Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

x
ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

2016

or

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto.

Commission File No. 001-35873

TAYLOR MORRISON HOME CORPORATION

(Exact name of registrant as specified in its charter)

Delaware 90-0907433

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

4900 N. Scottsdale Road, Suite 2000, Scottsdale, Arizona 85251

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (480) 840-8100

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class

 

Name of each exchange on which registered

Class A Common Stock, $0.00001 par value New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No    xý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  xý

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  xý    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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  xý    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  xý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

(Check one):
Large accelerated filerx¨Accelerated filer¨
ý
Non-accelerated filer¨Smaller reporting company¨

(Do not check if 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  xý

The aggregate market value of voting stock held by non-affiliates of the registrant on June 30, 20142016 was $737,350,395,$430,501,870, based on the closing sales price per share as reported by the New York Stock Exchange on such date.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of February 27, 2015:

21, 2017:

Class

 Outstanding

Class A Common Stock, $0.00001 par value

 42,064,42233,071,755

Class B Common Stock, $0.00001 par value

 77,405,23389,200,063

Documents Incorporated by Reference

Portions of Part III of this Form 10-K are incorporated by reference from the Registrant’s definitive proxy statement for its 20152017 annual meeting of shareholders to be filed with the Securities and Exchange Commission no later than 120 days after the end of the Registrant’s fiscal year.


Table of Contents

TAYLOR MORRISON HOME CORPORATION

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2014

2016


TABLE OF CONTENTS

  
Page
Number
 Page
Number
PART I
 
Item 1.
Business
PART I2

Item 1.

1A.
Risk Factors

Business12

Item 1B.
Unresolved Staff Comments
30
Item 2.
Properties
30
Item 3.
Legal Proceedings
30
Item 4.
Mine Safety Disclosures
31
  
2
PART II
 

Item 1A.

Risk Factors

15

Item 1B.

Unresolved Staff Comments

34

Item 2.

Properties

35

Item 3.

Legal Proceedings

35

Item 4.

Mine Safety Disclosures

35
PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

36
32

Item 6.

Selected Financial Data

38
33

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

39
35

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

63
56

Item 8.

Financial Statements and Supplementary Data

64
57

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

99
Item 9A.
Controls and Procedures
99
Item 9B.
Other Information
101
  
106
PART III
 

Item 9A.

Controls and Procedures

106

Item 9B.

Other Information

107
PART III

Item 10.

Directors, Executive Officers and Corporate Governance

108
102

Item 11.

Executive Compensation

108
102

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

108
102

Item 13.

Certain Relationships and Related Transactions, and Director Independence

109
102

Item 14.

Principal Accounting Fees and Services

102
  
109
PART IV
 
PART IV

Item 15.

Exhibits and Financial Statement Schedules

109
103
Item 16.
Form 10-K Summary

Signatures106

113

i

TAYLOR MORRISON HOME CORPORATION

 
Signatures
Page
Number

Report of Independent Registered Public Accounting Firm106

64

Consolidated Balance Sheets as of December 31, 2014 and 2013

65

Consolidated Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012

66

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014, 2013 and 2012

67

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2014, 2013 and 2012

68

Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012

69

Notes to the Consolidated Financial Statements

70

Separate combined financial statements



i
Table of our unconsolidated joint venture activities have been omitted because, if considered in the aggregate, they would not constitute a significant subsidiary as defined by Rule 3-09 of Regulation S-X.

ii

Contents


Available Information


Information about our company and communities is provided on our Internet websites at www.taylormorrison.com and www.darlinghomes.com (collectively, the “Taylor Morrison website”). The information contained on or accessible through the Taylor Morrison websiteswebsite is not considered part of this Annual Report on Form 10-K (“Annual Report”). Our periodic and current reports, including any amendments, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available, free of charge, on our Taylor Morrison website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). These filings are also available on the SEC’s website at www.sec.gov. In addition to our SEC filings, our corporate governance documents, including our Code of Conduct and Ethics and Corporate Governance Guidelines are available on the “Investor Relations” page of our Taylor Morrison website under “Corporate Governance.” To the extent required by the SEC's rules and regulations, we intend to post amendments to or waivers from, if any, provisions of our Code of Conduct and Ethics (to the extent applicable to our directors, principal executive officer, principal financial officer and principal accounting officer) at this location on the Taylor Morrison website. Our stockholders may also obtain these documents in paper format free of charge upon request made to our Investor Relations department.


In this Annual Report, unless the context requires otherwise, references to “the Company,” “we,” “us,” or “our” are to Taylor Morrison Home Corporation (“TMHC”) and its subsidiaries.

The July 2007 merger between Taylor Woodrow plc and George Wimpey plc, two UK-based, publicly listed homebuilders, resulted in the formation of Taylor Wimpey plc (the “Predecessor Parent Company”), and the subsequent integration of Taylor Woodrow Holdings (USA), Inc. and Morrison Homes, Inc. in the U.S. resulting in Taylor Morrison Communities, Inc. (“Taylor Morrison Communities”, “Taylor Morrison” or “TMC”), and Monarch Corporation (“Monarch”) in Canada. Monarch was sold to a third party on January 28, 2015.


TMHC was incorporated in Delaware in November 2012. Our principal executive offices are located at 4900 N. Scottsdale Road, Suite 2000, Scottsdale, Arizona 85251 and the telephone number is (480) 840-8100.


Forward-Looking Statements


Certain information included in this Annual Report or in other materials we have filed or will file with the SEC (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act. You can identify these statements by the fact that they do not relate to matters of strictly historical or factual nature and generally discuss or relate to estimates or other expectations regarding future events. They contain words such as, but not limited to, “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “can,” “could,” “might,” “should” and other words or phrases of similar meaning in connection with any discussion of our strategy or future operating or financial performance. As you read this Annual Report and other reports or public statements, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions, including those described under the heading “Risk Factors” in Part I, Item 1A.1A and elsewhere in this Annual Report. Although we believe that these forward-looking statements are based upon reasonable assumptions, you should be aware that many factors, including those described under the heading “Risk Factors” in Part I, Item 1A.1A, and elsewhere in this Annual Report, could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements.


Forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.otherwise, except as required by law. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995, and all of our forward-looking statements are expressly qualified in their entirety by the cautionary statements contained or referenced in this section.



PART I


ITEM 1. BUSINESS


General Overview

During 2014 we were


We are one of the largest public homebuilders in North America, with communities located in the United States and Canada. In December 2014, we announced the strategic decision to sell our Canadian business and fully focus on our U.S. operations. We are now, and will continue to be, a leading public homebuilder in the United States. We are also a real estateland developer, with a portfolio of lifestyle and master-planned communities. We provide a diverse assortment of homes across a wide range of price points in orderpoints. We strive to appeal to a broad spectrum of customers. Our primary focus is on move-up buyerscustomers in traditionally high growth markets, where we design, build and sell single-family detached and attached homes. Our legacy of over 100 years of homebuilding experience drives our commitment to quality in every community we develop and every home we build. We operate under the Taylor Morrison and Darling Homes brand names in the United States.names. We also provide financial services to customers through our wholly owned mortgage subsidiary, Taylor Morrison Home Funding, LLC (“TMHF”) and title insurance and closing settlement services through our title company, Inspired Title Services, LLC (“Inspired Title”).


We have operations in Arizona, California, Colorado, Florida, Georgia, Illinois, North Carolina and Texas. Our business is organized into multiple homebuilding operating divisions and a mortgage and title services division, which are managed as multiple reportable segments, as follows:
EastAtlanta, Charlotte, North Florida, Raleigh, Southwest Florida, and Tampa
CentralAustin, Dallas, and Houston (each of the Dallas and Houston markets include both a Taylor Morrison division and a Darling Homes division)
WestBay Area, Chicago, Denver, Phoenix, Sacramento, and Southern California
Mortgage OperationsTaylor Morrison Home Funding (“TMHF”) and Inspired Title Services, LLC (“Inspired Title”)

Our long-term strategy is built on four pillars:

opportunistic land acquisition in
pursuing core locations;

building distinctive communities driven by consumer preferences;communities;

culturemaintaining a cost-efficient culture; and
appropriately balancing price with pace in the sale of strong cost efficiency; andour homes.

optimizing profitability while achieving desired sales pace.

We are committed to creatingbuilding authentic homes and designing superiorengaging communities that inspire, delight and building quality homes.enhance the lives of our customers. Delivering on this commitment involves thoughtful design and analysis to accommodate the living environment needs of our customers and the surrounding community. We have developed elem3nts™ byThe Taylor Morrison difference begins with providing our eco-sensitive building program, which seekscustomers with homes that are both conducive to build energy-efficient homes by drawing on technologytheir lifestyles and building methodsthat are built to lessenlast. We take pride in our quality construction, superior design and customer service. Our dedication to customer service defines our customer experience and acknowledges homeowners’ suggestions to incorporate style, quality and sustainability into every community we build. Our commitment to quality prioritizes the carbon footprintlong-term satisfaction of our homes. homeowners. Our communities are typically built in locations in close proximity to schools and shopping, often have amenities and public gathering areas, with a focus on delivering superior lifestyles to customers and their families.

In recognition of our achievements in this area,commitment to home buyers, we were awarded America’s Most Trusted Home Builder® by Lifestory Research in 2016 and 2017, which is based on the 2014 Greenreviews of more than 30,000 consumers. We are also ranked the second highest in the active adult resort home builder brands according to Lifestory Research America’s Most Trusted® 2016 and 2017 Active Adult Home Builder Brand Study, which was based on almost 11,000 consumers.

Some of the Year award by Green Builder Magazine.

Including our Canadian business,recent acquisitions include our acquisition in April 2015 of JEH Homes, an Atlanta based homebuilder, for the five years ended December 31, 2014 we delivered 24,413 homes and generated $9.3 billion of home closings revenue. We have delivered five consecutive years of operating profit and were one of the first builders to return to profitability in 2010. We believe that our balance sheet has both the liquidity and asset strength required to execute our growth strategy. We have raised over $900 million in corporate and joint venture financing since the beginning of 2013, and had a net debt to total book capitalization of 40.6% at December 31, 2014. As of and for the year ended December 31, 2014, we had cash and liquiditypurchase price of approximately $800$63.2 million, excluding contingent consideration, which yielded approximately 2,000 lots; our acquisition in July 2015 of three divisions of Orleans Homes for a purchase price of approximately $167.3 million, which collectively yielded approximately 2,100 lots in new markets within Charlotte, Chicago and total company revenue growthRaleigh, further expanding our geographic footprint; and our acquisition in January 2016 of over 33.6% year over year. Our home closings revenueAcadia Homes in Atlanta for approximately $83.6 million, which yielded approximately 1,100 additional lots with deliveries of homes at price points in the U.S.low $400 thousands, allowing us to further diversify our product offerings in the Atlanta market. All the operations acquired in 2015 and Canada for2016 have been fully transitioned to the year ended December 31, 2014 was $3.0 billion on 6,796 homes closed, excluding unconsolidated joint ventures.

Taylor Morrison brand.


During the year ended December 31, 20142016, our U.S. operations were located in fiveeight states and generated home closings revenue of $2.6$3.55 billion, and adjusted home closings gross marginnet income from continuing operations of 23.0%.$207.0 million. In the United States,2016, we grew our average community count by 30.4%19% year over year to 206,309 active communities, and ended 20142016 with $1.1$1.5 billion in sales order backlog.

We believe we benefit from a well-located land portfolio, primarily in homebuilding markets that have been leading the U.S. housing recovery. AtDuring 2016, we had 309 average active communities and at December 31, 2014, we had approximately 425 current and future communities containing approximately 38,854 lots that2016 we owned or controlled. Of these, we were offering homes in 224 communities at base prices generally ranging from $170,000 to $1,700,000. During the year ended December 31, 2014, we closed 5,642 homes in the United States, an increase of 19.6% over the prior year.controlled approximately 38,300 lots. The average sales price of homes closed during the year ended December 31, 2014 increased 17.8% to2016 was approximately $464,000.

We are well positioned in our markets with a top-10 market share (based on 2014 home closings as reported by Metrostudy) in 13$465,000. During 2016, we sold 7,504 homes, an increase of our 16 metropolitan markets. At December 31, 2014, we were operating in12% over the following metropolitan areas:

prior year.

East

  

West

•    Austin, Texas

 

•    Phoenix, Arizona

•    Dallas, Texas

•    Sacramento, California

•    Houston, Texas

•    San Francisco Bay Area, California

•    Fort Myers, Florida

•    San Jose, California

•    Jacksonville, Florida

•    Orange County, California

•    Naples, Florida

•    San Diego, California

•    Orlando, Florida

•    Denver, Colorado

•    Sarasota, Florida

•    Tampa Bay, Florida

2016 Highlights and Recent Developments

On January 8, 2016, we completed the acquisition of Acadia Homes in Atlanta, Georgia, yielding approximately 1,100 lots for total consideration of $83.6 million.
On August 10, 2016, we announced our expansion of the Taylor Morrison brand to the Dallas market. Sales for this new division are expected to begin in 2017 with the opening of two communities offering homes in the $300,000 - $500,000 price range.
On February 6, 2017 we completed the sale of 11,500,000 shares of our Class A common stock in a registered public offering at a net purchase price per share of $18.2875 (the public offering price to the public of $19.00 per share less the underwriters’ discount). We serviceused all of the net proceeds from the public offering to purchase partnership units in New TMM, our direct subsidiary, along with shares of our Class B common stock, held by our Principal Equityholders (as defined below). The aggregate number partnership units and corresponding shares of Class B common stock we purchased was equal to the number of shares of Class A common stock sold in the public offering. See — Our Structure and Note 23 - Subsequent Events in the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report for further detail.

Business Strategy

We recognize that the housing market is cyclical and home price volatility between the peak and valley of cycles can be significant. We seek to maximize shareholder value over the long-term and operate our business to capitalize on market appreciation value and mitigate risks from market downturns. We believe we are well positioned for growth throughout market fluctuations through disciplined execution of the four pillars of our business strategy.

We execute our strategy by opportunistically acquiring prime land assets in core locations, focusing on the preferences of our buyers, building distinctive communities, continually evaluating and analyzing overhead efficiency and optimizing profit by managing volume. We regularly assess our capital allocation strategy to drive long-term shareholder return. We also take advantage of opportunities to partner in joint ventures as they arise in order to secure desirable land, share risk and maximize returns.

We believe our extensive land position and pipeline, located in highly desirable submarkets, have positioned us for strategic growth and increased profitability in an improving housing market. We execute this strategy by:

Strategically opening new communities from existing land supply;
Combining land acquisition and development expertise with homebuilding operations;
Focusing product offerings on specific customer groups;
Building aspirational homes for our customers and delivering superior customer service;
Maintaining an efficient capital structure;
Selectively pursuing acquisitions; and
Employing and retaining a highly experienced management team with a strong operating track record.

We focus on developing “lifestyle” communities in core locations, which have many distinguishing attributes, including proximity to job centers, strong school systems and a variety of local amenities in well-regarded submarkets. We offer a range of award-winning and innovative designs, through our single-family detached and attached product lines. We engineer our homes for energy-efficiency and cost savings to reduce the impact on the environment. Although many of the communities we build primarily attract move-up buyers, our portfolio also includes quality products for entry-level, luxury and 55+ customers. We serve all segments and generational groups through our homes and focus on the needs of homebuyers. The distribution of sales in our portfolio have gravitated toward a mix of approximately a third of entry-level and first time home buyers, a third of move-up buyers and a third of 55+ buyers.

We strive to maintain product and price level differentiation through market and customer research. We target a balance of regional market portfolios across a variety of demographics. Our ability to build at multiple price points enables us to respond to changing consumer preferences and address shifts in affordability. We also use key indicators of market specific supply and demand characteristics to determine an optimal matching of consumer groups and specific land position.


We generally operate as community developers. Community development includes the acquisition and development of communities, which may include obtaining significant planning and entitlement approvals and completing construction of off-site and on-site utilities and infrastructure. In some communities we operate solely as merchant builders, in which case, we acquire fully planned and entitled lots and may construct on-site improvements but normally do not construct significant off-site utility or infrastructure improvements. We develop a wide range of communities, which may include amenity rich community centers. We also have investments in, and are participants in, a number of joint ventures to develop land and master-planned communities.

We develop a number of home designs with features such as single-story, ranch style living, split bedroom plans and first floor master bedroom suites to appeal to varied buyer needs. We have integrated these marketsdesigns and features in many of our homes and communities. We engage unaffiliated architectural firms and internal architectural resources to develop new designs and augment existing plans in order to ensure that our homes reflect current and local consumer tastes. We possess an extensive library of single-family detached and attached floor plans that can be utilized throughout our markets.

The life cycle of a community generally ranges from two to five years, commencing with the acquisition of land, continuing through tenthe land development phase, and concluding with the sale, construction, and delivery of homes. Actual community life cycle will vary based on the size of the community, the sales absorption rate, and whether we purchased the property as raw land or as developed lots.

A summary of our homebuilding activity by homebuilding reporting segment as of and for the year ended December 31, 2016 is as follows:

(Dollars in thousands)
Homes
Closed
 
Average
Selling Price
of Closed
Homes
 
Net Homes
Sold
 
Average
Active Selling
Communities
 
Homes in
Backlog
 
$ Value of
Backlog
East2,795
 $385
 3,039
 122
 1,183
 $508,101
Central2,050
 476
 1,837
 109
 817
 419,359
West2,524
 544
 2,628
 78
 1,131
 604,450
Total7,369
 $465
 7,504
 309
 3,131
 $1,531,910

For financial information about our reporting segments, see Note 19 — Operating and Reporting Segments to our consolidated financial statements for the year ended December 31, 2016.

Land Acquisition Policies and Development

Locating and acquiring suitable land positions is a core part of our strategy as a developer and homebuilder. In order to maximize our expected risk-adjusted return, the allocation of capital for land investment is performed at the corporate level with a disciplined approach to overall portfolio management. Our portfolio investment committee of senior executives meets on a regular basis. Annually, our operating divisions aggregatedprepare a strategic plan for their respective geographies. Macro and micro indices, including but not limited to employment, housing starts, new home sales, re-sales and foreclosures, along with market related shifts in twocompetition, land availability and consumer preferences, are carefully analyzed to determine our land and homebuilding strategy. Supply and demand are analyzed on a consumer segment and submarket basis to ensure land investment is targeted appropriately. Our long-term plan is compared on an ongoing basis to current conditions in the marketplace as they evolve and is adjusted to the extent necessary. Major development strategy decisions regarding community positioning are included in the decision making and underwriting process and are made in consultation with senior executives of our management team. Our land portfolio as of December 31, 2016 and 2015 is detailed below:


 As of December 31, 2016
 Owned Lots Controlled Lots Owned and Controlled Lots
 Raw 
Partially
Developed
 Finished 
Long-
Term
Strategic
Assets
 Total Total Total
East3,262
 5,707
 4,076
 293
 13,338
 5,071
 18,409
Central2,834
 1,208
 3,437
 —
 7,479
 4,100
 11,579
West1,046
 1,122
 3,805
 1,196
 7,169
 1,148
 8,317
Total7,142
 8,037
 11,318
 1,489
 27,986
 10,319
 38,305

 As of December 31, 2015
 Owned Lots Controlled Lots Owned and Controlled Lots
 Raw 
Partially
Developed
 Finished 
Long-
Term
Strategic
Assets
 Total Total Total
East3,185
 5,938
 4,150
 1,757
 15,030
 3,925
 18,955
Central3,465
 974
 3,526
 —
 7,965
 5,433
 13,398
West1,650
 1,992
 4,618
 1,348
 9,608
 1,411
 11,019
Total8,300
 8,904
 12,294
 3,105
 32,603
 10,769
 43,372

Raw land represents property that has not been developed and remains in its natural state. Partially developed represents land where the grading and horizontal development process has begun. Finished lots represent those lots which we have purchased from third parties in addition to lots for which we have completed the horizontal development and are ready for the vertical development. Long-term strategic assets are those lots where we are currently not performing any development.

In the land purchasing and joint venture configuration process, specific projects of interest are typically identified by the local divisional teams, including proposed ownership structure, environmental concerns, anticipated product segmentation, competitive environment and financial returns, and they are presented to our portfolio investment committee for review. Certain portfolio opportunities will often be sourced centrally and managed at the corporate level. We also determine whether continued spending on currently owned and controlled land is a well-timed and appropriate use of capital. Our portfolio investment strategy emphasizes expected profitability to reflect the risk and timing of returns, and the level of sales volume in new and existing markets.

The following is a summary of the status of our land positions:
(Dollars in thousands)As of December 31, 2016 As of December 31, 2015
Development StatusOwned Lots 
Book Value of Land
and Development
 Owned Lots 
Book Value of Land
and Development
Raw land7,142
 $403,902
 8,300
 $378,081
Partially developed8,037
 501,496
 8,904
 645,276
Finished lots11,318
 1,336,709
 12,294
 1,305,697
Long-term strategic assets1,489
 16,182
 3,105
 12,165
Total27,986
 $2,258,289
 32,603
 $2,341,219


As of December 31, 2016 and 2015, the allocation of lots held in our land portfolio, by year acquired, is as follows:

Allocation of Lots in Land Portfolio, by Year AcquiredAs of December 31, 2016 As of December 31, 2015
Acquired in 201617% —%
Acquired in 201520% 22%
Acquired in 201411% 13%
Acquired in 2013 and earlier52% 65%
Total100% 100%

Homes in Inventory

We manage our inventory of homes under construction by selectively commencing construction to capture new home demand, while monitoring the number and aging of unsold homes.

The following is a summary of our homes in inventory by homebuilding reporting segment as of December 31, 2016 and December 31, 2015:
 As of December 31, 2016 As of December 31, 2015
 
Homes in
Backlog
 Models 
Inventory
to be Sold
 Total Homes in
Backlog		 Models Inventory
to be Sold		 Total
East1,183
 135

413
 1,731
 875
 157
 430
 1,462
Central817
 129

360
 1,306
 1,030
 119
 417
 1,566
West1,131
 148

413
 1,692
 1,027
 162
 470
 1,659
Total3,131
 412
 1,186
 4,729
 2,932
 438
 1,317
 4,687

We expect that during 2017 we will deliver substantially all homes in backlog at December 31, 2016.

Community Development

We create a complete concept for each community, beginning with an overall community layout and then determine the size, style and price range of the homes, the layout of the streets and positioning of the individual home sites. After necessary governmental and other approvals have been obtained, we improve the land by clearing and grading, installing roads, underground utility lines, staking out individual home sites and, in certain communities, erecting distinctive entrance structures and recreational amenities.

Each community has employees who perform superintendent, sales and customer service functions, in conjunction with a local management team to manage the overall project.

The construction time for our homes varies from project to project depending on geographic reporting segments. SeeItem 7 — Management’s Discussionregion, the time of year, the size and Analysiscomplexity of Financial Conditionconstruction, the governmental approval processes, local labor availability, availability of materials and Resultssupplies, weather, and other factors. On average, we complete the construction of Operations — Business Overviewa typical home in approximately six months.

Procurement and Construction

We have a comprehensive procurement program that leverages our size and national presence to achieve efficiencies and cost savings. Our procurement objective is to maximize efficiencies on local, regional and national levels and to ensure consistent utilization of established contractual arrangements.


The regional and national vendor programs currently involve over 40 vendors and includes highly reputable and well-established companies who supply us with lumber, appliances, HVAC systems, insulation, roofing, paint and lighting, among other materials. Through these relationships, we are able to realize savings on the costs of essential materials. Contracts are typically structured to include a blend of attractive upfront pricing and rebates and, in some cases, advantageous retroactive pricing in instances of contract renewals. In addition to cost advantages, these arrangements also help minimize the risk of construction delays during supply shortages, as we are often able to leverage our size to obtain our full allocation of required materials.

Trades and Labor

Our construction, land and purchasing managers coordinate subcontracting services and supervise all aspects of construction work and quality control. We are a general contractor for all of our homebuilding projects. Subcontractors perform all home construction and land development, generally under fixed-price contracts. The availability of labor, specifically as it relates to qualified tradespeople, at reasonable prices can be challenging in some markets as the supply chain responds to uneven industry growth and other economic factors that affect the number of people in the workforce.

Sources and Availability of Raw Materials

Based on local market practices, we either directly, or indirectly through our subcontractors, purchase drywall, cement, steel, lumber, insulation and the other building materials necessary to construct a home. While these materials are generally widely available from a variety of sources, from time to time we experience material shortages on a localized basis which can substantially increase the price for such materials and our construction process can be slowed. We generally have multiple sources for the materials we purchase and have not experienced significant delays due to unavailability of necessary materials.

Sales and Marketing

We are committed to continuously enhancing our customer experience including how we target and attract our consumers. Our marketing program calls for a balanced approach of corporate support and local expertise to attract potential homebuyers in a focused, efficient and cost-effective manner. Our corporate sales and marketing team provides a generalized marketing framework across our regional operations as well as sales training to our local teams. Our divisional sales and marketing teams utilize local media and marketing channels to deliver a unique message that is relevant to our consumer groups in each market.

Our goal is to identify the preferences of our customers and demographic groups and offer them innovative, high-quality products that are efficient and profitable to build. To achieve this goal, we conduct extensive market research to determine preferences of our customer groups and are able to focus on particular lifestyle preferences in determining the product to build.

We are continually gathering and analyzing data regarding specific consumer preferences for various customer groups. Our approach to customer identification and segmentation guides our operations from the initial land acquisition through to our design, building, marketing and delivery of homes and our ongoing after-sales customer service. Among our peers, we believe we are at the forefront of directed marketing strategies, as evidenced by our data-driven approach to marketing and decision-making.

The central element of our marketing platform is our web presence at www.taylormorrison.com and www.darlinghomes.com (none of the information on or accessible through these websites is a part of this Annual Report.

IPOReport). The main purpose of these websites is to direct potential customers to one of our sales teams. The websites also offer the ability of customers to evaluate floor plans, elevations, square footage, community amenities and Summarygeographic location. Customers are also able to use the websites to make inquiries and to receive a prompt response from one of Reorganization Transactions

our “Internet Home Consultants.” The websites are fully integrated with our customer relationship management (“CRM”) system. By analyzing the content of the CRM, we are able to focus our lead generation programs to deliver high-quality sales leads. With these leads we are better able to increase sale conversion rates and lower marketing costs. We believe the digital marketing strategy for our websites, which is continually reviewed and refined, provides high return on our investments.


In addition to our website, we selectively utilize print, radio and television for advertising purposes, including directional marketing, newspapers and billboards. We also directly notify local real estate agents and firms of any new community

openings in order to use the existing real estate agent/broker channels in each market. Pricing for our homes is evaluated weekly based on an analysis of market conditions, competitive environment and supply and demand characteristics.

We use furnished model homes as a marketing tool to demonstrate the advantages of the designs, features and functionality of our homes. We generally employ or contract with interior and landscape designers who create attractive model homes that highlight the features and options available for the product line within a project. Depending upon the number of homes to be built in the project and the product lines to be offered, we generally build between one and three model homes for each active selling community.

Our homes are sold by our commissioned employees who work from sales offices generally located within our model homes. Our goal is to ensure our sales force has extensive knowledge of our homes, including our energy efficient features, sales strategies, mortgage options and community dynamics. To achieve this goal, we have on-going training for our sales team and conduct regular meetings to keep them abreast of the latest promotions, options and sales techniques and discuss geographic competition. Our sales team members are licensed real estate agents where required by law and assist our customers in adding design features to their homes, which we believe appeal to local consumer preferences. Third-party brokers who sell our homes are generally paid a sales commission based on the price of the home. In some of our divisions, we contract with third-party design studios that specialize in assisting our homebuyers with options and upgrades to personalize their homes. Utilizing these third-party design studios allows us to manage our overhead and costs more efficiently. We may also offer various sales incentives, including price concessions, assistance with closing costs, and landscaping or interior upgrades. The use, types and amount of incentives depends largely on existing economic and local competitive market conditions.

Warranty Program

We offer warranties on homes that generally provide a limited one- or two-year warranty (depending on jurisdiction) to cover various defects in workmanship or materials and structural construction defects. We may also facilitate a ten-year warranty in certain markets or to comply with regulatory requirements. The construction defect risk is covered by Beneva Indemnity Company (“Beneva”), one of our wholly owned subsidiaries. We also provide third-party warranty coverage on homes where required by Federal Housing Administration (“FHA”) or Veterans Administration lenders.

Competition

The homebuilding business is highly competitive and fragmented. We compete with numerous homebuilders of varying sizes, ranging from local to national in scope, some of which have greater sales and financial resources than us. Sales of existing homes, whether by a homeowner or by a financial institution that has acquired a home through a foreclosure, also provide competition. We compete primarily on the basis of location, design, quality, service, price and reputation.

In order to maximize our sales volumes, profitability and product strategy, we strive to understand our competition and their pricing, product and sales volume strategies and results. Competition among residential homebuilders of all sizes is based on a number of interrelated factors, including location, reputation, amenities, floor plans, design, quality and price. We believe that we compare favorably to other homebuilders in the markets in which we operate.

Mortgage Operations

TMHF provides a number of mortgage-related services to our customers through our mortgage lending operations. The strategic purpose of TMHF is:

to utilize mortgage finance as a sales tool in the purchase process to ensure a consistent customer experience and assist in maintaining production efficiency; and
to control and analyze our backlog quality and to better manage projected closing and delivery dates for our customers.

TMHF operates as an independent mortgage banker and conducts its business as a FHA Full Eagle lender. TMHF funds mortgage loans utilizing warehouse credit line facilities. Revenue is earned through origination and processing fees combined with service release premiums earned in the secondary market once the loans are sold to investors. Typically, loans are sold and servicing is released within 20-30 business days.

TMHF competes with other mortgage lenders, including national, regional and local mortgage bankers and other financial institutions. TMHF utilizes a multi-investor correspondent platform which gives us increased flexibility when placing loans to meet our customers’ needs. TMHF has continued to expand and strengthen our correspondent relationships. This has created stability and consistency in our origination process and delivery.

Inspired Title operates as a title insurance agent under the title-only (examination) business model. Inspired Title searches and examines land title records, prepares title commitments and polices for homebuyers in our Florida, Georgia, and Texas markets, contracting with others (currently title insurance underwriters and attorneys) to perform the escrow closing functions. Inspired Title competes against other title underwriters and title/escrow agents that provide similar services.

Seasonality

Our business is seasonal. We have historically experienced, and expect to continue to experience, variability in our results on a quarterly basis. We generally have more homes under construction, close more homes and have greater revenues and operating income in the third and fourth quarters of the year. Our results, therefore, may fluctuate significantly on a quarterly basis, and we must maintain sufficient liquidity to meet short-term operating requirements. Factors expected to contribute to these fluctuations include, but are not limited to:

the timing of the introduction and start of construction of new projects;
the timing of sales;
the timing of closings of homes, lots and parcels;
the timing of receipt of regulatory approvals for development and construction;
the condition of the real estate market and general economic conditions in the areas in which we operate;
mix of homes closed;
construction timetables;
the prevailing interest rates and the availability of financing, both for us and for the purchasers of our homes;
the cost and availability of materials and labor; and
weather conditions in the markets in which we build.

As a result of seasonal activity, our quarterly results of operations and financial position are not necessarily representative of a full fiscal year. To illustrate the seasonality in net homes sold, homes closed and home closings revenue, a summary of the quarterly financial data follows:
 Three Months Ended, Three Months Ended,
 2016 2015
 March 31 June 30 September 30 December 31 
March 31(1)
 
June 30(1)
 September 30 December 31
Net homes sold24.4% 27.0% 26.0% 22.6% 25.9% 28.1% 24.5% 21.5%
Home closings revenue18.4% 24.2% 23.7% 33.7% 17.1% 23.6% 27.0% 32.3%
Net income from continuing operations12.6% 22.1% 28.4% 36.9% 23.5% 11.7% 26.8% 38.0%

(1) Net income from continuing operations for the three months ended March 31, 2015 and June 30, 2015 was impacted by factors other than seasonality. The gain on the foreign currency forward related to the sale of our Canadian operations during the first quarter of 2015 benefited earnings, while the loss on extinguishment of debt in the second quarter of 2015 reduced earnings by $30.0 million and $33.3 million, respectively.

Organizational Structure

On April 12, 2013 we completed our initial public offering (“IPO”) of 32,857,800 shares of our Class A Common Stock, par value $0.00001 per share (the “Class A Common Stock”), on the New York Stock Exchange (“NYSE”). With an initial price to the public of $22.00 per share, it was the largest homebuilding IPO in the history of the NYSE. As a result of the completion of

the IPO and a series of transactions pursuant to a Reorganization Agreement dated as of April 9, 2013, TMHC became the indirect parent of TMM Holdings Limited Partnership (“TMM Holdings”) through the formation of TMM Holdings II Limited Partnership, a Cayman Islands limited partnership (“New TMM”).TMM. TMM Holdings is a British Columbia limited partnership that acquired our operations in July 2011 and is currently the holding company for all of our operations. It was formed in 2011 by a consortium comprised of affiliates of TPG Global, LLC (the “TPG Entities” or “TPG”), investment funds managed by Oaktree Capital Management, L.P. (“Oaktree”) or their respective subsidiaries (the(together, the “Oaktree Entities”), and affiliates of JH Investments, Inc. (“JH” and together with the TPG Entities and Oaktree Entities, the “Principal Equityholders”).


In addition to our Class A Common Stock, we have outstanding shares of Class B Common Stock, par value $0.00001 per share (the “Class B Common Stock”) outstanding.. Holders of the Class A Common Stock and Class B Common Stock are entitled to one vote for each share held on all matters submitted to stockholders for their vote or approval. The holders of Class A Common Stock and Class B Common Stock vote together as a single class on all matters submitted to stockholders for their vote or approval, except with respect to the amendment of certain provisions of the amended and restated Certificate of Incorporation that would alter or change the powers, preferences or special rights of the Class B Common Stock so as to affect them adversely. Such amendments must be approved by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment, voting as a separate class, or as otherwise required by applicable law.


For each share of TMHC Class A Common Stock outstanding, TMHC holds one limited partnership interest in New TMM (each, a “New TMM Unit”). The Principal Equityholders (through holding vehicles) hold New TMM Units and

one corresponding share of Class B Common Stock for each New TMM Unit they hold. As a result, the Class A Common Stock and Class B Common Stock percentages at December 31, 2014 arewere as follows:

   Shares
Outstanding		   Percentage 

Class A Common Stock

   33,060,540     27.0% 

Class B Common Stock

   89,227,416     73.0  
  

 

 

   

 

 

 

Total

 122,287,956   100.0% 

follows for the dates presented:

 As of December 31, 2016 As of February 6, 2017
 
Shares
Outstanding
 Percentage Shares
Outstanding		 Percentage
Class A Common Stock30,486,858
 25.5% 41,986,858
 35.2%
Class B Common Stock88,942,052
 74.5% 77,442,052
 64.8%
Total119,428,910
 100.0% 119,428,910
 100.0%

The Class A Common Stock is held by the public. The Class B Common Stock is substantially beneficially owned by the TPG Entities and the Oaktree Entities,Principal Equityholders, so together, they have voting power over more than a majority of our outstanding voting stock. See Item 1A - Risk Factors — The"The Principal Equityholders have substantial influence over our business, and their interests may differ from our interests or those of our other stockholders.

For more information on" See — Our Structure and Note 23 - Subsequent Events in the reorganization transactions and the 2011 acquisition by the Principal Equityholders, please refer to —2011 Acquisition by our Principal Equityholders and —Reorganization and Initial Public Offering.

Recent Developments

On January 28, 2015 we closed the sale of Monarch Corporation, which held our Canadian operations, to an affiliate of Mattamy Homes Limited (“Mattamy”). Mattamy delivered a cash purchase price of CAD $335 million at closing, which is subject to certain customary post-closing adjustments and ordinary and customary indemnifications. Immediately priorNotes to the closing, approximately CAD $235 million of cash at Monarch was distributed to a subsidiary of TMM Holdings, resulting in total proceeds to us of CAD $570 million. The net proceeds of the transaction will be used for general corporate purposes, resulting in increased flexibility for us to invest further in U.S. markets.

Business Strategy

We deliver on our strategy by opportunistically acquiring prime land assets in core locations, focusing on the preferences of our buyers, constantly evaluating and analyzing overhead efficiency and optimizing profit by managing volume. We constantly assess our capital allocation strategy to drive long-term shareholder return. We also take advantage of opportunities to partner in joint ventures as they arise in order to secure land, share risk and maximize returns.

During the most recent economic downturn, we adhered to our core business strategy of focusing on move-up buyers. We believe our experience in the move-up market allows us to significantly expand our new home offerings at higher price points. We believe that move-up homebuyers are more insulated from market volatility, and more likely to value the quality of lifestyle and construction that we offer.

We believe our extensive land position and pipeline, located in highly desirable submarkets, have positioned us for strategic growth and increased profitability in an improving housing market. We expect to execute this strategy by:

Driving revenue by strategically opening new communities from existing land supply;

Combining land acquisition and development expertise with homebuilding operations;

Focusing offerings on specific customer groups;

Building aspirational homes for our customers and delivering superior customer service;

Maintaining a strong capital structure;

Selectively pursuing acquisitions; and

Employing and retaining a highly experienced management team with a strong operating track record.

Homebuilding Operations

Homebuilding Overview

We focus on developing “lifestyle” communities in core locations, which have many distinguishing attributes, including proximity to job centers, strong school systems and a variety of local amenities in well-regarded submarkets. We offer a range of designs, some of them award-winning, through our single-family detached and attached product lines. We engineer our homes for energy-efficiency and cost savings to reduce the impact on the environment. Although the majority of the communities we build primarily attract move-up buyers, our portfolio also includes quality entry-level, luxury and 55+ products. We serve all generational groups through our products and focus on the needs of homebuyers. During 2014, the allocation of sales in our portfolio, based on price point, was 16% entry-level, 36% first move up, 31% second move-up, 15% 55+ and 2% urban infill.

We strive to maintain consumer product and price level diversification. We target the largest and most profitable consumer groups while attempting to balance our regional market portfolios across a variety of demographics. Our ability to build at multiple price points enables us to respond to changing consumer preferences and address shifts in affordability. We also use measures of market specific supply and demand characteristics to determine which consumer groups are ultimately targeted and will be the most profitable in a specific land position.

We generally operate as community developers. Community development includes the acquisition and development of large-scale communities that may include significant planning and entitlement approvals and construction of off-site and on-site utilities and infrastructure. In some communities we operate solely as merchant builders, in which case, we acquire fully planned and entitled lots and may construct on-site improvements but normally do not construct significant off-site utility or infrastructure improvements.

We develop, own and operate golf courses as well as amenity rich community centers associated with a number of our master planned communities. In 2014, our Esplanade Golf & Country Clubs in Naples and Lakewood Ranch, Florida were voted two of the top ten new courses in the United States by Golf Digest. We also have investments in, and are participants in, a number of joint ventures with related and unrelated parties to develop land and master-planned communities.

We have developed a number of home designs with features such as single-story living, split bedroom plans and first floor master bedroom suites to appeal to universal design needs. We have integrated these designs and features in many of our homes and communities. We engage unaffiliated architectural firms and internal architectural resources to develop new designs and augment existing plans in order to ensure that our homes reflect current and local consumer tastes. During the past year, we introduced 143 new single-family detached and attached floor plans.

The life cycle of a community generally ranges from three to five years, commencing with the acquisition of land, continuing through the land development phase, and concluding with the sale, construction, and delivery of homes. Actual community lives will vary based on the size of the community, the sales absorption rate, and whether we purchased the property as raw land or as developed lots.

A summary of our U.S. homebuilding activity by segment as of and for the year ended December 31, 2014 is as follows:

(Dollars in thousands)

   Year Ended December 31, 2014   At December 31, 2014 
   Homes
Closed		   Average
Selling Price
of Closed
Homes		   Homes
Sold		   Average
Active Selling
Communities		   Homes in
Backlog		   $ Value of
Backlog		 

East

   3,578    $420     3,743     151     1,709    $806,848  

West

   2,064     540     1,985     55     543     292,919  
  

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

Total

 5,642  $464   5,728   206   2,252  $1,099,767  
  

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

For financial information about our segments, seeNote 18 — Operating and Reporting Segments to our consolidated financial statements for the year ended December 31, 2014.

Land Acquisition Policies and Development

Locating and acquiring suitable land positions is a core part of our strategy as a developer and homebuilder. In order to maximize our expected risk-adjusted return, the allocation of capital for land investment is performed at the corporate level with a disciplined approach to overall portfolio management. Our investment committee meets on a regular basis, and consists of four of our senior executives. Annually, our operating divisions prepare a strategic plan for their specific geographies. Macro and micro indices, such as employment, housing starts, new home sales, re-sales and foreclosures, along with market related shifts in competition, land availability and consumer preferences, are carefully analyzed to determine the land and homebuilding strategy. Supply and demand are analyzed on a consumer segment and submarket basis to ensure land investment is targeted appropriately. The long-term plan is compared on an ongoing basis to current conditions in the marketplace as they evolve and is adjusted to the extent necessary. Major development strategy decisions regarding community positioning areConsolidated Financial Statements included in the underwriting process and are made in consultation with senior members of our management team. Our existing land portfolio as of December 31, 2014 and 2013 is detailed below:

  Owned Lots December 31, 2014  Controlled Lots December 31, 2014    
  Raw  Partially
Developed		  Finished  Long-
Term
Strategic
Assets		  Total  Raw  Partially
Developed		  Finished  Total  Total
Owned and
Controlled		 

East

  7,090    6,112    5,220    1,952    20,374    5,508    1,510    605    7,623    27,997  

West

  2,735    2,568    3,507    1,612    10,422    246    122    67    435    10,857  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 9,825   8,680   8,727   3,564   30,796   5,754   1,632   672   8,058   38,854  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  Owned Lots December 31, 2013  Controlled Lots December 31, 2013    
  Raw  Partially
Developed		  Finished  Long-
Term
Strategic
Assets		  Total  Raw  Partially
Developed		  Finished  Total  Total
Owned and
Controlled		 

East

  8,768    6,110    4,368    1,922    21,168    7,028    876    901    8,805    29,973  

West

  2,818    2,721    2,849    1,807    10,195    1,897    121    45    2,063    12,258  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 11,586   8,831   7,217   3,729   31,363   8,925   997   946   10,868   42,231  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

In the land purchasing process, specific projects of interest are detailed by the local divisional team, including proposed ownership structure, environmental concerns, anticipated product segmentation, competitive environment and financial returns. We also determine whether further spending on currently owned and controlled land is a well-timed and appropriate use of capital. Our investment strategy emphasizes expected profitability to reflect the risk and timing of returns, and the level of sales volume in new and existing markets.

Lot Development Status

(Dollars in thousands)  As of December 31, 2014   As of December 31, 2013 

Development Status

  Owned Lots   Book Value of Land
and Development		   Owned Lots   Book Value of Land
and Development		 

Raw land

   9,825    $464,882     11,586    $381,836  

Partially developed

   8,680     654,759     8,831     474,756  

Finished lots

   8,727     787,033     7,217     666,753  

Long-term strategic assets

   3,564     27,993     3,729     27,988  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

 30,796  $1,934,667   31,363  $1,551,333  
  

 

 

   

 

 

   

 

 

   

 

 

 

Raw land represents property that has not been developed and remains in its natural state. Partially developed represents land where the grading and development process has begun. Finished lots represent those lots where the horizontal development is complete and are ready for the vertical development. Long-term strategic assets are those lots where we are currently not doing any development.

At December 31, 2014, the allocation of lots held in our land portfolio, by year acquired, was 16% in 2014, 22% in 2013, 22% in 2012, and 40% in 2011 and earlier.

Homes in Inventory

We manage our inventory of homes under construction by selectively commencing construction to capture new home demand, while monitoring the number and aging of unsold homes. As of December 31, 2014, we had a total of 3,606 homes in inventory, which included 2,252 homes under contract but not yet closed.

The following is a summary of our homes in inventory by segment as of December 31, 2014:

(Dollars in thousands)  Homes in
Backlog		   Models   Inventory
to be Sold		   Total   Inventory
Value
without
Land		 

East

   1,709     199     572     2,480    $288,423  

West

   543     119     464     1,126     193,654  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

 2,252   318   1,036   3,606  $482,077  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

We expect that during 2015 we will deliver substantially all homes in backlog at December 31, 2014.

Community Development

We create a complete concept for each community, beginning with an overall community layout and then determine the size, style and price range of the homes, the layout of the streets and positioning of the individual home sites. After necessary governmental and other approvals have been obtained, we improve the land by clearing and grading, installing roads, underground utility lines, staking out individual home sites and, in certain communities, erecting distinctive entrance structures and recreational amenities.

Each community has personnel that perform superintendent, sales and customer service functions, in conjunction with a local management team to manage the general project.

Although the construction time for our homes varies from project to project depending on geographic region, the time of year, the size and complexity of the homes, local labor situations, the governmental approval processes, availability of materials and supplies, and other factors, we complete the construction of a typical home in approximately six months.

Procurement and Construction

We have a comprehensive procurement program that leverages our size and national presence to achieve efficiencies and cost savings. Our objective in procurement is to maximize efficiencies on local, regional and national levels and to ensure consistent utilization of established contractual arrangements.

The program currently involves over 40 vendors and includes highly reputable and well-established companies who supply us with lumber, appliances, HVAC systems, insulation, roofing, paint and lighting, among other materials. Through these relationships, we are able to realize savings on the costs of essential materials. Contracts are typically structured to include a blend of attractive upfront pricing and rebates and, in some cases, advantageous retroactive pricing in instances of contract renewals. The program arrangements are typically not designed to be completely exclusive in nature; for example, in many instances, divisions may choose to use local or alternate suppliers if they find cost savings by doing so. However, our divisions have historically made use of over 80% of our national procurement contracts, largely as a result of the advantageous pricing available under such contracts.

In addition to cost advantages, these arrangements also help minimize the risk of construction delays during supply shortages, as we are often able to leverage our size to obtain our full allocation of required materials. Furthermore, these arrangements sometimes include provisions for cooperative marketing, which allow us to extend the reach and effectiveness of our advertising efforts.

Trades and Labor

Our construction, land and purchasing managers coordinate subcontracting services and supervise all aspects of construction work and quality control. We are a general contractor for all of our homebuilding projects in the U.S. Subcontractors perform all home construction and land development work, generally under fixed-price contracts. The availability of labor, specifically as it relates to qualified tradespeople, at reasonable prices is a challenge in some markets as the supply chain responds to uneven industry growth and other economic factors that affect the number of people in the workforce.

Sources and Availability of Raw Materials

Based on local market practices, we either directly, or indirectly through our subcontractors, purchase drywall, cement, steel, lumber, insulation and the other building materials necessary to construct a home. While these materials are generally widely available from a variety of sources, from time to time we experience material shortages on a localized basis, particularly during periods where the regions in which we operate experience natural disasters that have a significant impact on existing residential and commercial structures and during periods of robust construction activity when there is high demand for newly built homes. During these periods, the prices for these materials can substantially increase and our construction process can be slowed. We generally have multiple sources for the materials we purchase and have not experienced significant delays due to unavailability of necessary materials.

Sales and Marketing

Our marketing program calls for a balanced approach of corporate support and local expertise to attract potential homebuyers in a focused, efficient and cost-effective manner. Our sales and marketing team provides a generalized marketing framework across our regional operations as well as sales training to our local teams. Our divisional sales and marketing teams utilize local media and marketing streams to deliver a unique message that is relevant to our consumer groups in each market.

Our goal is to identify the preferences of our customer and demographic groups and offer them innovative, high-quality products that are efficient and profitable to build. To achieve this goal, we conduct extensive market research to determine preferences of our customer groups and are able to focus on particular lifestyle preferences in determining the product to build.

We have gathered data regarding specific consumer preferences for various customer groups. Our approach to customer group identification guides all of our operations from the initial land acquisition through to our design, building, marketing and delivery of homes and our ongoing after-sales customer service. Among our peers, we believe we are at the forefront of directed marketing strategies, as evidenced by our highly-trafficked Internet site and strategic partnerships with nationally recognized retailers.

The central element of our marketing platform is our web presence at www.taylormorrison.com and www.darlinghomes.com (none of which is a partItem 8 of this Annual Report). The main purpose of these websites is to direct potential customers to one of our sales teams. The website also offers the ability of customers to evaluate floor plans, elevations, square footage, community amenities and geographic location. Customers are also able to use the websites to make inquiries and to receive a prompt response from one of our “Internet Home Consultants.” The websites are fully integrated with our customer relationship management (“CRM”) system. By analyzing the content of the CRM, we are able to focus our lead generation programs to deliver high-quality sales leads. With these leads we are better able to increase sale conversion rates and lower marketing costs. We have significant web search optimization on our sites, including specific key words, meta data and tags on the site to help crawlers from search engines to find content.

In addition to our website, we utilize print, radio and televisionReport for advertising purposes, including directional marketing, newspapers and billboards. We also directly notify local real estate agents and firms of any new community openings in order to use the existing real estate agent/broker channels in each market. Pricing for our homes is evaluated weekly based on an analysis of market conditions, competitive environment and supply and demand characteristics.

We use furnished model homes as a marketing tool to demonstrate the advantages of the designs, features and functionality of our homes. We generally employ or contract with interior and landscape designers who create attractive model homes that highlight the features and options available for the product line within a project. Depending upon the number of homes to be built in the project and the product lines to be offered, we generally build between one and three model homes for each active selling community. At December 31, 2014, we owned 318 model homes in 192 different communities.

Generally, our homes are sold by our commissioned employees who work from sales offices located within our model homes. We also employ a team of Internet sales associates who offer assistance to potential buyers viewing our homes over the Internet. At December 31, 2014, we had approximately 390 full-time sales and marketing personnel. Our goal is to ensure our sales force has extensive knowledge of our homes, energy efficient features, sales strategies, mortgage options and community dynamics. To achieve this goal, we have on-going training for our sales associates and conduct regular meetings to keep them abreast of the latest promotions, options and sales techniques and discuss geographic competition. Our sales associates are licensed real estate agents where required by law and assist our customers in adding design features to their homes, which we believe appeal to local consumer preferences. Third-party brokers who sell our homes are generally paid a sales commission based on the price of the home. In some of our businesses, we contract with third-party design studios that specialize in assisting our homebuyers with options and upgrades to personalize their homes. Utilizing these third-party design studios allows us to manage our overhead and costs more efficiently. We may also offer various sales incentives, including price concessions, assistance with closing costs, and landscaping or interior upgrades. The use, types and amount of incentives depends largely on existing economic and local competitive market conditions.

Warranty Program

We offer warranties on homes that generally provide for limited one-year warranty to cover various defects in workmanship or materials or to cover structural construction defects. We may also facilitate a ten year warranty in certain markets or to comply with regulatory requirements. The structural warranty is carried by Beneva Indemnity Company (“Beneva”), one of our wholly owned subsidiaries. We also provide third-party warranty coverage on homes where required by Federal Housing Administration or Veterans Administration lenders.

Competition

The homebuilding business is highly competitive and fragmented. We compete with numerous homebuilders of varying sizes, ranging from local to national in scope, some of which have greater sales and financial resources than us. Sales of existing homes, whether by a homeowner or by a financial institution that has acquired a home through a foreclosure, also provide competition. We compete primarily on the basis of price, location, design, quality, service and reputation.

Competition among residential homebuilders of all sizes is based on a number of interrelated factors, including location, reputation, amenities, floor plans, design, quality and price. We believe that we compare favorably to other homebuilders in the markets in which we operate.

In order to maximize our sales volumes, profitability and product strategy, we strive to understand our competition and their pricing, product and sales volume strategies and results. During the most recent economic downturn, market conditions also led to a large number of foreclosed and short sale homes being offered for sale, which increased competition and affected pricing. However, we took a proactive approach to distancing ourselves from highly affected submarkets, enabling us to drive sales in our markets without competing as directly with foreclosures.

Mortgage Operations

TMHF provides a number of mortgage-related services to our customers through our mortgage lending operations. The strategic purpose of TMHF is:

further detail.
to utilize mortgage finance as a sales tool in the purchase process to ensure a consistent customer experience and assist in maintaining production efficiency; and

to control and assist in determining our backlog quality and to better manage projected closing and delivery dates for our customers.

TMHF operates as an independent mortgage banker and conducts its business as a Federal Housing Authority (“FHA”) Full Eagle lender. TMHF funds mortgage loans utilizing warehouse credit line facilities. Revenue is earned through origination and processing fees combined with service release premiums earned in the secondary market once the loans are sold to investors. Loans are sold servicing released, typically within 20 business days.

TMHF competes with other mortgage lenders, including national, regional and local mortgage bankers and other financial institutions. TMHF utilizes a multi-investor correspondent platform which gives us increased flexibility when placing loans to meet our customers’ needs. TMHF has continued to expand and strengthen our investor partnerships. This has created stability and consistency in our origination process and delivery. In 2014 we experienced increased competition in our mortgage operations business as the industry focused on growing originations from purchases. Our focus and expertise has always been and remains dedicated to the financing of new home construction.

Seasonality

Our business is seasonal. We have historically experienced, and expect to continue to experience, variability in our results on a quarterly basis. We generally have more homes under construction, close more homes and have greater revenues and operating income in the third and fourth quarters of the year. Therefore, although new home contracts are obtained throughout the year, a significant portion of our home closings occur during the third and fourth calendar quarters. Our revenue therefore may fluctuate significantly on a quarterly basis and we must maintain sufficient liquidity to meet short-term operating requirements. Factors expected to contribute to these fluctuations include:

the timing of the introduction and start of construction of new projects;

the timing of project sales;

the timing of closings of homes, lots and parcels;

our ability to continue to acquire land and options on acceptable terms;

the timing of receipt of regulatory approvals for development and construction;

the condition of the real estate market and general economic conditions in the areas in which we operate;

mix of homes closed;

construction timetables;

the prevailing interest rates and the availability of financing, both for us and for the purchasers of our homes;

the cost and availability of materials and labor; and

weather conditions in the markets in which we build.

As a result of seasonal activity, our quarterly results of operations and financial position are not necessarily representative of a full fiscal year. To illustrate the seasonality in net homes sold, homes closed and home closings revenue, a summary of the quarterly financial data follows:

  2014  2013(1) 
  March 31  June 30  September 30  December 31  March 31  June 30  September 30  December 31 

Net homes sold

  26.4%   26.8%   24.2%   22.6%   30.9%   28.0%   20.3%   20.8% 

Homes closed

  18.7%   22.8%   23.6%   34.9%   19.2%   24.4%   25.4%   31.0% 

Home closings revenue

  17.4%   22.2%   23.5%   36.9%   17.3%   23.5%   25.8%   33.4% 

Net income from continuing operations

  16.4%   20.1%   21.9%   41.6%   57.2%   (307.8)%   108.1%   242.5% 

(1)The IPO occurred in April 2013, and as such, certain one-time charges affected net income from continuing operations.

Regulation, Environmental, Health and Safety Matters


Regulatory


We are subject to various local, state and federal statutes, ordinances, rules and regulations concerning zoning, building design, construction and similar matters, including local regulations that impose restrictive zoning and density requirements in order to limit the number of homes that can eventually be built within the boundaries of a particular property or locality. In a number of our markets, there has been an increase in state and local legislation authorizingrequiring the acquisitiondedication of land as dedicated open space, mainly by governmental, quasi-public and non-profit entities.space. In addition, we are subject to various licensing, registration and filing requirements in connection with the construction, advertisement and sale of homes in our communities. The impact of these laws has been to increase our overall costs, and may have delayeddelay the opening of communities or causedcause us to conclude that development of particular communities would not be economically feasible, even if any or all necessary governmental approvals wereare obtained. We also may be subject to periodic delays or may be precluded entirely from developing communities due to building moratoriums in one or more of the areas in which we operate. Generally, such moratoriums relate to insufficient water, power, drainage or sewage facilities or inadequate road capacity.


In order to secure certain approvals in some areas, we may be required to provide affordable housing at below market rental or sales prices. In addition, local and state governments have broad discretion regarding the imposition of development fees for projects under their jurisdictions, as well as requiring concessions or that the builder construct certain improvements to public places such as parks and streets or fund schools. The impact of these requirements on us depends on how the various state and local

governments in the areas in which we engage, or intend to engage, in development implement their programs for affordable housing.programs. To date, these restrictions have not had a material impact on us.


TMHF is subject to various state and federal statutes, rules and regulations, including those that relate to licensing, lending operations and other areas of mortgage origination and financing. The impact of those statutes, rules and regulations can increase our homebuyers’ cost of financing, increase our cost of doing business, as well as restrict our homebuyers’ access to some types of loans. Certain requirements provided for by the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") have not yet been finalized or fully implemented. The effect of such provisions on our financial services business will depend on the rules that are ultimately enacted.

The title and settlement services provided by Inspired Title are subject to various regulations, including regulation by state banking and insurance regulators.


In order for our homebuyers to finance their home purchases with FHA-insured, Veterans Administration-guaranteed or U.S. Department of Agriculture-guaranteed mortgages, we are required to build such homes in accordance with the regulatory requirements of those agencies.


Some states have statutory disclosure requirements or other pre-approval requirements or limitations governing the marketing and sale of new homes. These requirements vary widely from state to state.


Some states require us to be registered as a licensed contractor, a licensed real estate broker and in some markets our sales agents are additionally required to be registered as licensed real estate agents.


Environmental


We also are subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning protection of public health and the environment (collectively, “environmental laws”). For example, environmental laws may affect: how we manage stormwater runoff, wastewater discharges, and dust; how we develop or operate on properties on or affecting resources such as wetlands, endangered species, cultural resources, or areas subject to preservation laws; and how we address contamination. The particular environmental laws that apply to any given community vary greatly according to the location and environmental condition of the site and the present and former uses of the site. Complying with these environmental laws may result in delays, may cause us to incur substantial compliance and other costs, and/or may prohibit or severely restrict development in certain environmentally sensitive regions or areas.

Noncompliance with environmental laws could result in fines and penalties, obligations to remediate, permit revocation, and other sanctions; and contamination or other environmental conditions at or in the vicinity of our developments could result in claims against us for personal injury, property damage, or other losses.


As part of the land acquisition due diligence process, we utilize environmental assessments to identify environmental conditions that may exist on potential acquisition properties. To date, environmental site assessments conducted at our properties have not revealed any environmental liability or compliance concerns that we believe would have a material adverse effect on our business, liquidity or results of operations, nor are we aware of any material environmental liability or concerns.


We manage compliance with federal, state and local environmental requirementslaws at the division level with assistance from the corporate and regional legal departments, including environmental regulations related to U.S. Storm Water

Pollution Prevention, U.S. Endangered Species Act, U.S. Wetlands Permitting, NPDES Permitting, Cultural Resources, dust control measures and state and local preservation ordinances.

departments.


Health and Safety


We are committed to maintaining high standards in health and safety at all of our sites, to ensure the safety of our team members, our trade partners, our customers and prospects and the general public. That commitment is tested through oursites. We have a health and safety audit system that includes comprehensive twice-yearly independent third-party inspections of selected sites covering all aspects of health and safety. A key areaKey areas of focus is ensuring thatare on site conditions meetmeeting exacting health and safety standards, and thaton subcontractor performance throughout our operating areas meetsmeeting or exceedsexceeding expectations. All of our team members must complete an assigned curriculum of online safety courses each year. These courses vary according to job responsibility. In addition, groups such as construction and field personnel are required to attend additional health and safety related training programs such as the Occupational Safety and Health Administration 10-hour course, First-Aid and CPR.

programs.


Information Technology



We have a centralized information technology organization with its core team located at our corporate headquarters in Scottsdale, augmented with field support technicians in key locations across the U.S. Our approach to information technology is to continuously simplify our information technology platform and consolidate and standardize applications. We believe a common application platform enables the sharing of ideas and rapid implementation of process improvements and best practices across the entire company. Our back-office operations use a fully integrated, industry recognized enterprise resource planning package. Marketing and field sales utilize a leading CRM solution that tracks leads and prospects from all sources and manages the customer communication process from lead creation through the buying process and beyond the post-warranty period. Field operations teams collaborate with theour supply chain management to schedule and manage development and construction projects with a set of standard and widely used homebuilding industry solutions.


Intellectual Property


We own certain logos and trademarks that are important to our overall branding and sales strategy. Our consumer logos are designed to draw on aour recognized homebuilding heritage while emphasizing a customer-centric focus.


Employees, Subcontractors and Consultants


As of December 31, 2014,2016, we employed 1,498approximately 1,800 full-time equivalent persons, which includes 195 employees in our discontinued Canadian business.persons. Of these, 1,348approximately 1,600 were engaged in corporate and homebuilding operations, and the remaining 150approximately 200 were engaged in mortgage and title services. As of December 31, 2014,2016, we were not subject to collective bargaining agreements. We consider our employee relations to be good.


We act solely as a general contractor, and all construction operations are supervised by our project managers and field superintendents who manage third party subcontractors. We use independent consultants and contractors for some architectural, engineering, advertising and legal services, and we strive to maintain good relationships with our subcontractors and independent consultants and contractors.

2011 Acquisition by our Principal Equityholders

In July 2011, TPG, Oaktree and JH formed TMM Holdings to acquire TMC and Monarch from U.K. based Taylor Wimpey plc for aggregate cash consideration of approximately $1.2 billion (the “Acquisition”). In the acquisition, Class A Units of TMM Holdings were issued to TPG and Oaktree, Class J Units of TMM Holdings were issued to JH, and Class A and Class M Units of TMM Holdings were issued to were issued to various members of our Board of Directors and management.

The Acquisition was financed in part by a $620.3 million cash equity contribution by the Principal Equityholders and a $625 million senior unsecured credit facility with affiliates of TPG and Oaktree, consisting of a $500 million bridge loan

facility and a $125 million incremental bridge loan facility (collectively, the “Sponsor Loan”). We repaid the $125 million bridge facility in August 2011 and repaid $350 million of the Sponsor Loan in April 2012 with a portion of the proceeds of the issuance of $550 million of 7.75% Senior Notes due 2020 (the “2020 Senior Notes”). The affiliates of TPG and Oaktree who were lenders under the Sponsor Loan caused the then remaining $150.0 million of the Sponsor Loan to be acquired by a subsidiary of TMM Holdings, and affiliates of TPG and Oaktree acquired an additional $150.0 million of limited partnership interests in TMM Holdings.

Reorganization and Initial Public Offering

In connection with the completion of the IPO, we completed a series of transactions (the “Reorganization Transactions”) in which TMHC became the indirect parent of TMM Holdings through the formation of a new Cayman Islands limited partnership, New TMM. New TMM has only a single class of partnership units, New TMM Units, which are held (as described below) by TMHC and by entities affiliated with the Principal Equityholders.

