Attached files
| file | filename |
|---|---|
| EX-32.2 - EXHIBIT 32.2 - Taylor Morrison Home Corp | tmhc-093016xex322q3.htm |
| EX-32.1 - EXHIBIT 32.1 - Taylor Morrison Home Corp | tmhc-093016xex321q3.htm |
| EX-31.2 - EXHIBIT 31.2 - Taylor Morrison Home Corp | tmhc-093016xex312q3.htm |
| EX-31.1 - EXHIBIT 31.1 - Taylor Morrison Home Corp | tmhc-093016xex311q3.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2016
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-35873
TAYLOR MORRISON HOME CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware | 90-0907433 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
4900 N. Scottsdale Road, Suite 2000 Scottsdale, Arizona | 85251 | |
(Address of principal executive offices) | (Zip Code) | |
(480) 840-8100
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one).
Large accelerated filer | ý | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller Reporting Company | ¨ | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding as of November 2, 2016 | |
Class A common stock, $0.00001 par value | 30,415,653 | |
Class B common stock, $0.00001 par value | 89,005,471 | |
TAYLOR MORRISON HOME CORPORATION
TABLE OF CONTENTS
Page | |
1
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts, unaudited)
September 30, 2016 | December 31, 2015 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 160,519 | $ | 126,188 | ||||
Restricted cash | 1,320 | 1,280 | ||||||
Real estate inventory: | ||||||||
Owned inventory | 3,286,685 | 3,118,866 | ||||||
Real estate not owned under option agreements | 612 | 7,921 | ||||||
Total real estate inventory | 3,287,297 | 3,126,787 | ||||||
Land deposits | 35,091 | 34,113 | ||||||
Mortgage loans held for sale | 118,997 | 201,733 | ||||||
Prepaid expenses and other assets, net | 75,111 | 75,295 | ||||||
Other receivables, net | 129,165 | 120,729 | ||||||
Investments in unconsolidated entities | 151,606 | 128,448 | ||||||
Deferred tax assets, net | 234,457 | 233,488 | ||||||
Property and equipment, net | 6,320 | 7,387 | ||||||
Intangible assets, net | 3,454 | 4,248 | ||||||
Goodwill | 66,198 | 57,698 | ||||||
Total assets | $ | 4,269,535 | $ | 4,117,394 | ||||
Liabilities | ||||||||
Accounts payable | $ | 145,944 | $ | 151,861 | ||||
Accrued expenses and other liabilities | 193,763 | 191,452 | ||||||
Income taxes payable | 26,673 | 37,792 | ||||||
Customer deposits | 137,561 | 92,319 | ||||||
Senior notes, net | 1,236,908 | 1,235,157 | ||||||
Loans payable and other borrowings | 142,786 | 134,824 | ||||||
Revolving credit facility borrowings, net | 211,084 | 109,947 | ||||||
Mortgage warehouse borrowings | 91,166 | 183,444 | ||||||
Liabilities attributable to real estate not owned under option agreements | 612 | 7,921 | ||||||
Total liabilities | 2,186,497 | 2,144,717 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 18) | ||||||||
Stockholders’ Equity | ||||||||
Class A common stock, $0.00001 par value, 400,000,000 shares authorized, 33,269,086 and 33,158,855 shares issued, 30,415,653 and 32,224,421 shares outstanding as of September 30, 2016 and December 31, 2015, respectively | — | — | ||||||
Class B common stock, $0.00001 par value, 200,000,000 shares authorized, 89,010,304 and 89,108,569 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively | 1 | 1 | ||||||
Preferred stock, $0.00001 par value, 50,000,000 shares authorized, no shares issued and outstanding as of September 30, 2016 and December 31, 2015 | — | — | ||||||
Additional paid-in capital | 379,557 | 376,898 | ||||||
Treasury stock at cost; 2,853,433 and 934,434 shares as of September 30, 2016 and December 31, 2015, respectively | (43,524 | ) | (14,981 | ) | ||||
Retained earnings | 209,332 | 175,997 | ||||||
Accumulated other comprehensive loss | (18,115 | ) | (17,997 | ) | ||||
Total stockholders’ equity attributable to Taylor Morrison Home Corporation | 527,251 | 519,918 | ||||||
Non-controlling interests – joint ventures | 6,844 | 6,398 | ||||||
Non-controlling interests – Principal Equityholders | 1,548,943 | 1,446,361 | ||||||
Total stockholders’ equity | 2,083,038 | 1,972,677 | ||||||
Total liabilities and stockholders’ equity | $ | 4,269,535 | $ | 4,117,394 | ||||
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
2
TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Home closings revenue, net | $ | 812,185 | $ | 779,190 | $ | 2,271,154 | $ | 1,955,170 | ||||||||
Land closings revenue | 27,418 | 5,782 | 44,957 | 22,712 | ||||||||||||
Mortgage operations revenue | 13,814 | 11,316 | 36,951 | 28,794 | ||||||||||||
Total revenues | 853,417 | 796,288 | 2,353,062 | 2,006,676 | ||||||||||||
Cost of home closings | 658,507 | 635,935 | 1,852,724 | 1,594,691 | ||||||||||||
Cost of land closings | 8,179 | 3,919 | 20,497 | 13,152 | ||||||||||||
Mortgage operations expenses | 7,877 | 6,962 | 22,594 | 18,120 | ||||||||||||
Total cost of revenues | 674,563 | 646,816 | 1,895,815 | 1,625,963 | ||||||||||||
Gross margin | 178,854 | 149,472 | 457,247 | 380,713 | ||||||||||||
Sales, commissions and other marketing costs | 58,277 | 53,482 | 165,300 | 136,724 | ||||||||||||
General and administrative expenses | 29,944 | 25,264 | 91,078 | 70,171 | ||||||||||||
Equity in (income)/loss of unconsolidated entities | (1,646 | ) | 120 | (4,734 | ) | (1,408 | ) | |||||||||
Interest income, net | (47 | ) | (33 | ) | (149 | ) | (165 | ) | ||||||||
Other expense, net | 1,935 | 2,393 | 8,602 | 11,625 | ||||||||||||
Loss on extinguishment of debt | — | — | — | 33,317 | ||||||||||||
Gain on foreign currency forward | — | — | — | (29,983 | ) | |||||||||||
Income from continuing operations before income taxes | 90,391 | 68,246 | 197,150 | 160,432 | ||||||||||||
Income tax provision | 31,707 | 22,452 | 66,698 | 54,434 | ||||||||||||
Net income from continuing operations | 58,684 | 45,794 | 130,452 | 105,998 | ||||||||||||
Discontinued operations: | ||||||||||||||||
Transaction expenses from discontinued operations | — | — | — | (9,043 | ) | |||||||||||
Gain on sale of discontinued operations | — | — | — | 80,205 | ||||||||||||
Income tax expense from discontinued operations | — | — | — | (14,500 | ) | |||||||||||
Net income from discontinued operations | — | — | — | 56,662 | ||||||||||||
Net income before allocation to non-controlling interests | 58,684 | 45,794 | 130,452 | 162,660 | ||||||||||||
Net income attributable to non-controlling interests — joint ventures | (376 | ) | (138 | ) | (856 | ) | (1,427 | ) | ||||||||
Net income before non-controlling interests — Principal Equityholders | 58,308 | 45,656 | 129,596 | 161,233 | ||||||||||||
Net income from continuing operations attributable to non-controlling interests — Principal Equityholders | (43,471 | ) | (33,312 | ) | (96,261 | ) | (76,470 | ) | ||||||||
Net income from discontinued operations attributable to non-controlling interests — Principal Equityholders | — | — | — | (41,381 | ) | |||||||||||
Net income available to Taylor Morrison Home Corporation | $ | 14,837 | $ | 12,344 | $ | 33,335 | $ | 43,382 | ||||||||
Earnings per common share — basic: | ||||||||||||||||
Income from continuing operations | $ | 0.49 | $ | 0.37 | $ | 1.07 | $ | 0.85 | ||||||||
Income from discontinued operations — net of tax | $ | — | $ | — | $ | — | $ | 0.46 | ||||||||
Net income available to Taylor Morrison Home Corporation | $ | 0.49 | $ | 0.37 | $ | 1.07 | $ | 1.31 | ||||||||
Earnings per common share — diluted: | ||||||||||||||||
Income from continuing operations | $ | 0.49 | $ | 0.37 | $ | 1.07 | $ | 0.85 | ||||||||
Income from discontinued operations — net of tax | $ | — | $ | — | $ | — | $ | 0.46 | ||||||||
Net income available to Taylor Morrison Home Corporation | $ | 0.49 | $ | 0.37 | $ | 1.07 | $ | 1.31 | ||||||||
Weighted average number of shares of common stock: | ||||||||||||||||
Basic | 30,427 | 33,122 | 31,300 | 33,088 | ||||||||||||
Diluted | 120,103 | 122,458 | 120,870 | 122,412 | ||||||||||||
3
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
4
TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Income before non-controlling interests, net of tax | $ | 58,684 | $ | 45,794 | $ | 130,452 | $ | 162,660 | ||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Foreign currency translation adjustments, net of tax | — | (565 | ) | — | (27,779 | ) | ||||||||||
Post-retirement benefits adjustments, net of tax | — | — | (447 | ) | 1,757 | |||||||||||
Other comprehensive income (loss), net of tax | — | (565 | ) | (447 | ) | (26,022 | ) | |||||||||
Comprehensive income | 58,684 | 45,229 | 130,005 | 136,638 | ||||||||||||
Comprehensive income attributable to non-controlling interests — joint ventures | (376 | ) | (138 | ) | (856 | ) | (1,427 | ) | ||||||||
Comprehensive income attributable to non-controlling interests — Principal Equityholders | (43,471 | ) | (32,861 | ) | (95,932 | ) | (98,878 | ) | ||||||||
Comprehensive income available to Taylor Morrison Home Corporation | $ | 14,837 | $ | 12,230 | $ | 33,217 | $ | 36,333 | ||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5
TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands, except share data, unaudited)
Common Stock | |||||||||||||||||||||||||||||||||||||||||||||
Class A | Class B | Additional Paid-in Capital | Treasury Stock | Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Amount | Shares | Amount | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Non-controlling Interest - Joint Venture | Non-controlling Interest - Principal Equityholders | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||
Balance – December 31, 2015 | 32,224,421 | $ | — | 89,108,569 | $ | 1 | $ | 376,898 | 934,434 | $ | (14,981 | ) | $ | 175,997 | $ | (17,997 | ) | $ | 6,398 | $ | 1,446,361 | $ | 1,972,677 | ||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | 33,335 | — | 856 | 96,261 | 130,452 | |||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | — | — | (118 | ) | — | (329 | ) | (447 | ) | ||||||||||||||||||||||||||||||
Exchange of New TMM Units and corresponding number of Class B Common Stock | 96,444 | — | (96,444 | ) | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Cancellation of forfeited New TMM Units and corresponding number of Class B Common Stock | — | — | (1,821 | ) | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Issuance of restricted stock units | 13,787 | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Repurchase of common stock | (1,918,999 | ) | — | — | — | — | 1,918,999 | (28,543 | ) | — | — | — | — | (28,543 | ) | ||||||||||||||||||||||||||||||
Share based compensation | — | — | — | — | 2,309 | — | — | — | — | — | 6,650 | 8,959 | |||||||||||||||||||||||||||||||||
Contributions to/(Distributions from) non-controlling interests of consolidated joint ventures | — | — | — | — | 350 | — | — | — | — | (410 | ) | — | (60 | ) | |||||||||||||||||||||||||||||||
Balance – September 30, 2016 | 30,415,653 | $ | — | 89,010,304 | $ | 1 | $ | 379,557 | 2,853,433 | $ | (43,524 | ) | $ | 209,332 | $ | (18,115 | ) | $ | 6,844 | $ | 1,548,943 | $ | 2,083,038 | ||||||||||||||||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
6
TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Nine Months Ended September 30, | ||||||||
2016 | 2015 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income before allocation to non-controlling interests | $ | 130,452 | $ | 162,660 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Equity in income of unconsolidated entities | (4,734 | ) | (1,408 | ) | ||||
Stock compensation expense | 8,959 | 5,723 | ||||||
Loss on extinguishment of debt | — | 33,317 | ||||||
Distributions of earnings from unconsolidated entities | 2,538 | 1,879 | ||||||
Depreciation and amortization | 3,000 | 2,927 | ||||||
Debt issuance costs amortization | 2,888 | 3,486 | ||||||
Net income from discontinued operations | — | (56,662 | ) | |||||
Gain on foreign currency forward | — | (29,983 | ) | |||||
Contingent consideration | 3,520 | 7,916 | ||||||
Deferred income taxes | (969 | ) | 5,849 | |||||
Changes in operating assets and liabilities: | ||||||||
Real estate inventory and land deposits | (103,758 | ) | (430,964 | ) | ||||
Mortgages held for sale, prepaid expenses and other assets | 76,281 | 2,086 | ||||||
Customer deposits | 44,780 | 29,728 | ||||||
Accounts payable, accrued expenses and other liabilities | (9,415 | ) | 11,642 | |||||
Income taxes payable | (11,119 | ) | (19,909 | ) | ||||
Net cash provided by (used in) operating activities | 142,423 | (271,713 | ) | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment | (934 | ) | (1,753 | ) | ||||
Payments for business acquisitions | (52,819 | ) | (220,899 | ) | ||||
Distribution from unconsolidated entities | 3,546 | 6,857 | ||||||
Change in restricted cash | (40 | ) | 30 | |||||
Investments of capital into unconsolidated entities | (24,509 | ) | (23,397 | ) | ||||
Proceeds from sale of discontinued operations | — | 268,853 | ||||||
Proceeds from settlement of foreign currency forward | — | 29,983 | ||||||
Net cash (used in) provided by investing activities | (74,756 | ) | 59,674 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Increase in loans payable and other borrowings | 55,720 | 33,081 | ||||||
Repayments of loans payable and other borrowings | (65,075 | ) | (35,008 | ) | ||||
Borrowings on revolving credit facility | 255,000 | 325,000 | ||||||
Payments on revolving credit facility | (155,000 | ) | (135,000 | ) | ||||
Borrowings on mortgage warehouse | 782,001 | 595,451 | ||||||
Repayment on mortgage warehouse | (874,279 | ) | (682,073 | ) | ||||
Proceeds from the issuance of senior notes | — | 350,000 | ||||||
Repayments on senior notes | — | (513,608 | ) | |||||
Repurchase of common stock | (28,543 | ) | — | |||||
Payment of deferred financing costs | — | (4,538 | ) | |||||
Payment of contingent consideration | (3,100 | ) | (3,050 | ) | ||||
Distributions to non-controlling interests of consolidated joint ventures, net | (60 | ) | (1,651 | ) | ||||
Net cash used in financing activities | (33,336 | ) | (71,396 | ) | ||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | — | (20,491 | ) | |||||
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | $ | 34,331 | $ | (303,926 | ) | |||
CASH AND CASH EQUIVALENTS — Beginning of period (1) | 126,188 | 462,205 | ||||||
CASH AND CASH EQUIVALENTS — End of period | $ | 160,519 | $ | 158,279 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
Income taxes paid, net | $ | (78,786 | ) | $ | (81,664 | ) | ||
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Change in loans payable issued to sellers in connection with land purchase contracts | $ | 55,720 | $ | 11,943 | ||||
Original accrual of contingent consideration for business combinations | $ | 380 | $ | 3,200 | ||||
Non-cash portion of loss on debt extinguishment | $ | — | $ | 5,102 | ||||
(1) Cash and cash equivalents shown here includes the cash of Monarch Corporation. At December 31, 2014, cash held at Monarch was $227,988.
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
7
TAYLOR MORRISON HOME CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Organization and Description of the Business - Taylor Morrison Home Corporation (“TMHC”) and its subsidiaries (collectively, referred to herein as “we,” “our,” the “Company” and “us”), through its divisions and segments, owns and operates a residential homebuilding business and is a developer of lifestyle communities. We currently operate in Arizona, California, Colorado, Florida, Georgia, Illinois, North Carolina and Texas. Our Company serves a wide array of consumer groups from coast to coast, including first time, move-up, luxury and 55 plus buyers. Our homebuilding business operates under our Taylor Morrison and Darling Homes brands. Our business has multiple homebuilding operating divisions, and a mortgage operations and title services division, which are organized into multiple reportable segments. The communities in our homebuilding business offer single family attached and detached homes. We are the general contractors for all real estate projects and retain subcontractors for home construction and site development. Our Mortgage Operations reportable segment provides mortgage services to customers through our wholly owned mortgage subsidiary, Taylor Morrison Home Funding, LLC (“TMHF”), and title services through our wholly owned title services subsidiary, Inspired Title Services, LLC (“Inspired Title”).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation — The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our 2015 Annual Report on Form 10-K. In the opinion of management, the accompanying Condensed Consolidated Financial Statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for a full fiscal year.
Unless otherwise stated, amounts are shown in U.S. dollars. Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date, and revenues and expenses are translated at average rates of exchange prevailing during the period. Translation adjustments resulting from this process are recorded to accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets and Condensed Consolidated Statement of Stockholders’ Equity.
