NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
When used in these notes, references to the “Company”, “Green Brick”, “we”, “us” or “our” refer to the combined company, Green Brick Partners, Inc. and its subsidiaries. We are a diversified homebuilding and land development company that combines residential land development and homebuilding. We acquire and develop land, provide land and construction financing to our controlled builders and participate in the profits of our controlled builders, with operations focused in the metropolitan areas of Dallas, Texas and Atlanta, Georgia, as well as Vero Beach, Florida. We also own a noncontrolling interest in GB Challenger, LLC (“Challenger Homes”) in Colorado Springs, Colorado. We are engaged in all aspects of the homebuilding process, including land acquisition and development, entitlements, design, construction, marketing and sales, and the creation of brand images at our residential neighborhoods and master planned communities.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) as set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) and applicable regulations of the Securities and Exchange Commission (“SEC”), but do not include all of the information and footnotes required for complete financial statements. In the opinion of management, the accompanying condensed consolidated financial statements for the periods presented reflect all adjustments, of a normal, recurring nature necessary to fairly state our financial position, results of operations and cash flows. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2017
. Our operating results for the three and
six
months ended
June 30, 2018
are not necessarily indicative of the results that may be expected for any future periods.
Principles of Consolidation
The Company evaluates its wholly-owned subsidiaries and controlled builders under ASC 810,
Consolidation
(“ASC 810”). The Company owns a
50%
equity interest and has
51%
of the voting interest in the Dallas and Atlanta based controlled builders. The Company accounts for the Dallas and Atlanta based controlled builders under the variable interest model and is the primary beneficiary of each of these controlled builders in accordance with ASC 810. Therefore, the financial statements of these controlled builders are consolidated in the condensed consolidated financial statements.
The Company recently acquired an
80%
controlling interest in GRBK GHO Homes, LLC (“GHO Homes”) and therefore is required to consolidate
100%
of GHO Homes within its consolidated financial statements. The
20%
interest which the Company does not own is accounted for as a redeemable noncontrolling interest.
All intercompany balances and transactions with wholly-owned subsidiaries and controlled builders have been eliminated in consolidation.
The Company uses the equity method of accounting for its investment in unconsolidated entities over which it exercises significant influence but does not have a controlling interest. Under the equity method, the Company’s share of the unconsolidated entities' earnings or losses, if any, is included in the condensed consolidated statements of income.
Seasonality
Historically, the homebuilding industry has experienced seasonal fluctuations; therefore, the operating results for the three and
six
months ended
June 30, 2018
are not necessarily indicative of the results that may be expected for the fiscal year ending
December 31, 2018
or subsequent periods.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes, including the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Receivables
Receivables consist of amounts collectible from manufacturing rebates earned by our homebuilders during the normal course of business, amounts collectible from third-party escrow agents related to closings on land, lot and residential unit sales, and amounts collectible related to mechanics lien contracts, as well as income tax receivables.
Variable Interest Entities and Noncontrolling Interests
The Company accounts for variable interest entities (“VIEs”) in accordance with ASC 810. In accordance with ASC 810, an entity is a VIE when: (a) the equity investment at risk in the entity is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by other parties, including the equity holders; (b) the entity’s equity holders as a group either (i) lack the direct or indirect ability to make decisions about the entity, (ii) are not obligated to absorb expected losses of the entity, or (iii) do not have the right to receive expected residual returns of the entity; or (c) the entity’s equity holders have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of the equity holder with disproportionately few voting rights. If an entity is deemed to be a VIE pursuant to ASC 810, the enterprise that has both (i) the power to direct the activities of the VIE that most significantly impacts the entity’s economic performance and (ii) the obligation to absorb the expected losses of the entity or right to receive benefits from the entity that could be potentially significant to the VIE is considered the primary beneficiary and must consolidate the VIE. In accordance with ASC 810, the Company performs ongoing reassessments of whether it is the primary beneficiary of a VIE.
The Company owns
50%
equity interests in the Dallas and Atlanta based controlled builders and
80%
equity interest in the recently acquired GHO Homes in Vero Beach, Florida. The Dallas and Atlanta based controlled builders are deemed to be VIEs under ASC 810 for which the Company is considered the primary beneficiary. We sell finished lots or option lots from third-party developers to the Dallas and Atlanta based controlled builders for their homebuilding operations and provide each of the controlled builders with construction financing and strategic planning. The board of managers of each of the controlled builders has the power to direct the activities that significantly impact the controlled builder’s economic performance. Pursuant to the Company’s agreements with each controlled builder, it has the ability to appoint
two
of the
three
members to each controlled builder’s board of managers. A majority of the board of managers constitutes a quorum to transact business. No action can be approved by the board of managers without the approval from at least
one
individual whom the Company has appointed at each controlled builder. The Company has the ability to control the activities of each controlled builder that most significantly impact the controlled builder’s economic performance. Such activities include, but are not limited to, involvement in the day to day capital and operating decisions, the ability to determine the budget and plan, the ability to control financing decisions, and the ability to acquire additional land or dispose of land. In addition, the Company has the right to receive the expected residual returns and obligation to absorb the expected losses of each controlled builder through the pro rata profits and losses we are allocated based on our ownership interest. Therefore, the financial statements of the Dallas and Atlanta based controlled builders are consolidated in the Company’s condensed consolidated financial statements following the variable interest model. The noncontrolling interests attributable to the
50%
minority interests owned by the Dallas and Atlanta based controlled builders are included as noncontrolling interests in the Company’s condensed consolidated financial statements.
The Company consolidates the financial statements of GHO Homes under the voting interest model as the Company owns
80%
of the outstanding voting shares of the builder. The noncontrolling interest attributable to the
20%
minority interest owned by our Florida based partner is included as redeemable noncontrolling interest in equity of consolidated subsidiary in the Company’s condensed consolidated financial statements. See
Note 8
.
Our controlled builders’ creditors have no recourse against us. The assets of two of our consolidated controlled builders can only be used to settle obligations of those controlled builders. The assets of our VIEs that can be used only to settle obligations of the VIEs as of
June 30, 2018
totaled
$57.8 million
, of which
$0.4 million
was cash and
$49.3 million
was inventory. The assets of our VIEs that could be used only to settle obligations of the VIEs as of
December 31, 2017
totaled
$56.1 million
, of which
$0.9 million
was cash and
$47.8 million
was inventory.
Investment in Unconsolidated Entities
The Company uses the equity method of accounting for its investment in consolidated entities over which it exercises significant influence but does not have a controlling interest.
In
August 2017
, the Company expanded into the Colorado Springs, Colorado market through a
49.9%
equity interest in Challenger Homes which constructs townhomes, single family homes and luxury patio homes.
In
March 2018
, the Company formed a joint venture with a title company in Georgia to provide title closing and settlement services to our Atlanta based builder. The Company, through its controlled builder, The Providence Group of Georgia, L.L.C. (“TPG”), owns a
49%
equity interest in Providence Group Title, LLC (“Providence Title”).
In
June 2018
, the Company formed a joint venture with PrimeLending to provide mortgage services to our builders. The Company owns a
49%
equity interest in Green Brick Mortgage, LLC (“Green Brick Mortgage”) which is expected to initiate lending activities later in
2018
.
Debt Issuance Costs
Debt issuance costs represent costs incurred related to the revolving and unsecured credit facilities, including amendments thereto, and reduce the carrying amount of debt on the condensed consolidated balance sheets. These costs are capitalized to inventory over the term of the related debt facility using the straight-line method.
Segment Information
In accordance with ASC 280,
Segment Reporting
(“ASC 280”), an operating segment is defined as a component of an enterprise for which discrete financial information is available and reviewed regularly by the chief operating decision maker (“CODM”), or decision-making group, to evaluate performance and make operating decisions. The Company identifies its CODM as four key executives—the Chief Executive Officer, Chief Financial Officer, President of Texas Region and Chief Accounting Officer. In determining the most appropriate reportable segments, the CODM considers similar economic and other characteristics, including geography, class of customers, product types and production processes. The Company’s operations are organized into
two
reportable segments: builder operations and land development. Builder operations consists of
three
operating segments: Texas, Georgia and Florida. The operations of the Company’s controlled builders were aggregated into these operating segments based on similar (1) economic characteristics, including geography; (2) housing products; (3) class of homebuyer; (4) regulatory environments; and (5) methods used to construct and sell homes.
Corporate operations are reported as a non-operating segment and include activities which support the Company’s builder operations, land development and title operations through centralization of certain administrative functions such as finance, treasury, information technology and human resources, as well as development of strategic initiatives. Unallocated corporate expenses are reported in the corporate and other segment as these activities do not share a majority of aggregation criteria with either the builder operations or land development segments.
While Green Brick Title, LLC (“Green Brick Title”) operations are not economically similar to either builder operations or land development, the results of such operations do not meet the quantitative thresholds, as discussed in ASC 280, to be separately reported and disclosed. As such, Green Brick Title’s results are included within the corporate and other segment.
While the operations of Challenger Homes meet the criteria for an operating segment within the builder operations segment, such operations did not meet the quantitative thresholds, as discussed in ASC 280, to be separately reported and disclosed. As such, Challenger Homes’ results are included within the corporate and other segment.
Business Combinations
Acquisitions are accounted for in accordance with ASC 805,
Business Combinations
(“ASC 805”). In connection with our acquisition of GHO Homes, we determined that we obtained control of a business and inputs, processes and outputs in exchange for cash. All material assets and liabilities, including contingent consideration, will be measured and recognized at fair value as of the date of the acquisition to reflect the purchase price, which is expected to result in goodwill. A preliminary allocation of the purchase price has been completed as of June 30, 2018. Refer to
Note 2
for further information regarding the purchase price allocation and related acquisition accounting.
