Commission File Number
001-36283
The New Home Company Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 27-0560089 | |
(State or Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
85 Enterprise
, Suite 450Aliso Viejo
, California92656(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (
949) 382-7800Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.01 par value | NWHM | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | Non-accelerated filer | ☐ | Smaller reporting company | ☒ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐ No ☒Registrant’s shares of common stock outstanding as of July 26, 2019: 20,096,969May 7, 2020: 18,179,865
FORM 10-Q
INDEX
Page Number | ||||
PART I Financial Information | ||||
Item 1. | 4 | |||
4 | ||||
5 | ||||
6 | ||||
7 | ||||
8 | ||||
Item 2. | 40 | |||
Item 3. | ||||
Item 4. | ||||
Part II Other Information | ||||
Item 1. | ||||
Item 1A. | ||||
Item 2. | 64 | |||
Item 3. | 64 | |||
Item 4. | 64 | |||
Item 5. | 65 | |||
Item 6. | 66 | |||
67 | ||||
PART I – FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value amounts)
March 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Cash and cash equivalents | $ | 87,863 | $ | 79,314 | ||||
Restricted cash | 424 | 117 | ||||||
Contracts and accounts receivable | 15,637 | 15,982 | ||||||
Due from affiliates | 108 | 238 | ||||||
Real estate inventories | 398,973 | 433,938 | ||||||
Investment in and advances to unconsolidated joint ventures | 29,237 | 30,217 | ||||||
| Deferred tax asset, net | 16,589 | 17,503 | ||||||
Other assets | 31,105 | 25,880 | ||||||
Total assets | $ | 579,936 | $ | 603,189 | ||||
Liabilities and equity | ||||||||
Accounts payable | $ | 21,038 | $ | 25,044 | ||||
Accrued expenses and other liabilities | 36,083 | 40,554 | ||||||
Senior notes, net | 300,479 | 304,832 | ||||||
Total liabilities | 357,600 | 370,430 | ||||||
Commitments and contingencies (Note 11) | ||||||||
Equity: | ||||||||
Stockholders' equity: | ||||||||
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares outstanding | — | — | ||||||
Common stock, $0.01 par value, 500,000,000 shares authorized, 18,957,165 and 20,096,969, shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively | 190 | 201 | ||||||
Additional paid-in capital | 191,926 | 193,862 | ||||||
Retained earnings | 30,108 | 38,584 | ||||||
Total stockholders' equity | 222,224 | 232,647 | ||||||
Non-controlling interest in subsidiary | 112 | 112 | ||||||
Total equity | 222,336 | 232,759 | ||||||
Total liabilities and equity | $ | 579,936 | $ | 603,189 | ||||
| June 30, | December 31, | ||||||
| 2019 | 2018 | ||||||
| (Unaudited) | |||||||
| Assets | |||||||
| Cash and cash equivalents | $ | 48,224 | $ | 42,273 | |||
| Restricted cash | 124 | 269 | |||||
| Contracts and accounts receivable | 16,113 | 18,265 | |||||
| Due from affiliates | 218 | 1,218 | |||||
| Real estate inventories | 541,954 | 566,290 | |||||
| Investment in and advances to unconsolidated joint ventures | 33,637 | 34,330 | |||||
| Other assets | 32,987 | 33,452 | |||||
| Total assets | $ | 673,257 | $ | 696,097 | |||
| Liabilities and equity | |||||||
| Accounts payable | $ | 26,629 | $ | 39,391 | |||
| Accrued expenses and other liabilities | 32,375 | 29,028 | |||||
| Unsecured revolving credit facility | 66,000 | 67,500 | |||||
| Senior notes, net | 309,060 | 320,148 | |||||
| Total liabilities | 434,064 | 456,067 | |||||
| Commitments and contingencies (Note 11) | |||||||
| Equity: | |||||||
| Stockholders' equity: | |||||||
| Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares outstanding | — | — | |||||
| Common stock, $0.01 par value, 500,000,000 shares authorized, 20,096,969 and 20,058,904, shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively | 201 | 201 | |||||
| Additional paid-in capital | 192,691 | 193,132 | |||||
| Retained earnings | 46,206 | 46,621 | |||||
| Total stockholders' equity | 239,098 | 239,954 | |||||
| Non-controlling interest in subsidiary | 95 | 76 | |||||
| Total equity | 239,193 | 240,030 | |||||
| Total liabilities and equity | $ | 673,257 | $ | 696,097 | |||
See accompanying notes to the unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Revenues: | ||||||||
Home sales | $ | 95,659 | $ | 99,186 | ||||
Land sales | 147 | — | ||||||
Fee building, including management fees | 36,227 | 19,662 | ||||||
| 132,033 | 118,848 | |||||||
Cost of Sales: | ||||||||
Home sales | 84,722 | 86,569 | ||||||
Land sales | 147 | — | ||||||
Fee building | 35,497 | 19,268 | ||||||
| 120,366 | 105,837 | |||||||
Gross Margin: | ||||||||
Home sales | 10,937 | 12,617 | ||||||
Land sales | — | — | ||||||
Fee building | 730 | 394 | ||||||
| 11,667 | 13,011 | |||||||
Selling and marketing expenses | (7,466 | ) | (8,679 | ) | ||||
General and administrative expenses | (6,023 | ) | (7,391 | ) | ||||
Equity in net income (loss) of unconsolidated joint ventures | (1,937 | ) | 184 | |||||
Interest expense | (718 | ) | — | |||||
Project abandonment costs | (14,036 | ) | (5 | ) | ||||
Gain (loss) on early extinguishment of debt | (123 | ) | 417 | |||||
Other income (expense), net | 223 | (188 | ) | |||||
Pretax loss | (18,413 | ) | (2,651 | ) | ||||
Benefit for income taxes | 9,937 | 664 | ||||||
Net loss | (8,476 | ) | (1,987 | ) | ||||
Net loss attributable to non-controlling interest | — | — | ||||||
Net loss attributable to The New Home Company Inc. | $ | (8,476 | ) | $ | (1,987 | ) | ||
Loss per share attributable to The New Home Company Inc.: | ||||||||
| Basic | $ | (0.42 | ) | $ | (0.10 | ) | ||
| Diluted | $ | (0.42 | ) | $ | (0.10 | ) | ||
Weighted average shares outstanding: | ||||||||
Basic | 19,951,825 | 19,986,394 | ||||||
Diluted | 19,951,825 | 19,986,394 | ||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| Revenues: | |||||||||||||||
| Home sales | $ | 140,464 | $ | 117,460 | $ | 239,650 | $ | 196,897 | |||||||
| Fee building, including management fees from unconsolidated joint ventures of $619, $672, $1,162 and $1,652, respectively | 22,285 | 38,095 | 41,947 | 81,889 | |||||||||||
| 162,749 | 155,555 | 281,597 | 278,786 | ||||||||||||
| Cost of Sales: | |||||||||||||||
| Home sales | 123,525 | 102,678 | 210,094 | 172,372 | |||||||||||
| Fee building | 21,770 | 37,038 | 41,038 | 79,737 | |||||||||||
| 145,295 | 139,716 | 251,132 | 252,109 | ||||||||||||
| Gross Margin: | |||||||||||||||
| Home sales | 16,939 | 14,782 | 29,556 | 24,525 | |||||||||||
| Fee building | 515 | 1,057 | 909 | 2,152 | |||||||||||
| 17,454 | 15,839 | 30,465 | 26,677 | ||||||||||||
| Selling and marketing expenses | (9,683 | ) | (9,466 | ) | (18,362 | ) | (16,105 | ) | |||||||
| General and administrative expenses | (5,841 | ) | (5,979 | ) | (13,232 | ) | (11,998 | ) | |||||||
| Equity in net income (loss) of unconsolidated joint ventures | 185 | (120 | ) | 369 | 215 | ||||||||||
| Gain on early extinguishment of debt | 552 | — | 969 | — | |||||||||||
| Other income (expense), net | (102 | ) | (92 | ) | (295 | ) | (118 | ) | |||||||
| Pretax income (loss) | 2,565 | 182 | (86 | ) | (1,329 | ) | |||||||||
| (Provision) benefit for income taxes | (974 | ) | (67 | ) | (310 | ) | 793 | ||||||||
| Net income (loss) | 1,591 | 115 | (396 | ) | (536 | ) | |||||||||
| Net (income) loss attributable to non-controlling interest | (19 | ) | — | (19 | ) | 11 | |||||||||
| Net income (loss) attributable to The New Home Company Inc. | $ | 1,572 | $ | 115 | $ | (415 | ) | $ | (525 | ) | |||||
| Earnings (loss) per share attributable to The New Home Company Inc.: | |||||||||||||||
| Basic | $ | 0.08 | $ | 0.01 | $ | (0.02 | ) | $ | (0.03 | ) | |||||
| Diluted | $ | 0.08 | $ | 0.01 | $ | (0.02 | ) | $ | (0.03 | ) | |||||
| Weighted average shares outstanding: | |||||||||||||||
| Basic | 20,070,914 | 20,958,991 | 20,028,600 | 20,942,601 | |||||||||||
| Diluted | 20,095,533 | 21,024,769 | 20,028,600 | 20,942,601 | |||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in thousands)
(Unaudited)
Stockholders’ Equity Three Months Ended March 31 | ||||||||||||||||||||||||||||
Number of Shares of Common Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Total Stockholders’ Equity | Non-controlling Interest in Subsidiary | Total Equity | ||||||||||||||||||||||
Balance at December 31, 2018 | 20,058,904 | $ | 201 | $ | 193,132 | $ | 46,621 | $ | 239,954 | $ | 76 | $ | 240,030 | |||||||||||||||
Net loss | — | — | — | (1,987 | ) | (1,987 | ) | — | (1,987 | ) | ||||||||||||||||||
Stock-based compensation expense | — | — | 566 | — | 566 | — | 566 | |||||||||||||||||||||
Shares net settled with the Company to satisfy employee personal income tax liabilities resulting from share based compensation plans | (85,420 | ) | — | (488 | ) | — | (488 | ) | — | (488 | ) | |||||||||||||||||
Shares issued through stock plans | 229,545 | 1 | (1 | ) | — | — | — | — | ||||||||||||||||||||
Repurchase of common stock | (153,916 | ) | (2 | ) | (1,040 | ) | — | (1,042 | ) | — | (1,042 | ) | ||||||||||||||||
Balance at March 31, 2019 | 20,049,113 | $ | 200 | $ | 192,169 | $ | 44,634 | $ | 237,003 | $ | 76 | $ | 237,079 | |||||||||||||||
Balance at December 31, 2019 | 20,096,969 | $ | 201 | $ | 193,862 | $ | 38,584 | $ | 232,647 | $ | 112 | $ | 232,759 | |||||||||||||||
Net loss | — | — | — | (8,476 | ) | (8,476 | ) | — | (8,476 | ) | ||||||||||||||||||
Stock-based compensation expense | — | — | 589 | — | 589 | — | 589 | |||||||||||||||||||||
Shares net settled with the Company to satisfy employee personal income tax liabilities resulting from share based compensation plans | (58,098 | ) | — | (303 | ) | — | (303 | ) | — | (303 | ) | |||||||||||||||||
Shares issued through stock plans | 152,177 | 1 | (1 | ) | — | — | — | — | ||||||||||||||||||||
Repurchase of common stock | (1,233,883 | ) | (12 | ) | (2,221 | ) | — | (2,233 | ) | — | (2,233 | ) | ||||||||||||||||
Balance at March 31, 2020 | 18,957,165 | $ | 190 | $ | 191,926 | $ | 30,108 | $ | 222,224 | $ | 112 | $ | 222,336 | |||||||||||||||
| Stockholders’ Equity Three Months Ended June 30 | Non-controlling Interest in Subsidiary | Total Equity | ||||||||||||||||||||||||
Number of Shares of Common Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||||||||
| Balance at March 31, 2018 | 21,007,902 | $ | 210 | $ | 199,361 | $ | 60,302 | $ | 259,873 | $ | 79 | $ | 259,952 | |||||||||||||
| Adoption of ASU 2018-07 (see Note 1) | — | — | (18 | ) | 18 | — | — | — | ||||||||||||||||||
| Net income | — | — | — | 115 | 115 | — | 115 | |||||||||||||||||||
| Stock-based compensation expense | — | — | 862 | — | 862 | — | 862 | |||||||||||||||||||
| Shares net settled with the Company to satisfy employee personal income tax liabilities resulting from share based compensation plans | (2,366 | ) | — | (23 | ) | — | (23 | ) | — | (23 | ) | |||||||||||||||
| Shares issued through stock plans | 55,482 | 1 | (1 | ) | — | — | — | — | ||||||||||||||||||
| Repurchase of common stock | (205,240 | ) | (2 | ) | (1,947 | ) | (123 | ) | (2,072 | ) | — | (2,072 | ) | |||||||||||||
| Balance at June 30, 2018 | 20,855,778 | $ | 209 | $ | 198,234 | $ | 60,312 | $ | 258,755 | $ | 79 | $ | 258,834 | |||||||||||||
| Balance at March 31, 2019 | 20,049,113 | $ | 200 | $ | 192,169 | $ | 44,634 | $ | 237,003 | $ | 76 | $ | 237,079 | |||||||||||||
| Net income | — | — | — | 1,572 | 1,572 | 19 | 1,591 | |||||||||||||||||||
| Stock-based compensation expense | — | — | 523 | — | 523 | — | 523 | |||||||||||||||||||
| Shares issued through stock plans | 47,856 | 1 | (1 | ) | — | — | — | — | ||||||||||||||||||
| Balance at June 30, 2019 | 20,096,969 | $ | 201 | $ | 192,691 | $ | 46,206 | $ | 239,098 | $ | 95 | $ | 239,193 | |||||||||||||
| Stockholders’ Equity Six Months Ended June 30 | Non-controlling Interest in Subsidiary | Total Equity | ||||||||||||||||||||||||
Number of Shares of Common Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Total Stockholders’ Equity | ||||||||||||||||||||||
| Balance at December 31, 2017 | 20,876,837 | $ | 209 | $ | 199,474 | $ | 64,307 | $ | 263,990 | $ | 90 | $ | 264,080 | |||||||||||||
| Adoption of ASC 606 and ASU 2018-07 (see Note 1) | — | — | (18 | ) | (3,347 | ) | (3,365 | ) | — | (3,365 | ) | |||||||||||||||
| Net loss | — | — | — | (525 | ) | (525 | ) | (11 | ) | (536 | ) | |||||||||||||||
| Stock-based compensation expense | — | — | 1,704 | — | 1,704 | — | 1,704 | |||||||||||||||||||
| Shares net settled with the Company to satisfy employee personal income tax liabilities resulting from share based compensation plans | (86,182 | ) | — | (977 | ) | — | (977 | ) | — | (977 | ) | |||||||||||||||
| Repurchase of common stock | (205,240 | ) | (2 | ) | (1,947 | ) | (123 | ) | (2,072 | ) | — | (2,072 | ) | |||||||||||||
| Shares issued through stock plans | 270,363 | 2 | (2 | ) | — | — | — | — | ||||||||||||||||||
| Balance at June 30, 2018 | 20,855,778 | $ | 209 | $ | 198,234 | $ | 60,312 | $ | 258,755 | $ | 79 | $ | 258,834 | |||||||||||||
| Balance at December 31, 2018 | 20,058,904 | $ | 201 | $ | 193,132 | $ | 46,621 | $ | 239,954 | $ | 76 | $ | 240,030 | |||||||||||||
| Net income (loss) | — | — | — | (415 | ) | (415 | ) | 19 | (396 | ) | ||||||||||||||||
| Stock-based compensation expense | — | — | 1,089 | — | 1,089 | — | 1,089 | |||||||||||||||||||
| Shares net settled with the Company to satisfy employee personal income tax liabilities resulting from share based compensation plans | (85,420 | ) | — | (488 | ) | — | (488 | ) | — | (488 | ) | |||||||||||||||
| Shares issued through stock plans | 277,401 | 2 | (2 | ) | — | — | — | — | ||||||||||||||||||
| Repurchase of common stock | (153,916 | ) | (2 | ) | (1,040 | ) | — | (1,042 | ) | — | (1,042 | ) | ||||||||||||||
| Balance at June 30, 2019 | 20,096,969 | $ | 201 | $ | 192,691 | $ | 46,206 | $ | 239,098 | $ | 95 | $ | 239,193 | |||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Operating activities: | ||||||||
Net loss | $ | (8,476 | ) | $ | (1,987 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Deferred taxes | 914 | — | ||||||
Amortization of stock-based compensation | 589 | 566 | ||||||
Distributions of earnings from unconsolidated joint ventures | — | 260 | ||||||
Project abandonment costs | 14,036 | 5 | ||||||
Equity in net (income) loss of unconsolidated joint ventures | 1,937 | (184 | ) | |||||
Depreciation and amortization | 1,845 | 2,656 | ||||||
(Gain) loss on early extinguishment of debt | 123 | (417 | ) | |||||
Net changes in operating assets and liabilities: | ||||||||
Contracts and accounts receivable | 345 | 1,806 | ||||||
Due from affiliates | 130 | 524 | ||||||
Real estate inventories | 27,130 | 9,676 | ||||||
Other assets | (11,804 | ) | (2,343 | ) | ||||
Accounts payable | (4,006 | ) | (18,753 | ) | ||||
Accrued expenses and other liabilities | (5,462 | ) | (4,041 | ) | ||||
Net cash provided by (used in) operating activities | 17,301 | (12,232 | ) | |||||
Investing activities: | ||||||||
Purchases of property and equipment | (125 | ) | (5 | ) | ||||
Contributions and advances to unconsolidated joint ventures | (2,057 | ) | (1,335 | ) | ||||
Distributions of capital and repayment of advances from unconsolidated joint ventures | 1,100 | 2,562 | ||||||
Net cash (used in) provided by investing activities | (1,082 | ) | 1,222 | |||||
Financing activities: | ||||||||
Borrowings from credit facility | — | 30,000 | ||||||
Repayments of credit facility | — | (13,500 | ) | |||||
Repurchases of senior notes | (4,827 | ) | (4,512 | ) | ||||
Repurchases of common stock | (2,233 | ) | (1,042 | ) | ||||
Tax withholding paid on behalf of employees for stock awards | (303 | ) | (488 | ) | ||||
Net cash (used in) provided by financing activities | (7,363 | ) | 10,458 | |||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 8,856 | (552 | ) | |||||
Cash, cash equivalents and restricted cash – beginning of period | 79,431 | 42,542 | ||||||
Cash, cash equivalents and restricted cash – end of period | $ | 88,287 | $ | 41,990 | ||||
| Six Months Ended June 30, | |||||||
| 2019 | 2018 | ||||||
| Operating activities: | |||||||
| Net loss | $ | (396 | ) | $ | (536 | ) | |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||
| Deferred taxes | — | (1,481 | ) | ||||
| Amortization of stock-based compensation | 1,089 | 1,704 | |||||
| Distributions of earnings from unconsolidated joint ventures | 279 | 715 | |||||
| Abandoned project costs | 19 | 43 | |||||
| Equity in net income of unconsolidated joint ventures | (369 | ) | (215 | ) | |||
| Deferred profit from unconsolidated joint ventures | — | 136 | |||||
| Depreciation and amortization | 5,042 | 2,646 | |||||
| Gain on early extinguishment of debt | (969 | ) | — | ||||
| Net changes in operating assets and liabilities: | |||||||
| Contracts and accounts receivable | 2,152 | 2,854 | |||||
| Due from affiliates | 975 | 788 | |||||
| Real estate inventories | 24,970 | (53,108 | ) | ||||
| Other assets | (2,240 | ) | (6,095 | ) | |||
| Accounts payable | (12,762 | ) | 5,256 | ||||
| Accrued expenses and other liabilities | 1,102 | (14,217 | ) | ||||
| Net cash provided by (used in) operating activities | 18,892 | (61,510 | ) | ||||
| Investing activities: | |||||||
| Purchases of property and equipment | (8 | ) | (184 | ) | |||
| Contributions and advances to unconsolidated joint ventures | (4,120 | ) | (8,954 | ) | |||
| Distributions of capital and repayment of advances from unconsolidated joint ventures | 4,928 | 5,874 | |||||
| Interest collected on advances to unconsolidated joint ventures | — | 178 | |||||
| Net cash provided by (used in) investing activities | 800 | (3,086 | ) | ||||
| Financing activities: | |||||||
| Borrowings from credit facility | 40,000 | 35,000 | |||||
| Repayments of credit facility | (41,500 | ) | — | ||||
| Repurchases of senior notes | (10,856 | ) | — | ||||
| Repurchases of common stock | (1,042 | ) | (2,072 | ) | |||
| Tax withholding paid on behalf of employees for stock awards | (488 | ) | (977 | ) | |||
| Net cash (used in) provided by financing activities | (13,886 | ) | 31,951 | ||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 5,806 | (32,645 | ) | ||||
| Cash, cash equivalents and restricted cash – beginning of period | 42,542 | 123,970 | |||||
| Cash, cash equivalents and restricted cash – end of period | $ | 48,348 | $ | 91,325 | |||
See accompanying notes to the unaudited condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization
The New Home Company Inc. (the "Company"), a Delaware corporation, and its subsidiaries are primarily engaged in all aspects of residential real estate development, including acquiring land and designing, constructing and selling homes in California and Arizona.