Discontinued Operations – As a result of our decision in December 2014 to divest of Monarch Corporation (“Monarch”), our former Canadian operating segment, the operating results and financial position of the Monarch business are presented as discontinued operations for the nine months ended September 30, 2015.
Non-controlling interests – In connection with a series of transactions consummated at the time of the Company’s IPO (the “Reorganization Transactions”), the Company became the sole owner of the general partner of TMM Holdings II Limited Partnership (“New TMM”). As the general partner of New TMM, the Company exercises exclusive and complete control over New TMM. Consequently, the Company consolidates New TMM and records a non-controlling interest in the Condensed Consolidated Balance Sheets for the economic interests in New TMM, that are directly or indirectly held by a consortium comprised of affiliates of TPG Global, LLC (the “TPG Entities” or “TPG”), investment funds managed by Oaktree Capital Management, L.P. (“Oaktree”) or their respective subsidiaries (the “Oaktree Entities”), and affiliates of JH Investments, Inc. (“JH” and together with the TPG Entities and Oaktree Entities, the “Principal Equityholders”) or by members of management and the Board of Directors.
Joint Ventures – We consolidate certain joint ventures in accordance with Accounting Standards Codification (“ASC”) Topic 810, “Consolidation.” The income from the percentage of the joint venture not owned by us is presented as “Net income attributable to non-controlling interests - joint ventures” on the Condensed Consolidated Statements of Operations.
Reclassifications – Prior period amounts related to debt issuance costs have been reclassified to conform with current period financial statement presentation as a result of adopting Accounting Standards Update (“ASU”) 2015-03, Simplifying the Presentation of Debt Issuance Costs. Approximately $19.9 million of such costs as of December 31, 2015 have been reclassified from prepaid expenses and other assets, net to their respective debt liability.
8
Business Combinations — Acquisitions are accounted for in accordance with ASC Topic 805-10, Business Combinations. In connection with our acquisitions, we determined we obtained control of a business and its inputs, processes and outputs in exchange for cash and other consideration. All material assets and liabilities, including contingent consideration, were measured and recognized at fair value as of the date of the acquisition to reflect the purchase price paid, which resulted in goodwill for each transaction. Refer to Note 3 - Business Combinations for further information regarding the purchase price allocation and related acquisition accounting.
Use of Estimates — The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Significant estimates include real estate development costs to complete, valuation of real estate, valuation of acquired assets, valuation of goodwill, valuation of equity awards, valuation allowance on deferred tax assets and reserves for warranty and self-insured risks. Actual results could differ from those estimates.
Non-controlling Interests – Principal Equityholders — Immediately prior to our IPO, as part of the Reorganization Transactions, the existing holders of limited partnership interests of TMM Holdings Limited Partnership (“TMM Holdings”) exchanged their limited partnership interests for limited partnership interests of New TMM (“New TMM Units”). For each New TMM Unit received in the exchange, the holders of New TMM Units also received a corresponding number of shares of our Class B Common Stock (the “Class B Common Stock”). Our Class B Common Stock has voting rights but no economic rights. One share of Class B Common Stock, together with one New TMM Unit, is exchangeable into one share of our Class A Common Stock in accordance with the terms of the Exchange Agreement, dated as of April 9, 2013, among the Company, New TMM and the holders of Class B Common Stock and New TMM Units.
Real Estate Inventory — Inventory consists of raw land, land under development, land held for future development, land held for sale, homes under construction, completed homes and model homes. Inventory is carried at cost, less impairment, if applicable. In addition to direct carrying costs, we also capitalize interest, real estate taxes, and related development costs that benefit the entire community, such as field construction supervision and direct overhead. Home construction costs are accumulated and charged to cost of sales at home closing using the specific identification method. All other overhead costs are allocated to closed homes using the relative sales value method. These costs are capitalized to inventory from the point development begins to the point construction is completed. Changes in estimated costs to be incurred in a community (cost to complete) are generally allocated to the remaining homes on a prospective basis. For those communities that have been temporarily closed or where development has been discontinued, costs are expensed as incurred until operations resume.
We review our real estate inventory for indicators of impairment by community on a quarterly basis. In conducting our impairment analysis, we evaluate the margins on homes that have been delivered, margins on homes under sales contracts in backlog, projected margins with regard to future home sales over the life of the community, projected margins with regard to future land sales and the estimated fair value of the land itself. If indicators of impairment are present for a community, we perform an additional analysis to determine if the carrying value of the assets in that community exceeds the undiscounted cash flows estimated to be generated by those assets. If the carrying value of the assets does exceed their estimated undiscounted cash flows, the assets are deemed to be impaired and are recorded at fair value as of the assessment date. An impairment charge is taken in the period with a charge to cost of home closings. For the three and nine months ended September 30, 2016 and 2015, no impairment charges were recorded.
In certain cases, we may elect to cease development and/or marketing of an existing community if we believe the economic performance of the community would be maximized by deferring development for a period of time to allow for market conditions to improve. The decision may be based on financial and/or operational metrics as determined by management. If we decide to cease developing a project, we will evaluate the project for impairment and then cease future development and marketing activity until such a time when we believe that market conditions have improved and economic performance can be maximized.
In the ordinary course of business, we enter into various specific performance agreements to acquire lots. Real estate not owned under these agreements is consolidated into real estate inventory with a corresponding liability in liabilities attributable to real estate not owned under option agreements in the Condensed Consolidated Balance Sheets.
Land Deposits — We provide deposits related to land options and land purchase contracts, which are capitalized when paid and classified as land deposits until the associated property is purchased. To the extent the deposits are non-refundable, they are charged to expense if the land acquisition process is terminated or no longer determined probable. We review the likelihood of the acquisition of contracted lots in conjunction with our periodic real estate inventory impairment analysis. Non-refundable deposits are recorded as real estate inventory in the accompanying Condensed Consolidated Balance Sheets at the time the deposit is applied to the acquisition price of the land based on the terms of the underlying agreements.
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Investments in Consolidated and Unconsolidated Entities
Consolidated Joint Ventures — In the ordinary course of business, we participate in strategic land development and homebuilding joint ventures with third parties. The use of these entities, in some instances, enables us to acquire land to which we could not otherwise obtain access, or could not obtain access on terms that are as favorable. Some of these joint ventures develop land for the sole use of the venture participants and others develop land for sale to the venture participants and to unrelated builders. In addition, we are involved with third parties who are involved in land development and homebuilding activities, including home sales. We review such contracts to determine whether they are a variable interest entity ("VIE"). In accordance with ASC Topic 810, “Consolidation,” for each VIE, we assess whether we are the primary beneficiary by first determining if we have the ability to control the activities of the VIE that most significantly affect its economic performance. Such activities include, but are not limited to, the ability to determine the budget and scope of land development work, if any; the ability to control financing decisions for the VIE; the ability to acquire additional land into the VIE or dispose of land in the VIE not under contract with us; and the ability to change or amend the existing option contract with the VIE. If we are not able to control such activities, we are not considered the primary beneficiary of the VIE. If we do have the ability to control such activities, we continue our analysis to determine if we are expected to absorb a potentially significant amount of the VIE’s losses or, if no party absorbs the majority of such losses, if we will potentially benefit from a significant amount of the VIE’s expected returns. For these entities in which we are expected to absorb the losses or benefits, we consolidate the results in the accompanying Condensed Consolidated Financial Statements.
Unconsolidated Joint Ventures — We use the equity method of accounting for entities over which we exercise significant influence but do not have a controlling interest over the operating and financial policies of the investee. For unconsolidated entities in which we function as the managing member, we have evaluated the rights held by our joint venture partners and determined that they have substantive participating rights that preclude the presumption of control. For joint ventures accounted for using the equity method, our share of net earnings or losses is included in equity in income/loss of unconsolidated entities when earned and distributions are credited against our investment in the joint venture when received. These joint ventures are recorded in investments in unconsolidated entities on the Condensed Consolidated Balance Sheets.
We evaluate our investments in unconsolidated entities for indicators of impairment quarterly. A series of operating losses of an investee or other factors may indicate that a decrease in value of our investment in the unconsolidated entity has occurred which is other-than-temporary. The amount of impairment recognized is the excess of the investment’s carrying amount over its estimated fair value. Additionally, we consider various qualitative factors to determine if a decrease in the value of the investment is other-than-temporary. These factors include age of the venture, stage in its life cycle, intent and ability for us to recover our investment in the entity, financial condition and long-term prospects of the entity, short-term liquidity needs of the unconsolidated entity, trends in the general economic environment of the land, entitlement status of the land held by the unconsolidated entity, overall projected returns on investment, defaults under contracts with third parties (including bank debt), recoverability of the investment through future cash flows and relationships with the other partners. If the Company believes that the decline in the fair value of the investment is temporary, then no impairment is recorded. We did not record any impairment charges for the three and nine months ended September 30, 2016 and 2015, respectively.
Goodwill — The excess of the purchase price of a business acquisition over the net fair value of assets acquired and liabilities assumed is capitalized as goodwill in accordance with ASC Topic 350, “Intangibles — Goodwill and Other” (“ASC 350”).
ASC 350 requires that goodwill and intangible assets that do not have finite lives not be amortized, but rather assessed for impairment at least annually or more frequently if certain impairment indicators are present. We perform our annual impairment test during the fourth quarter or whenever impairment indicators are present.
Stock Based Compensation — We have stock options, performance-based restricted stock units and non-performance based restricted stock units which we account for in accordance with ASC Topic 718-10, “Compensation — Stock Compensation.” The fair value for stock options is measured and estimated on the date of grant using the Black-Scholes option pricing model and recognized evenly over the vesting period of the options. Performance-based restricted stock units are measured using the closing price on the date of grant and expensed using a probability of attainment calculation which determines the likelihood of achieving the performance targets. Non-performance based restricted stock units are time based awards and measured using the closing price on the date of grant and are expensed ratably over the vesting period on a straight-line basis.
Treasury Stock — We account for treasury stock in accordance with ASC Topic 505-30, “Equity - Treasury Stock.” Repurchased shares are reflected as a reduction in Stockholders’ Equity and subsequent sale of repurchased shares are recognized as a change in Equity. When factored into our weighted average calculations for purposes of earnings per share, the number of repurchased shares is based on the trade date.
Revenue Recognition
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Home closings revenue, net — Home closings revenue is recorded using the completed-contract method of accounting at the time each home is delivered, title and possession are transferred to the buyer, we have no significant continuing involvement with the home, risk of loss has transferred, the buyer has demonstrated sufficient investment in the property, and the receivable, if any, from the homeowner or escrow agent is not subject to future subordination.
We typically grant our homebuyers certain sales incentives, including cash discounts, incentives on options included in the home, option upgrades, and seller-paid financing or closing costs. Incentives and discounts are accounted for as a reduction in the sales price of the home and home closings revenue is shown net of discounts. We also receive rebates from certain vendors and these rebates are accounted for as a reduction to cost of home closings.
Land closings revenue — Revenue from land sales are recognized when title is transferred to the buyer, there is no significant continuing involvement, and the buyer has demonstrated sufficient investment in the property sold. If the buyer has not made an adequate investment in the property, the profit on such sales is deferred until these conditions are met.
Mortgage operations revenue — Loan origination fees (including title fees, points, closing costs) are recognized at the time the related real estate transactions are completed, usually upon the close of escrow. All of the loans TMHF originates are sold to third party investors within a short period of time, on a non-recourse basis. Gains and losses from the sale of mortgages are recognized in accordance with ASC Topic 860-20, “Sales of Financial Assets.” TMHF does not have continuing involvement with the transferred assets, therefore we derecognize the mortgage loans at time of sale, based on the difference between the selling price and carrying value of the related loans upon sale, recording a gain/loss on sale in the period of sale.
Recently Issued Accounting Pronouncements — In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 provides guidance on how to disclose cash payments and cash receipts relating to eight specific cash flow issues in order to improve consistency among filers. This amendment will be effective for us in our fiscal year beginning January 1, 2018. We are currently evaluating the impact the adoption of ASU 2016-15 will have on our condensed consolidated statement of cash flows.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 is intended to simplify several areas of stock compensation including its tax consequences, liability vs. equity classification, and statement of cash flows presentation. ASU 2016-09 will be effective for us in our fiscal year beginning January 1, 2017. We expect ASU 2016-09 to affect the amount of tax expense and deductions for stock based compensation in 2017 and in future periods, the magnitude of which will be based on the changes in performance awards issued and outstanding, and based on the amount of vested and exercised awards.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 primarily impacts off-balance sheet operating leases and will require such leases, with the exception of short-term leases, to be recorded on the balance sheet. Lessor accounting is not significantly impacted by the new guidance, however certain updates were made to align lessee and lessor treatment. ASU 2016-02 will be effective for us in our fiscal year beginning January 1, 2019. We do not believe the adoption of ASU 2016-02 will have a material impact on our condensed consolidated financial statements and disclosures.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in ASC Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. The standard’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. In doing so, entities will generally need to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 has been deferred and will be effective beginning January 1, 2018 and, at that time, we will adopt the new standard under either the full retrospective approach or the modified retrospective approach. We are currently evaluating the method and impact the adoption of ASU 2014-09 will have on our condensed consolidated financial statements and disclosures.
3. BUSINESS COMBINATIONS
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On January 8, 2016, we acquired Acadia Homes, an Atlanta based homebuilder, for total consideration of $83.6 million (including $19.7 million of seller financing holdbacks and contingent consideration). We acquired JEH Homes, an Atlanta based homebuilder, on April 30, 2015 and three divisions of Orleans Homes in Charlotte, Raleigh and Chicago on July 21, 2015 for combined total consideration of $233.7 million (including seller financing and contingent consideration). In accordance with ASC Topic 805, Business Combinations, all material assets and liabilities, including contingent consideration were measured and recognized at fair value as of the date of the acquisition to reflect the purchase price paid, which resulted in goodwill for each transaction. Unaudited pro forma results of the business combinations as if they had been acquired on January 1, 2015 have not been provided as they are immaterial to the total Company's consolidated results of operations.
We determined the estimated fair value of real estate inventory on a community-by-community basis primarily using the sales comparison and income approaches. The sales comparison approach was used for all inventory in process. The income approach derives a value using a discounted cash flow for income-producing real property. This approach was used exclusively for finished lots. The income approach using discounted cash flows was also used to value lot option contracts acquired. These estimated cash flows and ultimate valuation are significantly affected by the discount rate, estimates related to expected average selling prices and sales incentives, expected sales paces and cancellation rates, expected land development and construction timelines, and anticipated land development, construction, overhead costs and may vary significantly between communities.
2016 Acquisition
For Acadia Homes, the Company performed an allocation of purchase price as of the acquisition date. The following is a summary of the fair value of assets acquired, liabilities assumed, and liabilities created (in thousands):
Acadia Homes | |||
Acquisition Date | January 8, 2016 | ||
Assets acquired | |||
Real estate inventory | $ | 76,152 | |
Land deposits | 984 | ||
Prepaid expenses and other assets | 816 | ||
Property and equipment | 204 | ||
Goodwill (1) | 8,500 | ||
Total assets | $ | 86,656 | |
Less liabilities assumed | |||
Accrued expenses and other liabilities | $ | 2,562 | |
Customer deposits | 463 | ||
Net assets acquired | $ | 83,631 | |
(1) Goodwill is fully deductible for tax purposes. The goodwill was allocated to our East homebuilding segment.
2015 Acquisitions
For JEH Homes or the divisions of Orleans Homes, the Company performed an allocation of purchase price as of each acquisition date. The following is a summary of the fair value of assets acquired, liabilities assumed, and liabilities created (in thousands):
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JEH Homes | Orleans Homes | Total | |||||||||
Acquisition Date | April 30, 2015 | July 21, 2015 | |||||||||
Assets Acquired | |||||||||||
Real estate inventory | $ | 55,559 | $ | 140,602 | $ | 196,161 | |||||
Land deposits | — | 2,236 | 2,236 | ||||||||
Prepaid expenses and other assets | 1,301 | 2,436 | 3,737 | ||||||||
Property and equipment | 395 | 623 | 1,018 | ||||||||
Goodwill(1) | 9,125 | 25,198 | 34,323 | ||||||||
Total assets | $ | 66,380 | $ | 171,095 | $ | 237,475 | |||||
Less Liabilities Assumed | |||||||||||
Accrued expenses and other liabilities | $ | — | $ | 2,700 | $ | 2,700 | |||||
Customer deposits | — | 1,081 | 1,081 | ||||||||
Net assets acquired | $ | 66,380 | $ | 167,314 | $ | 233,694 | |||||
(1) Goodwill is fully deductible for tax purposes. We allocated $27.8 million and $6.5 million of goodwill to our East and West homebuilding segments, respectively.
4. EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income available to TMHC by the weighted average number of shares of Class A Common Stock outstanding during the period. Diluted earnings per share gives effect to the potential dilution that could occur if all shares of Class B Common Stock and their corresponding New TMM Units were exchanged for shares of Class A Common Stock and if all outstanding equity awards to issue shares of Class A Common Stock were exercised or settled.
