Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 2018
OR

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-35873
 
 
TAYLOR MORRISON HOME CORPORATION
(Exact name of Registrant as specified in its Charter)
 
Delaware 90-090743383-2026677
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
4900 N. Scottsdale Road, Suite 2000
Scottsdale, Arizona
 85251
(Address of principal executive offices) (Zip Code)
(480) 840-8100
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)  
 
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý  Accelerated filer ¨
    
Non-accelerated filer ¨  Smaller reporting company ¨
       
     Emerging growth company ¨


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. ¨                                               
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class  Outstanding as of August 1,October 31, 2018
Class A common stock, $0.00001 par value  111,392,354
Class B common stock, $0.00001 par value863,434118,678,633
 

TAYLOR MORRISON HOME CORPORATION
TABLE OF CONTENTS
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NOTE REGARDING THIS QUARTERLY REPORT
On October 26, 2018, Taylor Morrison Home II Corporation, a Delaware corporation formerly known as Taylor Morrison Home Corporation (“Original Taylor Morrison”) completed a holding company reorganization (the “Reorganization”), which resulted in a new parent company (“New Taylor Morrison”) owning all of the outstanding common stock of Original Taylor Morrison. New Taylor Morrison assumed the name Taylor Morrison Home Corporation. Consequently, Original Taylor Morrison became a direct, wholly-owned subsidiary of New Taylor Morrison. In the holding company reorganization, Original Taylor Morrison’s stockholders became stockholders of New Taylor Morrison, on a one-for-one basis, with the same number of shares and same ownership percentage of the corresponding class of Original Taylor Morrison common stock that they held immediately prior to the holding company reorganization.
New Taylor Morrison, as the successor issuer to Original Taylor Morrison (pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), began making filings under the Securities Act of 1933, as amended, and the Exchange Act on October 26, 2018.
The business, executive officers and directors of New Taylor Morrison immediately following the Reorganization were identical to the business, executive officers and directors of Original Taylor Morrison immediately prior to the Reorganization.
References to “Taylor Morrison Home Corporation”, “ the Company”, “we”, “us”, or “our” in this Quarterly Report on Form 10-Q (including in the consolidated financial statements and condensed notes thereto in this report) have the following meanings, unless the context otherwise requires:
For periods prior to October 26, 2018: Original Taylor Morrison and its subsidiaries.
For periods from and after October 26, 2018: New Taylor Morrison and its subsidiaries.


PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts, unaudited)

 June 30,
2018
 December 31,
2017
 September 30,
2018
 December 31,
2017
Assets        
Cash and cash equivalents $320,102
 $573,925
 $382,054
 $573,925
Restricted cash 1,319
 1,578
 1,319
 1,578
Total cash, cash equivalents, and restricted cash 321,421
 575,503
 383,373
 575,503
Owned inventory 3,194,241
 2,956,709
 3,255,300
 2,956,709
Real estate not owned under option agreements 1,462
 2,527
Real estate not owned 13,811
 2,527
Total real estate inventory 3,195,703
 2,959,236
 3,269,111
 2,959,236
Land deposits 40,514
 49,768
 47,855
 49,768
Mortgage loans held for sale 99,606
 187,038
 83,751
 187,038
Derivative assets 2,888
 1,584
 2,329
 1,584
Prepaid expenses and other assets, net 52,029
 72,334
 56,828
 72,334
Other receivables, net 94,320
 94,488
 98,048
 94,488
Investments in unconsolidated entities 189,733
 192,364
 179,249
 192,364
Deferred tax assets, net 117,892
 118,138
 105,356
 118,138
Property and equipment, net 38,916
 7,112
 38,258
 7,112
Intangible assets, net 1,601
 2,130
 1,337
 2,130
Goodwill 66,198
 66,198
 66,198
 66,198
Total assets $4,220,821
 $4,325,893
 $4,331,693
 $4,325,893
Liabilities        
Accounts payable $160,051
 $140,165
 $124,731
 $140,165
Accrued expenses and other liabilities 167,315
 201,540
 188,681
 201,540
Income taxes payable 14,454
 4,525
 
 4,525
Customer deposits 191,893
 132,529
 189,116
 132,529
Senior notes, net 1,240,938
 1,239,787
 1,241,514
 1,239,787
Loans payable and other borrowings 136,508
 139,453
 160,173
 139,453
Revolving credit facility borrowings 
 
 
 
Mortgage warehouse borrowings 49,818
 118,822
 54,457
 118,822
Liabilities attributable to real estate not owned under option agreements 1,462
 2,527
Liabilities attributable to real estate not owned 13,811
 2,527
Total liabilities 1,962,439
 1,979,348
 1,972,483
 1,979,348
COMMITMENTS AND CONTINGENCIES (Note 15) 
 
 
 
Stockholders’ Equity        
Class A common stock, $0.00001 par value, 400,000,000 shares authorized,
114,436,481 and 85,449,253 shares issued, 111,387,224 and 82,399,996 shares outstanding as of June 30, 2018 and December 31, 2017, respectively
 1
 1
Class B common stock, $0.00001 par value, 200,000,000 shares authorized,
863,434 and 37,179,616 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively
 
 
Preferred stock, $0.00001 par value, 50,000,000 shares authorized, no shares issued and outstanding as of June 30, 2018 and December 31, 2017 
 
Class A common stock, $0.00001 par value, 400,000,000 shares authorized,
114,458,190 and 85,449,253 shares issued, 111,408,931 and 82,399,996 shares outstanding as of September 30, 2018 and December 31, 2017, respectively
 1
 1
Class B common stock, $0.00001 par value, 200,000,000 shares authorized,
863,434 and 37,179,616 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively
 
 
Preferred stock, $0.00001 par value, 50,000,000 shares authorized, no shares issued and outstanding as of September 30, 2018 and December 31, 2017 
 
Additional paid-in capital 1,877,468
 1,341,873
 1,881,273
 1,341,873
Treasury stock at cost, 3,049,257 shares as of June 30, 2018 and December 31, 2017 (47,622) (47,622)
Treasury stock at cost, 3,049,257 shares as of September 30, 2018 and December 31, 2017 (47,622) (47,622)
Retained earnings 425,238
 319,833
 517,780
 319,833
Accumulated other comprehensive loss (17,968) (17,968) (17,968) (17,968)
Total stockholders’ equity attributable to Taylor Morrison Home Corporation 2,237,117
 1,596,117
 2,333,464
 1,596,117
Non-controlling interests – joint ventures 1,359
 1,663
 4,504
 1,663
Non-controlling interests 19,906
 748,765
 21,242
 748,765
Total stockholders’ equity 2,258,382
 2,346,545
 2,359,210
 2,346,545
Total liabilities and stockholders’ equity $4,220,821
 $4,325,893
 $4,331,693
 $4,325,893

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2018 2017 2018 2017 2018 2017 2018 2017
Home closings revenue, net $956,565
 $889,096
 $1,689,524
 $1,640,581
 $1,014,168
 $886,249
 $2,703,692
 $2,526,830
Land closings revenue 7,997
 3,764
 13,165
 7,120
 5,170
 4,299
 18,335
 11,419
Financial services revenue 16,266
 15,634
 30,472

29,883
 17,041
 17,479
 47,513

47,362
Total revenues 980,828
 908,494
 1,733,161
 1,677,584
 1,036,379
 908,027
 2,769,540
 2,585,611
Cost of home closings 784,521
 724,505
 1,379,427
 1,340,800
 822,950
 721,637
 2,202,377
 2,062,437
Cost of land closings 6,444
 2,467
 10,725
 4,867
 3,979
 3,002
 14,704
 7,869
Financial services expenses 11,152
 10,102
 21,196

18,804
 10,451
 12,070
 31,647

30,874
Total cost of revenues 802,117
 737,074
 1,411,348
 1,364,471
 837,380
 736,709
 2,248,728
 2,101,180
Gross margin 178,711
 171,420
 321,813
 313,113
 198,999
 171,318
 520,812
 484,431
Sales, commissions and other marketing costs 64,604
 61,516
 118,302
 117,133
 67,504
 61,476
 185,806
 178,609
General and administrative expenses 35,461
 33,894
 68,778
 67,022
 33,016
 33,374
 101,795
 100,396
Equity in income of unconsolidated entities (4,017) (3,071) (7,263) (4,156) (2,514) (2,787) (9,777) (6,943)
Interest income, net (276) (89) (619) (179) (670) (135) (1,289) (314)
Other expense, net 3,654
 764
 4,092
 413
 798
 415
 4,889
 828
Income before income taxes 79,285
 78,406
 138,523
 132,880
 100,865
 78,975
 239,388
 211,855
Income tax provision 19,993
 22,476
 31,699
 41,349
 6,424
 24,282
 38,123
 65,631
Net income before allocation to non-controlling interests 59,292
 55,930
 106,824
 91,531
 94,441
 54,693
 201,265
 146,224
Net income attributable to non-controlling interests — joint ventures (140) (207) (269) (198) (159) (427) (428) (625)
Net income before non-controlling interests 59,152
 55,723
 106,555
 91,333
 94,282
 54,266
 200,837
 145,599
Net income attributable to non-controlling interests (474) (28,322) (3,133) (54,164) (714) (21,390) (4,391) (76,810)
Net income available to Taylor Morrison Home Corporation $58,678
 $27,401
 $103,422
 $37,169
 $93,568
 $32,876
 $196,446
 $68,789
Earnings per common share                
Basic $0.53
 $0.46
 $0.94
 $0.76
 $0.84
 $0.45
 $1.75
 $1.21
Diluted $0.52
 $0.46
 $0.93
 $0.76
 $0.83
 $0.45
 $1.73
 $1.21
Weighted average number of shares of common stock:                
Basic 111,347
 58,977
 110,508
 48,822
 111,396
 72,471
 112,449
 56,791
Diluted 113,482
 121,061
 115,400
 120,895
 113,440
 121,183
 116,378
 120,991

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)

 Three Months Ended June 30, Six Months Ended
June 30,
 Three Months Ended September 30, Nine Months Ended
September 30,
 2018 2017 2018 2017 2018 2017 2018 2017
Income before non-controlling interests, net of tax $59,292
 $55,930
 $106,824
 $91,531
 $94,441
 $54,693
 $201,265
 $146,224
Comprehensive income attributable to non-controlling interests — joint ventures (140) (207) (269) (198) (159) (427) (428) (625)
Comprehensive income attributable to non-controlling interests (474) (28,322) (3,133) (54,164) (714) (21,390) (4,391) (76,810)
Comprehensive income available to Taylor Morrison Home Corporation $58,678
 $27,401
 $103,422
 $37,169
 $93,568
 $32,876
 $196,446
 $68,789

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands, except share data, unaudited)

 Common Stock               Common Stock              
 Class A Class B 
Additional
Paid-in
Capital
 Treasury Stock Stockholders' Equity Class A Class B 
Additional
Paid-in
Capital
 Treasury Stock Stockholders' Equity
 Shares Amount Shares Amount Amount Shares Amount 
Retained
Earnings
 
Accumulated 
Other
Comprehensive
Loss
 
Non-controlling
Interest - Joint
Venture
 
Non-controlling Interests(1)
 
Total
Stockholders’
Equity
 Shares Amount 
Shares(2)
 Amount Amount Shares Amount 
Retained
Earnings
 
Accumulated 
Other
Comprehensive
Loss
 
Non-controlling
Interest - Joint
Venture
 
Non-controlling Interests(1)
 
Total
Stockholders’
Equity
Balance – December 31, 2017 82,399,996
 $1
 37,179,616
 $
 $1,341,873
 3,049,257
 $(47,622) $319,833
 $(17,968) $1,663
 $748,765
 $2,346,545
 82,399,996
 $1
 37,179,616
 $
 $1,341,873
 3,049,257
 $(47,622) $319,833
 $(17,968) $1,663
 $748,765
 $2,346,545
Cumulative-effect adjustment to Retained Earnings related to adoption of ASU No. 2014-09 (see Note 2)          1,983
       1,983
Cumulative-effect adjustment to Retained Earnings, net of tax related to adoption of ASU No. 2014-09 (see Note 2)          1,501
       1,501
Net income 
 
 
 
 
 
 
 103,422
 
 269
 3,133
 106,824
 
 
 
 
 
 
 
 196,446
 
 428
 4,391
 201,265
Exchange of New TMM Units and corresponding number of Class B Common Stock 20,487
 
 (20,487) 
 1,293
 
 
 
 
 
 (1,293) 
 20,487
 
 (20,487) 
 1,293
 
 
 
 
 
 (1,293) 
TMHC repurchase and cancellation of New TMM Units from Principal Equityholders 
 
 (7,588,771) 
 (201,775) 
 
 
 
 
 
 (201,775)
TMHC repurchase and cancellation of New TMM Units from Former Principal Equityholders 
 
 (7,588,771) 
 (201,775) 
 
 
 
 
 
 (201,775)
Exercise of stock options 98,270
 
 
 
 1,588
 
 
 
 
 
 
 1,588
 118,992
 
 
 
 1,887
 
 
 
 
 
 
 1,887
Issuance of restricted stock units, net of shares withheld for tax 161,547







(1,491)












(1,491) 162,532







(1,498)












(1,498)
Exchange of B shares from secondary offerings 28,706,924
 
 
 
 729,954
 
 
 
 
 
 
 729,954
Repurchase of New TMM Units from Principal Equityholders 
 
 (28,706,924) 
 
 
 
 
 
 
 (730,963) (730,963)
Exchange of B shares from public offerings 28,706,924
 
 
 
 729,954
 
 
 
 
 
 
 729,954
Repurchase of New TMM Units from Former Principal Equityholders 
 
 (28,706,924) 
 
 
 
 
 
 
 (730,963) (730,963)
Share based compensation 
 
 
 
 6,026
 
 
 
 
 
 264
 6,290
 
 
 
 
 9,539
 
 
 
 
 
 342
 9,881
Changes in non-controlling interests of consolidated joint ventures 
 
 
 
 
 
 
 
 
 (573) 
 (573) 
 
 
 
 
 
 
 
 
 2,413
 
 2,413
Balance – June 30, 2018 111,387,224
 $1
 863,434
 $
 $1,877,468
 3,049,257
 $(47,622) $425,238
 $(17,968) $1,359
 $19,906
 $2,258,382
Balance – September 30, 2018 111,408,931
 $1
 863,434
 $
 $1,881,273
 3,049,257
 $(47,622) $517,780
 $(17,968) $4,504
 $21,242
 $2,359,210
(1)As of JuneSeptember 30, 2018, the remaining Non-controlling Interest relates to management and director ownership. Refer to Note 10 - Stockholders' Equity for discussion regarding our equity offering transactions during the sixnine months ended JuneSeptember 30, 2018.
(2) Refer to Note 17 - Subsequent Events for discussion regarding retirement of Class B Common Stock on October 26, 2018.


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)

 Six Months Ended June 30, Nine Months Ended September 30,
 2018 2017 2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income before allocation to non-controlling interests $106,824
 $91,531
 $201,265
 $146,224
Adjustments to reconcile net income to net cash provided by operating activities: 
 
 
 
Equity in income of unconsolidated entities (7,263) (4,156) (9,777) (6,943)
Stock compensation expense 6,290
 6,850
 9,881
 10,227
Distributions of earnings from unconsolidated entities 3,298
 3,496
 4,168
 4,666
Depreciation and amortization 11,306
 2,097
 17,606
 2,994
Debt issuance costs amortization 1,652
 1,909
 2,442
 2,864
Contingent consideration 146
 613
 146
 766
Deferred income taxes 246
 (6,291) 12,782
 (9,032)
Changes in operating assets and liabilities:        
Real estate inventory and land deposits (228,278) (200,801) (296,678) (243,343)
Mortgages held for sale, prepaid expenses and other assets 74,094
 132,989
 81,769
 141,813
Customer deposits 59,364
 70,867
 56,587
 74,031
Accounts payable, accrued expenses and other liabilities (27,119) (641) (19,670) 4,017
Income taxes payable 9,929
 1,507
 (4,525) 4,491
Net cash provided by operating activities 10,489
 99,970
 55,996
 132,775
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of property and equipment (8,593) (915) (14,454) (1,843)
Distributions of capital from unconsolidated entities 9,965
 3,295
 22,271
 4,223
Investments of capital into unconsolidated entities (3,368) (23,604) (3,547) (28,854)
Net cash (used in) investing activities (1,996) (21,224)
Net cash provided by (used in) investing activities 4,270
 (26,474)
CASH FLOWS FROM FINANCING ACTIVITIES:        
Increase in loans payable and other borrowings 18,304
 8,643
 27,158
 8,644
Repayments of loans payable and other borrowings (8,350) (8,047) (14,942) (11,305)
Borrowings on mortgage warehouse 311,880
 388,353
 552,908
 567,922
Repayment on mortgage warehouse (380,884) (523,767) (617,273) (705,194)
Payment of contingent consideration (265) 
 (265) 
Proceeds from stock option exercises 1,588
 4,734
 1,887
 4,791
Proceeds from issuance of shares from secondary offerings 767,116
 882,306
TMHC repurchase and cancellation of New TMM Units from principal equityholders (201,775) 
Repurchase of shares from principal equityholders (768,125) (884,303)
Proceeds from issuance of shares from public offerings 767,116
 882,306
TMHC repurchase and cancellation of New TMM Units from Former Principal Equityholders (201,775) 
Repurchase of shares from Former Principal Equityholders (768,125) (884,403)
Repurchase of common stock, net 
 (4,098)
Payment of taxes related to net share settlement of equity awards (1,491) (289) (1,498) (307)
Distributions to non-controlling interests of consolidated joint ventures, net (573) (100)
Contributions to (Distributions to) non-controlling interests of consolidated joint ventures, net 2,413
 (292)
Net cash (used in) financing activities (262,575) (132,470) (252,396) (141,936)
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS $(254,082) $(53,724) $(192,130) $(35,635)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period 575,503
 301,812
 575,503
 301,812
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period $321,421
 $248,088
 $383,373
 $266,177
SUPPLEMENTAL CASH FLOW INFORMATION:   0    
Income taxes paid, net $(21,525) $(46,133) $(44,569) $(70,172)
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:        
Change in loans payable issued to sellers in connection with land purchase contracts $24,279
 $31,305
 $53,099
 $55,151
Change in inventory not owned $(1,065) $(2,249) $11,284
 $(3,145)
Change in Prepaid expenses and other assets, net due to adoption of ASU 2014-09 $(32,004) $
 $(32,004) $
Change in Property and equipment, net due to adoption of ASU 2014-09 $32,004
 $
 $32,004
 $


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

TAYLOR MORRISON HOME CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Organization and Description of the Business — Taylor Morrison Home Corporation “TMHC” through its subsidiaries (with TMHC referred to herein as “we,” “our,” “the Company” and “us”), owns and operates a residential homebuilding business and is a developer of lifestyle communities. As of JuneSeptember 30, 2018, we operated in the states of Arizona, California, Colorado, Florida, Georgia, Illinois, North and South Carolina, and Texas. Our Company serves a wide array of consumer groups from coast to coast, including first time, move-up, luxury, and active adult. Our homebuilding company operates under our Taylor Morrison and Darling Homes brand names. Our business is organized into multiple homebuilding operating components, and a financial services component (formerly called our mortgage operating component), all of which are managed as four reportable segments: East, Central, West, and Financial Services. The communities in our homebuilding segments offer single family attached and detached homes. We are the general contractors for all real estate projects and retain subcontractors for home construction and site development. Our Financial Services reportable segment provides our customers with mortgage services through our wholly owned mortgage subsidiary, operating as Taylor Morrison Home Funding, LLC (“TMHF”), and title services through our wholly owned title services subsidiary, Inspired Title Services, LLC (“Inspired Title”).

