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Business Combinations | 9 Months Ended
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Sep. 30, 2018
Business Combinations [Abstract] |
Business Combinations | 3. Business Combinations UCP, Inc. On August 4, 2017, we acquired UCP, Inc., which was a homebuilder and land developer with expertise in residential land acquisition, development and entitlement, as well as home design, construction and sales, and with operations in the States of California, Washington, North Carolina, South Carolina, and Tennessee. The merger was unanimously approved by the board of directors of both the Company and UCP and was also approved by UCP stockholders on August 1, 2017. In connection with the merger, each share of UCP Class A common stock outstanding immediately prior to the closing was converted into $5.32 in cash and 0.2309 of a newly issued share of our common stock. No fractional shares were issued in connection with the merger, and UCP stockholders received cash in lieu of any fractional shares. Approximately 4.2 million shares of our common stock were issued in connection with the merger and $100.2 million was paid in cash in connection with the merger. Outstanding UCP restricted stock units were also converted into an aggregate of 0.2 million of Century Communities restricted stock units pursuant to the merger. We determined that the total fair value of these awards was $6.2 million, of which $1.1 million was attributable to services performed by UCP employees prior to the merger and, as such, was included as consideration. We incurred approximately $9.6 million in acquisition related expenses. Total consideration of $209.0 million, inclusive of cash acquired of $20.3 million for this merger, is summarized as follows (in thousands, except per share amount): ﻿
﻿UCP shares (including noncontrolling interest) as of August 3, 2017 |  |  | 18,085
﻿Cash paid per share |  | $ | 5.32
﻿Cash consideration |  | $ | 96,213
﻿Cash consideration pertaining to stockholder exercising appraisal rights |  | $ | 3,937
﻿Total cash consideration |  | $ | 100,150
﻿ |  |  |
﻿UCP shares (including noncontrolling interest) as of August 3, 2017 |  |  | 18,085
﻿Exchange ratio |  |  | 0.2309
﻿Number of CCS shares issued |  |  | 4,176
﻿Closing price of CCS common stock on August 3, 2017 |  | $ | 25.80
﻿Consideration attributable to common stock |  | $ | 107,737
﻿Total replacement award value |  | $ | 1,149
﻿Total equity consideration |  | $ | 108,886
﻿ |  |  |
﻿Total consideration in cash and equity |  | $ | 209,036
﻿ The acquired assets consisted of approximately 4,199 owned lots within 43 total communities in California, Washington, North Carolina, South Carolina and Tennessee. The 4,199 lots included 346 homes in backlog and 59 model homes. As the acquired assets and processes have the ability to create outputs in the form of revenue from the sale of single family residences, we concluded that the acquisition represents a business combination. ﻿ The following table summarizes the fair value of assets acquired and liabilities assumed as of the acquisition date (in thousands): ﻿
﻿ |  |
﻿Cash and cash equivalents | $ | 20,264
﻿Accounts receivable |  | 7,897
﻿Inventories |  | 390,234
﻿Prepaid expenses and other assets |  | 6,988
﻿Property and equipment, net |  | 717
﻿Deferred tax asset, net |  | 11,984
﻿Goodwill |  | 5,713
﻿Total assets | $ | 443,797
﻿ |  |
﻿Accounts payable | $ | 10,712
﻿Accrued expenses and other liabilities |  | 71,130
﻿Notes payable |  | 152,919
﻿Total liabilities |  | 234,761
﻿Purchase price/Net equity | $ | 209,036
﻿ During the nine months ended September 30, 2018, we recognized $1.5 million of expense related to refinements in our estimated fair value of inventories, which occurred during the period. This measurement period adjustment is included in “Cost of home sales revenues” on our Consolidated Statements of Operations. Acquired inventories consist of both acquired land and work in process inventories. We determined the fair value for acquired land inventory with the assistance of a third-party appraiser primarily using a forecasted cash flow approach for the development, marketing, and sale of each community acquired. Significant assumptions included in our estimate include future per lot development costs, construction and overhead costs, mix of products sold in each community, as well as average sales price, and absorption rates. We estimated the fair value of acquired work in process inventories based upon the stage of production of each unit and a gross margin that we believe a market participant would require to complete the remaining development and requisite selling efforts. The stage of production, as of the acquisition date, ranged from recently started lots to fully completed single family residences. We estimated a market participant would require a gross margin ranging from 6% to 20% based upon the stage of production of the individual lot. Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. We have allocated all Goodwill to the West operating segment. Goodwill of $5.4 million will be deductible for tax purposes. ﻿ On August 17, 2017, we sold BMCH South Carolina, LLC, a subsidiary of UCP that was acquired as part of our acquisition of UCP, Inc., to a third party for approximately $17.1 million. Accordingly, the estimated fair value of the acquired assets of BMCH South Carolina, LLC was determined to be equal to the disposal price given the proximity of the two transactions. We determined that UCP’s carrying costs approximated fair value for all other acquired assets and assumed liabilities. Sundquist Homes On October 31, 2017, we acquired substantially all the assets and operations and assumed certain liabilities of Sundquist Homes and affiliates, a homebuilder with operations in the greater Seattle, Washington area, for approximately $50.2 million in cash. The acquired assets include owned and controlled land, homes under construction and model homes. As the acquired assets and processes have the ability to create outputs in the form of revenue from the sale of single family residences, we concluded that the acquisition represents a business combination. ﻿ The following table summarizes the fair value of the assets acquired and liabilities assumed as of the acquisition date of Sundquist Homes (in thousands): ﻿
﻿ |  |
﻿Accounts receivable | $ | 11
﻿Inventories |  | 55,077
﻿Prepaid expenses and other assets |  | 1,050
﻿Property and equipment, net |  | 142
﻿Total assets | $ | 56,280
﻿ |  |
﻿Accounts payable | $ | 3,646
﻿Accrued expenses and other liabilities |  | 2,431
﻿Total liabilities |  | 6,077
﻿Purchase price/Net equity | $ | 50,203
Acquired inventories consist of both acquired land and work in process inventories. We determined the fair value for acquired land inventory with the assistance of a third-party appraiser primarily using a forecasted cash flow approach for the development, marketing, and sale of each community acquired. Significant assumptions included in our estimate include future per lot development costs, construction and overhead costs, mix of products sold in each community, as well as average sales price, and absorption rates. We estimated the fair value of acquired work in process inventories based upon the stage of production of each unit and a gross margin that we believe a market participant would require to complete the remaining development and requisite selling efforts. The stage of production, as of the acquisition date, ranged from recently started lots to fully completed single family residences. We estimated a market participant would require a gross margin ranging from 6% to 20% based upon the stage of production of the individual lot. Goodwill of $4.8 million will be deductible for tax purposes in connection with this acquisition. We determined that Sundquist Homes’s carrying costs approximated fair value for all other acquired assets and assumed liabilities. WJH, LLC - Wade Jurney Homes On June 14, 2018, we acquired the remaining 50% ownership interest in WJH for $37.5 million, whereby WJH became a 100% owned subsidiary of the Company. We initially acquired a 50% ownership interest in WJH in November 2016 as part of a joint venture, which was accounted for under the equity method of accounting. Our Wade Jurney Homes brand solely targets first time homebuyers in markets which are traditionally underserved by new homebuilders, sells homes through retail studios, and provides no option or upgrade selections. The acquired assets primarily include homes under construction that are in various stages of complet ion and are geographically dispe rsed. We determined that the fair value of the gross assets acquired was not concentrated in a single identifiable asset or group of similar identifiable assets. As the acquired assets and processes have the ability to create outputs in the form of revenue from the sale of single family residences, we concluded that the acquisition represents a business combination. We incurred $0.2 million in acquisition costs which are reflected in acquisition expenses in our Consolidated Statements of Operations. ﻿ Authoritative guidance on accounting for business combinations requires that an acquirer re-measure its previously held equity interest in the acquisition at its acquisition date fair value and recognize the resulting gain or loss in earnings. As such, we valued our previously held equity interest in WJH at $35.6 million, which is inclusive of an estimated discount for lack of control of $1.9 million, and recognized a gain of $7.2 million during the nine months ended September 30, 2018. The gain is included in “Equity in income of unconsolidated subsidiaries” on our Consolidated Statements of Operations. ﻿ The following table outlines the total consideration transferred, inclusive of cash acquired and the fair value of our previously held equity interest (in thousands): ﻿ ﻿
﻿ |  |  |
﻿Cash consideration transferred for 50% ownership interest |  | $ | 37,500
﻿Previously held equity interest acquisition date fair value |  |  | 35,625
