NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1—Basis of Presentation and Significant Accounting Policies
Operations
William Lyon Homes, a Delaware corporation (“Parent” and together with its subsidiaries, the “Company”), is primarily engaged in designing, constructing, marketing and selling single-family detached and attached homes in California, Arizona, Nevada, Colorado, Washington (under the Polygon Northwest brand), Oregon (under the Polygon Northwest brand) and Texas.
Basis of Presentation
The preparation of the Company’s financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities as of
March 31, 2018
and
December 31, 2017
and revenues and expenses for the
three
month periods ended
March 31, 2018
and
2017
. Accordingly, actual results could differ from those estimates. The significant accounting policies using estimates include real estate inventories and cost of sales, impairment of real estate inventories, warranty reserves, loss contingencies, accounting for variable interest entities, business combinations, and valuation of deferred tax assets. The current economic environment increases the uncertainty inherent in these estimates and assumptions.
The condensed consolidated financial statements include the accounts of the Company and all majority-owned and controlled subsidiaries and joint ventures, and certain joint ventures and other entities which have been determined to be variable interest entities ("VIEs") in which the Company is considered the primary beneficiary (see Note 3). The accounting policies of the joint ventures are substantially the same as those of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation.
The condensed consolidated financial statements were prepared from our books and records without audit and include all adjustments (consisting of only normal recurring accruals) necessary to present a fair statement of results for the interim periods presented. Readers of this quarterly report should refer to our audited consolidated financial statements as of and for the year ended
December 31, 2017
, which are included in our
2017
Annual Report on Form 10-K, as certain disclosures that would substantially duplicate those contained in the audited financial statements have not been included in this report. Also, refer to the discussion under Revenue Recognition and Change in Accounting Principle below regarding the adoption of the new standard for revenue recognition.
Revenue Recognition
On January 1, 2018, the Company adopted Accounting Standards Update ("ASU") No. 2014-09, "
Revenue from Contracts with Customers
(“ASU 2014-09” or “ASC 606”). Refer to Change in Accounting Principle below for further details regarding the adoption.
Home Sales
Prior to January 1, 2018, under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 605, "
Revenue Recognition"
("ASC 605"), revenue was recorded when a sale was consummated, the buyer’s initial and continuing investments were adequate, any receivables were not subject to future subordination, and the usual risks and rewards of ownership had transferred to the buyer. Effective January 1, 2018, upon adoption of ASC 606, revenue is recorded upon the close of escrow, at which point home sales are considered in the scope of a contract. Accordingly, the Company does not record homebuilding revenue for performance obligations that are unsatisfied or partially unsatisfied. No revenue was recorded in the
2018
period that did not result from current period performance.
Construction Services
The Company accounted for construction management agreements using the
Percentage of Completion Method
in accordance with ASC 605 (prior to January 1, 2018) and ASC 606 (subsequent to January 1, 2018). Under ASC 605 and ASC 606, the Company records revenues and expenses as a contracted project progresses, and based on the percentage of costs incurred to date compared to the total estimated costs of the contract.
The Company entered into construction management agreements to build, sell and market homes in certain communities. For such services, the Company will receive fees (generally
3
to
5 percent
of the sales price, as defined) and may, under certain circumstances, receive additional compensation if certain financial thresholds are achieved.
Real Estate Inventories
Real estate inventories are carried at cost net of impairment losses, if any. Real estate inventories consist primarily of land deposits, land and land under development, homes completed and under construction, and model homes. All direct and indirect land costs, offsite and onsite improvements and applicable interest and other carrying charges are capitalized to real estate projects during periods when the project is under development. Land, offsite costs and all other common costs are allocated to land parcels benefited based upon relative fair values before construction. Onsite construction costs and related carrying charges (principally interest and property taxes) are allocated to the individual homes within a phase based upon the relative sales value of the homes. The Company relieves its real estate inventories through cost of sales for the estimated cost of homes sold. Selling expenses and other marketing costs are expensed in the period incurred. From time to time the Company sells land to third parties. The Company does not consider these sales to be core to its homebuilding business, and any gain or loss recognized on these transactions is recorded in other non-operating income. During the
three
months ended
March 31, 2018
, the Company had
one
land parcel sale that resulted in a negligible loss for the period then ended. During the
three
months ended
March 31, 2017
, the Company had
one
land parcel sale to a third party that did not result in any gain or loss.
A provision for warranty costs relating to the Company’s limited warranty plans is included in cost of sales and accrued expenses at the time the sale of a home is recorded. The Company generally reserves a percent of the sales price of its homes, or a set amount per home closed depending on the operating division, against the possibility of future charges relating to its warranty programs and similar potential claims. Factors that affect the Company’s warranty liability include the number of homes under warranty, historical and anticipated rates of warranty claims, and cost per claim. The Company continually assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. Changes in the Company’s warranty liability for the
three
months ended
March 31, 2018
and
2017
, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
Ended
March 31,
2018
|
|
Three
Months
Ended
March 31,
2017
|
|
Warranty liability, beginning of period
|
$
|
13,643
|
|
|
$
|
14,174
|
|
|
Warranty provision during period
(1)
|
2,504
|
|
|
1,290
|
|
|
Warranty payments, net of insurance recoveries during period
|
(4,395
|
)
|
|
(2,829
|
)
|
|
Warranty charges related to construction services projects
|
7
|
|
|
80
|
|
|
Warranty liability, end of period
|
$
|
11,759
|
|
|
$
|
12,715
|
|
|
|
|
|
(1)
|
In connection with the RSI Acquisition (see Note 2), the Company assumed warranty liability of
$0.6 million
for units closed prior to the RSI Acquisition date and for which has been included in this line item for purposes of this table.
|
Interest incurred under the Company’s debt obligations, as more fully discussed in Note 7, is capitalized to qualifying real estate projects under development. Interest activity for the
three
months ended
March 31, 2018
and
2017
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
Ended
March 31,
2018
|
|
Three
Months
Ended
March 31,
2017
|
|
Interest incurred
|
$
|
19,258
|
|
|
$
|
19,424
|
|
|
Less: Interest capitalized
|
19,258
|
|
|
19,424
|
|
|
Interest expense, net of amounts capitalized
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash paid for interest
|
$
|
31,489
|
|
|
$
|
19,036
|
|
Financial Instruments
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents, receivables, and deposits. The Company typically places its cash and cash equivalents in investment grade short-term instruments. Deposits, included in other assets, are due from municipalities or utility companies and are generally collected from such entities through fees assessed to other developers. The Company is an issuer of, or subject to, financial
instruments, including letters of credit, with off-balance sheet risk in the normal course of business which exposes it to credit risks. These off-balance sheet financial instruments are described in more detail in Note 13.
Cash and Cash Equivalents
Short-term investments with a maturity of three months or less when purchased are considered cash equivalents. The Company’s cash and cash equivalents balance exceeds federally insurable limits as of
March 31, 2018
and
December 31, 2017
. The Company monitors the cash balances in its operating accounts, however, these cash balances could be negatively impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to cash in its operating accounts.
Deferred Loan Costs
Deferred loan costs represent debt issuance costs and are primarily amortized to interest incurred using the straight line method which approximates the effective interest method.
Goodwill
In accordance with the provisions of ASC 350,
Intangibles, Goodwill and Other
, goodwill amounts are not amortized, but rather are analyzed for impairment at the reporting segment level. Goodwill is analyzed on an annual basis, or when indicators of impairment exist. We have determined that we have
seven
reporting segments, as discussed in Note 5, and we perform an annual goodwill impairment analysis during the fourth quarter of each fiscal year.
Intangibles
Recorded intangible assets primarily relate to brand names of acquired entities, construction management contracts, homes in backlog, and joint venture management fee contracts recorded in conjunction with FASB ASC Topic 852,
Reorganizations
("ASC 852"), or FASB ASC Topic 805,
Business Combinations
("ASC 805"). All intangible assets with the exception of those relating to brand names were valued based on expected cash flows related to home closings, and the asset is amortized on a per unit basis, as homes under the contracts close. Our brand name intangible assets are deemed to have an indefinite useful life.
Income (loss) per common share
The Company computes income (loss) per common share in accordance with FASB ASC Topic 260,
Earnings per Share
, which requires income (loss) per common share for each class of stock to be calculated using the two-class method. The two-class method is an allocation of income between the holders of common stock and a company’s participating security holders.
Basic income (loss) per common share is computed by dividing income or loss available to common stockholders by the weighted average number of shares of common stock outstanding. For purposes of determining diluted income per common share, basic income per common share is further adjusted to include the effect of potential dilutive common shares.
Income Taxes
Income taxes are accounted for under the provisions of Financial Accounting Standards Board ASC 740
, Income Taxes,
using an asset and liability approach. Deferred income taxes reflect the net effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating loss and tax credit carryforwards measured by applying currently enacted tax laws. A valuation allowance is provided to reduce net deferred tax assets to an amount that is more likely than not to be realized. ASC 740 prescribes a recognition threshold and a measurement criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be considered “more-likely-than-not” to be sustained upon examination by taxing authorities. In addition, the Company has elected to recognize interest and penalties related to uncertain tax positions in the income tax provision.
Impact of Recent Accounting Pronouncements
Effective January 1, 2018, the Company adopted Accounting Standards Update ("ASU") No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements or notes to its consolidated financial statements.
Effective January 1, 2018, the Company adopted ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)" (“ASU 2016-18”). ASU 2016-18 requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending amounts on the statement of cash flows. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements or notes to its consolidated financial statements.
Change in Accounting Principle
The Company adopted ASC 606 with a date of initial application of January 1, 2018. The Company applied ASC 606 using the cumulative effect method - i.e. by recognizing the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of equity at January 1, 2018. Therefore, the comparative information has not been adjusted and continues to be reported under ASC 605.
ASC 606 replaced the guidance for costs incurred to sell real estate with new guidance codified under ASC 340-40,
“Other Assets and Deferred Costs - Contracts with Customers”
. The Company previously capitalized certain marketing costs related to model homes and sales offices within Real estate inventories in the balance sheet; however, effective January 1, 2018, the Company capitalized these costs within Other Assets. The method of amortization of these costs is the same under ASC 606 as per the previous guidance, resulting in no adjustment to the Company's retained earnings for the comparative period. However, under ASC 606, amortization is included in Sales and marketing expense, whereas amortization was previously recorded in Cost of sales - homes in the statement of operations.