As a result of the completion of our initial public offering (“IPO”) on April 12, 2013 and a series of transactions pursuant to a Reorganization Agreement dated as of April 9, 2013, TMHC was formed and became the owner and general partner of TMM Holdings II Limited Partnership (“New TMM”), our direct subsidiary. New TMM was formed by a consortium of investors 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 (together, the “Oaktree Entities”), and affiliates of JH Investments, Inc. (“JH” and together with the TPG Entities and Oaktree Entities, the “Former Principal Equityholders” and, following JH's February 2017 sale of its equity interest in us, the “Remaining Principal Equityholders”).

From January 2017 through January 2018, we completed seven public offerings for an aggregate of 80.2 million shares of our Class A Common Stock, using all of the net proceeds therefrom to repurchase our Former Principal Equityholders' indirect interest in TMHC. In January 2018, we also purchased an additional 7.6 million shares of our Class B Common Stock from our Remaining Principal Equityholders. Following our final public offeringTPG and Oaktree. All equity interests in January, 2018, the Remaining Principal Equityholders no longer held any ownershipTMHC owned by JH were sold as of February 2017 and all equity interests in the Company.TMHC owned by TPG and Oaktree were sold as of February 2018. Refer to Note 10. Stockholders' Equity for discussion regarding our equity offering transactions.

On June 7, 2018 we announced and entered into an Agreement and Plan of Merger with AV Homes, Inc. (“AV Homes”). AV Homes is a homebuilder and land developer of residential communities in Florida, North Carolina, South Carolina, Arizona and Texas. AV Homes focuses on the development and construction of primary residential communities that serve first-time and move-up buyers, as well as age restricted active adultsadult communities.

We will acquire all ofOn October 2, 2018, we completed the outstanding sharesacquisition of AV Homes (the “Acquisition”). At the closing of the merger, we paid approximately $280.4 million in cash and issued 8.95 million shares of our Class A common stock to stockholders of AV Homes as merger consideration.  In addition, at $21.50 per share in a cash and stock transaction with an estimated value of approximately $480 million. We have not completed the fair value measurements with respect to the AV Homes' assets to be acquired and the AV Homes' liabilities to be assumed. A final determination of the fair valueclosing we assumed $80 million aggregate principal amount of AV Homes’ assets and liabilities will be based on6.00% Convertible Senior Notes due 2020 (the “Convertible Notes”), all of which had been converted as of October 25, 2018 for approximately $95.8 million in cash, resulting in total purchase consideration for the actual assets and liabilitiesAcquisition of approximately $535 million. In connection with the Acquisition, one of our subsidiaries also assumed $400 million aggregate principal amount of AV Homes that exist as of the date of completion of the merger. Additionally, the final value of the consideration to be paid by us to complete the merger will be determined based on the ending number of shares of AV Homes' Common Stock outstanding at the time of the completion of the merger. Homes’ 6.625% Senior Notes due 2022 (the “2022 Senior Notes”). 

Within 12 months after the completion of the merger, final valuations of the assets acquired and liabilities assumed will be completed. Refer to Note 17. Subsequent Events for additional information.

On October 26, 2018, we completed and reflected in the combined company’s financial information. Under the terms of the agreement, AV Homes stockholders will have the optiona holding company reorganization pursuant to receive, at their election, consideration per share equal to (i) $21.50 in cash, (ii) 0.9793 shares ofwhich Taylor Morrison Class A common stock or (iii) the combination of $12.64 in cash and 0.4034 shares ofHome Corporation (formerly known as Taylor Morrison Class A common stock, subjectHomes Corporation), which was incorporated as a Delaware corporation in September 2018 (“New Taylor Morrison”), became the successor to an overall proration of approximately 58.8% cash and 41.2% stock. On a pro forma basis, AV Homes stockholders are expected to own up to approximately 10% of the combined company, subject to conversion mechanics applicable to holders of AV Homes' convertible notes. The transaction has been unanimously approved by the Boards of Directors of both Taylor Morrison Home II Corporation, a Delaware corporation formerly known as Taylor Morrison Home Corporation (“Original Taylor Morrison”). New Taylor Morrison assumed the name Taylor Morrison Home Corporation, the former publicly-traded company and AV Homes and will be submittednow a wholly owned subsidiary of New Taylor Morrison (“Original Taylor Morrison”). Refer to the stockholders of AV HomesNote 17. Subsequent Events for approval. The transaction is expected to close late in the third quarter or early in the fourth quarter of 2018.additional information.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation — The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our 2017 Annual Report on Form 10-K for 2017 (the “Annual Report”). In the opinion of management, the accompanying Unauditedunaudited Condensed Consolidated Financial Statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for a full fiscal year.

Non-controlling interests – During the first quarter of 2018, we completed sales of our Class A Common Stock in registered public offerings, totaling 28.7 million shares. We used all of the net proceeds from the public offerings to purchase partnership units in New TMM (“New TMM Units”) along with shares of our Class B Common Stock, held by our Remaining Principal Equityholders. In addition,TPG and Oaktree. Separately, in a series of transactions following each public offering, the Company purchased an additional 3.8 million shares of Class B common stock directly from our Remaining Principal EquityholdersTPG and Oaktree on both January 8, 2018 and January 17, 2018, for an aggregate total of 7.6 million shares purchased. As a result, we adjusted Non-controlling interests and Additional paid-in capital on the Condensed Consolidated Balance Sheets and Condensed Consolidated Statement of Stockholders' Equity to reflect the change in ownership. Refer to Note 10- Stockholders' Equity for discussion regarding our equity offering transactions.

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 in presented as “Net income attributable to non-controlling interests - joint ventures” on the Condensed Consolidated Statements of Operations.

Use of Estimates — The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Significant estimates include real estate development costs to complete, valuation of real estate, valuation of acquired assets, valuation of goodwill, valuation of equity awards, valuation allowance on deferred tax assets and reserves for warranty and self-insured risks. Actual results could differ from those estimates.

Real Estate Inventory — Inventory consists of raw land, land under development, homes under construction, completed homes, and model homes, all of 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 vertical construction costs are accumulated and charged to cost of sales at the time of home closing using the specific identification method. Land acquisition, development, interest, real estate taxes and overhead are allocated to homes and units using the relative sales value method. These costs are capitalized to inventory from the point development begins to the point construction is completed. Changes in estimated costs to be incurred in a community are generally allocated to the remaining lots 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. Such costs are expensed as incurred.

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.delivered.

We assess the recoverability of our 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 expected 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. For the three and sixnine months ended JuneSeptember 30, 2018 and 2017, no impairment charges were recorded.

In certain cases, we may elect to cease development and/or marketing of an existing community if we believe the economic performance of the community would be maximized by deferring development for a period of time to allow for market conditions to improve. The decision may be based on financial and/or operational metrics as determined by us. If we decide to cease developing a project, we will evaluate the project for impairment and then cease future development and marketing activity until such a time when we believe that market conditions have improved and economic performance can be maximized.

Our assessment of the carrying value of our assets typically includes 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 JuneSeptember 30, 2018 andwe had no inactive projects. As of December 31, 2017 we had one and two inactive projects with a carrying value of $3.2 million and $10.7 million respectively, in the West homebuilding segment. There were no inactive projects in our Central or East homebuilding segments as of June 30, 2018 or December 31, 2017.

In the ordinary course of business, we enter into various specific performance agreements to acquire lots. Real estate not owned under these agreements is consolidated into realreflected in Real estate inventorynot owned with a corresponding liability in liabilitiesLiabilities attributable to real estate not owned under option agreements in the Condensed Consolidated Balance Sheets.

Investments in Unconsolidated Entities — We evaluate our investments in unconsolidated entities for indicators of impairment. 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, our intent and ability to recover our investment in the unconsolidated entity, financial condition and long-term prospects of the unconsolidated entity, short-term liquidity needs of the unconsolidated entity, trends in the general economic environment of the land, entitlement status of the land held by the unconsolidated entity, overall projected returns on investment, defaults under contracts with third parties (including bank debt), recoverability of the investment through future cash flows and relationships with the other partners. If the Company believes that the decline in the fair value of the investment is temporary, then no impairment is recorded. We did not record any impairment charges for the three and sixnine months ended JuneSeptember 30, 2018 or 2017.

Revenue Recognition

Topic 606
In January 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09” or “Topic 606”), which provides new guidance for revenue recognition and elected to use the modified retrospective approach to account for prior periods. The standard's core principle requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The new guidance does not materially impact our home closings revenue, net, land closings revenue or financial services revenue based on our current operations, customer contracts, and policies. However, the following changes were made to conform to the new guidance:

Forfeited customer deposits were previously classified as a credit to Other expense/(income), net on the Condensed Consolidated Statement of Operations. Under Topic 606, these are now considered revenue and recorded in Home closings revenue, net as of January 1, 2018. Prior period balances for forfeited customer deposits were not reclassified and are not material to the Condensed Consolidated Financial Statements.

Certain costs related to sales offices and model homes were previously capitalized and presented within Prepaid expenses and other assets, net on the Condensed Consolidated Balance Sheet and amortized through Sales, commissions and other marketing costs on the Condensed Consolidated Statement of Operations. Beginning January 1, 2018, these costs have been reclassified to Property and equipment, net on the Condensed Consolidated Balance Sheet and depreciated through Sales, commissions and other marketing costs on the Condensed Consolidated Statement of Operations. A total of $32.0 million of sales office and model homes costs were reclassified from Prepaid expenses and other assets, net to Property and equipment, net as of January 1, 2018. As we elected the modified retrospective approach to account for prior periods, the balance of any capitalized sales office and model home costs required to be expensed under Topic 606 was recorded as an adjustment to beginning retained earnings in the first quarter of 2018 and reflected as an approximate $2.0$1.5 million cumulative effect adjustment to retained earnings in the Condensed Consolidated Statement of Stockholders' Equity.

Home and land closings revenue
Under Topic 606, the following steps are applied to determine the proper home closings revenue and land closings revenue recognition: (1) we identify the contract(s) with our customer; (2) we identify the performance obligations in the contract; (3) we determine the transaction price; (4) we allocate the transaction price to the performance obligations in the contract; and (5) we recognize revenue when (or as) we satisfy the performance obligation. For our home sales transactions, we have one contract, with one performance obligation, with each customer to build and deliver the home purchased (or develop and deliver l

and)land). Based on the application of the five steps, the following summarizes the timing and manner of home and land sales revenue:

Revenue from closings of residential real estate is recognized when closings have occurred, the buyer has made the required minimum down payment, obtained necessary financing, the risks and rewards of ownership are transferred to the buyer, and we have no continuing involvement with the property, which is generally upon the close of escrow. Revenue is reported net of any discounts and incentives.       
Revenue from land sales is recognized when a significant down payment is received, title passes and collectability of the receivable is reasonably assured, and we have no continuing involvement with the property, which is generally upon the close of escrow.

Financial services revenue
Mortgage operations and hedging activity related to financial services are not within the scope of Topic 606 and therefore there was no change to our accounting policies related to such activities. Loan origination fees (including title fees, points, and closing costs) are recognized at the time the related real estate transactions are completed, usually upon the close of escrow. All of the loans TMHF originates are sold to third party investors within a short period of time, on a non-recourse basis. Gains and losses from the sale of mortgages are recognized in accordance with ASC Topic 860-20, Sales of Financial Assets. TMHF does not have continuing involvement with the transferred assets, therefore, we derecognize the mortgage loans at time of sale, based on the difference between the selling price and carrying value of the related loans upon sale, recording a gain/loss on sale in the period of sale. Also included in financial services revenue/expenses is the realized and unrealized gains and losses from hedging instruments.

Recently Issued Accounting Pronouncements — In February 2016, the Financial Accounting Standards Board (“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. The guidance requires a modified retrospective approach for all existing leases at the date of initial adoption. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases. ASU 2018-10 primarily provides additional guidance to Topic 842 including clarification on residual value guarantees, implicit rates, lessee reassessment of lease classifications, and other various areas within the Topic. We do not believe the adoption of ASU 2016-02 or ASU 2018-10 will have a material impact on our Condensed Consolidated Financial Statements and disclosures.

3. EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income available to TMHC by the weighted average number of shares of Class A Common Stock outstanding during the period. Diluted earnings per share gives effect to the potential dilution that could occur if all shares of Class B Common Stock and their corresponding New TMM Units were exchanged for shares of Class A Common Stock and if all outstanding dilutive equity awards to issue shares of Class A Common Stock were exercised or settled.
The following is a summary of the components of basic and diluted earnings per share (in thousands, except per share amounts):

 Three months ended June 30, Six months ended June 30, Three months ended September 30, Nine months ended September 30,
 2018 2017 2018 2017 2018 2017 2018 2017
Numerator:                
Net income available to TMHC – basic $58,678
 $27,401
 $103,422
 $37,169
 $93,568
 $32,876
 $196,446
 $68,789
Net income attributable to non-controlling interest 474
 28,322
 3,133
 54,164
 714
 21,390
 4,391
 76,810
Loss fully attributable to public holding company 84
 125
 248
 152
 100
 136
 349
 288
Net income – diluted $59,236
 $55,848
 $106,803
 $91,485
 $94,382
 $54,402
 $201,186
 $145,887
Denominator:                
Weighted average shares – basic (Class A) 111,347
 58,977
 110,508
 48,822
 111,396
 72,471
 112,449
 56,791
Weighted average shares – non-controlling interest (Class B) 867
 60,630
 3,339
 70,766
 863
 47,253
 2,508
 62,842
Restricted stock units 898
 1,075
 1,068
 976
 904
 1,121
 1,043
 1,026
Stock Options 370
 379
 485
 331
 277
 338
 378
 332
Weighted average shares – diluted 113,482
 121,061
 115,400
 120,895
 113,440
 121,183
 116,378
 120,991
Earnings per common share – basic:                
Net income available to Taylor Morrison Home Corporation $0.53
 $0.46
 $0.94
 $0.76
 $0.84
 $0.45
 $1.75
 $1.21
Earnings per common share – diluted:                
Net income available to Taylor Morrison Home Corporation $0.52
 $0.46
 $0.93
 $0.76
 $0.83
 $0.45
 $1.73
 $1.21
We excluded a total weighted average of 1,579,6832,562,840 and 1,660,6831,685,938 outstanding anti-dilutive stock options and unvested restricted stock units (“RSUs”) and 787,5271,442,767 and 1,926,7241,926,836 stock options and unvested RSUs from the calculation of earnings per share for the three and sixnine months ended JuneSeptember 30, 2018 and 2017, respectively.
The shares of Class B Common Stock have voting rights but do not have economic rights or rights to dividends or distributions on liquidation and, therefore, are not participating securities. Accordingly, Class B Common Stock is not included in basic earnings per share. Refer to Note 17. Subsequent Events for discussion regarding our holding company reorganization and the retirement of Class B Common Stock on October 26, 2018.

4. REAL ESTATE INVENTORY AND LAND DEPOSITS
Inventory consists of the following (in thousands):
 As of As of
 June 30,
2018
 December 31, 2017 September 30,
2018
 December 31, 2017
Real estate developed and under development $2,190,939
 $2,130,263
 $2,194,880
 $2,130,263
Real estate held for development or held for sale (1)
 56,814
 76,552
 65,971
 76,552
Operating communities (2)
 850,795
 659,398
 899,937
 659,398
Capitalized interest 95,693
 90,496
 94,512
 90,496
Total owned inventory 3,194,241
 2,956,709
 3,255,300
 2,956,709
Real estate not owned under option agreements 1,462
 2,527
Real estate not owned 13,811
 2,527
Total real estate inventory $3,195,703
 $2,959,236
 $3,269,111
 $2,959,236
(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, properties where we have ceased development and/or marketing, and long-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 (dollars in thousands):
 
 As of As of
 June 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
 Owned Lots 
Book Value of Land
and Development
 Owned Lots 
Book Value of Land
and Development
 Owned Lots 
Book Value of Land
and Development
 Owned Lots 
Book Value of Land
and Development
Raw 7,864
 $336,396
 7,703
 $338,642
 7,362
 $286,753
 7,703
 $338,642
Partially developed 5,567
 371,810
 5,811
 543,200
 7,639
 473,725
 5,811
 543,200
Finished 13,108
 1,536,378
 11,644
 1,314,243
 12,982
 1,500,373
 11,644
 1,314,243
Long-term strategic assets 50
 3,169
 763
 10,730
 
 
 763
 10,730
Total 26,589
 $2,247,753
 25,921
 $2,206,815
 27,983
 $2,260,851
 25,921
 $2,206,815

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 JuneSeptember 30, 2018 and December 31, 2017, we had the right to purchase 3,9494,715 and 5,037 lots under land option purchase contracts, respectively, for an aggregate purchase price of $350.0$395.8 million and $405.3 million, respectively. We do not have title to the properties, and the creditors generally have no recourse against the Company. As of JuneSeptember 30, 2018 and December 31, 2017, our exposure to loss related to our option contracts with third parties and unconsolidated entities consisted of non-refundable deposits totaling $40.5$47.9 million and $49.8 million, respectively, in land deposits related to land options and land purchase contracts.respectively.

Capitalized Interest — Interest capitalized, incurred and amortized is as follows (in thousands):

 Three Months Ended
June 30,
 Six Months Ended
June 30,
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2018 2017 2018 2017 2018 2017 2018 2017
Interest capitalized - beginning of period $95,334
 $103,059
 $90,496
 $102,642
 $95,693
 $100,490
 $90,496
 $102,642
Interest incurred 20,129
 20,711
 39,815
 41,425
 20,164
 20,762
 59,979
 62,187
Interest amortized to cost of home closings (19,770) (23,280) (34,618) (43,577) (21,345) (21,789) (55,963) (65,366)
Interest capitalized - end of period $95,693
 $100,490
 $95,693
 $100,490
 $94,512
 $99,463
 $94,512
 $99,463

5. INVESTMENTS IN UNCONSOLIDATED ENTITIES
We have investments in a number of joint ventures with related and unrelated third parties, with ownership interests up to 50.0%. These entities are generally involved in real estate development, homebuilding and/or mortgage lending activities. Some of these joint ventures develop land for the sole use of the joint venture participants, including us, and others develop land for sale to the joint venture participants and to unrelated builders. Our share of the joint venture profit relating to lots we purchase from the joint ventures is deferred until homes are delivered by us and title passes to a homebuyer.

