Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________________________ 
FORM 10-Q
_____________________________________________________________________________________________ 
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 1-35796
_____________________________________________________________________________________________ 

tphlogo.jpg 
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  ☒    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  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐ (Do not check if a smaller reporting company)
Smaller reporting company
☐
 
 
Emerging Growth Company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
150,432,421 shares of common stock were issued and outstanding as of October 16, 2017.

- 1 -


EXPLANATORY NOTE
As used in this Quarterly Report on Form 10-Q, references to “TRI Pointe”, “the Company”, “we”, “us”, or “our” (including in the consolidated financial statements and related notes thereto in this report) refer to TRI Pointe Group, Inc., a Delaware corporation (“TRI Pointe Group”) and its subsidiaries.



- 2 -


TRI POINTE GROUP, INC.
FORM 10-Q
INDEX
September 30, 2017
 
 
 
Page
Number
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 


- 2 -


PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements

TRI POINTE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
 
September 30, 2017
 
December 31, 2016
 
(unaudited)
 
 
Assets
 
 
 
Cash and cash equivalents
$
162,396

 
$
208,657

Receivables
84,583

 
82,500

Real estate inventories
3,303,421

 
2,910,627

Investments in unconsolidated entities
17,616

 
17,546

Goodwill and other intangible assets, net
161,094

 
161,495

Deferred tax assets, net
108,664

 
123,223

Other assets
58,292

 
60,592

Total assets
$
3,896,066

 
$
3,564,640

Liabilities
 
 
 
Accounts payable
$
64,038

 
$
70,252

Accrued expenses and other liabilities
316,487

 
263,845

Unsecured revolving credit facility
200,000

 
200,000

Seller financed loan
—

 
13,726

Senior notes, net
1,469,558

 
1,168,307

Total liabilities
2,050,083

 
1,716,130

 
 
 
 
Commitments and contingencies (Note 13)

 

 
 
 
 
Equity
 
 
 
Stockholders’ Equity:
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no
   shares issued and outstanding as of September 30, 2017 and
   December 31, 2016, respectively
—

 
—

Common stock, $0.01 par value, 500,000,000 shares authorized;
   150,429,021 and 158,626,229 shares issued and outstanding at
   September 30, 2017 and December 31, 2016, respectively
1,504

 
1,586

Additional paid-in capital
780,715

 
880,822

Retained earnings
1,060,210

 
947,039

Total stockholders’ equity
1,842,429

 
1,829,447

Noncontrolling interests
3,554

 
19,063

Total equity
1,845,983

 
1,848,510

Total liabilities and equity
$
3,896,066

 
$
3,564,640

 
See accompanying condensed notes to the unaudited consolidated financial statements.


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TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share amounts)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Homebuilding:
 
 
 
 
 
 
 
Home sales revenue
$
648,638

 
$
578,653

 
$
1,609,458

 
$
1,558,633

Land and lot sales revenue
68,218

 
2,535

 
69,661

 
70,204

Other operations revenue
584

 
606

 
1,752

 
1,790

Total revenues
717,440

 
581,794

 
1,680,871

 
1,630,627

Cost of home sales
521,918

 
462,323

 
1,294,563

 
1,219,560

Cost of land and lot sales
12,001

 
1,734

 
13,299

 
16,973

Other operations expense
575

 
575

 
1,726

 
1,724

Sales and marketing
33,179

 
31,852

 
92,209

 
90,621

General and administrative
32,956

 
31,278

 
101,293

 
90,293

Homebuilding income from operations
116,811

 
54,032

 
177,781

 
211,456

Equity in (loss) income of unconsolidated entities
—

 
(20
)
 
1,646

 
181

Other income, net
26

 
21

 
147

 
287

Homebuilding income before income taxes
116,837

 
54,033

 
179,574

 
211,924

Financial Services:
 
 
 
 
 
 
 
Revenues
295

 
235

 
881

 
762

Expenses
82

 
72

 
233

 
183

Equity in income of unconsolidated entities
1,351

 
1,247

 
2,911

 
3,246

Financial services income before income taxes
1,564

 
1,410

 
3,559

 
3,825

Income before income taxes
118,401

 
55,443

 
183,133

 
215,749

Provision for income taxes
(46,112
)
 
(20,298
)
 
(69,824
)
 
(77,701
)
Net income
72,289

 
35,145

 
113,309

 
138,048

Net income attributable to noncontrolling interests
(25
)
 
(311
)
 
(138
)
 
(738
)
Net income available to common stockholders
$
72,264

 
$
34,834

 
$
113,171

 
$
137,310

Earnings per share
 

 
 

 
 
 
 
Basic
$
0.48

 
$
0.22

 
$
0.73

 
$
0.85

Diluted
$
0.48

 
$
0.22

 
$
0.73

 
$
0.85

Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
151,214,744

 
160,614,055

 
155,238,206

 
161,456,520

Diluted
152,129,825

 
161,267,509

 
155,936,076

 
161,916,352

 
See accompanying condensed notes to the unaudited consolidated financial statements.