The adoption of ASC 606 did not have an impact on the amount or timing of the Company's homebuilding revenues. As of and for the three months ended
March 31, 2018
, the adoption of ASC 606 did not have a material impact on the Company's balance sheet, net income, stockholders' equity or statement of cash flows.
Note 2—Acquisition of RSI Communities
On
March 9, 2018
, the Company completed its acquisition of RSI Communities, a Southern California- and Texas-based homebuilder, and
three
additional related real estate assets (the “RSI Acquisition”) pursuant to the Purchase and Sale Agreement (the “Purchase Agreement”) dated February 19, 2018 among William Lyon Homes, Inc., a California corporation and wholly-owned subsidiary of Parent ("California Lyon"), RSI Communities, L.L.C, RS Equity Management L.L.C., Class B Sellers of RSI Communities L.L.C., and RS Equity Management L.L.C. Pursuant to the Purchase Agreement, California Lyon acquired, for cash, all of the membership interests of the underlying limited liability companies and
three
additional related real estate assets (collectively referred to herein as "RSI Communities") and which conducts business as RSI Communities, L.L.C. (“RSI”), for an aggregate cash purchase price of
$460.0 million
, and an additional approximately
$15.2 million
at closing pursuant to initial working capital adjustments, a portion of which remains subject to final adjustment in accordance with the terms of the Purchase Agreement. Part of the acquired entities specific to the Southern California region now operate under the Company’s existing California segment. The remaining acquired entities now operate as a new division of the Company under the RSI name in Texas, with core markets of Austin and San Antonio.
The Company financed the RSI Acquisition with a combination of proceeds from its issuance of
$350 million
in aggregate principal amount of
6.00%
senior notes due 2023, cash on hand, and approximately
$194.3 million
of aggregate proceeds from a land banking arrangement with respect to land parcels in various stages of development.
As a result of the RSI Acquisition, the entities comprising the business of RSI Communities became wholly-owned direct or indirect subsidiaries of the Company, and its results are included in our condensed consolidated financial statements and related disclosures from the date of the RSI Acquisition. For the period from
March 9, 2018
through
March 31, 2018
, home deliveries and operating revenue from RSI operations were
80
units and
$22.7 million
, respectively.
The RSI Acquisition was accounted for as a business combination in accordance with ASC 805. Under ASC 805, the Company recorded the acquired assets and assumed liabilities of RSI Communities at their estimated fair values, with the excess allocated to Goodwill, as shown below. Goodwill represents the value the Company expects to achieve through the operational synergies and the expansion of the Company into new markets. The Company estimates that the entire
$52.0 million
of goodwill resulting from the RSI Acquisition will be tax deductible. Goodwill will be allocated to the California and Texas operating segments (see Note 5). A reconciliation of the consideration transferred as of the acquisition date is as follows:
|
|
|
|
|
|
|
|
Net proceeds received from RSI inventory involved in land banking transactions
|
$
|
194,131
|
|
|
Issuance of 6.00% Senior Notes due September 1, 2023
|
190,437
|
|
|
Cash on hand
|
90,653
|
|
|
|
475,221
|
|
As of
March 31, 2018
, the Company had not completed its final estimate of the fair value of the net assets of RSI Communities, due to the RSI Acquisition's close proximity to quarter end. As such, the estimates used as of
March 31, 2018
are subject to change. The following table summarizes the preliminary amounts for acquired assets and liabilities recorded at their fair values as of the acquisition date (in thousands):
|
|
|
|
|
|
|
|
|
Assets Acquired
|
|
|
|
Real estate inventories
|
$
|
436,578
|
|
|
|
Goodwill
|
51,975
|
|
|
|
Other
|
6,532
|
|
|
|
Total Assets
|
495,085
|
|
|
|
|
|
|
Liabilities Assumed
|
|
|
|
Accounts payable
|
$
|
9,315
|
|
|
|
Accrued expenses
|
8,244
|
|
|
|
Notes payable
|
2,305
|
|
|
|
Total liabilities
|
19,864
|
|
|
|
Net assets acquired
|
$
|
475,221
|
|
The Company determined the fair value of real estate inventories on a project level basis using a combination of discounted cash flow models, and market comparable land transactions, where available. These methods are significantly impacted by estimates relating to i) expected selling prices, ii) anticipated sales pace, iii) cost to complete estimates, iv) highest and best use of projects prior to acquisition, and v) comparable land values. These estimates were developed and used at the individual project level, and may vary significantly between projects.
Other assets, accounts payable, accrued expenses and notes payable were generally stated at historical value due to the short-term nature of these liabilities.
The Company recorded
$3.1 million
in acquisition related costs for the three months ended
March 31, 2018
, respectively, which are included in the Condensed Consolidated Statement of Operations in Transaction expenses. Such costs were expensed as incurred in accordance with ASC 805.
Supplemental Pro Forma Information
The following table presents unaudited pro forma amounts for the three months ended
March 31, 2018
and
March 31, 2017
as if the RSI Acquisition had been completed as of January 1, 2017 (amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2018
|
Three months ended March 31, 2017
|
|
Operating revenues
|
$
|
401,600
|
|
258,854
|
|
|
Net income (loss) available to common stockholders
|
$
|
6,419
|
|
$
|
(10,767
|
)
|
|
Income (Loss) per share - basic
|
$
|
0.17
|
|
$
|
(0.29
|
)
|
|
Income (Loss) per share - diluted
|
$
|
0.16
|
|
$
|
(0.29
|
)
|
The unaudited pro forma operating results have been determined after adjusting the unaudited operating results of RSI Communities to reflect the estimated purchase accounting and other acquisition adjustments including interest expense associated with the debt used to fund a portion of the acquisition. The unaudited pro forma results presented above do not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the RSI Acquisition, the costs to combine the operations of the Company and RSI Communities or the costs necessary to achieve any of the foregoing cost savings, operating synergies or revenue enhancements. As such, the unaudited pro forma amounts are for comparative purposes only and may not necessarily reflect the results of operations which would have resulted had the acquisition been completed at the beginning of the applicable period or indicative of the results that will be attained in the future.
Note 3—Variable Interest Entities and Noncontrolling Interests
As of
March 31, 2018
and
December 31, 2017
, the Company was party to
thirteen
joint ventures for the purpose of land development and homebuilding activities which we have determined to be VIEs. The Company, as the managing member, has the power to direct the activities of the VIEs since it manages the daily operations and has exposure to the risks and rewards of the VIEs, based upon the allocation of income and loss per the respective joint venture agreements. Therefore, the Company is the primary beneficiary of the joint ventures, and the VIEs were consolidated as of
March 31, 2018
and
December 31, 2017
.
As of
March 31, 2018
, the assets of the consolidated VIEs totaled
$202.3 million
, of which
$6.9 million
was cash and cash equivalents and
$224.8 million
was owned real estate inventories. The liabilities of the consolidated VIEs totaled
$92.1 million
, primarily comprised of notes payable, accounts payable and accrued liabilities.
As of
December 31, 2017
, the assets of the consolidated VIEs totaled
$219.6 million
, of which
$10.7 million
was cash and cash equivalents and
$230.8 million
was owned real estate inventories. The liabilities of the consolidated VIEs totaled
$99.4 million
, primarily comprised of notes payable, accounts payable and accrued liabilities.
Note 4—Investments in Unconsolidated Joint Ventures
The table set forth below summarizes the combined unaudited statements of operations for our unconsolidated mortgage joint ventures that we accounted for under the equity method (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
Three Months Ended March 31, 2017
|
|
Revenues
|
$
|
3,709
|
|
|
$
|
3,389
|
|
|
Cost of sales
|
(1,918
|
)
|
|
(2,110
|
)
|
|
Income of unconsolidated joint ventures
|
$
|
1,791
|
|
|
$
|
1,279
|
|
Income from unconsolidated joint ventures reflected in the accompanying consolidated statements of operations represents our share of the income of our unconsolidated mortgage joint ventures, which is allocated based on the provisions of the underlying joint venture operating agreements less any additional impairments recorded against our investments in joint ventures which we do not deem recoverable. For the
three
months ended
March 31, 2018
, and
2017
, the Company recorded income of
$0.9 million
and
$0.2 million
, respectively, from its unconsolidated joint ventures. This income was primarily attributable to our share of income related to mortgages that were generated and issued to qualifying home buyers during the periods.
The table set forth below summarizes the combined unaudited balance sheets for our unconsolidated joint ventures that we accounted for under the equity method (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
6,996
|
|
|
$
|
12,802
|
|
|
|
Loans held for sale
|
|
16,489
|
|
|
17,106
|
|
|
|
Accounts receivable
|
|
698
|
|
|
2,791
|
|
|
|
Other assets
|
|
102
|
|
|
128
|
|
|
|
|
Total Assets
|
|
$
|
24,285
|
|
|
$
|
32,827
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
292
|
|
|
$
|
779
|
|
|
|
Accrued expenses
|
|
892
|
|
|
1,532
|
|
|
|
Credit lines payable
|
|
15,601
|
|
|
18,312
|
|
|
|
Other liabilities
|
|
251
|
|
|
31
|
|
|
|
Members equity
|
|
7,249
|
|
|
12,173
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
24,285
|
|
|
$
|
32,827
|
|
Note 5—Segment Information
The Company operates
one
principal homebuilding business. In accordance with FASB ASC Topic 280, Segment Reporting ("ASC 280"), the Company has determined that each of its operating divisions is an operating segment. The Company’s President and Chief Executive Officer has been identified as the chief operating decision maker. The Company’s chief operating decision maker directs the allocation of resources to operating segments based on the profitability and cash flows of each respective segment.
The Company’s homebuilding operations design, construct and sell a wide range of homes designed to meet the specific needs in each of its markets. In accordance with ASC 280, prior to the acquisition of RSI Communities (see Note 2), the Company's homebuilding operations had been grouped into six operating segments. During the three months ended
March 31, 2018
, the Company added one additional operating segment, Texas as a result of the RSI Acquisition. As such, in accordance with the aggregation criteria defined by ASC 280, the Company’s homebuilding operating segments have been grouped into
seven
reportable segments:
California
, consisting of operations in Orange, Los Angeles, Alameda, Contra Costa, San Joaquin, Santa Clara, Riverside and San Bernardino counties.
Arizona
, consisting of operations in the Phoenix, Arizona metropolitan area.
Nevada
, consisting of operations in the Las Vegas, Nevada metropolitan area.
Colorado
, consisting of operations in the Denver, Colorado metropolitan area.
Washington
, consisting of operations in the Seattle, Washington metropolitan area.
Oregon
, consisting of operations in the Portland, Oregon metropolitan area.