Goodwill
The excess of the purchase price of a business acquisition over the net fair value of assets acquired and liabilities assumed is capitalized as goodwill in accordance with ASC 805. Goodwill is assessed for impairment at least annually, or more frequently if certain impairment indicators are present. We perform our annual impairment test during the fourth quarter or whenever impairment indicators are present.
Intangible Assets
Intangible assets, net consists of the estimated fair value of home construction contracts that were acquired upon closing of the acquisition of GHO Homes. A high degree of judgment is made by management on assumptions, such as revenue growth rates,
profitability, and discount rates, when calculating the value of the intangible assets. The identified home construction contracts intangible asset is amortized to cost of residential units as income on the related contracts is earned, over a period of
two
years.
Recent Accounting Pronouncements
The Company adopted Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers
, on January 1, 2018 (“ASU 2014-09”). ASU 2014-09 was codified into ASC 606,
Revenue from Contracts with Customers
(“ASC 606”). The Company adopted ASC 606 using the modified retrospective method applied to contracts which were not completed as of January 1, 2018, which required the cumulative effect of the initial application of the new standard, if any, to be reflected as an adjustment to the opening balance of retained earnings as of January 1, 2018. The Company’s revenue recognition disclosures expanded significantly under ASC 606, specifically related to the quantitative and qualitative information about performance obligations, information about contract balances, changes in contract assets and liabilities and disaggregation of revenue. The adoption of ASC 606 did not have a material effect on the Company’s condensed consolidated statements of income and there was
no
cumulative effect on the opening balance of retained earnings as of January 1, 2018.
As a result of the adoption of ASU 2014-09, costs related to model home furnishings are no longer capitalizable as inventory; however, such costs are capitalizable as fixed assets. As of
June 30, 2018
,
$1.8 million
of model home furnishings costs were included in property and equipment, net compared to
$1.1 million
included in inventory as of
December 31, 2017
. The related depreciation expense of
$0.8 million
is included in selling, general and administrative expense for the
six
months ended
June 30, 2018
as opposed to
$0.5 million
included in cost of sales for the
six
months ended
June 30, 2017
. See
Note 5
. The adoption of ASU 2014-09 did not require significant changes to the Company's internal controls and procedures over financial reporting and disclosures. However, we have made enhancements to existing internal controls and procedures to ensure continued compliance with the disclosure requirements of the new standard.
In February 2016, the FASB issued ASU 2016-02,
Leases
, which requires an entity that leases assets to classify the leases as either finance or operating leases and to record assets and liabilities for the rights and obligations created by long-term leases, regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight-line basis over the term of the lease. This standard is effective for the Company beginning
January 1, 2019
and must be adopted using a modified retrospective approach. The Company does not believe that the adoption of this standard will have a material effect on its consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
, which reduces the existing diversity in practice in financial reporting across all industries by clarifying certain existing principles including providing additional guidance on what an entity should consider in determining the classification of certain cash receipts and payments. This standard was adopted by the Company as of
January 1, 2018
. The adoption of this standard did not have a material effect on the Company's consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
. The standard provides a more robust framework for determining whether transactions should be accounted for as acquisitions or dispositions of assets or businesses. This standard was effective for the Company beginning
January 1, 2018
. The adoption of this standard did not have a material effect on the Company's consolidated financial statements and related disclosures.
In May 2017, the FASB issued ASU 2017-09,
Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting
(“ASU 2017-09”), which amends the scope of modification accounting for share-based payment arrangements. The standard provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASU 2017-09. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. This standard was effective for the Company beginning
January 1, 2018
. The adoption of this standard did not have a material effect on the Company's consolidated financial statements and related disclosures.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
2. BUSINESS COMBINATION
On
April 26, 2018
, the Company acquired substantially all of the assets of GHO Homes in a series of transactions that resulted in the Company owning an
80%
controlling equity interest in GHO Homes. The previous owner of GHO Homes continues to serve as president and is a
20%
partner in GHO Homes. GHO Homes operates primarily in the Vero Beach, Florida market and is engaged in land and lot development, as well as all aspects of the homebuilding process. The acquisition allowed us to expand our operations into a new geographic market, constructing single family homes and patio homes.
The total consideration of
$33.9 million
consisted of
$33.2 million
in cash paid to the previous owner of GHO Homes and
$0.6 million
of contingent consideration. The purchase price is subject to adjustment based on the audited equity of GHO Homes as of the closing date, which is pending completion as of
August 6, 2018
. Under the terms of the purchase agreement, we may be obligated to pay the contingent consideration if certain annual performance targets are met over the
three
-year period following the acquisition date.
In accordance with ASC 805, all material assets and liabilities, including contingent consideration, are measured and recognized at fair value as of the date of the acquisition to reflect the purchase price.
The Company has completed a preliminary allocation of the purchase price as of the acquisition date and expects to finalize the allocation within one year from the date of acquisition. The following is a summary of our provisional estimate of the fair value of assets acquired and liabilities assumed (in thousands):
|
|
|
|
|
Assets acquired
|
|
Cash
|
$
|
7,895
|
|
Inventory
|
42,711
|
|
Property and equipment
|
1,376
|
|
Goodwill
(1)
|
1,725
|
|
Home construction contracts
|
300
|
|
Other assets
|
957
|
|
Total assets
|
$
|
54,964
|
|
Liabilities assumed
|
|
Note payable
|
$
|
300
|
|
Accrued expenses and other liabilities
|
5,375
|
|
Customer deposits
|
9,073
|
|
Total liabilities
|
$
|
14,748
|
|
Redeemable noncontrolling interest
|
$
|
6,346
|
|
Net assets acquired
(2)
|
$
|
33,870
|
|
|
|
(1)
|
Goodwill is expected to be fully deductible for tax purposes.
|
|
|
(2)
|
Contingent consideration of
$0.6 million
is included in the fair value of net assets acquired.
|
The purchase price allocation reflected above is preliminary and is based upon estimates and assumptions that are subject to change within the measurement period (up to one year from the acquisition date). The measurement period remains open pending the completion of valuation procedures related to the acquired assets and assumed liabilities. The estimated cash flows and ultimate valuation are significantly affected by the discount rate, estimates related to expected average selling prices and sales incentives, expected sales pace and cancellation rates, expected land development and construction timelines, and anticipated land development, construction, and overhead costs and may vary significantly between communities. The valuation of redeemable noncontrolling interest is based on a market approach, considering the equity contribution made by the
20%
partner, adjusted for control and marketability factors.
Acquired inventory consists of both land under development and work in process inventory, as well as completed homes held for sale. The valuation of inventory, acquired trade name and the final determination of value of redeemable noncontrolling interest are pending completion of independent third-party appraisals and other valuation procedures. The valuation of the remaining assets and liabilities is pending the completion of an audit of the
April 26, 2018
balance sheet of GHO Homes. The allocation to goodwill represents the excess of the purchase price, including contingent consideration, over the estimated fair value of assets acquired and liabilities assumed.
GHO Homes' results of operations, which include homebuilding revenues of
$10.9 million
and income before tax of
$0.9 million
, are included in the accompanying condensed consolidated statements of income for the period from
April 26, 2018
through
June 30, 2018
.
The supplemental pro forma information for revenue and earnings of the Company as though the above business combination had occurred as of January 1, 2017 is impractical to provide due to the fact that consolidated reporting for the specific group of entities acquired had not existed prior to the acquisition.
As of
June 30, 2018
, we had incurred integration costs of approximately
$0.2 million
related to the acquisition, which have been expensed as incurred and are included in selling, general and administrative expense.
3. NET INCOME ATTRIBUTABLE TO GREEN BRICK PARTNERS, INC. PER SHARE
The Company’s restricted stock awards have the right to receive forfeitable dividends on an equal basis with common stock and therefore are not considered participating securities that must be included in the calculation of net income per share using the two-class method. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during each period, adjusted for non-vested shares of restricted stock awards during each period. Diluted earnings per share is calculated using the treasury stock method and includes the effect of all dilutive securities, including stock options and restricted stock awards.
The computation of basic and diluted net income attributable to Green Brick Partners, Inc. per share is as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income attributable to Green Brick Partners, Inc.
|
$
|
14,869
|
|
|
$
|
7,689
|
|
|
$
|
26,072
|
|
|
$
|
13,886
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding —basic
|
50,664
|
|
|
49,047
|
|
|
50,620
|
|
|
49,003
|
|
Basic net income attributable to Green Brick Partners, Inc. per share
|
$
|
0.29
|
|
|
$
|
0.16
|
|
|
$
|
0.52
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding —basic
|
50,664
|
|
|
49,047
|
|
|
50,620
|
|
|
49,003
|
|
Dilutive effect of stock options and restricted stock awards
|
119
|
|
|
76
|
|
|
131
|
|
|
67
|
|
Weighted-average number of shares outstanding —diluted
|
50,783
|
|
|
49,123
|
|
|
50,751
|
|
|
49,070
|
|
Diluted net income attributable to Green Brick Partners, Inc. per share
|
$
|
0.29
|
|
|
$
|
0.16
|
|
|
$
|
0.51
|
|
|
$
|
0.28
|
|
The following shares which could potentially dilute earnings per share in the future are not included in the determination of diluted net income attributable to Green Brick Partners, Inc. per common share (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Antidilutive options to purchase common stock and restricted stock awards
|
9
|
|
|
—
|
|
|
19
|
|
|
—
|
|
4. INVENTORY
Inventory consists of raw land scheduled for development, land in the process of development, developed lots, completed homes, and model homes. Inventory is valued at cost unless the carrying value is determined to be not recoverable in which case the affected inventory is written down to net realizable value. Cost includes any related pre-acquisition costs that are directly identifiable with a specific property so long as those pre-acquisition costs are anticipated to be recoverable at the sale of the property.