In the Reorganization Transactions:

TPG and Oaktree each formed new holding vehicles to hold interests in New TMM (the “TPG Holding Vehicle” and the “Oaktree Holding Vehicle,” respectively and, together, the “TPG and Oaktree Holding Vehicles”);

The Principal Equityholders and members of TMHC’s management and Board directly or indirectly exchanged all of their respective Class A Units, Class J Units and performance-vesting Class M Units in TMM Holdings on a one-for-one basis for new equity interests of the TPG and Oaktree Holding Vehicles with terms that are substantially the same as the Class A Units (other than certain Class A Units exchanged by JH as described below), Class J Units (other than with respect to certain vesting conditions) and performance-vesting Class M Units in TMM Holdings surrendered for exchange;

JH exchanged a portion of its Class A Units in TMM Holdings for New TMM Units to be held by JH;

Members of TMHC’s management and Board exchanged all of their time-vesting Class M Units in TMM Holdings for New TMM Units with vesting terms that are substantially the same as those of the Class M Units surrendered for exchange;

New TMM directly or indirectly acquired all of the Class A Units, Class J Units and Class M Units in TMM Holdings outstanding prior to the Reorganization Transactions; and

The TPG and Oaktree Holding Vehicles directly or indirectly acquired New TMM Units.

The number of New TMM Units issued to each of the TPG and Oaktree Holding Vehicles, JH and members of TMHC’s management and Board, as described above, was determined based on a hypothetical cash distribution by TMM Holdings of TMHC’s pre-IPO value to the holders of Class A Units, Class J Units and Class M Units of TMM Holdings, the IPO price and the price per share paid by the underwriters for shares of Class A Common Stock in the IPO.

In connection with the Reorganization Transactions, the TPG and Oaktree Holding Vehicles, JH and members of TMHC’s management and Board were also issued a number of shares of TMHC’s Class B Common Stock equal to the number of New TMM Units that each received. One share of Class B Common Stock, together with one New TMM Unit is exchangeable into one share of Class A Common Stock. We granted the Principal Equityholders registration rights with respect to the resale of any such shares of Class A Common Stock that they receive in any such exchange. SeeRisk Factors — The Principal Equityholders have substantial influence over our business, and their interests may differ from our interests or those of our other stockholders.

In connection with the Reorganization Transactions, TMHC recorded a one-time, non-cash charge of $80.2 million (based on the IPO price of $22.00 and other factors) in respect of the modification of the Class J Units in TMM resulting from the termination of a management services agreement that was entered into in connection with the Acquisition between JH and TMM Holdings (the “JHI Services Agreement”) and the direct or indirect exchange (on a one-for-one basis) of the Class J Units for units having substantially equivalent performance vesting and distribution terms in the TPG and Oaktree Holding Vehicles.

In connection with the Acquisition in July 2011, affiliates of the Principal Equityholders entered into management services agreements with TMM Holdings, Taylor Morrison Holdings, Inc. (“Taylor Morrison Holdings”) and Monarch Communities Inc. (“Monarch Communities”) relating to the provision of certain management, advisory and consulting services. In consideration of financial and structural advice and analysis made in connection with the Acquisition, Taylor Morrison Holdings and Monarch Communities paid a one-time transaction fee of $13.7 million to the Principal Equityholders and also reimbursed the Principal Equityholders for third-party, out-of-pocket expenses incurred in connection with the Acquisition, including fees, expenses and disbursements of attorneys, accountants, consultants and other advisors. In addition, as compensation for ongoing services provided by affiliates of the Principal Equityholders under the management services agreements, Taylor Morrison Holdings and Monarch Communities agreed to pay to affiliates of the Principal Equityholders an annual aggregate management fee of $5.0 million. Immediately prior to the IPO, the management services agreements were terminated in exchange for an aggregate payment pursuant to the terms of such agreements of $29.8 million split equally between TPG and Oaktree.

ITEM 1A.RISK FACTORS

ITEM 1A. RISK FACTORS

Risks related to our industry and our business

Our business is cyclical and is significantly affected by changes in general and local economic conditions.

Our business can be substantially affected by adverse changes in general economic or business conditions that are outside of our control, including changes in:

short- and long-term interest rates;

the availability and cost of financing for homebuyers;

employment levels, job and personal income growth and household debt-to-income levels;

consumer confidence generally and the confidence of potential homebuyers in particular;

the ability of existing homeowners to sell their existing homes at prices that are acceptable to them;

the U.S. and global financial system and credit markets, including stock market and credit market volatility;

private and federal mortgage financing programs and federal and state regulation of lending practices;

federal and state income tax provisions,laws, including provisions for the deduction of mortgage interest payments;

housing demand from population growth, household formations and demographic changes (including immigration levels and trends or other costs of home ownership in urban and suburban migration);

demand from foreign buyers for our homes, which may fluctuate according to economic circumstances in foreign markets;

the supply of available new or existing homes and other housing alternatives, such as apartments and other residential rental property;

real estate taxes;
energy prices; and

the supply of developable land in our markets and in the United States generally.


Adverse changes in these conditions may affect our business nationally or may be more prevalent or concentrated in particular regions or localities in which we operate. During the most recent economic downturn, unfavorable changes in many of the above factors negatively affected all of the markets we serve. Economic conditions in allcertain of our markets continue to be

characterized by levels of uncertainty, which has impacted business or consumer confidence in those markets. For example, fluctuations in oil and gas prices may createhave created economic uncertainty, particularly in regions of Texas, such as the greater Houston area, where we have significant operations. Additionally, governmental action and legislation related to economic stimulus, taxation, spending levels and borrowing limits, immigration, as well as political debate, conflicts and compromises related to such actions, may negatively impact the financial markets and consumer confidence and spending, which could adversely impact the U.S. economy and the housing market. Any deterioration in economic conditions or continuation of uncertain economic or political conditions wouldcould have a material adverse effect on our business.

In addition, a public health issue such as a major epidemic or pandemic could adversely affect economic conditions. The U.S. and other countries have experienced, and may experience in the future, outbreaks of contagious diseases that affect public perception of health risk. In the event of a widespread, prolonged, actual or perceived outbreak of a contagious disease, our operations could be negatively impacted by a reduction in customer traffic or other factors that could reduce demand for new homes.

Inclement weather, natural disasters (such as earthquakes, hurricanes, tornadoes, floods, droughts and fires),wildfires) and other environmental conditions may delay the delivery of our homes, and/or increase our costs. Civilcosts or impact demand for our homes. Furthermore, civil unrest or acts of terrorism, or other acts of violence, or threats to national security or a public health issue such as a major epidemic or pandemic in the United States or internationally may also have a negative effect on our business.

Adverse

These adverse changes in economic and other conditions can cause demand and prices for our homes to diminish or cause us to take longer to build our homes and make it more costly for us to do so. We may not be able to recover these increased costs by raising prices because of weak market conditions and because the price of each home we sell is usually set several months before the home is delivered, as many customers sign their home purchase contracts before construction begins. The potential difficulties described above could impact our customers’ ability to obtain suitable financing and cause some homebuyers to cancel or refuse to honor their home purchase contracts altogether.

The recent improvement in housing market conditions follows a significant

A slowdown or severe downturn and the likelihood of a full recovery is uncertain in the current state of the economy. A slowdown in our businesshousing market could have additional adverse effects on our operating results and financial condition.

During periods of industry downturn, housing markets across the United States may experience an oversupply of both new and resale home inventory, an increase in foreclosures, reduced levels of consumer demand for new homes, increased cancellation rates, aggressive price competition among homebuilders and increased incentives for home sales. In the event of a downturn, we may experience a material reduction in revenues and margins. For example, in connection with the most recent downturn in the U.S. housing market, we incurred substantial losses, after impairments, in our U.S. operations during 2008 and 2009.
Although the U.S. housing market continues to recover, we cannot predict the extentoverall trajectory of further recovery or its timing.the market. Some housing markets and submarkets have been stronger than others.others, and there continues to be variability in operating trends. We expect that such unevenness will continue, whether or not the present housing recovery progresses, and that prevailing conditions in various housing markets and submarkets will continue to fluctuate. These fluctuations may be significant and unfavorable. In addition, while some of the many negative factors that contributed to the housing downturn may have moderated, several remain, and they could return and/or intensify to inhibit any future improvement in housing market conditions in 2015.

In addition, as a result of the recent disposition of our Canadian business, we are more exposed to economic conditions in the United States2017 and are therefore less diversified than we were prior to the disposition. Consequently, our results of operations may be more volatile in the future than they have been historically.

Thoughbeyond.

Although we have taken steps to alleviate the impact of these conditions on our business, given the most recent downturnvolatility in the homebuilding industry and global economic and political uncertainty, there can be no guarantee that steps taken by us will continue to be effective and, to the extent the current economic environment does not improve or any improvement takes place over an extended period of time, our business, financial condition and results of operations may be adversely affected.

If homebuyers are not able to obtain suitable financing, our results of operations may decline.

A substantial majority of our homebuyers finance their home purchases through lenders that provide mortgage financing. The availability of mortgage credit remains constrained, due to various regulatory changes and lower risk appetite by lenders, with many lenders requiring increased levels of financial qualification, including lenders adhering to the new “Qualified Mortgage” requirements under the Dodd-Frank Act and ability to repay standard, and lending lower multiples of income. Investors and first-time homebuyers are generally more affected by the availability of financing than other potential homebuyers. These buyers are a key source of our demand. A limited availability of home mortgage financing may adversely affect the volume of our home sales and the sales prices we achieve.

During It could also prevent or limit our ability to attract new customers, as well as our ability to fully realize our backlog, because our sales contracts generally include a financing contingency, which permits the last several years,customer to cancel its obligation in the event mortgage lending industry has experienced significant instability, beginning with increased defaults on subprime loans and other nonconforming loans and compoundedfinancing at prevailing interest rates, including financing arranged or provided by expectations of increasing interest payments requirements and further defaults. Lending requirements and standards remain tightened and as a result, investor demand for mortgage loans and mortgage-backed securities has declined. us, is unobtainable within the period specified in the contract.

The liquidity provided by government sponsored entities, such as Fannie Mae, Freddie Mac, Ginnie Mae, the FHA and Veterans Administration, to the mortgage industry has been very important to the housing market. Several federal government officials have proposed changing the nature of the relationship between Fannie Mae and Freddie Mac and the federal government and even nationalizing or eliminating these entities entirely. If Fannie Mae and Freddie Mac were dissolved, or if the federal government determined to stop providing liquidity support to the mortgage market, there

would be a reduction in the availability of the financing provided by these institutions. Any such reduction would likely have an adverse effect on interest rates, mortgage availability and our sales of new homes. For instance, in March 2014, a proposal was introduced in the U.S. Senate to overhaul the
FHA-insured mortgage market by replacing Fannie Mae and Freddie Mac with a new system of federally insured mortgage securities. The proposal may not be enacted, and its effects on the residential mortgage market are not predictable at this time. Such an overhaul may reduce the availability of residential mortgage loans or increase the cost of such loans to borrowers, which could materially and adversely affect both our homebuilding and Mortgage Operations businesses.

The FHA insures mortgage loans that generally have lower loan paymentdown-payment requirements and qualification standards compared to conventional guidelines and, as a result, continuethe FHA continues to be a particularly important source for financing the sale of our homes. In recent years, lendersLenders have taken and may continue to take a more conservative view of FHA guidelines causing significant tightening of borrower eligibility for approval. In January 2017, in response to a presidential executive order, the U.S. Department of Housing and Urban Development sent a letter to lenders, real estate brokers and closing agents suspending the 0.25 percentage point premium rate cut for FHA-backed loans. Further restrictions are expected on FHA-insured loans, including limitations on seller-paid closing costs and concessions. This or any other restriction may negatively affect the

availability or affordability of FHA financing, which could adversely affect our ability to sell homes in the U.S.United States. In addition, changes in federal regulatory and fiscal policies relating to currently available benefits for homeowners (including a repeal of the currently available home mortgage interest tax deduction) may also negatively affect potential homebuyers’ ability to purchase homes.

In each of our markets, decreases in the availability of credit and increases in the cost of credit adversely affect the ability of homebuyers to obtain or service mortgage debt. Even if potential homebuyers do not themselves need mortgage financing, where potential homebuyers must sell their existing homes in order to buy a new home, increases in mortgage costs, lack of availability of mortgages and/or regulatory changes could prevent the buyers of our potential homebuyers’ existing homes from obtaining a mortgage, which would result in our potential customers’ inability to buy a new home. Similar risks apply to those buyers who are awaiting delivery of their homes and are currently in backlog. The success of homebuilders depends on the ability of potential homebuyers to obtain mortgages for the purchase of homes. If our customers (or potential buyers of our customers’ existing homes) cannot obtain suitable financing, our sales and results of operations could be adversely affected.

An inability

If we experience shortages in labor supply, increased labor costs or labor disruptions, there could be delays or increased costs in developing our communities or building homes, which could adversely affect our operating results.
We require a qualified labor force to obtain additional performance, paymentdevelop our communities and build our homes. Access to qualified labor may be affected by circumstances beyond our control, including:
work stoppages resulting from labor disputes;
shortages of and competition for qualified trades people, such as carpenters, roofers, electricians and plumbers;
changes in laws relating to union organizing activity;
changes in immigration laws and policies and trends with respect to labor force migration; and
increases in subcontractor and professional services costs.

Labor shortages can be further exacerbated as demand for housing increases. Any of these circumstances could give rise to delays in the start or completion surety bondsof, or could increase the cost of, developing one or more of our communities and lettersbuilding homes. For example, the homebuilding industry has been experiencing shortages of creditskilled labor and increased labor costs, including in several locations in which we operate, which has resulted in longer delivery times. We may not be able to recover increased costs by raising our home prices, because the price for each home is typically set months prior to its delivery pursuant to sales contracts with our homebuyers. In such circumstances, our operating results could be adversely affected. Additionally, market and competitive forces may also limit our future growth.

We are often requiredability to provide performance, payment and completion and warranty/maintenance surety bonds or letters of credit to secureraise the completionsales prices of our construction contracts, development agreements and other arrangements. We have obtained credit facilities to provide the required volume of performance, payment and completion and warranty maintenance surety bonds and letters of credit for our expected growth in the medium term; however, unexpected growth may require additional facilities. We may also be required to renew or amend our existing facilities. Our ability to obtain additional performance, payment and completion and warranty/maintenance surety bonds and letters of credit primarily depends on our credit rating, capitalization, working capital, past performance, management expertise and certain external factors, including the capacity of the markets for such bonds. Performance, payment and completion and warranty/maintenance surety bond and letter of credit providers consider these factors in addition to our performance and claims record and provider-specific underwriting standards, which may change from time to time.

If our performance record or our providers’ requirements or policies change, if we cannot obtain the necessary consent from our lenders, or if the market’s capacity to provide performance, payment and completion or warranty/maintenance bonds or letters of credit is not sufficient for any unexpected growth and we are unable to renew or amend our existing facilities on favorable terms or at all, we could be unable to obtain additional performance, payment and completion and warranty/maintenance surety bonds or letters of credit from other sources when required, which could have a material adverse effect on our business, financial condition and results of operations.

homes.

Higher cancellation rates of existing agreements of sale may have an adverse effect on our business.

Our backlog reflectsrepresents sales contracts with our homebuyers for homes that have not yet been delivered. We have received a deposit from a homebuyer for each home reflected in our backlog and, generally, we have the right, subject to certain exceptions, to retain the deposit if the homebuyer fails to comply with his or her obligations under the sales contract, including as a result of state and local law, the homebuyer’s inability to sell his or her current home or the homebuyer’s inability to make additional deposits required prior to the closing date. In some situations, however, a homebuyer may cancel the agreement of sale and receive a complete or partial refund of the deposit.
If prices for new homes decline, if competitors increase their use of sales incentives, if interest rates increase, if the availability of mortgage financing diminishes, if current homeowners find it difficult to sell their current homes or if there is a downturn in local or regional economies or in the national economy, U.S. homebuyers may terminate their existing home purchase contracts with us in order to negotiate for a lower price or because they cannot, or will not, complete the purchase and our remedies generally do not extend beyond the retention of deposits as our liquidated damages.

Cancellation rates may rise in the future. If uncertain economic conditions in the U.S. continue, if mortgage financing becomes less available or if current homeowners find it difficult to sell their current homes, more homebuyers may cancel their sales contracts with us. As a result, our financial condition may deteriorate and you may lose a portion of your investment.


In cases of cancellation, we remarket the home and usually retain any deposits we are permitted to retain. Nevertheless, the deposits may not cover the additional costs involved in remarketing the home, replacing or modifying installed options, reducing the sales price or increasing incentives on the completed home for greater marketability and carrying higher inventory. Further, depending on the stage of cancellation, a contract that is cancelled at the end of a phase may cause additional construction costs, roadway repairs or added nuisances to existing homeowners for the out of sequence construction or modification of the oneparticular home. Significant numbers of cancellations could adversely affect our business, financial condition and results of operations.

The homebuilding and mortgage and title services industries are highly competitive and, if our competitors are more successful or offer better value to our customers, our business could decline.

We operate in a very competitive environment whichthat is characterized by competition from a number of other homebuilders in each market in which we operate. We compete with large national and regional homebuilding companies and with smaller local homebuilders for land, financing affiliated or in-houseand related services, raw materials, and skilled management, volume discounts, local REALTOR® and labor resources. We also compete with the resale, or “previously owned,” home market, as well as other housing alternatives such as the rental housing market. Increased competitionAdditionally, some of our competitors have longstanding relationships with subcontractors and suppliers in markets in which we operate and others may have significantly greater financial resources or lower costs than us. Competitive conditions in the homebuilding industry could make it difficult for us to acquire suitable land at acceptable prices, cause us to increase our selling incentives andand/or reduce our prices. Anor discount prices and/or result in an oversupply of homes available for sale and the heavy discounting of home prices by some of our competitorssale. These factors have adversely affected demand for our homes and theour results of our operations in the past and could do so again in the future. Our Mortgage Operations business competes
Additionally, our mortgage and title services businesses compete with other mortgage lenders and title companies, including national, regional and local mortgage banks and other financial institutions, some of which aremay be subject to fewer government regulations. Mortgage lenders who are subject to fewer regulations or, in the case of mortgage lenders, may have a greater range of products, greater access to capital or different lending criteria and may be able to offer more attractive financing to potential customers.
If we are unable to compete effectively in our homebuilding and mortgage and title services markets, our business could decline disproportionately to our competitors, and our results of operations and financial condition could be adversely affected.

Any increase in unemployment or underemployment may lead to an increase in the number of loan delinquencies and property repossessions and have an adverse impact on us.

In the U.S.,United States, the unemployment rate was 5.7%4.8% as of January 2015,2017, according to the U.S. Bureau of Labor Statistics (“BLS”). In addition, the labor force participation rate reported by the BLS has been declining, from 66.2% in January 2008 to 62.9% in January 2015,2017, potentially reflecting an increased number of “discouraged workers” who have left the labor force. In addition, a substantial portion of new jobs created have been relatively low-wage jobs or part-time jobs. People who are not employed, are underemployed, who have left the labor force or are concerned about low wages or the loss of their jobs are less likely to purchase new homes, may be forced to try to sell the homes they own and may face difficulties in making required mortgage payments. Therefore, any increase in unemployment or underemployment may lead to an increase in the number of loan delinquencies and property repossessions and have an adverse impact on us both by reducing demand for the homes we build and by increasing the supply of homes for sale.

Increases in interest rates, taxes (or changes in deductibility) or government fees or interest rates could prevent potential customers from buying our homes and adversely affect our business or financial results.

Increases in interest rates as a result of changes to monetary policy could significantly increase the costs of owning a home, which in turn would adversely impact demand for and sales prices of homes and the ability of potential customers to obtain financing and adversely affect our business, financial condition and operating results. The Federal Reserve Board recently raised interest rates, and it is anticipated that interest rates will likely continue to increase over the next several years.
Significant expenses of owning a home, including mortgage interest and real estate taxes, generally are deductible expenses for an individual’s U.S. federal and, in some cases, state income taxes, subject to various limitations under current tax law and policy.limitations. If the U.S. federal government or a state government changes its income tax laws, as has been discussed from time to time, to eliminate, limit or substantially modify these income tax deductions, the after-tax cost of owning a new home would increase for many of our potential customers. The resulting loss or reduction of homeowner tax deductions, if such tax law changes were enacted without offsetting provisions, or any other increase in any taxes affecting homeowners, would adversely impact demand for and sales prices of new homes.

Increases


Additionally, increases in property tax rates by local governmental authorities, as experienced in response to reduced federal and state funding, can adversely affect the ability of potential customers to obtain financing or their desire to purchase new homes. Fees imposed on developers to fund schools, open spaces, road improvements and/or provide low and moderate income housing, could increase our costs and have an adverse effect on our operations. In addition, increases in sales taxes could

adversely affect our potential customers who may consider those costs in determining whether to make a new home purchase and decide, as a result, not to purchase one of our homes.

In addition, increases in interest rates as a result of changes to monetary policy could significantly increase the costs of owning a home, which in turn would adversely impact demand for and sales prices of homes and the ability of potential customers to obtain financing and adversely affect our business, financial condition and operating results.

Inflation or deflation could adversely affect our business and financial results.

Inflation can adversely affect us by increasing costs of land, materials and labor. In the event of an increase in inflation, we may seek to increase the sales prices of homes in order to maintain satisfactory margins. However, an oversupply of homes relative to demand and home prices being set several months before homes are delivered may make any such increase difficult or impossible. In addition, inflation is often accompanied by higher interest rates, which historically has had a negative impact on housing demand.demand, as well as increasing the interest rates we may need to pay for our own capital financing. In such an environment, we may not be able to raise home prices sufficiently to keep up with the rate of inflation, and our margins could decrease. Moreover, the cost of capital increases as a result of inflation and the purchasing power of our cash resources declines. Current or future efforts by the government to stimulate the economy may increase the risk of significant inflation and its adverse impact on our business or financial results.

Alternatively, a significant period of deflation could cause a decrease in overall spending and borrowing levels. This could lead to a further deterioration in economic conditions, including an increase in the rate of unemployment. Deflation could also cause the value of our inventories to decline or reduce the value of existing homes below the related mortgage loan balance, which could potentially increase the supply of existing homes and have a negative impact on our results of operations. Declining
Furthermore, a material decline in oil and gas prices may increase the risk of significant deflation and its adverse impact on our business or financial results.

results, as the economies of some of the markets in which we operate are impacted by the health of the energy industry. To the extent that energy prices continue to be volatile or significantly change, the economies of certain of our markets, particularly in regions of Texas where we have significant operations, may be negatively impacted, which may adversely impact the financial position, results of operations and cash flows of our business. In addition, pricing offered by our suppliers and subcontractors can be adversely affected by increases in various energy costs, resulting in a negative impact to our financial position, results of operations and cash flows of our business.

Our quarterly operating results may fluctuate because of the seasonal nature of our business and other factors.

Our quarterly operating results generally fluctuate by season as a result of a variety of factors such as:
timing of home deliveries and also because of land sales;
the uneven delivery schedule of certainchanging composition and mix of our productsasset portfolio; and communities.

weather-related issues.

Historically, a larger percentage of our agreements ofhome sale contracts have been entered into in the winter and spring. Weather-related problems, typically in the fall, late winter and early spring, may delay starts or closings and increase costs and thus reduce profitability. Seasonal natural disasters such as hurricanes, tornadoes, floods and fireswildfires could cause delays in the completion of, or increase the cost of, developing one or more of our communities, causing an adverse effect on our sales and revenues.

In manysome cases, we may not be able to recapture increased costs by raising prices because we set our prices up to 12 months in advance of delivery upon signing the home sales contract.prices. In addition, deliveries may be staggered over different periods of the year and may be concentrated in particular quarters. Our quarterly operating results may fluctuate because of these factors.

Negative publicity may affectSee Item 1 - Business - Seasonality.

An inability to obtain additional performance, payment and completion surety bonds and letters of credit could limit our businessfuture growth.
We are often required to provide performance, payment and could affect our stock price.

Unfavorable media relatedcompletion and warranty/maintenance surety bonds or letters of credit to our industry, company, brands, marketing, personnel, operations, business performance, or prospects may affect our stock price andsecure the performancecompletion of our business, regardlessconstruction contracts, development agreements and other arrangements. We have obtained credit facilities to provide the required volume of its accuracyperformance, payment and completion and warranty maintenance surety bonds and letters of credit for our expected growth in the medium term; however, unexpected growth may require additional facilities. We may also be required to renew or inaccuracy.amend our existing facilities. Our success in maintaining, extendingability to obtain additional performance, payment and expanding our brand imagecompletion and warranty/maintenance surety bonds and letters of credit primarily depends on our abilitycredit rating, capitalization, working capital, past performance, management expertise and certain external factors, including the fluidity of the markets for such bonds. Performance, payment and completion and warranty/maintenance surety bond and


letter of credit providers consider these factors in addition to adaptour performance and claims record and provider-specific underwriting standards, which may change from time to time.
If our performance record or our providers’ requirements or policies change, if we cannot obtain the necessary renewals or amendments from our lenders, or if the market’s capacity to provide performance, payment and completion or warranty/maintenance bonds or letters of credit is not sufficient for any unexpected growth, we could be unable to obtain additional performance, payment and completion and warranty/maintenance surety bonds or letters of credit from other sources when required, which could have a rapidly changing media environment. Adverse publicity or negative commentarymaterial adverse effect on social media outlets, such as blogs, websites or newsletters, could hurt operatingour business, financial condition and results as consumers might avoid brands that receive bad press or negative reviews. Negative publicity may result in a decrease in our operating results.

of operations.

Homebuilding is subject to home warranty and construction defect claims in the ordinary course of business that can be significant.

As a homebuilder, we are subject to home warranty and construction defect claims arising in the ordinary course of business. There can be no assurance that any developments we undertake will be free from defects once completed. Construction defects may occur on projects and developments and may arise during a significant period of time after completion. Defects arising on a development attributable to us may lead to significant contractual or other liabilities.

As a consequence, we maintain products and completed operations excess liability insurance, obtain indemnities and certificates of insurance from subcontractors generally covering claims related to damages resulting from faulty workmanship and materials and createmaintain warranty and other reserves for the homes we sell based on historical experience in our markets and our judgment of the risks associated with the types of homes built. Although we actively monitor our insurance reserves and coverage, because of the uncertainties inherent to these matters, we cannot provide assurance that our insurance coverage, our subcontractor arrangements and our reserves will be adequate to address all of our warranty and construction defect claims in the future. In addition, contractual indemnities with our subcontractors can be difficult to enforce. We may also be responsible for applicable self-insured retentions and some types of claims may not be covered by insurance or may exceed applicable coverage limits. Additionally, the coverage offered by and the availability of products and completed operations excess liability insurance for construction defects is currently limited and costly. This coverage may be further restricted or become more costly in the future.

In 2005 and 2006,California we discontinued requiring insurance policies from most of our contractors in California and instead adoptedoperate under an Owner Controlled Insurance Plan (“OCIP”) for general liability exposures of most subcontractors (excluding consultants), as a result of the inability of subcontractors to procure acceptable insurance coverage to meet our requirements. Under the OCIP, subcontractors are effectively insured by us. We have assigned risk retentions and bid deductions to our subcontractors based on their risk category. These deductions are used to fund future liabilities.

Unexpected expenditures attributable to defects or previously unknown sub-surface conditions arising on a development project may have a material adverse effect on our business, financial condition and operating results. In addition, severe or widespread incidents of defects giving rise to unexpected levels of expenditure, to the extent not covered by insurance or redress against sub-contractors,subcontractors, may adversely affect our reputation, business, financial condition and operating results.

Our reliance on contractorssubcontractors can expose us to various liability risks.

We rely on contractorssubcontractors in order to perform the construction of our homes and, in many cases, to select and obtain raw materials. We are exposed to various risks as a result of our reliance on these contractorssubcontractors and their respective subcontractors and suppliers, including, as described above, the possibility of defects in our homes due to improper practices or materials used by contractors,such parties, which may require us to comply with our warranty obligations and/or bring a claim under an insurance policy. The subcontractors we rely on to perform the actual construction of our homes are also subject to a significant and evolving number of local, state and federal laws and regulations, including laws involving matters that are not within our control. If these subcontractors who construct our homes fail to comply with all applicable laws, we can suffer reputational damage and may be exposed to liability.
Several other homebuilders have received inquiries from regulatory agencies concerning whether homebuilders using contractorssubcontractors are deemed to be employers of the employees of such contractorssubcontractors under certain circumstances. Although contractorssubcontractors are independent of the homebuilders that contract with them under normal management practices and the terms of trade contracts and subcontracts within the homebuilding industry, if regulatory agencies reclassify the employees of contractorssubcontractors as employees of homebuilders, homebuilders using contractorssubcontractors could be responsible for wage, hour and other employment-related liabilities of their contractors.subcontractors. In the event that a regulatory agency reclassified the employees of our contractorssubcontractors as our own employees, we could be responsible for wage, hour and other employment-related liabilities of our contractors.

subcontractors.


Failure to manage land acquisitions, inventory and development and construction processes could result in significant cost overruns or errors in valuing sites.

We own and purchase a large number of sites each year and are therefore dependent on our ability to process a very large number of transactions (which include, among other things, evaluating the site purchase, designing the layout of the development, sourcing materials and sub-contractorssubcontractors and managing contractual commitments) efficiently and accurately. Errors by employees, failure to comply with regulatory requirements and conduct of business rules, failings or inadequacies in internal control processes, equipment failures, natural disasters or the failure of external systems,

including those of our suppliers or counterparties, could result in operational losses that could adversely affect our business, financial condition and operating results and our relationships with our customers.

In addition, we incur many costs even before we begin to build homes in a community. Depending on the stage of development of a land parcel when we acquire it, these may include: costs of preparing land, finishing and entitling lots, installing roads, sewers, water systems and other utilities, taxes and other costs related to ownership of the land on which we plan to build homes; constructing model homes; and promotional and marketing expenses to prepare for the opening of a new home community for sales. Moreover, local municipalities may impose development-related requirements resulting in additional costs. If the rate at which we sell and deliver homes slows or falls, or if our opening of new home communities for sales is delayed, we may incur additional costs, which would adversely affect our gross profit margins, and it will take a longer period of time for us to recover our costs, including those we incurred in acquiring and developing land.
In certain circumstances, a grant of entitlements or development agreement with respect to a particular parcel of land may include restrictions on the transfer of such entitlements to a buyer of such land, which may increase our exposure to decreases in the price of such entitled land by restricting our ability to sell it for its full entitled value. In addition, inventory carrying costs can be significant and can result in reduced margins or losses in a poorly performing community or market. In recent periods of market weakness,addition, if we have sold homes and land for lower margins or atwere required to record a loss and we have recorded significant inventory impairment, charges, and such conditions may recur. The recording of a significant inventory impairmentit could negatively affect our reported earnings per share and negatively impact the market perception of our business.

If land and lots are not available at competitive prices, our sales and results of operations could be adversely affected.

Our long-term profitability depends in large part on the price at which we are able to obtain suitable land and lots for the development of our communities. Increases in the price (or decreases in the availability) of suitable land and lots could adversely affect our profitability. Moreover, changes in the general availability of desirable land, geographical or topographical constraints, competition for available land and lots, limited availability of financing to acquire land and lots, zoning regulations that limit housing density, environmental requirements and other market conditions may hurt our ability to obtain land and lots for new communities at prices that will allow us to be profitable. If the supply of land and lots that are appropriate for development of our communities becomes more limited because of these factors, or for any other reason, the cost of land and lots could increase and the number of homes that we are able to build and sell could be reduced, which could adversely affect our results of operations and financial condition.

If the market value of our land inventory decreases, our results of operations could be adversely affected by impairments and write-downs.

The market value of our land and housing inventories depends on market conditions. We acquire land for expansion into new markets and for replacement of land inventory and expansion within our current markets. markets, and there is often a significant lag time between when we acquire land for development and when we sell homes in our communities. This risk is exacerbated particularly with undeveloped and/or unentitled land.
There is an inherent risk that the value of the land owned by us may decline after purchase. The valuation of property is inherently subjective and based on the individual characteristics of each property. We may have acquired options on or bought and developed land at a cost we will not be able to recover fully or on which we cannot build and sell homes profitably. In addition, our deposits for lots controlled under option or similar contracts may be put at risk.risk, and depressed land values may cause us to abandon and forfeit deposits on land option contracts and other similar contracts if we cannot satisfactorily renegotiate the purchase price of the subject land. Factors such as changes in regulatory requirements and applicable laws (including in relation to building regulations, taxation and planning), political conditions, the condition of financial markets, both local and national economic conditions, the financial condition of customers, potentially adverse tax changes, and interest and inflation rate fluctuations subject valuations to uncertainty. Moreover, all valuations are made on the basis of assumptions that may not prove to reflect economic or demographic reality. If housing demand decreases below what we anticipated when we acquired our inventory, our profitability may be adversely affected and we may not be able to recover our costs when we sell and build houses.

In addition, we may incur charges against our earnings for inventory impairments if the value of our


owned inventory, including land we decide to sell, is reduced or for land option contract abandonments if we choose not to exercise land option contracts or other similar contracts, and these charges may be substantial.
Due to economic conditions in the U.S.United States, particularly during the downturn in recent years, including increased amounts of home2008 and land inventory that entered certain U.S. markets from foreclosure sales or short sales,thereafter, the market value of our land and home inventory was negatively impacted prior to 2011. Write-downs and impairments have had an adverse effect (and any further write-downs may also have an adverse effect) on our business, financial condition and operating results. We recorded no inventory impairments in 2011, 2012, 2013 or the year ended December 31, 2014. In 2011, the carrying value of all of our land was adjusted to its fair market value as of the date of our acquisition by the Acquisition.Principal Equityholders. We regularly review the value of our land holdings and continue to review our holdings on a periodic basis. FurtherIf material write-downs and impairments in the value of our inventory may beare required and, we mayif in the future we are required to sell land or homes at a loss, which could adversely affect our results of operations and financial condition.

If we experience shortages in labor supply, increased labor costs or labor disruptions, there could be delays or increased costs in developing our communities or building homes, which could adversely affect our operating results.

We require a qualified labor force to develop our communities and build our homes. Access to qualified labor may be affected by circumstances beyond our control, including:

work stoppages resulting from labor disputes;

shortages of qualified trades people, such as carpenters, roofers, electricians and plumbers, especially in our key markets in the southwest U.S.;

changes in laws relating to union organizing activity;

changes in immigration laws and trends in labor force migration; and

increases in sub-contractor and professional services costs.

Any of these circumstances could give rise to delays in the start or completion of, or could increase the cost of, developing one or more of our communities and building homes. We may not be able to recover these increased costs by raising our home prices because the price for each home is typically set months prior to its delivery pursuant to sales contracts with our homebuyers. In such circumstances, our operating results couldcondition would be adversely affected. Additionally, market and competitive forces may also limit our ability to raise the sales prices of our homes.

Failure to recruit, retain and develop highly skilled, competent people at all levels, including finding suitable subcontractors, may have a material adverse effect on our standards of service.

Key employees, including management team members, are fundamental to our ability to obtain, generate and manage opportunities. Key employees working in the homebuilding and construction industries are highly sought after. Failure to attract and retain such personnel or to ensure that their experience and knowledge are not lost when they leave the business through retirement, redundancy or otherwise may adversely affect the standards of our service and may have an adverse impact on our business, financial conditions and operating results. In addition, we do not maintain key person insurance in respect of any member of our senior management team. The loss of any of our management members or key personnel could adversely impact our business, financial condition and operating results.

The vast majority of our work carried out on site is performed by subcontractors. The difficult operating environment over the last six years in the U.S. has resulted in the failure of some subcontractors’ businesses and may result in further failures. In addition, reduced levels of homebuilding in the U.S. have led to some skilled tradesmen leaving the industry to take jobs in other sectors. If subcontractors are not able to recruit sufficient numbers of skilled employees, our development and construction activities may suffer from delays and quality issues, which would also lead to reduced levels of customer satisfaction.

Government regulations and legal challenges may delay the start or completion of our communities, increase our expenses or limit our homebuilding or other activities, which could have a negative impact on our results of operations.

The approval of numerous governmental authorities must be obtained in connection with our development activities, and these governmental authorities often have broad discretion in exercising their approval authority. We incur substantial costs related to compliance with legal and regulatory requirements. Any increase in legal and regulatory requirements may cause us to incur substantial additional costs, or in some cases cause us to determine that the property is not feasible for development. Various local, state and federal statutes, ordinances, rules and regulations concerning building, health and safety, site and building design, environment, zoning, sales and similar matters apply to and/or affect the housing industry. WeIn addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained depends on factors beyond our control, such as changes in federal, state and local policies, rules and regulations and their interpretations and application. Furthermore, we are also subject to various fees and charges of government authorities designed to defray the cost of providing certain governmental services and improvements.

For example, local and state governments have broad discretion regarding the imposition of development fees for projects under their jurisdictions, as well as requiring concessions or that the builder construct certain improvements to public places such as parks and streets or fund schools.

Municipalities may restrict or place moratoriums on the availability of utilities, such as water and sewer taps. If municipalities in which we operate take such actions, it could have an adverse effect on our business by causing delays, increasing our costs or limiting our ability to operate in those municipalities.

Certain states, cities and counties in which we operate have in the past approved, or approved for inclusion on their ballot, various “slow growth” or “no growth” initiatives and other ballot measures that could negatively impact the availability of land and building opportunities within those localities. These measures may reduce our ability to open new home communities and to build and sell homes in the affected markets, including with respect to land we may already own, and create additional costs and administration requirements, which in turn may harm our future sales, margins and earnings. A further expansion of these measures or the adoption of new slow-growth, no-growth or other similar programs could exacerbate such risks.

Environmental regulations can also have an adverse impact on the availability and price of certain raw materials, such as lumber.

In addition, there is a variety of new legislation being enacted, or considered for enactment, at the federal, state and local level relating to energy and climate change. This legislation relates to items such as carbon dioxide emissions control and building codes that impose energy efficiency standards. New building code requirements that impose stricter energy efficiency standards could significantly increase our cost to construct homes. Such environmental laws may affect, for example, how we manage stormwater runoff, wastewater discharges and dust; how we develop or operate on properties on or affecting resources such as wetlands, endangered species, cultural resources, or areas subject to preservation laws; and how we address contamination. As climate change concerns continue to grow, legislation and regulations of this nature are expected to continue and become more costly to comply with. Similarly, energy-related initiatives affect a wide variety of companies throughout the U.S. and the world and because our operations are heavily dependent on significant amounts of raw materials, such as lumber, steel, and concrete, they could have an indirect adverse impact on our operations and profitability to the extent the manufacturers and suppliers of our materials are burdened with expensive cap and trade and similar energy related regulations.

Governmental regulation affects not only construction activities but also sales activities, mortgage lending activities and other dealings with consumers. In addition, it is possible that some form of expanded energy efficiency legislation may be passed by the U.S. Congress or federal agencies and certain state legislatures, which may, despite being phased in over time, significantly increase our costs of building homes and the sale price to our buyers and adversely affect our sales volumes. We may be required to apply for additional approvals or modify our existing approvals because of changes in local circumstances or applicable law. Energy-related initiatives affect a wide variety of companies throughout the United States and the world and, because our operations are heavily dependent on significant amounts of raw materials, such as lumber, steel and concrete, they could have an indirect adverse impact on our operations and profitability to the extent the manufacturers and suppliers of our materials are burdened with expensive cap and trade and similar energy related taxes and regulations. Our noncompliance with environmental laws could result in fines and penalties, obligations to remediate, permit revocations and other sanctions.

Governmental regulation affects not only construction activities but also sales activities, mortgage lending activities and other dealings with consumers. Further, government agencies routinely initiate audits, reviews or investigations of our business practices to ensure compliance with applicable laws and regulations, which can cause us to incur costs or create other disruptions in our business that can be significant. Further, we may experience delays and increased expenses as a result of legal challenges to our proposed communities, whether brought by governmental authorities or private parties.


Our Mortgage Operations business may be adversely affected by changes in governmental regulation and othermortgage operations are subject to risks, including risks associated with acting as a mortgage lender.

our ability to sell mortgages we originate and to claims on loans sold to third parties.

While we intend for the loans originated by TMHF, our Mortgage Operationsmortgage operations business, to typically be held for no more than 20 days before being sold on the secondary market, if TMHF is unable to sell loans into the secondary mortgage market or directly to large secondary market loan purchasers such as Fannie Mae and Freddie Mac, TMHF would bear the risk of being a long-term investor in these originated loans. Mortgage lending isBeing required to hold loans on a long-term basis would subject us to credit risks associated with the borrowers to whom the loans are extended, and an increase in default rates could have a material and adverse effect on our business. Being required to hold loans on a long-term basis would also negatively affect our liquidity and could require us to use additional capital resources to finance the loans that TMHF is extending. In addition, although mortgage lenders under the mortgage warehouse facilities TMHF currently uses to finance our lending operations normally purchase our mortgages within 20approximately 20-30 days of origination, if such mortgage lenders default under these warehouse facilities TMHF would be required to fund the mortgages then in the pipeline. In such case, amounts available under our Restated Revolving Credit Facility (as defined below) and cash from operations may not be sufficient to allow TMHF to provide financing required by our business during these times.

Antimes, and our ability to originate and sell mortgage loans at competitive prices could be limited, which could negatively affect our business. Further, an obligation to commit our own funds to long-term investments in mortgage loans could, among other things, delay the time when we recognize revenues from home sales on our statements of operations.

Our mortgage operations may also be responsible for losses associated with mortgage loans originated and sold to investors in the event of errors or omissions relating to certain representations and warranties that the loans sold meet certain requirements, including representations as to underwriting standards, the type of collateral, the existence of primary mortgage insurance and the validity of certain borrower representations in connection with the loan. Accordingly, mortgage investors could seek to have us buy back loans or compensate them for losses incurred on mortgages we have sold based on claims that we breached our limited representations or warranties. If, due to higher costs, reduced liquidity, heightened risk retention obligations and/or new operating restrictions or regulatory reforms related to or arising from compliance with new U.S. federal laws and regulations, residential consumer loan putback demands or internal or external reviews of its residential consumer mortgage loan foreclosure processes, or other factors or business decisions, TMHF could beis unable to make loan products available to our homebuyers, andour home sales and mortgage services results of operations may be adversely affected.

In addition,

We enter into interest rate lock commitments (“IRLCs”) to originate residential mortgage loans held for sale, at specified interest rates and within a specified period of time (generally between 30 and 60 days), with customers who have applied for a loan and meet certain credit and underwriting criteria. These commitments expose us to market risk if interest rates change and the underlying loan is not economically hedged or committed to an investor. We also have exposure to credit loss in the event of contractual non-performance by our trading counterparties in derivative instruments that we use in our rate risk management activities. We aim to manage this credit risk by selecting only counterparties that we believe to be financially strong, spreading the risk among multiple counterparties, by placing contractual limits on the amount of unsecured credit extended to any single counterparty, and by entering into netting agreements with counterparties, as appropriate.
Our mortgage operations and title services businesses may be adversely affected by changes in governmental regulation.
Changes in governmental regulation with respect to mortgage lenders and title service providers could adversely affect the financial results of this portion of our business. Our mortgage lending operations are subject to numerous federal, state and local laws and regulations, including with respect to originating, processing, selling and servicing mortgage loans, which, among other things: prohibit discrimination and establish underwriting guidelines; provide for audits and inspections; require appraisals and/or credit reports on prospective borrowers and disclosure of certain information concerning credit and settlement costs; establish maximum loan amounts; prohibit predatory lending practices; and regulate the referral of business to affiliated entities. In addition, our title insurance operations are also subject to applicable insurance and banking laws and regulations.
There have been numerous changes and proposed changes in these regulations affecting the financial services industry as a result of the housing downturn. For example, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted. Among other things, this legislation provides for minimum standards for mortgages and lender practices in making mortgages, limitations on certain fees, retention of credit risk, prohibition of certain tying arrangements and remedies for borrowers in foreclosure proceedings. In January 2013, the Consumer Financial Protection Bureau proposed a number of new rules that became effective in January 2014, including but not limited to rules regarding the creation and definition of a “Qualified Mortgage”,Mortgage,” rules for lender practices regarding assessing borrowers’ ability to repay and limitations on certain fees and incentive arrangements. In October 2015, the Consumer Financial Protection Bureau’s new Truth in Lending - Real Estate Settlement Procedures Act (TILA-RESPA) Integrated Disclosure Rule became effective. This rule implemented additional disclosure timeline requirements and fee tolerances. The effects of these rules upon their adoption could affect the availability and cost of mortgage credit.credit, negatively impact closing timelines and the delivery of homes and adversely affect the costs and financial results of financial services and homebuilding

companies. Other requirements provided for by the Dodd-Frank Act have not yet been finalized or implemented. The effect of such provisions on our Mortgage Operations businessmortgage operations and title services businesses will depend on the rules that are ultimately enacted. Any such changes or new enactments could result in more stringent compliance standards, which could adversely affect our financial condition and results of operations and the market perception of our business.

Additionally, if we are unable to originate mortgages for any reason going forward, our customers may experience significant mortgage loan funding issues, which could have a material impact on our homebuilding business and our consolidated financial statements.

The prices of our mortgages could be adversely affected if we lose any of our important commercial relationships.

TMHF has

We have longstanding relationships with members of the lender community from which itsour borrowers benefit. TMHF plans to continue with these relationships and use the correspondent lender platform as a part of its operational plan. If our relationship with any one or more of those banks deteriorates or if one or more of those banks decide to renegotiate or terminate existing agreements or otherwise exit the market, TMHF may be required to increase the price of our products, or modify the range of products TMHF offers, which could cause us to lose customers who may choose other providers based solely on the price or fees, which could adversely affect our financial condition and results of operations.

We may not be able to use certain deferred tax assets, which may result in our having to pay substantial taxes.

We have significant deferred tax assets, including net operating losses in the U.S. that could be used to offset earnings and reduce the amount of taxes we are required to pay. At December 31, 2016, we had deferred tax assets, net of deferred tax liabilities and valuation allowance, of $206.6 million. Our ability to use net operating losses to offset earnings is dependent on a number of factors, including applicable rules relating to the permitted carry back period for offsetting certain net operating losses against prior period earnings and the timing and amount of future taxable income.

If we are unable to use our net operating losses, we may have to record charges to reduce our deferred tax assets, which could have an adverse effect on our results of operations. In addition, if tax rates are significantly reduced (for example, through corporate income tax reform) the realizable value of our deferred tax assets could be significantly reduced.

Raw materials and building supply shortages and price fluctuations could delay or increase the cost of home construction and adversely affect our operating results.

The homebuilding industry has, from time to time, experienced raw material shortages and been adversely affected by volatility in global commodity prices. In particular, shortages and fluctuations in the price of concrete, drywall, lumber or other important raw materials could result in delays in the start or completion of, or increase the cost of, developing one or more of our residential communities.

Our lumber needs are particularly sensitive to shortages. In addition, the cost of petroleum products, which are used both to deliver our materials and to transport workers to our job sites, fluctuates and may be subject to increased volatility as a result of geopolitical events or accidents such as the Deepwater Horizon accident in the Gulf of Mexico. ChangesIncreases in such costs could also result in higher prices for any productproducts utilizing petrochemicals. Environmental laws and regulations may also have a negative impact on the availability and price of certain raw materials such as lumber and concrete. These cost increases may have an adverse effect on our operating margin and results of operations.operations, and we may be unable to pass increases in construction costs on to our customers who may have already entered into purchase contracts. Furthermore, any such cost increase may adversely affect the regional economies in which we operate and reduce demand for our homes.

The

We have significant operations in certain geographic concentration of our operationsareas, which subjects us to an increased risk of loss of revenue or decreases in the market value of our land and homes in these regions from factors which may affect any of these regions.

Our operations are concentrated in Arizona, California, Colorado, Arizona, TexasFlorida, Georgia, Illinois, North Carolina and Florida.Texas. Some or all of these regions could be affected by:

severe weather;

natural disasters;

climate change;
shortages in the availability or increased costs in obtaining land, equipment, labor or building supplies;

unemployment;
changes to the population growth rates and therefore the demand for homes in these regions; and

changes in the regulatory and fiscal environment.


Due to the concentrated nature of our operations, negative factors affecting one or a number of these geographic regions at the same time could result in a relatively greater impact on our results of operations than they might have on other companies that have a more diversified portfolio of operations. The markets we operate in may also depend, to a degree, on certain sectors of

the economy and any declines in those sectors may impact home sales and activities in that region. For example, to the extent the oil and gas industries, which can be very volatile, are negatively impacted by declining commodity prices, climate change, legislation or other factors, it could result in reduced employment, or other negative economic consequences, which in turn could adversely impact our home sales and activities, particularly in Texas.

Changes to the population growth rates in certain of the markets in which we operate could affect the demand for homes in these regions.

Slower Similarly, slower rates of population growth or population declines in our key markets, especially as compared to the high population growth rates in prior years, could affect the demand for housing, causing home prices in these markets to fall, and adversely affect our business, financial condition and operating results.

We participate in certain unconsolidated joint ventures, including those where we do not have a controlling interest, where we may be adversely impacted by the failure of the unconsolidated joint venture or the other partners in the unconsolidated joint venture to fulfill their obligations.

We have investments in and commitments to certain unconsolidated joint ventures with related and unrelated strategic partners to acquire and develop land and, in some cases, build and deliver homes. To finance these activities, our unconsolidated joint ventures often obtain loans from third-party lenders that are secured by the unconsolidated joint venture’s assets. To the extent any of our joint ventures default on obligations secured by the assets of such joint venture, the assets could be forfeited to third-party lenders.

We have provided non-recourse carve-out guarantees to certain third-party lenders to our unconsolidated joint ventures (i.e. guarantees of losses suffered by the lender in the event that the borrowing entity or its equity owners engage in certain conduct, such as fraud, misappropriation of funds, unauthorized transfers of the financed property or equity interests in the borrowing entity, or the commencement ofborrowing entity commences a voluntary bankruptcy case, by the borrowing entity, or the borrowing entity violates environmental law, or hazardous materials are located on the property, or under other circumstances provided for in such guarantee or indemnity). In the future, we may provide other guarantees and indemnities to such lenders, including secured guarantees, in which case we may have increased liability in the event that a joint venture defaults on its obligations to a third party.

If the other partners in our unconsolidated joint ventures do not provide such cooperation or fulfill these obligations due to their financial condition, strategic business interests (which may be contrary to ours), or otherwise, we may be required to spend additional resources (including payments under the guarantees we have provided to the unconsolidated joint ventures’ lenders) andor suffer losses, each of which could be significant. Moreover, our ability to recoup such expenditures and losses by exercising remedies against such partners may be limited due to the contractual terms of the joint venture agreement, potential legal defenses they may have, their respective financial condition and other circumstances. Furthermore, because we lack a controlling interest in our unconsolidated joint ventures we cannot exercise sole decision-making authority, which could create the terminationpotential risk of creating impasses on decisions and prevent the joint venture from taking actions that may be in our best interests. In addition, as our relationships with our partners are contractual in nature and may be terminated or dissolved under the terms of the applicable joint venture agreements, including buy-sell provisions, we may not continue to own or operate the interests or assets underlying such relationship or may need to purchase additional interests or assets in the venture to continue ownership. In the event a joint venture mayis terminated or dissolved, we could also give risebe exposed to lawsuits and legal costs.

Information technology failures and data security breaches could harm our business.

We use information technology and other computer resources to carry out important operational and marketing activities as well as maintain our business records, including information provided by our customers. Many of these resources are provided to us and/or maintained on our behalf by third-party service providers pursuant to agreements that specify certain security and service level standards. Our ability to conduct our business may be impaired if these resources are compromised, degraded, damaged or fail, whether due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third party, natural disaster, hardware or software corruption,

or failure or error (including a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure, intentional or unintentional personnel actions (including the failure to follow our security protocols), or lost connectivity to our networked resources. A significant and extended disruption in the functioning of these resources could impair our operations, damage our reputation and cause us to lose customers, sales and revenue.

In addition, breaches of our data security systems, including by cyber-attacks, could result in the unintended public disclosure or the misappropriation of our proprietary information or personal and confidential information (including confidential information, about our employees, consumers who view our homes, homebuyers, mortgage loan borrowers and business partners), and requirepartners, requiring us to incur significant expense to address and resolve these kinds of issues. The release of confidential information may also lead to identity theft and related fraud, litigation or other proceedings against us by affected individuals and/or business partners and/or by regulators, and the outcome of such proceedings, which could include penalties or fines, could have a material and adverse effect on our reputation, business, financial condition and results of operations. Depending on its nature, a particular breach or series of

breaches of our systems may result in the unauthorized use, appropriation or loss of confidential or proprietary information on a one-time or continuing basis, which may not be detected for a period of time. In addition, the costs of maintaining adequate protection against such threats, as they develop in the future (or as legal requirements related to data security increase) could be material.

We may incur a variety of costs to engage in future growth or expansion of our operations or acquisitions or disposals of businesses, and the anticipated benefits may never be realized.

As a part of our business strategy, we may make acquisitions, or significant investments in, and/or disposals of, businesses. Any future acquisitions, investments and/or disposals would be accompanied by risks such as:

difficulties in assimilating the operations and personnel of acquired companies or businesses;

diversion of our management’s attention from ongoing business concerns;

our potential inability to maximize our financial and strategic position through the successful incorporation or disposition of operations;

maintenance of uniform standards, controls, procedures and policies; and

impairment of existing relationships with employees, contractors, suppliers and customers as a result of the integration of new management personnel and cost-saving initiatives.

For example, our recent disposition of Monarch requires the separation of our operations and personnel from those of Monarch, as well as our performance of the related transition services agreement. This creates additional expense and requires the allocation of management resources. We provided a customary indemnity to Monarch under the transition services agreement, which could create further expense. The disposition may


Acquisitions can result in decreased earnings, revenuedilution to existing stockholders if we issue our common stock as consideration, or cash flow and may have a material adverse effect onreduce our liquidity whichif we fund them with cash. In addition, acquisitions can expose us to valuation risks, including the risk of writing off goodwill or impairing inventory and other assets related to such acquisitions. The risk of goodwill and asset impairments will increase during a cyclical housing downturn when our profitability may materially and adversely affect our business, financial conditions and operating results. The disposition may also result in lost synergies that could negatively impact our balance sheet, income statement and cash flows.

decline.

We cannot guarantee that we will be able to successfully integrate any company or business that we might acquire in the future, and our failure to do so could harm our current business.

In addition, we may not realize the anticipated benefits of these transactions and there may be other unanticipated or unidentified effects. While we would seek protection, for example, through warranties and indemnities in the case of acquisitions, significant liabilities may not be identified in due diligence or may come to light after the expiry of warranty or indemnity periods. Additionally, while we would seek to limit our ongoing exposure, for example, through liability caps and periodtime limits on warranties and indemnities in the case of disposals, some warranties and indemnities may give rise to unexpected and significant liabilities. Any claims arising in the future may adversely affect our business, financial condition and operating results. We may not able to manage the risks associated with these transactions and the effects of such transactions, which may materially and adversely affect our business, financial conditionscondition and operating results.

Dispositions have their own risks. For example, our disposition of Monarch in 2015 required the separation of our operations and personnel from those of Monarch, as well as our performance of certain related transition services. This required the allocation of management resources. In addition, we provided a customary indemnity to Monarch and its purchasers in the transaction agreement and to the extent that we are required to pay indemnity claims to Monarch and its purchasers under the terms of that agreement, we could face additional liability and expense in connection with the Monarch sale. Dispositions may also result in lost synergies that could negatively impact our balance sheet, income statement and cash flows.
We have defined benefit and defined contribution pension schemes to which we may be required to increase our contributions to fund deficits.

We provide retirement benefits for former and certain of our current employees through a number of defined benefit and defined contribution pension schemes. Certain of these plans are no longer available to new employees. As of December 31, 2014,2016, we had recorded a deficitan unfunded status of $10.2$8.3 million in our defined benefit pension plans. This deficit may increase, and we may be required to increase contributions to our plans in the future, which may materially and adversely affect our liquidity and financial condition.

A major health and safety incident relating to our business could be costly in terms of potential liabilities and reputational damage.

Building sites are inherently dangerous, and operating in the homebuilding industry poses certain inherent health and safety risks. Due to health and safety regulatory requirements and the number of projects we work on, health and safety performance is critical to the success of all areas of our business. Any failure in health and safety performance may result in penalties for non-compliance with relevant regulatory requirements, and a failure that results in a major or significant health and safety incident is likely to be costly in terms of potential liabilities incurred as a result. Such a failure could generate significant

negative publicity and have a corresponding impact on our reputation, our relationships with relevant regulatory agencies or governmental authorities, and our ability to attract customers and employees, which in turn could have a material adverse effect on our business, financial condition and operating results.

Ownership, leasing or occupation of land and the use of hazardous materials carries potential environmental risks and liabilities.

We are subject to a variety of local, state and federal statutes, rules and regulations concerning land use and the protection of health and the environment, including those governing discharge of pollutants to water and air, storm waterstormwater run-off, the presence of and exposure to asbestos, the handling of hazardous materials and the cleanup of contaminated sites. Additionally, as a homebuilding business with a wide variety of historic homebuilding and construction activities, we could also be liable for future claims for damages as a result of the past or present use of hazardous materials, including building materials which in the future become known or are suspected to be hazardous. We may be liable for the costs of removal, investigation or remediation of hazardous or toxic substances located on, under or in a property currently or formerly owned, leased or occupied by us, whether or not we caused or knew of the pollution. The costs of any required removal, investigation or remediation of such substances or the costs of defending against environmental claims may be substantial.substantial, and insurance coverage for such claims may be limited or non-existent. The presence of such substances, or the failure to remediate such substances properly, may also adversely affect our ability to sell the land or to borrow using the land as security. Environmental impacts from historical activities have been identified at some of the projects we have developed in the past and additional projects may be located on land that may have been contaminated by previous use. Although we are not aware of any projects requiring material remediation activities by us as a result of historical contamination, no assurances can be given that material claims or liabilities relating to such developments will not arise in the future.

future, and such contamination or other environmental conditions at or in the vicinity of our developments could result in claims against us for personal injury, property damage or other losses.

The particular impact and requirements of environmental laws that apply to any given community vary greatly according to the community site, the site’s environmental conditions and the present and former use of the site. We expect that increasingly stringent requirements may be imposed on homebuilders in the future. Environmental laws may result in delays, cause us to implement time consuming and expensive compliance programs and prohibit or severely restrict development in certain environmentally sensitive regions or areas, such as wetlands. We also may not identify all of these concerns during any pre-development review of project sites. Environmental regulations can also have an adverse impact on the availability and price of certain raw materials, such as lumber. Furthermore, we could incur substantial costs, including cleanup costs, fines, penalties and other sanctions and damages from third-party claims for property damage or personal injury, as a result of our failure to comply with, or liabilities under, applicable environmental laws and regulations. In addition, we are subject to third-party challenges, such as by environmental groups, underviolations of environmental laws and regulations to the permitscan result in injunctions, civil penalties, remediation expenses and other approvals required for our projects and operations. These matters could adversely affect our business, financial condition and operating results.

Wecosts. Further, some environmental laws impose strict liability, which means that we may be held liable for claims for damages as a result of use of hazardous materials.

As a homebuilding business with a wide variety of historic homebuilding and construction activities,unlawful environmental conditions on property we could be liable for future claims for damages as a result of the past or present use of hazardous materials, including building materials

own which in the future become known or are suspected to be hazardous. Any such claims may adversely affect our business, financial condition and operating results. Insurance coverage for such claims may be limited or non-existent.

We may suffer uninsured losses or suffer material losses in excess of insurance limits.

We could suffer physical damage to property and liabilities resulting in losses that maywe did not be fully compensated by insurance. In addition, certain types of risks, such as personal injury claims, may be, or may become in the future, either uninsurable or not economically insurable, or may not be currently or in the future covered by our insurance policies. Should an uninsured loss or a loss in excess of insured limits occur, we could sustain financial loss or lose capital invested in the affected property as well as anticipated future income from that property. In addition, we could be liable to repair damage or meet liabilities caused by uninsured risks. We may be liable for any debt or other financial obligations related to affected property. Material losses or liabilities in excess of insurance proceeds may occur in the future.

In the U.S., the coverage offered and the availability of general liability insurance for construction defects is currently limited and is costly. As a result, an increasing number of our subcontractors in the U.S. may be unable to obtain insurance, particularly in California where we have instituted an OCIP, under which subcontractors are effectively insured by us. If we cannot effectively recover construction defect liabilities and costs of defense from our subcontractors or their insurers, or if we have self-insured, we may suffer losses. Coverage may be further restricted and become even more costly. Such circumstances could adversely affect our business, financial condition and operating results.

create.

We may face substantial damages or be enjoined from pursuing important activities as a result of existing or future litigation, arbitration or other claims.

We are involved in various litigation and legal claims in the normal course of our business operations, including actions brought on behalf of various classes of claimants. We are also subject to a variety of local, state, and federal laws and regulations related to land development activities, house construction standards, sales practices, mortgage lending operations, employment practices, and protection of the environment. As a result, we are subject to periodic examination or inquiry by various governmental agencies that administer these laws and regulations.

We establish liabilities for legal claims and regulatory matters when such matters are both probable of occurring and any potential loss is reasonably estimable. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. In view of the inherent difficulty of predicting the outcome of these legal and regulatory matters, we generally cannot predict the ultimate resolution, of the pending matters, the related timing or theany eventual loss. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows. However, toTo the extent the liability arising from the ultimate resolution of any matter exceeds the estimates reflected in the recorded reserves relating to such matter, we could incur additional charges that could be significant.

Poor Unfavorable litigation, arbitration or claims could also generate negative publicity in various media outlets that could be detrimental to our reputation.

Negative publicity or poor relations with the residents of our communities could negatively impact sales, which could cause our revenues or results of operations to decline.

Residents

Unfavorable media related to our industry, company, brands, marketing, personnel, operations, business performance, or prospects may affect our stock price and the performance of our business, regardless of its accuracy or inaccuracy. Our success in maintaining, extending and expanding our brand image depends on our ability to adapt to a rapidly changing media environment. Adverse publicity or negative commentary on social media outlets, such as blogs, websites or newsletters, could hurt operating results, as consumers might avoid or protest brands that receive bad press or negative reviews. Furthermore, negative publicity can be disseminated rapidly through these channels and other digital platforms. Customers and other interested parties could act on such information without further investigation and without regard to its accuracy. Accordingly, we could suffer immediate harm without affording us an opportunity for redress or correction. Any such negative publicity may result in a decrease in our operating results.

In addition, we can be affected by poor relations with the residents of communities we develop rely onbecause these residents sometimes look to us to resolve issues or disputes that may arise in connection with the operation or development of their communities. Efforts made by us to resolve these issues or disputes could be deemed unsatisfactory by the affected residents and subsequent actions by these residents could adversely affect sales or our reputation. In addition, we could decide or be required to make material expenditures related to the settlement of such issues or disputes or to modify our community development plans, which could adversely affect our results of operations.

We are dependent

Failure to recruit, retain and develop highly skilled, competent people at all levels may have a material adverse effect on certain membersour financial condition or our standard of our management and key personnel.

service.

Our business involves complex operations and, therefore, demands a management team and employee workforce that is knowledgeable and expert in many areas necessary for our operations. Skilled and experienced employees, managers and executives working in the homebuilding and construction industries are highly sought after, and we compete with other companies across all industries to attract and retain such persons. Our performance and success are dependent, in part, upon key members of our management and personnel, and their loss or departure could be detrimental to our future

success. Further, the process of attracting and retaining suitable replacements for key personnel whose services we may lose would result in transition costs and would divert the attention of other members of our senior management from our existing operations. Competition for the services of these individuals would be expected to increase as business conditions improve in the homebuilding and financial services industries or in the general economy. In addition, we do not maintain key person insurance in respect of any members of our senior management team. The loss ofOur inability to attract and retain key personnel or any of our members of management, members or key personnelensure that their experience and knowledge are not lost when they leave the business through retirement or otherwise, could adversely impact our business, financial condition and operating results.