Texas
, consisting of operations in the Austin, Texas and San Antonio, Texas metropolitan areas.
Corporate develops and implements strategic initiatives and supports the Company’s operating segments by centralizing key administrative functions such as finance and treasury, information technology, risk management and litigation and human resources.
Segment financial information relating to the Company’s operations was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
Ended
March 31,
2018
|
|
Three
Months
Ended
March 31,
2017
|
|
Operating revenue:
|
|
|
|
|
California
|
$
|
134,812
|
|
|
$
|
81,967
|
|
|
Arizona
|
32,039
|
|
|
26,716
|
|
|
Nevada
|
49,176
|
|
|
30,548
|
|
|
Colorado
|
40,063
|
|
|
21,330
|
|
|
Washington
(1)
|
55,651
|
|
|
43,474
|
|
|
Oregon
|
46,853
|
|
|
54,819
|
|
|
Texas
|
14,774
|
|
|
—
|
|
|
Total operating revenue
|
$
|
373,368
|
|
|
$
|
258,854
|
|
|
|
|
|
|
|
(1) Operating revenue in the Washington segment includes construction services revenue.
|
|
|
|
|
|
|
|
Three
Months
Ended
March 31,
2018
|
|
Three
Months
Ended
March 31,
2017
|
|
Income (loss) before (provision for) benefit from income taxes:
|
|
|
|
|
California
|
$
|
11,419
|
|
|
$
|
6,327
|
|
|
Arizona
|
2,487
|
|
|
2,298
|
|
|
Nevada
|
4,839
|
|
|
2,192
|
|
|
Colorado
|
3,164
|
|
|
296
|
|
|
Washington
|
4,511
|
|
|
314
|
|
|
Oregon
|
3,637
|
|
|
4,481
|
|
|
Texas
|
434
|
|
|
—
|
|
|
Corporate
|
(15,089
|
)
|
|
(9,006
|
)
|
|
Income before extinguishment of debt
|
$
|
15,402
|
|
|
$
|
6,902
|
|
|
Corporate - Loss on extinguishment of debt
|
—
|
|
|
(21,828
|
)
|
|
Income (loss) before (provision for) benefit from income taxes
|
$
|
15,402
|
|
|
$
|
(14,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Homebuilding assets:
|
|
|
|
|
California
|
$
|
934,977
|
|
|
$
|
631,649
|
|
|
Arizona
|
176,217
|
|
|
170,634
|
|
|
Nevada
|
212,268
|
|
|
211,202
|
|
|
Colorado
|
156,257
|
|
|
149,183
|
|
|
Washington
|
308,901
|
|
|
286,442
|
|
|
Oregon
|
329,779
|
|
|
288,981
|
|
|
Texas
|
314,153
|
|
|
—
|
|
|
Corporate (1)
|
193,854
|
|
|
323,013
|
|
|
Total homebuilding assets
|
$
|
2,626,406
|
|
|
$
|
2,061,104
|
|
|
|
|
|
(1)
|
Comprised primarily of cash and cash equivalents, deferred income taxes, receivables,
lease right-of-use assets,
and other assets.
|
Note 6—Real Estate Inventories
Real estate inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Real estate inventories:
|
|
|
|
|
Land deposits
|
$
|
57,775
|
|
|
$
|
51,833
|
|
|
Land and land under development
|
992,290
|
|
|
904,410
|
|
|
Homes completed and under construction
|
905,752
|
|
|
646,198
|
|
|
Model homes
|
96,000
|
|
|
97,409
|
|
|
Total
|
$
|
2,051,817
|
|
|
$
|
1,699,850
|
|
|
Real estate inventories not owned (1):
|
|
|
|
|
Other land options contracts — land banking arrangement
|
$
|
282,169
|
|
|
$
|
—
|
|
|
|
|
|
(1)
|
Represents the consolidation of a land banking arrangement. Although the Company is not obligated to purchase the lots, based on certain factors, the Company has determined that it is economically compelled to purchase the lots in the land banking arrangement and thus, has consolidated the assets and liabilities associated with this land bank. Amounts are net of deposits.
|
Note 7—Senior Notes, Secured, and Unsecured Indebtedness
Senior notes, secured, and unsecured indebtedness consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Notes payable:
|
|
|
|
|
Revolving credit facility
|
$
|
85,000
|
|
|
$
|
—
|
|
|
Seller financing
|
—
|
|
|
589
|
|
|
Construction notes payable
|
2,291
|
|
|
—
|
|
|
Joint venture notes payable
|
84,955
|
|
|
93,926
|
|
|
Total notes payable
|
172,246
|
|
|
94,515
|
|
|
|
|
|
|
|
Senior notes:
|
|
|
|
|
5
3
/
4
% Senior Notes due April 15, 2019
|
—
|
|
|
149,362
|
|
|
7% Senior Notes due August 15, 2022
|
346,924
|
|
|
346,740
|
|
|
6% Senior Notes due September 1, 2023
|
343,274
|
|
|
—
|
|
|
5
7
/
8
% Senior Notes due January 31, 2025
|
439,903
|
|
|
439,567
|
|
|
Total senior notes
|
1,130,101
|
|
|
935,669
|
|
|
|
|
|
|
|
Total notes payable and senior notes
|
$
|
1,302,347
|
|
|
$
|
1,030,184
|
|
As of
March 31, 2018
, the maturities of the Notes payable, 7% Senior Notes, 6% Senior Notes, and 5
7
/
8
% Senior Notes are as follows (in thousands):
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
|
Remaining in 2018
|
$
|
21,352
|
|
|
2019
|
113,979
|
|
|
2020
|
—
|
|
|
2021
|
36,915
|
|
|
2022
|
350,000
|
|
|
Thereafter
|
800,000
|
|
|
|
$
|
1,322,246
|
|
Maturities above exclude premium on the 7% Senior Notes of
$0.7 million
and discount on the 5
7
/
8
% Senior Notes of
$3.1 million
, and deferred loan costs on the 7%, 6%, and 5
7
/
8
% Senior Notes of
$17.5 million
as of
March 31, 2018
.
Notes Payable
Revolving Credit Facility
On
July 1, 2016
, California Lyon and Parent entered into an amendment and restatement agreement pursuant to which its existing credit agreement providing for a revolving credit facility, as previously amended and restated on March 27, 2015 as described below, was further amended and restated in its entirety (as amended from time to time, the "Second Amended Facility"). The Second Amended Facility amends and restates the Company’s previous
$130.0 million
revolving credit facility and provides for total lending commitments of
$145.0 million
. In addition, the Second Amended Facility has an uncommitted accordion feature under which the Company may increase the total principal amount up to a maximum aggregate of
$200.0 million
under certain circumstances, as well as a sublimit of
$50.0 million
for letters of credit. Effective as of November 28, 2017, California Lyon increased the size of the commitment under its revolving credit facility by
$25.0 million
to an aggregate total of
$170.0 million
, through exercise of the facility’s accordion feature and entry into a new lender supplement as of such date.
The Second Amended Facility, among other things, also amended the maturity date of the previous facility to
July 1, 2019
, provided that the Second Amended Facility will terminate on
January 14, 2019
(the “Springing Termination Date”) if, on the Springing Termination Date, the aggregate outstanding principal amount of California Lyon’s
5.75%
senior notes due 2019 is equal to or greater than the sum of (a)
50%
of the Consolidated EBITDA (as defined in the Second Amended Facility) of California Lyon, Parent, certain of the Parent’s direct and indirect wholly owned subsidiaries (together with California Lyon and Parent, the “Loan Parties”) and their Restricted Subsidiaries (as defined in the Second Amended Facility) for the four-quarter period ending
September 30, 2018
, plus (b) the Liquidity (as defined in the Second Amended Facility) of the Loan Parties and their consolidated subsidiaries on the Springing Termination Date. Further, the Second Amended Facility amended the maximum leverage ratio covenant to extend the timing of the gradual step-downs. Specifically, pursuant to the Second Amended Facility, the maximum leverage ratio remained at
65%
from June 30, 2016 through and including December 30, 2016, decreased to
62.5%
on the last day of the 2016 fiscal year, remained at
62.5%
from December 31, 2016 through and including June 29, 2017, and was scheduled to further decrease to
60%
on the last day of the second quarter of 2017 and to remain at
60%
thereafter. The Second Amended Facility did not revise any of our other financial covenants thereunder.
On
June 16, 2017
, California Lyon, Parent and the lenders party thereto entered into a second amendment to the Second Amended Facility, which amended the maximum leverage ratio to extend the timing of the gradual step-downs, such that the leverage ratio remained at
62.5%
through and including December 30, 2017, and decreased to
60%
on the last day of the 2017 fiscal year and was scheduled to remain at
60%
thereafter.
On
March 9, 2018
, California Lyon, Parent and the lenders party thereto entered into a third amendment to the Second Amended Facility, which temporarily increased the maximum leverage ratio, such that the leverage ratio remained at
60%
through and including March 30, 2018, increased to
70%
on March 31, 2018 through and including June 29, 2018, decreases to
65%
on June 30, 2018 through and including December 30, 2018, and decreases to
60%
on the last day of the 2018 fiscal year and will remain at
60%
thereafter. The amendment did not revise any of our other financial covenants thereunder.
The Second Amended Facility contains certain financial maintenance covenants, including (a) a minimum tangible net worth requirement of
$451.0 million
(which is subject to increase over time based on subsequent earnings and proceeds from equity offerings, as well as deferred tax assets to the extent included on the Company's financial statements), (b) a maximum leverage covenant that prohibits the leverage ratio (as defined therein) from exceeding
70%
effective as of March 31, 2018 and is scheduled to decrease to
65%
on June 30, 2018, and is scheduled to further decrease to
60%
effective as of December 31,
2018, and (c) a covenant requiring us to maintain either (i) an interest coverage ratio (EBITDA to interest incurred, as defined therein) of at least
1.50
to 1.00 or (ii) liquidity (as defined therein) of an amount not less than the greater of our consolidated interest incurred during the trailing 12 months and
$50.0 million
. Our compliance with these financial covenants is measured by calculations and metrics that are specifically defined or described by the terms of the Second Amended Facility and can differ in certain respects from comparable GAAP or other commonly used terms. The Second Amended Facility contains customary events of default, subject to cure periods in certain circumstances, including: nonpayment of principal, interest and fees or other amounts; violation of covenants; inaccuracy of representations and warranties; cross default to certain other indebtedness; unpaid judgments; and certain bankruptcy and other insolvency events. The occurrence of any event of default could result in the termination of the commitments under the Second Amended Facility and permit the lenders to accelerate payment on outstanding borrowings under the Second Amended Facility and require cash collateralization of outstanding letters of credit. If a change in control (as defined in the Second Amended Facility) occurs, the lenders may terminate the commitments under the Second Amended Facility and require that the Company repay outstanding borrowings under the Second Amended Facility and cash collateralize outstanding letters of credit. Interest rates on borrowings generally will be based on either LIBOR or a base rate, plus the applicable spread.
