used in this Form 10-Q, references to “we,” “us,” “our” or the “Company” refer to Century Communities, Inc., a Delaware corporation, and, unless the context otherwise requires, its subsidiaries and affiliates.

22 

 


 

Table of Contents

 

 

Overview

We are engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in metropolitan areas in Colorado, Austin and San Antonio, Texas (which we refer to as “Central Texas”), Houston, Texas, Las Vegas, Nevada, and Atlanta, Georgia.  Our homebuilding operations are organized into the following five operating segments based on the geographic markets in which we operate: Atlanta, Central Texas, Colorado, Houston and Nevada.  In many of our projects, in addition to building homes, we are responsible for the entitlement and development of the underlying land.

 

We build and sell an extensive range of home types across a variety of price points. Our emphasis is on acquiring well located land positions and offering quality homes with innovative design elements.

 

Results of Operations

 

During the three months ended June 30, 2015, we delivered 636 homes, with an average sales price of $293.7 thousand. During the same period, we generated approximately $186.8 million in home sales revenues, approximately $14.4 million in income before income tax expense, and approximately $9.8 million in net income. During the six months ended June 30, 2015, we delivered 1,178 homes, with an average sales price of $289.6 thousand. During the same period, we generated approximately $341.1 million in home sales revenues, approximately $24.0 million in income before income tax expense, and approximately $16.1 million in net income. For the three and six months ended June 30, 2015, our net sales orders totaled 718 and 1,424 homes, a 155.5% and 221.4% increase over the same periods in 2014, respectively. On June 30, 2015, we had a backlog of 1,005 sold but unclosed homes, a 155.1% increase over the same period in 2014, consisting of approximately $348.0 million in sales value, a 107.3% increase over the same period in 2014.  Our results of operations are significantly impacted by our acquisitions of Peachtree Communities Group, Inc. and its affiliates and subsidiaries (which we refer to as “Peachtree”) in November 2014, Grand View Builders (which we refer to as “Grand View”) in August 2014, and Las Vegas Land Holdings, LLC (which we refer to as “LVLH”) in April 2014. Subsequent to our acquisitions, these operations are our Atlanta, Houston and Nevada operating segments, respectively. 

 

The following table summarizes our results of operation for the three and six months ended June 30, 2015 and 2014. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

(in thousands, except per share amounts)

 

June 30,

 

June 30,

 

 

2015

 

2014

 

2015

 

2014

 

 

(unaudited)

 

Consolidated Statements of Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

186,808 

 

 

$

77,328 

 

 

$

341,143 

 

 

$

126,999 

 

Land sales revenues

 

 

370 

 

 

 

 —

 

 

 

370 

 

 

 

 —

 

Golf course and other revenue

 

 

1,876 

 

 

 

2,525 

 

 

 

3,979 

 

 

 

2,525 

 

Total revenue

 

 

189,054 

 

 

 

79,853 

 

 

 

345,492 

 

 

 

129,524 

 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of home sales revenues

 

 

150,225 

 

 

 

58,197 

 

 

 

275,031 

 

 

 

95,470 

 

Cost of land sales revenues

 

 

365 

 

 

 

 —

 

 

 

365 

 

 

 

 —

 

Cost of golf course and other revenue

 

 

1,662 

 

 

 

2,154 

 

 

 

3,168 

 

 

 

2,154 

 

Selling, general, and administrative

 

 

22,812 

 

 

 

11,320 

 

 

 

43,744 

 

 

 

18,323 

 

Total operating costs and expenses

 

 

175,064 

 

 

 

71,671 

 

 

 

322,308 

 

 

 

115,947 

 

Operating income

 

 

13,990 

 

 

 

8,182 

 

 

 

23,184 

 

 

 

13,577 

 

Other income (expense):

 

 

441 

 

 

 

(133)

 

 

 

771 

 

 

 

(331)

 

Income before income tax expense

 

 

14,431 

 

 

 

8,049 

 

 

 

23,955 

 

 

 

13,246 

 

Income tax expense

 

$

4,633 

 

 

$

2,711 

 

 

$

7,806 

 

 

$

4,539 

 

Net income

 

 

9,798 

 

 

 

5,338 

 

 

 

16,149 

 

 

 

8,707 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.46 

 

 

$

0.30 

 

 

$

0.76 

 

 

$

0.50 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Operating Information (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of homes delivered

 

 

636 

 

 

 

198 

 

 

 

1,178 

 

 

 

326 

 

Average sales price of homes delivered

 

$

293.7 

 

 

$

390.5 

 

 

$

289.6 

 

 

$

389.6 

 

23 

 


 

Homebuilding gross margin percentage

 

 

19.6 

%

 

 

24.7 

%

 

 

19.4 

%

 

 

24.8 

%

Cancellation rate

 

 

19 

%

 

 

17 

%

 

 

19 

%

 

 

16 

%

Backlog at end of period, number of homes

 

 

1,005 

 

 

 

394 

 

 

 

1,005 

 

 

 

394 

 

Backlog at end of period, aggregate sales value

 

$

347,970 

 

 

$

167,818 

 

 

$

347,970 

 

 

$

167,818 

 

Average sales price of homes in backlog

 

$

346.2 

 

 

$

425.9 

 

 

$

346.2 

 

 

$

425.9 

 

Net new home contracts

 

 

718 

 

 

 

281 

 

 

 

1,424 

 

 

 

443 

 

Selling communities at period end

 