A summary of inventory is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
Completed home inventory and residential lots held for sale
|
$
|
144,935
|
|
|
$
|
106,043
|
|
Work in process and land under development
|
436,433
|
|
|
390,011
|
|
Total inventory
|
$
|
581,368
|
|
|
$
|
496,054
|
|
The Company capitalizes interest costs incurred to inventory during active development and other qualifying activities. Interest capitalized as cost of inventory is charged to cost of sales as related homes, land and/or lots are closed.
A summary of interest costs incurred, capitalized and expensed is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Interest capitalized at beginning of period
|
$
|
11,221
|
|
|
$
|
9,435
|
|
|
$
|
10,474
|
|
|
$
|
9,417
|
|
Interest incurred
|
2,006
|
|
|
885
|
|
|
3,634
|
|
|
1,778
|
|
Interest charged to cost of sales
|
(1,084
|
)
|
|
(895
|
)
|
|
(1,965
|
)
|
|
(1,770
|
)
|
Interest capitalized at end of period
|
$
|
12,143
|
|
|
$
|
9,425
|
|
|
$
|
12,143
|
|
|
$
|
9,425
|
|
5. REVENUE RECOGNITION
The Company adopted ASC 606
as of January 1, 2018 using the modified retrospective method which required the cumulative effect of the initial application of the new standard, if any, to be reflected as an adjustment to the opening balance of retained earnings as of January 1, 2018. There was
no
cumulative effect of the initial application of ASC 606 on the Company's consolidated financial statements.
Contracts with Customers
The Company derives revenues from
two
primary sources: the closing and delivery of homes through our builder operations segment and the sale of lots to homebuilders through our land development segment. All of our revenue is from contracts with customers.
Disaggregation of Revenue
The following reflects the disaggregation of revenue by primary geographic market, type of customer, product type, and timing of revenue recognition for the three months ended
June 30, 2018
and
2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Three Months Ended June 30, 2017
|
|
Builder Operations
|
|
Land Development
|
|
Builder Operations
|
|
Land Development
|
Primary Geographic Market
|
|
|
|
|
|
|
|
Texas
|
$
|
66,893
|
|
|
$
|
10,692
|
|
|
$
|
46,710
|
|
|
$
|
3,991
|
|
Georgia
|
66,116
|
|
|
440
|
|
|
53,635
|
|
|
615
|
|
Florida
|
10,869
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total revenues
|
$
|
143,878
|
|
|
$
|
11,132
|
|
|
$
|
100,345
|
|
|
$
|
4,606
|
|
|
|
|
|
|
|
|
|
Type of Customer
|
|
|
|
|
|
|
|
Homebuyers
|
$
|
143,878
|
|
|
$
|
—
|
|
|
$
|
100,345
|
|
|
$
|
—
|
|
Homebuilders
|
—
|
|
|
11,132
|
|
|
—
|
|
|
4,606
|
|
Total revenues
|
$
|
143,878
|
|
|
$
|
11,132
|
|
|
$
|
100,345
|
|
|
$
|
4,606
|
|
|
|
|
|
|
|
|
|
Product Type
|
|
|
|
|
|
|
|
Residential units
|
$
|
143,878
|
|
|
$
|
—
|
|
|
$
|
100,345
|
|
|
$
|
—
|
|
Land and lots
|
—
|
|
|
11,132
|
|
|
—
|
|
|
4,606
|
|
Total revenues
|
$
|
143,878
|
|
|
$
|
11,132
|
|
|
$
|
100,345
|
|
|
$
|
4,606
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition
|
|
|
|
|
|
|
|
Transferred at a point in time
|
$
|
143,878
|
|
|
$
|
11,132
|
|
|
$
|
100,345
|
|
|
$
|
4,606
|
|
Total revenues
|
$
|
143,878
|
|
|
$
|
11,132
|
|
|
$
|
100,345
|
|
|
$
|
4,606
|
|
The following reflects the disaggregation of revenue by primary geographic market, type of customer, product type, and timing of revenue recognition for the
six
months ended
June 30, 2018
and
2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
Six Months Ended June 30, 2017
|
|
Builder Operations
|
|
Land Development
|
|
Builder Operations
|
|
Land Development
|
Primary Geographic Market
|
|
|
|
|
|
|
|
Texas
|
$
|
138,441
|
|
|
$
|
14,691
|
|
|
$
|
97,380
|
|
|
$
|
9,744
|
|
Georgia
|
114,934
|
|
|
4,340
|
|
|
96,362
|
|
|
802
|
|
Florida
|
10,869
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total revenues
|
$
|
264,244
|
|
|
$
|
19,031
|
|
|
$
|
193,742
|
|
|
$
|
10,546
|
|
|
|
|
|
|
|
|
|
Type of Customer
|
|
|
|
|
|
|
|
Homebuyers
|
$
|
264,244
|
|
|
$
|
—
|
|
|
$
|
193,742
|
|
|
$
|
—
|
|
Homebuilders
|
—
|
|
|
19,031
|
|
|
—
|
|
|
10,546
|
|
Total revenues
|
$
|
264,244
|
|
|
$
|
19,031
|
|
|
$
|
193,742
|
|
|
$
|
10,546
|
|
|
|
|
|
|
|
|
|
Product Type
|
|
|
|
|
|
|
|
Residential units
|
$
|
264,244
|
|
|
$
|
—
|
|
|
$
|
193,742
|
|
|
$
|
—
|
|
Land and lots
|
—
|
|
|
19,031
|
|
|
—
|
|
|
10,546
|
|
Total revenues
|
$
|
264,244
|
|
|
$
|
19,031
|
|
|
$
|
193,742
|
|
|
$
|
10,546
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition
|
|
|
|
|
|
|
|
Transferred at a point in time
|
$
|
264,244
|
|
|
$
|
19,031
|
|
|
$
|
193,742
|
|
|
$
|
10,546
|
|
Total revenues
|
$
|
264,244
|
|
|
$
|
19,031
|
|
|
$
|
193,742
|
|
|
$
|
10,546
|
|
Contract Balances
The Company requires homebuyers to submit a deposit for home purchases and requires third-party builders to submit a deposit in connection with land sale or lot option contracts. The deposits serve as a guarantee for performance under homebuilding and land sale or development contracts. Cash received as customer deposits is reflected as customer and builder deposits on the condensed consolidated balance sheets.
Opening and closing contract balances included in customer and builder deposits on the condensed consolidated balance sheets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
June 30, 2017
|
|
December 31, 2016
|
Customer and builder deposits
|
$
|
33,988
|
|
|
$
|
21,447
|
|
|
$
|
19,292
|
|
|
$
|
14,088
|
|
The difference between the opening and closing balances of customer and builder deposits results from the timing difference between the customer’s payment of a deposit and the Company’s performance, impacted slightly by terminations of contracts.
The amount of deposits on residential units and land and lots held as of the beginning of the period and recognized as revenue during the three and
six
months ended
June 30, 2018
and
2017
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Type of Customer
|
|
|
|
|
|
|
|
Homebuyers
|
$
|
5,423
|
|
|
$
|
1,841
|
|
|
$
|
7,016
|
|
|
$
|
3,110
|
|
Homebuilders
|
5
|
|
|
80
|
|
|
236
|
|
|
380
|
|
Total deposits recognized as revenue
|
$
|
5,428
|
|
|
$
|
1,921
|
|
|
$
|
7,252
|
|
|
$
|
3,490
|
|
As a result of the GHO Homes acquisition, customer deposits from homebuyers in the amount of
$9.1 million
were acquired, of which
$2.0 million
was recognized during the period
April 26, 2018
through
June 30, 2018
.
Performance Obligations
The Company’s contracts with homebuyers contain a single performance obligation. The performance obligation is satisfied when homes are completed and legal title has been transferred to the buyer. The Company does not have any variable consideration associated with home sales transactions.
Lot option contracts contain multiple performance obligations. The performance obligations are satisfied as lots are closed and legal title has been transferred to the builder. For lot option contracts, individual performance obligations are accounted for separately. The transaction price is allocated to the separate performance obligations on a relative stand-alone selling price basis. Certain lot option contracts require escalations in lot price over the option period. Any escalator is not collectible until the lot closing occurs. While we recognize lot escalators as variable consideration within the transaction price, we do not recognize escalator revenue until a builder closes on a lot subject to an escalator as the escalator relates to general inflation and holding costs.
Occasionally, the Company sells developed and undeveloped land parcels. If the land parcel is developed prior to the sale of the land, the revenue is recognized at closing since we deliver a single performance obligation in the form of a developed parcel. We also recognize revenue at closing on undeveloped land parcel sales as there are no other obligations beyond delivering the undeveloped land.
Homebuyers are not obligated to pay for a home until the closing and delivery of the home. The selling price of a home is based on the contract price adjusted for any change orders, which are considered modifications of the contract price.