In January 2017, the Company entered into an amendment which modifies the definition of Tangible Net Worth for purposes of calculating the Leverage Ratio covenant under the Second Amended Facility, so as to exclude any reduction in Tangible Net Worth (as defined therein) that occurs as a result of the costs related to payment of any call premium or any other costs associated with the refinancing transaction and the redemption of outstanding
8.5%
Notes. The Company was in compliance with all covenants under the Second Amended Facility as of
March 31, 2018
.
Borrowings under the Second Amended Facility, the availability of which is subject to a borrowing base formula, are required to be guaranteed by the Parent and certain of the Parent's wholly-owned subsidiaries, are secured by a pledge of all equity interests held by such guarantors, and may be used for general corporate purposes. Interest rates on borrowings generally will be based on either LIBOR or a base rate, plus the applicable spread. As of
March 31, 2018
, the commitment fee on the unused portion of the Second Facility accrues at an annual rate of
0.50
%. As of
March 31, 2018
, the Company had
$85.0 million
outstanding against the Second Amended Facility at an effective rate of
4.88%
, as well as a letter of credit for
$11.0 million
. As of
December 31, 2017
, the Company had a letter of credit for
$7.8 million
but no outstanding balance against the Second Amended Facility.
Seller Financing
During the three months ended
March 31, 2018
, the Company paid in full prior to maturity, along with all accrued interest to date, a note payable outstanding related to a land acquisition for which seller financing was provided. The note bore interest at a rate of
7%
per annum and was secured by the underlying land.
Notes Payable
The Company and certain of its consolidated joint ventures have entered into notes payable agreements. These loans will be repaid with proceeds from closings and are secured by the underlying projects. The issuance date, facility size, maturity date and interest rate of the joint ventures notes payable are listed in the table below as of
March 31, 2018
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance Date
|
|
Facility Size
|
|
Outstanding
|
|
Maturity
|
|
Current Rate
|
|
|
July, 2017
|
|
$
|
66.2
|
|
|
$
|
36.9
|
|
|
February, 2021
|
|
4.81
|
%
|
(5)
|
|
March, 2016
|
|
33.4
|
|
|
1.2
|
|
(4)
|
September, 2018
|
|
4.76
|
%
|
(1)
|
|
January, 2016
|
|
35.0
|
|
|
29.0
|
|
|
February, 2019
|
|
5.13
|
%
|
(2)
|
|
November, 2015
|
|
42.5
|
|
|
16.0
|
|
(4)
|
May, 2018
|
|
5.75
|
%
|
(1)
|
|
November, 2014
|
|
7.0
|
|
|
1.4
|
|
(4)
|
May, 2018
|
|
5.25
|
%
|
(3)
|
|
March, 2014
|
|
26.0
|
|
|
0.5
|
|
|
April, 2018
|
|
4.87
|
%
|
(1)
|
|
|
|
$
|
143.9
|
|
|
$
|
85.0
|
|
|
|
|
|
|
(1)
Loan bears interest at the Company's option of either LIBOR
+3.0%
or the prime rate
+1.0%
.
(2)
Loan bears interest at LIBOR
+3.25%
.
(3)
Loan bears interest at the prime rate
+0.5%
.
(4)
The Company anticipates paying the borrowings in full upon the maturity date from proceeds from homes closed in the respective project.
(5)
Loan bears interest at the greatest of the prime rate, federal funds effective rate
+1.0%
, or LIBOR
+1.0%
.
In addition to the above, the Company had
$2.3 million
of construction notes payable outstanding related to projects that are wholly-owned by the Company.
The notes payable contain certain financial maintenance covenants. The Company was in compliance with all such covenants as of
March 31, 2018
.
Senior Notes
5
3
/
4
% Senior Notes Due 2019
On March 31, 2014, California Lyon completed its private placement with registration rights of
5.75%
Senior Notes due 2019 (the "
5.75%
Notes"), in an aggregate principal amount of
$150 million
. The
5.75%
Notes were issued at
100%
of their aggregate principal amount. In August 2014, we exchanged
100%
of the initial
5.75%
Notes for notes that are freely transferable and registered under the Securities Act of 1933, as amended (the “Securities Act”).
During the
three
months ended
March 31, 2018
, Parent, through California Lyon, used the net proceeds from the offering of
6.00%
Senior Notes due 2023, as further described below, (i) together with cash generated from certain land banking arrangements, and cash on hand, to finance the RSI Acquisition and to pay related fees and expenses and (ii) to repay all of California Lyon's
$150 million
in aggregate principal amount of
5.75%
Notes such that the
5.75%
Notes were satisfied and discharged as of
March 31, 2018
.
8
1
/
2
% Senior Notes Due 2020
During the
three
months ended
March 31, 2017
, Parent, through California Lyon, used the net proceeds from its private placement with registration rights of
5.875%
Senior Notes due 2025, as further described below, to purchase
$395.6 million
of the outstanding aggregate principal amount of the
8.5%
Notes, pursuant to a cash tender offer and consent solicitation. Subsequently, the Company used the remaining proceeds, together with cash on hand, for the retirement of the remaining outstanding
8.5%
Notes, such that the entire aggregate
$425 million
of previously outstanding
8.5%
Notes are retired and extinguished as of
December 31, 2017
. The Company incurred certain costs related to the early extinguishment of debt of the
8.5%
Notes during the
three
months ended
March 31, 2017
in an amount of
$21.8 million
, which is included in the Consolidated Statement of Operations as Loss on extinguishment of debt.
7% Senior Notes Due 2022
On August 11, 2014, WLH PNW Finance Corp. (“Escrow Issuer”), completed its private placement with registration rights of
7.00%
Senior Notes due
2022
(the “initial
7.00%
Notes”), in an aggregate principal amount of
$300 million
. The initial
7.00%
Notes were issued at
100%
of their aggregate principal amount. On
August 12, 2014
, in connection with the consummation of the Polygon Acquisition, Escrow Issuer merged with and into California Lyon, and California Lyon assumed the obligations of the Escrow Issuer under the initial
7.00%
Notes and the related indenture by operation of law (the “Escrow Merger”). Following the Escrow Merger, California Lyon is the obligor under the initial
7.00%
Notes. In January 2015, we exchanged
100%
of the initial
7.00%
Notes for notes that are freely transferable and registered under the Securities Act.
On September 15, 2015, California Lyon completed its private placement with registration rights of an additional
$50.0 million
in aggregate principal amount of its
7.00%
Senior Notes due
2022
(the “additional
7.00%
Notes”, and together with the initial
7.00%
Notes, the "
7.00%
Notes") at an issue price of
102.0%
of their principal amount, plus accrued interest from August 15, 2015, resulting in net proceeds of approximately
$50.5 million
. In January 2016, we exchanged
100%
of the additional
7.00%
Notes for notes that are freely transferable and registered under the Securities Act.
As of
March 31, 2018
the outstanding amount of the
7.00%
Notes was
$350 million
, excluding unamortized premium of
$0.7 million
and deferred loan costs of
$3.8 million
. The
7.00%
Notes bear interest at a rate of
7.00%
per annum, payable semiannually in arrears on February 15 and August 15, and mature on
August 15, 2022
. The
7.00%
Notes are unconditionally guaranteed on a joint and several unsecured basis by Parent and certain of its existing and future restricted subsidiaries. The
7.00%
Notes and the related guarantees are California Lyon’s and the guarantors’ unsecured senior obligations and rank equally in right of payment with all of California Lyon’s and the guarantors’ existing and future unsecured senior debt, including California Lyon’s
$350 million
in aggregate principal amount of
6.00%
Senior Notes due 2023 and
$450 million
in aggregate principal amount of
5.875%
Senior Notes due 2025, each as described below. The
7.00%
Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The
7.00%
Notes and the guarantees are and will be effectively junior to California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.
6% Senior Notes Due 2023
On
March 9, 2018
, California Lyon completed its private placement with registration rights of
6.00%
Senior Notes due 2023 (the "
6.00%
Notes"), in an aggregate principal amount of
$350 million
. The
6.00%
Notes were issued at
100%
of their aggregate principal amount. Parent, through California Lyon, used the net proceeds from the
6.00%
Notes offering to (i) together with cash generated from certain land banking arrangements, and cash on hand, to finance the RSI Acquisition and to pay related fees and expenses and (ii) to repay all of California Lyon's
$150 million
of the outstanding aggregate principal amount of the
5.75%
Notes.
As of
March 31, 2018
, the outstanding principal amount of the
6.00%
Notes was
$350 million
, excluding deferred loan costs of
$6.7 million
. The
6.00%
Notes bear interest at a rate of
6.00%
per annum, payable semiannually in arrears on March 1 and September 1, and mature on September 1, 2023. The
6.00%
Notes are unconditionally guaranteed on a joint and several unsecured basis by Parent and certain of its existing and future restricted subsidiaries. The
6.00%
Notes and the related guarantees are California Lyon’s and the guarantors’ unsecured senior obligations and rank equally in right of payment with all of California Lyon’s and the guarantors’ existing and future unsecured senior debt, including California Lyon’s
$350 million
in aggregate principal amount of
7.00%
Senior Notes due 2022, as described above and
$450 million
in aggregate principal amount of
5.875%
Senior Notes due 2025, as described below. The
6.00%
Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The
6.00%
Notes and the guarantees are and will be effectively junior to California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.
On or after September 1, 2020, California Lyon may redeem all or a portion of the
6.00%
Notes upon not less than
30
nor more than
60
days’ notice, at the redemption prices (expressed as percentages of the principal amount on the redemption date) set forth below plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date, if redeemed during the 12-month period commencing on each of the dates as set forth below:
|
|
|
|
|
|
|
Year
|
Percentage
|
|
September 1, 2020
|
103.00
|
%
|
|
September 1, 2021
|
101.50
|
%
|
|
September 1, 2022
|
100.00
|
%
|
Prior to September 1, 2020, the Notes may be redeemed in whole or in part at a redemption price equal to
100%
of the principal amount plus a “make-whole” premium, and accrued and unpaid interest, if any, to, but not including, the redemption date.