The following is a summary of the components of basic and diluted earnings per share (in thousands, except per share amounts):
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Numerator: | ||||||||||||||||
Net income available to TMHC – basic | $ | 14,837 | $ | 12,344 | $ | 33,335 | $ | 43,382 | ||||||||
Income from discontinued operations, net of tax | — | — | — | 56,662 | ||||||||||||
Income from discontinued operations, net of tax attributable to non-controlling interest – Principal Equityholders | — | — | — | (41,381 | ) | |||||||||||
Net income from discontinued operations – basic | $ | — | $ | — | $ | — | $ | 15,281 | ||||||||
Net income from continuing operations – basic | $ | 14,837 | $ | 12,344 | $ | 33,335 | $ | 28,101 | ||||||||
Net income from continuing operations – basic | $ | 14,837 | $ | 12,344 | $ | 33,335 | $ | 28,101 | ||||||||
Net income from continuing operations attributable to non-controlling interest – Principal Equityholders | 43,471 | 33,312 | 96,261 | 76,470 | ||||||||||||
Loss fully attributable to public holding company | 19 | 5 | 191 | 234 | ||||||||||||
Net income from continuing operations – diluted | $ | 58,327 | $ | 45,661 | $ | 129,787 | $ | 104,805 | ||||||||
Net income from discontinued operations – diluted | $ | — | $ | — | $ | — | $ | 56,662 | ||||||||
Denominator: | ||||||||||||||||
Weighted average shares – basic (Class A) | 30,427 | 33,122 | 31,300 | 33,088 | ||||||||||||
Weighted average shares – Principal Equityholders’ non-controlling interest (Class B) | 89,053 | 89,158 | 89,089 | 89,188 | ||||||||||||
Restricted stock units | 522 | 178 | 463 | 136 | ||||||||||||
Stock Options | 101 | — | 18 | — | ||||||||||||
Weighted average shares – diluted | 120,103 | 122,458 | 120,870 | 122,412 | ||||||||||||
Earnings per common share – basic: | ||||||||||||||||
Income from continuing operations | $ | 0.49 | $ | 0.37 | $ | 1.07 | $ | 0.85 | ||||||||
Income from discontinued operations, nets of tax | $ | — | $ | — | $ | — | $ | 0.46 | ||||||||
Net income available to Taylor Morrison Home Corporation | $ | 0.49 | $ | 0.37 | $ | 1.07 | $ | 1.31 | ||||||||
Earnings per common share – diluted: | ||||||||||||||||
Income from continuing operations | $ | 0.49 | $ | 0.37 | $ | 1.07 | $ | 0.85 | ||||||||
Income from discontinued operations, net of tax | $ | — | $ | — | $ | — | $ | 0.46 | ||||||||
Net income available to Taylor Morrison Home Corporation | $ | 0.49 | $ | 0.37 | $ | 1.07 | $ | 1.31 | ||||||||
We excluded a total weighted average of 1,602,509 and 1,531,404 stock options and unvested restricted stock units (“RSUs”) and 1,578,969 and 1,543,056 stock options and unvested RSUs from the calculation of earnings per share for the three and nine months ended September 30, 2016 and 2015, respectively.
The shares of Class B Common Stock have voting rights but do not have economic rights or rights to dividends or distributions on liquidation and therefore are not participating securities. Accordingly, Class B Common Stock is not included in basic earnings per share.
5. DISCONTINUED OPERATIONS
In connection with the decision to sell Monarch in December 2014, which closed in January 2015, the operating results of the Monarch business are classified as discontinued operations – net of applicable taxes in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2015.
No revenues or expenses related to the operations of Monarch were recorded in 2015; however, the recorded activity for the nine months ended September 30, 2015 consists of post-closing transaction expenses, including administrative costs, legal fees, and stock based compensation charges. The gain on sale of discontinued operations was determined using the purchase price of Monarch, less related costs and taxes. There were no assets and liabilities of discontinued operations at September 30, 2016 and December 31, 2015. For the nine months ended September 30, 2016, there was no activity recorded related to Monarch or its operations.
6. DERIVATIVE FINANCIAL INSTRUMENT
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In December 2014, we entered into a derivative financial instrument in the form of a foreign currency forward. The derivative financial instrument hedged our exposure to the Canadian dollar in conjunction with the disposition of the Monarch business. The final settlement of the derivative financial instrument occurred on January 30, 2015, and a gain in the amount of $30.0 million was recorded to gain on foreign currency forward in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2015. There was no activity related to derivative financial instruments for the three and nine months ended September 30, 2016.
7. REAL ESTATE INVENTORY AND LAND DEPOSITS
Inventory consists of the following (in thousands):
As of | ||||||||
September 30, 2016 | December 31, 2015 | |||||||
Real estate developed and under development | $ | 2,169,321 | $ | 2,167,771 | ||||
Real estate held for development or held for sale (1) | 202,390 | 173,448 | ||||||
Operating communities (2) | 803,562 | 672,499 | ||||||
Capitalized interest | 111,412 | 105,148 | ||||||
Total owned inventory | 3,286,685 | 3,118,866 | ||||||
Real estate not owned under option agreements | 612 | 7,921 | ||||||
Total real estate inventory | $ | 3,287,297 | $ | 3,126,787 | ||||
(1) Real estate held for development or held for sale includes properties which are not in active production. This includes raw land recently purchased or awaiting entitlement, future phases of current projects that will be developed as prior phases sell out and long-term strategic assets.
(2) Operating communities consists of all vertical construction costs relating to homes in progress and completed homes for all active production of inventory.
The development status of our land inventory is as follows (dollars in thousands):
As of | ||||||||||||||
September 30, 2016 | December 31, 2015 | |||||||||||||
Owned Lots | Book Value of Land and Development | Owned Lots | Book Value of Land and Development | |||||||||||
Raw | 7,942 | $ | 417,049 | 8,300 | $ | 378,081 | ||||||||
Partially developed | 7,604 | 475,397 | 8,904 | 645,276 | ||||||||||
Finished | 12,594 | 1,468,831 | 12,294 | 1,305,697 | ||||||||||
Long-term strategic assets | 1,600 | 10,434 | 3,105 | 12,165 | ||||||||||
Total | 29,740 | $ | 2,371,711 | 32,603 | $ | 2,341,219 | ||||||||
Land Deposits — We provide deposits related to land options and land purchase contracts, which are capitalized when paid and classified as land deposits until the associated property is purchased.
As of September 30, 2016 and December 31, 2015, we had the right to purchase 8,581 and 8,888 lots under land option purchase contracts, respectively, for an aggregate purchase price of $720.5 million and $710.6 million as of September 30, 2016 and December 31, 2015, respectively. We do not have title to the property and the creditors generally have no recourse against the Company. As of September 30, 2016 and December 31, 2015, our exposure to loss related to our option contracts with third parties and unconsolidated entities consist of non-refundable option deposits totaling $35.1 million and $34.1 million, respectively, in land deposits related to land options and land purchase contracts.
Capitalized Interest — Interest capitalized, incurred and amortized is as follows (in thousands):
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Interest capitalized - beginning of period | $ | 111,063 | $ | 106,470 | $ | 105,148 | $ | 94,880 | ||||||||
Interest incurred | 21,851 | 22,401 | 66,296 | 70,708 | ||||||||||||
Interest amortized to cost of home closings | (21,502 | ) | (21,886 | ) | (60,032 | ) | (58,603 | ) | ||||||||
Interest capitalized - end of period | $ | 111,412 | $ | 106,985 | $ | 111,412 | $ | 106,985 | ||||||||
8. INVESTMENTS IN UNCONSOLIDATED ENTITIES
We participate in a number of joint ventures with related and unrelated third parties, with ownership interests up to 50.0%. These entities are generally involved in real estate development, homebuilding and mortgage lending activities.
Summarized, unaudited combined financial information of unconsolidated entities that are accounted for by the equity method is as follows (in thousands):
As of | ||||||||
September 30, 2016 | December 31, 2015 | |||||||
Assets: | ||||||||
Real estate inventory | $ | 609,133 | $ | 586,359 | ||||
Other assets | 169,517 | 119,781 | ||||||
Total assets | $ | 778,650 | $ | 706,140 | ||||
Liabilities and owners’ equity: | ||||||||
Debt | $ | 288,470 | $ | 273,769 | ||||
Other liabilities | 21,978 | 11,239 | ||||||
Total liabilities | 310,448 | 285,008 | ||||||
Owners’ equity: | ||||||||
TMHC | 151,606 | 128,448 | ||||||
Others | 316,596 | 292,684 | ||||||
Total owners’ equity | 468,202 | 421,132 | ||||||
Total liabilities and owners’ equity | $ | 778,650 | $ | 706,140 | ||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Revenues | $ | 45,219 | $ | 2,206 | $ | 94,881 | $ | 19,430 | ||||||||
Costs and expenses | (38,618 | ) | (2,242 | ) | (78,838 | ) | (15,980 | ) | ||||||||
Income of unconsolidated entities | $ | 6,601 | $ | (36 | ) | $ | 16,043 | $ | 3,450 | |||||||
TMHC’s share in income/(loss) of unconsolidated entities | $ | 1,646 | $ | (120 | ) | $ | 4,734 | $ | 1,408 | |||||||
Distributions from unconsolidated entities | $ | 2,755 | $ | 442 | $ | 6,084 | $ | 8,736 | ||||||||
We have investments in a number of joint ventures with related and unrelated parties to develop land and to develop housing communities, including for-sale residential homes. Some of these joint ventures develop land for the sole use of the joint venture participants, including us, and others develop land for sale to the joint venture participants and to unrelated builders. Our share of the joint venture profit relating to lots we purchase from the joint ventures is deferred until homes are delivered by us and title passes to a homebuyer.
9. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following (in thousands):
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As of September 30, 2016 | As of December 31, 2015 | |||||||
Real estate development costs to complete | $ | 14,502 | $ | 21,325 | ||||
Compensation and employee benefits | 48,733 | 47,674 | ||||||
Self-insurance and warranty reserves | 46,481 | 43,098 | ||||||
Interest payable | 24,904 | 18,621 | ||||||
Property and sales taxes payable | 14,373 | 15,233 | ||||||
Other accruals | 44,770 | 45,501 | ||||||
Total accrued expenses and other liabilities | $ | 193,763 | $ | 191,452 | ||||
Self-Insurance and Warranty Reserves – We accrue for the expected costs associated with the limited one year warranty, deductibles and self-insured amounts under our various insurance policies within Beneva Indemnity Company ("Beneva") a wholly owned subsidiary. A summary of the changes in our reserves are as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Reserve - beginning of period | $ | 44,342 | $ | 42,589 | $ | 43,098 | $ | 44,595 | ||||||||
Additions to reserves | 8,902 | 5,629 | 19,685 | 13,143 | ||||||||||||
Costs and claims incurred | (5,173 | ) | (5,032 | ) | (17,720 | ) | (16,482 | ) | ||||||||
Change in estimates to pre-existing reserves | (1,590 | ) | 737 | 1,418 | 2,667 | |||||||||||
Reserve - end of period | $ | 46,481 | $ | 43,923 | $ | 46,481 | $ | 43,923 | ||||||||
10. DEBT
Total debt consists of the following (in thousands):
As of | ||||||||||||||||||||||||
September 30, 2016 | December 31, 2015 | |||||||||||||||||||||||
Principal | Unamortized Debt Issuance Costs | Carrying Value | Principal | Unamortized Debt Issuance Costs | Carrying Value | |||||||||||||||||||
5.25% Senior Notes due 2021, unsecured | $ | 550,000 | $ | 5,389 | $ | 544,611 | $ | 550,000 | $ | 6,287 | $ | 543,713 | ||||||||||||
5.875% Senior Notes due 2023, unsecured | 350,000 | 3,711 | 346,289 | 350,000 | 4,160 | 345,840 | ||||||||||||||||||
5.625% Senior Notes due 2024, unsecured | 350,000 | 3,992 | 346,008 | 350,000 | 4,396 | 345,604 | ||||||||||||||||||
Senior Notes subtotal | 1,250,000 | 13,092 | 1,236,908 | 1,250,000 | 14,843 | 1,235,157 | ||||||||||||||||||
Loans payable and other borrowings | 142,786 | — | 142,786 | 134,824 | — | 134,824 | ||||||||||||||||||
Revolving Credit Facility | 215,000 | 3,916 | 211,084 | 115,000 | 5,053 | 109,947 | ||||||||||||||||||
Mortgage warehouse borrowings | 91,166 | — | 91,166 | 183,444 | — | 183,444 | ||||||||||||||||||
Total Senior Notes and bank financing | $ | 1,698,952 | $ | 17,008 | $ | 1,681,944 | $ | 1,683,268 | $ | 19,896 | $ | 1,663,372 | ||||||||||||
2021 Senior Notes
On April 16, 2013, we issued $550.0 million aggregate principal amount of 5.25% Senior Notes due 2021 (the “2021 Senior Notes”).
The 2021 Senior Notes mature on April 15, 2021. The 2021 Senior Notes are guaranteed by TMM Holdings, Taylor Morrison Holdings, Inc., Taylor Morrison Communities II, Inc. and their homebuilding subsidiaries (collectively, the “Guarantors”), which are all subsidiaries directly or indirectly of TMHC. The 2021 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights. The indenture for the 2021 Senior Notes contains covenants that limit (i) the making of investments, (ii) the payment of dividends and the redemption of equity and junior debt, (iii) the
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incurrence of additional indebtedness, (iv) asset dispositions, (v) mergers and similar corporate transactions, (vi) the incurrence of liens, (vii) the incurrence of prohibitions on payments and asset transfers among the issuers and restricted subsidiaries and (viii) transactions with affiliates, among others. The indenture governing the 2021 Senior Notes contains customary events of default. If we do not apply the net cash proceeds of certain asset sales within specified deadlines, we will be required to offer to repurchase the 2021 Senior Notes at par (plus accrued and unpaid interest) with such proceeds. We are also required to offer to repurchase the 2021 Senior Notes at a price equal to 101% of their aggregate principal amount (plus accrued and unpaid interest) upon certain change of control events.
There are no financial maintenance covenants for the 2021 Senior Notes.
2023 Senior Notes and Redemption of 2020 Senior Notes
On April 16, 2015, we issued $350.0 million aggregate principal amount of 5.875% Senior Notes due 2023 (the “2023 Senior Notes”). The 2023 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights. The net proceeds of the offering, together with cash on hand, were used to redeem the entire remaining principal amount of 7.75% Senior Notes due 2020 (the “2020 Senior Notes”) on May 1, 2015, at a redemption price of 105.813% of their aggregate principal amount, plus accrued and unpaid interest thereon to, but not including, the date of redemption. As a result of the redemption of the 2020 Senior Notes, we recorded a loss on extinguishment of debt of $33.3 million during the second quarter of 2015, which included the payment of the redemption premium and write-off of net unamortized deferred financing fees.
The 2023 Senior Notes mature on April 15, 2023. The 2023 Senior Notes are guaranteed by the same Guarantors that guarantee the 2021 Senior Notes. The indenture governing the 2023 Senior Notes contains covenants that limit our ability to incur debt secured by liens and enter into certain sale and leaseback transactions. The indenture governing the 2023 Senior Notes contains events of default that are similar to those contained in the indenture governing the 2021 Senior Notes. The change of control provisions in the indenture governing the 2023 Senior Notes are similar to those contained in the indenture governing the 2021 Senior Notes, but a credit rating downgrade must occur in connection with the change of control before the repurchase offer requirement is triggered for the 2023 Senior Notes.
Prior to January 15, 2023, the 2023 Senior Notes are redeemable at a price equal to 100% plus a “make-whole” premium for payments through January 15, 2023 (plus accrued and unpaid interest). Beginning January 15, 2023, the 2023 Senior Notes are redeemable at par (plus accrued and unpaid interest).
There are no financial maintenance covenants for the 2023 Senior Notes.
2024 Senior Notes
On March 5, 2014, we issued $350.0 million aggregate principal amount of 5.625% Senior Notes due 2024 (the “2024 Senior Notes”). The net proceeds from the issuance of the 2024 Senior Notes were used to repay the outstanding balance under the Revolving Credit Facility and for general corporate purposes.
The 2024 Senior Notes mature on March 1, 2024. The 2024 Senior Notes are guaranteed by the same Guarantors that guarantee the 2021 and 2023 Senior Notes. The 2024 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights. The indenture governing the 2024 Senior Notes contains covenants that limit our ability to incur debt secured by liens and enter into certain sale and leaseback transactions similar to the 2023 Senior Notes. The indenture governing the 2024 Senior Notes contains events of default that are similar to those contained in the indenture governing the 2021 and 2023 Senior Notes. The change of control provisions in the indenture governing the 2024 Senior Notes are similar to those contained in the indenture governing the 2023 Senior Notes.
Prior to December 1, 2023, the 2024 Senior Notes are redeemable at a price equal to 100% plus a “make-whole” premium for payments through December 1, 2023 (plus accrued and unpaid interest). Beginning on December 1, 2023, the 2024 Senior Notes are redeemable at par (plus accrued and unpaid interest).