In addition, the vast majority of our work carried out on site is performed by subcontractors. The difficult operating environment over the last several years in the United States has resulted in the failure of some subcontractors’ businesses and may result in further failures. In addition, reduced levels of homebuilding in the United States have led to some skilled tradesmen leaving the industry to take jobs in other sectors. If subcontractors are not able to recruit sufficient numbers of skilled employees, our development and construction activities may suffer from delays and quality issues, which would also lead to reduced levels of customer satisfaction.
Utility and resource shortages or rate fluctuations could have an adverse effect on our operations.

Several of the markets in which we operate have historically been subject to utility and resource shortages, including significant changes to the availability of electricity and water. Shortages of utility resources and natural resources in our markets, particularly of water, may make it more difficult for us to obtain regulatory approval of new developments. Wedevelopments and have alsoother adverse implications.
For example, certain areas in which we operate, particularly the Western United States, are experiencing and have experienced material fluctuations in utility and resource costs across our markets, and we may incur additional costs and may not be able to complete construction on a timely basis if such fluctuations arise. Our lumber inventory is particularly sensitivesevere drought conditions. In response to these shortages. Furthermore, these shortagesconditions, government officials have taken, or have proposed taking, a number of steps to preserve potable water supplies. To address the state’s mandate and rate fluctuations maytheir own available potable water supplies, local water agencies/suppliers could potentially: restrict, delay the issuance of, or proscribe new water connection permits for homes; increase the costs for securing such permits, either directly or by requiring participation in impact mitigation programs; adopt higher efficiency requirements for water-using appliances or fixtures; limit or ban the use of water for construction activities; impose requirements as to the types of allowed plant material or irrigation for outdoor landscaping that are more strict than state standards and less desired by consumers; and/or impose fines and penalties for noncompliance with any such measures. These local water agencies/suppliers could also increase rates and charges to residential users for the water they use, potentially increasing the cost of homeownership.
Any of the foregoing, individually or collectively, could adversely affect the regional economies in which we operate, which may limit, impair or delay our ability to acquire and develop land and/or build and deliver homes, increase our production costs or reduce demand for our homes, andthereby negatively affectaffecting our business and results of operations.

Constriction of the capital markets could limit our ability to access capital and increase our costs of capital.

We fund our operations from cash from operations, capital markets financings and borrowings under our Restated Revolving Credit Facility and other creditloan facilities. Volatile economic conditions and the constriction of the capital markets could reduce the sources of liquidity available to us and increase our costs of capital. If the size or availability of our banking facilities is reduced in the future, or if we are unable to obtain new, or renew existing, facilities in the future on favorable terms or otherwise access the loan or capital markets, it would have an adverse effect on our liquidity and operations.


As of December 31, 2014,2016, we had $252.3$268.6 million of debt maturing in the next 12 months. We believe we can meet this and our other capital requirements with our existing cash resources and future cash flows and, if required, other sources of financing that we anticipate will be available to us. However, we can provide no assurance that we will continue to be able to do so, particularly if industry or economic conditions deteriorate. The future effects on our business, liquidity and financial results of these conditions could be adverse, both in the ways described above and in other ways that we do not currently foresee.

Our substantial debt could adversely affect our business, financial condition or results of operations and prevent us from fulfilling our debt-related obligations.

We have a substantial amount of debt. As of December 31, 2014,2016, the total principal amount of our debt (including $160.8$198.6 million of indebtedness of TMHF) was $1.7$1.6 billion. Our substantial debt could have important consequences for the holders of our common stock, including:

making it more difficult for us to satisfy our obligations with respect to our debt or to our trade or other creditors;

increasing our vulnerability to adverse economic or industry conditions;

limiting our ability to obtain additional financing to fund capital expenditures and land acquisitions, particularly when the availability of financing in the capital markets is limited;

requiring us to pay higher interest rates upon refinancing or on our variable rate indebtedness if interest rates rise;
requiring a substantial portion of our cash flows from operations and the proceeds of any capital markets offerings or loan borrowings for the payment of interest on our debt and reducing our ability to use our cash flows to fund working capital, capital expenditures, land acquisitions and general corporate requirements;

limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and

placing us at a competitive disadvantage to less leveraged competitors.


We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us through capital markets financings or under our Restated Revolving Credit Facility or otherwise in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, on or before its maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. In addition, we may incur additional indebtedness in order to finance our operations, to fund acquisitions, or to repay existing indebtedness. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional debt or equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances. We cannot assure you that any such actions, if necessary, could be effected on commercially reasonable terms or at all, or on terms that would be advantageous to our stockholders or on terms that would not require us to breach the terms and conditions of our existing or future debt agreements.


Restrictive covenants in the indenturesindenture governing our 2020 Senior Notes, our 2021 Senior Notes and the agreements governing our Restated Revolving Credit Facility and other indebtedness may restrict our ability to pursue our business strategies.

The indenturesindenture governing our 2020 Senior Notes, our 2021 Senior Notes (as defined below) and the agreement governing our Restated Revolving Credit Facility limit our ability, and the terms of any future indebtedness may prohibit or limit our ability, among other things, to:

incur or guarantee additional indebtedness;

make certain investments;

repurchase equity or subordinated indebtedness;
pay dividends or make distributions on our capital stock;

sell assets, including capital stock of restricted subsidiaries;

agree to restrictions on distributions, transfers or dividends affecting our restricted subsidiaries;

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;

enter into transactions with our affiliates;

incur liens; and

designate any of our subsidiaries as unrestricted subsidiaries.


The agreement governing the Restated Revolving Credit Facility contains certain “springing” financial covenants requiring TMM Holdings and its subsidiaries to comply with a certain maximum capitalization ratio and a certain minimum consolidated tangible net worth test. The agreement governing the Restated Revolving Credit Facility also contains customary restrictive covenants, including limitations on incurrence of liens, the payment of dividends and other distributions, the making of asset dispositions, investments, sale and

leasebacks and limitations on debt payments and amendments. SeeItem 7 —- Management’s Discussion and Analysis of Financial Condition and Results of Operations —- Liquidity and Capital Resources in this Annual Report.

The restrictions contained in the indentures governing all of our Senior Notes and the agreement governing our Restated Revolving Credit Facility could also limit our ability to plan for or react to market conditions, meet capital needs or make acquisitions or otherwise restrict our activities or business plans.

A breach of any of the restrictive covenants under the agreements governing our Restated Revolving Credit Facility or any of our Senior Notes could allow for the acceleration of both the Restated Revolving Credit Facility and the Senior Notes. If the indebtedness under our Restated Revolving Credit Facility or the Senior Notes were to be accelerated, we cannot assure you that our assets would be sufficient to repay in full that indebtedness and our other indebtedness. SeeItem 7 —- Management’s Discussion and Analysis of Financial Condition and Results of Operations —- Liquidity and Capital Resources in this Annual Report.

We may require additional capital in the future and may not be able to secure adequate funds on terms acceptable to us.

The expansion and development of our business may require significant capital, which we may be unable to obtain, to fund our capital expenditures and operating expenses, including working capital needs. During 2014, 2013 and 2012 we made expenditures for land and development of $1.0 billion, $897.1 million and $656.9 million, respectively.

During the next 12 months, we expect to meet our cash requirements with existing cash and cash equivalents, cash flow from operations (including sales of our homes and land), proceeds from the disposition of Monarch and borrowings under our Restated Revolving Credit Facility. We may fail to generate sufficient cash flow from the sales of our homes and land or from other financing sources in order to meet our cash requirements. Further, our capital requirements may vary materially from those currently planned if, for example, our revenues do not reach, or our costs exceed, expected levels or we have to incur unforeseen capital expenditures and make investments to maintain our competitive position. If this is the case, we may require additional financing sooner than anticipated or we may have to delay or abandon some or all of our development and expansion plans or otherwise forego market opportunities.

To a large extent, our cash flow generation ability is subject to general economic, financial, competitive, legislative and regulatory factors and other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations in an amount sufficient to enable us to fund our liquidity needs. As a result, we may need to refinance all or a portion of our indebtedness, on or before its maturity, or obtain additional equity or debt financing. We cannot assure you that we will be able to do so on commercially reasonable terms, if at all. Any inability to generate sufficient cash flow, refinance our indebtedness or incur additional indebtedness on commercially reasonable terms could adversely affect our financial condition and could cause us to be unable to service our debt and may delay or prevent the expansion of our business.

Risks related to our structure and organization

TMHC’s only asset is its interest in TMM Holdings II Limited Partnership (“New TMM”), and, accordingly, it is dependent upon distributions from New TMM to pay dividends, if any, taxes and other expenses. New TMM is a holding company with no operations of its own and, in turn, relies on distributions from TMM Holdings and its operating subsidiaries.

TMHC is a holding company and has no assets other than its ownership, directly or indirectly, of New TMM Units. TMHC has no independent means of generating revenue. TMHC intends to cause New TMM to make distributions to its partners in an amount sufficient to cover all applicable taxes payable and dividends, if any, declared by TMHC. To the extent that TMHC needs funds, and New TMM is restricted from making such distributions under applicable law or regulation, or is otherwise unable to provide such funds, it could materially and adversely affect TMHC’s liquidity and financial condition. In addition, New TMM has no direct operations and derives all of its cash flow from TMM Holdings and its subsidiaries. Because the operations of TMHC’s business are conducted through subsidiaries of TMM Holdings, New TMM is dependent on those entities for dividends and other payments to generate the funds necessary to meet the financial obligations of New TMM. Legal and contractual restrictions in the agreements governing the Restated Revolving Credit Facility, certain of the Senior Notes and other debt agreements governing current and future indebtedness of New TMM’s subsidiaries, as well as the financial condition and operating requirements of New TMM’s subsidiaries, may limit TMHC’s ability to obtain cash from New TMM’s subsidiaries. The earnings from, or other available assets of, New TMM’s subsidiaries may not be sufficient to pay dividends or make distributions or loans to TMHC to enable TMHC to pay any dividends on the Class A Common Stock, taxes and other expenses.

The Principal Equityholders have substantial influence over our business, and their interests may differ from our interests or those of our other stockholders.

The Principal Equityholders, via the TPG and Oaktree Holding Vehicles, hold a majority of the combined voting power of TMHC. Due to their ownership, our Principal Equityholders have the power to control us and our subsidiaries, including the power to:


elect a majority of our directors and appoint our executive officers, set our management policies and exercise overall control over the Company and subsidiaries;

agree to sell or otherwise transfer a controlling stake in the Company; and

determine the outcome of substantially all actions requiring stockholder approval, including transactions with related parties, corporate reorganizations, acquisitions and dispositions of assets and dividends.


The interests of our Principal Equityholders may differ from our interests or those of our other stockholders and the concentration of control in our Principal Equityholders will limit other stockholders’ ability to influence corporate matters. The concentration of ownership and voting power of our Principal Equityholders may also delay, defer or even prevent an acquisition by a third party or other change of control of the Company and may make some transactions more difficult or impossible without the support of our Principal Equityholders, even if such events are perceived by the other stockholders as being in their best interest. The concentration of voting power among our Principal Equityholders may have an adverse effect on the price of our Class A Common Stock. The Company may take actions that our other stockholders do not view as beneficial, which may adversely affect our results of operations and financial condition and cause the value of your investment to decline.

Pursuant to the stockholders agreement, to which TMHC is a party, along with the TPG and Oaktree Holding Vehicles and JH, certain of our actions require the approval of the directors nominated by the TPG and Oaktree Holding Vehicles. Specifically, the approval of a director nominated by the TPG Holding Vehicle, so long as it owns at least 50% of TMHC’s common stock held by it at the closing of our IPO (and the application of net proceeds therefrom), and the approval of a director nominated by the Oaktree Holding Vehicle, so long as it owns at least 50% of TMHC’s common stock held by it following our IPO (and the application of net proceeds therefrom), must be obtained before we are permitted to take any of the following actions:

any change of control of TMHC;

acquisitions or dispositions by TMHC or any of its subsidiaries of assets valued at more than $50.0 million;

incurrence by TMHC or any of its subsidiaries of any indebtedness in an aggregate amount in excess of $50.0 million or the making of any loan in excess of $50.0 million;

issuance of any equity securities of TMHC, subject to limited exceptions (which include issuances pursuant to approved compensation plans);

hiring and termination of our Chief Executive Officer; and

certain changes to the size of our Board of Directors.


Section 203 of the Delaware General Corporation Law may affect the ability of an “interested stockholder” to engage in certain business combinations, including mergers, consolidations or acquisitions of additional shares, for a period of three years following the time that the stockholder becomes an “interested stockholder.” An “interested stockholder” is defined to include persons owning directly or indirectly 15% or more of the outstanding voting stock of a corporation. We have elected in our amended and restated certificate of incorporation not to be subject to Section 203 of the Delaware General Corporation Law. Nevertheless, our amended and restated certificate of incorporation contains provisions that have the same effect as Section 203 of the Delaware General Corporation Law, except that they provide that the TPG and Oaktree Holding Vehicles and their respective affiliates and transferees will not be deemed to be “interested stockholders,” regardless of the percentage of our voting stock owned by them and, accordingly, will not be subject to such restrictions.

In addition, because the Principal Equityholders hold their economic interest in our business through New TMM, but not through TMHC, the public company, these existing owners may have conflicting interests with holders of shares of our Class A Common Stock.

As a “controlled company” within the meaning of the corporate governance rules of the New York Stock Exchange, we qualify for, and rely on, exemptions from certain corporate governance requirements. As a result, holders of our Class A Common Stock may not have the same degree of protection as that afforded to stockholders of companies that are subject to all of the corporate governance requirements of these exchanges.

We are a “controlled company” within the meaning of the corporate governance rules of the New York Stock Exchange as a result of the ownership position and voting rights of our Principal Equityholders. A “controlled company” is a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company. More than 50% of our voting power is held by the TPG and Oaktree Holding Vehicles. As a controlled company, we are entitled to elect, and have elected, not to comply with certain corporate governance rules of the New York Stock Exchange that would otherwise require the Board of Directors to have a majority of independent directors and have our compensation and nominating and governance committees to be comprised entirely of independent directors, have written charters addressing such committees’ purposes and responsibilities and perform an annual evaluation of such committees. directors.

Accordingly, holders of our Class A Common Stock do not have the same protection afforded to stockholders of companies that are subject to all of the corporate governance requirements of the New York Stock Exchange and the ability of our independent directors to influence our business policies and affairs may be reduced.

TMHC’s directors who have relationships with the Principal Equityholders may have conflicts of interest with respect to matters involving the Company.

The majority of TMHC’s directors are affiliated with the Principal Equityholders. These persons have fiduciary duties to TMHC and in addition have duties to the Principal Equityholders. In addition, TMHC’s amended and restated certificate of incorporation provides that no officer or director of TMHC who is also an officer, director, employee or other affiliate of the Principal Equityholders or an officer, director or employee of an affiliate of the Principal Equityholders will be liable to TMHC or its stockholders for breach of any fiduciary duty by reason of the fact that any such individual directs a corporate opportunity to the Principal Equityholders or their affiliates instead of TMHC, or does not communicate information regarding a corporate opportunity to TMHC that such person or affiliate has directed to the Principal Equityholders or their affiliates. As a result, such circumstances may entail real or apparent conflicts of interest with respect to matters affecting both TMHC and the Principal Equityholders, whose interests, in some circumstances, may be adverse to those of TMHC. In addition, as a result of the Principal Equityholders’ indirect ownership interest, conflicts of interest could arise with respect to transactions involving business dealings between TMHC and the Principal Equityholders or their affiliates, including potential business transactions, potential acquisitions of businesses or properties, the issuance of additional securities, the payment of dividends by TMHC and other matters.

Failure to maintain effective internal control over financial reporting could have an adverse effect on our business, operating results and the trading price of our securities.

As a public company we are required to document and test our internal control procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules of the SEC, which require, among other things, our management to assess annually the effectiveness of our internal control over financial reporting and our independent registered public accounting firm to issue a report on our internal control over financial reporting. If our management is unable to certify the effectiveness of our internal controls or if our independent registered public accounting firm cannot render an opinion on management’s assessment and on the effectiveness of our internal control over financial reporting, or if material weaknesses in our internal controls are identified, it could lead to material misstatements in our financial statements, we may be unable to meet our disclosure obligations and investors could lose confidence in our reported financial information. Failure to comply with Section 404 of the Sarbanes-Oxley Act could potentially subject us to sanctions or investigations by the SEC, the Financial Industry Regulatory Authority or other regulatory authorities.

Provisions in our charter and bylaws and provisions of Delaware law may delay or prevent our acquisition by a third party, which might diminish the value of our Class A Common Stock. Provisions in our debt agreements may also require an acquirer to refinance our outstanding indebtedness if a change of control occurs.

In addition to the TPG and Oaktree Holding Vehicles holding a majority of the voting power of TMHC, our amended and restated certificate of incorporation and our bylaws contain certain provisions that may discourage, delay or prevent

a change in our management or control over us that stockholders may consider favorable, including the following, some of which may only become effective when the TPG and Oaktree Holding Vehicles no longer beneficially own shares representing 50% or more of the combined voting power of our common stock (the “Triggering Event”):

the division of our board of directors into three classes and the election of each class for three-year terms;

the sole ability of the board of directors to fill a vacancy created by the expansion of the board of directors;

advance notice requirements for stockholder proposals and director nominations;

after the Triggering Event, limitations on the ability of stockholders to call special meetings and to take action by written consent;

after the Triggering Event, in certain cases, the approval of holders of at least three-fourths of the shares entitled to vote generally on the making, alteration, amendment or repeal of our certificate of incorporation or bylaws will be required to adopt, amend or repeal our bylaws, or amend or repeal certain provisions of our certificate of incorporation;

after the Triggering Event, the required approval of holders of at least three-fourths of the shares entitled to vote at an election of the directors to remove directors, which removal may only be for cause; and

the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval, which could be used, among other things, to institute a rights plan that would have the effect of

significantly diluting the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our board of directors.


Section 203 of the Delaware General Corporation Law may affect the ability of an “interested stockholder” to engage in certain business combinations for a period of three years following the time that the stockholder becomes an “interested stockholder.” We have elected in our amended and restated certificate of incorporation not to be subject to Section 203 of the Delaware General Corporation Law. Nevertheless, our amended and restated certificate of incorporation contains provisions that have the same effect as Section 203 of the Delaware General Corporation Law, except that they provide that the TPG and Oaktree Holding Vehicles and their respective affiliates and transferees will not be deemed to be “interested stockholders,” and accordingly will not be subject to such restrictions.

The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common stock in the acquisition.

Under our Restated Revolving Credit Facility, a change of control would be an event of default, which would therefore require a third party acquirer to obtain a facility to refinance any outstanding indebtedness under the Restated Revolving Credit Facility. Under the indentures governing our Senior Notes, if a change of control were to occur, we would be required to make offers to repurchase the Senior Notes at prices equal to 101% of their respective principal amounts. These change of control provisions in our existing debt agreements may also delay or diminish the value of an acquisition by a third party.

Any of the above risks could have a material adverse effect on your investment in our Class A Common Stock and Senior Notes.

We may indirectly own an interest in a controlled foreign corporation.

As of December 31, 2016, we owned a 25.5% interest, measured by both vote and value, indirectly through New TMM and TMM Holdings (each as defined below), in a Canadian corporation. On February 6, 2017, we completed the sale of 11,500,000 shares of Class A common stock. Immediately following the offering and the use of proceeds therefrom, our interest in the Canadian corporation increased to a 35.2% interest (of vote and value). If our indirect interest in the Canadian corporation, when combined with the indirect interest in the Canadian corporation held by certain other substantial direct or indirect owners of New TMM, exceeds 50% of (a) the total combined voting power of all classes of stock of such corporation or (b) the value of the stock of such corporation, the Canadian corporation would be classified as controlled foreign corporation (a “CFC”) for U.S. federal income tax purposes, and we would be a “U.S. Shareholder” of the Canadian corporation. Although we do not expect that the Canadian corporation will be classified as a CFC immediately following the offering, in the future, we expect that holders of New TMM Units will exchange such New TMM Units (along with shares of our Class B common stock) for shares of Class A Common Stock or the Company may otherwise acquire additional New TMM Units, and as a result, we, together with other substantial direct or indirect owners of New TMM may then collectively own more than 50% of a Canadian corporation, which would cause the Canadian corporation to be a CFC and us to be a U.S. Shareholder of the Canadian Corporation. Under U.S. federal income tax rules applicable to CFCs and their shareholders, in certain circumstances a U.S. Shareholder of a CFC is required to currently include in its income its proportionate share of certain categories of the CFC's current earnings and profits, regardless of whether any amounts are actually distributed by the CFC. As a result, there could be adverse tax consequences to us if the Canadian corporation is classified as a CFC in the future.

ITEM 1B.UNRESOLVED STAFF COMMENTS

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.


ITEM 2.PROPERTIES

ITEM 2. PROPERTIES

We lease office facilities for our homebuilding and mortgage operations. We lease our corporate headquarters, which is located in Scottsdale, Arizona. The lease on this facility covers a space of approximately 24,00027,000 square feet and expires in June 2018.April 2023. We leasehave approximately 1230 other propertiesleases for our other division offices and design centers. For information on land owned and controlled by us for use in our homebuilding activities, please refer toItem 1 — Business — Homebuilding Operations — Land Acquisition Policies and Development.


ITEM 3.LEGAL PROCEEDINGS

ITEM 3. LEGAL PROCEEDINGS


We are involved in various litigation and legal claims in the normal course of our business operations, including actions brought on behalf of various classes of claimants. We are also subject to a variety of local, state, and federal laws and regulations related to land development activities, house construction standards, sales practices, mortgage lending operations, employment practices, and protection of the environment. As a result, we are subject to periodic examination or inquiry by various governmental agencies that administer these laws and regulations. We establish liabilities for legal claims and regulatory matters when such matters are both probable of occurring and any potential loss is reasonably estimable. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. In view of the inherent difficulty of predicting the outcome of these legal and regulatory matters, we generally cannot predict the ultimate resolution of the pending matters, the related timing, or the eventual loss. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows. However, to the extent the liability arising from the ultimate resolution of any matter exceeds the estimates reflected in the recorded reserves relating to such matter, we could incur additional charges that could be significant.


ITEM 4.MINE SAFETY DISCLOSURES

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.



PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY


ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information


The Company lists its Class A Common Stock on the New York Stock Exchange (NYSE) under the symbol “TMHC”. On February 27, 201521, 2017, the Company had one holder of record of our Class A Common Stock. This does not include the number of stockholder who hold shares in TMHC through banks, brokers, and other financial institutions. The following table sets forth for the quarters indicated the range of high and low tradingclosing sales prices for the Company’s common stock during fiscal year ended:

   Year Ended December 31, 2014 
   1st Quarter   2nd Quarter   3rd Quarter   4th Quarter 

High

   26.09    $24.13    $22.81    $19.89  

Low

   19.67     20.04     16.22     15.13  

   Year Ended December 31, 2013 
   1st Quarter   2nd Quarter   3rd Quarter   4th Quarter 

High

   N/A    $26.89    $25.89    $23.40  

Low

   N/A     23.04     19.96     20.02  

Class A Common Stock:


 Year Ended December 31, 2016
 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High$15.73
 $16.04
 $18.05
 $20.98
Low11.30
 13.54
 14.65
 16.57
 Year Ended December 31, 2015
 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High$21.01
 $21.33
 $21.30
 $20.19
Low16.06
 18.26
 18.60
 15.43

The Company’s Class B Common Stock is not listed on a securities exchange. On February 27, 201521, 2017 the Company had 3835 holders of our Class B Common Stock. For details on the Class B Common Stock seeNote 1314 — Stockholders’ Equity — Reorganization Transactions in the Notes to theour Consolidated Financial Statements included in Item 8 of this Annual Report.

See Note 23 - Subsequent Events for changes to ownership subsequent to December 31, 2016.


Stock Performance Graph


The following shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any of our other filings under the Exchange Act or the Securities Act, except to the extent we specifically incorporate it by reference into such filing.


This chart compares the cumulative total return on our common stockClass A Common Stock with that of the Standard & Poor’s 500 Composite Stock Index (the “S&P 500”) and the Standard & Poor’s Homebuilding Index (the “S&P Homebuilding”Homebuilding Index”). The chart assumes $100.00 was invested at the close of market on April 10, 2013 (the date our Class A Common Stock began trading on the date of our IPO,NYSE), in the Class A common stockCommon Stock of Taylor Morrison Home Corporation, the S&P 500 Index and the S&P Homebuilding Index, and assumes the reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.




















Comparison of Cumulative Total Return Among TMHC, the S&P 500 and the S&P Homebuilding Index from April 10, 2013 to December 31, 2014

   4/10/13   6/30/13   9/30/13   12/31/13   3/31/14   6/30/14   9/30/14   12/31/14 

TMHC

  $100.00    $105.82    $98.31    $97.44    $102.00    $97.31    $70.40    $81.99  

S&P 500

   100.00     101.17     105.91     116.42     117.93     123.46     124.22     129.68  

S&P Homebuilding

   100.00     99.92     103.96     113.15     110.64     111.36     100.67     116.13  

2016



 4/10/2013 12/31/2013 12/31/2014 12/31/2015 12/31/2016
TMHC$100.00
 $97.44
 $81.99
 $69.44
 $83.59
S&P 500100.00
 116.42
 129.68
 128.73
 141.01
S&P Homebuilding Index100.00
 113.15
 116.13
 116.06
 114.94

Dividends


We currently anticipate that we will retain all available funds for use in the operation and expansion of our business, and do not anticipate paying any cash dividends in the foreseeable future or to makemaking distributions from New TMM to its limited partners (other than to TMHC to fund its operations). SeeItem 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations. TMHC has not previously declared or paid any cash dividends on its common stock.


Any future determination as to our dividend policydeclare and pay dividends will be made at the discretion of the Board of Directors of TMHC and will depend upon many factors, including statutory requirements, the covenants governing our Restated Revolving Credit Facility and certain of our Senior Notes that limit our ability to pay dividends to stockholders and other factors the Board of Directors of TMHC deemdeems relevant. For further information, seeItem 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital Resources — 2020 Senior Notes, — 2021 Senior Notes and — Revolving Credit Facility.

Debt Instruments.


Issuer Purchases of Equity Securities

None.


Our Board of Directors has authorized the repurchase of up to $100.0 million of the Company’s Class A Common Stock through December 31, 2017 in open market purchases, privately negotiated transactions or other transactions. The stock repurchase program is subject to prevailing market conditions and other considerations, including our liquidity, the terms of our debt instruments, statutory requirements, planned land investment and development spending, acquisition and other investment opportunities and ongoing capital requirements. During the three months ended December 31, 2016, there were no shares of Class A Common Stock repurchased by us or on our behalf.


ITEM 6.SELECTED FINANCIAL DATA

ITEM 6. SELECTED FINANCIAL DATA

The following tables set forth selected consolidated financial and operating data at and for each of the five fiscal years ending December 31, 2014.2016. It should be read in conjunction with the Consolidated Financial Statements and Notes thereto, listedincluded in Item 8 of this Annual Report and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of this Annual Report.

  TMHC  Predecessor(1) 
  Year Ended December 31,  July 13 to
December 31,
2011		  January 1
to July 12,
2011		  Year Ended
December 31,
2010		 
  2014  2013  2012    

(Dollars in thousands, except per share amounts)

      
 

Statements of Operations Data:

      

Total revenues

 $2,708,432   $1,916,081   $1,041,182   $409,442   $341,452   $722,740  

Gross margin

 $566,246   $415,865   $206,641   $76,234   $63,923   $132,009  

Income tax provision (benefit)

 $76,395   $(23,810)  $(284,298)  $(12,005)  $4,229   $(40,240) 

Net income from continuing operations

 $225,599   $28,355   $355,955   $707   $7,670   $7,769  

Income from discontinued operations – net of tax

 $41,902   $66,513   $74,893   $26,060   $42,350   $82,833  

Net income before allocation to non-controlling interests

 $267,501   $94,868   $430,848   $26,767   $50,020   $90,602  

Net (income) loss attributable to non-controlling interests – joint ventures

 $(1,648)  $131   $(28)  $(1,178)  $(4,122)  $(3,235) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income before non-controlling interests – Principal Equityholders

 $265,853   $94,999   $430,820   $25,589   $45,898   $87,367  

Net (income) loss from continuing operations attributable to non-controlling interests – Principal Equityholders

 $(163,790)  $1,442   $(355,927)  $471   $(3,548)  $(4,534) 

Net income from discontinued operations attributable to non-controlling interests – Principal Equityholders(2)

 $(30,594)  $(51,021)  $(74,893)   (26,060) $(42,350) $(82,833)
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income available to Taylor Morrison Home Corporation

 $71,469   $45,420   $—    $—    $—    $—   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Earnings per common share:

      

Basic

      

Income from continuing operations

 $1.83   $0.91    N/A    N/A    N/A    N/A  

Discontinued operations – net of tax(2)

 $0.34   $0.47    N/A    N/A    N/A    N/A  
 

 

 

  

 

 

     

Net income available to Taylor Morrison Home Corporation

 $2.17   $1.38    N/A    N/A    N/A    N/A  

Diluted

      

Income from continuing operations

 $1.83   $0.91    N/A    N/A    N/A    N/A  

Discontinued operations – net of tax(2)

 $0.34   $0.47    N/A    N/A    N/A    N/A  
 

 

 

  

 

 

     

Net income available to Taylor Morrison Home Corporation

 $2.17   $1.38    N/A    N/A    N/A    N/A  

Weighted average number of shares of common stock:

      

Basic

  32,937    32,840    N/A    N/A    N/A    N/A  

Diluted

  122,313    122,319    N/A    N/A    N/A    N/A  

(1)The selected financial data as of and for the year ended December 31, 2010 and for the period from January 1, 2011 to July 12, 2011 have been derived from the financial statements of our predecessor, Taylor Woodrow Holdings (USA), Inc., now known as Taylor Morrison Communities, Inc. The predecessor period financial statements have been prepared using the historical cost basis of accounting that existed prior to the Acquisition in accordance with U.S. GAAP. The successor period financial statements for periods ending subsequent to July 13, 2011 (the date of the Acquisition) are also prepared in accordance with U.S. GAAP, although they reflect adjustments made as a result of the application of purchase accounting in connection with the Acquisition. As a result, the financial information for periods subsequent to the date of the Acquisition is not necessarily comparable to that for the predecessor periods.
(2)See Notes 1 and 4 to Notes to the Consolidated Financial Statements for information regarding our disposition of Monarch and our treatment of that segment as discontinued operations.

   As of December 31, 
   2014   2013   2012   2011   2010 

Balance Sheet Data (at period end):

          

Cash and cash equivalents, excluding restricted cash

  $234,217    $193,518    $111,083    $103,367    $42,322  

Real estate inventory

   2,518,321     2,012,580     1,366,902     794,881     798,030  

Total assets

   4,133,113     3,438,558     2,738,056     1,671,067     1,527,324  

Total debt

   1,737,106     1,257,730     969,499     568,967     567,202  

Total stockholders’ equity

   1,777,161     1,544,901     1,204,575     628,565     465,529  

Operating Data (for the period ended):

          

Average active selling communities

   206     158     108     120     127  

Net sales orders (units)

   5,728     5,018     3,738     2,564     2,319  

Home closings (units)

   5,642     4,716     2,933     2,327     2,570  

Average sales price of homes delivered

  $464    $394    $336    $306    $274  

Backlog at the end of period (value)

  $1,099,767    $987,754    $716,033    $259,391    $170,503  

Backlog at the end of period (units)

   2,252     2,166     1,864     740     503  

 Year Ended December 31,
(Dollars in thousands, except per share amounts)2016 2015 2014 2013 2012
Statements of Operations Data:         
Total revenues$3,550,029
 $2,976,820
 $2,708,432
 $1,916,081
 $1,041,182
Gross margin680,279
 567,915
 566,246
 415,865
 206,641
Income tax provision / (benefit)107,643
 90,001
 76,395
 (23,810) (284,298)
Net income from continuing operations206,563
 170,986
 225,599
 28,355
 355,955
Income from discontinued operations – net of tax—
 58,059
 41,902
 66,513
 74,893
Net income before allocation to non-controlling interests206,563
 229,045
 267,501
 94,868
 430,848
Net (income) / loss attributable to non-controlling interests – joint ventures(1,294) (1,681) (1,648) 131
 (28)
Net income before non-controlling interests – Principal Equityholders205,269
 227,364
 265,853
 94,999
 430,820
Net (income) / loss from continuing operations attributable to non-controlling interests – Principal Equityholders(152,653) (123,909) (163,790) 1,442
 (355,927)
Net income from discontinued operations attributable to non-controlling interests – Principal Equityholders (1)
—
 (42,406) (30,594) (51,021) (74,893)
Net income available to Taylor Morrison Home Corporation$52,616
 $61,049
 $71,469
 $45,420
 $—
Earnings per common share:         
Basic         
Income from continuing operations$1.69
 $1.38
 $1.83
 $0.91
 N/A
Discontinued operations – net of tax (1)
—
 0.47
 0.34
 0.47
 N/A
Net income available to Taylor Morrison Home Corporation$1.69
 $1.85
 $2.17
 $1.38
 N/A
Diluted         
Income from continuing operations$1.69
 $1.38
 $1.83
 $0.91
 N/A
Discontinued operations – net of tax (1)
—
 0.47
 0.34
 0.47
 N/A
Net income available to Taylor Morrison Home Corporation$1.69
 $1.85
 $2.17
 $1.38
 N/A
Weighted average number of shares of common stock:         
Basic31,084
 33,063
 32,937
 32,840
 N/A
Diluted120,832
 122,384
 122,313
 122,319
 N/A

(1)See Note 5 to Notes to the Consolidated Financial Statements for information regarding our disposition of Monarch and our treatment of that segment as discontinued operations.

 As of December 31,
(Dollars in thousands)2016 2015 2014 2013 2012
Balance Sheet Data:         
Cash and cash equivalents, excluding restricted cash$300,179
 $126,188
 $234,217
 $193,518
 $111,083
Real estate inventory3,017,219
 3,126,787
 2,518,321
 2,012,580
 1,366,902
Total assets (1)
4,220,926
 4,122,447
 4,111,798
 3,419,285
 2,738,056
Total debt (1)
1,586,533
 1,668,425
 1,715,791
 1,238,457
 969,499
Total stockholders’ equity2,160,202
 1,972,677
 1,777,161
 1,544,901
 1,204,575
          
 Year Ended December 31,
(Dollars in thousands)2016 2015 2014 2013 2012
Operating Data:         
Average active selling communities309
 259
 206
 158
 108
Net sales orders (units)7,504
 6,681
 5,728
 5,018
 3,738
Home closings (units)7,369
 6,311
 5,642
 4,716
 2,933
Average sales price of homes delivered$465
 $458
 $464
 $394
 $336
Backlog at the end of period (value)$1,531,910
 $1,392,973
 $1,099,767
 $987,754
 $716,033
Backlog at the end of period (units)3,131
 2,932
 2,252
 2,166
 1,864

(1) Prior period amounts related to debt issuance costs have been reclassified to conform with current period financial statement presentation as a result of adopting Accounting Standards Update (“ASU”) 2015-03, Simplifying the Presentation of Debt Issuance Costs.
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview


Our principal business is residential homebuilding and the development of lifestyle communities with operations geographically focused in Arizona, California, Colorado, Florida, Georgia, Illinois, North Carolina, and Texas. Our homes appealWe serve a wide array of consumer groups from coast to entry-level,coast, including first time, move-up, luxury, and 55+ and luxury homebuyers, with a focus on move-up customers in high-growth markets.buyers. Our homebuilding company operates under our Taylor Morrison and Darling Homes brand names. Our business is organized into tenmultiple homebuilding operating divisions,components, and a mortgage division,operating component, all of which are managed as threefour reportable segments: East, Central, West and Mortgage Operations, as follows:


EastAtlanta, Charlotte, North Florida, Raleigh, Southwest Florida, and Tampa
CentralAustin, Dallas, and Houston (which includes(each of the Dallas and Houston markets include both a Taylor Morrison division and a Darling Homes division), Austin, Dallas, North Florida and West Florida
WestBay Area, Chicago, Denver, Phoenix, Northern California,Sacramento, and Southern California and Denver
Mortgage OperationsMortgageTaylor Morrison Home Funding (“TMHF”) and FinancialInspired Title Services, (TMHF)LLC (“Inspired Title”)


We offer single family attached and/orand detached homes, and revenue is recognized when the homes are completed and delivered to the buyers. Our primary costs are the acquisition of land in various stages of development and the construction costs of the homes we sell.


Our Mortgage Operations reportable segment provides financialmortgage services to customers in the United States through our wholly owned mortgage subsidiary, TMHF.TMHF, and title services through our wholly owned title services subsidiary, Inspired Title. Revenues from loan origination are recognized at the time the related real estate transactions are completed, usually upon the close of escrow.

On January 28, 2015, we completed the sale of our Monarch business for total proceeds of approximately CAD $570 million. Through this strategic sale, we were able to capture what we believe was an attractive valuation for this asset at a time when market dynamics are changing. By exiting the Canadian business, we will focus solely on U.S. operations, where we believe we can reinvest proceeds from the sale of Monarch in new and existing markets to generate higher returns to maximize shareholder value.


Industry Overview and Current Market Developments

We


Except for certain housing markets, we believe that a fundamental housing recovery is still underway on a national basis, driven by consumers who are increasinglyhave remained optimistic about their economic prospects, and we believe the recovery is supported by certain positive economic and demographic factors, including decreasing unemployment, increasingstrong home values, improving household balance sheets, declines in new and existing for-sale home inventory and low interest rates supporting affordability and home ownership. While we were encouraged by certain positive and improved trends during 2014,2016, several challenges still exist that may impact the speed and duration of the recovery, such as lingering unemployment concerns, stagnation in real

wages and real or perceived personal wealth, national and global economic uncertainty and a continuing restrictive mortgage lending environment. We are additionally challenged by shortages in the labor supply, specifically as it relates to qualified tradespeople.tradespeople, and volatility in energy prices. Nevertheless, we believe we are in an upward business cycle in most of our markets, as the ability to deliver homes to prospective buyers still lags behind demand and the availability of new and pre-owned homes remains constrained.


Land Acquisition and Development


Because the housing market is cyclical, and home price movement between the peak and trough of the cycle can be significant, we seek to adhere to our core operating principles through these cycles to drive consistent long-term performance.


Based on our current land position, we expect to drive revenue by opening new communities from our existing land supply. We believe land supply provides us with the opportunity to increase community count prospectively. We also currently own or have an option to purchase the majority of the land on which we expect to close homes during 2015.2017. During the next twelve months we expect to open communities in geographic markets in line with consumer demand.


Our approach in allocating capital and managing our land portfolio has been to acquire assets that have attractive characteristics, including good access to schools, shopping, recreation and transportation facilities. In connection with our overall land inventory management process, our management team reviews these considerations, as well as other financial metrics, in order to decide the highest and best use of our capital.


We intend to maintain a consistent approach to land positioning within our regions, markets and communities in the foreseeable future in an effort to concentrate a greater amount of our land inventory in areas that have the attractive characteristics referred to above. We also intend to continue to combine our land development expertise with our homebuilding operations to increase the flexibility of our business and to enhanceoptimize our margin performance and to control the timing of delivery of lots.performance. From time to time, we may sell land in our communities if we believe it is best for our overall operations. We do not expect such sales to have a significant effect on our overall results, but they may impact our overall gross margins.


We will continue to identify the preferences of our customer and demographic groups and offer them innovative, high-quality homes that are efficient and profitable to build. To achieve this goal, we conduct market research to determine preferences of our customer groups.

We will also seek


2016 Highlights

On January 8, 2016, we completed the acquisition of Acadia Homes in Atlanta, Georgia, yielding approximately 1,100 lots for a total consideration of $83.6 million. See Note 3 – Business Combinations in the Notes to grow through selective acquisitionsthe Consolidated Financial Statements included in both existing marketsItem 8 of this Annual Report for further information regarding the assets acquired and new markets that exhibit positive long-term fundamentals.

2014 Highlights

Keythe allocation of purchase price.


Other key operational and financial results as of and for the year ended December 31, 20142016 are as follows:

U.S. community count increased 30% to 206 average communities from 158 year-over-year

Net sales orders in the U.S. increased 14% to 5,728

U.S. average monthly absorption pace was 2.3 compared to 2.6 inwere 7,504, a 12% increase from the prior year

U.S. cancellations asHome closings were 7,369, a percentage of gross sales orders was 13.2% compared to 14.3% in17% increase from the prior year

HomeTotal revenue was $3.6 billion, a 19% increase from the prior year
GAAP home closings in our U.S.gross margin, inclusive of capitalized interest, was 18.2%
Net income from continuing operations increased 20% to 5,642

Average pricesfor the year was $207 million with earnings per share of homes closed in$1.69, an increase of 22% from the U.S. increased 18% to $464,000prior year

Mortgage Operations reported gross profit of $16 million on revenue of $35 million

Factors Affecting Comparability of Results

You should read this


The Management’s Discussion and Analysis of our Financial Condition and Results of Operations should be read in conjunction with our historical consolidated financial statements included elsewhere in this Annual Report. The primary factorfactors that affectsaffect the comparability of our results of operations isare our recent acquisitions and disposal activities. These consist of the disposal of Monarch Corporation, our Monarch business.former Canadian business (“Monarch”), and gain on foreign currency hedge in January 2015, loss on extinguishment of debt and the acquisition of JEH Homes ("JEH") in the second quarter of 2015, the acquisition of three divisions of Orleans Homes ("Orleans") in the third quarter of 2015, and the acquisition of Acadia Homes ("Acadia") in January 2016. For all periods presented, the operating results and assets and liabilities of Monarch are included in discontinued operations.operations and historical periods have been recast to show the effects of our segment realignment, which was

effective December 31, 2015. In addition to the impact of the matters discussed in theRisk Factors listed in Item 1A of this Annual Report, our future results could differ materially from our historical results due to the disposition of our Monarch business in early 2015, our IPO in 2013 and the acquisition of Darling in 2012.

these changes.


Non-GAAP Measures


In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”), we have provided information in this Annual Report relating to “adjusted home closings gross margins.”


Adjusted home closings gross margins


We calculate adjusted home closings gross margin from U.S. GAAP home closings gross margin by adding impairment charges, if any, attributable to the write-down of communities, and the amortization of capitalized interest through cost of home closings. We evaluate adjusted home closings gross margin, which is calculated by adding back to home closings gross

margin the capitalized interest amortization related to the homes closed. Management uses adjusted home closings gross margin to evaluate our operational and economic performance on a consolidated basis, as well as the direct operational and relative economic performance of our segments. We believe adjusted home closings gross margin is relevant and useful to investors for evaluatingbecause it allows investors to evaluate the performance of our overall financial performance.homebuilding operations without the often varying effects of interest costs capitalized. This measure is considered a non-GAAP financial measure and should be considered in addition to, rather than as a substitute for, the comparable U.S. GAAP financial measure as a measure of our operating performance. Although other companies in the homebuilding industry report similar information, the methods used may differ. We urge investors to understand the methods used by other companies in the homebuilding industry to calculate gross margins and any adjustments to such amounts before comparing our measures to those of such other companies.


Critical Accounting Policies


General


The discussion and analysis of our financial condition and results of operations areis based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions, impacting our reported results of operations and financial condition.

Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of assets and liabilities and the recognition of income and expenses. The estimates and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. The significant accounting policies that management believes are the most critical to aid in fully understanding and evaluating our reported financial results are critical accounting policies and are described below.


Revenue Recognition


Home Closings Revenue, net


Home closings revenue is recorded using the completed-contract method of accounting at the time each home is closed, delivered, title and possession are transferred to the buyer, we have no significant continuing involvement with the home, risk of loss has transferred, and the buyer has demonstrated sufficient initial and continuing investment in the property. A home is considered closed when escrow closesproperty, and funds have transferredthe receivable, if any, from the buyerhomeowner or mortgage companyescrow agent is not subject to us.

future subordination.


We typically grant our homebuyers certain sales incentives, including cash discounts, incentives on options included in the home, option upgrades, and seller-paid financing or closing costs. Incentives and discounts are accounted for as a reduction in the sales price of the home, and home closings revenue is shown net of discounts. We also receive rebates from certain vendors and these rebates are accounted for as a reduction to cost of home closings.


Land Closings Revenue


Land closings revenue is recognized when title is transferred to the buyer, we have no significant continuing involvement, and the buyer has demonstrated sufficient initial and continuing investment in the property sold.sold and the receivable, if any, from the buyer is not subject to future subordination. If the buyer has not made an adequate initial or continuing investment in the property, the profit on such sale is deferred until these conditions are met.


Mortgage Operations Revenue



Loan origination revenuefees (including title fees, points, closing costs) isare recognized at the time the related real estate transactions are completed, usually upon the close of escrow. All of the loans TMHF originates are sold to third party investors within a short period of time within than 20(within 20-30 business days,days) on a non-recourse basis. SinceGains and losses from the sale of mortgages are recognized in accordance with ASC Topic 860-20, “Sales of Financial Assets.” Because TMHF does not have continuing involvement with the transferred assets, we derecognize the mortgage loans at the time of sale, based on the difference between the selling price and carrying value of the related loans upon sale, recording a gain/loss on sale in the period of sale.

Also, we enter into interest rate lock commitments (“IRLCs”) to originate residential mortgage loans held for sale, at specified interest rates and within a specified period of time. These instruments meet the definition of a derivative and the realized and unrealized gain and loss from the IRLCs are included in mortgage operations revenue/expenses.


Real Estate Inventory Valuation and Costing


Inventory consists of raw land, land under development, homes under construction, completed homes, and model homes, which are stated at cost. In addition to direct carrying costs, we also capitalize interest, real estate taxes, and related development costs that benefit the entire community, such as field construction supervision and related direct overhead. Home construction costs are accumulated and charged to cost of sales at home closing using the specific identification method. Land acquisition, development, interest, real estate taxes and overhead are allocated to homes and units using methods that approximate the relative sales value method. These costs are capitalized to inventory from the point development begins to the point construction is completed. Changes in estimated costs to be incurred in a community are generally allocated to the remaining homes on a prospective basis. For those communities that have been temporarily closed or development has been discontinued, we do not allocate interest or other costs to the community’s inventory until activity resumes.

We assess the recoverability of our land inventory in accordance with the provisions of ASC Topic 360, “Property, Plant, and Equipment.” We review our real estate inventory for indicators of impairment by community during each reporting period. If indicators of impairment are present for a community, we first perform an undiscounted cash flow analysis to determine if the carrying value of the assets in that community exceeds the undiscounted cash flows. If the carrying value of the assets exceeds their estimated undiscounted cash flows, then the assets are deemed to be impaired and are recorded at fair value as of the assessment date. These cash flows are significantly impacted by various estimates of sales prices, construction costs, sales pace, and other factors. The discount rate used in determining each asset’s fair value depends on the community’s projected life and development stage.

When an impairment charge for a community is determined, the charge is then allocated to each lot in the community in the same manner as land and development costs are allocated to each lot. Inventory within each community is categorized as construction in progress and finished homes, residential land and lots developed and under development, or land held for development, based on the stage of production or plans for future development.

Our estimate of undiscounted cash flows from these communities may change with market conditions and could result in a need to record impairment charges to adjust the carrying value of these assets to their estimated fair value. Several factors could lead to changes in the estimates of undiscounted future cash flows for a given community. The most significant of these include pricing and incentive levels actually realized in the community, the rate at which the homes are sold and changes in the costs incurred to develop lots and construct homes. Pricing and incentive levels are often interrelated with sales pace within a community, and price reductions generally lead to an increase in sales pace. Further, both of these factors are heavily influenced by the competitive pressures facing a given community from both new homes and existing homes, some of which may result from foreclosures. If conditions worsen in the broader economy, the homebuilding industry or specific markets in which we operate, and as we re-evaluate specific community pricing and incentives, construction and development plans and our overall land sale strategies, we may be required to evaluate additional communities or re-evaluate previously impaired communities for potential impairment. For assets that are currently “mothballed” (i.e., strategic long-term land positions not currently under development or subject to an active selling effort), assumptions are based on current development plans and current price pace and house costs of similar communities. These evaluations may result in additional impairment charges.


The life cycle of athe community generally ranges from threetwo to five years, commencing with the acquisition of unentitled or entitled land, continuing through the land development phase and concluding with the sale, construction and delivery of homes. Actual community lives will vary based on the size of the community, the sales absorption rate and whether we purchased the property as raw land or as finished lots.


We capitalize certainqualifying interest costs to inventory during the development and construction periods. Capitalized interest is charged to cost of sales when the related inventory is delivered or when the related inventory is charged to cost of sales.


We assess the recoverability of our land inventory in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 360, “Property, Plant, and Equipment.” We review our real estate inventory for indicators of impairment by community during each reporting period. If indicators of impairment are present for a community, we first perform an undiscounted cash flow analysis to determine if the carrying value of the assets in that community exceeds the undiscounted cash flows. Generally, if the carrying value of the assets exceeds their estimated undiscounted cash flows, then the assets are deemed to be impaired and are recorded at fair value as of the assessment date. Our determination of fair value is based on a discounted cash flow model which includes projections and estimates relating to sales prices, construction costs, sales pace, and other factors. Changes in these expectations may lead to a change in the outcome of our impairment analysis, and actual results may also differ from our assumptions.

Insurance Costs, Self-Insurance Reserves and Warranty Reserves


We have certain deductible amounts under our workers’ compensation, automobile and general liability insurance policies, and we record expense and liabilities for the estimated costs of potential claims for construction defects. We also generally require our sub-contractors and design professionals to indemnify us and provide evidence of insurance for liabilities arising from their work, subject to certain limitations. We are the parentBeneva Indemnity Company (“Beneva”), one of Beneva, whichour wholly owned subsidiaries, provides insurance coverage for construction defects discovered during a period of time up to ten years following the saleclosing of a home, coverage for premisepremises operations risk

and property coverage. We accrue for the expected costs associated with the deductibles and self-insured amounts under our various insurance policies based on historical claims, estimates for claims incurred but not reported, and potential for recovery of costs from insurance and other sources. The estimates are subject to significant variability due to various factors, such as claim settlement patterns, litigation trends and the length of time in which a construction defect claim might be made after the closing of a home.


We offer warranties on homes that generally provide for a limited one-year warranty to cover various defects in workmanship or materials or to cover structural construction defects. We may also facilitate a longer warranty in certain markets or to comply with regulatory requirements. Warranty reserves are recorded as each home closes in an amount estimated to be adequate to cover expected future costs of materials and outside labor during warranty periods. Our warranty is not considered a separate deliverable in each sale arrangement, so it is accounted for in accordance with ASC Topic 450, “Contingencies.” In accordance with ASC 450, warranties that are not separately priced are generally accounted for by accruing the estimated costs

to fulfill the warranty obligation. Thus, the warranty would not be considered a separate deliverable in the arrangement since it is not priced apart from the home. As a result, we accrue the estimated costs to fulfill the warranty obligation in accordance with ASC 450 at the time a home closes, as a component of cost of home closings.


Our reserves are based on factors that include an actuarial study for historical and anticipated claims, trends related to similar product types, number of home closings, and geographical areas. We also provide third-party warranty coverage on homes where required by Federal Housing Administration or Veterans Administration lenders.

We regularly review the reasonableness and adequacy of our reserves and make adjustments to the balance of the preexisting reserves to reflect changes in trends and historical data as information becomes available. Self-insurance and warranty reserves are included in accrued expenses and other liabilities in the accompanying Consolidated Balance Sheets.


Investments in Unconsolidated Entities and Variable Interest Entities (VIEs)


We are involved in joint ventures with related and unrelated third parties for homebuilding and development activities. We use the equity method of accounting for entities over which we exercise significant influence but do not have a controlling interest over the operating and financial policies of the investee. For unconsolidated entities in which we function as the managing member, we have evaluated the rights held by our joint venture partners and determined that they have substantive participating rights that preclude the presumption of control. For joint ventures accounted for using the equity method, our share of net earnings or losses is included in equity in income of unconsolidated entities when earned and distributions are credited against its investment in the joint venture when received. These joint ventures are recorded in investments in unconsolidated entities on the Consolidated Balance Sheets.


In the ordinary course of business, we enter into land and lot option purchase contracts in order to procure land or lots for the construction of homes. Lot option contracts enable us to control significant lot positions with a minimal initial capital investment and substantially reduce the risks associated with land ownership and development. In accordance with ASC Topic 810, “Consolidation,” we have concluded that when we enter into an option or purchase agreement to acquire land or lots and pay a non-refundable deposit, a VIE may be created because we are deemed to have provided subordinated financial support that will absorb some or all of an entity’s expected losses if they occur. If we are the primary beneficiary of the VIE, we will consolidate the VIE in our Consolidated Financial Statements and reflect such assets and liabilities as real estate not owned under option agreements within our inventory balance in the accompanying Consolidated Balance Sheets.


Stock Based Compensation


We have issued stock options, performance based restricted stock units and non-performance based restricted stock units, which we account for stock-based compensation in accordance with ASC Topic 718-10, “Compensation — Stock Compensation.”The fair value of each option grantedfor stock options is measured and estimated on the date of grant using the Black-Scholes option pricing model. These models requiremodel and recognized evenly over the inputvesting period of highly subjective assumptions. This guidance also requires us to estimate forfeitures in calculating the expense related to stock-based compensation.

options. Performance based restricted stock units are measured using the closing price on the date of grant and expensed using a probability of attainment calculation which determines the likelihood of achieving the performance targets. Non-performance based restricted stock units are time based awards and measured using the closing price on the date of grant and are expensed over the vesting period on a straight-line basis.


Valuation of Deferred Tax Assets


We account for income taxes using the asset and liability method, which requires that deferred tax assets and liabilities be recognized based on future tax consequences of both temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted.


In accordance with ASC Topic 740-10, “Income Taxes,” we evaluate our deferred tax assets by tax jurisdiction, including the benefit from net operating loss (“NOL”) carryforwards by tax jurisdiction, to determine if a valuation allowance is required. Companies must assess, using significant judgments, whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the length of statutory carryforward periods, experience with operating losses and experience of utilizing tax credit carryforwards and tax planning alternatives.



Results of Operations


The following table sets forth our results of operations:

(Dollars in thousands)  Year Ended December 31, 
   2014  2013  2012 

Statements of Operations Data:

    

Home closings revenue, net

  $2,619,558   $1,857,950   $986,198  

Land closings revenue

   53,381    27,760    33,123  

Mortgage operations revenue

   35,493    30,371    21,861  
  

 

 

  

 

 

  

 

 

 

Total revenues

$2,708,432  $1,916,081  $1,041,182  

Cost of home closings

 2,082,819   1,457,454   795,979  

Cost of land closings

 39,696   26,316   27,296  

Mortgage operations expenses

 19,671   16,446   11,266  
  

 

 

  

 

 

  

 

 

 

Gross margin

$566,246  $415,865  $206,641  

Sales, commissions and other marketing costs

 168,897   127,419   70,398  

General and administrative expenses

 81,153   77,198   41,867  

Equity in income of unconsolidated entities

 (5,405)  (2,895)  (1,214) 

Interest expense (income), net

 1,160   842   (758) 

Other expense, net

 18,447   2,842   3,704  

Loss on extinguishment of debt

 —    10,141  7,953  

Indemnification and transaction expenses

 —    195,773   13,034  
  

 

 

  

 

 

  

 

 

 

Income from continuing operations before income taxes

$301,944  $4,545  $71,657  

Income tax provision (benefit)

 76,395   (23,810)  (284,298) 
  

 

 

  

 

 

  

 

 

 

Net income from continuing operations

$225,599  $28,355  $355,955  

Income from discontinued operations – net of tax

 41,902   66,513   74,893  
  

 

 

  

 

 

  

 

 

 

Net income before allocation to non-controlling interests

$267,501  $94,868  $430,848  

Net (income) loss attributable to non-controlling interests – joint ventures

 (1,648)  131   (28) 
  

 

 

  

 

 

  

 

 

 

Net income before non-controlling interests – Principal Equityholders

$265,853  $94,999  $430,820  

Net (income) loss from continuing operations attributable to non-controlling interests – Principal Equityholders

 (163,790)  1,442   (355,927) 

Net income from discontinued operations attributable to non-controlling interests – Principal Equityholders

 (30,594)  (51,021)  (74,893)
  

 

 

  

 

 

  

 

 

 

Net income available to Taylor Morrison Home Corporation

$71,469  $45,420  $—   
  

 

 

  

 

 

  

 

 

 

Gross margin as a % of revenue from home closings

 21.6%  22.4%  21.0% 

Adjusted home closings gross margin

 23.0%  23.4%  21.2% 

Sales, commissions and other marketing costs as a % of revenue from home closings

 6.4%  6.9%  7.1% 

General and administrative expenses as a % of revenue from home closings

 3.1%  4.2%  4.2% 

Average sales price per home closed

$464  $394  $336  

operations for the periods presented:

 Year Ended December 31,
(Dollars in thousands)2016 2015 2014
Statements of Operations Data:     
Home closings revenue, net$3,425,521
 $2,889,968
 $2,619,558
Land closings revenue64,553
 43,770
 53,381
Mortgage operations revenue59,955
 43,082
 35,493
Total revenues$3,550,029
 $2,976,820
 $2,708,432
Cost of home closings2,801,739
 2,358,823
 2,082,819
Cost of land closings35,912
 24,546
 39,696
Mortgage operations expenses32,099
 25,536
 19,671
Total cost of revenues$2,869,750
 $2,408,905
 $2,142,186
Gross margin680,279
 567,915
 566,246
Sales, commissions and other marketing costs239,556
 198,676
 168,897
General and administrative expenses122,207
 95,235
 81,153
Equity in income of unconsolidated entities(7,453) (1,759) (5,405)
Interest (income)/expense, net(184) (192) 1,160
Other expense, net11,947
 11,634
 18,447
Loss on extinguishment of debt—
 33,317
 —
Gain on foreign currency forward—
 (29,983) —
Income from continuing operations before income taxes$314,206
 $260,987
 $301,994
Income tax provision107,643
 90,001
 76,395
Net income from continuing operations$206,563
 $170,986
 $225,599
Net income from discontinued operations—
 58,059
 41,902
Net income before allocation to non-controlling interests$206,563
 $229,045
 $267,501
Net income attributable to non-controlling interests – joint ventures(1,294) (1,681) (1,648)
Net income before non-controlling interests – Principal Equityholders$205,269
 $227,364
 $265,853
Net income from continuing operations attributable to non-controlling interests – Principal Equityholders(152,653) (123,909) (163,790)
Net income from discontinued operations attributable to non-controlling interests – Principal Equityholders—
 (42,406) (30,594)
Net income available to Taylor Morrison Home Corporation$52,616
 $61,049
 $71,469
Home closings gross margin as a % of home closings revenue, net18.2% 18.4% 20.5%
Adjusted home closings gross margin as a % of home closings revenue, net21.0%
21.3% 23.0%
Gross margin as a % of total revenues19.2% 19.1% 20.9%
Sales, commissions and other marketing costs as a % of home closings revenue, net7.0% 6.9% 6.4%
General and administrative expenses as a % of home closings revenue, net3.6% 3.3% 3.1%
Average sales price per home closed$465
 $458
 $464



Year Ended December 31, 20142016 Compared to Year Ended December 31, 2013

2015


Average Active Selling Communities

   Year Ended December 31, 
   2014   2013   Change 

East

   151     121     24.8% 

West

   55     37     48.6  
  

 

 

   

 

 

   

Total

 206   158   30.4% 
  

 

 

   

 

 

   

Consolidated:

 Year Ended December 31,
 2016 2015 Change
East122
 91
 34.1%
Central109
 98
 11.2
West78
 70
 11.4
Total309
 259
 19.3%

Average active selling communities increased 30.4%19.3%, primarily due to significant additionsthe acquisitions of JEH in April 2015, three divisions of Orleans in July 2015, and Acadia in January 2016. In addition, we experienced community growth in existing divisions within our Central and West Florida and Phoenix divisions.segments. We also opened new communities and completedclosed out existing communities throughout all of our legacy markets.


Net Sales Orders
 
Year Ended December 31, (1)
(Dollars in thousands )Net Homes Sold Sales Value Average Selling Price
 2016 2015 Change 2016 2015 Change 2016 2015 Change
East3,039
 2,124
 43.1 % $1,175,440
 $794,356
 48.0 % $387
 $374
 3.5%
Central1,837
 2,018
 (9.0) 848,389
 912,623
 (7.0) 462
 452
 2.2
West2,628
 2,539
 3.5
 1,457,923
 1,262,101
 15.5
 555
 497
 11.7
Total7,504
 6,681
 12.3 % $3,481,752
 $2,969,080
 17.3 % $464
 $444
 4.5%
(1)Net sales orders represent the number and dollar value of new sales contracts executed with customers, net of cancellations.

East:

The number of net homes sold and sales value of homes increased by 43.1% and 48.0%, respectively, in 2016 as compared to 2015, primarily due to the acquisition of JEH, Acadia, and the divisions of Orleans in the East region. The change in the total sales value was a result of a higher number of units, primarily attributable to an increase in average active selling communities in the majority of our markets. In addition, the results for the current year represent full period net sales orders from our acquired divisions, whereas the prior year's balances include data for the acquired divisions only for the periods since their respective acquisitions. The average selling price of net homes sold increased throughout the region for the year due to product mix.

Central:

The number of net homes sold and sales value of homes decreased by 9.0% and 7.0%, respectively, whereas the average selling price increased by 2.2%. Despite the decrease in the annual results for this region, we experienced fourth quarter improvements in 2016 in the Central region with increases in net sales orders and total sales value by 9.4% and 9.0%, respectively, when compared to the fourth quarter of 2015. While slower job growth and a decline in relocations to Houston compared to previous years impacted the year-over-year performance, the divisions in the Central region are showing recent strength, as evidenced by increased average selling prices for the year as well as declining cancellation rates.

West:

The number of net homes sold and sales value of homes increased by 3.5% and 15.5%, respectively, primarily due to an increase in average active selling communities in our California markets. The average selling price of net homes sold increased by 11.7% as a result of our performance in our California and Phoenix divisions which continue to experience price increases due to increased consumer demand.

Sales Order Cancellations
 Year Ended December 31,
 
Cancellation Rate (1)
 2016 2015
East12.0% 12.4%
Central16.1
 16.6
West13.5
 13.0
Total Company13.6% 13.9%
(1) Cancellation rate represents the number of canceled sales orders divided by gross sales orders.

Our consolidated cancellation rate decreased to 13.6% from 13.9% year over year. The primary driver for the decrease in the cancellation rate is our Houston divisions which are normalizing after twelve months of elevated rates. In addition, our use of prequalification criteria through TMHF and robust earnest money deposits helped us manage our cancellation rate across the Company and increase our mortgage capture rate compared to the prior year.