In addition, any time prior to September 1, 2020, California Lyon may, at its option on one or more occasions, redeem Notes (including any additional notes that may be issued in the future under the 2023 Notes Indenture) in an aggregate principal amount not to exceed
35%
of the aggregate principal amount of the Notes (including any additional notes that may be issued in the future under the 2023 Notes Indenture) issued prior to such date at a redemption price (expressed as a percentage of principal amount) of
106.00%
, plus accrued and unpaid interest, if any, to, but not including, the redemption date, with an amount equal to the net cash proceeds from one or more equity offerings.
5.875% Senior Notes Due 2025
On January 31, 2017, California Lyon completed its private placement with registration rights of
5.875%
Senior Notes due 2025 (the "
5.875%
Notes"), in an aggregate principal amount of
$450 million
. The
5.875%
Notes were issued at
99.215%
of their aggregate principal amount. Parent, through California Lyon, used the net proceeds from the
5.875%
Notes offering to purchase the outstanding aggregate principal amount of the
8.5%
Notes such that the entire aggregate
$425 million
of previously outstanding
8.5%
Notes are retired and extinguished as of
March 31, 2018
. In May 2017, the Company exchanged
100%
of the
5.875%
Notes for notes that are freely transferable and registered under the Securities Act.
As of
March 31, 2018
, the outstanding principal amount of the
5.875%
Notes was
$450 million
, excluding unamortized discount of
$3.1 million
and deferred loan costs of
$7.0 million
. The
5.875%
Notes bear interest at a rate of
5.875%
per annum, payable semiannually in arrears on January 31 and July 31, and mature on January 31, 2025. The
5.875%
Notes are unconditionally guaranteed on a joint and several unsecured basis by Parent and certain of its existing and future restricted subsidiaries. The
5.875%
Notes and the related guarantees are California Lyon’s and the guarantors’ unsecured senior obligations and rank equally in right of payment with all of California Lyon’s and the guarantors’ existing and future unsecured senior debt, including California Lyon’s
$350 million
in aggregate principal amount of
7.00%
Senior Notes due 2022 and
$350 million
in aggregate principal amount of
6.00%
Senior Notes due 2023, each as described above. The
5.875%
Notes rank
senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The
5.875%
Notes and the guarantees are and will be effectively junior to California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.
Senior Notes Covenant Compliance
The indentures governing the
7.00%
Notes, the
6.00%
Notes, and the
5.875%
Notes contain covenants that limit the ability of Parent, California Lyon, and their restricted subsidiaries to, among other things: (i) incur or guarantee certain additional indebtedness; (ii) pay dividends, distributions, or repurchase equity or make payments in respect of subordinated indebtedness; (iii) make certain investments; (iv) sell assets; (v) incur liens; (vi) enter into agreements restricting the ability of the Company’s restricted subsidiaries to pay dividends or transfer assets; (vii) enter into transactions with affiliates; (viii) create unrestricted subsidiaries; and (viii) consolidate, merge or sell all or substantially all of its assets. These covenants are subject to a number of important exceptions and qualifications as described in the indentures. The Company was in compliance with all such covenants as of
March 31, 2018
.
GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS
The following consolidating financial information includes:
(1) Consolidating balance sheets as of
March 31, 2018
and December 31,
2017
; consolidating statements of operations for the
three
months ended
March 31, 2018
and
2017
; and consolidating statements of cash flows for the
three
month periods ended
March 31, 2018
and
2017
, of (a) William Lyon Homes, as the parent, or “Delaware Lyon”, (b) William Lyon Homes, Inc., as the subsidiary issuer, or “California Lyon”, (c) the guarantor subsidiaries, (d) the non-guarantor subsidiaries and (e) William Lyon Homes, Inc. on a consolidated basis; and
(2) Elimination entries necessary to consolidate Delaware Lyon, with California Lyon and its guarantor and non-guarantor subsidiaries.
Delaware Lyon owns
100%
of all of its guarantor subsidiaries and all guarantees are full and unconditional, joint and several. As a result, in accordance with Rule 3-10 (d) of Regulation S-X promulgated by the SEC, no separate financial statements are required for these subsidiaries as of
March 31, 2018
and December 31,
2017
, and for the
three
month periods ended
March 31, 2018
and
2017
.
CONDENSED CONSOLIDATING BALANCE SHEET
(Unaudited)
As of
March 31, 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
|
|
|
|
Delaware
Lyon
|
|
California
Lyon
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
Company
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
39,497
|
|
|
$
|
3,576
|
|
|
$
|
7,400
|
|
|
$
|
—
|
|
|
$
|
50,473
|
|
|
Receivables
|
—
|
|
|
7,410
|
|
|
3,356
|
|
|
3,252
|
|
|
—
|
|
|
14,018
|
|
|
Escrow proceeds receivable
|
—
|
|
|
373
|
|
|
1,179
|
|
|
—
|
|
|
—
|
|
|
1,552
|
|
|
Real estate inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
|
—
|
|
|
883,102
|
|
|
935,092
|
|
|
233,623
|
|
|
—
|
|
|
2,051,817
|
|
|
Not owned
|
—
|
|
|
—
|
|
|
282,169
|
|
|
—
|
|
|
—
|
|
|
282,169
|
|
|
Investment in unconsolidated joint ventures
|
—
|
|
|
5,256
|
|
|
150
|
|
|
—
|
|
|
—
|
|
|
5,406
|
|
|
Goodwill
|
—
|
|
|
14,209
|
|
|
104,668
|
|
|
—
|
|
|
—
|
|
|
118,877
|
|
|
Intangibles, net
|
—
|
|
|
—
|
|
|
6,700
|
|
|
—
|
|
|
—
|
|
|
6,700
|
|
|
Deferred income taxes, net
|
—
|
|
|
47,716
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47,716
|
|
|
Lease right-of-use assets
|
—
|
|
|
14,757
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,757
|
|
|
Other assets, net
|
—
|
|
|
21,772
|
|
|
10,682
|
|
|
467
|
|
|
—
|
|
|
32,921
|
|
|
Investments in subsidiaries
|
782,285
|
|
|
(18,061
|
)
|
|
(837,268
|
)
|
|
—
|
|
|
73,044
|
|
|
—
|
|
|
Intercompany receivables
|
—
|
|
|
—
|
|
|
285,102
|
|
|
—
|
|
|
(285,102
|
)
|
|
—
|
|
|
Total assets
|
$
|
782,285
|
|
|
$
|
1,016,031
|
|
|
$
|
795,406
|
|
|
$
|
244,742
|
|
|
$
|
(212,058
|
)
|
|
$
|
2,626,406
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
66,356
|
|
|
$
|
14,756
|
|
|
$
|
7,741
|
|
|
$
|
—
|
|
|
$
|
88,853
|
|
|
Accrued expenses
|
—
|
|
|
81,565
|
|
|
17,699
|
|
|
114
|
|
|
—
|
|
|
99,378
|
|
|
Liabilities from inventories not owned
|
—
|
|
|
—
|
|
|
282,169
|
|
|
—
|
|
|
—
|
|
|
282,169
|
|
|
Notes payable
|
—
|
|
|
85,000
|
|
|
2,291
|
|
|
84,955
|
|
|
—
|
|
|
172,246
|
|
|
7% Senior Notes
|
—
|
|
|
346,924
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
346,924
|
|
|
6% Senior Notes
|
—
|
|
|
343,274
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
343,274
|
|
|
5
7
/
8
% Senior Notes
|
—
|
|
|
439,903
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
439,903
|
|
|
Intercompany payables
|
—
|
|
|
186,483
|
|
|
—
|
|
|
98,619
|
|
|
(285,102
|
)
|
|
—
|
|
|
Total liabilities
|
—
|
|
|
1,549,505
|
|
|
316,915
|
|
|
191,429
|
|
|
(285,102
|
)
|
|
1,772,747
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
William Lyon Homes stockholders’ equity (deficit)
|
782,285
|
|
|
(533,474
|
)
|
|
478,491
|
|
|
(18,061
|
)
|
|
73,044
|
|
|
782,285
|
|
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
71,374
|
|
|
—
|
|
|
71,374
|
|
|
Total liabilities and equity
|
$
|
782,285
|
|
|
$
|
1,016,031
|
|
|
$
|
795,406
|
|
|
$
|
244,742
|
|
|
$
|
(212,058
|
)
|
|
$
|
2,626,406
|
|
CONDENSED CONSOLIDATING BALANCE SHEET
As of
December 31, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
|
|
|
|
Delaware
Lyon
|
|
California
Lyon
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
Company
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
171,434
|
|
|
$
|
156
|
|
|
$
|
11,120
|
|
|
$
|
—
|
|
|
$
|
182,710
|
|
|
Receivables
|
—
|
|
|
4,647
|
|
|
2,252
|
|
|
3,324
|
|
|
—
|
|
|
10,223
|
|
|
Escrow proceeds receivable
|
—
|
|
|
1,594
|
|
|
1,725
|
|
|
—
|
|
|
—
|
|
|
3,319
|
|
|
Real estate inventories
|
—
|
|
|
831,007
|
|
|
630,384
|
|
|
238,459
|
|
|
—
|
|
|
1,699,850
|
|
|
Investment in unconsolidated joint ventures
|
—
|
|
|
7,717
|
|
|
150
|
|
|
—
|
|
|
—
|
|
|
7,867
|
|
|
Goodwill
|
—
|
|
|
14,209
|
|
|
52,693
|
|
|
—
|
|
|
—
|
|
|
66,902
|
|
|
Intangibles, net
|
—
|
|
|
—
|
|
|
6,700
|
|
|
—
|
|
|
—
|
|
|
6,700
|
|
|
Deferred income taxes, net
|
—
|
|
|
47,915
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47,915
|
|
|
Lease right-of-use assets
|
—
|
|
|
14,454
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,454
|
|
|
Other assets, net
|
—
|
|
|
18,167
|
|
|
2,504
|
|
|
493
|
|
|
—
|
|
|
21,164
|
|
|
Investments in subsidiaries
|
780,472
|
|
|
(16,544
|
)
|
|
(494,201
|
)
|
|
—
|
|
|
(269,727
|
)
|
|
—
|
|
|
Intercompany receivables
|
—
|
|
|
—
|
|
|
269,831
|
|
|
—
|
|
|
(269,831
|
)
|
|
—
|
|
|
Total assets
|
$
|
780,472
|
|
|
$
|
1,094,600
|
|
|
$
|
472,194
|
|
|
$
|
253,396
|
|
|
$
|
(539,558
|
)
|
|
$
|
2,061,104
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
40,075
|
|
|
$
|
13,007
|
|
|
$
|
5,717
|
|
|
$
|
—
|
|
|
$
|
58,799
|
|
|
Accrued expenses
