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Tri Pointe Homes, Inc. - Quarter Report: 2016 June (Form 10-Q)



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 June 30, 2016
or
o
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 1-35796

_____________________________________________________________________________________________ 

 
TRI Pointe Group, Inc.
(Exact Name of Registrant as Specified in Its Charter)
 _____________________________________________________________________________________________ 
 
Delaware
 
61-1763235
(State or other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)

_____________________________________________________________________________________________ 
19540 Jamboree Road, Suite 300
Irvine, California 92612
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (949) 438-1400
_____________________________________________________________________________________________ 
 
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.
Large accelerated filer
ý
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
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
Registrant’s shares of common stock outstanding at July 18, 2016: 160,642,162



EXPLANATORY NOTE
As used in this Quarterly Report on Form 10-Q (including the consolidated financial statements and condensed notes thereto in this report), unless the context otherwise requires:
•
“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
•
“GAAP” refers to U.S. generally accepted accounting principles;
•
“SEC” refers to the United States Securities and Exchange Commission;
•
“Securities Act” refers to the Securities Act of 1933, as amended;
•
“TRI Pointe Homes” refers to TRI Pointe Homes, Inc., a Delaware corporation;
•
“TRI Pointe Group” refers to TRI Pointe Group, Inc., a Delaware corporation;
•
“Weyerhaeuser” refers to Weyerhaeuser Company, a Washington corporation and the former parent of WRECO; and
•
“WRECO” refers to Weyerhaeuser Real Estate Company, a Washington corporation, which following its acquisition by TRI Pointe on July 7, 2014, was renamed “TRI Pointe Holdings, Inc.”
Additionally, references to “TRI Pointe”, “the Company”, “we”, “us” or “our” in this Quarterly Report on Form 10-Q (including the consolidated financial statements and condensed notes thereto in this report) have the following meanings, unless the context otherwise requires:
•
For periods prior to July 7, 2015: TRI Pointe Homes and its subsidiaries; and
•
For periods from and after July 7, 2015: TRI Pointe Group and its subsidiaries.




TRI POINTE GROUP, INC.
FORM 10-Q
INDEX
June 30, 2016
 
 
 
Page
Number
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item2.
 
 
 
Item 6.
 
 
 


- 2 -


PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements

TRI POINTE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
 
June 30, 2016
 
December 31, 2015
 
(unaudited)
 
 
Assets
 
 
 
Cash and cash equivalents
$
117,509

 
$
214,485

Receivables
34,671

 
43,710

Real estate inventories
2,840,213

 
2,519,273

Investments in unconsolidated entities
17,549

 
18,999

Goodwill and other intangible assets, net
161,762

 
162,029

Deferred tax assets, net
116,700

 
130,657

Other assets
47,860

 
48,918

Total assets
$
3,336,264

 
$
3,138,071

Liabilities
 
 
 
Accounts payable
$
79,818

 
$
64,840

Accrued expenses and other liabilities
198,793

 
216,263

Unsecured revolving credit facility
100,000

 
299,392

Seller financed loans
17,758

 
2,434

Senior notes, net
1,165,114

 
868,679

Total liabilities
1,561,483

 
1,451,608

 
 
 
 
Commitments and contingencies (Note 14)

 

 
 
 
 
Equity
 
 
 
Stockholders’ Equity:
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares
   issued and outstanding as of June 30, 2016 and December 31, 2015,
   respectively
—

 
—

Common stock, $0.01 par value, 500,000,000 shares authorized;
   160,865,251 and 161,813,750 shares issued and outstanding at
   June 30, 2016 and December 31, 2015, respectively
1,609

 
1,618

Additional paid-in capital
901,348

 
911,197

Retained earnings
854,344

 
751,868

Total stockholders’ equity
1,757,301

 
1,664,683

Noncontrolling interests
17,480

 
21,780

Total equity
1,774,781

 
1,686,463

Total liabilities and equity
$
3,336,264

 
$
3,138,071

 
See accompanying condensed notes to the unaudited consolidated financial statements.


- 3 -


TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share amounts)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Homebuilding:
 
 
 
 
 
 
 
Home sales revenue
$
556,925

 
$
427,238

 
$
979,980

 
$
801,503

Land and lot sales revenue
67,314

 
67,490

 
67,669

 
69,490

Other operations revenue
604

 
607

 
1,184

 
1,600

Total revenues
624,843

 
495,335

 
1,048,833

 
872,593

Cost of home sales
432,738

 
341,742

 
757,237

 
641,648

Cost of land and lot sales
14,460

 
11,564

 
15,239

 
13,873

Other operations expense
583

 
572

 
1,149

 
1,134

Sales and marketing
32,448

 
25,634

 
58,769

 
48,920

General and administrative
30,269

 
28,261

 
58,665

 
56,414

Restructuring charges
215

 
498

 
350

 
720

Homebuilding income from operations
114,130

 
87,064

 
157,424

 
109,884

Equity in income (loss) of unconsolidated entities
215

 
(39
)
 
201

 
68

Other income (loss), net
151

 
(31
)
 
266

 
225

Homebuilding income before income taxes
114,496

 
86,994

 
157,891

 
110,177

Financial Services:
 
 
 
 
 
 
 
Revenues
379

 
182

 
527

 
182

Expenses
53

 
58

 
111

 
84

Equity in income (loss) of unconsolidated entities
1,284

 
(116
)
 
1,999

 
(149
)
Financial services income (loss) before income taxes
1,610

 
8

 
2,415

 
(51
)
Income before income taxes
116,106

 
87,002

 
160,306

 
110,126

Provision for income taxes
(41,913
)
 
(30,240
)
 
(57,403
)
 
(38,067
)
Net income
74,193

 
56,762

 
102,903

 
72,059

Net income attributable to noncontrolling interests
(267
)
 
(1,832
)
 
(427
)
 
(1,832
)
Net income available to common stockholders
$
73,926

 
$
54,930

 
$
102,476

 
$
70,227

Earnings per share
 

 
 

 
 
 
 
Basic
$
0.46

 
$
0.34

 
$
0.63

 
$
0.43

Diluted
$
0.46

 
$
0.34

 
$
0.63

 
$
0.43

Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
161,826,275

 
161,686,570

 
161,882,378

 
161,589,310

Diluted
162,259,283

 
162,308,099

 
162,245,399

 
162,265,155

 
See accompanying condensed notes to the unaudited consolidated financial statements.


- 4 -


TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
(in thousands, except share amounts)
 
 
Number of
Shares of Common
Stock (Note 1)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Total
Stockholders'
Equity
 
Noncontrolling
Interests
 
Total
Equity
Balance at December 31, 2014
161,355,490

 
$
1,614

 
$
906,159

 
$
546,407

 
$
1,454,180

 
$
18,296

 
$
1,472,476

Net income
—

 
—

 
—

 
205,461

 
205,461

 
1,720

 
207,181

Adjustment to capital contribution by Weyerhaeuser, net
—

 
—

 
(6,747
)
 
—

 
(6,747
)
 
—

 
(6,747
)
Shares issued under share-based awards
458,260

 
4

 
1,612

 
—

 
1,616

 
—

 
1,616

Excess tax benefit of share-based awards, net
—

 
—

 
428

 
—

 
428

 
—

 
428

Minimum tax withholding paid on behalf of employees for restricted stock units
—

 
—

 
(2,190
)
 
—

 
(2,190
)
 
—

 
(2,190
)
Stock-based compensation expense
—

 
—

 
11,935

 
—

 
11,935

 
—

 
11,935

Distributions to noncontrolling interests, net
—

 
—

 
—

 
—

 
—

 
(3,833
)
 
(3,833
)
Net effect of consolidations, de-consolidations and other transactions
—

 
—

 
—

 
—

 
—

 
5,597

 
5,597

Balance at December 31, 2015
161,813,750

 
1,618

 
911,197

 
751,868

 
1,664,683

 
21,780

 
1,686,463

Net income
—

 
—

 
—

 
102,476

 
102,476

 
427

 
102,903

Shares issued under share-based awards
304,522

 
3

 
15

 
—

 
18

 
—

 
18

Excess tax deficit of share-based awards, net
—

 
—

 
(182
)
 
—

 
(182
)
 
—

 
(182
)
Minimum tax withholding paid on behalf of employees for restricted stock units
—

 
—

 
(1,359
)
 
—

 
(1,359
)
 
—

 
(1,359
)
Stock-based compensation expense
—

 
—

 
6,363

 
—

 
6,363

 
—

 
6,363

Share repurchases
(1,253,021
)
 
(12
)
 
(14,686
)
 
—

 
(14,698
)
 
—

 
(14,698
)
Distributions to noncontrolling interests, net
—

 
—

 
—

 
—

 
—

 
(2,111
)
 
(2,111
)
Net effect of consolidations, de-consolidations and other transactions
—

 
—

 
—

 
—

 
—

 
(2,616
)
 
(2,616
)
Balance at June 30, 2016
160,865,251

 
$
1,609

 
$
901,348

 
$
854,344

 
$
1,757,301

 
$
17,480

 
$
1,774,781

 
See accompanying condensed notes to the unaudited consolidated financial statements.


- 5 -


TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
 
Six Months Ended June 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
102,903

 
$
72,059

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Depreciation and amortization
1,457

 
3,171

Equity in (income) loss of unconsolidated entities, net
(2,200
)
 
81

Deferred income taxes, net
13,957

 
9,454

Amortization of stock-based compensation
6,363

 
5,542

Charges for impairments and lot option abandonments
289

 
1,538

Excess tax deficit of share-based awards
(182
)
 
—

Changes in assets and liabilities:
 
 
 
Real estate inventories
(323,305
)
 
(255,416
)
Receivables
9,199

 
(14,071
)
Other assets
1,599

 
23,483

Accounts payable
14,978

 
(17,851
)
Accrued expenses and other liabilities
(14,871
)
 
(5,085
)
Returns on investments in unconsolidated entities, net
3,617

 
—

Net cash used in operating activities
(186,196
)
 
(177,095
)
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(1,123
)
 
(613
)
Investments in unconsolidated entities
(32
)
 
(1,257
)
Net cash used in investing activities
(1,155
)
 
(1,870
)
Cash flows from financing activities:
 
 
 
Borrowings from debt
392,758

 
140,000

Repayment of debt
(276,826
)
 
(2,895
)
Debt issuance costs
(5,110
)
 
(2,688
)
Net repayments of debt held by variable interest entities
(2,297
)
 
(875
)
Contributions from noncontrolling interests
1,810

 
2,034

Distributions to noncontrolling interests
(3,921
)
 
(4,155
)
Proceeds from issuance of common stock under share-based awards
18

 
660

Excess tax benefit of share-based awards
—

 
352

Minimum tax withholding paid on behalf of employees for share-based awards
(1,359
)
 
(2,190
)
Share repurchases
(14,698
)
 
—

Net cash provided by financing activities
90,375

 
130,243

Net decrease in cash and cash equivalents
(96,976
)
 
(48,722
)
Cash and cash equivalents - beginning of period
214,485

 
170,629

Cash and cash equivalents - end of period
$
117,509

 
$
121,907

 
See accompanying condensed notes to the unaudited consolidated financial statements.


- 6 -


TRI POINTE GROUP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
1.
Organization, Basis of Presentation and Summary of Significant Accounting Policies

Organization
TRI Pointe Group is engaged in the design, construction and sale of innovative single-family attached and detached homes through its portfolio of six quality brands across eight states, including Maracay Homes in Arizona, Pardee Homes in California and Nevada, Quadrant Homes in Washington, Trendmaker Homes in Texas, TRI Pointe Homes in California and Colorado and Winchester Homes in Maryland and Virginia.
Formation of TRI Pointe Group
On July 7, 2015, TRI Pointe Homes reorganized its corporate structure (the “Reorganization”) whereby TRI Pointe Homes became a direct, wholly owned subsidiary of TRI Pointe Group.  As a result of the Reorganization, each share of common stock, par value $0.01 per share, of TRI Pointe Homes (“Homes Common Stock”) was cancelled and converted automatically into the right to receive one validly issued, fully paid and non-assessable share of common stock, par value $0.01 per share, of TRI Pointe Group (“Group Common Stock”), each share having the same designations, rights, powers and preferences, and the qualifications, limitations and restrictions thereof as the shares of Homes Common Stock being so converted.  TRI Pointe Group, as the successor issuer to TRI Pointe Homes (pursuant to Rule 12g-3(a) under the Exchange Act), began making filings under the Securities Act and the Exchange Act on July 7, 2015.
In connection with the Reorganization, TRI Pointe Group (i) became a co-issuer of TRI Pointe Homes’ 4.375% Senior Notes due 2019 (the “2019 Notes”) and TRI Pointe Homes’ 5.875% Senior Notes due 2024 (the “2024 Notes”); and (ii) replaced TRI Pointe Homes as the borrower under TRI Pointe Homes’ existing unsecured revolving credit facility.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with GAAP, as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, as well as other entities in which the Company has a controlling interest and variable interest entities (“VIEs”) in which the Company is the primary beneficiary.  The noncontrolling interests as of June 30, 2016 and December 31, 2015 represent the outside owners’ interests in the Company’s consolidated entities and the net equity of the VIE owners.  All significant intercompany accounts have been eliminated upon consolidation.  In the opinion of management, all adjustments consisting of normal recurring adjustments, necessary for a fair presentation with respect to interim financial statements, have been included.
Use of Estimates
Our financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from our estimates.
Reclassifications
Certain amounts in our consolidated financial statements for prior years have been reclassified to conform to the current period presentation.

- 7 -


Recently Issued Accounting Standards
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: identify the contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 supersedes the revenue-recognition requirements in ASC Topic 605, Revenue Recognition, most industry-specific guidance throughout the industry topics of the accounting standards codification, and some cost guidance related to construction-type and production-type contracts. On July 9, 2015, the FASB voted to defer the effective date of ASU No. 2014-09 by one year and it is now effective for public entities for the annual periods ending after December 15, 2017, and for annual and interim periods thereafter.  Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09.  Early adoption is permitted, but can be no earlier than the original public entity effective date of fiscal years, and the interim periods within those years, beginning after December 15, 2016.  We are currently evaluating the approach for implementation and the potential impact of adopting this guidance on our consolidated financial statements.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15 (“ASU 2014-15”), Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management to evaluate, in connection with preparing financial statements for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable) and provide related disclosures. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. We believe the adoption of this guidance will not have a material effect on our consolidated financial statements.
In February 2015, the FASB issued Accounting Standards Update No. 2015-02, (“ASU 2015-02”), Consolidation (Topic 810): Amendments to the Consolidation Analysis.   ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015.  We adopted ASU 2015-02 on January 1, 2016 and the adoption had no impact on our current or prior year financial statements.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, (“ASU 2015-17”), Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requires deferred tax liabilities and assets be classified as noncurrent in a classified statement of position.  ASU 2015-17 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017.  The adoption of ASU 2015-17 is not expected to have a material effect on our consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, (“ASU 2016-02”), Leases (Topic 842): Leases, which requires an entity to recognize assets and liabilities on the balance sheet for the rights and obligations created by leased assets and provide additional disclosures. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and, at that time, we will adopt the new standard using a modified retrospective approach. We are currently evaluating the impact that the adoption of ASU 2016-02 may have on our consolidated financial statements and disclosures.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, (“ASU 2016-09”), Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.  ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. We are currently evaluating the impact that the adoption of ASU 2016-09 may have on our consolidated financial statements and disclosures.
 
 

- 8 -


2.
Restructuring
Restructuring charges were comprised of the following (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Employee-related charges
$
12

 
$
23

 
$
25

 
$
135

Lease termination charges
203

 
475

 
325

 
585

Total
$
215

 
$
498

 
$
350

 
$
720


Employee-related charges for the three and six months ended June 30, 2016 and 2015 relate to severance-related expenses for employees terminated during the period.  Lease termination charges for the three and six months ended June 30, 2016, and 2015 relate to contract terminations and the adjustment of restructuring reserves related to the estimate of sublease income.
Changes in employee-related restructuring reserves were as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Accrued employee-related charges, beginning of period
$
74

 
$
533

 
$
220

 
$
3,844

Current year charges
12

 
23

 
25

 
135

Payments
—

 
(447
)
 
(159
)
 
(3,870
)
Accrued employee-related charges, end of period
$
86

 
$
109

 
$
86

 
$
109

 
Changes in lease termination related restructuring reserves were as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Accrued lease termination charges, beginning of period
$
577

 
$
926

 
$
767

 
$
1,394

Current year charges
203

 
475

 
325

 
585

Payments
(333
)
 
(757
)
 
(645
)
 
(1,335
)
Accrued lease termination charges, end of period
$
447

 
$
644

 
$
447

 
$
644

 
Employee and lease termination restructuring reserves are included in accrued expenses and other liabilities on our consolidated balance sheets.
 
 
3.
Segment Information
We operate two principal businesses: homebuilding and financial services.
Our homebuilding operations consist of six homebuilding companies that acquire and develop land and construct and sell single-family detached and attached homes. In accordance with ASC Topic 280, Segment Reporting, in determining the most appropriate reportable segments, we considered similar economic and other characteristics, including product types, average selling prices, gross profits, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, and underlying demand and supply. Based upon the above factors, our homebuilding operations are comprised of the following six reportable segments: Maracay Homes, consisting of operations in Arizona; Pardee Homes, consisting of operations in California and Nevada; Quadrant Homes, consisting of operations in Washington; Trendmaker Homes, consisting of operations in Texas; TRI Pointe Homes, consisting of operations in California and Colorado; and Winchester Homes, consisting of operations in Maryland and Virginia.

- 9 -


Our financial services operation (“TRI Pointe Solutions”) is a reportable segment and is comprised of mortgage financing operations (“TRI Pointe Connect”) and title services operations (“TRI Pointe Assurance”).  While our homebuyers may obtain financing from any mortgage provider of their choice, TRI Pointe Connect, which was formed as a joint venture with an established mortgage lender, can act as a preferred mortgage broker to our homebuyers in all of the markets in which we operate, providing mortgage financing that helps facilitate the sale and closing process as well as generate additional fee income for us.  TRI Pointe Assurance provides title examinations for our homebuyers in our Trendmaker Homes and Winchester Homes brands.  TRI Pointe Assurance is a wholly owned subsidiary of TRI Pointe and acts as a title agency for First American Title Insurance Company.  We commenced our financial services operation in the fourth quarter of 2014.
The term “Corporate” refers to a non-operating segment that develops and implements company-wide strategic initiatives and provides support to our homebuilding reporting segments by centralizing certain administrative functions, such as marketing, legal, accounting, treasury, insurance, internal audit and risk management, information technology and human resources, to benefit from economies of scale. Our Corporate non-operating segment also includes general and administrative expenses related to operating our corporate headquarters. A portion of the expenses incurred by Corporate is allocated to the homebuilding reporting segments.
The reportable segments follow the same accounting policies as our consolidated financial statements described in Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented.