There are no financial maintenance covenants for the 2024 Senior Notes.
$500.0 Million Revolving Credit Facility
Our $500.0 million Revolving Credit Facility matures on April 12, 2019. The Revolving Credit Facility is guaranteed by the same Guarantors that guarantee the 2021, 2023 and 2024 Senior Notes.
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The Revolving Credit Facility contains certain “springing” financial covenants, requiring us and our subsidiaries to comply with a maximum debt to capitalization ratio of not more than 0.60 to 1.00 and a minimum consolidated tangible net worth level of at least $1.5 billion. The financial covenants would be in effect for any fiscal quarter during which any (a) loans under the Revolving Credit Facility are outstanding during the last day of such fiscal quarter or on more than five separate days during such fiscal quarter or (b) undrawn letters of credit (except to the extent cash collateralized) issued under the Revolving Credit Facility in an aggregate amount greater than $40.0 million or unreimbursed letters of credit issued under the Revolving Credit Facility are outstanding on the last day of such fiscal quarter or for more than five consecutive days during such fiscal quarter. For purposes of determining compliance with the financial covenants for any fiscal quarter, the Revolving Credit Facility provides that we may exercise an equity cure by issuing certain permitted securities for cash or otherwise recording cash contributions to our capital that will, upon the contribution of such cash to the borrower, be included in the calculation of consolidated tangible net worth and consolidated total capitalization. The equity cure right is exercisable up to twice in any period of four consecutive fiscal quarters and up to five times overall.
The Revolving Credit Facility contains certain restrictive covenants including limitations on incurrence of liens, dividends and other distributions, asset dispositions and investments in entities that are not guarantors, limitations on prepayment of subordinated indebtedness and limitations on fundamental changes. The Revolving Credit Facility contains customary events of default, subject to applicable grace periods, including for nonpayment of principal, interest or other amounts, violation of covenants (including financial covenants, subject to the exercise of an equity cure), incorrectness of representations and warranties in any material respect, cross default and cross acceleration, bankruptcy, material monetary judgments, ERISA events with material adverse effect, actual or asserted invalidity of material guarantees and change of control. As of September 30, 2016, we were in compliance with all of the covenants under the Revolving Credit Facility.
Mortgage Warehouse Borrowings
The following is a summary of our mortgage warehouse borrowings (in thousands):
As of September 30, 2016 | ||||||||||||||
Facility | Amount Drawn | Facility Amount | Interest Rate | Expiration Date | Collateral (1) | |||||||||
Flagstar | $ | 24,559 | $ | 55,000 | LIBOR + 2.5% | 30 days written notice | Mortgage Loans | |||||||
Comerica | 19,183 | 50,000 | LIBOR + 2.25% | November 16, 2016 | Mortgage Loans | |||||||||
J.P. Morgan | 47,424 | 100,000 | LIBOR + 2.375% | September 25, 2017 | Mortgage Loans and Pledged Cash | |||||||||
Total | $ | 91,166 | $ | 205,000 | ||||||||||
As of December 31, 2015 | ||||||||||||||
Facility | Amount Drawn | Facility Amount | Interest Rate | Expiration Date | Collateral (1) | |||||||||
Flagstar | $ | 63,210 | $ | 75,000 | LIBOR + 2.5% | 30 days written notice | Mortgage Loans | |||||||
Comerica | 18,009 | 50,000 | LIBOR + 2.25% | November 16, 2016 | Mortgage Loans | |||||||||
J.P. Morgan | 102,225 | 120,000 | (2) | September 26, 2016 | Mortgage Loans and Pledged Cash | |||||||||
Total | $ | 183,444 | $ | 245,000 | ||||||||||
(1) The mortgage warehouse borrowings outstanding as of September 30, 2016 and December 31, 2015, are collateralized by a) $119.0 million and $201.7 million, respectively, of mortgage loans held for sale, which comprise the balance of mortgage loans held for sale and b) $1.3 million, for both periods presented, which are included in restricted cash in the accompanying Condensed Consolidated Balance Sheets.
(2) Through the date of expiration of September 28, 2015, interest under the J.P. Morgan agreement ranged from 2.50% plus 30-day LIBOR to 2.875% plus 30-day LIBOR or 0.25% (whichever was greater). The agreement was renewed in September 2015 setting the interest rate at 2.375% plus 30-day LIBOR.
Loans Payable and Other Borrowings
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Loans payable and other borrowings as of September 30, 2016 and December 31, 2015 consist of project-level debt due to various land sellers and seller financing notes from current and prior year acquisitions. Project-level debt is generally secured by the land that was acquired and the principal payments generally coincide with corresponding project lot sales or a principal reduction schedule. Loans payable bear interest at rates that ranged from 0% to 8% at September 30, 2016 and December 31, 2015. We impute interest for loans with no stated interest rates. The weighted average interest rate on $109.6 million of the loans as of September 30, 2016 was 4.8% per annum, and $33.2 million of the loans were non-interest bearing.
11. FAIR VALUE DISCLOSURES
We have adopted ASC Topic 820, Fair Value Measurements, for valuation of financial instruments. ASC Topic 820 provides a framework for measuring fair value under GAAP, expands disclosures about fair value measurements, and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are summarized as follows:
Level 1 — Fair value is based on quoted prices for identical assets or liabilities in active markets.
Level 2 — Fair value is determined using quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable.
Level 3 — Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as a pricing model, discounted cash flow, or similar technique.
The fair value of our mortgage loans held for sale is derived from negotiated rates with partner lending institutions. The fair value of our mortgage warehouse borrowings and loans payable and other borrowings approximate carrying value due to their short term nature and variable interest rate terms. The fair value of our Senior Notes is derived from quoted market prices by independent dealers in markets that are not active. The fair value of the Revolving Credit Facility is the outstanding borrowing amount, gross of debt issuance cost, due to its short-term nature and variable interest rates. The fair value of the contingent consideration liability related to previous acquisitions was estimated by discounting to present value the contingent payments expected to be made for each acquisition based on a probability-weighted scenario approach. As the measurement of the contingent consideration is based primarily on significant inputs not observable in the market, it represents a Level 3 measurement. The carrying value and fair value of our financial instruments are as follows (in thousands):
September 30, 2016 | December 31, 2015 | |||||||||||||||||
Level in Fair Value Hierarchy | Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | ||||||||||||||
Description: | ||||||||||||||||||
Mortgage loans held for sale | 2 | $ | 118,997 | $ | 118,997 | $ | 201,733 | $ | 201,733 | |||||||||
Mortgage warehouse borrowings | 2 | 91,166 | 91,166 | 183,444 | 183,444 | |||||||||||||
Loans payable and other borrowings | 2 | 142,786 | 142,786 | 134,824 | 134,824 | |||||||||||||
5.25% Senior Notes due 2021 (1) | 2 | 544,611 | 567,875 | 543,713 | 552,750 | |||||||||||||
5.875% Senior Notes due 2023 (1) | 2 | 346,289 | 366,625 | 345,840 | 346,500 | |||||||||||||
5.625% Senior Notes due 2024 (1) | 2 | 346,008 | 360,500 | 345,604 | 336,000 | |||||||||||||
Revolving Credit Facility (1) | 2 | 211,084 | 215,000 | 109,947 | 115,000 | |||||||||||||
Contingent consideration liability | 3 | 16,882 | 16,882 | 20,082 | 20,082 | |||||||||||||
(1) Carrying value for Senior Notes and the Revolving Credit Facility, as presented, includes unamortized debt issuance costs. Debt issuance costs are not factored into the fair value calculation for the Senior Notes.
12. INCOME TAXES
The effective tax rate for the three and nine months ended September 30, 2016 and September 30, 2015 was based on the federal statutory income tax rates, affected by state income taxes, changes in deferred tax assets, changes in valuation allowances, and certain deductions and credits relating to homebuilding activities.
As of September 30, 2016, cumulative gross unrecognized tax benefits were $7.3 million, and all unrecognized tax benefits, if recognized, would favorably affect the effective tax rate. As of December 31, 2015, cumulative gross unrecognized tax benefits
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were $7.0 million. These amounts are included in deferred tax assets and income taxes payable in the accompanying Condensed Consolidated Balance Sheets at September 30, 2016 and December 31, 2015. None of the unrecognized tax benefits are expected to reverse in the next 12 months.
13. STOCKHOLDERS’ EQUITY
Capital Stock — Holders of Class A Common Stock and Class B Common Stock are entitled to one vote for each share held on all matters submitted to stockholders for their vote or approval. The holders of Class A Common Stock and Class B Common Stock vote together as a single class on all matters submitted to stockholders for their vote or approval, except with respect to the amendment of certain provisions of the amended and restated Certificate of Incorporation that would alter or change the powers, preferences or special rights of the Class B Common Stock so as to affect them adversely. Such amendments must be approved by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment, voting as a separate class, or as otherwise required by applicable law. The voting power of the outstanding Class B Common Stock (expressed as a percentage of the total voting power of all common stock) is equal to the percentage of partnership interests in New TMM not held directly or indirectly by TMHC.
The components and respective voting power of outstanding TMHC Common Stock at September 30, 2016 are as follows:
Shares Outstanding | Percentage | |||||
Class A Common Stock | 30,415,653 | 25.5 | % | |||
Class B Common Stock | 89,010,304 | 74.5 | % | |||
Total | 119,425,957 | 100 | % | |||
Stock Repurchase Program
Our Board of Directors has authorized the repurchase of up to $100.0 million of the Company’s Class A Common Stock through December 31, 2017 in open market purchases, privately negotiated transactions or other transactions. The stock repurchase program is subject to prevailing market conditions and other considerations, including our liquidity, the terms of our debt instruments, planned land investment and development spending, acquisition and other investment opportunities and ongoing capital requirements. During the three and nine months ended September 30, 2016, there were an aggregate of 247,366 and 1,918,999 shares of Class A Common Stock repurchased for $3.8 million and $28.5 million, respectively.
14. STOCK BASED COMPENSATION
Equity-Based Compensation
In April 2013, we adopted the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan, which was amended and restated in May 2016 (the “Plan”). The Plan provides for the grant of stock options, RSUs and other equity awards based on our common stock. As of September 30, 2016 we had an aggregate of 3,867,255 shares of Class A Common Stock available for future grants under the Plan.
The following table provides information regarding the amount and components of stock-based compensation expense, which except as described in Note 2 below, is included in general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Restricted stock units (RSUs) (1) | $ | 1,810 | $ | 964 | $ | 4,948 | $ | 2,389 | ||||||||
Stock options | 1,056 | 779 | 3,074 | 3,577 | ||||||||||||
New TMM units | 176 | 384 | 937 | 1,296 | ||||||||||||
Total stock compensation (2) | $ | 3,042 | $ | 2,127 | $ | 8,959 | $ | 7,262 | ||||||||
Income tax expense recognized | $ | (8 | ) | $ | (1 | ) | $ | (30 | ) | $ | (7 | ) | ||||
(1) Includes compensation expense related to time-based RSUs and performance-based RSUs.
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(2) Included in the table above for the nine months ended September 30, 2015 is $1.5 million of stock compensation expense related to the acceleration of vesting for equity awards held by Monarch employees. The sale of Monarch triggered a change in control provision provided for in the respective award agreements and plan document. The expense related to the acceleration of awards is included in transaction expenses from discontinued operations in the accompanying Condensed Consolidated Statement of Operations for the nine months ended September 30, 2015.
At September 30, 2016 and December 31, 2015, the aggregate unrecognized value of all outstanding stock-based compensation awards was approximately $22.7 million and $15.2 million, respectively.
Restricted Stock Units – The following table summarizes the time-based RSU and performance-based RSU activity for the nine months ended September 30, 2016:
Shares | Weighted Average Grant Date Fair Value | ||||||
Balance at December 31, 2015 | 441,296 | $ | 13.55 | ||||
Granted | 1,087,007 | 11.39 | |||||
Vested | (13,787 | ) | 19.66 | ||||
Forfeited | (48,769 | ) | 13.45 | ||||
Balance at September 30, 2016 | 1,465,747 | $ | 13.38 | ||||
During the three and nine months ended September 30, 2016, we issued time-based RSU awards and performance-based RSU awards to certain employees and members of the Board of Directors of the Company.
Our time-based RSUs consist of units to be settled in shares of Class A Common Stock awarded to our employees and members of our Board of Directors. Vesting of RSUs is subject to continued employment with TMHC or an affiliate, or continued service on the Board of Directors, through the applicable vesting dates. Time-based RSUs granted to employees generally become vested with respect to 33% of the RSUs on the second, third, and fourth anniversaries of the grant date. Time-based RSUs granted to members of the Board of Directors generally become vested on the first anniversary of the grant date.
Additionally, we issued performance-based RSUs to certain employees of the Company. These awards will vest in full based on the achievement of certain performance goals over a three-year performance period, subject to the employee’s continued employment through the last date of the performance period and will be settled in shares of our Class A common stock. The number of shares that may be issued in settlement of the performance-based RSUs to the award recipients may be greater or lesser than the target award amount depending on actual performance achieved as compared to the performance targets set forth in the awards.
Stock Options – The following table summarizes the stock option activity for the nine months ended September 30, 2016:
Shares | Weighted Average Exercise Price Per Share | ||||||
Outstanding at December 31, 2015 | 1,507,765 | $ | 21.07 | ||||
Granted | 1,142,531 | 11.58 | |||||
Canceled/Forfeited | (55,683 | ) | 14.36 | ||||
Outstanding at September 30, 2016 | 2,594,613 | $ | 17.04 | ||||
Options exercisable at September 30, 2016 | 641,814 | $ | 21.47 | ||||
Options granted to employees vest and become exercisable ratably on the second, third, fourth and fifth anniversary of the date of grant. Options granted to members of the Board of Directors vest and become exercisable ratably on the first, second and third anniversary of the date of grant. Vesting of the options is subject to continued employment with TMHC or an affiliate, or continued service on the Board of Directors, through the applicable vesting dates and expires within ten years from the date of grant.
New TMM Units – Certain members of management and certain members of the Board of Directors were issued Class M partnership units in TMM Holdings. Those units were subject to both time and performance vesting conditions. In addition, TMM Holdings issued phantom Class M Units to certain employees who resided in Canada, which are treated as Class M Units for the purposes of this description and the financial statements. In connection with the sale of Monarch, all of the phantom
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Class M Units were settled pursuant to change in control provisions provided for in the award agreement. In the nine months ended September 30, 2015, we paid $1.4 million in settlement of these awards; there was no activity for the nine months ended September 30, 2016.
Pursuant to the Reorganization Transactions, the time-vesting Class M Units in TMM Holdings were exchanged for New TMM Units with vesting terms substantially the same as the Class M Units surrendered for exchange. One New TMM Unit together with a corresponding share of Class B Common Stock is exchangeable for one share of Class A Common Stock. The shares of Class B Common Stock/New TMM Units held by management and our Board of Directors outstanding as of September 30, 2016 were as follows:
Class B Shares/New TMM Units | Weighted Average Grant Date Fair Value | ||||||
Balance at December 31, 2015 | 1,312,874 | $ | 5.45 | ||||
Granted | — | — | |||||
Exchanges (1) | (96,444 | ) | 4.52 | ||||
Forfeited (2) | (1,821 | ) | 10.20 | ||||
Balance at September 30, 2016 | 1,214,609 | $ | 5.44 | ||||
(1) Exchanges during the period represent the exchange of a vested New TMM Unit along with the corresponding share of Class B Common Stock for a newly issued share of Class A Common Stock.
(2) Awards forfeited during the period represent the unvested portion of New TMM Unit awards for employees who have terminated employment with the Company and for which the New TMM Unit and the corresponding Class B Share have been canceled.
15. RELATED-PARTY TRANSACTIONS
From time to time, we may engage in transactions with entities or persons that are affiliated with us or one or more of the Principal Equityholders. For the three and nine months ended September 30, 2016, there were no such transactions. For the three months ended September 30, 2015, there were no such transactions and for the nine months ended September 30, 2015, there were $16.8 million in real estate inventory acquisitions from such affiliates. Such real estate transactions with related parties are in the normal course of operations and are executed at arm’s length, as they are entered into at terms comparable to those entered into with unrelated third parties.
16. ACCUMULATED OTHER COMPREHENSIVE INCOME
The table below provides the components of accumulated other comprehensive income (loss) (“AOCI”) for the periods presented (in thousands). There was no AOCI activity in the three months ended September 30, 2016, therefore it is not presented below.