Homebuilders are not obligated to pay for developed lots prior to control of the lots and any associated improvements being transferred to them. The term of our lot option contracts is generally based upon the number of lots being purchased and the agreed upon lot takedown schedule, which can be in excess of one year. Lots cannot be taken down until development is substantially complete. There is no significant financing component related to our third-party lot sales.
The Company does not sell warranties outside of the customary workmanship warranties provided on homes or developed lots at the time of sale. The warranties offered to homebuyers and to buyers of developed lots are short term, with the exception of ten-year warranties on structural concerns for homes. As these are assurance-type warranties, there is no separate performance obligation related to warranties provided.
There was
no
revenue recognized during the three and
six
months ended
June 30, 2018
and
2017
from performance obligations satisfied in prior periods.
Transaction Price Allocated to the Remaining Performance Obligations
The aggregate amount of transaction price allocated to the remaining performance obligations on our land sale and lot option contracts is
$102.2 million
. The Company will recognize the remaining revenue when the lots are taken down, or upon closing for the sale of a land parcel, which is expected to occur as follows (in thousands):
|
|
|
|
|
|
Total
|
Remainder of 2018
|
$
|
24,422
|
|
2019
|
48,445
|
|
2020
|
24,766
|
|
2021
|
4,550
|
|
Total
|
$
|
102,183
|
|
The timing of lot takedowns is contingent upon a number of factors, including customer needs, the number of lots being purchased, receipt of acceptance of the plat by the municipality, weather-related delays, and agreed-upon lot takedown schedules.
Our contracts with homebuyers have a duration of less than
one
year. As such, the Company uses the practical expedient as allowed under ASC 606 and has not disclosed the transaction price allocated to remaining performance obligations as of the end of the reporting period.
Significant Judgments and Estimates
There are no significant judgments involved in the recognition of completed home sales. The performance obligation of delivering a completed home is satisfied upon the sale closing when title transfers to the homebuyer.
There are no significant judgments involved in the recognition of land sales or developed lot sales. The performance obligation of delivering land or developed lots is satisfied upon the closing of the sale when title transfers to the homebuilder.
Contract Costs
In connection with the adoption of ASC 606, the Company adopted ASC 340-40,
Other Assets and Deferred Costs - Contracts with Customers
(“ASC 340-40”), with respect to capitalization and amortization of incremental costs of obtaining a contract. The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects to recover those costs.
The Company pays sales commissions to employees and/or outside realtors related to individual home sales which are expensed as incurred at the time of closing. Commissions on the sale of land parcels are also expensed as incurred upon closing.
The Company also pays quarterly builder incentives to employees which are based on the time it takes to build individual homes. The builder incentives do not represent incremental costs that would require capitalization as we would incur these costs whether or not we sold the home. As such, we will continue to recognize builder incentives as salary expense at the time they are paid.
Costs incurred for model homes, advertising, and sales salaries do not qualify for capitalization under ASC 340-40 as they are not incremental costs of obtaining a contract. As such, we expense these costs to selling, general and administrative expense and salary expense as incurred. Costs incurred related to model home furnishings are capitalized and included in property and equipment, net on the condensed consolidated balance sheets.
6. INVESTMENT IN UNCONSOLIDATED ENTITIES
We participate in joint ventures with unrelated third parties as discussed in
Note 1
. These entities are involved in homebuilding, land development, mortgage lending, and title services. We use the equity method of accounting for our investments in unconsolidated entities which are not VIEs and which we do not control, but have ownership interests up to
49.9%
.
A summary of the condensed financial information of the unconsolidated entities that are accounted for by the equity method is as follows (in thousands):
|
|
|
|
|
|
|
|
|
Balance Sheets
|
June 30, 2018
|
|
December 31, 2017
|
Assets:
|
|
|
|
Cash
|
$
|
11,507
|
|
|
$
|
3,981
|
|
Accounts receivable
|
73
|
|
|
1,494
|
|
Inventory
|
57,967
|
|
|
57,841
|
|
Goodwill
|
4,615
|
|
|
4,615
|
|
Noncompete intangible asset
|
173
|
|
|
202
|
|
Other assets
|
5,503
|
|
|
5,098
|
|
Total assets
|
$
|
79,838
|
|
|
$
|
73,231
|
|
Liabilities:
|
|
|
|
Accounts payable
|
$
|
3,428
|
|
|
$
|
5,060
|
|
Accrued expenses and other liabilities
|
4,899
|
|
|
2,857
|
|
Notes payable
|
37,971
|
|
|
36,923
|
|
Total liabilities
|
$
|
46,298
|
|
|
$
|
44,840
|
|
Owners' equity:
|
|
|
|
Green Brick
|
$
|
19,148
|
|
|
$
|
16,592
|
|
Others
|
14,392
|
|
|
11,799
|
|
Total owners' equity
|
$
|
33,540
|
|
|
$
|
28,391
|
|
Total liabilities and owners' equity
|
$
|
79,838
|
|
|
$
|
73,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Income
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenues
|
$
|
43,953
|
|
|
$
|
—
|
|
|
$
|
76,952
|
|
|
$
|
—
|
|
Costs and expenses
|
39,099
|
|
|
—
|
|
|
69,020
|
|
|
—
|
|
Net earnings of unconsolidated entities
|
$
|
4,854
|
|
|
$
|
—
|
|
|
$
|
7,932
|
|
|
$
|
—
|
|
Company's share in net earnings of unconsolidated entities
|
$
|
2,279
|
|
|
$
|
—
|
|
|
$
|
3,815
|
|
|
$
|
—
|
|
7. DEBT
Lines of Credit
Lines of credit outstanding, net of unamortized debt issuance costs, consist of the following as of
June 30, 2018
and
December 31, 2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
Revolving credit facility
|
$
|
42,500
|
|
|
$
|
32,000
|
|
Unsecured revolving credit facility
|
125,000
|
|
|
75,000
|
|
Debt issuance costs, net of amortization
|
$
|
(1,105
|
)
|
|
$
|
(1,227
|
)
|
Total lines of credit
|
$
|
166,395
|
|
|
$
|
105,773
|
|
Revolving Credit Facility
On
July 30, 2015
, the Company entered into a revolving credit facility (the “Credit Facility”) with Inwood National Bank which initially provided for up to
$50.0 million
. Amounts outstanding under the Credit Facility are secured by mortgages on real property and security interests in certain personal property that is owned by certain of the Company’s subsidiaries. Outstanding borrowings under the Credit Facility bear interest payable monthly at a floating rate per annum equal to the Bank of America, N.A. “Prime Rate” (the “Index”) with adjustments to the interest rate being made on the effective date of any change in the Index. The interest may not, at any time, be less than
4%
per annum or more than the lesser amount of
18%
and
the highest maximum rate allowed by applicable law. The entire unpaid principal balance and any accrued but unpaid interest is due and payable on the maturity date. As of
June 30, 2018
, the interest rate on outstanding borrowings under the Credit Facility was
5.00%
per annum.
On May 3, 2016, the Company amended the Credit Facility and extended the maturity date to
May 1, 2019
. The amended Credit Facility is subject to a borrowing base limitation equal to the sum of
50%
of the total value of land and
65%
of the total value of lots owned by certain of the Company’s subsidiaries, each as determined by an independent appraiser, with the value of land being restricted from being more than
65%
of the borrowing base. A non-usage fee equal to
0.25%
of the average unfunded amount of the commitment amount over a trailing 12-month period is due on or before August 1
st
of each year. Costs of
$0.1 million
associated with the amendment were deferred and reduce the carrying amount of debt on the condensed consolidated balance sheets. The Company is capitalizing these debt issuance costs to inventory over the term of the Credit Facility using the straight-line method, in accordance with our interest capitalization policy.
During 2017, the Company amended the Credit Facility several times for the purpose of adding additional land holdings as collateral. On
October 27, 2017
, the Company amended the Credit Facility to increase the commitment amount from
$50.0 million
to
$75.0 million
. This amendment temporarily waived the borrowing base through March 31, 2018, after which the borrowing base was reinstated. During the temporary borrowing base waiver, the Credit Facility was governed by a loan-to-value ratio not to exceed
70%
.
Under the terms of the amended Credit Facility, the Company is required to maintain minimum multiples of net worth in excess of the outstanding Credit Facility balance, minimum interest coverage and maximum leverage. The Company was in compliance with these financial covenants as of
June 30, 2018
.
Unsecured Revolving Credit Facility
On December 15, 2015, the Company entered into a credit agreement (the “Credit Agreement”) with the lenders named therein, and Citibank, N.A. ("Citibank"), as administrative agent, providing for a senior, unsecured revolving credit facility with an aggregate lending commitment of
$40.0 million
(the “Unsecured Revolving Credit Facility”). Before the First Amendment (as defined and discussed below) increased the maximum amount of the Unsecured Revolving Credit Facility, the Company could, at its option and subject to certain terms and conditions, prior to the termination date, increase the amount of the Unsecured Revolving Credit Facility up to a maximum aggregate amount of
$75.0 million
. Citibank and Credit Suisse AG, Cayman Islands Branch (“Credit Suisse”) initially committed to provide
$25.0 million
and
$15.0 million
, respectively.