Total revenues and income before income taxes for each of our reportable segments were as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 
 
Maracay Homes
$
47,857

 
$
33,574

 
$
93,294

 
$
66,051

Pardee Homes
240,230

 
166,065

 
359,163

 
251,723

Quadrant Homes
59,163

 
38,896

 
105,221

 
84,525

Trendmaker Homes
64,472

 
65,983

 
108,258

 
122,191

TRI Pointe Homes
152,827

 
130,552

 
284,784

 
237,410

Winchester Homes
60,294

 
60,265

 
98,113

 
110,693

Total homebuilding revenues
624,843

 
495,335

 
1,048,833

 
872,593

Financial services
379

 
182

 
527

 
182

Total
$
625,222

 
$
495,517

 
$
1,049,360

 
$
872,775

 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
 
 
 
 
 
 
Maracay Homes
$
2,523

 
$
1,093

 
$
5,159

 
$
2,133

Pardee Homes
96,079

 
67,777

 
128,210

 
81,336

Quadrant Homes
5,615

 
746

 
9,311

 
2,326

Trendmaker Homes
3,865

 
5,951

 
5,923

 
10,311

TRI Pointe Homes
12,213

 
14,602

 
22,928

 
25,734

Winchester Homes
3,992

 
6,010

 
4,653

 
6,391

Corporate
(9,791
)
 
(9,185
)
 
(18,293
)
 
(18,054
)
Total homebuilding income before income taxes
114,496

 
86,994

 
157,891

 
110,177

Financial services
1,610

 
8

 
2,415

 
(51
)
Total
$
116,106

 
$
87,002

 
$
160,306

 
$
110,126

 

- 10 -


Total real estate inventories and total assets for each of our reportable segments, as of the date indicated, were as follows (in thousands):
 
June 30, 2016
 
December 31, 2015
Real estate inventories
 
 
 
Maracay Homes
$
225,280

 
$
206,912

Pardee Homes
1,110,570

 
1,011,982

Quadrant Homes
205,977

 
190,038

Trendmaker Homes
215,310

 
199,398

TRI Pointe Homes
821,283

 
659,130

Winchester Homes
261,793

 
251,813

Total
$
2,840,213

 
$
2,519,273

 
 
 
 
Total assets
 
 
 
Maracay Homes
$
245,017

 
$
227,857

Pardee Homes
1,174,872

 
1,089,586

Quadrant Homes
221,675

 
202,024

Trendmaker Homes
232,307

 
213,562

TRI Pointe Homes
987,453

 
832,423

Winchester Homes
290,979

 
278,374

Corporate
179,782

 
292,169

Total homebuilding assets
3,332,085

 
3,135,995

Financial services
4,179

 
2,076

Total
$
3,336,264

 
$
3,138,071



4.
Earnings Per Share
The following table sets forth the components used in the computation of basic and diluted earnings per share (in thousands, except share and per share amounts):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Numerator:
 

 
 

 
 

 
 

Net income available to common stockholders
$
73,926

 
$
54,930

 
$
102,476

 
$
70,227

Denominator:
 

 
 

 
 

 
 

Basic weighted-average shares outstanding
161,826,275

 
161,686,570

 
161,882,378

 
161,589,310

Effect of dilutive shares:
 

 
 
 
 

 
 

Stock options and unvested restricted stock units
433,008

 
621,529

 
363,021

 
675,845

Diluted weighted-average shares outstanding
162,259,283

 
162,308,099

 
162,245,399

 
162,265,155

Earnings per share
 

 
 

 
 

 
 

Basic
$
0.46

 
$
0.34

 
$
0.63

 
$
0.43

Diluted
$
0.46

 
$
0.34

 
$
0.63

 
$
0.43

Antidilutive stock options not included in diluted earnings per share
5,929,877

 
2,343,905

 
5,123,183

 
2,563,137

 
 

- 11 -


5.
Receivables
Receivables consisted of the following (in thousands):
 
June 30, 2016
 
December 31, 2015
Escrow proceeds and other accounts receivable, net
$
24,115

 
$
32,917

Warranty insurance receivable (Note 14)
10,256

 
10,493

Notes and contracts receivable
300

 
300

Total receivables
$
34,671

 
$
43,710

 
 
6.
Real Estate Inventories
Real estate inventories consisted of the following (in thousands):
 
June 30, 2016
 
December 31, 2015
Real estate inventories owned:
 
 
 
Homes completed or under construction
$
788,672

 
$
575,076

Land under development
1,568,273

 
1,443,461

Land held for future development
295,792

 
295,241

Model homes
145,387

 
140,232

Total real estate inventories owned
2,798,124

 
2,454,010

Real estate inventories not owned:
 
 
 
Land purchase and land option deposits
24,489

 
39,055

Consolidated inventory held by VIEs
17,600

 
26,208

Total real estate inventories not owned
42,089

 
65,263

Total real estate inventories
$
2,840,213

 
$
2,519,273

 
Homes completed or under construction is comprised of costs associated with homes in various stages of construction and includes direct construction and related land acquisition and land development costs. Land under development primarily consists of land acquisition and land development costs, which include capitalized interest and real estate taxes, associated with land undergoing improvement activity. Land held for future development principally reflects land acquisition and land development costs related to land where development activity has not yet begun or has been suspended, but is expected to occur in the future.
Real estate inventories not owned represents deposits related to land purchase and land and lot option agreements as well as consolidated inventory held by variable interest entities. For further details, see Note 8, Variable Interest Entities.
During the quarter ended June 30, 2016, our Pardee Homes reporting segment sold two parcels, totaling 102 homebuilding lots, located in the Pacific Highlands Ranch community in San Diego, California. The land sold in this sale was classified as land under development and represented $61.6 million of land and lot sales revenue in the consolidated statements of operations for the three and six months ended June 30, 2016.
Interest incurred, capitalized and expensed were as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Interest incurred
$
16,280

 
$
15,149

 
$
31,429

 
$
30,325

Interest capitalized
(16,280
)
 
(15,149
)
 
(31,429
)
 
(30,325
)
Interest expensed
$
—

 
$
—

 
$
—

 
$
—

Capitalized interest in beginning inventory
$
146,630

 
$
132,872

 
$
140,311

 
$
124,461

Interest capitalized as a cost of inventory
16,280

 
15,149

 
31,429

 
30,325

Interest previously capitalized as a cost of inventory,
   included in cost of sales
(11,563
)
 
(7,915
)
 
(20,393
)
 
(14,680
)
Capitalized interest in ending inventory
$
151,347

 
$
140,106

 
$
151,347

 
$
140,106


- 12 -


 
Interest is capitalized to real estate inventory during development and other qualifying activities. Interest that is capitalized to real estate inventory is included in cost of home sales as related units are delivered.  Interest that is expensed as incurred is included in other income, net.
Real estate inventory impairments and land and lot option abandonments
Land and lot option abandonments and pre-acquisition charges were as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Real estate inventory impairments
$
—

 
$
878

 
$
—

 
$
1,044

Land and lot option abandonments and pre-acquisition charges
107

 
300

 
289

 
494

Total
$
107

 
$
1,178

 
$
289

 
$
1,538

 
Impairments of real estate inventory relate primarily to projects or communities that include homes completed or under construction. Within a project or community, there may be individual homes or parcels of land that are currently held for sale. Impairment charges recognized as a result of adjusting individual held-for-sale assets within a community to estimated fair value less cost to sell are also included in the total impairment charges above.  Charges for inventory impairments are expensed to cost of sales.
In addition to owning land and residential lots, we also have option agreements to purchase land and lots at a future date. We have option deposits and capitalized pre-acquisition costs associated with the optioned land and lots. When the economics of a project no longer support acquisition of the land or lots under option, we may elect not to move forward with the acquisition. Option deposits and capitalized pre-acquisition costs associated with the assets under option may be forfeited at that time. Charges for such forfeitures are expensed to cost of sales.
  
7.
Investments in Unconsolidated Entities
As of June 30, 2016, we held equity investments in five active homebuilding partnerships or limited liability companies and one financial services limited liability company. Our participation in these entities may be as a developer, a builder, or an investment partner. Our ownership percentage varies from 7% to 55%, depending on the investment, with no controlling interest held in any of these investments.
Investments Held
Our cumulative investment in entities accounted for on the equity method, including our share of earnings and losses, consisted of the following (in thousands):
 
June 30, 2016
 
December 31, 2015
Limited liability company interests
$
14,288

 
$
15,739

General partnership interests
3,261

 
3,260

Total
$
17,549

 
$
18,999

Unconsolidated Financial Information
Aggregated assets, liabilities and operating results of the entities we account for as equity-method investments are provided below. Because our ownership interest in these entities varies, a direct relationship does not exist between the information presented below and the amounts that are reflected on our consolidated balance sheets as our investments in unconsolidated entities or on our consolidated statements of operations as equity in income (loss) of unconsolidated entities.

- 13 -


Assets and liabilities of unconsolidated entities (in thousands):
 
 
June 30, 2016
 
December 31, 2015
Assets
 
 
 
Cash
$
12,538

 
$
18,641

Receivables
8,290

 
13,108

Real estate inventories
95,682

 
92,881

Other assets
1,136

 
1,180

Total assets
$
117,646

 
$
125,810

Liabilities and equity
 
 
 
Accounts payable and other liabilities
$
10,091

 
$
14,443

Company’s equity
17,549

 
18,999

Outside interests' equity
90,006

 
92,368

Total liabilities and equity
$
117,646

 
$
125,810

 
Results of operations from unconsolidated entities (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Net sales
$
4,688

 
$
1,377

 
$
7,897

 
$
1,453

Other operating expense
(3,004
)
 
(1,805
)
 
(5,154
)
 
(2,541
)
Other income
1

 
5

 
2

 
7

Net income (loss)
$
1,685

 
$
(423
)
 
$
2,745

 
$
(1,081
)
Company’s equity in income (loss) of unconsolidated entities
$
1,499

 
$
(155
)
 
$
2,200

 
$
(81
)
  
8.
Variable Interest Entities
In the ordinary course of business, we enter into land and lot option agreements in order to procure land and residential lots for future development and the construction of homes. The use of such land and lot option agreements generally allows us to reduce the risks associated with direct land ownership and development, and reduces our capital and financial commitments. Pursuant to these land and lot option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. Such deposits are recorded as land purchase and land option deposits under real estate inventories not owned in the accompanying consolidated balance sheets.
We analyze each of our land and lot option agreements and other similar contracts under the provisions of ASC 810 Consolidation to determine whether the land seller is a VIE and, if so, whether we are the primary beneficiary. Although we do not have legal title to the underlying land, if we are determined to be the primary beneficiary of the VIE, we will consolidate the VIE in our financial statements and reflect its assets as real estate inventory not owned included in our real estate inventories, its liabilities as debt (nonrecourse) held by VIEs in accrued expenses and other liabilities and the net equity of the VIE owners as noncontrolling interests on our consolidated balance sheets. In determining whether we are the primary beneficiary, we consider, among other things, whether we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE.
Creditors of the entities with which we have land and lot option agreements have no recourse against us. The maximum exposure to loss under our land and lot option agreements is limited to non-refundable option deposits and any capitalized pre-acquisition costs. In some cases, we have also contracted to complete development work at a fixed cost on behalf of the land owner and budget shortfalls and savings will be borne by us.

- 14 -


The following provides a summary of our interests in land and lot option agreements (in thousands):
 
June 30, 2016
 
December 31, 2015
 
Deposits
 
Remaining
Purchase
Price
 
Consolidated
Inventory
Held by VIEs
 
Deposits
 
Remaining
Purchase
Price
 
Consolidated
Inventory
Held by VIEs
Consolidated VIEs
$
863

 
$
16,737

 
$
17,600

 
$
3,003

 
$
23,239

 
$
26,208

Unconsolidated VIEs
4,085

 
100,741

 
N/A

 
11,615

 
74,590

 
N/A

Other land option agreements
20,404

 
233,181

 
N/A

 
27,440

 
279,612

 
N/A

Total
$
25,352

 
$
350,659

 
$
17,600

 
$
42,058

 
$
377,441

 
$
26,208

 
Unconsolidated VIEs represent land option agreements that were not consolidated because we were not the primary beneficiary. Other land and lot option agreements were not considered VIEs.
In addition to the deposits presented in the table above, our exposure to loss related to our land and lot option contracts consisted of capitalized pre-acquisition costs of $4.6 million and $5.0 million as of June 30, 2016 and December 31, 2015, respectively. These pre-acquisition costs were included in real estate inventories as land under development on our consolidated balance sheets.  
  
9.
Goodwill and Other Intangible Assets
As of June 30, 2016 and December 31, 2015, $139.3 million of goodwill is included in goodwill and other intangible assets, net on each of the consolidated balance sheets. The Company's goodwill balance is included in the TRI Pointe Homes reporting segment in Note 3, Segment Information. 
We have two intangible assets recorded as of June 30, 2016, comprised of an existing trade name from the acquisition of Maracay Homes in 2006, which has a 20 years useful life, and a TRI Pointe Homes trade name resulting from the acquisition of WRECO in 2014 which has an indefinite useful life.
Goodwill and other intangible assets consisted of the following (in thousands):
 
June 30, 2016
 
December 31, 2015
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Goodwill
$
139,304

 
$
—

 
$
139,304

 
$
139,304

 
$
—

 
$
139,304

Trade names
27,979

 
(5,521
)
 
22,458

 
27,979

 
(5,254
)
 
22,725

Total
$
167,283

 
$
(5,521
)
 
$
161,762

 
$
167,283

 
$
(5,254
)
 
$
162,029

 
The remaining useful life of our amortizing intangible asset related to the Maracay Homes trade name was 9.7 and 10.2 years as of June 30, 2016 and December 31, 2015, respectively. Amortization expense related to this intangible asset was $133,000 for each of the three month periods ended June 30, 2016 and 2015, respectively and was $267,000 for each of the six month periods ended June 30, 2016 and 2015, respectively.  Amortization of this intangible asset was charged to sales and marketing expense.  Our $17.3 million indefinite life intangible asset related to the TRI Pointe Homes trade name is not amortizing.  All trade names are evaluated for impairment on an annual basis or more frequently if indicators of impairment exist.
Expected amortization of our intangible asset related to Maracay Homes for the remainder of 2016, the next four years and thereafter is (in thousands):
Remainder of 2016
$
267

2017
534

2018
534

2019
534

2020
534

Thereafter
2,755

Total
$
5,158


- 15 -



10.
Other Assets
Other assets consisted of the following (in thousands):
 
June 30, 2016
 
December 31, 2015
Prepaid expenses
$
13,303

 
$
14,523

Refundable fees and other deposits
17,430

 
17,056

Development rights, held for future use or sale
4,360

 
4,360

Deferred loan costs - unsecured revolving credit facility
2,536

 
2,179

Operating properties and equipment, net
7,531

 
7,643

Other
2,700

 
3,157

Total
$
47,860

 
$
48,918

 
 
11.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
 
June 30, 2016
 
December 31, 2015
Accrued payroll and related costs
$
19,371

 
$
28,264

Warranty reserves (Note 14)
45,272

 
45,948

Estimated cost for completion of real estate inventories
51,346

 
52,818

Customer deposits
19,139

 
12,132

Debt (nonrecourse) held by VIEs
145

 
2,442

Income tax liability to Weyerhaeuser (Note 17)
8,975

 
8,900

Accrued income taxes payable
7,894

 
19,279

Liability for uncertain tax positions (Note 17)
—

 
307

Accrued interest
3,646

 
2,417

Accrued insurance expense
2,235

 
1,402

Other tax liability
26,363

 
21,764

Other
14,407

 
20,590

Total
$
198,793

 
$
216,263

 
 
12.
Senior Notes, Unsecured Revolving Credit Facility and Seller Financed Loans
Senior Notes
The Senior Notes consisted of the following (in thousands):
 
 
June 30, 2016
 
December 31, 2015
4.375% Senior Notes due June 15, 2019
$
450,000

 
$
450,000

4.875% Senior Notes due July 1, 2021
300,000

 
—

5.875% Senior Notes due June 15, 2024
450,000

 
450,000

Discount and deferred loan costs
(34,886
)
 
(31,321
)
Total
$
1,165,114

 
$
868,679

 
In May 2016, TRI Pointe Group issued $300 million aggregate principal amount of 4.875% Senior Notes due 2021 (the "2021 Notes") at 99.44% of their aggregate principal amount. Net proceeds of this issuance were $295.1 million, after debt issuance costs and discounts. The 2021 Notes mature on July 1, 2021 and interest is paid semiannually in arrears on January 1 and July 1.

- 16 -


TRI Pointe Group and TRI Pointe Homes are co-issuers of the 2019 Notes and the 2024 Notes. The 2019 Notes were issued at 98.89% of their aggregate principal amount and the 2024 Notes were issued at 98.15% of their aggregate principal amount. The net proceeds from the offering were $861.3 million, after debt issuance costs and discounts. The 2019 Notes and 2024 Notes mature on June 15, 2019 and June 15, 2024, respectively. Interest is payable semiannually in arrears on June 15 and December 15.
As of June 30, 2016, no principal has been paid on the 2019 Notes, 2021 Notes and 2024 Notes (together, the "Senior Notes"), and there was $23.1 million of capitalized debt financing costs, included in senior notes, net on our consolidated balance sheet, related to the Senior Notes that will amortize over the lives of the Senior Notes. Accrued interest related to the Senior Notes was $3.4 million and $1.9 million as of June 30, 2016 and December 31, 2015, respectively.
Unsecured Revolving Credit Facility
Unsecured revolving credit facility consisted of the following (in thousands):
 
June 30, 2016
 
December 31, 2015
Unsecured revolving credit facility
$
100,000

 
$
299,392

 
On April 28, 2016, the Company partially exercised the accordion feature under its existing unsecured revolving credit facility (the “Credit Facility”) to increase the total commitments under the Credit Facility from $550 million to $625 million.  The Credit Facility matures on May 18, 2019, and contains a sublimit of $75 million for letters of credit. The Company may borrow under the Credit Facility in the ordinary course of business to fund its operations, including its land acquisition, land development and homebuilding activities. Borrowings under the Credit Facility will be governed by, among other things, a borrowing base. Interest rates on borrowings under the Credit Facility will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.45% to 2.20%, depending on the Company’s leverage ratio. As of June 30, 2016, the outstanding balance under the Credit Facility was $100.0 million with an interest rate of 2.20% per annum and $520.0 million of availability after considering the borrowing base provisions and outstanding letters of credit.  As of June 30, 2016 there was $2.5 million of capitalized debt financing costs, included in other assets on our consolidated balance sheet, related to the Credit Facility that will amortize over the life of the Credit Facility, maturing on May 18, 2019.  Accrued interest related to the Credit Facility was $209,000 and $407,000 as of June 30, 2016 and December 31, 2015, respectively.
At June 30, 2016 we had outstanding letters of credit of $5.0 million.  These letters of credit were issued to secure various financial obligations.  We believe it is not probable that any outstanding letters of credit will be drawn upon.
Seller Financed Loans
Seller financed loans consisted of the following (in thousands):
 
June 30, 2016
 
December 31, 2015
Seller financed loans
$
17,758

 
$
2,434

 
As of June 30, 2016, the Company had $17.8 million outstanding related to a seller financed loan to acquire lots for the construction of homes. Principal and interest payments on this loan are due at various maturity dates, including at the time individual homes associated with the acquired land are delivered. As of June 30, 2016, the seller financed loan accrues interest at a rate of 7.0% per annum, with interest calculated on a daily basis. A minimum principal payment of $12.1 million is due in June 2017 with any remaining unpaid balance due in June 2018. Accrued interest on the seller financed loans was $52,000 and $89,000 as of June 30, 2016 and December 31, 2015, respectively.

- 17 -


Interest Incurred
During the three month periods ended June 30, 2016 and 2015, the Company incurred interest of $16.3 million and $15.1 million, respectively, related to all debt during the period. All interest incurred was capitalized to inventory for the three month periods ended June 30, 2016 and 2015, respectively. Included in interest incurred was amortization of deferred financing and Senior Note discount costs of $1.6 million and $1.3 million for the three months ended June 30, 2016 and 2015, respectively.  During the six month periods ended June 30, 2016 and 2015, the Company incurred interest of $31.4 million and $30.3 million, respectively, related to all debt during the period. All interest incurred was capitalized to inventory for the six month periods ended June 30, 2016 and 2015, respectively. Included in interest incurred was amortization of deferred financing and Senior Note discount costs of $2.9 million and $2.5 million for the six months ended June 30, 2016 and 2015, respectively.  Accrued interest related to all outstanding debt at June 30, 2016 and December 31, 2015 was $3.6 million and $2.4 million, respectively. 
Covenant Requirements
The Senior Notes contain covenants that restrict our ability to, among other things, create liens or other encumbrances, enter into sale and leaseback transactions, or merge or sell all or substantially all of our assets. These limitations are subject to a number of qualifications and exceptions.
Under the Credit Facility, the Company is required to comply with certain financial covenants, including but not limited to (i) a minimum consolidated tangible net worth; (ii) a maximum total leverage ratio; and (iii) a minimum interest coverage ratio.
The Company was in compliance with all applicable financial covenants as of June 30, 2016 and December 31, 2015.

13.
Fair Value Disclosures
Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures, defines “fair value” as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:
•
Level 1—Quoted prices for identical instruments in active markets
•
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date
•
Level 3—Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date
Fair Value of Financial Instruments
A summary of assets and liabilities at June 30, 2016 and December 31, 2015, related to our financial instruments, measured at fair value on a recurring basis, is set forth below (in thousands):
 
 
 
June 30, 2016
 
December 31, 2015
 
Hierarchy
 
Book Value
 
Fair Value
 
Book Value
 
Fair Value
Senior Notes (1)
Level 2
 
$
1,188,199

 
$
1,209,375

 
$
889,054

 
$
881,460

Unsecured revolving credit facility (2)
Level 2
 
$
100,000

 
$
100,102

 
$
299,392

 
$
299,392

Seller financed loans (3)
Level 2
 
$
17,758

 
$
18,173

 
$
2,434

 
$
2,368

 __________
(1) 
The book value of the Senior Notes is net of discounts, excluding deferred loan costs of $23.1 million and $20.4 million as of June 30, 2016 and December 31, 2015, respectively. The estimated fair value of the Senior Notes at June 30, 2016 and December 31, 2015 is based on quoted market prices.
(2) 
The estimated fair value of the Credit Facility at June 30, 2016 is based on a treasury curve analysis. We believe that the carrying value of the Credit Facility approximated fair value at December 31, 2015 due to the short term nature of the current rate amended on May 18, 2015.
(3) 
The estimated fair value of the seller financed loans at June 30, 2016 and December 31, 2015 is based on a treasury curve analysis.

- 18 -



At June 30, 2016 and December 31, 2015, the carrying value of cash and cash equivalents and receivables approximated fair value.
 