Based on our public float of $58.9 million at June 29, 2018, 28, 2019, we qualify asare a smaller reporting company and are subject to reduced disclosure obligations in our periodic reports and proxy statements.
Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts have been eliminated upon consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q10-Q and Article 10 of Regulation S-XS-X and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K10-K for the year ended December 31, 2018.2019. The accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of normal recurring entries) necessary for the fair presentation of our results for the interim period presented. Results for the interim periods are not necessarily indicative of the results to be expected for the full year.
Unless the context otherwise requires, the terms "we", "us", "our" and "the Company" refer to the Company and its wholly owned subsidiaries, on a consolidated basis.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying condensed consolidated financial statements and notes. Accordingly, actual results could differ materially from these estimates.
Subsequent Events
On March 11, 2020 the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. Since March 31, 2020, the COVID-19 pandemic has continued to spread and various state and local governments have issued or extended "stay-at-home" and “shelter-in-place” orders which have impacted and restricted various aspects of our business. At the date of this filing, our construction and sales operations are functioning in most of the jurisdictions in which we operate, subject to government restrictions and safety constraints we have enacted in order to protect our employees, trade contractors, and customers; however, traffic and sales activity has declined and order cancellations have increased. While we cannot reasonably estimate the length or severity of this pandemic, an extended economic slowdown in the U.S. could materially impact our consolidated financial position, consolidated results of operations, and consolidated cash flows in fiscal 2020 and potentially beyond. Further discussion of the potential impacts on our business, results of operations, financial condition and cash flows from the COVID-19 pandemic is provided below under Part II, Item 1A “Risk Factors.”
On May 8, 2020, the Company entered into a Tax Benefit Preservation Plan between the Company and American Stock Transfer & Trust Company, LLC, as rights agent (as amended from time to time, the “Tax Plan”) to help preserve the value of certain deferred tax benefits, including those generated by net operating losses and certain other tax attributes (collectively, the “Tax Benefits”). The Tax Plan is intended to act as a deterrent to any person or entity acquiring shares of the Company equal to or exceeding 4.95%. The Tax Plan reduces the likelihood that changes in our investor base have the unintended effect of limiting the use of our Tax Benefits. In connection with its adoption of the Tax Plan, the Board declared a dividend of one preferred stock purchase right (individually, a “Right” and collectively, the “Rights”) for each share of Common Stock, par value $0.01 (“Common Stock”) of the Company outstanding at the close of business on May 20, 2020. As long as the Rights are attached to the Common Stock, the Company will issue one Right (subject to adjustment) with each new share of the Common Stock so that all such shares will have attached Rights. Each Right has an exercise price of $11.50. Each Right, which is only exercisable if a person or group of affiliated or associated persons acquires beneficial ownership of 4.95% or more of the Common Stock, subject to certain limited exceptions (the “Acquiring Person”), when exercised will entitle the registered holder other than the Acquiring Person the right to acquire that number of shares of Common Stock having a market value of two times the $11.50 exercise price of the Right, or, at the election of the Board, to exchange each right for one share of Common Stock, in each case, subject to adjustment. Unless redeemed
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
or exchanged earlier by the Company updated its reportable segmentsor terminated, the rights will expire upon the earliest to occur of (i) the close of business on May 7, 2021, (ii) the close of business on the effective date of the repeal of Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) if the Board determines that the Tax Plan is no longer necessary or desirable for the 2019 first quarter. Please refer to Note 15 for more information. Prior year comparative data has been reclassified to align with the compositionpreservation of the currentTax Benefits or (iii) the time at which the Board determines that the Tax Benefits are fully utilized or no longer available under Section 382 of the Code or that an ownership change under Section 382 of the Code would not adversely impact in any material respect the time period in which the Company could use the Tax Benefits, or materially impair the amount of the Tax Benefits that could be used by the Company in any particular time period, for applicable tax purposes.
Reclassifications
No items in the prior year reportable segments.
Segment Reporting
ASC 280,
Segment Reporting ("ASC 280") established standards for the manner in which public enterprises report information about operating segments. The Company's reportable segments are Arizona homebuilding, California homebuilding, and fee building. In accordance with ASC 280, our California homebuilding reportable segment aggregates theCash and Cash Equivalents
We define cash and cash equivalents as cash on hand, demand deposits with financial institutions, and short term liquid investments with a maturity date of less than three months from the date of purchase.
Restricted Cash
Restricted cash of $0.1$0.4 million and $0.3$0.1 million as of June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively, is held in accounts for payments of subcontractor costs incurred in connection with various fee building projects.
The table below shows the line items and amounts of cash and cash equivalents and restricted cash as reported within the Company's condensed consolidated balance sheets for each period shown that sum to the total of the same such amounts at the end of the periods shown in the accompanying condensed consolidated statements of cash flows.
| Six Months Ended June 30, | |||||||
| 2019 | 2018 | ||||||
| (Dollars in thousands) | |||||||
| Cash and cash equivalents | $ | 48,224 | $ | 90,758 | |||
| Restricted cash | 124 | 567 | |||||
| Total cash, cash equivalents, and restricted cash shown in the statements of cash flows | $ | 48,348 | $ | 91,325 | |||
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Cash and cash equivalents | $ | 87,863 | $ | 41,874 | ||||
Restricted cash | 424 | 116 | ||||||
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows | $ | 88,287 | $ | 41,990 | ||||
Real Estate Inventories and Cost of Sales
We capitalize pre-acquisition, land, development and other allocated costs, including interest, property taxes and indirect construction costs. Pre-acquisition costs, including nonrefundable land deposits, are expensed to other income (expense), netproject abandonment costs if we determine continuation of the prospective project is not probable.
Land, development and other common costs are typically allocated to real estate inventories using a methodology that approximates the relative-sales-value method. Home construction costs per production phase are recorded using the specific identification method. Cost of sales for homes closed includes the estimated total construction costs of each home at completion and an allocation of all applicable land acquisition, land development and related common costs (both incurred and estimated to be incurred) based upon the relative-sales-value of the home within each project. Changes in estimated development and common costs are allocated prospectively to remaining homes in the project.
In accordance with ASC 360,
Property, Plant and Equipment ("ASC 360"), inventory is stated at cost, unless the carrying amount is determined not to be recoverable, in which case inventory is written down to its fair value. We review each real estate asset on a quarterly basis or whenever indicators of impairment exist. Real estate assets include projects actively selling and projects under development or held for future development. Indicators of impairment include, but are not limited to, significant decreases in local housing market values and selling prices of comparable homes, significant decreases in gross margins or sales absorption rates, costs significantly in excess of budget, and actual or projected cash flow losses.THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
If there are indicators of impairment, we perform a detailed budget and cash flow review of the applicable real estate inventories to determine whether the estimated future undiscounted cash flows of the project are more or less than the asset’s carrying value. If the estimated future undiscounted cash flows exceed the asset’s carrying value, no impairment adjustment is required. However, if the estimated future undiscounted cash flows are less than the asset’sasset���s carrying value then the asset is impaired. If the asset is deemed impaired, it is written down to its fair value in accordance with ASC 820,Fair Value Measurements and Disclosures ("ASC 820").
When estimating undiscounted future cash flows of a project, we make various assumptions, including: (i) expected sales prices and sales incentives to be offered, including the number of homes available, pricing and incentives being offered by us or other builders in other projects, and future sales price adjustments based on market and economic trends; (ii) expected sales pace and cancellation rates based on local housing market conditions, competition and historical trends; (iii) costs expended to date and expected to be incurred including, but not limited to, land and land development costs, home construction costs, interest costs, indirect construction and overhead costs, and selling and marketing costs; (iv) alternative product offerings that may be offered that could have an impact on sales pace, sales price and/or building costs; and (v) alternative uses for the property.
Many assumptions are interdependent and a change in one may require a corresponding change to other assumptions. For example, increasing or decreasing sales absorption rates has a direct impact on the estimated per unit sales price of a home, and the level of time sensitive costs (such as indirect construction, overhead and carrying costs). Depending on the underlying objective of the project, assumptions could have a significant impact on the projected cash flow analysis. For example, if our objective is to preserve operating margins, our cash flow analysis will be different than if the objective is to increase the velocity of sales. These objectives may vary significantly from project to project and change over time.
If a real estate asset is deemed impaired, the impairment is calculated by determining the amount the asset's carrying value exceeds its fair value in accordance with ASC 820. We calculate the fair value of real estate inventories considering a land residual value analysis and a discounted cash flow analysis. Under the discounted cash flow method, the fair value is determined by calculating the present value of future cash flows using a risk adjusted discount rate. Some of the critical assumptions involved with measuring the asset's fair value include estimating future revenues, sales absorption rates,
Capitalization of Interest
We follow the practice of capitalizing interest to real estate inventories during the period of development and to investments in unconsolidated joint ventures, when applicable, in accordance with ASC 835,
Interest ("ASC 835"). Interest capitalized as a cost component of real estate inventories is included in cost of home sales as related homes or lots are sold. To the extent interest is capitalized to investment in unconsolidated joint ventures, it is included as a reduction of equity in net incomeRevenue Recognition
The Company recognizes revenue in accordance with ASC 606,
Revenue from Contracts with Customers ("ASC 606"). Under ASC 606, we recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To do this, the Company performs the following five steps as outlined in ASC 606: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation.THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Home Sales and Profit Recognition
In accordance with ASC 606, home sales revenue is recognized when our performance obligations within the underlying sales contracts are fulfilled. We consider our obligations fulfilled when closing conditions are complete, title has transferred to the homebuyer, and collection of the purchase price is reasonably assured. Sales incentives are recorded as a reduction of revenues when the respective home is closed. The profit we record is based on the calculation of cost of sales, which is dependent on our allocation of costs, as described in more detail above in the section entitled "Real Estate Inventories and Cost of Sales." When it is determined that the earnings process is not complete, the related revenue and profit are deferred for recognition in future periods.
Land Sales and Profit Recognition
In accordance with ASC 606, land sales revenue is recognized when our performance obligations within the underlying sales contracts are fulfilled. The performance obligations in land sales contracts are typically satisfied at the point in time consideration and title is transferred through escrow at closing. Total revenue is typically recognized simultaneously with transfer of title to the customer. In instances where material performance obligations may exist after the closing date, a portion of the price is allocated to each performance obligation with revenue recognized as such obligations are completed. Variable consideration, such as profit participation, may be included within the land sales transaction price based on the terms of a contract. The Company includes the estimated amount of variable consideration to which it will be entitled only to the extent it is probable that a significant reversal in the amount of cumulative revenue will not occur when any uncertainty associated with the variable consideration is subsequently resolved.
Fee Building
The Company enters into fee building agreements to provide services whereby it builds homes on behalf of third-partythird-party property owners. The third-partythird-party property owner funds all project costs incurred by the Company to build and sell the homes. The Company primarily enters into cost plus fee contracts where it charges third-partythird-party property owners for all direct and indirect costs plus a fee. The fee is typically a per-unit fixed fee or based on a percentage of the cost or home sales revenue of the project, depending on the terms of the agreement with the third-partythird-party property owner. For these types of contracts, the Company recognizes revenue based on the actual total costs it has incurred plus the applicable fee. In accordance with ASC 606, we apply the percentage-of-completion method, using the cost-to-cost approach, as it most accurately measures the progress of our efforts in satisfying our obligations within the fee building agreements. Under this approach, revenue is earned in proportion to total costs incurred divided by total costs expected to be incurred. In the course of providing fee building services, the Company routinely subcontracts for services and incurs other direct costs on behalf of the property owners. These costs are passed through to the property owners and, in accordance with GAAP, are included in the Company’s revenues and cost of sales.
The Company also provides construction management and coordination services and sales and marketing services as part of agreements with third parties and its unconsolidated joint ventures. In certain contracts, the Company also provides project
The Company’s fee buildingbuilding revenues have historically been concentrated with a small number of customers. For the three and six months ended June 30, 2019 March 31, 2020 and 2018, 2019, one customer comprised 95%, 93%, 95%98% and 96%91%, respectively, of fee building revenue. The balance of the fee building revenues primarily represented management fees earned from unconsolidated joint ventures and third-partythird-party customers. As of June 30, 2019March 31, 2020 and December 31, 2018, 2019, one customer comprised 39%73% and 48%65% of contracts and accounts receivable, respectively, with the balance of contracts and accounts receivable primarily representingrepresenting escrow receivables from home sales.
Variable Interest Entities
The Company accounts for variable interest entities in accordance with ASC 810,
Consolidation ("ASC 810"). Under ASC 810, a variable interest entity ("VIE") is created 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.THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Once we consider the sufficiency of equity and voting rights of each legal entity, we then evaluate the characteristics of the equity holders' interests, as a group, to see if they qualify as controlling financial interests. Our real estate joint ventures consist of limited partnerships and limited liability companies. For entities structured as limited partnerships or limited liability companies, our evaluation of whether the equity holders (equity partners other than us in each our joint ventures) lack the characteristics of a controlling financial interest includes the evaluation of whether the limited partners or non-managing members (the non-controlling equity holders) lack both substantive participating rights and substantive kick-out rights, defined as follows:
• | Participating rights - provide the non-controlling equity holders the ability to direct significant financial and operational decision made in the ordinary course of business that most significantly influence the entity's economic performance. |
• | Kick-out rights - allow the non-controlling equity holders to remove the general partner or managing member without cause. |
If we conclude that any of the three characteristics of a VIE are met, including if equity holders lack the characteristics of a controlling financial interest because they lack both substantive participating rights and substantive kick-out rights, we conclude that the entity is a VIE and evaluate it for consolidation under the variable interest model.
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 a VIE that most significantly impact 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.
Under ASC 810, a nonrefundable deposit paid to an entity may be deemed to be a variable interest that will absorb some or all of the entity’s expected losses if they occur. Our land purchase and lot option deposits generally represent our maximum exposure to the land seller if we elect not to purchase the optioned property. In some instances, we may also expend funds for due diligence, development and construction activities with respect to optioned land prior to takedown. Such costs are classified as real estate inventories, which we would have to write off should we not exercise the option. Therefore, whenever we enter into a land option or purchase contract with an entity and make a nonrefundable deposit, a VIE may have been created. At June 30, 2019,March 31, 2020, the Company had outstanding nonrefundable cash depositsdeposits of $15.3$13.6 million pertaining to land option contracts and purchase contracts.
As of June 30, 2019March 31, 2020 and December 31, 2018,2019, the Company was not required to consolidate any VIEs. In accordance with ASC 810, we perform ongoing reassessments of whether we are the primary beneficiary of a VIE.
Non-controlling Interest
During 2013, the Company entered into a joint venture agreement with a third-partythird-party property owner. In accordance with ASC 810, the Company analyzed this arrangement and determined that it was not a VIE; however, the Company determined it was required to consolidate the joint venture as the Company has a controlling financial interest with the powers to direct the major decisions of the entity. As of June 30, 2019March 31, 2020 and December 31, 2018,2019, the third-partythird-party investor had an equity balance ofof $0.1 millionmillion and $0.1 million, respectively.
Investments in and Advances to Unconsolidated Joint Ventures
We use the equity method to account for investments in homebuilding and land development joint ventures when any of the following situations exist: 1)1) the joint venture qualifies as a VIE and we are not the primary beneficiary, 2)2) we do not control the joint venture but have the ability to exercise significant influence over its operating and financial policies, or 3)3) we function as the managing member or general partner of the joint venture and our joint venture partner has substantive participating rights or can replace us as managing member or general partner without cause.
As of June 30, 2019,March 31, 2020, the Company concluded that none of its joint ventures were VIEs and accounted for these entities under the equity method of accounting.
Under the equity method, we recognize our proportionate share of earnings and losses generated by the joint venture upon the delivery of lots or homes to third parties. Our proportionate share of intra-entity profits and losses are eliminated until the related asset has been sold by the unconsolidated joint venture to third parties. We classify cash distributions received from equity method investees using the cumulative earnings approach consistent with ASC 230,
Statement of Cash Flows ("ASC 230"). Under the cumulative earnings approach, distributions received are considered returns on investment and is classified as cash inflows from operating activities unless the cumulative distributions received exceed cumulative equity in earnings. When such an excess occurs, the current-period distribution up to this excess is considered a return of investment and is classified as cash inflows from investing activities. Our ownership interests in our unconsolidated joint ventures vary, but are generally less than or equal to 35%. The accounting policies of our joint ventures areTHE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We review real estate inventory held by our unconsolidated joint ventures for impairment on a quarterly basis, consistent with how we review our real estate inventories as described in more detail above in the section entitled "Real Estate Inventories and Cost of Sales." We also review our investments in and advances to unconsolidated joint ventures for evidence of other-than-temporary declines in value in accordance with ASC 820. To the extent we deem any portiondeclines in value of our investment in and advances to unconsolidated joint ventures as not recoverable,to be other-than-temporary, we impair our investment accordingly. For the three and six months ended June 30, 2019 March 31, 2020 and 2018, no impairments2019, the Company recorded other-than-temporary, noncash impairment charges of $2.3 million and $0, respectively, related to our investment in and advances to unconsolidated joint ventures were recorded.