Summarized, unaudited combined financial information of unconsolidated entities that are accounted for by the equity method is as follows (in thousands):

 As of As of
 June 30,
2018
 December 31,
2017
 September 30,
2018
 December 31,
2017
Assets:        
Real estate inventory $591,198
 $627,841
 $558,871
 $627,841
Other assets 145,205
 138,341
 120,185
 138,341
Total assets $736,403
 $766,182
 $679,056
 $766,182
Liabilities and owners’ equity:        
Debt $181,762
 $193,770
 $173,932
 $193,770
Other liabilities 26,527
 27,556
 16,431
 27,556
Total liabilities 208,289
 221,326
 190,363
 221,326
Owners’ equity:        
TMHC 189,733
 192,364
 179,249
 192,364
Others 338,381
 352,492
 309,444
 352,492
Total owners’ equity 528,114
 544,856
 488,693
 544,856
Total liabilities and owners’ equity $736,403
 $766,182
 $679,056
 $766,182

 Three Months Ended
June 30,
 Six Months Ended
June 30,
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2018 2017 2018 2017 2018 2017 2018 2017
Revenues $76,629
 $64,260
 $135,703
 $87,253
 $95,085
 $60,020
 $264,624
 $147,273
Costs and expenses (61,485) (50,937) (108,817) (71,041) (84,409) (47,505) (227,061) (118,546)
Income of unconsolidated entities $15,144
 $13,323
 $26,886
 $16,212
 $10,676
 $12,515
 $37,563
 $28,727
TMHC’s share in income of unconsolidated entities $4,017
 $3,071
 $7,263
 $4,156
 $2,514
 $2,787
 $9,777
 $6,943
Distributions from unconsolidated entities $12,230
 $5,052
 $13,263
 $6,791
 $13,176
 $2,098
 $26,439
 $8,889


6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following (in thousands):

 As of
June 30, 2018
 As of
December 31, 2017
 As of
September 30, 2018
 As of
December 31, 2017
Real estate development costs to complete $9,966
 $14,815
 $10,428
 $14,815
Compensation and employee benefits 50,773
 72,352
 56,912
 72,352
Self-insurance and warranty reserves 53,011
 51,010
 53,408
 51,010
Interest payable 17,011
 17,125
 24,516
 17,125
Property and sales taxes payable 10,885
 12,294
 17,144
 12,294
Other accruals 25,669
 33,944
 26,273
 33,944
Total accrued expenses and other liabilities $167,315
 $201,540
 $188,681
 $201,540

Self-Insurance and Warranty Reserves – We accrue for the expected costs associated with our limited warranty, deductibles and self-insured amounts under our various insurance policies within Beneva Indemnity Company ("Beneva"), a wholly owned subsidiary. A summary of the changes in our reserves are as follows (in thousands):

 Three Months Ended
June 30,
 Six Months Ended
June 30,
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2018 2017 2018 2017 2018 2017 2018 2017
Reserve - beginning of period $50,336
 $52,416
 $51,010
 $50,550
 $53,011
 $54,084
 $51,010
 $50,550
Additions to reserves 10,282
 6,744
 15,325
 11,043
 9,438
 6,403
 24,763
 17,446
Costs and claims incurred (7,873) (6,593) (12,933) (9,928) (9,592) (8,203) (22,525) (18,131)
Change in estimates to existing reserves 266
 1,517
 (391) 2,419
 551
 (748) 160
 1,671
Reserve - end of period $53,011
 $54,084
 $53,011
 $54,084
 $53,408
 $51,536
 $53,408
 $51,536

7. DEBT
Total debt consists of the following (in thousands):
 As of As of
 June 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
 Principal Unamortized Debt Issuance Costs Carrying Value Principal Unamortized Debt Issuance Costs Carrying Value Principal Unamortized Debt Issuance Costs Carrying Value Principal Unamortized Debt Issuance Costs Carrying Value
5.25% Senior Notes due 2021, unsecured $550,000
 $3,294
 $546,706
 $550,000
 $3,892
 $546,108
 $550,000
 $2,994
 $547,006
 $550,000
 $3,892
 $546,108
5.875% Senior Notes due 2023, unsecured 350,000
 2,718
 347,282
 350,000
 3,002
 346,998
 350,000
 2,576
 347,424
 350,000
 3,002
 346,998
5.625% Senior Notes due 2024, unsecured 350,000
 3,050
 346,950
 350,000
 3,319
 346,681
 350,000
 2,916
 347,084
 350,000
 3,319
 346,681
Senior Notes subtotal 1,250,000
 9,062
 1,240,938
 1,250,000
 10,213
 1,239,787
 1,250,000
 8,486
 1,241,514
 1,250,000
 10,213
 1,239,787
Loans payable and other borrowings 136,508
 
 136,508
 139,453
 
 139,453
 160,173
 
 160,173
 139,453
 
 139,453
Revolving Credit Facility(1)
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage warehouse borrowings 49,818
 
 49,818
 118,822
 
 118,822
 54,457
 
 54,457
 118,822
 
 118,822
Total Senior Notes and other financing $1,436,326
 $9,062
 $1,427,264
 $1,508,275
 $10,213
 $1,498,062
 $1,464,630
 $8,486
 $1,456,144
 $1,508,275
 $10,213
 $1,498,062
(1) The Revolving Credit Facility included $3.1$2.9 million and $2.0 million of unamortized debt issuance costs as of JuneSeptember 30, 2018 and December 31, 2017, respectively, which is presented in Prepaid expenses and other assets, net on the Consolidated Balance Sheets. As of JuneSeptember 30, 2018 and December 31, 2017, we had $48.4$53.7 million and $47.1 million, respectively, of utilized letters of credit, resulting in $551.6$546.3 million and $452.9 million, respectively, of availability onunder the Revolving Credit Facility.

2021 Senior Notes
On April 16, 2013, we issued $550.0 million aggregate principal amount of 5.25% Senior Notes due 2021 (the “2021 Senior Notes”).


The 2021 Senior Notes mature on April 15, 2021. The 2021 Senior Notes are guaranteed by TMM Holdings Limited Partnership (“TMM Holdings”), Taylor Morrison Holdings, Inc., Taylor Morrison Communities II, Inc. and their homebuilding subsidiaries (collectively, the “Guarantors”), which are all subsidiaries directly or indirectly of TMHC. The 2021 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights. The indenture for the 2021 Senior Notes contains covenants that limit (i) the making of investments, (ii) the payment of dividends and the redemption of equity and junior debt, (iii) the incurrence of additional indebtedness, (iv) asset dispositions, (v) mergers and similar corporate transactions, (vi) the incurrence of liens, (vii) prohibitions on payments and asset transfers among the issuers and restricted subsidiaries and (viii) transactions with affiliates, among others. The indenture governing the 2021 Senior Notes contains customary events of default. If we do not apply the net cash proceeds of certain asset sales within specified deadlines, we will be required to offer to repurchase the 2021 Senior Notes at par (plus accrued and unpaid interest) with such proceeds. We are also required to offer to repurchase the 2021 Senior Notes at a price equal to 101% of their aggregate principal amount (plus accrued and unpaid interest) upon certain change of control events.

The 2021 Senior Notes are redeemable at scheduled redemption prices, currently at 102.625%, of their principal amount (plus accrued and unpaid interest).

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

2023 Senior Notes
On April 16, 2015, we issued $350.0 million aggregate principal amount of 5.875% Senior Notes due 2023 (the “2023 Senior Notes”). The 2023 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights.

The 2023 Senior Notes mature on April 15, 2023. The 2023 Senior Notes are guaranteed by the same Guarantors that guarantee the 2021 Senior Notes. The indenture governing the 2023 Senior Notes contains covenants that limit our ability to incur debt secured by liens and enter into certain sale and leaseback transactions. The indenture governing the 2023 Senior Notes contains events of default that are similar to those contained in the indenture governing the 2021 Senior Notes. The change of control provisions in the indenture governing the 2023 Senior Notes are similar to those contained in the indenture governing the 2021 Senior Notes, but a credit rating downgrade must occur in connection with the change of control before the repurchase offer requirement is triggered for the 2023 Senior Notes.

Prior to January 15, 2023, the 2023 Senior Notes are redeemable at a price equal to 100% plus a “make-whole” premium for payments through January 15, 2023 (plus accrued and unpaid interest). Beginning January 15, 2023, the 2023 Senior Notes are redeemable at par (plus accrued and unpaid interest).

There are no financial maintenance covenants for the 2023 Senior Notes.

2024 Senior Notes
On March 5, 2014, we issued $350.0 million aggregate principal amount of 5.625% Senior Notes due 2024 (the “2024 Senior Notes”).

The 2024 Senior Notes mature on March 1, 2024. The 2024 Senior Notes are guaranteed by the same Guarantors that guarantee the 2021 and 2023 Senior Notes. The 2024 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights. The indenture governing the 2024 Senior Notes contains covenants that limit our ability to incur debt secured by liens and enter into certain sale and leaseback transactions similar to the 2023 Senior Notes. The indenture governing the 2024 Senior Notes contains events of default that are similar to those contained in the indenture governing the 2021 and 2023 Senior Notes. The change of control provisions in the indenture governing the 2024 Senior Notes are similar to those contained in the indenture governing the 2023 Senior Notes.

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

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

Revolving Credit Facility

On January 26, 2018, we amended our $500.0 million Revolving Credit Facility to extend the maturity date from April 12, 2019 to January 26, 2022. On June 29, 2018, we further amended the Revolving Credit Facility to increase the amount available to $600.0 million. Other immaterial changes were also made to the structure of the Revolving Credit Facility. The Revolving Credit Facility is guaranteed by the same Guarantors that guarantee the 2021, 2023 and 2024 Senior Notes.

The Revolving Credit Facility contains certain “springing” financial covenants, requiring us and our subsidiaries to comply with a maximum debt to capitalization ratio of not more than 0.60 to 1.00 and a minimum consolidated tangible net worth level of at least $1.7 billion. The financial covenants would be in effect for any fiscal quarter during which any (a) loans under the Revolving Credit Facility are outstanding during the last day of such fiscal quarter or on more than five separate days during such fiscal quarter or (b) undrawn letters of credit (except to the extent cash collateralized) issued under the Revolving Credit Facility in an aggregate amount greater than $40.0 million or unreimbursed letters of credit issued under the Revolving Credit Facility are outstanding on the last day of such fiscal quarter or for more than five consecutive days during such fiscal quarter. For purposes of determining compliance with the financial covenants for any fiscal quarter, the Revolving Credit Facility provides that we may exercise an equity cure by issuing certain permitted securities for cash or otherwise recording cash contributions to our capital that will, upon the contribution of such cash to the borrower, be included in the calculation of consolidated tangible net worth and consolidated total capitalization. The equity cure right is exercisable up to twice in any period of four consecutive fiscal quarters and up to five times overall.


The Revolving Credit Facility contains certain restrictive covenants including limitations on incurrence of liens, dividends and other distributions, asset dispositions and investments in entities that are not guarantors, limitations on prepayment of subordinated indebtedness and limitations on fundamental changes. The Revolving Credit Facility contains customary events of default, subject to applicable grace periods, including for nonpayment of principal, interest or other amounts, violation of covenants (including financial covenants, subject to the exercise of an equity cure), incorrectness of representations and warranties in any material respect, cross default and cross acceleration, bankruptcy, material monetary judgments, ERISA events with material adverse effect, actual or asserted invalidity of material guarantees and change of control. As of JuneSeptember 30, 2018, we were in compliance with all of the covenants under the Revolving Credit Facility.

Refer to Note 17- Subsequent Events for discussion relating to our $200.0 million 364-Day Credit Agreement which was entered into on October 2, 2018 in connection with the Acquisition and our assumption of $400 million aggregate principal amount of 2022 Senior Notes and $80 million aggregate principal amount of Convertible Notes.


Mortgage Warehouse Borrowings
The following is a summary of our mortgage warehouse borrowings (in thousands):

  As of June 30, 2018
Facility Amount Drawn Facility Amount Interest Rate Expiration Date 
Collateral (1)
Flagstar $1,692
 $5,000
(2) 
LIBOR + 2.25% 30 days written notice Mortgage Loans
Comerica 18,334
 50,000
 LIBOR + 2.25% On Demand Mortgage Loans
J.P. Morgan 29,792
 100,000
 LIBOR + 2.375% September 24, 2018 Mortgage Loans and Restricted Cash
Total $49,818
 $155,000
  
           
  As of December 31, 2017
Facility Amount Drawn Facility Amount Interest Rate Expiration Date 
Collateral (1)
Flagstar $12,990
 $39,000
 LIBOR + 2.25% 30 days written notice Mortgage Loans
Comerica 41,447
 85,000
 LIBOR + 2.25% On Demand Mortgage Loans
J.P. Morgan 64,385
 125,000
 LIBOR + 2.375% September 24, 2018 Mortgage Loans and Restricted Cash
Total $118,822
 $249,000
  
  As of September 30, 2018
Facility Amount Drawn Facility Amount Interest Rate Expiration Date 
Collateral (1)
Warehouse A $1,129
 $45,000
(2) 
LIBOR + 1.75% On Demand Mortgage Loans
Warehouse B 16,857
 50,000
 LIBOR + 2.25% On Demand Mortgage Loans
Warehouse C 36,471
 100,000
 LIBOR + 2.375% On Demand Mortgage Loans and Restricted Cash
Total $54,457
 $195,000
  
           
  As of December 31, 2017
Facility Amount Drawn Facility Amount Interest Rate Expiration Date 
Collateral (1)
Warehouse A $12,990
 $39,000
(2) 
LIBOR + 2.25% 30 days written notice Mortgage Loans
Warehouse B 41,447
 85,000
 LIBOR + 2.25% On Demand Mortgage Loans
Warehouse C 64,385
 125,000
 LIBOR + 2.375% September 24, 2018 Mortgage Loans and Restricted Cash
Total $118,822
 $249,000
  
 
(1) The mortgage warehouse borrowings outstanding as of JuneSeptember 30, 2018 and December 31, 2017 were collateralized by a) $99.6$83.8 million and $187.0 million, respectively, of mortgage loans held for sale, which comprised the balance of mortgage loans held for sale and b) approximately $1.3 million and $1.6 million, respectively, of cash which are included in restricted cash in the accompanying Condensed Consolidated Balance Sheets.

(2) We amended our warehouse agreement with Flagstar during the three months ended June 30, 2018 and reduced our capacity from $39.0 million to $5.0 million. From time to time we have the ability to amend this warehouse agreement to increase or decrease capacity to accommodate funding needs.

Loans Payable and Other Borrowings
Loans payable and other borrowings as of JuneSeptember 30, 2018 and December 31, 2017 consist of project-level debt due to various land sellers and seller financing notes from current and prior year acquisitions. Project-level debt is generally secured by the land that was acquired and the principal payments generally coincide with corresponding project lot sales or a principal reduction schedule. Loans payable bear interest at rates that ranged from 0% to 8% at each of JuneSeptember 30, 2018 and December 31, 2017. We impute interest for loans with no stated interest rates.


8. FAIR VALUE DISCLOSURES
We have adopted ASC Topic 820, Fair Value Measurements, for valuation of financial instruments. ASC Topic 820 provides a framework for measuring fair value under GAAP, expands disclosures about fair value measurements, and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are summarized as follows:

Level 1 — Fair value is based on quoted prices for identical assets or liabilities in active markets.

Level 2 — Fair value is determined using quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable.

Level 3 — Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as a pricing model, discounted cash flow, or similar technique.

The fair value of our mortgage loans held for sale is derived from negotiated rates with partner lending institutions. The fair value of derivative assets includes interest rate lock commitments (“IRLCs”) and mortgage backed securities (“MBS”). The fair value of IRLCs is based on the value of the underlying mortgage loan, quoted 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 payable and other borrowings and the borrowings under our Revolving Credit Facility approximate carrying value due to their short term nature and variable interest rate terms. The fair value of our Senior Notes is derived from quoted market prices by independent dealers in markets that are not active. The fair value of the 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. There were no changes to or transfers between the levels of the fair value hierarchy for any of our financial instruments as of JuneSeptember 30, 2018, when compared to December 31, 2017.

The carrying value and fair value of our financial instruments are as follows:
   June 30, 2018 December 31, 2017   September 30, 2018 December 31, 2017
(Dollars in thousands) 
Level in Fair
Value Hierarchy
 
Carrying
Value
 
Estimated
Fair
Value
 
Carrying
Value
 
Estimated
Fair
Value
 
Level in Fair
Value Hierarchy
 
Carrying
Value
 
Estimated
Fair
Value
 
Carrying
Value
 
Estimated
Fair
Value
Description:                
Mortgage loans held for sale 2 $99,606
 $99,606
 $187,038
 $187,038
 2 $83,751
 $83,751
 $187,038
 $187,038
Derivative assets, net 2 2,451
 2,451
 1,352
 1,352
 2 2,329
 2,329
 1,352
 1,352
Mortgage warehouse borrowings 2 49,818
 49,818
 118,822
 118,822
 2 54,457
 54,457
 118,822
 118,822
Loans payable and other borrowings 2 136,508
 136,508
 139,453
 139,453
 2 160,173
 160,173
 139,453
 139,453
5.25% Senior Notes due 2021 (1)
 2 546,706
 550,000
 546,108
 561,000
 2 547,006
 552,090
 546,108
 561,000
5.875% Senior Notes due 2023 (1)
 2 347,282
 348,250
 346,998
 369,705
 2 347,424
 352,625
 346,998
 369,705
5.625% Senior Notes due 2024 (1)
 2 346,950
 342,335
 346,681
 366,205
 2 347,084
 344,750
 346,681
 366,205
Revolving Credit Facility 2 
 
 
 
 2 
 
 
 
Contingent consideration liability(2)
 3 
 
 5,328
 5,328
 3 
 
 5,328
 5,328
(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) All payments related to our contingent consideration liability were paid during the first quarter of 2018 and no liability exists as of JuneSeptember 30, 2018.


9. INCOME TAXES
Our effective tax rate for the three and sixnine months ended JuneSeptember 30, 2018 was 25.2%6.4% and 22.9%15.9%, respectively, compared to 28.7%30.7% and 31.1%31.0% for the same periods in 2017, respectively. For the three and sixnine months ended JuneSeptember 30, 2018 and 2017, the effective tax rate differed from the U.S. federal statutory income tax rate primarily due to state income taxes, special deductions and credits relating to home buildinghomebuilding activities, uncertain tax positions and discrete tax adjustments related to certain deferred tax assets and liabilities.


The effective tax rate for the sixthree and nine months ended JuneSeptember 30, 2018 was favorably impacted by the reduction in the federal corporate tax rate from 35% to 21% as a result of the Tax Cuts and Jobs Act (“Tax Act”), the relevant provisions of which became effective on January 1, 2018. In response to the Tax Act, we filed three requests for a change in tax accounting methods related to the timing of income and expense recognition for tax purposes. One of our requests was for a tax accounting method afforded automatic consent while the other two required advanced consent from the Internal Revenue Service (“IRS”). We received affirmative consent from the IRS and signed an agreement for one of the requests during the quarter ended September 30, 2018. The impact of the approved tax accounting method changes was reflected in our consolidated financial statements as of September 30, 2018 as a reduction in income tax expense of $8.1 million. Subsequent to the quarter ended September 30, 2018, we received affirmative consent from the IRS and signed an agreement for the second request for change in method of tax accounting, the effects of which will be recognized in our annual consolidated financial statements for the year ending December 31, 2018. Refer to Note 17. Subsequent Events for additional information.