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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, 2015
161,813,750

 
$
1,618

 
$
911,197

 
$
751,868

 
$
1,664,683

 
$
21,780

 
$
1,686,463

Net income
—

 
—

 
—

 
195,171

 
195,171

 
962

 
196,133

Shares issued under share-based awards
373,332

 
4

 
583

 
—

 
587

 
—

 
587

Excess tax deficit of share-based awards, net
—

 
—

 
(165
)
 
—

 
(165
)
 
—

 
(165
)
Minimum tax withholding paid on behalf of employees for restricted stock units
—

 
—

 
(1,359
)
 
—

 
(1,359
)
 
—

 
(1,359
)
Stock-based compensation expense
—

 
—

 
12,612

 
—

 
12,612

 
—

 
12,612

Share repurchases
(3,560,853
)
 
(36
)
 
(42,046
)
 
—

 
(42,082
)
 
—

 
(42,082
)
Distributions to noncontrolling interests, net
—

 
—

 
—

 
—

 
—

 
(3,363
)
 
(3,363
)
Net effect of consolidations, de-consolidations and other transactions
—

 
—

 
—

 
—

 
—

 
(316
)
 
(316
)
Balance at December 31, 2016
158,626,229

 
1,586

 
880,822

 
947,039

 
1,829,447

 
19,063

 
1,848,510

Net income
—

 
—

 
—

 
113,171

 
113,171

 
138

 
113,309

Shares issued under share-based awards
797,497

 
8

 
3,285

 
—

 
3,293

 
—

 
3,293

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

 
—

 
(2,896
)
 
—

 
(2,896
)
 
—

 
(2,896
)
Stock-based compensation expense
—

 
—

 
11,631

 
—

 
11,631

 
—

 
11,631

Share repurchases
(8,994,705
)
 
(90
)
 
(112,127
)
 
—

 
(112,217
)
 
—

 
(112,217
)
Distributions to noncontrolling interests, net
—

 
—

 
—

 
—

 
—

 
(987
)
 
(987
)
Net effect of consolidations, de-consolidations and other transactions
—

 
—

 
—

 
—

 
—

 
(14,660
)
 
(14,660
)
Balance at September 30, 2017
150,429,021

 
$
1,504

 
$
780,715

 
$
1,060,210

 
$
1,842,429

 
$
3,554

 
$
1,845,983

 
See accompanying condensed notes to the unaudited consolidated financial statements.


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TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
 
Nine Months Ended September 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
113,309

 
$
138,048

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Depreciation and amortization
2,567

 
2,322

Equity in income of unconsolidated entities, net
(4,557
)
 
(3,427
)
Deferred income taxes, net
14,559

 
18,770

Amortization of stock-based compensation
11,631

 
9,648

Charges for impairments and lot option abandonments
1,203

 
678

Excess tax deficit of share-based awards
—

 
(170
)
Changes in assets and liabilities:
 
 
 
Real estate inventories
(401,322
)
 
(442,671
)
Receivables
(3,263
)
 
8,549

Other assets
3,894

 
(16,806
)
Accounts payable
(6,214
)
 
12,827

Accrued expenses and other liabilities
52,640

 
5,876

Returns on investments in unconsolidated entities, net
4,897

 
5,049

Net cash used in operating activities
(210,656
)
 
(261,307
)
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(2,212
)
 
(2,056
)
Proceeds from sale of property and equipment
6

 
—

Investments in unconsolidated entities
(934
)
 
(32
)
Net cash used in investing activities
(3,140
)
 
(2,088
)
Cash flows from financing activities:
 
 
 
Borrowings from debt
500,000

 
491,069

Repayment of debt
(213,726
)
 
(276,826
)
Debt issuance costs
(5,932
)
 
(5,061
)
Net repayments of debt held by variable interest entities
—

 
(2,442
)
Contributions from noncontrolling interests
—

 
1,955

Distributions to noncontrolling interests
(987
)
 
(5,059
)
Proceeds from issuance of common stock under share-based awards
3,293

 
461

Minimum tax withholding paid on behalf of employees for share-based awards
(2,896
)
 
(1,359
)
Share repurchases
(112,217
)
 
(25,113
)
Net cash provided by financing activities
167,535

 
177,625

Net decrease in cash and cash equivalents
(46,261
)
 
(85,770
)
Cash and cash equivalents - beginning of period
208,657

 
214,485

Cash and cash equivalents - end of period
$
162,396

 
$
128,715

 
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.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They should be read in conjunction with our consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016. 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. The results for the three months and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year due to seasonal variations and other factors.
The consolidated financial statements include the accounts of TRI Pointe Group and its wholly owned subsidiaries, as well as other entities in which TRI Pointe Group has a controlling interest and variable interest entities (“VIEs”) in which TRI Pointe Group is the primary beneficiary.  The noncontrolling interests as of September 30, 2017 and December 31, 2016 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.
Use of Estimates
The preparation of our 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 the prior year periods have been reclassified to conform to the presentation of the current year periods, including the Company's reclassification of restructuring charges, which was presented as a separate line item on the consolidated statement of operations in the prior year, and has been reclassified to general and administrative expense for both the current and prior years. This reclassification had no material impact on the Company's condensed consolidated financial statements.

- 7 -


Recently Issued Accounting Standards
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Codified as "ASC 606"). The core principle of ASC 606 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. ASC 606 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. ASC 606 is 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 ASC 606, and we expect to adopt the new standard under the modified retrospective approach. The Company's assessment efforts to date have included reviewing current accounting policies and processes, as well as assigning internal resources to assist in the process. Additionally, the Company has begun to review historical contracts and other arrangements to identify potential differences that could arise from the adoption of ASC 606. We are still evaluating the accounting for certain marketing costs and it is likely that the adoption of ASC 606 will impact the timing of recognition and classification in our consolidated financial statements of certain marketing costs that we incur to obtain sales contracts from our customers. For example, we currently capitalize and amortize various marketing costs with each home delivered in a community. Under the new guidance, these costs may need to be expensed when incurred or capitalized to other assets and amortized to selling expense. Although we are still evaluating our contracts, we do not believe the adoption of ASC 606 will have a material impact on the amount or timing of our home sales revenue, but could impact the amount and timing of land and lot sales. We are continuing to evaluate the exact impact the new standard will have on recording revenue and our marketing costs in our consolidated financial statements and related disclosures.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, (Codified as “ASC 842”), 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. ASC 842 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 ASC 842 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. On January 1, 2017, we adopted ASU 2016-09. This new guidance requires that we record excess tax benefit and tax deficiencies related to the settlement of employee stock-based compensation to the income tax expense line item on our consolidated statement of operations. We previously recorded the excess tax benefits and tax deficiencies to the additional paid-in capital line item on our consolidated balance sheets. Under the new guidance, the Company elected the option to no longer apply a forfeiture rate to our stock-based compensation expense, and to recognize forfeitures as they occur. The adoption of the aforementioned amendments in ASU 2016-09 were applied using the modified retrospective approach and did not have a material impact on our current or prior year financial statements, with no resulting cumulative-effect adjustment to retained earnings. The new guidance also requires excess tax benefits to be classified as an operating activity in the statement of cash flows rather than as a financing activity. Additionally, ASU 2016-09 requires that the minimum tax withholding paid on behalf of employees for share-based awards be classified as a financing activity in the statement of cash flows. Adoption of ASU 2016-09 did not result in any adjustments to prior period disclosures on the statement of cash flows.
In August 2016, the FASB issued Accounting Standards Update No. 2016-15, (“ASU 2016-15”), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact that adoption of ASU 2016-15 may have on our consolidated financial statements and disclosures, however we do not believe the guidance will have a material impact on our financial statements upon adoption.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, (“ASU 2017-04”), Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment, which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted, and applied prospectively. We do not expect ASU 2017-04 to have a material impact on our financial statements.
 