Sales Order Backlog
 As of December 31,
(Dollars in thousands)
Sold Homes in Backlog (1)
 Sales Value Average Selling Price
 2016 2015 Change 2016 2015 Change 2016 2015 Change
East1,183
 875
 35.2 % $508,101
 $358,978
 41.5 % $430
 $410
 4.9%
Central817
 1,030
 (20.7) 419,359
 519,251
 (19.2) 513
 504
 1.8
West1,131
 1,027
 10.1
 604,450
 514,744
 17.4
 534
 501
 6.6
Total3,131
 2,932
 6.8 % $1,531,910
 $1,392,973
 10.0 % $489
 $475
 2.9%
(1) Sales order backlog represents homes under contract for which revenue has not yet been recognized at the end of the period (including homes sold but not yet started). Some of the contracts in our sales order backlog are subject to contingencies including mortgage loan approval and buyers selling their existing homes, which can result in future cancellations.

Total backlog units and total sales value increased by 6.8% and 10.0% for the 2016 year as compared to the 2015 year, respectively. The increase in backlog units is primarily as a result of the combination of increased sales orders and a decrease in our cancellation rate. The increase in total sales value is directionally consistent with the 2.9% increase in the average selling price which is a result of higher average selling prices for net sales orders.

Home Closings Revenue
 Year Ended December 31,
(Dollars in thousands)Homes Closed Home Closings Revenue, Net Average Selling Price
 2016 2015 Change 2016 2015 Change 2016 2015 Change
East2,795
 2,065
 35.4 % $1,077,241
 $809,324
 33.1 % $385
 $392
 (1.8)%
Central2,050
 2,140
 (4.2) 974,841
 990,925
 (1.6) 476
 463
 2.8
West2,524
 2,106
 19.8
 1,373,439
 1,089,719
 26.0
 544
 517
 5.2
Total7,369
 6,311
 16.8 % $3,425,521
 $2,889,968
 18.5 % $465
 $458
 1.5 %
East:

The number of homes closed and home closings revenue, net increased by 35.4% and 33.1%, respectively, for the 2016 year as compared to the 2015 year primarily due to the current year results encompassing a full period of home closings from all of our acquired divisions, whereas the prior year includes results only for JEH and the acquired divisions of Orleans for a partial year. Additionally, we have organically grown our markets through community openings which results in increased homes closed. Certain economic market improvements, as well as favorable homebuyer reception of new products and new communities, contributed to the increase in net home closings revenue. The average selling price decreased by 1.8% compared to the same period in the prior year as a result of the newly acquired markets over the past year in Atlanta, Charlotte, and Raleigh where average selling prices are lower than our legacy markets.

Central:

The number of homes closed and home closings revenue, net decreased by 4.2% and 1.6%, respectively, for the 2016 year as compared to the 2015 year primarily as a result of our Houston market. Higher price point homes in this market have been affected the most by the oil industry economic factors in Texas discussed above. While the high price point homes were the most affected in home closings units, the majority of the markets within this region experienced price appreciation, which contributed to the region's 2.8% increase in average selling price compared to the prior year.
West:

The number of homes closed and home closings revenue, net increased by 19.8% and 26.0%, respectively for the 2016 year as compared to the 2015 year. The increase in units was primarily driven by our Phoenix market which continues to grow as a result of job growth and a lower cost of living when compared to other markets. Our Phoenix and California markets contributed to the increase in home closing revenue, net as a result of increased average selling prices.

Land Closings Revenue
 Year Ended December 31,
(Dollars in thousands)2016 2015 Change
East$21,042
 $9,375
 $11,667
Central29,754
 17,739
 12,015
West13,757
 16,656
 (2,899)
Total$64,553
 $43,770
 $20,783

We generally purchase land and lots with the intent to build and sell homes. However, in some locations where we act as a developer, we occasionally purchase land that includes commercially zoned parcels or areas designated for school or government use, which we typically sell to commercial developers or municipalities, as applicable. We also sell residential lots or land parcels to manage our land and lot supply on larger tracts of land. Land and lot sales occur at various intervals and varying degrees of profitability. Therefore, the revenue and gross margin from land closings will fluctuate from period to period, depending on market opportunities. For the year ended December 31, 2016, land closings revenue increased by $20.8 million as we were able to capitalize on certain market conditions relative to our long-term strategic assets. The sales represent legacy land that we held for either appreciation or tax purposes. During 2016, the tax holding period for certain land assets expired, preserving certain tax benefits, thus resulting in our significant land sales.

Segment Home Closings Gross Margins

The following table sets forth a reconciliation between our home closings segment gross margins and our corresponding segment adjusted home closings gross margins and adjusted home closing gross margin percentages. See — Non-GAAP Measures — Adjusted home closings gross margins.
 East Central West Total
 For the Year Ended December 31,
(Dollars in thousands)2016 2015 2016 2015 2016 2015 2016 2015
Home closings revenue$1,077,241
 $809,324
 $974,841
 $990,925
 $1,373,439
 $1,089,719
 $3,425,521
 $2,889,968
Cost of home closings848,988
 631,956
 793,384
 806,695
 1,159,367
 920,172
 2,801,739
 2,358,823
Home closings gross margin228,253
 177,368
 181,457
 184,230
 214,072
 169,547
 623,782
 531,145
Inventory impairment—
 —
 —
 —
 3,473
 —
 3,473
 —
Capitalized interest amortization21,307
 20,444
 27,217
 29,338
 42,327
 33,381
 90,851
 83,163
Adjusted home closings gross margin$249,560
 $197,812
 $208,674
 $213,568
 $259,872
 $202,928
 $718,106
 $614,308
Home closings gross margin %21.2% 21.9% 18.6% 18.6% 15.6% 15.6% 18.2% 18.4%
Adjusted home closings gross margin %23.2% 24.4% 21.4% 21.6% 18.9% 18.6% 21.0%
21.3%


Consolidated:

Our consolidated home closings gross margin percentage for the year ended December 31, 2016 decreased to 18.2% from 18.4% compared to the prior year. Similarly, adjusted home closings gross margin percentage for the year ended December 31, 2016 decreased to 21.0% from 21.3%. Amortization of capitalized interest benefited our overall margins as we have experienced a decrease in our interest incurred from the redemption, in May 2015, of our 7.75% Senior Notes due 2020 and issuance, in April 2015, of our 5.875% Senior Notes due 2023. Partially offsetting this benefit, we increased closings of aged finished inventory which negatively impacted margins as such homes typically have lower margins than to-be-built homes and a higher cost of capital due to longer carry times. Purchase accounting also negatively impacted our consolidated gross margin percentage when compared to the prior year.

East:

Home closings gross margin percentage decreased to 21.2% from 21.9% for the year ended December 31, 2016 compared to the prior year, primarily due to an overall shift in our product mix from our higher margin homes in our Florida divisions to our newly acquired divisions, which have slightly lower margin percentages. The effects of purchase accounting stemming from these business combinations has also negatively impacted home closings gross margin in this region.

Central:

Home closings gross margin percentage remained consistent at 18.6% for the years ended December 31, 2016 and 2015. Despite the economic uncertainty regarding the oil industry, which occurred throughout 2016 and thereby negatively impacting the number of homes closed, the Central region maintained home closings gross margin percentage through sales price increases in markets other than Houston.

West:

Home closings gross margin percentage remained consistent at 15.6% for the years ended December 31, 2016 and 2015. The majority of the markets within this region experienced an increase in their margins through sales price increases to offset the increase in land, development and construction costs. An impairment charge of approximately $3.5 milion in our Chicago division negatively impacted our home closings gross margin results.

Mortgage Operations

Our Mortgage Operations segment provides mortgage lending through our subsidiary, TMHF, and title services through our subsidiary, Inspired Title. The following is a summary of mortgage operations gross margin:
 
Year Ended
December 31,
(Dollars in thousands)2016 2015
Mortgage operations revenue$59,955
 $43,082
Mortgage operations expense32,099
 25,536
Mortgage operations gross margin$27,856
 $17,546
Mortgage operations margin %46.5% 40.7%

Our Mortgage Operations segment’s revenue increased primarily due to increased closings volume, average loan amounts, and strong capture rates. The increase in mortgage operations margin was due to improvements in the gain on sale of loans due to better investor pricing from our mandatory commitments model. In addition, 2015 was negatively impacted by an increase in overhead related to increasing our in-house underwriting platform in preparation for shifting to agency originations and additional regulation.

The following details the number of loans closed, the aggregate value and capture rate on our loans for the years presented:
 
TMHF
Closed
Loans
 
Aggregate
Loan Volume
(in millions)
 
Capture
Rate
December 31, 20164,435
 $1,492.5
 80%
December 31, 20153,675
 $1,219.0
 79%

Our mortgage capture rate represents the percentage of our homes sold to a home purchaser that utilized a mortgage and for which the borrower obtained such mortgage from TMHF or one of our preferred third party lenders. Our capture rate increased to 80% for the year ended December 31, 2016 from 79% for the year ended December 31, 2015. The average FICO score of customers who obtained mortgages through TMHF was 743 and 742 for the years ended December 31, 2016 and 2015, respectively.

Sales, Commissions and Other Marketing Costs

Sales commissions and other marketing costs, as a percentage of home closings revenue, increased slightly period over period to 7.0% from 6.9% for the years ended December 31, 2016 and 2015, respectively. This was primarily a result of our increase in the number of open communities in 2016. Our new communities typically have higher sales and marketing costs during 2014.their early stages of sales due to various start up costs.

General and Administrative Expenses

General and administrative expenses, as a percentage of home closings revenue, were 3.6% and 3.3% for the years ended December 31, 2016 and 2015, respectively. The increase was attributable to increased headcount and other investments we have made for future business optimization, as well as the recent acquisition we completed in 2016.

Equity in Income of Unconsolidated Entities

Equity in income of unconsolidated entities was $7.5 million and $1.8 million for the years ended December 31, 2016 and 2015, respectively. The change was primarily due to the timing of our unconsolidated joint venture openings. We had two additional unconsolidated joint ventures fully active during 2016 compared to the prior year.

Interest (Income)/Expense, net

Interest income, net includes interest earned on cash balances offset by interest incurred but not capitalized on our long-term debt and other borrowings. Interest income, net for the years ended December 31, 2016 and 2015 was consistent.

Other Expense, net

Other expense, net for the year ended December 31, 2016 and 2015 was $11.9 million and $11.6 million, respectively. The majority of the expense for both periods relates to earn-out activity, captive insurance claims costs, financing fees on our Revolving Credit Facility, and pre-acquisition costs on abandoned land projects.

Loss on Extinguishment of Debt
In May 2015, we redeemed the entire outstanding aggregate principal amount of our 2020 Senior Notes at a redemption price of 105.813% of their aggregate principal amount, plus accrued and unpaid interest thereon to, but not including, the date of the redemption. As a result of the redemption, we recorded a loss on extinguishment of debt of $33.3 million, which included the payment of the redemption premium and write-off of net unamortized deferred financing fees.

We had no such transactions for the year ended December 31, 2016.

Gain on Foreign Currency Forward
In December 2014, we entered into a derivative financial instrument in the form of a foreign currency forward. The derivative financial instrument hedged our exposure to the Canadian dollar in conjunction with the disposition of the Monarch business. The final settlement of the derivative financial instrument occurred on January 30, 2015, and a gain in the amount of $30.0 million was recorded in gain on foreign currency forward in the accompanying Consolidated Statements of Operations for the year ended December 31, 2015.

We had no such transactions for the year ended December 31, 2016.

Income Tax Provision
Our effective tax rate was 34.3% and 34.5% for the years ended December 31, 2016 and December 31, 2015, respectively. The effective rate for both years was affected by a number of factors, the most significant of which included state income

taxes, the establishment of reserves for uncertain tax positions, changes in valuation allowances, and preferential treatment of certain deductions and energy credits relating to homebuilding activities.

Net Income

Net income from continuing operations and earnings per diluted share for the year ended December 31, 2016 was $206.6 million and $1.69, respectively. Net income from continuing operations and earnings per diluted share for the year ended December 31, 2015 was $171.0 million and $1.38. The increase in net income and earnings per share from the prior year is attributable to an increase in margin dollars as a result of the increase in both the number of homes closed and average selling price of homes closed.

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Average Active Selling Communities
 Year Ended December 31,
 2015 2014 Change
East91
 65
 40.0%
Central98
 86
 14.0
West70
 55
 27.3
Total259
 206
 25.7%

Consolidated:

Average active selling communities increased 25.7%, primarily due to the acquisitions of JEH in April 2015 and three divisions of Orleans in July 2015. In addition, we experienced community growth in existing divisions such as West Florida and Austin. We also opened new communities and closed out existing communities throughout all of our legacy markets. We open communities when we believe we have the greatest probability of capitalizing on favorable market conditions in which the community is located.

East:

The number of average active selling communities in the East segment increased, primarily due to the opening of 28 new communities in West Florida. Sales pace in the East segment decreased to 2.1 homes per month per community for the year ended December 31, 2014 from 2.2 homes per month per community in the prior year period. Timing of community openings and our continued efforts to increase sales prices and margins in order to maximize returns in our communities were the main reasons for the decrease in sales pace for the year ended December 31, 2014.

West:

The number of average active selling communities in the West segment increased due to 19 new community openings in our Phoenix division and 17 new community openings in our Northern California division.


Net Sales Orders

   Year Ended December 31, (1) 
(Dollars in thousands )  Net Homes Sold  Sales Value  Average Selling Price 
   2014   2013   Change  2014   2013   Change  2014   2013   Change 

East

   3,743     3,255     15.0%  $1,544,996    $1,266,461     22.0%  $413    $389     6.2% 

West

   1,985     1,763     12.6    1,060,129     839,764     26.2    534     476     12.2  
  

 

 

   

 

 

    

 

 

   

 

 

        

Total

 5,728   5,018   14.1% $2,605,125  $2,106,225   23.7% $455  $420   8.3% 
  

 

 

   

 

 

    

 

 

   

 

 

        

 
Year Ended December 31, (1)
(Dollars in thousands )Net Homes Sold Sales Value Average Selling Price
 2015 2014 Change 2015 2014 Change 2015 2014 Change
East2,124
 1,521
 39.6 % $794,356
 $564,338
 40.8 % $374
 $371
 0.8 %
Central2,018
 2,222
 (9.2) 912,623
 980,658
 (6.9) 452
 441
 2.5
West2,539
 1,985
 27.9
 1,262,101
 1,060,129
 19.1
 497
 534
 (6.9)
Total6,681
 5,728
 16.6 % $2,969,080
 $2,605,125
 14.0 % $444
 $455
 (2.4)%
(1) 
Net sales orders represent the number and dollar value of new sales contracts executed with customers.customers, net of cancellations.

Consolidated:

The increase in the value of sales orders, average selling prices and the number of net homes sold in 2014 compared to 2013 was driven by consumer demand, prompting an increase in active selling communities. Consumer demand increased as a result of historically low interest rates and stabilizing macroeconomic conditions relative to the prior comparable period.


East:


The number of net homes sold and sales value of homes increased asby 39.6% and 40.8%, respectively, primarily due to the acquisition of JEH and eastern divisions of Orleans, which contributed to the increase in communities. In addition, the growth in average active selling communities in Florida further contributed to the increase in net homes sold and sales value. The average selling price in the East remained relatively flat due to a resultshift in product mix from Florida to our newer divisions with a lower average selling price.

Central:


The number of net homes sold and sales value of homes decreased by 9.2% and 6.9%, respectively. Inclement weather, lack of availability of labor resources, and the economic uncertainty of the timing and quality of our new community openings. Due to continued improvement throughoutoil industry in this segment impacted the East segment markets in 2014, we increasedyear over year performance. However, the average selling price in 2015 increased 2.5% from 2014.

West:

The number of net homes sold in the East segment by 6.2% to $413,000, resulting in an increase inand sales value of net homes sold of 22.0%.

In particular, our homebuilding divisions in Houstonincreased by 27.9% and West Florida have benefited from these factors, resulting in an increase in the number of units sold and related revenue from the year ended December 31, 2014 over the prior comparable period.

West:

Net sales orders increased both in units and in sales value in 2014 compared to 201319.1%, respectively, primarily due to an increase in average active selling outlets. We increasedcommunities. A shift in product mix from home sales in the California divisions to other divisions within the segment, such as Phoenix, where homes are more moderately priced, resulted in a decrease in average selling price of net homes sold in the West segment by 12.2% to $534,000, resulting in an increase in sales value of net homes sold of 26.2% in 2014. Sales pace in the West segment decreased to 3.0 homes per month per community for the year ended December 31, 2014 from 4.0 homes per month per community in the 2013 period. The decrease in sales pace for the current period is primarily due to the Phoenix division, where our pace declined year over year to 2.3 from 3.9 and the Denver division, where our pace declined to 2.2 from 2.8. We actively manage the availability of product and timing of releases in order to help us achieve our profitability metrics and not sacrifice profitability for volume. We continue to see strong demand in our California markets. Average selling price increased year over year due to the introduction of higher end product in Southern California and Phoenix.

price.


Sales Order Cancellations—Units

   Year Ended December 31, 
   Cancelled Sales Orders   Cancellation Rate (1) 
   2014   2013   2014  2013 

East

   519     533     12.2%   14.1% 

West

   354     306     15.1    14.8  
  

 

 

   

 

 

    

Total/weighted average

 873   839   13.2%  14.3% 
  

 

 

   

 

 

    

Cancellations
  Year Ended December 31,
  
Cancellation Rate (1)
  2015 2014
East 12.4% 12.1%
Central 16.6
 12.2
West 13.0
 15.1
Total Company 13.9% 13.2%

(1) 
Cancellation rate represents the number of cancelledcanceled sales orders divided by gross sales orders.

We believe a favorable financing market, our use of prequalification criteria through TMHF and increased earnest money deposits help us maintain a low cancellation rate. Our overall


The primary driver for the increase in the consolidated cancellation rate decreased from 2013was the Central region. The increase in this region was a result of the market's recent uncertain economic and weather conditions in 2015 which caused pressure on an already constrained trade labor base and caused cycle times to 2014.be delayed.

Sales Order Backlog
 As of December 31,
(Dollars in thousands)
Sold Homes in Backlog (1)
 Sales Value Average Selling Price
 2015 2014 Change 2015 2014 Change 2015 2014 Change
East875
 557
 57.1 % $358,978
 $259,622
 38.3 % $410
 $466
 (12.0)%
Central1,030
 1,152
 (10.6) 519,251
 547,226
 (5.1) 504
 475
 6.1
West1,027
 543
 89.1
 514,744
 292,919
 75.7
 501
 539
 (7.1)
Total2,932
 2,252
 30.2 % $1,392,973
 $1,099,767
 26.7 % $475
 $488
 (2.7)%
(1) Sales order backlog represents homes under contract for which revenue has not yet been recognized at the end of the period (including homes sold but not yet started). Some of the contracts in our sales order backlog are subject to contingencies including mortgage loan approval and buyers selling their existing homes, which can result in future cancellations.

Consolidated:

The increase in backlog units and sales value is consistent with the increases in net homes sold and new community openings year over year. Backlog value increased in total by 26.7% as a result of backlog units increasing by 30.2%.

East:

Backlog units and sales value increased by 57.1% and 38.3%, respectively, primarily due to an increase in net sales orders as a result of the acquisition of JEH and eastern divisions of Orleans, which accounted for approximately 75% of the increase in both units and sales value. The decrease in the cancellation rateaverage sales price was due to the shift in product mix from 2013Florida to 2014 was most notablythe other divisions within the East that have a more moderate average selling price.

Central:

Backlog units and sales value decreased by 10.6% and 5.1%, respectively, primarily due to a decrease in net sales orders as result of inclement weather in 2015 which caused pressure on construction trades, shortage of labor resources, and the economic uncertainty related to higher deposit requirements year over year throughout our Texas divisions,the oil industry in this region.

West:

Backlog units and sales value increased by 89.1% and 75.7%, respectively, primarily due to an increase in new communities and/or new phases within existing communities.

Sales Order Backlog

   As of December 31, 
(Dollars in thousands)  Sold Homes in Backlog (1)  Sales Value  Average Selling Price 
   2014   2013   Change  2014   2013   Change  2014   2013   Change 

East

   1,709     1,544     10.7%  $806,848    $667,725     20.8%  $472    $432     9.3% 

West

   543     622     (12.7)   292,919     320,029     (8.5)   539     515     4.7  
  

 

 

   

 

 

    

 

 

   

 

 

        

Total

 2,252   2,166   4.0%  1,099,767   987,754   11.3% $488  $456   7.0% 
  

 

 

   

 

 

    

 

 

   

 

 

        

(1)Sales order backlog represents homes under contract for which revenue has not yet been recognized at the end of the period (including homes sold but not yet started). Some of the contracts in our sales order backlog are subject to contingencies including mortgage loan approval and buyers selling their existing homes, which can result in cancellations.

Consolidated:

Backlog value and units increasednet sales orders as a result of an increase in average sales priceactive selling communities. A shift in product mix from homes in the California divisions to other divisions within the segment where homes are more moderately priced, resulted in a decrease in average selling price.


Home Closings Revenue
 Year Ended December 31,
(Dollars in thousands)Homes Closed Sales Value Average Selling Price
 2015 2014 Change 2015 2014 Change 2015 2014 Change
East2,065
 1,479
 39.6% $809,324
 $546,045
 48.2 % $392
 $369
 6.2 %
Central2,140
 2,099
 2.0
 990,925
 958,096
 3.4
 463
 456
 1.5
West2,106
 2,064
 2.0
 1,089,719
 1,115,417
 (2.3) 517
 540
 (4.3)
Total6,311
 5,642
 11.9% $2,889,968
 $2,619,558
 10.3 % $458
 $464
 (1.3)%
East:

The number of homes closed and increase inhome closings revenue, net sales orders.

East:

In the East segment, backlog value increased by 39.6% and 48.2%, respectively, as a result of the combination of increased average selling price appreciation, maximizing lot premiums, controlled lot releases in certain communitiesFlorida and a product mix change to homes with a higher sales value. The East increase in backlog is consistent with our increases in homes soldthe acquisitions of JEH and new community openings year over year.

West:

Backlog units and dollars decreased year over year due to a decline in sales pace. Backlog in Phoenix is down year over year due to a decline in sales pace from 2013the Orleans divisions. Economic market improvements, as well as a resultfavorable homebuyer reception of moderating growth. Backlog in Southern California decreased year over year duenew communities, contributed to an increase in average selling prices which have slower selling paces than lower priced product.

Home Closings Revenue

   Year Ended December 31, 
(Dollars in thousands)  Homes Closed  Sales Value(1)  Average Selling Price 
   2014   2013   Change  2014   2013   Change  2014   2013   Change 

East

   3,578     2,913     22.8%  $1,504,141    $1,094,578     37.4%  $420    $376     11.7% 

West

   2,064     1,803     14.5    1,115,417     763,372     46.1    540     423     27.7  
  

 

 

   

 

 

    

 

 

   

 

 

        

Total

 5,642   4,716   19.6% $2,619,558  $1,857,950   41.0% $464  $394   17.8% 
  

 

 

   

 

 

    

 

 

   

 

 

        

(1)Home closings revenue represents homes where possession has transferred to the buyer.

Consolidated:

For the year ended December 31, 2014 compared to 2013, there was annet home closings revenue increases.


Central:

The number of homes closed and home closings revenue, net increased by 2.0% and 3.4%, respectively. The increase in the number of homes closed is consistent with the sales valuemoderate increase in average active communities in the Central segment. Average selling price increased as a result of shift in product mix of homes closed from our moderately priced divisions to the higher priced divisions. Home closings revenue increased as a result of the increased units and average selling price.

East:


West:

The number of homes closed increased as a result ofby 2.0% whereas home closings revenue, net decreased by 2.3%. The slight increase in units was due to the increase in homes sold during the same period, which was partiallyaverage active communities. The decrease in home closings revenue, net is attributable to the volume of new community openings. Due to continued improvement throughout the East segment marketsa shift in 2014, we were able to increase the average selling priceproduct mix of homes closed from higher priced homes in California to moderately priced homes in our other divisions.

Land Closings Revenue
 Year Ended December 31,
(Dollars in thousands)2015 2014 Change
East$9,375
 $20,112
 $(10,737)
Central17,739
 32,344
 (14,605)
West16,656
 925
 15,731
Total$43,770
 $53,381
 $(9,611)

We generally purchase land and lots with the East segment by 11.7%intent to $420,000, resultingbuild and sell homes. However, in an increasesome locations where we act as a developer, we occasionally purchase land that includes commercially zoned parcels or areas designated for school or government use, which we typically sell to commercial developers or municipalities. We also sell residential lots or land parcels to manage our land and lot supply on larger tracts of land on which we would otherwise not achieve financial returns that are in sales value of homes closed of 37.4%. This increase is a result of a combination of product mix and price appreciation. These market improvements,line with our internal expectations as well as favorable homebuyer reception of communities opened subsequent to December 31, 2013, contributed to closing revenue increases. In particular, homes closed in 2014 inenhance our West Florida, Houstonreturns and Dallas markets surpassed that in the prior year period by a significant amount, driving both units and dollars higher as consumer demand for move-up product benefitedoffset our communities in these markets. Overall, the improvement in East segment home closings revenue and sales value has been due primarily to our well-located land positions, an increase in active selling communities and our consumer-driven offerings. Management in the region continues to maximize sales prices where possible through market-driven product offerings as market conditions allow.

West:

The sales value of homes closed increased by 46.1%, driven by an increase in average selling price. Homes closed in 2014 in our Northern and Southern California markets surpassed those in the prior year period by a significant amount, driving both units and dollars higher as consumer demand for move-up product benefited our communities in these markets. In the segment as a whole, we were able to increase our average selling price of homes closed by 27.7%, to $540,000 in the year ended December 31, 2014, driven primarily by a shift to more move up and higher priced product. We continue to optimize sales prices where possible through market-driven product offerings as market conditions allow.

risk. Land Closings Revenue

   Year Ended December 31, 
(In thousands)  2014   2013   Change 

East

  $52,456    $22,720     130.9% 

West

   925     5,040     (81.6) 
  

 

 

   

 

 

   

Total

$53,381  $27,760   92.3% 
  

 

 

   

 

 

   

Since we generally do not purchase land for future sales, land and lot sales occur at various intervals and varying degrees of profitability depending on the need for such property in our business strategy.profitability. Therefore, the revenue and gross margin from land closings will fluctuate from period to period.

period, depending on market opportunities. For the year ended December 31, 2015, the West experienced higher sales to municipalities when compared to 2014.




Segment Home Closings Gross Margins


The following table sets forth a reconciliation between our home closings segment gross margins and our corresponding segment adjusted home closings gross margins.margins and adjusted home closings gross margin percentages. See —Non-GAAP Measures — Adjusted home closings gross margins.

  East  West  Total 
  For the Year Ended December, 
(Dollars in thousands) 2014  2013  2014  2013  2014  2013 

Home Closings

      

Home closings revenue

 $1,504,141   $1,094,578   $1,115,417   $763,372   $2,619,558   $1,857,950  

Cost of home closings

  1,176,288    867,053    906,531    590,401    2,082,819    1,457,454  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Home closings gross margin

 327,853   227,525   208,886   172,971   536,739   400,496  

Capitalized interest amortization

 28,495   15,310   36,603   18,837   65,098   34,147  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Adjusted home closings gross margin

$356,348  $242,835  $245,489  $191,808  $601,837  $434,643  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Home closings gross margin %

 21.8%  20.8%  18.7%  22.7%  20.5%  21.6% 

Adjusted home closings gross margin %

 23.7%  22.2%  22.0%  25.1%  23.0%  23.4% 

 East Central West Total
 For the Year Ended December 31,
(Dollars in thousands)2015 2014 2015 2014 2015 2014 2015 2014
Home closings revenue$809,324
 $546,045
 $990,925
 $958,096
 $1,089,719
 $1,115,417
 $2,889,968
 $2,619,558
Cost of home closings631,956
 411,464
 806,695
 764,824
 920,172
 906,531
 2,358,823
 2,082,819
Home closings gross margin177,368
 134,581

184,230

193,272

169,547

208,886
 531,145
 536,739
Capitalized interest amortization20,444
 9,895
 29,338
 18,600
 33,381
 36,603
 83,163
 65,098
Adjusted home closings gross margin$197,812

$144,476

$213,568

$211,872

$202,928

$245,489
 $614,308
 $601,837
Home closings gross margin %21.9%
24.6%
18.6%
20.2%
15.6%
18.7%
18.4%
20.5%
Adjusted home closings gross margin %24.4%
26.5%
21.6%
22.1%
18.6%
22.0%
21.3%
23.0%

Consolidated:


Our consolidated 2014 adjusted home closings gross margin percentage for the year ended December 31, 2015 decreased slightly compared to 2013. Productthe same period in 2014. Geographic and product mix continues tohad an impact on margin rate as an increase in sales in our California divisions generated significantly higher home closings gross margin dollars per home butwell as the relatively lower margin rate. We are also experiencingcommunities in certain of our recently acquired divisions. In addition, our legacy divisions experienced higher land and development and construction costs as we close homes related tonaturally depleted our legacy holdings. The legacy holdings haveland supply which has lower carrying costs and as a result home closings gross margin percentage is decreasing as those legacy holdings are at a reduced proportion of our overall mix.

costs.


East:

We experienced increases in home closings gross margin and adjusted home closings gross margin dollars and rates in our Dallas, Houston (Taylor Morrison and Darling), West Florida and North Florida markets. The recovery and stabilization of the West Florida market has generated sustained customer demand in the Tampa and Ft. Myers areas, which has allowed us to leverage a low cost basis land supply and home price increases to achieve higher margins.

West:

The home closings gross margin percentage and adjusted home


Home closings gross margin percentage decreased in 2014to 21.9% from 24.6% for the year ended December 31, 2015 compared to 2013the prior year, primarily as a result of the addition of lower margin communities from our recent acquisitions and the effects of purchase accounting stemming from business combinations.

Central:

Home closings gross margin percentage decreased to 18.6% from 20.2% for the year ended December 31, 2015 compared to the prior year. The decrease was due to an increaseincreases in construction costs as a result of labor supply constraints. Poor weather also contributed to the increased costs of home construction as cycle times were delayed.

West:

Home closings gross margin percentage of homes closed in California versus Phoenix wheredecreased to 15.6% from 18.7% for the margin rate is lower though margin dollars are significantly higher. In addition,year ended December 31, 2015 compared to the impactprior year, primarily as a result of increased land, acquisition pricingdevelopment and increases in commodity and labor pricing for self-developed lots over the past few years continued to pressure margin rates in 2014.

construction costs.


Mortgage Operations


Our Mortgage Operations segment provides mortgage lending through our subsidiary, TMHF. The following is a summary of mortgage operations gross margin:

   Year Ended
December 31,		 
(In thousands)  2014  2013 

Mortgage operations revenue

  $35,493   $30,371  

Mortgage operations expense

   19,671    16,446  
  

 

 

  

 

 

 

Mortgage operations gross margin

$15,822  $13,925  
  

 

 

  

 

 

 

Mortgage operations margin %

 44.6%  45.8% 


 
Year Ended
December 31,
(Dollars in thousands)2015 2014
Mortgage operations revenue$43,082
 $35,493
Mortgage operations expense25,536
 19,671
Mortgage operations gross margin$17,546
 $15,822
Mortgage operations margin %40.7% 44.6%

Our Mortgage Operations segment’s revenue increased primarily due primarily to increased closings volume and average loan amounts, while gross margin percentage decreased period over period due to increases in underwriting costs.


The following details the number of loans closed, the aggregate value and capture rate on our loans for the last two years:

   TMHF
Closed
Loans		   Aggregate
Loan Volume
(in millions)		   Capture
Rate		 

December 31, 2014

   3,312    $1,097.7     74% 

December 31, 2013

   2,828     850.8     78  


 
TMHF
Closed
Loans
 
Aggregate
Loan Volume
(in millions)
 
Capture
Rate
December 31, 20153,675
 $1,219.0
 79%
December 31, 20143,312
 $1,097.7
 74%

Our mortgage capture rate represents the percentage of our homes sold to a home purchaser that utilized a mortgage, for which the borrower obtained such mortgage from TMHF or one of our preferred third party lenders. Our capture rate decreased in 2014 as a result ofincreased to 79% for the lagging effects of transitioning our Darling operations to TMHFyear ended December 31, 2015 from their legacy mortgage provider. In 2014 and 2013,74% for the year ended December 31, 2014. The average FICO score of customers who obtained mortgages through TMHF was 742 for the years ended December 31, 2015 and 739, respectively.

2014.


Sales, Commissions and Other Marketing Costs

As a percentage of home closings revenue, sales


Sales commissions and other marketing costs, decreased to 6.4% in 2014 from 6.9% in 2013. For the year ended December 31, 2014 and 2013, sales, commissions, and other marketing costs such as advertising and sales office expenses were $168.9 million and $127.4 million, respectively, which is a 32.6% increase year over year. This increase in dollars reflects a 19.6% increase in homes closed as well as an increase in average selling price.

General and Administrative Expenses

General and administrative expenses decreased to 3.1% as a percentage of home closings revenue, increased period over period to 6.9% from 6.4% for the years ended December 31, 2015 and 2014, respectively. This increase was attributable to costs related to rebranding acquired divisions to the Taylor Morrison name as well as transitioning acquired divisions to the lower cost sales and marketing platforms used by us.


General and Administrative Expenses

General and administrative expenses, as a percentage of home closings revenue, were 3.3% and 3.1% for the years ended December 31, 2015 and 2014, respectively. The slight increase is primarily related to acquisition costs and costs associated with integrating our JEH and Orleans divisions and investments in our infrastructure. We continue to utilize our scalable platform, providing leverage with existing infrastructure in an effort to maintain stable operating costs.

Equity in Income of Unconsolidated Entities

Equity in income of unconsolidated entities was $1.8 million and $5.4 million for the years ended December 31, 2015 and 2014, respectively. The decrease year-over-year was due to a combination of the closeout of two joint ventures in June 2014, the start-up of three new joint ventures which began during the second half 2014 and the costs from two new joint ventures beginning in the second quarter of 2015.

Interest Expense (Income), net

Interest expense, net represents interest incurred on our long-term debt and other borrowings, net of capitalization. The change from net interest expense for the year ended December 31, 2014 compared to 4.2% in 2013. For the year ended December 31, 2014, general and administrative expenses were $81.2 million as compared to $77.2 million in the same period in 2013, which represents a 5.1% increase in dollars. Our growth in home closings revenue during the period reduced our general and administrative percentage as we were able to utilize our scalable platform, leveraging existing infrastructure across increased revenue.

Equity in Income of Unconsolidated Entities

Equity innet interest income of unconsolidated entities was $5.4 million for the year ended December 31, 2014 compared2015 was due to $2.9 million for the year ended December 31, 2013. The increase year over year is primarily attributable to two new unconsolidated joint ventures located in our Southern California division.

Interest Expense (Income), net

Interest expense representsincreased capitalization of interest incurred, but not capitalized, on our long-term debt and other borrowings. Interest expense was consistent year over year in relation to ouras a result of higher levels of borrowings and qualifying assets.

qualified assets as well as cash on deposit generating interest income.


Other Expense, net


Other expense, net for the year ended December 31, 2015 and 2014 was $11.6 million and $18.4 million, comparedrespectively. The decrease relates to $2.8a decrease in projected contingent consideration payments in respect to the acquisitions.


Loss on Extinguishment of Debt
On May 1, 2015 we redeemed the entire outstanding aggregate principal amount of our 2020 Senior Notes at a redemption price of 105.813% of their aggregate principal amount, plus accrued and unpaid interest thereon to, but not including, the date of redemption. The redemption was made using cash on hand together with the proceeds from the issuance of $350.0 million aggregate principal amount of our 2023 Senior Notes, which was completed on April 16, 2015. As a result of the redemption of the 2020 Senior Notes, we recorded a loss on extinguishment of debt of $33.3 million for the year ended December 31, 2013. The primary reason for2015 which included the increase isredemption premium and the increase in the current year accrual for contingent payments related to the Darling acquisition in December 2012 (the “Darling Acquisition”). This expense also consistswrite off of mothball community expense, pre-acquisition costsnet unamortized deferred financing fees. We did not incur any losses on unpursued land projects, captive insurance claims costs and financing fees on our revolving credit facility.

Income Tax Provision

Our effective tax rateextinguishment of debt for the year ended December 31, 2014.


Gain on Foreign Currency Forward
In December 2014, and 2013 was composedwe entered into a derivative financial instrument in the form of a foreign currency forward. The derivative financial instrument hedged our exposure to the Canadian dollar in conjunction with the disposition of the federal statutory tax rateMonarch business. The final settlement of the derivative financial instrument occurred on January 30, 2015, and a gain in the U.S. and was affected primarily by state income taxes, the recognition of previously unrecognized tax benefits, the establishment of uncertain tax positions, and interest relating to uncertain tax positions. In addition, the IPO and the Reorganization Transactions resulted in a higher effective tax rate for the year ended December 31, 2013 due to certain non-deductible charges related to modification of the Class J Units of TMM Holdings.

During the year ended December 31, 2013, we accepted a settlement offer related to Taylor Woodrow Holdings (USA) Inc. for the 2008 and 2009 tax years. As a result, $102.0 million of our previously unrecognized indemnified tax positions including interest and penalties were recognized during the year ended December 31, 2013.

As of December 31, 2014, our cumulative gross unrecognized tax benefits were $2.4 million in the U.S. and all unrecognized tax benefits, if recognized, would affect the effective tax rate. As of December 31, 2013, our cumulative gross unrecognized tax benefits were $2.1 million in the U.S. These amounts are included in income taxes payable in the accompanying Consolidated Balance Sheets at December 31, 2014 and December 31, 2013. None of the unrecognized tax benefits are expected to reverse in the next 12 months.

The unrecognized tax benefits for discontinued operations were $6.2 million and $7.9 million as of December 31, 2014 and 2013, respectively.

For further information, seeNote 12 — Income Taxesin the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report.

Income from Discontinued Operations, net of tax

Income from discontinued operations decreased from $66.5 million at December 31, 2013 to $41.9 million at December 31, 2014. The number of average active selling communities in the year ended December 31, 2014, including unconsolidated joint ventures, decreased by three from the prior year due to the closing of one wholly owned and two joint venture high-rise buildings during the latter half of 2013. The closeout of towers during 2013 caused the product mix of our unconsolidated joint ventures to shift to our low-rise product, accounting for a 264 unit decrease in units closed during the year ended December 31, 2014 as compared to 2013.

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

Average Active Selling Communities

   Year Ended December 31, 
   2013   2012   Change 

East

   121     75     61.3% 

West

   37     33     12.1  
  

 

 

   

 

 

   

Total

 158   108   46.3% 
  

 

 

   

 

 

   

Average active selling communities increased 46.3% from the year ended December 31, 2012 to the year ended December 31, 2013 with the largest increase in the East segment, primarily due to the addition of 43 Darling Homes communities. We opened new communities and completed existing communities throughout all of our markets during 2013, with the largest number of additions in our West Florida, Phoenix and Houston divisions, where demand and our land positions afforded us the opportunity. We open communities when we believe we have the greatest probability of capitalizing on favorable market conditions in which the community is located.

Net Sales Orders

   Year Ended December 31, (1) 
(Dollars in thousands )  Net Homes Sold  Sales Value  Average Selling Price 
   2013   2012   Change  2013   2012   Change  2013   2012   Change 

East

   3,255     2,077     56.7%  $1,266,461    $692,287     82.9%  $389    $333     16.7% 

West

   1,763     1,661     6.1    839,764     612,428     37.1    476     369     29.2  
  

 

 

   

 

 

    

 

 

   

 

 

        

Total

 5,018   3,738   34.2% $2,106,225  $1,304,715   61.4% $420  $349   20.3% 
  

 

 

   

 

 

    

 

 

   

 

 

        

(1)Net sales orders represent the number and dollar value of new sales contracts executed with customers. Other sales are recognized after a contract is signed and the rescission period has ended.

Both the value of net sales orders and the number of net homes sold increased in the year ended December 31, 2013, compared to the year ended December 31, 2012. These results were driven by the continued strong demand in the spring selling season in 2013, during which we benefited from higher selling prices as consumers in the market gained confidence in the values present in the marketplace, historically low interest rates and improved macroeconomic conditions. The improved homebuilding market significantly impacted areas such as Phoenix, West Florida and Northern California resulting in an increase in the number of units sold and related revenue for the year ended December 31, 2013 over the prior year comparable period.

Sales Order Cancellations—Units

   Year Ended December 31, 
   Cancelled Sales Orders   Cancellation Rate(1) 
   2013   2012   2013  2012 

East

   533     363     14.1%   14.9% 

West

   306     243     14.8    12.8  
  

 

 

   

 

 

    

Total/weighted average.

 839   606   14.3%  14.0% 
  

 

 

   

 

 

    

(1)Cancellation rate represents the number of cancelled sales orders divided by gross sales orders.

The number of our sales order cancellations increased due to increases in sales volume in the year ended December 31, 2013 compared to the year ended December 31, 2012. Our continued scrutiny of potential buyers, consumer-friendly lending markets, use of prequalification strategies, as well as our increased deposit amounts, help us maintain a low cancellation rate.

Sales Order Backlog

   As of December 31, 
(Dollars in thousands)  Sold Homes in Backlog (1)  Sales Value  Average Selling Price 
   2013   2012   Change  2013   2012   Change  2013   2012   Change 

East

   1,544     1,202     28.5%  $667,725    $474,086     40.8%  $432    $394     9.6% 

West

   622     662     (6.0)   320,029     241,947     32.3    515     365     40.8  
  

 

 

   

 

 

    

 

 

   

 

 

        

Total

 2,166   1,864   16.2% $987,754  $716,033   37.9% $456  $384   18.7% 
  

 

 

   

 

 

    

 

 

   

 

 

        

(1)Sales order backlog represents homes under contract for which revenue has not yet been recognized at the end of the period including homes sold but not yet started). Some of the contracts in our sales order backlog are subject to contingencies including mortgage loan approval and buyers selling their existing homes, which can result in cancellations.

Our homes in backlog at December 31, 2013 increased from December 31, 2012, due to the December 2012 acquisition of Darling Homes in our East segment, which added units to backlog.

Home Closings Revenue

   Year Ended December 31, 
(Dollars in thousands)  Homes Closed  Sales Value (1)  Average Selling Price 
   2013   2012   Change  2013   2012   Change  2013   2012   Change 

East

   2,913     1,661     75.4%  $1,094,578    $529,686     106.6%  $376    $319     17.8% 

West

   1,803     1,272     41.7    763,372     456,512     67.2    423     359     18.0  
  

 

 

   

 

 

    

 

 

   

 

 

        

Total

 4,716   2,933   60.8% $1,857,950  $986,198   88.4% $394  $336   17.2% 
  

 

 

   

 

 

    

 

 

   

 

 

        

(1)Home closings revenue represents homes where possession has transferred to the buyer.

Home closings revenue increased in the year ended December 31, 2013 compared to the year ended December 31, 2012. The average selling price of homes closed during the year ended December 31, 2013 increased compared to the year ended December 31, 2012. Sales backlog converted in our Phoenix, Houston and West Florida markets, as well as with the Darling Acquisition, surpassed prior periods by significant amounts driving both units and revenue dollars higher.

Land Closings Revenue

   Year Ended December 31, 
(In thousands)  2013   2012   Change 

East

  $22,720    $28,837     (21.2)% 

West

   5,040     4,286     17.6  
  

 

 

   

 

 

   

Total

$27,760  $33,123   (16.2)% 
  

 

 

   

 

 

   

Since we generally do not purchase land for future sale, land and lot sales occur at various intervals and varying degrees of profitability depending on the need for such property in our business strategy. Therefore, the revenue and gross margin from land closings will fluctuate from period to period.

Segment Home Closings Gross Margins

The following table sets forth a reconciliation between our home closings segment gross margins and our corresponding segment adjusted home closings gross margins. See —Non-GAAP Measures — Adjusted home closings gross margins.

   East  West  Total 
   For the Year Ended December, 
(Dollars in thousands)  2013  2012  2013  2012  2013  2012 

Home Closings

       

Home closings revenue

  $1,094,578   $529,686   $763,372   $456,512   $1,857,950   $986,198  

Cost of home closings

   867,053    421,204    590,401    374,775    1,457,454    795,979  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Home closings gross margin

 227,525   108,482   172,971   81,737   400,496   190,219  

Capitalized interest amortization

 15,310   9,409   18,837   9,474   34,147   18,883  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Adjusted home closings gross margin

$242,835  $117,891  $191,808  $91,211  $434,643  $209,102  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Home closings gross margin %

 20.8%  20.5%  22.7%  17.9%  21.6%  19.3% 

Adjusted home closings gross margin %

 22.2%  22.3%  25.1%  20.0%  23.4%  21.2% 

Consolidated:

Our home closings gross margin increased in the year ended December 31, 2013 compared to the year ended December 31, 2012. The increase in home closings gross margin percentage in the year ended December 31, 2013 was primarily due to a shift to higher margin product mix across our U.S. markets, particularly in the Northern California, Austin and Phoenix markets, where our move-up and luxury homes produced higher margins in the improving markets. Consumer demand in these areas allowed continued price increases and we were able to achieve higher margins than in the prior year period. Our price increases generally exceed construction and land price increases in our markets in 2013. The increase in adjusted home closings gross margin percentage was primarily due to our increased margins in the aforementioned markets.

East:

For the year ended December 31, 2013, the acquisition of Darling Homes and its integration into our operations accounted for a significant portion of the increases in our East segment home closings revenue, home closings gross margin and adjusted home closings gross margin. During the year ended December 31, 2013, home closings revenue in the East segment was $1.1 billion, an increase of 106.6% compared to the year ended December 31, 2012. The increase was driven by an increase in home closings of 75.4% to 2,913 homes, compared to 1,661 homes in the prior year. The continued improvement throughout the East markets, as well as favorable homebuyer demand for communities opened in prior periods also contributed to closing revenue increases. The East segment had an average monthly sales pace of 2.2 homes per community in the year ended December 31, 2013, which is consistent with the year ended December 31, 2012. Average home closings sales price in the East segment increased 17.8% to $376,000, from $319,000 in the prior year from a combination of price appreciation and product mix. The average sales order price also increased by $56,000, or 16.7% as management in this segment reduced customer incentives and other promotions, and increased sales prices as market conditions allowed. Backlog sales value in the East segment increased 40.8% in the year ended December 31, 2013 over the prior year due to a 28.5% increase in backlog units and a 9.6% increase in the average sales price of backlog homes. The increase in backlog units was due primarily to the addition of Darling in December 2012. Overall, the improvement in East segment home closings revenue, sales prices and sales pace has been due primarily to our well-located land positions, an increase in active selling communities and our consumer-driven offerings.

During the year ended December 31, 2013, home closings gross margin for the East segment was 20.8%, up 30 basis points from 20.5% for the year ended December 31, 2012. East segment adjusted home closings gross margin was 22.2% in the year ended December 31, 2013 consistent with 22.3% for the same period in 2012. We recorded purchase accounting adjustments on the assets acquired in the Darling Acquisition that reduced home closings gross margin percentage in earlier quarters that were offset eventually by sales price increases. Our Austin and North Florida divisions recorded the largest increases in home closings gross margin percentage, but all divisions recorded some levels of increase. The recovery and improved stabilization of the West Florida market in 2013, which had tended to generate

lower home closings margins, began when sustained consumer demand returned in the Tampa and Ft. Myers areas of Florida, and we were able to leverage land with a low cost basis and produce homes at a higher price point than in the prior year. The Austin and Houston markets improved from the prior year, as we were able to increase prices on our move-up offerings and maintain stable land and construction costs.

West:

Home closings revenue in the West segment increased by $306.9 million in the year ended December 31, 2013 compared to the prior year. The 67.2% increase in home closings revenue was due to an 18.0% increase in average home closing selling price and a 41.7% increase in the number of homes closed. The availability of product and timing of releases within communities provided saleable inventory that was well-received by consumers. The average sales per community per month for the years ending December 31, 2013 and 2012 were 3.9 and 4.2, respectively. The average home closing selling price increased 18.0%, to $423,000 in the year ended December 31, 2013 compared to $359,000 in the prior year. Overall, during the year ended December 31, 2013, revenues improved in the West segment compared to the same period in 2012 primarily due to housing market recoveries and advances in the Phoenix and Northern California divisions. In 2013 we continued to see strong demand in these markets and systematically released product into the marketplace to capture and maintain increased operating margins, as evidenced by the 40.8% year-over-year increase in average sales price of our backlog homes. Backlog units in the West segment at December 31, 2013 decreased 6% from 2012, although total backlog sales value increased 32.3% due to the average sales price increase noted above.

During the year ended December 31, 2013, home closings gross margin for the West segment was 22.7%, up from 17.9% for the year ended December 31, 2012. Adjusted home closings gross margin in the West segment increased by 510 basis points in the year ended December 31, 2013, compared to the year ended December 31, 2012. The increase in home closings gross margin and adjusted home closings gross margin was primarily due to our ability to control our construction costs, while increasing our average home closing selling price by 18.0% in 2013 compared to 2012. All divisions increased gross margin percentage during the period. The Northern California and Phoenix divisions experienced the highest percentage of price increases during the year and also were able to contain construction costs as the volume of construction within our communities in those markets allowed us to effectively manage cost pressures on construction materials and labor.

Mortgage Operations

Our Mortgage Operations segment, which provides mortgage lending through TMHF, is highly dependent on our sales and closings volumes. The following is a summary of mortgage operations gross margin:

(In thousands)  Year Ended December 31, 
        2013              2012       

Mortgage operations

  $30,371   $21,861  

Mortgage operations expense

   16,446    11,266  
  

 

 

  

 

 

 

Mortgage operations gross margin

$13,925  $10,595  
  

 

 

  

 

 

 

Mortgage operations margin %

 45.8%  48.5% 

Our Mortgage Operations segment’s revenue increased in the year ended December 31, 2013 compared to the year ended December 31, 2012, due primarily to increased closings volume and average loan amounts. The decrease in gross margin percentage was due primarily to increases in mortgage underwriting costs driven by increased staffing for compliance initiatives as well as increased costs to integrate Darling.

   TMHF
Closed
Loans		   Aggregate
Loan Volume
(in millions)		   Capture
Rate		 

December 31, 2013

   2,828    $850.8     78% 

December 31, 2012

   2,022     535.2     84  

Our capture rate decreased in 2013 as we transitioned our Darling Homes operations from a legacy provider to TMHF. In 2013 and 2012 the average FICO score of customers who obtained mortgages through TMHF was 739 and 738, respectively.

Sales, Commissions and Other Marketing Costs

For the year ended December 31, 2013 and 2012, sales, commissions, and other marketing costs such as advertising and sales office expenses were $127.4 million and $70.4 million, respectively, which is an 81.0% increase year over year. This increase reflects a 60.8% increase in homes closed as well as an increase in average selling price. As a percentage of home sales revenue, sales commissions and other marketing costs decreased to 6.9% from 7.1% for the year ended December 31, 2013 and 2012 respectively. An increase in external commissions paid and a higher selling cost structure at Darling, added to the dollar increase year over year as consumers leveraged outside professionals more prominently than in the prior period.

General and Administrative Expenses

For the year ended December 31, 2013, general and administrative expenses were $77.2 million as compared to $41.9 million in the same period in 2012, which represents an 84.4% increase. General and administrative expenses were 4.0% as a percentage of total revenue in both the years ended December 31, 2013 and 2012 due to our diligent cost containment strategy as we pursued synergies within the business. We were also able to leverage our existing infrastructure while increasing closings by 60.8%. We recorded $2.9 million of expense for the options and restricted stock units granted in connection with our IPO and grants under our equity compensation plan during the remainder of 2013. There were no comparable amounts in 2012.

Equity in Income of Unconsolidated Entities

Equity in income of unconsolidated entities was $2.9 million for the year ended December 31, 2013 compared to $1.2 million for the year ended December 31, 2012. The increase was due to the addition of joint ventures in our East segment in the year ended December 31, 2013.

Interest Expense (Income), net

Interest expense represents interest incurred, but not capitalized, on our long-term debt and other borrowings. Purchase accounting from the Acquisition eliminated the accumulated capitalized interest on the balance sheet as of the Acquisition date. Interest expense (income), net for the years ending December 31, 2013 and 2012, was $842 thousand of expense and $758 thousand of income, respectively.

Other Expense, net

Other expense, net for the year ended December 31, 2013 was $2.8 million of expense compared to $3.7 million of expense in the year ended December 31, 2012. Other expense is primarily related to mothball community expense, pre-acquisition costs on un-pursued land projects and captive insurance claims costs.

Loss on Extinguishment of Debt

During 2012, we prepaid $350.0 million of the Sponsor Loan with proceeds from the 2020 Senior Notes issued in April 2012. The remaining $150.0 million of the Sponsor Loan was exchanged for equity interests. The amount of the Sponsor Loan that$30.0 million was retired had been borrowed at a discount of 2.5% and, consequently, the $7.9 million of unamortized portion of the discount was written off during 2012 to expense. SeeItem 1 — Business — 2011 Acquisition by our Principal Equityholders of this Annual Report.

On April 12, 2013, we used $204.3 million of the net proceeds of the IPO to redeem $189.6 million aggregate principal amount of 2020 Senior Notes (at a purchase price equal to 103.875% of their principal amount, plus accrued and unpaid interest of $7.3 million through the date of redemption). We wrote off $4.6 million of unamortized issuance costs, expensed $1.8 million of original issue premium and incurred a call premium of $7.3 million related to the redemption. These costs are includedrecorded in the $10.1 million lossgain on extinguishment of debtforeign currency forward in the accompanying Consolidated Statements of Operations for the year ended December 31, 2013.

Indemnification2015.


Income Tax Provision
Our effective tax rate was 34.5% and Transaction Expense

25.3% for the years ended December 31, 2015 and December 31, 2014, respectively. The Predecessor Parent Company indemnified TMM Holdingseffective rate increased in 2015 primarily because 2014 included a benefit for specificthe reversal of $31.1 million of a previously recorded valuation allowance against certain deferred tax assets. The effective tax rate for both years was affected by a number of factors, the most significant of which included changes in valuation allowances, state income taxes, the changes in uncertain tax positions, existing asand certain preferential treatment of the datedeductions relating to homebuilding activities.


Income from Discontinued Operations, net of the Acquisition. An indemnification receivabletax

Income from discontinued operations, net of $129.7 million was recorded at the time of the Acquisition. The indemnification receivable included a periodic increase for accrued interest, penalties, and additional identified tax, issues covered by the indemnity, offset by periodic decreases as uncertain tax matters and related tax obligations are resolved. The receivable due from the Predecessor Parent Company for the indemnification was valued at the same amount as the estimated income tax liability. During the year ended December 31, 2013 and 2012, $88.5 million and $12.3 million of the indemnification receivable was written off due to successful settlement of tax positions that were subject to the Predecessor Parent Company indemnification. The uncertain tax position was reversed simultaneously in our tax provision during each period.

During the year ended December 31, 2013, we also incurred $29.8 million of expense related to the termination of the management services agreements between us and the Principal Equityholders as part of the Reorganization Transactions. Additionally, we incurred $80.2 million of non-cash stock compensation expense for the modification of the TMM Holdings Class J Units which were exchanged for units in the TPG and Oaktree Holding Vehicles. The change was related to the termination of the JHI Services Agreement. SeeItem 1 — Business — Reorganization and Initial Public Offeringof this Annual Report.

Income Tax Provision

Our effective tax rate for the year ended December 31, 20132015 consisted of post-closing transaction expenses, including administrative costs, legal fees, and 2012 was composed of the federal statutory tax rates in the U.S. and was affected primarily by state income taxes, the recognition of previously unrecognized tax benefits, the establishment of uncertain tax positions, and interest relating to uncertain tax positions. In addition, the IPO and Reorganization Transactions also resulted in an increase to our effective tax rate for the year ended December 31, 2013 due to certain non-deductiblestock based compensation charges related to modificationthe sale of the Class J Units of TMM Holdings. SeeItem 1 — Business — Reorganization and Initial Public Offering of this Annual Report.

During the year ended December 31, 2013, we accepted a settlement offerMonarch. No revenues or expenses related to Taylor Woodrow Holdings (USA) Inc. for the 2008 and 2009 tax years. As a result, $102.0 millionoperations of our previously unrecognized indemnified tax positions including interest and penaltiesMonarch were recognized during the year ended December 31, 2013.

As of December 31, 2013, our cumulative gross unrecognized tax benefits were $2.1 millionrecorded in the U.S. and all unrecognized tax benefits, if recognized, would affect the effective tax rate. As of December 31, 2012, our cumulative gross unrecognized tax benefits were $85.7 million in the U.S. These amounts are included in income taxes payable in the accompanying Consolidated Balance Sheets at December 31, 2013 and December 31, 2012.

The unrecognized tax benefits for discontinued operations were $7.9 million and $9.8 million for the years ended December 31, 2013 and 2012, respectively.

For further information, seeNote 12 — Income Taxesin the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report.

Income from Discontinued Operations, net of tax

Income from discontinued operations decreased from $74.9 million at December 31, 2012 to $66.5 million at December 31, 2013. The activity in discontinued operations in 2013 was affected by the timing of high-rise closings. In the year ended December 31, 2012 we began closing one joint venture tower, Nautilus, which had 382 of 389 units close in the period, accounting for more than $8.1 million in joint venture income, while in 2013, we recognized $27.0 million of joint venture income on 862 of 879 units from closings at the joint venture high-rise buildings Couture and Encore. During the year ended December 31, 2013 we closed 422 of 423 units in the wholly owned tower Ultra, which produced $104.3 million of revenue in discontinued operations. The average home closings sales price was 19.0% lower for the year ended December 31, 2013 when compared to 2012. This decrease was due to a product mix shift into move-up communities located in affordable areas of the greater Toronto area during 2013 and a shift in mix between single-family and high-rise units. Overall, income from discontinued operations decreased as a result of increased costs related to home closings activity.

2015.


Liquidity and Capital Resources


Liquidity


We finance our operations through the following:


Borrowings under our Restated Revolving Credit Facility (as defined below);

Our various series of Senior Notes (described(as defined below);

Mortgage warehouse facilitiesfacilities;

Project-level financing (including non-recourse loans);

Performance, payment and completion surety bonds, and letters of creditcredit; and

Cash generated from operations.

We believe that we can fund our current and foreseeable liquidity needs for the next 12 months from:


Cash generated from operationsoperations; and

Borrowings under our Restated Revolving Credit FacilityFacility.

Cash generated from the sale of our Monarch business

We may access the capital markets to obtain additional liquidity through debt and equity offerings on an opportunistic basis.

Our principal uses of capital infor the yearyears ended December 31, 20142016 and 20132015 were homebuilding acquisitions, land purchases, lot development, home construction, operating expenses, payment of debt service, income taxes, investments in joint ventures, stock repurchases and the payment of various liabilities. DuringIn addition, capital was used for the 2013 period we made significant paymentsacquisition of Acadia Homes and incurred significant expensesinvestments in connection with our Reorganization Transactions and IPO.joint ventures for the year ended December 31, 2016. Cash flows for each of our communities depend on the status of the development cycle, and can differ substantially from reported earnings. Early stages of development or expansion require significant cash outlaysexpenditures for land acquisitions, plats, siteon and off-site development, construction of model homes, general landscaping and other amenities. Because these costs are a component of our inventory and are not recognized in our statement of operations until a home closes, we incur significant cash outflows prior to recognition of earnings.

We have a defined strategy


The table below summarizes our total cash and liquidity as of the dates indicated:
  As of December 31,
(Dollars in thousands) 2016 2015
Total Cash, including Restricted Cash $301,812
 $127,468
Total Revolving Credit Facility 500,000
 500,000
Letters of Credit Outstanding (31,903) (32,906)
Revolving Credit Facility Borrowings Outstanding —
 (115,000)
Revolving Credit Facility Availability 468,097
 352,094
Total Liquidity $769,909
 $479,562


Cash Flow Activities

Operating Cash Flow Activities

Our net cash provided by operating activities was $372.6 million for cash management, particularly with respectthe year ended December 31, 2016 compared to cash outlays for land and inventory development. We$262.7 million used $133.7 million of cash in operating activities for the year ended December 31, 2014 and $151.9 million2015. The increase in cash provided by operating activities was primarily attributable to an increase in the same period in 2013. Our principalnumber of homes closed and lower cash uses in 2014 werespending on real estate inventory acquisitions, construction and taxes. We generatedland deposits compared to the prior year combined with a smaller decrease in mortgage loans held for sale. In addition, 2015 net cash used in 2014 through our operating activities borrowings under our credit facilitiesincluded the impacts of net income from discontinued operations and the issuancegain on foreign currency forward.

Investing Cash Flow Activities

Net cash used in investing activities was $81.4 million for the year ended December 31, 2016 compared to the cash provided by investing activities of $50.2 million for the 2024 Senior Notes.

Depending upon future homebuilding market conditionsyear ended December 31, 2015. Proceeds from the sale of Monarch and our expectationsforeign currency forward in 2015, partially offset by less cash used in business acquisitions in 2016, contributed to the change in cash from investing activities.


Financing Cash Flow Activities

Net cash used in financing activities was $117.3 million for these conditions, we may use a portion of our cash and cash equivalents to take advantage of land opportunities. We intend to maintain adequate liquidity and balance sheet strength, and we will continue to evaluate opportunities to access the debt and equity capital markets as they are available.

Capital Resources

Cash and Cash Equivalents

As ofyear ended December 31, 2014, we had available2016 compared to cash andused in financing activities of $103.0 million for the year ended December 31, 2015. Net cash equivalents of $234.2 million from continuing operations. Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions and short-term, highly liquid investments. We consider all highly liquid investments with original maturities of 90 days or less, suchused in financing activities increased primarily as certificates of deposit, money market funds, and commercial paper, to be cash equivalents. Cash accounts are insured up to $250,000 in the U.S. by the Federal Deposit Insurance Corporation and up to $100,000 in Canada by the Canadian Deposit Insurance Company.

As a result of the salerepayment in full of our Canadian operations, which occurredamounts outstanding under the Revolving Credit Facility, combined with an increase in Januarymortgage borrowings. In addition, 2015 our totalnet cash and cash equivalents as of December 31, 2014 was $463.5 million. This amount includes USD cashused in financing activities included the proceeds from the Canadian operations, which is included in Assetsissuance of discontinued operations inSenior Notes due 2023 and the accompanying Consolidated Balance Sheet.

Outstanding indebtedness related to the Monarch business (including indebtedness outstanding under various revolving facilities) is reflected as liabilitiesrepayment of discontinued operations in the accompanying Consolidated Balance Sheets.

Senior Notes due 2020.


Debt Instruments

Senior Notes:


The following table summarizes our outstanding senior unsecured notes (collectively, the “Senior Notes”), as of December 31, 2014.