 

89 

 

 

 

36 

 

 

 

89 

 

 

 

36 

 

Average selling communities

 

 

88 

 

 

 

32 

 

 

 

85 

 

 

 

28 

 

Total owned and controlled lot inventory

 

 

13,288 

 

 

 

9,852 

 

 

 

13,288 

 

 

 

9,852 

 

 

Home Sales Revenues and Homes Delivered

 

The following tables summarize our home deliveries and average sales price for each of our operating segments for the three and six months ended June 30, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New homes delivered

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

 

June 30,

 

Increase (Decrease)

 

June 30,

 

Increase (Decrease)

 

 

2015

 

2014

 

Amount 

 

% 

 

2015

 

2014

 

Amount 

 

% 

Atlanta

 

 

319 

 

 

 —

 

 

NM

 

NM

 

 

 

574 

 

 

 —

 

 

NM

 

NM

 

Central Texas

 

 

36 

 

 

30 

 

 

 

20.0 

%

 

 

75 

 

 

56 

 

 

19 

 

33.9 

%

Colorado

 

 

187 

 

 

114 

 

 

73 

 

64.0 

%

 

 

330 

 

 

216 

 

 

114 

 

52.8 

%

Houston

 

 

32 

 

 

 —

 

 

NM

 

NM

 

 

 

92 

 

 

 —

 

 

NM

 

NM

 

Nevada

 

 

62 

 

 

54 

 

 

 

14.8 

%

 

 

107 

 

 

54 

 

 

53 

 

98.1 

%

Total

 

 

636 

 

 

198 

 

 

438 

 

221.2 

%

 

 

1,178 

 

 

326 

 

 

852 

 

261.3 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average sales price of homes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

delivered (in thousands)

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

 

June 30,

 

Increase (Decrease)

 

June 30,

 

Increase (Decrease)

 

 

2015

 

2014

 

Amount 

 

% 

 

2015

 

2014

 

Amount 

 

% 

Atlanta

 

$

220.3 

 

 

 —

 

 

NM

 

NM

 

 

$

221.1 

 

 

 —

 

 

NM

 

NM

 

Central Texas

 

$

449.1 

 

$

415.5 

 

$

33.6 

 

8.1 

%

 

$

442.7 

 

$

469.4 

 

$

(26.7)

 

(5.7)

%

Colorado

 

$

402.7 

 

$

424.1 

 

$

(21.4)

 

(5.0)

%

 

$

397.4 

 

$

389.8 

 

$

7.6 

 

1.9 

%

Houston

 

$

221.4 

 

 

 —

 

 

NM

 

NM

 

 

$

190.1 

 

 

 —

 

 

NM

 

NM

 

Nevada

 

$

290.1 

 

$

305.8 

 

$

(15.7)

 

(5.1)

%

 

$

303.0 

 

$

305.8 

 

$

(2.8)

 

(0.9)

%

Total

 

$

293.7 

 

$

390.5 

 

$

(96.8)

 

(24.8)

%

 

$

289.6 

 

$

389.6 

 

$

(100.0)

 

(25.7)

%

 

NM - Not meaningful.

 

 

 

We generated $186.8 and $341.1 million in home sales revenues during the three and six months ended June 30, 2015, respectively.  This represents a 141.6% and 168.6% increase as compared to the three and six months ended June 30, 2014 where we generated $77.3 and $127.0 million in home sales revenues, respectively.  The increase in home sales revenues is primarily a result of an increase of 221.2% and 261.3% in the number of homes delivered for the three and six months ended June 30, 2015, respectively, as compared to the previous year, which is partially offset by a decrease in average sales price. The increase in deliveries was driven by our acquisitions of Peachtree, Grand View, and LVLH, which comprise our Atlanta, Houston, and Nevada operating segments, respectively. 

Our average sales price decreased 24.8% to $293.7 thousand for the three months ended June 30, 2015, and decreased 25.7% to $289.6 thousand for the six months ended June 30, 2015, as compared to the same periods in 2014.  The decrease is primarily a result of the lower average sales prices in our new Atlanta, Houston, and Nevada operating segments.

24 

 


 

Table of Contents

 

 

Cost of Home Sales Revenues

Cost of home sales revenues increased $92.0 million, or 158.1%, for the three months ended June 30, 2015, and $180.0 million, or 188.1%, for the six months ended June 30, 2015, as compared to the same period in 2014. The increase in cost of home sales revenues was a result of the increase in deliveries discussed above which were driven by the addition of our Atlanta, Houston, and Nevada operating segments. 

Homebuilding Gross Margin

Homebuilding gross margin represents home sales revenues less cost of home sales revenues. Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, decreased during the three and six months ended June 30, 2015 to 19.6% and 19.4% as compared to 24.7% and 24.8% for the three and six months ended June 30, 2014, respectively.  The decrease is primarily driven by our entry into the Atlanta and Houston markets, which have lower average sales prices and lower average homebuilding gross margins than our existing markets, and the impact of an increase of previously capitalized interest costs in cost of sales as a result of higher outstanding debt balances, as well as, the impact of purchase price accounting for acquired work in process inventory. 