- 8 -



2.
Segment Information
We operate two principal businesses: homebuilding and financial services.
Our homebuilding operations consist of six homebuilding brands 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.
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 originations that help facilitate the sale and closing process as well as generate additional fee income for us. TRI Pointe Assurance provides title examinations for our homebuyers at 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.
Corporate is 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 used for our consolidated financial statements, as described in Note 1, Organization 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.


- 9 -


Total revenues and income before income taxes for each of our reportable segments were as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
Maracay Homes
$
78,167

 
$
68,024

 
$
204,981

 
$
161,318

Pardee Homes
231,376

 
188,148

 
495,452

 
547,311

Quadrant Homes
54,781

 
48,354

 
135,599

 
153,575

Trendmaker Homes
53,787

 
64,251

 
171,615

 
172,509

TRI Pointe Homes
239,110

 
167,769

 
524,159

 
452,553

Winchester Homes
60,219

 
45,248

 
149,065

 
143,361

Total homebuilding revenues
717,440

 
581,794

 
1,680,871

 
1,630,627

Financial services
295

 
235

 
881

 
762

Total
$
717,735

 
$
582,029

 
$
1,681,752

 
$
1,631,389

 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
 
 
 
 
 
 
Maracay Homes
$
6,431

 
$
4,385

 
$
14,429

 
$
9,544

Pardee Homes
82,407

 
37,508

 
128,570

 
165,718

Quadrant Homes
6,251

 
5,497

 
13,104

 
14,808

Trendmaker Homes
3,233

 
3,516

 
9,657

 
9,439

TRI Pointe Homes
24,382

 
11,723

 
39,779

 
34,651

Winchester Homes
4,284

 
1,692

 
6,903

 
6,345

Corporate
(10,151
)
 
(10,288
)
 
(32,868
)
 
(28,581
)
Total homebuilding income before income taxes
116,837

 
54,033

 
179,574

 
211,924

Financial services
1,564

 
1,410

 
3,559

 
3,825

Total
$
118,401

 
$
55,443

 
$
183,133

 
$
215,749

 

- 10 -


Total real estate inventories and total assets for each of our reportable segments, as of the date indicated, were as follows (in thousands):
 
September 30, 2017
 
December 31, 2016
Real estate inventories
 
 
 
Maracay Homes
$
246,223

 
$
228,965

Pardee Homes
1,251,842

 
1,098,608

Quadrant Homes
281,272

 
221,386

Trendmaker Homes
213,179

 
211,035

TRI Pointe Homes
981,813

 
868,088

Winchester Homes
329,092

 
282,545

Total
$
3,303,421

 
$
2,910,627

 
 
 
 
Total assets
 
 
 
Maracay Homes
$
274,263

 
$
255,466

Pardee Homes
1,338,304

 
1,201,302

Quadrant Homes
312,160

 
242,208

Trendmaker Homes
236,800

 
225,025

TRI Pointe Homes
1,162,397

 
1,052,400

Winchester Homes
351,717

 
305,379

Corporate
210,574

 
275,923

Total homebuilding assets
3,886,215

 
3,557,703

Financial services
9,851

 
6,937

Total
$
3,896,066

 
$
3,564,640



3.
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 September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Numerator:
 

 
 

 
 

 
 

Net income available to common stockholders
$
72,264

 
$
34,834

 
$
113,171

 
$
137,310

Denominator:
 

 
 

 
 

 
 

Basic weighted-average shares outstanding
151,214,744

 
160,614,055

 
155,238,206

 
161,456,520

Effect of dilutive shares:
 

 
 
 
 

 
 

Stock options and unvested restricted stock units
915,081

 
653,454

 
697,870

 
459,832

Diluted weighted-average shares outstanding
152,129,825

 
161,267,509

 
155,936,076

 
161,916,352

Earnings per share
 

 
 

 
 

 
 

Basic
$
0.48

 
$
0.22

 
$
0.73

 
$
0.85

Diluted
$
0.48

 
$
0.22

 
$
0.73

 
$
0.85

Antidilutive stock options and unvested restricted stock not included in diluted earnings per share
3,406,498

 
3,806,396

 
3,710,674

 
4,551,337

  

- 11 -



4.
Receivables
Receivables consisted of the following (in thousands):
 
September 30, 2017
 
December 31, 2016
Escrow proceeds and other accounts receivable, net
$
38,660

 
$
35,625

Warranty insurance receivable (Note 13)
45,923

 
46,875

Total receivables
$
84,583

 
$
82,500


Receivables are evaluated for collectability and allowances for potential losses are established or maintained on applicable receivables when collection becomes doubtful.  Receivables were net of allowances for doubtful accounts of $286,000 as of both September 30, 2017 and December 31, 2016.
 