In accordance with Staff Accounting Bulletin No. 118 (“SAB 118”), the Company recorded provisional tax expense in the fourth quarter of 2017 related to the write-down of our existing deferred tax assets and the mandatory deemed repatriation of foreign earnings related to the sale of our Canadian business in 2015. In the quarter ended JuneSeptember 30, 2018, we recorded a $1.0$0.5 million reduction to the provisional tax expense for the mandatory deemed repatriation of foreign earnings. The adjustment to the provisional tax expense during the quarter was a resultresulted from completing our calculations of the filing of foreigntransition tax and finalizing our U.S. federal income tax returns and the issuance of additional guidance from the IRS interpreting various provisions of the Tax Act.returns. Our accounting offor the Tax Acttransition tax is still a provisional estimate and further adjustments may be necessary in 2018 due to changes in our interpretation of the Tax Act and the issuance of additional guidance by various regulatory bodies.complete. We expect our final accounting forrelated to the Tax Actremeasurement of our existing deferred tax assets under SAB 118 to be completedcomplete when we finalizefile our 2017 incomeU.S. federal tax returns.returns during the fourth quarter of 2018.

At both JuneOur cumulative gross unrecognized tax benefits were $3.6 million and $12.9 million as of September 30, 2018 and December 31, 2017, respectively. The reduction to our cumulative gross unrecognized tax benefits were $12.9 million. during the quarter ended September 30, 2018 was the result of the completion of a state audit related to the utilization of the Company’s state net operating losses.

If the unrecognized tax benefits as of JuneSeptember 30, 2018 were to be recognized, approximately $10.3$2.9 million would affect the effective tax rate. We had $1.3$0.7 million and $1.0 million of gross interest and penalties related to unrecognized tax positions accrued as of JuneSeptember 30, 2018 and December 31, 2017, respectively. The reduction to our gross accrued interest and penalties during the quarter ended September 30, 2018 was the result of the conclusion of a state audit.


10. STOCKHOLDERS’ EQUITY
Capital Stock — Holders of Class A Common Stock and Class B Common Stock are entitled to one vote for each share held on all matters submitted to stockholders for their vote or approval. The holders of Class A Common Stock and Class B Common Stock vote together as a single class on all matters submitted to stockholders for their vote or approval, except with respect to the amendment of certain provisions of the amended and restated Certificate of Incorporation that would alter or change the powers, preferences or special rights of the Class B Common Stock so as to affect them adversely. Such amendments must be approved by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment, voting as a separate class, or as otherwise required by applicable law. The voting power of the outstanding Class B Common Stock (expressed as a percentage of the total voting power of all Common Stock) is equal to the percentage of partnership interests in New TMM not held directly or indirectly by TMHC.

During the first quarter ofnine months ended September 30, 2018, we completed sales of our Class A Common Stock in registered public offerings. We used all of the net proceeds from these public offerings to purchase partnership units in New TMM, our direct subsidiary, along with shares of our Class B Common Stock, held by our Remaining Principal Equityholders.TPG and Oaktree. As a result, we adjusted Non-controlling interests and Additional paid-in capital on the Condensed Consolidated Balance Sheets to reflect the change in ownership. The aggregate number of 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 by the Company in the public offerings.
The following is a summary of the completed sales of our Class A Common Stock in registered public offerings for the first quarter ofnine months ended September 30, 2018:

(Shares presented in thousands)   
Closing dateNumber of shares Net sale price per share
January 8, 201811,000
 $26.05
January 17, 2018 (1)
19,207
 27.14

(1) The January 17, 2018 offering consisted of 17.7 million shares of Class A common stock offered by the Company and 1.5 million shares offered directly by our Principal Equityholder, TPG.

In addition, in a series of transactions following each public offering, the Company purchased 3.8 million shares of Class B common stock directly from our Remaining Principal EquityholdersTPG and Oaktree on both January 8, 2018 and January 17, 2018 at the same respective net purchase price per share in each public offering, for an aggregate total of 7.6 million shares purchased.

Following our final public offering on January 17, 2018, our Former Principal Equityholders no longer have any remaining investment in us. The components and respective voting power of outstanding TMHC Common Stock, including the effects of the secondary offerings, at JuneSeptember 30, 2018 are as follows:
 
Shares
Outstanding
 Percentage 
Shares
Outstanding
 Percentage
Class A Common Stock 111,387,224
 99.2% 111,408,931
 99.2%
Class B Common Stock(1)
 863,434
 0.8% 863,434
 0.8%
Total 112,250,658
 100% 112,272,365
 100%
(1) The remaining 0.8% of Class B Common Stock is held by certain current and former members of management and directors.

On October 26, 2018, we completed a holding company reorganization, which resulted in a new parent company (“New Taylor Morrison”) owning all of the outstanding common stock of Taylor Morrison Home II Corporation (formerly known as Taylor Morrison Home Corporation) (“Original Taylor Morrison”). New Taylor Morrison assumed the name Taylor Morrison Home Corporation. Consequently, Original Taylor Morrison became a direct, wholly-owned subsidiary of New Taylor Morrison. In the holding company reorganization, Original Taylor Morrison’s stockholders became stockholders of New Taylor Morrison, on a one-for-one basis, with the same number of shares and same ownership percentage of the corresponding class of Original Taylor Morrison common stock that they held immediately prior to the holding company reorganization.
Additionally, on October 26, 2018 all of the outstanding shares of New Taylor Morrison Class B common stock, par value $0.00001, were retired following an exchange of such shares and the corresponding New TMM Units for an equal number of shares of New Taylor Morrison Class A common stock, par value $0.00001. Therefore, following this transaction, only one class of New Taylor Morrison's common stock remains outstanding. Refer to Note 17- Subsequent Events for additional discussion.

Stock Repurchase Program
On January 3, 2018, our Board of Directors authorized an extension of the Company's stock repurchase program through December 31, 2018 and increased the amount available for repurchases under the program to a maximum total amount of $200.0 million of the Company’s Common Stock 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. On January 8, 2018 we purchased $100.0 million of Common Stock. On January 17, 2018 we purchased an additional $101.8 million.million of Common Stock. Because these repurchases were in connection with the offerings by our Remaining Principal Equityholders,TPG and Oaktree, the stock repurchase program was not reduced by such purchase and such authorization remained in effect thereafter. As of JuneSeptember 30, 2018 there was $95.9 million available to be used for repurchases. During the three months ended JuneSeptember 30, 2018, there were no shares repurchased.we did not repurchase any shares. During the three and sixnine months ended JuneSeptember 30, 2017, there were nowe repurchased 195,824 shares repurchased.for $4.1 million. Subsequent to September 30, 2018 we repurchased approximately 3.0 million shares for $48.7 million.


11. STOCK BASED COMPENSATION
Equity-Based Compensation
In April 2013, we adopted the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (the "Plan"). The Plan was most recently amended and restated in May 2017. The Plan provides for the grant of stock options, RSUs and other equity-based awards deliverable in shares of our Class A Common Stock. As of JuneSeptember 30, 2018, we had an aggregate of 8,338,8518,336,911 shares of Class A Common Stock available for future grants under the Plan.

The following table provides information regarding the amount and components of stock-based compensation expense, all of which is included in general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations (in thousands):
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2018 2017 2018 2017 2018 2017 2018 2017
Restricted stock units (1)
 $1,803
 $2,294
 $4,105
 $4,191
 $2,673
 $2,157
 $6,778
 $6,348
Stock options 944
 1,188
 2,185
 2,146
 918
 1,162
 3,103
 3,308
New TMM units (2)
 
 356
 
 513
 
 58
 
 571
Total stock compensation $2,747
 $3,838
 $6,290
 $6,850
 $3,591
 $3,377
 $9,881
 $10,227
(1) Includes compensation expense related to time-based RSUs and performance-based RSUs. Outstanding performance-based RSUs reflected in the table above are reported at target level of performance.
(2) As of December 31, 2017, all new TMM units were vested, and there is no further expense associated with them.


At JuneSeptember 30, 2018 and December 31, 2017, the aggregate unrecognized value of all outstanding stock-based compensation awards was approximately $27.7$24.2 million and $19.8 million, respectively.

Restricted Stock Units – The following table summarizes the time-based RSU and performance-based RSU activity for the sixnine months ended JuneSeptember 30, 2018:
 Shares 
Weighted Average
Grant Date Fair
Value
 Shares 
Weighted Average
Grant Date Fair
Value
Balance at December 31, 2017 1,889,559
 $14.84
 1,889,559
 $14.84
Granted 566,943
 24.12
 574,285
 24.06
Vested (223,739) 15.29
 (225,106) 15.31
Forfeited (1)
 (367,860) 16.59
 (367,860) 16.59
Balance at June 30, 2018 1,864,903
 $17.09
Balance at September 30, 2018 1,870,878
 $17.10
(1) Forfeitures on time-based RSUs are a result of terminationstermination of employment, while forfeitures on performance-based RSUs are a result of failing to attain certain goals as outlined in our stock based compensation awards or termination of employment.

During the three and sixnine months ended JuneSeptember 30, 2018, we granted time-based RSU awards and performance-based RSU awards to certain employees and members of the Board of Directors of the Company.

Our time-based RSUs consist of awards that settle in shares of Class A Common Stock and have been awarded to our employees and members of our Board of Directors. Vesting of these RSUs is subject to continued employment with TMHC or an affiliate, or continued service on the Board of Directors, through the applicable vesting dates. Time-based RSUs granted to employees generally vest ratably over a three to four year period, based on the grant date. Time-based RSUs granted to members of the Board of Directors generally vest on the first anniversary of the grant date.

Additionally, we granted performance-based RSUs to certain employees of the Company. These awards will vest in full based on the achievement of certain performance goals over a three-year performance period, subject to the employee’s continued employment through the date the Compensation Committee certifies the applicable level of performance achieved and will be settled in shares of our Class A Common Stock. The number of shares that may be issued in settlement of the performance-based RSUs to the award recipients may be greater or lesserless than the target award amount depending on actual performance achieved as compared to the performance targets set forth in the awards.

Stock Options – The following table summarizes the stock option activity for the sixnine months ended JuneSeptember 30, 2018:

 Shares 
Weighted
Average Exercise
Price Per Share
 Shares 
Weighted
Average Exercise
Price Per Share
Outstanding at December 31, 2017 2,854,213
 $17.50
 2,854,213
 $17.50
Granted 721,762
 23.86
 721,762
 23.86
Exercised (98,270) 16.16
 (118,992) 15.85
Canceled/Forfeited (194,849) 18.52
 (199,742) 18.60
Outstanding at June 30, 2018 3,282,856
 $18.86
Options exercisable at June 30, 2018 1,541,557
 $18.74
Outstanding at September 30, 2018 3,257,241
 $18.88
Options exercisable at September 30, 2018 1,535,093
 $18.80

Options granted to employees vest and become exercisable ratably on the second, third, fourth and fifth anniversary of the date of grant. Options granted to members of the Board of Directors vest and become exercisable ratably on the first, second and third anniversary of the date of grant. Vesting of the options is subject to continued employment with TMHC or an affiliate, or continued service on the Board of Directors, through the applicable vesting dates, and options expire within ten years from the date of grant.

New TMM Units – Certain members of management and certain members of the Board of Directors were issued Class M partnership units in TMM Holdings. Those units were subject to both time and performance vesting conditions.

Pursuant to the reorganization transactions in connection with our 2013 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. One New TMM Unit together with a corresponding share of Class B Common Stock is exchangeable for one share of Class A Common Stock. As of December 31, 2017, all New TMM Units were vested. The shares of Class B Common Stock/New TMM Units held by members of management and members of our Board of Directors as of JuneSeptember 30, 2018 were as follows:
 
Class B Shares/New
TMM Units
 
Weighted
Average Grant  Date
Fair Value
 
Class B Shares/New
TMM Units
 
Weighted
Average Grant  Date
Fair Value
Balance at December 31, 2017 883,921
 $5.24
 883,921
 $5.24
Exchanges (1)
 (20,487) 6.93
 (20,487) 6.93
Balance at June 30, 2018 863,434
 $5.20
Balance at September 30, 2018 863,434
 $5.20
(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.
Refer to Note 17. Subsequent Events for discussion regarding our holding company reorganization and the retirement of Class B Common Stock on October 26, 2018.


12. RELATED-PARTY TRANSACTIONS
From time to time, we may engage in transactions with entities or persons that are affiliated with us. Such transactions with related parties are typically conducted in the normal course of operations and are generally executed at arm’s length, as they are entered into at terms comparable to those entered into with unrelated third parties. There was no activity for the three months ended JuneSeptember 30, 2018.

During the sixnine months ended JuneSeptember 30, 2018 we engaged in multiple equity offering transactions with our Remaining Principal Equityholders.purchased New TMM Units and corresponding shares of Class B Common Stock from TPG and Oaktree. Refer to Note 10 - Stockholders' Equity for discussion regarding such transactions.

During the threenine months ended JuneSeptember 30, 2017, we entered into a contract to purchase 140 home lots in Tustin, California for a total purchase price of $30.0 million from Intracorp Companies, which is owned and controlled by a member of the Board of Directors.

During the three and sixnine months ended JuneSeptember 30, 2017, we completed multiple sales of our Class A Common Stock in registered public offerings. We used all of the net proceeds from these public offerings to purchase partnership units in New TMM, our direct subsidiary, along with shares of our Class B Common Stock, held by our Former Principal Equityholders.TPG and Oaktree. As a result, we adjusted Non-controlling interests and Additional paid-in capital on the Condensed Consolidated Balance Sheetscondensed consolidated balance sheets to reflect the change in ownership. The aggregate number of partnership units and corresponding shares of Class B Common Stock that we purchased

was equal to the number of shares of Class A Common Stock sold in the public offerings. The following is a summary of the completed sales of our Class A Common Stock in registered public offerings for the sixnine months ended JuneSeptember 30, 2017:

(Shares presented in thousands)   
Closing dateNumber of shares Net purchase price per share
February 6, 201711,500
 $18.2875
March 27, 201710,000
 20.7800
May 5, 201710,000
 23.1200
June 27, 201710,000
 23.3000


13. ACCUMULATED OTHER COMPREHENSIVE INCOME
The table below provides the components of accumulated other comprehensive income (loss) (“AOCI”) for the periods presented (in thousands). There was no activity in the three months ended JuneSeptember 30, 2018 or 2017; therefore it issuch periods are not presented.
         
  Nine Months Ended September 30, 2018
  
Total Post-
Retirement
Benefits
Adjustments
 
Foreign
Currency
Translation
Adjustments
 
Non-controlling
Interest - Former Principal
Equityholders
Reclassification
 Total
Balance, beginning of period $2,082
 $(45,205) $25,155
 $(17,968)
Gross amounts reclassified within AOCI 
 25,155
 (25,155) 
Balance, end of period $2,082
 $(20,050)
(1) 
$
 $(17,968)
(1) Refer to Note 17- Subsequent Events for additional discussion regarding corporate reorganization.
  Six Months Ended June 30, 2018
  
Total Post-
Retirement
Benefits
Adjustments
 
Foreign
Currency
Translation
Adjustments
 
Non-controlling
Interest - Principal
Equityholders
Reclassification
 Total
Balance, beginning of period $2,082
 $(45,205) $25,155
 $(17,968)
Gross amounts reclassified within AOCI 
 25,155
 (25,155) 
Balance, end of period $2,082
 $(20,050) $
 $(17,968)

  Three Months Ended June 30, 2017
  Total Post-
Retirement
Benefits
Adjustments
 Foreign
Currency
Translation
Adjustments
 Non-controlling
Interest - Principal
Equityholders
Reclassification
 Total
Balance, beginning of period $2,061
 $(63,448) $43,398
 $(17,989)
Gross amounts reclassified within AOCI 
 11,489
 (11,489) 
Balance, end of period $2,061
 $(51,959) $31,909
 $(17,989)

 Six Months Ended June 30, 2017 Nine Months Ended September 30, 2017
 Total Post-
Retirement
Benefits
Adjustments
 Foreign
Currency
Translation
Adjustments
 Non-controlling
Interest - Principal
Equityholders
Reclassification
 Total Total Post-
Retirement
Benefits
Adjustments
 Foreign
Currency
Translation
Adjustments
 Non-controlling
Interest - Former Principal
Equityholders
Reclassification
 Total
Balance, beginning of period $2,061
 $(79,927) $59,877
 $(17,989) $2,061
 $(79,927) $59,877
 $(17,989)
Gross amounts reclassified within AOCI 
 27,968
 (27,968) 
 
 27,968
 (27,968) 
Balance, end of period $2,061
 $(51,959) $31,909
 $(17,989) $2,061
 $(51,959) $31,909
 $(17,989)


14. REPORTING SEGMENTS
We have multiple homebuilding operating components which are engaged in the business of acquiring and developing land, constructing homes, marketing and selling those homes, and providing warranty and customer service. We aggregate our homebuilding operating components into three reporting segments, East, Central, and West, based on similar long-term economic characteristics. We also have a financial services reporting segment. We have no inter-segment sales as all sales are to external customers.