Fair Value of Nonfinancial Assets
Nonfinancial assets include items such as real estate inventories and long-lived assets that are measured at fair value on a nonrecurring basis when events and circumstances indicate the carrying value is not recoverable. The following table presents impairment charges and the remaining net fair value for nonfinancial assets that were measured during the periods presented (in thousands):
 
Six Months Ended June 30, 2016
 
Year Ended December 31, 2015
 
Impairment
Charge
 
Fair Value
Net of
Impairment
 
Impairment
Charge
 
Fair Value
Net of
Impairment
Real estate inventories (1)
$
—

 
$
—

 
$
1,167

 
$
28,540

_______________
(1) 
Fair value of real estate inventories, net of impairment charges represents only those assets whose carrying values were adjusted to fair value in the respective periods presented. The fair value of these real estate inventories impaired was determined based on recent offers received from outside third parties or actual contracts.

14.
Commitments and Contingencies
Legal Matters
Lawsuits, claims and proceedings have been and may be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices and environmental protection. As a result, we are subject to periodic examinations or inquiry by agencies administering these laws and regulations.
We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. We accrue for these matters based on facts and circumstances specific to each matter and revise these estimates when necessary.  In view of the inherent difficulty of predicting outcomes of legal claims and related contingencies, we generally cannot predict their ultimate resolution, related timing or eventual loss. Accordingly, it is possible that the ultimate outcome of any matter, if in excess of a related accrual or if no accrual was made, could be material to our financial statements.  For matters as to which the Company believes a loss is probable and reasonably estimable, it had legal reserves of $150,000 and $450,000 as of June 30, 2016 and December 31, 2015, respectively.
Warranty
Warranty reserves are accrued as home deliveries occur. Our warranty reserves on homes delivered will vary based on product type and geographic area and also depending on state and local laws. The warranty reserve is included in accrued expenses and other liabilities on our consolidated balance sheets and represents expected future costs based on our historical experience over previous years. Estimated warranty costs are charged to cost of home sales in the period in which the related home sales revenue is recognized.
We maintain general liability insurance designed to protect us against a portion of our risk of loss from construction-related claims. We also generally require our subcontractors and design professionals to indemnify us for liabilities arising from their work, subject to various limitations. However, such indemnity is significantly limited with respect to certain subcontractors that are added to our general liability insurance policy. Included in our warranty reserve accrual are allowances to cover our estimated costs of self-insured retentions and deductible amounts under these policies and estimated costs for claims that may not be covered by applicable insurance or indemnities. Estimation of these accruals include consideration of our claims history, including current claims and estimates of claims incurred but not yet reported.  In addition, management estimates warranty reserves and allowances necessary to cover any current or future construction-related claims based on actuarial analysis. Under this analysis, reserve amounts are estimated using our historical expense and claim data, as well as industry data. In addition, we record expected recoveries from insurance carriers when proceeds are probable and estimable.  Outstanding warranty insurance receivables were $10.3 million and $10.5 million as of June 30, 2016 and December 31, 2015, respectively. Warranty insurance receivables are recorded in receivables on the accompanying consolidated balance sheet.

- 19 -


There can be no assurance that the terms and limitations of the limited warranty will be effective against claims made by homebuyers, that we will be able to renew our insurance coverage or renew it at reasonable rates, that we will not be liable for damages, cost of repairs, and/or the expense of litigation surrounding possible construction defects, soil subsidence or building related claims or that claims will not arise out of uninsurable events or circumstances not covered by insurance and not subject to effective indemnification agreements with certain subcontractors.
Warranty reserves consisted of the following (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Warranty reserves, beginning of period
$
45,419

 
$
33,965

 
$
45,948

 
$
33,270

Warranty reserves accrued
2,971

 
3,354

 
5,044

 
6,226

Adjustments to pre-existing reserves
260

 
999

 
260

 
1,300

Warranty expenditures
(3,378
)
 
(2,943
)
 
(5,980
)
 
(5,421
)
Warranty reserves, end of period
$
45,272

 
$
35,375

 
$
45,272

 
$
35,375

Performance Bonds
We obtain surety bonds in the normal course of business to ensure completion of certain infrastructure improvements of our projects. As of June 30, 2016 and December 31, 2015, the Company had outstanding surety bonds totaling $434.2 million and $414.1 million, respectively. The beneficiaries of the bonds are various municipalities.
 
 
15.
Stock-Based Compensation
2013 Long-Term Incentive Plan
The Company’s stock compensation plan, the 2013 Long-Term Incentive Plan (the “2013 Incentive Plan”), was adopted by TRI Pointe in January 2013 and amended, with the approval of our stockholders, in 2014 and 2015. In addition, our board of directors amended the 2013 Incentive Plan in 2014 to prohibit repricing (other than in connection with any equity restructuring or any change in capitalization) of outstanding options or stock appreciation rights without stockholder approval. The 2013 Incentive Plan provides for the grant of equity-based awards, including options to purchase shares of common stock, stock appreciation rights, common stock, restricted stock, restricted stock units and performance awards. The 2013 Incentive Plan will automatically expire on the tenth anniversary of its effective date. Our board of directors may terminate or amend the 2013 Incentive Plan at any time, subject to any requirement of stockholder approval required by applicable law, rule or regulation.
As amended, the number of shares of our common stock that may be issued under the 2013 Incentive Plan is 11,727,833 shares. To the extent that shares of our common stock subject to an outstanding option, stock appreciation right, stock award or performance award granted under the 2013 Incentive Plan are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or the settlement of such award in cash, then such shares of our common stock generally shall again be available under the 2013 Incentive Plan. As of June 30, 2016 there were 7,599,938 shares available for future grant under the 2013 Incentive Plan.
Converted Awards
On July 16, 2014, the Company filed a registration statement on Form S-8 (Registration No. 333-197461) to register 4,105,953 shares of common stock related to converted equity awards issued in connection with the Company's acquisition of WRECO. The converted awards have the same terms and conditions as the prior equity awards except that all performance share units were surrendered in exchange for time-vesting restricted stock units without any performance-based vesting conditions or requirements and the exercise price of each converted stock option is equal to the original exercise price divided by an exchange ratio of 2.1107, rounded down to the nearest whole number of shares of common stock. There will be no future grants under the WRECO equity incentive plans.  

- 20 -


The following table presents compensation expense recognized related to all stock-based awards (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Total stock-based compensation
$
3,758

 
$
3,161

 
$
6,363

 
$
5,542

 
Stock-based compensation is charged to general and administrative expense on the accompanying consolidated statements of operations.  As of June 30, 2016, total unrecognized stock-based compensation related to all stock-based awards was $23.6 million and the weighted average term over which the expense was expected to be recognized was 2.1 years.
Summary of Stock Option Activity
The following table presents a summary of stock option awards for the six months ended June 30, 2016:
 
Options
 
Weighted
Average
Exercise
Price
Per Share
 
Weighted
Average
Remaining
Contractual
Life
 
Aggregate
Intrinsic
Value
(in thousands)
Options outstanding at December 31, 2015
3,220,147

 
$
13.12

 
5.2

 
$
3,081

Granted
—

 
—

 
—

 
—

Exercised
(2,578
)
 
6.88

 
—

 
—

Forfeited
(144,418
)
 
12.33

 
—

 
—

Options outstanding at June 30, 2016
3,073,151

 
13.16

 
4.8

 
2,109

Options exercisable at June 30, 2016
2,704,617

 
12.96

 
4.5

 
2,109

 
The intrinsic value of each stock option award outstanding or exercisable is the difference between the fair market value of the Company’s common stock at the end of the period and the exercise price of each stock option award to the extent it is considered “in-the-money”. A stock option award is considered to be “in-the-money” if the fair market value of the Company’s stock is greater than the exercise price of the stock option award. The aggregate intrinsic value of options outstanding and options exercisable represents the value that would have been received by the holders of stock option awards had they exercised their stock option award on the last trading day of the period and sold the underlying shares at the closing price on that day.

Summary of Restricted Stock Unit Activity
The following table presents a summary of restricted stock units (“RSUs”) for the six months ended June 30, 2016:
 
Restricted
Stock
Units
 
Weighted
Average
Grant Date
Fair Value
Per Share
 
Aggregate
Intrinsic
Value
(in thousands)
Nonvested RSUs at December 31, 2015
1,958,033

 
$
12.21

 
$
24,808

Granted
1,904,389

 
8.41

 
22,510

Vested
(431,758
)
 
14.53

 
—

Forfeited
(15,077
)
 
12.07

 
—

Nonvested RSUs at June 30, 2016
3,415,587

 
9.77

 
40,406

 
On March 5, 2015, the Company granted an aggregate of 440,800 time-vested RSUs to employees and officers. The RSUs granted vest in equal installments annually on the anniversary of the grant date over a three years period.  The fair value of each RSU granted on March 5, 2015 was measured using a price of $14.97 per share, which was the closing stock price on the date of grant.  Each award will be expensed on a straight-line basis over the vesting period.

- 21 -


On March 9, 2015, the Company granted 411,804, 384,351, and 274,536 performance-based RSUs to the Company’s Chief Executive Officer, President, and Chief Financial Officer, respectively, with 1/3 of the performance-based RSU amounts being allocated to each of the three following separate performance goals: total shareholder return (compared to a group of peer homebuilding companies); earnings per share; and stock price. The performance-based RSUs granted will vest in each case, if at all, based on the percentage of attainment of the applicable performance goal. The performance periods for the performance-based RSUs with vesting based on total shareholder return and earnings per share are January 1, 2015 to December 31, 2017. The performance period for the performance-based RSUs with vesting based on stock price is January 1, 2016 to December 31, 2017. The fair value of the performance-based RSUs related to the total shareholder return and stock price performance goals was determined to be $7.55 and $7.90 per share, respectively, based on a Monte Carlo simulation. The fair value of the performance-based RSUs related to the earnings per share goal was measured using a price of $14.57 per share, which was the closing stock price on the date of grant. Each grant will be expensed over the requisite service period.
 
On August 12, 2015, the Company granted an aggregate of 69,008 RSUs to the non-employee members of its board of directors. These RSUs vested in their entirety on June 6, 2016. The fair value of each RSU granted on August 12, 2015 was measured using $14.49 per share, which was the closing price on the date of grant. Each award was expensed on a straight-line basis over the vesting period.
On March 1, 2016, the Company granted an aggregate of 1,120,677 time-vested RSUs to employees and officers. The RSUs granted vest in equal installments annually on the anniversary of the grant date over a three year period.  The fair value of each RSU granted on March 1, 2016 was measured using a price of $10.49 per share, which was the closing stock price on the date of grant.  Each award will be expensed on a straight-line basis over the vesting period.
On March 1, 2016, the Company granted 297,426, 285,986 and 125,834 performance-based RSUs to the Company’s Chief Executive Officer, President, and Chief Financial Officer, respectively. The vesting, if at all, of these performance-based RSUs may range from 0% to 100% and will be based on the Company’s percentage attainment of specified threshold, target and maximum performance goals. The percentage of these performance-based RSUs that vest will be determined by comparing the Company’s total stockholder return to the total stockholder returns of a group of peer homebuilding companies. The performance period for these performance-based RSUs is January 1, 2016 to December 31, 2018. These performance-based RSUs will not vest if the Company’s total stockholder return from January 1, 2016 to December 31, 2018 is not a positive number, provided that the executive will thereafter become vested in the award units, or portion thereof, that would have otherwise vested on December 31, 2018 if on any day after December 31, 2018 and on or before December 31, 2020, the Company’s total stockholder return is greater than zero and the executive is employed by the Company on that date. If the performance-based RSUs have not vested on or before December 31, 2020, such performance-based RSUs shall be cancelled and forfeited for no consideration. The fair value of these performance-based RSUs was determined to be $4.76 per share based on a Monte Carlo simulation. Each award will be expensed over the requisite service period.
On June 6, 2016, the Company granted an aggregate of 74,466 RSUs to the non-employee members of its board of directors. These RSUs vest in their entirety on the day immediately prior to the Company's 2017 Annual Meeting of Stockholders. The fair value of each RSU granted on June 6, 2016 was measured using a price of $11.75 per share, which was the closing stock price on the date of grant. Each award will be expensed on a straight-line basis over the vesting period.
As RSUs vest, a portion of the shares awarded is generally withheld to cover employee tax withholdings. As a result, the number of RSUs vested and the number of shares of TRI Pointe common stock issued will differ.

16.
Stock Repurchase Program
On January 27, 2016, the Company announced that the board of directors approved a stock repurchase program, authorizing the repurchase of the Company’s common stock with an aggregate value of up to $100 million through January 25, 2017.  Purchases of common stock may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act.  We are not obligated under the program to repurchase any specific number or amount of shares of common stock, and we may modify, suspend or discontinue the program at any time.  Our management will determine the timing and amount of repurchase in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions and legal requirements. As of June 30, 2016, 1,253,021 shares of our common stock had been repurchased and retired under this program at an average price of $11.73 per share for a total of cost of $14.7 million. Subsequent to June 30, 2016 and through the date of this filing, the Company repurchased and retired an additional 254,700 shares of our common stock under this program at an average price of $11.71 per share for a total cost of $3.0 million.


- 22 -


17.
Income Taxes
We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”), which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates for the years in which taxes are expected to be paid or recovered.  Each quarter we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740.  We are required to establish a valuation allowance for any portion of the asset we conclude is more likely than not to be unrealizable.  Our assessment considers, among other things, the nature, frequency and severity of our current and cumulative losses, forecasts of our future taxable income, the duration of statutory carryforward periods and tax planning alternatives.
We had net deferred tax assets of $116.7 million and $130.7 million as of June 30, 2016 and December 31, 2015, respectively.  We had a valuation allowance related to those net deferred tax assets of $3.3 million and $4.4 million as of June 30, 2016 and December 31, 2015, respectively.  The Company will continue to evaluate both positive and negative evidence in determining the need for a valuation allowance against its deferred tax assets. Changes in positive and negative evidence, including differences between the Company's future operating results and the estimates utilized in the determination of the valuation allowance, could result in changes in the Company's estimate of the valuation allowance against its deferred tax assets. The accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on the Company's consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation allowance against the Company's deferred tax assets.
TRI Pointe has certain liabilities with Weyerhaeuser related to a tax sharing agreement.   As of June 30, 2016 and December 31, 2015, we had an income tax liability to Weyerhaeuser of $9.0 million and $8.9 million, respectively, which is recorded in accrued expenses and other liabilities on the accompanying balance sheet.
Our provision for income taxes totaled $41.9 million and $30.2 million for the three months ended June 30, 2016 and 2015, respectively.  Our provision for income taxes totaled $57.4 million and $38.1 million for the six months ended June 30, 2016 and 2015, respectively.  The Company classifies any interest and penalties related to income taxes assessed by jurisdiction as part of income tax expense.  The Company had zero and $307,000 of liabilities for uncertain tax positions recorded as of June 30, 2016 and December 31, 2015, respectively.  The Company has not been assessed interest or penalties by any major tax jurisdictions related to prior years. 
  
18.
Related Party Transactions
For the six month period ended June 30, 2016 we had no related party transactions. In January of 2015, TRI Pointe acquired 46 lots located in Castle Rock, Colorado, for a purchase price of approximately $2.8 million from an entity managed by an affiliate of the Starwood Capital Group. This acquisition was approved by TRI Pointe independent directors.

19.
Supplemental Disclosure to Consolidated Statements of Cash Flow
The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):
 
Six Months Ended June 30,
 
2016
 
2015
Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of amounts capitalized of $31,429 and $30,325 (Note 6)
$
—

 
$
—

Income taxes
$
55,270

 
$
11,354

Supplemental disclosures of noncash activities:
 
 
 
Amortization of senior note discount capitalized to real estate inventory
$
855

 
$
765

Amortization of deferred loan costs capitalized to real estate inventory
$
1,791

 
$
—

Effect of net consolidation and de-consolidation of variable interest entities:
 
 
 
(Decrease) increase in consolidated real estate inventory not owned
$
(2,616
)
 
$
3,629

Increase in deposits on real estate under option or contract and other assets
$
—

 
$
300

Decrease (increase) in noncontrolling interests
$
2,616

 
$
(3,929
)
  

- 23 -


20.
Supplemental Guarantor Information
2021 Notes
On May 26, 2016, TRI Pointe Group issued the 2021 Notes. All of TRI Pointe Group’s 100% owned subsidiaries that are guarantors (each a “Guarantor” and, collectively, the “Guarantors”) of the Company’s Credit Facility, including TRI Pointe Homes and certain other of its 100% owned subsidiaries, are party to a supplemental indenture pursuant to which they jointly and severally guarantee TRI Pointe Group’s obligations with respect to the 2021 Notes. Each Guarantor of the 2021 Notes is 100% owned by TRI Pointe Group, and all guarantees are full and unconditional, subject to customary exceptions pursuant to the indentures governing the 2021 Notes, as described in the following paragraph. All of our non-Guarantor subsidiaries have nominal assets and operations and are considered minor, as defined in Rule 3-10(h) of Regulation S-X. In addition, TRI Pointe Group has no independent assets or operations, as defined in Rule 3-10(h) of Regulation S-X. There are no significant restrictions upon the ability of TRI Pointe Group or any Guarantor to obtain funds from any of their respective wholly owned subsidiaries by dividend or loan. None of the assets of our subsidiaries represent restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X.
A Guarantor of the 2021 Notes shall be released from all of its obligations under its guarantee if (i) all of the assets of the Guarantor have been sold; (ii) all of the equity interests of the Guarantor held by TRI Pointe Group or a subsidiary thereof have been sold; (iii) the Guarantor merges with and into TRI Pointe Group or another Guarantor, with TRI Pointe Group or such other Guarantor surviving the merger; (iv) the Guarantor is designated “unrestricted” for covenant purposes; (v) the Guarantor ceases to guarantee any indebtedness of TRI Pointe Group or any other Guarantor which gave rise to such Guarantor guaranteeing the 2021 Notes; (vi) TRI Pointe Group exercises its legal defeasance or covenant defeasance options; or (vii) all obligations under the applicable supplemental indenture are discharged.
2019 Notes and 2024 Notes
TRI Pointe Group and TRI Pointe Homes are co-issuers of the 2019 Notes and the 2024 Notes. All of the Guarantors (other than TRI Pointe Homes) have entered into supplemental indentures pursuant to which they jointly and severally guarantee the obligations of TRI Pointe Group and TRI Pointe Homes with respect to the 2019 Notes and the 2024 Notes. Each Guarantor of the 2019 Notes and the 2024 Notes is 100% owned by TRI Pointe Group and TRI Pointe Homes, and all guarantees are full and unconditional, subject to customary exceptions pursuant to the indentures governing the 2019 Notes and the 2024 Notes, as described below.
A Guarantor of the 2019 Notes and the 2024 Notes shall be released from all of its obligations under its guarantee if (i) all of the assets of the Guarantor have been sold; (ii) all of the equity interests of the Guarantor held by TRI Pointe or a subsidiary thereof have been sold; (iii) the Guarantor merges with and into TRI Pointe or another Guarantor, with TRI Pointe or such other Guarantor surviving the merger; (iv) the Guarantor is designated “unrestricted” for covenant purposes; (v) the Guarantor ceases to guarantee any indebtedness of TRI Pointe or any other Guarantor which gave rise to such Guarantor guaranteeing the 2019 Notes and 2024 Notes; (vi) TRI Pointe exercises its legal defeasance or covenant defeasance options; or (vii) all obligations under the applicable indenture are discharged.
Presented below are the condensed consolidating balance sheets at June 30, 2016 and December 31, 2015, condensed consolidating statements of operations for the three and six months ended June 30, 2016 and 2015 and condensed consolidating statement of cash flows for the six month periods ended June 30, 2016 and 2015.  Because TRI Pointe’s non-Guarantor subsidiaries are considered minor, as defined in Rule 3-10(h) of Regulation S-X, the non-Guarantor subsidiaries’ information is not separately presented in the tables below, but is included with the Guarantors. Additionally, because TRI Pointe Group has no independent assets or operations, as defined in Rule 3-10(h) of Regulation S-X, the condensed consolidated financial information of TRI Pointe Group and TRI Pointe Homes, the co-issuers of the 2019 Notes and 2024 Notes, is presented together in the column titled “Issuer” for all periods presented after July 7, 2015, the date of the Reorganization.