5.
Real Estate Inventories
Real estate inventories consisted of the following (in thousands):
 
September 30, 2017
 
December 31, 2016
Real estate inventories owned:
 
 
 
Homes completed or under construction
$
1,045,648

 
$
659,210

Land under development
1,873,806

 
1,824,989

Land held for future development
135,801

 
226,915

Model homes
218,274

 
155,039

Total real estate inventories owned
3,273,529

 
2,866,153

Real estate inventories not owned:
 
 
 
Land purchase and land option deposits
26,992

 
26,174

Consolidated inventory held by VIEs
2,900

 
18,300

Total real estate inventories not owned
29,892

 
44,474

Total real estate inventories
$
3,303,421

 
$
2,910,627

 
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 7, Variable Interest Entities.
During the quarter ended September 30, 2017, our Pardee Homes reporting segment sold a parcel, consisting of 69 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 $66.8 million of land and lot sales revenue in the consolidated statements of operations for the three and nine months ended September 30, 2017.
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 nine months ended September 30, 2016.

- 12 -


Interest incurred, capitalized and expensed were as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Interest incurred
$
22,865

 
$
18,601

 
$
61,669

 
$
50,030

Interest capitalized
(22,865
)
 
(18,601
)
 
(61,669
)
 
(50,030
)
Interest expensed
$
—

 
$
—

 
$
—

 
$
—

Capitalized interest in beginning inventory
$
173,261

 
$
151,347

 
$
157,329

 
$
140,311

Interest capitalized as a cost of inventory
22,865

 
18,601

 
61,669

 
50,030

Interest previously capitalized as a cost of
inventory, included in cost of sales
(15,899
)
 
(14,415
)
 
(38,771
)
 
(34,808
)
Capitalized interest in ending inventory
$
180,227

 
$
155,533

 
$
180,227

 
$
155,533

 
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 or cost of land and lot sales as related units or lots are delivered.  Interest that is expensed as incurred is included in other income, net.
Real estate inventory impairments and land option abandonments
Real estate inventory impairments and land and lot option abandonments and pre-acquisition charges consisted of the following (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Real estate inventory impairments
$
—

 
$
—

 
$
267

 
$
—

Land and lot option abandonments and pre-acquisition charges
374

 
389

 
936

 
678

Total
$
374

 
$
389

 
$
1,203

 
$
678

 
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.  
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. 
Real estate inventory impairments and land option abandonments are recorded in cost of home sales and cost of land and lot sales on the consolidated statements of operations.
  

6.
Investments in Unconsolidated Entities
As of September 30, 2017, 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 65%, depending on the investment, with no controlling interest held in any of these investments.

- 13 -


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):
 
September 30, 2017
 
December 31, 2016
Limited liability company interests
$
14,433

 
$
14,327

General partnership interests
3,183

 
3,219

Total
$
17,616

 
$
17,546

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 of unconsolidated entities.
Assets and liabilities of unconsolidated entities (in thousands):
 
 
September 30, 2017
 
December 31, 2016
Assets
 
 
 
Cash
$
11,895

 
$
9,796

Receivables
4,871

 
10,203

Real estate inventories
98,370

 
97,402

Other assets
924

 
1,087

Total assets
$
116,060

 
$
118,488

Liabilities and equity
 
 
 
Accounts payable and other liabilities
$
8,612

 
$
12,844

Company’s equity
17,616

 
17,546

Outside interests' equity
89,832

 
88,098

Total liabilities and equity
$
116,060

 
$
118,488

 
Results of operations from unconsolidated entities (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Net sales
$
5,404

 
$
4,619

 
$
15,722

 
$
12,516

Other operating expense
(3,532
)
 
(2,913
)
 
(9,714
)
 
(8,067
)
Other income
36

 
1

 
60

 
3

Net income
$
1,908

 
$
1,707

 
$
6,068

 
$
4,452

Company’s equity in income of unconsolidated entities
$
1,351

 
$
1,227

 
$
4,557

 
$
3,427

  

7.
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.

- 14 -


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.
The following provides a summary of our interests in land and lot option agreements (in thousands):
 
September 30, 2017
 
December 31, 2016
 
Deposits
 
Remaining
Purchase
Price
 
Consolidated
Inventory
Held by VIEs
 
Deposits
 
Remaining
Purchase
Price
 
Consolidated
Inventory
Held by VIEs
Consolidated VIEs
$
75

 
$
2,828

 
$
2,900

 
$
400

 
$
17,900

 
$
18,300

Unconsolidated VIEs
2,450

 
74,034

 
N/A

 
2,375

 
49,016

 
N/A

Other land option agreements
24,542

 
278,566

 
N/A

 
23,799

 
246,658

 
N/A

Total
$
27,067

 
$
355,428

 
$
2,900

 
$
26,574

 
$
313,574

 
$
18,300

 
Unconsolidated VIEs represent land option agreements that were not consolidated because we were not the primary beneficiary. Other land 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 $3.7 million and $3.6 million as of September 30, 2017 and December 31, 2016, respectively. These pre-acquisition costs were included in real estate inventories as land under development on our consolidated balance sheets.  
  