Our reporting segments are as follows:
 

EastAtlanta, Charlotte, Chicago, Orlando, Raleigh, Southwest Florida and Tampa
CentralAustin, Dallas and Houston (both include a Taylor Morrison division and a Darling Homes division), and Denver
WestBay Area, Phoenix, Sacramento and Southern California
Financial ServicesTaylor Morrison Home Funding, LLC (“TMHF”) and Inspired Title Services, LLC (“Inspired Title”)

Segment information is as follows (in thousands):

 Three Months Ended June 30, 2018 Three Months Ended September 30, 2018
 East Central West Financial Services 
Corporate
and
Unallocated
 Total East Central West Financial Services 
Corporate
and
Unallocated
 Total
Total revenues $360,472
 $298,112
 $305,978
 $16,266
 $
 $980,828
 $393,476
 $277,441
 $348,421
 $17,041
 $
 $1,036,379
                        
Gross margin 65,128
 53,653
 54,816
 5,114
 
 178,711
 70,427
 47,715
 74,267
 6,590
 
 198,999
Selling, general and administrative expenses (31,105) (26,122) (20,061) 
 (22,777) (100,065) (32,182) (25,612) (20,630) 
 (22,096) (100,520)
Equity in income of unconsolidated entities 128
 374
 1,476
 2,039
 
 4,017
 137
 196
 1,309
 872
 
 2,514
Interest and other (expense), net (122) (130) (101) 
 (3,025) (3,378)
Interest and other (expense)/income, net (247) 204
 84
 
 (169) (128)
Income/(loss) before income taxes $34,029
 $27,775
 $36,130
 $7,153
 $(25,802) $79,285
 $38,135
 $22,503
 $55,030
 $7,462
 $(22,265) $100,865

 Three Months Ended June 30, 2017 Three Months Ended September 30, 2017
 East Central West Financial Services 
Corporate
and
Unallocated
 Total East Central West Financial Services 
Corporate
and
Unallocated
 Total
Total revenues $320,053
 $267,562
 $305,245
 $15,634
 $
 $908,494
 $312,539
 $256,842
 $321,167
 $17,479
 $
 $908,027
                        
Gross margin 68,988
 48,413
 48,487
 5,532
 
 171,420
 63,188
 47,797
 54,924
 5,409
 
 171,318
Selling, general and administrative expenses (29,337) (25,933) (18,854) 
 (21,286) (95,410) (28,469) (25,108) (19,087) 
 (22,186) (94,850)
Equity in income of unconsolidated entities 
 226
 685
 2,160
 

 3,071
 
 693
 924
 1,170
 
 2,787
Interest and other (expense)/income, net (129) 602
 (67) 
 (1,081) (675) (7) (87) 46
 
 (232) (280)
Income/(loss) before income taxes $39,522
 $23,308

$30,251

$7,692

$(22,367)
$78,406
 $34,712
 $23,295

$36,807

$6,579

$(22,418)
$78,975
 Six Months Ended June 30, 2018 Nine Months Ended September 30, 2018
 East Central West 
Financial
Services
 
Corporate
and
Unallocated
 Total East Central West 
Financial
Services
 
Corporate
and
Unallocated
 Total
Total revenues $645,279
 $512,224
 $545,186
 $30,472
 $
 $1,733,161
 $1,038,756
 $789,665
 $893,606
 $47,513
 $
 $2,769,540
                        
Gross margin 117,417
 94,280
 100,840
 9,276
 
 321,813
 187,844
 141,994
 175,108
 15,866
 
 520,812
Selling, general and administrative expenses (59,738) (48,402) (35,626) 
 (43,314) (187,080) (91,920) (74,015) (56,256) 
 (65,410) (287,601)
Equity in income of unconsolidated entities 239
 755
 2,571
 3,698
 
 7,263
 378
 951
 3,879
 4,569
 
 9,777
Interest and other (expense), net (600) (238) (81) 
 (2,554) (3,473)
Interest and other (expense)/income, net (846) (34) 2
 
 (2,722) (3,600)
Income/(loss) before income taxes $57,318
 $46,395
 $67,704
 $12,974
 $(45,868) $138,523
 $95,456
 $68,896
 $122,733
 $20,435
 $(68,132) $239,388

 Six Months Ended June 30, 2017 Nine Months Ended September 30, 2017
 East Central West 
Financial
Services
 
Corporate
and
Unallocated
 Total East Central West 
Financial
Services
 
Corporate
and
Unallocated
 Total
Total revenues $583,718
 $473,819
 $590,164
 $29,883
 $
 $1,677,584
 $896,258
 $730,659
 $911,332
 $47,362
 $
 $2,585,611
                        
Gross margin 122,346
 85,621
 94,067
 11,079
 
 313,113
 185,534
 133,418
 148,991
 16,488
 
 484,431
Selling, general and administrative expenses (56,506) (47,425) (37,907) 
 (42,317) (184,155) (84,975) (72,533) (56,994) 
 (64,503) (279,005)
Equity in income of unconsolidated entities 
 58
 602
 3,496
 
 4,156
 
 751
 1,526
 4,666
 
 6,943
Interest and other (expense)/income, net (213) 258
 (192) 
 (87) (234) (220) 171
 (146) 
 (319) (514)
Income/(loss) before income taxes $65,627
 $38,512
 $56,570
 $14,575
 $(42,404) $132,880
 $100,339
 $61,807
 $93,377
 $21,154
 $(64,822) $211,855
 As of June 30, 2018 As of September 30, 2018
 East Central West Financial Services 
Corporate
and
Unallocated
 Total East Central West Financial Services 
Corporate
and
Unallocated
 Total
Real estate inventory and land deposits $1,253,377
 $913,502
 $1,069,338
 $
 $
 $3,236,217
 $1,281,339
 $982,257
 $1,053,370
 $
 $
 $3,316,966
Investments in unconsolidated entities 30,250
 34,763
 120,705
 4,015
 
 189,733
 29,759
 35,401
 110,074
 4,015
 
 179,249
Other assets 76,418
 114,518
 35,082
 149,492
 419,361
 794,871
 55,296
 117,282
 32,569
 146,286
 484,045
 835,478
Total assets $1,360,045
 $1,062,783
 $1,225,125
 $153,507
 $419,361
 $4,220,821
 $1,366,394
 $1,134,940
 $1,196,013
 $150,301
 $484,045
 $4,331,693
 
  As of December 31, 2017
  East Central West Financial Services 
Corporate
and
Unallocated
 Total
Real estate inventory and land deposits $1,150,918
 $818,431
 $1,039,655
 $
 $
 $3,009,004
Investments in unconsolidated entities 29,316
 32,874
 126,559
 3,615
 
 192,364
Other assets 85,753
 124,593
 53,492
 225,641
 635,046
 1,124,525
Total assets $1,265,987
 $975,898
 $1,219,706
 $229,256
 $635,046
 $4,325,893

15. 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 $341.0$318.5 million and $331.7 million as of JuneSeptember 30, 2018 and December 31, 2017, 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 JuneSeptember 30, 2018 will be drawn upon.

Legal Proceedings — We are involved in various litigation and legal claims in the normal course of our business operations, including actions brought on behalf of various classes of claimants. We are also subject to a variety of local, state, and federal laws and regulations related to land development activities, house construction standards, sales practices, mortgage lending operations, employment practices, and protection of the environment. As a result, we are subject to periodic examination or inquiry by various governmental agencies that administer these laws and regulations. We establish liabilities for legal claims and regulatory matters when such matters are both probable of occurring and any potential loss is reasonably estimable. At JuneSeptember 30, 2018 and December 31, 2017, our legal accruals were $1.0$1.2 million and $2.3 million, respectively. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. In view of the inherent difficulty of predicting the outcome of these legal and regulatory matters, we generally cannot predict the ultimate resolution of the pending matters, the related timing or the eventual loss. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial 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.

16. 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 Financial Services revenue/expenses on the statements of operations and other comprehensive income. Unrealized gains and losses on the IRLCs, reflected as derivative assets or liabilities, 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 instrument assets (liabilities) as of the periods presented:

 As of As of
 June 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
(Dollars in thousands) Fair Value Notional Amount Fair Value Notional Amount Fair Value Notional Amount Fair Value Notional Amount
IRLCs $2,888
 $152,089
 $1,584
 $73,817
 $2,011
 $136,733
 $1,584
 $73,817
MBSs (437) 136,000
 (232) 118,078
 318
 133,000
 (232) 118,078
Total $2,451
   $1,352
   $2,329
   $1,352
  

Total commitments to originate loans approximated $163.9$146.6 million and $80.0 million as of JuneSeptember 30, 2018 and December 31, 2017, respectively. The fair value and notional amounts represent the commitments to originate loans for both best efforts and mandatory loans that have been locked.

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. Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon.


17. SUBSEQUENT EVENTS

On October 2, 2018, we completed the acquisition of AV Homes (the “Acquisition”). At the closing of the merger, we paid approximately $280.4 million in cash and issued 8.95 million shares of our Class A common stock to stockholders of AV Homes as merger consideration.  In addition, at closing we assumed $80 million aggregate principal amount of AV Homes’ 6.00% Convertible Senior Notes due 2020 (the “Convertible Notes”), all of which had been converted as of October 25, 2018 for approximately $95.8 million in cash, resulting in total purchase consideration for the Acquisition of approximately $535 million. In connection with the Acquisition, one of our subsidiaries also assumed $400 million aggregate principal amount of AV Homes’ 6.625% Senior Notes due 2022 (the “2022 Senior Notes”).  Within 12 months after the completion of the merger, final valuations of the assets acquired and liabilities assumed will be completed.

On October 2, 2018, our subsidiary, Taylor Morrison Communities, Inc. (“TMCI”) entered into a 364-Day Credit Agreement (the “364-Day Credit Agreement”) in respect of a term loan facility under which we borrowed an aggregate principal amount of $200.0 million, to facilitate the Acquisition. The 364-Day Credit Agreement matures on October 1, 2019.
On October 2, 2018, in connection with the Acquisition, TMCI assumed all of AV Homes’ obligations under the 2022 Senior Notes, originally issued pursuant to a Senior Notes Indenture, dated as of May 18, 2017 (as supplemented by the First Supplemental Indenture, dated as of January 11, 2018, between the guaranteeing subsidiary party thereto and Wilmington Trust, National Association (the “2022 Senior Notes Trustee”), as trustee, the “2022 Senior Notes Indenture”), by and among AV Homes, the guarantors party thereto and the 2022 Senior Notes Trustee. TMCI’s assumption of AV Homes’ obligations under the 2022 Senior Notes was effected by a Second Supplemental Indenture, dated as of October 2, 2018 (the “2022 Senior Notes Supplemental Indenture”), among TMCI, AV Homes, the guarantors party thereto and the 2022 Senior Notes Trustee.

In accordance with the 2022 Senior Notes Indenture, the assumption of the 2022 Senior Notes by TMCI resulted in certain negative covenants that are customary for high yield debt instruments being replaced with a limitation on secured debt and a limitation on sale/leaseback transactions, in each case applicable to TMCI and its restricted subsidiaries. The 2022 Senior Notes are guaranteed by the same subsidiaries of TMCI that guarantee the Revolving Credit Facility and the 2021, 2023 and 2024 Senior Notes.
On October 3, 2018 we received affirmative consent from the Internal Revenue Service and signed an agreement for a change in tax accounting method which was pending approval as of September 30, 2018. The impact from the approved tax accounting method change will be reflected in our annual consolidated financial statements for the year ending December 31, 2018 as a reduction in income tax expense of $8.4 million.

On October 26, 2018, we completed a holding company reorganization, which resulted in a new parent company (“New Taylor Morrison”) owning all of the outstanding stock of Taylor Morrison Home II Corporation (formerly known as Taylor Morrison Home Corporation) (“Original Taylor Morrison”). New Taylor Morrison assumed the name Taylor Morrison Home Corporation. Consequently, Original Taylor Morrison became a direct, wholly owned subsidiary of New Taylor Morrison. In the holding company reorganization, Original Taylor Morrison’s stockholders became stockholders of New Taylor Morrison, on a one-for-one basis, with the same number of shares and same ownership percentage of the corresponding class of Original Taylor Morrison common stock that they held immediately prior to the holding company reorganization.

Additionally, Original Taylor Morrison and New Taylor Morrison had also entered into arrangement with certain holders of New TMM Units and the corresponding paired shares of Class B common stock. Pursuant to such arrangements, on October 26, 2018, following the holding company reorganization, all of the outstanding shares of New Taylor Morrison Class B common stock, together with the corresponding New TMM Units, were exchanged for New Taylor Morrison Class A common stock, which eliminated the minority interest in our principal subsidiary, TMM Holdings II Limited Partnership. All outstanding shares of New Taylor Morrison Class B common stock were retired following the exchange.

In connection with the holding company reorganization and through a series of transactions, all remaining assets in our Canadian subsidiary, Taylor Morrison Holdings II (“TMH II”) will be contributed to a subsidiary in the United States in the fourth quarter of 2018.  As a result, the unrecognized Accumulated other comprehensive income - foreign currency translation adjustment of approximately $20.1 million at September 30, 2018 will be recognized in the statement of operations.  In addition, in the fourth quarter of 2018 we expect to recognize approximately $15.3 million, net of non-resident Canadian withholding taxes. 


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For purposes of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the terms “the Company,” “we,” “us,” or “our” refer to Taylor Morrison Home Corporation (“TMHC”) and its subsidiaries. The Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed consolidated financial statements included elsewhere in this quarterly report.

Forward-Looking Statements
This quarterly report includes certain forward-looking statements within the meaning of the federal securities laws regarding, among other things, our or management’s intentions, plans, beliefs, expectations or predictions of future events, which are considered forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “can,” “could,” “might,” “project” or similar expressions. These statements are based upon assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read this quarterly report, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions, including those described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 (the “Annual Report”) filed with the Securities and Exchange Commission (“SEC”). Although we believe that these forward-

lookingforward-looking statements are based upon reasonable assumptions, you should be aware that many factors, including those described under the heading “Risk Factors” in the Annual Report, could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements.

Our forward-looking statements made herein are made only as of the date of this quarterly report. We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements made herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based, except as required by applicable law.

Business Overview
Our principal business is residential homebuilding and the development of lifestyle communities with operations in Arizona, California, Colorado, Florida, Georgia, Illinois, North and South Carolina and Texas. Our Company serves a wide array of consumer groups from coast to coast, including first time, move-up, luxury and active adult. Our homebuilding business operates under our Taylor Morrison and Darling Homes brand names. Our business is organized into multiple homebuilding operating components, and a financial services component (formerly called our mortgage operating component), all of which are managed as four reportable segments: East, Central, West and Financial Services, as follows:
East  Atlanta, Charlotte, Chicago, Orlando, Raleigh, Southwest Florida and Tampa
Central Austin, Dallas and Houston (both include a Taylor Morrison division and a Darling Homes division), and Denver
West  Bay Area, Phoenix, Sacramento and Southern California
Financial Services  
Taylor Morrison Home Funding, LLC (TMHF) and Inspired Title Services, LLC (Inspired Title)

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

Our Financial Services reportable segment provides our customers with mortgage services through our wholly owned mortgage subsidiary, TMHF, and title services through our wholly owned title services subsidiary, Inspired Title. Revenues from loan origination are recognized at the time the related real estate transactions are completed, usually upon the close of escrow.

Recent Developments
Registered public offerings:AV Homes Acquisition:
During the first quarter ofOn October 2, 2018, we completed salesthe acquisition of our Class A Common Stock in registered public offerings, totaling 28.7 million shares. We used all the net proceeds from the public offerings to purchase partnership units (“New TMM Units”(the “Acquisition”) in TMM Holdings II Limited Partnership (“New TMM”), our direct subsidiary, along with shares of our Class B Common Stock, held by affiliates of TPG Global, LLC (“TPG”) and investment funds managed by Oaktree Capital Management, L.P. or their respective subsidiaries (“Oaktree” and, together with TPG, the “Remaining Principal Equityholders”). In addition, in a series of transactions following each public offering, the Company purchased 3.8 million shares of Class B common stock directly from our Remaining Principal Equityholders on both January 8, 2018 and January 17, 2018 for an aggregate total of 7.6 million shares purchased. Following our last public offering on January 17, 2018, neither TPG, Oaktree, nor affiliates of JH Investments, Inc. (“JH” and, together with TPG and Oaktree, the “Principal Equityholders”) had any remaining investment in us.

Business combinations:
On June 7, 2018 we announced and entered into an Agreement and Plan of Merger with AV Homes, Inc. (“AV Homes”). AV Homes is a homebuilderAt the closing of the merger, we paid approximately $280.4 million in cash and land developerissued 8.95 million shares of residential communities in Florida, North and South Carolina, Arizona and Texas. AV Homes focuses on the development and construction of primary residential communities that serve first-time and move-up buyers, as well as age restricted active adults communities.our Class A common to

stockholders of AV Homes as merger consideration.  In addition, at closing we assumed $80 million aggregate principal amount of AV Homes’ 6.00% Convertible Senior Notes due 2020 (the “Convertible Notes”), all of which had been converted as of October 25, 2018 for approximately $95.8 million in cash  paid to holders of the Convertible Notes, resulting in total purchase consideration for the Acquisition of approximately $535 million.  In connection with the Acquisition, one of our subsidiaries also assumed $400 million aggregate principal amount of AV Homes’ 6.625% Senior Notes due 2022 (the “2022 Senior Notes”). AV Homes has operations in several markets, similar to Taylor Morrison, including Dallas, Orlando, Phoenix, and Raleigh. In addition, AV Homes operates in Jacksonville, a new market for Taylor Morrison. We acquired approximately 17,000 owned and controlled lots within the five overlapping markets and one new market.

364-Day Credit Agreement:
On October 2, 2018, our subsidiary, Taylor Morrison Communities, Inc. (“TMCI”) entered into a 364-Day Credit Agreement (the “364-Day Credit Agreement”) in respect of a term loan facility under which we borrowed an aggregate principal amount of $200.0 million, to facilitate the Acquisition. The 364-Day Credit Agreement matures on October 1, 2019.

Assumption of the 2022 Senior Notes:
On October 2, 2018, in connection with the Acquisition, TMCI assumed all of AV Homes’ obligations under the 2022 Senior Notes. The assumption of the 2022 Senior Notes by TMCI resulted in certain negative covenants that are customary for high yield debt instruments being replaced with a limitation on secured debt and a limitation on sale/leaseback transactions, in each case applicable to TMCI and its restricted subsidiaries. The 2022 Senior Notes are guaranteed by the same subsidiaries of TMCI that guarantee the Revolving Credit Facility and the 2021, 2023 and 2024 Senior Notes.

Internal Revenue Service Communications:
On October 3, 2018 we received affirmative consent from the Internal Revenue Service and signed an agreement for a change in tax accounting method which was pending approval as of September 30, 2018. The impact from the approved tax accounting method change will acquirebe reflected in our annual consolidated financial statements for the year ending December 31, 2018 as a reduction in income tax expense of $8.4 million.

Holding company reorganization:
On October 26, 2018, we completed a holding company reorganization, which resulted in a new parent company (“New Taylor Morrison”) owning all of the outstanding common stock of Taylor Morrison Home II Corporation (formerly known as Taylor Morrison Home Corporation) (“Original Taylor Morrison”). New Taylor Morrison assumed the name Taylor Morrison Home Corporation. Consequently, Original Taylor Morrison became a direct, wholly-owned subsidiary of New Taylor Morrison. In the holding company reorganization, Original Taylor Morrison’s stockholders became stockholders of New Taylor Morrison, on a one-for-one basis, with the same number of shares and same ownership percentage of the corresponding class of Original Taylor Morrison common stock that they held immediately prior to the holding company reorganization.
Additionally, Original Taylor Morrison and New Taylor Morrison had also entered into arrangement with certain holders of New TMM Units and the corresponding paired shares of Class B common stock. Pursuant to such arrangements, on October 26, 2018, following the holding company reorganization, all of the outstanding shares of AV HomesNew Taylor Morrison Class B common stock, at $21.50 per share in a cash and stock transactiontogether with an estimated value of approximately $480 million. Under the terms of the agreement, AV Homes stockholders will have the option to receive, at their election, consideration per share equal to (i) $21.50 in cash, (ii) 0.9793 shares ofcorresponding New TMM Units, were exchanged for New Taylor Morrison Class A common stock, or (iii)which eliminated the combinationminority interest in our principal subsidiary, TMM Holdings II Limited Partnership. All outstanding shares of $12.64 in cash and 0.4034 shares ofNew Taylor Morrison Class AB common stock subjectwere retired following the exchange.
In connection with the holding company reorganization and through a series of transactions, all remaining assets in our Canadian subsidiary, Taylor Morrison Holdings II (“TMH II”) will be contributed to an overall prorationa subsidiary in the United States.  As a result, the accumulated comprehensive loss of approximately 58.8% cash and 41.2% stock. On a pro forma basis, AV Homes stockholders are expected$20.1 million relating to own up to approximately 10% of the combined company, subject to conversion mechanics applicable to holders of AV Homes' convertible notes. The transaction has been unanimously approved by the Boards of Directors of both Taylor

Morrison and AV Homes andforeign currency adjustments will be submittedrecognized in the income statement.  In addition, we expect to pay approximately $19.4 million of non-resident withholding taxes to the stockholdersCanadian government, which will be partially offset by an income tax deduction of AV Homes for approval.approximately $4.1 million.  The transaction is expected to close late in the third quarter or early innet amount will be reflected as a component of income tax expense during the fourth quarter of 2018 and the closing is subject to customary closing conditions.2018.