- 24 -


Condensed Consolidating Balance Sheet (in thousands):
 
 
June 30, 2016
 
Issuer (1)
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
53,368

 
$
64,141

 
$
—

 
$
117,509

Receivables
8,716

 
25,955

 
—

 
34,671

Intercompany receivables
812,677

 
—

 
(812,677
)
 
—

Real estate inventories
821,283

 
2,018,930

 
—

 
2,840,213

Investments in unconsolidated entities
—

 
17,549

 
—

 
17,549

Goodwill and other intangible assets, net
156,471

 
5,291

 
—

 
161,762

Investments in subsidiaries
1,207,283

 
—

 
(1,207,283
)
 
—

Deferred tax assets, net
18,952

 
97,748

 
—

 
116,700

Other assets
9,819

 
38,041

 
—

 
47,860

Total Assets
$
3,088,569

 
$
2,267,655

 
$
(2,019,960
)
 
$
3,336,264

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Accounts payable
$
23,595

 
$
56,223

 
$
—

 
$
79,818

Intercompany payables
—

 
812,677

 
(812,677
)
 
—

Accrued expenses and other liabilities
24,801

 
173,992

 
—

 
198,793

Unsecured revolving credit facility
100,000

 
—

 
—

 
100,000

Seller financed loans
17,758

 
—

 
—

 
17,758

Senior notes
1,165,114

 
—

 
—

 
1,165,114

Total Liabilities
1,331,268

 
1,042,892

 
(812,677
)
 
1,561,483

 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
Total stockholders’ equity
1,757,301

 
1,207,283

 
(1,207,283
)
 
1,757,301

Noncontrolling interests
—

 
17,480

 
—

 
17,480

Total Equity
1,757,301

 
1,224,763

 
(1,207,283
)
 
1,774,781

Total Liabilities and Equity
$
3,088,569

 
$
2,267,655

 
$
(2,019,960
)
 
$
3,336,264

__________
(1) 
References to “Issuer” in this Note 20, Supplemental Guarantor Information have the following meanings:
a. 
for periods prior to July 7, 2015: TRI Pointe Homes only
b. 
for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers of the 2019 Notes and 2024 Notes



- 25 -


20.
Supplemental Guarantor Information (continued)
Condensed Consolidating Balance Sheet (in thousands):
 
 
December 31, 2015
 
Issuer (1)
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
147,771

 
$
66,714

 
$
—

 
$
214,485

Receivables
17,358

 
26,352

 
—

 
43,710

Intercompany receivables
783,956

 
—

 
(783,956
)
 
—

Real estate inventories
657,221

 
1,862,052

 
—

 
2,519,273

Investments in unconsolidated entities
—

 
18,999

 
—

 
18,999

Goodwill and other intangible assets, net
156,604

 
5,425

 
—

 
162,029

Investments in subsidiaries
1,093,261

 
—

 
(1,093,261
)
 
—

Deferred tax assets, net
19,061

 
111,596

 
—

 
130,657

Other assets
12,219

 
36,699

 
—

 
48,918

Total Assets
$
2,887,451

 
$
2,127,837

 
$
(1,877,217
)
 
$
3,138,071

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Accounts payable
$
20,444

 
$
44,396

 
$
—

 
$
64,840

Intercompany payables
—

 
783,956

 
(783,956
)
 
—

Accrued expenses and other liabilities
32,219

 
184,044

 
—

 
216,263

Unsecured revolving credit facility
299,392

 
—

 
—

 
299,392

Seller financed loans
2,034

 
400

 
—

 
2,434

Senior notes
868,679

 
—

 
—

 
868,679

Total Liabilities
1,222,768

 
1,012,796

 
(783,956
)
 
1,451,608

 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
Total stockholders’ equity
1,664,683

 
1,093,261

 
(1,093,261
)
 
1,664,683

Noncontrolling interests
—

 
21,780

 
—

 
21,780

Total Equity
1,664,683

 
1,115,041

 
(1,093,261
)
 
1,686,463

Total Liabilities and Equity
$
2,887,451

 
$
2,127,837

 
$
(1,877,217
)
 
$
3,138,071

__________
(1) 
References to “Issuer” in this Note 20, Supplemental Guarantor Information have the following meanings:
a. 
for periods prior to July 7, 2015: TRI Pointe Homes only
b. 
for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers of the 2019 Notes and 2024 Notes





- 26 -


20.
Supplemental Guarantor Information (continued)
Condensed Consolidating Statement of Operations (in thousands):
 
 
Three Months Ended June 30, 2016
 
Issuer (1)
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:
 
 
 
 
 
 
 
Home sales revenue
$
152,827

 
$
404,098

 
$
—

 
$
556,925

Land and lot sales revenue
—

 
67,314

 
—

 
67,314

Other operations revenue
—

 
604

 
—

 
604

Total revenues
152,827

 
472,016

 
—

 
624,843

Cost of home sales
128,905

 
303,833

 
—

 
432,738

Cost of land and lot sales
—

 
14,460

 
—

 
14,460

Other operations expense
—

 
583

 
—

 
583

Sales and marketing
7,021

 
25,427

 
—

 
32,448

General and administrative
14,580

 
15,689

 
—

 
30,269

Restructuring charges
—

 
215

 
—

 
215

Homebuilding income from operations
2,321

 
111,809

 
—

 
114,130

Equity in income of unconsolidated entities
—

 
215

 
—

 
215

Other income, net
145

 
6

 
—

 
151

Homebuilding income before income taxes
2,466

 
112,030

 
—

 
114,496

Financial Services:
 
 
 
 
 
 
 
Revenues
—

 
379

 
—

 
379

Expenses
—

 
53

 
—

 
53

Equity in income of unconsolidated entities
—

 
1,284

 
—

 
1,284

Financial services income before income taxes
—

 
1,610

 
—

 
1,610

Income before income taxes
2,466

 
113,640

 
—

 
116,106

Equity of net income of subsidiaries
73,154

 
—

 
(73,154
)
 
—

Provision for income taxes
(1,694
)
 
(40,219
)
 
—

 
(41,913
)
Net income
73,926

 
73,421

 
(73,154
)
 
74,193

Net income attributable to noncontrolling interests
—

 
(267
)
 
—

 
(267
)
Net income available to common stockholders
$
73,926

 
$
73,154

 
$
(73,154
)
 
$
73,926

__________
(1) 
References to “Issuer” in this Note 20, Supplemental Guarantor Information have the following meanings:
a. 
for periods prior to July 7, 2015: TRI Pointe Homes only
b. 
for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers of the 2019 Notes and 2024 Notes



- 27 -


 
20.
Supplemental Guarantor Information (continued)
Condensed Consolidating Statement of Operations (in thousands):
 
 
Three Months Ended June 30, 2015
 
Issuer (1)
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:
 
 
 
 
 
 
 
Home sales revenue
$
130,552

 
$
296,686

 
$
—

 
$
427,238

Land and lot sales revenue
—

 
67,490

 
—

 
67,490

Other operations revenue
—

 
607

 
—

 
607

Total revenues
130,552

 
364,783

 
—

 
495,335

Cost of home sales
106,365

 
235,377

 
—

 
341,742

Cost of land and lot sales
—

 
11,564

 
—

 
11,564

Other operations expense
—

 
572

 
—

 
572

Sales and marketing
5,447

 
20,187

 
—

 
25,634

General and administrative
13,260

 
15,001

 
—

 
28,261

Restructuring charges
(86
)
 
584

 
—

 
498

Homebuilding income from operations
5,566

 
81,498

 
—

 
87,064

Equity in loss of unconsolidated entities
—

 
(39
)
 
—

 
(39
)
Other (loss) income, net
(151
)
 
120

 
—

 
(31
)
Homebuilding income before income taxes
5,415

 
81,579

 
—

 
86,994

Financial Services:
 
 
 
 
 
 
 
Revenues
—

 
182

 
—

 
182

Expenses
—

 
58

 
—

 
58

Equity in loss of unconsolidated entities
—

 
(116
)
 
—

 
(116
)
Financial services income before income taxes
—

 
8

 
—

 
8

Income before income taxes
5,415

 
81,587

 
—

 
87,002

Equity of net income of subsidiaries
51,903

 
—

 
(51,903
)
 
—

Provision for income taxes
(2,388
)
 
(27,852
)
 
—

 
(30,240
)
Net income
54,930

 
53,735

 
(51,903
)
 
56,762

Net income attributable to noncontrolling interests
—

 
(1,832
)
 
—

 
(1,832
)
Net income available to common stockholders
$
54,930

 
$
51,903

 
$
(51,903
)
 
$
54,930

__________
(1) 
References to “Issuer” in this Note 20, Supplemental Guarantor Information have the following meanings:
a. 
for periods prior to July 7, 2015: TRI Pointe Homes only
b. 
for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers of the 2019 Notes and 2024 Notes







- 28 -



20.
Supplemental Guarantor Information (continued)
Condensed Consolidating Statement of Operations (in thousands):
 
Six Months Ended June 30, 2016
 
Issuer (1)
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:
 
 
 
 
 
 
 
Home sales revenue
$
284,784

 
$
695,196

 
$
—

 
$
979,980

Land and lot sales revenue
—

 
67,669

 
—

 
67,669

Other operations revenue
—

 
1,184

 
—

 
1,184

Total revenues
284,784

 
764,049

 
—

 
1,048,833

Cost of home sales
239,357

 
517,880

 
—

 
757,237

Cost of land and lot sales
—

 
15,239

 
—

 
15,239

Other operations expense
—

 
1,149

 
—

 
1,149

Sales and marketing
13,085

 
45,684

 
—

 
58,769

General and administrative
27,792

 
30,873

 
—

 
58,665

Restructuring charges
—

 
350

 
—

 
350

Homebuilding income from operations
4,550

 
152,874

 
—

 
157,424

Equity in income of unconsolidated entities
—

 
201

 
—

 
201

Other income (loss), net
502

 
(236
)
 
—

 
266

Homebuilding income before income taxes
5,052

 
152,839

 
—

 
157,891

Financial Services:
 
 
 
 
 
 
 
Revenues
—

 
527

 
—

 
527

Expenses
—

 
111

 
—

 
111

Equity in income of unconsolidated entities
—

 
1,999

 
—

 
1,999

Financial services income before income taxes
—

 
2,415

 
—

 
2,415

Income before income taxes
5,052

 
155,254

 
—

 
160,306

Equity of net income of subsidiaries
100,385

 
—

 
(100,385
)
 
—

Provision for income taxes
(2,961
)
 
(54,442
)
 
—

 
(57,403
)
Net income
102,476

 
100,812

 
(100,385
)
 
102,903

Net income attributable to noncontrolling interests
—

 
(427
)
 
—

 
(427
)
Net income available to common stockholders
$
102,476

 
$
100,385

 
$
(100,385
)
 
$
102,476

__________
(1) 
References to “Issuer” in this Note 20, Supplemental Guarantor Information have the following meanings:
a. 
for periods prior to July 7, 2015: TRI Pointe Homes only
b. 
for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers of the 2019 Notes and 2024 Notes


- 29 -




20.
Supplemental Guarantor Information (continued)
Condensed Consolidating Statement of Operations (in thousands):
 
Six Months Ended June 30, 2015
 
Issuer (1)
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:
 
 
 
 
 
 
 
Home sales revenue
$
237,410

 
$
564,093

 
$
—

 
$
801,503

Land and lot sales revenue
—

 
69,490

 
—

 
69,490

Other operations revenue
—

 
1,600

 
—

 
1,600

Total revenues
237,410

 
635,183

 
—

 
872,593

Cost of home sales
193,346

 
448,302

 
—

 
641,648

Cost of land and lot sales
—

 
13,873

 
—

 
13,873

Other operations expense
—

 
1,134

 
—

 
1,134

Sales and marketing
10,428

 
38,492

 
—

 
48,920

General and administrative
25,932

 
30,482

 
—

 
56,414

Restructuring charges
(86
)
 
806

 
—

 
720

Homebuilding income from operations
7,790

 
102,094

 
—

 
109,884

Equity in income of unconsolidated entities
—

 
68

 
—

 
68

Other (loss) income, net
(112
)
 
337

 
—

 
225

Homebuilding income before income taxes
7,678

 
102,499

 
—

 
110,177

Financial Services:
 
 
 
 
 
 
 
Revenues
—

 
182

 
—

 
182

Expenses
—

 
84

 
—

 
84

Equity in loss of unconsolidated entities
—

 
(149
)
 
—

 
(149
)
Financial services loss before income taxes
—

 
(51
)
 
—

 
(51
)
Income before income taxes
7,678

 
102,448

 
—

 
110,126

Equity of net income of subsidiaries
65,764

 
—

 
(65,764
)
 
—

Provision for income taxes
(3,215
)
 
(34,852
)
 
—

 
(38,067
)
Net income
70,227

 
67,596

 
(65,764
)
 
72,059

Net income attributable to noncontrolling interests
—

 
(1,832
)
 
—

 
(1,832
)
Net income available to common stockholders
$
70,227

 
$
65,764

 
$
(65,764
)
 
$
70,227

__________
(1) 
References to “Issuer” in this Note 20, Supplemental Guarantor Information have the following meanings:
a. 
for periods prior to July 7, 2015: TRI Pointe Homes only
b. 
for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers of the 2019 Notes and 2024 Notes


- 30 -



20.
Supplemental Guarantor Information (continued)
Condensed Consolidating Statement of Cash Flows (in thousands):
 
 
Six Months Ended June 30, 2016
 
Issuer (1)
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Cash flows from operating activities
 
 
 
 
 
 
 
Net cash used in operating activities
$
(149,745
)
 
$
(36,451
)
 
$
—

 
$
(186,196
)
Cash flows from investing activities:
 
 
 
 
 
 
 
Purchases of property and equipment
(372
)
 
(751
)
 
—

 
(1,123
)
Investments in unconsolidated entities
—

 
(32
)
 
—

 
(32
)
Intercompany
(39,469
)
 
—

 
39,469

 
—

Net cash (used in) provided by investing activities
(39,841
)
 
(783
)
 
39,469

 
(1,155
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Borrowings from debt
392,758

 
—

 
—

 
392,758

Repayment of debt
(276,426
)
 
(400
)
 
—

 
(276,826
)
Debt issuance costs
(5,110
)
 
—

 
—

 
(5,110
)
Net repayments of debt held by variable interest entities
—

 
(2,297
)
 
—

 
(2,297
)
Contributions from noncontrolling interests
—

 
1,810

 
—

 
1,810

Distributions to noncontrolling interests
—

 
(3,921
)
 
—

 
(3,921
)
Proceeds from issuance of common stock under
   share-based awards
18

 
—

 
—

 
18

Minimum tax withholding paid on behalf of employees for
   restricted stock units
(1,359
)
 
—

 
—

 
(1,359
)
Share repurchases
(14,698
)
 
—

 
—

 
(14,698
)
Intercompany
—

 
39,469

 
(39,469
)
 
—

Net cash provided by (used in) financing activities
95,183

 
34,661

 
(39,469
)
 
90,375

Net decrease in cash and cash equivalents
(94,403
)
 
(2,573
)
 
—

 
(96,976
)
Cash and cash equivalents - beginning of period
147,771

 
66,714

 
—

 
214,485

Cash and cash equivalents - end of period
$
53,368

 
$
64,141

 
$
—

 
$
117,509

__________
(1) 
References to “Issuer” in this Note 20, Supplemental Guarantor Information have the following meanings:
a. 
for periods prior to July 7, 2015: TRI Pointe Homes only
b. 
for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers of the 2019 Notes and 2024 Notes



- 31 -



20.
Supplemental Guarantor Information (continued)
Condensed Consolidating Statement of Cash Flows (in thousands):
 
 
Six Months Ended June 30, 2015
 
Issuer (1)
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Cash flows from operating activities
 
 
 
 
 
 
 
Net cash used in operating activities
$
(113,102
)
 
$
(63,993
)
 
$
—

 
$
(177,095
)
Cash flows from investing activities:
 
 
 
 
 
 
 
Purchases of property and equipment
(427
)
 
(186
)
 
—

 
(613
)
Investments in unconsolidated entities
—

 
(1,257
)
 
—

 
(1,257
)
Intercompany
(58,117
)
 
—

 
58,117

 
—

Net cash (used in) provided by investing activities
(58,544
)
 
(1,443
)
 
58,117

 
(1,870
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Borrowings from notes payable
140,000

 
—

 
—

 
140,000

Repayment of notes payable
(2,695
)
 
(200
)
 
—

 
(2,895
)
Debt issuance costs
(2,688
)
 
—

 
—

 
(2,688
)
Net proceeds of debt held by variable interest entities
—

 
(875
)
 
—

 
(875
)
Contributions from noncontrolling interests
—

 
2,034

 
—

 
2,034

Distributions to noncontrolling interests
—

 
(4,155
)
 
—

 
(4,155
)
Proceeds from issuance of common stock under
   share-based awards
660

 
—

 
—

 
660

Excess tax benefit of share-based awards
—

 
352

 
—

 
352

Minimum tax withholding paid on behalf of employees for restricted stock units
(2,190
)
 
—

 
—

 
(2,190
)
Intercompany
—

 
58,117

 
(58,117
)
 
—

Net cash provided by (used in) financing activities
133,087

 
55,273

 
(58,117
)
 
130,243

Net decrease increase in cash and cash equivalents
(38,559
)
 
(10,163
)
 
—

 
(48,722
)
Cash and cash equivalents - beginning of period
105,888

 
64,741

 
—

 
170,629

Cash and cash equivalents - end of period
$
67,329

 
$
54,578

 
$
—

 
$
121,907

__________
(1) 
References to “Issuer” in this Note 20, Supplemental Guarantor Information have the following meanings:
a. 
for periods prior to July 7, 2015: TRI Pointe Homes only
b. 
for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers of the 2019 Notes and 2024 Notes




- 32 -


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain statements relating to future events of our intentions, beliefs, expectations, predictions for the future and other matters that are “forward-looking” statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.
These statements:
•
use forward-looking terminology;
•
are based on various assumptions made by TRI Pointe; and
•
may not be accurate because of risks and uncertainties surrounding the assumptions that are made.
Factors listed in this section – as well as other factors not included – may cause actual results to differ significantly from the forward-looking statements included in this Quarterly Report on Form 10-Q. There is no guarantee that any of the events anticipated by the forward-looking statements in this Quarterly Report on Form 10-Q will occur, or if any of the events occurs, there is no guarantee of what effect it will have on our operations, financial condition or share price.
We will not update the forward-looking statements contained in this Quarterly Report on Form 10-Q, unless otherwise required by law.
Forward-Looking Statements
These forward-looking statements are generally accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “will,” “would,” or other words that convey the uncertainty of future events or outcomes. These forward-looking statements include, but are not limited to, statements regarding our anticipated future financial and operating performance and results, including our estimates for growth.
Forward-looking statements are based on a number of factors, including the expected effect of:
•
the economy;
•
laws and regulations;
•
adverse litigation outcome and the adequacy of reserves;
•
changes in accounting principles;
•
projected benefit payments; and
•
projected tax rates and credits.
Risks, Uncertainties and Assumptions
The major risks and uncertainties – and assumptions that are made – that affect our business and may cause actual results to differ from these forward-looking statements include, but are not limited to:
•
the effect of general economic conditions, including employment rates, housing starts, interest rate levels, availability of financing for home mortgages and the strength of the U.S. dollar;
•
market demand for our products, which is related to the strength of the various U.S. business segments and U.S. and international economic conditions;
•
levels of competition;
•
the successful execution of our internal performance plans, including restructuring and cost reduction initiatives;
•
global economic conditions;
•
raw material prices;
•
oil and other energy prices;

- 33 -


•
the effect of weather, including the continuing drought in California;
•
the risk of loss from earthquakes, volcanoes, fires, floods, droughts, windstorms, hurricanes, pest infestations and other natural disasters;
•
transportation costs;
•
federal and state tax policies;
•
the effect of land use, environment and other governmental regulations;
•
legal proceedings;
•
risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, synergies, indebtedness, financial condition, losses and future prospects;
•
change in accounting principles;
•
risks related to unauthorized access to our computer systems, theft of our customers’ confidential information or other forms of cyber-attack; and
•
other factors described in “Risk Factors.”
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related condensed notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our securities. We urge investors to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2015 and subsequent reports on Form 8-K, which discuss our business in greater detail. The section entitled “Risk Factors” set forth in Item 1A of our Annual Report on Form 10-K, and similar disclosures in our other SEC filings, discuss some of the important risk factors that may affect our business, results of operations and financial condition. Investors should carefully consider those risks, in addition to the information in this report and in our other filings with the SEC, before deciding to invest in, or maintain an investment in, our common stock.
Formation of TRI Pointe Group
On July 7, 2015, TRI Pointe Homes reorganized its corporate structure (the “Reorganization”) whereby TRI Pointe Homes became a direct, wholly owned subsidiary of TRI Pointe Group.  As a result of the Reorganization, each share of common stock, par value $0.01 per share, of TRI Pointe Homes (“Homes Common Stock”) was cancelled and converted automatically into the right to receive one validly issued, fully paid and non-assessable share of common stock, par value $0.01 per share, of TRI Pointe Group (“Group Common Stock”), each share having the same designations, rights, powers and preferences, and the qualifications, limitations and restrictions thereof as the shares of Homes Common Stock being so converted.  TRI Pointe Group, as the successor issuer to TRI Pointe Homes (pursuant to Rule 12g-3(a) under the Exchange Act), began making filings under the Securities Act and the Exchange Act on July 7, 2015.
In connection with the Reorganization, TRI Pointe Group (i) became a co-issuer of TRI Pointe Homes’ 4.375% Senior Notes due 2019 and TRI Pointe Homes' 5.875% Senior Notes due 2024; and (ii) replaced TRI Pointe Homes as the borrower under TRI Pointe Homes’ existing unsecured revolving credit facility.
The business, executive officers and directors of TRI Pointe Group, and the rights and limitations of the holders of Group Common Stock immediately following the Reorganization were identical to the business, executive officers and directors of TRI Pointe Homes, and the rights and limitations of holders of Homes Common Stock immediately prior to the Reorganization.