In the following table, we calculate our homebuilding gross margins adjusting for interest in cost of sales, and purchase price accounting for acquired work in process inventory. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

2015

 

% 

 

2014

 

% 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

186,808 

 

100.0 

%

 

$

77,328 

 

100.0 

%

Cost of home sales revenues

 

 

150,225 

 

80.4 

%

 

 

58,197 

 

75.3 

%

Gross margin from home sales

 

 

36,583 

 

19.6 

%

 

 

19,131 

 

24.7 

%

Add: Interest in cost of home sales revenues

 

 

2,830 

 

1.5 

%

 

 

452 

 

0.6 

%

Adjusted homebuilding gross margin excluding interest (1)

 

 

39,413 

 

21.1 

%

 

 

19,583 

 

25.3 

%

Add: Purchase price accounting for acquired work in process inventory

 

 

414 

 

0.2 

%

 

 

919 

 

1.2 

%

Adjusted homebuilding gross margin excluding interest and purchase price accounting for acquired work in process inventory (1)

 

$

39,827 

 

21.3 

%

 

$

20,502 

 

26.5 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

2015

 

% 

 

2014

 

% 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home sales revenues

 

$

341,143 

 

100.0 

%

 

$

126,999 

 

100.0 

%

Cost of home sales revenues

 

 

275,031 

 

80.6 

%

 

 

95,470 

 

75.2 

%

Gross margin from home sales

 

 

66,112 

 

19.4 

%

 

 

31,529 

 

24.8 

%

Add: Interest in cost of home sales revenues

 

 

4,451 

 

1.3 

%

 

 

528 

 

0.4 

%

Adjusted homebuilding gross margin excluding interest (1)

 

 

70,563 

 

20.7 

%

 

 

32,057 

 

25.2 

%

Add: Purchase price accounting for acquired work in process inventory

 

 

2,441 

 

0.7 

%

 

 

1,107 

 

0.9 

%

Adjusted homebuilding gross margin excluding interest and purchase price accounting for acquired work in process inventory (1)

 

$

73,004 

 

21.4 

%

 

$

33,164 

 

26.1 

%

 

 

 

 

 

(1)Non-GAAP financial measure.

 

Excluding interest in cost of home sales revenues and purchase price accounting for acquired work in process inventory, our adjusted homebuilding gross margin percentage was 21.3% and 21.4% for the three and six months ended June 30, 2015 as compared to 26.5% and 26.1% for the three and six months ended June 30, 2014, respectively. The decrease in adjusted homebuilding gross margin is primarily from entering the Atlanta and Houston markets, which have lower average sales prices and lower average homebuilding gross margins than our existing markets.  We believe the above information is meaningful as it isolates the impact that indebtedness and acquisitions have on homebuilding gross margin and allows for comparability of our homebuilding gross margins to previous periods and our competitors. 

Gross Margin on Land Sales 

 

During the three months ended June 30, 2015, we disposed of land for $0.4 million, which had a carrying basis of $0.4 million. 

25 

 


 

Table of Contents

 

 

Gross Margin on Golf Course and Other

 

In our Nevada operating segment, we are the operators of two golf courses within our Rhodes Ranch and Tuscany communities. We generated approximately $1.9 million and $4.0 million in revenue during the three and six months ended June 30, 2015, respectively, which was partially offset by costs associated with the courses of $1.7 million and $3.2 million for the three and six months ended June 30, 2015, respectively. 

 

On May 26, 2015, we disposed of the operations of the golf course in our Tuscany community in our Nevada operating segment for total consideration of $4.0 million, which included $1.0 million in cash and a $3.0 million secured note, and resulted in a gain of $2 thousand. The secured note accrues interest at rates ranging from 4.5% to 5.5% per annum and requires monthly payments of principal and interest with a balloon payment of $2.5 million of principal in May of 2020.  

 

On May 19, 2015, we initiated our rights under a fixed price put option to dispose of the golf course in our Rhodes Ranch community in our Nevada operating segment for $5.9 million. The fixed price put option requires closing to occur on or before June 1, 2016. Accordingly, the assets and liabilities of the Rhodes Ranch golf course have been classified as held for sale and presented in prepaid expenses and other assets and accrued expenses and other liabilities on the consolidated balance sheet as of June 30, 2015.

Selling, General and Administrative Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

June 30,

 

Increase 

 

 

2015

 

2014

 

Amount 

 

% 

Selling, general and administrative

 

$

22,812 

 

 

$

11,320 

 

 

$

11,492 

 

 

101.5 

%

As a percentage of homes sales revenue

 

 

12.2 

%

 

 

14.6 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

June 30,

 

Increase 

 

 

2015

 

2014

 

Amount 

 

% 

Selling, general and administrative

 

$

43,744 

 

 

$

18,323 

 

 

$

25,421 

 

 

138.7 

%

As a percentage of homes sales revenue

 

 

12.8 

%

 

 

14.4 

%

 

 

 

 

 

 

 

Our selling, general and administrative costs increased $11.5 million for the three months ended June 30, 2015 as compared to the same period in the previous year. The increase for the three months ended June 30, 2015 was primarily attributable to the following: (1) an increase of $3.4 million in our compensation-related expenses, including incentive compensation, resulting largely from a 97.0% increase in our headcount to 461 employees as of June 30, 2015 compared to 234 employees as of June 30, 2014, (2) an increase of $5.0 million in commission expense to $7.2 million for the three months ended June 30, 2015, resulting from a 141.6% increase in home sales revenues, (3) an increase of $0.2 million related to advertising costs associated with our increased number of active communities, (4) an increase of $0.6 million related to depreciation and amortization as a result of amortization expense of intangible assets from our acquisitions of Peachtree, Grand View, and LVLH, and (5) moderate increases in outside professional services, insurance, legal, and other miscellaneous expenses related to increased operations from our growth and overall increase in costs associated with being a public company, partially offset by a reduction to selling, general and administrative for the three months ended June 30, 2015 of $0.5 million to adjust the carrying value of the earnout liability to fair value.