Selling and Marketing Expense
Costs incurred for tangible assets directly used in the sales process such as our sales offices, design studios and model landscaping and furnishings are capitalized to other assets in the accompanying condensed consolidated balance sheets under ASC 340,
Other Assets and Deferred Costs ("ASC 340"). These costs are depreciated to selling and marketing expenses generally over the shorter of 30 months or the actual estimated life of the selling community. All other selling and marketing costs, such as commissions and advertising, are expensed as incurred.Warranty Accrual
We offer warranties on our homes that generally cover various defects in workmanship or materials, or structural construction defects for one year. In addition, we provide a more limited warranty, which generally ranges from a minimum of two years up to the period covered by the applicable statute of repose, that covers certain defined construction defects. Estimated future direct warranty costs are accrued and charged to cost of sales in the period when the related homebuilding revenues are recognized. Amounts are accrued based upon the Company’s historical claim and expense rates. In addition, the Company has received warranty payments from third-partythird-party property owners for certain of its fee building projects that have since closed-out where the Company has the contractual risk of construction. These payments are recorded as warranty accruals. We assess the adequacy of our warranty accrual on a quarterly basis and adjust the amounts recorded if necessary. Our warranty accrual is included in accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets and adjustments to our warranty accrual are recorded through cost of sales.
While our subcontractors who perform our homebuilding work generally provide us with an indemnity for claims relating to their workmanship and materials, we also purchase general liability insurance that covers development and construction activity at each of our communities. Our subcontractors are usually covered by these programs through an owner-controlled insurance program, or "OCIP." Consultants such as engineers and architects are generally not covered by the OCIP but are required to maintain their own insurance. In general, we maintain insurance, subject to deductibles and self-insured retentions, to protect us against various risks associated with our activities, including, among others, general liability, "all-risk" property, construction defects, workers’ compensation, automobile, and employee fidelity. Our master general liability policies which cover most of our projects allow for our warranty spend to erode our self-insured retention requirements. We establish a separate reserve for warranty and for known and incurred but not reported (“IBNR”) construction defect claims based on our historical claim and expense data. Our warranty accrual and litigation reserves for construction defect claims are presented on a gross basis within accrued expenses and other liabilities in our consolidated financial statements without consideration of insurance recoveries. Expected recoveries from insurance carriers are presented as warranty insurance receivables within other assets in our consolidated financial statements and are recorded based on actual insurance claims and amounts determined using our construction defect claim and warranty accrual estimates, our insurance policy coverage limits for the applicable policy years and historical recovery rates.
Contracts and Accounts Receivable
Contracts and accounts receivable primarily represent the fees earned, but not collected, and reimbursable project costs incurred in connection with fee building agreements. The Company periodically evaluates the collectability of its contracts receivable, and, if it is determined that a receivable might not be fully collectible, an allowance is recorded for the amount deemed uncollectible. This allowance for doubtful accounts is estimated based on management’s evaluation of the contracts involved and the financial condition of its customers. Factors considered in such evaluations include, but are not limited to: (i) customer type; (ii) historical contract performance; (iii) historical collection and delinquency trends; (iv) customer credit worthiness; and (v) general economic conditions. In addition to contracts receivable, escrow receivables are included in contracts and accounts receivable in the accompanying condensed consolidated balance sheets. As of June 30, 2019March 31, 2020 and December 31, 2018, no2019, 0 allowance was recorded related to contracts and accounts receivable.
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Property, Equipment and Capitalized Selling and Marketing Costs
Property, equipment and capitalized selling and marketing costs are recorded at cost and included in other assets in the accompanying condensed consolidated balance sheets. Property and equipment are depreciated to general and administrative expenses using the straight-line method over their estimated useful lives ranging from three to five years. Leasehold improvements are stated at cost and are amortized to general and administrative expenses using the straight-line method generally over the shorter of either their estimated useful lives or the term of the lease. Capitalized selling and marketing costs are depreciated using the straight-line method to selling and marketing expenses over the shorter of either 30 months or the actual estimated life of the selling community.
Income Taxes
Income taxes are accounted for in accordance with ASC 740,
Income Taxes ("ASC 740"). The consolidated provision for, or benefit from, income taxes is calculated using the asset and liability method, under which deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.Each quarter we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not (defined as a likelihood of more than 50%) unrealizable under ASC 740. We are required to establish a valuation allowance for any portion of the tax asset we conclude is more likely than not unrealizable. Our assessment considers, among other things, the nature, frequency and severity of prior cumulative losses, forecasts of future taxable income, the duration of statutory carryforward periods, our utilization experience with net operating losses and tax credit carryforwards and the available tax planning alternatives, to the extent these items are applicable.applicable, and the availability of net operating loss carrybacks under certain circumstances. The ultimate realization of deferred tax assets depends primarily on the generation of future taxable income during the periods in which the differences become deductible.deductible, as well as the ability to carryback net operating losses in the event that this option becomes available. The value of our deferred tax assets will depend on applicable income tax rates. Judgment is required in determining the future tax consequences of events that have been recognized in our consolidated financial statements and/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated financial statements. At June 30, 2019March 31, 2020 and December 31, 2018, no2019, 0 valuation allowance was recorded.
ASC 740 defines the methodology for recognizing the benefits of uncertain tax return positions as well as guidance regarding the measurement of the resulting tax benefits. These provisions require an enterprise to recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. In addition, these provisions provide guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The evaluation of whether a tax position meets the more-likely-than-notmore-likely-than-not recognition threshold requires a substantial degree of judgment by management based on the individual facts and circumstances. At June 30, 2019,March 31, 2020, the Company has concluded that there were no0 significant uncertain tax positions requiring recognition in its financial statements.
The Company classifies any interest and penalties related to income taxes assessed as part of income tax expense. As of June 30, 2019,March 31, 2020, the Company has not been assessed interest or penalties by any major tax jurisdictions related to any open tax periods.
Stock-Based Compensation
We account for share-based awards in accordance with ASC 718,
Compensation – Stock Compensation ("ASC 718")Share Repurchase and Retirement
When shares are retired, the Company’s policy is to allocate the excess of the repurchase price over the par value of shares acquired to both retained earnings and additional paid-in capital. The portion allocated to additional paid-in capital is determined by applying a percentage, which is determined by dividing the number of shares to be retired by the number of shares issued, to the balance of additional paid-in capital as of the retirement date. The residual, if any, is allocated to retained earnings as of the retirement date.
During the sixthree months ended June 30, 2019 March 31, 2020 and 2018,2019, the Company repurchased and retired 153,9161,233,883 and 205,240153,916 shares of its common stock at an aggregate purchase priceprice of $2.2 million and $1.0 million, and $2.1 million, respectively. TheAll repurchased shares were returned to the status of authorized but unissued.
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Subsequent to March 31, 2020, the Company repurchased an additional 777,300 shares for $1.4 million pursuant to a 10b5-1 plan, which in the aggregate since the beginning of the year through May 7, 2020 represented a total repurchase of 2,011,183shares for $3.6 million, or $1.78 per share, and 10% of its beginning share count. The purchases were made under a previously announced stock repurchase program that had a remaining purchase authorization of $1.8 million as of May 7, 2020.
Dividends
NaN dividends were paid on our common stock during the three and six months ended June 30, 2019 March 31, 2020 and 2018.2019. We currently intend to retain our future earnings to finance the development and expansion of our business and, therefore, do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, compliance with Delaware law, restrictions contained in any financing instruments, including but not limited to, our unsecured credit facility and senior notes indenture, and such other factors as our board of directors deem relevant.
Recently Issued Accounting Standards
The Company currently qualifiesCompany's status as an "emerging growth company" pursuant to the provisions of the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). ended on December 31, 2019. Section 102 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)7(a)(2)(B) of the Securities Act of 1933, as amended (the "Securities Act"), for complying with new or revised accounting standards. As previously disclosed and prior to the expiration of its "emerging growth company" status, the Company hashad chosen, irrevocably, to "opt out" of such extended transition period, and as a result, will complycomplied with new or revised accounting standards on the relevant dates on which adoption of such standards iswas required for non-emerging growth companies.
In FebruaryJune 2016, the FASB issued ASU No. 2016-02,
In August 2018, the FASB issued ASU 2018-13,
In December 2019, the FASB issued ASU 2019-12,Income Taxes (Topic 740)-Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which is intended to simplify various aspects related to accounting for income taxes. The pronouncement is effective for all entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. Early2020, with early adoption permitted. We are currently in the process of evaluating the effects on our financial statements of adopting ASU 2019-12.
In January 2020, the FASB issued ASU 2020-01,Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivative and Hedging (Topic 815) ("ASU 2020-01"). ASU 2020-01 clarifies the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The standard is effective for fiscal years beginning after December 31, 2020, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of ASU 2018-13 and does not anticipate aexpects no material impact to theour consolidated financial statements as a result of adoption.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Computation of Income (Loss)Loss Per Share
The following table sets forth the components used in the computation of basic and diluted earningsloss per share for the three and six months ended June 30, 2019 March 31, 2020 and 2018:
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands, except per share amounts) | ||||||||
Numerator: | ||||||||
Net loss attributable to The New Home Company Inc. | $ | (8,476 | ) | $ | (1,987 | ) | ||
Denominator: | ||||||||
Basic weighted-average shares outstanding | 19,951,825 | 19,986,394 | ||||||
Effect of dilutive shares: | ||||||||
Stock options and unvested restricted stock units | — | — | ||||||
Diluted weighted-average shares outstanding | 19,951,825 | 19,986,394 | ||||||
| Basic loss per share attributable to The New Home Company Inc. | $ | (0.42 | ) | $ | (0.10 | ) | ||
| Diluted loss per share attributable to The New Home Company Inc. | $ | (0.42 | ) | $ | (0.10 | ) | ||
Antidilutive stock options and unvested restricted stock units not included in diluted loss per share | 1,785,826 | 1,451,485 | ||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| (Dollars in thousands, except per share amounts) | |||||||||||||||
| Numerator: | |||||||||||||||
| Net income (loss) attributable to The New Home Company Inc. | $ | 1,572 | $ | 115 | $ | (415 | ) | $ | (525 | ) | |||||
| Denominator: | |||||||||||||||
| Basic weighted-average shares outstanding | 20,070,914 | 20,958,991 | 20,028,600 | 20,942,601 | |||||||||||
| Effect of dilutive shares: | |||||||||||||||
| Stock options and unvested restricted stock units | 24,619 | 65,778 | — | — | |||||||||||
| Diluted weighted-average shares outstanding | 20,095,533 | 21,024,769 | 20,028,600 | 20,942,601 | |||||||||||
| Basic income (loss) per share attributable to The New Home Company Inc. | $ | 0.08 | $ | 0.01 | $ | (0.02 | ) | $ | (0.03 | ) | |||||
| Diluted income (loss) per share attributable to The New Home Company Inc. | $ | 0.08 | $ | 0.01 | $ | (0.02 | ) | $ | (0.03 | ) | |||||
| Antidilutive stock options and unvested restricted stock units not included in diluted earnings per share | 1,349,106 | 952,882 | 1,292,726 | 1,333,106 | |||||||||||
3. Contracts and Accounts Receivable
Contracts and accounts receivable consist of the following:
| June 30, | December 31, | ||||||
| 2019 | 2018 | ||||||
| (Dollars in thousands) | |||||||
| Contracts receivable: | |||||||
| Costs incurred on fee building projects | $ | 41,038 | $ | 159,136 | |||
| Estimated earnings | 909 | 4,401 | |||||
| 41,947 | 163,537 | ||||||
| Less: amounts collected during the period | (35,642 | ) | (154,743 | ) | |||
| Contracts receivable | $ | 6,305 | $ | 8,794 | |||
| Contracts receivable: | |||||||
| Billed | $ | — | $ | — | |||
| Unbilled | 6,305 | 8,794 | |||||
| 6,305 | 8,794 | ||||||
| Accounts receivable: | |||||||
| Escrow receivables | 9,530 | 8,787 | |||||
| Other receivables | 278 | 684 | |||||
| Contracts and accounts receivable | $ | 16,113 | $ | 18,265 | |||
March 31, | December 31, | |||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Contracts receivable: | ||||||||
Costs incurred on fee building projects | $ | 35,497 | $ | 93,281 | ||||
Estimated earnings | 730 | 2,052 | ||||||
| 36,227 | 95,333 | |||||||
Less: amounts collected during the period | (24,620 | ) | (84,979 | ) | ||||
Contracts receivable | $ | 11,607 | $ | 10,354 | ||||
Contracts receivable: | ||||||||
Billed | $ | — | $ | — | ||||
Unbilled | 11,607 | 10,354 | ||||||
| 11,607 | 10,354 | |||||||
Accounts receivable: | ||||||||
Escrow receivables | 3,679 | 5,392 | ||||||
Other receivables | 351 | 236 | ||||||
Contracts and accounts receivable | $ | 15,637 | $ | 15,982 | ||||
Billed contracts receivable represent amounts billed to customers that have yet to be collected. Unbilled contracts receivable represents the contract revenue recognized but not yet invoiced. All unbilled receivables as of June 30, 2019March 31, 2020 and
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. Real Estate Inventories
Real estate inventories are summarized as follows:
| June 30, | December 31, | ||||||
| 2019 | 2018 | ||||||
| (Dollars in thousands) | |||||||
| Deposits and pre-acquisition costs | $ | 17,485 | $ | 20,726 | |||
| Land held and land under development | 122,392 | 115,987 | |||||
| Homes completed or under construction | 352,535 | 380,956 | |||||
| Model homes | 49,542 | 48,621 | |||||
| $ | 541,954 | $ | 566,290 | ||||
March 31, | December 31, | |||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Deposits and pre-acquisition costs | $ | 16,880 | $ | 17,865 | ||||
Land held and land under development | 168,672 | 180,823 | ||||||
Homes completed or under construction | 154,430 | 183,711 | ||||||
Model homes | 58,991 | 51,539 | ||||||
| $ | 398,973 | $ | 433,938 | |||||
All of our deposits and pre-acquisition costs are nonrefundable, except for refundable deposits of $0.7 millionof $0.1 million and $0.9$0.1 million as of June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.
Land held and land under development includes land costs and costs incurred during site development such as development, indirects, and permits. Homes completed or under construction and model homes include all costs associated with home construction, including allocated land, development, indirects, permits, materials and labor (except for capitalized selling and marketing costs, which are classified in other assets).
In accordance with ASC 360, inventory is stated at cost, unless the carrying amount is determined not to be recoverable, in which case inventory is written down to its fair value. We review each real estate asset at the community-level on a quarterly basis or whenever indicators of impairment exist.For the three months ended March 31, 2020 and 2019, the Company recognized 0 real estate-related impairments.
During the 2020first quarter, the Company terminated its option agreement for a luxury condominium project in Scottsdale, Arizona. Due to the lower demand levels experienced at this community coupled with the substantial investment required to build out the remainder of the project, the Company decided to abandon the future acquisition, development, construction and sale of future phases of the project that were under option. In accordance with ASC 970-360-40-1, the capitalized costs related to the project are expensed and not allocated to other components of the project that the Company did develop. For the three months ended March 31, 2020, the Company recorded an abandonment charge of $14.0 million representing the capitalized costs that have accumulated related to the portion of the project that is being abandoned. This charge is included within project abandonment costs in the accompanying condensed consolidated statement of operations.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Capitalized Interest
Interest is capitalized to inventory and investment in unconsolidated joint ventures during development and other qualifying activities. Interest capitalized as a cost of inventory is included in cost of sales as related homes and land parcels are closed. Interest capitalized to investment in unconsolidated joint ventures is amortized to equity in net income (loss) of unconsolidated joint ventures as related joint venture homes or lots close, or in instances where lots are sold from the unconsolidated joint venture to the Company, the interest is added to the land basis and included in cost of sales when the related lots or homes are sold to third-partythird-party buyers. Interest expense is comprised of interest incurred but not capitalized and is reported as interest expense in our condensed consolidated statements of operations. For the three and six months ended June 30, 2019 March 31, 2020 and 20182019 interest incurred, capitalized and expensed was as follows:
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Interest incurred | $ | 6,380 | $ | 7,761 | ||||
Interest capitalized to inventory | (5,662 | ) | (7,761 | ) | ||||
Interest expensed | $ | 718 | $ | — | ||||
Capitalized interest in beginning inventory | $ | 26,397 | $ | 25,681 | ||||
Interest capitalized as a cost of inventory | 5,662 | 7,761 | ||||||
Capitalized interest transferred from investment in unconsolidated joint ventures to inventory upon lot acquisition | — | 10 | ||||||
Previously capitalized interest included in cost of home and land sales | (6,146 | ) | (4,852 | ) | ||||
Previously capitalized interest included in project abandonments costs | (761 | ) | — | |||||
Capitalized interest in ending inventory | $ | 25,152 | $ | 28,600 | ||||
Capitalized interest in beginning investment in unconsolidated joint ventures | $ | 541 | $ | 713 | ||||
Capitalized interest transferred from investment in unconsolidated joint ventures to inventory upon lot acquisition | — | (10 | ) | |||||
Previously capitalized interest included in equity in net income (loss) of unconsolidated joint ventures | (448 | ) | (31 | ) | ||||
Capitalized interest in ending investment in unconsolidated joint ventures | 93 | 672 | ||||||
Total capitalized interest in ending inventory and investments in unconsolidated joint ventures | $ | 25,245 | $ | 29,272 | ||||
Capitalized interest as a percentage of inventory | 6.3 | % | 5.1 | % | ||||
Interest included in cost of home sales as a percentage of home sales revenue | 6.5 | % | 4.9 | % | ||||
Capitalized interest as a percentage of investment in and advances to unconsolidated joint ventures | 0.3 | % | 2.0 | % | ||||
For the three months ended March 31, 2020, the Company expensed $0.8 million in interest previously capitalized due to the abandonment of the future phases of one of its existing homebuilding communities. For more information, please refer to Note 4.
For the three months ended March 31, 2020, the Company expensed $0.4 million in interest previously capitalized to investments in unconsolidated joint ventures as the result of an other-than-temporary impairment to its investment in one joint venture. For more information, please refer to Note 6.