|
—
|
|
|
108,407
|
|
|
2,988
|
|
|
96
|
|
|
—
|
|
|
111,491
|
|
|
Notes payable
|
—
|
|
|
589
|
|
|
—
|
|
|
93,926
|
|
|
—
|
|
|
94,515
|
|
|
5
3
/
4
% Senior Notes
|
—
|
|
|
149,362
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
149,362
|
|
|
7% Senior Notes
|
—
|
|
|
346,740
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
346,740
|
|
|
5
7
/
8
% Senior Notes
|
—
|
|
|
439,567
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
439,567
|
|
|
Intercompany payables
|
—
|
|
|
179,788
|
|
|
—
|
|
|
90,043
|
|
|
(269,831
|
)
|
|
—
|
|
|
Total liabilities
|
—
|
|
|
1,264,528
|
|
|
15,995
|
|
|
189,782
|
|
|
(269,831
|
)
|
|
1,200,474
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
William Lyon Homes stockholders’ equity
|
780,472
|
|
|
(169,928
|
)
|
|
456,199
|
|
|
(16,544
|
)
|
|
(269,727
|
)
|
|
780,472
|
|
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
80,158
|
|
|
—
|
|
|
80,158
|
|
|
Total liabilities and equity
|
$
|
780,472
|
|
|
$
|
1,094,600
|
|
|
$
|
472,194
|
|
|
$
|
253,396
|
|
|
$
|
(539,558
|
)
|
|
$
|
2,061,104
|
|
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(Unaudited)
Three
Months Ended
March 31, 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
|
|
|
|
Delaware
Lyon
|
|
California
Lyon
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
Company
|
|
Operating revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
—
|
|
|
$
|
135,173
|
|
|
$
|
182,944
|
|
|
$
|
54,268
|
|
|
$
|
—
|
|
|
$
|
372,385
|
|
|
Construction services
|
—
|
|
|
983
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
983
|
|
|
Management fees
|
—
|
|
|
(1,750
|
)
|
|
—
|
|
|
—
|
|
|
1,750
|
|
|
—
|
|
|
|
—
|
|
|
134,406
|
|
|
182,944
|
|
|
54,268
|
|
|
1,750
|
|
|
373,368
|
|
|
Operating costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
—
|
|
|
(110,245
|
)
|
|
(150,502
|
)
|
|
(44,811
|
)
|
|
(1,750
|
)
|
|
(307,308
|
)
|
|
Construction services
|
—
|
|
|
(983
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(983
|
)
|
|
Sales and marketing
|
—
|
|
|
(8,383
|
)
|
|
(10,783
|
)
|
|
(3,527
|
)
|
|
—
|
|
|
(22,693
|
)
|
|
General and administrative
|
—
|
|
|
(18,553
|
)
|
|
(5,966
|
)
|
|
(2
|
)
|
|
—
|
|
|
(24,521
|
)
|
|
Transaction expenses
|
—
|
|
|
(3,130
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,130
|
)
|
|
Other
|
—
|
|
|
(353
|
)
|
|
46
|
|
|
9
|
|
|
—
|
|
|
(298
|
)
|
|
|
—
|
|
|
(141,647
|
)
|
|
(167,205
|
)
|
|
(48,331
|
)
|
|
(1,750
|
)
|
|
(358,933
|
)
|
|
Income from subsidiaries
|
8,328
|
|
|
8,107
|
|
|
—
|
|
|
—
|
|
|
(16,435
|
)
|
|
—
|
|
|
Operating income
|
8,328
|
|
|
866
|
|
|
15,739
|
|
|
5,937
|
|
|
(16,435
|
)
|
|
14,435
|
|
|
Equity in income from unconsolidated joint ventures
|
—
|
|
|
675
|
|
|
257
|
|
|
—
|
|
|
—
|
|
|
932
|
|
|
Other income (expense), net
|
—
|
|
|
309
|
|
|
56
|
|
|
(330
|
)
|
|
—
|
|
|
35
|
|
|
Income (loss) before provision for income taxes
|
8,328
|
|
|
1,850
|
|
|
16,052
|
|
|
5,607
|
|
|
(16,435
|
)
|
|
15,402
|
|
|
Provision for income taxes
|
—
|
|
|
(2,814
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,814
|
)
|
|
Net income (loss)
|
8,328
|
|
|
(964
|
)
|
|
16,052
|
|
|
5,607
|
|
|
(16,435
|
)
|
|
12,588
|
|
|
Less: Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,260
|
)
|
|
—
|
|
|
(4,260
|
)
|
|
Net income (loss) available to common stockholders
|
$
|
8,328
|
|
|
$
|
(964
|
)
|
|
$
|
16,052
|
|
|
$
|
1,347
|
|
|
$
|
(16,435
|
)
|
|
$
|
8,328
|
|
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(Unaudited)
Three
Months Ended
March 31, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
|
|
|
|
Delaware
Lyon
|
|
California
Lyon
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
Company
|
|
Operating revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
—
|
|
|
$
|
122,128
|
|
|
$
|
119,623
|
|
|
$
|
17,103
|
|
|
$
|
—
|
|
|
$
|
258,854
|
|
|
Management fees
|
—
|
|
|
(513
|
)
|
|
—
|
|
|
—
|
|
|
513
|
|
|
—
|
|
|
|
—
|
|
|
121,615
|
|
|
119,623
|
|
|
17,103
|
|
|
513
|
|
|
258,854
|
|
|
Operating costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
—
|
|
|
(99,395
|
)
|
|
(103,461
|
)
|
|
(15,086
|
)
|
|
(513
|
)
|
|
(218,455
|
)
|
|
Sales and marketing
|
—
|
|
|
(6,523
|
)
|
|
(6,931
|
)
|
|
(1,251
|
)
|
|
—
|
|
|
(14,705
|
)
|
|
General and administrative
|
—
|
|
|
(14,516
|
)
|
|
(4,429
|
)
|
|
(1
|
)
|
|
—
|
|
|
(18,946
|
)
|
|
Other
|
—
|
|
|
(531
|
)
|
|
91
|
|
|
—
|
|
|
—
|
|
|
(440
|
)
|
|
|
—
|
|
|
(120,965
|
)
|
|
(114,730
|
)
|
|
(16,338
|
)
|
|
(513
|
)
|
|
(252,546
|
)
|
|
(Loss) income from subsidiaries
|
(10,000
|
)
|
|
(239
|
)
|
|
—
|
|
|
—
|
|
|
10,239
|
|
|
—
|
|
|
Operating (loss) income
|
(10,000
|
)
|
|
411
|
|
|
4,893
|
|
|
765
|
|
|
10,239
|
|
|
6,308
|
|
|
Equity in income from unconsolidated joint ventures
|
—
|
|
|
44
|
|
|
205
|
|
|
—
|
|
|
—
|
|
|
249
|
|
|
Other income (expense), net
|
—
|
|
|
645
|
|
|
—
|
|
|
(300
|
)
|
|
—
|
|
|
345
|
|
|
(Loss) income before extinguishment of debt
|
(10,000
|
)
|
|
1,100
|
|
|
5,098
|
|
|
465
|
|
|
10,239
|
|
|
6,902
|
|
|
Loss on extinguishment of debt
|
—
|
|
|
(21,828
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21,828
|
)
|
|
(Loss) income before benefit from income taxes
|
(10,000
|
)
|
|
(20,728
|
)
|
|
5,098
|
|
|
465
|
|
|
10,239
|
|
|
(14,926
|
)
|
|
Benefit from income taxes
|
—
|
|
|
5,630
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,630
|
|
|
Net (loss) income
|
(10,000
|
)
|
|
(15,098
|
)
|
|
5,098
|
|
|
465
|
|
|
10,239
|
|
|
(9,296
|
)
|
|
Less: Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
(704
|
)
|
|
—
|
|
|
(704
|
)
|
|
Net (loss) income available to common stockholders
|
$
|
(10,000
|
)
|
|
$
|
(15,098
|
)
|
|
$
|
5,098
|
|
|
$
|
(239
|
)
|
|
$
|
10,239
|
|
|
$
|
(10,000
|
)
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31, 2018
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
|
|
|
|
Delaware
Lyon
|
|
California
Lyon
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
Company
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
6,515
|
|
|
$
|
(60,555
|
)
|
|
$
|
146,012
|
|
|
$
|
12,571
|
|
|
$
|
(6,515
|
)
|
|
$
|
98,028
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
—
|
|
|
—
|
|
|
(475,221
|
)
|
|
—
|
|
|
—
|
|
|
(475,221
|
)
|
|
Purchases of property and equipment
|
—
|
|
|
(1,063
|
)
|
|
(1,391
|
)
|
|
12
|
|
|
—
|
|
|
(2,442
|
)
|
|
Investments in subsidiaries
|
—
|
|
|
9,624
|
|
|
343,067
|
|
|
—
|
|
|
(352,691
|
)
|
|
—
|
|
|
Net cash provided by (used in) investing activities
|
—
|
|
|
8,561
|
|
|
(133,545
|
)
|
|
12
|
|
|
(352,691
|
)
|
|
(477,663
|
)
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings on notes payable
|
—
|
|
|
—
|
|
|
—
|
|
|
20,194
|
|
|
—
|
|
|
20,194
|
|
|
Principal payments on notes payable
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
(29,165
|
)
|
|
—
|
|
|
(29,179
|
)
|
|
Principal payments on 5.75% Senior Notes
|
—
|
|
|
(150,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(150,000
|
)
|
|
Proceeds from issuance of 6.0% Senior Notes
|
—
|
|
|
350,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
350,000
|
|
|
Proceeds from borrowings on Revolver
|
—
|
|
|
110,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
110,000
|
|
|
Payments on Revolver
|
—
|
|
|
(25,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25,000
|
)
|
|
Payment of deferred loan costs
|
—
|
|
|
(5,877
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,877
|
)
|
|
Shares remitted to, or withheld by the Company for employee tax withholding
|
—
|
|
|
(4,696
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,696
|
)
|
|
Payments to repurchase common stock
|
—
|
|
|
(5,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,000
|
)
|
|
Noncontrolling interest contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
4,062
|
|
|
—
|
|
|
4,062
|
|
|
Noncontrolling interest distributions
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,106
|
)
|
|
—
|
|
|
(17,106
|
)
|
|
Advances to affiliates
|
—
|
|
|
—
|
|
|
6,240
|
|
|
(2,864
|
)
|
|
(3,376
|
)
|
|
—
|
|
|
Intercompany receivables/payables
|
(6,515
|
)
|
|
(349,370
|
)
|
|
(15,273
|
)
|
|
8,576
|
|
|
362,582
|
|
|
—
|
|
|
Net cash (used in) provided by financing activities
|
(6,515
|
)
|
|
(79,943
|
)
|
|
(9,047
|
)
|
|
(16,303
|
)
|
|
359,206
|
|
|
247,398
|
|
|
Net (decrease) increase in cash and cash equivalents
|
—
|
|
|
(131,937
|
)
|
|
3,420
|
|
|
(3,720
|
)
|
|
—
|
|
|
(132,237
|
)
|
|
Cash and cash equivalents - beginning of period
|
—
|
|
|
171,434
|
|
|
156
|
|
|
11,120
|
|
|
—
|
|
|
182,710
|
|
|
Cash and cash equivalents - end of period
|
$
|
—
|
|
|
$
|
39,497
|
|
|
$
|
3,576
|
|
|
$
|
7,400
|
|
|
$
|
—
|
|
|
$
|
50,473
|
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31, 2017
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
|
|
|
|
Delaware
Lyon
|
|
California
Lyon
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminating
Entries
|
|
Consolidated
Company
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
$
|
(296
|
)
|
|
$
|
(52,448
|
)
|
|
$
|
18,589
|
|
|
$
|
(7,522
|
)
|
|
$
|
296
|
|
|
$
|
(41,381
|
)
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
Investments in subsidiaries
|
—
|
|
|
(333
|
)
|
|
(18,452
|
)
|
|
—
|
|
|
18,785
|
|
|
—
|
|
|
Net cash (used in) provided by investing activities
|
—
|
|
|
(335
|
)
|
|
(18,452
|
)
|