(Dollars in thousands)  Date Issued  Principal
Amount		   Initial Offering
Price		  Interest
Rate		  Net Proceeds   Original Debt
Issuance
Cost		 

Senior Notes due 2020

  April 13, 2012  $395,505     100.0%   7.750%  $537,400    $12,600  

Senior Notes due 2020

  August 21, 2012   93,335    105.5%   7.750%   132,500     3,100  

Senior Notes due 2021

  April 16, 2013   550,000     100.0%   5.250%   541,700     8,300  

Senior Notes due 2024

  March 5, 2014   350,000     100.0%   5.625%   345,300     4,700  
    

 

 

     

 

 

   

 

 

 

Total

$1,388,840  $1,556,900  $28,700  
    

 

 

     

 

 

   

 

 

 

20202016.

(Dollars in thousands)Date Issued 
Principal
Amount
 
Initial Offering
Price
 
Interest
Rate
 Original Net Proceeds 
Original Debt
Issuance
Cost
Senior Notes due 2021April 16, 2013 550,000
 100.0% 5.250% 541,700
 8,300
Senior Notes due 2023April 16, 2015 350,000
 100.0% 5.875% 345,500
 4,500
Senior Notes due 2024March 5, 2014 350,000
 100.0% 5.625% 345,300
 4,700
Total  $1,250,000
     $1,232,500
 $17,500


2021 Senior Notes


On April 13, 2012,16, 2013, we issued $550.0 million aggregate principal amount of 7.75%5.25% Senior Notes due 20202021 (the “Initial“2021 Senior Notes”) at an initial offering price of 100% of the principal amount (the “Offering”).
The net proceeds from the sale of the Initial Notes were used, in part, to repay existing indebtedness. The remaining proceeds of approximately $187.4 million from the Offering were used for general corporate purposes. An additional $3.0 million of issuance costs were settled outside the bond proceeds.

On August 21, 2012, we issued an additional $125.0 million of 7.75%2021 Senior Notes due 2020 (the “Additional Notes” together with the Initial Notes, the “2020 Senior Notes”) at an initial offering price of 105.5% of the principal amount.mature on April 15, 2021. The net proceeds were used for general corporate purposes. The Additional Notes issued August 21, 2012 were issued pursuant to the existing indenture for the 2020 Senior Notes. The 2020 Senior Notes are unsecured and not subject to registration rights.

On April 12, 2013, we used $204.3 million of the net proceeds of the IPO to acquire New TMM Units from New TMM (at a price equal to the price paid by the underwriters for shares of Class A Common Stock in the IPO). TMM Holdings used these proceeds to repay a portion of the 2020 Senior Notes.

Obligations to pay principal and interest on the 20202021 Senior Notes are guaranteed by TMM Holdings, Taylor Morrison Holdings, Inc., Monarch ParentTaylor Morrison Communities II, Inc. and the U.S.their homebuilding subsidiaries of TMC (collectively, the “Guarantors”)., which are all subsidiaries directly or indirectly of TMHC. The 20202021 Senior Notes and the related guarantees are senior unsecured obligations.obligations and are not subject to registration rights. The indenture for the 20202021 Senior Notes contains covenants that prohibit or limit (i) the making of investments, (ii) the payment of dividends and the redemption of equity and junior debt, (iii) the incurrence of additional indebtedness, (iv) asset dispositions, (v) mergers and similar corporate transactions, (vi) the incurrence of liens, (vii) the incurrence of prohibitionsagreeing to restrictions on payments and asset transfers among the issuers and restricted subsidiaries and (viii) transactions with affiliates, among others. The indenture governing the 20202021 Senior Notes contains customary events of default. If we do not apply the net cash proceeds of certain asset sales within specified deadlines, we will be required to offer to repurchase the 20202021 Senior Notes at par (plus accrued and unpaid interest) with such proceeds. We are also required to offer to repurchase the 20202021 Senior Notes at a price equal to 101% of their aggregate principal amount (plus accrued and unpaid interest) upon certain change of control events.

There are no financial maintenance covenants for the 2021 Senior Notes.

2023 Senior Notes

and Redemption of 2020 Senior Notes

On April 16, 2013,2015, we issued $550.0$350.0 million aggregate principal amount of 5.25%5.875% Senior Notes due 20212023 (the “2021“2023 Senior Notes”). The 20212023 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights. The net proceeds from the issuance of the 2021 Senior Notesoffering, together with cash on hand, were used to repayredeem the outstanding balance under the Restated Revolving Credit Facilityentire remaining principal amount of our 7.75% Senior Notes due 2020 on May 1, 2015, at a redemption price of 105.813% of their aggregate principal amount, plus accrued and for general corporate purposes,unpaid interest thereon to, but not including, the purchasedate of additional land inventory.

redemption. As a result of the redemption of the 2020 Senior Notes, we recorded a loss on extinguishment of debt of $33.3 million during the second quarter of 2015, which included the payment of the redemption premium and write-off of net unamortized deferred financing fees.

The 20212023 Senior Notes mature on April 15, 2023. The 2023 Senior Notes are guaranteed by the same Guarantors that guarantee the 20202021 Senior Notes. The indenture governing the 2021 Senior Notes contains covenants, change of control and asset sale offer provisions that are similar to those contained in the indenture governing the 2020 Senior Notes.

2024 Senior Notes

On March 5, 2014, we issued $350.0 million aggregate principal amount of 5.625% Senior Notes due 2024 (the “2024 Senior Notes”). The 2024 Senior Notes are unsecured and are not subject to registration rights. The net proceeds from the issuance of the 2024 Senior Notes were used to repay the outstanding balance under the Restated Revolving Credit Facility and for general corporate purposes.

The 2024 Senior Notes mature on March 1, 2024. The 2024 Senior Notes are guaranteed by the same Guarantors that guarantee the 2020 and 2021 Senior Notes. The 2024 Senior Notes and the guarantees are senior unsecured obligations. The indenture governing the 20242023 Senior Notes contains covenants that limit our ability to incur debt secured by liens and enter into certain sale and leaseback transactions. The indenture governing the 20242023 Senior Notes contains events of default that are similar to those contained in the indenturesindenture governing the 2020 and the 2021 Senior Notes. The change of control provisions in the indenture governing the 20242023 Senior Notes are similar to those contained in the indenturesindenture governing the 2020 and the 2021 Senior Notes, but a credit rating downgrade must occur in connection with the change of control before the repurchase offer requirement is triggered for the 2023 Senior Notes.

Prior to January 15, 2023, the 2023 Senior Notes are redeemable at a price equal to 100% plus a “make-whole” premium for payments through January 15, 2023 (plus accrued and unpaid interest). Beginning January 15, 2023, the 2023 Senior Notes are redeemable at par (plus accrued and unpaid interest).
There are no financial maintenance covenants for the 2023 Senior Notes.

2024 Senior Notes
On March 5, 2014, we issued $350.0 million aggregate principal amount of 5.625% Senior Notes due 2024 (the “2024 Senior Notes”). The net proceeds from the issuance of the 2024 Senior Notes were used to repay the outstanding balance under the Revolving Credit Facility and for general corporate purposes.
The 2024 Senior Notes mature on March 1, 2024. The 2024 Senior Notes are guaranteed by the same Guarantors that guarantee the 2021 Senior Notes.

The 2024 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights. The indenture governing the 2024 Senior Notes contains covenants that limit our ability to incur debt secured by liens and enter into certain sale and leaseback transactions similar to the 2023 Senior Notes. The indenture governing the 2024 Senior Notes contains events of default that are similar to those contained in the indenture governing the 2021 and 2023 Senior Notes. The change of control provisions in the indenture governing the 2024 Senior Notes are similar to those contained in the indenture governing the 2023 Senior Notes.

Prior to December 1, 2023, the 2024 Senior Notes are redeemable at a price equal to 100% plus a “make-whole” premium for payments through December 1, 2023 (plus accrued and unpaid interest). Beginning on December 1, 2023, the 2024 Senior Notes are redeemable at par (plus accrued and unpaid interest).

There are no financial maintenance covenants for the 2024 Senior Notes.


TMHC Compared to TMM Holdings
TMM Holdings is a parent guarantor of certain of our debt facilities. The financial information of TMHC is substantially identical to the financial performance and operations of TMM Holdings except for certain SEC and regulatory fees which are attributable to TMHC.

Revolving Credit Facility

On January 15, 2014, TMC and various other subsidiaries of TMHC (collectively, the “Borrowers”), entered into Amendment No. 1 to the senior revolving credit facility entered into with a syndicate of third party banks and financial institutions in July 2011 and amended and restated as of April 13, 2012 and further amended and restated as of April 12, 2013 (the “Restated Revolving Credit Facility”). This Amendment No. 1 released Monarch from all of its obligations under the Restated Revolving Credit Facility. As a result, the only borrower under the Restated

Our $500.0 million Revolving Credit Facility is TMC.matures on April 12, 2019. The Restated Revolving Credit Facility is guaranteed by the same Guarantors that guarantee the 20202021, 2023, and 2024 Senior Notes.
The Restated Revolving Credit Facility matures on April 12, 2017.

The Restated Revolving Credit Facility contains certain “springing” financial covenants, requiring TMM Holdingsus and itsour subsidiaries to comply with a certain maximum debt to capitalization ratio of not more than 0.60 to 1.00 and a certain minimum consolidated tangible net worth test.level of at least $1.5 billion. The financial covenants would be in effect for any fiscal quarter during which any (a) loans under the Restated Revolving Credit Facility are outstanding during the last day of such fiscal quarter or on more than five separate days during such fiscal quarter or (b) undrawn letters of credit (except to the extent cash collateralized) issued under the Restated Revolving Credit Facility in an aggregate amount greater than $40.0 million or unreimbursed letters of credit issued under the Restated Revolving Credit Facility are outstanding on the last day of such fiscal quarter or for more than five consecutive days during such fiscal quarter.

For purposes of determining compliance with the financial covenants for any fiscal quarter, the Restated Revolving Credit Facility provides that TMCwe may exercise an equity cure by issuing certain permitted securities for cash or otherwise recording cash contributions to itsour capital that will, upon the contribution of such cash to TMC,the borrower, be included in the calculation of consolidated tangible net worth and consolidated total capitalization. The equity cure right is exercisable up to twice in any period of four consecutive fiscal quarters and up to five times overall.
The maximum debt to total capitalization ratio is 0.60 to 1.00. The ratio as calculated by the Borrowers at December 31, 2014 was 0.41 to 1.00. The minimum consolidated tangible net worth requirement was $1.3 billion at December 31, 2014. At December 31, 2014, the Borrowers’ tangible net worth, as defined in the Restated Revolving Credit Facility, was $1.7 billion. At December 31, 2014, these ratio calculations were inclusive of our Monarch business.

The Restated Revolving Credit Facility contains certain restrictive covenants including limitations on incurrence of liens, dividends and other distributions, asset dispositions and investments in entities that are not guarantors, limitations

on prepayment of subordinated indebtedness and limitations on fundamental changes. The Restated Revolving Credit Facility contains customary events of default, subject to applicable grace periods, including for nonpayment of principal, interest or other amounts, violation of covenants (including financial covenants, subject to the exercise of an equity cure), incorrectness of representations and warranties in any material respect, cross default and cross acceleration, bankruptcy, material monetary judgments, ERISA events with material adverse effect, actual or asserted invalidity of material guarantees and change of control. As of December 31, 2014,2016 and 2015, we were in compliance with all of the covenants under the Restated Revolving Credit Facility.


Mortgage Company Loan Facilities

Warehouse Borrowings under our TMHF warehouse facilities are accounted for as secured borrowings under ASC Topic 860, ‘Transfers and Servicing.” Total capacity under the TMHF warehouse facilities available to TMHC at December 31, 2014 is $235.0 million.


The following table summarizes the termsis a summary of our TMHFmortgage subsidiary warehouse facilities:

  At December 31, 2014

Facility

 Amount Drawn  Facility Amount  Interest Rate Expiration Date  Collateral (1)

Flagstar

 $62,894   $85,000   LIBOR + 2.5% 30 days written notice  Mortgage Loans

Comerica

  11,430    50,000   LIBOR + 2.75% August 19, 2015  Mortgage Loans

JPMorgan

  86,426    100,000(2)  (3) September 28, 2015  Pledged Cash
 

 

 

  

 

 

     

Total

$160,750  $235,000  
 

 

 

  

 

 

     

borrowings:

 (Dollars in thousands)At December 31, 2016
Facility
Amount
Drawn
 
Facility
Amount
 Interest Rate Expiration Date 
Collateral (1)
Flagstar$37,093
 $55,000
 LIBOR + 2.5% 30 days written notice Mortgage Loans
Comerica57,875
 85,000
 LIBOR + 2.25% November 16, 2017 Mortgage Loans
J.P. Morgan103,596
 125,000
 LIBOR + 2.375% to 2.5% September 26, 2017 Mortgage Loans and Pledged Cash
Total$198,564
 $265,000
      
          
          
 At December 31, 2015
Facility
Amount
Drawn
 
Facility
Amount
 Interest Rate Expiration Date 
Collateral (1)
Flagstar$63,210
 $75,000
 LIBOR + 2.5% 30 days written notice Mortgage Loans
Comerica18,009
 50,000
 LIBOR + 2.25% November 16, 2016 Mortgage Loans
J.P. Morgan102,225
 120,000
 LIBOR + 2.375% September 29, 2016 Mortgage Loans and Pledged Cash
Total$183,444
 $245,000
      

(1) 
The mortgage warehouse borrowings outstanding as of December 31, 20142016 and 2013,2015, are collateralized by $191.1$233.2 million and $95.7$201.7 million, respectively, of mortgage loans held for sale, which comprise the balance of mortgage receivables and $1.3 million and $2.0 million, respectively, of restricted short-term investments which are included in restricted cash in the accompanying Consolidated Balance Sheets.receivables.
(2)The warehouse facility with JPMorgan has a maximum credit line of $50.0 million. On December 12, 2014 the agreement was temporarily amended to increase the capacity from $50.0 million to $100.0 million. Effective January 23, 2015, the temporary increase expired.
(3)Interest under the JPMorgan agreement ranges from 2.50% plus 30-day LIBOR to 2.875% plus 30-day LIBOR or 0.25% (whichever is greater).



Loans Payable and Other Borrowings

Loans payable and other borrowings as of December 31, 20142016 and 2015 consist of project-level debt due to various land sellers and municipalities,seller financing notes from current and areprior year acquisitions. Project-level debt is generally secured by the land that was acquired. Principalacquired and the principal payments generally coincide with corresponding project lot sales or a principal reduction schedule. Loans payable bear interest at rates that ranged from 0% to 8% at December 31, 2016 and 2015. We impute interest for loans with no stated interest rates. The weighted average interest rate on $102.0$123.3 million of the loans as of December 31, 20142016 was 6.5%5.3% per annum, and $45.5$27.2 million of the loans were non-interest bearing.


Letters of Credit, Surety Bonds and Financial Guarantees


The following table summarizes our available and issued letters of credit and surety bonds as of the dates indicated:

   Year Ended December 31, 
   2014   2013 
(In thousands)  Available   Issued   Available   Issued 

Restated Revolving Credit Facility

  $200,000    $35,071    $200,000    $26,456  

In the course

 As of December 31,
(Dollars in thousands)2016 2015
Letters of credit (1)
$31,903
 $32,906
Surety bonds270,943
 361,941
Total outstanding letters of credit and surety bonds$302,846
 $394,847
(1)As of land developmentDecember 31, 2016 and acquisition, we have issued2015, there was $200 million total capacity of letters of credit available under our Restated Revolving Credit Facility to various land sellers and municipalities in the amount of $35.1 million outstandingFacility.



Contractual Obligations as of December 31, 2014.

Operating Cash Flow Activities

Our net cash used in operating activities decreased approximately $18.2 million for the year ended December 31, 2014 compared to 2013. The decrease in cash used in operating activities was primarily attributable to an increase in net

income and lower cash spend on real estate inventory and land deposits year over year, offset by lower stock compensation expense, and an increase in cash paid for prepaids during the 2014 period. Also contributing to the change was a decrease in income taxes payable as a result of the timing of estimated income tax payments.

Investing Cash Flow Activities

Net cash used in investing activities increased $13.7 million for the year ended December 31, 2014 compared to 2013. The increase in cash used in 2014 was primarily the result of an increase in investments in unconsolidated entities as we continue to fund new joint venture operations.

Financing Cash Flow Activities

Net cash provided by financing activities decreased $28.6 million for the year ended December 31, 2014 compared to 2013. Net cash provided by financing activities changed as a result of net proceeds from the IPO in 2013 which was in part used to repay a portion of the 2020 Senior Notes in 2013, the issuance of $350.0 million of 2024 Senior Notes in March 2014, an increase in net borrowings on mortgage warehouse facilities as a result of an increase in mortgage originations year over year, and an increase in net borrowings on the Restated Revolving Credit Facility year over year to fund new real estate acquisitions.

Commercial Commitments and Off-Balance Sheet Arrangements as of December 31, 2014

   Payments Due by Period (in thousands) 
   Totals   Less than
1 year		   1-3 years   3-5 years   More than
5 years		 

Operating lease obligations

  $20,554    $5,489    $7,658    $4,453    $2,954 

Topic 740 obligations including interest and penalties

   1,563     —      1,563     —       —   

Land purchase contracts(1)

   323,513     130,079     101,851     48,923     42,660  

Debt outstanding(2)

   1,737,106     252,278     67,409     22,429     1,394,990  

Estimated interest expense(3)

   636,596     93,750     175,394     173,370     194,082  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

$2,719,332  $481,596  $353,875  $249,175  $1,634,686  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

2016
 (Dollars in thousands)Payments Due by Period
 Totals 
Less than
1 year
 1-3 years 3-5 years 
More than
5 years
Operating lease obligations$27,231
 $7,434
 $11,577
 $6,002
 $2,218
Unrecognized tax benefit obligations including interest and penalties4,379
 —
 4,379
 —
 —
Land purchase contracts and lot options542,609
 225,193
 218,355
 27,779
 71,282
Senior notes (1)
1,250,000
 —
 —
 550,000
 700,000
Other debt outstanding (1)
349,049
 268,570
 66,952
 13,027
 500
Estimated interest expense (2)
528,043
 77,833
 141,181
 138,820
 170,209
Totals$2,701,311
 $579,030
 $442,444
 $735,628
 $944,209

(1) 
Represents remaining purchase price due under full-recourse land purchase contracts.
(2)As of December 31, 20142016 total debt outstanding includes $485.4included $550.0 million aggregate principal amount and $3.4 million of unamortized bond premium of 2020 Senior Notes, $550.0 aggregate principal amount of 2021 Senior Notes, $350.0 million aggregate principal amount of 2023 Senior Notes, $350.0 million aggregate principal amount of 2024 Senior Notes, $160.8$198.6 million of mortgage borrowings by TMHF, no outstanding borrowings on the Revolving Credit Facility, and $147.5$150.5 million of loans and other borrowings. Scheduled maturities of certain loans and other borrowings as of December 31, 20142016 reflect estimates of anticipated lot take-downs associated with such loans.
(3)(2) 
Estimated interest expense amounts for debt outstanding at the respective contractual interest rates, the weighted average of which is 5.7%was 5.5% as of December 31, 2014.2016.

The following table summarizes our letters of credit and surety bonds


Off-Balance Sheet Arrangements as of the dates indicated:

   As of December 31, 
(In thousands)  2014   2013 

Letters of credit

  $35,071    $26,457  

Surety bonds

   280,559     130,459  
  

 

 

   

 

 

 

Total outstanding letters of credit and surety bonds

$315,630  $156,916  
  

 

 

   

 

 

 

December 31, 2016


Investments in Land Development and Homebuilding Joint Ventures or Unconsolidated Entities


We participate in strategic land development and homebuilding joint ventures with related and unrelated third parties. The use of these entities, in some instances, enables us to acquire land to which we could not otherwise obtain access, or

could not obtain access on terms that are as favorable. Our partners in these joint ventures historically have been land owners/developers, other homebuilders and financial or strategic partners. Joint ventures with land owners/developers have given us

access to sites owned or controlled by our partners. Joint ventures with other homebuilders have provided us with the ability to bid jointly with our partners for large or expensive land parcels. Joint ventures with financial partners have allowed us to combine our homebuilding expertise with access to our partners’ capital. Joint ventures with strategic partners have allowed us to combine our homebuilding expertise with the specific expertise (e.g. commercial or infill experience) of our partners.

In certain of our unconsolidated joint ventures, we enter into loan agreements, whereby one of our subsidiaries will provide the lenders with customary guarantees, including completion, indemnity and environmental guarantees subject to usual non-recourse terms.


The following is a summary of investments in unconsolidated land development and homebuilding joint ventures:

   As of December 31, 
(In thousands)  2014   2013 

East

  $57,138    $20,191  

West

   51,909     —    

Other

   1,244     1,244  
  

 

 

   

 

 

 

Total

$110,291  $21,435  
  

 

 

   

 

 

 

The following is a rollforward of the investments in unconsolidated land development and homebuilding joint ventures:

(In thousands)  East   West   Corporate   Total 

Investment balance, December 31, 2013

  $20,191    $—     $1,244    $21,435 

Joint venture income

   3,609     386    1,410     5,405  

Distributions

   (1,862)    (474)   (1,410)    (3,746) 

Contributions

   35,200    51,997     —      87,197  
  

 

 

   

 

 

   

 

 

   

 

 

 

Investment balance, December 31,2014

$57,138  $51,909  $1,244  $110,291  
  

 

 

   

 

 

   

 

 

   

 

 

 

The summarized balance sheets of our unconsolidated land development and homebuilding joint ventures were as follows:

Summary balance sheet

   As of December 31, 
(In thousands)  2014   2013 

Assets

  $456,821    $75,797  

Liabilities

   138,431     31,954  

Equity

   318,390     43,843  

 As of December 31,
(Dollars in thousands)2016 2015
East$25,923
 $24,098
Central30,146
 28,832
West98,625
 72,646
Other3,215
 2,872
Total$157,909
 $128,448


Land Purchase and Land Option Contracts


We enter into land purchase and option contracts to procure land or lots for the construction of homes in the ordinary course of business. Lot option contracts enable us to control significant lot positions with a minimal capital investment and substantially reduce the risks associated with land ownership and development. As of December 31, 2014,2016, we had outstanding land purchase and lot option contracts of $323.5$542.6 million for 5,3727,583 lots. We are obligated to close the transaction under our land purchase contracts. However, our obligations with respect to the option contracts are generally limited to the forfeiture of the related non-refundable cash deposits and/or letters of credit provided to obtain the options. For additional detail, seeLiquidity and Capital Resources — Commercial Commitments and Off-Balance Sheet Arrangements as of December 31, 2014.


ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk


Our operations are interest rate sensitive. We monitor our exposure to changes in interest rates and incur both fixed rate and variable rate debt. At December 31, 2014, 88.4%2016, 87.6% of our debt was fixed rate and 11.6%12.4% was variable rate. None of our market sensitive instruments were entered into for trading purposes. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument but may affect our future earnings and cash flows, and may also impact our variable rate borrowing costs, which principally relate to any borrowings under our Restated Revolving Credit Facility and to any borrowings by TMHF under its various warehouse facilities. As of December 31, 2014,2016, we had $40.0 millionno outstanding borrowings under our $400.0 million Restated Revolving Credit Facility. We had $324.9$468.1 million of additional availability for borrowings and $164.9$168.1 million of additional availability for letters of credit (giving effect to $35.1$31.9 million of letters of credit outstanding as of such date). SeeItem 7 — Management’s Discussion and Analysis of Financial Conditions and Results of Operations — Liquidity and Capital Resources — Capital Resources –Revolving– Debt Instruments – Revolving Credit Facility. Our fixed rate debt is subject to a requirement that we offer to purchase the 2020 Senior Notes and the 2021 Senior Notes at par with certain proceeds of asset sales (to the extent not applied in accordance with the indentures governing such Senior Notes). We are also required to offer to purchase all of the outstanding Senior Notes at 101% of their aggregate principal amount upon the occurrence of specified change of control events. Other than in those circumstances, we do not have an obligation to prepay fixed rate debt prior to maturity and, as a result, we would not expect interest rate risk and changes in fair value would not expect to have a significant impact on our cash flows related to our fixed rate debt until such time as we are required to refinance, repurchase or repay such debt.


We are not materially exposed to interest rate risk associated with TMHF’s mortgage loan origination business, because at the time any loan is originated, TMHF has identified the investor who will agree to purchase the loan on the interest rate terms that are locked in with the borrower at the time the loan is originated.


The following table sets forth principal cash flows by scheduled maturity and effective weighted average interest rates and estimated fair value of our debt obligations as of December 31, 2014.2016. The interest rate for our variable rate debt represents the interest rate on our borrowings under our Restated Revolving Credit Facility and mortgage warehouse facilities. Because the mortgage warehouse facilities are effectively secured by certain mortgage loans held for sale which are typically sold within 20approximately 20-30 days, its outstanding balance is included as a variable rate maturity in the most current period presented.

   Expected Maturity Date        Fair
Value		 
(In millions, except percentage data)  2015  2016  2017  2018  2019  Thereafter  Total  

Fixed Rate Debt

  $52.2   $55.4   $13.4   $9.9   $13.8   $1,391.7   $1,536.3   $1,540.7  

Average interest rate(1)

   4.5%   4.5%   4.6%   4.6%   4.6%   6.2%   6.1%   —   

Variable rate debt(2)

  $200.8    —     —     —     —     —    $200.8   $200.8  

Average interest rate

   2.6%   —     —     —     —     —     2.6%   —   



 Expected Maturity Date     
Fair
Value
(Dollars in millions, except percentage data)2017 2018 2019 2020 2021 Thereafter Total 
Fixed Rate Debt$70.0
 $44.7
 $22.2
 $6.2
 $556.8
 $700.5
 $1,400.4
 $1,423.0
Weighted average interest rate (1)
4.4% 4.4% 4.4% 4.4% 5.5% 5.5% 5.4% —%
Variable rate debt (2)
$198.6
 —
 —
 —
 —
 —
 $198.6
 $198.6
Average interest rate2.9% —% —% —% —% —% 2.9% —%

(1) 
Represents the coupon rate of interest on the full principal amount of the debt.
(2) 
Based upon the amount of variable rate debt at December 31, 2014,2016, and holding the variable rate debt balance constant, each 1% increase in interest rates would increase the interest incurred by us by approximately $2.0 million per year.


Currency Exchange Risk


In December 2014, we entered into a derivative financial instrument in the form of a foreign currency forward. The derivative financial instrument hedged our exposure to the Canadian dollar in conjunction with the disposition of the Monarch business. The aggregate notional amount of the foreign exchange derivative financial instrument was $471.2 million at December 31, 2014. At December 31, 2014 the fair value of the instrument was not material to our consolidated financial position or results of operations. The final settlement of the derivative financial instrument occurred on January 30, 2015 and a gain will bein the amount of $30.0 million was recorded in gain on foreign currency forward in the first quarteraccompanying Consolidated Statement of Operations for the twelve months ended December 31, 2015.






ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA






TAYLOR MORRISON HOME CORPORATION
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Number
Report of Independent Registered Public Accounting Firm
58
Consolidated Balance Sheets
59
Consolidated Statements of Operations
60
Consolidated Statements of Comprehensive Income
61
Consolidated Statements of Stockholders’ Equity
62
Consolidated Statements of Cash Flows
64
Notes to the Consolidated Financial Statements
66


Separate combined financial statements of our unconsolidated joint venture investments have been omitted because, if considered in the aggregate, they would not constitute a significant subsidiary as defined by Rule 3-09 of Regulation S-X.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of

Taylor Morrison Home Corporation

Scottsdale, Arizona


We have audited the accompanying consolidated balance sheets of Taylor Morrison Home Corporation and subsidiaries (the “Company”) as of December 31, 20142016 and 2013,2015, and the related consolidated statements of operations, comprehensive income, (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014.2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thethese financial statements based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Taylor Morrison Home Corporation and subsidiaries as of December 31, 20142016 and 2013,2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014,2016, in conformity with accounting principles generally accepted in the United States of America.



We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014,2016, based on the criteria established in Internal Control —- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 201521, 2017 expressed an unqualified opinion on the Company’s internal control over financial reporting.



/s/ DELOITTE & TOUCHE LLP


Phoenix, Arizona

February 27, 2015

21, 2017



TAYLOR MORRISON HOME CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

   December 31, 
   2014  2013 

Assets

   

Cash and cash equivalents

  $234,217   $193,518  

Restricted cash

   1,310    3,807  

Real estate inventory:

   

Owned inventory

   2,511,623    1,993,985  

Real estate not owned under option agreements

   6,698    18,595  
  

 

 

  

 

 

 

Total real estate inventory

 2,518,321   2,012,580  

Land deposits

 34,544   38,011  

Mortgages receivable

 191,140   95,718  

Prepaid expenses and other assets, net

 89,210   79,921  

Other receivables, net

 85,274   50,592  

Investments in unconsolidated entities

 110,291   21,435  

Deferred tax assets, net

 258,190   242,656  

Property and equipment, net

 5,337   4,502  

Intangible assets, net

 5,459   9,325  

Goodwill

 23,375   23,375  

Assets of discontinued operations

 576,445   663,118  
  

 

 

  

 

 

 

Total assets

$4,133,113  $3,438,558  
  

 

 

  

 

 

 

Liabilities

Accounts payable

$122,466  $101,732  

Accrued expenses and other liabilities

 200,556   162,044  

Income taxes payable

 50,096   35,512  

Customer deposits

 70,465   62,033  

Senior notes

 1,388,840   1,039,497  

Loans payable and other borrowings

 147,516   143,341  

Revolving credit facility borrowings

 40,000   —    

Mortgage borrowings

 160,750   74,892  

Liabilities attributable to consolidated option agreements

 6,698   18,595  

Liabilities of discontinued operations

 168,565   256,011  
  

 

 

  

 

 

 

Total liabilities

 2,355,952   1,893,657  

COMMITMENTS AND CONTINGENCIES (Note 20)

Stockholders’ Equity

Class A Common Stock, $0.00001 par value, 400,000,000 shares authorized, 33,060,540 and 32,857,800 shares issued and outstanding as of December 31, 2014 and December 31, 2013, respectively

 —     —    

Class B Common Stock, $0.00001 par value, 200,000,000 shares authorized, 89,227,416 and 89,451,164 shares issued and outstanding as of December 31, 2014 and December 31, 2013, respectively

 1   1  

Preferred stock, $0.00001 par value, 50,000,000 shares authorized, no shares issued and outstanding as of December 31, 2014 and December 31, 2013

 —     —    

Additional paid-in capital

 374,358   372,789  

Retained earnings

 114,948   43,479  

Accumulated other comprehensive loss

 (10,910)  (452) 
  

 

 

  

 

 

 

Total stockholders’ equity attributable to Taylor Morrison Home Corporation

 478,397   415,817  

Non-controlling interests — joint ventures

 6,528   7,236  

Non-controlling interests — Principal Equityholders

 1,292,236   1,121,848  
  

 

 

  

 

 

 

Total stockholders’ equity

 1,777,161   1,544,901  
  

 

 

  

 

 

 

Total liabilities and stockholders’ equity

$4,133,113  $3,438,558  
  

 

 

  

 

 

 

 December 31,
 2016 2015
Assets   
Cash and cash equivalents$300,179
 $126,188
Restricted cash1,633
 1,280
Real estate inventory:   
Owned inventory3,010,967
 3,118,866
Real estate not owned under option agreements6,252
 7,921
Total real estate inventory3,017,219
 3,126,787
Land deposits37,233
 34,113
Mortgage loans held for sale233,184
 201,733
Derivative assets2,291
 —
Prepaid expenses and other assets, net73,425
 80,348
Other receivables, net115,246
 120,729
Investments in unconsolidated entities157,909
 128,448
Deferred tax assets, net206,634
 233,488
Property and equipment, net6,586
 7,387
Intangible assets, net3,189
 4,248
Goodwill66,198
 57,698
Total assets$4,220,926
 $4,122,447
Liabilities   
Accounts payable$136,636
 $151,861
Accrued expenses and other liabilities209,202
 191,452
Income taxes payable10,528
 37,792
Customer deposits111,573
 92,319
Senior notes, net1,237,484
 1,235,157
Loans payable and other borrowings150,485
 134,824
Revolving credit facility borrowings—
 115,000
Mortgage warehouse borrowings198,564
 183,444
Liabilities attributable to real estate not owned under option agreements6,252
 7,921
Total liabilities2,060,724
 2,149,770
COMMITMENTS AND CONTINGENCIES (Note 21)
 
Stockholders’ Equity   
Class A common stock, $0.00001 par value, 400,000,000 shares authorized,
33,340,291 and 33,158,855 shares issued, 30,486,858 and 32,224,421 shares outstanding as of December 31, 2016 and December 31, 2015, respectively		—
 —
Class B common stock, $0.00001 par value, 200,000,000 shares authorized,
88,942,052 and 89,108,569 shares issued and outstanding as of December 31, 2016 and December 31, 2015, respectively		1
 1
Preferred stock, $0.00001 par value, 50,000,000 shares authorized, no shares issued and outstanding as of December 31, 2016 and December 31, 2015—
 —
Additional paid-in capital384,709
 376,898
Treasury stock at cost; 2,853,433 and 934,434 shares as of December 31, 2016 and December 31, 2015, respectively(43,524) (14,981)
Retained earnings228,613
 175,997
Accumulated other comprehensive loss(17,989) (17,997)
Total stockholders’ equity attributable to Taylor Morrison Home Corporation551,810
 519,918
Non-controlling interests — joint ventures1,525
 6,398
Non-controlling interests — Principal Equityholders1,606,867
 1,446,361
Total stockholders’ equity2,160,202
 1,972,677
Total liabilities and stockholders’ equity$4,220,926
 $4,122,447

See accompanying Notes to the Consolidated Financial Statements


TAYLOR MORRISON HOME CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

   Year Ended December 31, 
   2014  2013  2012 

Home closings revenue, net

  $2,619,558   $1,857,950   $986,198  

Land closings revenue

   53,381    27,760    33,123  

Mortgage operations revenue

   35,493    30,371    21,861  
  

 

 

  

 

 

  

 

 

 

Total revenues

 2,708,432   1,916,081   1,041,182  

Cost of home closings

 2,082,819   1,457,454   795,979  

Cost of land closings

 39,696   26,316   27,296  

Mortgage operations expenses

 19,671   16,446   11,266  
  

 

 

  

 

 

  

 

 

 

Total cost of revenues

 2,142,186   1,500,216   834,541  

Gross margin

 566,246   415,865   206,641  

Sales, commissions and other marketing costs

 168,897   127,419   70,398  

General and administrative expenses

 81,153   77,198   41,867  

Equity in income of unconsolidated entities

 (5,405)  (2,895)  (1,214) 

Interest expense (income), net

 1,160   842   (758) 

Other expense, net

 18,447   2,842   3,704  

Loss on extinguishment of debt

 —     10,141   7,953  

Indemnification and transaction expenses

 —     195,773   13,034  
  

 

 

  

 

 

  

 

 

 

Income from continuing operations before income taxes

 301,994   4,545   71,657  

Income tax provision (benefit)

 76,395   (23,810)  (284,298) 
  

 

 

  

 

 

  

 

 

 

Net income from continuing operations

 225,599   28,355   355,955  

Income from discontinued operations — net of tax

 41,902   66,513   74,893  
  

 

 

  

 

 

  

 

 

 

Net income before allocation to non-controlling interests

 267,501   94,868   430,848  

Net (income) loss attributable to non-controlling interests — joint ventures

 (1,648)  131   (28) 
  

 

 

  

 

 

  

 

 

 

Net income before non-controlling interests —

Principal Equityholders

 265,853   94,999   430,820  

Net (income) loss from continuing operations attributable to non-controlling interests — Principal Equityholders

 (163,790)  1,442   (355,927) 

Net income from discontinued operations attributable to non-controlling interests — Principal Equityholders

 (30,594)  (51,021)  (74,893) 
  

 

 

  

 

 

  

 

 

 

Net income available to Taylor Morrison Home Corporation

$71,469  $45,420  $—    
  

 

 

  

 

 

  

 

 

 

Earnings per common share — basic(1):

Income from continuing operations

$1.83  $0.91   N/A  

Discontinued operations — net of tax

$0.34  $0.47   N/A  
  

 

 

  

 

 

  

 

 

 

Net income available to Taylor Morrison Home Corporation

$2.17  $1.38   N/A  

Earnings per common share — diluted(1):

Income from continuing operations

$1.83  $0.91   N/A  

Discontinued operations — net of tax

$0.34  $0.47   N/A  
  

 

 

  

 

 

  

 

 

 

Net income available to Taylor Morrison Home Corporation

$2.17  $1.38   N/A  

Weighted average number of shares of common stock(1):

Basic

 32,937   32,840   N/A  

Diluted

 122,313   122,319   N/A  

(1)Prior to the Reorganization Transactions on April 9, 2013 and the IPO no common shares were outstanding. See Note 13 — Stockholders’ Equity — Reorganization Transactions for additional information.


 Year Ended December 31,
 2016 2015 2014
Home closings revenue, net$3,425,521
 $2,889,968
 $2,619,558
Land closings revenue64,553
 43,770
 53,381
Mortgage operations revenue59,955

43,082
 35,493
Total revenues3,550,029
 2,976,820
 2,708,432
Cost of home closings2,801,739
 2,358,823
 2,082,819
Cost of land closings35,912
 24,546
 39,696
Mortgage operations expenses32,099

25,536
 19,671
Total cost of revenues2,869,750
 2,408,905
 2,142,186
Gross margin680,279
 567,915
 566,246
Sales, commissions and other marketing costs239,556

198,676

168,897
General and administrative expenses122,207

95,235

81,153
Equity in income of unconsolidated entities(7,453)
(1,759)
(5,405)
Interest (income)/expense, net(184)
(192)
1,160
Other expense, net11,947

11,634

18,447
Loss on extinguishment of debt—

33,317

—
Gain on foreign currency forward—

(29,983)
—
Income from continuing operations before income taxes314,206
 260,987
 301,994
Income tax provision107,643
 90,001
 76,395
Net income from continuing operations206,563
 170,986
 225,599
Discontinued operations:     
      Income from discontinued operations—
 —
 61,786
      Transaction expenses from discontinued operations—
 (9,043) —
      Gain on sale of discontinued operations—
 80,205
 —
      Income tax expense from discontinued operations—
 (13,103) (19,884)
      Net income from discontinued operations—
 58,059
 41,902
Net income before allocation to non-controlling interests206,563
 229,045
 267,501
Net income attributable to non-controlling interests — joint ventures(1,294) (1,681) (1,648)
Net income before non-controlling interests — Principal Equityholders205,269
 227,364
 265,853
Net income from continuing operations attributable to non-controlling interests — Principal Equityholders(152,653) (123,909) (163,790)
Net income from discontinued operations attributable to non-controlling interests — Principal Equityholders—
 (42,406) (30,594)
Net income available to Taylor Morrison Home Corporation$52,616
 $61,049
 $71,469
Earnings per common share — basic:     
Income from continuing operations$1.69
 $1.38
 $1.83
Discontinued operations — net of tax$—
 $0.47
 $0.34
Net income available to Taylor Morrison Home Corporation$1.69
 $1.85
 $2.17
Earnings per common share — diluted:     
Income from continuing operations$1.69
 $1.38
 $1.83
Discontinued operations — net of tax$—
 $0.47
 $0.34
Net income available to Taylor Morrison Home Corporation$1.69
 $1.85
 $2.17
Weighted average number of shares of common stock:     
Basic31,084
 33,063
 32,937
Diluted120,832
 122,384
 122,313

See accompanying Notes to the Consolidated Financial Statements


TAYLOR MORRISON HOME CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

   Year Ended December 31, 
          2014                2013                2012        

Income before non-controlling interests, net of tax

  $267,501   $94,868   $430,848  

Other comprehensive income (loss), net of tax:

    

Foreign currency translation adjustments, net of tax

   (35,421)   (16,727)   (1,073) 

Post-retirement benefits adjustments, net of tax

   (3,295)   7,483    (3,227) 
  

 

 

  

 

 

  

 

 

 

Other comprehensive loss, net of tax

 (38,716)  (9,244)  (1)  (4,300) 

Comprehensive income

 228,785   85,624   426,548  

Comprehensive (income) loss attributable to non-controlling interests — joint ventures

 (1,648)  131   28  

Comprehensive income attributable to non-controlling interests — Principal Equityholders

 (166,126)  (39,876)  —    
  

 

 

  

 

 

  

 

 

 

Comprehensive income available to Taylor Morrison Home

Corporation

$61,011  $45,879  $426,576  
  

 

 

  

 

 

  

 

 

 

(1)The difference between other comprehensive income reported on this schedule and other comprehensive income reported in the Consolidated Statement of Stockholders’ Equity is the result of deferred tax assets on post retirement benefits recorded in net income in the current year.

 Year Ended December 31,
 2016 2015 2014
Income before non-controlling interests, net of tax$206,563
 $229,045
 $267,501
Other comprehensive income (loss), net of tax:     
Foreign currency translation adjustments, net of tax—
 (27,779) (35,421)
Post-retirement benefits adjustments, net of tax(244) 1,613
 (3,295)
Other comprehensive loss, net of tax(244) (26,166) (38,716)
Comprehensive income206,319
 202,879
 228,785
Comprehensive income attributable to non-controlling interests — joint ventures(1,294) (1,681) (1,648)
Comprehensive income attributable to non-controlling interests — Principal Equityholders(152,401) (147,236) (166,126)
Comprehensive income available to Taylor Morrison Home Corporation$52,624
 $53,962
 $61,011

See accompanying Notes to the Consolidated Financial Statements



TAYLOR MORRISON HOME CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data)

 Common Stock               
 Class A Class B Additional
Paid-in
Capital		 Stockholders’ equity 
 Shares Amount Shares Amount Amount Net
Owners’
Equity		 Retained
Earnings		 Accumulated
Other
Comprehensive
Income (Loss)		 Non-controlling
Interest - Joint
Venture		 Non-controlling
Interest - Principal
Equityholders		 Total
Stockholders’
Equity		 

Balance — December 31, 2011

 —    $—     —    $—    $—    $649,209  $—    $(30,065) $9,421  $—    $628,565  

Net income

 —     —     —     —     —     430,820   —     —     28   —     430,848  

Other comprehensive loss

 —     —     —     —     —     —     —     (4,300)  —     (4,300) 

Share based compensation

 —     —     —     —     —     1,975   —     —     —     —     1,975  

Distributions to non-controlling interests

 —     —     —     —     —     —     —     —     (1,800)  —     (1,800) 

Contribution of debt in exchange for equity

 —     —     —     —     —     146,633   —     —     —     —     146,633  

Non-controlling interest of acquired entity

 —     —     —     —     —     —     —     —     241   —     241  

Issuance of partnership units

 —     —     —     —     —     2,413   —     —     —     —     2,413  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance — December 31, 2012

 —     —     —     —     —     1,231,050   —     (34,365)  7,890   —     1,204,575  

Establish non-controlling interest on April 12, 2013

 —     —     —     —     —     (1,231,050)  —     34,365   —     1,196,685   —    

Issuance of Class A Common Stock, net of offering costs

 32,857,800   —     —     —     668,598   —     —     —     —     —     668,598  

Issuance of Class B Common Stock, net of offering costs

 —     —     112,784,964   1   —     —     —     —     —     —     1  

Repurchase of New TMM Units and corresponding number of Class B Common Stock

 —     —     (23,333,800)  —     —     —     —     —     —     (485,782)  (485,782) 

Offering costs capitalized to equity

 —     —     —     —     —     —     —     —     —     (10,775)  (10,775) 

Allocation of dilution on IPO Class A Common Stock

 —     —     —     —     (297,591)  —     —     —     —     297,591   —    

Net income (loss)

 —     —     —     —     —     —     45,420   —     (131)  49,579   94,868  

Other comprehensive loss

 —     —     —     —     —     —     —     (452)  —     (8,792)  (9,244) 

Stock based compensation

 —     —     —     —     1,782   —     —     —     —     85,536   87,318  

Distributions to non-controlling interests - joint ventures

 —     —     —     —     —     —     —     —     (417)  —   —     (417) 

Non-controlling interest of acquired equity

 —     —     —     —     —     —     —     —     (106)  —     (106) 

Dividends

 —     —     —     —     —     —     (1,941)  —     —     (2,194)  (4,135) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance — December 31, 2013

 32,857,800   —     89,451,164   1   372,789   —     43,479   (452)  7,236   1,121,848   1,544,901  

Net income (loss)

 —     —     —     —     —     —     71,469   —     1,648   194,384   267,501  

Other comprehensive (loss) income

 —     —     —     —     —     —     —     (10,458)  —     (28,258)  (38,716) 

Exchange of New TMM Units and corresponding number of Class B Common Stock

 196,024   —     (196,024)  —     —     —     —     —     —     —     —    

Cancellation of forfeited New TMM Units and corresponding number of Class B Common Stock

 —     —     (27,724)  —     —     —     —     —     —     —     —    

Issuance of restricted stock units

 6,716   —     —     —     —     —     —     —     —     —     —    

Stock based compensation

 —     —     —     —     1,569   —     —     —     —     4,262   5,831  

Distributions to non-controlling interests - joint ventures

 —     —     —     —     —     —     —     —     (2,356)  —     (2,356) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance — December 31, 2014

 33,060,540  $—     89,227,416  $1  $374,358  $—    $114,948  $(10,910) $6,528  $1,292,236  $1,777,161  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 Common Stock                  
 Class A Class B 
Additional
Paid-in
Capital
 Treasury Stock Stockholders’ Equity
 Shares Amount Shares Amount Amount Shares Amount 
Net
Owners’
Equity
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-controlling
Interest - Joint
Venture
 
Non-controlling
Interest - Principal
Equityholders
 
Total
Stockholders’
Equity
Balance — December 31, 201332,857,800
 —
 89,451,164
 1
 372,789
 —
 —
 —
 43,479
 (452) 7,236
 1,121,848
 1,544,901
Net income (loss)—
 —
 —
 —
 —
 —
 —
 —
 71,469
 —
 1,648
 194,384
 267,501
Other comprehensive (loss) income—
 —
 —
 —
 —
 —
 —
 —
 —
 (10,458) —
 (28,258) (38,716)
Exchange of New TMM Units and corresponding number of Class B Common Stock196,024
 —
 (196,024) —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Cancellation of forfeited New TMM Units and corresponding number of Class B Common Stock—
 —
 (27,724) —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Issuance of restricted stock units6,716
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Stock based compensation—
 —
 —
 —
 1,569
 —
 —
 —
 —
 —
 —
 4,262
 5,831
Changes in noncontrolling interest in consolidated joint ventures—
 —
 —
 —
 —
 —
 —
 —
 —
 —
 (2,356) —
 (2,356)
Balance — December 31, 201433,060,540
 —
 89,227,416
 1
 374,358
 —
 —
 —
 114,948
 (10,910) 6,528
 1,292,236
 1,777,161
Net income (loss)—
 —
 —
 —
 —
 —
 —
 —
 61,049
 —
 1,681
 166,315
 229,045
Other comprehensive (loss) income—
 —
 —
 —
 —
 —
 —
 —
 —
 (7,087) —
 (19,079) (26,166)
Exchange of New TMM Units and corresponding number of Class B Common Stock87,055
 —
 (87,055) —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Cancellation of forfeited New TMM Units and corresponding number of Class B Common Stock—
 —
 (31,792) —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Issuance of restricted stock units11,260
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Repurchase of Class A common stock(934,434) —
 —
 —
 —
 934,434
 (14,981) —
 —
 —
 —
 —
 (14,981)
Stock based compensation—
 —
 —
 —
 2,540
 —
 —
 —
 —
 —
 —
 6,889
 9,429
Changes in noncontrolling interest in consolidated joint ventures—
 —
 —
 —
 —
 —
 —
 —
 —
 —
 (1,811) —
 (1,811)
Balance — December 31, 201532,224,421
 $—
 89,108,569
 $1
 $376,898
 934,434
 $(14,981) $—
 $175,997
 $(17,997) $6,398
 $1,446,361
 $1,972,677
Net income (loss)—
 —
 —
 —
 —
 —
 —
 —
 52,616
 —
 1,294
 152,653
 206,563
Other comprehensive (loss) income—
 —
 —
 —
 —
 —
 —
 —
 —
 8
 —
 (252) (244)
Exchange of New TMM Units and corresponding number of Class B Common Stock159,863
 —
 (159,863) —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Cancellation of forfeited New TMM Units and corresponding number of Class B Common Stock—
 —
 (6,654) —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Exercise of stock options7,786
 —
 —
 —
 146
 —
 —
 —
 —
 —
 —
 —
 146

Issuance of restricted stock units13,787
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Repurchase of Class A common stock(1,918,999) —
 —
 —
 —
 1,918,999
 (28,543) —
 —
 —
 —
 —
 (28,543)
Stock based compensation—
 —
 —
 —
 2,807
 —
 —
 —
 —
 —
 —
 8,105
 10,912
Changes in noncontrolling interest in consolidated joint ventures—
 —
 —
 —
 4,858
 —
 —
 —
 —
 —
 (6,167) —
 (1,309)
Balance — December 31, 201630,486,858
 $—
 88,942,052
 $1
 $384,709
 2,853,433
 $(43,524) $—
 $228,613
 $(17,989) $1,525
 $1,606,867
 $2,160,202
See accompanying Notes to the Consolidated Financial Statements


TAYLOR MORRISON HOME CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

   For the Year ended December 31, 
   2014  2013  2012 

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

  $267,501   $94,868   $430,848  

Adjustments to reconcile net income to net cash used in operating activities:

    

Equity in income of unconsolidated entities

   (26,735)   (37,563)   (22,964) 

Stock compensation expense

   5,831    87,318    1,975  

Distributions of earnings from unconsolidated entities

   32,966    30,136    36,746  

Depreciation and amortization

   4,090    3,462    4,370  

Contingent consideration

   13,532    2,258    —    

Loss on extinguishment of debt

   —      10,141    7,853  

Deferred income taxes

   (17,703)   30,662    (278,880) 

Changes in operating assets and liabilities:

    

Real estate inventory and land deposits

   (310,550)   (450,147)   (331,116) 

Receivables, prepaid expenses and other assets

   (136,636)   (5,183)   (109,970) 

Customer deposits

   (11,378)   15,795    16,845  

Accounts payable, accrued expenses and other liabilities

   33,947    33,129    6,089  

Income taxes payable

   11,445    33,191    23,735  
  

 

 

  

 

 

  

 

 

 

Net cash used in operating activities

   (133,690)   (151,933)   (214,469) 
  

 

 

  

 

 

  

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Purchase of property and equipment

   (3,723)   (3,786)   (2,753) 

Business acquisitions, net of cash acquired

   —      —      (114,571) 

Distribution from unconsolidated entities

   1,728    8,840    —    

Decrease (increase) in restricted cash

   10,743    (12,211)   (8,645) 

Investments of capital into unconsolidated entities

   (98,199)   (68,634)   (12,967) 
  

 

 

  

 

 

  

 

 

 

Net cash used in investing activities

   (89,451)   (75,791)   (138,936) 
  

 

 

  

 

 

  

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Net proceeds from the issuance of Class A common stock

   —      668,598    —    

Purchase of New TMM Units and corresponding number of shares of Class B Common Stock

   —      (485,782)   —    

Borrowings on line of credit related to mortgage borrowings

   658,708    703,536    525,745  

Repayment on line of credit related to mortgage borrowing

   (572,850)   (709,004)   (478,115) 

Proceeds from loans payable and other borrowings

   41,990    45,289    41,598  

Repayments of loans payable and other borrowings

   (194,660)   (182,977)   (69,028) 

Borrowings on revolving credit facility

   253,000    907,000    50,000  

Repayments on revolving credit facility

   (213,000)   (957,000)   —    

Proceeds from the issuance of senior notes

   350,000    550,000    675,000  

Repayments on senior notes

   —      (189,608)   (350,000) 

Payment of deferred financing costs

   (6,255)   (9,680)   (20,282) 

Payment of contingent consideration

   (5,250)   —      —    

Distributions to non-controlling interests — joint ventures

   (2,356)   (418)   (1,800) 

Intercompany borrowings

   —      (7)   —    

Equity (distributions) contributions

   —      (2,000)   2,413  
  

 

 

  

 

 

  

 

 

 

Net cash provided by financing activities

   309,327    337,947    375,531  
  

 

 

  

 

 

  

 

 

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

   (13,162)   (21,644)   (881) 
  

 

 

  

 

 

  

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

  $73,024   $88,579   $21,245  

CASH AND CASH EQUIVALENTS — Beginning of period(1)

   389,181    300,602    279,322  
  

 

 

  

 

 

  

 

 

 

CASH AND CASH EQUIVALENTS — End of period(2)

  $462,205   $389,181   $300,567  
  

 

 

  

 

 

  

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

    

Income taxes paid, net

  $(99,071)  $(24,354)  $(45,088) 
  

 

 

  

 

 

  

 

 

 

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:

    

Conversion of Sponsor loans payable to additional Class A Units

  $—     $—     $146,663  
  

 

 

  

 

 

  

 

 

 

Conversion of joint venture loans receivable for equity in joint venture

  $—     $—     $36,855  
  

 

 

  

 

 

  

 

 

 

Loans payable and liabilities assumed related to business acquisition

  $—     $—     $54,926  
  

 

 

  

 

 

  

 

 

 

(Decrease) increase in loans payable issued to sellers in connection with land purchase contracts

  $(88,893)  $226,441   $134,001  
  

 

 

  

 

 

  

 

 

 

Decrease in income taxes payable

$22  $102,422  $15,233  
  

 

 

  

 

 

  

 

 

 

(1)Cash and cash equivalents at the beginning of the period ended December 31, 2013 includes approximately $35,000 of TMHC cash that was not consolidated with TMM and included in the cash balance at December 31, 2012.
(2)Cash and cash equivalents shown here include the cash related to Monarch. For the years ended December 31, 2014, 2013 and 2012, cash held at Monarch was $227,988, $195,663 and $189,519, respectively.

 For the Year ended December 31,
 2016 2015 2014
CASH FLOWS FROM OPERATING ACTIVITIES:     
Net income before allocation to non-controlling interests$206,563
 $229,045
 $267,501
Adjustments to reconcile net income to net cash provided by (used in) operating activities:     
Equity in income of unconsolidated entities(7,453) (1,759) (26,735)
Stock compensation expense (1)
10,912
 7,891
 5,831
Loss on extinguishment of debt—
 33,317
 —
Distributions of earnings from unconsolidated entities4,261
 2,204
 32,966
Depreciation and amortization3,972
 4,107
 4,090
Debt issuance costs amortization3,843
 4,442
 5,149
Net income from discontinued operations—
 (58,059) —
Gain on foreign currency forward—
 (29,983) —
Contingent consideration3,838
 4,200
 13,532
Deferred income taxes26,854
 24,702
 (17,703)
Inventory impairments3,473
 —
 —
Changes in operating assets and liabilities:     
Real estate inventory and land deposits166,343
 (424,607) (310,550)
Mortgages held for sale, prepaid expenses and other assets(21,052) (69,650) (141,785)
Customer deposits18,791
 19,961
 (11,378)
Accounts payable, accrued expenses and other liabilities(20,479) 2,996
 33,947
Income taxes payable(27,264) (11,495) 11,445
Net cash provided by (used in) operating activities372,602
 (262,688) (133,690)
CASH FLOWS FROM INVESTING ACTIVITIES:     
Purchase of property and equipment(1,908) (4,298) (3,723)
Payments for business acquisitions(52,819) (225,800) —
Distribution from unconsolidated entities6,087
 10,063
 1,728
Change in restricted cash(353) 30
 10,743
Investments of capital into unconsolidated entities(32,357) (28,664) (98,199)
Proceeds from sale of discontinued operations—
 268,853
 —
Proceeds from settlement of foreign currency forward, net—
 29,983
 —
Net cash (used in) provided by investing activities(81,350) 50,167
 (89,451)
CASH FLOWS FROM FINANCING ACTIVITIES:     
Increase in loans payable and other borrowings33,360
 51,909
 41,990
Repayments of loans payable and other borrowings(17,935) (64,601) (194,660)
Borrowings on revolving credit facility255,000
 480,000
 253,000
Payments on revolving credit facility(370,000) (405,000) (213,000)
Borrowings on mortgage warehouse1,200,449
 910,516
 658,708
Repayment on mortgage warehouse(1,185,329) (887,822) (572,850)
Proceeds from the issuance of senior notes—
 350,000
 350,000
Repayments on senior notes—
 (513,608) —
Payment of deferred financing costs—
 (4,538) (6,255)
Payment of contingent consideration(3,100) (3,050) (5,250)
Proceeds from stock option exercises146
 —
 —
Repurchase of common stock, net(28,543) (15,000) —
Distributions to non-controlling interests of consolidated joint ventures, net(1,309) (1,811) (2,356)
Net cash (used in) provided by financing activities(117,261) (103,005) 309,327
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS—
 (20,491) (13,162)
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS$173,991
 $(336,017) $73,024
CASH AND CASH EQUIVALENTS — Beginning of period (2)
126,188
 462,205
 389,181

CASH AND CASH EQUIVALENTS — End of period (2)
$300,179
 $126,188
 $462,205
SUPPLEMENTAL CASH FLOW INFORMATION:     
Income taxes paid, net$(107,961) $(90,764) $(99,071)
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:     
Change in loans payable issued to sellers in connection with land purchase contracts$63,075
 $16,470
 $(88,893)
Original accrual of contingent consideration for business combinations$380
 $3,200
 $—
Non-cash portion of loss on debt extinguishment$—
 $5,102
 $—

(1) Stock compensation expense shown here is exclusive of stock compensation expense related to discontinued operations.
(2) Cash and cash equivalents shown here include the cash of Monarch Corporation. For the years ended December 31, 2014 and 2013, cash held at Monarch was $227,988 and $195,663, respectively.


See accompanying Notes to the Consolidated Financial Statements


TAYLOR MORRISON HOME CORPORATION


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


1. BUSINESS


Organization and Description of the Business — Taylor Morrison Home Corporation (referred to herein as “TMHC,” “we,” “our,” “the Company” and “us”), through its divisions and segments, owns and operates a residential homebuilding business and is a developer of lifestyle communities. We currently operateAs of December 31, 2016 we operated in Arizona, California, Colorado, Florida, Georgia, Illinois, North Carolina, and Texas. Our homes appealCompany serves a wide array of consumer groups from coast to entry-level,coast, including first time, move-up, 55+luxury, and luxury homebuyers. The Company55 plus buyers. As of December 31, 2016, our homebuilding company operates under our Taylor Morrison and Darling Homes brands.brand names. Our business has tenis organized into multiple homebuilding operating divisions,components, and a mortgage operations division,operating component, all of which are organized into threemanaged as four reportable segments: East, Central, West, and Mortgage.Mortgage Operations. The communities in our East and West segmenthomebuilding segments offer single family attached and/orand detached homes. We are the general contractors for all real estate projects and retain subcontractors for home construction and site development. Our Mortgage Operations reportable segment provides financial services to customers in the United States through our wholly owned mortgage subsidiary, operating as Taylor Morrison Home Funding, LLC (“TMHF”).

On July 13, 2011, TMM Holdings Limited Partnership (“TMM Holdings”), an entity formed by a consortium comprised of affiliates of TPG Global, LLC (the “TPG Entities” or “TPG”), investment funds managed by Oaktree Capital Management, L.P. (“Oaktree”) or their respective subsidiaries (the “Oaktree Entities”), and affiliates of JH Investments, Inc. (the “JH Entities” and together with the TPG Entities and Oaktree Entities, the “Principal Equityholders”), acquired (the “Acquisition”)title services through our predecessors, Taylor Woodrow Holdings (USA), Inc., now known as Taylor Morrison Communities Inc.

wholly owned title services subsidiary, Inspired Title Service, LLC (“Inspired Title”).


On April 12, 2013, TMHC completed the initial public offering (the “IPO”) of its Class A common stock, par value $0.00001 per share (the “Class A Common Stock”). The shares of Class A Common Stock began trading on the New York Stock Exchange on April 10, 2013 under the ticker symbol “TMHC.” As a result of the completion of the IPO and a series of transactions pursuant to a Reorganization Agreement dated as of April 9, 2013 (the “Reorganization Transactions”), TMHC became the indirect parent of TMM Holdings Limited Partnership (“TMM Holdings”) (an entity formed by a consortium comprised of affiliates of TPG Global, LLC (the “TPG Entities” or “TPG”) , investment funds managed by Oaktree Capital Management, L.P. (“Oaktree”) or their respective subsidiaries (the “Oaktree Entities”), and affiliates of JH Investments, Inc. (the “JH Entities” and, together with the TPG Entities and Oaktree Entities, the “Principal Equityholders”) through the formation of TMM Holdings II Limited Partnership (“New TMM”). In the Reorganization Transactions, the TPG Entities and the Oaktree Entities each formed new holding vehicles to hold interests in New TMM (the “TPG Holding Vehicle” and the “Oaktree Holding Vehicle” respectively). As of December 31, 20142016 and 2013,2015, the Principal Equityholders owned 73.0%74.5% and 73.1%73.4%, respectively of the Company.

On December 16, 2014, we announced we entered into a definitive agreement See Note 23 - Subsequent Events for changes to sell 100% of the capital stock of Monarch Corporation (“Monarch”) a subsidiary that at the time owned the operations of our Canadian operations. The actual purchase price paid and cash amounts were determined using Monarch’s finalthis ownership subsequent to December 31, 2014 balance sheet.

2016.


On January 8, 2016, we completed the acquisition of Acadia Homes in Atlanta, Georgia, yielding approximately 1,100 lots for a total consideration of $83.6 million. See Note 3 – Business Combinations for further information regarding the net assets acquired and the allocation of purchase price.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Basis of Presentation and Consolidation — The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles generally accepted in the United States (“GAAP”), include the accounts of TMHC and ourits consolidated subsidiaries, other entities where we have a controlling financial interest, and ofcertain consolidated variable interest entities if we are deemed the primary beneficiary.entities. Intercompany balances and transactions have been eliminated in consolidation.


Unless otherwise stated, amounts are shown in U.S. dollars. Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date, and revenues and expenses are translated at average rates of exchange prevailing during the period. Translation adjustments resulting from this process are recorded to accumulated other comprehensive income (loss) in the accompanying Consolidated Balance Sheets, and Statements of Stockholders’ Equity.

Reclassifications —Certain prior period amounts have been reclassified to conform with current period financial statement presentation.

Equity, and Consolidated Statements of Comprehensive Income.


Discontinued Operations —As a result of our decision in December 2014 to disposedivest of Monarch Corporation ("Monarch"), our former Canadian operating segment, specifically Monarch Corporation, the operating results and financial position of the Monarch business are presented as discontinued operations for all periods presented (seeNote 4 — Discontinued Operationsand Note 21 — Subsequent

Events). We determined that Monarch should be presented as a discontinued operation based on a committed plan to sell, and our determination that the sale of the entity was probable atyears ended December 31, 2015 and December 31, 2014.

Refer to Note 5 – Discontinued Operations for further information regarding Monarch.


Non-controlling interests — In connection with the Reorganization Transactions consummated at the time of the Company's IPO, the Company became the sole owner of the general partner of New TMM. As the general partner of New TMM, the Company exercises exclusive and complete control over New TMM. Consequently:

For periods subsequent to April 9, 2013,Consequently, the Company consolidates New TMM and

records a non-controlling interest in itsthe Consolidated Balance Sheets for the economic interests in New TMM, that are directly or indirectly held by the Principal Equityholders or by members of management and the Board of Directors; andDirectors.