8.
Goodwill and Other Intangible Assets
As of September 30, 2017 and December 31, 2016, $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 2, Segment Information. 
We have two intangible assets as of September 30, 2017, comprised of an existing trade name from the acquisition of Maracay Homes in 2006, which has a 20 year useful life, and a TRI Pointe Homes trade name resulting from the acquisition of Weyerhaeuser Real Estate Company (“WRECO”) in 2014, which has an indefinite useful life.
Goodwill and other intangible assets consisted of the following (in thousands):
 
September 30, 2017
 
December 31, 2016
 
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

 
(6,189
)
 
21,790

 
27,979

 
(5,788
)
 
22,191

Total
$
167,283

 
$
(6,189
)
 
$
161,094

 
$
167,283

 
$
(5,788
)
 
$
161,495

 

- 15 -


The remaining useful life of our amortizing intangible asset related to the Maracay Homes trade name was 8.4 and 9.2 years as of September 30, 2017 and December 31, 2016, respectively. Amortization expense related to this intangible asset was $134,000 for each of the three-month periods ended September 30, 2017 and 2016, respectively, and $401,000 for each of the nine-month periods ended September 30, 2017 and 2016, respectively. Amortization of this intangible 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 2017, the next four years and thereafter is (in thousands):
Remainder of 2017
$
133

2018
534

2019
534

2020
534

2021
534

Thereafter
2,221

Total
$
4,490



9.
Other Assets
Other assets consisted of the following (in thousands):
 
September 30, 2017
 
December 31, 2016
Prepaid expenses
$
19,117

 
$
24,495

Refundable fees and other deposits
18,921

 
17,731

Development rights, held for future use or sale
2,569

 
2,569

Deferred loan costs - unsecured revolving credit facility
3,655

 
2,101

Operating properties and equipment, net
10,696

 
10,884

Income tax receivable
1,181

 
—

Other
2,153

 
2,812

Total
$
58,292

 
$
60,592

 

10.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
 
September 30, 2017
 
December 31, 2016
Accrued payroll and related costs
$
26,133

 
$
33,761

Warranty reserves (Note 13)
80,922

 
83,135

Estimated cost for completion of real estate inventories
84,793

 
59,531

Customer deposits
28,039

 
13,437

Income tax liability to Weyerhaeuser (Note 16)
7,200

 
8,589

Accrued income taxes payable
10,978

 
1,200

Liability for uncertain tax positions (Note 16)
1,416

 
—

Accrued interest
22,599

 
11,570

Other tax liability
36,657

 
34,961

Other
17,750

 
17,661

Total
$
316,487

 
$
263,845



- 16 -



11.
Senior Notes, Unsecured Revolving Credit Facility and Seller Financed Loans
Senior Notes
The Senior Notes consisted of the following (in thousands):
 
 
September 30, 2017
 
December 31, 2016
4.375% Senior Notes due June 15, 2019
$
450,000

 
$
450,000

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

 
300,000

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

 
450,000

5.250% Senior Notes due June 1, 2027
300,000

 
—

Discount and deferred loan costs
(30,442
)
 
(31,693
)
Total
$
1,469,558

 
$
1,168,307

 
In June 2017, TRI Pointe Group issued $300 million aggregate principal amount of 5.250% Senior Notes due 2027 (the "2027 Notes") at 100.00% of their aggregate principal amount. Net proceeds of this issuance were $296.3 million, after debt issuance costs and discounts. The 2027 Notes mature on June 1, 2027 and interest is paid semiannually in arrears on June 1 and December 1 of each year until maturity, beginning on December 1, 2017.
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 $293.9 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 its 100% owned subsidiary TRI Pointe Homes, Inc. ("TRI Pointe Homes") are co-issuers of the 4.375% Senior Notes due 2019 (the "2019 Notes") and the 5.875% Senior Notes due 2024 (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 September 30, 2017, no principal has been paid on the 2019 Notes, 2021 Notes, 2024 Notes and 2027 Notes (together, the "Senior Notes"), and there was $21.1 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 $22.1 million and $10.7 million as of September 30, 2017 and December 31, 2016, respectively.
Unsecured Revolving Credit Facility
Unsecured revolving credit facility consisted of the following (in thousands):
 
September 30, 2017
 
December 31, 2016
Unsecured revolving credit facility
$
200,000

 
$
200,000

 
On June 20, 2017, the Company modified its existing unsecured revolving credit facility (the “Credit Facility”) to extend the maturity date by two years to May 18, 2021, while decreasing the total commitments under the Credit Facility to $600 million from $625 million. In addition, the Credit Facility was modified to give the Company the option to make offers to the lenders to extend the maturity date of the facility in twelve-month increments, subject to the satisfaction of certain conditions. The Credit Facility 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 1.25% to 2.00%, depending on the Company’s leverage ratio. As of September 30, 2017, the outstanding balance under the Credit Facility was $200.0 million with an interest rate of 2.99% per annum and there was $392.2 million of availability after considering the borrowing base provisions and outstanding letters of

- 17 -


credit.  As of September 30, 2017 there was $3.7 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, 2021.  Accrued interest related to the Credit Facility was $505,000 and $658,000 as of September 30, 2017 and December 31, 2016, respectively.
At September 30, 2017 we had outstanding letters of credit of $7.8 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):
 
September 30, 2017
 
December 31, 2016
Seller financed loans
$
—

 
$
13,726

 
Accrued interest on a seller financed loan outstanding as of December 31, 2016 was $519,000.
Interest Incurred
During the three-month periods ended September 30, 2017 and 2016, the Company incurred interest of $22.9 million and $18.6 million, respectively, related to all debt during the period.  Included in interest incurred was amortization of deferred financing and Senior Note discount costs of $2.0 million and $1.8 million for the three months ended September 30, 2017 and 2016, respectively. During the nine-month periods ended September 30, 2017 and 2016, the Company incurred interest of $61.7 million and $50.0 million, respectively, related to all debt during the period. Included in interest incurred was amortization of deferred financing and Senior Notes discount costs of $5.6 million and $4.7 million for the nine months ended September 30, 2017 and 2016, respectively.  Accrued interest related to all outstanding debt at September 30, 2017 and December 31, 2016 was $22.6 million and $11.6 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 September 30, 2017 and December 31, 2016.