The Unsecured Revolving Credit Facility provides for interest rate options at rates equal to either: (a) in the case of base rate advances, the highest of (i) Citibank’s base rate, (ii) the federal funds rate plus
0.5%
, and (iii) one-month LIBOR plus
1.0%
, in each case plus
1.5%
; or (b) in the case of Eurodollar rate advances, the reserve adjusted LIBOR plus
2.5%
. Interest is payable quarterly in arrears on the last day of each March, June, September and December. As of
June 30, 2018
, the interest rates on outstanding borrowings under the Unsecured Revolving Credit Facility range from
4.39%
to
4.48%
per annum. The Company pays the lenders a commitment fee on the amount of the unused commitments on a quarterly basis at a rate equal to
0.45%
per annum.
Outstanding borrowings under the Unsecured Revolving Credit Facility are subject to a borrowing base. The borrowing base limitation is equal to the sum of:
100%
of unrestricted cash in excess of
$15.0 million
;
85%
of the book value of model homes, construction in progress homes, completed sold homes and completed speculative homes (subject to certain limitations on the age and number of speculative homes and model homes);
65%
of the book value of finished lots and land under development; and
50%
of the book value of entitled land (subject to certain limitations on the value of entitled land and land under development as a percentage of the borrowing base).
On August 31, 2016, the Company entered into a First Amendment to the Credit Agreement (the “First Amendment”). The First Amendment added Flagstar Bank, FSB (“Flagstar Bank”) as a lender, with an initial commitment of
$20.0 million
, which increased the aggregate lending commitment available under the Unsecured Revolving Credit Facility from
$40.0 million
to
$60.0 million
. The First Amendment also increased the maximum aggregate amount of the Unsecured Revolving Credit Facility to
$110.0 million
.
On December 1, 2016, the Company entered into a Second Amendment to the Credit Agreement (the “Second Amendment”). The Second Amendment extended the termination date with respect to commitments under the Unsecured Revolving Credit Facility from December 14, 2018 to December 14, 2019 and required an upfront fee of
0.15%
of the aggregate amount of extended commitments. Additionally, Citibank increased its commitment from
$25.0 million
to
$35.0 million
, which increased the aggregate lending commitment available from
$60.0 million
to
$70.0 million
.
On March 6, 2017, Flagstar Bank increased its commitment from
$20.0 million
to
$35.0 million
, which increased the aggregate lending commitment available under the Unsecured Revolving Credit Facility from
$70.0 million
to
$85.0 million
. Costs of
$0.1 million
were incurred associated with this increase in commitment.
On September 1, 2017, the Company entered into a Third Amendment to the Credit Agreement (the “Third Amendment”). Pursuant to the Third Amendment, Flagstar Bank increased its commitment from
$35.0 million
to
$70.0 million
and Credit Suisse increased its commitment from
$15.0 million
to
$25.0 million
, which increased the aggregate lending commitment available under the Unsecured Revolving Credit Facility from
$85.0 million
to
$130.0 million
. The Third Amendment also increased the maximum aggregate amount of the Unsecured Revolving Credit Facility from
$110.0 million
to
$200.0 million
. Further increases are available at the Company’s option, prior to the termination date, subject to certain terms and conditions. In addition, the Third Amendment appointed Flagstar Bank in the roles of sole lead arranger and administrative agent. Costs of
$0.4 million
were incurred associated with the Third Amendment.
On December 1, 2017, the Company entered into a Fourth Amendment to the Credit Agreement (the “Fourth Amendment”). The Fourth Amendment extended the termination date to December 14, 2020. The extension required an upfront fee of
0.15%
of the aggregate amount of extended commitments.
Effective March 27, 2018, JPMorgan Chase Bank, N.A. (“JPMorgan”) was added as a lender under the Credit Agreement, with an initial commitment of
$30.0 million
, which increased the aggregate lending commitment available under the Unsecured Revolving Credit Facility from
$130.0 million
to
$160.0 million
. Costs of
$0.2 million
associated with the additional commitment were incurred.
Effective
July 24, 2018
, Citibank, Credit Suisse, and JPMorgan each increased their commitment by
$5.0 million
, for a total of
$15.0 million
, thereby increasing the aggregate lending commitment available under the Unsecured Revolving Credit Facility from
$160.0 million
to
$175.0 million
.
All fees and other debt issuance costs associated with changes in commitments are deferred and reduce the carrying amount of debt in our condensed consolidated balance sheets. The Company is capitalizing these costs to inventory over the term of the Unsecured Revolving Credit Facility using the straight-line method, in accordance with our interest capitalization policy.
Under the terms of the Unsecured Revolving Credit Facility, the Company is required to maintain compliance with various financial covenants, including a maximum leverage ratio, a minimum interest coverage ratio, and a minimum consolidated tangible net worth. The Company was in compliance with these financial covenants as of
June 30, 2018
.
Notes Payable
Notes payable outstanding as of
June 30, 2018
and
December 31, 2017
consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
Briar Ridge Investments, LTD
|
$
|
—
|
|
|
$
|
9,000
|
|
Graham Mortgage Corporation
|
905
|
|
|
926
|
|
Bower Hills, LLC
|
300
|
|
|
—
|
|
Total notes payable
|
$
|
1,205
|
|
|
$
|
9,926
|
|
Briar Ridge Investments, LTD
On December 13, 2013, a subsidiary of JBGL signed a promissory note for
$9.0 million
maturing on December 13, 2017, bearing interest at
6.0%
, and collateralized by land in Allen, Texas. In December 2016, this note was extended through December 31, 2018. The note was paid in full on
June 5, 2018
.
Graham Mortgage Corporation
On November 30, 2016, a subsidiary of JBGL signed a promissory note for
$1.2 million
maturing on December 1, 2018, bearing interest at
3.0%
per annum and collateralized by land located in Sunnyvale, Texas. Accrued interest as of
June 30, 2018
was
$0.1 million
.
Bower Hills, LLC
In conjunction with the purchase of GHO Homes, a subsidiary of GHO Homes assumed interest free mortgage debt in the amount of
$0.3 million
maturing on
April 18, 2019
and collateralized by land located in Indian River County, Florida.
8. STOCKHOLDERS’ EQUITY
A summary of changes in stockholders’ equity is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Retained Earnings
|
|
Total Green Brick Partners, Inc. Stockholders’ Equity
|
|
Noncontrolling Interests
|
|
Total Stockholders’ Equity
|
|
Shares
|
|
Amount
|
|
Balance as of December 31, 2017
|
50,598,901
|
|
|
$
|
506
|
|
|
$
|
289,938
|
|
|
$
|
125,903
|
|
|
$
|
416,347
|
|
|
$
|
16,691
|
|
|
$
|
433,038
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
143
|
|
|
—
|
|
|
143
|
|
|
—
|
|
|
143
|
|
Issuance of common stock under 2014 Omnibus Equity Incentive Plan, net of shares withheld for employee taxes
|
100,983
|
|
|
1
|
|
|
668
|
|
|
—
|
|
|
669
|
|
|
—
|
|
|
669
|
|
Amortization of deferred share-based compensation
|
—
|
|
|
—
|
|
|
197
|
|
|
—
|
|
|
197
|
|
|
—
|
|
|
197
|
|
Common stock issued in connection with the investment in Challenger Homes
|
20,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Accretion of redeemable noncontrolling interest
|
—
|
|
|
—
|
|
|
(104
|
)
|
|
—
|
|
|
(104
|
)
|
|
—
|
|
|
(104
|
)
|
Distributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,423
|
)
|
|
(10,423
|
)
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
26,072
|
|
|
26,072
|
|
|
5,940
|
|
|
32,012
|
|
Balance as of June 30, 2018
|
50,719,884
|
|
|
$
|
507
|
|
|
$
|
290,842
|
|
|
$
|
151,975
|
|
|
$
|
443,324
|
|
|
$
|
12,208
|
|
|
$
|
455,532
|
|
Common Stock
Pursuant to the Company’s amended and restated certificate of incorporation (“Certificate of Incorporation”), the Company is authorized to issue up to
100,000,000
shares of common stock, par value
$0.01
per share. As of
June 30, 2018
, there were
50,719,884
shares of common stock issued and outstanding.
On
March 16, 2018
,
20,000
shares of common stock were issued as additional consideration for the investment in Challenger Homes upon resolution of terms for such holdback shares.
Preferred Stock
Pursuant to the Company’s Certificate of Incorporation, the Company is authorized to issue up to
5,000,000
shares of preferred stock, par value
$0.01
per share. The Board of Directors (“BOD”) has the authority, subject to any limitations imposed by law or NASDAQ listing rules, without further action by the stockholders, to issue such preferred stock in one or more series and to fix the voting powers, if any, the preferences and relative, participating, optional or other special rights or privileges, if any, of such series and the qualifications, limitations or restrictions thereof. These rights, preferences and privileges may include, but are not limited to, dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of that series. As of
June 30, 2018
, there were
no
shares of preferred stock issued and outstanding.
Section 382 Transfer Restrictions
If we were to experience an ownership change, Section 382 of the Internal Revenue Code imposes an annual limitation which could impact the utilization of our net operating loss carryforwards. To reduce the likelihood of such an ownership change, our BOD implemented certain transfer restrictions, including Article V of the Company’s Certificate of Incorporation, and a Section 382 rights agreement regarding preservation of our net operating loss carryforwards. On March 27, 2014, the BOD declared a dividend of
one
preferred share purchase right with respect to each outstanding share of common stock to purchase
one one-thousandth
of a share of Series B Junior Participating Preferred Stock, par value
$0.01
per share, at a price of
$30.00
per
one one-thousandth
of a share, subject to adjustment as provided in the Section 382 rights agreement. The dividend
was payable to stockholders of record at the close of business on April 7, 2014. As of
June 30, 2018
, the rights agreement has not been triggered.