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| (Dollars in thousands) | |||||||||||||||
| Interest incurred | $ | 7,606 | $ | 6,612 | $ | 15,367 | $ | 13,328 | |||||||
| Interest capitalized to inventory | (7,606 | ) | (6,149 | ) | (15,367 | ) | (12,344 | ) | |||||||
| Interest capitalized to investment in unconsolidated joint ventures | — | (463 | ) | — | (984 | ) | |||||||||
| Interest expensed | $ | — | $ | — | $ | — | $ | — | |||||||
| Capitalized interest in beginning inventory | $ | 28,600 | $ | 19,884 | $ | 25,681 | $ | 16,453 | |||||||
| Interest capitalized as a cost of inventory | 7,606 | 6,149 | 15,367 | 12,344 | |||||||||||
| Capitalized interest transferred from investment in unconsolidated joint ventures to inventory upon lot acquisition | 3 | 5 | 13 | 5 | |||||||||||
| Previously capitalized interest included in cost of home sales | (6,301 | ) | (3,750 | ) | (11,153 | ) | (6,514 | ) | |||||||
| Capitalized interest in ending inventory | $ | 29,908 | $ | 22,288 | 29,908 | 22,288 | |||||||||
| Capitalized interest in beginning investment in unconsolidated joint ventures | $ | 672 | $ | 1,962 | $ | 713 | $ | 1,472 | |||||||
| Interest capitalized to investment in unconsolidated joint ventures | — | 463 | — | 984 | |||||||||||
| Capitalized interest transferred from investment in unconsolidated joint ventures to inventory upon lot acquisition | (3 | ) | (5 | ) | (13 | ) | (5 | ) | |||||||
Previously capitalized interest included in equity in net income (loss) of unconsolidated joint ventures | (48 | ) | (18 | ) | (79 | ) | (49 | ) | |||||||
| Capitalized interest in ending investment in unconsolidated joint ventures | 621 | 2,402 | 621 | 2,402 | |||||||||||
Total capitalized interest in ending inventory and investments in unconsolidated joint ventures | $ | 30,529 | $ | 24,690 | $ | 30,529 | $ | 24,690 | |||||||
| Capitalized interest as a percentage of inventory | 5.5 | % | 4.7 | % | 5.5 | % | 4.7 | % | |||||||
| Interest included in cost of home sales as a percentage of home sales revenue | 4.4 | % | 3.2 | % | 4.7 | % | 3.3 | % | |||||||
Capitalized interest as a percentage of investment in and advances to unconsolidated joint ventures | 1.8 | % | 4.1 | % | 1.8 | % | 4.1 | % | |||||||
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. Investments in and Advances to Unconsolidated Joint Ventures
As of June 30, 2019March 31, 2020 and December 31, 2018,2019, the Company had ownership interests in 10 unconsolidated joint ventures with ownership percentages that generally ranged from 5% to 35%. The condensed combined balance sheets for our unconsolidated joint ventures accounted for under the equity method were as follows:
| June 30, | December 31, | ||||||
| 2019 | 2018 | ||||||
| (Dollars in thousands) | |||||||
| Cash and cash equivalents | $ | 35,145 | $ | 45,945 | |||
| Restricted cash | 14,740 | 19,205 | |||||
| Real estate inventories | 338,176 | 374,607 | |||||
| Other assets | 5,950 | 4,231 | |||||
| Total assets | $ | 394,011 | $ | 443,988 | |||
| Accounts payable and accrued liabilities | $ | 36,191 | $ | 43,158 | |||
| Notes payable | 40,564 | 71,299 | |||||
| Total liabilities | 76,755 | 114,457 | |||||
| The New Home Company's equity | 33,016 | 33,617 | |||||
| Other partners' equity | 284,240 | 295,914 | |||||
| Total equity | 317,256 | 329,531 | |||||
| Total liabilities and equity | $ | 394,011 | $ | 443,988 | |||
| Debt-to-capitalization ratio | 11.3 | % | 17.8 | % | |||
| Debt-to-equity ratio | 12.8 | % | 21.6 | % | |||
March 31, | December 31, | |||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Cash and cash equivalents | $ | 30,514 | $ | 31,484 | ||||
Restricted cash | 13,237 | 13,852 | ||||||
Real estate inventories | 234,460 | 241,416 | ||||||
Other assets | 4,108 | 3,843 | ||||||
Total assets | $ | 282,319 | $ | 290,595 | ||||
Accounts payable and accrued liabilities | $ | 16,570 | $ | 16,778 | ||||
Notes payable | 21,910 | 28,665 | ||||||
Total liabilities | 38,480 | 45,443 | ||||||
The New Home Company's equity(1) | 28,403 | 27,722 | ||||||
Other partners' equity | 215,436 | 217,430 | ||||||
Total equity | 243,839 | 245,152 | ||||||
Total liabilities and equity | $ | 282,319 | $ | 290,595 | ||||
| Debt-to-capitalization ratio | 8.2 | % | 10.5 | % | ||||
| Debt-to-equity ratio | 9.0 | % | 11.7 | % | ||||
(1) | Balance represents the Company's interest, as reflected in the financial records of the respective joint ventures. This balance differs from the investment in and advances to unconsolidated joint ventures balance reflected in the Company's consolidated balance sheets by$0.8 million due an other-than-temporary impairment charge to the Company's investment, interest capitalized to the Company's investment in joint ventures and certain other differences in outside basis. |
The condensed combined statements of operations for our unconsolidated joint ventures accounted for under the equity method were as follows:
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Revenues | $ | 31,647 | $ | 42,287 | ||||
Cost of sales and expenses | 30,285 | 41,774 | ||||||
Net income of unconsolidated joint ventures | $ | 1,362 | $ | 513 | ||||
Equity in net income (loss) of unconsolidated joint ventures reflected in the accompanying condensed consolidated statements of operations | $ | (1,937 | ) | $ | 184 | |||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| (Dollars in thousands) | |||||||||||||||
| Revenues | $ | 59,078 | $ | 33,879 | $ | 101,365 | $ | 65,892 | |||||||
| Cost of sales and expenses | 57,288 | 34,165 | 99,062 | 65,374 | |||||||||||
| Net income (loss) of unconsolidated joint ventures | $ | 1,790 | $ | (286 | ) | $ | 2,303 | $ | 518 | ||||||
| Equity in net income (loss) of unconsolidated joint ventures reflected in the accompanying condensed consolidated statements of operations | $ | 185 | $ | (120 | ) | $ | 369 | $ | 215 | ||||||
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As a smaller reporting company, the Company is subject to the provisions of Rule 8-03(b)(3)8-03(b)(3) of Regulation S-XS-X which requires the disclosure of certain financial information for equity investees that constitute 20% of or more of the Company's consolidated net income (loss). For the sixthree months ended June 30,March 31, 2019, incomeno profit or loss allocations from twothe Company's unconsolidated joint ventures accounted for under the equity method exceeded 20% of the Company's consolidated net loss. For the three months ended March 31, 2020, the loss allocation from one of the Company's unconsolidated joint ventures accounted for under the equity method each exceeded 20% of the Company's consolidated net income (loss).loss. The table below presents select combined financial information for thesethis joint ventures:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| (Dollars in thousands) | |||||||||||||||
| Revenues | $ | 44,358 | $ | 23,798 | $ | 76,395 | $ | 53,439 | |||||||
| Cost of home sales | 40,548 | 21,910 | 69,624 | 47,544 | |||||||||||
| Gross margin | $ | 3,810 | $ | 1,888 | $ | 6,771 | $ | 5,895 | |||||||
| Expenses | 1,983 | 1,779 | 3,840 | 4,193 | |||||||||||
| Net income | $ | 1,827 | $ | 109 | $ | 2,931 | $ | 1,702 | |||||||
| Equity in net income (loss) of unconsolidated joint ventures reflected in the accompanying consolidated statements of operations | $ | 261 | $ | 11 | $ | 488 | $ | 452 | |||||||
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Revenues | $ | 4,624 | $ | 3,698 | ||||
Cost of land sales | 3,065 | 3,375 | ||||||
Gross margin | $ | 1,559 | $ | 323 | ||||
Expenses | 674 | 636 | ||||||
Net income (loss) | $ | 885 | $ | (313 | ) | |||
Equity in net loss of unconsolidated joint ventures reflected in the accompanying condensed consolidated statements of operations | $ | (2,226 | ) | $ | (30 | ) | ||
In the above table, the Company's $2.2 million loss included in equity in net income (loss) of unconsolidated joint ventures for the three months ended March 31, 2020 includes a $2.3 million other-than-temporary impairment charge related to its interest in this joint venture.
For the three and six months ended June 30, 2019 March 31, 2020 and 2018,2019, the Company earned $0.6 million, $1.2 million, $0.7 million $0.4 million and $1.7$0.5 million respectively, in management fees from its unconsolidated joint ventures. For additional detail regarding management fees, please see Note 12.
7. Other Assets
Other assets consist of the following:
| June 30, | December 31, | ||||||
| 2019 | 2018 | ||||||
| (Dollars in thousands) | |||||||
Property, equipment and capitalized selling and marketing costs, net (1) | $ | 9,094 | $ | 11,738 | |||
| Deferred tax asset, net | 13,937 | 13,937 | |||||
| Prepaid income taxes | 443 | 514 | |||||
| Prepaid expenses | 5,715 | 6,348 | |||||
Warranty insurance receivable (2) | 1,257 | 915 | |||||
Right-of-use lease asset (3) | 2,541 | — | |||||
| $ | 32,987 | $ | 33,452 | ||||
March 31, | December 31, | |||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Capitalized selling and marketing costs, net(1) | $ | 6,662 | $ | 7,148 | ||||
Prepaid income taxes(2) | 11,676 | 1,032 | ||||||
| Insurance receivable(3) | 6,500 | 10,900 | ||||||
Warranty insurance receivable(4) | 1,878 | 1,852 | ||||||
Prepaid expenses | 2,388 | 2,729 | ||||||
Right-of-use lease assets | 1,695 | 1,988 | ||||||
| Other | 306 | 231 | ||||||
| $ | 31,105 | $ | 25,880 | |||||
(1) | |
Capitalized selling and marketing costs includes costs incurred for tangible assets directly used in the sales process such as our sales offices, design studios and model furnishings, and also includes model landscaping costs, which were $2.4 million and $2.6 million as of March 31,2020 and December 31, 2019, respectively. The Company depreciated | |
| (2) | The amount at March 31, 2020 includes approximately $10.7 million of expected federal income tax refunds due to the recent enactment of the CARES act which allows net operating losses generated from 2018 – 2020 to be carried back five years. |
(3) | At December 31, 2019, the Company recorded insurance receivables of $10.9 million in connection with $10.9 million of litigation reserves recorded. During the three months ended March 31, 2020, $4.2 million was paid by insurance related to one claim and |
(4) | During the three |
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
| June 30, | December 31, | ||||||
| 2019 | 2018 | ||||||
| (Dollars in thousands) | |||||||
Warranty accrual(1) | $ | 7,049 | $ | 6,898 | |||
| Accrued compensation and benefits | 3,157 | 5,749 | |||||
| Accrued interest | 6,236 | 6,497 | |||||
| Completion reserve | 3,351 | 4,192 | |||||
Lease liability(2) | 2,902 | — | |||||
| Customer deposits | 7,188 | 2,192 | |||||
| Other accrued expenses | 2,492 | 3,500 | |||||
| $ | 32,375 | $ | 29,028 | ||||
March 31, | December 31, | |||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Warranty accrual (1) | $ | 6,864 | $ | 7,223 | ||||
| Litigation reserves (2) | 6,500 | 10,900 | ||||||
Accrued interest | 11,537 | 5,796 | ||||||
Accrued compensation and benefits | 3,373 | 5,350 | ||||||
Completion reserve | 1,367 | 3,167 | ||||||
Customer deposits | 3,191 | 3,574 | ||||||
Lease liabilities | 1,893 | 2,243 | ||||||
Other accrued expenses | 1,358 | 2,301 | ||||||
| $ | 36,083 | $ | 40,554 | |||||
(1) | ||||
Included in the amount at |
(2) | |
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| (Dollars in thousands) | |||||||||||||||
| Beginning warranty accrual for homebuilding projects | $ | 6,767 | $ | 6,775 | $ | 6,681 | $ | 6,634 | |||||||
| Warranty provision for homebuilding projects | 627 | 470 | 1,054 | 986 | |||||||||||
| Warranty payments for homebuilding projects | (581 | ) | (469 | ) | (922 | ) | (844 | ) | |||||||
Adjustment to warranty accrual(1) | 94 | — | 94 | — | |||||||||||
| Ending warranty accrual for homebuilding projects | 6,907 | 6,776 | 6,907 | 6,776 | |||||||||||
| Beginning warranty accrual for fee building projects | 178 | 223 | 217 | 225 | |||||||||||
| Warranty provision for fee building projects | — | — | 9 | — | |||||||||||
| Warranty efforts for fee building projects | (18 | ) | (1 | ) | (66 | ) | (3 | ) | |||||||
Adjustment to warranty accrual for fee building projects(1) | (18 | ) | — | (18 | ) | — | |||||||||
| Ending warranty accrual for fee building projects | 142 | 222 | 142 | 222 | |||||||||||
| Total ending warranty accrual | $ | 7,049 | $ | 6,998 | $ | 7,049 | $ | 6,998 | |||||||
We maintain general liability insurance designed to protect us against a portion of our risk of loss from construction-related warranty and construction defect claims. Our master general liability policies which cover most of our projects allow for our warranty spend to erode our self-insured retention requirements. We establish and track separately our warranty accrual and litigation reserves for both known and IBNR construction defect claims. Our warranty accrual and litigation reserves for construction defect claims are presented on a gross basis within accrued expenses and other liabilities in the accompanying condensed consolidated financial statements without consideration of insurance recoveries. Expected recoveries from insurance carriers are tracked separately between warranty insurance receivables and insurance receivables related to litigated claims and are presented within other assets in the accompanying condensed consolidated financial statements. Our warranty accrual and related estimated insurance recoveries are based on historical warranty claim and expense data, and expected recoveries from insurance carriers are recorded based on actual insurance claims and amounts determined using our warranty accrual estimates, our insurance policy coverage limits for the applicable policy years and historical recovery rates. Our litigation reserves for both known and IBNR future construction defect claims based on historical claim and expense data, and expected recoveries from insurance carriers are recorded based on actual insurance claims and amounts determined using our construction defect claim accrual estimates, our insurance policy coverage limits for the applicable policy years and historical recovery rates. Because of the inherent uncertainty and variability in these assumptions, our actual costs and related insurance recoveries could differ significantly from amounts currently estimated.
Changes in our warranty accrual are detailed in the table set forth below:
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Beginning warranty accrual for homebuilding projects | $ | 7,195 | $ | 6,681 | ||||
Warranty provision for homebuilding projects | 421 | 427 | ||||||
Warranty payments for homebuilding projects | (780 | ) | (341 | ) | ||||
Ending warranty accrual for homebuilding projects | 6,836 | 6,767 | ||||||
Beginning warranty accrual for fee building projects | 28 | 217 | ||||||
Warranty provision for fee building projects | — | 9 | ||||||
Warranty efforts for fee building projects | — | (48 | ) | |||||
Ending warranty accrual for fee building projects | 28 | 178 | ||||||
Total ending warranty accrual | $ | 6,864 | $ | 6,945 | ||||
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Senior Notes and Unsecured Revolving Credit Facility
Indebtedness consisted of the following:
| June 30, | December 31, | ||||||
| 2019 | 2018 | ||||||
| (Dollars in thousands) | |||||||
| 7.25% Senior Notes due 2022, net | $ | 309,060 | $ | 320,148 | |||
| Unsecured revolving credit facility | 66,000 | 67,500 | |||||
| Total Indebtedness | $ | 375,060 | $ | 387,648 | |||
March 31, | December 31, | |||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
7.25% Senior Notes due 2022, net | $ | 300,479 | $ | 304,832 | ||||
Unsecured revolving credit facility | — | — | ||||||
Total Indebtedness | $ | 300,479 | $ | 304,832 | ||||
The carrying amount of our Senior Notes listed above at June 30, 2019March 31, 2020 is net of the unamortized discountdiscount of $1.4$1.0 million, unamortized premium of $1.1$0.8 million, and unamortized debt issuance costs of $3.7$2.6 million, each of which are amortized and capitalized to interest costs on a straight-line basis over the respective terms of the notes which approximates the effective interest method. The carrying amount for the Senior Notes listedlisted above at December 31, 2018,2019, is net of the unamortized discount of $1.7$1.1 million, unamortized premium of $1.3$0.9 million, and unamortized debt issuance costs of $4.5$3.0 million. Debt issuance costs for the unsecured revolving credit facility, which totaled $0.4 million as of March 31, 2020, are included in other assets and amortized and capitalized to interest costs on a straight-line basis over the term of the agreement.
The Notes are general senior unsecured obligations that rank equally in right of payment to all existing and future senior indebtedness, including borrowings under the Company's senior unsecured revolving credit facility. The Notes contain certain restrictive covenants, including a limitation on additional indebtedness and a limitation on restricted payments. Restricted payments include, among other things, dividends, investments in unconsolidated entities, and stock repurchases. Under the limitation on additional indebtedness, we are permitted to incur specified categories of indebtedness but are prohibited, aside from those exceptions, from incurring further indebtedness if we do not satisfy either a leverage condition or an interest coverage condition. Exceptions to the limitation include, among other things, borrowings of up to $260 million under existing or future bank credit facilities, non-recourse indebtedness, and indebtedness incurred for the purpose of refinancing or repaying certain existing indebtedness. Under the limitation on restricted payments, we are also prohibited from making restricted payments, aside from certain exceptions, if we do not satisfy either condition. In addition, the amount of restricted payments that we can make is subject to an overall basket limitation, which builds based on, among other things, 50% of consolidated net income from January 1, 2017 forward and 100% of the net cash proceeds from qualified equity offerings. Exceptions to the foregoing limitations on our ability to make restricted payments include, among other things, investments in joint ventures and other investments up to 15% of our consolidated tangible net assets and a general basket of $15 million. The Notes are guaranteed, on an unsecured basis, jointly and severally, by all of the Company's 100% owned subsidiaries. See Note
During the 2019 second quarter,three months ended March 31, 2020, the Company repurchased and retired approximately $7.0$4.8 million in face value of the Notes. The Notes were purchased at 90.82% of face value, for a cash payment of $6.3 million. The Company recognized a $0.6 million gain on the early extinguishment of debt, and the unamortized discount, premium and debt issuance costs associated with the retired notes totaling approximately $90,000 were written off. Total repurchases of the Notes for the six months ended June 30, 2019 equaled $12.0 million in face value at 90.58%101.63% of the face value for a cash payment of $10.9approximately $4.8 million. The Company recognized a total gainloss on early extinguishment of debt of $1.0$0.1 million and wrote off approximately $160,000$46,000 of unamortized discount, premium and debt issuance costs associated with the Notes retired duringretired. During the sixthree months ended June 30, 2019.March 31, 2019, the Company repurchased and retired approximately $5.0 million in face value of the Notes at 90.25% of the face value for a cash payment of approximately $4.5 million. The Company recognized a gain on early extinguishment of debt of $0.4 million and wrote off approximately $70,000 of unamortized discount, premium and debt issuance costs associated with the Notes retired.