- 34 -


Overview and Outlook
We continue to be encouraged by the strength of the overall U.S. new-home market, which continues to improve on a slow, sustainable growth trajectory, supported by stronger general economic conditions, low unemployment levels, modest wage gains, low interest rates, and increasing consumer confidence combined with a limited supply of new homes.  During the second quarter of 2016, new-home demand and home prices across a majority of the markets in which we operate improved, although we continued to see variability from market to market with demand generally driven by general economic conditions in each market.  We believe demand will continue to be strong across the U.S. in general and in a majority of the markets in which we operate over the next several years.  Homebuilding activity in many markets, however, continues to be constrained by land and labor availability, as well as fee increases and delays imposed by local municipalities, which we expect will continue to constrict supply.  We expect these demand and supply trends will result in a continued slow and steady recovery in the homebuilding market. See "Cautionary Note Concerning Forward-Looking Statements".
Our second quarter 2016 results reflect this continued market recovery as we experienced a 35% increase in net income available to common stockholders of $73.9 million compared to $54.9 million in the same period in 2015.  The increase was primarily driven by a 230 basis point increase in homebuilding gross margin percentage to 22.3% compared to 20.0% for the second quarter of 2015 and a 25% increase in new home deliveries to 994 homes compared to 798 homes in the prior year period. 
Consolidated Financial Data (in thousands, except per share amounts):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Homebuilding:
 

 
 

 
 
 
 
Home sales revenue
$
556,925

 
$
427,238

 
$
979,980

 
$
801,503

Land and lot sales revenue
67,314

 
67,490

 
67,669

 
69,490

Other operations revenue
604

 
607

 
1,184

 
1,600

Total revenues
624,843

 
495,335

 
1,048,833

 
872,593

Cost of home sales
432,738

 
341,742

 
757,237

 
641,648

Cost of land and lot sales
14,460

 
11,564

 
15,239

 
13,873

Other operations expense
583

 
572

 
1,149

 
1,134

Sales and marketing
32,448

 
25,634

 
58,769

 
48,920

General and administrative
30,269

 
28,261

 
58,665

 
56,414

Restructuring charges
215

 
498

 
350

 
720

Homebuilding income from operations
114,130

 
87,064

 
157,424

 
109,884

Equity in income (loss) of unconsolidated entities
215

 
(39
)
 
201

 
68

Other income (loss), net
151

 
(31
)
 
266

 
225

Homebuilding income before income taxes
114,496

 
86,994

 
157,891

 
110,177

Financial Services:
 

 
 

 
 
 
 
Revenues
379

 
182

 
527

 
182

Expenses
53

 
58

 
111

 
84

Equity in income (loss) of unconsolidated entities
1,284

 
(116
)
 
1,999

 
(149
)
Financial services income (loss) before income taxes
1,610

 
8

 
2,415

 
(51
)
Income before income taxes
116,106

 
87,002

 
160,306

 
110,126

Provision for income taxes
(41,913
)
 
(30,240
)
 
(57,403
)
 
(38,067
)
Net income
74,193

 
56,762

 
102,903

 
72,059

Net income attributable to noncontrolling interests
(267
)
 
(1,832
)
 
(427
)
 
(1,832
)
Net income available to common stockholders
$
73,926

 
$
54,930

 
$
102,476

 
$
70,227

Earnings per share
 

 
 

 
 
 
 
Basic
$
0.46


$
0.34


$
0.63


$
0.43

Diluted
$
0.46


$
0.34


$
0.63


$
0.43


- 35 -


Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015
Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment
 
 
Three Months Ended June 30, 2016
 
Three Months Ended June 30, 2015
 
Percentage Change
 
Net New
Home
Orders
 
Average
Selling
Communities
 
Monthly
Absorption
Rates
 
Net New
Home
Orders
 
Average
Selling
Communities
 
Monthly
Absorption
Rates
 
Net New
Home
Orders
 
Average
Selling
Communities
 
Monthly
Absorption
Rates
Maracay Homes
191

 
18.5

 
3.4

 
184

 
18.0

 
3.4

 
4
 %
 
3
 %
 
0
 %
Pardee Homes
340

 
22.3

 
5.1

 
355

 
23.5

 
5.0

 
(4
)%
 
(5
)%
 
2
 %
Quadrant Homes
92

 
9.0

 
3.4

 
116

 
10.8

 
3.6

 
(21
)%
 
(17
)%
 
(6
)%
Trendmaker Homes
133

 
28.0

 
1.6

 
124

 
26.5

 
1.6

 
7
 %
 
6
 %
 
0
 %
TRI Pointe Homes
379

 
28.2

 
4.5

 
365

 
26.5

 
4.6

 
4
 %
 
6
 %
 
(2
)%
Winchester Homes
123

 
13.5

 
3.0

 
94

 
14.3

 
2.2

 
31
 %
 
(6
)%
 
36
 %
Total
1,258

 
119.5

 
3.5

 
1,238

 
119.5

 
3.5

 
2
 %
 
0
 %
 
0
 %
 
Net new home orders for the three months ended June 30, 2016 increased by 20 units or 2% to 1,258, compared to 1,238 during the prior year period.  Average selling communities remained flat at 119.5 for each of the three month periods ended June 30, 2016 and 2015. The 31% increase in net new home orders at Winchester was primarily due to better market conditions and product offerings resulting in a 36% increase in absorption pace. The increase in net new home orders at Maracay Homes, Trendmaker Homes and TRI Pointe Homes was mainly due to an increase in average selling communities. The decrease in net new home orders at Quadrant Homes and Pardee Homes was largely the result of lower average selling communities.
Backlog Units, Dollar Value and Average Sales Price by Segment (dollars in thousands)
 
As of June 30, 2016
 
As of June 30, 2015
 
Percentage Change
 
Backlog
Units
 
Backlog
Dollar
Value
 
Average
Sales
Price
 
Backlog
Units
 
Backlog
Dollar
Value
 
Average
Sales
Price
 
Backlog
Units
 
Backlog
Dollar
Value
 
Average
Sales
Price
Maracay Homes
360

 
$
153,107

 
$
425

 
274

 
$
106,347

 
$
388

 
31
 %
 
44
 %
 
10
 %
Pardee Homes
401

 
236,903

 
591

 
471

 
296,298

 
629

 
(15
)%
 
(20
)%
 
(6
)%
Quadrant Homes
171

 
99,366

 
581

 
199

 
87,233

 
438

 
(14
)%
 
14
 %
 
33
 %
Trendmaker Homes
177

 
94,850

 
536

 
243

 
128,645

 
529

 
(27
)%
 
(26
)%
 
1
 %
TRI Pointe Homes
516

 
330,262

 
640

 
631

 
449,080

 
712

 
(18
)%
 
(26
)%
 
(10
)%
Winchester Homes
173

 
111,731

 
646

 
180

 
132,244

 
735

 
(4
)%
 
(16
)%
 
(12
)%
Total
1,798

 
$
1,026,219

 
$
571

 
1,998

 
$
1,199,847

 
$
601

 
(10
)%
 
(14
)%
 
(5
)%
 
Backlog units reflect the number of homes, net of actual cancellations experienced during the period, for which we have entered into sales contracts with customers but for which we have not yet delivered the homes. Homes in backlog are generally delivered within three to nine months, although we may experience cancellations of sales contracts prior to delivery. Our cancellation rate of buyers who contracted to buy a home but did not close escrow (as a percentage of overall orders) was 13% for the three months ended June 30, 2016 compared to 16% for the same prior year period.  The dollar value of backlog was $1.0 billion as of June 30, 2016, a decrease of $173.6 million, or 14%, compared to $1.2 billion as of June 30, 2015.  The decrease in dollar value of backlog was due to a decline in backlog units to 1,798 as of June 30, 2016 from 1,998 as of June 30, 2015, representing $120.1 million of the decline. Additionally, a 5% decrease in the average sales price of homes in backlog to $571,000 as of June 30, 2016 from $601,000 as of June 30, 2015, impacted the decrease in dollar value of backlog by $53.9 million.

- 36 -


New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands)
 
Three Months Ended June 30, 2016
 
Three Months Ended June 30, 2015
 
Percentage Change
 
New
Homes
Delivered
 
Home
Sales
Revenue
 
Average
Sales
Price
 
New
Homes
Delivered
 
Home
Sales
Revenue
 
Average
Sales
Price
 
New
Homes
Delivered
 
Home
Sales
Revenue
 
Average
Sales
Price
Maracay Homes
120

 
$
47,857

 
$
399

 
91

 
$
33,574

 
$
369

 
32
%
 
43
 %
 
8
 %
Pardee Homes
318

 
178,602

 
562

 
242

 
110,231

 
456

 
31
%
 
62
 %
 
23
 %
Quadrant Homes
105

 
54,708

 
521

 
87

 
35,689

 
410

 
21
%
 
53
 %
 
27
 %
Trendmaker Homes
126

 
63,230

 
502

 
123

 
64,652

 
526

 
2
%
 
(2
)%
 
(5
)%
TRI Pointe Homes
217

 
152,827

 
704

 
174

 
130,553

 
750

 
25
%
 
17
 %
 
(6
)%
Winchester Homes
108

 
59,701

 
553

 
81

 
52,539

 
649

 
33
%
 
14
 %
 
(15
)%
Total
994

 
$
556,925

 
$
560

 
798

 
$
427,238

 
$
535

 
25
%
 
30
 %
 
5
 %
 
Home sales revenue increased $129.7 million, or 30%, to $556.9 million for the three months ended June 30, 2016 from $427.2 million for the prior year period. The increase was comprised of: (i) $104.9 million related to a 25% increase in homes delivered to 994 for the three months ended June 30, 2016 from 798 in the prior year period; and (ii) $24.8 million due to an increase in average sales price of $25,000 per home to $560,000 for the three months ended June 30, 2016 from $535,000 in the prior year period. 
Homebuilding Gross Margins (dollars in thousands)
 
Three Months Ended June 30,
 
2016
 
%
 
2015
 
%
Home sales revenue
$
556,925

 
100.0
%
 
$
427,238

 
100.0
%
Cost of home sales
432,738

 
77.7
%
 
341,742

 
80.0
%
Homebuilding gross margin
124,187

 
22.3
%
 
85,496

 
20.0
%
Add:  interest in cost of home sales
11,438

 
2.1
%
 
7,640

 
1.8
%
Add:  impairments and lot option abandonments
107

 
0.0
%
 
882

 
0.2
%
Adjusted homebuilding gross margin(1)
$
135,732

 
24.4
%
 
$
94,018

 
22.0
%
Homebuilding gross margin percentage
22.3
%
 
 
 
20.0
%
 
 
Adjusted homebuilding gross margin percentage(1)
24.4
%
 
 
 
22.0
%
 
 
__________
(1) 
Non-GAAP financial measure (as discussed below).
Our homebuilding gross margin percentage increased to 22.3% for the three months ended June 30, 2016 as compared to 20.0% for the prior year period.  The increase in gross margin was primarily due to the 31% increase in deliveries from Pardee Homes, which carries a lower land basis in some of its longer-term land holdings.  Excluding interest and impairment and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 24.4% for the three months ended June 30, 2016, compared to 22.0% for the prior year period. The increase in the adjusted homebuilding gross margin was consistent with the change in homebuilding gross margin.
Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates the impact that leverage and noncash charges have on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. Because adjusted homebuilding gross margin is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.  See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the nearest GAAP equivalent.

- 37 -


Land and Lot Gross Margins (dollars in thousands)
 
Three Months Ended June 30,
 
2016
 
%
 
2015
 
%
Land and lot sales revenue
$
67,314

 
100.0
%
 
$
67,490

 
100.0
%
Cost of land and lot sales
14,460

 
21.5
%
 
11,564

 
17.1
%
Land and lot gross margin
$
52,854

 
78.5
%
 
$
55,926

 
82.9
%
During the quarter ended June 30, 2016, our Pardee Homes reporting segment sold two parcels, totaling 102 homebuilding lots, located in the Pacific Highlands Ranch community in San Diego, California. Pardee Homes received $61.6 million in cash proceeds from the sale. During the quarter ended June 30, 2015, our Pardee Homes reporting segment sold a commercial site in the Pacific Highlands Ranch community for $53.0 million in cash proceeds. Both transactions involving the Pacific Highlands Ranch community included significant gross margins due to the low land basis of the community which was acquired in 1981.
Sales and Marketing, General and Administrative Expense (dollars in thousands)
 
Three Months Ended June 30,
 
As a Percentage of
Home Sales Revenue
 
2016
 
2015
 
2016
 
2015
Sales and marketing
$
32,448

 
$
25,634

 
5.8
%
 
6.0
%
General and administrative (G&A)
30,269

 
28,261

 
5.4
%
 
6.6
%
Total sales and marketing and G&A
$
62,717

 
$
53,895

 
11.3
%
 
12.6
%
 
Sales and marketing expense as a percentage of home sales revenue decreased to 5.8% for the three month period ended June 30, 2016 compared to 6.0% for the prior year period. The decrease was the result of higher operating leverage on the fixed components of sales and marketing expenses as a result of the 30% increase in homes sales revenue. Total sales and marketing expense increased by $6.8 million to $32.4 million for the three months ended June 30, 2016 compared to $25.6 million in the same prior year period, and is primarily attributable to direct selling costs related to the 25% increase in new home deliveries.
General and administrative expenses as a percentage of home sales revenue decreased to 5.4% of home sales revenue for the three months ended June 30, 2016 compared to 6.6% for the prior year period.  The decrease is due primarily to higher operating leverage resulting from the 30% increase in home sales revenue. General and administrative expenses increased to $30.3 million for the three months ended June 30, 2016 compared to $28.3 million in the same prior year period as a result of additional headcount to support future growth.
Total sales and marketing and G&A (“SG&A”) as a percentage of home sales revenue decreased to 11.3% for the three month period ended June 30, 2016 compared to 12.6% in the prior year period. Total SG&A expense increased $8.8 million, or 16.3%, to $62.7 million for the three months ended June 30, 2016 from $53.9 million in the prior year period.  
Restructuring Charges
Restructuring charges decreased to $215,000 for the three months ended June 30, 2016 compared to $498,000 in the same period in the prior year.  The decrease was mainly due to lower lease termination costs in 2016.
Interest
Interest, which was incurred principally to finance land acquisitions, land development and home construction, totaled $16.3 million and $15.1 million for the three months ended June 30, 2016 and 2015, respectively.  All interest incurred in both periods was capitalized.  The increase in interest incurred during the three months ended June 30, 2016 as compared to the prior year period was primarily attributable to an increase in our weighted average interest rate as a result of the issuance of our 2021 Notes in May of 2016.

- 38 -


Income Tax
For the three months ended June 30, 2016, we recorded a tax provision of $41.9 million based on an effective tax rate of 36.1%.  For the three months ended June 30, 2015, we recorded a tax provision of $30.2 million based on an effective tax rate of 34.8%. The increase in provision for income taxes is due to an increase in income before income taxes of $29.1 million to $116.1 million for the three months ended June 30, 2016 compared to $87.0 million for the prior year period.
 
Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015
Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment
 
 
Six Months Ended June 30, 2016
 
Six Months Ended June 30, 2015
 
Percentage Change
 
Net New
Home
Orders
 
Average
Selling
Communities
 
Monthly
Absorption
Rates
 
Net New
Home
Orders
 
Average
Selling
Communities
 
Monthly
Absorption
Rates
 
Net New
Home
Orders
 
Average
Selling
Communities
 
Monthly
Absorption
Rates
Maracay Homes
392

 
18.3

 
3.6

 
345

 
17.4

 
3.3

 
14
 %
 
5
 %
 
9
 %
Pardee Homes
653

 
22.7

 
4.8

 
663

 
22.0

 
5.0

 
(2
)%
 
3
 %
 
(4
)%
Quadrant Homes
225

 
9.0

 
4.2

 
266

 
10.4

 
4.3

 
(15
)%
 
(13
)%
 
(2
)%
Trendmaker Homes
255

 
25.7

 
1.7

 
256

 
26.4

 
1.6

 
—
 %
 
(3
)%
 
6
 %
TRI Pointe Homes
644

 
26.8

 
4.0

 
701

 
26.3

 
4.4

 
(8
)%
 
2
 %
 
(9
)%
Winchester Homes
238

 
13.4

 
3.0

 
201

 
13.6

 
2.5

 
18
 %
 
(1
)%
 
20
 %
Total
2,407

 
115.9

 
3.5

 
2,432

 
116.1

 
3.5

 
(1
)%
 
—
 %
 
—
 %

Net new home orders for the six months ended June 30, 2016 decreased by 25 units or 1% to 2,407, compared to 2,432 during the prior year period.  The decrease in net new home orders at Quadrant Homes was largely due to a decrease in average selling communities. The decrease in net new home orders at TRI Pointe Homes and Pardee Homes was mainly the result of decreased absorption rates. While absorption rates decreased year over year, they still remained very strong at 4.0 and 4.8 at TRI Pointe Homes and Pardee Homes respectively for the six months ended June 30, 2016. The increase in net new home orders at Maracay Homes was due to a 5% increase in average selling communities and a 9% increase in absorption rates due to better market conditions compared to the prior year and successful community openings. The increase in net new home orders at Winchester Homes was primarily due to an increase in absorption rates as a result of improved market conditions compared to the prior year period and new product offerings.
New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands)
 
Six Months Ended June 30, 2016
 
Six Months Ended June 30, 2015
 
Percentage Change
 
New
Homes
Delivered
 
Home
Sales
Revenue
 
Average
Sales
Price
 
New
Homes
Delivered
 
Home
Sales
Revenue
 
Average
Sales
Price
 
New
Homes
Delivered
 
Home
Sales
Revenue
 
Average
Sales
Price
Maracay Homes
235

 
$
93,294

 
$
397

 
176

 
$
66,051

 
$
375

 
34
 %
 
41
 %
 
6
 %
Pardee Homes
526

 
297,535

 
566

 
410

 
195,889

 
478

 
28
 %
 
52
 %
 
18
 %
Quadrant Homes
197

 
100,186

 
509

 
180

 
79,025

 
439

 
9
 %
 
27
 %
 
16
 %
Trendmaker Homes
214

 
107,015

 
500

 
231

 
120,860

 
523

 
(7
)%
 
(11
)%
 
(4
)%
TRI Pointe Homes
418

 
284,784

 
681

 
313

 
237,411

 
759

 
34
 %
 
20
 %
 
(10
)%
Winchester Homes
175

 
97,165

 
555

 
156

 
102,267

 
656

 
12
 %
 
(5
)%
 
(15
)%
Total
1,765

 
$
979,979

 
$
555

 
1,466

 
$
801,503

 
$
547

 
20
 %
 
22
 %
 
1
 %
 
Home sales revenue increased $178.5 million, or 22%, to $980.0 million for the six months ended June 30, 2016 from $801.5 million for the prior year period. The increase was comprised of: (i) $163.6 million related to a 20% increase in homes delivered to 1,765 for the six months ended June 30, 2016 from 1,466 in the prior year period; and (ii) $14.1 million due to an increase in average sales price of $8,000 per home to $555,000 for the six months ended June 30, 2016 from $547,000 in the prior year period. 