|
—
|
|
|
18,785
|
|
|
(2
|
)
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings on notes payable
|
—
|
|
|
—
|
|
|
—
|
|
|
25,350
|
|
|
—
|
|
|
25,350
|
|
|
Principal payments on notes payable
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,780
|
)
|
|
—
|
|
|
(20,780
|
)
|
|
Redemption premium of 8.5% Senior Notes
|
—
|
|
|
(19,645
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,645
|
)
|
|
Principal payments of 8.5% Senior Notes
|
—
|
|
|
(425,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(425,000
|
)
|
|
Proceeds from issuance of 5.875% Senior Notes
|
—
|
|
|
446,468
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
446,468
|
|
|
Proceeds from borrowings on Revolver
|
—
|
|
|
105,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
105,000
|
|
|
Payments on revolver
|
—
|
|
|
(77,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(77,000
|
)
|
|
Principal payments on subordinated amortizing notes
|
—
|
|
|
(1,869
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,869
|
)
|
|
Payment of deferred loan costs
|
—
|
|
|
(6,840
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,840
|
)
|
|
Shares remitted to or withheld by Company for employee tax withholding
|
—
|
|
|
(1,380
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,380
|
)
|
|
Cash received for lease transaction
|
—
|
|
|
19,848
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,848
|
|
|
Noncontrolling interest contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
1,467
|
|
|
—
|
|
|
1,467
|
|
|
Noncontrolling interest distributions
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,340
|
)
|
|
—
|
|
|
(7,340
|
)
|
|
Advances to affiliates
|
—
|
|
|
—
|
|
|
2,845
|
|
|
487
|
|
|
(3,332
|
)
|
|
—
|
|
|
Intercompany receivables/payables
|
296
|
|
|
11,942
|
|
|
(2,824
|
)
|
|
6,335
|
|
|
(15,749
|
)
|
|
—
|
|
|
Net cash provided by (used in) financing activities
|
296
|
|
|
51,524
|
|
|
21
|
|
|
5,519
|
|
|
(19,081
|
)
|
|
38,279
|
|
|
Net (decrease) increase in cash and cash equivalents
|
—
|
|
|
(1,259
|
)
|
|
158
|
|
|
(2,003
|
)
|
|
—
|
|
|
(3,104
|
)
|
|
Cash and cash equivalents - beginning of period
|
—
|
|
|
36,204
|
|
|
272
|
|
|
6,136
|
|
|
—
|
|
|
42,612
|
|
|
Cash and cash equivalents - end of period
|
$
|
—
|
|
|
$
|
34,945
|
|
|
$
|
430
|
|
|
$
|
4,133
|
|
|
$
|
—
|
|
|
$
|
39,508
|
|
Note 8—Fair Value of Financial Instruments
In accordance with FASB ASC Topic 820,
Fair Value Measurements and Disclosure
(“ASC 820”), the Company is required to disclose the estimated fair value of financial instruments. As of
March 31, 2018
and
December 31, 2017
, the Company used the following assumptions to estimate the fair value of each type of financial instrument for which it is practicable to estimate:
|
|
|
|
•
|
Notes payable—The carrying amount is a reasonable estimate of fair value of the notes payable because of floating interest rate terms and/or the outstanding balance is expected to be repaid within one year.
|
|
|
|
|
•
|
5
3
/
4
% Senior Notes due April 15, 2019 —The 5
3
/
4
% Senior Notes are traded over the counter and their fair values were based upon quotes from industry sources.
|
|
|
|
|
•
|
7% Senior Notes due August 15, 2022 —The 7% Senior Notes are traded over the counter and their fair values were based upon quotes from industry sources.
|
|
|
|
|
•
|
6% Senior Notes due September 1, 2023 —The 6% Senior Notes are traded over the counter and their fair values were based upon quotes from industry sources.
|
|
|
|
|
•
|
5
7
/
8
Senior Notes due January 31, 2025 —The 5
7
/
8
% Senior Notes are traded over the counter and their fair values were based upon quotes from industry sources.
|
The following table excludes cash and cash equivalents, receivables and accounts payable, which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments. The estimated fair values of financial instruments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Notes payable
|
$
|
172,246
|
|
|
$
|
172,246
|
|
|
$
|
94,515
|
|
|
$
|
94,515
|
|
|
5
3
/
4
% Senior Notes due 2019
|
—
|
|
|
—
|
|
|
149,362
|
|
|
151,500
|
|
|
7% Senior Notes due 2022
|
346,924
|
|
|
359,625
|
|
|
346,740
|
|
|
362,250
|
|
|
6% Senior Notes due 2023
|
343,274
|
|
|
349,125
|
|
|
—
|
|
|
—
|
|
|
5
7
/
8
% Senior Notes due 2025
|
439,903
|
|
|
436,500
|
|
|
439,567
|
|
|
459,000
|
|
ASC 820 establishes a framework for measuring fair value, expands disclosures regarding fair value measurements and defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires the Company to maximize the use of observable market inputs, minimize the use of unobservable market inputs and disclose in the form of an outlined hierarchy the details of such fair value measurements. The Company used Level 3 to measure the fair value of its Notes payable, and Level 2 to measure the fair value of its Senior notes. ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. The three levels of the hierarchy are as follows:
|
|
|
|
•
|
Level 1—quoted prices for identical assets or liabilities in active markets;
|
|
|
|
|
•
|
Level 2—quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
|
|
|
|
|
•
|
Level 3—valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
Note 9—Related Party Transactions
In November 2017, the Company entered into a Purchase and Sale Agreement (the “Oceanside PSA”) with an entity (“Oceanside Seller”) managed by an affiliate of Paulson & Co., Inc. (“Paulson”), which provides for the purchase of certain
real property from the Seller located in Oceanside, California for a proposed residential homebuilding development (the “St. Cloud Transaction”). The PSA provides for an overall purchase price of
$22.8 million
, including an aggregate deposit amount of
$1.2 million
(the “Deposit”), which Deposit was paid and became non-refundable in December 2017. The balance of the purchase price was paid in connection with closing of the St. Cloud Transaction in March 2018. WLH Recovery Acquisition LLC, which is affiliated with, and managed by affiliates of, Paulson, previously held over
5%
of Parent’s outstanding Class A common stock, which stock was sold in its entirety in September 2017. One of the current members of Parent’s board of directors currently serves as Portfolio Manager for the Paulson Real Estate Funds, which are affiliates of Paulson, and is a Partner in Paulson. The Company believes that the St. Cloud Transaction was on terms no less favorable than it would have agreed to with unrelated third parties.
Note 10—Income Taxes
Since inception, the Company has operated solely within the United States. The Company’s effective income tax rate was
18.3%
and
(37.7)%
for the
three
months ended
March 31,
2018
and
2017
, respectively. The significant drivers of the effective tax rate are allocation of income to noncontrolling interests and the overall favorable impact of the Tax Cuts and Job Act ("Tax Act") for the three months
March 31, 2018
, and noncontrolling interests and the domestic activities deduction for the three months ended
March 31, 2017
.
Management assesses its deferred tax assets to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740. The Company is required to establish a valuation allowance for any portion of the asset that management concludes is more likely than not to be unrealizable. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company's assessment considers all evidence, both positive and negative, including the nature, frequency and severity of any current and cumulative losses, taxable income in carry back years, the scheduled reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income in making this assessment. At
March 31, 2018
, the Company had
no
valuation allowance recorded.
At
March 31, 2018
, the Company had
no
remaining federal net operating loss carryforwards and
$49.9 million
of remaining state net operating loss carryforwards. State net operating loss carryforwards begin to expire in 2031. In addition, as of
March 31, 2018
, the Company had unused federal and state built-in losses of
$48.5 million
and
$7.5 million
, respectively. The
five
year testing period for built-in losses expired in 2017 and the unused built-in loss carryforwards begin to expire in 2032. The Company had AMT credit carryovers of
$1.4 million
at
March 31, 2018
, which if not previously utilized are allowable as refundable credits under the Tax Cuts and Job Act through 2022.
In accordance with Securities & Exchange Commission Staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), based on the information available as of
December 31, 2017
, the Company recorded income tax expense of
$23.1 million
as a result of the Tax Act due to the reduction of the Company's deferred tax assets as a result of the lower tax rate. The Company has also recorded a provisional amount in relation to the treatment of AMT credits in its consolidated financial statements for the year ended
December 31, 2017
. The final impact of the Tax Act may differ from the provisional amount recorded at
December 31, 2017
, due to, among other things, changes in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of the Tax Act. There were no significant changes to any of the provisional balances recorded at
December 31, 2017
as a result of the Tax Act during the first three months of
2018
.