12.
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

- 18 -


Fair Value of Financial Instruments
A summary of assets and liabilities at September 30, 2017 and December 31, 2016, related to our financial instruments, measured at fair value on a recurring basis, is set forth below (in thousands):
 
 
 
September 30, 2017
 
December 31, 2016
 
Hierarchy
 
Book Value
 
Fair Value
 
Book Value
 
Fair Value
Senior Notes (1)
Level 2
 
$
1,490,706

 
$
1,558,500

 
$
1,189,180

 
$
1,219,125

Unsecured revolving credit facility (2)
Level 2
 
$
200,000

 
$
195,058

 
$
200,000

 
$
177,410

Seller financed loan (3)
Level 2
 
$
—

 
$
—

 
$
13,726

 
$
13,189

 __________
(1) 
The book value of the Senior Notes is net of discounts, excluding deferred loan costs of $21.1 million and $20.9 million as of September 30, 2017 and December 31, 2016, respectively. The estimated fair value of the Senior Notes at September 30, 2017 and December 31, 2016 is based on quoted market prices.
(2) 
The estimated fair value of the Credit Facility at September 30, 2017 and December 31, 2016 is based on a treasury curve analysis.
(3) 
The estimated fair value of the seller financed loan at December 31, 2016 is based on a treasury curve analysis.

At September 30, 2017 and December 31, 2016, 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 indicating 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):
 
Nine Months Ended September 30, 2017
 
Year Ended December 31, 2016
 
Impairment
Charge
 
Fair Value
Net of
Impairment
 
Impairment
Charge
 
Fair Value
Net of
Impairment
Real estate inventories (1)
$
267

 
$
1,574

 
$
—

 
$
—

 __________
(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 an analysis of future undiscounted net cash flows.  In the case of lots for sale, fair value was determined based on recent land and lot sales for similar assets.

13.
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, environmental protection and financial services. 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, we had legal reserves of $100,000 and $225,000 as of September 30, 2017 and December 31, 2016, respectively.

- 19 -


On April 3, 2017, Pardee Homes was named as a defendant in a lawsuit filed in San Diego County Superior Court by Scripps Health (“Scripps”) related to the April 1989 sale by Pardee Homes of real property located in Carmel Valley, California to Scripps pursuant to a purchase agreement dated December 18, 1987 (as amended, the “Purchase Agreement”). In March 2003, Scripps contacted Pardee Homes and alleged Pardee Homes had breached a covenant in the Purchase Agreement by failing to record a restriction against the development of the surrounding property then owned by Pardee Homes for medical office use. In November 2003, the parties entered into a tolling agreement, pursuant to which the parties agreed to toll any applicable statutes of limitation from November 3, 2003 until the expiration of the agreement. The tolling agreement did not revive any cause of action already time barred by a statute of limitation as of November 3, 2003. The tolling agreement was terminated as of February 21, 2017. Pardee Homes became an indirect, wholly owned subsidiary of TRI Pointe on July 7, 2014 in connection with TRI Pointe’s acquisition of WRECO.
We intend to vigorously defend the action, and intend to continue challenging Scripps' claims. Although we cannot predict or determine the timing or final outcome of the lawsuit or the effect that any adverse findings or determinations may have on us, we believe Scripps' claims against Pardee Homes are without merit and that this dispute will not have a material impact on our business, liquidity, financial condition and results of operations. An unfavorable determination could result in the payment by us of monetary damages, which could be significant. The complaint does not indicate the amount of relief sought, and an estimate of possible loss or range of loss cannot presently be made with respect to this matter. No reserve with respect to this matter has been recorded on our consolidated financial statements.
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 warranty and construction defect-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. 
Our warranty reserve and related estimated insurance recoveries are based on actuarial analysis that uses our historical claim and expense data, as well as industry data to estimate these overall costs and related recoveries. Key assumptions used in developing these estimates include claim frequencies, severities and resolution patterns, which can occur over an extended period of time. These estimates are subject to variability due to the length of time between the delivery of a home to a homebuyer and when a warranty or construction defect claim is made, and the ultimate resolution of such claim; uncertainties regarding such claims relative to our markets and the types of product we build; and legal or regulatory actions and/or interpretations, among other factors. Due to the degree of judgment involved and the potential for variability in these underlying assumptions, our actual future costs could differ from those estimated. 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.
We also record expected recoveries from insurance carriers based on actual insurance claims made and actuarially determined amounts that depend on various factors, including the above-described reserve estimates, our insurance policy coverage limits for the applicable policy years and historical recovery rates. Because of the inherent uncertainty and variability in these assumptions, our actual insurance recoveries could differ significantly from amounts currently estimated. Outstanding warranty insurance receivables were $45.9 million and $46.9 million as of September 30, 2017 and December 31, 2016, respectively. Warranty insurance receivables are recorded in receivables on the accompanying consolidated balance sheet.

- 20 -


Warranty reserve activity consisted of the following (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Warranty reserves, beginning of period(1)
$
80,128

 
$
45,272

 
$
83,135

 
$
45,948

Warranty reserves accrued
4,448

 
3,329

 
10,122

 
8,373

Adjustments to pre-existing reserves
400

 
200

 
1,021

 
460

Warranty expenditures
(4,054
)
 
(3,136
)
 
(13,356
)
 
(9,116
)
Warranty reserves, end of period
$
80,922

 
$
45,665

 
$
80,922

 
$
45,665

 __________
(1) 
Included in the 2017 opening balance is approximately $38.0 million of additional warranty liabilities estimated to be covered by our insurance policies that were adjusted to present the warranty reserves and related estimated warranty insurance receivable on a gross basis at December 31, 2016. Of the $38.0 million, approximately $36.5 million related to prior year estimated warranty insurance recoveries.