Redeemable Noncontrolling Interest in Equity of Consolidated Subsidiary
As part of the GHO Homes business combination, we entered into a put/call agreement (“Put/Call Agreement”) with respect to the equity interest in the joint venture held by our controlled builder partner. The Put/Call Agreement provides that the
20%
ownership interest in GHO Homes held by our controlled builder partner is subject to put and purchase options starting in
April 2021
. The exercise price is based on the financial results of GHO Homes for the
three
years prior to exercise of the option. Based on the preliminary allocation of purchase price as discussed in
Note 2
, the fair value of the estimated payment to repurchase these shares is
$6.3 million
. If our controlled builder partner does not exercise the put option, we have the option, but not the obligation, to buy the
20%
interest in GHO Homes from our partner.
Based on the nature of the put/call structure, the minority shareholder’s interest in GHO Homes is classified as redeemable noncontrolling interest on the condensed consolidated balance sheets.
The following table shows the changes in redeemable noncontrolling interests in equity of consolidated subsidiary during the period
April 26, 2018
to
June 30, 2018
(in thousands):
|
|
|
|
|
Balance as of April 26, 2018
|
$
|
6,346
|
|
Net income
|
222
|
|
Accretion of redeemable noncontrolling interest
|
104
|
|
Balance as of June 30, 2018
|
$
|
6,672
|
|
9. SHARE-BASED COMPENSATION
The Company measures and accounts for share-based awards in accordance with ASC 718,
Compensation - Stock Compensation
. The Company expenses share-based payment awards made to employees and directors, including stock options and restricted stock awards. Share-based compensation expense associated with stock options and restricted stock awards with vesting contingent upon the achievement of service conditions is recognized on a straight-line basis, net of estimated forfeitures, over the requisite service period over which the awards are expected to vest. The Company estimates the value of stock options with vesting contingent upon the achievement of service conditions as of the date the award was granted using the Black-Scholes option pricing model, which requires the use of certain input variables, such as expected volatility, risk-free interest rate and expected award life.
Share-Based Award Activity
During the
six
months ended
June 30, 2018
, the Company granted restricted stock awards (“RSAs”) under its 2014 Omnibus Equity Incentive Plan to named executive officers (“NEOs”) and non-employee members of the BOD. The RSAs granted to the NEOs were
100%
vested and non-forfeitable on the grant date. The BOD elected to defer up to
100%
of their annual retainer fee, chairman fees and meeting fees in the form of common stock. The RSAs granted to the BOD will become fully vested on the earlier of (i) the first anniversary of the date of grant or (ii) the date of the Company's 2019 annual meeting of stockholders. The fair value of the RSAs granted to the NEOs and BOD is recorded as share-based compensation expense on the grant date or over the vesting period, as applicable. The Company withheld
39,228
shares of common stock from NEOs, at a total cost of
$0.4 million
, to satisfy statutory minimum tax requirements related to the RSAs.
A summary of shared-based awards activity during the
six
months ended
June 30, 2018
is as follows:
|
|
|
|
|
|
|
|
|
Number of Shares (in thousands)
|
|
Weighted Average Grant Date Fair Value per Share
|
Nonvested, December 31, 2017
|
38
|
|
|
$
|
10.25
|
|
Granted
|
140
|
|
|
$
|
10.45
|
|
Vested
|
(144
|
)
|
|
$
|
10.03
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Nonvested, June 30, 2018
|
34
|
|
|
$
|
12.00
|
|
A summary of stock option activity during the
six
months ended
June 30, 2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares (in thousands)
|
|
Weighted Average Exercise Price per Share
|
|
Weighted Average Remaining Contractual Term (in years)
|
|
Aggregate Intrinsic Value (in thousands)
|
Options outstanding, December 31, 2017
|
500
|
|
|
$
|
7.49
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
|
Options outstanding, June 30, 2018
|
500
|
|
|
$
|
7.49
|
|
|
6.32
|
|
$
|
1,155
|
|
Options exercisable, June 30, 2018
|
300
|
|
|
$
|
7.49
|
|
|
6.32
|
|
$
|
693
|
|
A summary of unvested stock options during the
six
months ended
June 30, 2018
is as follows:
|
|
|
|
|
|
|
|
|
Number of Shares (in thousands)
|
|
Weighted Average Grant Date Fair Value per Share
|
Unvested, December 31, 2017
|
200
|
|
|
$
|
2.88
|
|
Granted
|
—
|
|
|
$
|
—
|
|
Vested
|
—
|
|
|
$
|
—
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Unvested, June 30, 2018
|
200
|
|
|
$
|
2.88
|
|
Valuation of Share-Based Awards
We utilize the Black-Scholes option pricing model for estimating the grant date fair value of stock options. There were
no
stock options granted during the
six
months ended
June 30, 2018
and
June 30, 2017
.
Share-Based Compensation Expense
Share-based compensation expense was
$0.2 million
and
$1.4 million
for the three and
six
months ended
June 30, 2018
, respectively, and
$0.2 million
and
$2.1 million
for the three and six months ended
June 30, 2017
, respectively. As of
June 30, 2018
, the estimated total remaining unamortized share-based compensation expense related to unvested restricted stock awards, net of forfeitures, was
$0.4 million
, which is expected to be recognized over a weighted-average period of
0.9
years. As of
June 30, 2018
, the estimated total remaining unamortized share-based compensation expense related to stock options, net of forfeitures, was
$0.4 million
which is expected to be recognized over a weighted-average period of
1.3
years.
10. INCOME TAXES
We recorded an income tax provision of
$5.2 million
and
$8.6 million
for the three and
six
months ended
June 30, 2018
, respectively, as compared to
$4.4 million
and
$8.3 million
for the three and
six
months ended
June 30, 2017
, respectively. The effective tax rate for the three and
six
months ended
June 30, 2018
was
21.6%
and
21.1%
, respectively, as compared to
31.7%
and
31.9%
for the three and six months ended
June 30, 2017
, respectively.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act, among other things, reduced the U.S. federal corporate tax rate from
35%
to
21%
effective January 1, 2018 and imposed significant limitations on certain corporate deductions and credits. The Tax Act placed future limitations on the usage of net operating loss carryforwards generated in the year ended December 31, 2018 and after. The Tax Act is comprehensive, containing several other provisions, some of which will not materially impact the Company. The estimates of the Tax Act may be adjusted in future periods as required. Future implementation guidance from the Internal Revenue Service, clarifications of state tax law, or the completion of the Company’s 2017 tax return filings could all affect the estimated financial statement impact of the Tax Act. The SEC staff issued Staff Accounting Bulletin 118 which allows for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. The Company does not believe potential adjustments in future periods would materially impact the Company’s financial condition or results of operations. The decrease in the effective tax rate for the three and
six
months ended
June 30, 2018
is due to the impact of compliance with the Tax Act, discrete tax items and the change in the ratio of noncontrolled earnings relative to pre-tax income.
The Company has not recorded any measurement period adjustments under Staff Accounting Bulletin 118 in the three and
six
months ended
June 30, 2018
.
11. RELATED PARTY TRANSACTIONS
During the three and
six
months ended
June 30, 2018
and
2017
, the Company had related party transactions through the normal course of business. These transactions include the following:
Trevor Brickman, the son of Green Brick’s Chief Executive Officer, is the president of Centre Living, one of the Company's controlled builders. Green Brick’s ownership interest in Centre Living is
50%
and Trevor Brickman’s ownership interest is
50%
. Green Brick has
51%
voting control over the operations of Centre Living. As such,
100%
of Centre Living’s operations are included within our condensed consolidated financial statements. The noncontrolling interest attributable to Centre Living was
$76,020
and
$56,445
as of
June 30, 2018
and
December 31, 2017
, respectively. In June 2016, the Company sold
one
developed lot to Trevor Brickman for
$0.4 million
, of which
$0.3 million
was included in the cost of land and lots. In September 2016, Trevor Brickman entered into an agreement with Centre Living to construct a home on the developed lot. In accordance with the Company’s employee discount policy, the contract price resulted in a margin of approximately
13%
. The home was completed in 2017 and the Company incurred
$0.6 million
in costs to construct the home.
In September 2015, the Company purchased
11
lots from an entity affiliated with the president of TPG, one of its controlled builders. The lots are part of a
19
home community, The Parc at Cogburn in Atlanta. The total paid for the lots in 2015 was
$1.8 million
. Under the option contract in place, the Company purchased
$0.5 million
and
$1.0 million
in lots during the three and
six
months ended
June 30, 2017
, respectively. There were
no
lots remaining to be purchased as of
December 31, 2017
.
During March 2016, the Company purchased undeveloped land for development of an
83
lot community, Academy Street in Atlanta. Simultaneously, the Company entered into a partnership agreement with an entity affiliated with the president of TPG to develop the land for sale of the lots to TPG. Contributions and profits are shared
80%
by the Company and
20%
by the affiliated entity. Total capital contributions as of
June 30, 2018
were
$11.7 million
. There were
no
contributions made to the partnership in
2018
. The partnership distributed
$2.2 million
in the three and
six
months ended
June 30, 2018
, of which
$1.8 million
was distributed to the Company. Total contributions to the partnership during the three and
six
months ended
June 30, 2017
were
$0.0 million
and
$0.4 million
, respectively, of which
80%
was paid by the Company. Total distributions from the partnership during the three and
six
months ended
June 30, 2017
were
$1.2 million
and
$6.2 million
, respectively, of which
$0.9 million
and
$4.9 million
, respectively, was paid to the Company. The Company has consolidated the entity’s results of operations and financial condition into its financial statements based on our
80%
ownership.