FASB ASC Topic 740
,
Income Taxes
(“ASC 740”), prescribes a recognition threshold and a measurement criterion for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be considered more likely than not to be sustained upon examination by taxing authorities. The Company records interest and penalties related to uncertain tax positions as a component of the provision for income taxes. The Company has
no
unrecognized tax benefits.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is subject to U.S. federal income tax examination for calendar tax years ended 2012 and forward. The Company is subject to various state income tax examinations for calendar tax years ended 2008 and forward. The Company is currently under examination by the Internal Revenue Service for the 2013 and 2014 tax years and a California examination is pending for the 2014 tax year.
Note 11—Income (Loss) Per Common Share
Basic and diluted income (loss) per common share for the
three
months ended
March 31, 2018
and
2017
were calculated as follows (in thousands, except number of shares and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
Ended
March 31,
2018
|
|
Three
Months
Ended
March 31,
2017
|
|
Basic weighted average number of common shares outstanding
|
37,931,256
|
|
|
36,908,320
|
|
|
Effect of dilutive securities:
|
|
|
|
|
Stock options, unvested common shares, and warrants
|
1,924,427
|
|
|
—
|
|
|
Diluted average shares outstanding
|
39,855,683
|
|
|
36,908,320
|
|
|
Net income (loss) available to common stockholders
|
$
|
8,328
|
|
|
$
|
(10,000
|
)
|
|
Basic income (loss) per common share
|
$
|
0.22
|
|
|
$
|
(0.27
|
)
|
|
Dilutive income (loss) per common share
|
$
|
0.21
|
|
|
$
|
(0.27
|
)
|
|
Antidilutive securities not included in the calculation of diluted income (loss) per common share (weighted average):
|
|
|
|
|
Stock options, unvested common shares, and warrants
|
—
|
|
|
825,038
|
|
|
Tangible equity units
|
—
|
|
|
463,635
|
|
|
Unvested stock options
|
—
|
|
|
240,000
|
|
|
Warrants
|
—
|
|
|
1,907,551
|
|
Diluted loss per share for the three months ended
March 31, 2017
is the same as basic loss per share as there is a net loss in the period and inclusion of potentially issuable shares is anti-dilutive. Therefore, the weighted-average number of shares outstanding used in the computation of diluted loss per share does not include the effect of the above anti-dilutive shares.
Note 12—Stock Based Compensation
We account for share-based awards in accordance with ASC Topic 718,
Compensation-Stock Compensation
, which requires the fair value of stock-based compensation awards to be amortized as an expense over the vesting period. Stock-based compensation awards are valued at the fair value on the date of grant. Compensation expense for awards with performance based conditions is recognized over the vesting period once achievement of the performance condition is deemed probable.
During the
three
months ended
March 31, 2018
, the Company granted
237,281
shares of time-based restricted stock and
426,075
shares of performance based restricted stock. On the Consolidated Balance Sheets and Statement of Equity, the Company considers unvested shares of restricted stock to be issued, but not outstanding.
The Company recorded total stock based compensation expense during the
three
months ended
March 31, 2018
and
2017
of
$3.2 million
and
$1.7 million
, respectively.
Performance-Based Restricted Stock Awards
With respect to the performance based restricted stock awards granted to certain employees during the
three
months ended
March 31, 2018
, the actual number of such shares of restricted stock that will be earned (the “Earned Shares”) is subject to the Company’s achievement of pre-established performance targets as of the end of the
2018
fiscal year. Of the aforementioned awards,
373,432
of such Earned Shares vest in three equal annual installments on March 1st of each of 2019, 2020 and 2021, subject to each grantee’s continued service through each vesting date. The remaining
52,643
of such Earned Shares vest in three equal annual installments on each anniversary of the grant date, subject to each grantee’s continued service through each vesting date. Based on the probability assessment as of
March 31, 2018
, management determined that the currently available data was not sufficient to support that the achievement of the performance targets is probable, and as such,
no
compensation expense has been recognized for these awards to date.
Time-Based Restricted Stock Awards
With respect to the restricted stock awards granted to certain employees and non-employee directors during the
three
months ended
March 31, 2018
,
116,484
of such shares vest in three equal annual installments on March 1st of each of 2019, 2020 and 2021,
4,767
of such shares vest in two equal annual installments on March 1st of each of 2019 and 2020,
26,321
of such shares vest in three equal annual installments on each anniversary of the grant date,
31,464
of such shares vest in two equal annual installments on each anniversary of the grant date, and
36,317
of such shares vest in one installment on the second anniversary of the grant date, in each case subject to each grantee’s continued service through each vesting date, and
21,928
of such shares vest in four equal quarterly installments on each three-month period beginning June 1st of 2018, subject to each grantee’s continued service on the board through each vesting date.
Note 13—Commitments and Contingencies
The Company’s commitments and contingent liabilities include the usual obligations incurred by real estate developers in the normal course of business. In the opinion of management, these matters will not have a material effect on the Company’s condensed consolidated financial position, results of operations or cash flows.
The Company is a defendant in various lawsuits related to its normal business activities. We believe that the accruals we have recorded for probable and reasonably estimable losses with respect to these proceedings are adequate and that, as of
March 31, 2018
, it was not reasonably possible that an additional material loss had been incurred in an amount in excess of the estimated amounts already recognized on our condensed consolidated financial statements. We evaluate our accruals for litigation and regulatory proceedings, and as appropriate, adjust them to reflect (i) the facts and circumstances known to us at the time, including information regarding negotiations, settlements, rulings and other relevant events and developments; (ii) the advice and analyses of counsel; and (iii) the assumptions and judgment of management. Similar factors and considerations are used in establishing new accruals for proceedings as to which losses have become probable and reasonably estimable at the time an evaluation is made. The outcome of any of these proceedings, including the defense and other litigation-related costs and expenses we may incur, however, is inherently uncertain and could differ significantly from the estimate reflected in a related accrual, if made. Therefore, it is possible that the ultimate outcome of any proceeding, if in excess of a related accrual or if no accrual had been made, could be material to our consolidated financial statements.
The Company had outstanding performance and surety bonds of
$239.0 million
at
March 31, 2018
, related principally to its obligations for site improvements at various projects. The Company does not believe that draws upon these bonds, if any, will have a material effect on the Company’s financial position, results of operations or cash flows. As of
March 31, 2018
, the Company had
$453.8 million
of project commitments relating to the construction of projects.
See Note 7 for additional information relating to the Company’s guarantee arrangements.
In addition to the land bank agreement discussed below, the Company has entered into various purchase option agreements with third parties to acquire land. As of
March 31, 2018
, the Company has made non-refundable deposits of
$92.1 million
. The Company is under no obligation to purchase the land, but would forfeit remaining deposits if the land were not purchased. The total remaining purchase price under the option agreements is
$996.4 million
as of
March 31, 2018
.
Land Banking Arrangements
The Company enters into purchase agreements with various land sellers. As a method of acquiring land in staged takedowns, thereby minimizing the use of funds from the Company’s available cash or other corporate financing sources and limiting the Company’s risk, the Company transfers the Company’s right in such purchase agreements to entities owned by third parties (“land banking arrangements”). These entities use equity contributions and/or incur debt to finance the acquisition and development of the land. The entities grant the Company an option to acquire lots in staged takedowns. In consideration for this option, the Company makes a non-refundable deposit of
15%
to
25%
of the total purchase price. The Company is under no obligation to purchase the balance of the lots, but would forfeit any existing deposits and could be subject to penalties if the lots were not purchased. The Company does not have legal title to these entities or their assets and has not guaranteed their liabilities. These land banking arrangements help the Company manage the financial and market risk associated with land holdings. As discussed above, with exception of the arrangement discussed below, these amounts are included in the total remaining purchase price mentioned above.
The Company participated in one land banking arrangement during the three months ended
March 31, 2018
, which was not a VIE in accordance with ASC 810, but which is consolidated in accordance with FASB ASC Topic 470, Debt (“ASC 470”). Under the provisions of ASC 470, the Company had determined it is economically compelled, based on certain factors, to purchase the land in the land banking arrangement. Therefore, the Company has recorded the remaining purchase price of
the land of
$282.2 million
as of
March 31, 2018
, which was included in Real estate inventories not owned and Liabilities from inventories not owned in the accompanying balance sheet.
Summary information with respect to the Company’s land banking arrangements is as follows as of the period presented (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
Total number of land banking projects
|
|
1
|
|
|
Total number of lots
|
|
3,053
|
|
|
Total purchase price
|
|
$
|
316,452
|
|
|
Balance of lots still under option and not purchased:
|
|
|
|
Number of lots
|
|
3,053
|
|
|
Purchase price
|
|
$
|
316,452
|
|
|
Forfeited deposits if lots are not purchased
|
|
$
|
34,283
|
|
Lease Obligations
Lease obligations, as included in Accrued expenses on the consolidated balance sheets, were
$14.8 million
as of
March 31, 2018
and
$14.5 million
as of
December 31, 2017
. The Company has non-cancelable operating leases primarily associated with office facilities, real estate and office equipment, in addition to one related sublease for an office facility. The determination of which discount rate to use when measuring the lease obligation was deemed a significant judgment. Lease cost, as included in general and administrative expense in our consolidated statements of operations for the respective periods, and additional information regarding lease terms are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
Three Months Ended March 31, 2017
|
|
Lease cost
|
|
|
|
|
|
Operating lease cost
|
|
$
|
2,009
|
|
|
$
|
959
|
|
|
Sublease income
|
|
(29
|
)
|
|
(29
|
)
|
|
Total lease cost
|
|
$
|
1,980
|
|
|
$
|
930
|
|
|
|
|
|
|
|
|
Other information
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities for operating leases:
|
|
|
|
|
|
Operating cash flows
|
|
$
|
1,767
|
|
|
$
|
873
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
|
$
|
1,696
|
|
|
$
|
4,650
|
|
|
Weighted-average discount rate
|
|
6.4
|
%
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Weighted-average remaining lease term (in years)
|
|
3.34
|
|
3.58
|
The table below shows the future minimum payments under non-cancelable operating leases at
March 31, 2018
(in thousands).
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
|
Remaining in 2018
|
$
|
6,093
|
|
|
2019
|
5,352
|
|
|
2020
|
4,031
|
|
|
2021
|
3,733
|
|
|
2022
|
2,476
|
|
|
Thereafter
|
1,992
|
|
|
Total
|
$
|
23,677
|
|
Note 14—Subsequent Events
No events have occurred subsequent to
March 31, 2018
, that would require recognition or disclosure in the Company’s financial statements.