Our selling, general and administrative costs increased $25.4 million for the six months ended June 30, 2015 as compared to the same period in the previous year. The increase for the six months ended June 30, 2015 was primarily attributable to the following: (1) an increase of $8.6 million in our compensation-related expenses, including incentive compensation, resulting largely from the increase in headcount to 461 employees as of June 30, 2015 compared to 234 employees as of June 30, 2014, (2) an increase of $10.3 million in commission expense to $14.0 million for the six months ended June 30, 2015, resulting from a 168.6% increase in home sales revenues, (3) an increase of $0.7 million related to advertising costs associated with our increased number of active communities, (4) an increase of $1.1 million related to depreciation and amortization as a result of amortization expense of intangible assets from our acquisitions of Peachtree, Grand View, and LVLH, and (5) moderate increases in outside professional services, insurance, legal, and other miscellaneous expenses related to increased operations from our growth and overall increase in costs associated with being a public company, partially offset by a reduction to selling, general and administrative for the six months ended June 30, 2015 of $0.7 million to adjust the carrying value of the earnout liability to fair value.

Other Income (Expense)

Other income (expense) increased by $0.6 million to income of $0.4 million and increased by $1.1 million to income of $0.8 million for the three and six months ended June 30, 2015, respectively, from expense of $0.1 million and $0.3 million for the three and six months

26 

 


 

Table of Contents

 

 

ended June 30, 2014, respectively. The increase was primarily driven by a decrease in acquisition related expenses during the three and six months ended June 30, 2015 as compared to the same period in the prior year, as well as an increase in forfeited deposit income.  

 

 

Income Tax Expense

Our income tax expense for the three and six months ended June 30, 2015 was $4.6 million and $7.8 million, respectively, as compared to $2.7 million and $4.5 million for the three and six months ended June 30, 2014, respectively.  Our income tax expense for the three and six months ended June 30, 2015 is based on our estimated annual effective tax rate of approximately 34.4% and certain discreet items, which benefited our effective tax rate by approximately 1.9% and 1.4% for the three and six months ended June 30, 2015, respectively. 

Other Homebuilding Operating Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

Net new home contracts

 

June 30,

 

Increase

 

June 30,

 

Increase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

2014

 

Amount

 

% Change

 

2015

 

2014

 

Amount

 

% Change

Atlanta

 

329 

 

 —

 

NM

 

NM

 

 

660 

 

 —

 

NM

 

NM

 

Central Texas

 

50 

 

40 

 

10 

 

25.0 

%

 

112 

 

65 

 

47 

 

72.3 

%

Colorado

 

221 

 

153 

 

68 

 

44.4 

%

 

430 

 

290 

 

140 

 

48.3 

%

Houston

 

37 

 

 —

 

NM

 

NM

 

 

64 

 

 —

 

NM

 

NM

 

Nevada

 

81 

 

88 

 

(7)

 

(8.0)

%

 

158 

 

88 

 

70 

 

79.5 

%

Total

 

718 

 

281 

 

437 

 

155.5 

%

 

1,424 

 

443 

 

981 

 

221.4 

%

 

NM - Not meaningful.

 

Net new home contracts (new home contracts net of cancellations) for the three months ended June 30, 2015 increased by 437 homes, or 155.5%, to 718, compared to 281 for the three months ended June 30, 2014. For the six months ended June 30, 2015 net new home contracts increased by 981 homes, or 221.4%, to 1,424, compared to 443 for the six months ended June 30, 2014. The increase in our net new home contracts was driven by our entry into the Atlanta, Houston, and Nevada markets through the acquisitions of Peachtree, Grand View, and LVLH, in November 2014, August 2014, and April 2014, respectively. Our Atlanta, Houston, and Nevada operating segments contributed 329, 37, and 81 net new home contracts, respectively, during the three months ended June 30, 2015, and contributed 660, 64, 158 net new home contracts, respectively, during the six months ended June 30, 2015. Additionally, we experienced an increase in our Central Texas and Colorado segments of 25.0% and 44.4% for the three months ended June 30, 2015, respectively, and 72.3% and 48.3% for the six months ended June 30, 2015, respectively, as a result of an increase in selling communities as compared to the same periods in 2014.

 

Our overall “absorption rate” (the rate at which home orders are contracted, net of cancellations) for the three and six months ended June 30, 2015 was an average of 8.2 and 16.7 per selling community (2.7 and 2.8 monthly), respectively, compared to an average of 8.8 and 16.1 per selling community (2.9 and 2.7 monthly), respectively, for the three and six months ended June 30, 2014. Our cancellation rate of buyers who contracted to buy a home but did not close escrow (as a percentage of overall orders) was approximately 19% for the three and six months ended June 30, 2015, compared to 17% and 16% for the three and six months ended June 30, 2014, respectively. The change in our cancellation rate was not due to any one significant factor but was the result of general market activity during this period.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling communities at period end

 

As of June 30,

 

 

Increase

 

 

2015

 

2014

 

 

Amount

 

% Change

 

 

 

 

 

 

 

 

 

 

 

Atlanta

 

31 

 

 —

 

 

NM

 

NM

 

Central Texas

 

13 

 

 

 

 

44.4 

%

Colorado

 

31 

 

24 

 

 

 

29.2 

%

Houston

 

 

 —

 

 

NM

 

NM

 

Nevada

 

 

 

 

 

66.7 

%

Total

 

89 

 

36 

 

 

53 

 

147.2 

%

 

NM - Not meaningful.