During March 2016, the Company purchased undeveloped land for development of a
73
unit townhome community, Suwanee Station in Atlanta. Simultaneously, the Company entered into a partnership agreement with an entity affiliated with the president of TPG to develop the land for sale of the lots to TPG. Contributions and profits are shared
50%
by the Company and
50%
by the affiliated entity. Total capital contributions as of
June 30, 2018
were
$2.5 million
. There were
no
contributions made to the partnership in the
six
months ended
June 30, 2018
. Total contributions made to the partnership in the three and
six
months ended
June 30, 2017
were
$0.4 million
, of which
$0.2 million
was contributed by the Company. Total distributions made by the partnership during the three and
six
months ended
June 30, 2018
were
$0.0 million
and
$0.7 million
, respectively, of which
$0.3 million
was paid to the Company. Total distributions made by the partnership during the three and
six
months ended
June 30, 2017
were
$0.0 million
and
$0.4 million
, respectively, of which
$0.2 million
was paid to the Company. The Company holds
two
of the
three
board seats and is able to exercise control over the operations of the partnership and therefore has consolidated the entity’s results of operations and financial condition into its financial statements.
In June 2016, the Company purchased
14
lots from an entity affiliated with the president of TPG. The lots are part of a
40
unit townhome community, Dunwoody Towneship. The Company purchased the remaining
26
lots during the year ended December 31, 2017 for
$3.3 million
, of which
$1.3 million
was paid during the
six
months ended
June 30, 2017
.
In February 2017, Richard A. Costello paid a
$110,000
deposit to Centre Living on a townhome. During the fourth quarter of 2017, Mr. Costello closed on the townhome for approximately
$495,000
. In accordance with the Company’s employee discount policy, the contract price resulted in a margin of approximately
13%
.
In February 2017, Jed Dolson paid a
$110,000
deposit to Centre Living on a townhome. During the fourth quarter of 2017, as allowed for in the Company’s employee discount policy, Mr. Dolson assigned his rights to purchase the townhome to his
sister-in-law. The townhome was sold in the fourth quarter of 2017 for approximately
$472,000
. In accordance with the Company’s employee discount policy, the contract price resulted in a margin of approximately
13%
.
GHO Homes leases office space from entities affiliated with the president of GHO Homes. During the period from
April 26, 2018
through
June 30, 2018
, GHO Homes incurred rent expense of
$31,165
under such lease agreements. As of
June 30, 2018
, there were
no
amounts due to the affiliated entities related to such lease agreements.
GHO Homes receives title closing services on the purchase of land and third-party lots from an entity affiliated with the president of GHO Homes. During the period from
April 26, 2018
through
June 30, 2018
, GHO Homes incurred de minimus fees related to such title closing services. As of
June 30, 2018
,
no
amounts were due to the title company affiliate.
12. FAIR VALUE MEASUREMENTS
Fair Value of Financial Instruments
The Company’s financial instruments, none of which are held for trading purposes, include cash, restricted cash, receivables, earnest money deposits, other assets, accounts payable, accrued expenses, customer and builder deposits, borrowings on lines of credit, and notes payable. Per the fair value hierarchy, level 1 financial instruments include: cash, restricted cash, receivables, earnest money deposits, other assets, accounts payable, accrued expenses, and customer and builder deposits due to their short-term nature. Level 2 financial instruments include borrowings on lines of credit and notes payable. The fair value of the contingent consideration liability related to the GHO Homes acquisition was estimated using a Monte Carlo simulation model under the option pricing method. As the measurement of the contingent consideration is based primarily on significant inputs not observable in the market, it represents a level 3 measurement.
The carrying value and estimated fair value of our Level 2 and 3 financial instruments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
Level in Fair Value Hierarchy
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
Description:
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
2
|
|
$
|
42,500
|
|
|
$
|
42,500
|
|
|
$
|
32,000
|
|
|
$
|
32,000
|
|
Unsecured revolving credit facility
|
2
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
Notes payable
|
2
|
|
$
|
1,205
|
|
|
$
|
1,205
|
|
|
$
|
9,926
|
|
|
$
|
9,926
|
|
Contingent consideration liability
|
3
|
|
$
|
628
|
|
|
$
|
628
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Due to the short-term nature and floating interest rate terms, the carrying amounts of notes payable and borrowings on lines of credit are deemed to approximate fair value.
The Company estimates that, due to the short-term nature of the underlying financial instruments or the proximity of the underlying transaction to the applicable reporting date, the fair value of all financial instruments does not differ materially from the aggregate carrying values recorded in the consolidated financial statements as of
June 30, 2018
and
December 31, 2017
. There were
no
transfers between the levels of the fair value hierarchy for any of our financial instruments as of
June 30, 2018
when compared to
December 31, 2017
.
Fair Value of Nonfinancial Instruments
Nonfinancial assets and liabilities include inventory which is measured at cost unless the carrying value is determined to be not recoverable in which case the affected instrument is written down to net realizable value. Per the fair value hierarchy, these items are level 3 nonfinancial instruments. During the
six
months ended
June 30, 2018
and
June 30, 2017
, the Company recorded adverse fair value adjustments of
$0.1 million
and
$0.0 million
, respectively, related to those nonfinancial assets and liabilities measured at fair value on a nonrecurring basis.
13. COMMITMENTS AND CONTINGENCIES
Letters of Credit and Performance Bonds
During the ordinary course of business, certain regulatory agencies and municipalities require the Company to post letters of credit or performance bonds related to development projects. As of
June 30, 2018
and
December 31, 2017
, letters of credit outstanding totaled
$0.2 million
and
$0.2 million
, respectively, and performance bonds outstanding totaled
$4.3 million
and
$3.6 million
, respectively. The Company does not believe that it is likely that any material claims will be made under a letter of credit or performance bond in the foreseeable future.
Warranties
The Company offers homeowners a comprehensive third-party warranty on each home. Homes are generally covered by a
one
-year warranty for defects and products used,
two
years for electrical, mechanical and plumbing systems, and
ten
years for qualified and defined structural defects. Developed lot sales are generally covered by a customary
one
-year warranty on excavation and retaining walls.
The Company accrues an estimate of its exposure to warranty claims based on both current and historical home sales data and warranty costs incurred. Warranty accruals are included within accrued expenses on the condensed consolidated balance sheets.
Warranty activity consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Beginning balance
|
$
|
2,236
|
|
|
$
|
1,331
|
|
|
$
|
2,083
|
|
|
$
|
1,210
|
|
Additions
|
697
|
|
|
443
|
|
|
1,131
|
|
|
754
|
|
Charges
|
(394
|
)
|
|
(271
|
)
|
|
(675
|
)
|
|
(461
|
)
|
Ending balance
|
$
|
2,539
|
|
|
$
|
1,503
|
|
|
$
|
2,539
|
|
|
$
|
1,503
|
|
Lease Commitments
The Company has leases associated with office and design center space which are classified as operating leases. Rent expense under these leases is included in selling, general and administrative expense in the condensed consolidated statements of income.
The approximate annual minimum lease payments over the next five years under operating leases as of
June 30, 2018
are (in thousands):
|
|
|
|
|
|
Total
|
Remainder of 2018
|
$
|
555
|
|
2019
|
1,023
|
|
2020
|
1,033
|
|
2021
|
795
|
|
2022 and thereafter
|
1,026
|
|
Total
|
$
|
4,432
|
|
Land and Lot Option Contracts
In the ordinary course of business, the Company enters into land and lot option contracts in order to procure land for the construction of homes in the future. Earnest money deposits act as security for such contracts. As of
June 30, 2018
and
December 31, 2017
, there were
2,402
and
1,724
lots under option, respectively, as well as option contracts for land intended to be developed into additional lots. The land and lot option contracts in place as of
June 30, 2018
provide for potential land and lot purchase payments in each year through 2022.
If each option contract in place as of
June 30, 2018
was exercised, expected purchase payments would be as follows (in thousands):
|
|
|
|
|
|
Total
|
Remainder of 2018
|
$
|
118,867
|
|
2019
|
113,077
|
|
2020
|
25,858
|
|
2021
|
12,130
|
|
2022
|
2,360
|
|
Total
|
$
|
272,292
|
|
Legal Matters
Lawsuits, claims and proceedings may be instituted or asserted against us in the normal course of business. The Company is also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices and environmental protection. As a result, the Company may be subject to periodic examinations or inquiry by agencies administering these laws and regulations.
The Company records a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. The Company accrues for these matters based on facts and circumstances specific to each matter and revises these estimates when necessary.
In view of the inherent difficulty of predicting outcomes of legal claims and related contingencies, the Company generally cannot predict their ultimate resolution, related timing or eventual loss. If evaluations indicate loss contingencies that could be material are not probable, but are reasonably possible, the Company will disclose their nature with an estimate of the possible range of losses or a statement that such loss is not reasonably estimable. We believe that the disposition of legal claims and related contingencies will not have a material adverse effect on our results of operations and liquidity or on our financial condition.