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company'sCompany has an unsecured revolving credit facility ("Credit Facility") is with a bank groupgroup. On August 7, 2019, the Company entered into a Modification Agreement (the “Modification”) to its Amended and matures on SeptemberRestated Credit Agreement. The Modification, among other things, (i) extended the maturity date of the revolving credit facility to March 1, 2020. Total2021, (ii) decreased (A) the total commitments under the Credit Facility arefacility to $130 million from $200 million with anand (B) the accordion feature that allows the facility size thereunder to be increased up to an aggregate of$200 million from $300 million, subject to certain financial conditions, including the availability of bank commitments.commitments, (iii) provided for certain adjustments to the borrowing base calculation commencing January 1, 2020; and (iv) revised the covenant limiting restricted payments to provide for basket limitations and net leverage ratio thresholds on the Company’s stock repurchases, dividend payments, and repurchases of its Notes, subject to specified exceptions. As of June 30, 2019,March 31, 2020, we had $66.0 million ofhad 0 borrowings outstanding borrowings under the credit facility. Interest is payable monthly and is charged at a rate of 1-month1-month LIBOR plus a margin ranging from 2.25% to 3.00% depending on the Company’s leverage ratio as calculated at the end of each fiscal quarter. As of June 30, 2019,March 31, 2020, the interest rate under the Credit Facility was 5.40%3.99%. Pursuant to the Credit Facility, the Company is required to maintain certain financial covenants as defined in the Credit Facility, including (i) a minimum tangible net worth; (ii) maximum leverage ratios; (iii) a minimum liquidity covenant; and (iv) a minimum fixed charge coverage ratio based on EBITDA (as detailed in the Credit Facility) to interest incurred or if this test is not met, the Company maintains unrestricted cash equal to not less than the trailing 12 month consolidated interest incurred. As of June 30, 2019,March 31, 2020, the Company was in compliance with all financial covenants.
The Credit Facility, as amended by the Modification, also provides a $25$17.5 million sublimit for letters of credit, subject to conditions set forth in the agreement. As of June 30, 2019March 31, 2020 and December 31, 2018,2019, the Company had $2.3 million in outstandingCompany did not have any outstanding letters of credit issued under the Credit Facility.
10. Fair Value Disclosures
ASC 820
• | Level 1 – Quoted prices for identical instruments in active markets | |
• | Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date | |
• | Level 3 – Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date |
Fair Value of Financial Instruments
The following table presents an estimated fair value of the Company's Notes and Credit Facility. The Notes are classified as Level 2 and primarily reflect estimated prices obtained from outside pricing sources. The Company's Credit Facility is classified as Level 3 within the fair value hierarchy. The Company had an outstanding balance of $66.0 million under its Credit Facility at June 30, 2019, and the estimated fair value of the outstanding balance approximated the carrying value due to the short-term nature of LIBOR contracts.
| June 30, 2019 | December 31, 2018 | ||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
| (Dollars in thousands) | |||||||||||||||
7.25% Senior Notes due 2022, net (1) | $ | 309,060 | $ | 294,234 | $ | 320,148 | $ | 292,500 | |||||||
| Unsecured revolving credit facility | $ | 66,000 | $ | 66,000 | $ | 67,500 | $ | 67,500 | |||||||
March 31, 2020 | December 31, 2019 | |||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
7.25% Senior Notes due 2022, net (1) | $ | 300,479 | $ | 266,873 | $ | 304,832 | $ | 298,775 | ||||||||
Unsecured revolving credit facility | $ | — | $ | — | $ | — | $ | — | ||||||||
(1) | The carrying value for the Senior Notes, as presented at March 31, 2020, is net of the unamortized discount of $1.0 million, unamortized premium of $0.8 million, and unamortized debt issuance costs of $2.6 million. The carrying value for the Senior Notes, as presented at December 31, 2019, is net of the unamortized discount of $1.1 million, unamortized premium of $0.9 million, and unamortized debt issuance costs of $3.0 million. The unamortized discount, unamortized premium and debt issuance costs are not factored into the estimated fair value. |
The Company considers the carrying value of cash and cash equivalents, restricted cash, contracts and accounts receivable, accounts payable, and accrued expenses and other liabilities to approximate the fair value of these financial instruments based on the short duration between origination of the instruments and their expected realization. The fair value of amounts due from affiliates is not determinable due to the related party nature of such amounts.
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Non-Recurring Fair Value Adjustments
Nonfinancial assets and liabilities include items such as real estate inventory and long-lived assets that are measured at cost when acquired and adjusted for impairment to fair value, if deemed necessary. For the three months ended March 31, 2020 and 2019, the Company recognized an other-than-temporary impairment to its investment in unconsolidated joint ventures of $2.3 million and $0, respectively. The 2020 impairment related to our agreement in principle to sell our interest in our Bedford joint venture to our partner. We are currently in the process of drafting definitive agreements associated with our exit from the joint venture and the sale of our interest for less than its current carrying value. This transaction is expected to close around the end of the 2020second quarter. The impairment adjustment was made using Level 2 inputs and assumptions. For more information on the investment in unconsolidated joint ventures impairment, please refer to Note 6.
11. Commitments and Contingencies
From time-to-time, the Company is involved in various legal matters arising in the ordinary course of business. These claims and legal proceedings are of a nature that we believe are normal and incidental to a homebuilder. We make provisions for loss contingencies when they are probable and the amount of the loss can be reasonably estimated. Such provisions are assessed at least quarterly and adjusted to reflect the impact of any settlement negotiations, judicial and administrative rulings, advice of legal counsel, and other information and events pertaining to a particular case. During 2019, we recorded litigation reserves totaling $5.9 million related to ordinary course litigation which developed and became probable and estimable within the 2019fourth quarter. Further, as a result of the development of the construction defect related claims within the litigation reserve and their impact to the Company’s litigation reserve estimates for IBNR future construction defect claims, we recorded an additional $5.0 million of IBNR construction defect claim reserves resulting in aggregate litigation reserves totaling $10.9 million as of December 31, 2019. Because the self-insured retention deductibles had been met for each claim covered by the $5.9 million reserve, and the self-insured retention deductibles are expected to be met for the $5.0 million IBNR construction defect claim reserves, the Company recorded estimated insurance receivables of $10.9 million offsetting the related litigation reserves as of December 31, 2019. During the three months ended March 31, 2020, $4.2 million was paid by insurance related to one claim and the Company also reduced its litigation reserve estimate by $0.2 million for a separate claim, resulting in a litigation reserve and insurance receivable balance of $6.5 million at March 31, 2020. Due to the inherent uncertainty and judgement used in these assumptions, our actual costs and related insurance recoveries could differ significantly from amounts currently estimated. Please refer to Note 1 and Note 8 for more information on litigation reserves for construction defect claims. In view of the inherent unpredictability of litigation, we generally cannot predict their ultimate resolution, related timing or eventual loss. At this time, we do not believe that our loss contingencies, individually or in the aggregate, are material to our consolidated financial statements.
As an owner and developer of real estate, the Company is subject to various environmental laws of federal, state and local governments. The Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of real estate in the vicinity of the Company’s real estate and other environmental conditions of which the Company is unaware with respect to the real estate could result in future environmental liabilities.
The Company has provided credit enhancements in connection with joint venture borrowings in the form of LTV maintenance agreements in order to secure the joint venture's performance under the loans and maintenance of certain LTV ratios. The Company has also entered into agreements with its partners in each of the unconsolidated joint ventures whereby the Company and its partners are apportioned liability under the LTV maintenance agreements according to their respective capital interest. In addition, the agreements provide the Company, to the extent its partner has an unpaid liability under such credit enhancements, the right to receive distributions from the unconsolidated joint venture that would otherwise be made to the partner. However, there is no guarantee that such distributions will be made or will be sufficient to cover the Company's liability under such LTV maintenance agreements. The loans underlying the LTV maintenance agreements compriseinclude acquisition and development loans, construction revolvers and model home loans, and the agreements remain in force until the loans are satisfied. Due to the nature of the loans, the outstanding balance at any given time is subject to a number of factors including the status of site improvements, the mix of horizontal and vertical development underway, the timing of phase build outs, and the period necessary to complete the escrow process for homebuyers. As of June 30, 2019March 31, 2020 and December 31, 2018, $24.42019, $21.9 million and $41.3$28.6 million, respectively, was outstanding under loans that are credit enhanced by the Company through LTV maintenance agreements. Under the terms of the joint venture agreements, the Company's proportionate share of LTV maintenance agreement liabilities was $4.9 $4.4 million and $7.3$5.8 million, respectively, as of June 30, 2019March 31, 2020 and December 31, 2018. 2019.
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In addition, the Company has provided completion agreements regarding specific performance for certain projects whereby the Company is required to complete the given project with funds provided by the beneficiary of the agreement. If there are not adequate funds available under the specific project loans, the Company would then be subject to financial liability under such completion agreements. Typically, under such terms of the joint venture agreements, the Company has the right to apportion the respective share of any costs funded under such completion agreements to its partners. However, there is no guarantee that we will be able to recover against our partners for such amounts owed to us under the terms of such joint venture agreements. In connection with joint venture borrowings, the Company also selectively provides (a) an environmental indemnity provided to the lender that holds the lender harmless from and against losses arising from the discharge of hazardous materials from the property and non-compliance with applicable environmental laws; and (b) indemnification of the lender from "bad boy acts" of
We obtain surety bonds in the normal course of business to ensure completion of certain infrastructure improvements of our projects. As of June 30, 2019March 31, 2020 and December 31, 2018,2019, the Company had outstanding surety bonds totaling $52.8$46.3 million and $50.5$47.6 million, respectively. The estimated remaining costs to complete of such improvements as of June 30, 2019March 31, 2020 and December 31, 20182019 were $25.1 million$24.7 million and $20.3$29.1 million, respectively. The beneficiaries of the bonds are various municipalities, homeowners' associations, and other organizations. In the event that any such surety bond issued by a third party is called because the required improvements are not completed, the Company could be obligated to reimburse the issuer of the bond.
The Company accounts for contracts deemed to contain a lease under ASC 842.842,Leases. At the inception of a lease, or if a lease is subsequently modified, we determine whether the lease is an operating or financing lease. Our lease population is fully comprised of operating leases and includes leases for certain office space and equipment for use in our operations. For all leases with an expected term that exceeds one year, right-of-use assets and lease liabilities are recorded on the condensedwithin our consolidated balance sheets. The depreciable lives of right-of-use assets are limited to the expected term which would include any renewal options we expect to exercise. The exercise of lease renewal options is generally at our discretion and we expect that in the normal course of business, leases that expire will be renewed or replaced by other leases. Our lease paymentsagreements do not contain variable payments, any residual value guarantees or material restrictive covenants. Variable lease payments consist of non-lease services related to the lease. Variable lease payments are excluded from the right-of-use asset and lease liabilities and are expensed as incurred. Right-of-use lease assets are included in other assets and lease liabilities are recorded in accrued expenses and other liabilities within ourthe accompanying condensed consolidated balance sheets and total $2.5$1.7 million and $2.9$1.9 million, respectively,respectively, at June 30, 2019.
For the three and six months ended June 30, March 31, 2020 and 2019, lease costs and cash flow information for leases with terms in excess of one year was as follows:
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Lease cost: | ||||||||
Lease costs included in general and administrative expenses | $ | 311 | $ | 355 | ||||
Lease costs included in real estate inventories | 97 | 162 | ||||||
Lease costs included in selling and marketing expenses | 39 | 17 | ||||||
Net lease cost (1) | $ | 447 | $ | 534 | ||||
Other Information: | ||||||||
Lease cash flows (included in operating cash flows)(1) | $ | 498 | $ | 490 | ||||
(1) | Does not include the cost of short-term leases with terms of less than one year which totaled approximately $0.1 million and $0.3 million for the three months ended March 31, 2020, and 2019, respectively, or the benefit from a sublease agreement of one of our office spaces which totaled approximately $59,000 and $49,000 for the three months ended March 31, 2020 and 2019, respectively. |
| Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | ||||||
| (Dollars in thousands) | |||||||
| Lease cost: | |||||||
| Lease costs included in general and administrative expenses | $ | 265 | $ | 620 | |||
| Lease costs included in real estate inventories | 207 | 369 | |||||
| Lease costs included in selling and marketing expenses | 17 | 34 | |||||
Net lease cost (1) | $ | 489 | $ | 1,023 | |||
| Other Information: | |||||||
Lease cash flows (included in operating cash flows)(1) | $ | 563 | $ | 1,053 | |||
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Future minimum lease payments under our operating leases are as follows (dollars in thousands):
| Remaining for 2019 | $ | 971 | |
| 2020 | 1,615 | ||
| 2021 | 444 | ||
| 2022 | 10 | ||
| 2023 | 2 | ||
| Thereafter | — | ||
Total lease payments(1) | $ | 3,042 | |
Less: Interest(2) | 140 | ||
Present value of lease liabilities(3) | $ | 2,902 | |
Remaining for 2020 | $ | 1,284 | ||
2021 | 629 | |||
2022 | 34 | |||
2023 | 18 | |||
2024 | 2 | |||
Thereafter | — | |||
Total lease payments(1) | $ | 1,967 | ||
Less: Interest(2) | 74 | |||
| Present value of lease liabilities(3) | $ | 1,893 |
(1) | Lease payments include options to extend lease terms that are reasonably certain of being exercised. |
(2) | ||||
Our leases do not provide a readily determinable implicit rate. Therefore, we utilized our incremental borrowing rate for such leases to determine the present value of lease payments at the lease commencement date. |
(3) | The weighted average remaining lease term and weighted average incremental borrowing rate used in calculating our lease liabilities were |
During the 2020first quarter, the Company entered into a binding lease agreement for office space in Northern California that has not commenced. The weighted average remainingfair value of lease termpayments is approximately $0.9 million, and weighted average incremental borrowing rate used in calculating ourthe lease liabilities were 1.9 years and 5.2%, respectively at June 30, 2019.is expected to commence during the 2020second quarter.
12. Related Party Transactions
During the three and six months ended June 30, 2019 March 31, 2020 and 2018,2019, the Company incurred construction-related costs on behalf of its unconsolidated joint venturesventures totaling $1.5 million, $3.2 million, $1.5$1.2 million and $3.6$1.7 million, respectively. As of June 30, 2019March 31, 2020 and December 31, 2018, $0.22019, $0.1 million and $0.4$0.2 million, respectively, are included in due from affiliates in the accompanying condensed consolidated balance sheets related to suchsuch costs.
The Company has entered into agreements with its unconsolidated joint ventures to provide management services related to the underlying projects (collectively referred to as the "Management Agreements"). Pursuant to the Management Agreements, the Company receives a management fee based on each project’s revenues. During the three and six months ended June 30, 2019 March 31, 2020 and 2018,2019, the Company earned $0.6 million, $1.2 million, $0.7$0.4 million and $1.7$0.5 million, respectively, in management fees, which have been recorded as fee building revenues in the accompanying condensed consolidated statements of operations. As of June 30, 2019March 31, 2020 and December 31, 2018,2019, $0 and $0.2 million,$0, respectively, of management fees are included in due from affiliates in the accompanying condensed consolidated balance sheets.
One member of the Company's board of directors beneficially owns more than 10% of the Company's outstanding common stock through an affiliated entity, IHP Capital Partners VI, LLC ("IHP"), and is also affiliated with entities that have investments in two of the Company's unconsolidated joint ventures, TNHC Meridian Investors LLC (which is an owner of another entity, TNHC Newport LLC, which entity owned our "Meridian" project) and TNHC Russell Ranch LLC ("Russell Ranch"). The Company's investment in these two joint venturesventures was $9.8$15.6 million at March 31, 2020 and $13.7 million at June 30, 2019 and $6.5 million at December 31, 2018. A former member of the Company's board of directors who served during 2018 is affiliated with entities that have investments in three of the Company's unconsolidated joint ventures, Arantine Hills Holdings LP ("Bedford"), Calabasas Village LP, and TNHC-TCN Santa Clarita, LP. As of June 30, 2019 and December 31, 2018, the Company's investment in these three unconsolidated joint ventures totaled $10.9 million and $12.0 million, respectively.
During the 2019second quarter, the Company entered into a second amendment to the limited liability company agreement of Russell Ranch between the Company and IHP. Prior to the execution of the second amendment, each of IHP and the Company had contributed its maximum capital commitments pursuant to the joint venture agreement. Pursuant to the second amendment, the parties agreed to fund additional required capital in the aggregate amount of approximately $26 million for certain remaining backbone improvements for the Project (the “Phase 1 Backbone Improvements”) as follows: 50% by IHP and 50% by the Company (“Amendment Additional Capital”). The Amendment Additional Capital will be returned to IHP and the Company ahead of any other contributed capital; provided that none of the Amendment Additional Capital accrues a preferred return that base capital contributions are generally afforded under the joint venture agreement. To the extent of overruns on the Phase 1 Backbone Improvements, the Company is required to fund such overrun capital (“TNHC Overrun Capital”); provided that such contributions shall receive capital account credit. Pursuant to the second amendment, the distribution of cash flow under the agreement was amended to provide that Amendment Additional Capital would be returned prior to TNHC Overrun Capital, which would, in turn, be returned ahead of the base capital preferred return and base capital.
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TL Fab LP, an affiliate of one of the Company's non-employee directors, was engaged by the Company and some of its unconsolidated joint ventures as a trade contractor to provide metal fabrication services. For the three and six months ended June 30, 2019 March 31, 2020 and 2018,2019, the Company incurred $22,000, $55,000, $0.1 million and $0.2 million, respectively, for these services. For the same periods, the Company's unconsolidated joint ventures incurred $0, $0, $0 and $0.4 million,$33,000, respectively, for these services. Of these costs, $22,000 and $7,000none was due to TL Fab LP from the Company at June 30, 2019March 31, 2020 and December 31, 2018, respectively, and $0 and $8,000 was due to TL Fab LP from the Company's unconsolidated joint ventures at June 30, 2019 and December 31, 2018, respectively.
In its ordinary course of business, the Company enters into agreements to purchase lots from unconsolidated land development joint ventures of which it is a member. In accordance with ASC 360-20, Property, Plant and Equipment 360- Real Estate Sales ("ASC 360-20"),20, the Company defers its portion of the underlying gain from the joint venture's sale of these lots to the Company. When the Company purchases lots directly from the joint venture, the deferred gain is recorded as a reduction to the Company's land basis on the purchased lots. In this instance, the gain is ultimately recognized when the Company delivers lots to third-partythird-party home buyers at the time of the home closing. At June 30, 2019March 31, 2020 and December 31, 2018,2019, $0.2 million and
The Company’s land purchase agreement with the Cannery provides for reimbursementreimbursements of certain fee credits. The Company was notreimbursed $0.1 million in any fee credits from the Cannery during the sixthree months ended June 30, 2018.March 31, 2020 and 2019. As of June 30, 2019March 31, 2020 and December 31, 2018, $66,0002019, $15,000 and $37,000,$15,000, respectively, in fee credits was due to the Company from the Cannery, which is included in due from affiliates in the accompanying condensed consolidated balance sheets.