- 39 -


Homebuilding Gross Margins (dollars in thousands)
 
Six Months Ended June 30,
 
2016
 
%
 
2015
 
%
Home sales revenue
$
979,980

 
100.0
%
 
$
801,503

 
100.0
%
Cost of home sales
757,237

 
77.3
%
 
641,648

 
80.1
%
Homebuilding gross margin
222,743

 
22.7
%
 
159,855

 
19.9
%
Add:  interest in cost of home sales
20,268

 
2.1
%
 
14,351

 
1.8
%
Add:  impairments and lot option abandonments
289

 
0.0
%
 
1,227

 
0.2
%
Adjusted homebuilding gross margin(1)
$
243,300

 
24.8
%
 
$
175,433

 
21.9
%
Homebuilding gross margin percentage
22.7
%
 
 
 
19.9
%
 
 
Adjusted homebuilding gross margin percentage(1)
24.8
%
 
 
 
21.9
%
 
 
__________
(1) 
Non-GAAP financial measure (as discussed below).
Our homebuilding gross margin percentage increased to 22.7% for the six months ended June 30, 2016 as compared to 19.9% for the prior year period.  The increase in gross margin was primarily due to the 28% increase in deliveries from Pardee Homes, which carries a lower land basis in some of its longer-term land holdings.  Excluding interest and impairment and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 24.8% for the six months ended June 30, 2016, compared to 21.9% for the prior year period. The increase in the adjusted homebuilding gross margin was consistent with the change in homebuilding gross margin.
Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates the impact that leverage and noncash charges have on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. Because adjusted homebuilding gross margin is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.  See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the nearest GAAP equivalent.
Land and Lot Gross Margins (dollars in thousands)
 
Six Months Ended June 30,
 
2016
 
%
 
2015
 
%
Land and lot sales revenue
$
67,669

 
100.0
%
 
$
69,490

 
100.0
%
Cost of land and lot sales
15,239

 
22.5
%
 
13,873

 
20.0
%
Land and lot gross margin
$
52,430

 
77.5
%
 
$
55,617

 
80.0
%
During the six months ended June 30, 2016, our Pardee Homes reporting segment sold two parcels, totaling 102 homebuilding lots, located in the Pacific Highlands Ranch community in San Diego, California. Pardee Homes received $61.6 million in cash proceeds from the sale. During the six months ended June 30, 2015, our Pardee Homes reporting segment sold a commercial site in the Pacific Highlands Ranch community for $53.0 million in cash proceeds. Both transactions involving the Pacific Highlands Ranch community included significant gross margins due to the low land basis of the community which was acquired in 1981.
Sales and Marketing, General and Administrative Expense (dollars in thousands)
 
Six Months Ended June 30,
 
As a Percentage of
Home Sales Revenue
 
2016
 
2015
 
2016
 
2015
Sales and marketing
$
58,769

 
$
48,920

 
6.0
%
 
6.1
%
General and administrative (G&A)
58,665

 
56,414

 
6.0
%
 
7.0
%
Total sales and marketing and G&A
$
117,434

 
$
105,334

 
12.0
%
 
13.1
%
 

- 40 -


Sales and marketing expense as a percentage of home sales revenue decreased to 6.0% for the six months ended June 30, 2016 compared to 6.1% for the prior year period. The decrease was mainly due to higher operating leverage on the fixed components of sales and marketing expenses as a result of the 22% increase in homes sales revenue. Total sales and marketing expense increased by $9.9 million to $58.8 million for the six months ended June 30, 2016 compared to $48.9 million in the same prior year period, and is primarily attributable to direct selling costs related to the 20% increase in new home deliveries.
General and administrative expenses as a percentage of home sales revenue decreased to 6.0% for the six months ended June 30, 2016 compared to 7.0% for the prior year period.  The decrease is due primarily to higher operating leverage resulting from the 22% increase in home sales revenue. General and administrative expenses increased to $58.7 million for the six months ended June 30, 2016 compared to $56.4 million in the same prior year period.
Total sales and marketing and G&A (“SG&A”) as a percentage of home sales revenue decreased to 12.0% for the six month period ended June 30, 2016 compared to 13.1% in the prior year period.  Total SG&A expense increased $12.1 million, or 11.5%, to $117.4 million for the six months ended June 30, 2016 from $105.3 million in the prior year period.  
Restructuring Charges
Restructuring charges decreased to $350,000 for the six months ended June 30, 2016 compared to $720,000 in the same period in the prior year.  The decrease was due to lower lease termination and severance costs in 2016.
Interest
Interest, which was incurred principally to finance land acquisitions, land development and home construction, totaled $31.4 million and $30.3 million for the six months ended June 30, 2016 and 2015, respectively.  All interest incurred in both periods was capitalized.  The increase in interest incurred during the six months ended June 30, 2016 as compared to the prior year period was primarily attributable to an increase in our weighted average interest rate as a result of the issuance of our 2021 Notes in May of 2016.
Income Tax
For the six months ended June 30, 2016, we recorded a tax provision of $57.4 million based on an effective tax rate of 35.8%.  For the six months ended June 30, 2015, we recorded a tax provision of $38.1 million based on an effective tax rate of 34.6%. The increase in provision for income taxes is due to an increase in income before income taxes of $50.2 million to $160.3 million for the six months ended June 30, 2016 compared to $110.1 million for the prior year period.

Lots Owned or Controlled by Segment
Excluded from owned and controlled lots are those related to Note 7, Investments in Unconsolidated Entities.  The table below summarizes our lots owned or controlled by segment as of the dates presented:

- 41 -


 
 
 
 
 
Increase
 
June 30,
 
(Decrease)
 
2016
 
2015
 
Amount
 
%
Lots Owned
 
 
 
 
 
 
 
Maracay Homes
1,491

 
1,485

 
6

 
—
 %
Pardee Homes
16,154

 
17,022

 
(868
)
 
(5
)%
Quadrant Homes
1,008

 
995

 
13

 
1
 %
Trendmaker Homes
1,321

 
837

 
484

 
58
 %
TRI Pointe Homes
3,007

 
2,920

 
87

 
3
 %
Winchester Homes
1,916

 
2,284

 
(368
)
 
(16
)%
Total
24,897

 
25,543

 
(646
)
 
(3
)%
Lots Controlled(1)
 
 
 
 
 
 
 
Maracay Homes
738

 
327

 
411

 
126
 %
Pardee Homes
172

 
173

 
(1
)
 
(1
)%
Quadrant Homes
408

 
421

 
(13
)
 
(3
)%
Trendmaker Homes
462

 
1,274

 
(812
)
 
(64
)%
TRI Pointe Homes
723

 
735

 
(12
)
 
(2
)%
Winchester Homes
280

 
448

 
(168
)
 
(38
)%
Total
2,783

 
3,378

 
(595
)
 
(18
)%
Total Lots Owned or Controlled(1)
27,680

 
28,921

 
(1,241
)
 
(4
)%
__________
(1) 
As of June 30, 2016 and 2015 lots controlled included lots that were under land or lot option contracts or purchase contracts.

Liquidity and Capital Resources
Overview
Our principal uses of capital for the three and six months ended June 30, 2016 were operating expenses, land purchases, land development and home construction. We used funds generated by our operations and available borrowings to meet our short-term working capital requirements. We remain focused on generating positive margins in our homebuilding operations and acquiring desirable land positions in order to maintain a strong balance sheet and keep us poised for growth. As of June 30, 2016, we had $117.5 million of cash and cash equivalents. We believe we have sufficient cash and sources of financing to fund operations for at least the next twelve months.
Our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the purchase price of assets to be acquired with debt financing, the estimated market value of our assets and the ability of particular assets, and our company as a whole, to generate cash flow to cover the expected debt service. Our charter does not contain a limitation on the amount of debt we may incur and our board of directors may change our target debt levels at any time without the approval of our stockholders.
Senior Notes
In May 2016, TRI Pointe Group issued $300 million aggregate principal amount of 4.875% Senior Notes due 2021 (the “2021 Notes”) at 99.44% of their aggregate principal amount. Net proceeds of this issuance was $295.1 million, after debt issuance costs and discounts. The 2021 Notes mature on July 1, 2021 and interest is paid semiannually in arrears on January 1 and July 1.
TRI Pointe Group and TRI Pointe Homes are co-issuers of $450 million aggregate principal amount of 4.375% Senior Notes due 2019 (“2019 Notes”) and $450 million aggregate principal amount of 5.875% Senior Notes due 2024 (“2024 Notes”). The 2019 Notes were issued at 98.89% of their aggregate principal amount and the 2024 Notes were issued at 98.15% of their aggregate principal amount. The net proceeds from the offering were $861.3 million, after debt issuance costs and discounts. The 2019 Notes and 2024 Notes mature on June 15, 2019 and June 15, 2024. Interest is payable semiannually in arrears on June 15 and December 15.

- 42 -


As of June 30, 2016, no principal has been paid on the 2019 Notes, 2021 Notes and 2024 Notes (together, the "Senior Notes"), and there was $23.1 million of capitalized debt financing costs, included in senior notes on our consolidated balance sheet, related to the Senior Notes that will amortize over the lives of the Senior Notes. Accrued interest related to the Senior Notes was $3.4 million and $1.9 million as of June 30, 2016 and December 31, 2015, respectively.
Unsecured Revolving Credit Facility
On April 28 2016, the Company partially exercised the accordion feature under its existing unsecured revolving credit facility (the “Credit Facility”) to increase the total commitments under the Credit Facility from $550 million to $625 million.  The Credit Facility matures on May 18, 2019, and contains a sublimit of $75 million for letters of credit. The Company may borrow under the Credit Facility in the ordinary course of business to fund its operations, including its land development and homebuilding activities. Borrowings under the Credit Facility will be governed by, among other things, a borrowing base. The Credit Facility contains customary affirmative and negative covenants, including financial covenants relating to consolidated tangible net worth, leverage, and liquidity or interest coverage. Interest rates on borrowings will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.45% to 2.20% depending on the Company’s leverage ratio. As of June 30, 2016, the outstanding balance under the Credit Facility was $100.0 million with an interest rate 2.20% per annum and $520.0 million of availability after considering the borrowing base provisions and outstanding letters of credit.  At June 30, 2016, we had outstanding letters of credit of $5.0 million.  These letters of credit were issued to secure various financial obligations.  We believe it is not probable that any outstanding letters of credit will be drawn upon.
Seller Financed Loan
As of June 30, 2016, the Company had $17.8 million outstanding related to a seller financed loan to acquire lots for the construction of homes. Principal and interest payments on this loan are due at various maturity dates, including at the time individual homes associated with the acquired land are delivered. The seller financed loan accrues interest at a rate of 7.0% per annum, with interest calculated on a daily basis. A minimum principal payment of $12.1 million is due in June 2017 with any remaining unpaid balance due in June 2018.
Stock Repurchase Program
On January 27, 2016, we announced that our board of directors approved a stock repurchase program, authorizing the repurchase of our common stock with an aggregate value of up to $100 million through January 25, 2017.  Purchases of common stock may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act.  We are not obligated under the program to repurchase any specific number or amount of shares of common stock, and we may modify, suspend or discontinue the program at any time.  Our management will determine the timing and amount of repurchase in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions and legal requirements.  As of June 30, 2016, 1,253,021 shares have been repurchased under this program at an average price of $11.73 per share for a total cost of $14.7 million. Subsequent to June 30, 2016 and through the date of this filing, the Company has purchased an additional 254,700 shares at an average price of $11.71 per share for a total cost of $3.0 million.

- 43 -


Covenant Compliance
Under our Credit Facility, we are required to comply with certain financial covenants, including, but not limited to, those set forth in the table below (dollars in thousands):
 
 
Actual at
June 30,
 
Covenant
Requirement at
June 30,
Financial Covenants
2016
 
2016
Consolidated Tangible Net Worth
$
1,595,539

 
$
1,022,205

(Not less than $875.9 million plus 50% of net income and
   50% of the net proceeds from equity offerings after
   March 31, 2015)
 
 
 

Leverage Test
42.8
%
 
<55%

(Not to exceed 55%)
 
 
 

Interest Coverage Test
7.1

 
>1.5

(Not less than 1.5:1.0)
 
 
 

 
As of June 30, 2016, we were in compliance with all of these financial covenants.
Leverage Ratios
We believe that our leverage ratios provide useful information to the users of our financial statements regarding our financial position and cash and debt management. The ratio of debt-to-capital and the ratio of net debt-to-capital are calculated as follows (dollars in thousands):  
 
June 30, 2016
 
December 31, 2015
Unsecured revolving credit facility
$
100,000

 
$
299,392

Seller financed loans
17,758

 
2,434

Senior Notes
1,165,114

 
868,679

Total debt
1,282,872

 
1,170,505

Stockholders’ equity
1,757,301

 
1,664,683

Total capital
$
3,040,173

 
$
2,835,188

Ratio of debt-to-capital(1)
42.2
%
 
41.3
%
 
 
 
 
Total debt
$
1,282,872

 
$
1,170,505

Less: Cash and cash equivalents
(117,509
)
 
(214,485
)
Net debt
1,165,363

 
956,020

Stockholders’ equity
1,757,301

 
1,664,683

Total capital
$
2,922,664

 
$
2,620,703

Ratio of net debt-to-capital(2)
39.9
%
 
36.5
%
__________
(1) 
The ratio of debt-to-capital is computed as the quotient obtained by dividing debt by the sum of total debt plus equity.
(2) 
The ratio of net debt-to-capital is a non-GAAP measure and is computed as the quotient obtained by dividing net debt (which is debt less cash and cash equivalents) by the sum of net debt plus equity. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. We believe the ratio of net debt-to-capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing. See the table above reconciling this non-GAAP financial measure to the ratio of debt-to-capital.  Because the ratio of net debt-to-capital is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.

- 44 -


Cash Flows—Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015
For the six months ended June 30, 2016 as compared to the six months ended June 30, 2015, the comparison of cash flows is as follows:
•
Net cash used in operating activities increased by $9.1 million to $186.2 million for the six months ended June 30, 2016 from $177.1 million for the six months ended June 30, 2015. The change was comprised of offsetting activity, including (i) an increase in real estate inventories of $323.3 million in 2016 compared to an increase of $255.4 million in 2015 to support our future community count growth and (ii) other offsetting activity included changes in other assets, accounts payable, accrued expenses, and net income.
•
Net cash used in investing activities was $1.2 million for the six months ended June 30, 2016 compared to $1.9 million for the same prior year period in 2015.  The decrease in cash used in investing activities was due mainly due to lower investments in unconsolidated entities.
•
Net cash provided by financing activities decreased to $90.4 million for the six months ending June 30, 2016 from $130.2 million for the same period in the prior year. The change was primarily a result of lower net borrowings from debt during the current period and an increase in spending related to the share repurchase program.
As of June 30, 2016, our cash and cash equivalents balance was $117.5 million.
Off-Balance Sheet Arrangements and Contractual Obligations
In the ordinary course of business, we enter into land and lot option contracts in order to procure lots for the construction of our homes.  We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots.  These purchase contracts typically require a cash deposit and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, including obtaining applicable property and development entitlements.  We also utilize option contracts with land sellers as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources.  Option contracts generally require a non-refundable deposit for the right to acquire land and lots over a specified period of time at pre-determined prices.  We generally have the right, at our discretion, to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash deposit with no further financial responsibility to the land seller.  As of June 30, 2016, we had $25.4 million of cash deposits, the majority of which are non-refundable, pertaining to land and lot option contracts and purchase contracts with an aggregate remaining purchase price of $350.7 million (net of deposits).
Our utilization of land and lot option contracts is dependent on, among other things, the availability of land sellers willing to enter into option takedown arrangements, the availability of capital to finance the development of optioned land and lots, general housing market conditions, and local market dynamics.  Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.
As of June 30, 2016, we had $520.0 million of availability under our Credit Facility after considering the borrowing base provisions and outstanding letters of credit.
Inflation
Our operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs.  In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers.  While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices.  In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers.

- 45 -


Seasonality
Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements.  We typically experience the highest new home order activity during the first and second quarters of our fiscal year, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors.  Since it typically takes three to nine months to construct a new home, the number of homes delivered and associated home sales revenue typically increases in the third and fourth quarters of our fiscal year as new home orders sold earlier in the year convert to home deliveries.  Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters of our fiscal year, and the majority of cash receipts from home deliveries occur during the second half of the year.  We expect this seasonal pattern to continue over the long-term, although it may be affected by volatility in the homebuilding industry.

Description of Projects and Communities under Development
The following table presents project information relating to each of our markets as of June 30, 2016 and includes information on current projects under development where we are building and selling homes.

- 46 -


Maracay Homes
County, Project, City
Year of
First
Delivery(1)
 
Total
Number of
Lots(2)
 
Cumulative
Homes
Delivered
as of
June 30,
2016
 
Lots
Owned as of
June 30,
2016(3)
 
Backlog as of
June 30,
2016(4)(5)
 
Homes
Delivered
for the Six
Months Ended
June 30,
2016
 
Sales Prince
Range
(in thousands)(6)
Phoenix, Arizona
 
 
 
 
 
 
 
 
 
 
 
 
 
Town of Buckeye:
 
 
 
 
 
 
 
 
 
 
 
 
 
Verrado Tilden
2012
 
102

 
100

 
2

 
1

 
6

 
 $239 - $304
Verrado Palisades
2015
 
63

 
18

 
45

 
11

 
2

 
 $307 - $380
Verrado Victory
2015
 
98

 
22

 
76

 
8

 
5

 
 $370 - $383
City of Chandler:
 
 
 
 
 
 
 
 
 
 
 
 
 
Artesian Ranch
2013
 
90

 
81

 
9

 
9

 
24

 
 $344 - $400
Vaquero Ranch
2013
 
74

 
74

 
—

 
—

 
7

 
 $298 - $373
Maracay at Layton Lakes
2015
 
47

 
33

 
14

 
14

 
22

 
 $484 - $524
Sendera Place
2015
 
79

 
27

 
52

 
25

 
15

 
 $270 - $317
Hawthorn Manor
2017
 
84

 
—

 
84

 
—

 
—

 
 $467 - $500
Town of Gilbert:
 
 
 
 
 
 
 
 
 
 
 
 
 
Arch Crossing at Bridges of Gilbert
2014
 
67

 
67

 
—

 
—

 
7

 
$283 - $341
Trestle Place at Bridges of Gilbert
2014
 
73

 
73

 
—

 
—

 
10

 
$344 - $424
Marquis at Morrison Ranch
2016
 
66

 
1

 
65

 
34

 
1

 
$402 - $487
Artisan at Morrison Ranch
2016
 
105

 
1

 
104

 
31

 
1

 
$313 - $366
Adora Trails
2017
 
82

 
—

 
82

 
—

 
—

 
$368 - $407
City of Goodyear:
 
 
 
 
 
 
 
 
 
 
 
 
 
Calderra at Palm Valley
2013
 
81

 
81

 
—

 
—

 
1

 
 $275 - $352
City of Mesa:
 
 
 
 
 
 
 
 
 
 
 
 
 
Kinetic Point at Eastmark
2013
 
80

 
74

 
6

 
1

 
14

 
 $283 - $361
Lumiere Garden at Eastmark
2013
 
85

 
71

 
14

 
3

 
11

 
 $323 - $402
Aileron Square at Eastmark
2016
 
58

 
8

 
50

 
13

 
8

 
 $323 - $402
Curie Court at Eastmark
2016
 
106

 
8

 
98

 
23

 
8

 
 $283 - $361
Palladium Point
2016
 
53

 
—

 
53

 
6

 
—

 
 $310 - $379
Town of Peoria:
 
 
 
 
 
 
 
 
 
 
 
 
 
The Reserve at Plaza del Rio
2013
 
162

 
106

 
56

 
22

 
19

 
 $205 - $265
Maracay at Northlands
2014
 
90

 
52

 
38

 
22

 
17

 
 $329 - $410
Legacy at The Meadows
2017
 
74

 
—

 
74

 
—

 
—

 
 $392 - $418
Estates at The Meadows
2017
 
99

 
—

 
99

 
—

 
—

 
 $449 - $523
Town of Queen Creek:
 
 
 
 
 
 
 
 
 
 
 
 
 
The Preserve at Hastings Farms
2014
 
89

 
64

 
25

 
23

 
21

 
 $300 - $385
Villagio
2013
 
135

 
107

 
28

 
20

 
18

 
 $291 - $352
Phoenix, Arizona Total
 
 
2,142

 
1,068

 
1,074

 
266

 
217

 
 
Tucson, Arizona
 
 
 
 
 
 
 
 
 
 
 
 
 
Marana:
 
 
 
 
 
 
 
 
 
 
 
 
 
Tortolita Vistas
2014
 
55

 
30

 
25

 
10

 
6

 
$457 - $514
Oro Valley:
 
 
 
 
 
 
 
 
 
 
 
 
 
Rancho del Cobre
2014
 
68

 
50

 
18

 
4

 
7

 
$410 - $478
Desert Crest - Center Pointe Vistoso
2016
 
103

 
2

 
101

 
9

 
2

 
$249 - $294
The Cove - Center Pointe Vistoso
2016
 
83

 
—

 
83

 
12

 
—

 
$324 - $384
Summit N & S - Center Pointe Vistoso
2016
 
88

 
1

 
87

 
24

 
1

 
$373 - $408
The Pinnacle - Center Pointe Vistoso
2016
 
69

 
—

 
69

 
30

 
—

 
$431 - $463
Tucson:
 
 
 
 
 
 
 
 
 
 
 
 
 
Deseo at Sabino Canyon
2014
 
39

 
39

 
—

 
—

 
2

 
$419 - $505
Ranches at Santa Catalina
2016
 
34

 
—

 
34

 
5

 
—

 
$404 - $450
Tucson, Arizona Total
 
 
539

 
122

 
417

 
94

 
18

 
 
Maracay Total
 
 
2,681

 
1,190

 
1,491

 
360

 
235

 
 





- 47 -


Pardee Homes
County, Project, City
Year of
First
Delivery(1)
 
Total
Number of
Lots(2)
 
Cumulative
Homes
Delivered
as of
June 30,
2016
 
Lots
Owned as of
June 30,
2016(3)
 
Backlog as of
June 30,
2016(4)(5)
 
Homes
Delivered
for the Six
Months Ended
June 30,
2016
 
Sales Price
Range
(in thousands)(6)
California
 
 
 
 
 
 
 
 
 
 
 
 
 
San Diego County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Alta Del Mar Homes
2013
 