Joint Ventures — We consolidate certain joint ventures in accordance with Accounting Standards Codification ("ASC") Topic 810, "Consolidation". The income from the percentage of the joint venture not owned by us is presented as "Net income attributable to non-controlling interests - joint ventures" on the Consolidated Financial Statements of Operations.

Reclassifications — Prior period amounts related to debt issuance costs have been reclassified to conform with current period financial statement presentation as a result of adopting Accounting Standards Update ("ASU") 2015-03, Simplifying the Presentation of Debt Issuance Costs. Approximately $14.8 million of such costs as of and for the year ended December 31, 20122015 have been reclassified from prepaid expenses and other assets, net to their respective debt liability. As permitted by ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, approximately $5.1 million of unamortized debt issuance costs associated with our Revolving Credit Facility as of December 31, 2015 remained classified as prepaid expenses and other assets, net.

Business Combinations — Acquisitions are accounted for in accordance with ASC Topic 805-10, Business Combinations. In connection with our acquisitions, we determined we obtained control of a business and inputs, processes and outputs in exchange for cash and other consideration. All material assets and liabilities, including contingent consideration, were measured and recognized at fair value as of the date of the acquisition to reflect the consolidated operations of TMM Holdings only as there were no operating activities or equity transactionspurchase price paid, which resulted in TMHC during that period.goodwill for each transaction. Refer to Note 3 - Business Combinations for further information regarding the purchase price allocation and related acquisition accounting.


Use of Estimates — The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Significant estimates include real estate development costs to complete, valuation of real estate, valuation of acquired assets, valuation of goodwill, valuation of equity awards, valuation allowance on deferred tax assets and reserves for warranty and self-insured risks. Actual results could differ from those estimates.


Concentration of Credit Risk — Financial instruments that potentially subject us to concentrations of credit risk are primarily cash and cash equivalents.equivalents and mortgage borrowings. Cash and cash equivalents include amounts on deposit with financial institutions in the U.S. that are in excess of the Federal Deposit Insurance Corporation federally insured limits of up to $250,000 and amounts on deposit with financial institutions in Canada that are in excess of the Canadian Deposit Insurance Corporation federally insured limits of up to $100,000.$250,000. No losses have been experienced to date.


In addition, the Company is exposed to credit risk to the extent that mortgage and loan borrowers may fail to meet their contractual obligations. This risk is mitigated by collateralizing the mortgaged property or land that was sold to the buyer.


Cash and Cash Equivalents — Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions, and investments with original maturities of 90 days or less. At December 31, 2014,2016, the majority of our cash and cash equivalents were invested in both highly liquid and high-quality money market funds or on deposit with major financial institutions.


Restricted Cash — Restricted cash at December 31, 2014 consistsconsisted of $1.6 million and $1.3 million pledged to collateralize mortgage credit lines and at December 31, 2013 consists of $2.0 million pledged to collateralize mortgage credit lines through certificates of deposit known as Certificate of Deposit Account Registry Service (CDARS).

2016 and December 31, 2015, respectively.


Real Estate Inventory — Inventory consists of raw land, land under development, land held for future development, homes under construction, completed homes, and model homes. Inventory is carriedhomes, which are stated at cost, less impairment, if applicable.cost. In addition to direct carrying costs, we also capitalize interest, real estate taxes, and related development costs that benefit the entire community, such as field construction supervision and related direct overhead. Home construction costs are accumulated and charged to cost of sales at home closing using the specific identification method. Land acquisition, development, interest, real estate taxes and overhead costs are allocated to homes and units using methods that approximate the relative sales value method. These costs are capitalized to inventory from the point development begins to the point construction is completed. Changes in estimated costs to be incurred in a community (cost to complete) are generally allocated to the remaining homes on a prospective basis. For those communities that have been temporarily closed or where development has been discontinued, we do not allocate interest or other costs are expensedto the community’s inventory until activity resumes.

The life cycle of the community generally ranges from two to five years, commencing with the acquisition of unentitled or entitled land, continuing through the land development phase and concluding with the sale, construction and delivery of homes. Actual community lives will vary based on the size of the community, the sales absorption rate and whether we purchased the property as incurred until operations resume.

raw land or as finished lots.



We capitalize qualifying interest costs to inventory during the development and construction periods. Capitalized interest is charged to cost of sales when the related inventory is delivered or when the related inventory is charged to cost of sales.

We assess the recoverability of our land inventory in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 360, “Property, Plant, and Equipment.” We review our real estate inventory for indicators of impairment by community on a quarterly basis. In conducting our impairment analysis, we evaluate the margins on homes that have been delivered, margins on homes under sales contracts in backlog, projected margins with regard to future home sales over the life of the community, projected margins with regard to future land sales and the estimated fair value of the land itself.during each reporting period. If indicators of impairment are

present for a community, we first perform an additionalundiscounted cash flow analysis to determine if the carrying value of the assets in that community exceeds the undiscounted cash flows estimated to be generated by those assets. Ifflows. Generally, if the carrying value of the assets does exceedexceeds their estimated undiscounted cash flows, then the assets are deemed to be impaired and are recorded at fair value as of the assessment date. An impairment chargeassessment. Our determination of fair value is taken in the period withbased on a charge to cost of home closings.

Critical assumptions in ourdiscounted cash flow model include: (i) the projected absorption pace for home sales in the community, based on general economic conditions that will have an impact on the market in which the community is locatedincludes projections and competition within the market; (ii) the expectedestimates relating to sales prices, and sales incentives to be offered; (iii) costs to build and deliver homes in the community, including, but not limited to, land and land development costs, home construction costs, interest costs and overhead costs; and (iv) alternative uses for the property, such as the possibility of a sale of the entire community to another builder or the sale of individual home sites. Consideration is also given to development budgets and sales pace, and price. Discount rates are determined usingother factors. Changes in these expectations may lead to a base rate, whichchange in the outcome of our impairment analysis, and actual results may be increased dependingalso differ from our assumptions. During the year ended December 31, 2016 we recorded $3.5 million of impairment charges in Cost of home closings on the total remaining lotsConsolidated Statement of Operations, for certain assets in our West reporting segment as a community, theresult of certain increases in development status of the land, the market in which it is located and if the product is higher-priced with potentially lower demand. Historically, our discount rates have been in the range of 12.0% to 18.0%. Inventory impairment charges are recognized against all inventory costs of a community, such as land, land improvements, cost of home construction and capitalized interest.costs. For the years ended December 31, 2014, 20132015, and 2012,2014, no impairment charges were recorded.


In certain cases, we may elect to cease development and/or marketing of an existing community if we believe the economic performance of the community would be maximized by deferring development for a period of time to allow for temporary market conditions to improve. The decision may be based on financial and/or operational metrics as determined by us. If we decide to cease developing a project, we will impair suchevaluate the project if necessary to its fair value as discussed abovefor impairment and then cease future development and/orand marketing activity until such a time when we believe that market conditions have improved and economic performance can be maximized.

Our assessment of the carrying value of our assets typically includeincludes subjective estimates of future performance, including the timing of when development will recommence, the type of product to be offered, and the margin to be realized. In the future, some of these inactive communities may be re-opened while others may be sold. As of December 31, 2014,2016, we had 19seven inactive projects with a carrying value of $28.0$16.2 million, of which $6.1$2.2 million and $21.9$14.0 million iswere in the East and West segments, respectively. During the year ended December 31, 2014, we placed one community intoThere are no inactive status and moved one community into active status.

As discussedprojects in this note underInvestments in Consolidated and Unconsolidated Entities — Consolidated Option Agreements, inour Central region.


In the ordinary course of business, we acquireenter into various specific performance lots through existing lot option agreements.agreements to acquire lots. Real estate not owned under certain of these contractsagreements is consolidated into real estate inventory with a corresponding liability in liabilities attributable to consolidatedreal estate not owned under option agreements in the Consolidated Balance Sheets.


Land Deposits —We — We provide deposits related to land options and land purchase contracts, which are capitalized when paid and classified as land deposits until the associated property is purchased. To the extent the deposits are non-refundable, they are charged to expense if the land acquisition process is terminated or no longer determined probable. We review the likelihood of the acquisition of contracted lots in conjunction with our periodic real estate inventory impairment analysis. Non-refundable deposits are recorded as a component of real estate inventory in the accompanying Consolidated Balance Sheets at the time the deposit is applied to the acquisition price of the land based on the terms of the underlying agreements.

Mortgages Receivable


Mortgage Loans Held for Sale — Mortgages receivableMortgage loans held for sale consists of mortgages due from buyers of Taylor Morrison homes that are financed through our mortgage brokeragefinance subsidiary, TMHF. Mortgages receivable areMortgage loans held for sale and are carried at fair value, which is calculated using observable market information, including pricing from actual market transactions, investor commitment prices, or broker quotations.

The fair value for mortgage loans held for sale covered by investor commitments is generally based on commitment prices. The fair value for mortgage loans held for sale not committed to be purchased by an investor is generally based on current delivery prices using best execution pricing.


Derivative Assets  — The price risk related to changes in the fair value of interest rate lock commitments (“IRLCs”) and mortgage loans held for sale not committed to be purchased by investors are subject to change primarily due to changes in market interest rates. We are exposed to interest rate risk for IRLCs and mortgage loans held for sale originated until those loans are sold in the secondary market. We manage the interest rate and price risk associated with our outstanding IRLC's and mortgage loans held for sale not committed to be purchased by investors by entering into hedging instruments such as forward loan sales commitments and mandatory delivery commitments. We expect these instruments will experience changes in fair value inverse to changes in the fair value of the IRLCs and mortgage loans held for sale not committed to investors, thereby reducing earnings volatility. We take into account various factors and strategies in determining what portion of the IRLCs and mortgage loans held for sale to economically hedge. FASB ASC 815-25 Derivatives and Hedging, requires that all hedging instruments be recognized as assets or liabilities on the balance sheet at their fair value. We do not meet the criteria for hedge accounting, therefore, we account for these instruments as free-standing derivatives, with changes in fair value recognized in mortgage operations revenue/expenses on the statement of operations in the period in which they occur.



Prepaid Expenses and Other Assets, net — Prepaid expenses and other assets consist of the following (in thousands):

   As of December 31, 
   2014   2013 

Prepaid expenses

  $75,700    $62,822  

Other assets

   13,510     17,099  
  

 

 

   

 

 

 

Total prepaid expenses and other assets, net

$89,210  $79,921  
  

 

 

   

 

 

 

Our prepaidfollowing:


 As of December 31,
(Dollars in thousands)2016 2015
Prepaid expenses$59,372
 $66,478
Other assets14,053
 13,870
Total prepaid expenses and other assets, net$73,425
 $80,348

Prepaid expenses consist primarily of unamortized debt issuance costs, sales commissions, sales presentation centers and model home costs, such as design fees and furniture. At December 31, 2014furniture, and 2013, prepaid debtthe unamortized issuance costs consisted of $26.9 million and $26.7 million, respectively, of aggregate unamortized costs related tofor the various Senior Notes issuances and our revolving credit facility. During the year ended December 31, 2014 and 2013, we amortized $5.9 million and $5.3 million of such debt issue costs, respectively.Revolving Credit Facility. Prepaid sales commissions are recorded on pre-closing sales activities, which are recognized on the ultimate closing of the units to which they relate. The model home and sales presentation centers costs are paid in advance and amortized over the life of the project on a per-unit basis, or a maximum of three years.

Other assets consist primarily of various operating and escrow deposits, pre-acquisition costs and other deferred costs.


Other Receivables, net — Other receivables primarily consist of amounts expected to be recovered from various community development districts and utility deposits. Allowances of $0.3$5.0 thousand and $0.5$0.2 million at December 31, 20142016 and 2013,2015, respectively, are maintained for potential credit losses based on historical experience, present economic conditions, and other factors considered relevant. Allowances are generally recorded in other expense, net, when it becomes likely that some amount will not be collectible. Other receivables are written off when it is determined that collection efforts will no longer be pursued.


Investments in Consolidated and Unconsolidated Entities

Consolidated Joint Ventures and Option Agreements — In the ordinary course of business, we participate in strategic land development and homebuilding joint ventures with third parties. The use of these entities, in some instances, enables us to acquire land to which we could not otherwise obtain access, or could not obtain access on terms that are as favorable. Some of these ventures develop land for the sole use of the venture participants and others develop land for sale to the joint venture participants and to unrelated builders. In addition, we are involved with third parties who are involved in land development and homebuilding activities, including home sales. We review such contracts to determine whether they are a variable interest entity ("VIE"). In accordance with ASC Topic 810, “Consolidation,” for each VIE, we assess whether we are the primary beneficiary by first determining if we have the ability to control the activities of the VIE that most significantly affect its economic performance. Such activities include, but are not limited to, the ability to determine the budget and scope of land development work, if any; the ability to control financing decisions for the VIE; the ability to acquire additional land into the VIE or dispose of land in the VIE not under contract with us; and the ability to change or amend the existing option contract with the VIE. If we are not able to control such activities, we are not considered the primary beneficiary of the VIE. If we do have the ability to control such activities, we continue our analysis to determine if we are expected to absorb a potentially significant amount of the VIE’s losses or, if no party absorbs the majority of such losses, if we will potentially benefit from a significant amount of the VIE’s expected returns. For these entities in which we are expected to absorb the losses or benefits, we consolidate the results in the accompanying Consolidated Entities

Financial Statements.


Unconsolidated Joint Ventures— We use the equity method of accounting for entities over which we exercise significant influence but do not have a controlling interest over the operating and financial policies of the investee. For unconsolidated entities in which we function as the managing member, we have evaluated the rights held by our joint venture partners and determined that they have substantive participating rights that preclude the presumption of control. For joint ventures accounted for using the equity method, our share of net earnings or losses is included in equity in income of unconsolidated entities when earned and distributions are credited against our investment in the joint venture when received. Our share of the joint venture profit relating to lots we purchase from the joint ventures is deferred until homes are delivered by us and title passes to a homebuyer. These joint ventures are recorded in investments in unconsolidated entities on the Consolidated Balance Sheets.

Consolidated Joint Ventures — We are also involved in several joint ventures with independent third parties for land development and homebuilding activities. If a joint venture is determined to be a variable interest entity (“VIE”) and we are deemed to be the primary beneficiary, we consolidate the joint venture. For these entities, their financial statements are consolidated in the accompanying Consolidated Financial Statements and the other partners’ equity are recorded as non-controlling interests – joint ventures.

Consolidated Option Agreements — In the ordinary course of business, we enter into land and lot option purchase contracts in order to procure land or lots for the construction of homes. Lot option contracts enable us to control significant lot positions with a minimal initial capital investment and substantially reduce the risks associated with land ownership and development. In accordance with Accounting Standards Codification (“ASC”) Topic 810, “Consolidation,” we have concluded that when we enter into an option or purchase agreement to acquire land or lots and pay a non-refundable deposit, a VIE may be created because we may be deemed to have provided subordinated financial support and we will potentially absorb some or all of an entity’s expected losses if they occur. For each VIE, we assess whether we are the primary beneficiary by first determining if we have the ability to control the activities of the VIE that most significantly affect its economic performance. Such activities include, but are not limited to, the ability to determine the budget and scope of land development work, if any; the ability to control financing decisions for the VIE; the ability to acquire additional land into the VIE or dispose of land in the VIE not under contract with us; and the ability

to change or amend the existing option contract with the VIE. If we are not able to control such activities, it is not considered the primary beneficiary of the VIE. If we do have the ability to control such activities, we will continue our analysis by determining if we are expected to absorb a potentially significant amount of the VIE’s losses or, if no party absorbs the majority of such losses, if we will potentially benefit from a significant amount of the VIE’s expected returns.


We evaluate our investments in unconsolidated entities for indicators of impairment during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in value of our investment in the unconsolidated entity has occurred which is other-than-temporary. The amount of impairment recognized is the excess of the investment’s carrying amount over its estimated fair value. Additionally, we consider various qualitative factors to determine if a decrease in the value of the investment is other-than-temporary. These factors include age of the venture, stage in its life cycle, intent and ability for us to recover our investment in the entity, financial condition and long-term prospects of the entity, short-term liquidity needs of the unconsolidated entity, trends in the general economic environment of the land, entitlement status of the land held by the unconsolidated entity, overall projected returns on investment, defaults under contracts with third parties (including

(including bank debt), recoverability of the investment through future cash flows and relationships with the other partners. If the Company believes that the decline in the fair value of the investment is temporary, then no impairment is recorded. We did not record any impairment charges for the years ended December 31, 2014, 20132016, 2015 or 2012.

2014.


Income Taxes — We account for income taxes in accordance with ASC Topic 740, “Income Taxes.” Deferred tax assets and liabilities are recorded based on future tax consequences of both temporary differences between the amounts reported for financial reporting purposes and the amounts deductible for income tax purposes, and are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted.


We periodically assess our deferred tax assets, including the benefit from net operating losses, to determine if a valuation allowance is required. A valuation allowance is established when, based upon available evidence, it is more likely than not that all or a portion of the deferred tax assets will not be realized. Realization of the deferred tax assets is dependent upon, among other matters, taxable income in prior years available for carryback, estimates of future income, tax planning strategies, and reversal of existing temporary differences.


Property and Equipment, net— Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is generally computed using the straight-line basis over the estimated useful lives of the assets as follows:


Buildings: 20 – 40 years

Building and leasehold improvements: 10 years or remaining life of building/lease term if less than 10 years

Information systems :systems: over the term of the license

Furniture, fixtures and computer and equipment: 5 – 7 years

Model and sales office improvements: lesser of 3 years or the life of the community


Maintenance and repair costs are expensed as incurred.


Depreciation expense was $3.0 million for the year ending December 31, 2014, $2.1 million for the year ending December 31, 2013 and $2.9 million for the year ended December 31, 2012.2016, $3.3 million for the year ended December 31, 2015, and $3.0 million for the year ended December 31, 2014. Depreciation expense is recorded in general and administrative expenses in the accompanying Consolidated Statements of Operations.


Intangible Assets, net — Intangible assets consist of tradenames, lot options contracts and land supplier relationships, and non-compete covenants. We sell our homes under a number ofthe Taylor Morrison and Darling Homes trade names. The fair value of acquired intangible assets was determined using the income approach, and our trade names are being amortized on a straight line basis overfrom three to ten years.


Goodwill — The excess of the purchase price of a business acquisition over the net fair value of assets acquired and liabilities assumed is capitalized as goodwill in accordance with ASC Topic 350, “Intangibles — Goodwill and Other.”

ASC 350 requires that goodwill and intangible assets that do not have finite lives not be amortized, but instead berather assessed for impairment at least annually or more frequently if certain impairment indicators are present. We perform our annual impairment test during the fourth quarter or whenever impairment indicators are present. For the yearsyear ended December 31, 2014 and 2013,2016, there have been nowas an increase of $8.5 million in goodwill due to our acquisition of Acadia Homes. For the year ended December 31, 2015 there were $34.3 million additions to goodwill. Forgoodwill due to our acquisitions of JEH Homes and certain divisions of Orleans Homes. There was no impairment of goodwill for the years ended December 31, 2014, 20132016, 2015, and 2012, there has been no impairment of goodwill.

2014.


Insurance Costs, Self-Insurance Reserves and Warranty Reserves — We have certain deductible limits under our workers’ compensation, automobile, and general liability insurance policies, and we record expense and liabilities for the estimated costs of potential claims for construction defects. The excess liability limits are $50 million per occurrence, in the annual aggregateaggregated annually and applyapplied in excess of automobile liability, employer’s liability under workers compensation and general liability policies. We also generally require our sub-contractorssubcontractors and design professionals to indemnify us and provide evidence of insurance for liabilities arising from their work, subject to certain limitations. We are the parent of Beneva Indemnity Company (“Beneva”), which provides insurance coverage for construction defects discovered during a period of time up to ten years following the saleclose of a home, coverage for premise operations risk, and property coverage. We accrue for the expected costs associated with the deductibles and self-insured amounts under our various insurance policies based on historical claims, estimates for claims incurred but not reported, and potential for recovery of costs from insurance and other sources. The estimates are subject to significant variability due to factors, such as claim settlement patterns, litigation trends, and the extended period of time in which a construction defect claim might be made after the closing of a home.



We offer warranties on homes that generally provide for a limited one-year warranty to cover various defects in workmanship or materials or to cover structural construction defects. We may also facilitate a ten-year warranty in certain markets or to comply with regulatory requirements. Warranty reserves are established as homes close in an amount estimated to be adequate to cover expected costs of materials and outside labor during warranty periods. Our warranty is not considered a separate deliverable in the arrangement, therefore, it is accounted for in accordance with ASC Topic 450, “Contingencies.Contingencies,” In accordance with ASC 450, which states that warranties that are not separately priced are generally accounted for by accruing the estimated costs to fulfill the warranty obligation. The amount of revenue related to the product is recognized in full upon the delivery if all other criteria for revenue recognition have been met. Thus, the warranty would not be considered a separate deliverable in the arrangement since it is not priced apart from the home. As a result, we accrue the estimated costs to fulfill the warranty obligation in accordance with ASC 450 at the time a home closes, as a component of cost of home closings.


Our reserves are based on factors that include an actuarial study for structural, historical and anticipated claims, trends related to similar product types, number of home closings, and geographical areas. We also provide third-party warranty coverage on homes where required by Federal Housing Administration or Veterans Administration lenders. Reserves are recorded in accrued expenses and other liabilities on our Consolidated Balance Sheets.


Non-controlling Interests — Principal Equityholders — In Immediately prior to our IPO, as part of the Reorganization Transactions, immediately prior to the Company’s IPO, the existing holders of TMM Holdings limited partnership interests (the Principal Equityholders, members of management and the Board of Directors),TMM Holdings exchanged their limited partnership interests for limited partnership interests of a newly formed limited partnership, New TMM (the “New(“New TMM Units”). For each New TMM Unit received in the exchange, the Principal Equityholders, membersholders of management and the Board of DirectorsNew TMM Units also received directly or indirectly, a corresponding number of shares of the Company’sour Class B common stock, par value $0.00001 per shareCommon Stock (the “Class B Common Stock”). All of the Company’s Class B Common Stock is owned by the Principal Equityholders, members of management and the Board of Directors. The Company’sOur Class B Common Stock has voting rights but no economic rights. One share of Class B Common Stock, together with one New TMM Unit, is exchangeable into one share of the Company’s Class A Common Stock. The Company soldour Class A Common Stock toin accordance with the investing public in its initial public offering. The proceeds received in the initial public offering were used by the Company to purchase New TMM Units, such that the Company owns an amount of New TMM Units equal to the amountterms of the Company’s outstanding sharesExchange Agreement, dated as of Class A Common Stock. The Company’s Class A Common Stock has voting rights and economic rights. Also, inApril 9, 2013, among the Reorganization Transactions, the Company, became the sole owner of the general partner of New TMM. As the general partner of New TMM, the Company exercises exclusive and complete control over New TMM. Consequently, the Company consolidates New TMM and records a non-controlling interest in its Consolidated Balance Sheet for the economic interests inholders of Class B Common Stock and New TMM directly or indirectly, held by the Principal Equityholders, members of management and the Board of Directors.

For the year-endedUnits. See Note 23 - Subsequent Events for changes to ownership subsequent to December 31, 2013, activity in the Non-controlling interests – Principal Equityholders and former controlling interests net income (loss) amounts is as follows (in thousands):

   Consolidated   Continuing
Operations		   Discontinued
Operations		 

Pre-IPO Non-controlling Interests – Principal Equityholders

  $123,532    $81,403    $42,129  

Post-IPO Controlling Interest

   (73,953)    (82,845)    8,892  
  

 

 

   

 

 

   

 

 

 

Non-controlling Interests – Principal Equityholders

$49,579  $(1,442) $51,021  
  

 

 

   

 

 

   

 

 

 

Pre-IPO activity is for the period prior to April 10, 2013 while post-IPO is activity subsequent to that date. No similar reconciliation is needed for the year-ended December 31, 2014 as we were a publicly traded company for the entirety of the year.

2016.


Stock Based Compensation

— We have stock options, performance based restricted stock units and non-performance based restricted stock units which we account for stock-based compensation in accordance with ASC Topic 718-10, “Compensation –— Stock Compensation.”The fair value of each option grantedfor stock options is measured and estimated on the date of grant using the Black-Scholes option pricing model. These models requiremodel and recognized evenly over the inputvesting period of highly subjective assumptions. This guidance also requires us to estimate forfeituresthe options. Performance based restricted stock units are measured using the closing price on the date of grant and expensed using a probability of attainment calculation which determines the likelihood of achieving the performance targets. Non-performance based restricted stock units are time based awards and measured using the closing price on the date of grant and are expensed ratably over the vesting period on a straight-line basis.


Treasury Stock — We account for treasury stock in calculatingaccordance with ASC Topic 505-30, "Equity - Treasury Stock." Repurchased shares are reflected as a reduction in Stockholders' Equity and subsequent sale of repurchased shares are recognized as a change in Equity. When factored into our weighted average calculations for purposes of earnings per share, the expense related to stock-based compensation.

number of repurchased shares is based on the trade date.


Revenue Recognition:

Recognition


Home closings revenue, net — Revenue from home sales areHome closings revenue is recorded using the completed-contract method of accounting at the time each home is closed, delivered, title and possession are transferred to the buyer, there iswe have no significant continuing involvement with the home, risk of loss has transferred, and the buyer has demonstrated sufficient initial and continuing investment in the property. A home is considered closed when escrow closesproperty, and funds have transferredthe receivable, if any, from the buyerhomeowner or mortgage companyescrow agent is not subject to us.

future subordination.


We typically grant our homebuyers certain sales incentives, including cash discounts, incentives on options included in the home, option upgrades, and seller-paid financing or closing costs. Incentives and discounts are accounted for as a reduction in the sales price of the home and home closings revenue is shown net of discounts. For the years ended December 31, 2016, 2015 and 2014, 2013discounts and 2012, discountsincentives were $150.9$250.5 million, $129.0$179.3 million and $104.8$150.9 million, respectively. We also receive rebates from certain vendors and these rebates are accounted for as a reduction to cost of home closings.


Land closings revenue— Revenue from land sales areis recognized when title is transferred to the buyer, there is no significant continuing involvement, and the buyer has demonstrated sufficient initial and continuing investment in the property sold. If the buyer has not made an adequate initial or continuing investment in the property, the profit on such sales is deferred until these conditions are met.


Mortgage operations revenue— Loan origination fees (including title fees, points, closing costs) are recognized at the time the related real estate transactions are completed, usually upon the close of escrow. All of the loans TMHF originates are sold to third party investors within a short period of time, within 20 business days, on a non-recourse basis. Gains and losses from the sale of mortgages are

recognized in accordance with ASC Topic 860-20, “Sales of Financial Assets,Assets.” sinceBecause TMHF does not have continuing involvement with the transferred assets, we derecognize the mortgage loans at time of sale, based on the difference between the selling price and carrying value of the related loans upon sale, recording a gain/loss on sale in the period of sale.

Also included in mortgage operations revenue/expenses is the realized and unrealized gains and loss from hedging instruments.


Advertising Costs — We expense advertising costs as incurred. Advertising costs were $26.1$30.9 million, $21.1$30.1 million and $12.1$26.1 million for the years ended December 31, 2016, 2015, and 2014, 2013 and 2012, respectively.


Recently Issued Accounting Pronouncements — In August 2014, January 2017, the Financial Accounting Standards Board (“FASB”(“FASB”) issued Accounting Standards Update (“(“ASU”) No. 2014-15,Presentation2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 from the goodwill impairment test, which allows an entity to avoid calculating the implied fair value of Financial Statements — Going Concern (Subtopic 205-40): Disclosuregoodwill by assigning the fair value of Uncertainties about an Entity’s Abilitya reporting unit to Continueall of its assets and liabilities as if that reporting unit had been acquired in a Going Concern (“ASU 2014-15”), which requires management to evaluate, at each annualbusiness combination. Thus reducing the cost and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one

year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 iscomplexity of evaluating goodwill for impairment. This amendment will be effective for us forin our fiscal year ending December 31, 2017. Thebeginning January 1, 2020. We are currently evaluating the impact the adoption of ASU 2014-15 is not expected to2017-04 will have a material effect on our consolidated financial statements orand disclosures.


In June 2014,January 2017, the FASB issued ASU No. 2014-12,Compensation – Stock Compensation (“2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2014-12”), which2017-01 provides guidanceclarification on the accountingdefinition of a business by providing a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. This amendment will be effective for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. ASU 2014-12 is effectiveus in our fiscal year beginning January 1, 2016.2018. We do not anticipate thatare currently evaluating the impact the adoption of ASU 2014-122017-01 will have on our consolidated financial statements and disclosures.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-18 provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows by requiring it be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows, thereby reducing previous diversity in practice. This amendment will be effective for us in our fiscal year beginning January 1, 2018. We do not expect the adoption of ASU 2016-18 will have a material effect on our consolidated financial statementsstatement of cash flows or disclosures.


In June 2014,August 2016, the FASB issued ASU No. 2014-11,Transfers2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Servicing(“Cash Payments (“ASU 2014-11”2016-15”), which requires that repurchase-to-maturity transactions. ASU 2016-15 provides guidance on how to disclose cash payments and cash receipts relating to eight specific cash flow issues in order to improve consistency among filers. This amendment will be accountedeffective for as secured borrowings consistent with the accounting for other repurchase agreements. In addition, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will resultus in secured borrowing accounting for the repurchase agreement. ASU 2014-11 is effectiveour fiscal year beginning January 1, 2015.2018. We do not anticipate thatare currently evaluating the impact the adoption of ASU 2014-112016-15 will have a material effecton our consolidated statement of cash flows, which is not expected to be material.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 is intended to simplify several areas of stock compensation including its tax consequences, liability verses equity classification, and statement of cash flows presentation. ASU 2016-09 will be effective for us in our fiscal year beginning January 1, 2017. We expect ASU 2016-09 to affect the amount of tax expense and deductions for stock based compensation in 2017 and in future periods, the magnitude of which will be based on the changes in performance awards issued and outstanding, and based on the amount of vested and exercised awards.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 primarily impacts off-balance sheet operating leases and will require such leases, with the exception of short-term leases, to be recorded on the balance sheet. Lessor accounting is not significantly impacted by the new guidance, however certain updates were made to align lessee and lessor treatment. ASU 2016-02 will be effective for us in our fiscal year beginning January 1, 2019. We are currently evaluating the impact the adoption of ASU 2016-02 will have on our consolidated financial statements orand disclosures.

In August 2015, the FASB issued ASU No. 2015-15, Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements ("ASU 2015-15"). ASU 2015-15 provides guidance on the presentation of debt issuance costs associated with line-of-credit arrangements. These costs may, but are not required to, remain as an asset on the balance sheet. This clarifies the language in ASU 2015-03, which requires all debt issuance costs to be classified as a contra-liability, however was silent on the treatment of line-of-credit arrangements. ASU 2015-15 and ASU 2015-03 have been adopted and applied to current and prior periods.

In May 2014, the FASB issued ASU No. 2014-09,Revenue from Contracts with Customers (“ASU 2014-09”), which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in ASC Topic 605, “RevenueRevenue Recognition,” and most industry-specific guidance. This ASU also supersedes some cost guidance included in ASC Subtopic 605-35, “RevenueRevenue Recognition-Construction-Type and Production-Type Contracts.” The standard’s core principle is that a companyan entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a companyan entity expects to be entitled in exchange for those goods or services. In doing so, companiesentities will generally need to use more judgment and make more estimates than under today’scurrent guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 ishas been deferred and will be effective beginning January 1, 20172018 and, at that time, we will adopt the new standard under either the full retrospective approach or the modified retrospective approach. Early adoption is not permitted. We are currently evaluating the method and impact the adoption of ASU 2014-09this guidance and have been involved in industry-specific discussions with the FASB on the treatment of certain items. We do not believe the adoption of this pronouncement will have a material impact on our consolidated financial statements and disclosures.






3. BUSINESS COMBINATIONS

On January 8, 2016, we acquired Acadia Homes, an Atlanta based homebuilder, for total consideration of $83.6 million (including $19.7 million of seller financing holdbacks and contingent consideration). We acquired JEH Homes, an Atlanta based homebuilder, on April 30, 2015 and the Charlotte, Raleigh and Chicago divisions of Orleans Homes on July 21, 2015 for combined total consideration of $233.7 million (including seller financing and contingent consideration). In April 2014,accordance with ASC Topic 805, Business Combinations, all material assets and liabilities, including contingent consideration were measured and recognized at fair value as of the FASB issued ASU No. 2014-08,Reporting Discontinued Operationsdate of the acquisition to reflect the purchase price paid, which resulted in goodwill for each transaction.

We determined the estimated fair value of real estate inventory on a community-by-community basis primarily using the sales comparison and Disclosuresincome approaches. The sales comparison approach was used for all inventory in process. The income approach derives a value using a discounted cash flow for income-producing real property. This approach was used exclusively for finished lots. The income approach using discounted cash flows was also used to value lot option contracts acquired. These estimated cash flows and ultimate valuation are significantly affected by the discount rate, estimates related to expected average selling prices and sales incentives, expected sales paces and cancellation rates, expected land development and construction timelines, and anticipated land development, construction, overhead costs and may vary significantly between communities.

2016 Acquisition

For Acadia Homes, the Company performed a final allocation of Disposalspurchase price as of Componentsthe acquisition date. The following is a summary of an Entity (“ASU 2014-08”), which changes the criteriafair value of assets acquired, liabilities assumed, and liabilities created:

(Dollars in thousands)Acadia Homes
Acquisition DateJanuary 8, 2016
Assets acquired 
Real estate inventory$76,152
Land deposits984
Prepaid expenses and other assets816
Property and equipment204
Goodwill(1)
8,500
Total assets$86,656
  
Less liabilities assumed 
Accrued expenses and other liabilities$2,562
Customer deposits463
Net assets acquired$83,631
(1)Goodwill is fully deductible for reporting discontinuedtax purposes. The goodwill was allocated to our East homebuilding segment.

2015 Acquisitions

For JEH Homes and the divisions of Orleans Homes, the Company performed a final allocation of purchase price as of each acquisition date. The following is a summary of the fair value of assets acquired, liabilities assumed, and liabilities created:

(Dollars in thousands)JEH Homes Orleans Homes Total
Acquisition DateApril 30, 2015 July 21, 2015  
Assets acquired     
Real estate inventory$55,559
 $140,602
 $196,161
Land deposits—
 2,236
 2,236
Prepaid expenses and other assets1,301
 2,436
 3,737
Property and equipment395
 623
 1,018
Goodwill(1)
9,125
 25,198
 34,323
Total assets$66,380
 $171,095
 $237,475
      
Less liabilities assumed     
Accrued expenses and other liabilities$—
 $2,700
 $2,700
Customer deposits—
 1,081
 1,081
Net assets acquired$66,380
 $167,314
 $233,694
(1)Goodwill is fully deductible for tax purposes. We allocated $27.8 million and $6.5 million of goodwill to our East and West homebuilding segments, respectively.

Unaudited Pro Forma Results of Business Combinations

The following unaudited pro forma information for the years presented include the combined results of operations while enhancing disclosures in this area. Pursuant to ASU 2014-08, only disposals representing a strategic shift, such as a major line of business, a major geographical area or a major equity investment, should beour acquisitions. Our acquisition of Acadia Homes is presented as a discontinued operation. Ifif it had been completed on January 1, 2015 and our acquisitions of JEH Homes and the disposal does qualifyCharlotte, Chicago, and Raleigh divisions of Orleans Homes as a discontinued operation under ASU 2014-08,if both acquisitions had been completed on January 1, 2014. The pro forma results are presented for informational purposes only and do not purport to be indicative of the entity will be requiredresults of operations or future results that would have been achieved if the acquisitions had taken place one year prior to provide expanded disclosures. ASU 2014-08 is effective beginning November 1, 2015. We plantheir respective acquisition years. The pro forma information combines the historical results of the Company with the historical results of each of our acquisitions for the periods presented.

The unaudited pro forma results for the years presented include adjustments to adopt this ASU when it becomes effective.

3.move transaction costs to the year prior to their acquisition. In addition, the unaudited pro forma results do not give effect to any synergies, operating efficiencies or other costs savings that may result from the acquisitions. Earnings per share utilizesnet income from continuing operations and total


weighted average Class A and Class B shares. The pro forma amounts are based on available information and certain assumptions that we believe are reasonable.

Pro forma presentation for the 2016 acquisition (1)
 As Adjusted for the Year Ended December 31,
(Dollars in thousands except per share data)2016 2015
Pro forma total revenues$3,550,029
 $3,054,664
Pro forma net income from continuing operations$207,304
 $170,456
    
Pro forma earnings per share from continuing operations available to TMHC - Basic and Diluted$1.70
 $1.39

(1) The pro forma results above only give effect to the Acadia acquisition.




Pro forma presentation for the 2015 acquisitions(1)
 As Adjusted for the Year Ended December 31,
(Dollars in thousands except per share data)2015 2014
Pro forma total revenues$3,091,766
 $2,923,241
Pro forma net income from continuing operations$181,122
 $240,385
    
Pro forma earnings per share from continuing operations available to TMHC - Basic and Diluted$1.48
 $1.97
(1) The pro forma results above only give effect to the acquisitions of JEH and divisions of Orleans Homes.

4. EARNINGS PER SHARE


Basic earnings per share is computed by dividing net income available to TMHC by the weighted average number of shares of Class A Common Stock outstanding during the period. Diluted earnings per share gives effect to the potential dilution that could occur if all shares of Class B Common Stock and their corresponding New TMM Units were exchanged for Class A Common Stock and if all outstanding equity awards to issue common stock that are dilutiveshares of Class A Common Stock were exercised (in thousands, exceptor settled. See Note 23 - Subsequent Events for changes to this ownership subsequent to December 31, 2016.

The following is a summary of the components of basic and diluted earnings per share amounts):

   Year Ended
December 31,		 
   2014  2013 

Numerator:

   

Net income available to TMHC – basic

  $71,469   $45,420  

Income from discontinued operations, net of tax

   41,902    66,513  

Income from discontinued operations, net of tax attributable to non-controlling interest – Principal Equityholders

   (30,594)   (51,021) 
  

 

 

  

 

 

 

Net income from discontinued operations — basic

$11,308  $15,492  
  

 

 

  

 

 

 

Net income from continuing operations — basic

$60,161  $29,928  
  

 

 

  

 

 

 

Net income from continuing operations — basic

$60,161  $29,928  

Net income from continuing operations attributable to non-controlling interest – Principal Equityholders

 163,790   81,403  

Loss fully attributable to Class A Common Stock

 282   63 
  

 

 

  

 

 

 

Net income from continuing operations — diluted

$224,233  $111,394  
  

 

 

  

 

 

 

Net income from discontinued operations — diluted

$41,902  $57,620  
  

 

 

  

 

 

 

Denominator:

Weighted average shares — basic (Class A)

 32,937   32,840  

Weighted average shares — Principal Equityholders’ non-controlling interest (Class B)

 89,328   89,469  

Restricted stock units

 48   9  

Stock options

 —    1  
  

 

 

  

 

 

 

Weighted average shares — diluted

 122,313   122,319  

Earnings per common share — basic:

Income from continuing operations

$1.83  $0.91  

Discontinued operations, net of tax

$0.34  $0.47  
  

 

 

  

 

 

 

Net income available to Taylor Morrison Home Corporation

$2.17  $1.38  

Earnings per common share — diluted:

Income from continuing operations

$1.83  $0.91  

Discontinued operations, net of tax

$0.34  $0.47  
  

 

 

  

 

 

 

Net income available to Taylor Morrison Home Corporation

$2.17  $1.38  

share:



 Year Ended December 31,
(Dollars in thousands except per share data)2016 2015 2014
Numerator:     
Net income available to TMHC – basic$52,616
 $61,049
 $71,469
Income from discontinued operations, net of tax—
 58,059
 41,902
Income from discontinued operations, net of tax attributable to non-controlling interest – Principal Equityholders—
 (42,406) (30,594)
Net income from discontinued operations — basic$—
 $15,653
 $11,308
Net income from continuing operations — basic$52,616
 $45,396
 $60,161
Net income from continuing operations — basic$52,616
 $45,396
 $60,161
Net income from continuing operations attributable to non-controlling interest – Principal Equityholders152,653
 123,909
 163,790
Loss fully attributable to public holding company211
 261
 282
Net income from continuing operations — diluted$205,480
 $169,566
 $224,233
Net income from discontinued operations — diluted$—
 $58,059
 $41,902
Denominator:     
Weighted average shares — basic (Class A)31,084
 33,063
 32,937
Weighted average shares — Principal Equityholders’ non-controlling interest (Class B)89,062
 89,168
 89,328
Restricted stock units610
 153
 48
Stock options76
 —
 —
Weighted average shares — diluted120,832
 122,384
 122,313
Earnings per common share — basic:     
Income from continuing operations$1.69
 $1.38
 $1.83
Income from discontinued operations, net of tax$—
 $0.47
 $0.34
Net income available to Taylor Morrison Home Corporation$1.69
 $1.85
 $2.17
Earnings per common share — diluted:     
Income from continuing operations$1.69
 $1.38
 $1.83
Income from discontinued operations, net of tax$—
 $0.47
 $0.34
Net income available to Taylor Morrison Home Corporation$1.69
 $1.85
 $2.17

We excluded a total weighted average of 1,565,879, 1,535,441, 1,281,959 and 1,439,645 stock options and time-vesting restricted stock units (“RSUs”) from the calculation of earnings per share for the yearyears ended December 31, 2016, 2015, and 2014, and 2013, respectively, as their inclusion is anti-dilutive.

respectively.


The shares of Class B Common Stock have voting rights however,but do not have economic rights noor rights to dividends or distribution on liquidation and therefore are not participating securities. Accordingly, Class B Common Stock is not included in basic earnings per share. Additionally, the income from Principal Equityholders’ non-controlling interest and the related Class B Common Stock may produce a slight anti-dilutive effect on diluted earnings per common share.

4.


5. DISCONTINUED OPERATIONS


In connection with the decision to sellsale of Monarch in December 2014,January 2015, the operating results associated withof the Monarch business are classified as discontinued operations – net of applicable taxes in the Consolidated Statements of Operations

for all periods presented,presented.


For the years ended December 31, 2016 and 2015 we did not record any revenues or expenses related to the operations of Monarch. We closed on the sale on January 28, 2015 and the assetsactivity recorded in 2015 consists of post-closing transaction expenses, including administrative costs, legal fees, and liabilities associated with this business are classified as assetsstock based compensation charges. The gain on sale of discontinued operations was determined using the purchase price for Monarch, less related costs and tax. The components of discontinued operations were as follows:

  Year Ended December 31,
(Dollars in thousands) 2015 2014
Revenues $—
 $395,070
Transaction expenses from discontinued operations $(9,043) $—
Gain on sale of discontinued operations 80,205
 —
Pre-tax income from discontinued operations $71,162
 $61,786
Provision for taxes (13,103) (19,884)
Income from discontinued operations, net of tax $58,059
 $41,902

There were no assets and liabilities of discontinued operations as appropriate, in the Consolidated Balance Sheets for all applicable periods presented.

The components of discontinued operations, net of tax are as follows (in thousands):

   Year Ended December 31, 
   2014   2013   2012 

Revenues

  $395,070    $407,156    $394,539  
  

 

 

   

 

 

   

 

 

 

Pre-tax income from discontinued operations

$61,786  $93,391  $98,894  

Provision for taxes

 19,884   26,878   24,001  
  

 

 

   

 

 

   

 

 

 

Income from discontinued operations, net of tax

$41,902  $66,513  $74,893  
  

 

 

   

 

 

   

 

 

 

The components of assets of discontinued operations and liabilities of discontinued operations are as follows (in thousands):

   December 31,
2014		   December 31,
2013		 

Cash and cash equivalents

  $227,988    $195,663  

Restricted cash

   11,474     21,007  

Real estate inventory

   149,087     249,759  

Land deposits

   7,547     5,728  

Loans receivable

   40,808     33,395  

Tax indemnification receivable

   5,194     5,216  

Prepaid expenses and other assets, net

   11,197     18,949  

Other receivables, net

   1,984     5,621  

Investments in unconsolidated entities

   111,887     118,115  

Deferred tax assets, net

   3,233     2,264  

Property and equipment, net

   2,546     3,013  

Intangible assets, net

   3,500     4,388  
  

 

 

   

 

 

 

Assets of discontinued operations

$576,445  $663,118  
  

 

 

   

 

 

 

Accounts payable

$14,438  $20,133  

Accrued expenses and other liabilities

 44,554   52,456  

Income taxes payable

 8,076   12,028  

Customer deposits

 11,166   32,637  

Loans payable and other borrowings

 90,331   138,757  
  

 

 

   

 

 

 

Liabilities of discontinued operations

$168,565  $256,011  
  

 

 

   

 

 

 

The Canadian business is committed, under various letters of credit and surety bonds, to perform certain development and construction activities and provide certain guarantees in the normal course of business. These guarantees have been made in connection with joint venture funding. Outstanding letters of credit and surety bonds under these arrangements, including the Canadian business’s share of responsibility for arrangements with its joint ventures, totaled $152.9 million and $212.2 million as ofat December 31, 2014 and 2013, respectively. Although significant development and construction activities have been completed related to these site improvements, the letters of credit and surety bonds are reduced as development and construction work is completed, but not fully released until warranty periods have expired.

5.2016 or 2015.



6. REAL ESTATE INVENTORY AND LAND DEPOSITS


Inventory consists of the following (in thousands):

   As of December 31, 
   2014   2013 

Operating communities, including capitalized interest

  $2,217,067    $1,651,218  

Real estate held for development or held for sale (completed homes)

   294,556     342,767  
  

 

 

   

 

 

 

Total owned inventory

 2,511,623   1,993,985  

Real estate not owned under option contracts

 6,698   18,595  
  

 

 

   

 

 

 

Total real estate inventory

$2,518,321  $2,012,580  
  

 

 

   

 

 

 

Capitalized Interest— Interest capitalized, incurred, expensedfollowing:

 As of December 31,
(Dollars in thousands)2016 2015
Real estate developed or under development$2,074,651
 $2,167,771
Real estate held for development or held for sale (1)

183,638
 173,448
Operating communities (2)
650,036
 672,499
Capitalized interest102,642
 105,148
Total owned inventory3,010,967
 3,118,866
Real estate not owned under option contracts6,252
 7,921
Total real estate inventory$3,017,219
 $3,126,787
(1) Real estate held for development or held for sale includes properties which are not in active production. This includes raw land recently purchased or awaiting entitlement, future phases of current projects that will be developed as prior phases sell out, and amortizedlong-term strategic assets.
(2) Operating communities consist of all vertical construction costs relating to homes in progress and completed homes for all active production of inventory.


The development status of our land inventory is as follows (in thousands):

   Year Ended December 31, 
   2014   2013   2012 

Interest capitalized — beginning of period

  $71,263    $45,387    $19,460  

Interest incurred

   88,782     61,582     46,340  

Interest expensed

   —       (812)    —    

Interest amortized to cost of closings

   (65,165)    (34,894)    (20,413) 
  

 

 

   

 

 

   

 

 

 

Interest capitalized — end of period

$94,880  $71,263  $45,387  
  

 

 

   

 

 

   

 

 

 

follows:


 As of December 31,
(Dollars in thousands)2016 2015
 Owned Lots Book Value of Land and Development Owned Lots Book Value of Land and Development
Raw7,142
 $403,902
 8,300
 $378,081
Partially developed8,037
 501,496
 8,904
 645,276
Finished11,318
 1,336,709
 12,294
 1,305,697
Long-term strategic assets1,489
 16,182
 3,105
 12,165
Total27,986
 $2,258,289
 32,603
 $2,341,219

Land Deposits — We provide deposits related to land options and land purchase contracts, which are capitalized when paid
and classified as land deposits until the associated property is purchased.

As of December 31, 20142016 and 2013,2015, we had the right to purchase approximately 5,3727,583 and 6,5708,888 lots under land option purchase contracts, respectively, which represents an aggregate purchase price of $323.5$542.6 million and $500.9$710.6 million as of December 31, 20142016 and 2013,2015, respectively. We do not have title to these properties, and the creditors generally have no recourse against the Company. As of December 31, 20142016 and 2013,2015, our exposure to loss related to our option contracts with third parties and unconsolidated entities consistsconsisted of non-refundable option deposits totaling $34.5$37.2 million and $38.0$34.1 million, respectively, in land deposits related to land optionsrespectively.


Capitalized Interest — Interest capitalized, incurred and land purchase contracts. Creditors of these VIEs, if any, generally have no recourse against us.

For the years ended December 31, 2014, 2013 and 2012, no impairment of option deposits or capitalized pre-acquisition costs were recorded. We continue to evaluate the terms of open land option and purchase contracts and may impair option deposits and capitalized pre-acquisition costs in the future.

6.amortized is as follows:


 Year Ended December 31,
(Dollars in thousands)2016 2015 2014
Interest capitalized — beginning of period$105,148
 $94,880
 $71,263
Interest incurred88,345
 93,431
 88,782
Interest amortized to cost of home closings(90,851) (83,163) (65,165)
Interest capitalized — end of period$102,642
 $105,148
 $94,880

7. INVESTMENTS IN UNCONSOLIDATED ENTITIES


We participate in a number of joint ventures with related and unrelated third parties, with ownership interests up to 50.0%50%. These entities are generally involved in real estate development, homebuilding and mortgage lending activities.

Summarized, unaudited combined financial information of unconsolidated entities that are accounted for by the equity method is as follows (in thousands):

   As of December 31, 
   2014   2013 

Assets:

    

Real estate inventory

  $396,858    $59,357  

Other assets

   59,963     16,440  
  

 

 

   

 

 

 

Total assets

$456,821  $75,797  
  

 

 

   

 

 

 

Liabilities and owners’ equity:

Debt

$129,561  $30,471  

Other liabilities

 8,870   1,483  
  

 

 

   

 

 

 

Total liabilities

$138,431  $31,954  
  

 

 

   

 

 

 

Owners’ equity:

TMHC

 110,291   21,435  

Others

 208,099   22,408  
  

 

 

   

 

 

 

Total owners’ equity

 318,390   43,843  
  

 

 

   

 

 

 

Total liabilities and owners’ equity

$456,821  $75,797  
  

 

 

   

 

 

 

   Year Ended December 31, 
   2014   2013   2012 

Revenues

  $23,020    $11,062    $9,769  

Costs and expenses

   (12,221)    (4,002)    (6,248) 
  

 

 

   

 

 

   

 

 

 

Income of unconsolidated entities

$10,799  $7,060  $3,521  
  

 

 

   

 

 

   

 

 

 

Company’s share in income of unconsolidated entities

$5,405  $2,895  $1,214  
  

 

 

   

 

 

   

 

 

 

Distributions of earnings from unconsolidated entities

$3,746  $1,800  $3,217  
  

 

 

   

 

 

   

 

 

 

We have investments in, and advances to, a number of joint ventures with unrelated parties to develop land and to develop housing communities, including for-sale residential homes. Some of these joint ventures develop land for the sole use of the venture participants, including us, and others develop land for sale to the joint venture participants and to unrelated builders. Our share of the joint venture profit relating to lots we purchases from the joint ventures is deferred until homes are delivered by us and title passes to a homebuyer.

7.follows:


 As of December 31,
(Dollars in thousands)2016 2015
Assets:   
Real estate inventory$614,441
 $586,359
Other assets171,216
 119,781
Total assets$785,657
 $706,140
Liabilities and owners’ equity:   
Debt$277,934
 $273,769
Other liabilities22,603
 11,239
Total liabilities$300,537
 $285,008
Owners’ equity:   
TMHC157,909
 128,448
Others327,211
 292,684
Total owners’ equity485,120
 421,132
Total liabilities and owners’ equity$785,657
 $706,140

 Year Ended December 31,
(Dollars in thousands)2016 2015 2014
Revenues$143,834
 $26,865
 $23,020
Costs and expenses(118,240) (23,667) (12,221)
Income of unconsolidated entities$25,594
 $3,198
 $10,799
TMHC's share in income of unconsolidated entities$7,453
 $1,759
 $5,405
Distributions from unconsolidated entities$10,348
 $12,267
 $3,746


8. INTANGIBLE ASSETS

Intangible assets consist of tradenames, lot options and land supplier relationships, and non-compete covenants.


At December 31, 2014,2016, the gross carrying amount and accumulated amortization of intangible assets was $14.0 million and $10.8 million, respectively. At December 31, 2015, the gross carrying amount and accumulated amortization was $14.0 million and $8.5$9.8 million, respectively. At December 31, 2013, the gross carrying amount and accumulated amortization was $14.0 million and $4.7 million, respectively.


Amortization of intangible assets is recorded on a straight-line basis over the life of the asset. Amortization expense recorded during the years ended December 31, 2016, 2015, and 2014 2013 and 2012 was $1.1$1.0 million, $1.1 million, and $0.4$1.1 million respectively. Additionally, during thefor each year, ended December 31, 2014, $2.7 million of lot option contracts were reclassified to real estate inventory as the lot options were exercised, which is included in the accumulated amortization amount noted above.

8.respectively.


9. ACCRUED EXPENSES AND OTHER LIABILITIES



Accrued expenses and other liabilities consist of the following (in thousands):

   As of December 31, 
   2014   2013 

Real estate development costs to complete

  $24,222    $15,422  

Compensation and employee benefits

   51,475     44,264  

Self insurance and warranty reserves

   44,595     34,814  

Interest payable

   22,033     16,898  

Property and sales taxes payable

   12,808     12,529  

Other accruals

   45,423     38,117  
  

 

 

   

 

 

 

Total accrued expenses and other liabilities

$200,556  $162,044  
  

 

 

   

 

 

 

following:


 As of December 31,
(Dollars in thousands)2016 2015
Real estate development costs to complete$15,156
 $21,325
Compensation and employee benefits63,802
 47,674
Self-insurance and warranty reserves50,550
 43,098
Interest payable17,233
 18,621
Property and sales taxes payable17,231
 15,233
Other accruals45,230
 45,501
Total accrued expenses and other liabilities$209,202
 $191,452

Self Insurance and Warranty Reserves — We accrue for the expected costs associated with the limited one year warranty,
deductibles and self-insured amounts under our various insurance policies within Beneva Indemnity Company ("Beneva"), a
wholly owned subsidiary. A summary of the changes in our reserves are as follows (in thousands):

   Year Ended December 31, 
   2014   2013   2012 

Reserve — beginning of period

  $34,814    $31,962    $36,235  

Additions to reserves

   16,882     14,880     1,117  

Costs and claims incurred

   (6,799)    (10,788)    (8,053) 

Change in estimates to pre-existing reserves

   (302)    (1,240)    2,663  
  

 

 

   

 

 

   

 

 

 

Reserve — end of period

$44,595  $34,814  $31,962  
  

 

 

   

 

 

   

 

 

 

9.follows:



 Year Ended December 31,
(Dollars in thousands)2016 2015 2014
Reserve — beginning of period$43,098
 $44,595
 $34,814
Additions to reserves26,571
 19,681
 16,882
Costs and claims incurred(21,379) (26,506) (6,799)
Change in estimates to pre-existing reserves2,260
 5,328
 (302)
Reserve — end of period$50,550
 $43,098
 $44,595

10. DEBT

(Dollars in thousands)  December 31,
2014		   December 31,
2013		 

5.625% Senior Notes due 2024, unsecured, with $4.9 million of unamortized debt issuance costs at December 31, 2014

  $350,000    $—   

5.25% Senior Notes due 2021, unsecured, with $7.5 million and $8.7 million of unamortized debt issuance costs at December 31, 2014 and 2013, respectively

   550,000     550,000  

7.75% Senior Notes due 2020, unsecured, with $8.9 million and $10.6 million of unamortized debt issuance costs at December 31, 2014 and 2013, respectively and $3.4 million and $4.1 million of unamortized bond premium at December 31, 2014 and 2013, respectively

   488,840     489,497  
  

 

 

   

 

 

 

Senior Notes Sub-total

$1,388,840  $1,039,497 
  

 

 

   

 

 

 

$400 million Restated Revolving Credit Facility with $5.6 million and $7.4 million of unamortized debt issuance costs at December 31, 2014 and 2013 respectively

 40,000   —   

Mortgage borrowings

 160,750   74,892  

Loans payable and other borrowings

 147,516   143,341  
  

 

 

   

 

 

 

Total debt

$1,737,106  $1,257,730  
  

 

 

   

 

 

 

2020


Total debt consists of the following:
 As of December 31,
 2016 2015
(Dollars in thousands)Principal Unamortized Debt Issuance Costs Carrying Value Principal Unamortized Debt Issuance Costs Carrying Value
5.25% Senior Notes due 2021550,000
 5,089
 544,911
 550,000
 6,287
 543,713
5.875% Senior Notes due 2023350,000
 3,569
 346,431
 350,000
 4,160
 345,840
5.625% Senior Notes due 2024350,000
 3,858
 346,142
 350,000
 4,396
 345,604
Senior Notes subtotal1,250,000
 12,516
 1,237,484
 1,250,000
 14,843
 1,235,157
Loans payable and other borrowings150,485
 —
 150,485
 134,824
 —
 134,824
Revolving Credit Facility (1)
—
 —
 —
 115,000
 —
 115,000
Mortgage warehouse borrowings198,564
 —
 198,564
 183,444
 —
 183,444
Total debt$1,599,049
 $12,516
 $1,586,533
 $1,683,268
 $14,843
 $1,668,425
(1) The Revolving Credit Facility includes $3.5 million and $5.1 million of unamortized debt issuance costs as of December 31, 2016 and 2015, respectively, which is presented in prepaid expenses and other assets, net on the consolidated balance sheets.


2021 Senior Notes


On April 13, 2012,16, 2013, we issued $550.0 million aggregate principal amount of 7.75%5.25% Senior Notes due 20202021 (the “Initial“2021 Senior Notes”) at an initial offering price of 100% of the principal amount (the “Offering”).
The net proceeds from the sale of the Initial Notes were used, in part, to repay existing indebtedness. The remaining proceeds of approximately $187.4 million from the Offering were used for general corporate purposes. An additional $3.0 million of issuance costs were settled outside the bond proceeds.

On August 21, 2012, we issued an additional $125.0 million of 7.75%2021 Senior Notes due 2020 (the “Additional Notes” together with the Initial Notes, the “2020 Senior Notes”) at an initial offering price of 105.5% of the principal amount.mature on April 15, 2021. The net proceeds were used for general corporate purposes. The Additional Notes issued August 21, 2012 were issued pursuant to the existing indenture for the 2020 Senior Notes. The 2020 Senior Notes are unsecured and not subject to registration rights.

On April 12, 2013, we used $204.3 million of the net proceeds of the IPO to acquire New TMM Units from New TMM (at a price equal to the price paid by the underwriters for shares of Class A Common Stock in the IPO). TMM Holdings used these proceeds to repay a portion of the 2020 Senior Notes.

Obligations to pay principal and interest on the 20202021 Senior Notes are guaranteed by TMM Holdings, Taylor Morrison Holdings, Inc., Monarch ParentTaylor Morrison Communities II, Inc. and the U.S.their homebuilding subsidiaries of TMC (collectively, the “Guarantors”)., which are all subsidiaries directly or indirectly of TMHC. The 20202021 Senior Notes and the guarantees are senior unsecured obligations.obligations and are not subject to registration rights. The indenture for the 20202021 Senior Notes contains covenants that prohibit or limit (i) the making of investments, (ii) the payment of dividends and the redemption of equity and junior debt, (iii) the


incurrence of additional indebtedness, (iv) asset dispositions, (v) mergers and similar corporate transactions, (vi) the incurrence of liens, (vii) the incurrence of prohibitionsagreeing to restrictions on payments and asset transfers among the issuers and restricted subsidiaries and (viii) transactions with affiliates, among others. The indenture governing the 20202021 Senior Notes contains customary events of default. If we do not apply the net cash proceeds of certain asset sales within specified deadlines, we will be required to offer to repurchase the 20202021 Senior Notes at par (plus accrued and unpaid interest) with such proceeds. We are also required to offer to repurchase the 20202021 Senior Notes at a price equal to 101% of their aggregate principal amount (plus accrued and unpaid interest) upon certain change of control events.

There are no financial maintenance covenants for the 2021 Senior Notes.

2023 Senior Notes

and Redemption of 2020 Senior Notes

On April 16, 2013,2015, we issued $550.0$350.0 million aggregate principal amount of 5.25%5.875% Senior Notes due 20212023 (the “2021“2023 Senior Notes”). The 20212023 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights. The net proceeds from the issuance of the 2021 Senior Notesoffering, together with cash on hand, were used to repayredeem the outstanding balance under the Restated Revolving Credit Facilityentire remaining principal amount of our 7.75% Senior Notes due 2020 on May 1, 2015, at a redemption price of 105.813% of their aggregate principal amount, plus accrued and for general corporate purposes,unpaid interest thereon to, but not including, the purchasedate of additional land inventory.

redemption. As a result of the redemption of the 2020 Senior Notes, we recorded a loss on extinguishment of debt of $33.3 million during the second quarter of 2015, which included the payment of the redemption premium and write-off of net unamortized deferred financing fees.

The 20212023 Senior Notes mature on April 15, 2023. The 2023 Senior Notes are guaranteed by the same Guarantors that guarantee the 20202021 Senior Notes. The indenture governing the 2021 Senior Notes contains covenants, change of control and asset sale offer provisions that are similar to those contained in the indenture governing the 2020 Senior Notes.

2024 Senior Notes

On March 5, 2014, we issued $350.0 million aggregate principal amount of 5.625% Senior Notes due 2024 (the “2024 Senior Notes”). The 2024 Senior Notes are unsecured and are not subject to registration rights. The net proceeds from the issuance of the 2024 Senior Notes were used to repay the outstanding balance under the Restated Revolving Credit Facility and for general corporate purposes.

The 2024 Senior Notes mature on March 1, 2024. The 2024 Senior Notes are guaranteed by the same Guarantors that guarantee the 2020 and 2021 Senior Notes. The 2024 Senior Notes and the guarantees are senior unsecured obligations. The indenture governing the 20242023 Senior Notes contains covenants that limit our ability to incur debt secured by liens and enter into certain sale and leaseback transactions. The indenture governing the 20242023 Senior Notes contains events of default that are similar to those contained in the indenturesindenture governing the 2020 and the 2021 Senior Notes. The change of control provisions in the indenture governing the 20242023 Senior Notes are similar to those contained in the indenturesindenture governing the 2020 and the 2021 Senior Notes, but a credit rating downgrade must occur in connection with the change of control before the repurchase offer requirement is triggered for the 2023 Senior Notes.

Prior to January 15, 2023, the 2023 Senior Notes are redeemable at a price equal to 100% plus a “make-whole” premium for payments through January 15, 2023 (plus accrued and unpaid interest). Beginning January 15, 2023, the 2023 Senior Notes are redeemable at par (plus accrued and unpaid interest).
There are no financial maintenance covenants for the 2023 Senior Notes.