 

Our selling communities increased by 53 communities, or 147.2%, to 89 communities at June 30, 2015, as compared to June 30, 2014.  The increase is driven by our acquisitions of Peachtree and Grand View during 2014 that now comprise our Atlanta and Houston

27 

 


 

Table of Contents

 

 

operating segments, respectively, which contributed an aggregate of 40 communities as of June 30, 2015. Our Central Texas and Colorado operating segments increased communities by 44.4% and 29.2%, respectively, as a result of our land acquisition activity.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30,

Backlog

 

2015

 

2014

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Homes

 

Dollar Value

 

Average Sales Price

 

Homes

 

Dollar Value

 

Average Sales Price

 

Homes

 

Dollar Value

 

Average Sales Price

 

 

 

 

 

 

 

Atlanta

 

409 

 

$

94,875 

 

$

232.0 

 

 —

 

$

 —

 

 

 —

 

NM

 

 

NM

 

 

NM

 

Central Texas

 

128 

 

 

60,373 

 

$

471.7 

 

101 

 

 

51,429 

 

$

509.2 

 

26.7 

%

 

17.4 

%

 

(7.4)

%

Colorado

 

318 

 

 

145,945 

 

$

458.9 

 

202 

 

 

88,325 

 

$

437.3 

 

57.4 

%

 

65.2 

%

 

4.9 

%

Houston

 

66 

 

 

18,229 

 

$

276.2 

 

 —

 

 

 —

 

 

 —

 

NM

 

 

NM

 

 

NM

 

Nevada

 

84 

 

 

28,549 

 

$

339.9 

 

91 

 

 

28,064 

 

$

308.4 

 

(7.7)

%

 

1.7 

%

 

10.2 

%

Total / Weighted Average

 

1,005 

 

$

347,970 

 

$

346.2 

 

394 

 

$

167,818 

 

$

425.9 

 

155.1 

%

 

107.3 

%

 

(18.7)

%

 

NM - Not meaningful.

 

 

 

 

 

 

Backlog reflects the number of homes, net of actual cancellations experienced during the period, for which we have entered into a sales contract with a customer but for which we have not yet delivered the home.  At June 30, 2015, we had 1,005 homes in backlog with a total value of $348.0 million, which represents an increase of 155.1% and 107.3%, respectively, as compared to June 30, 2014.  The increase is primarily attributable to our acquisitions of our Atlanta and Houston operating segments during 2014 which contributed 409 and 66 homes, respectively, to backlog at June 30, 2015.  Our Central Texas and Colorado operating segments also experienced an increase of 26.7% and 57.4% in the number of homes in backlog, respectively, as compared to June 30, 2014.  The increase is a result of the increased number of selling communities discussed above. 

 

Our average sales price of homes in backlog decreased from $425.9 thousand as of June 30, 2014 to $346.2 thousand as of June 30, 2015.  The decrease in the average sales price of homes in backlog is the result of the inclusion of our Atlanta and Houston operating segments, which generally have a lower price point than our Central Texas, Colorado and Nevada operating segments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30,

Lots owned and

 

2015

 

2014

 

% Change

 

 

 

 

 

 

 

 

controlled

 

Owned

 

Controlled

 

Total

 

Owned

 

Controlled

 

Total

 

Owned

 

Controlled

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Atlanta

 

1,512 

 

3,926 

 

5,438 

 

 —

 

 —

 

 —

 

NM

 

 

NM

 

 

NM

 

Central Texas

 

1,232 

 

282 

 

1,514 

 

815 

 

2,295 

 

3,110 

 

51.2 

%

 

(87.7)

%

 

(51.3)

%

Colorado

 

3,069 

 

693 

 

3,762 

 

2,847 

 

2,097 

 

4,944 

 

7.8 

%

 

(67.0)

%

 

(23.9)

%

Houston

 

318 

 

194 

 

512 

 

 —

 

 —

 

 —

 

NM

 

 

NM

 

 

NM

 

Nevada

 

1,869 

 

193 

 

2,062 

 

1,798 

 

 —

 

1,798 

 

3.9 

%

 

100.0 

%

 

14.7 

%

Total

 

8,000 

 

5,288 

 

13,288 

 

5,460 

 

4,392 

 

9,852 

 

46.5 

%

 

20.4 

%

 

34.9 

%

 

NM - Not meaningful.

As a result of our business acquisitions and land acquisition strategy, we increased our lots owned and controlled by 34.9% from 9,852 at June 30, 2014 to 13,288 at June 30, 2015.

Critical Accounting Policies

Critical accounting estimates are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and the estimates included in our financial statements might be impacted if we used different assumptions or conditions. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on March 6, 2015, in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Significant Accounting Policies.”  We have had no significant changes in our critical accounting policies from those described therein.

28 

 


 

Table of Contents

 

 

Liquidity and Capital Resources

Overview

Our principal uses of capital for the three months ended June 30, 2015 were land purchases, land development, home construction, and the payment of routine liabilities. We used funds generated by operations and available borrowings under our Credit Agreement to meet our short-term working capital requirements.