On June 18, 2015, the Company entered into an agreement that effectively transitioned Joseph Davis' role within the Company from that of Chief Investment Officer to that of a non-employee consultant to the Company effective June 26, 2015 ("("Transition Date"). As of the Transition Date, Mr. Davis ceased being an employee of the Company and became an independent contractor performing consulting services. For his services, Mr. Davis was compensated $5,000 per month through June 26, 2019 when his contract was amended to extend its term for one year and reduce his scope of services and compensation to $1,000 per month. At June 30, 2019, noMarch 31, 2020, 0 fees were due to Mr. Davis for his consulting services. Additionally, the Company entered into a construction agreement effective September 7, 2017, with The Joseph and Terri Davis Family Trust Dated August 25, 1999 ("("Davis Family Trust") of which Joseph Davis is a trustee. The agreement iswas a fee building contract pursuant to which the Company actsacted in the capacity of a general contractor to build a single family detached home on land owned by the Davis Family Trust. Construction of the home was completed during the 2019first quarter. For its services, the Company will receivereceived a contractor's fee and the Davis Family Trust will reimbursereimbursed the Company's field overhead costs. During the three and six months ended June 30,March 31, 2019, and 2018, the Company billed the Davis Family Trust $10,000, $0.5 million, $0.6 million and $0.7 million, respectively, including reimbursable construction costs and the Company's contractor's fees which are included in fee building revenues in the accompanying condensed consolidated statements of operations. Contractor's fees comprised $0, $15,000 $17,000 and $17,100 of the total billings for the three and six months ended June 30, 2019 and 2018, respectively.March 31,2019. The Company recorded $13,000, $0.5 million, $0.6 million and $0.6 million for the three and six months ended June 30,March 31, 2019 and 2018, respectively, for the costs of this fee building revenue which are included in fee building cost of sales in the accompanying condensed consolidated statements of operations. At June 30, 2019 March 31, 2020 and December 31, 2018,2019, the Company was due $0 and $0.6 million, respectively, from the Davis Family Trust for construction draws, which are included in due from affiliates in the accompanying condensed consolidated balance sheets.
On February 17, 2017, the Company entered into a consulting agreement that transitioned Mr. Stelmar's role from that of Chief Investment Officer to a non-employee consultant to the Company. While an employee of the Company, Mr. Stelmar served as an employee director of the Company's Board of Directors. The agreement providesprovided that effective upon Mr. Stelmar's termination of employment, he shall becomebecame a non-employee director and shall receivereceived the compensation and bewas subject to the requirements of a non-employee director pursuant to the Company's policies. For his consulting services, Mr. Stelmar is compensated $6,000 per month. The current term is through August 17, 2019was compensated $0 and may be extended upon mutual consent of$18,000 for the parties.three months ended March 31, 2020 and 2019, respectively. Additionally, Mr. Stelmar's outstanding restricted stock unit equity award granted in 2016 continued to vest in accordance with its original terms based on his continued provision of consulting services rather than continued employment and fully vested during the 2019first quarter. Mr. Stelmar's vested stock options remain outstanding based on Mr. Stelmar's continued service as a Board member. The consulting contract expired in August 2019 first quarter.and was not extended. At June 30, 2019March 31, 2020 and December 31, 2018, no2019, 0 fees were due to Mr. Stelmar for his consulting services.
On February 14, 2019, the Company entered into a consulting agreement that transitioned Thomas Redwitz's role from that of Chief Investment Officer to a non-employee consultant to the Company effective March 1, 2019. For his consulting services, Mr. Redwitz is compensated $10,000 per month. The agreement terminates originally was set to expire on March 1, 2020 and may bewas extended upon mutual consent of the parties.parties on a month to month basis at the original terms. For the months April 2020 and May 2020, the Company and Mr. Redwitz have agreed to a reduced consulting fee of $5,000 per month. At June 30, 2019, noMarch 31, 2020, 0 fees were due to Mr. Redwitz for his consulting services.
The Company entered into two transactions in each of agreements during 2018 and 2017 to purchase land from affiliates of IHP, which owns more than 10% of the Company's outstanding common stock and is affiliated with one member of the Company's board of directors. Certain land takedowns pursuant to these agreements occurred during 2019 or are scheduled to take place during 2020. Descriptions of these agreements and relevant takedown activity are described below.
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During 2017, agreement allows the Company the optionentered into an agreement with an IHP affiliate to purchase lots in Northern California in a phased takedown for a gross purchase price of $16.1 million with profit participation and master marketing fees due to the seller as outlined in the contract. As of June 30, 2019,The Company did not takedown any land pursuant to this contract during the three months ended March 31, 2020 and 2019. At March 31, 2020, the Company has taken down approximately two-thirdsall of the lots paidand paid $0.4 millionmillion in master marketing fees, and has a $0.3 million nonrefundable deposit outstanding onas of December 31, 2019, IHP was no longer affiliated with this development. Also in 2017, the remaining lots. The second 2017 transaction
In the first quarter 2018, the Company entered into an option agreement to purchase lots in phased takedowns with its Bedford joint venture. At the time of the initial agreement in 2018, the Bedford joint venture that iswas affiliated with onea former member of the Company's board of directors for the option to purchase lots in phased takedowns.directors. As of June 30, 2019,March 31, 2020, the Company has made a $1.5 million nonrefundable deposit as consideration for this option, andwith a portion of the deposit will be applied to the purchase price across the phases. The gross purchase price of the land iswas $10.0 million with profit participation and master marketing fees due to seller as outlined in the contract. Subsequent to June 30, During the 2019third quarter, the Company entered into an amendment to this agreement to reduce the gross purchase price of the land to $9.3 million. The Company did not take down any of the lots underlying this agreement during the three months ended March 31, 2020 and March 31, 2019. At March 31, 2020, the Company has taken down approximately two-thirdsall of the contracted lots and $0.7 the deposit was fully applied to the purchase and has paid $0.1 million of the nonrefundable deposit remains outstanding.in master marketing fees. During the fourth quarter 2018, the Company entered into a second option agreement with the Bedford joint venture to purchase lots in phased takedowns. The CompanyCompany made a $1.4 million nonrefundable deposit as consideration for the option, andwith a portion of the deposit willto be applied to the purchase price across the phases. The gross purchase price of the land is $10.5 million with profit participation and master marketing fees due to the seller pursuant to the agreement. The Company did not take down any optioned lots during the three months ended March 31, 2020 and took down 42% of the lots underlying this agreement during the three months ended March 31, 2019. At June 30, 2019,March 31, 2020, the Company had taken down approximately 42%approximately 92% of the optionedoptioned lots, paid $0.2 million in master marketing fees, and $0.8 million0 deposit remained outstanding.
During April 2020, the Company and its partner in the Bedford joint venture agreed in principle to a sale of our interest in the joint venture to our partner. We are currently in the process of drafting definitive agreements for our exit from the venture, but pursuant to a term sheet outlining the terms of the deposit remained outstanding.
The Company has provided credit enhancements in connection with joint venture borrowings in the form of LTV maintenance agreements in order to secure the joint venture's performance under the loans and maintenance of certain LTV ratios. In addition, the Company has provided completion agreements regarding specific performance for certain projects whereby the Company is required to complete the given project with funds provided by the beneficiary of the agreement. For more information regarding these agreements please refer to Note 11.
13. Stock-Based Compensation
The Company's 2014 Long-Term Incentive Plan (the "2014"2014 Incentive Plan"), was adopted by our board of directors in January 2014. The 2014 Incentive Plan provides for the grant of equity-based awards, including options to purchase shares of common stock, stock appreciation rights, restricted and unrestricted stock awards, restricted stock units and performance awards. The 2014 Incentive Plan will automatically expire on the tenth anniversary of its effective date.
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The number of shares of our common stock authorized to be issued under the 2014 Incentive Plan is 1,644,875 shares. To the extent that shares of the Company's common stock subject to an outstanding award granted under the 2014 Incentive Plan or any predecessor plan are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or the settlement of such award in cash, then such shares of common stock generally shall again be available under the 2014 Incentive Plan.
At our 2016 Annual Meeting of Shareholders on May 24, 2016, our shareholders approved the Company's 2016 Incentive Award Plan (the "2016"2016 Incentive Plan"). The 2016 Incentive Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and other stock- or cash-based awards. Non-employee directors of the Company and employees and consultants of the Company or any of its subsidiaries are eligible to receive awards under the 2016 Incentive Plan. On May 22, 2018, our shareholders approved the amended and restated 2016 Incentive Plan which increased the number of shares authorized for issuance under the plan from 800,000 to 2,100,000 shares. The amended and restated 2016 Incentive Plan will expire on April 4, 2028.
The Company has issued stock option and restricted stock unit awards under the 2014 Incentive Plan and stock option, restricted stock unit awards and performance share unit awards under the 2016 Incentive Plan. As of June 30, 2019,March 31, 2020, 61,443 shares remain available for grant under the 2014 Incentive Plan and 1,053,811 shares532,050 shares remain available for grant under the 2016 Incentive Plan. The exercise price of stock-based awards may not be less than the market value of the Company's common stock on the date of grant. The fair value for stock options is established at the date of grant using the Black-Scholes model for time-based vesting awards. The Company's stock option, restricted stock unit awards, and performance share unit awards typically vest over a one year to three years period and the stock options expire ten years from the date of grant.
A summary of the Company’s common stock option activity as of and for the sixthree months ended June 30, 2019 March 31, 2020 and 20182019 is presented below:
| Six Months Ended June 30, | |||||||||||||
| 2019 | 2018 | ||||||||||||
| Number of Shares | Weighted-Average Exercise Price per Share | Number of Shares | Weighted-Average Exercise Price per Share | ||||||||||
| Outstanding Stock Option Activity | |||||||||||||
| Outstanding, beginning of period | 821,470 | $ | 11.00 | 826,498 | $ | 11.00 | |||||||
| Granted | 249,283 | $ | 5.76 | — | $ | — | |||||||
| Exercised | — | $ | — | — | $ | — | |||||||
| Forfeited | (2,736 | ) | $ | 11.00 | (5,028 | ) | $ | 11.00 | |||||
| Outstanding, end of period | 1,068,017 | $ | 9.78 | 821,470 | $ | 11.00 | |||||||
| Exercisable, end of period | 818,734 | $ | 11.00 | 821,470 | $ | 11.00 | |||||||
Three Months Ended March 31, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Number of Shares | Weighted-Average Exercise Price per Share | Number of Shares | Weighted-Average Exercise Price per Share | |||||||||||||
Outstanding Stock Option Activity | ||||||||||||||||
Outstanding, beginning of period | 1,068,017 | $ | 9.78 | 821,470 | $ | 11.00 | ||||||||||
Granted | 161,479 | $ | 5.36 | 249,283 | $ | 5.76 | ||||||||||
Exercised | — | $ | — | — | $ | — | ||||||||||
Forfeited | — | $ | — | — | $ | — | ||||||||||
Outstanding, end of period | 1,229,496 | $ | 9.20 | 1,070,753 | $ | 9.78 | ||||||||||
Exercisable, end of period | 901,829 | $ | 10.52 | 821,470 | $ | 11.00 | ||||||||||
A summary of the Company’s restricted stock unit activity as of and for the sixthree months ended June 30, 2019 March 31, 2020 and 20182019 is presented below:
Three Months Ended March 31, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Number of Shares | Weighted-Average Grant-Date Fair Value per Share | Number of Shares | Weighted-Average Grant-Date Fair Value per Share | |||||||||||||
Restricted Stock Unit Activity | ||||||||||||||||
Outstanding, beginning of period | 592,116 | $ | 6.36 | 469,227 | $ | 10.75 | ||||||||||
Granted | 241,556 | $ | 5.36 | 135,473 | $ | 5.76 | ||||||||||
Vested | (152,177 | ) | $ | 9.45 | (229,545 | ) | $ | 10.60 | ||||||||
Forfeited | (428 | ) | $ | 11.68 | (46,571 | ) | $ | 10.89 | ||||||||
Outstanding, end of period | 681,067 | $ | 5.32 | 328,584 | $ | 8.78 | ||||||||||
| Six Months Ended June 30, | |||||||||||||
| 2019 | 2018 | ||||||||||||
| Number of Shares | Weighted-Average Grant-Date Fair Value per Share | Number of Shares | Weighted-Average Grant-Date Fair Value per Share | ||||||||||
| Restricted Stock Unit Activity | |||||||||||||
| Outstanding, beginning of period | 469,227 | $ | 10.75 | 562,082 | $ | 10.72 | |||||||
| Granted | 230,774 | $ | 5.28 | 179,268 | $ | 11.24 | |||||||
| Vested | (277,401 | ) | $ | 10.50 | (270,363 | ) | $ | 11.02 | |||||
| Forfeited | (48,178 | ) | $ | 10.91 | — | $ | — | ||||||
| Outstanding, end of period | 374,422 | $ | 7.54 | 470,987 | $ | 10.74 | |||||||
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Company’s performance share unit activity as of and for the sixthree months ended June 30, 2019 March 31, 2020 and 20182019 is presented below:
| Six Months Ended June 30, | |||||||||||||
| 2019 | 2018 | ||||||||||||
| Number of Shares | Weighted-Average Grant-Date Fair Value per Share | Number of Shares | Weighted-Average Grant-Date Fair Value per Share | ||||||||||
| Performance Share Unit Activity | |||||||||||||
| Outstanding, beginning of period | 125,422 | $ | 11.68 | — | $ | — | |||||||
| Granted (at target) | — | $ | — | 125,422 | $ | 11.68 | |||||||
| Vested | — | $ | — | — | $ | — | |||||||
| Forfeited | (26,882 | ) | $ | 11.68 | — | $ | — | ||||||
| Outstanding, end of period (at target) | 98,540 | $ | 11.68 | 125,422 | $ | 11.68 | |||||||
Three Months Ended March 31, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Number of Shares | Weighted-Average Grant-Date Fair Value per Share | Number of Shares | Weighted-Average Grant-Date Fair Value per Share | |||||||||||||
Performance Share Unit Activity | ||||||||||||||||
Outstanding, beginning of period | — | $ | — | 125,422 | $ | 11.68 | ||||||||||
Granted (at target) | — | $ | — | — | $ | — | ||||||||||
Vested | — | $ | — | — | $ | — | ||||||||||
Forfeited | — | $ | — | (26,882 | ) | $ | 11.68 | |||||||||
Outstanding, end of period (at target) | — | $ | — | 98,540 | $ | 11.68 | ||||||||||
The expense related to the Company's stock-based compensation programs, included in general and administrative expense in the accompanying condensed consolidated statements of operations, was as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| (Dollars in thousands) | |||||||||||||||
| Expense related to: | |||||||||||||||
| Stock options | $ | 50 | $ | — | $ | 72 | $ | — | |||||||
| Restricted stock units and performance share units | 473 | 862 | 1,017 | 1,704 | |||||||||||
| $ | 523 | $ | 862 | $ | 1,089 | $ | 1,704 | ||||||||
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Expense related to: | ||||||||
Stock options | $ | 64 | $ | 22 | ||||
Restricted stock units and performance share units | 525 | 544 | ||||||
| $ | 589 | $ | 566 | |||||
The following table presents details of the assumptions used to calculate the weighted-average grant date fair value of common stock options granted by the Company:
| Six Months Ended June 30, | |||
| 2019 | 2018 | ||
| Expected term (in years) | 6.0 | 0 | |
| Expected volatility | 39.9% | — | |
| Risk-free interest rate | 2.5% | — | |
| Expected dividends | — | — | |
| Weighted-average grant date fair value | $2.43 | $0 | |
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Expected term (in years) | 6.0 | 6.0 | ||||||
Expected volatility | 41.8 | % | 39.9 | % | ||||
Risk-free interest rate | 1.4 | % | 2.5 | % | ||||
Expected dividends | — | — | ||||||
Weighted-average grant date fair value per share | $ | 2.24 | $ | 2.43 | ||||
We used the "simplified method" to establish the expected term of the common stock options granted by the Company. Our restricted stock unit awards and performance share unit awards are valued based on the closing price of our common stock on the date of grant. The number of performance share units that willwould vest rangesranged from 50%-150% of the target amount awarded based on actual cumulative earnings per share and return on equity growth from 2018-2019,2018-2019, subject to initial achievement of minimum thresholds. We evaluateevaluated the probability of achieving the performance targets established under each of the outstanding performance share unit awards quarterly during 2018and estimate2019 and estimated the number of underlying units that arewere probable of being issued. Compensation expense for restricted stock unit and performance share unit awards iswas being recognized using the straight-line method over the requisite service period, subject to cumulative catch-up adjustments required as a result of changes in the number shares probable of being issued for performance share unit awards. At June 30, 2019, the probability of achieving the performance targets associated with the outstanding performance share unit awards was estimated to be 0%. Forfeitures are recognized in compensation cost during the period that the award forfeiture occurs.
At March 31, 2020, the amount of unearned stock-based compensation currently estimated to be expensed through 20222023 is $2.8$3.6 million. The weighted-average period over which the unearned stock-based compensation is expected to be recognized is 1.82.3 years. If there are any modifications or cancellations of the underlying unvested awards, the Company may be required to accelerate, increase or cancel anyany remaining unearned stock-based compensation expense.
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14. Income Taxes
For the three and six months ended June 30, March 31, 2020 and 2019, the Company recorded an income tax provisionbenefit of $1.0$9.9 million and $0.3$0.7 million, respectively. Comparatively, the Company recorded an income tax provision of $0.1 million and an income tax benefit of $0.8 million for the three and six months ended June 30, 2018, respectively. The Company's effective tax rate for all periodsthe three months ended March 31, 2020, differs from the federal statutory rate due to discrete items, state income tax rates and tax credits for energy efficient homes. The 2020first quarter discrete items totaled an $8.1 million benefit, $5.8 million of which related to the $14.0 million project abandonment costs recorded during the quarter and a $2.1 million benefit related to the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") signed into law on March 27, 2020. For more information on the abandonment costs, please refer to Note 4. The CARES Act allows companies to carry back net operating losses generated in 2018 through 2020 for five years. The Company recognized a $2.1 million discrete benefit related to the remeasurement of deferred tax assets originally valued at a 21% federal statutory tax rate which are now available to be carried back to tax years with a 35% federal statutory rate. The Company's effective tax rate for the three months ended March 31, 2019 differs from the federal statutory tax rates due to state income taxes, estimated deduction limitations for executive compensation and discrete items. The Company recorded aprovision for discrete items totaled $0.3 million discrete provision infor the first sixthree months of ended March 31,2019 and was primarily related to stock compensation and state income tax rate changes while a $0.4 million discrete benefit was takenchanges.
The CARES Act includes various income and payroll tax provisions that we are in the comparable 2018 period primarily relatedprocess of analyzing to energy credits.determine the financial impact on our condensed consolidated financial statements. Aside from the carry back provision discussed above, the Company does not believe any other aspects of the CARES Act were material to the Company's benefit for income taxes during the 2020first quarter.
15. Segment Information
The Company’s operations are organized into three3 reportable segments: two homebuilding segments (Arizona and California) and fee building. In determining the most appropriate reportable segments, we considered similar economic and other characteristics, including product types, average selling prices, gross margins, production processes, suppliers, subcontractors, regulatory environments, land position, and underlying demand and supply in accordance with ASC 280. Our California homebuilding reportable segment aggregates the NorthernSouthern California and SouthernNorthern California homebuilding operating segments.
Our homebuilding operations acquire and develop land and construct and sell single-family attached and detached
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The reportable segments follow the same accounting policies as our consolidated financial statements described in Note 1. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented.