Performance Bonds
We obtain surety bonds in the normal course of business to ensure completion of certain infrastructure improvements of our projects. As of September 30, 2017 and December 31, 2016, the Company had outstanding surety bonds totaling $544.3 million and $449.6 million, respectively. The beneficiaries of the bonds are various municipalities.

- 21 -


14.
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, bonus 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 September 30, 2017, there were 6,207,889 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.  
The following table presents compensation expense recognized related to all stock-based awards (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Total stock-based compensation
$
3,887

 
$
3,285

 
$
11,631

 
$
9,648

 
Stock-based compensation is charged to general and administrative expense on the accompanying consolidated statements of operations.  As of September 30, 2017, total unrecognized stock-based compensation related to all stock-based awards was $21.3 million and the weighted average term over which the expense was expected to be recognized was 1.7 years.
Summary of Stock Option Activity
The following table presents a summary of stock option awards for the nine months ended September 30, 2017:
 
Options
 
Weighted
Average
Exercise
Price
Per Share
 
Weighted
Average
Remaining
Contractual
Life
 
Aggregate
Intrinsic
Value
(in thousands)
Options outstanding at December 31, 2016
2,971,370

 
$
13.12

 
4.4

 
$
1,568

Granted
—

 
—

 
—

 
—

Exercised
(318,419
)
 
10.34

 
—

 
—

Forfeited
(686,720
)
 
14.16

 
—

 
—

Options outstanding at September 30, 2017
1,966,231

 
13.44

 
5.0

 
2,322

Options exercisable at September 30, 2017
1,851,395

 
13.39

 
4.9

 
2,322

 

- 22 -


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 nine months ended September 30, 2017:
 
Restricted
Stock
Units
 
Weighted
Average
Grant Date
Fair Value
Per Share
 
Aggregate
Intrinsic
Value
(in thousands)
Nonvested RSUs at December 31, 2016
3,412,719

 
$
9.77

 
$
39,178

Granted
1,670,936

 
11.00

 
22,508

Vested
(714,612
)
 
12.34

 
—

Forfeited
(40,362
)
 
11.68

 
—

Nonvested RSUs at September 30, 2017
4,328,681

 
9.80

 
58,307

 
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 (“TSR”) to the TSRs 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. On March 27, 2017, 21,276 of these RSUs vested in their entirety and on May 25, 2017, 53,190 of these RSUs vested in their entirety. 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 was expensed on a straight-line basis over the vesting period.
On February 27, 2017, the Company granted an aggregate of 990,279 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 February 27, 2017 was measured using a price of $12.10 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.


- 23 -


On February 27, 2017, the Company granted 257,851, 247,933 and 119,008 performance-based RSUs to the Company’s Chief Executive Officer, President, and Chief Financial Officer, respectively. These performance-based RSUs are allocated in equal parts to two separate performance metrics: (i) TSR, with vesting based on the Company’s TSR relative to its peer-group homebuilders; and (ii) earnings per share. 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 performance period for these performance-based RSUs is January 1, 2017 to December 31, 2019. The fair value of the performance-based RSUs related to the TSR metric was determined to be $6.16 per share 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 $12.10 per share, which was the closing stock price on the date of grant. Each award will be expensed over the requisite service period.

On May 30, 2017, the Company granted an aggregate of 55,865 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 2018 Annual Meeting of Stockholders. The fair value of each RSU granted on May 30, 2017 was measured using a price of $12.53 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 for employees, 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.


15.
Stock Repurchase Program
On February 23, 2017, our board of directors approved a new stock repurchase program, authorizing the repurchase of our common stock with an aggregate value of up to $100 million through March 31, 2018 (the “2017 Repurchase Program”).  On July 25, 2017 our board of directors authorized the repurchase of up to an additional $50 million of our common stock under the 2017 Repurchase Program, increasing the aggregate authorization from $100 million to $150 million. Purchases of common stock pursuant to the 2017 Repurchase Program 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 Securities Exchange Act of 1934, as amended.  We are not obligated under the 2017 Repurchase 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. For the three months ended September 30, 2017, we repurchased and retired 975,700 shares of our common stock under the 2017 Repurchase Program at a weighted average price of $12.83 per share for a total cost of $12.5 million. For the nine months ended September 30, 2017, we repurchased and retired 8,994,705 shares of our common stock under the 2017 Repurchase Program at a weighted average price of $12.48 per share for a total cost of $112.2 million.

16.
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 $108.7 million and $123.2 million as of September 30, 2017 and December 31, 2016, respectively.  We had a valuation allowance related to those net deferred tax assets of $323,000 as of both September 30, 2017 and December 31, 2016.  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.

- 24 -


TRI Pointe has certain liabilities with Weyerhaeuser Company (“Weyerhaeuser”) related to a tax sharing agreement.  As of September 30, 2017 and December 31, 2016, we had an income tax liability to Weyerhaeuser of $7.2 million and $8.6 million, respectively. The income tax liability to Weyerhaeuser is recorded in accrued expenses and other liabilities on the accompanying consolidated balance sheets.
Our provision for income taxes totaled $46.1 million and $20.3 million for the three months ended September 30, 2017 and 2016, respectively.  Our provision for income taxes totaled $69.8 million and $77.7 million for the nine months ended September 30, 2017 and 2016, respectively. The Company classifies any interest and penalties related to income taxes assessed by jurisdiction as part of income tax expense.  The Company had $1.4 million of uncertain tax positions recorded as of September 30, 2017. The Company had no uncertain tax positions as of December 31, 2016.  The Company has not been assessed interest or penalties by any major tax jurisdictions related to prior years. 
  