Nine Months Ended September 30, 2016 | ||||||||||||||||
Total Post- Retirement Benefits Adjustments | Foreign Currency Translation Adjustments | Non-controlling Interest - Principal Equityholders Reclassification | Total | |||||||||||||
Balance, beginning of period | $ | 2,305 | $ | (79,927 | ) | $ | 59,625 | $ | (17,997 | ) | ||||||
Other comprehensive loss before reclassifications | (447 | ) | — | — | (447 | ) | ||||||||||
Other comprehensive loss, net of tax | $ | (447 | ) | $ | — | $ | — | $ | (447 | ) | ||||||
Gross amounts reclassified within accumulated other comprehensive income | — | — | 329 | 329 | ||||||||||||
Balance, end of period | $ | 1,858 | $ | (79,927 | ) | $ | 59,954 | $ | (18,115 | ) | ||||||
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Three Months Ended September 30, 2015 | ||||||||||||||||
Total Post- Retirement Benefits Adjustments | Foreign Currency Translation Adjustments | Non-controlling Interest - Principal Equityholders Reclassification | Total | |||||||||||||
Balance, beginning of period | $ | 678 | $ | (79,362 | ) | $ | 60,838 | $ | (17,846 | ) | ||||||
Other comprehensive income before reclassifications | — | (565 | ) | — | (565 | ) | ||||||||||
Other comprehensive income, net of tax | $ | — | $ | (565 | ) | $ | — | $ | (565 | ) | ||||||
Gross amounts reclassified within accumulated other comprehensive income | — | — | 452 | 452 | ||||||||||||
Balance, end of period | $ | 678 | $ | (79,927 | ) | $ | 61,290 | $ | (17,959 | ) | ||||||
Nine Months Ended September 30, 2015 | ||||||||||||||||
Total Post- Retirement Benefits Adjustments | Foreign Currency Translation Adjustments | Non-controlling Interest - Principal Equityholders Reclassification | Total | |||||||||||||
Balance, beginning of period | $ | 692 | $ | (52,148 | ) | $ | 40,546 | $ | (10,910 | ) | ||||||
Other comprehensive income/(loss) before reclassifications | 269 | (27,779 | ) | — | (27,510 | ) | ||||||||||
Gross amounts reclassified from accumulated other comprehensive income | 1,488 | — | — | 1,488 | ||||||||||||
Foreign currency translation | 518 | — | (518 | ) | — | |||||||||||
Other comprehensive income/(loss), net of tax | $ | 2,275 | $ | (27,779 | ) | $ | (518 | ) | $ | (26,022 | ) | |||||
Gross amounts reclassified within accumulated other comprehensive (loss)/income | (2,289 | ) | — | 21,262 | 18,973 | |||||||||||
Balance, end of period | $ | 678 | $ | (79,927 | ) | $ | 61,290 | $ | (17,959 | ) | ||||||
Reclassifications for the amortization of the employee retirement plans are included in selling, general and administrative expense in the accompanying Condensed Consolidated Statements of Operations.
17. OPERATING AND REPORTING SEGMENTS
As of December 31, 2015, we realigned our homebuilding reporting segments to be the East, Central and West homebuilding operating regions. Within these, we have multiple homebuilding operating divisions which are engaged in the business of acquiring and developing land, constructing homes, marketing and selling those homes, and providing warranty and customer service. We aggregate our homebuilding operating divisions into reporting segments based on similar long-term economic characteristics. We also have a mortgage and title services reporting segment. We have no inter-segment sales as all sales are to external customers.
Our reporting segments are as follows:
East | Atlanta, Charlotte, North Florida, Raleigh, Southwest Florida and Tampa |
Central | Austin, Dallas and Houston (which includes a Taylor Morrison division and a Darling Homes division) |
West | Bay Area, Chicago, Denver, Phoenix, Sacramento and Southern California |
Mortgage Operations | Taylor Morrison Home Funding and Inspired Title |
Management primarily evaluates homebuilding segment performance based on GAAP gross margin, defined as homebuilding and land revenue less cost of home construction, land development and other land sales costs and other costs incurred by, or allocated to each segment, including impairments. Operating results for each segment may not be indicative of the results for such segment had it been an independent, stand-alone entity.
As a result of our realignment, historical periods in the financial statements have been recast to give effect to the segment changes. Segment information, excluding discontinued operations, is as follows (in thousands):
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Three Months Ended September 30, 2016 | ||||||||||||||||||||||||
East | Central | West | Mortgage Operations | Corporate and Unallocated | Total | |||||||||||||||||||
Total revenues | $ | 278,152 | $ | 244,578 | $ | 316,873 | $ | 13,814 | $ | — | $ | 853,417 | ||||||||||||
Gross margin | 69,473 | 48,016 | 55,428 | 5,937 | — | 178,854 | ||||||||||||||||||
Selling, general and administrative expenses | (25,505 | ) | (22,765 | ) | (21,945 | ) | — | (18,006 | ) | (88,221 | ) | |||||||||||||
Equity in income of unconsolidated entities | 132 | 331 | 319 | 864 | — | 1,646 | ||||||||||||||||||
Interest and other (expense)/income, net | (562 | ) | (1,172 | ) | (512 | ) | 4 | 354 | (1,888 | ) | ||||||||||||||
Income/(loss) from continuing operations before income taxes | $ | 43,538 | $ | 24,410 | $ | 33,290 | $ | 6,805 | $ | (17,652 | ) | $ | 90,391 | |||||||||||
Three Months Ended September 30, 2015 | ||||||||||||||||||||||||
East | Central | West | Mortgage Operations | Corporate and Unallocated | Total | |||||||||||||||||||
Total revenues | $ | 223,625 | $ | 255,400 | $ | 305,947 | $ | 11,316 | $ | — | $ | 796,288 | ||||||||||||
Gross margin | 47,459 | 49,532 | 48,127 | 4,354 | — | 149,472 | ||||||||||||||||||
Selling, general and administrative expenses | (20,536 | ) | (21,926 | ) | (19,822 | ) | (2 | ) | (16,460 | ) | (78,746 | ) | ||||||||||||
Equity in (loss)/income of unconsolidated entities | — | (427 | ) | (197 | ) | 504 | — | (120 | ) | |||||||||||||||
Interest and other (expense)/income, net | (825 | ) | (3,113 | ) | (108 | ) | — | 1,686 | (2,360 | ) | ||||||||||||||
Income/(loss) from continuing operations before income taxes | $ | 26,098 | $ | 24,066 | $ | 28,000 | $ | 4,856 | $ | (14,774 | ) | $ | 68,246 | |||||||||||
Nine Months Ended September 30, 2016 | ||||||||||||||||||||||||
East | Central | West | Mortgage Operations | Corporate and Unallocated | Total | |||||||||||||||||||
Total revenues | $ | 711,681 | $ | 687,088 | $ | 917,342 | $ | 36,951 | $ | — | $ | 2,353,062 | ||||||||||||
Gross margin | 160,130 | 129,312 | 153,448 | 14,357 | — | 457,247 | ||||||||||||||||||
Selling, general and administrative expenses | (72,123 | ) | (65,532 | ) | (64,375 | ) | — | (54,348 | ) | (256,378 | ) | |||||||||||||
Equity in income of unconsolidated entities | 440 | 110 | 1,303 | 2,881 | — | 4,734 | ||||||||||||||||||
Interest and other (expense)/income, net | (2,517 | ) | (3,232 | ) | (1,462 | ) | 14 | (1,256 | ) | (8,453 | ) | |||||||||||||
Income/(loss) from continuing operations before income taxes | $ | 85,930 | $ | 60,658 | $ | 88,914 | $ | 17,252 | $ | (55,604 | ) | $ | 197,150 | |||||||||||
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Nine Months Ended September 30, 2015 | ||||||||||||||||||||||||
East | Central | West | Mortgage Operations | Corporate and Unallocated | Total | |||||||||||||||||||
Total revenues | $ | 523,435 | $ | 706,475 | $ | 747,972 | $ | 28,794 | $ | — | $ | 2,006,676 | ||||||||||||
Gross margin | 113,813 | 135,719 | 120,507 | 10,674 | — | 380,713 | ||||||||||||||||||
Selling, general and administrative expenses | (49,742 | ) | (61,553 | ) | (50,633 | ) | (2 | ) | (44,965 | ) | (206,895 | ) | ||||||||||||
Equity in income/(loss) of unconsolidated entities | 241 | 188 | (619 | ) | 1,598 | — | 1,408 | |||||||||||||||||
Interest and other (expense)/income, net | (1,850 | ) | (10,136 | ) | 421 | — | 105 | (11,460 | ) | |||||||||||||||
Loss on extinguishment of debt | — | — | — | — | (33,317 | ) | (33,317 | ) | ||||||||||||||||
Gain on foreign currency forward | — | — | — | — | 29,983 | 29,983 | ||||||||||||||||||
Income/(loss) from continuing operations before income taxes | $ | 62,462 | $ | 64,218 | $ | 69,676 | $ | 12,270 | $ | (48,194 | ) | $ | 160,432 | |||||||||||
As of September 30, 2016 | ||||||||||||||||||||||||
East | Central | West | Mortgage Operations | Corporate and Unallocated | Total | |||||||||||||||||||
Real estate inventory and land deposits | $ | 1,094,243 | $ | 797,192 | $ | 1,430,953 | $ | — | $ | — | $ | 3,322,388 | ||||||||||||
Investments in unconsolidated entities | 25,556 | 29,479 | 93,356 | 3,215 | — | 151,606 | ||||||||||||||||||
Other assets | 61,192 | 144,311 | 60,279 | 144,454 | 385,305 | 795,541 | ||||||||||||||||||
Total assets | $ | 1,180,991 | $ | 970,982 | $ | 1,584,588 | $ | 147,669 | $ | 385,305 | $ | 4,269,535 | ||||||||||||
As of December 31, 2015 | ||||||||||||||||||||||||
East | Central | West | Mortgage Operations | Corporate and Unallocated | Total | |||||||||||||||||||
Real estate inventory and land deposits | $ | 927,359 | $ | 757,863 | $ | 1,475,678 | $ | — | $ | — | $ | 3,160,900 | ||||||||||||
Investments in unconsolidated entities | 24,098 | 28,832 | 72,646 | 2,872 | — | 128,448 | ||||||||||||||||||
Other assets | 52,817 | 164,192 | 74,379 | 237,430 | 299,228 | 828,046 | ||||||||||||||||||
Total assets | $ | 1,004,274 | $ | 950,887 | $ | 1,622,703 | $ | 240,302 | $ | 299,228 | $ | 4,117,394 | ||||||||||||
18. COMMITMENTS AND CONTINGENCIES
Letters of Credit and Surety Bonds — We are committed, under various letters of credit and surety bonds, to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit and surety bonds under these arrangements totaled $393.6 million and $394.8 million as of September 30, 2016 and December 31, 2015, respectively. Although significant development and construction activities have been completed related to these site improvements, the bonds are generally not released until all development and construction activities are completed. We do not believe that it is probable that any outstanding bonds as of September 30, 2016 will be drawn upon.
Legal Proceedings — We are involved in various litigation and legal claims in the normal course of our business operations, including actions brought on behalf of various classes of claimants. We are also subject to a variety of local, state, and federal laws and regulations related to land development activities, house construction standards, sales practices, mortgage lending operations, employment practices, and protection of the environment. As a result, we are subject to periodic examination or inquiry by various governmental agencies that administer these laws and regulations. We establish liabilities for legal claims and regulatory matters when such matters are both probable of occurring and any potential loss is reasonably estimable. At September 30, 2016 and December 31, 2015, our legal accruals were $2.1 million and $0.8 million, respectively. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. In view of the inherent difficulty of predicting the outcome of these legal and regulatory matters, we generally cannot predict the ultimate resolution of the pending matters, the related timing or the eventual loss. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial
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position, or cash flows. However, to the extent the liability arising from the ultimate resolution of any matter exceeds the estimates reflected in the recorded reserves relating to such matter, we could incur additional charges that could be significant.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For purposes of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the terms “the Company,” “we,” “us,” or “our” refer to Taylor Morrison Home Corporation (“TMHC”) and its subsidiaries.
Forward-Looking Statements
This quarterly report includes certain forward-looking statements within the meaning of the federal securities laws regarding, among other things, our or management’s intentions, plans, beliefs, expectations or predictions of future events, which are considered forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “can,” “could,” “might,” “project” or similar expressions. These statements are based upon assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read this quarterly report, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions, including those described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015 (the “Annual Report”) filed with the Securities and Exchange Commission (“SEC”). Although we believe that these forward-looking statements are based upon reasonable assumptions, you should be aware that many factors, including those described under the heading “Risk Factors” in the Annual Report, could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements.
Our forward-looking statements made herein are made only as of the date of this quarterly report. We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements made herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based, except as required by applicable law.
Business Overview
Our principal business is residential homebuilding and the development of lifestyle communities with operations in Arizona, California, Colorado, Georgia, Florida, Illinois, North Carolina and Texas. Our Company serves a wide array of consumer groups from coast to coast, including first time, move-up, luxury and 55 plus buyers. Our homebuilding business operates under our Taylor Morrison and Darling Homes brand names. Our business is organized into multiple homebuilding operating divisions and a mortgage and title services division, which are managed as multiple reportable segments, as follows:
East | Atlanta, Charlotte, North Florida, Raleigh, Southwest Florida and Tampa | |
Central | Austin, Dallas and Houston (which includes a Taylor Morrison division and a Darling Homes division) | |
West | Bay Area, Chicago, Denver, Phoenix, Sacramento and Southern California | |
Mortgage Operations | Taylor Morrison Home Funding (“TMHF”) and Inspired Title Services, LLC (“Inspired Title”) | |
We offer single family attached and detached homes and revenue is recognized when the homes are completed and delivered to the buyers. Our primary costs are the acquisition of land in various stages of development and the construction costs of the homes we sell.
Our Mortgage Operations reportable segment provides mortgage services to customers through our wholly owned mortgage subsidiary, TMHF, and title services through our wholly owned title services subsidiary, Inspired Title. Revenues from loan origination are recognized at the time the related real estate transactions are completed, usually upon the close of escrow.
Factors Affecting Comparability of Results
The Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed consolidated financial statements included elsewhere in this quarterly report. The primary factors that affect the comparability of our results of operations are the disposal of Monarch Corporation (“Monarch”) and gain on foreign currency hedge in January 2015, loss on extinguishment of debt and the acquisition of JEH Homes in the second quarter of 2015, the acquisition of three divisions of Orleans Homes in the third quarter of 2015, and the acquisition of Acadia Homes in January 2016. For the nine months ended September 30, 2015, the operating results of Monarch are included in discontinued
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operations, and historical periods have been recast to show the effects of our segment realignment effective December 31, 2015.
Non-GAAP Measures
In addition to the results reported in accordance with generally accepted accounting principles in the United States (“GAAP”), we have provided information in this quarterly report relating to “adjusted home closings gross margin.”
Adjusted home closings gross margin
We calculate adjusted home closings gross margin from GAAP gross margin by adding impairment charges, if any, attributable to the write-down of communities, and the amortization of capitalized interest through cost of home closings. Management uses adjusted home closings gross margin to evaluate our operational and economic performance on a consolidated basis as well as the operating and economic performance of our segments. We believe adjusted home closings gross margin is relevant and useful to investors for evaluating our overall financial performance. This measure is considered a non-GAAP financial measure and should be considered in addition to, rather than as a substitute for, the comparable GAAP financial measure as a measure of our operating performance. Although other companies in the homebuilding industry report similar information, the methods used may differ.