117

 
93

 
24

 
20

 
13

 
$1,800 - $2,300
Watermark
2013
 
160

 
160

 
—

 
—

 
29

 
$1,000 - $1,310
Canterra
2015
 
89

 
46

 
43

 
28

 
21

 
$760 - $900
Casabella
2015
 
122

 
60

 
62

 
25

 
38

 
$900 - $1,000
Verana
2015
 
78

 
71

 
7

 
6

 
33

 
$990 - $1,100
Pacific Highlands Ranch Future
TBD
 
925

 
—

 
925

 
—

 
—

 
TBD
Olive Hill Estate
2016
 
37

 
5

 
32

 
7

 
5

 
$650 - $770
Castlerock
TBD
 
415

 
—

 
415

 
—

 
—

 
$510 - $770
Meadowood
TBD
 
844

 
—

 
844

 
—

 
—

 
$290 - $590
Parkview Condos
2016
 
73

 
2

 
71

 
30

 
2

 
$435 - $500
Ocean View HillsFuture
2017
 
913

 
—

 
913

 
—

 
—

 
TBD
South Otay Mesa
TBD
 
893

 
—

 
893

 
—

 
—

 
$185 - $530
Los Angeles County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Golden Valley
2017
 
498

 
—

 
498

 
—

 
—

 
 $558 - $839
Skyline Ranch
TBD
 
1,260

 
—

 
1,260

 
—

 
—

 
 $510 - $640
Riverside County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Meadow Ridge
2013
 
132

 
130

 
2

 
1

 
22

 
$370 - $470
Meadow Glen
2014
 
142

 
123

 
19

 
10

 
34

 
$350 - $410
Amberleaf
2014
 
131

 
118

 
13

 
12

 
32

 
$320 - $370
Summerfield
2015
 
85

 
83

 
2

 
2

 
31

 
$310 - $320
Senterra
2016
 
82

 
—

 
82

 
20

 
—

 
$390 - $460
Vantage
2016
 
83

 
—

 
83

 
—

 
—

 
TBD
Viewpoint
2016
 
75

 
—

 
75

 
—

 
—

 
TBD
Overlook
2016
 
112

 
—

 
112

 
—

 
—

 
TBD
Canyon Hills Future
TBD
 
311

 
—

 
311

 
—

 
—

 
TBD
Tournament Hills Future
TBD
 
268

 
—

 
268

 
—

 
—

 
TBD
Woodmont
2014
 
84

 
84

 
—

 
1

 
16

 
$320 - $390
Cielo
2015
 
92

 
92

 
—

 
—

 
14

 
$250 - $275
Northstar
2015
 
123

 
46

 
77

 
11

 
29

 
$300 - $330
Skycrest
2015
 
125

 
49

 
76

 
8

 
18

 
$360 - $380
Flagstone
2016
 
79

 
5

 
74

 
21

 
5

 
$400 - $440
Lunetta
2016
 
89

 
9

 
80

 
28

 
9

 
$280 - $300
Elara
2016
 
118

 
—

 
118

 
—

 
—

 
TBD
Sundance Future
TBD
 
1,317

 
—

 
1,317

 
—

 
—

 
TBD
Banning
TBD
 
4,318

 
—

 
4,318

 
—

 
—

 
$170 - $250
Sacramento County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Natomas
TBD
 
120

 
—

 
120

 
—

 
—

 
TBD
San Joaquin County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Bear Creek
TBD
 
1,252

 
—

 
1,252

 
—

 
—

 
TBD
California Total
 
 
15,562

 
1,176

 
14,386

 
230

 
351

 
 
Nevada
 
 
 
 
 
 
 
 
 
 
 
 
 
Clark County:
 
 
 
 
 
 
 
 
 
 
 
 
 
LivingSmart at Eldorado Ridge
2012
 
169

 
168

 
1

 
1

 
8

 
$260 - $310
LivingSmart at Eldorado Heights
2013
 
135

 
133

 
2

 
2

 
11

 
 $310 - $395
LivingSmart Sandstone
2013
 
145

 
124

 
21

 
21

 
34

 
 $228 - $255
North Peak
2015
 
150

 
22

 
128

 
19

 
16

 
$280 - $330
Castle Rock
2015
 
150

 
23

 
127

 
23

 
19

 
$350 - $410
Camino
2016
 
86

 
—

 
86

 
9

 
—

 
$250 - $260
Eldorado Future
2017
 
59

 
—

 
59

 
—

 
—

 
 TBD
Solano
2014
 
132

 
81

 
51

 
16

 
20

 
 $300 - $330

- 48 -


Alterra
2014
 
47

 
38

 
9

 
4

 
13

 
 $425 - $500
Bella Verdi
2015
 
62

 
29

 
33

 
9

 
10

 
 $373 - $440
Escala
2016
 
116

 
—

 
116

 
13

 
—

 
 $510 - $575
Montero
2016
 
70

 
—

 
70

 
3

 
—

 
 $430 - $480
Strada
2017
 
141

 
—

 
141

 
—

 
—

 
TBD
Responsive Home
2016
 
2

 
—

 
2

 
—

 
—

 
TBD
POD 5-1 Future
2017
 
67

 
—

 
67

 
—

 
—

 
TBD
Durango Ranch
2012
 
153

 
152

 
1

 
1

 
5

 
 $467 - $560
Durango Trail
2014
 
77

 
77

 
—

 
—

 
3

 
 $380 - $410
Meridian
2016
 
74

 
2

 
72

 
20

 
2

 
 $580 - $680
Encanto
2016
 
129

 
—

 
129

 
8

 
—

 
 $470 - $525
Horizon Terrace
2014
 
165

 
71

 
94

 
14

 
11

 
 $400 - $455
Summerglen
2014
 
140

 
91

 
49

 
8

 
23

 
 $295 - $300
Keystone
2017
 
70

 
—

 
70

 
—

 
—

 
 $450 - $500
Skye Canyon Small
2017
 
120

 
—

 
120

 
—

 
—

 
 $337 - $370
Axis
2017
 
78

 
—

 
78

 
—

 
—

 
 $680 - $780
The Canyons at MacDonald Ranch - R
2017
 
22

 
—

 
22

 
—

 
—

 
 $535 - $565
Sunridge Heights
2017
 
108

 
—

 
108

 
—

 
—

 
 $392 - $455
Nova Ridge
2018
 
112

 
—

 
112

 
—

 
—

 
 $680 - $715
Nevada Total
 
 
2,779

 
1,011

 
1,768

 
171

 
175

 
 
Pardee Total
 
 
18,341

 
2,187

 
16,154

 
401

 
526

 
 


- 49 -


Quadrant Homes 
County, Project, City
Year of
First
Delivery(1)
 
Total
Number of
Lots(2)
 
Cumulative
Homes
Delivered
as of
June 30,
2016
 
Lots
Owned as of
June 30,
2016(3)
 
Backlog as of
June 30,
2016(4)(5)
 
Homes
Delivered
for the Six
Months Ended
June 30, 2016
 
Sales Price
Range
(in thousands)(6)
Washington
 
 
 
 
 
 
 
 
 
 
 
 
 
Skagit County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Skagit Highlands, Mt Vernon
2005
 
423

 
422

 
1

 
1

 
13

 
$280
Skagit Clearwater Court, Mt Vernon
2016
 
11

 
9

 
2

 
1

 
9

 
$306 - $319
Skagit Surplus Pod E, Mt Vernon
TBD
 
4

 
—

 
4

 
—

 
—

 
TBD
Snohomish County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Kings Corner 1&2, Mill Creek
2014
 
116

 
114

 
2

 
2

 
15

 
$484 - $492
King's Corner 3, Mill Creek
2016
 
29

 
10

 
19

 
18

 
10

 
$467 - $497
Evergreen Heights, Monroe
2016
 
71

 
—

 
71

 
1

 
—

 
$450 - $515
The Grove at Canyon Park, Bothell
2017
 
60

 
—

 
60

 
—

 
—

 
$558 - $603
Greenstone Heights, Bothell
2017
 
41

 
—

 
41

 
—

 
—

 
$860 - $920
King County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonata Hill, Auburn
2014
 
71

 
59

 
12

 
11

 
22

 
$355 - $430
Heathers Ridge, Kirkland
2015
 
41

 
29

 
12

 
11

 
17

 
$663 - $945
Hedgewood, Redmond
2015
 
11

 
9

 
2

 
1

 
6

 
$810 - $857
Hedgewood East, Redmond
2016
 
15

 
4

 
11

 
9

 
4

 
$825 - $975
Grasslawn Estates, Redmond
2016
 
4

 
1

 
3

 
1

 
1

 
$1,450 - $1,550
Vintner's Place, Kirkland
2016
 
35

 
4

 
31

 
23

 
4

 
$712 - $847
Copperwood, Renton
2016
 
46

 
2

 
44

 
23

 
2

 
$620 - $730
Viscaia, Bellevue
2017
 
18

 
—

 
18

 
—

 
—

 
$674 - $729
Trailside, Redmond
2017
 
9

 
—

 
9

 
—

 
—

 
$870 - $1,005
Parkwood Terrace, Woodinville
2017
 
15

 
—

 
15

 
—

 
—

 
$800 - $830
Hazelwood Ridge, Newcastle
2017
 
30

 
—

 
30

 
—

 
—

 
$760 - $905
Inglewood Landing, Sammamish
2018
 
21

 
—

 
21

 
—

 
—

 
$865 - $1,000
Jacobs Landing, Issaquah
2017
 
20

 
—

 
20

 
—

 
—

 
$935 - $1,000
Kirkwood Terrace, Sammamish
2017
 
12

 
—

 
12

 
—

 
—

 
$1,310 - $1,610
English Landing P2, Redmond
2017
 
25

 
—

 
25

 
—

 
—

 
$930 - $1,070
English Landing P1, Redmond
2017
 
50

 
—

 
50

 
—

 
—

 
$945 - $1,095
Heathers Ridge South, Redmond
2017
 
8

 
—

 
8

 
—

 
—

 
$625 - $855
Cedar Landing, North Bend
2017
 
138

 
—

 
138

 
—

 
—

 
$590 - $740
Monarch Ridge, Sammamish
2017
 
59

 
—

 
59

 
—

 
—

 
$860 - $975
Ray Meadows, Redmond
2018
 
27

 
—

 
27

 
—

 
—

 
$930 - $1,080
Wynstone, Federal Way
TBD
 
4

 
—

 
4

 
—

 
—

 
TBD
Breva, Bellevue
2017
 
29

 
—

 
29

 
—

 
—

 
$632 - $704
Pierce County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Harbor Hill S-9, Gig Harbor
2014
 
40

 
38

 
2

 
—

 
2

 
$395 - $422
Harbor Hill S-8, Gig Harbor
2015
 
33

 
22

 
11

 
9

 
18

 
$385 - $454
Harbor Hill S-7, Gig Harbor
2016
 
16

 
—

 
16

 
6

 
—

 
$412 - $472
Chambers Ridge, Tacoma
2014
 
24

 
23

 
1

 
1

 
6

 
$630
The Enclave at Harbor Hill, Gig Harbor
2016
 
33

 
9

 
24

 
4

 
9

 
$520 - $595
Thurston County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Campus Fairways, Lacey
2015
 
39

 
24

 
15

 
5

 
11

 
$365 - $465
Kitsap County:
 
 
 
 
 
 
 
 
 
 
 
 
 
McCormick Meadows, Port Orchard
2012
 
167

 
150

 
17

 
15

 
31

 
$292 - $354
Mountain Aire, Poulsbo
2016
 
145

 
3

 
142

 
29

 
3

 
$390 - $453
Washington Total
 
 
1,940

 
932

 
1,008

 
171

 
197

 
 
Quadrant Total
 
 
1,940

 
932

 
1,008

 
171

 
197

 
 






- 50 -


Trendmaker Homes
County, Project, City
Year of
First
Delivery(1)
 
Total
Number of
Lots(2)
 
Cumulative
Homes
Delivered
as of
June 30,
2016
 
Lots
Owned as of
June 30,
2016(3)
 
Backlog as of
June 30,
2016(4)(5)
 
Homes
Delivered
for the Six
Months Ended
June 30,
2016
 
Sales Price
Range
(in thousands)(6)
Texas
 
 
 
 
 
 
 
 
 
 
 
 
 
Brazoria County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Sedona Lakes, Pearland
2014
 
34

 
18

 
16

 
1

 
1

 
 $387 - $458
Southern Trails, Pearland
2014
 
40

 
36

 
4

 
1

 
7

 
 $499 - $550
Pomona, Manvel
2015
 
24

 
1

 
23

 
5

 
1

 
 $355 - $476
Rise Meridiana
2016
 
12

 
—

 
12

 
1

 
—

 
 $300 - $335
Fort Bend County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cross Creek Ranch 60', Fulshear
2013
 
53

 
32

 
21

 
—

 
2

 
 $345 - $437
Cross Creek Ranch 65', Fulshear
2013
 
52

 
30

 
22

 
3

 
9

 
 $405 - $458
Cross Creek Ranch 70', Fulshear
2013
 
56

 
42

 
14

 
5

 
5

 
 $497 - $567
Cross Creek Ranch 80', Fulshear
2013
 
29

 
14

 
15

 
6

 
8

 
 $541 - $656
Cross Creek Ranch 90', Fulshear
2013
 
28

 
15

 
13

 
2

 
3

 
 $604 - $680
Villas at Cross Creek Ranch, Fulshear
2013
 
101

 
100

 
1

 
—

 
9

 
 $454 - $496
Fulshear Run, Richmond
2016
 
12

 
—

 
12

 
2

 
—

 
 $536 - $638
Cinco Ranch, Katy
2015
 
55

 
55

 
—

 
—

 
1

 
 $396 - $530
Harvest Green 75', Richmond
2015
 
19

 
3

 
16

 
5

 
3

 
 $421 - $497
Sienna Plantation 80', Missouri City
2013
 
45

 
45

 
—

 
—

 
6

 
 $542 - $650
Sienna Plantation 85', Missouri City
2015
 
25

 
—

 
25

 
8

 
—

 
 $524 - $635
Villas at Sienna South, Missouri City
2015
 
19

 
3

 
16

 
3

 
3

 
 $445 - $507
Lakes of Bella Terra, Richmond
2013
 
109

 
89

 
20

 
6

 
9

 
 $465 - $553
Villas at Aliana, Richmond
2013
 
104

 
70

 
34

 
7

 
10

 
 $409 - $497
Riverstone 55', Sugar Land
2013
 
34

 
27

 
7

 
5

 
10

 
 $443 - $467
Riverstone 80', Sugar Land
2013
 
30

 
30

 
—

 
—

 
2

 
 $559 - $710
Riverstone Avanti at Avalon 100', Sugar Land
2015
 
5

 
2

 
3

 
2

 
1

 
$1,197
The Townhomes at Imperial, Sugar Land
2015
 
27

 
27

 
—

 
—

 
7

 
 $396 - $530
Galveston County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Harborwalk, Hitchcock
2014
 
50

 
48

 
2

 
1

 
4

 
 $680 - $686
Harris County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Fairfield, Cypress
2010
 
39

 
34

 
5

 
5

 
9

 
 $530 - $595
Lakes of Fairhaven, Cypress
2008
 
166

 
166

 
—

 
—

 
9

 
 $409 - $505
Towne Lake Living Views, Cypress
2013
 
122

 
110

 
12

 
6

 
6

 
 $468 - $561
The Groves, Humble
2015
 
36

 
16

 
20

 
12

 
2

 
 $436 - $498
Lakes of Creekside
2015
 
13

 
—

 
13

 
1

 
—

 
 $549 - $648
Bridgeland '80, Cypress
2015
 
17

 
—

 
17

 
11

 
—

 
 $487 - $569
Bridgeland Patio, Cypress
2016
 
5

 
—

 
5

 
—

 
—

 
 
Elyson 70', Cypress
2016
 
1

 
—

 
1

 
—

 
—

 
 
Hidden Arbor, Cypress
2015
 
107

 
—

 
107

 
17

 
—

 
 $387 - $586
Clear Lake, Houston
2015
 
752

 
117

 
635

 
34

 
26

 
 $360 - $660
Montgomery County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Barton Woods, Conroe
2013
 
118

 
111

 
7

 
5

 
9

 
 $447 - $624
Villas at Oakhurst, Porter
 
 
55

 
55

 
—

 
—

 
5

 
 $542 - $650
Woodtrace, Woodtrace
2014
 
36

 
15

 
21

 
2

 
4

 
 $430 - $473
Northgrove, Tomball
2015
 
25

 
—

 
25

 
—

 
—

 
 $465 - $536
Bender's Landing Estates, Spring
2014
 
104

 
31

 
73

 
2

 
8

 
 $457 - $567
The Woodlands, Creekside Park
2015
 
35

 
4

 
31

 
2

 
4

 
 $430 - $651
Waller County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cane Island, Katy
2015
 
15

 
7

 
8

 
1

 
7

 
 $518 - $624
Williamson County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Crystal Falls
TBD
 
29

 
—

 
29

 
—

 
—

 
 $450 - $598
Hays County:
 
 
 
 
 
 
 
 
 
 
 
 
 

- 51 -


Belterra 80', Austin
2016
 
20

 
—

 
20

 
1

 
—

 
 $540 - $603
Other:
 
 
 
 
 
 
 
 
 
 
 
 
 
Avanti Custom Homes
2007
 
125

 
114

 
11

 
10

 
13

 
 $480 - $856
Texas Casual Cottages, Round Top
2010
 
88

 
84

 
4

 
4

 
10

 
 $389 - $520
Texas Casual Cottages, Hill Country
2012
 
46

 
45

 
1

 
1

 
1

 
 $443 - $500
Texas Total
 
 
2,917

 
1,596

 
1,321

 
177

 
214

 
 
Trendmaker Homes Total
 
 
2,917

 
1,596

 
1,321

 
177

 
214

 
 


- 52 -


TRI Pointe Homes
 
County, Project, City
Year of
First
Delivery(1)
 
Total
Number of
Lots(2)
 
Cumulative
Homes
Delivered
as of
June 30,
2016
 
Lots
Owned as of
June 30,
2016(3)
 
Backlog as of
June 30,
2016(4)(5)
 
Homes
Delivered
for the Six
Months Ended
June 30,
2016
 
Sales Price
Range
(in thousands)(6)
Southern California
 
 
 
 
 
 
 
 
 
 
 
 
 
Orange County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Arcadia, Irvine
2013
 
61

 
52

 
9

 
9

 
6

 
 $1,199 - $1,420
Arcadia II, Irvine
2014
 
66

 
66

 
—

 
—

 
12

 
 $1,199 - $1,281
Fairwind, Huntington Beach
2015
 
80

 
80

 
—

 
—

 
17

 
 $937 - $1,032
Cariz, Irvine
2014
 
112

 
112

 
—

 
—

 
18

 
 $495 - $604
Messina, Irvine
2014
 
59

 
49

 
1

 
—

 
11

 
 $1,515 - $1,660
Messina II, Irvine
2016
 
43

 
—

 
15

 
19

 
—

 
 $1,515 - $1,660
Aria, Rancho Mission Viejo
2016
 
87

 
14

 
73

 
27

 
11

 
 $615 - $658
Aria II, Rancho Mission Viejo
2017
 
64

 
—

 
64

 
—

 
—

 
 TBD
Aubergine, Rancho Mission Viejo
2016
 
66

 
13

 
53

 
7

 
13

 
 $1,110 - $1,135
Aubergine II, Rancho Mission Viejo
2017
 
57

 
—

 
57

 
—

 
—

 
 TBD
Carlisle 10-Pack Garden Court, Irvine
2017
 
74

 
—

 
74

 
—

 
—

 
 $685 - $770
Sterling Row Townhomes, Irvine
2017
 
96

 
—

 
96

 
—

 
—

 
 $587 - $700
Varenna at Orchard Hills, Irvine
2016
 
71

 
—

 
37

 
—

 
—

 
 $1,175 - $1,235
Alston, Anaheim
2017
 
75

 
—

 
75

 
—

 
—

 
 $780 - $820
Riverside County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Topazridge, Riverside
2012
 
68

 
68

 
—

 
—

 
5

 
 $464 - $529
Topazridge II, Riverside
2014
 
49

 
49

 
—

 
—

 
4

 
 $459 - $515
Aldea, Temecula
2014
 
90

 
90

 
—

 
—

 
13

 
 $262 - $298
Kite Ridge, Riverside
2014
 
87

 
29

 
58

 
26

 
11

 
 $454 - $479
Serrano Ridge at Sycamore Creek, Riverside
2015
 
87

 
17

 
70

 
39

 
13

 
 $388 - $415
Terrassa Court, Corona
2015
 
94

 
2

 
92

 
8

 
2

 
 $400 - $438
Terrassa Villas, Corona
2015
 
52

 
1

 
51

 
4

 
1

 
 $438 - $478
Los Angeles County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Grayson, Santa Clarita
2015
 
119

 
22

 
97

 
19

 
16

 
 $517 - $550
Garvey Square, El Monte
2017
 
102

 
—

 
102

 
—

 
—

 
 TBD
San Bernardino County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Sedona at Parkside, Ontario
2015
 
152

 
34

 
118

 
38

 
21

 
 $360 - $395
Kensington at Park Place, Ontario
2015
 
67

 
16

 
51

 
18

 
10

 
 $487 - $514
St. James at Park Place, Ontario
2015
 
57

 
31

 
26

 
18

 
14

 
 $456 - $468
Ventura County:
 