Cash flows for each of our communities depend on the stage in the development cycle, and can differ substantially from reported earnings. Early stages of development or expansion require significant cash outlays for land acquisitions, entitlements and other approvals, and construction of model homes, roads, utilities, general landscaping and other amenities. Because these costs are a component of our inventory and not recognized in our statement of operations until a home closes, we incur significant cash outlays prior to our recognition of earnings. In the later stages of community development, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflow associated with home and land construction was previously incurred. From a liquidity standpoint, we are currently actively acquiring and developing lots in our markets to maintain and grow our lot supply and active selling communities that are strategically located in our core Colorado markets, and in the greater Austin, San Antonio, and Houston, Texas, Las Vegas, Nevada, and Atlanta, Georgia metropolitan areas. As we continue to expand our business, we expect that cash outlays for land purchases and land development to grow our lot inventory will exceed our cash generated by operations.

Covenant Compliance

On October 21, 2014, we entered into a credit agreement with Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, and the lenders from time to time party thereto (which we refer to as the “Credit Agreement”). The Credit Agreement provides the Company with a revolving line of credit (which we refer to as the “Revolving Credit Facility”) of up to $120 million. Under the terms of the Credit Agreement, we are entitled to request an increase in the size of the Revolving Credit Facility by an amount not exceeding $80 million. If the existing lenders elect not to provide the full amount of a requested increase, we may invite one or more other lender(s) to become a party to the Credit Agreement, subject to the approval of the Administrative Agent and L/C Issuer. The Credit Agreement includes a letter of credit sublimit of $20 million. The obligations under the Revolving Credit Facility are guaranteed by substantially all of our operating subsidiaries.

The Credit Agreement contains customary affirmative and negative covenants (including limitations on the Company’s ability to grant liens, incur additional debt, pay dividends, redeem its common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions), as well as customary events of default. The Credit Agreement also requires the Company to maintain (i) a leverage ratio of not more than 1.50 to 1.0 as of the last day of any fiscal quarter, based upon the ratio of debt to tangible net worth of the Company and its subsidiaries on a consolidated basis, (ii) an interest coverage ratio of not less than 1.50 to 1.0 for any four fiscal quarter period, based upon the ratio of EBITDA to cash interest expense of the Company and its subsidiaries on a consolidated basis, (iii) a consolidated tangible net worth of not less than the sum of $250 million, plus 50% of the net proceeds of any issuances of equity interests of the Company and the guarantors of the Revolving Credit Facility, plus 50% of the amount of consolidated net income of the Company and its subsidiaries, (iv) liquidity of not less than $25 million, and (v) a risk asset ratio of not more than 1.25 to 1.0, based upon the ratio of the book value of all risk assets owned by the Company and its subsidiaries to the Company’s tangible net worth.

As of June 30, 2015, we were in compliance with all covenants under the Credit Agreement.

 

Cash Flows—Six Months Ended June 30, 2015 Compared to the Six Months Ended June 30, 2014 

For the six months ended June 30, 2015 and June 30, 2014, the comparison of cash flows is as follows:

 

·

Net cash used in operating activities increased to $72.2 million during the six months ended June 30, 2015 from net cash used of $52.1 million during the six months ended June 30, 2014. The increase in cash used in operations was primarily a result of a net outflow associated with inventories of $80.9 million during the six months ended June 30, 2015, compared to a net outflow of $58.1 million during the six months ended June 30, 2014, primarily driven by the increase in land acquisition, land development and homes under construction, partially offset by the increase in home closings.  We also had net cash used by working capital items including accounts receivable, prepaid expenses and other assets, accounts payable and accrued liabilities of $10.5 million for the six months ended June 30, 2015, as compared to $3.9 million used by working capital items for the six months ended June 30, 2014.  This increase is a result of our overall growth during the period. 

 

·

Net cash used in investing activities was $1.0 million during the six months ended June 30, 2015, compared to $165.4 million used during the six months ended June 30, 2014. The decrease relates to the acquisition of LVLH during the six months ended June 30, 2014.

 

29 

 


 

Table of Contents

 

 

·

Net cash provided by financing activities was $72.3 million during the six months ended June 30, 2015, compared to net cash provided by financing activities of $275.3 million during the six months ended June 30, 2014. The decrease in cash provided by financing activities is a result of significant financing activities which occurred during the six months ended June 30, 2014, including the issuance of $200 million in aggregate principal amount of our Initial Senior Notes in May of 2014, resulting in proceeds of $198.5 million, and our initial public offering of our common stock in June of 2014, which resulted in net proceeds of $82.1 million. During the six months ended June 30, 2015, significant financing activities included the net draws of $20.0 million on our revolving credit facility and the issuance of $60 million in aggregate principal amount of our Additional  Senior Notes, which resulted in proceeds of $59.0 million.

As of June 30, 2015, our cash balance was $32.6 million.

Off-Balance Sheet Arrangements

In the ordinary course of business, we enter into land purchase contracts in order to procure lots for the construction of our homes. We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots. These purchase contracts typically require a cash deposit, and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements, including obtaining applicable property and development entitlements. We also utilize option contracts with land sellers as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources. Option contracts generally require payment by us of a non-refundable deposit for the right to acquire lots over a specified period of time at pre-determined prices. We generally have the right at our discretion to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash deposit with no further financial responsibility to the land seller. Our obligations with respect to the option contracts are generally limited to the forfeiture of the related non-refundable cash deposits. As of June 30, 2015, we had outstanding options for 1,567 lots totaling $78.7 million, and had $4.1 million of non-refundable cash deposits pertaining to land option contracts.