Third Quarter 2016 Highlights
Key financial results as of and for the three months ended September 30, 2016, as compared to the same period in 2015, are as follows:
• | Net sales orders were 1,950, a 19% increase from the prior year quarter |
• | Average active community count increased 12% from the prior year quarter to 309 |
• | Total revenue was $853 million, a 7% increase from the prior year quarter |
• | GAAP home closings gross margin, inclusive of capitalized interest, was 18.9%, up 50 basis points from prior |
year quarter
• | Earnings before tax as a percent of revenue was 10.6%, a 200 basis points increase from prior year quarter |
• | Net income for the quarter was $58 million, a 28% increase from prior year, with earnings per share of $0.49 |
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Results of Operations
The following table sets forth our results of operations (unaudited):
Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | |||||||||||||||
(Dollars in thousands) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Statements of Operations Data: | ||||||||||||||||
Home closings revenue, net | $ | 812,185 | $ | 779,190 | $ | 2,271,154 | $ | 1,955,170 | ||||||||
Land closings revenue | 27,418 | 5,782 | 44,957 | 22,712 | ||||||||||||
Mortgage operations revenue | 13,814 | 11,316 | 36,951 | 28,794 | ||||||||||||
Total revenues | 853,417 | 796,288 | 2,353,062 | 2,006,676 | ||||||||||||
Cost of home closings | 658,507 | 635,935 | 1,852,724 | 1,594,691 | ||||||||||||
Cost of land closings | 8,179 | 3,919 | 20,497 | 13,152 | ||||||||||||
Mortgage operations expenses | 7,877 | 6,962 | 22,594 | 18,120 | ||||||||||||
Gross margin | 178,854 | 149,472 | 457,247 | 380,713 | ||||||||||||
Sales, commissions and other marketing costs | 58,277 | 53,482 | 165,300 | 136,724 | ||||||||||||
General and administrative expenses | 29,944 | 25,264 | 91,078 | 70,171 | ||||||||||||
Equity in (income)/loss of unconsolidated entities | (1,646 | ) | 120 | (4,734 | ) | (1,408 | ) | |||||||||
Interest income, net | (47 | ) | (33 | ) | (149 | ) | (165 | ) | ||||||||
Other expense, net | 1,935 | 2,393 | 8,602 | 11,625 | ||||||||||||
Loss on extinguishment of debt | — | — | — | 33,317 | ||||||||||||
Gain on foreign currency forward | — | — | — | (29,983 | ) | |||||||||||
Income from continuing operations before income taxes | 90,391 | 68,246 | 197,150 | 160,432 | ||||||||||||
Income tax provision | 31,707 | 22,452 | 66,698 | 54,434 | ||||||||||||
Net income from continuing operations | 58,684 | 45,794 | 130,452 | 105,998 | ||||||||||||
Discontinued operations: | ||||||||||||||||
Transaction expenses from discontinued operations | — | — | — | (9,043 | ) | |||||||||||
Gain on sale of discontinued operations | — | — | — | 80,205 | ||||||||||||
Income tax provision from discontinued operations | — | — | — | (14,500 | ) | |||||||||||
Net income from discontinued operations | — | — | — | 56,662 | ||||||||||||
Net income before allocation to non-controlling interests | 58,684 | 45,794 | 130,452 | 162,660 | ||||||||||||
Net income attributable to non-controlling interests – joint ventures | (376 | ) | (138 | ) | (856 | ) | (1,427 | ) | ||||||||
Net income before non-controlling interests – Principal Equityholders | 58,308 | 45,656 | 129,596 | 161,233 | ||||||||||||
Net income from continuing operations attributable to non-controlling interests – Principal Equityholders | (43,471 | ) | (33,312 | ) | (96,261 | ) | (76,470 | ) | ||||||||
Net income from discontinued operations attributable to non-controlling interests – Principal Equityholders | — | — | — | (41,381 | ) | |||||||||||
Net income available to Taylor Morrison Home Corporation | $ | 14,837 | $ | 12,344 | $ | 33,335 | $ | 43,382 | ||||||||
Home closings gross margin | 18.9 | % | 18.4 | % | 18.4 | % | 18.4 | % | ||||||||
Adjusted home closings gross margin | 21.6 | % | 21.2 | % | 21.1 | % | 21.4 | % | ||||||||
Sales, commissions and other marketing costs as a percentage of home closings revenue | 7.2 | % | 6.9 | % | 7.3 | % | 7.0 | % | ||||||||
General and administrative expenses as a percentage of home closings revenue | 3.7 | % | 3.2 | % | 4.0 | % | 3.6 | % | ||||||||
Average sales price per home closed | $ | 468 | $ | 458 | $ | 459 | $ | 461 | ||||||||
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Three and Nine Months Ended September 30, 2016 Compared to Three and Nine Months Ended September 30, 2015
Average Active Selling Communities
Three Months Ended September 30, | |||||||||
2016 | 2015 | Change | |||||||
East | 125 | 102 | 22.5 | % | |||||
Central | 108 | 100 | 8.0 | ||||||
West | 76 | 74 | 2.7 | ||||||
Total | 309 | 276 | 12.0 | % | |||||
Nine Months Ended September 30, | |||||||||
2016 | 2015 | Change | |||||||
East | 124 | 100 | 24.0 | % | |||||
Central | 110 | 96 | 14.6 | ||||||
West | 78 | 72 | 8.3 | ||||||
Total | 312 | 268 | 16.4 | % | |||||
Average active selling communities for the three and nine months ended September 30, 2016 increased by 12.0% and 16.4%, respectively, when compared to the same periods in the prior year. The increase in the East was primarily driven by our legacy markets; however, the acquisition of Acadia Homes in January 2016 increased the East's average active communities by 5.9% and 8.0% for the three and nine months ended September 30, 2016, respectively, when compared to the same period in 2015. From September 2015 to September 2016, we opened a total of 110 new communities and closed out 78 existing communities throughout all of our markets.
Net Sales Orders
Three Months Ended September 30, | |||||||||||||||||||||||||||||||
Net Sales Orders (1) | Sales Value (1) | Average Selling Price | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2016 | 2015 | Change | 2016 | 2015 | Change | 2016 | 2015 | Change | ||||||||||||||||||||||
East | 776 | 558 | 39.1 | % | $ | 294,472 | $ | 197,329 | 49.2 | % | $ | 379 | $ | 354 | 7.1 | % | |||||||||||||||
Central | 484 | 458 | 5.7 | 225,882 | 205,277 | 10.0 | 467 | 448 | 4.2 | ||||||||||||||||||||||
West | 690 | 619 | 11.5 | 398,261 | 306,149 | 30.1 | 577 | 495 | 16.6 | ||||||||||||||||||||||
Total | 1,950 | 1,635 | 19.3 | % | $ | 918,615 | $ | 708,755 | 29.6 | % | $ | 471 | $ | 433 | 8.8 | % | |||||||||||||||
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
Net Sales Orders (1) | Sales Value (1) | Average Selling Price | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2016 | 2015 | Change | 2016 | 2015 | Change | 2016 | 2015 | Change | ||||||||||||||||||||||
East | 2,310 | 1,598 | 44.6 | % | $ | 887,673 | $ | 585,898 | 51.5 | % | $ | 384 | $ | 367 | 4.6 | % | |||||||||||||||
Central | 1,408 | 1,626 | (13.4 | ) | 648,535 | 729,278 | (11.1 | ) | 461 | 449 | 2.7 | ||||||||||||||||||||
West | 2,085 | 2,017 | 3.4 | 1,149,824 | 982,968 | 17.0 | 551 | 487 | 13.1 | ||||||||||||||||||||||
Total | 5,803 | 5,241 | 10.7 | % | $ | 2,686,032 | $ | 2,298,144 | 16.9 | % | $ | 463 | $ | 438 | 5.7 | % | |||||||||||||||
(1) Net sales orders represent the number and dollar value of new sales contracts executed with customers, net of cancellations.
East:
The number of net homes sold increased by 39.1% and 44.6%, respectively, for the three and nine months ended September 30, 2016 compared to the prior year. Sales value of homes increased by 49.2% and 51.5%, respectively, for the same comparative periods. The change in the total sales value was a result of higher units, primarily attributable to an increase in average active selling communities in the majority of our markets. In addition, the balances for the current year represent full period net sales orders from our acquired divisions, whereas the prior year's balances include data for the acquired divisions only for the periods
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since their respective acquisitions. The average selling price of net homes sold increased throughout the region for the three and nine months ended September 30, 2016 due to product mix.
Central:
The number of net homes sold increased by 5.7% for the three months ended September 30, 2016 compared to the prior year and decreased by 13.4% for the nine months ended September 30, 2016 compared to the same respective period in 2015. Sales value of homes increased by 10.0% and decreased by 11.1%, respectively, for the three and nine months ended September 30, 2016 compared to the prior year. For the quarter and year to date, average selling price increased over the prior year. While the economic environment relating to job loss and less than historical relocations in this region impacted the year-over-year performance, certain divisions in the Central region are showing recent strength in their markets as evidenced by increased average selling prices for the quarter and year to date as well as declining cancellation rates, net sales orders and sales value for the quarter.
West:
Sales value of homes increased by 30.1% and 17.0%, respectively, for the three and nine months ended September 30, 2016 compared to the prior year. The average selling price of net homes sold increased by 16.6% and 13.1% for the three and nine month periods, which contributed to the increased total sales value. Our Phoenix and California divisions continue to be strong selling markets due to macro-economic conditions such as lower unemployment rates and consumer demand, allowing for price increases. The number of net homes sold increased by 11.5% and 3.4%, respectively, for the three and nine month 2016 periods as compared to the prior year results of a moderate increase in average active communities.
Sales Order Cancellations
(1) Cancellation rate represents the number of canceled sales orders divided by gross sales orders.
Cancellation Rate(1) | ||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
East | 13.1 | % | 12.7 | % | 12.1 | % | 11.5 | % | ||||
Central | 13.7 | 18.9 | 16.3 | 14.5 | ||||||||
West | 14.4 | 14.7 | 12.8 | 12.2 | ||||||||
Total Company | 13.7 | % | 15.3 | % | 13.4 | % | 12.7 | % | ||||
The primary driver for the increase in the consolidated cancellation rate for the nine months ended September 30, 2016 compared to the prior year was the Central region. The rate in our Houston divisions is normalizing after twelve months of elevated rates as a result of the economics relating to job loss and less than historical relocations. Such normalization is the driver for the decrease in the cancellation rate for the three months ended September 30, 2016 compared to the prior year. Our use of prequalification criteria through TMHF and robust earnest money deposits help us manage our cancellation rate across the company.
Sales Order Backlog
As of September 30, | |||||||||||||||||||||||||||||||
Sold Homes in Backlog (1) | Sales Value | Average Selling Price | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2016 | 2015 | Change | 2016 | 2015 | Change | 2016 | 2015 | Change | ||||||||||||||||||||||
East | 1,438 | 1,098 | 31.0 | % | $ | 592,031 | $ | 435,961 | 35.8 | % | $ | 412 | $ | 397 | 3.8 | % | |||||||||||||||
Central | 1,024 | 1,292 | (20.7 | ) | 517,972 | 622,368 | (16.8 | ) | 506 | 482 | 5.0 | ||||||||||||||||||||
West | 1,393 | 1,170 | 19.1 | 761,874 | 581,268 | 31.1 | 547 | 497 | 10.1 | ||||||||||||||||||||||
Total | 3,855 | 3,560 | 8.3 | % | $ | 1,871,877 | $ | 1,639,597 | 14.2 | % | $ | 486 | $ | 461 | 5.4 | % | |||||||||||||||
(1) Sales order backlog represents homes under contract for which revenue has not yet been recognized at the end of the period (including homes sold but not yet started). Some of the contracts in our sales order backlog are subject to contingencies including mortgage loan approval and buyers selling their existing homes, which can result in cancellations.
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Total backlog units and total sales value increased by 8.3% and 14.2% at September 30, 2016 compared to September 30, 2015, respectively, as a result of increased net sales orders. When compared to December 31, 2015, total backlog units increased by approximately 30% as a result of a 10.7% increase in the number of net sales orders and a 16.5% increase in homes closed for the nine months ended September 30, 2016.
Home Closings Revenue
Three Months Ended September 30, | |||||||||||||||||||||||||||||||
Homes Closed | Home Closings Revenue, Net | Average Selling Price | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2016 | 2015 | Change | 2016 | 2015 | Change | 2016 | 2015 | Change | ||||||||||||||||||||||
East | 651 | 570 | 14.2 | % | $ | 263,442 | $ | 219,198 | 20.2 | % | $ | 405 | $ | 385 | 5.2 | % | |||||||||||||||
Central | 492 | 530 | (7.2 | ) | 235,335 | 254,045 | (7.4 | ) | 478 | 479 | (0.2 | ) | |||||||||||||||||||
West | 594 | 600 | (1.0 | ) | 313,408 | 305,947 | 2.4 | 528 | 510 | 3.5 | |||||||||||||||||||||
Total | 1,737 | 1,700 | 2.2 | % | $ | 812,185 | $ | 779,190 | 4.2 | % | $ | 468 | $ | 458 | 2.2 | % | |||||||||||||||
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
Homes Closed | Home Closings Revenue, Net | Average Selling Price | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2016 | 2015 | Change | 2016 | 2015 | Change | 2016 | 2015 | Change | ||||||||||||||||||||||
East | 1,811 | 1,316 | 37.6 | % | $ | 696,944 | $ | 518,563 | 34.4 | % | $ | 385 | $ | 394 | (2.3 | )% | |||||||||||||||
Central | 1,414 | 1,486 | (4.8 | ) | 667,975 | 693,676 | (3.7 | ) | 472 | 467 | 1.1 | ||||||||||||||||||||
West | 1,719 | 1,441 | 19.3 | 906,235 | 742,931 | 22.0 | 527 | 516 | 2.1 | ||||||||||||||||||||||
Total | 4,944 | 4,243 | 16.5 | % | $ | 2,271,154 | $ | 1,955,170 | 16.2 | % | $ | 459 | $ | 461 | (0.4 | )% | |||||||||||||||
East:
The number of homes closed increased by 14.2% and 37.6%, respectively, for the three and nine months ended September 30, 2016 compared to the prior year, and home closings revenue, net increased by 20.2% and 34.4%, respectively, for the same comparative periods. The increase in the number of homes closed is a result of our improvements in incremental sales units as we grow our markets though community openings. Certain economic market improvements, as well as favorable homebuyer reception of new products and new communities, contributed to the increase in net home closings revenue. For the quarter, the average sales price increased by 5.2% as demand for our products increased in all of our markets. For the nine months ended September 30, 2016, average selling price decreased by 2.3% compared to the same period in the prior year as a result of the acquired markets over the past year in Atlanta, Charlotte, and Raleigh where average selling prices are lower.
Central:
The number of homes closed decreased by 7.2% and 4.8%, respectively, for the three and nine months ended September 30, 2016 compared to the prior year, and home closings revenue, net decreased by 7.4% and 3.7%, respectively, for the same comparative periods. The decrease in the number of homes closed is primarily the result of Darling Homes in Houston which has a higher price point. Higher price point homes in this region have been affected the most by the recent economic factors in Texas. While the high price point homes were the most affected in home closings units, both Darling markets experienced an increase in average sales price despite a decrease in closing volume, which contributed to the region's 1.1% increase for the nine months ended September 30, 2016 compared to the prior year.
West:
For the three months ended September 30, 2016, the number of homes closed and home closings revenue, net remained relatively flat compared to the prior year which is consistent with the modest change in average active communities during the same period. The number of homes closed and home closings revenue, net increased by 19.3% and 22.0%, respectively, for the nine months ended September 30, 2016 compared to the prior year. The increase in units was primarily driven by our Phoenix market. Phoenix and our California markets contributed to the increase in home closing revenue, net as a result of increased average selling prices.
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Land Closings Revenue
Three Months Ended September 30, | ||||||||||||
(Dollars in thousands) | 2016 | 2015 | Change | |||||||||
East | $ | 14,711 | $ | 4,427 | $ | 10,284 | ||||||
Central | 9,243 | 1,355 | 7,888 | |||||||||
West | 3,464 | — | 3,464 | |||||||||
Total | $ | 27,418 | $ | 5,782 | $ | 21,636 | ||||||
Nine Months Ended September 30, | ||||||||||||
(Dollars in thousands) | 2016 | 2015 | Change | |||||||||
East | $ | 14,736 | $ | 4,872 | $ | 9,864 | ||||||
Central | 19,113 | 12,799 | 6,314 | |||||||||
West | 11,108 | 5,041 | 6,067 | |||||||||
Total | $ | 44,957 | $ | 22,712 | $ | 22,245 | ||||||
We generally purchase land and lots with the intent to build and sell homes. However, in some locations where we act as a developer, we occasionally purchase land that includes commercially zoned parcels or areas designated for school or government use, which we typically sell to commercial developers or municipalities, as applicable. We also sell residential lots or land parcels to manage our land and lot supply on larger tracts of land. As a developer, we may include land sales in our underwriting strategies in many of our master plan communities where we may mitigate risk, enhance our returns or pursue opportunities allowing access to new land positions. Land and lot sales occur at various intervals and varying degrees of profitability. Therefore, the revenue and gross margin from land closings will fluctuate from period to period, depending upon market opportunities. During the quarter ended September 30, 2016, land closings revenue was $21.6 million greater than the same period in the prior year as we were able to capitalize on certain market conditions relative to our long-term strategic assets. The sales represent legacy land that we held for either appreciation or tax purposes. As of the third quarter of 2016, the tax holding period for certain land assets expired, creating certain tax benefits, thus resulting in our significant land sales for the quarter.
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Segment Home Closings Gross Margin
The following tables set forth a reconciliation between our GAAP home closings gross margin and adjusted home closings gross margin. See“—Non-GAAP Measures—Adjusted home closings gross margin.”