Revolving Credit Facility:
Our $500.0 million Revolving Credit Facility was amended on January 26, 2018 to extend the maturity date from April 12, 2019 to January 26, 2022. On June 29, 2018, the Revolving Credit Facility was further amended to increase the commitments under the facility to $600.0 million.

SecondThird Quarter 2018 Highlights:
Net income was $94 million with diluted earnings per share of $0.83
Home closings were 2,115, a 15% increase over the prior year quarter
Total revenue was $1,036 million, a 14% increase over the prior year quarter
Sales per outlet were 2.62.2, a 10% increase over the prior year quarter

Net sales orders were 2,342
Home closings were 1,992
Total revenue was $981 million1,822, a 3% increase over the prior year quarter
Home closings gross margin, inclusive of capitalized interest, was 18.018.9 percent, a sequential improvement of 90 basis points from the second quarter of 2018
Net income was $59 million with diluted earnings per share of $0.52


Results of Operations
The following table sets forth our results of operations for the periods presented:

 Three Months Ended
June 30, 2018
 Six Months Ended
June 30,
 Three Months Ended
September 30, 2018
 Nine Months Ended
September 30,
(Dollars in thousands)
 2018 2017 2018 2017 2018 2017 2018 2017
Statements of Operations Data:                
Home closings revenue, net $956,565
 $889,096
 $1,689,524
 $1,640,581
 $1,014,168
 $886,249
 $2,703,692
 $2,526,830
Land closings revenue 7,997
 3,764
 13,165
 7,120
 5,170
 4,299
 18,335
 11,419
Financial services revenue 16,266
 15,634
 30,472
 29,883
 17,041
 17,479
 47,513
 47,362
Total revenues 980,828
 908,494
 1,733,161
 1,677,584
 1,036,379
 908,027
 2,769,540
 2,585,611
Cost of home closings 784,521
 724,505
 1,379,427
 1,340,800
 822,950
 721,637
 2,202,377
 2,062,437
Cost of land closings 6,444
 2,467
 10,725
 4,867
 3,979
 3,002
 14,704
 7,869
Financial services expenses 11,152
 10,102
 21,196
 18,804
 10,451
 12,070
 31,647
 30,874
Gross margin 178,711
 171,420
 321,813
 313,113
 198,999
 171,318
 520,812
 484,431
Sales, commissions and other marketing costs 64,604
 61,516
 118,302
 117,133
 67,504
 61,476
 185,806
 178,609
General and administrative expenses 35,461
 33,894
 68,778
 67,022
 33,016
 33,374
 101,795
 100,396
Equity in income of unconsolidated entities (4,017) (3,071) (7,263) (4,156) (2,514) (2,787) (9,777) (6,943)
Interest income, net (276) (89) (619) (179) (670) (135) (1,289) (314)
Other expense, net

 3,654
 764
 4,092
 413
 798
 415
 4,889
 828
Income before income taxes 79,285
 78,406
 138,523
 132,880
 100,865
 78,975
 239,388
 211,855
Income tax provision 19,993
 22,476
 31,699
 41,349
 6,424
 24,282
 38,123
 65,631
Net income before allocation to non-controlling interests 59,292
 55,930
 106,824
 91,531
 94,441
 54,693
 201,265
 146,224
Net income attributable to non-controlling interests — joint ventures (140) (207) (269) (198) (159) (427) (428) (625)
Net income before non-controlling interests 59,152
 55,723
 106,555
 91,333
 94,282
 54,266
 200,837
 145,599
Net income from continuing operations attributable to non-controlling interests (474) (28,322) (3,133) (54,164) (714) (21,390) (4,391) (76,810)
Net income available to Taylor Morrison Home Corporation $58,678
 $27,401
 $103,422
 $37,169
 $93,568
 $32,876
 $196,446
 $68,789
Home closings gross margin 18.0% 18.5% 18.4% 18.3% 18.9% 18.6% 18.5% 18.4%
Sales, commissions and other marketing costs as a percentage of home closings revenue 6.8% 6.9% 7.0% 7.1% 6.7% 6.9% 6.9% 7.1%
General and administrative expenses as a percentage of home closings revenue 3.7% 3.8% 4.1% 4.1% 3.3% 3.8% 3.8% 4.0%
Average sales price per home closed $480
 $477
 $477
 $470
 $480
 $481
 $478
 $474













SixThree and Nine Months Ended JuneSeptember 30, 2018 Compared to SixThree and Nine Months Ended JuneSeptember 30, 2017
Average Active Selling Communities
 Three Months Ended June 30, Three Months Ended September 30,
 2018 2017 Change 2018 2017 Change
East 121
 127
 (4.7)% 109
 130
 (16.2)%
Central 124
 117
 6.0
 118
 118
 
West 52
 50
 4.0
 48
 45
 6.7
Total 297
 294
 1.0 % 275
 293
 (6.1)%

 Six Months Ended June 30, Nine Months Ended September 30,
 2018 2017 Change 2018 2017 Change
East 123
 126
 (2.4)% 119
 127
 (6.3)%
Central 119
 117
 1.7
 119
 118
 0.8
West 50
 54
 (7.4) 50
 51
 (2.0)
Total 292
 297
 (1.7)% 288
 296
 (2.7)%
An increase
The decreases in new community openings in several of our Texas and California markets during the second quarter of 2018 contributed to the 6.0% and 4.0% increases intotal average active selling communities in our Centralfor the three and West regions, respectively. The increases in the Central and West regionsnine months ended September 30, 2018 were offsetdriven by a decrease in our East region as a result of a shift in timing ofplanned community closeouts exceeding new community openings to later in the year. As a result, our total average active selling communities remained relatively flat for the three months ended June 30, 2018 compared to the prior year. The slight decrease in average active selling communities for the six months ended June 30, 2018 when compared to the prior year was driven by our West region, due to higher than expected sales pace in the current year which led to increased community close outs. during these periods.


Net Sales Orders
 Three Months Ended June 30, Three Months Ended September 30,
 
Net Sales Orders (1) 
 
Sales Value (1)
 Average Selling Price 
Net Sales Orders (1) 
 
Sales Value (1)
 Average Selling Price
(Dollars in thousands) 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change
East 894
 1,096
 (18.4)% $390,007
 $418,001
 (6.7)% $436
 $381
 14.4 % 710
 777
 (8.6)% $289,200
 $302,795
 (4.5)% $407
 $390
 4.4 %
Central 832
 677
 22.9
 393,236
 328,658
 19.6
 473
 485
 (2.5) 617
 521
 18.4
 298,111
 247,084
 20.7
 483
 474
 1.9
West 616
 603
 2.2
 396,123
 357,319
 10.9
 643
 593
 8.4
 495
 463
 6.9
 306,004
 300,815
 1.7
 618
 650
 (4.9)
Total 2,342
 2,376
 (1.4)% $1,179,366
 $1,103,978
 6.8 % $504
 $465
 8.4 % 1,822
 1,761
 3.5 % $893,315
 $850,694
 5.0 % $490
 $483
 1.4 %
 Six Months Ended June 30, Nine Months Ended September 30,
 
Net Sales Orders (1) 
 
Sales Value (1)
 Average Selling Price 
Net Sales Orders (1) 
 
Sales Value (1)
 Average Selling Price
(Dollars in thousands) 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change
East 1,894
 2,146
 (11.7)% $806,809
 $830,044
 (2.8)% $426
 $387
 10.1% 2,604
 2,923
 (10.9)% $1,096,008
 $1,132,839
 (3.3)% $421
 $388
 8.5%
Central 1,587
 1,305
 21.6
 766,742
 617,713
 24.1
 483
 473
 2.1
 2,204
 1,826
 20.7
 1,064,852
 864,797
 23.1
 483
 474
 1.9
West 1,304
 1,350
 (3.4) 822,759
 787,846
 4.4
 631
 584
 8.0
 1,799
 1,813
 (0.8) 1,128,763
 1,088,661
 3.7
 627
 600
 4.5
Total 4,785
 4,801
 (0.3)% $2,396,310
 $2,235,603
 7.2 % $501
 $466
 7.5% 6,607
 6,562
 0.7 % $3,289,623
 $3,086,297
 6.6 % $498
 $470
 6.0%
(1) Net sales orders and sales value represent the number and dollar value, respectively, of new sales contracts executed with customers, net of cancellations.

East:
The average selling price of net sales orders increased by 14.4%4.4% and 10.1%8.5%, respectively, for three and sixnine months ended JuneSeptember 30, 2018 compared to the same periodperiods in the prior year. Geographical and product mix among all divisions within the region contributed to the increase in average selling prices. The number of net sales orders decreased by 18.4%8.6% and 11.7%10.9%, respectively, for the same comparative periods. The decreases in units wasnet sales orders were driven by a reduction in average active selling communities due to higher than expected sales pace resulting in limitedreduced product availability.


Central:

The number of net sales orders increased by 22.9%18.4% and 21.6%20.7%, and sales value of homes increased by 19.6%20.7% and 24.1%23.1%, respectively, for the three and sixnine months ended JuneSeptember 30, 2018, compared to the same periodperiods in the prior year. The expansion ofincreases were primarily driven by improved performance in our Taylor Morrison brandHouston market, which saw a decrease in Dallas contributedsales in the prior year due to an interruption to the higher number of sales orders and overall sales value in the region in the current year as well as other markets in the Central region that continue to strengthen their performance.business caused by Hurricane Harvey.

West:
The average selling pricenumber of net sales orders increased by 8.4%6.9% and 8.0%decreased slightly by 0.8%, respectively, for the three and sixnine months ended JuneSeptember 30, 2018, compared to the same periodperiods in the prior year. LimitedFor the three months ended September 30, 2018, strong sales in our Phoenix market contributed to the increase in net sales orders, although product mix within the region resulted in lower average selling prices. For the nine months ended September 30, 2018, reduced supply combined with strong demand across all markets in our West region have contributed to the 4.5% increase in average selling prices. In addition, product mix in our California market has allowed for higher average selling prices in the current year.

Sales Order Cancellations
 
Cancellation Rate(1)

 
Cancellation Rate(1)

 Three Months Ended June 30, Six Months Ended June 30, Three Months Ended September 30, Nine Months Ended
September 30,
 2018 2017 2018 2017 2018 2017 2018 2017
East 10.6% 8.8% 10.5% 9.5% 10.8% 11.8% 10.6% 10.1%
Central 11.3
 11.2
 10.0
 11.3
 13.6
 14.4
 11.1
 12.2
West 10.6
 12.5
 9.1
 11.8
 17.5
 11.1
 11.6
 11.6
Total Company 10.8% 10.4% 10.0% 10.7% 13.6% 12.4% 11.0% 11.1%
(1) Cancellation rate represents the number of canceled sales orders divided by gross sales orders.

The Total Company cancellation rate increaseincreased for the three months ended JuneSeptember 30, 2018 and remained relatively flat for the nine months ended September 30, 2018 compared to the same periodperiods in the prior yearyear. The increase in the current quarter was driven primarily by our EastWest region as a result of new communities in these regions being in earlier stages of their life cycle. For the six months ended June 30, 2018 compared to the same period in the prior year, Total Company cancellation rate decreased to 10.0% from 10.7% due to increased demand for new housing and a rising interest rate environment.various factors including affordability challenges in our California markets.


Sales Order Backlog
 As of June 30, As of September 30,
 
Sold Homes in Backlog (1)
 Sales Value Average Selling Price 
Sold Homes in Backlog (1)
 Sales Value Average Selling Price
(Dollars in thousands) 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change
East 1,832
 1,905
 (3.8)% $825,231
 $772,244
 6.9% $450
 $405
 11.1 % 1,589
 1,905
 (16.6)% $754,666
 $774,001
 (2.5)% $475
 $406
 17.0 %
Central 1,587
 1,282
 23.8
 778,782
 655,956
 18.7
 491
 512
 (4.1) 1,610
 1,272
 26.6
 814,173
 653,415
 24.6
 506
 514
 (1.6)
West 1,323
 1,254
 5.5
 820,175
 712,816
 15.1
 620
 568
 9.2
 1,250
 1,182
 5.8
 771,135
 697,790
 10.5
 617
 590
 4.6
Total 4,742
 4,441
 6.8 % $2,424,188
 $2,141,016
 13.2% $511
 $482
 6.0 % 4,449
 4,359
 2.1 % $2,339,974
 $2,125,206
 10.1 % $526
 $488
 7.8 %
(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.

Total backlog units and total sales value increased by 6.8%2.1% and 13.2%10.1% at JuneSeptember 30, 2018, respectively, compared to JuneSeptember 30, 2017. The increase in backlog units and dollars is primarily a result of a shiftincreased sales in timing of closings to a future period partiallyour Central region in the current year due to platting and permitting delays with municipalitiesan interruption in several of our markets. In addition, higher average selling prices resultedthe business in higher sales value compared to the prior year.year caused by Hurricane Harvey.

Home Closings Revenue

 Three Months Ended June 30, Three Months Ended September 30,
 Homes Closed Home Closings Revenue, Net Average Selling Price Homes Closed Home Closings Revenue, Net Average Selling Price
(Dollars in thousands) 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change
East 875
 780
 12.2 % $356,351
 $317,113
 12.4% $407
 $407
  % 953
 776
 22.8% $392,767
 $311,526
 26.1% $412
 $401
 2.7 %
Central 617
 557
 10.8
 294,236
 266,738
 10.3
 477
 479
 (0.4) 594
 531
 11.9
 272,980
 253,556
 7.7
 460
 478
 (3.8)
West 500
 526
 (4.9) 305,978
 305,245
 0.2
 612
 580
 5.5
 568
 535
 6.2
 348,421
 321,167
 8.5
 613
 600
 2.2
Total 1,992
 1,863
 6.9 % $956,565
 $889,096
 7.6% $480
 $477
 0.6 % 2,115
 1,842
 14.8% $1,014,168
 $886,249
 14.4% $480
 $481
 (0.2)%


 Six Months Ended June 30, Nine Months Ended September 30,
 Homes Closed Home Closings Revenue, Net Average Selling Price Homes Closed Home Closings Revenue, Net Average Selling Price
(Dollars in thousands) 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change
East 1,575
 1,462
 7.7 % $640,787
 $580,214
 10.4 % $407
 $397
 2.5% 2,528
 2,238
 13.0 % $1,033,553
 $891,740
 15.9 % $409
 $398
 2.8 %
Central 1,051
 981
 7.1
 507,701
 470,203
 8.0
 483
 479
 0.8
 1,645
 1,512
 8.8
 780,682
 723,758
 7.9
 475
 479
 (0.8)
West 913
 1,050
 (13.0) 541,036
 590,164
 (8.3) 593
 562
 5.5
 1,481
 1,585
 (6.6) 889,457
 911,332
 (2.4) 601
 575
 4.5
Total 3,539
 3,493
 1.3 % $1,689,524
 $1,640,581
 3.0 % $477
 $470
 1.5% 5,654
 5,335
 6.0 % $2,703,692
 $2,526,830
 7.0 % $478
 $474
 0.8 %
East:
The number of homes closed increased by 12.2%22.8% and 7.7%13.0%, respectively, for the three and sixnine months ended JuneSeptember 30, 2018 compared to the same periods in the prior year. Home closings revenue, net increased by 12.4%26.1% and 10.4%15.9%, respectively, for the same comparative periods. Our Florida markets were the primary drivers of the increase in both units and dollars as a result of continued favorable homebuyer reception of our products and communities in those markets. In addition, a number of closings were shifted from the prior year into the current year as a result of Hurricane Irma that occurred 2017.

Central:
The number of homes closed increased by 10.8%11.9% and 7.1%8.8%, respectively, for the three and sixnine months ended JuneSeptember 30, 2018 compared to the same periods in the prior year. Home closings revenue, net increased by 10.3%7.7% and 8.0%7.9%, respectively, for the same comparative periods. The increase in units was partially a result of the expansion of our Taylor Morrison brand in our Dallas market, leading to an increase in the number of communities and home closings in the current year compared to the prior year. In addition, there was a shift in closings from the first quarter of the yearOur Austin market also experienced increased housing demand, contributing to the second quarter in our Houston market due to a delay in starts in the prior year caused by Hurricane Harvey.increase.

West:
We saw a decrease in the number ofThe average selling price for homes closed increased 2.2% and 4.5% for the three and sixnine months ended JuneSeptember 30, 2018 compared to the same periods in the prior year. The decreases were primarily driven by a decline in product availabilityyear as a result of fewer active communities in the prior periods when the sales occurred. However,strong demand for our products in this region remain strong as evidenced by a 5.5%region. Improved cycle time performance in our Northern California markets drove the 6.2% increase in average selling price forthe number of homes closed for both the three and six months ended JuneSeptember 30, 2018; however, the increase in our Northern California markets was offset by decreases in closings in other markets in the West region for the nine months ended September 30, 2018.



Land Closings Revenue
 Three Months Ended June 30, Three Months Ended September 30,
(Dollars in thousands)

 2018 2017 Change 2018 2017 Change
East $4,121
 $2,940
 $1,181
 $709
 $1,013
 $(304)
Central 3,876
 824
 3,052
 4,461
 3,286
 1,175
West 
 
 
 
 
 
Total $7,997
 $3,764
 $4,233
 $5,170
 $4,299
 $871
 Six Months Ended June 30, Nine Months Ended September 30,
(Dollars in thousands) 2018 2017 Change 2018 2017 Change
East $4,492
 $3,504
 $988
 $5,201
 $4,518
 $683
Central 4,523
 3,616
 907
 8,984
 6,901
 2,083
West 4,150
 
 4,150
 4,150
 
 4,150
Total $13,165
 $7,120
 $6,045
 $18,335
 $11,419
 $6,916

We generally purchase land and lots with the intent to build and sell homes. However, in some locations where we act as a
developer, we occasionally purchase land that includes commercially zoned parcels or areas designated for school or
government use, which we typically sell to commercial developers or municipalities, as applicable. We also sell residential lots
or land parcels to manage our land and lot supply on larger tracts of land. As a developer, we may include land sales in our
underwriting strategies in many of our master plan communities where we may mitigate risk, enhance our returns or pursue
opportunities allowing access to new land positions. Land and lot sales occur at various intervals and varying degrees of
profitability. Therefore, the revenue and gross margin from land closings will fluctuate from period to period, depending upon
market opportunities. The increase in land closings revenue for the current quarter in the Central region is due to sales of a large self-developed project in our Dallas market. The increase in land closings revenue for the sixnine months ended JuneSeptember 30, 2018 in the West region is due to the sale of certain long-term strategic assets in the current year.