Financial information relating to reportable segments was as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||
| (Dollars in thousands) | |||||||||||||||
| Homebuilding revenues: | |||||||||||||||
| California | $ | 132,830 | $ | 117,460 | $ | 216,162 | $ | 196,897 | |||||||
| Arizona | 7,634 | — | 23,488 | — | |||||||||||
| Total homebuilding revenues | 140,464 | 117,460 | 239,650 | 196,897 | |||||||||||
| Fee building revenues, including management fees | 22,285 | 38,095 | 41,947 | 81,889 | |||||||||||
| Total revenues | $ | 162,749 | $ | 155,555 | $ | 281,597 | $ | 278,786 | |||||||
| Homebuilding pretax income (loss): | |||||||||||||||
| California | $ | 2,846 | $ | 83 | $ | 279 | $ | (1,818 | ) | ||||||
| Arizona | (796 | ) | (958 | ) | (1,274 | ) | (1,663 | ) | |||||||
| Total homebuilding pretax income (loss) | 2,050 | (875 | ) | (995 | ) | (3,481 | ) | ||||||||
| Fee building pretax income, including management fees | 515 | 1,057 | 909 | 2,152 | |||||||||||
| Total pretax income (loss) | $ | 2,565 | $ | 182 | $ | (86 | ) | $ | (1,329 | ) | |||||
| June 30, | December 31, | ||||||
| 2019 | 2018 | ||||||
| (Dollars in thousands) | |||||||
| Homebuilding assets: | |||||||
| California | $ | 548,223 | $ | 551,807 | |||
| Arizona | 95,370 | 86,205 | |||||
| Total homebuilding assets | 643,593 | 638,012 | |||||
| Fee building assets | 7,064 | 10,879 | |||||
| Corporate unallocated assets | 22,600 | 47,206 | |||||
| Total assets | $ | 673,257 | $ | 696,097 | |||
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Homebuilding revenues: | ||||||||
California home sales | $ | 83,280 | $ | 83,332 | ||||
California land sales | 147 | — | ||||||
Arizona home sales | 12,379 | 15,854 | ||||||
Total homebuilding revenues | 95,806 | 99,186 | ||||||
Fee building revenues, including management fees | 36,227 | 19,662 | ||||||
Total revenues | $ | 132,033 | $ | 118,848 | ||||
Homebuilding pretax loss: | ||||||||
California | $ | (4,451 | ) | $ | (2,567 | ) | ||
Arizona | (14,692 | ) | (478 | ) | ||||
Total homebuilding loss | (19,143 | ) | (3,045 | ) | ||||
Fee building pretax income, including management fees | 730 | 394 | ||||||
Total loss | $ | (18,413 | ) | $ | (2,651 | ) | ||
March 31, | December 31, | |||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Homebuilding assets: | ||||||||
California | $ | 398,714 | $ | 416,179 | ||||
Arizona | 61,519 | 82,234 | ||||||
Total homebuilding assets | 460,233 | 498,413 | ||||||
Fee building assets | 12,636 | 11,193 | ||||||
Corporate unallocated assets | 107,067 | 93,583 | ||||||
Total assets | $ | 579,936 | $ | 603,189 | ||||
16. Supplemental Disclosure of Cash Flow Information
The following table presents certain supplemental cash flow information:
Three Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Supplemental disclosures of cash flow information | ||||||||
Interest paid, net of amounts capitalized | $ | — | $ | — | ||||
Income taxes paid | $ | — | $ | — | ||||
| Six Months Ended June 30, | |||||||
| 2019 | 2018 | ||||||
| (Dollars in thousands) | |||||||
| Supplemental disclosures of cash flow information | |||||||
| Interest paid, net of amounts capitalized | $ | — | $ | — | |||
| Income taxes paid | $ | 240 | $ | 7,000 | |||
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
17. Supplemental Guarantor Information
The Company's 7.25% Senior Notes due 2022 (the "Notes") are guaranteed, on an unsecured basis, jointly and severally, by all of the Company's 100% owned subsidiaries (collectively, the "Guarantors"). The guarantees are full and unconditional. The Indenture governing the Notes provides that the guarantees of a Guarantor will be automatically and unconditionally released and discharged: (1)(1) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the equity interests of such Guarantor after which the applicable Guarantor is no longer a "Restricted Subsidiary" (as defined in the Indenture), which sale, transfer, exchange or other disposition is made in compliance with applicable provisions of the Indenture; (2)(2) upon the proper designation of such Guarantor as an "Unrestricted Subsidiary" (as defined in the Indenture), in accordance with the Indenture; (3)(3) upon request of the Company and certification in an officers’ certificate provided to the trustee that the applicable Guarantor has become an "Immaterial Subsidiary" (as defined in the indenture), so long as such Guarantor would not otherwise be required to provide a guarantee pursuant to the Indenture; provided that, if immediately after giving effect to such release the consolidated tangible assets of all Immaterial Subsidiaries that are not Guarantors would exceed 5.0% of consolidated tangible assets, no such release shall occur, (4)(4) if the Company exercises its legal defeasance option or covenant defeasance option under the Indenture or if the obligations of the Company and the Guarantors are discharged in compliance with applicable provisions of the Indenture, upon such exercise or discharge; (5)(5) unless a default has occurred and is continuing, upon the release or discharge of such Guarantor from its guarantee of any indebtedness for borrowed money of the Company and the Guarantors so long as such Guarantor would not then otherwise be required to provide a guarantee pursuant to the Indenture; or (6)(6) upon the full satisfaction of the Company’s obligations under the Indenture; provided that in each case if such Guarantor has incurred any indebtedness in reliance on its status as a Guarantor in compliance with applicable provisions of the Indenture, such Guarantor’s obligations under such indebtedness, as the case may be, so incurred are satisfied in full and discharged or are otherwise permitted to be incurred by a Restricted Subsidiary (other than a Guarantor) in compliance with applicable provisions of the Indenture. The Company has determined that separate, full financial statements of the Guarantors would not be material to investors and, accordingly, supplemental financial information for the guarantors is presented.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
March 31, 2020 | ||||||||||||||||||||
NWHM | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated NWHM | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 69,603 | $ | 18,085 | $ | 175 | $ | — | $ | 87,863 | ||||||||||
Restricted cash | — | 424 | — | — | 424 | |||||||||||||||
Contracts and accounts receivable | 11 | 16,514 | — | (888 | ) | 15,637 | ||||||||||||||
Intercompany receivables | 262,949 | — | — | (262,949 | ) | — | ||||||||||||||
Due from affiliates | — | 108 | — | — | 108 | |||||||||||||||
Real estate inventories | — | 398,973 | — | — | 398,973 | |||||||||||||||
Investment in and advances to unconsolidated joint ventures | — | 29,237 | — | — | 29,237 | |||||||||||||||
Investment in subsidiaries | 171,369 | — | — | (171,369 | ) | — | ||||||||||||||
Deferred tax asset, net | 16,060 | 529 | — | — | 16,589 | |||||||||||||||
Other assets | 20,324 | 10,754 | 27 | — | 31,105 | |||||||||||||||
Total assets | $ | 540,316 | $ | 474,624 | $ | 202 | $ | (435,206 | ) | $ | 579,936 | |||||||||
Liabilities and equity | ||||||||||||||||||||
Accounts payable | $ | 47 | $ | 20,991 | $ | — | $ | — | $ | 21,038 | ||||||||||
Accrued expenses and other liabilities | 17,566 | 19,368 | 26 | (877 | ) | 36,083 | ||||||||||||||
Intercompany payables | — | 262,949 | — | (262,949 | ) | — | ||||||||||||||
Due to affiliates | — | 11 | — | (11 | ) | — | ||||||||||||||
Senior notes, net | 300,479 | — | — | — | 300,479 | |||||||||||||||
Total liabilities | 318,092 | 303,319 | 26 | (263,837 | ) | 357,600 | ||||||||||||||
Total stockholders' equity | 222,224 | 171,305 | 64 | (171,369 | ) | 222,224 | ||||||||||||||
Non-controlling interest in subsidiary | — | — | 112 | — | 112 | |||||||||||||||
Total equity | 222,224 | 171,305 | 176 | (171,369 | ) | 222,336 | ||||||||||||||
Total liabilities and equity | $ | 540,316 | $ | 474,624 | $ | 202 | $ | (435,206 | ) | $ | 579,936 |
| ||||||||
| June 30, 2019 | |||||||||||||||||||
| NWHM | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated NWHM | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||
| Assets | |||||||||||||||||||
| Cash and cash equivalents | $ | 4,005 | $ | 44,040 | $ | 179 | $ | — | $ | 48,224 | |||||||||
| Restricted cash | — | 124 | — | — | 124 | ||||||||||||||
| Contracts and accounts receivable | 8 | 16,518 | — | (413 | ) | 16,113 | |||||||||||||
| Intercompany receivables | 228,506 | — | — | (228,506 | ) | — | |||||||||||||
| Due from affiliates | — | 218 | — | — | 218 | ||||||||||||||
| Real estate inventories | — | 541,954 | — | — | 541,954 | ||||||||||||||
| Investment in and advances to unconsolidated joint ventures | — | 33,637 | — | — | 33,637 | ||||||||||||||
| Investment in subsidiaries | 370,716 | — | — | (370,716 | ) | — | |||||||||||||
| Other assets | 18,975 | 14,003 | 12 | (3 | ) | 32,987 | |||||||||||||
| Total assets | $ | 622,210 | $ | 650,494 | $ | 191 | $ | (599,638 | ) | $ | 673,257 | ||||||||
| Liabilities and equity | |||||||||||||||||||
| Accounts payable | $ | 329 | $ | 26,300 | $ | — | $ | — | $ | 26,629 | |||||||||
| Accrued expenses and other liabilities | 7,723 | 25,001 | 59 | (408 | ) | 32,375 | |||||||||||||
| Intercompany payables | — | 228,506 | — | (228,506 | ) | — | |||||||||||||
| Due to affiliates | — | 8 | — | (8 | ) | — | |||||||||||||
| Unsecured revolving credit facility | 66,000 | — | — | — | 66,000 | ||||||||||||||
| Senior notes, net | 309,060 | — | — | — | 309,060 | ||||||||||||||
| Total liabilities | 383,112 | 279,815 | 59 | (228,922 | ) | 434,064 | |||||||||||||
| Stockholders' equity | 239,098 | 370,679 | 37 | (370,716 | ) | 239,098 | |||||||||||||
| Non-controlling interest in subsidiary | — | — | 95 | — | 95 | ||||||||||||||
| Total equity | 239,098 | 370,679 | 132 | (370,716 | ) | 239,193 | |||||||||||||
| Total liabilities and equity | $ | 622,210 | $ | 650,494 | $ | 191 | $ | (599,638 | ) | $ | 673,257 | ||||||||
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019 | ||||||||||||||||||||
NWHM | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated NWHM | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 66,166 | $ | 12,978 | $ | 170 | $ | — | $ | 79,314 | ||||||||||
Restricted cash | — | 117 | — | — | 117 | |||||||||||||||
Contracts and accounts receivable | 3 | 16,403 | — | (424 | ) | 15,982 | ||||||||||||||
Intercompany receivables | 258,372 | — | — | (258,372 | ) | — | ||||||||||||||
Due from affiliates | — | 238 | — | — | 238 | |||||||||||||||
Real estate inventories | — | 433,938 | — | — | 433,938 | |||||||||||||||
Investment in and advances to unconsolidated joint ventures | — | 30,217 | — | — | 30,217 | |||||||||||||||
Investment in subsidiaries | 198,448 | — | — | (198,448 | ) | — | ||||||||||||||
| Deferred tax asset, net | 17,003 | 500 | — | — | 17,503 | |||||||||||||||
Other assets | 9,505 | 16,340 | 35 | — | 25,880 | |||||||||||||||
Total assets | $ | 549,497 | $ | 510,731 | $ | 205 | $ | (457,244 | ) | $ | 603,189 | |||||||||
Liabilities and equity | ||||||||||||||||||||
Accounts payable | $ | 68 | $ | 24,973 | $ | 3 | $ | — | $ | 25,044 | ||||||||||
Accrued expenses and other liabilities | 11,950 | 28,999 | 26 | (421 | ) | 40,554 | ||||||||||||||
Intercompany payables | — | 258,372 | — | (258,372 | ) | — | ||||||||||||||
Due to affiliates | — | 3 | — | (3 | ) | — | ||||||||||||||
Senior notes, net | 304,832 | — | — | — | 304,832 | |||||||||||||||
Total liabilities | 316,850 | 312,347 | 29 | (258,796 | ) | 370,430 | ||||||||||||||
Total stockholders' equity | 232,647 | 198,384 | 64 | (198,448 | ) | 232,647 | ||||||||||||||
Non-controlling interest in subsidiary | — | — | 112 | — | 112 | |||||||||||||||
Total equity | 232,647 | 198,384 | 176 | (198,448 | ) | 232,759 | ||||||||||||||
Total liabilities and equity | $ | 549,497 | $ | 510,731 | $ | 205 | $ | (457,244 | ) | $ | 603,189 | |||||||||
| December 31, 2018 | |||||||||||||||||||
| NWHM | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated NWHM | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||
| Assets | |||||||||||||||||||
| Cash and cash equivalents | $ | 28,877 | $ | 13,249 | $ | 147 | $ | — | $ | 42,273 | |||||||||
| Restricted cash | — | 269 | — | — | 269 | ||||||||||||||
| Contracts and accounts receivable | 7 | 18,926 | — | (668 | ) | 18,265 | |||||||||||||
| Intercompany receivables | 192,341 | — | — | (192,341 | ) | — | |||||||||||||
| Due from affiliates | — | 1,218 | — | — | 1,218 | ||||||||||||||
| Real estate inventories | — | 566,290 | — | — | 566,290 | ||||||||||||||
| Investment in and advances to unconsolidated joint ventures | — | 34,330 | — | — | 34,330 | ||||||||||||||
| Investment in subsidiaries | 396,466 | — | — | (396,466 | ) | — | |||||||||||||
| Other assets | 18,643 | 14,812 | — | (3 | ) | 33,452 | |||||||||||||
| Total assets | $ | 636,334 | $ | 649,094 | $ | 147 | $ | (589,478 | ) | $ | 696,097 | ||||||||
| Liabilities and equity | |||||||||||||||||||
| Accounts payable | $ | 240 | $ | 39,151 | $ | — | $ | — | $ | 39,391 | |||||||||
| Accrued expenses and other liabilities | 8,492 | 21,129 | 71 | (664 | ) | 29,028 | |||||||||||||
| Intercompany payables | — | 192,341 | — | (192,341 | ) | — | |||||||||||||
| Due to affiliates | — | 7 | — | (7 | ) | — | |||||||||||||
| Unsecured revolving credit facility | 67,500 | — | — | — | 67,500 | ||||||||||||||
| Senior notes, net | 320,148 | — | — | — | 320,148 | ||||||||||||||
| Total liabilities | 396,380 | 252,628 | 71 | (193,012 | ) | 456,067 | |||||||||||||
| Stockholders' equity | 239,954 | 396,466 | — | (396,466 | ) | 239,954 | |||||||||||||
| Non-controlling interest in subsidiary | — | — | 76 | — | 76 | ||||||||||||||
| Total equity | 239,954 | 396,466 | $ | 76 | (396,466 | ) | 240,030 | ||||||||||||
| Total liabilities and equity | $ | 636,334 | $ | 649,094 | $ | 147 | $ | (589,478 | ) | $ | 696,097 | ||||||||
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2020 | ||||||||||||||||||||
NWHM | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated NWHM | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Home sales | $ | — | $ | 95,659 | $ | — | $ | — | $ | 95,659 | ||||||||||
| Land sales | — | 147 | — | — | 147 | |||||||||||||||
Fee building | — | 36,227 | — | — | 36,227 | |||||||||||||||
| — | 132,033 | — | — | 132,033 | ||||||||||||||||
Cost of Sales: | ||||||||||||||||||||
Home sales | — | 84,722 | — | — | 84,722 | |||||||||||||||
| Land sales | — | 147 | — | — | 147 | |||||||||||||||
Fee building | — | 35,497 | — | — | 35,497 | |||||||||||||||
| — | 120,366 | — | — | 120,366 | ||||||||||||||||
Gross Margin: | ||||||||||||||||||||
Home sales | — | 10,937 | — | — | 10,937 | |||||||||||||||
| Land sales | — | — | — | — | — | |||||||||||||||
Fee building | — | 730 | — | — | 730 | |||||||||||||||
| — | 11,667 | — | — | 11,667 | ||||||||||||||||
Selling and marketing expenses | — | (7,466 | ) | — | — | (7,466 | ) | |||||||||||||
General and administrative expenses | 221 | (6,244 | ) | — | — | (6,023 | ) | |||||||||||||
Equity in net loss of unconsolidated joint ventures | — | (1,937 | ) | — | — | (1,937 | ) | |||||||||||||
Equity in net loss of subsidiaries | (10,530 | ) | — | — | 10,530 | — | ||||||||||||||
| Interest expense | — | (718 | ) | — | — | (718 | ) | |||||||||||||
| Project abandonment costs | — | (14,036 | ) | — | — | (14,036 | ) | |||||||||||||
| Loss on early extinguishment of debt | (123 | ) | — | — | — | (123 | ) | |||||||||||||
Other income (expense), net | 193 | 30 | — | — | 223 | |||||||||||||||
Pretax loss | (10,239 | ) | (18,704 | ) | — | 10,530 | (18,413 | ) | ||||||||||||
Benefit for income taxes | 1,763 | 8,174 | — | — | 9,937 | |||||||||||||||
Net loss | (8,476 | ) | (10,530 | ) | — | 10,530 | (8,476 | ) | ||||||||||||
Net loss attributable to non-controlling interest in subsidiary | — | — | — | — | — | |||||||||||||||
Net loss attributable to The New Home Company Inc. | $ | (8,476 | ) | $ | (10,530 | ) | $ | — | $ | 10,530 | $ | (8,476 | ) | |||||||
| Three Months Ended June 30, 2019 | |||||||||||||||||||
| NWHM | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated NWHM | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||
| Revenues: | |||||||||||||||||||
| Home sales | $ | — | $ | 140,464 | $ | — | $ | — | $ | 140,464 | |||||||||
| Fee building | — | 22,285 | — | — | 22,285 | ||||||||||||||
| — | 162,749 | — | — | 162,749 | |||||||||||||||
| Cost of Sales: | |||||||||||||||||||
| Home sales | — | 123,582 | (57 | ) | — | 123,525 | |||||||||||||
| Fee building | — | 21,770 | — | — | 21,770 | ||||||||||||||
| — | 145,352 | (57 | ) | — | 145,295 | ||||||||||||||
| Gross Margin: | |||||||||||||||||||
| Home sales | — | 16,882 | 57 | — | 16,939 | ||||||||||||||
| Fee building | — | 515 | — | — | 515 | ||||||||||||||