﻿Net assets acquired |  | $ | 73,125
﻿ The following table summarizes our preliminary estimates of the assets acquired and liabilities assumed as of the acquisition date (in thousands): ﻿
﻿ |  |
﻿Cash and cash equivalents | $ | 9,464
﻿Cash held in escrow |  | 260
﻿Accounts receivable |  | 1,042
﻿Inventories |  | 156,828
﻿Prepaid expenses and other assets |  | 7,710
﻿Amortizable intangible assets |  | 3,375
﻿Goodwill |  | 3,542
﻿ | $ | 182,221
﻿ |  |
﻿Accounts payable | $ | 12,516
﻿Accrued expenses and other liabilities |  | 2,349
﻿Senior notes and revolving line of credit |  | 94,231
﻿Total liabilities |  | 109,096
﻿Net assets acquired | $ | 73,125
Acquired inventories consist primarily of work in process inventories. We estimated the fair value of acquired work in process inventories based upon the stage of production of each unit and a gross margin that we believe a market participant would require to complete the remaining development and requisite selling efforts. The stage of production, as of the acquisition date, ranged from recently started lots to fully completed single family residences. Amortizable intangible assets include acquired trade names and a non-compete agreement, which were estimated to have fair values of $3.0 million and $0.4 million, respectively, and are amortized over 10 years and 2 years, respectively. The purchase price accounting reflected in the accompanying financial statements is preliminary and is based upon estimates and assumptions that are subject to change within the measurement period (up to one year from the acquisition date). We determined that WJH’s carrying costs approximated fair value for all other acquired assets and assumed liabilities. From the acquisition date, WJH’s results of operations, which include homebuilding revenues of $87.5 million and $112.7 million, respectively, and income before tax inclusive of purchase price accounting, of $0.5 million and $0.3 million, respectively, are included in our accompanying Consolidated Statement of Operations for the three and nine months ended September 30, 2018. ﻿ Unaudited Pro Forma Financial Information Unaudited pro forma revenues and income before tax expense for the nine months ended September 30, 2018 gives effect to including the results of the acquisition of WJH as of January 1, 2018. Unaudited pro forma income before tax expense adjusts the operating results of WJH to reflect the additional costs that would have been recorded assuming the fair value adjustments had been applied as of the beginning of the period presented and excludes acquisition expense incurred related to the transactions (in thousands, except share and per share information): ﻿
﻿ |  |
﻿ | Nine months ended September 30,
﻿ | 2018
﻿Total revenues | $ | 1,645,858
﻿ |  |
﻿Income before tax expense | $ | 87,092
﻿Tax expense |  | (21,773)
﻿Net income | $ | 65,319
﻿Less: Undistributed earnings allocated to participating securities |  | (54)
﻿Numerator for basic and diluted pro forma EPS | $ | 65,265
﻿ |  |
﻿Pro forma weighted average shares-basic |  | 29,885,858
﻿Pro forma weighted average shares-diluted |  | 30,189,058
﻿ |  |
﻿Pro forma basic EPS | $ | 2.18
﻿Pro forma diluted EPS | $ | 2.16
Unaudited pro forma revenues and income before tax expense for the nine months ended September 30, 2017 give effect to including the results of the acquisitions of UCP, Sundquist Homes, and WJH as of January 1, 2017. Unaudited pro forma income before tax expense adjusts the operating results of UCP, Sundquist Homes, and WJH to reflect the additional costs that would have been recorded assuming the fair value adjustments had been applied as of the beginning of the period presented and excludes acquisition expense incurred related to the transactions. Pro forma basic and diluted earnings per share (which we refer to as “Pro forma EPS”) gives effect to the issuance of approximately 4.2 million shares of our common stock as consideration for the acquisition of UCP as though the acquisition had occurred on January 1, 2017 (in thousands, except share and per share information): ﻿ ﻿ ﻿
﻿ |  |  |  |  |
﻿ | Three months ended September 30, |  | Nine months ended September 30,
﻿ | 2017 |  | 2017
﻿Total revenues | $ | 507,008 |  | $ | 1,373,689
﻿ |  |  |  |  |
﻿Income before tax expense | $ | 30,107 |  | $ | 91,445
﻿Tax expense |  | (9,390) |  |  | (23,496)
﻿Net income | $ | 20,717 |  | $ | 67,949
﻿Less: Undistributed earnings allocated to participating securities |  | (108) |  |  | (520)
﻿Numerator for basic and diluted pro forma earnings per share | $ | 20,609 |  | $ | 67,429
﻿ |  |  |  |  |
﻿Pro forma weighted average shares-basic |  | 27,034,192 |  |  | 26,342,362
﻿Pro forma weighted average shares-diluted |  | 27,314,777 |  |  | 26,579,292
﻿ |  |  |  |  |
﻿Pro forma basic earnings per share | $ | 0.76 |  | $ | 2.56
﻿Pro forma diluted earnings per share | $ | 0.75 |  | $ | 2.54
﻿ ﻿

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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