Home Closings Gross Margin
 Three Months Ended June 30, Three Months Ended September 30,
 East Central West Consolidated East Central West Consolidated
(Dollars in thousands) 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
Home closings revenue, net $356,351
 $317,113
 $294,236
 $266,738
 $305,978
 $305,245
 $956,565
 $889,096
 $392,767
 $311,526
 $272,980
 $253,556
 $348,421
 $321,167
 $1,014,168
 $886,249
Cost of home closings 291,548
 249,341
 241,811
 218,406
 251,162
 256,758
 784,521
 724,505
 322,134
 248,455
 226,662
 206,939
 274,154
 266,243
 822,950
 721,637
Home closings gross margin 64,803
 67,772
 52,425
 48,332
 54,816
 48,487
 172,044
 164,591
 70,633
 63,071
 46,318
 46,617
 74,267
 54,924
 191,218
 164,612
Home closings gross margin % 18.2% 21.4% 17.8% 18.1% 17.9% 15.9% 18.0% 18.5% 18.0% 20.2% 17.0% 18.4% 21.3% 17.1% 18.9% 18.6%
                                
 Six Months Ended June 30, Nine Months Ended September 30,
 East Central West Consolidated East Central West Consolidated
(Dollars in thousands) 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
Home closings revenue, net $640,787
 $580,214
 $507,701
 $470,203
 $541,036
 $590,164
 $1,689,524
 $1,640,581
 $1,033,553
 $891,740
 $780,682
 $723,758
 $889,457
 $911,332
 $2,703,692
 $2,526,830
Cost of home closings 523,747
 459,159
 414,905
 385,543
 440,775
 496,098
 1,379,427
 1,340,800
 845,883
 707,614
 641,566
 592,482
 714,928
 762,341
 2,202,377
 2,062,437
Home closings gross margin 117,040
 121,055
 92,796
 84,660
 100,261
 94,066
 310,097
 299,781
 187,670
 184,126
 139,116
 131,276
 174,529
 148,991
 501,315
 464,393
Home closings gross margin % 18.3% 20.9% 18.3% 18.0% 18.5% 15.9% 18.4% 18.3% 18.2% 20.6% 17.8% 18.1% 19.6% 16.3% 18.5% 18.4%

East:
Home closings gross margin percentage decreased to 18.2%18.0% from 21.4%20.2% for the three months ended JuneSeptember 30, 2018 and 2017, respectively, and to 18.3%18.2% from 20.9%20.6% for the sixnine months ended JuneSeptember 30, 2018 and 2017, respectively. The

primary driver for

these decreases was geographic and product mix within the East region as well as increased land and development costs in several of our markets.

Central:

Home closings gross margin percentage decreased to 17.8%17.0% from 18.1%18.4% for the three months ended JuneSeptember 30, 2018 and 2017, respectively, and increased to 18.3%17.8% from 18.0%18.1% for the sixnine months ended JuneSeptember 30, 2018 and 2017, respectively. The decreasedecreases in home closings gross margin percentage for the current quarter compared to the same quarter in the prior year is partiallyprimarily due to product mix within the region resulting in lower average selling prices as well as rising construction costs in our Houston market. However, several markets within the Central region experienced an increase in rebates from our regional and national vendor program, which contributed to the decrease in costs of home closings and increase in home closings gross margin for the six months ended June 30, 2018.prices.


West:
Home closings gross margin percentage increased to 17.9%21.3% from 15.9%17.1% for the three months ended JuneSeptember 30, 2018 and 2017, respectively, and increased to 18.5%19.6% from 15.9%16.3% for the sixnine months ended JuneSeptember 30, 2018 and 2017, respectively. The increases were partially due to product mix contributing to higher average selling prices during the current year, as well as larger rebates from our regional and national vendor program across several markets within the West region. In addition, home closings in the prior year had higher land and development costs due geographic mix resulting in lower margins.

Financial Services
Our Financial Services segment provides mortgage lending through our subsidiary, TMHF, and title services through our subsidiary, Inspired Title. The following is a summary for the periods presented of financial services income before income taxes as well as supplemental data:
                        
 Three Months Ended
June 30,
 Six Months Ended
June 30,
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
(In thousands, except the number of loan originations) 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change
Mortgage operations revenue $13,658
 $13,749
 (0.7)% $25,978
 $26,406
 (1.6)% $14,363
 $15,554
 (7.7)% $40,341
 $41,960
 (3.9)%
Mortgage operations revenue - Other 680
 387
 75.7
 1,152
 762
 51.2
 549
 430
 27.7
 1,702
 1,192
 42.8
Title services revenue 1,928
 1,498
 28.7
 3,342
 2,715
 23.1
 2,129
 1,495
 42.4
 5,470
 4,210
 29.9
Total financial services revenue 16,266
 15,634
 4.0 % 30,472
 29,883
 2.0 % 17,041
 17,479
 (2.5)% 47,513
 47,362
 0.3 %
Financial services equity in income of unconsolidated entities 2,039
 2,160
 (5.6) 3,698
 3,496
 5.8
 872
 1,170
 (25.5) 4,569
 4,666
 (2.1)
Total revenue 18,305
 17,794
 2.9
 34,170
 33,379
 2.4
 17,913
 18,649
 (3.9) 52,082
 52,028
 0.1
Financial services expenses 11,152
 10,102
 10.4
 21,196
 18,804
 12.7
 10,451
 12,070
 (13.4) 31,647
 30,874
 2.5
Financial services income before income taxes $7,153
 $7,692
 (7.0)% $12,974
 $14,575
 (11.0) $7,462
 $6,579
 13.4 % $20,435
 $21,154
 (3.4)
Total originations:                        
Loans 1,055
 1,114
 (5.3)% 1,971
 2,060
 (4.3)% 1,158
 1,102
 5.1 % 3,129
 3,162
 (1.0)%
Principal $363,429
 $379,225
 (4.2)% $680,765
 $700,896
 (2.9)% $401,093
 $374,147
 7.2 % $1,081,858
 $1,075,043
 0.6 %

 Three Months Ended
June 30,
 Six Months Ended
June 30,
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2018 2017 2018 2017 2018 2017 2018 2017
Supplemental data:                
Average FICO score 746
 745
 746
 744
 748
 745
 747
 744
Funded origination breakdown:                
Government (FHA,VA,USDA) 16% 18% 15% 19% 15% 17% 16% 18%
Other agency 69% 66% 71% 65% 71% 66% 70% 66%
Total agency 85% 84% 86% 84% 86% 83% 86% 84%
Non-agency 15% 16% 14% 16% 14% 17% 14% 16%
Total funded originations 100% 100% 100% 100% 100% 100% 100% 100%
          
          

Financial services revenue increaseddecreased by 4.0% and 2.0%, respectively,2.5% for the three and six months ended JuneSeptember 30, 2018 and remained relatively flat for the nine months ended September 30, 2018 compared to the same periods in the prior year. The increases weredecrease in the current quarter compared to the prior year period was primarily the result of increased financial sector competition impacting pricing and a devaluation of our open pipeline due to rising interest rates, partially offset by an increase in title services revenue driven by the expansion of our title services to North and South Carolina and the increases in the number of homes closed.Carolina.

Sales, Commissions and Other Marketing Costs
Sales, commissions and other marketing costs, as a percentage of home closings revenue, net, decreased slightly to 6.8%6.7% from 6.9% and to 7.0%6.9% from 7.1% for the three and sixnine months ended JuneSeptember 30, 2018 compared to the same periods in 2017. These decreases were primarily driven by an increase in homebuildinghome closings revenue, net as well as efficiencies we achieved and maintainedsustained leverage as a result of previous investments we made in our sales and marketing functions.

General and Administrative Expenses
General and administrative expenses as a percentage of home closings revenue, net, decreased slightly to 3.7%3.3% from 3.8% and to 3.8% from 4.0% for the three and nine months ended JuneSeptember 30, 2018. For the six months ended June 30, 2018 general and administrative expenses as a percentage of home closings revenue, net remained flat at 4.1% compared to the same periodperiods in the prior year. The relatively consistent general and administrative expenses as a percentage of home closings revenue, net,decreases were primarily driven by an increase in homebuilding revenueshome closings revenue, net and our efforts to utilize our scalable platform, providing leverage with existing infrastructure to maintain stable operating costs.

Equity in Income of Unconsolidated Entities
Equity in income of unconsolidated entities was $4.0$2.5 million and $3.1$2.8 million for the three months ended JuneSeptember 30, 2018 and 2017, respectively, and $7.3$9.8 million and $4.2$6.9 million for the sixnine months ended JuneSeptember 30, 2018 and 2017, respectively. The increases weredecrease in the three months ended September 30, 2018 was primarily due to the acceleration of closings into earlier periods. The increase in the nine months ended September 30, 2018 was primarily due to increased activity in our homebuilding unconsolidated joint ventures as they mature in their life cycle.

Interest Income, Net
Interest income, net was $276 thousand$0.7 million and $89 thousand$0.1 million for the three months ended JuneSeptember 30, 2018 and 2017, respectively, and $619 thousand$1.3 million and $179$314 thousand for the sixnine months ended JuneSeptember 30, 2018 and 2017, respectively. Interest income, net includes interest earned on cash balances offset by interest incurred but not capitalized on our long-term debt and other borrowings.

Other Expense, Net
Other expense, net was $3.7$0.8 million and $0.8$0.4 million for the three months ended JuneSeptember 30, 2018 and 2017, respectively, and was $4.1$4.9 million and $0.4$0.8 million for the sixnine months ended JuneSeptember 30, 2018 and 2017, respectively. The increase in expense in the current year relatesperiod was primarily due to pre-acquisition costs on abandoned land projects and expenses related to the acquisition of AV Homes offset byand an increase in the number of recoveries from our captive insurance claims.

Income Tax Provision
The effective tax rate for the three and sixnine months ended JuneSeptember 30, 2018 was 25.2%6.4% and 22.9%15.9%, respectively, compared to 28.7%30.7% and 31.1%31.0% for the same periods in 2017, respectively. The effective tax rate for the three and sixnine months ended JuneSeptember 30, 2018 was based on the U.S. federal statutory income tax rate and was affected primarily by state income taxes, changes in valuation

allowances, and certain deductions and credits relating to homebuilding activities. The effective tax rate for the sixthree and nine months ended JuneSeptember 30, 2018 was further impacted by discrete activity related to the effects of changes in tax accounting methods and the release of reserves against uncertain tax positions related to state net operating loss limitations.

The effective tax rate for the nine months ended September 30, 2018 was favorably impacted by the reduction in the federal corporate tax rate from 35% to 21% as a result of the Tax Cuts and Jobs Act (“Tax Act”), the relevant provisions of which became effective on January 1, 2018. In response to the Tax Act, we filed three requests for a change in tax accounting methods related to the timing of income and expense recognition for tax purposes. One of our requests was for a tax accounting method change that was afforded automatic consent, while the other two required advanced consent from the Internal Revenue Service (“IRS”). We received affirmative consent from the IRS and signed an agreement for one of the requests during the quarter ended September 30, 2018. The impact of the approved tax accounting method changes was reflected in our consolidated financial statements for the three months ended September 30, 2018 as a reduction in income tax expense of $8.1 million and resulted in an 8.0% reduction to the tax rate. The effective tax rate for the quarter ended September 30, 2018 also includes the

effects of the completion of a state audit related to the utilization of the Company’s state net operating losses. Upon the completion of the audit, we released certain uncertain tax positions which resulted in a reduction in income tax expense of $7.9 million and a 7.8% reduction to the effective tax rate.

Net Income
Net income before allocation to non-controlling interests and diluted earnings per share for the three months ended JuneSeptember 30, 2018 was $59.3$94.4 million and $0.52,$0.83, respectively. Net income before allocation to non-controlling interests and diluted earnings per share for the three months ended JuneSeptember 30, 2017 was $55.9$54.7 million and $0.46,$0.45, respectively. The increase in net income and earnings per share from the prior year is attributable to higher gross margin dollars due to a result of an increase in the number of homes closed, as well as a decrease in our income tax provision due to a lower effective tax rate for the three months ended JuneSeptember 30, 2018 compared to the same period in the prior year.

Liquidity and Capital Resources
Liquidity

We finance our operations through the following:

Borrowings under our Revolving Credit Facility (as defined below);Facility;
Our various series of Senior Notes (as defined below);
Mortgage warehouse facilities;
Project-level financing (including non-recourse loans);
Performance, payment and completion surety bonds, and letters of credit; and
Cash generated from operations.operations;
Additional debt facilities, as needed (for example, our 364-Day Credit Agreement).

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

Cash generated from operations; and
Borrowings under our Revolving Credit Facility.

We may also access the capital markets to obtain additional liquidity through debt and equity offerings on an opportunistic basis. Our principal uses of capital for the sixthree and nine months ended JuneSeptember 30, 2018 and 2017 were land purchases, lot development, home construction, operating expenses, payment of debt service, income taxes, investments in joint ventures, and the payment of various liabilities. In addition, all net proceeds from our equity offerings during 2018 and 2017, were used to purchase partnership units in New TMM along with shares of our Class B common stock, held by our Former Principal Equityholders. During the first quarter of 2018, capital was also used to purchase partnership units in New TMM shares and shares of our Class B Common Stock from our Remaining Principal Equityholders.TPG and Oaktree.

Cash flows for each of our communities depend on the status of the development cycle, and can differ substantially from reported earnings. Early stages of development or expansion require significant cash expenditures for land acquisitions, on and off-site development, construction of model homes, general landscaping and other amenities. Because these costs are a component of our inventory and are not recognized in our statement of operations until a home closes, we incur significant cash outflows prior to recognition of earnings.

The table below summarizes our total cash and liquidity as of the dates indicated (in thousands):


 As of As of
(Dollars in thousands) June 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Total Cash, excluding Restricted Cash $320,102
 $573,925
 $382,054
 $573,925
        
Total Revolving Credit Facility 600,000
 500,000
 600,000
 500,000
Letters of Credit Outstanding (48,414) (47,126) (53,677) (47,126)
Revolving Credit Facility Borrowings Outstanding
 
 
 
 
Revolving Credit Facility Availability 551,586
 452,874
 546,323
 452,874
        
Total Liquidity(1) $871,688
 $1,026,799
 $928,377
 $1,026,799

(1)On October 2, 2018 we entered into a $200.0 million 364-Day Credit Agreement to facilitate the acquisition of AV Homes. Refer to Note 17- Subsequent Events.

Cash Flow Activities

Operating Cash Flow Activities
Our net cash provided by operating activities was $10.5$56.0 million for the sixnine months ended JuneSeptember 30, 2018 compared to $100.0$132.8 million provided by operating activities for the sixnine months ended JuneSeptember 30, 2017. The primary driverdrivers of the decrease in cash provided by operating activities compared to the prior period iswas increased spending on real estate inventory and land deposits and a decreasedecreases in accounts payable, accrued expenses and other liabilities as well as mortgages held for sale, prepaid expenses, and other assets, partially offset by an increase in the number of homes closed and a lower effective tax rate resulting in higher net income.

Investing Cash Flow Activities
Net cash used inprovided by investing activities was $2.0$4.3 million for the sixnine months ended JuneSeptember 30, 2018, as compared to net cash used in investing activities of $21.2$26.5 million for the sixnine months ended JuneSeptember 30, 2017. The primary driver of the change between periods was higher investments of capital into our unconsolidated joint ventures in the prior year period.

Financing Cash Flow Activities
Net cash used in financing activities was $262.6$252.4 million for the sixnine months ended JuneSeptember 30, 2018 as compared to net cash$141.9 million used in financing activities of $132.5 million for the sixnine months ended JuneSeptember 30, 2017. The cash used in financing activities in 2018 was primarily attributable to repurchases of New TMM Units from our Remaining Principal EquityholdersTPG and Oaktree as part of our secondarypublic equity offerings completed in January.


Debt Instruments

Senior Notes:

The following table summarizes our outstanding senior unsecured notes (collectively, the “Senior Notes”) as of JuneSeptember 30, 2018.
 
(Dollars in thousands) Date Issued 
Principal
Amount
 
Initial Offering
Price
 Interest Rate 
Original Net
Proceeds
 
Original Debt
Issuance
Cost
 Date Issued 
Principal
Amount
 
Initial Offering
Price
 Interest Rate 
Original Net
Proceeds
 
Original Debt
Issuance
Cost
Senior Notes due 2021 April 16, 2013 550,000
 100.0% 5.250% 541,700
 8,300
 April 16, 2013 550,000
 100.0% 5.250% 541,700
 8,300
Senior Notes due 2023 April 16, 2015 350,000
 100.0% 5.875% 345,500
 4,500
 April 16, 2015 350,000
 100.0% 5.875% 345,500
 4,500
Senior Notes due 2024 March 5, 2014 350,000
 100.0% 5.625% 345,300
 4,700
 March 5, 2014 350,000
 100.0% 5.625% 345,300
 4,700
Total(1) $1,250,000
     $1,232,500
 $17,500
 $1,250,000
     $1,232,500
 $17,500
(1) On October 2, 2018, we assumed $400 million aggregate principal amount of the 2022 Senior Notes and $80 million aggregate principal amount of the Convertible Notes. As of October 25, 2018, all $80.0 million aggregate principal amount of Convertible Notes had been converted into approximately $95.8 million in cash paid to holders of the Convertible Notes as part of purchase consideration for the Acquisition. Refer to Note 17 - Subsequent Events.


2021 Senior Notes
On April 16, 2013, we issued $550.0 million aggregate principal amount of 5.25% Senior Notes due 2021 (the “2021 Senior Notes”).

The 2021 Senior Notes mature on April 15, 2021. The 2021 Senior Notes are guaranteed by TMM Holdings Limited Partnership (“TMM Holdings”), Taylor Morrison Holdings, Inc., Taylor Morrison Communities II, Inc. and their homebuilding

subsidiaries (collectively, the “Guarantors”) which are all subsidiaries directly or indirectly of TMHC. The 2021 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights. The indenture for the 2021 Senior Notes contains covenants that limit (i) the making of investments, (ii) the payment of dividends and the redemption of equity and junior debt, (iii) the incurrence of additional indebtedness, (iv) asset dispositions, (v) mergers and similar corporate transactions, (vi) the incurrence of liens, (vii) prohibitions on payments and asset transfers among the issuers and restricted subsidiaries and (viii) transactions with affiliates, among others. The indenture governing the 2021 Senior Notes contains customary events of default. If we do not apply the net cash proceeds of certain asset sales within specified deadlines, we will be required to offer to repurchase the 2021 Senior Notes at par (plus accrued and unpaid interest) with such proceeds. We are also required to offer to repurchase the 2021 Senior Notes at a price equal to 101% of their aggregate principal amount (plus accrued and unpaid interest) upon certain change of control events.

The 2021 Senior Notes are redeemable at scheduled redemption prices, currently at 102.625%, of their principal amount (plus accrued and unpaid interest).

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

2023 Senior Notes
On April 16, 2015, we issued $350.0 million aggregate principal amount of 5.875% Senior Notes due 2023 (the “2023 Senior Notes”). The 2023 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights.