| — | 17,397 | 57 | — | 17,454 | |||||||||||||||
| Selling and marketing expenses | — | (9,683 | ) | — | — | (9,683 | ) | ||||||||||||
| General and administrative expenses | 617 | (6,458 | ) | — | — | (5,841 | ) | ||||||||||||
| Equity in net income of unconsolidated joint ventures | — | 185 | — | — | 185 | ||||||||||||||
| Equity in net income of subsidiaries | 1,087 | — | — | (1,087 | ) | — | |||||||||||||
| Gain on early extinguishment of debt | 552 | — | — | — | 552 | ||||||||||||||
| Other income (expense), net | (106 | ) | 4 | — | — | (102 | ) | ||||||||||||
| Pretax income | 2,150 | 1,445 | 57 | (1,087 | ) | 2,565 | |||||||||||||
| Provision for income taxes | (578 | ) | (396 | ) | — | — | (974 | ) | |||||||||||
| Net income | 1,572 | 1,049 | 57 | (1,087 | ) | 1,591 | |||||||||||||
| Net income attributable to non-controlling interest in subsidiary | — | — | (19 | ) | — | (19 | ) | ||||||||||||
| Net income attributable to The New Home Company Inc. | $ | 1,572 | $ | 1,049 | $ | 38 | $ | (1,087 | ) | $ | 1,572 | ||||||||
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2019 | ||||||||||||||||||||
NWHM | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated NWHM | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Home sales | $ | — | $ | 99,186 | $ | — | $ | — | $ | 99,186 | ||||||||||
Fee building | — | 19,662 | — | — | 19,662 | |||||||||||||||
| — | 118,848 | — | — | 118,848 | ||||||||||||||||
Cost of Sales: | ||||||||||||||||||||
Home sales | — | 86,569 | — | — | 86,569 | |||||||||||||||
Fee building | — | 19,268 | — | — | 19,268 | |||||||||||||||
| — | 105,837 | — | — | 105,837 | ||||||||||||||||
Gross Margin: | ||||||||||||||||||||
Home sales | — | 12,617 | — | — | 12,617 | |||||||||||||||
Fee building | — | 394 | — | — | 394 | |||||||||||||||
| — | 13,011 | — | — | 13,011 | ||||||||||||||||
Selling and marketing expenses | — | (8,679 | ) | — | — | (8,679 | ) | |||||||||||||
General and administrative expenses | (566 | ) | (6,825 | ) | — | — | (7,391 | ) | ||||||||||||
Equity in net income of unconsolidated joint ventures | — | 184 | — | — | 184 | |||||||||||||||
Equity in net loss of subsidiaries | (1,712 | ) | — | — | 1,712 | — | ||||||||||||||
| Gain on early extinguishment of debt | 417 | — | — | — | 417 | |||||||||||||||
| Project abandonment costs | — | (5 | ) | — | — | (5 | ) | |||||||||||||
Other income (expense), net | (62 | ) | (126 | ) | — | — | (188 | ) | ||||||||||||
Pretax loss | (1,923 | ) | (2,440 | ) | — | 1,712 | (2,651 | ) | ||||||||||||
(Provision) benefit for income taxes | (64 | ) | 728 | — | — | 664 | ||||||||||||||
Net loss | (1,987 | ) | (1,712 | ) | — | 1,712 | (1,987 | ) | ||||||||||||
Net loss attributable to non-controlling interest in subsidiary | — | — | — | — | — | |||||||||||||||
Net loss attributable to The New Home Company Inc. | $ | (1,987 | ) | $ | (1,712 | ) | $ | — | $ | 1,712 | $ | (1,987 | ) | |||||||
| Three Months Ended June 30, 2018 | |||||||||||||||||||
| NWHM | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated NWHM | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||
| Revenues: | |||||||||||||||||||
| Home sales | $ | — | $ | 117,460 | $ | — | $ | — | $ | 117,460 | |||||||||
| Fee building | — | 38,095 | — | — | 38,095 | ||||||||||||||
| — | 155,555 | — | — | 155,555 | |||||||||||||||
| Cost of Sales: | |||||||||||||||||||
| Home sales | — | 102,680 | (2 | ) | — | 102,678 | |||||||||||||
| Fee building | — | 37,038 | — | — | 37,038 | ||||||||||||||
| — | 139,718 | (2 | ) | — | 139,716 | ||||||||||||||
| Gross Margin: | |||||||||||||||||||
| Home sales | — | 14,780 | 2 | — | 14,782 | ||||||||||||||
| Fee building | — | 1,057 | — | — | 1,057 | ||||||||||||||
| — | 15,837 | 2 | — | 15,839 | |||||||||||||||
| Selling and marketing expenses | — | (9,466 | ) | — | — | (9,466 | ) | ||||||||||||
| General and administrative expenses | 305 | (6,281 | ) | (3 | ) | — | (5,979 | ) | |||||||||||
| Equity in net loss of unconsolidated joint ventures | — | (120 | ) | — | — | (120 | ) | ||||||||||||
| Equity in net loss of subsidiaries | (58 | ) | — | — | 58 | — | |||||||||||||
| Other income (expense), net | (35 | ) | (57 | ) | — | — | (92 | ) | |||||||||||
| Pretax income (loss) | 212 | (87 | ) | (1 | ) | 58 | 182 | ||||||||||||
| (Provision) benefit for income taxes | (97 | ) | 30 | — | — | (67 | ) | ||||||||||||
| Net income (loss) | 115 | (57 | ) | (1 | ) | 58 | 115 | ||||||||||||
| Net loss attributable to non-controlling interest in subsidiary | — | — | — | — | — | ||||||||||||||
| Net income (loss) attributable to The New Home Company Inc. | $ | 115 | $ | (57 | ) | $ | (1 | ) | $ | 58 | $ | 115 | |||||||
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2020 | ||||||||||||||||||||
NWHM | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated NWHM | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Net cash (used in) provided by operating activities | $ | (5,549 | ) | $ | 22,978 | $ | 5 | $ | (133 | ) | $ | 17,301 | ||||||||
Investing activities: | ||||||||||||||||||||
Purchases of property and equipment | (68 | ) | (57 | ) | — | — | (125 | ) | ||||||||||||
Contributions and advances to unconsolidated joint ventures | — | (2,057 | ) | — | — | (2,057 | ) | |||||||||||||
Contributions to subsidiaries from corporate | (21,800 | ) | — | — | 21,800 | — | ||||||||||||||
Distributions of capital from subsidiaries to corporate | 38,217 | — | — | (38,217 | ) | — | ||||||||||||||
| Distributions of capital and repayment of advances from unconsolidated joint ventures | — | 1,100 | — | — | 1,100 | |||||||||||||||
Net cash provided by (used in) investing activities | $ | 16,349 | $ | (1,014 | ) | $ | — | $ | (16,417 | ) | $ | (1,082 | ) | |||||||
Financing activities: | ||||||||||||||||||||
Repurchase of senior notes | (4,827 | ) | — | — | — | (4,827 | ) | |||||||||||||
Contributions to subsidiaries from corporate | — | 21,800 | — | (21,800 | ) | — | ||||||||||||||
Distributions to corporate from subsidiaries | — | (38,350 | ) | — | 38,350 | — | ||||||||||||||
Repurchases of common stock | (2,233 | ) | — | — | — | (2,233 | ) | |||||||||||||
Tax withholding paid on behalf of employees for stock awards | (303 | ) | — | — | — | (303 | ) | |||||||||||||
Net cash used in financing activities | $ | (7,363 | ) | $ | (16,550 | ) | $ | — | $ | 16,550 | $ | (7,363 | ) | |||||||
| Net increase in cash, cash equivalents and restricted cash | 3,437 | 5,414 | 5 | — | 8,856 | |||||||||||||||
Cash, cash equivalents and restricted cash – beginning of period | 66,166 | 13,095 | 170 | — | 79,431 | |||||||||||||||
| Cash, cash equivalents and restricted cash – end of period | $ | 69,603 | $ | 18,509 | $ | 175 | $ | — | $ | 88,287 | ||||||||||
| Six Months Ended June 30, 2019 | |||||||||||||||||||
| NWHM | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated NWHM | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||
| Revenues: | |||||||||||||||||||
| Home sales | $ | — | $ | 239,650 | $ | — | $ | — | $ | 239,650 | |||||||||
| Fee building | — | 41,947 | — | — | 41,947 | ||||||||||||||
| — | 281,597 | — | — | 281,597 | |||||||||||||||
| Cost of Sales: | |||||||||||||||||||
| Home sales | — | 210,151 | (57 | ) | — | 210,094 | |||||||||||||
| Fee building | — | 41,038 | — | — | 41,038 | ||||||||||||||
| — | 251,189 | (57 | ) | — | 251,132 | ||||||||||||||
| Gross Margin: | |||||||||||||||||||
| Home sales | — | 29,499 | 57 | — | 29,556 | ||||||||||||||
| Fee building | — | 909 | — | — | 909 | ||||||||||||||
| — | 30,408 | 57 | — | 30,465 | |||||||||||||||
| Selling and marketing expenses | — | (18,362 | ) | — | — | (18,362 | ) | ||||||||||||
| General and administrative expenses | 51 | (13,283 | ) | — | — | (13,232 | ) | ||||||||||||
| Equity in net income of unconsolidated joint ventures | — | 369 | — | — | 369 | ||||||||||||||
| Equity in net loss of subsidiaries | (625 | ) | — | — | 625 | — | |||||||||||||
| Gain on early extinguishment of debt | 969 | — | — | — | 969 | ||||||||||||||
| Other income (expense), net | (168 | ) | (127 | ) | — | — | (295 | ) | |||||||||||
| Pretax income (loss) | 227 | (995 | ) | 57 | 625 | (86 | ) | ||||||||||||
| (Provision) benefit for income taxes | (642 | ) | 332 | — | — | (310 | ) | ||||||||||||
| Net income (loss) | (415 | ) | (663 | ) | 57 | 625 | (396 | ) | |||||||||||
| Net income attributable to non-controlling interest in subsidiary | — | — | (19 | ) | — | (19 | ) | ||||||||||||
| Net income (loss) attributable to The New Home Company Inc. | $ | (415 | ) | $ | (663 | ) | $ | 38 | $ | 625 | $ | (415 | ) | ||||||
THE NEW HOME COMPANY INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2019 | ||||||||||||||||||||
NWHM | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated NWHM | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Net cash (used in) provided by operating activities | $ | (14,259 | ) | $ | 2,035 | $ | (8 | ) | $ | — | $ | (12,232 | ) | |||||||
Investing activities: | ||||||||||||||||||||
Purchases of property and equipment | — | (5 | ) | — | — | (5 | ) | |||||||||||||
Contributions and advances to unconsolidated joint ventures | — | (1,335 | ) | — | — | (1,335 | ) | |||||||||||||
Contributions to subsidiaries from corporate | (46,000 | ) | — | — | 46,000 | — | ||||||||||||||
Distributions of capital from subsidiaries to corporate | 39,000 | — | — | (39,000 | ) | — | ||||||||||||||
Distributions of capital and repayment of advances from unconsolidated joint ventures | — | 2,562 | — | — | 2,562 | |||||||||||||||
Net cash (used in) provided by investing activities | $ | (7,000 | ) | $ | 1,222 | $ | — | $ | 7,000 | $ | 1,222 | |||||||||
Financing activities: | ||||||||||||||||||||
Borrowings from credit facility | 30,000 | — | — | — | 30,000 | |||||||||||||||
| Repayments of credit facility | (13,500 | ) | — | — | — | (13,500 | ) | |||||||||||||
Repurchase of senior notes | (4,512 | ) | — | — | — | (4,512 | ) | |||||||||||||
Contributions to subsidiaries from corporate | — | 46,000 | — | (46,000 | ) | — | ||||||||||||||
Distributions to corporate from subsidiaries | — | (39,000 | ) | — | 39,000 | — | ||||||||||||||
Repurchases of common stock | (1,042 | ) | — | — | — | (1,042 | ) | |||||||||||||
Tax withholding paid on behalf of employees for stock awards | (488 | ) | — | — | — | (488 | ) | |||||||||||||
Net cash provided by financing activities | $ | 10,458 | $ | 7,000 | $ | — | $ | (7,000 | ) | $ | 10,458 | |||||||||
Net (decrease) increase in cash, cash equivalents and restricted cash | (10,801 | ) | 10,257 | (8 | ) | — | (552 | ) | ||||||||||||
Cash, cash equivalents and restricted cash – beginning of period | 28,877 | 13,518 | 147 | — | 42,542 | |||||||||||||||
Cash, cash equivalents and restricted cash – end of period | $ | 18,076 | $ | 23,775 | $ | 139 | $ | — | $ | 41,990 | ||||||||||
| Six Months Ended June 30, 2018 | |||||||||||||||||||
| NWHM | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated NWHM | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||
| Revenues: | |||||||||||||||||||
| Home sales | $ | — | $ | 196,897 | $ | — | $ | — | $ | 196,897 | |||||||||
| Fee building | — | 81,889 | — | — | 81,889 | ||||||||||||||
| — | 278,786 | — | — | 278,786 | |||||||||||||||
| Cost of Sales: | |||||||||||||||||||
| Home sales | — | 172,350 | 22 | — | 172,372 | ||||||||||||||
| Fee building | — | 79,737 | — | — | 79,737 | ||||||||||||||
| — | 252,087 | 22 | — | 252,109 | |||||||||||||||
| Gross Margin: | |||||||||||||||||||
| Home sales | — | 24,547 | (22 | ) | — | 24,525 | |||||||||||||
| Fee building | — | 2,152 | — | — | 2,152 | ||||||||||||||
| — | 26,699 | (22 | ) | — | 26,677 | ||||||||||||||
| Selling and marketing expenses | — | (16,105 | ) | — | — | (16,105 | ) | ||||||||||||
| General and administrative expenses | (801 | ) | (11,194 | ) | (3 | ) | — | (11,998 | ) | ||||||||||
| Equity in net income of unconsolidated joint ventures | — | 215 | — | — | 215 | ||||||||||||||
| Equity in net loss of subsidiaries | (176 | ) | — | — | 176 | — | |||||||||||||
| Other income (expense), net | 76 | (194 | ) | — | — | (118 | ) | ||||||||||||
| Pretax loss | (901 | ) | (579 | ) | (25 | ) | 176 | (1,329 | ) | ||||||||||
| Benefit for income taxes | 376 | 417 | — | — | 793 | ||||||||||||||
| Net loss | (525 | ) | (162 | ) | (25 | ) | 176 | (536 | ) | ||||||||||
| Net loss attributable to non-controlling interest in subsidiary | — | — | 11 | — | 11 | ||||||||||||||
| Net loss attributable to The New Home Company Inc. | $ | (525 | ) | $ | (162 | ) | $ | (14 | ) | $ | 176 | $ | (525 | ) | |||||
| Six Months Ended June 30, 2019 | |||||||||||||||||||
| NWHM | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated NWHM | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||
| Net cash (used in) provided by operating activities | $ | (36,110 | ) | $ | 54,970 | $ | 32 | $ | — | $ | 18,892 | ||||||||
| Investing activities: | |||||||||||||||||||
| Purchases of property and equipment | (1 | ) | (7 | ) | — | — | (8 | ) | |||||||||||
| Contributions and advances to unconsolidated joint ventures | — | (4,120 | ) | — | — | (4,120 | ) | ||||||||||||
| Contributions to subsidiaries from corporate | (66,575 | ) | — | — | 66,575 | — | |||||||||||||
| Distributions of capital from subsidiaries | 91,700 | — | — | (91,700 | ) | — | |||||||||||||
| Distributions of capital and repayment of advances from unconsolidated joint ventures | — | 4,928 | — | — | 4,928 | ||||||||||||||
| Net cash provided by investing activities | $ | 25,124 | $ | 801 | $ | — | $ | (25,125 | ) | $ | 800 | ||||||||
| Financing activities: | |||||||||||||||||||
| Borrowings from credit facility | 40,000 | — | — | — | 40,000 | ||||||||||||||
| Repayments of credit facility | (41,500 | ) | — | — | — | (41,500 | ) | ||||||||||||
| Repurchase of senior notes | (10,856 | ) | — | — | — | (10,856 | ) | ||||||||||||
| Contributions to subsidiaries from corporate | — | 66,575 | — | (66,575 | ) | — | |||||||||||||
| Distributions to corporate from subsidiaries | — | (91,700 | ) | — | 91,700 | — | |||||||||||||
| Repurchases of common stock | (1,042 | ) | — | — | — | (1,042 | ) | ||||||||||||
| Tax withholding paid on behalf of employees for stock awards | (488 | ) | — | — | — | (488 | ) | ||||||||||||
| Net cash used in financing activities | $ | (13,886 | ) | $ | (25,125 | ) | $ | — | $ | 25,125 | $ | (13,886 | ) | ||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | (24,872 | ) | 30,646 | 32 | — | 5,806 | |||||||||||||
| Cash, cash equivalents and restricted cash – beginning of period | 28,877 | 13,518 | 147 | — | 42,542 | ||||||||||||||
| Cash, cash equivalents and restricted cash – end of period | $ | 4,005 | $ | 44,164 | $ | 179 | $ | — | $ | 48,348 | |||||||||
| Six Months Ended June 30, 2018 | |||||||||||||||||||
| NWHM | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Consolidating Adjustments | Consolidated NWHM | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||
| Net cash used in operating activities | $ | (39,156 | ) | $ | (22,349 | ) | $ | (5 | ) | $ | — | $ | (61,510 | ) | |||||
| Investing activities: | |||||||||||||||||||
| Purchases of property and equipment | (22 | ) | (162 | ) | — | — | (184 | ) | |||||||||||
| Contributions and advances to unconsolidated joint ventures | — | (8,954 | ) | — | — | (8,954 | ) | ||||||||||||
| Contributions to subsidiaries from corporate | (103,885 | ) | — | — | 103,885 | — | |||||||||||||
| Distributions of capital from subsidiaries | 49,975 | — | — | (49,975 | ) | — | |||||||||||||
| Distributions of capital and repayment of advances from unconsolidated joint ventures | — | 5,874 | — | — | 5,874 | ||||||||||||||
| Interest collected on advances to unconsolidated joint ventures | — | 178 | — | — | 178 | ||||||||||||||
| Net cash used in investing activities | $ | (53,932 | ) | $ | (3,064 | ) | $ | — | $ | 53,910 | $ | (3,086 | ) | ||||||
| Financing activities: | |||||||||||||||||||
| Borrowings from credit facility | 35,000 | — | — | — | 35,000 | ||||||||||||||
| Contributions to subsidiaries from corporate | — | 103,885 | — | (103,885 | ) | — | |||||||||||||
| Distributions to corporate from subsidiaries | — | (49,975 | ) | — | 49,975 | — | |||||||||||||
| Repurchases of common stock | (2,072 | ) | — | — | — | (2,072 | ) | ||||||||||||
| Tax withholding paid on behalf of employees for stock awards | (977 | ) | — | — | — | (977 | ) | ||||||||||||
| Net cash provided by financing activities | $ | 31,951 | $ | 53,910 | $ | — | $ | (53,910 | ) | $ | 31,951 | ||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | (61,137 | ) | 28,497 | (5 | ) | — | (32,645 | ) | |||||||||||
| Cash, cash equivalents and restricted cash – beginning of period | 99,586 | 24,196 | 188 | — | 123,970 | ||||||||||||||
| Cash, cash equivalents and restricted cash – end of period | $ | 38,449 | $ | 52,693 | $ | 183 | $ | — | $ | 91,325 | |||||||||