14. SEGMENT INFORMATION
Financial information relating to the Company’s reportable segments is as follows. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(in thousands)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Revenues:
(1)
|
|
|
|
|
|
|
|
Builder operations
|
|
|
|
|
|
|
|
|
Texas
|
$
|
66,893
|
|
|
$
|
46,710
|
|
|
$
|
138,441
|
|
|
$
|
97,380
|
|
Georgia
|
66,556
|
|
|
53,635
|
|
|
119,274
|
|
|
96,362
|
|
Florida
|
10,869
|
|
|
—
|
|
|
10,869
|
|
|
—
|
|
Land development
|
10,692
|
|
|
4,606
|
|
|
14,691
|
|
|
10,546
|
|
Corporate and other
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total revenues
|
$
|
155,010
|
|
|
$
|
104,951
|
|
|
$
|
283,275
|
|
|
$
|
204,288
|
|
|
|
|
|
|
|
|
|
Gross profit:
(1)
|
|
|
|
|
|
|
|
Builder operations
|
|
|
|
|
|
|
|
Texas
|
$
|
15,432
|
|
|
$
|
12,063
|
|
|
$
|
32,449
|
|
|
$
|
24,373
|
|
Georgia
|
16,294
|
|
|
11,774
|
|
|
28,158
|
|
|
21,122
|
|
Florida
|
2,511
|
|
|
—
|
|
|
2,511
|
|
|
—
|
|
Land development
|
3,164
|
|
|
1,287
|
|
|
4,449
|
|
|
3,115
|
|
Corporate and other
(2)
|
(2,783
|
)
|
|
(2,198
|
)
|
|
(5,819
|
)
|
|
(4,398
|
)
|
Total gross profit
|
$
|
34,618
|
|
|
$
|
22,926
|
|
|
$
|
61,748
|
|
|
$
|
44,212
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes:
|
|
|
|
|
|
|
|
|
|
|
Builder operations
|
|
|
|
|
|
|
|
Texas
|
$
|
9,942
|
|
|
$
|
7,878
|
|
|
$
|
21,042
|
|
|
$
|
16,253
|
|
Georgia
|
12,243
|
|
|
8,213
|
|
|
20,221
|
|
|
14,315
|
|
Florida
|
1,108
|
|
|
—
|
|
|
1,108
|
|
|
—
|
|
Land development
|
2,664
|
|
|
873
|
|
|
3,683
|
|
|
2,378
|
|
Corporate and other
(2)(3)
|
(1,727
|
)
|
|
(3,151
|
)
|
|
(5,213
|
)
|
|
(7,018
|
)
|
Total income before taxes
|
$
|
24,230
|
|
|
$
|
13,813
|
|
|
$
|
40,841
|
|
|
$
|
25,928
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
|
|
|
Inventory:
|
|
|
|
|
|
|
|
Builder operations
|
|
|
|
|
|
|
|
Texas
|
$
|
128,062
|
|
|
$
|
111,271
|
|
|
|
|
|
Georgia
|
105,699
|
|
|
99,613
|
|
|
|
|
|
Florida
|
41,645
|
|
|
—
|
|
|
|
|
|
Land development
|
291,251
|
|
|
272,542
|
|
|
|
|
|
Corporate and other
(2)(4)
|
14,711
|
|
|
12,628
|
|
|
|
|
|
Total inventory
|
$
|
581,368
|
|
|
$
|
496,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill:
|
|
|
|
|
|
|
|
Builder operations
|
|
|
|
|
|
|
|
Florida
(5)
|
$
|
1,725
|
|
|
$
|
—
|
|
|
|
|
|
|
|
(1)
|
Builder operations segment revenue does not equal revenue from the sale of residential units included in the consolidated statements of income in periods when our controlled builders have sales of land or lots, which for the three and
six
months ended
June 30, 2018
were
$0.4 million
and
$4.3 million
, respectively, compared to
$0.0 million
for the three and
six
months ended
June 30, 2017
. Revenue from such sales is included in builder operations segment revenue as it relates to builder operations, and included in revenue from sale of land and lots in the condensed consolidated statements of income.
|
|
|
(2)
|
Corporate and other is comprised principally of general corporate expenses associated with administrative functions such as finance, treasury, information technology and human resources.
|
|
|
(3)
|
Corporate and other income (loss) before taxes includes results from Green Brick Title, Challenger Homes, Green Brick Mortgage, and Providence Title.
|
|
|
(4)
|
Corporate and other inventory consists of capitalized overhead and interest related to work in process and land under development.
|
|
|
(5)
|
In connection with the GHO Homes acquisition, the Company recorded a provisional amount of goodwill of
$1.7 million
. The valuation of goodwill has not yet been finalized. See
Note 2
.
|
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes statements and information that may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to as the “Securities Act,” and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act.” Statements that are “forward-looking statements,” include any projections of earnings, revenue or other financial items, any statements of the plans, strategies or objectives of management for future operations, any statements concerning proposed new projects or other developments, any statements regarding future economic conditions or performance, any statements of management’s beliefs, goals, strategies, intentions and objectives, any statements concerning potential acquisitions, and any statements of assumptions underlying any of the foregoing. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “outlook,” “strategy,” “positioned,” “intends,” “plans,” “believes,” “projects,” “estimates” and similar expressions, as well as statements in the future tense, identify forward-looking statements.
These statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements described in or implied by such statements. Actual results may differ materially from expected results described in our forward-looking statements, including with respect to correct measurement and identification of factors affecting our business or the extent of their likely impact, the accuracy and completeness of the publicly available information with respect to the factors upon which our business strategy is based or the success of our business. In addition, even if results are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results may not be indicative of results or developments in subsequent periods. Furthermore, industry forecasts are likely to be inaccurate, especially over long periods of time and in industries particularly sensitive to market conditions such as homebuilding and builder finance.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of whether, or the times by which, our performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and management’s belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
|
|
•
|
cyclicality in the homebuilding industry and adverse changes in general economic conditions;
|
|
|
•
|
fluctuations and cycles in value of, and demand for, real estate investments;
|
|
|
•
|
significant inflation or deflation;
|
|
|
•
|
unavailability of subcontractors;
|
|
|
•
|
labor and raw material shortages and price fluctuations;
|
|
|
•
|
failure to recruit, retain and develop highly skilled and competent employees;
|
|
|
•
|
an inability to acquire undeveloped land, partially-finished developed lots and finished lots suitable for residential homebuilding at reasonable prices;
|
|
|
•
|
an inability to develop communities successfully or within expected timeframes;
|
|
|
•
|
an inability to sell properties in response to changing economic, financial and investment conditions;
|
|
|
•
|
risks related to participating in the homebuilding business through controlled homebuilding subsidiaries;
|
|
|
•
|
risks relating to buy-sell provisions in the operating agreements governing two builder subsidiaries;
|
|
|
•
|
risks related to geographic concentration;
|
|
|
•
|
risks related to government regulation;
|
|
|
•
|
interpretation of or changes to tax, labor and environmental laws;
|
|
|
•
|
timing of receipt of regulatory approvals and of the opening of projects;
|
|
|
•
|
fluctuations in the market value of land, lots and housing inventories;
|
|
|
•
|
volatility of mortgage interest rates;
|
|
|
•
|
unavailability of mortgage financing;
|
|
|
•
|
the number of foreclosures in our markets;
|
|
|
•
|
interest rate increases or adverse changes in federal lending programs;
|
|
|
•
|
increases in unemployment or underemployment;
|
|
|
•
|
any limitation on, or reduction or elimination of, tax benefits associated with owning a home;
|
|
|
•
|
the occurrence of severe weather or natural disasters;
|
|
|
•
|
high cancellation rates;
|
|
|
•
|
competition in the homebuilding, land development and financial services industries;
|
|
|
•
|
risks related to future growth through strategic investments, joint ventures, partnerships and/or acquisitions;
|
|
|
•
|
risks related to holding noncontrolling interests in strategic investments, joint ventures, partnerships and/or acquisitions;
|
|
|
•
|
inability to obtain suitable bonding for land development or housing projects where required;
|
|
|
•
|
difficulty in obtaining sufficient capital;
|
|
|
•
|
risks related to environmental laws and regulations;
|
|
|
•
|
occurrence of a major health and safety incident;
|
|
|
•
|
poor relations with the residents of our communities;
|
|
|
•
|
information technology failures and data security breaches;
|
|
|
•
|
product liability claims, litigation and warranty claims;
|
|
|
•
|
seasonality of the homebuilding industry;
|
|
|
•
|
utility and resource shortages or rate fluctuations;
|
|
|
•
|
failure of employees or other representatives to comply with applicable regulations and guidelines;
|
|
|
•
|
future, or adverse resolution of, litigation, arbitration or other claims;
|
|
|
•
|
uninsured losses or losses in excess of insurance limits;
|
|
|
•
|
cost and availability of insurance and surety bonds;
|
|
|
•
|
volatility and uncertainty in the credit markets and broader financial markets;
|
|
|
•
|
availability, terms and deployment of capital including with respect to acquisitions, joint ventures and other strategic actions;
|
|
|
•
|
changes in our debt and related service obligations;
|
|
|
•
|
required accounting changes;
|
|
|
•
|
inability to maintain effective internal control over financial reporting; and
|
|
|
•
|
other risks and uncertainties inherent in our business, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2017
.
|
Should one or more of the risks or uncertainties described above or elsewhere in this Quarterly Report on Form 10-Q occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. Except as required by law, we disclaim all responsibility to publicly update any information contained in a forward-looking statement.
All forward-looking statements attributable to us or to persons acting on our behalf, including any such forward-looking statements made subsequent to the publication of this Quarterly Report on Form 10-Q, are expressly qualified in their entirety by this cautionary statement.