The 2023 Senior Notes mature on April 15, 2023. The 2023 Senior Notes are guaranteed by the same Guarantors that guarantee the 2021 Senior Notes. The indenture governing the 2023 Senior Notes contains covenants that limit our ability to incur debt secured by liens and enter into certain sale and leaseback transactions. The indenture governing the 2023 Senior Notes contains events of default that are similar to those contained in the indenture governing the 2021 Senior Notes. The change of control provisions in the indenture governing the 2023 Senior Notes are similar to those contained in the indenture governing the 2021 Senior Notes, but a credit rating downgrade must occur in connection with the change of control before the repurchase offer requirement is triggered for the 2023 Senior Notes.

Prior to January 15, 2023, the 2023 Senior Notes are redeemable at a price equal to 100% plus a “make-whole” premium for payments through January 15, 2023 (plus accrued and unpaid interest). Beginning January 15, 2023, the 2023 Senior Notes are redeemable at par (plus accrued and unpaid interest).

There are no financial maintenance covenants for the 2023 Senior Notes.

2024 Senior Notes
On March 5, 2014, we issued $350.0 million aggregate principal amount of 5.625% Senior Notes due 2024 (the “2024 Senior Notes”).

The 2024 Senior Notes mature on March 1, 2024. The 2024 Senior Notes are guaranteed by the same Guarantors that guarantee the 2021 and 2023 Senior Notes. The 2024 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights. The indenture governing the 2024 Senior Notes contains covenants that limit our ability to incur debt secured by liens and enter into certain sale and leaseback transactions similar to the 2023 Senior Notes. The indenture governing the 2024 Senior Notes contains events of default that are similar to those contained in the indenture governing the 2021 and 2023 Senior Notes. The change of control provisions in the indenture governing the 2024 Senior Notes are similar to those contained in the indenture governing the 2023 Senior Notes.

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


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

2022 Senior Notes
On October 2, 2018, we assumed $400.0 million aggregate principal amount 2022 Senior Notes.
The 2022 Senior Notes mature on May 15, 2022. The 2022 Senior Notes are guaranteed by the same subsidiaries of TMCI that guarantee the Revolving Credit Facility and the 2021, 2023 and 2024 Senior Notes. The 2022 Senior Notes and the related guarantees are senior unsecured obligations and are no longer subject to registration rights. The indenture governing the 2022 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 2022 Senior Notes contains customary events of default. We are also required to offer to repurchase the 2021 Senior Notes at a price equal to 101% of their aggregate principal amount (plus accrued and unpaid interest) upon certain change of control events.
Prior to May 15, 2019, the 2022 Senior Notes are redeemable at a price equal to 100% plus a “make-whole” premium for payments through May 15, 2019 (plus accrued and unpaid interest). Beginning on May 15, 2019, the 2022 Senior Notes are redeemable at 103.313% of principal (plus accrued and unpaid interest), beginning on May 15, 2020, the 2022 Senior Notes are redeemable at 101.656% of principal (plus accrued and unpaid interest) and beginning on May 21, 2021, the 2022 Senior Notes are redeemable at 100% of principal (plus accrued and unpaid interest).
There are no financial maintenance covenants for the 2022 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 26, 2018, we amended our $500.0 million Revolving Credit Facility to extend the maturity date from April 12, 2019 to January 26, 2022. On June 29, 2018, we further amended the Revolving Credit Facility to increase the amount available to $600.0 million. Other immaterial changes were also made to the structure of the Revolving Credit Facility. The Revolving Credit Facility is guaranteed by the same Guarantors that guarantee the 2021, 2023, and 2024 Senior Notes.

The Revolving Credit Facility contains certain “springing” financial covenants, requiring us and our subsidiaries to comply with a maximum debt to capitalization ratio of not more than 0.60 to 1.00 and a minimum consolidated tangible net worth level of at least $1.7 billion. The financial covenants would be in effect for any fiscal quarter during which any (a) loans under the Revolving Credit Facility are outstanding during the last day of such fiscal quarter or on more than five separate days during such fiscal quarter or (b) undrawn letters of credit (except to the extent cash collateralized) issued under the Revolving Credit Facility in an aggregate amount greater than $40.0 million or unreimbursed letters of credit issued under the Revolving Credit Facility are outstanding on the last day of such fiscal quarter or for more than five consecutive days during such fiscal quarter. For purposes of determining compliance with the financial covenants for any fiscal quarter, the Revolving Credit Facility provides that we may exercise an equity cure by issuing certain permitted securities for cash or otherwise recording cash contributions to our capital that will, upon the contribution of such cash to the borrower, be included in the calculation of consolidated tangible net worth and consolidated total capitalization. The equity cure right is exercisable up to twice in any period of four consecutive fiscal quarters and up to five times overall.

The Revolving Credit Facility contains certain restrictive covenants including limitations on incurrence of liens, dividends and other distributions, asset dispositions and investments in entities that are not guarantors, limitations on prepayment of subordinated indebtedness and limitations on fundamental changes. The Revolving Credit Facility contains customary events of default, subject to applicable grace periods, including for nonpayment of principal, interest or other amounts, violation of covenants (including financial covenants, subject to the exercise of an equity cure), incorrectness of representations and warranties in any material respect, cross default and cross acceleration, bankruptcy, material monetary judgments, ERISA events with material adverse effect, actual or asserted invalidity of material guarantees and change of control. As of JuneSeptember 30, 2018, we were in compliance with all of the covenants under the Revolving Credit Facility.

364-Day Credit Agreement

On October 2, 2018, we entered into a 364-Day Credit Agreement in respect of a term loan facility under which we borrowed an aggregate principal amount of $200,000,000, to facilitate the Acquisition. The 364-Day Credit Agreement matures on October 1, 2019.
Amounts outstanding under the 364-Day Credit Agreement bear interest, at our option, at (a) a base rate plus a margin ranging from 0.50% to 1.00% per annum based on TMCI’s capitalization ratio; or (b) LIBOR (subject to a LIBOR floor of 0.00%) plus a margin ranging from 1.50% to 2.00% per annum based on TMCI’s capitalization ratio.
In addition, we must pay customary agency fees under the 364-Day Credit Agreement.
Amortization and Prepayments
The 364-Day Credit Agreement does not require any amortization.
In addition, we are required to prepay the outstanding loans under the 364-Day Credit Agreement, subject to certain exceptions, with 100% of the net cash proceeds of any incurrence of debt or issuance of equity.
We may voluntarily repay outstanding loans under the 364-Day Credit Agreement at any time, without prepayment premium or penalty, subject to customary “breakage” costs with respect to LIBOR loans.
Collateral and guarantors
All obligations under the 364-Day Credit Agreement are unconditionally guaranteed by the same guarantors that guarantee our Revolving Credit Facility.
The obligations under the 364-Day Credit Agreement are unsecured.
Restrictive covenants and other matters
The 364-Day Credit Agreement contains certain financial covenants, requiring us and our subsidiaries to comply on a quarterly basis with a maximum debt to capitalization ratio of not more than 0.60 to 1.00 and a minimum consolidated tangible net worth level of at least $1.7 billion.
The 364-Day Credit Agreement contains certain customary affirmative covenants. The negative covenants are substantially consistent with those in the credit agreement for our Revolving Credit Facility.
The 364-Day Credit Agreement contains certain customary events of default, including relating to a change of control. If an event of default occurs and is continuing, the lenders under the 364-Day Credit Agreement will be entitled to take various actions, including the acceleration of amounts due under the 364-Day Credit Agreement.


Mortgage Warehouse Borrowings
The following is a summary of our mortgage warehouse borrowings:
(Dollars in thousands) As of June 30, 2018 As of September 30, 2018
Facility Amount Drawn Facility Amount Interest Rate Expiration Date 
Collateral (1)
 Amount Drawn Facility Amount Interest Rate Expiration Date 
Collateral (1)
Flagstar $1,692
 $5,000
(2) 
LIBOR + 2.25% 30 days written notice Mortgage Loans
Comerica 18,334
 50,000
 LIBOR + 2.25% On Demand Mortgage Loans
J.P. Morgan 29,792
 100,000
 LIBOR + 2.375% 
September 24, 2018 (3)
 Mortgage Loans and Restricted Cash
Warehouse A $1,129
 $45,000
(2) 
LIBOR + 1.75% On Demand Mortgage Loans
Warehouse B 16,857
 50,000
 LIBOR + 2.25% On Demand Mortgage Loans
Warehouse C 36,471
 100,000
 LIBOR + 2.375% On Demand Mortgage Loans and Restricted Cash
Total $49,818

$155,000
  $54,457

$195,000
 
 
(1) The mortgage warehouse borrowings outstanding as of JuneSeptember 30, 2018 were collateralized by a) $99.6$83.8 million of mortgage loans held for sale, which comprised the balance of mortgage loans held for sale and b) approximately $1.3 million of cash which is included in restricted cash in the accompanying Condensed Consolidated Balance Sheets.
(2)We amended our warehouse agreement with Flagstar during the three months ended June 30, 2018 and reduced our capacity from $39.0 million to $5.0 million. From time to time we have the ability to amend this warehouse agreement to increase or decrease capacity to accommodate funding needs
(3) We expect to renew the J.P. Morgan facility during the third quarter of 2018.needs.

Loans Payable and Other Borrowings
Loans payable and other borrowings as of JuneSeptember 30, 2018 consist of project-level debt due to various land sellers and seller financing notes from current and prior year acquisitions. Project-level debt is generally secured by the land that was acquired and the principal payments generally coincide with corresponding project lot sales or a principal reduction schedule. Loans payable bear interest at rates that ranged from 0% to 8% at each of JuneSeptember 30, 2018 and December 31, 2017. We impute interest for loans with no stated interest rates.

Letters of Credit, Surety Bonds and Financial Guarantees


The following table summarizes our letters of credit and surety bonds as of the dates indicated:
 As of As of
(Dollars in thousands) June 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Letters of credit (1)
 $48,414
 $47,126
 $53,677
 $47,126
Surety bonds 292,547
 284,617
 264,795
 284,617
Total outstanding letters of credit and surety bonds $340,961
 $331,743
 $318,472
 $331,743
(1) As of JuneSeptember 30, 2018 there was $160 million total capacity for letters of credit available under our Revolving Credit Facility.


Off-Balance Sheet Arrangements as of JuneSeptember 30, 2018

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.

In certain of our unconsolidated joint ventures, we enter into loan agreements, whereby one of our subsidiaries will provide the lenders with customary guarantees, including completion, indemnity and environmental guarantees subject to usual non-recourse terms.

For the sixnine months ended JuneSeptember 30, 2018, total net capitalcash invested in unconsolidated joint ventures was $3.4$3.5 million.

Land Purchase and Land Option Contracts
We enter into land purchase and option contracts to procure land or lots for the construction of homes in the ordinary course of business. Lot option contracts enable us to control significant lot positions with a minimal initial capital investment and substantially reduce the risks associated with land ownership and development. As of JuneSeptember 30, 2018, we had outstanding land purchase and lot option contracts of $350.0$395.8 million. We are obligated to close the transaction under our land purchase contracts. However, our obligations with respect to the option contracts are generally limited to the forfeiture of the related non-refundable cash deposits and/or letters of credit provided to obtain the options. At JuneSeptember 30, 2018, we had non-refundable deposits totaling $40.5$47.9 million.

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

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

weather conditions in the markets in which we build.

As a result of seasonal activity, our quarterly results of operations and financial position are not necessarily representative of the results we expect for the full year.

Inflation
We and the homebuilding industry in general may be adversely affected during periods of high inflation, primarily because of higher land, financing, labor and construction material costs. In addition, higher mortgage interest rates can significantly affect the affordability of permanent mortgage financing to prospective homebuyers. We attempt to pass through to our customers increases in our costs through increased sales prices. However, during periods of soft housing market conditions, we may not be able to offset our cost increases with higher selling prices.
Critical Accounting Policies
In January 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides new guidance for revenue recognition and elected to use the modified retrospective approach to account for prior periods. Refer to Note 2 - Summary of Significant Accounting Policies for additional discussion. There have been no other significant changes to our critical accounting policies during the sixnine months ended JuneSeptember 30, 2018 as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our operations are interest rate sensitive. We monitor our exposure to changes in interest rates and incur both fixed rate and variable rate debt. At JuneSeptember 30, 2018, approximately 97%96% of our debt was fixed rate and 3%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 Revolving Credit Facility and borrowings by TMHF under its various warehouse facilities. As of JuneSeptember 30, 2018, we had no outstanding borrowings under our Revolving Credit Facility. We had $551.6$546.3 million of additional availability for borrowings and $111.6$106.3 million of additional availability for letters of credit (giving effect to $48.4$53.7 million of letters of credit outstanding as of such date). Our 2021 Senior Notes are subject to a requirement that we offer to purchase such notes at par with certain proceeds of asset sales (to the extent not otherwise applied in accordance with the indenture governing such notes). We are also required to offer to purchase all of our 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 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.

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 JuneSeptember 30, 2018. The interest rate for our variable rate debt represents the weighted average interest rate on our borrowings under our mortgage warehouse facilities. Because the mortgage warehouse facilities are secured by certain mortgage loans held for sale which are typically sold within approximately 20 - 30 days, its outstanding balance is included as a variable rate maturity in the most current period presented.
 
 Expected Maturity Date 
Fair
Value
 Expected Maturity Date 
Fair
Value
(In millions, except percentage data) 2018 2019 2020 2021 2022 Thereafter Total  2018 2019 2020 2021 2022 Thereafter Total 
Fixed Rate Debt $54.0
 $58.3
 $13.7
 $555.2
 $5.3
 $700.0
 $1,386.5
 $1,377.1
 $39.1
 $66.0
 $27.5
 $556.7
 $2.4
 $718.4
 $1,410.1
 $1,409.6
Weighted average interest rate(1)
 3.5% 3.5% 3.5% 5.5% 3.5% 5.5% 5.3%   3.5% 3.5% 3.5% 5.5% 3.5% 5.5% 5.3%  
Variable Rate Debt(2)
 $49.8
  -
  -
  -
  -
  -
 $49.8
 $49.8
 $54.5
  -
  -
  -
  -
  -
 $54.5
 $54.5
Weighted average interest rate 3.9% -
 -
 -
 -
 -
 3.9%   4.1% -
 -
 -
 -
 -
 4.1%  
(1) Represents the coupon rate of interest on the full principal amount of the debt.
(2) Based upon the amount of variable rate debt outstanding at JuneSeptember 30, 2018, and holding the variable rate debt balance constant, each 1% increase in interest rates would increase the interest incurred by us by approximately $0.5 million per year.



ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our principal executive officer, principal financial officer and principal accounting officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of JuneSeptember 30, 2018.  Based on this evaluation, our principal executive officer, principal financial officer and principal accounting officer concluded that, as of JuneSeptember 30, 2018, the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended JuneSeptember 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
We are involved in various litigation and legal claims in the normal course of our business operations, including actions brought on behalf of various classes of claimants. We are also subject to a variety of local, state, and federal laws and regulations related to land development activities, house construction standards, sales practices, mortgage lending operations, employment practices, and protection of the environment. As a result, we are subject to periodic examination or inquiry by various governmental agencies that administer these laws and regulations. We establish liabilities for legal claims and regulatory matters when such matters are both probable of occurring and any potential loss is reasonably estimable. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. In view of the inherent difficulty of predicting the outcome of these legal and regulatory matters, we generally cannot predict the ultimate resolution of the pending matters, the related timing or the eventual loss. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows. However, to the extent the liability arising from the ultimate resolution of any matter exceeds the estimates reflected in the recorded reserves relating to such matter, we could incur additional charges that could be significant.

ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors set forth in Part I, Item 1A. of our Annual Report. These risk factors may materially affect our business, financial condition or results of operations. You should carefully consider the risk factors set forth in our Annual Report and the other information set forth elsewhere in this quarterly report. You should be aware that these risk factors and other information may not describe every risk facing our Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
        
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4. MINE SAFETY DISCLOSURES
None.

ITEM 5. OTHER INFORMATION
None.

ITEM 6. EXHIBITS
Exhibit
No.
  Description
  
2.1
 Agreement and Plan of Merger, dated June 7, 2018, by and among Taylor Morrison Home II Corporation, Taylor Morrison Communities, Inc., Thor Merger Sub, Inc. and AV Homes, Inc. (incorporated by reference to Exhibit 2.1 to the Company'sTaylor Morrison’s Current Report on Form 8-K, filed with the SEC on June 7, 2018, and incorporated herein by reference)2018).
   
3.12.2  Amended
Agreement and Restated CertificatePlan of Incorporation (includedMerger, dated as of October 26, 2018, by and among Taylor Morrison Home Corporation, Taylor Morrison Home II Corporation and Second Half 2018 Mergerco Inc. (incorporated herein by reference to Exhibit 3.12.1 to the Company’s Current Report on Form 8-K (File No. 001-35873) filed on May 31, 2018, and incorporated herein by reference)October 26, 2018).

   
3.2 Amended and Restated By-laws (included asCertificate of Incorporation. (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-35873) filed on October 26, 2018).
3.3Certificate of Amendment to the Amended and Restated Certificate of Incorporation. (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (File No. 001-35873) filed on April 15, 2013, and incorporated herein by reference)October 26, 2018).
   
10.13.4 Voting Agreement, dated June 7, 2018, by
Amendment to the Amended and between Taylor Morrison Home Corporation and TPG CapitalRestated By-laws. (incorporated herein by reference to Exhibit 10.13.4 to the Company'sCompany’s Current Report on Form 8-K (File No. 001-35873) filed on June 7, 2018, and incorporated herein by reference)October 26, 2018).
10.2*Amendment No. 6 to the Second Amended and Restated Credit Agreement.
10.3*
Form of Omnibus Amendment to the Restricted Stock Unit Agreements and Employee Nonqualified Option Award Agreement for use with the 2013 Taylor Morrison Home Corporation Omnibus Equity Award Plan (Amended as of June 14, 2018)

   
10.4‡*
 
10.4*Third Amendment to the Amended and Restated Employment Agreement of Exempted Limited Partnership of TMM Holdings II Limited Partnership, dated June 15, 2018, between Taylor Morrison, Inc. and Sheryl D. Palmer.
September 26, 2018.
   
10.5*
Amended and Restated Employment Agreement, dated June 15, 2018, between Taylor Morrison, Inc. and C. David Cone.

10.6*
Amended and Restated Employment Agreement, dated June 15, 2018, between Taylor Morrison, Inc. and Darrell C. Sherman.
   
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
** Furnished herewith
† Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the SEC.
‡ 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.


EXHIBIT INDEX

Exhibit
No.
  Description
   
2.1
 


   
  

   
  


   
   
 
10.4‡*
10.5‡*
10.6*
   
  
   
  
   
  
   
  
   
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
** Furnished herewith
† Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the SEC.
‡ 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.


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
    TAYLOR MORRISON HOME CORPORATION
    Registrant
DATE:August 1,October 31, 2018   
    
/s/ Sheryl D. Palmer

    Sheryl D. Palmer
    
Chairman of the Board of Directors and Chief Executive Officer
(Principal Executive Officer)
   
    
/s/ C. David Cone

    C. David Cone
    
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
   
    
/s/ Joseph Terracciano

    Joseph Terracciano
    
Chief Accounting Officer
(Principal Accounting Officer)


4550