Three Months Ended September 30, | ||||||||||||||||||||||||||||||||
East | Central | West | Consolidated | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||||
Home closings revenue, net | $ | 263,442 | $ | 219,198 | $ | 235,335 | $ | 254,045 | $ | 313,408 | $ | 305,947 | $ | 812,185 | $ | 779,190 | ||||||||||||||||
Cost of home closings | 206,117 | 173,214 | 192,260 | 204,896 | 260,130 | 257,825 | 658,507 | 635,935 | ||||||||||||||||||||||||
Home closings gross margin | 57,325 | 45,984 | 43,075 | 49,149 | 53,278 | 48,122 | 153,678 | 143,255 | ||||||||||||||||||||||||
Capitalized interest amortization | 5,169 | 5,369 | 6,821 | 7,425 | 9,512 | 9,092 | 21,502 | 21,886 | ||||||||||||||||||||||||
Adjusted home closings gross margin | $ | 62,494 | $ | 51,353 | $ | 49,896 | $ | 56,574 | $ | 62,790 | $ | 57,214 | $ | 175,180 | $ | 165,141 | ||||||||||||||||
Home closings gross margin % | 21.8 | % | 21.0 | % | 18.3 | % | 19.3 | % | 17.0 | % | 15.7 | % | 18.9 | % | 18.4 | % | ||||||||||||||||
Adjusted home closings gross margin % | 23.7 | % | 23.4 | % | 21.2 | % | 22.3 | % | 20.0 | % | 18.7 | % | 21.6 | % | 21.2 | % | ||||||||||||||||
Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||
East | Central | West | Consolidated | |||||||||||||||||||||||||||||
(Dollars in thousands) | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||||
Home closings revenue, net | $ | 696,944 | $ | 518,563 | $ | 667,975 | $ | 693,676 | $ | 906,235 | $ | 742,931 | $ | 2,271,154 | $ | 1,955,170 | ||||||||||||||||
Cost of home closings | 548,931 | 406,442 | 545,016 | 563,504 | 758,777 | 624,745 | 1,852,724 | 1,594,691 | ||||||||||||||||||||||||
Home closings gross margin | 148,013 | 112,121 | 122,959 | 130,172 | 147,458 | 118,186 | 418,430 | 360,479 | ||||||||||||||||||||||||
Capitalized interest amortization | 13,983 | 13,880 | 18,852 | 21,271 | 27,197 | 23,452 | 60,032 | 58,603 | ||||||||||||||||||||||||
Adjusted home closings gross margin | $ | 161,996 | $ | 126,001 | $ | 141,811 | $ | 151,443 | $ | 174,655 | $ | 141,638 | $ | 478,462 | $ | 419,082 | ||||||||||||||||
Home closings gross margin % | 21.2 | % | 21.6 | % | 18.4 | % | 18.8 | % | 16.3 | % | 15.9 | % | 18.4 | % | 18.4 | % | ||||||||||||||||
Adjusted home closings gross margin % | 23.2 | % | 24.3 | % | 21.2 | % | 21.8 | % | 19.3 | % | 19.1 | % | 21.1 | % | 21.4 | % | ||||||||||||||||
On a consolidated basis home closings gross margin percentage increased to 18.9% from 18.4% for the three months ended September 30, 2016 compared to the same period of 2015 and remained unchanged at 18.4% for the nine months ended September 30, 2016 compared to the prior year period. For the nine months ended September 30, 2016, amortization of capitalized interest benefited our overall margins as we experienced a decrease in our interest costs from the redemption, in May 2015, of our 7.75% Senior Notes due 2020 and issuance, in April 2015, of our 5.875% Senior Notes due 2023. Partially offsetting this benefit, we increased closings of aged finished inventory which negatively impacted margins as such homes typically have lower margins than to-be-built homes.
East:
Home closings gross margin percentage increased to 21.8% from 21.0% for the three months ended September 30, 2016 compared to 2015 and decreased to 21.2% from 21.6% for the nine months ended September 30, 2016 compared to the prior year. The increase for the quarter is primarily due to an increase in the average selling price in several of our divisions within this region as demand for our product increased despite the shift in mix. The decrease for the comparative nine month period is primarily due to an overall shift in our product mix from our higher margin homes in our Florida divisions to our acquired divisions which have slightly lower margins.
Central:
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Home closings gross margin percentage decreased to 18.3% from 19.3% for the three months ended September 30, 2016 compared to 2015 and to 18.4% from 18.8% for the nine months ended September 30, 2016 compared to the prior year. The decreases are primarily a result of higher incentives in our Darling Houston business as well as a shift in product mix in our Austin market.
West:
Home closings gross margin percentage increased to 17.0% from 15.7% for the three months ended September 30, 2016 compared to 2015 and to 16.3% from 15.9% for the nine months ended September 30, 2016 compared to the prior year. The changes for all comparative periods were a result of increased homes closed in our Southern California and Phoenix divisions. When compared to the prior year, our Southern California division closed more homes in the current year in communities with higher than average margins. The demand in our Phoenix market increased average selling price for the quarter and for the nine months ended September 30, 2016 which contributed to the increase in margin for all comparative periods.
Mortgage Operations
Our Mortgage Operations segment provides mortgage lending through our subsidiary, TMHF, and title services through our subsidiary, Inspired Title. The following is a summary of mortgage operations gross margin:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(Dollars in thousands) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Mortgage operations revenue | $ | 13,814 | $ | 11,316 | $ | 36,951 | $ | 28,794 | ||||||||
Mortgage operations expenses | 7,877 | 6,962 | 22,594 | 18,120 | ||||||||||||
Mortgage operations gross margin | $ | 5,937 | $ | 4,354 | $ | 14,357 | $ | 10,674 | ||||||||
Mortgage operations margin % | 43.0 | % | 38.5 | % | 38.9 | % | 37.1 | % | ||||||||
Our Mortgage Operations segment’s revenue increased primarily due to increased closings volume, average loan amounts, and strong capture rates.
The following details the number of loans closed, the aggregate value and capture rate on our loans for the following periods:
Closed Loans | Aggregate Loan Volume (in millions) | Capture Rate | ||||||||
Three Months Ended September 30, 2016 | 1,068 | $ | 357.0 | 81 | % | |||||
Three Months Ended September 30, 2015 | 964 | $ | 319.8 | 80 | % | |||||
Closed Loans | Aggregate Loan Volume (in millions) | Capture Rate | ||||||||
Nine Months Ended September 30, 2016 | 2,965 | $ | 992.0 | 80 | % | |||||
Nine Months Ended September 30, 2015 | 2,471 | $ | 826.8 | 78 | % | |||||
Our mortgage capture rate represents the percentage of our homes sold to a home purchaser that utilized a mortgage and for which the borrower obtained such mortgage from TMHF or one of our preferred third party lenders. In the third quarter of 2016 and 2015, the average FICO score of customers who obtained mortgages through TMHF was 744 and 743, respectively. In the first nine months of 2016 and 2015, the average FICO score of customers who obtained their mortgages through TMHF was 743 for both periods.
Sales, Commissions and Other Marketing Costs
Sales, commissions and other marketing costs, as a percentage of home closings revenue, net, increased 0.3% for the three and nine months ended September 30, 2016 to 7.2% and 7.3%, respectively. The increases are primarily a result of our newly acquired divisions. Our new communities typically have higher sales and marketing costs during their earlier stages of sales due to various start up costs.
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General and Administrative Expenses
General and administrative expenses as a percentage of home closings revenue, net, increased to 3.7% from 3.2%, for the three months ended September 30, 2016 and 2015, respectively, and to 4.0% from 3.6% for the nine months ended September 30, 2016 compared to the prior year, respectively. The increase is attributable to personnel and other investments we have made for future business optimatization as well as recent acquisitions.
Equity in Income/Loss of Unconsolidated Entities
Equity in income/loss of unconsolidated entities was $1.6 million income and $0.1 million loss for the three months ended September 30, 2016 and 2015, respectively, and $4.7 million and $1.4 million income for the nine months ended September 30, 2016 and September 30, 2015, respectively. The increase is primarily due to our increase in active unconsolidated joint ventures. We had five active unconsolidated joint ventures at September 30, 2016 compared to three active at September 30, 2015.
Interest Income, Net
Interest income, net includes interest earned on cash balances offset by interest incurred but not capitalized on our long-term debt and other borrowings. Interest income for three and nine months ended September 30, 2016 and September 30, 2015 was consistent.
Other Expense, Net
Other expense, net for the three months ended September 30, 2016 and 2015 was $1.9 million and $2.4 million, respectively, and $8.6 million and $11.6 million for the nine months ended September 30, 2016 and September 30, 2015, respectively. The majority of the expense for both periods related to pre-acquisition costs on abandoned land projects, captive insurance claims costs and financing fees on our Revolving Credit Facility. Furthermore, the decrease from the prior year is primarily as result of our accruals for contingent consideration relating to our acquisitions in that year.
Loss on Extinguishment of Debt
In 2015, we redeemed the entire outstanding aggregate principal amount of our 2020 Senior Notes at a redemption price of 105.813% of their aggregate principal amount, plus accrued and unpaid interest thereon to, but not including, the date of redemption. As a result of the redemption, we recorded a loss on extinguishment of debt of $33.3 million, which included the payment of the redemption premium and write off of net unamortized deferred financing fees.
We did not incur any losses on extinguishment of debt for the three months ended September 30, 2016 and 2015 or the nine months ended September 30, 2016.
Gain on Foreign Currency Forward
In December 2014, we entered into a derivative financial instrument in the form of a foreign currency forward. The derivative financial instrument hedged our exposure to the Canadian dollar in conjunction with the disposition of the Monarch business. The final settlement of the derivative financial instrument occurred on January 30, 2015 and a gain in the amount of $30.0 million was recorded in foreign currency forward in the accompanying Condensed Consolidated Statements of Operations for the nine months ended September 30, 2015.
Income Tax Provision
The effective tax rate for the three months ended September 30, 2016 reflects a favorable accrual to return adjustment and certain benefits from energy tax credits which were not available for the same period in 2015. In addition, the effective tax rate for the three months ended September 30, 2016 was negatively impacted by the reversal of deferred tax assets related to certain inventory that was sold during the year. The reversal of the deferred tax asset lowered taxable income, which limited certain deductions.
Net Income
Net income and earnings per diluted share for the three months ended September 30, 2016 was $58.3 million and $0.49, respectively. Net income and earnings per diluted share for the three months ended September 30, 2015 was $45.7 million and $0.37, respectively. The increase in net income and earnings per share from the prior year is attributable to an increase in margin dollars and an increase in our repurchase of treasury shares.
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Liquidity and Capital Resources
Liquidity
We finance our operations through the following:
• | Borrowings under our Revolving Credit Facility (as defined below); |
• | Our various series of Senior Notes (as defined below); |
• | Mortgage warehouse facilities; |
• | Project-level financing (including non-recourse loans); |
• | Performance, payment and completion surety bonds, and letters of credit; and |
• | Cash generated from operations. |
We believe that we can fund our current and foreseeable liquidity needs for the next 12 months from:
• | Cash generated from operations; |
• | Borrowings under our Revolving Credit Facility; and |
• | Additional offerings of senior notes, depending on credit market conditions. |
Our principal uses of capital for the nine months ended September 30, 2016 and 2015 were land purchases, lot development, home construction, operating expenses, payment of debt service, income taxes, investments in joint ventures, stock repurchases, and the payment of various liabilities. In addition, capital was used for the acquisition of Acadia homes and investments in joint ventures for the nine months ended September 30, 2016. Cash flows for each of our communities depend on the status of the development cycle, and can differ substantially from reported earnings. Early stages of development or expansion require significant cash expenditures for land acquisitions, on and off-site development, construction of model homes, general landscaping and other amenities. Because these costs are a component of our inventory and are not recognized in our statement of operations until a home closes, we incur significant cash outflows prior to recognition of earnings.
The table below summarizes our total cash and liquidity as of the dates indicated (in thousands):
As of | ||||||||
(Dollars in thousands) | September 30, 2016 | December 31, 2015 | ||||||
Total Cash, including Restricted Cash | $ | 161,839 | $ | 127,468 | ||||
Total Revolving Credit Facility | 500,000 | 500,000 | ||||||
Letters of Credit Outstanding | (33,513 | ) | (32,906 | ) | ||||
Revolving Credit Facility Borrowings Outstanding (1) | (215,000 | ) | (115,000 | ) | ||||
Revolving Credit Facility Availability | 251,487 | 352,094 | ||||||
Total Liquidity | $ | 413,326 | $ | 479,562 | ||||
(1) Outstanding borrowings under the Revolving Credit Facility are presented gross of debt issuance costs.
Cash Flow Activities
Operating Cash Flow Activities
Our net cash provided by operating activities was $142.4 million for the nine months ended September 30, 2016 compared to $271.7 million used for the nine months ended September 30, 2015. The primary driver of the current year cash provided by operating activities was due to a decrease in mortgage loans held for sale and cash generated therefrom, an increase in customer deposits, and a significant reduction in the amount expended for real estate year over year. We used cash in operating activities for the nine months ended September 30, 2015 primarily as a result of significant investments in real estate inventory from proceeds of the sale of Monarch.
Investing Cash Flow Activities
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Net cash used in investing activities was $74.8 million for the nine months ended September 30, 2016, as compared to net cash provided by investing activities of $59.7 million for the nine months ended September 30, 2015. We used cash of $52.8 million during the first quarter of 2016 for the acquisition of Acadia Homes. Cash provided by investing activities in the 2015 period reflects the proceeds from the sale of Monarch and our foreign currency forward which occurred during the first quarter of the prior year, offset by cash outflow for our 2015 acquisitions and investments in joint ventures.
Financing Cash Flow Activities
Net cash used in financing activities was $33.3 million for the nine months ended September 30, 2016, compared to $71.4 million for the nine months ended September 30, 2015. The decrease in cash used by financing activities was primarily attributable to the stock repurchase during the 2016 period and the redemption of our 2020 Senior Notes offset by the issuance of our 2023 Senior Notes which occurred in the nine months ended September 30, 2015.
Debt Instruments
Senior Notes:
The following table summarizes our outstanding senior unsecured notes (collectively, the “Senior Notes”), as of September 30, 2016.
(Dollars in thousands) | Date Issued | Principal Amount | Initial Offering Price | Interest Rate | Original Net Proceeds | Original Debt Issuance Cost | ||||||||||||||
Senior Notes due 2021 | April 16, 2013 | 550,000 | 100.0 | % | 5.250 | % | 541,700 | 8,300 | ||||||||||||
Senior Notes due 2023 | April 16, 2015 | 350,000 | 100.0 | % | 5.875 | % | 345,500 | 4,500 | ||||||||||||
Senior Notes due 2024 | March 5, 2014 | 350,000 | 100.0 | % | 5.625 | % | 345,300 | 4,700 | ||||||||||||
Total | $ | 1,250,000 | $ | 1,232,500 | $ | 17,500 | ||||||||||||||
2021 Senior Notes
On April 16, 2013, we issued $550.0 million aggregate principal amount of 5.25% Senior Notes due 2021 (the “2021 Senior Notes”).
The 2021 Senior Notes mature on April 15, 2021. The 2021 Senior Notes are guaranteed by TMM Holdings, Taylor Morrison Holdings, Inc., Taylor Morrison Communities II, Inc. and their homebuilding subsidiaries (collectively, the “Guarantors”) which are all subsidiaries directly or indirectly of TMHC. The 2021 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights. The indenture for the 2021 Senior Notes contains covenants that limit (i) the making of investments, (ii) the payment of dividends and the redemption of equity and junior debt, (iii) the incurrence of additional indebtedness, (iv) asset dispositions, (v) mergers and similar corporate transactions, (vi) the incurrence of liens, (vii) the incurrence of prohibitions on payments and asset transfers among the issuers and restricted subsidiaries and (viii) transactions with affiliates, among others. The indenture governing the 2021 Senior Notes contains customary events of default. If we do not apply the net cash proceeds of certain asset sales within specified deadlines, we will be required to offer to repurchase the 2021 Senior Notes at par (plus accrued and unpaid interest) with such proceeds. We are also required to offer to repurchase the 2021 Senior Notes at a price equal to 101% of their aggregate principal amount (plus accrued and unpaid interest) upon certain change of control events.
There are no financial maintenance covenants for the 2021 Senior Notes.
2023 Senior Notes and Redemption of 2020 Senior Notes
On April 16, 2015, we issued $350.0 million aggregate principal amount of 5.875% Senior Notes due 2023 (the “2023 Senior Notes”). The 2023 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights. The net proceeds of the offering, together with cash on hand, were used to redeem the entire remaining principal amount of 7.75% Senior Notes due 2020 on May 1, 2015, at a redemption price of 105.813% of their aggregate principal amount, plus accrued and unpaid interest thereon to, but not including, the date of redemption. As a result of the redemption of the 2020 Senior Notes, we recorded a loss on extinguishment of debt of $33.3 million during the second quarter of 2015, which included the payment of the redemption premium and write off of net unamortized deferred financing fees.
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The 2023 Senior Notes mature on April 15, 2023. The 2023 Senior Notes are guaranteed by the same Guarantors that guarantee the 2021 Senior Notes. The indenture governing the 2023 Senior Notes contains covenants that limit our ability to incur debt secured by liens and enter into certain sale and leaseback transactions. The indenture governing the 2023 Senior Notes contains events of default that are similar to those contained in the indenture governing the 2021 Senior Notes. The change of control provisions in the indenture governing the 2023 Senior Notes are similar to those contained in the indenture governing the 2021 Senior Notes, but a credit rating downgrade must occur in connection with the change of control before the repurchase offer requirement is triggered for the 2023 Senior Notes.
Prior to January 15, 2023, the 2023 Senior Notes are redeemable at a price equal to 100% plus a “make-whole” premium for payments through January 15, 2023 (plus accrued and unpaid interest). Beginning January 15, 2023, the 2023 Senior Notes are redeemable at par (plus accrued and unpaid interest).
There are no financial maintenance covenants for the 2023 Senior Notes.
2024 Senior Notes
On March 5, 2014, we issued $350.0 million aggregate principal amount of 5.625% Senior Notes due 2024 (the “2024 Senior Notes”). The net proceeds from the issuance of the 2024 Senior Notes were used to repay the outstanding balance under the Revolving Credit Facility and for general corporate purposes.