17.
Related Party Transactions
We had no related party transactions for the nine months ended September 30, 2017.
In May of 2016, we entered into an agreement with an affiliate of Starwood Capital Group, a then greater than 5% holder of our common stock, to acquire 52 lots located in Azusa, California, for an aggregate purchase price of $18.4 million. In October of 2016, we acquired 27 of these lots for a purchase price of $9.6 million. Our former Chairman of the Board is also the Chairman and Chief Executive Officer of Starwood Capital Group. This acquisition was approved by our independent directors. In August of 2016, we entered into an agreement with an affiliate of Starwood Capital Group to purchase 257 lots located in Castle Rock, Colorado, for an aggregate purchase price of approximately $8.6 million. In October of 2016, we acquired 126 of these lots for a purchase price of $4.2 million. This acquisition was approved by our independent directors. As of March 27, 2017, Starwood Capital Group is no longer a related party.
In 2016, we acquired 93 lots located in Dublin, California, for a purchase price of approximately $25.5 million from an affiliate of BlackRock, Inc., a greater than 5% holder of our common stock. This acquisition was approved by the vote of our independent directors in accordance with the requirements of the Company’s Code of Business Conduct and Ethics.

18.
Supplemental Disclosure to Consolidated Statements of Cash Flows
The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):
 
Nine Months Ended September 30,
 
2017
 
2016
Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of amounts capitalized of $61,669 and $50,030 (Note 5)
$
—

 
$
—

Income taxes
$
44,784

 
$
89,269

Supplemental disclosures of noncash activities:
 
 
 
Amortization of senior note discount capitalized to real estate inventory
$
1,525

 
$
1,321

Amortization of deferred loan costs capitalized to real estate inventory
$
4,104

 
$
2,865

Effect of net consolidation and de-consolidation of variable interest entities:
 
 
 
Decrease in consolidated real estate inventory not owned
$
(14,660
)
 
$
3,484

Decrease in noncontrolling interests
$
14,660

 
$
(3,484
)
  

- 25 -


19.
Supplemental Guarantor Information
2021 Notes and 2027 Notes
On May 26, 2016, TRI Pointe Group issued the 2021 Notes. On June 5, 2017, TRI Pointe Group issued the 2027 Notes. All of TRI Pointe Group’s 100% owned subsidiaries that are guarantors (each a “Guarantor” and, collectively, the “Guarantors”) of the Credit Facility, including TRI Pointe Homes, are party to supplemental indentures pursuant to which they jointly and severally guarantee TRI Pointe Group’s obligations with respect to the 2021 Notes and the 2027 Notes. Each Guarantor of the 2021 Notes and the 2027 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 and the 2027 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 and the 2027 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 or the 2027 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 September 30, 2017 and December 31, 2016, condensed consolidating statements of operations for the three and nine months ended September 30, 2017 and 2016 and condensed consolidating statement of cash flows for the nine months ended September 30, 2017 and 2016.  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”.

- 26 -


Condensed Consolidating Balance Sheet (in thousands):
 
 
September 30, 2017
 
Issuer
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
86,046

 
$
76,350

 
$
—

 
$
162,396

Receivables
29,963

 
54,620

 
—

 
84,583

Intercompany receivables
940,894

 
—

 
(940,894
)
 
—

Real estate inventories
981,813

 
2,321,608

 
—

 
3,303,421

Investments in unconsolidated entities
—

 
17,616

 
—

 
17,616

Goodwill and other intangible assets, net
156,604

 
4,490

 
—

 
161,094

Investments in subsidiaries
1,388,227

 
—

 
(1,388,227
)
 
—

Deferred tax assets, net
15,644

 
93,020

 
—

 
108,664

Other assets
7,953

 
50,339

 
—

 
58,292

Total Assets
$
3,607,144

 
$
2,618,043

 
$
(2,329,121
)
 
$
3,896,066

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Accounts payable
$
8,561

 
$
55,477

 
$
—

 
$
64,038

Intercompany payables
—

 
940,894

 
(940,894
)
 
—

Accrued expenses and other liabilities
86,596

 
229,891

 
—

 
316,487

Unsecured revolving credit facility
200,000

 
—

 
—

 
200,000

Senior notes
1,469,558

 
—

 
—

 
1,469,558

Total Liabilities
1,764,715

 
1,226,262

 
(940,894
)
 
2,050,083

 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
Total stockholders’ equity
1,842,429

 
1,388,227

 
(1,388,227
)
 
1,842,429

Noncontrolling interests
—

 
3,554

 
—

 
3,554

Total Equity
1,842,429

 
1,391,781

 
(1,388,227
)
 
1,845,983

Total Liabilities and Equity
$
3,607,144

 
$
2,618,043

 
$
(2,329,121
)
 
$
3,896,066




- 27 -


Condensed Consolidating Balance Sheet (in thousands):
 
 
December 31, 2016
 
Issuer
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
141,568

 
$
67,089

 
$
—

 
$
208,657

Receivables
26,692

 
55,808

 
—

 
82,500

Intercompany receivables
775,321

 
—

 
(775,321
)
 
—

Real estate inventories
868,088

 
2,042,539

 
—

 
2,910,627

Investments in unconsolidated entities
—

 
17,546

 
—

 
17,546

Goodwill and other intangible assets, net
156,604

 
4,891

 
—

 
161,495

Investments in subsidiaries
1,285,295

 
—

 
(1,285,295
)
 
—

Deferred tax assets, net
15,644

 
107,579

 
—

 
123,223

Other assets
11,401

 
49,191

 
—

 
60,592

Total Assets
$
3,280,613

 
$
2,344,643

 
$
(2,060,616
)
 
$
3,564,640

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Accounts payable
$
20,637

 
$
49,615

 
$
—

 
$
70,252

Intercompany payables
—

 
775,321

 
(775,321
)
 
—

Accrued expenses and other liabilities
48,496

 
215,349

 
—

 
263,845

Unsecured revolving credit facility
200,000

 
—

 
—

 
200,000

Seller financed loans
13,726

 
—

 
—

 
13,726

Senior notes
1,168,307

 
—

 
—