2024 Senior Notes
On March 5, 2014, we issued $350.0 million aggregate principal amount of 5.625% Senior Notes due 2024 (the “2024 Senior Notes”). The net proceeds from the issuance of the 2024 Senior Notes were used to repay the outstanding balance under the Revolving Credit Facility and for general corporate purposes.
The 2024 Senior Notes mature on March 1, 2024. The 2024 Senior Notes are guaranteed by the same Guarantors that guarantee the 2021 Senior Notes.

The 2024 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights. The indenture governing the 2024 Senior Notes contains covenants that limit our ability to incur debt secured by liens and enter into certain sale and leaseback transactions similar to the 2023 Senior Notes. The indenture governing the 2024 Senior Notes contains events of default that are similar to those contained in the indenture governing the 2021 and 2023 Senior Notes. The change of control provisions in the indenture governing the 2024 Senior Notes are similar to those contained in the indenture governing the 2023 Senior Notes.

Prior to December 1, 2023, the 2024 Senior Notes are redeemable at a price equal to 100% plus a “make-whole” premium for payments through December 1, 2023 (plus accrued and unpaid interest). Beginning on December 1, 2023, the 2024 Senior Notes are redeemable at par (plus accrued and unpaid interest).

There are no financial maintenance covenants for the 2024 Senior Notes.

Revolving Credit Facility

On January 15, 2014, TMC and various other subsidiaries of TMHC (collectively, the “Borrowers”), entered into Amendment No. 1 to the senior revolving credit facility (the “Restated Revolving Credit Facility”). This Amendment No. 1 released Monarch from all of its obligations under the Restated Revolving Credit Facility. As a result, the only borrower under the Restated

Our $500.0 million Revolving Credit Facility is TMC.matures on April 12, 2019. The Restated Revolving Credit Facility is guaranteed by the same Guarantors that guarantee the 20202021 Senior Notes.
The Restated Revolving Credit Facility matures on April 12, 2017.

The Restated Revolving Credit Facility contains certain “springing” financial covenants, requiring TMM Holdingsus and itsour subsidiaries to comply with a certain maximum debt to capitalization ratio of not more than 0.60 to 1.00 and a certain minimum consolidated tangible net worth test.level of at least $1.5 billion. The financial covenants would be in effect for any fiscal quarter during which any (a) loans under the Restated


Revolving Credit Facility are outstanding duringon the last day of such fiscal quarter or on more than five separate days during such fiscal quarter or (b) undrawn letters of credit (except to the extent cash collateralized) issued under the Restated Revolving Credit Facility in an aggregate amount greater than $40.0 million or unreimbursed letters of credit issued under the Restated Revolving Credit Facility are outstanding on the last day of such fiscal quarter or for more than five consecutive days during such fiscal quarter.
For purposes of determining compliance with the financial covenants for any fiscal quarter, the Restated Revolving Credit Facility provides that TMCwe may exercise an equity cure by issuing certain permitted securities for cash or otherwise recording cash contributions to itsour capital that will, upon the contribution of such cash to TMC, be included in the calculation of consolidated tangible net worth and consolidated total capitalization. The equity cure right is exercisable up to twice in any period of four consecutive fiscal quarters and up to five times overall.
The maximum debt to total capitalization ratio is 0.60 to 1.00. The ratio as calculated by the Borrowers at December 31, 2014 was 0.41 to 1.00. The minimum consolidated tangible net worth requirement was $1.3 billion at December 31, 2014. At December 31, 2014, the Borrowers’ tangible net worth, as defined in the Restated Revolving Credit Facility, was $1.7 billion. At December 31, 2014, these ratio calculations were inclusive of our Monarch business.

The Restated Revolving Credit Facility contains certain restrictive covenants including limitations on incurrence of liens, dividends and other distributions, asset dispositions and investments in entities that are not guarantors, limitations on prepayment of subordinated indebtedness and limitations on fundamental changes. The Restated Revolving Credit Facility contains customary events of default, subject to applicable grace periods, including for nonpayment of principal, interest or other amounts, violation of covenants (including financial covenants, subject to the exercise of an equity cure), incorrectness of representations and warranties in any material respect, cross default and cross acceleration, bankruptcy, material monetary judgments, ERISA events with material adverse effect, actual or asserted invalidity of material guarantees and change of control. As of December 31, 2014,2016 and 2015, we were in compliance with all of the covenants under the Restated Revolving Credit Facility.


Mortgage Warehouse Borrowings


The following is a summary of our mortgage subsidiary borrowings (in thousands):

   At December 31, 2014 

Facility

  Amount
Drawn		   Facility
Amount		  Interest Rate Expiration Date  Collateral (1) 

Flagstar

  $62,894    $85,000   LIBOR + 2.5% 30 days written notice   Mortgage Loans  

Comerica

   11,430     50,000   LIBOR + 2.75% August 19, 2015   Mortgage Loans  

JPMorgan

   86,426     100,000 (2)  (3) September 28, 2015   Pledged Cash  
  

 

 

   

 

 

     

Total

$160,750  $235,000  
  

 

 

   

 

 

     
   At December 31, 2013 

Facility

  Amount
Drawn		   Facility
Amount		  Interest Rate Expiration Date  Collateral (1) 

Flagstar

  $38,084    $30,000   LIBOR + 2.5% 30 days written notice   Mortgage Loans  

Comerica

   36,808     50,000   LIBOR + 2.875% June 5, 2014   Mortgage Loans  
  

 

 

   

 

 

     

Total

$74,892  $80,000  
  

 

 

   

 

 

     

warehouse borrowings:

(Dollars in thousands)At December 31, 2016
Facility
Amount
Drawn
 
Facility
Amount
 Interest Rate Expiration Date 
Collateral (1)
Flagstar$37,093

$55,000

LIBOR + 2.5%
30 days written notice
Mortgage Loans
Comerica57,875

85,000

LIBOR + 2.25%
November 16, 2017
Mortgage Loans
J.P. Morgan103,596

125,000

LIBOR + 2.375% to 2.5%
September 26, 2017
Mortgage Loans and Pledged Cash
Total$198,564
 $265,000
      
          
          
 At December 31, 2015
Facility
Amount
Drawn
 
Facility
Amount
 Interest Rate Expiration Date 
Collateral (1)
Flagstar$63,210
 $75,000
 LIBOR + 2.5% 30 days written notice Mortgage Loans
Comerica18,009
 50,000
 LIBOR + 2.25% November 16, 2016 Mortgage Loans
JPMorgan102,225
 120,000
 LIBOR + 2.375% September 29, 2016 Mortgage Loans and Pledged Cash
Total$183,444
 $245,000
      
(1) 
The mortgage borrowings outstanding as of December 31, 20142016 and 2013,2015, are collateralized by $191.1$233.2 million and $95.7$201.7 million, respectively, of mortgage loans held for sale, which comprise the balance of mortgage receivables and $1.3 million and $2.0 million, respectively, of restricted short-term investments which are included in restricted cash in the accompanying Consolidated Balance Sheets.receivables.
(2)The warehouse facility with JPMorgan has a maximum credit line of $50.0 million. On December 12, 2014 the agreement was temporarily amended to increase the capacity from $50.0 million to $100.0 million. Effective January 23, 2015, the temporary increase expired.
(3)Interest under the JPMorgan agreement ranges from 2.50% plus 30-day LIBOR to 2.875% plus 30-day LIBOR or 0.25% (whichever is greater).


Loans Payable and Other Borrowings

Loans payable and other borrowings as of December 31, 20142016 and 20132015 consist of amountsproject-level debt due to various land sellers and a seller carryback notefinancing notes from acurrent and prior year acquisition.acquisitions. Project-level debt is generally secured by the land that was acquired and the principal payments generally coincide with corresponding project lot sales or a principal reduction schedule. Loans payable bear interest at rates that ranged from 0% to 8% at December 31, 20142016 and 2013, and generally are secured by the land that was acquired with the loans.2015. We impute interest for loans with no stated interest rates.

The weighted average interest rate on $123.3 million of the loans as of December 31, 2016 was 5.3% per annum, and $27.2 million of the loans were non-interest bearing.


Future Minimum Principal Payments on Total Debt


Principal maturities of total debt for the year endingended December 31, 20142016 are as follows (in thousands):

2015

$252,278  

2016

 54,685  

2017

 12,724  

2018

 9,239  

2019

 13,190  

Thereafter

 1,394,990  
  

 

 

 

Total debt

$1,737,106  
  

 

 

 

10. DERIVATIVE FINANCIAL INSTRUMENT AND HEDGING ACTIVITY


 Year Ended December 31,
2017$268,570
201844,722
201922,230
20206,253
2021556,774
Thereafter700,500
Total debt$1,599,049

11. FOREIGN CURRENCY FORWARD

In December 2014, we entered into a derivative financial instrument in the form of a foreign currency forward. The derivative financial instrument hedged our exposure to the Canadian dollar in conjunction with the disposition of the Monarch business.

The aggregate notional amount of the foreign exchange derivative financial instrument was $471.2 million at December 31, 2014. At December 31, 2014 the fair value of the instrument was not material to our consolidated

financial position or results of operations. The final settlement of the derivative financial instrument occurred on January 30, 2015 and a gain will be recorded in the first quarteramount of $30.0 million was recorded to gain on foreign currency forward in the Consolidated Statements of Operations for the year ended December 31, 2015.

11. There was no activity relating to foreign currency forwards for the year ended December 31, 2016.


12. FAIR VALUE DISCLOSURES


We have adopted ASC Topic 820, “Fair Value Measurements” for valuation of financial instruments. ASC 820 provides a framework for measuring fair value under GAAP, expands disclosures about fair value measurements, and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are summarized as follows:


Level 1 — Fair value is based on quoted prices for identical assets or liabilities in active markets.


Level 2 — Fair value is determined using quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable.


Level 3 — Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as a pricing model, discounted cash flow, or similar technique.


The fair value of our mortgages receivablemortgage loans held for sale is derived from negotiated rates with partner lending institutions. The fair value of IRLCs is based on the value of the underlying mortgage loan, quoted mortgage backed security (“MBS”) prices and the probability that the mortgage loan will fund within the terms of the IRLCs. We estimate the fair value of the forward sales commitments based on quoted MBS prices. The fair value of our mortgage warehouse borrowings, loans receivable, loans payable and other borrowings and the borrowings under our Restated Revolving Credit Facility approximate carrying value due to their short term nature and variable interest rate terms. The fair value of our 2020 Senior Notes, 2021 Senior Notes and 2024 Senior Notes is derived from quoted market prices by independent dealers in markets that are not active. The fair value of the contingent consideration liability related to previous acquisitions was estimated using a Monte Carlo simulation model under the option pricing method. As the measurement of the contingent consideration is based primarily on significant inputs not observable in the market, it represents a Level 3 measurement.

The carrying value and fair value of our financial instruments are as follows (in thousands):

       December 31, 2014   December 31, 2013 
   Level in
Fair Value
Hierarchy		   Carrying
Value		   Estimated
Fair Value		   Carrying
Value		   Estimated
Fair Value		 

Description:

          

Mortgages receivable

   2    $191,140    $191,140    $95,718    $95,718  

Mortgage borrowings

   2     160,750     160,750     74,892     74,892  

Loans payable and other borrowings

   2     147,516     147,516     143,341     143,341  

7.75% Senior Notes due 2020

   2     488,840     518,170     489,497     537,223  

5.25% Senior Notes due 2021

   2     550,000     539,000     550,000     532,125  

5.625% Senior Notes due 2024

   2     350,000     336,000     N/A    N/A 

Restated Revolving Credit Facility

   2     40,000     40,000     N/A    N/A 

12.follows:



   As of December 31, 2016 As of December 31, 2015
(Dollars in thousands)
Level in
Fair Value
Hierarchy
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Description:         
Mortgage loans held for sale2
 $233,184
 $233,184
 $201,733
 $201,733
Interest Rate Lock Commitments2
 1,987
 1,987
 —
 —
Mortgage Backed Securities2
 304
 304
 —
 —
Mortgage borrowings2
 198,564
 198,564
 183,444
 183,444
Loans payable and other borrowings2
 150,485
 150,485
 134,824
 134,824
5.25% Senior Notes due 2021 (1)
2
 544,911
 563,750
 543,713
 552,750
5.875% Senior Notes due 2023 (1) 
2
 346,431
 355,250
 345,840
 346,500
5.625% Senior Notes due 2024 (1)
2
 346,142
 353,500
 345,604
 336,000
Revolving Credit Facility (2)
2
 —
 —
 115,000
 115,000
Contingent consideration liability3
 17,200
 17,200
 20,082
 20,082
(1) Carrying value for Senior Notes, as presented, includes unamortized debt issuance costs. Debt issuance costs are not factored into the fair value calculation for the Senior Notes.
(2) At December 31, 2016, we had no borrowings outstanding on our Revolving Credit Facility.

Fair value measurements are used for inventories on a nonrecurring basis when events and circumstances indicate that their carrying value is not recoverable. The following table presents the fair value for our inventories measured at fair value on a nonrecurring basis:

(Dollars in thousands)  For the Years Ended December 31,
Description:Level in
Fair Value
Hierarchy		 2016 2015
Inventories3 $3,778
 $—


13. INCOME TAXES


The provision (benefit) provision for income taxes for the years ended December 31, 2014, 20132016, 2015 and 2012 consists2014 consisted of the following (in thousands):

   Year Ended December 31, 
   2014   2013   2012 

Domestic

  $83,193    $(24,403)   $(284,301) 

Foreign

   (6,798)    593     3  
  

 

 

   

 

 

   

 

 

 

Total income tax provision (benefit)

$76,395  $(23,810) $(284,298) 
  

 

 

   

 

 

   

 

 

 

Current:

Federal

$91,981  $(55,771) $(12,084) 

State

 (1,341)  2,259   890  

Foreign

 —     593   4  
  

 

 

   

 

 

   

 

 

 

Current tax provision (benefit)

$90,640  $(52,919) $(11,190) 

Deferred:

Federal

 (13,549)  24,179   (218,967) 

State

 6,102   4,930   (54,141) 

Foreign

 (6,798)  —     —    
  

 

 

   

 

 

   

 

 

 

Deferred tax provision (benefit)

$(14,245) $29,109  $(273,108) 
  

 

 

   

 

 

   

 

 

 

Total income tax provision (benefit)

$76,395  $(23,810) $(284,298) 
  

 

 

   

 

 

   

 

 

 

following:


 Year Ended December 31,
(Dollars in thousands)2016 2015 2014
Domestic$98,125
 $84,880
 $83,193
Foreign9,518
 5,121
 (6,798)
Total income tax provision (benefit)$107,643
 $90,001
 $76,395
Current:     
Federal$64,298
 $57,053
 $91,981
State9,178
 9,557
 (1,341)
Foreign7,213
 5,545
 —
Current tax provision (benefit)$80,689
 $72,155
 $90,640
Deferred:     
Federal$22,201
 $16,406
 $(13,549)
State2,448
 1,864
 6,102
Foreign2,305
 (424) (6,798)
Deferred tax provision (benefit)$26,954
 $17,846
 $(14,245)
Total income tax provision (benefit)$107,643
 $90,001
 $76,395


The components of income (loss) before income taxes are as follows:

   Year Ended December 31, 
   2014   2013   2012 

Domestic

  $294,002    $(3,180)   $73,317  

Foreign

   7,992     7,725     (1,660) 
  

 

 

   

 

 

   

 

 

 

Income before income taxes

$301,994  $4,545  $71,657  
  

 

 

   

 

 

   

 

 

 


 Year Ended December 31,
(Dollars in thousands)2016 2015 2014
Domestic$282,207
 $242,787
 $294,002
Foreign31,999
 18,200
 7,992
Income before income taxes$314,206
 $260,987
 $301,994

A reconciliation of the provision (benefit) for income taxes and the amount computed by applying the federal statutory income tax rate of 35% to income before provision (benefit) for income taxes is as follows:

 Year Ended December 31,
 2016 2015 2014
Tax at federal statutory rate35.0% 35.0% 35.0%
State income taxes (net of federal benefit)3.1
 3.0
 3.6
Foreign income taxed below U.S. Rate(0.9) (0.5) (1.1)
Change in valuation allowance(0.6) (1.9) (10.4)
Built in loss limitation0.3
 1.6
 3.1
Non-controlling interest(0.1) (0.2) (0.2)
Disallowed compensation expense0.1
 0.2
 0.2
Holding company tax—
 —
 (1.4)
Domestic Manufacturing Deduction(2.2) (3.1) (2.8)
Other(0.4) 0.4
 (0.7)
Effective Rate34.3% 34.5% 25.3%

At December 31, 20142016 and 2013,2015, we had a valuation allowance of $8.9$0.5 million and $40.0$2.6 million, respectively, against net deferred tax assets, which include the tax benefit from Canadian, U.S. federal, and state net operating loss (“NOL”) carryforwards. Federal NOL carryforwards may be used to offset future taxable income for 20 years and begin to expire in 2027. State NOL carryforwards may be used to offset future taxable income for a period of time ranging from 5 to 20 years, depending on the state, and begin to expire in 2025.2026. NOL carryforwards in Canada expire in 20 years. The changeyears, and begin to expire in 2031. For the years ended December 31, 2016 and December 31, 2015, we recorded a net valuation allowance from 2013 to 2014, and from 2012 to 2013, was a decrease of $31.1$2.1 million and $22.9$6.3 million, respectively. Our future deferred tax asset realization depends on sufficient taxable income in the carryforward periods under existing tax laws. State deferred tax assets include approximately $11.2$10.4 million and $16.1$9.3 million at December 31, 20142016 and 2013,2015, respectively, of tax benefits related to state NOL carryovers, which begin to expire in 2025.carryovers. On an ongoing basis, we will continue to review all available evidence to determine if and when we expect to realize our deferred tax assets and federal and state NOL carryovers.

A reconciliation of the provision (benefit) for income taxes and the amount computed by applying the federal statutory income tax rate of 35% to income before provision (benefit) for income taxes is as follows:

   Year Ended December 31, 
   2014  2013  2012 

Tax at federal statutory rate

   35.0%   35.0%   35.0% 

State income taxes (net of federal benefit)

   3.6    97.0    (48.3) 

Foreign income taxed below U.S. Rate

   (1.1)   14.1    (3.3) 

Valuation allowance

   (10.4)   (348.2)   (409.6) 

Built in loss limitation

   3.1    179.2    56.1  

Tax indemnity

   —      683.7    6.4  

Uncertain tax positions

   —      (1,824.0)   (18.2) 

Transaction costs

   —      —      (6.5) 

Non-controlling interest

   (0.2)   —      —    

Deferred tax adjustments

   —      —      (10.4) 

Disallowed compensation expense

   0.2    650.4    —    

Holding company tax

   (1.4)   93.0    —    

Domestic Manufacturing Deduction

   (2.8)   —      —    

Other

   (0.7)   (104.0)   2.0  
  

 

 

  

 

 

  

 

 

 

Effective Rate

 25.3%  (523.8)%  (396.8)% 
  

 

 

  

 

 

  

 

 

 

We have substantial tax attributes available to offset the impact of future income taxes. We have a process for determining the need for a valuation allowance with respect to these attributes. In accordance with ASC Topic 740-10, “Income Taxes,” we assess whether a valuation allowance should be established based on the consideration of available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. This assessment includes an extensive review of both positive and negative evidence including our earnings history, forecasts of future profitability, assessment of the industry, the length of statutory carry-forward periods, experiences of utilizing NOLs and built-in losses, and tax planning alternatives.

As a result of the Acquisition on July 13, 2011 acquisition by our Principal Equityholders, we had a “change in control” as defined by Section 382 of the Internal Revenue Code of 1986 as amended (the “IRC”). Section 382 of the IRC imposes certain limitations on our ability to utilize certain tax attributes and net unrealized built-in losses that existed as of July 13, 2011. The gross deferred tax asset includes amounts that are considered to be net unrealized built-in losses. To the extent these net unrealized losses arewere realized during the five-year period afterbetween July 13, 2011 and July 13, 2016, they maywere not be deductible for federal income tax reporting purposes to the extent they exceedexceeded our overall IRC Section 382 limitation. ToOn July 13, 2016, the extent thatlimitation on net unrealized built-in losses expired. Therefore, the losses were anticipated to be non-deductible, we established aremaining valuation allowance. For the filing periods of 2005 to 2007, we reached a settlement in 2012 with the IRS for legacy Morrison Homes which reduced our income tax expense by $15.0 millionallowance related to built in losses was released during the Section 382 issue. Income tax payable in the accompanying Consolidated Balance Sheets atperiod ended December 31, 2012, includes reserves of $8.7 million and $74.8 million related to this issue for the2016.

We have certain tax years 2009 and 2008, respectively. For the filing periods of 2009 and 2008, we reached a settlement in 2013 with the IRS for the legacy Morrison Homes which reduced our income tax expense by $83.5 million.

The most significant judgments we make in our assessment of the need for a valuation allowance involve estimating the amount of built-in losses that may be utilizedattributes available to offset the impact of future taxable income from the sale of real estate inventory that it held on the Acquisition date, and the ability to utilize NOLs as limited by Section 382 of the IRC. Making such estimates and judgments, particularly pertaining to the future ability to utilize built-in losses, is subject to inherent uncertainties.

We recorded a full valuation allowance against all of our U.S. deferred tax assets during 2007 due to economic conditions and the weight of negative evidence at that time. During the fourth quarter of 2012, we reversed a large portion of the valuation allowance because the weight of the positive evidence exceeded that of the negative evidence. At December 31, 2014 and December 31, 2013 we retained a valuation allowance of $8.9 million and $40.0 million, respectively, primarily related to Canadian net operating losses and deferred tax assets in the United States which are subject to restrictions on utilization according to IRC Section 382. In evaluating the need for a valuation allowance at

December 31, 2014, we considered available positive and negative evidence, including that our last four years of cumulative results became profitable during the fourth quarter of 2012 and continues to be the case as of December 31, 2014. We also took into account evidence of recovery in the housing markets where we operate and our level of pre-tax income and growth in sales orders. The prospects of continued profitability and growth were further supported by a strong order backlog and sufficient balance sheet liquidity to sustain and grow operations. In addition, most of our tax jurisdictions have a 20-year NOL carryforward utilization period during which time we fully expect to be able to absorb NOL carryovers and temporary differences as they reverse in future years.

taxes. The components of net deferred tax assets and liabilities at December 31, 20142016 and 2013,2015, consisted of timing differences related to inventory impairment, expense accruals, provisions for liabilities, and NOL carryforwards. We have approximately $150.2$144.7 million in available federal NOL carryforwards, which will begin to expire in 2027. We haveand approximately $31.8$4.2 million in available NOL carryforwards related to the Canadian operations which will begin to expire in 2031.operations. A summary of these components is as follows (in thousands):

   December 31, 
   2014   2013 

Deferred tax assets

    

Real estate inventory

  $157,722    $179,548  

Accruals and reserves

   18,366     19,367  

Other

   21,217     22,601  

Net operating losses

   72,148     73,222  

Foreign exchange

   —       959  
  

 

 

   

 

 

 

Total deferred tax assets

$269,453  $295,697  

Deferred tax liabilities

Real estate inventory, intangibles, other

 (2,342)  (13,011) 

Valuation allowance

 (8,921)  (40,030) 
  

 

 

   

 

 

 

Total net deferred tax assets(1)

$258,190  $242,656  
  

 

 

   

 

 

 

(1)The amounts shown do not include deferred tax assets for discontinued operations of $3.2 million and $2.3 million for the years ended December 31, 2014 and 2013, respectively.

follows:


 Year Ended December 31,
(Dollars in thousands)2016  2015
Deferred tax assets:    
Real estate inventory$99,876
  $133,813
Accruals and reserves27,519
  18,865
Other23,692
  23,473
Net operating losses62,181
(2) 
 60,695
Total deferred tax assets$213,268
  $236,846
Deferred tax liabilities:    
Real estate inventory, intangibles, other(2,621)  (793)
Foreign exchange(3,497)  —
Valuation allowance(516)  (2,565)
Total net deferred tax assets$206,634
  $233,488
(2) A portion of our net operating losses is limited by Section 382 of the IRC, stemming from the 2011 acquisition of the Company by our Principal Equityholders, as such acquisition was deemed a change in control as defined by Section 382.
We account for uncertain tax positions in accordance with ASC 740. This guidance clarifies the accounting for uncertainty in income taxes and prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. ASC 740 requires a company to recognize the financial statement effect of a tax position when it is more likely than not (defined as a substantiated likelihood of more than 50%) based on the technical merits of the position that the position will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to be recognized in the financial statements based upon the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Our inability to determine that a tax position meets the more-likely-than-not recognition threshold does not mean that the Internal Revenue Service (“IRS”) or any other taxing authority will disagree with the position that we have taken.

If a tax position does not meet the more-likely-than-not recognition threshold despite our belief that our filing position is supportable, the benefit of that tax position is not recognized in the financial statements and we are required to accrue potential interest and penalties until the uncertainty is resolved. Potential interest and penalties are recognized as components of the provision for income taxes in the accompanying Consolidated Statements of Operations. Differences between amounts taken in a tax return and amounts recognized in the Consolidated Financial Statements are considered unrecognized tax benefits. We believes that we have a reasonable basis for each of our filing positions and intends to defend those positions if challenged by the IRS or other taxing jurisdictions.

Following


The following is a reconciliation of the total amounts of unrecognized tax benefits (in thousands):

   Year Ended December 31, 
   2014   2013   2012 

Beginning of the period

  $2,035    $85,703    $98,322  

Increases of current year items

   —       7,200     1,394 

Increases of prior year items

   318     252     390  

Settlement with tax authorities

   —       (90,442)    (615) 

Decreases for tax positions of prior years

   —       —       (12,865) 

Decreases due to statute of limitations

   —       (678)    (923) 
  

 

 

   

 

 

   

 

 

 

End of the period (1)

$2,353  $2,035  $85,703  
  

 

 

   

 

 

   

 

 

 

benefits:

 Year Ending December 31,
(Dollars in thousands)2016 2015 2014
Beginning of the period$7,016
 $2,353
 $2,035
Increases of current year items18
 5,217
 —
Increases of prior year items739
 —
 318
Decreased for tax positions of prior years—
 (554) —
End of the period(1)$7,773
 $7,016
 $2,353
(1)
The amounts shown do not includeexclude unrecognized tax benefits for discontinued operations of $6.2 million $7.9 million and $9.8 million for the yearsyear ended December 31, 2014 2013 and 2012, respectively..

There were no potential penalties

All unrecognized tax benefits, if recognized, would affect the effective tax rate. These amounts are included in income taxes payable and interest expense recorded on our uncertainas a reduction to deferred tax positions forassets in the year endedaccompanying Consolidated Balance Sheets at December 31, 2014. During the years ended2016 and December 31, 2013, and 2012, we2015.

We recognized potential penalties and interest expense on our uncertain tax positions of $$0.3$0.4 million and $3.0$0.3 million at December 31, 2016 and 2015, respectively, which is included in income tax provision (benefit) in the accompanying Consolidated Statements of Operations. There are no accrued interestOperations and penalties recorded at December 31, 2014, and $1.2 million are recorded at December 31, 2013, and are included in other liabilitiesincome taxes payable in the accompanying Consolidated Balance Sheets. InterestThere were no potential penalties and penalties of $18.4 million were released ininterest expense recorded on uncertain tax positions for the year ended December 31, 2013,2014.
We are currently under examination by certain taxing authorities and no interest and penalties were released inanticipate finalizing these examinations during the year ended December 31, 2014.

13.next twelve months. The outcome of these examinations is not currently determinable. The statute of limitations for our major taxing jurisdictions remains open for examination for tax years 2012 through 2016.


14. STOCKHOLDERS’ EQUITY


Capital Stock — The following table provides information on the number of shares outstanding and reserved by class of stock at December 31, 2014:

Shares

Class A Common Stock issued and outstanding

33,060,540

Class A Common Stock reserved for outstanding stock options and restricted stock units

1,510,708

Class A Common Stock reserved for outstanding New TMM Unit exchanges(1)

1,431,721

Class A Common Stock reserved for future stock option and restricted stock unit issuances

6,439,532

Class B Common Stock issued and outstanding

89,227,416

Preferred Stock

—  

(1)One New TMM Unit together with a corresponding share of Class B Common Stock is exchangeable for one share of Class A Common Stock. Class A Common Stock reserved for outstanding New TMM Unit exchanges relate to time-vesting TMM Units held by certain members of TMHC’s management and Board. SeeNote 14 — Stock Based Compensation — New TMM Units for additional details.


Holders of Class A Common Stock and Class B Common Stock are entitled to one vote for each share held on all matters submitted to stockholders for their vote or approval. The holders of Class A Common Stock and Class B Common Stock vote

together as a single class on all matters submitted to stockholders for their vote or approval, except with respect to the amendment of certain provisions of theour amended and restated Certificate of Incorporation that would alter or change the powers, preferences or special rights of the Class B Common Stock so as to affect them adversely. Such amendments must be approved by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment, voting as a separate class, or as otherwise required by applicable law. The voting power of the outstanding Class B Common Stock (expressed as a percentage of the total voting power of all common stock) is equal to the percentage of partnership interests in New TMM not held directly or indirectly by TMHC.


The components and respective voting power of our outstanding Common Stock at December 31, 2014 are2016 were as follows:

   Shares
Outstanding		   Percentage 

Class A Common Stock

   33,060,540     27.0% 

Class B Common Stock

   89,227,416     73.0  
  

 

 

   

 

 

 

Total

 122,287,956   100.0% 

follows(1):


 
Shares
Outstanding
 Percentage
Class A Common Stock30,486,858
 25.5%
Class B Common Stock88,942,052
 74.5%
Total119,428,910
 100.0%
(1)See Note 23 - Subsequent Events for changes to ownership subsequent to December 31, 2016.


Initial Public Offering


On April 12, 2013, we completed our IPO of 32,857,800 shares of itsour Class A Common Stock, including 4,285,800 shares of Class A Common Stock sold in connection with the full exercise of the option to purchase additional shares granted to the underwriters, at a price to the public of $22.00 per share, resulting in net proceeds of $668.6 million to the Company. The shares began trading on the New York Stock Exchange (NYSE”(“NYSE”) on April 10, 2013 under the ticker symbol “TMHC.” As a result of the completion of the IPO and the Reorganization Transactions, TMHC became the indirect parent of TMM Holdings.


Reorganization Transactions


In connection with the IPO, we completed the Reorganization Transactions, which are described in this Annual Report on Form 10-K.


In the Reorganization Transactions, the TPG Holding Vehicle and the Oaktree Holding Vehicle acquired the existing limited partnership interests in TMM Holdings from the holders thereof (including the Principal Equityholders and certain members of TMHC’s management and Board) and contributed those limited partnership interests in TMM Holdings to a new limited partnership, New TMM, such that TMM Holdings and the general partner of TMM became wholly-owned subsidiaries of New TMM. TMHC, through a series of transactions, became the sole owner of the general partner of New TMM.


Immediately following the consummation of the Reorganization Transactions, the limited partners of New TMM consisted of TMHC, the TPG Holding Vehicle, the Oaktree Holding Vehicle and certain members of TMHC’s management and Board. The number of New TMM Units issued to each of the limited partners described above was determined based on a hypothetical cash distribution by TMM Holdings of its pre-IPO value, the IPO and the price per share paid by the underwriters for shares of Class A Common Stock in the IPO, resulting in the issuance to those limited partners of 112,784,964 New TMM Units and one share of Class B Common Stock for each such New TMM Unit. One share of Class B Common Stock, together with one New TMM Unit is exchangeable into a share of Class A Common Stock.

Use of Proceeds from the IPO

The net proceeds See Note 23 - Subsequent Events for changes to TMHC from the IPO were $668.6 million after deducting underwriting discounts and commissions and offering costs. TMHC used $204.3 million of the net proceeds from the IPOthis ownership subsequent to acquire New TMM Units from New TMM (at a price equal to the price paid by the underwriters for each share of Class A Common Stock in the IPO). TMHC used the remaining $464.4 million of the net proceeds from the IPO, together with $18.1 million of cash on hand, to purchase 23,333,800 New TMM Units and the corresponding shares of Class B Common Stock (at a price equal to the price paid by the underwriters for each share of Class A Common Stock in the IPO) held by the TPG and Oaktree Holding Vehicles, the JH Entities and certain members of the Company’s management.

Since TMHC purchased the New TMM Units at a valuation in excess of the proportion of the book value of net assets acquired, we incurred an immediate dilution of $297.6 million, which is calculated as the net proceeds used to purchase New TMM Units of $668.6 million less the book value of such interests of $371.0 million. This dilution is reflected within additional paid-in capital as a reallocation from additional paid-in capital to non-controlling interests — Principal Equityholders in the accompanying 2013 Consolidated Statement of Stockholders’ Equity.

December 31, 2016.


Stock Repurchase Program

On November 3, 2014, our


Our Board of Directors has authorized the repurchase of up to $50.0$100.0 million of the Company’s Class A Common Stock from time to time between now andthrough December 31, 20152017 in open market purchases, privately negotiated transactions or other transactions. The stock repurchase program will beis subject to prevailing market conditions and other considerations, including our liquidity, the terms of our debt instruments, statutory requirements, planned land investment and development spending, acquisition and other investment opportunities and ongoing capital requirements. There was no activity under this plan duringDuring the year ended December 31, 2016 and 2015 there were an aggregate of 1,918,999 and 934,434 shares of Class A Common Stock repurchased for $28.5 million and $15.0 million, respectively. During the year ended December 31, 2014 or through the date of this filing.

14.there was no repurchase activity.




15. STOCK BASED COMPENSATION


Equity-Based Compensation


In April 2013, we adopted the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan, which was amended and restated in May 2016 (the “Plan”"Plan"). The Plan provides for the grant of stock options, restricted stock units,RSUs and other equity awards based on our common stock. As of December 31, 2014 the maximum number2016 we had an aggregate of 4,130,264 shares of our Class A Common Stock that had been approved and may be subject to awardsavailable for future grants under the Plan is 7,956,955, subject to adjustment in accordance with the terms of the Plan.


The following table provides information regarding the amount of Class A Common Stock available for future grants under the Plan:

   Year Ended December 31, 
   2014   2013   2012 

Balance, beginning

   6,517,310     —       NA  

Shares approved for issuance under the Plan

   —       7,956,955     NA  

Grants

   (103,622)    (1,581,675)    NA  

Forfeited/cancelled

   25,641     142,030     NA  

Shares withheld for tax withholdings

   203     —       NA  
  

 

 

   

 

 

   

 

 

 

Balance, ending

 6,439,532   6,517,310   NA  
  

 

 

   

 

 

   

 

 

 


 Year Ended December 31,
 2016 2015 2014
Balance, beginning5,992,621
 6,439,532
 6,517,310
Grants(2,238,242) (847,194) (103,622)
Forfeited/cancelled375,682
 397,580
 25,641
Shares withheld for tax withholdings203
 2,703
 203
Balance, ending4,130,264
 5,992,621
 6,439,532

The following table provides information regarding the amount and components of stock-based compensation expense, which is included in general and administrative expenses in the accompanying Consolidated Statements of Operations:

(Dollars in thousands)  Year Ended December 31, 
  2014   2013   2012 

Restricted stock units (RSUs)(1)

  $1,263    $815    $—    

Stock options

   2,920     2,043     —    

New TMM Units

   1,648     4,270     1,975  

J Units

   —       80,190     —    
  

 

 

   

 

 

   

 

 

 

Total stock compensation

$5,831  $87,318  $1,975  
  

 

 

   

 

 

   

 

 

 

Income tax benefit recognized

$53  $—    $—    
  

 

 

   

 

 

   

 

 

 


(Dollars in thousands)Year Ended December 31,
2016 2015 2014
Restricted stock units (RSUs) (1)
$6,101
 $3,335
 $1,263
Stock options3,717
 4,416
 2,920
New TMM Units1,094
 1,678
 1,648
Total stock compensation$10,912
 $9,429
 $5,831
Income tax (expense)/benefit recognized$(53) $(93) $53
(1) 
Includes compensation expense related to restricted stock units and performance restricted stock units.


At December 31, 2014, 2013,2016, 2015, and 2012,2014, the aggregate unamortized value of all outstanding stock-based compensation awards was approximately $18.8 million, $15.2 million, and $16.0 million, $21.3 million and $6.9 million, respectively.

Information about our stock-based compensation plans noted in the table above, including information about equity-based compensation issued prior to the IPO, is detailed below.


Stock Options— Options granted to employees vest and become exercisable ratably on the second, third, fourth and fifth anniversary of the date of grant.grant over four or five years. Options granted to members of the Board of Directors vest and become exercisable ratably on the first, second and third anniversary of the date of grant. Vesting of the options is subject to continued employment with TMHC or an affiliate, or continued service on the Board of Directors, through the applicable vesting dates and expires within ten years from the date of grant.



The following table summarizes stock option activity for the Plan for the year ended December 31, 2014:

   Year Ended December 31, 
   2014   2013   2012 
   Number of
Options		  Weighted
Average
Exercise
Price		   Number of
Options		  Weighted
Average
Exercise
Price		   Number of
Options		   Weighted
Average
Exercise
Price		 

Outstanding, beginning

   1,250,829   $22.45     —    $—      NA     NA  

Granted

   95,700    20.91    1,380,829    22.41    NA     NA  

Exercised

   —     —      —     —      NA     NA  

Cancelled

   (21,500)   22.00     (130,000)   22.00     NA     NA  
  

 

 

    

 

 

      

Balance, ending

 1,325,029  $22.35   1,250,829  $22.45   NA   NA  
  

 

 

    

 

 

      

Options exercisable, at December 31, 2014

 7,963  $20.93   —   $—    NA   NA  
  

 

 

    

 

 

      

   December 31, 
(Dollars in thousands)  2014   2013 

Unamortized value of unvested stock options (net of estimated forfeitures)

  $10,092    $12,424  

Weighted-average period (in years) that expense is expected to be recognized

   3.4     4.3  

Weighted-average remaining contractual life (in years) for options outstanding

   8.3     9.3  

Weighted-average remaining contractual life (in years) for options exercisable

   8.5     NA  

2016:


 Year Ended December 31,
 2016 2015 2014
 
Number of
Options
 
Weighted
Average
Exercise
Price
 
Number of
Options
 
Weighted
Average
Exercise
Price
 
Number of
Options
 
Weighted
Average
Exercise
Price
Outstanding, beginning1,507,765
 $21.07
 1,325,029
 $22.35
 1,250,829
 $22.45
Granted1,146,643
 11.61
 400,258
 18.78
 95,700
 20.91
Exercised(7,786) 18.73
 —
 —
 —
 —
Cancelled(215,275) 15.76
 (217,522) 24.62
 (21,500) 22.00
Balance, ending2,431,347
 $17.09
 1,507,765
 $21.07
 1,325,029
 $22.35
Options exercisable, at December 31, 2016633,059
 $21.50
 267,168
 $21.98
 7,963
 $20.93

 As of December 31,
(Dollars in thousands)2016 2015 2014
Unamortized value of unvested stock options (net of estimated forfeitures)$7,317
 $8,135
 $10,092
Weighted-average period (in years) that expense is expected to be recognized2.3
 2.6
 3.4
Weighted-average remaining contractual life (in years) for options outstanding7.7
 7.9
 8.3
Weighted-average remaining contractual life (in years) for options exercisable6.1
 7.3
 8.5

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model. Expected volatilities and expected term are based on the historical information of five comparable publicly traded homebuilders. Due to the limited number and homogeneous nature of option holders, the expected term was evaluated using a single group. The risk-free rate is based on the U.S. Treasury yield curve for periods equivalent to the expected term of the options on the grant date. The fair value of stock option awards is recognized evenly over the vesting period of the options.


The following table summarizes the weighted-average assumptions and fair value used for stock options grants:

   Year Ended December 31,
   2014  2013  2012

Expected dividend yield

  0.00 %  0.00%  N/A

Expected volatility

  48.60 %  56.59 %  N/A

Risk-free interest rate

  1.13 % – 1.34 %  0.54%  N/A

Expected term (years)

  4.50  4.28  N/A

Weighted average fair value of options granted during the period

  $8.59  $11.57  N/A


 Year Ended December 31,
 2016 2015 2014
Expected dividend yield—% —% —%
Expected volatility29.83% 48.66% 48.60%
Risk-free interest rate1.35% 1.27% 1.13 % – 1.34 %
Expected term (in years)6.25 4.50 4.50
Weighted average fair value of options granted during the period$3.72 $7.73 $8.59

The following table provides information pertaining to the aggregate intrinsic value of options outstanding and exercisable at December 31, 2014, 2013,2016, 2015, and 2012:

   December 31, 
(Dollars in thousands)  2014   2013   2012 

Aggregate intrinsic value of options outstanding

  $8,046    $520    N/A  

Aggregate intrinsic value of options exercisable

  $—     $—       N/A 

2014:


 As of December 31,
(Dollars in thousands)2016 2015 2014
Aggregate intrinsic value of options outstanding$8,054
 $—
 $8,046
Aggregate intrinsic value of options exercisable$50
 $—
 $—

The aggregate intrinsic value is based on the market price of our Class A Common Stock on December 31, 2014,30, 2016, the last trading day in December 2014,2016, which was $18.89,$19.26, less the applicable exercise price of the underlying option. This

aggregate intrinsic value represents the amount that would have been realized if all the option holders had exercised their options on December 31, 2014.

2016.


Performance-Based Restricted Stock Units– In April 2013, awards of performance-based restricted stock units (“PRSUs”) were granted to certain senior management and members of the Board in connection with the IPO. The awards become vested with respect to 25% of the PRSUs on each of the first four anniversaries of the grant date; provided, that, if the performance condition has not been met as of any such annual vesting date, then such portion of the PRSUs shall continue to have the opportunity to become vested with respect to the performance condition on such subsequent date on which the performance condition is first satisfied. The “performance condition” shall be satisfied only if the weighted average price (after reduction for underwriting discount and commissions) at which the TPG and Oaktree Holding Vehicles have actually sold their New TMM Units or related shares of Class A Common Stock, exceeds the $22.00 price per share of the TMHC’s Class A Common Stock paid by the public in the IPO, it being understood that (i) all sales by the Principal Equityholders through December 31, 2015 will be included. If the performance condition has not been met asAs of December 31, 2015

the performance condition was not met, therefore all of the PRSUs being granted subject to the performance condition shall bewere automatically forfeited without consideration and are of no further force or effect. Vesting

In 2015 and 2016, we issued PRSUs to certain employees of the PRSUs isCompany. These awards will vest in full based on the achievement of certain performance goals over a three-year performance period, subject to the employee’s continued employment with TMHC or an affiliate, or continued service on the Board of Directors (as applicable), through the applicable vesting dates as specified in the award document.

The valuelast date of the PRSUs was determined toperformance period and will be equal to the number ofsettled in shares awarded multiplied by $24.30, which was the closing price of our Class A Common Stock oncommon stock. The number of shares that may be issued in settlement of the NYSE onPRSUs to the date of issuance. As these awards contain both service and market performance conditions, we have recorded the compensation expense related to these awards over the service period as that condition is longeraward recipients may be greater or lesser than the markettarget award amount depending on actual performance condition.

achieved as compared to the performance targets set forth in the awards.


The following table summarizes the activity of our PRSUs:

   Year Ended
December 31,		 
(Dollars in thousands):  2014   2013 

Balance, beginning

   179,931     —    

Granted

   —       191,961  

Vested

   —       —    

Forfeited

   (4,141)   (12,030) 
  

 

 

   

 

 

 

Balance at, ending

 175,790   179,931  

(Dollars in thousands):  2014   2013 

PRSU expense recognized during the year ended December 31

  $1,054    $780  

Unamortized value of PRSUs at December 31

  $2,438    $3,593  

Weighted-average period expense is expected to be recognized

   2.3     3.3  


 Year Ended December 31,
 2016 2015 2014
Balance, beginning254,543
 175,790
 179,931
Granted674,525
 260,144
 —
Vested—
 (2,885) —
Forfeited(104,851) (178,506) (4,141)
Balance, ending824,217
 254,543
 175,790

 Year Ended December 31,
(Dollars in thousands):2016 2015 2014
PRSU expense recognized during the year ended December 31$4,016
 $2,405
 $1,054
Unamortized value of PRSUs at December 31$6,390
 $4,520
 $2,438
Weighted-average period expense is expected to be recognized (in years)1.9
 1.9
 2.3

Non-Performance-Based Restricted Stock Units — Our non-performance-based restricted stock units (“RSUs”) consist of shares of our Class A Common Stock that have been awarded to our employees and members of our Board of Directors. Vesting of RSUs is subject to continued employment with TMHC or an affiliate, or continued service on the Board of Directors, through the applicable vesting dates. Time-based RSUs granted to employees willgenerally become vested with respect to 25%33% of the RSUs on each of the first foursecond, third, and fourth anniversaries of the grant date. Time-based RSUs granted to members of the Board of Directors will become fully vested on the first anniversary of the grant date.


The following tables summarize the activity of our RSUs (dollars in thousands except per share amounts):

   Year Ended December 31, 
   2014   2013   2012 
   Number of
RSUs		  Weighted
Average
Grant
Date Fair
Value		   Number of
RSUs		   Weighted
Average
Grant
Date Fair
Value		   Number of
RSUs		   Weighted
Average
Grant
Date Fair
Value		 

Outstanding, beginning

   8,885   $20.82     —     $—      NA     NA  

Granted

   7,922    22.09    8,885     20.82    NA     NA  

Vested

   (6,919)   20.24    —      —      NA     NA  

Forfeited

   —     —      —      —      NA     NA  
  

 

 

    

 

 

       

Balance, ending

 9,889  $22.25   8,885  $20.82   NA   NA  
  

 

 

    

 

 

       

(Dollars in thousands):  2014   2013 

RSU expense recognized during the year ended December 31

  $209    $36  

Unamortized value of RSUs at December 31

   100    $149  

Weighted-average period expense is expected to be recognized

   1.3     1.9  

RSUs:


 Year Ended December 31,
 2016 2015 2014
(Dollars in thousands except per share data):
Number of
RSUs
 
Weighted
Average
Grant
Date Fair
Value
 
Number of
RSUs
 
Weighted
Average
Grant
Date Fair
Value
 
Number of
RSUs
 
Weighted
Average
Grant
Date Fair
Value
Outstanding, beginning186,753
 $18.88
 9,888
 $22.25
 8,885
 $20.82
Granted417,074
 11.99
 186,792
 18.85
 7,922
 22.09
Vested(13,787) 19.66
 (8,375) 22.15
 (6,919) 20.24
Forfeited(55,556) 13.83
 (1,552) 18.73
 —
 —
Balance, ending534,484
 $14.01
 186,753
 $18.88
 9,888
 $22.25

 Year Ended December 31,
(Dollars in thousands):2016 2015 2014
RSU expense recognized during the year ended December 31$2,086
 $930
 $209
Unamortized value of RSUs at December 31$4,666
 $2,527
 $100
Weighted-average period expense is expected to be recognized (in years)2.7
 3.0
 1.3


The Plan permits us to withhold from the total number of shares that would otherwise be distributed to a recipient on vesting of an RSU, an amount equal to the number of shares having a fair value at the time of distribution equal to the applicable income tax withholdings due and remit the remaining RSU shares to the recipient. During the yeartwelve months ended December 31, 2014,2016 and 2015, a total of 203 and 2,703 shares, respectively, were withheld on net settlement for a de minimis amount.


Equity-Based Compensation Prior to the IPO


New TMM Units — Certain members of management and certain members of the Board of Directors were issued Class M partnership units in TMM Holdings prior to the IPO as long-term incentive compensation under the Class M Unit Plan.Holdings. Those units were subject to both time and performance vesting conditions. In addition, TMM Holdings issued phantom Class M Units to certain employees who resided in Canada, which wereare treated as Class M Units for the purposes of this description and the financial statements. In connection with the sale of Monarch, all of the phantom Class M Units were settled pursuant to the change in control provision discussed below.

Pursuant to the Reorganization Transactions and IPO, the performance based Class M Units in TMM Holdings were exchangedprovisions provided for new equity interests of the TPG and Oaktree Holding Vehicles with terms that are substantially the same (“Holding Vehicle Performance Units”), as the Class M Units in TMM Holdings that were surrendered for exchange. Concurrent with the IPO in the second quarteraward agreement. In the year ended December 31, 2015, we paid $1.4 million in settlement of 2013, we determined that itthese awards, however there was probable that the performance conditions for the 752,782 Holding Vehicle Performance Units outstanding would be met. Consequently, we recorded the $2.8 million grant date fair value related to those Holding Vehicle Performance Units as general and administrative expenses in the Consolidated Statement of Operationsno activity for the year ended December 31, 2013.

2016.

Pursuant to the Reorganization Transactions, and IPO, the time-vesting Class M Units in TMM Holdings were exchanged for New TMM Units with vesting terms substantially the same as the Class M Units surrendered for exchange. Vesting of the time vestingOne New TMM Units is subject to continued employmentUnit together with TMHC or an affiliate, or continued service on the Boarda corresponding share of Directors, through the applicable vesting dates. Time vesting New TMM Units become vested with respect to 20% on each of the first five anniversaries of the date of grant. Compensation expense related to these awards is recognized on a straight-line basis over the five year service term. In addition, upon termination of a participant for any reason other than cause or upon resignation for good reason within the 24 month period following a change in control, all the then outstanding unvested time vesting New TMM Units are to immediately vest upon such termination.

As of December 31, 2014 and 2013, there were 639,401 and 484,185, respectively, vested and unexercised time vesting New TMM Units outstanding and the corresponding shares of our Class B Common Stock are included in the 89,227,416 and 89,451,164is exchangeable for one share of Class A Common Stock. The shares of Class B common stockCommon Stock/New TMM Units outstanding as of December 31, 2016, 2015, and 2014 and 2013, respectively.

The following tables summarize the activity of our time vesting New TMM Unit awards:

   Year Ended December 31, 
   2014   2013 
   Number of
Awards		   Weighted
Average Grant
Date Fair Value		   Number of
Awards		  Weighted
Average Grant
Date Fair Value		 

Outstanding, beginning

   1,655,469    $5.02     1,812,099(1)  $4.90 

Paid out in connection with the IPO

   —      —      (156,630)   3.64 

Exchanges(2)

   (196,024)    4.22    —     —   

Forfeited(3)

   (27,724)    6.09     —     —   
  

 

 

     

 

 

  

Balance, ending

 1,431,721  $5.11   1,655,469  $5.02  
  

 

 

     

 

 

  

Unvested New TMM Units included in ending balance

 792,320  $5.30   1,171,284  $5.20  
  

 

 

     

 

 

  

were as follows:
 Year Ended December 31,
 2016 2015 2014
 
Number of
Awards
 
Weighted
Average Grant
Date Fair Value
 
Number of
Awards
 
Weighted
Average Grant
Date Fair Value
 
Number of
Awards
 
Weighted
Average Grant
Date Fair Value
Outstanding, beginning1,312,874
 $5.45
 1,431,721
 $5.11
 1,655,469
 $5.02
Exchanges (1)
(159,863) 4.34
 (87,055) 3.88
 (196,024) 4.22
Forfeited (2)
(6,654) 8.63
 (31,792) 5.24
 (27,724) 6.09
Balance, ending1,146,357
 $5.58
 1,312,874
 $5.45
 1,431,721
 $5.11
Unvested New TMM Units included in ending balance80,178
 $8.73
 419,855
 $5.85
 792,320
 $5.30

(1)Periods prior to the IPO reflect time-vesting Class M Units in TMM Holdings. As such, 2012 amounts have not been presented. The balance at January 1, 2013 shown above reflects the New TMM Unit equivalent of time-vesting Class M Units in TMM Holdings.
(2)(1)Exchanges during the period represent the exchange of a vested New TMM Unit along with the corresponding share of Class B Common Stock for a newly issued share of Class A Common Stock.
(3)
(2)Awards forfeited during the period represent the unvested portion of New TMM Unit awards for employees who have terminated employment with the Company and for which the New TMM Unit and the corresponding Class B Share have been cancelled.

   December 31, 
(Dollars in thousands):  2014   2013 

Unamortized value of New TMM Units

  $3,345    $5,162  

Weighted-average period expense is expected to be recognized

   2.2     3.2  


 Year Ended December 31,
(Dollars in thousands):2016 2015 2014
Unamortized value of New TMM Units$417
 $1,568
 $3,345
Weighted-average period expense is expected to be recognized (in years)0.6
 0.8
 2.2

There are no unissued New TMM Unit awards remaining under the Class M Unit Plan and we do not intend to grant any future awards under the Class M Unit Plan.

Equity-Based Awards to Non-Employees-Class J Units of Holding Vehicles — In connection with the Acquisition, TMM Holdings issued Class J Units to the JH Entities as awards to non-employees for services rendered to TMM Holdings under the JHI Management Services Agreement (the “JHI Services Agreement”) between JH Investments, Inc. and TMM Holdings. Class J Units issued in the Acquisition were subject to performance-based vesting conditions based on whether the TPG Entities and the Oaktree Entities had achieved certain specified threshold rates of return on their Class A Units in TMM and those returns had been realized in cash. Because achievement of these performance-based vesting conditions was never probable, we determined that no expense for the value of the Class J Units was required to be recorded in our financial statements for any period prior to the occurance of the Reorganization Transactions.

As part of the Reorganization Transactions, the JH Entities directly or indirectly exchanged all of their respective Class J Units in TMM Holdings on a one-for-one basis for new equity interests of the TPG and Oaktree Holding Vehicles with terms that were substantially the same (other than with respect to certain vesting conditions) as the Class J Units of TMM Holdings surrendered for exchange.

In connection with the Reorganization Transactions, the JHI Services Agreement was terminated, resulting in a modification of the Class J Units (the removal of a service vesting condition) under ASC Topic 718-20-35-3, requiring the recognition of $80.2 million of indemnification and transaction expense in the accompanying Consolidated Statement of Operations for the year ended December 31, 2013.

Fair Value of Equity Awards Granted Prior to the IPO —For grants issued by TMM Holdings prior to the IPO, principles of option pricing theory were used to calculate the fair value of the subject grants. Under this methodology, the various classes of TMM Holdings Units were modeled as call options with distinct claims on the assets of TMM Holdings. The characteristics of the Unit classes, as determined by the unit agreements and the TMM Holdings limited

partnership agreement, determined the uniqueness of each Unit’s claim on TMM Holdings’ assets relative to each other and the other components of TMM Holdings’ capital structure. Periodic valuations were performed in order to properly recognize equity-based compensation expense in the accompanying Consolidated Statements of Operations as general and administrative expenses.

15.




16. RELATED-PARTY TRANSACTIONS


From time to time, we may engage in transactions with entities or persons that are affiliated with us or one or more of the Principal Equityholders. For the year ended December 31, 2016, there were no such transactions. There were $40.5$16.8 million and $16.0$40.5 million in real estate inventory acquisitions from such affiliates in the years ended December 31, 20142015 and 2013,2014, respectively. We believe such real estate transactions with related parties are in the normal course of operations and are executed at arm’s length as they are entered into at terms comparable to those with unrelated third parties.

See Note 23 - Subsequent Events for changes to Principal Equityholder ownership subsequent to December 31, 2016.



In May 2015, one of our subsidiaries formed a joint venture, Pacific Point Development Partners LLC ("PPDP"), with affiliates of Oaktree Capital Management, L.P. and DMB Pacific Ventures to acquire and develop Pacifica San Juan, a coastal residential development in San Juan Capistrano, California. The acquisition of the Pacifica San Juan site from Lehman Brothers Holdings, Inc. occurred on May 19, 2015. Our subsidiary has made an initial capital investment of approximately $16.8 million in PPDP and is a minority capital partner and also the operating partner responsible for land development and homebuilding on the Pacifica San Juan site. In May 2015, PPDP entered into an approximately $257.9 million non-recourse construction and development loan with affiliates of Starwood Property Mortgage, L.L.C. as initial lender and administrative agent to finance development and home construction at the Pacifica San Juan site. In connection with entering into the loan agreement, one of our subsidiaries provided the lenders with customary guarantees, including completion, indemnity and environmental guidelines subject to usual non-recourse terms.

In April 2014, one of our subsidiaries formed a joint venture, Marblehead Development Partners LLC (“MDP”), with affiliates of Oaktree and TPG to acquire and develop Marblehead, a coastal residential development in San Clemente, California consisting of 195.5 acres. The acquisition of the Marblehead site from LV Marblehead, a subsidiary owned by Lehman Brothers Holdings Inc., occurred on April 8, 2014. Our subsidiary has made an initial capital investment of approximately $46.8 million in MDP and is a minority capital partner and also the operating partner responsible for land development and homebuilding on the Marblehead site, for which we will be entitled to receive an incrementally greater return on our capital investment if the Marblehead project achieves certain economic performance thresholds. In July 2014, MDP entered into an approximately $264.2 million non-recourse construction and development loan with affiliates of Starwood Property Trust as initial lender and administrative agent to finance development and home construction at the Marblehead site. In connection with entering into the loan agreement, one of our subsidiaries provided the lenders with customary guarantees, including completion, indemnity and environmental guarantees subject to usual non-recourse terms. Home construction and sales at the Marblehead site is expected to beginbegan in 2015.


In December 2014, one of our subsidiaries formed a joint venture, Tramonto Development Partners, LLC, with an affiliate of Oaktree. Our subsidiary has made an initial capital investment of $16.5 million and is the administrative member and therefore designated to manage the administrative affairs of the joint venture. In connection with the formation of the joint venture, our subsidiary entered into a $54.5 million non-recourse construction and development loan to finance development and home construction within the Tramonto joint venture. In connection with entering into the loan agreement, one of our subsidiaries provided the lenders with customary guarantees, including completion, indemnity and environmental guarantees subject to usual non-recourse terms. An affiliate of TPG subsequently acquired a majority participation in the Tramonto loan.

Management and Advisory Fees— In connection with the Acquisition, affiliates of the Principal Equityholders entered into services agreements with TMC and Monarch relating to the provision of financial and strategic advisory services and consulting services. Subsidiaries of the Company paid affiliates of the Principal Equityholders a one-time transaction fee of $13.7 million for structuring the Acquisition. In addition, the Company paid a monitoring fee for management services and advice. The management services agreement with affiliates of TPG and Oaktree was terminated immediately prior to the IPO in exchange for an aggregate payment of $29.8 million split equally between affiliates of TPG and Oaktree, which was recorded as a transaction expense for the year ended December 31, 2013. Management fees for the year ended December 31, 2013 were $1.4 million, and such fees are included in general and administrative expenses in the accompanying Consolidated Statements of Operations. There were no similar fees in 2014.

In addition, in conjunction with the formation of TMM Holdings and in connection with the Acquisition, an affiliate of JH entered into the JHI Services Agreement relating to the provision of certain services to TMM Holdings. In consideration of these services, TMM Holdings granted to the JH affiliate an amount of Class J Units, subject to certain terms, conditions and restrictions contained in a unit award agreement and the TMM Holdings limited partnership agreement. Prior to the IPO, in connection with the Reorganization Transactions, the Company recorded a one-time, non-cash indemnification and transaction expense of $80.2 million for the year ended December 31, 2013 in respect of the modification of the Class J Units in TMM Holdings, resulting from the termination of the JHI Services Agreement, and the direct or indirect exchange (on a one-for-one basis) of the Class J Units in TMM Holdings for units having substantially equivalent performance vesting and distribution terms in the TPG and Oaktree Holding Vehicles.

16.





17. EMPLOYEE BENEFIT, RETIREMENT, AND DEFERRED COMPENSATION PLANS


We maintain a defined contribution plan pursuant to Section 401(k) of the IRC (“401(k) Plan”). Each eligible employee may elect to make before-tax contributions up to the current tax limits. We match 100.0%100% of employees’ voluntary contributions up to 1% of eligible compensation, and 50.0%50% for each dollar contributed between 1% and 6% of eligible compensation. We contributed $2.4$3.7 million, $1.8$3.0 million, and $1.1$2.4 million to the 401(k) Plan for the yeartwelve months ended December 31, 2016, 2015, and 2014, 2013 and 2012, respectively.


The Taylor Woodrow (USA) U.K. Supplementary Pension Plan is an unfunded, nonqualified pension plan for several individuals who transferred from the Company’s U.K. related companies to the employment of Taylor Woodrow on or before October 1, 1995. The recorded obligations represent benefits accrued by these individuals for service with Taylor Woodrow prior to the employees’ participation in the U.S. pension plan minus any benefit accrued in any other pension-type benefit plans sponsored by or contributed to a Taylor Woodrow Group-related company for the period of service prior to participation in the U.S. plan. In accordance with the plan document, the participants are entitled to a fixed monthly pension and a fixed survivor benefit after the age of 65. At December 31, 20142016 and 2013,2015, we accruedhad $1.6 million and $1.8$1.2 million accrued, respectively, for obligations under this plan. These obligations are recorded in accrued expenses and other liabilities on the accompanying Consolidated Balance Sheets.


We also maintain the Taylor Morrison Cash Balance Pension Plan (the “U.S. Cash Balance Plan”). This is a consolidated defined benefit plan arising from the 2007 merger of the parent companies of Taylor Woodrow Holdings (USA), Inc. and Morrison Homes, Inc. All full-time employees were eligible to participate in this plan. The contribution percentage is based on participant’s age and ranges from 2% to 4% of eligible compensation, plus 1% of eligible compensation over the social security wage base. We contributed to the plan $1.4$0.8 million, $0.7$0.9 million and $1.0$1.4 million for the yearstwelve months ended December 31, 2014, 20132016, 2015, and 2012,2014, respectively. At December 31, 20142016 and 2013,2015, the unfunded status of the plan was $10.2$8.3 million and 5.9 $9.3

million, respectively. These obligations are recorded in accrued expenses and other liabilities on the accompanying Consolidated Balance Sheets. Effective December 31, 2010, the U.S. Cash Balance Plan was amended to freeze participation so that no new or reemployed employees may become participants and to freeze all future benefit accruals to existing participants.


The changes in the total benefit obligation and in the fair value of assets and the funded status of the U.S. Cash Balance Plan are as follows (in thousands):

   Year Ended
December 31,		 
   2014   2013 

Change in benefit obligations:

    

Benefit obligation — beginning of period

  $29,848    $33,592  

Interest on liabilities

   1,345     1,294  

Benefits paid

   (570)    (1,025) 

Settlements

   (3,229)    —   

Actuarial loss (gain)

   6,535     (4,013) 
  

 

 

   

 

 

 

Benefit obligation — end of period

$33,929  $29,848  
  

 

 

   

 

 

 

Change in fair value of plan assets:

Fair value of plan assets — beginning of period

 23,931   21,738  

Return on plan assets

 2,203   2,548  

Employer contributions

 1,357   670  

Benefits paid

 (3,800)  (1,025) 
  

 

 

   

 

 

 

Fair value of plan assets — end of period

$23,691  $23,931  
  

 

 

   

 

 

 

Unfunded status — end of period

$10,238  $5,917  
  

 

 

   

 

 

 

follows:


 Year Ended December 31,
(Dollars in thousands)2016 2015
Change in benefit obligations:   
Benefit obligation — beginning of period$32,172
 $33,929
Interest on liabilities1,289
 1,290
Benefits paid(1,139) (1,339)
Actuarial loss (gain)62
 (1,708)
Benefit obligation — end of period$32,384
 $32,172
Change in fair value of plan assets:
 
Fair value of plan assets — beginning of period22,910
 23,691
Return on plan assets1,558
 (329)
Employer contributions788
 887
Benefits paid(1,139) (1,339)
Fair value of plan assets — end of period$24,117
 $22,910
Unfunded status — end of period$8,267
 $9,262

The significant weighted-average assumptions adopted in measuring the benefit obligations and net periodic pension costs are as follows:

   Year Ended
December 31,		 
   2014  2013  2012 

Discount rate:

    

Net periodic pension cost

   4.49%   3.90%   4.31% 

Pension obligation

   3.98    4.80    3.81  

Expected return on plan assets

   7.00    7.00    7.00  


 Year Ended December 31,
 2016 2015 2014
Discount rate:     
Net periodic pension cost4.15% 3.84% 4.49%
Pension obligation3.97
 4.15
 3.98
Expected return on plan assets6.00
 7.00
 7.00

The overall expected long-term rate of return on plan assets assumption is determined based on the plan’s targeted allocation among asset classes and the weighted-average expected return of each class. The expected return of each class is determined based on the current yields on inflation-indexed bonds, current forecasts of inflation, and long-term historical real returns.