The 2024 Senior Notes mature on March 1, 2024. The 2024 Senior Notes are guaranteed by the same Guarantors that guarantee the 2021 and 2023 Senior Notes. The 2024 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights. The indenture governing the 2024 Senior Notes contains covenants that limit our ability to incur debt secured by liens and enter into certain sale and leaseback transactions similar to the 2023 Senior Notes. The indenture governing the 2024 Senior Notes contains events of default that are similar to those contained in the indenture governing the 2021 and 2023 Senior Notes. The change of control provisions in the indenture governing the 2024 Senior Notes are similar to those contained in the indenture governing the 2023 Senior Notes.
Prior to December 1, 2023, the 2024 Senior Notes are redeemable at a price equal to 100% plus a “make-whole” premium for payments through December 1, 2023 (plus accrued and unpaid interest). Beginning on December 1, 2023, the 2024 Senior Notes are redeemable at par (plus accrued and unpaid interest).
There are no financial maintenance covenants for the 2024 Senior Notes.
TMHC Compared to TMM Holdings
TMM Holdings is a parent guarantor of certain of our debt facilities. The financial information of TMHC is substantially identical to the financial performance and operations of TMM Holdings except for certain SEC and regulatory fees which are attributable to TMHC.
Revolving Credit Facility
Our $500.0 million Revolving Credit Facility matures on April 12, 2019. The Revolving Credit Facility is guaranteed by the same Guarantors that guarantee the 2021, 2023, and 2024 Senior Notes.
The Revolving Credit Facility contains certain “springing” financial covenants, requiring us and our subsidiaries to comply with a maximum debt to capitalization ratio of not more than 0.60 to 1.00 and a minimum consolidated tangible net worth level of at least $1.5 billion. The financial covenants would be in effect for any fiscal quarter during which any (a) loans under the Revolving Credit Facility are outstanding during the last day of such fiscal quarter or on more than five separate days during such fiscal quarter or (b) undrawn letters of credit (except to the extent cash collateralized) issued under the Revolving Credit Facility in an aggregate amount greater than $40.0 million or unreimbursed letters of credit issued under the Revolving Credit Facility are outstanding on the last day of such fiscal quarter or for more than five consecutive days during such fiscal quarter.
For purposes of determining compliance with the financial covenants for any fiscal quarter, the Revolving Credit Facility provides that we may exercise an equity cure by issuing certain permitted securities for cash or otherwise recording cash contributions to our capital that will, upon the contribution of such cash to the borrower, be included in the calculation of consolidated tangible net worth and consolidated total capitalization. The equity cure right is exercisable up to twice in any period of four consecutive fiscal quarters and up to five times overall.
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The Revolving Credit Facility contains certain restrictive covenants including limitations on incurrence of liens, dividends and other distributions, asset dispositions and investments in entities that are not guarantors, limitations on prepayment of subordinated indebtedness and limitations on fundamental changes. The Revolving Credit Facility contains customary events of default, subject to applicable grace periods, including for nonpayment of principal, interest or other amounts, violation of covenants (including financial covenants, subject to the exercise of an equity cure), incorrectness of representations and warranties in any material respect, cross default and cross acceleration, bankruptcy, material monetary judgments, ERISA events with material adverse effect, actual or asserted invalidity of material guarantees and change of control. As of September 30, 2016, we were in compliance with all of the covenants under the Revolving Credit Facility.
Mortgage Warehouse Borrowings
The following is a summary of our mortgage subsidiary warehouse borrowings:
(Dollars in thousands) | As of September 30, 2016 | |||||||||||||
Facility | Amount Drawn | Facility Amount | Interest Rate | Expiration Date | Collateral (1) | |||||||||
Flagstar | $ | 24,559 | $ | 55,000 | LIBOR + 2.5% | 30 days written notice | Mortgage Loans | |||||||
Comerica | 19,183 | 50,000 | LIBOR + 2.25% | November 16, 2016 (2) | Mortgage Loans | |||||||||
J.P. Morgan | 47,424 | 100,000 | LIBOR + 2.375% | September 25, 2017 | Mortgage Loans and Pledged Cash | |||||||||
Total | $ | 91,166 | $ | 205,000 | ||||||||||
(1) The mortgage warehouse borrowings outstanding as of September 30, 2016, are collateralized by $119.0 million of mortgage loans held for sale, which comprise the balance of mortgage loans held for sale and $1.3 million of restricted short-term investments which are included in restricted cash in the accompanying Condensed Consolidated Balance Sheet.
(2) We are currently working to renew the Comerica facility. This facility has been in place for a number of years and the renewal process has been proceeding in a manner similar that in previous years.
Loans Payable and Other Borrowings
Loans payable and other borrowings as of September 30, 2016 consist of project-level debt due to various land sellers and seller financing notes from current and prior year acquisitions. Project-level debt is generally secured by the land that was acquired and the principal payments generally coincide with corresponding project lot sales or a principal reduction schedule. Loans payable bear interest at rates that ranged from 0% to 8% at September 30, 2016 and December 31, 2015. We impute interest for loans with no stated interest rates. The weighted average interest rate on $109.6 million of the loans as of September 30, 2016 was 4.8% per annum, and $33.2 million of the loans were non-interest bearing.
Letters of Credit, Surety Bonds and Financial Guarantees
The following table summarizes our letters of credit and surety bonds as of the dates indicated:
As of | ||||||||
(Dollars in thousands) | September 30, 2016 | December 31, 2015 | ||||||
Letters of credit (1) | $ | 33,513 | $ | 32,906 | ||||
Surety bonds | 360,073 | 361,941 | ||||||
Total outstanding letters of credit and surety bonds | $ | 393,586 | $ | 394,847 | ||||
(1) As of September 30, 2016 and December 31, 2015, there was $200 million total capacity of letters of credit available under our Revolving Credit Facility.
Off-Balance Sheet Arrangements as of September 30, 2016
Investments in Land Development and Homebuilding Joint Ventures or Unconsolidated Entities
We participate in strategic land development and homebuilding joint ventures with related and unrelated third parties. The use of these entities, in some instances, enables us to acquire land to which we could not otherwise obtain access, or could not obtain access on terms that are as favorable. Our partners in these joint ventures historically have been land owners/developers, other homebuilders and financial or strategic partners. Joint ventures with land owners/developers have given us access to sites owned or controlled by our partners. Joint ventures with other homebuilders have provided us with the ability to bid jointly
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with our partners for large or expensive land parcels. Joint ventures with financial partners have allowed us to combine our homebuilding expertise with access to our partners’ capital.
In certain of our unconsolidated joint ventures, we enter into loan agreements, whereby one of our subsidiaries will provide the lenders with customary guarantees, including completion, indemnity and environmental guarantees subject to usual non-recourse terms.
For the nine months ended September 30, 2016, total net capital contributed to unconsolidated joint ventures was $24.5 million.
Land Purchase and Land Option Contracts
We enter into land purchase and option contracts to procure land or lots for the construction of homes in the ordinary course of business. Lot option contracts enable us to control significant lot positions with a minimal capital investment and substantially reduce the risks associated with land ownership and development. As of September 30, 2016, we had outstanding land purchase and lot option contracts of $720.5 million. We are obligated to close the transaction under our land purchase contracts. However, our obligations with respect to the option contracts are generally limited to the forfeiture of the related non-refundable cash deposits and/or letters of credit provided to obtain the options.
Seasonality
Our business is seasonal. We have historically experienced, and in the future expect to continue to experience, variability in our results on a quarterly basis. We generally have more homes under construction, close more homes and have greater revenues and operating income in the third and fourth quarters of the year. Therefore, although new home contracts are obtained throughout the year, a higher portion of our home closings occur during the third and fourth calendar quarters. Our revenue therefore may fluctuate significantly on a quarterly basis and we must maintain sufficient liquidity to meet short-term operating requirements. Factors expected to contribute to these fluctuations include:
• | the timing of the introduction and start of construction of new projects; |
• | the timing of project sales; |
• | the timing of closings of homes, lots and parcels; |
• | our ability to continue to acquire land and options on that land on acceptable terms; |
• | the timing of receipt of regulatory approvals for development and construction; |
• | the condition of the real estate market and general economic conditions in the areas in which we operate; |
• | mix of homes closed; |
• | construction timetables; |
• | the prevailing interest rates and the availability of financing, both for us and for the purchasers of our homes; |
• | the cost and availability of materials and labor; and |
• | weather conditions in the markets in which we build. |
As a result of seasonal activity, our quarterly results of operations and financial position are not necessarily representative of the results we expect at year end.
Inflation
We and the homebuilding industry in general may be adversely affected during periods of high inflation, primarily because of higher land, financing, labor and construction material costs. In addition, higher mortgage interest rates can significantly affect the affordability of permanent mortgage financing to prospective homebuyers. We attempt to pass through to our customers increases in our costs through increased sales prices. However, during periods of soft housing market conditions, we may not be able to offset our cost increases with higher selling prices.
Critical Accounting Policies
There have been no significant changes to our critical accounting policies during the nine months ended September 30, 2016 as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our operations are interest rate sensitive. We monitor our exposure to changes in interest rates and incur both fixed rate and variable rate debt. At September 30, 2016, approximately 82% of our debt was fixed rate and 18% was variable rate. None of our market sensitive instruments were entered into for trading purposes. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument but may affect our future earnings and cash flows, and may also impact our variable rate borrowing costs, which principally relate to any borrowings under our Revolving Credit Facility and to any borrowings by TMHF under its various warehouse facilities. As of September 30, 2016, we had $211.1 million outstanding borrowings under our Revolving Credit Facility, net of unamortized debt issuance costs. We had $251.5 million of additional availability for borrowings and $166.5 million of additional availability for letters of credit (giving effect to $33.5 million of letters of credit outstanding as of such date). Our 2021 Senior Notes are subject to a requirement that we offer to purchase such notes at par with certain proceeds of asset sales (to the extent not otherwise applied in accordance with the indenture governing such notes). We are also required to offer to purchase all of the outstanding Senior Notes at 101% of their aggregate principal amount upon the occurrence of specified change of control events. Other than in those circumstances, we do not have an obligation to prepay fixed rate debt prior to maturity and, as a result, interest rate risk and changes in fair value would not be expected to have a significant impact on our cash flows related to our fixed rate debt until such time as we are required to refinance, repurchase or repay such debt.
We are not materially exposed to interest rate risk associated with TMHF’s mortgage loan origination business because at the time any loan is originated, TMHF has identified the investor who will agree to purchase the loan on the interest rate terms that are locked in with the borrower at the time the loan is originated.
The following table sets forth principal cash flows by scheduled maturity and effective weighted average interest rates and estimated fair value of our debt obligations as of September 30, 2016. The interest rate for our variable rate debt represents the interest rate on our borrowings under our Revolving Credit Facility and mortgage warehouse facilities. Because the mortgage warehouse facilities are effectively secured by certain mortgage loans held for sale which are typically sold within approximately 20 - 30 days, its outstanding balance is included as a variable rate maturity in the most current period presented.
Expected Maturity Date | Fair Value | |||||||||||||||||||||||||||||||
(In millions, except percentage data) | 2016 | 2017 | 2018 | 2019 | 2020 | Thereafter | Total | |||||||||||||||||||||||||
Fixed Rate Debt | $ | 45.3 | $ | 35.1 | $ | 28.4 | $ | 16.5 | $ | 7.1 | $ | 1,260.4 | $ | 1,392.8 | $ | 1,437.8 | ||||||||||||||||
Weighted average interest rate(1) | 3.7 | % | 3.7 | % | 3.7 | % | 3.7 | % | 3.7 | % | 5.5 | % | 5.3 | % | ||||||||||||||||||
Variable Rate Debt(2) | $ | 91.2 | $ | — | $ | — | $ | 215.0 | $ | — | $ | — | $ | 306.2 | $ | 306.2 | ||||||||||||||||
Weighted average interest rate | 2.8 | % | — | — | 2.4 | % | — | — | 2.5 | % | ||||||||||||||||||||||
(1) Represents the coupon rate of interest on the full principal amount of the debt.
(2) Based upon the amount of variable rate debt at September 30, 2016, and holding the variable rate debt balance constant, each 1% increase in interest rates would increase the interest incurred by us by approximately $3.1 million per year.
Currency Exchange Risk
In December 2014, we entered into a derivative financial instrument in the form of a foreign currency forward. The derivative financial instrument hedged our exposure to the Canadian dollar in conjunction with the disposition of the Monarch business. The final settlement of the derivative financial instrument occurred on January 30, 2015, and a gain in the amount of $30.0 million was recorded in foreign currency forward in the accompanying Condensed Consolidated Statements of Operations for the nine months ended September 30, 2015.
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our principal executive officer, principal financial officer and principal accounting officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of September 30, 2016. Based on this evaluation, our principal executive officer, principal financial officer and principal accounting officer concluded that, as of September 30, 2016, the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level. Consistent with guidance issued by the SEC, the scope of management’s assessment of the effectiveness of our disclosure controls and procedures did not include the internal controls over financial reporting of the acquisition of Acadia Homes, which we acquired in January 2016 and which represented (excluding the acquired entities’ capitalized interest, but including its goodwill), 2.4% of the Company’s consolidated total assets and 1.8% of the Company’s consolidated homebuilding revenues as of and for the quarter ended September 30, 2016.
Changes in Internal Controls over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended September 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in various litigation and legal claims in the normal course of our business operations, including actions brought on behalf of various classes of claimants. We are also subject to a variety of local, state, and federal laws and regulations related to land development activities, house construction standards, sales practices, mortgage lending operations, employment practices, and protection of the environment. As a result, we are subject to periodic examination or inquiry by various governmental agencies that administer these laws and regulations. We establish liabilities for legal claims and regulatory matters when such matters are both probable of occurring and any potential loss is reasonably estimable. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. In view of the inherent difficulty of predicting the outcome of these legal and regulatory matters, we generally cannot predict the ultimate resolution of the pending matters, the related timing or the eventual loss. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows. However, to the extent the liability arising from the ultimate resolution of any matter exceeds the estimates reflected in the recorded reserves relating to such matter, we could incur additional charges that could be significant.
ITEM 1A. RISK FACTORS
There have been no material changes to the Risk Factors set forth in Part I, Item 1A. of our 2015 Annual Report on Form 10-K. These Risk Factors may materially affect our business, financial condition or results of operations. You should carefully consider the Risk Factors set forth in our 2015 Annual Report on Form 10-K and the other information set forth elsewhere in this quarterly report. You should be aware that these Risk Factors and other information may not describe every risk facing our Company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
During the three months ended September 30, 2016, we repurchased the following number of shares of our Class A Common Stock:
Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of a publicly announced plan or program | Approximate dollar value of shares that may yet be purchased under the plan or program (in thousands) (a) | ||||||||||
July 1 to July 31, 2016 | 166,237 | $ | 15.25 | 166,237 | $ | 7,726 | |||||||
August 1 to August 31, 2016 | 46,000 | $ | 15.95 | 46,000 | $ | 6,991 | |||||||
September 1 to September 30, 2016 | 35,129 | $ | 16.30 | 35,129 | $ | 56,427 | |||||||
Total | 247,366 | 247,366 | |||||||||||
(a) Our Board of Directors has authorized the repurchase of up to $100.0 million of the Company’s Class A Common Stock through December 31, 2017 in open market purchases, privately negotiated transactions or other transactions. The stock repurchase program is subject to prevailing market conditions and other considerations, including our liquidity, the terms of our debt instruments, planned land investment and development spending, acquisition and other investment opportunities and ongoing capital requirements. During the three and nine months ended September 30, 2016, there were an aggregate of 247,366 and 1,918,999 shares of Class A Common Stock repurchased for $3.8 million and $28.5 million, respectively. During the year ended December 31, 2015, there were an aggregate of 934,434 shares of Class A Common Stock repurchased for $15.0 million.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
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ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit No. | Description | |
3.1 | Amended and Restated Certificate of Incorporation (included as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference). | |
3.2 | Amended and Restated By-laws (included as Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference). | |
31.1* | Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002. | |
31.2* | Certification of C. David Cone, Chief Financial Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002. | |
32.1* | Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002. | |
32.2* | Certification of C. David Cone, Chief Financial Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002. | |
101.INS | XBRL Instance Document. | |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | |
* Filed herewith
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TAYLOR MORRISON HOME CORPORATION | |||
Registrant | |||
DATE: | November 2, 2016 | ||
/s/ Sheryl D. Palmer | |||
Sheryl D. Palmer | |||
President and Chief Executive Officer (Principal Executive Officer) | |||
/s/ C. David Cone | |||
C. David Cone | |||
Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |||
/s/ Joseph Terracciano | |||
Joseph Terracciano | |||
Chief Accounting Officer (Principal Accounting Officer) | |||
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EXHIBIT INDEX
Exhibit No. | Description | |
3.1 | Amended and Restated Certificate of Incorporation (included as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference). | |
3.2 | Amended and Restated By-laws (included as Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference). | |
31.1* | Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002. | |
31.2* | Certification of C. David Cone, Chief Financial Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002. | |
32.1* | Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002. | |
32.2* | Certification of C. David Cone, Chief Financial Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002. | |
101.INS | XBRL Instance Document. | |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | |
* Filed herewith
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
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