Document


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.

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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.  

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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.

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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.


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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
)
  

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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.

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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
$