Components of net periodic pension cost of the U.S. Cash Balance Plan are as follows (in thousands):

   Year Ended December 31, 
   2014   2013   2012 

Interest cost

  $1,345    $1,294    $1,326  

Amortization of net actuarial loss

   34     133     108  

Expected return on plan assets

   (1,621)    (1,499)    (1,358) 

Net settlement loss

   609     —      —   
  

 

 

   

 

 

   

 

 

 

Net periodic pension cost

$367  $(72) $76  
  

 

 

   

 

 

   

 

 

 

follows:


 Year Ended December 31,
(Dollars in thousands)2016 2015 2014
Interest cost$1,289
 $1,290
 $1,345
Amortization of net actuarial loss132
 134
 34
Expected return on plan assets(1,342) (1,630) (1,621)
Net settlement loss—
 —
 609
Net periodic pension cost$79
 $(206) $367

Accumulated other comprehensive loss of $7.9$7.8 million and $2.6$8.1 million as of December 31, 20142016 and 2013,2015, respectively, consists of the net actuarial loss in the current year partially offset by the net settlement loss realized in the current year and the net actuarial gain that arose during the year ended December 31, 2013, combined with the net actuarial loss that arose during the year ended December 31, 2012, and has not yet been recognized as a component of net periodic pension cost. Net settlement losses are included in general and administrative expenses in the accompanying Consolidated Statements of Operations.Operations for the year ended December 31, 2016. We expect approximately $0.1 million of the amounts in accumulated other comprehensive loss will be recognized into net periodic pension cost during the year ending December 31, 2015.

2017.



The estimated future benefit payments in the next five years and the five years thereafter in aggregate are as follows (dollars in thousands):

Years Ending December 31,    

2015

  $989  

2016

   984  

2017

   1,135  

2018

   1,423  

2019

   1,181  

2020–2024

   7,189  


Year Ending December 31,Benefit Payments
2017$1,024
20181,432
20191,160
20201,250
20211,334
2022–2026$7,960

We do not expect to contribute $0.9 million to the U.S. Cash Balance Plan in the year ending December 31, 2015.

2017. The fair value of the U.S. Cash Balance Plan’s assets by asset categories is as follows (in thousands):

   Fair Value Measurements at December 31, 2014 

Asset Category

      Level 1           Level 2           Level 3           Total     

U.S. equity securities

  $8,820    $—     $—     $8,820  

International equity securities

   2,937     —      —      2,937  

Fixed-income securities

   10,391     —      —      10,391  

Cash

   1,090     —      —      1,090  

Other

   453     —      —      453  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

$23,691  $—   $—   $23,691  
  

 

 

   

 

 

   

 

 

   

 

 

 

   Fair Value Measurements at December 31, 2013 

Asset Category

      Level 1           Level 2           Level 3           Total     

U.S. equity securities

  $8,677    $—     $—     $8,677  

International equity securities

   2,917     —      —      2,917  

Fixed-income securities

   10,757     —      —      10,757  

Cash

   1,089     —      —      1,089  

Other

   491     —      —      491  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

$23,931  $—   $—   $23,931  
  

 

 

   

 

 

   

 

 

   

 

 

 

follows:


(Dollars in thousands)Fair Value Measurements at December 31, 2016
Asset CategoryLevel 1     Level 2     Level 3     Total    
Fixed-income securities$11,625
 $—
 $—
 $11,625
U.S. equity securities8,731
 —
 —
 8,731
International equity securities2,822
 —
 —
 2,822
Cash409
 —
 —
 409
Other530
 —
 —
 530
Total$24,117
 $—
 $—
 $24,117

(Dollars in thousands)Fair Value Measurements at December 31, 2015
Asset CategoryLevel 1     Level 2     Level 3     Total    
Fixed-income securities$11,435
 $—
 $—
 $11,435
U.S. equity securities8,058
 —
 —
 8,058
International equity securities2,481
 —
 —
 2,481
Cash426
 —
 —
 426
Other510
 —
 —
 510
Total$22,910
 $—
 $—
 $22,910

We believe the U.S. Cash Balance Plan’s assets are invested in a manner consistent with generally accepted standards of fiduciary responsibility. Taylor Morrison’s primary investment objective is to build and maintain the plan’s assets through employer contributions and investment returns to satisfy legal requirements and benefit payment requirements when due. Because of the long-term nature of the plan’s obligations, Taylor Morrison has the following goals in managing the plan: long-term (i.e., five years and more) performance objectives, maintenance of cash reserves sufficient to pay benefits, and achievement of the highest long-term rate of return practicable without taking excessive risk that could jeopardize the plan’s funding policy or subject us to undue funding volatility. The investment portfolio contains a diversified blend of equity, fixed-income securities, and cash, though allocation will favor equity investments in order to reach the U.S. Cash Balance Plan’s stated objectives. One of the U.S. Cash Balance Plan’s investment criteria is that over a complete market cycle, each of the investment funds should typically rank in the upper half of the universe of all active investment funds in the same asset class with similar investment objectives. Investments in commodities, private placements, or letter stock are not permitted. The equity securities are diversified across U.S. and international stocks, as well as growth and value. Investment performance is measured and monitored on an ongoing basis through quarterly portfolio reviews and annual reviews relative to the objectives and guidelines of the plan.



The range of target allocation percentages of plan assets of the U.S. Cash Balance Plan is as follows:

   Minimum  Maximum  Target 

U.S. equity securities

   37%   47%   42% 

International equity securities

   8    18    13  

Fixed-income securities

   35    45    40  

Other

   —      10    5  
    

 

 

 
 100% 
    

 

 

 

17.


 Minimum Maximum Target
U.S. equity securities33% 43% 38%
International equity securities7
 17
 12
Fixed-income securities40
 50
 45
Other—
 10
 5
     100%

18. ACCUMULATED OTHER COMPREHENSIVE INCOME


The table below provides the components of accumulated other comprehensive income (loss) (dollars in thousands):

   Year Ended December 31, 2014 
   Total Post-
Retirement
Benefits
Adjustments		   Foreign
Currency
Translation
Adjustments		   Non-controlling
Interest in
Principal
Equityholders		   Total 

Balance, beginning of period

  $3,987    $(16,727)  $12,288   $(452) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before reclassifications

 (6,303)  (35,421)  —     (41,724) 

Gross amounts reclassified from accumulated other comprehensive loss

 43   —     —     43  

Net settlement loss

 609   —     —     609  

Foreign currency translation

 (55)  —     —     (55)

Income tax (expense) benefit

 2,411   —     —     2,411 
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) net of tax

$(3,295) $(35,421) $—    $(38,716) 

Gross amounts reclassified within accumulated other comprehensive income (loss)

 —     —     28,258   28,258 
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

$692  $(52,148) $40,546 $(10,910)
  

 

 

   

 

 

   

 

 

   

 

 

 

   Year Ended December 31, 2013 
   Total Post-
Retirement
Benefits
Adjustments		   Foreign
Currency
Translation
Adjustments		   Non-controlling
Interest in
Principal
Equityholders		   Total 

Balance, beginning of period

  $(12,088)   $(22,277)  $—      $(34,365) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before reclassifications

 6,107   (17,686)  —     (11,578) 

Gross amounts reclassified from accumulated other comprehensive income

 177   —     3,496   3,673  

Foreign currency translation

 199  —     —     199 

Income tax (expense) benefit

 (2,496) 959  —     (1,537)
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) net of tax

$3,987  $(16,727) $3,496  $(9,244) 

Gross amounts reclassified within accumulated other comprehensive income (loss)

 12,088  22,277  8,792   43,157 
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

$3,987 $(16,727)$12,288 $(452)
  

 

 

   

 

 

   

 

 

   

 

 

 


 Year Ended December 31, 2016
(Dollars in thousands)
Total Post-
Retirement
Benefits
Adjustments
 
Foreign
Currency
Translation
Adjustments
 
Non-controlling
Interest in
Principal
Equityholders
 Total
Balance, beginning of period$2,305
 $(79,927) $59,625
 $(17,997)
Other comprehensive income (loss) before reclassifications(244) —
 —
 (244)
Other comprehensive income (loss) net of tax$(244) $—
 $—
 $(244)
Gross amounts reclassified within accumulated other comprehensive income (loss)—
 —
 252
 252
Balance, end of period$2,061
 $(79,927) $59,877
 $(17,989)
 Year Ended December 31, 2015
(Dollars in thousands)
Total Post-
Retirement
Benefits
Adjustments
 
Foreign
Currency
Translation
Adjustments
 
Non-controlling
Interest in
Principal
Equityholders
 Total
Balance, beginning of period$692
 $(52,148) $40,546
 $(10,910)
Other comprehensive income (loss) before reclassifications(335) (27,779) —
 (28,114)
Gross amounts reclassified from accumulated other comprehensive loss1,488
 —
 —
 1,488
Foreign currency translation518
 —
 —
 518
Income tax (expense) benefit(58) —
 —
 (58)
Other comprehensive income (loss) net of tax$1,613
 $(27,779) $—
 $(26,166)
Gross amounts reclassified within accumulated other comprehensive income (loss)—
 —
 19,079
 19,079
Balance, end of period$2,305
 $(79,927) $59,625
 $(17,997)

 Year Ended December 31, 2014
(Dollars in thousands)
Total Post-
Retirement
Benefits
Adjustments
 
Foreign
Currency
Translation
Adjustments
 
Non-controlling
Interest in
Principal
Equityholders
 Total
Balance, beginning of period$3,987
 $(16,727) $12,288
 $(452)
Other comprehensive income (loss) before reclassifications(6,303) (35,421) —
 (41,724)
Gross amounts reclassified from accumulated other comprehensive income43
 —
 —
 43
Net settlement loss609
 —
 —
 609
Foreign currency translation(55) —
 —
 (55)
Income tax (expense) benefit2,411
 —
 —
 2,411
Other comprehensive income (loss) net of tax$(3,295) $(35,421) $—
 $(38,716)
Gross amounts reclassified within accumulated other comprehensive income (loss)—
 —
 28,258
 28,258
Balance, end of period$692
 $(52,148) $40,546
 $(10,910)


Reclassifications for the amortization of the employee retirement plans are included in selling, general and administrative expense in the accompanying Consolidated Statements of Operations.

18.


19. OPERATING AND REPORTING SEGMENTS

The Company has ten


We have multiple homebuilding operating divisionscomponents which are aggregated into two reportable homebuilding segments. Prior to the disposal of our Monarch business, we had three reportable homebuilding segments. These segments are engaged in the business of acquiring and developing land, constructing homes, marketing and selling those homes, and providing warranty and customer service. We aggregate our homebuilding operating segmentscomponents into reporting segments, East, Central, and West, based on similar long-term economic characteristics. We also have a mortgage and financialtitle services reporting segment. We have no inter-segment sales as all sales are to external customers.
Our reporting segments are as follows:


East

Atlanta, Charlotte, North Florida, Raleigh, Southwest Florida, and Tampa
CentralAustin, Dallas and Houston (which includes(each of the Dallas and Houston markets include both a Taylor Morrison division and a Darling Homes division), Austin, Dallas, North Florida and West Florida

West

Bay Area, Chicago, Denver, Phoenix, Northern California,Sacramento, and Southern California and Denver

Mortgage Operations

Mortgage
Taylor Morrison Home Funding (TMHF) and Financial Services (TMHF)Inspired Title


Management primarily evaluates segment performance based on GAAP gross margin, defined as homebuilding and land revenue less cost of home construction, commissions and other sales costs, land development and other land sales costs and other costs incurred by, or allocated to each segment, including impairments. Operating results for each segment may not be indicative of the results for such segment had it been an independent, stand-alone entity.


Segment information, excluding discontinued operations, is as follows:

   Year Ended December 31, 2014 
(In thousands)  East  West  Mortgage
Operations		   Corporate
and
Unallocated		  Total 

Revenue

  $1,556,598   $1,116,341   $35,493    $—     $2,708,432  

Gross Margin

   341,481    208,943    15,822     —      566,246  

Selling, general and administrative expense

   (131,048)   (66,880)   —       (52,122)   (250,050) 

Equity in income of unconsolidated entities

   3,609    386    1,410     —      5,405  

Interest and other (expense) income

   (16,690)   1,604    1     (4,522)   (19,607) 
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Income before income taxes

$197,352  $144,053  $17,233  $(56,644) $301,994  
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

   Year Ended December 31, 2013 
(In thousands)  East  West  Mortgage
Operations		   Corporate
and
Unallocated		  Total 

Revenue

  $1,117,298   $768,412   $30,371    $—     $1,916,081  

Gross Margin

   227,695    174,245    13,925     —      415,865  

Selling, general and administrative expense

   (102,582)   (52,521)   —       (49,514)   (204,617) 

Equity in income of unconsolidated entities

   1,788    (23)   1,130     —      2,895  

Indemnification and transaction expenses

   —      —      —       (195,773)  (195,773) 

Loss on extinguishment of debt

   —      —      —       (10,141)  (10,141) 

Interest and other (expense) income

   (4,506)   (714)   3     1,533    (3,684) 
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Income before income taxes

$122,395  $120,987  $15,058  $(253,895) $4,545  
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

(In thousands)  Year Ended December 31, 2012 
   East  West  Mortgage
Operations		   Corporate
and
Unallocated		  Total 

Revenue

  $558,523   $460,798   $21,861    $—     $1,041,182  

Gross Margin

   111,424    84,622    10,595     —      206,641  

Selling, general and administrative expense

   (50,272)   (37,240)   —       (24,753)   (112,265) 

Equity in income of unconsolidated entities

   291    237    686     —      1,214  

Indemnification and transaction expenses

   —      —      —       (13,034)  (13,034) 

Loss on extinguishment of debt

   —      —      —       (7,953)  (7,953) 

Interest and other (expense) income

   561    168    5     (3,680)   (2,946) 
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

Income before income taxes

$62,004  $47,787  $11,286  $(49,420) $71,657  
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

 

(In thousands) December 31, 2014 
  East  West  Mortgage
Operations		  Corporate
and
Unallocated		  Assets of
Discontinued
Operations		  Total 

Real estate inventory and land deposits

 $1,275,192   $1,277,673   $—     $—     $—     $2,552,865  

Investments in unconsolidated entities

  57,138    51,909   1,244    —      —      110,291  

Other assets

  166,854    37,989    204,685    483,984    576,445    1,469,957  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total assets

$1,499,184  $1,367,571  $205,929  $483,984  $576,445  $4,133,113  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
(In thousands) December 31, 2013 
  East  West  Mortgage
Operations		  Corporate
and
Unallocated		  Assets of
Discontinued
Operations		  Total 

Real estate inventory and land deposits

 $1,048,091   $1,002,500   $—     $—     $—     $2,050,591  

Investments in unconsolidated entities

  20,191    —      1,244    —      —      21,435  

Other assets

  103,107    27,842    110,004    462,461    663,118    1,366,532  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total assets

$1,171,389  $1,030,342  $111,248  $462,461  $663,118  $3,438,558  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
(In thousands) December 31, 2012 
  East  West  Mortgage
Operations		  Corporate
and
Unallocated		  Assets of
Discontinued
Operations		  Total 

Real estate inventory and land deposits

 $741,911   $647,877   $—     $—     $—     $1,389,788  

Investments in unconsolidated entities

  723    —      532    —      —      1,255  

Other assets

  109,611    22,069    100,200    478,364    636,769    1,347,013  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total assets

$852,245  $669,946  $100,732  $462,461  $636,769  $2,738,056  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

19.


 Year Ended December 31, 2016
(Dollars in thousands)East Central West 
Mortgage
Operations
 
Corporate
and
Unallocated
 Total
Revenue$1,098,283
 $1,004,595
 $1,387,196
 $59,955
 $—
 $3,550,029
            
Gross Margin$241,382
 $189,335
 $221,706
 $27,856
 $—
 $680,279
Selling, general and administrative expense(102,845) (93,423) (91,215) —
 (74,280) (361,763)
Equity in income of unconsolidated entities440
 430
 2,322
 4,261
 —
 7,453
Interest and other expense, net(3,532) (2,604) (3,675) —
 (1,952) (11,763)
Income from continuing operations before income taxes$135,445
 $93,738
 $129,138
 $32,117
 $(76,232) $314,206

 Year Ended December 31, 2015
(Dollars in thousands)East Central West 
Mortgage
Operations
 
Corporate
and
Unallocated
 Total
Revenue$818,699
 $1,008,664
 $1,106,375
 $43,082
 $—
 $2,976,820
            
Gross Margin$179,517
 $190,264
 $180,588
 $17,546
 $—
 $567,915
Selling, general and administrative expense(74,131) (84,588) (72,038) —
 (63,154) (293,911)
Equity in income (loss) of unconsolidated entities241
 150
 (836) 2,204
 —
 1,759
Interest and other (expense) income(3,263) (13,991) (311) —
 6,123
 (11,442)
Loss on extinguishment of debt—
 —
 —
 —
 (33,317) (33,317)
Gain on foreign currency forward—
 —
 —
 —
 29,983
 29,983
Income from continuing operations before income taxes

$102,364
 $91,835
 $107,403
 $19,750
 $(60,365) $260,987


 Year Ended December 31, 2014
(Dollars in thousands)East Central West 
Mortgage
Operations
 
Corporate
and
Unallocated
 Total
Revenue$566,158
 $990,440
 $1,116,341
 $35,493
 $—
 $2,708,432
            
Gross Margin$139,629
 $201,852
 $208,943
 $15,822
 $—
 $566,246
Selling, general and administrative expense(50,279) (80,769) (66,880) —
 (52,122) (250,050)
Equity in income of unconsolidated entities—
 3,609
 386
 1,410
 —
 5,405
Interest and other (expense) income(2,769) (13,921) 1,604
 1
 (4,522) (19,607)
Income from continuing operations before income taxes

$86,581
 $110,771
 $144,053
 $17,233
 $(56,644) $301,994

 As of December 31, 2016
(Dollars in thousands)East Central West 
Mortgage
Operations
 
Corporate
and
Unallocated
 Assets of
Discontinued
Operations		 Total
Real estate inventory and land deposits$1,077,618
 $731,976
 $1,244,858
 $—
 $—
 $—
 $3,054,452
Investments in unconsolidated entities25,923
 30,146
 98,625
 3,215
 —
 —
 157,909
Other assets74,638
 136,752
 51,617
 269,131
 476,427
 —
 1,008,565
Total assets$1,178,179
 $898,874
 $1,395,100
 $272,346
 $476,427
 $—
 $4,220,926
              
              
 As of December 31, 2015
(Dollars in thousands)East Central West 
Mortgage
Operations
 
Corporate
and
Unallocated
 
Assets of
Discontinued
Operations
 Total
Real estate inventory and land deposits$927,359
 $757,863
 $1,475,678
 $—
 $—
 $—
 $3,160,900
Investments in unconsolidated entities24,098
 28,832
 72,646
 2,872
 —
 —
 128,448
Other assets52,817
 164,192
 74,379
 237,430
 304,281
 —
 833,099
Total assets$1,004,274
 $950,887
 $1,622,703
 $240,302
 $304,281
 $—
 $4,122,447
              
              
 As of December 31, 2014
(Dollars in thousands)East Central West 
Mortgage
Operations
 
Corporate
and
Unallocated
 
Assets of
Discontinued
Operations
 Total
Real estate inventory and land deposits$640,224
 $634,968
 $1,277,673
 $—
 $—
 $—
 $2,552,865
Investments in unconsolidated entities29,085
 28,053
 51,909
 1,244
 —
 —
 110,291
Other assets42,593
 124,261
 37,989
 204,685
 462,669
 576,445
 1,448,642
Total assets$711,902
 $787,282
 $1,367,571
 $205,929
 $462,669
 $576,445
 $4,111,798

20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The selected quarterly financial data does not agree to our previously issued quarterly reports as a result of the reclassification of our Canadian business to discontinued operations during the fourth quarter of 2014.


Quarterly results are as follows (in thousands, except per share data)(1):

   First
Quarter 2014		   Second
Quarter 2014		   Third
Quarter 2014		   Fourth
Quarter 2014		 

Total revenues

  $470,475    $597,008    $629,196    $1,011,753  

Gross margin

   103,381     127,352     131,951     203,562  

Income from continuing operations before income taxes

   47,956     65,508     69,050     119,480  

Net income before allocation to non-controlling interests

   41,296     55,499     66,175     104,531  

Net income available to Taylor Morrison Home Corporation(1)

   10,932     14,816     17,846     27,875  

Basic and diluted earnings per share

  $0.33    $0.45    $0.54    $0.84  

   First
Quarter 2013		   Second
Quarter 2013		   Third
Quarter 2013		   Fourth
Quarter 2013		 

Total revenues

  $335,697    $450,366    $491,018    $639,000  

Gross margin

   67,895     90,958     104,804     152,208  

Income (loss) from continuing operations before income taxes

   28,129     (160,601)    52,820     84,197  

Net income (loss) before allocation to non-controlling interests

   24,337     (78,287)    52,632     96,186  

Net income available to Taylor Morrison Home Corporation(1)

   —       5,327     14,263     25,830  

Basic and diluted earnings per share

   N/A    $0.16    $0.43    $0.79  

(1)Continuing and discontinued operations

20.

(Dollars in thousands except per share data)First
Quarter 2016		 Second
Quarter 2016		 Third
Quarter 2016		 Fourth
Quarter 2016
Total revenues$645,329
 $854,316
 $853,417
 $1,196,967
Gross margin118,641
 159,752
 178,854
 223,032
Income from continuing operations before income taxes38,991
 67,768
 90,391
 117,056
Net income before allocation to non-controlling interests26,104
 45,664
 58,684
 76,111
Net income available to Taylor Morrison Home Corporation6,813
 11,685
 14,837
 19,281
Basic and diluted earnings per share$0.21
 $0.37
 $0.49
 $0.63


(Dollars in thousands except per share data)
First
Quarter 2015
 
Second
Quarter 2015
 
Third
Quarter 2015
 
Fourth
Quarter 2015
Total revenues$509,415
 $700,973
 $796,288
 $970,144
Gross margin94,583
 136,659
 149,472
 187,201
Income from continuing operations before income taxes62,224
 29,960
 68,246
 100,557
Net income before allocation to non-controlling interests96,844
 20,021
 45,794
 66,386
Net income available to Taylor Morrison Home Corporation25,962
 5,077
 12,344
 17,667
Basic and diluted earnings per share$0.79
 $0.15
 $0.37
 $0.54

(1) The sum of the individual quarterly amounts may not agree to the annual amounts included in the accompanying consolidated statements of operations due to rounding.

21. COMMITMENTS AND CONTINGENCIES


Letters of Credit and Surety Bonds — We are committed, under various letters of credit and surety bonds, to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit and surety bonds under these arrangements totaled $315.6$302.8 million and $156.9$394.8 million as of December 31, 20142016 and 2013,2015, respectively. Although significant development and construction activities have been completed related to these site improvements, the bonds are generally not released until all development and construction activities are completed. We do not believe that it is probable that any outstanding bonds as of December 31, 20142016 will be drawn upon.


Purchase Commitments — We are subject to the usual obligations associated with entering into contracts (including option contracts) for the purchase, development, and sale of real estate in the routine conduct of its business. We have a number of land purchase option contracts, generally through cash deposits, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property and the creditors generally have no recourse. Our obligations with respect to the option contracts are generally limited to the forfeiture of the related non-refundable cash deposits. At December 31, 20142016 and 2013,2015, we had the right to purchase approximately 5,3727,583 and 6,5708,888 lots under land option and land purchase contracts, respectively, which represents an aggregate purchase price of $323.5$542.6 million and $500.9$710.6 million at December 31, 20142016 and 2013,2015, respectively. At December 31, 20142016 and 2013,2015, we had $34.5$37.2 million and $38.0$34.1 million in land deposits related to land options and land purchase contracts, respectively.


Legal Proceedings — We are involved in various litigation and legal claims in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to a variety of local, state, and federal laws and regulations related to land development activities, house construction standards, sales practices, mortgage lending

operations, employment practices, and protection of the environment. As a result, we are subject to periodic examination or inquiry by various governmental agencies that administer these laws and regulations.


We establish liabilities for legal claims and regulatory matters when such matters are both probable of occurring and any potential loss can be reasonably estimated. At December 31, 20142016 and December 31, 2013,2015, our legal accruals were $0.9$4.4 million and $1.9$0.8 million, respectively. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. Predicting the ultimate resolution of the pending matters, the related timing, or the eventual loss associated with these matters is inherently difficult. Accordingly, the liability arising from the ultimate resolution of any matter may exceed the estimate reflected in the recorded reserves relating to such matter. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows. Accordingly, the liability arising from the ultimate resolution of any matter may exceed the estimate reflected in the recorded reserves relating to such matter.


Operating Leases — We lease office facilities and certain equipment under operating lease agreements. In most cases, we expect that, in the normal course of business, leases that expire will be renewed or replaced by other leases. Approximate future minimum payments under the non-cancelable leases in effect at December 31, 2014,2016, are as follows (in thousands):

Years Ending December 31,  Lease
Payments		 

2015……………………………………………………………………….

  $5,489  

2016……………………………………………………………………….

   4,138  

2017……………………………………………………………………….

   3,520  

2018……………………………………………………………………….

   2,743  

2019……………………………………………………………………….

   1,710  

Thereafter…………………………………………………………………

   2,954  
  

 

 

 

Total……………………………………………………………………….

$20,554  
  

 

 

 



Years Ending December 31,
Lease
Payments
2017$7,434
20186,296
20195,281
20203,438
20212,564
Thereafter2,218
Total$27,231

Rent expense under non-cancelable operating leases for the year ended December 31, 2016, 2015 and 2014, 2013was $5.3 million, $4.4 million and 2012, was $4.2 million, $3.7 million and $2.6, respectively, and is included in general and administrative expenses in the accompanying Consolidated Statements of Operations.

21.


Commitments to Extend Credit — We enter into IRLCs with customers who have applied for mortgage loans and meet certain credit and underwriting criteria. These commitments expose us to market risk if interest rates change and the underlying loan is not economically hedged or committed to an investor. We also are exposed to credit loss if the loan is originated and not sold to an investor and the mortgagor does not perform. The collateral upon extension of credit typically consists of first deed of trust in the mortgagor's property. Commitments to originated loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon. Total commitments to originate loans approximated $96.0 million and $52.0 million for the years ended December 31, 2016 and 2015, respectively.



22. MORTGAGE HEDGING ACTIVITIES

We enter into IRLCs to originate residential mortgage loans held for sale, at specified interest rates and within a specified period of time (generally between 30 and 60 days), with customers who have applied for a loan and meet certain credit and underwriting criteria. These IRLCs meet the definition of a derivative and are reflected on the balance sheet at fair value with changes in fair value recognized in mortgage operations revenue/expenses on the statement of operations and other comprehensive income. Unrealized gains and losses on the IRLCs, reflected as derivative assets, are measured based on the fair value of the underlying mortgage loan, quoted Agency MBS prices, estimates of the fair value of the mortgage servicing rights (“MSRs”) and the probability that the mortgage loan will fund within the terms of the IRLC, net of commission expense and broker fees. The fair value of the forward loan sales commitment and mandatory delivery commitments being used to hedge the IRLCs and mortgage loans held for sale not committed to be purchased by investors are based on quoted Agency MBS prices.

The following summarizes derivative instruments as of December 31, 2016:

   
(Dollars in thousands) Fair Value Notional Amount
IRLCs $1,987
 $61,655
MBSs 304
 97,000
Total $2,291
 

We have exposure to credit loss in the event of contractual non-performance by our trading counterparties in derivative instruments that we use in our rate risk management activities. We manage this credit risk by selecting only counterparties that we believe to be financially strong, spreading the risk among multiple counterparties, by placing contractual limits on the amount of unsecured credit extended to any single counterparty, and by entering into netting agreements with counterparties, as appropriate.


23. SUBSEQUENT EVENTS


On January 28, 2015February 6, 2017 we closed oncompleted the sale of Monarch Corporation,11,500,000 shares of our Canadian operating segment, to an affiliate of Mattamy Homes Limited (“Mattamy”). Mattamy deliveredClass A common stock in a cashregistered public offering at a net purchase price per share of CAD $335 million at closing, which is subject to customary post-closing adjustments, and ordinary and customary indemnifications. Immediately prior$18.2875 (the public offering price to the closing, CAD $235 millionpublic of cash at Monarch$19.00 per share less the underwriters’ discount). We used all of the net proceeds from the public offering to purchase partnership units in New TMM, our direct subsidiary, along with shares of our Class B common stock, held by our Principal Equityholders. The aggregate number partnership units and corresponding shares of Class B common stock we purchased was distributedequal to Monarch Parent, for total proceedsthe number of CAD $570 million. The purchase premiumshares of Monarch was approximately CAD $102 million, which will result in a net gain to be recordedClass A common stock sold in the first quarter of 2015 (net of related costs and tax). As a resultpublic offering. Immediately following the consummation of the sale, we do not have significant continuing involvement with Monarch.

offering and net use of proceeds our ownership was:

 Shares
Outstanding		 Percentage
Class A Common Stock41,986,858
 35.2%
Class B Common Stock77,442,052
 64.8%
Total119,428,910
 100.0%


ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.


ITEM 9A.CONTROLS AND PROCEDURES

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures



As of the end of the period covered by this 20142016 Form 10-K, we carried out an evaluation, under the supervision and with the participation of our principal executive officer, principal financial officer and principal accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our principal executive officer, principal financial officer and principal accounting officer concluded that our disclosure controls and procedures were effective in alerting them in a timely manner to material information required to be disclosed in our periodic reports filed with the SEC.

The scope of management’s assessment of the effectiveness of the Company’s disclosure controls and procedures did not include the internal controls over financial reporting of Acadia Homes, which we acquired during 2016. This exclusion is in accordance with the SEC Staff’s general guidance that an assessment of a recently acquired business may be omitted from the scope of management’s assessment for one year following the acquisition.


Internal Control Overover Financial Reporting


(a) Management’s Annual Report on Internal Control Overover Financial Reporting


Management is responsible for the preparation and fair presentation of the consolidated financial statements included in this annual report. The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles and reflect management’s judgments and estimates concerning events and transactions that are accounted for or disclosed.


Management is also responsible for establishing and maintaining effectiveadequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Management recognizes that there are inherent limitations in the effectiveness of any internal control and effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Additionally, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.


In order to ensure that the Company’s internal control over financial reporting is effective, management regularly assesses such controls and did so most recently for its financial reporting as of December 31, 2014.2016. Management’s assessment was based on criteria for effective internal control over financial reporting described in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Management excluded from its assessment the internal control over financial reporting for Acadia Homes, which we acquired in January 2016 and represented 2.6% of the Company's consolidated total assets (excluding capitalized interest, but including goodwill) and 1.8% of the Company's consolidated homebuilding revenues as of and for the year ended December 31, 2016. Based on this assessment, management assertsconcluded that the Company has maintained effectiveCompany's internal control over financial reporting was effective as of December 31, 2014.

2016.


Deloitte & Touche LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this annual report, has issued its report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014.

2016.


(b) Report of Independent Registered Public Accounting Firm


To the Board of Directors and Stockholders of

Taylor Morrison Home Corporation

Scottsdale, Arizona


We have audited the internal control over financial reporting of Taylor Morrison Home Corporation and subsidiaries (the “Company”"Company") as of December 31, 2014,2016, based on criteria established in Internal Control — Integrated-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Annual Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Acadia Homes, which was acquired on January 8, 2016, and whose financial statements constitute 2.6% of the Company’s total assets (excluding capitalized interest, but including goodwill) and 1.8% of the Company’s consolidated homebuilding revenues as of and for the year ended December 31, 2016. Accordingly, our audit did not include the internal control over financial reporting at Acadia Homes. The Company’sCompany's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’sCompany's internal control over financial reporting based on our audit.


We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal

control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.


A company’scompany's internal control over financial reporting is a process designed by, or under the supervision of, the company’scompany's principal executive and principal financial officers, or persons performing similar functions, and effected by the company’scompany's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.


Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014,2016, based on the criteria established in Internal Control —- IntegratedFramework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.


We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 20142016 of the Company and our report dated February 27, 201521, 2017 expressed an unqualified opinion on those financial statements.



/s/ DELOITTE & TOUCHE LLP


Phoenix, Arizona

February 27, 2015

21, 2017


(c) Changes in Internal Controls

In the quarter ended December 31, 2014, we updated our internal controlsControl over income taxes to remediate a material weakness in controls over accounting for income taxes. The material weakness related to the manner in which we calculate our net deferred tax assets and liabilities. The internal control updates included enhancement in our resources used to calculate our tax provision and deferred income, improvement in controls over internal calculations and spreadsheets preparation and enhanced review of income tax calculations and the spreadsheets used in such calculations. Other than these changes,Financial Reporting


There has been no change in our internal control over financial reporting occurred during the quarter ended December 31, 20142016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


ITEM 9B.OTHER INFORMATION

ITEM 9B. OTHER INFORMATION

None



PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K will be set forth in our 20152017 Annual Meeting Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 20142016 (the “Proxy Statement”). For the limited purpose of providing the information necessary to comply with this Item 10, the Proxy Statement is incorporated herein by this reference. All references to the Proxy Statement in this Part III are exclusive of the information set forth under the captions “Compensation Committee Report” and “Audit Committee Report.”


ITEM 11.EXECUTIVE COMPENSATION

ITEM 11. EXECUTIVE COMPENSATION

The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K will be set forth in the Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 11, the Proxy Statement is incorporated herein by this reference.


ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Securities Authorized for Issuance under Equity Compensation Plans


Equity Compensation Plan Information


The following table provides information with respect to the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan as amended and restated in May 2016, (the “2013 Equity“Equity Plan”) under which our equity securities are authorized for issuance as of December 31, 2014.

2016.
Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) 
Equity compensation plans approved by security holders(1)
 3,790,048
(2) 
$17.09
(3) 
4,130,264
(4) 
Equity compensation plans not approved by security holders —
 —
 —
 

Plan Category

Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights
(a)		Weighted-
average exercise
price of
outstanding
options,
warrants and
rights
(b)		Number of
securities
remaining
available for
future issuance
under equity
compensation
plans excluding
securities
reflected in
column (a))
(c)

Equity compensation plans approved by security holders(1)

1,510,708$22.35(2)6,439,532(3)

Equity compensation plans not approved by security holders

—  —  —  

(1) 
Equity compensation plans approved by security holders covers the 2013 Equity Plan. The 2013 Equity Plan is currently our only compensation plan pursuant to which our equity is awarded. This figure does not include the 1,431,7211,146,357 New TMM Units (and the corresponding shares of our Class B Common Stock) that can be exchanged on a one-for-one basis for shares of our Class A Common Stock. The New TMM Units were issued pursuant to the TMM Holdings II Limited Partnership 2013 Common Unit Plan and were not made pursuant to any equity compensation plan.
(2) 
Column (a) includes 185,6791,358,701 shares of our Class A Common Stock underlying outstanding restricted stock units. Because there is no exercise price associated with restricted stock units, such equity awards are not include in the weighted-average exercise price calculation in column (b).
(3) 
The weighted average exercise price in column (b) relates only to outstanding stock options. The calculation of the weighted average exercise price does not include outstanding equity awards that are received for no consideration and does not include shares of Class A Common Stock credited to the deferred compensation accounts of certain non-employee directors at fair market value in lieu compensation at the election of such directors.
(4)
A total of 7,956,955 shares of our Class A Common Stock have been authorized for issuance pursuant to the terms of the 2013 Equity Plan.


The information required by Item 403 of Regulation S-K will be set forth in the Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 12, the Proxy Statement is incorporated herein by this reference.


ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Items 404 and 407(a) of Regulation S-K will be set forth in the Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 13, the Proxy Statement is incorporated herein by this reference.


ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

This information required by Item 9(e) of Schedule 14A will be set forth in the Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 14, the Proxy Statement is incorporated herein by this reference.



ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Exhibit
No.

 

Description

2.1 Share Purchase Agreement, dated December 11, 2014, by and among Monarch Parent Inc., TMM Holdings Limited Partnership, 2444991 Ontario Inc. and Mattamy Group Corporation (included as Exhibit 2.1 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on December 16, 2014, and incorporated herein by reference).
3.1 Amended and Restated Certificate of Incorporation (included as Exhibit 3.1 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
3.2 Amended and Restated By-laws (included as Exhibit 3.2 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
4.1 Indenture, dated as of March 5, 2014, relating to Taylor Morrison Communities, Inc.’s and Monarch Communities Inc.’s 5.625% Senior Notes due 2024, by and among Taylor Morrison Communities, Inc., Monarch Communities Inc., the guarantors party thereto and Wells Fargo Bank, National Association (included as Exhibit 4.1 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed on May 7, 2014, and incorporated herein by reference).
4.2 Indenture, dated as of April 16, 2013, relating to Taylor Morrison Communities, Inc.’s and Monarch Communities Inc.’s 5.25% Senior Notes due 2021, by and among Taylor Morrison Communities, Inc., Monarch Communities Inc., the guarantors party thereto and Wells Fargo Bank, National Association (included as Exhibit 4.1 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, filed on August 14, 2013, and in incorporated herein by reference).
4.3 Indenture, dated as of April 13, 2012,16, 2015, relating to Taylor Morrison Communities, Inc.’s and Monarch CommunitiesTaylor Morrison Holdings II, Inc.’s 7.750%'s 5.875% Senior Notes due 2020,2023, by and among Taylor Morrison Communities, Inc., Monarch Communities, Inc., the guarantors party thereto and Wells Fargo Bank, National Association (included as Exhibit 4.1 to Amendment No. 1 to Taylor Morrison Home Corporation’s Registration StatementQuarterly Report on Form S-1,10-Q for the quarter ended March 31, 2015, filed on January 16, 2013,May 7, 2015, and incorporated herein by reference).
4.4 Specimen Class A Common Stock Certificate of Taylor Morrison Home Corporation (included as Exhibit 4.2 to Amendment No. 3 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on April 4, 2013, and incorporated herein by reference).
10.1 Registration Rights Agreement, dated as of April 9, 2013, by and among Taylor Morrison Home Corporation and the other parties named therein (included as Exhibit 10.1 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
10.2 Amended and Restated Agreement of Exempted Limited Partnership of TMM Holdings II Limited Partnership, dated as of April 9, 2013 (included as Exhibit 10.2 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).

Exhibit
No.

Description

10.3 Exchange Agreement, dated as of April 9, 2013, by and among Taylor Morrison Home Corporation and the other parties named therein (included as Exhibit 10.3 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
10.4 Stockholders Agreement, dated as of April 9, 2013, by and among Taylor Morrison Home Corporation and the other parties named therein (included as Exhibit 10.4 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
10.4(a) Amendment No. 1, dated as of March 6, 2014, to the Stockholders Agreement, dated as of April 9, 2013, by and among Taylor Morrison Home Corporation, TPG TMM Holdings II, L.P, OCM TMM Holdings II, L.P and JHI Holding Limited Partnership (included as Exhibit 10.1 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on March 7, 2014, and incorporated herein by reference).
10.5 Put/Call Agreement, dated as of April 9, 2013, by and among Taylor Morrison Home Corporation and TPG TMM Holdings II, L.P. and OCM TMM Holdings II, L.P (included as Exhibit 10.5 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
10.6 Reorganization Agreement, dated as of April 9, 2013, by and among Taylor Morrison Home Corporation and the other parties named therein (included as Exhibit 10.6 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
10.7 U.S. Parent Governance Agreement, dated as of April 9, 2013, by and among Taylor Morrison Home Corporation, Taylor Morrison Holdings, Inc. and the other parties named therein (included as Exhibit 10.7 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
10.8 Canadian Parent Governance Agreement, dated as of April 9, 2013, by and among Taylor Morrison Home Corporation, Monarch Communities Inc. (n/k/a Taylor Morrison Holdings II, Inc.) and the other parties named therein (included as Exhibit 10.8 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).


10.9 Credit Agreement, dated as of July 13, 2011, among Taylor Morrison Communities, Inc., Monarch Corporation, TMM Holdings Limited Partnership, Monarch Communities Inc., Monarch Parent Inc., Taylor Morrison Holdings, Inc., Taylor Morrison Finance, Inc., the lenders party thereto and Credit Suisse AG, as administrative agent (included as Exhibit 10.1 to Amendment No. 2 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on February 13, 2013, and incorporated herein by reference).
10.9(a) Amendment Agreement, dated as of April 12, 2013, to the Credit Agreement dated as of July 13, 2011 (as amended and restated as of April 13, 2012 and as thereafter amended as of August 15, 2012 and December 27, 2012), among Taylor Morrison Communities Inc., Monarch Corporation, TMM Holdings Limited Partnership and the other parties named therein (included as Exhibit 10.9 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
10.9(b) Amendment No. 1, dated as of January 15, 2014, to the Second Amended and Restated Credit Agreement, dated as of July 13, 2011 (as amended and restated as of April 13, 2012, thereafter amended as of August 15, 2012 and December 27, 2012 and as further amended and restated as of April 12, 2013), by and among Taylor Morrison Communities, Inc., Monarch Corporation, TMM Holdings Limited Partnership, Monarch Communities Inc., Monarch Parent Inc., Taylor Morrison Holdings, Inc., Taylor Morrison Finance, Inc., the lenders party thereto and Credit Suisse AG, as administrative agent for the lenders (included as Exhibit 10.1 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on January 17, 2014, and incorporated herein by reference).

Exhibit
No.

10.9(c)		 

Description

Amendment No. 3, dated as of April 24, 2015, to the Second Amended and Restated Credit Agreement, dated as of July 13, 2011 (as amended and restated as of April 13, 2012, thereafter amended as of August 15, 2012 and December 27, 2012, as further amended and restated as of April 12, 2013 and thereafter amended as of January 15, 2014 and December 22, 2014), by and among Taylor Morrison Communities, Inc., TMM Holdings Limited Partnership, Taylor Morrison Holdings II, Inc., Taylor Morrison Communities II, Inc., Taylor Morrison Holdings, Inc., Taylor Morrison Finance, Inc., the lenders party thereto and Credit Suisse AG, as administrative agent for the lenders (included as Exhibit 10.2 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 7, 2015, and incorporated herein by reference).
10.10 Form of Indemnification Agreement (included as Exhibit 10.4 to Amendment No. 5 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on April 4, 2013, and incorporated herein by reference).
10.11†
 Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (Amended and Restated as of May 25, 2016) (included as Exhibit 10.14 to Amendment No. 5 to Taylor Morrison Home Corporation’s RegistrationAppendix A of the Company’s definitive Proxy Statement on Form S-1,Schedule 14A filed on April 4, 2013,12, 2016, and incorporated herein by reference).
10.12†
 Form of Employee Nonqualified Option Award Agreement for use with the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (Amended and Restated as of May 25, 2016) (included as Exhibit 10.15 to Amendment No. 5 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on April 4, 2013, and incorporated herein by reference).
10.13†
 Taylor Morrison Long-Term Cash Incentive Plan (included as Exhibit 10.18 to Amendment No. 5 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on April 4, 2013, and incorporated herein by reference).
10.14†
 Form of Restricted Stock Unit Agreement for use with the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (Amended and Restated as of May 25, 2016) (included as Exhibit 10.16 to Amendment No. 5 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on April 4, 2013, and incorporated herein by reference).
10.15†
 Form of Class B Common Stock Subscription Agreement with Taylor Morrison Home Corporation (included as Exhibit 10.17 to Amendment No. 5 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on April 4, 2013, and incorporated herein by reference).
10.16†
 TMM Holdings II Limited Partnership 2013 Common Unit Plan (included as Exhibit 10.23 to Amendment No. 5 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on April 4, 2013, and incorporated herein by reference).
10.17†
 Employment Agreement, dated as of July 13, 2011, between Taylor Morrison, Inc. and Sheryl D. Palmer (included as Exhibit 10.7 to Amendment No. 3 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on March 6, 2013, and incorporated herein by reference).
10.17(a)†
 First Amendment to Employment Agreement, dated May 17, 2012, between Taylor Morrison, Inc. and Sheryl D. Palmer (included as Exhibit 10.8 to Amendment No. 3 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on March 6, 2013, and incorporated herein by reference).
10.17(b)†
Second Amendment to Employment Agreement, dated February 26, 2016, between Taylor Morrison, Inc. and Sheryl D. Palmer (included as Exhibit 10.1 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 4, 2016, and incorporated herein by reference).

10.18†
 Employment Agreement, dated as of January 1, 2013, between Taylor Morrison, Inc. and C. David Cone (included as Exhibit 10.9 to Amendment No. 3 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on March 6, 2013, and incorporated herein by reference).


10.18(a)†
First Amendment to Employment Agreement, dated February 26, 2016, between Taylor Morrison, Inc. and C. David Cone (included as Exhibit 10.2 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 4, 2016, and incorporated herein by reference).

10.19†
Employment Agreement, dated as of December 28, 2012, between Taylor Morrison, Inc. and Darrell C. Sherman (included as Exhibit 10.3 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 7, 2015, and incorporated herein by reference).

10.19(a)†
Second Amendment to Employment Agreement, dated February 26, 2016, between Taylor Morrison, Inc. and Darrell C. Sherman (included as Exhibit 10.3 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 4, 2016, and incorporated herein by reference).

10.20†
 Form of Restrictive Covenants Agreement with Taylor Morrison, Inc. (included as Exhibit 10.12 to Amendment No. 3 to Taylor Morrison Home Corporation’sCorporation's Registration Statement on Form S-1, filed on March 6, 2013, and incorporated herein by reference.
10.21†
2015 Non-Employee Director Deferred Compensation Plan (included as Exhibit 10.4 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 7, 2015, and incorporated herein by reference).

10.21(a)†
Form of Deferred Stock Unit Award Agreement (included as Exhibit 10.5 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 7, 2015, and incorporated herein by reference).

10.22Amendment dated as of March 15, 2015 to the Amended and Restated Agreement of Exempted Limited Partnership of TMM Holdings II Limited Partnership of TMM Holdings II Limited Partnership (included as Exhibit 10.1 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 7, 2015, and incorporated herein by reference).
10.23†
Form of Employee Nonqualified Option Award Agreement for use with the 2013 Taylor Morrison Home Corporation Omnibus Equity Award Plan (Amended and Restated as of May 25, 2016) for grants made in 2015 and thereafter (included as Exhibit 10.1 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed on August 5, 2015, and incorporated herein by reference).
10.24†
Form of Restricted Stock Unit Agreement for use with the 2013 Taylor Morrison Home Corporation Omnibus Equity Award Plan (Amended and Restated as of May 25, 2016) for grants made in 2015 and thereafter (included as Exhibit 10.2 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed on August 5, 2015, and incorporated herein by reference).
10.25†
Form of Performance-Based Restricted Stock Unit Agreement for use with the 2013 Taylor Morrison Home Corporation Omnibus Equity Award Plan (Amended and Restated as of May 25, 2016) for grants made in 2015 and thereafter (included as Exhibit 10.3 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed on August 5, 2015, and incorporated herein by reference).
10.26
Purchase Agreement, dated as of January 31, 2017, by and among Taylor Morrison Home Corporation, TMM Holdings II Limited Partnership and certain sellers named in Schedule I thereto (included as Exhibit 10.1 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on February 6, 2017, and incorporated herein by reference).

21.1* Subsidiaries of Taylor Morrison Home Corporation
23.1* Consent of Deloitte & Touche LLP
24.1* Power of Attorney (included on signature page)
31.1* Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.
31.2* Certification of C. David Cone, Chief Financial Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.
32.1* Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.

Exhibit
No.

Description

32.2* Certification of C. David Cone, Chief Financial Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.


101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

*
Filed herewith.

* Filed herewith.
† Management contract or compensatory plan in which directors and/or executive officers are eligible to participate.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

ITEM 16. FORM 10-K SUMMARY

Not applicable.

SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized.


  TAYLOR MORRISON HOME CORPORATION
  Registrant
DATE: February 27, 201521, 2017  
 
 

/s/ Sheryl D. Palmer

  Sheryl D. Palmer
  

President, Chief Executive Officer and Director

(Principal Executive Officer)

 
 

/s/ C. David Cone

  C. David Cone
  

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

 
 

/s/ Joseph Terracciano

  Joseph Terracciano
  

Chief Accounting Officer

(Principal Accounting Officer)


KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Sheryl D. Palmer, C. David Cone and Darrell C. Sherman, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as he or she might or could do in person hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.



Pursuant to the requirements of the Securities and Exchange Act of 1934, thethis report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature Title Date

  /s//s/ Timothy R. Eller

 Director and Chairman of the Board of Directors February 27, 201521, 2017
Timothy R. Eller  
/s/ James HenryDirectorFebruary 21, 2017
James Henry
/s/ Joe S. HoussianDirectorFebruary 21, 2017
Joe S. Houssian
/s/ Jason KellerDirectorFebruary 21, 2017
Jason Keller
/s/ James SholemDirectorFebruary 21, 2017
James Sholem
/s/ David MerrittDirectorFebruary 21, 2017
David Merritt
/s/ Rajath ShourieDirectorFebruary 21, 2017
Rajath Shourie
/s/ Anne L. MariucciDirectorFebruary 21, 2017
Anne L. Mariucci

EXHIBIT INDEX

  /s/ John Brady

Exhibit
No.
 DirectorFebruary 27, 2015Description
  John Brady

  /s/ Kelvin Davis

DirectorFebruary 27, 2015
  Kelvin Davis

  /s/ James Henry

DirectorFebruary 27, 2015
  James Henry

  /s/ Joe S. Houssian

DirectorFebruary 27, 2015
  Joe S. Houssian

SignatureTitleDate

  /s/ Jason Keller

DirectorFebruary 27, 2015
  Jason Keller

  /s/ James Sholem

DirectorFebruary 27, 2015
  James Sholem

  /s/ Peter Lane

DirectorFebruary 27, 2015
  Peter Lane

  /s/ David Merritt

DirectorFebruary 27, 2015
  David Merritt

  /s/ Rajath Shourie

DirectorFebruary 27, 2015
  Rajath Shourie

  /s/ Anne L. Mariucci

DirectorFebruary 27, 2015
  Anne L. Mariucci

EXHIBIT INDEX

Exhibit
No.

Description

2.1 Share Purchase Agreement, dated December 11, 2014, by and among Monarch Parent Inc., TMM Holdings Limited Partnership, 2444991 Ontario Inc. and Mattamy Group Corporation (included as Exhibit 2.1 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on December 16, 2014, and incorporated herein by reference).
3.1 Amended and Restated Certificate of Incorporation (included as Exhibit 3.1 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
3.2 Amended and Restated By-laws (included as Exhibit 3.2 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
4.1 Indenture, dated as of March 5, 2014, relating to Taylor Morrison Communities, Inc.’s and Monarch Communities Inc.’s 5.625% Senior Notes due 2024, by and among Taylor Morrison Communities, Inc., Monarch Communities Inc., the guarantors party thereto and Wells Fargo Bank, National Association (included as Exhibit 4.1 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed on May 7, 2014, and incorporated herein by reference).
4.2 Indenture, dated as of April 16, 2013, relating to Taylor Morrison Communities, Inc.’s and Monarch Communities Inc.’s 5.25% Senior Notes due 2021, by and among Taylor Morrison Communities, Inc., Monarch Communities Inc., the guarantors party thereto and Wells Fargo Bank, National Association (included as Exhibit 4.1 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, filed on August 14, 2013, and in incorporated herein by reference).
4.3 Indenture, dated as of April 13, 2012,16, 2015, relating to Taylor Morrison Communities, Inc.’s and Monarch CommunitiesTaylor Morrison Holdings II, Inc.’s 7.750%'s 5.875% Senior Notes due 2020,2023, by and among Taylor Morrison Communities, Inc., Monarch Communities, Inc., the guarantors party thereto and Wells Fargo Bank, National Association (included as Exhibit 4.1 to Amendment No. 1 to Taylor Morrison Home Corporation’s Registration StatementQuarterly Report on Form S-1,10-Q for the quarter ended March 31, 2015, filed on January 16, 2013,May 7, 2015, and incorporated herein by reference).
4.4 Specimen Class A Common Stock Certificate of Taylor Morrison Home Corporation (included as Exhibit 4.2 to Amendment No. 3 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on April 4, 2013, and incorporated herein by reference).
10.1 Registration Rights Agreement, dated as of April 9, 2013, by and among Taylor Morrison Home Corporation and the other parties named therein (included as Exhibit 10.1 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
10.2 Amended and Restated Agreement of Exempted Limited Partnership of TMM Holdings II Limited Partnership, dated as of April 9, 2013 (included as Exhibit 10.2 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
10.3 Exchange Agreement, dated as of April 9, 2013, by and among Taylor Morrison Home Corporation and the other parties named therein (included as Exhibit 10.3 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
10.4 Stockholders Agreement, dated as of April 9, 2013, by and among Taylor Morrison Home Corporation and the other parties named therein (included as Exhibit 10.4 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
10.4(a) Amendment No. 1, dated as of March 6, 2014, to the Stockholders Agreement, dated as of April 9, 2013, by and among Taylor Morrison Home Corporation, TPG TMM Holdings II, L.P, OCM TMM Holdings II, L.P and JHI Holding Limited Partnership (included as Exhibit 10.1 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on March 7, 2014, and incorporated herein by reference).

Exhibit
No.

Description

10.5 Put/Call Agreement, dated as of April 9, 2013, by and among Taylor Morrison Home Corporation and TPG TMM Holdings II, L.P. and OCM TMM Holdings II, L.P (included as Exhibit 10.5 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
10.6 Reorganization Agreement, dated as of April 9, 2013, by and among Taylor Morrison Home Corporation and the other parties named therein (included as Exhibit 10.6 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
10.7 U.S. Parent Governance Agreement, dated as of April 9, 2013, by and among Taylor Morrison Home Corporation, Taylor Morrison Holdings, Inc. and the other parties named therein (included as Exhibit 10.7 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).


10.8 Canadian Parent Governance Agreement, dated as of April 9, 2013, by and among Taylor Morrison Home Corporation, Monarch Communities Inc. (n/k/a Taylor Morrison Holdings II, Inc.) and the other parties named therein (included as Exhibit 10.8 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
10.9 Credit Agreement, dated as of July 13, 2011, among Taylor Morrison Communities, Inc., Monarch Corporation, TMM Holdings Limited Partnership, Monarch Communities Inc., Monarch Parent Inc., Taylor Morrison Holdings, Inc., Taylor Morrison Finance, Inc., the lenders party thereto and Credit Suisse AG, as administrative agent (included as Exhibit 10.1 to Amendment No. 2 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on February 13, 2013, and incorporated herein by reference).
10.9(a) Amendment Agreement, dated as of April 12, 2013, to the Credit Agreement dated as of July 13, 2011 (as amended and restated as of April 13, 2012 and as thereafter amended as of August 15, 2012 and December 27, 2012), among Taylor Morrison Communities Inc., Monarch Corporation, TMM Holdings Limited Partnership and the other parties named therein (included as Exhibit 10.9 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference).
10.9(b) Amendment No. 1, dated as of January 15, 2014, to the Second Amended and Restated Credit Agreement, dated as of July 13, 2011 (as amended and restated as of April 13, 2012, thereafter amended as of August 15, 2012 and December 27, 2012 and as further amended and restated as of April 12, 2013), by and among Taylor Morrison Communities, Inc., Monarch Corporation, TMM Holdings Limited Partnership, Monarch Communities Inc., Monarch Parent Inc., Taylor Morrison Holdings, Inc., Taylor Morrison Finance, Inc., the lenders party thereto and Credit Suisse AG, as administrative agent for the lenders (included as Exhibit 10.1 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on January 17, 2014, and incorporated herein by reference).
10.9(c)Amendment No. 3, dated as of April 24, 2015, to the Second Amended and Restated Credit Agreement, dated as of July 13, 2011 (as amended and restated as of April 13, 2012, thereafter amended as of August 15, 2012 and December 27, 2012, as further amended and restated as of April 12, 2013 and thereafter amended as of January 15, 2014 and December 22, 2014), by and among Taylor Morrison Communities, Inc., TMM Holdings Limited Partnership, Taylor Morrison Holdings II, Inc., Taylor Morrison Communities II, Inc., Taylor Morrison Holdings, Inc., Taylor Morrison Finance, Inc., the lenders party thereto and Credit Suisse AG, as administrative agent for the lenders (included as Exhibit 10.2 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 7, 2015, and incorporated herein by reference).
10.10 Form of Indemnification Agreement (included as Exhibit 10.4 to Amendment No. 5 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on April 4, 2013, and incorporated herein by reference).
  10.1110.11† 
Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (Amended and Restated as of May 25, 2016) (included as Exhibit 10.14 to Amendment No. 5 to Taylor Morrison Home Corporation’s RegistrationAppendix A of the Company’s definitive Proxy Statement on Form S-1,Schedule 14A filed on April 4, 2013,12, 2016, and incorporated herein by reference).

  10.1210.12† 
Form of Employee Nonqualified Option Award Agreement for use with the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (Amended and Restated as of May 25, 2016) (included as Exhibit 10.15 to Amendment No. 5 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on April 4, 2013, and incorporated herein by reference).

  10.1310.13† Taylor Morrison Long-Term Cash Incentive Plan (included as Exhibit 10.18 to Amendment No. 5 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on April 4, 2013, and incorporated herein by reference).

Exhibit
No.

Description

  10.1410.14† Form of Restricted Stock Unit Agreement for use with the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (included as Exhibit 10.16 to Amendment No. 5 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on April 4, 2013, and incorporated herein by reference).
  10.1510.15† Form of Class B Common Stock Subscription Agreement with Taylor Morrison Home Corporation (included as Exhibit 10.17 to Amendment No. 5 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on April 4, 2013, and incorporated herein by reference).
  10.1610.16† TMM Holdings II Limited Partnership 2013 Common Unit Plan (included as Exhibit 10.23 to Amendment No. 5 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on April 4, 2013, and incorporated herein by reference).
  10.1710.17† Employment Agreement, dated as of July 13, 2011, between Taylor Morrison, Inc. and Sheryl D. Palmer (included as Exhibit 10.7 to Amendment No. 3 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on March 6, 2013, and incorporated herein by reference).
10.17(a)† First Amendment to Employment Agreement, dated May 17, 2012, between Taylor Morrison, Inc. and Sheryl D. Palmer (included as Exhibit 10.8 to Amendment No. 3 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on March 6, 2013, and incorporated herein by reference).
10.17(b)
Second Amendment to Employment Agreement, dated February 26, 2016, between Taylor Morrison, Inc. and Sheryl D. Palmer (included as Exhibit 10.1 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 4, 2016, and incorporated herein by reference).


  10.1810.18† Employment Agreement, dated as of January 1, 2013, between Taylor Morrison, Inc. and C. David Cone (included as Exhibit 10.9 to Amendment No. 3 to Taylor Morrison Home Corporation’s Registration Statement on Form S-1, filed on March 6, 2013, and incorporated herein by reference).
10.18(a)†

First Amendment to Employment Agreement, dated February 26, 2016, between Taylor Morrison, Inc. and C. David Cone (included as Exhibit 10.2 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 4, 2016, and incorporated herein by reference).

  10.1910.19†Employment Agreement, dated as of December 28, 2012, between Taylor Morrison, Inc. and Darrell C. Sherman (included as Exhibit 10.3 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 7, 2015, and incorporated herein by reference).
10.19(a)†
Second Amendment to Employment Agreement, dated February 26, 2016, between Taylor Morrison, Inc. and Darrell C. Sherman (included as Exhibit 10.3 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed on May 4, 2016, and incorporated herein by reference).

10.20† Form of Restrictive Covenants Agreement with Taylor Morrison, Inc. (included as Exhibit 10.12 to Amendment No. 3 to Taylor Morrison Home Corporation’sCorporation's Registration Statement on Form S-1, filed on March 6, 2013, and incorporated herein by reference.
10.21†2015 Non-Employee Director Deferred Compensation Plan (included as Exhibit 10.4 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 7, 2015, and incorporated herein by reference).
10.21(a)†Form of Deferred Stock Unit Award Agreement (included as Exhibit 10.5 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 7, 2015, and incorporated herein by reference).
10.22Amendment dated as of March 15, 2015 to the Amended and Restated Agreement of Exempted Limited Partnership of TMM Holdings II Limited Partnership of TMM Holdings II Limited Partnership (included as Exhibit 10.1 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed on May 7, 2015, and incorporated herein by reference).
10.23†
Form of Employee Nonqualified Option Award Agreement for use with the 2013 Taylor Morrison Home Corporation Omnibus Equity Award Plan (Amended and Restated as of May 25, 2016) for grants made in 2015 and thereafter (included as Exhibit 10.1 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed on August 5, 2015, and incorporated herein by reference).

10.24†
Form of Restricted Stock Unit Agreement for use with the 2013 Taylor Morrison Home Corporation Omnibus Equity Award Plan (Amended and Restated as of May 25, 2016) for grants made in 2015 and thereafter (included as Exhibit 10.2 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed on August 5, 2015, and incorporated herein by reference).

10.25†
Form of Performance-Based Restricted Stock Unit Agreement for use with the 2013 Taylor Morrison Home Corporation Omnibus Equity Award Plan (Amended and Restated as of May 25, 2016) for grants made in 2015 and thereafter (included as Exhibit 10.3 to Taylor Morrison Home Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed on August 5, 2015, and incorporated herein by reference).


10.26
Purchase Agreement, dated as of January 31, 2017, by and among Taylor Morrison Home Corporation, TMM Holdings II Limited Partnership and certain sellers named in Schedule I thereto (included as Exhibit 10.1 to Taylor Morrison Home Corporation’s Current Report on Form 8-K, filed on February 6, 2017, and incorporated herein by reference).

21.1* Subsidiaries of Taylor Morrison Home Corporation
23.1* Consent of Deloitte & Touche LLP
24.1* Power of Attorney (included on signature page)
31.1* Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.
31.2* Certification of C. David Cone, Chief Financial Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.
32.1* Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.
32.2* Certification of C. David Cone, Chief Financial Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

*Filed herewith.
+Management contract or compensatory plan in which directors and/or executive officers are eligible to participate.

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The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.


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