Our utilization of land option contracts is dependent on, among other things, the availability of land sellers willing to enter into option takedown arrangements, the availability of capital to financial intermediaries to finance the development of optioned lots, general housing market conditions, and local market dynamics. Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.

We post letters of credit and performance bonds related to our land development performance obligations, with local municipalities. As of June 30, 2015 and December 31, 2014, we had $39.3 million and $34.0 million, respectively, in letters of credit and performance bonds issued and outstanding. We anticipate that the obligations secured by these performance bonds and letters of credit generally will be performed in the ordinary course of business.

Subsequent Events

 

 

On July 31, 2015, we entered into a First Modification Agreement (the “First Modification Agreement”) with Texas Capital Bank, National Association, as Administrative Agent, the lenders party thereto, and the subsidiary guarantors of the Company party thereto.  The First Modification Agreement modifies the Credit Agreement, which provided us with a revolving line of credit of up to $120 million.  The First Modification Agreement, among other things, (i) increases the Credit Facility from $120 million to $200 million, (ii) extends the maturity date of the Credit Facility from October 21, 2017 to October 21, 2018, (iii) admits Bank of America, N.A. as a new lender under the Credit Facility, and (iv) provides an option for the Company to request, from time to time, an additional increase in the amount of the Credit Facility of up to $100 million, subject to the terms and conditions of the First Modification Agreement and the Credit Agreement.  

Adjusted EBITDA

The following table presents adjusted EBITDA for the three and six months ended June 30, 2015 and 2014. Adjusted EBITDA is a non-GAAP financial measure we use as a supplemental measure in evaluating operating performance. We define adjusted EBITDA as consolidated net income before (i) income tax expense, (ii) interest in cost of home sales revenues, (iii) other interest expense, (iv) depreciation and amortization expense, and (v) adjustments resulting from the application of purchase accounting for acquired work in process inventory related to business combinations. We believe adjusted EBITDA provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization, and items considered to be non-recurring. Accordingly, our management believes that this measurement is useful for comparing general operating performance from period to period. Adjusted EBITDA should be considered in addition to, and not as a substitute for, consolidated net income in accordance with GAAP as a measure of performance. Our presentation of adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items. Our adjusted EBITDA is limited as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.

30 

 


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

2014

 

% Change

 

2015

 

2014

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

9,798 

 

$

5,338 

 

 

83.6 

%

 

$

16,149 

 

$

8,707 

 

 

85.5 

%

Income tax expense

 

 

4,633 

 

 

2,711 

 

 

70.9 

%

 

 

7,806 

 

 

4,539 

 

 

72.0 

%

Interest in cost of home sales revenues

 

 

2,830 

 

 

452 

 

 

526.1 

%

 

 

4,451 

 

 

528 

 

 

743.0 

%

Interest expense

 

 

 

 

11 

 

 

(72.7)

%

 

 

 

 

11 

 

 

(45.5)

%

Depreciation and amortization expense

 

 

1,282 

 

 

707 

 

 

81.3 

%

 

 

2,270 

 

 

1,190 

 

 

90.8 

%

EBITDA

 

 

18,546 

 

 

9,219 

 

 

101.2 

%

 

 

30,682 

 

 

14,975 

 

 

104.9 

%

Purchase price accounting for acquired work in process inventory

 

 

414 

 

 

919 

 

 

(55.0)

%

 

 

2,441 

 

 

1,107 

 

 

120.5 

%

Adjusted EBITDA

 

$

18,960 

 

$

10,138 

 

 

87.0 

%

 

$

33,123 

 

$

16,082 

 

 

106.0 

%


 

 

 

31 

 


 

Table of Contents

 

 

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rates

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our Credit Agreement, which was entered into on October 21, 2014. Future borrowings under the Credit Agreement bear interest at a floating rate equal to the London Interbank Offered Rate plus an applicable margin between 2.75% and 3.25% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.75% and 2.25% per annum. The “applicable margins” described above are determined by a schedule based on the leverage ratio of the Company, as defined in the Credit Agreement. The Credit Agreement also provides for fronting fees and letter of credit fees payable to the L/C Issuer and commitment fees payable to the Administrative Agent equal to 0.20% of the unused portion of the Revolving Credit Facility.

Inflation

Our homebuilding operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs. In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers. While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices.

Seasonality

Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements. We typically experience the highest new home order activity during the spring, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors. Since it typically takes four to six months to construct a new home, we deliver more homes in the second half of the year as spring and summer home orders convert to home deliveries. Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters, and the majority of cash receipts from home deliveries occurs during the second half of the year. We expect this seasonal pattern to continue over the long term, although it may be affected by volatility in the homebuilding industry.

 

ITEM 4.     CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of June 30, 2015, the end of the period covered by this Form 10-Q, we evaluated, under the supervision and with the participation of our management, including our Co-Chief Executive Officers and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures to, among other matters, detect any material weaknesses.  A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.  As of June 30, 2015, we continued to remediate previously identified material weaknesses related to the period-end financial reporting and information technology processes. Once fully implemented, the new and enhanced controls will need to operate for a sufficient amount of time in order for management to conclude that the material weaknesses have been remediated. 