 
 
 
 
 
 
 
 
 
 
 
 
The Westerlies, Oxnard
2015
 
116

 
—

 
116

 
34

 
—

 
 $380 - $498
Southern California Total
 
 
2,151

 
745

 
1,335

 
266

 
198

 
 
Northern California
 
 
 
 
 
 
 
 
 
 
 
 
 
Contra Costa County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Berkshire at Barrington, Brentwood
2014
 
89

 
84

 
5

 
16

 
21

 
 $508 - $587
Hawthorne at Barrington, Brentwood
2014
 
105

 
75

 
30

 
14

 
17

 
 $572 - $620
Marquette at Barrington, Brentwood
2015
 
90

 
31

 
59

 
12

 
14

 
 $480 - $740
Wynstone at Barrington, Brentwood
2016
 
92

 
—

 
92

 
—

 
—

 
 $475 - $595
Penrose at Barrington, Brentwood
2016
 
34

 
—

 
34

 
—

 
—

 
 $508 - $587
Santa Clara County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cobblestone, Milpitas
2015
 
32

 
31

 
1

 
—

 
9

 
 $960 - $1,163
Solano County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Redstone, Vacaville
2015
 
141

 
41

 
100

 
16

 
14

 
 $459 - $533
Green Valley-Lewis, Fairfield
2018
 
95

 
—

 
95

 
—

 
—

 
 $475 - $510
Green Valley-Westgate, Fairfield
2018
 
53

 
—

 
53

 
—

 
—

 
 $527 - $572
San Joaquin County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Ventana, Tracy
2015
 
93

 
34

 
59

 
14

 
12

 
 $442 - $547
Sundance, Mountain House
2015
 
113

 
41

 
72

 
23

 
32

 
 $580 - $660

- 53 -


Alameda County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cadence, Alameda Landing
2015
 
91

 
50

 
41

 
9

 
12

 
 $1,082 - $1,259
Linear, Alameda Landing
2015
 
106

 
54

 
52

 
10

 
—

 
 $699 - $935
Symmetry, Alameda Landing
2016
 
56

 
1

 
55

 
24

 
1

 
 $860 - $965
Commercial, Alameda Landing
TBD
 
2

 
—

 
2

 
—

 
—

 
620
Parasol, Fremont
2016
 
39

 
—

 
39

 
17

 
—

 
$595 - $980
Blackstone at the Cannery, Hayward SFA
2016
 
105

 
—

 
105

 
15

 
—

 
$563 - $663
Blackstone at the Cannery, Hayward SFD
2016
 
52

 
—

 
52

 
8

 
—

 
$669 - $719
Coopers Place, Livermore
2017
 
31

 
—

 
31

 
—

 
—

 
$865 - $915
Slate at Jordan Ranch, Dublin
2017
 
56

 
—

 
56

 
—

 
—

 
$1,010 - $1,135
Onyx at Jordan Ranch, Dublin
2017
 
105

 
—

 
57

 
—

 
—

 
$880 - $945
Mission Stevenson, Fremont
2018
 
77

 
—

 
77

 
—

 
—

 
$655 - $925
Northern California Total
 
 
1,657

 
442

 
1,167

 
178

 
132

 
 
California Total
 
 
3,808

 
1,187

 
2,502

 
444

 
330

 
 
Colorado
 
 
 
 
 
 
 
 
 
 
 
 
 
Douglas County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Terrain 4000 Series, Castle Rock
2013
 
149

 
122

 
27

 
22

 
22

 
 $355 - $408
Terrain 3500 Series, Castle Rock
2015
 
67

 
55

 
12

 
9

 
18

 
 $327 - $350
Jefferson County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Leyden Rock 4000 Series, Arvada
2014
 
51

 
51

 
—

 
—

 
6

 
 $390 - $446
Leyden Rock 5000 Series, Arvada
2015
 
67

 
48

 
19

 
16

 
18

 
 $454 - $509
Candelas 6000 Series, Arvada
2015
 
76

 
11

 
65

 
10

 
5

 
 $503 - $615
Candelas 3500 Series, Arvada
2016
 
97

 
—

 
97

 
—

 
—

 
 $388 - $450
Denver County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Platt Park North, Denver
2014
 
29

 
29

 
—

 
—

 
1

 
 $611 - $615
Larimer County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Centerra 5000 Series, Loveland
2015
 
150

 
30

 
49

 
12

 
18

 
 $406 - $441
Arapahoe County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Whispering Pines, Aurora
2015
 
115

 
—

 
115

 
3

 
—

 
 $553 - $616
Adams County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Amber Creek, Thornton
2017
 
121

 
—

 
121

 
—

 
—

 
 $391 - $457
Colorado Total
 
 
922

 
346

 
505

 
72

 
88

 
 
TRI Pointe Total
 
 
4,730

 
1,533

 
3,007

 
516

 
418

 
 


- 54 -


Winchester Homes
County, Project, City
Year of
First
Delivery(1)
 
Total Number of Lots(2)
 
Cumulative
Homes
Delivered
as of
June 30,
2016
 
Lots
Owned as of
June 30,
2016(3)
 
Backlog as of
June 30,
2016(4)(5)
 
Homes
Delivered
for the Six
Months Ended
June 30,
2016
 
Sales Price
Range
(in thousands)(6)
Maryland
 
 
 
 
 
 
 
 
 
 
 
 
 
Anne Arundel County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Watson's Glen, Millersville
2015
 
103
 
3
 
100
 
—
 
1
 
Closed
Frederick County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Landsdale Village SFD
2015
 
222
 
27
 
195
 
11
 
11
 
$495 - $635
Landsdale Townhomes
2015
 
100
 
11
 
89
 
10
 
8
 
$335 - $375
Landsdale TND Neo SFD
2015
 
77
 
5
 
72
 
8
 
5
 
$435 - $468
Howard County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Walnut Creek, Ellicott City
2014
 
25
 
20
 
5
 
4
 
5
 
$1,182- $1,409
Montgomery County:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cabin Branch SFD
2014
 
359
 
61
 
298
 
30
 
18
 
 $495 - $668
Cabin Branch Boulevard Townhomes
TBD
 
121
 
—
 
121
 
—
 
—
 
TBD
Cabin Branch Townhomes
2014
 
507
 
91
 
416
 
10
 
28
 
 $375 - $416
Preserve at Stoney Spring-Lots for Sale
TBD
 
5
 
—
 
5
 
—
 
—
 
TBD
Preserve at Rock Creek, Rockville
2012
 
68
 
65
 
3
 
1
 
2
 
 $748 - $964
Poplar Run Townhomes
2013
 
136
 
136
 
—
 
—
 
18
 
 $390 - $435
Poplar Run SFD
2010
 
297
 
227
 
70
 
17
 
18
 
 $567 - $766
Poplar Run Single Family Neos
2016
 
29
 
—
 
29
 
12
 
—
 
 $540 - $630
Potomac Highlands, Potomac
2016
 
23
 
—
 
23
 
—
 
—
 
 $1,191 - $1,289
Glenmont MetroCenter, Silver Spring
2016
 
171
 
—
 
171
 
2
 
—
 
 $485 - $568
Maryland Total
 
 
2,243

 
646

 
1,597

 
105

 
114

 
 
Virginia
 
 
 
 
 
 
 
 
 
 
 
 
 
Fairfax County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Reserve at Waples Mill, Oakton
2013
 
28
 
28
 
—
 
—
 
3
 
1460
Stuart Mill & Timber Lake, Oakton
2014
 
14
 
5
 
9
 
4
 
—
 
$1,363 - $1,675
Stuart Mill -Lots for Sale, Oakton
TBD
 
5
 
—
 
5
 
—
 
—
 
TBD
Prince William County:
 
 
 
 
 
 
 
 
 
 
 
 
 
Villages of Piedmont, Haymarket
2015
 
168
 
27
 
141
 
13
 
10
 
$370 - $424
Loudoun County:
 
 
 
 
 
 
 
 
 
 
 
 
 
English Manor Villas
2014
 
58
 
35
 
23
 
9
 
10
 
$495 - $545
Glenmere at Brambleton SFD
2014
 
90
 
77
 
13
 
16
 
14
 
$650 - $733
Glenmere at Brambleton Townhomes
2014
 
99
 
84
 
15
 
16
 
12
 
$470 - $474
Vistas at Lansdowne, Lansdowne
2015
 
120
 
25
 
95
 
9
 
7
 
$569 - $670
Willowsford Grant II, Aldie
2016
 
9
 
—
 
9
 
—
 
—
 
TBD
Willowsford Greens, Aldie
2014
 
38
 
29
 
9
 
1
 
5
 
$760 - $840
Virginia Total
 
 
629

 
310

 
319

 
68

 
61

 
 
Winchester Total
 
 
2,872

 
956

 
1,916

 
173

 
175

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Combined Company Total
 
 
33,481

 
8,394

 
24,897

 
1,798

 
1,765

 
 
__________
(1) 
Year of first delivery for future periods is based upon management’s estimates and is subject to change. 
(2) 
The number of homes to be built at completion is subject to change, and there can be no assurance that we will build these homes. 
(3) 
Owned lots as of June 30, 2016 include owned lots in backlog as of June 30, 2016. 
(4) 
Backlog consists of homes under sales contracts that had not yet been delivered, and there can be no assurance that delivery of sold homes will occur. 
(5) 
Of the total homes subject to pending sales contracts that have not been delivered as of June 30, 2016, 1,212 homes are under construction, 272 homes have completed construction, and 314 homes have not started construction. 
(6) 
Sales price range reflects base price only and excludes any lot premium, buyer incentives and buyer-selected options, which may vary from project to project. Sales prices for homes required to be sold pursuant to affordable housing requirements are excluded from sales price range. Sales prices reflect current pricing and might not be indicative of past or future pricing. 

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Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements contained elsewhere in this report, which have been prepared in accordance with GAAP. Our notes to the unaudited condensed consolidated financial statement contained elsewhere in this report and the audited financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015 describe the significant accounting policies essential to our unaudited condensed consolidated financial statements. The preparation of our financial statements requires our management to make estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions that we have used are appropriate and correct based on information available at the time they were made. These estimates, judgments and assumptions can affect our reported assets and liabilities as of the date of the financial statements, as well as the reported revenues and expenses during the period presented. If there is a material difference between these estimates, judgments and assumptions and actual facts, our financial statements may be affected.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require our judgment in its application. There are areas in which our judgment in selecting among available alternatives would not produce a materially different result, but there are some areas in which our judgment in selecting among available alternatives would produce a materially different result. See the notes to the unaudited condensed consolidated financial statements that contain additional information regarding our accounting policies and other disclosures.
Recently Issued Accounting Standards
See Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies, to the accompanying condensed notes to consolidated financial statements included in this Quarterly Report on Form 10-Q.

Item 3.
Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks related to fluctuations in interest rates on our outstanding debt.  We did not utilize swaps, forward or option contracts on interest rates or commodities, or other types of derivative financial instruments as of or during the three or six months ended June 30, 2016. We have not entered into and currently do not hold derivatives for trading or speculative purposes.

Item 4.
Controls and Procedures

We have established disclosure controls and procedures to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and accumulated and communicated to management, including the Chief Executive Officer (the “Principal Executive Officer”) and Chief Financial Officer (the “Principal Financial Officer”), as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of senior management, including our Principal Executive Officer and Principal Financial Officer, we evaluated our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2016.
Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal control over financial reporting to determine whether any change occurred during the three or six months ended June 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the three or six months ended June 30, 2016.

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PART II. OTHER INFORMATION

Item 1.
Legal Proceedings
Not applicable.

Item 1A.
Risk Factors
The following supplements and updates the risk factors in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2015.  If any of the risks discussed below or in our Annual Report on Form 10-K occur, our business, prospects, liquidity, financial condition and results of operations could be materially and adversely affected, in which case the trading price of our common stock could decline significantly and you could lose all or a part of your investment.  Some statements in this Quarterly Report on Form 10-Q, including statements in the following risk factor, constitute forward-looking statements.  Please refer to Part I, Item 2 of this Quarterly Report on Form 10-Q entitled “Cautionary Note Concerning Forward-Looking Statements.”
Risks Related to Ownership of Our Common Stock
We cannot assure you that our stock repurchase program will result in repurchases of our common stock or enhance long term stockholder value, and repurchases, if any, could affect our stock price and increase its volatility and will diminish our cash reserves.
Repurchases pursuant to our stock repurchase program described in Part II, Item 2 of this Quarterly Report on Form 10-Q could affect our stock price and increase its volatility and will reduce the market liquidity for our stock.  The existence of a stock repurchase program could also cause our stock price to be higher than it would be in the absence of such a program.  Additionally, these repurchases will diminish our cash reserves, which could impact our ability to pursue possible future strategic opportunities and acquisitions and would result in lower overall returns on our cash balances.  There can be no assurance that any stock repurchases will, in fact, occur, or, if they occur, that they will enhance stockholder value.  Although our stock repurchase program is intended to enhance long term stockholder value, short-term stock price fluctuations could reduce the effectiveness of these repurchases.
Increases in taxes or government fees could increase our costs, which could materially and adversely affect us.
Increases in real estate taxes and other local government fees, such as development or impact fees, fees imposed on developers to fund schools, open space, road improvements, and other public improvements, and fees imposed on developers to provide low- and moderate-income housing, could increase our costs and have an adverse effect on our operations, which could have a material adverse effect on our Financial Performance. In addition, increases in local real estate taxes could adversely affect the purchasing decisions of potential homebuyers, who may consider those costs in determining whether to make a new home purchase and decide, as a result, not to purchase one of our homes, which could have a material adverse effect on our Financial Performance.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
On January 27, 2016, we announced that our board of directors approved a stock repurchase program, authorizing the repurchase of our common stock with an aggregate value of up to $100 million through January 25, 2017.  Purchases of common stock may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act.  We are not obligated under the program to repurchase any specific number or amount of shares of common stock, and we may modify, suspend or discontinue the program at any time.  Our management will determine the timing and amount of repurchase in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions and legal requirements.  
During the three months ended June 30, 2016, we repurchased the following shares under our repurchase program:

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Total number of shares purchased
 
Average price paid per share
 
Total number of shares purchased as part of publicly announced program
 
Approximate dollar value of shares that may yet be purchased under the program
April 1 2016 to April 30, 2016
 
—

 
$
—

 
—

 
$
100,000,000

May 1 2016 to May 31, 2016
 
22,100

 
$
11.00

 
22,100

 
$
99,756,907

June 1, 2016 to June 30, 2016
 
1,230,921

 
$
11.74

 
1,230,921

 
$
85,301,811

Total
 
1,253,021

 
$
11.73

 
1,253,021

 
 

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Item 6.
Exhibits 
Exhibit
Number
 
Exhibit Description
 
 
 
2.1
 
Agreement and Plan of Merger to Form Holding Company, dated as of July 7, 2015, by and among TRI Pointe Homes, Inc., TRI Pointe Group, Inc. and TPG Merger, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K (filed July 7, 2015))
 
 
 
3.1
 
Amended and Restated Certificate of Incorporation of TRI Pointe Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (filed July 7, 2015))
 
 
 
3.2
 
Amended and Restated Bylaws of TRI Pointe Group, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (filed July 7, 2015))
 
 
 
4.1
 
Specimen Common Stock Certificate of TRI Pointe Group, Inc. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (filed Dec. July 7, 2015))
 
 
 
4.2
 
Investor Rights Agreement, dated as of January 30, 2013, by and among TRI Pointe Homes, Inc., VIII/TPC Holdings, L.L.C., BMG Homes, Inc., The Bauer Revocable Trust U/D/T Dated December 31, 2003, Grubbs Family Trust Dated June 22, 2012, The Mitchell Family Trust U/D/T Dated February 8, 2000, Douglas J. Bauer, Thomas J. Mitchell and Michael D. Grubbs. (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-4 (filed Jan. 9, 2014))
 
 
 
4.3
 
First Amendment to Investor Rights Agreement, dated as of November 3, 2013, by and among TRI Pointe Homes, Inc., VIII/TPC Holdings, L.L.C., BMG Homes, Inc., The Bauer Revocable Trust U/D/T Dated December 31, 2003, Grubbs Family Trust Dated June 22, 2012, The Mitchell Family Trust U/D/T Dated February 8, 2000, Douglas F. Bauer, Thomas J. Mitchell and Michael D. Grubbs (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K (filed Nov. 4, 2013))
 
 
 
4.4
 
Second Amendment to Investor Rights Agreement, dated as of July 7, 2015, among TRI Pointe Group, Inc., TRI Pointe Homes, Inc., VIII/TPC Holdings, L.L.C., BMG Homes, Inc., The Bauer Revocable Trust U/D/T Dated December 31, 2003, Grubbs Family Trust Dated June 22, 2012, The Mitchell Family Trust U/D/T Dated February 8, 2000, Douglas F. Bauer, Thomas J. Mitchell and Michael D. Grubbs (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8‑K (filed July 7, 2015))
 
 
 
4.5
 
Registration Rights Agreement, dated as of January 30, 2013, among TRI Pointe Homes, Inc., VIII/TPC Holdings, L.L.C., and certain TRI Pointe Homes, Inc. stockholders (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-4 (filed Jan. 9, 2014))
 
 
 
4.6
 
First Amendment to Registration Rights Agreement, dated as of July 7, 2015, among TRI Pointe Group, Inc., TRI Pointe Homes, Inc., VIII/TPC Holdings, L.L.C. and certain TRI Pointe Homes, Inc. stockholders (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8‑K (filed July 7, 2015))
 
 
 
4.7
 
Indenture, dated as of June 13, 2014, by and among Weyerhaeuser Real Estate Company and U.S. Bank National Association, as trustee (including form of 4.375% Senior Note due 2019) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (filed June 19, 2014))
 
 
 
4.8
 
First Supplemental Indenture, dated as of July 7, 2014, among TRI Pointe Homes, Inc., Weyerhaeuser Real Estate Company and U.S. Bank National Association, as trustee, relating to the 4.375% Senior Notes due 2019 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (filed July 7, 2014))
 
 
 
4.9
 
Second Supplemental Indenture, dated as of July 7, 2014, among the guarantors party thereto and U.S. Bank National Association, as trustee, relating to the 4.375% Senior Notes due 2019 (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K (filed July 7, 2014))
 
 
 
4.10
 
Third Supplemental Indenture, dated as of July 7, 2015, among TRI Point Group, Inc., TRI Pointe Homes, Inc. and U.S. Bank National Association, as trustee, relating to the 4.375% Senior Notes due 2019 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8‑K (filed July 7, 2015))
 
 
 
4.11
 
Indenture, dated as of June 13, 2014, by and among Weyerhaeuser Real Estate Company and U.S. Bank National Association, as trustee (including form of 5.875% Senior Note due 2024) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (filed June 19, 2014))
 
 
 
4.12
 
First Supplemental Indenture, dated as of July 7, 2014, among TRI Pointe Homes, Inc., Weyerhaeuser Real Estate Company and U.S. Bank National Association, as trustee, relating to the 5.875% Senior Notes due 2024 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (filed July 7, 2014))
 
 
 
4.13
 
Second Supplemental Indenture, dated as of July 7, 2014, among the guarantors party thereto and U.S. Bank National Association, as trustee, relating to the 5.875% Senior Notes due 2024 (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K (filed July 7, 2014))
 
 
 

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4.14
 
Third Supplemental Indenture, dated as of July 7, 2015, among TRI Point Group, Inc., TRI Pointe Homes, Inc. and U.S. Bank National Association, as trustee, relating to the 5.875% Senior Notes due 2024 (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8‑K (filed July 7, 2015))
 
 
 
4.15
 
Indenture, dated as of May 23, 2016, by and between TRI Pointe Group, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3ASR (filed May 23, 2016))
 
 
 
4.16
 
First Supplemental Indenture, dated as of May 26, 2016, among TRI Pointe Group, Inc., the guarantors party thereto and U.S. Bank National Association, as trustee, relating to the 4.875% Senior Notes due 2021 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (filed May 26, 2016))
 
 
 
31.1
 
Chief Executive Officer Section 302 Certification of the Sarbanes-Oxley Act of 2002
 
 
 
31.2
 
Chief Financial Officer Section 302 Certification of the Sarbanes-Oxley Act of 2002
 
 
 
32.1
 
Chief Executive Officer Section 906 Certification of the Sarbanes-Oxley Act of 2002
 
 
 
32.2
 
Chief Financial Officer Section 906 Certification of the Sarbanes-Oxley Act of 2002
 
 
 
101
 
The following materials from TRI Pointe Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Cash Flows, and (v) Condensed Notes to Consolidated Financial Statement.


- 60 -


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.
 
 
TRI Pointe Group, Inc.
 
 
 
 
By:
/s/ Douglas F. Bauer
 
 
Douglas F. Bauer
 
 
Chief Executive Officer
 
By:
/s/ Michael D. Grubbs
 
 
Michael D. Grubbs
Date: July 27, 2016
 
Chief Financial Officer

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