Remediation and Changes in Internal Controls

We have developed and are implementing remediation plans to address the material weaknesses discussed above and to improve our internal controls over the period-end financial reporting process.  Specifically, our remediation plan requires (i) documenting and formalizing our internal controls, and financial reporting and information technology policies and procedures, including implementing additional controls over our financial close and information technology processes, (ii) hiring additional resources with significant experience to our accounting team, and (iii) instituting appropriate review and oversight responsibilities within our accounting and information technology functions.

32 

 


 

Table of Contents

 

 

Our management believes that the measures described above should be sufficient to remediate the identified material weaknesses and strengthen our internal control over financial reporting.  Our management is committed to improving our internal control processes.  Once fully implemented, the new and enhanced controls will need to operate for a sufficient amount of time for management to conclude that the material weaknesses have been remediated.  Accordingly, we will continue to monitor the effectiveness of our remediation efforts and will make any further changes management determines appropriate.  As we continue to evaluate and improve our internal control over financial reporting, additional measures to address the material weaknesses or modifications to the remediation plan described above may be identified.

Changes in Internal Control over Financial Reporting

Except as discussed above, there were no changes during the quarter ended June 30, 2015 in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33 

 


 

Table of Contents

 

 

PART II

 

ITEM 1.     LEGAL PROCEEDINGS.

 

Because of the nature of the homebuilding business, we and certain of our subsidiaries and affiliates have been named as defendants in various claims, complaints and other legal actions arising in the ordinary course of business.  In the opinion of our management, the outcome of these ordinary course matters will not have a material adverse effect upon our financial condition, results of operations or cash flows.

 

 

ITEM 1A.     RISK FACTORS.

 

There have been no material changes to the risk factors we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 that was filed with the SEC on March 6, 2015.

 

 

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

During the three months ended June 30, 2015, certain of our employees surrendered shares of common stock owned by them to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted shares of common stock issued under our First Amended & Restated 2013 Long-Term Incentive Plan. The following table summarizes the repurchases that occurred during the three months ended June 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total number of shares purchased

 

Average price paid per share

 

Total number of shares purchased as part of publicly announced plans or programs

 

Maximum number of shares that may yet be purchased under the plans or programs

April

 

 

 

 

 

 

 

 

 

 

Purchased 4/1 through 4/30

 

 —

 

 

 —

 

N/A

 

 

N/A

May

 

 

 

 

 

 

 

 

 

 

Purchased 5/1 through 5/31

 

33,358 

 

$

19.58 

 

N/A

 

 

N/A

June

 

 

 

 

 

 

 

 

 

 

Purchased 6/1 through 6/30

 

3,183 

 

$

20.17 

 

N/A

 

 

N/A

Total

 

36,541 

 

$

19.63 

 

 

 

 

 

 

 

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

 

ITEM 4.     MINE SAFETY DISCLOSURES.

 

Not applicable.

 

 

ITEM 5.     OTHER INFORMATION.

 

None.

 

 

 

34 

 


 

Table of Contents

 

 

ITEM 6.     EXHIBITS.

The following exhibits are either filed herewith or incorporated herein by reference:

 

 

 

 

 

 

 

 

EXHIBIT INDEX

 

3.1

 

 

Certificate of Incorporation of the Company, as amended (incorporated by reference herein from Exhibit 3.1 to the initial filing of the Company’s Registration Statement on Form S-1 previously filed with the SEC on May 5, 2014)

 

 

3.2

 

 

Bylaws of the Company, as amended (incorporated by reference herein from Exhibit 3.2 to the initial filing of the Company’s Registration Statement on Form S-1 previously filed with the SEC on May 5, 2014)

 

 

4.1

 

 

Third Supplemental Indenture, dated as of April 9, 2015, by and among the Company, the Guarantors named therein, and U.S. Bank National Association, as trustee under the Indenture (incorporated by reference herein from Exhibit 4.4 to the Company’s Current Report on Form 8-K previously filed with the SEC on April 10, 2015)

 

 

10.1

 

 

Purchase Agreement, dated April 6, 2015, among the Company, the Guarantors party thereto, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the initial purchasers named on Schedule A thereto (incorporated by reference herein from Exhibit 10.1 to the Company’s Current Report on Form 8-K previously filed with the SEC on April 10, 2015)

 

 

10.2

 

 

Registration Rights Agreement, dated as of April 9, 2015, among the Company, the Guarantors named therein, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, on behalf of the initial purchasers (incorporated by reference herein from Exhibit 10.2 to the Company’s Current Report on Form 8-K previously filed with the SEC on April 10, 2015)

 

 

31.1

 

 

Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

 

 

31.2

 

 

Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

 

 

32.1

 

 

Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

32.2

 

 

Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

101.INS

 

 

XBRL Instance Document

 

101.SCH

 

 

XBRL Taxonomy Extension Schema Document

 

101.CAL

 

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

101.DEF

 

 

XBRL Taxonomy Definition Linkbase Document

 

101.LAB

 

 

XBRL Taxonomy Extension Labels Linkbase Document

 

101.PRE

 

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

35 

 


 

Table of Contents

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

 

 

Century Communities, Inc.

 

 

 

 

 

 

Date: August 6, 2015

By:

/s/ Dale Francescon

 

 

 

Dale Francescon

 

 

 

Chairman of the Board and Co-Chief Executive Officer (Chief Executive Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

Date: August 6, 2015

By:

/s/ David Messenger

 

 

 

David Messenger

 

 

 

Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

 

 

 

 

 

36