TRI Pointe Group, Inc.
Annual Report 2015
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WHO WE ARE
Headquartered in Irvine, California, TRI Pointe Group
(NYSE : TPH) is a family of premium regional home-
builders that design, build and sell homes in major U.S.
markets. As one of the largest homebuilding companies
in the United States, TRI Pointe Group combines the
resources and leadership of a national organization with
the regional insights, community ties and agility of local
homebuilders. The TRI Pointe Group family includes
Maracay Homes in Arizona, Pardee Homes in
California and Nevada, Quadrant Homes in Washington,
Trendmaker Homes in Texas, TRI Pointe Homes in
California and Colorado, and Winchester Homes in the
Washington, D.C. area.
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FINANCIAL AND OPER ATIONAL HIGHLIGHTS
(dollars in thousands)
KEY INCOME STATEMENT DATA
2014
2015
Home Sales Revenue
Homebuilding Gross Margin %
SG&A Expense as a % of Home Sales Revenue
Homebuilding Income from Operations
Net Income Available to Stockholders
Diluted Net Earnings Per Share
KEY BAL ANCE SHEET DATA
Cash and Cash Equivalents
Real Estate Inventories
Lots Owned or Controlled
Total Debt
Total Stockholders’ Equity
Ratio of Debt-to-Capital
OTHER DATA
Net New Home Orders
New Homes Delivered
Average Sales Price of Homes Delivered
Backlog of Homes at Fiscal Year End
$1,646,274
$2,291,264
19.9%
11.3%
$147,246
$84,197
$0.58
12/31/2014
$170,629
$2,280,183
29,718
$1,138,493
$1,454,180
43.9%
2014
2,947
3,100
$531
1,032
21.1%
10.2%
$314,882
$205,461
$1.27
12/31/2015
$214,485
$2,519,273
27,602
$1,170,505
$1,664,683
41.3%
2015
4,181
4,057
$565
1,156
Backlog Dollar Value at Fiscal Year End
$653,096
$697,334
27,602
homesites owned
or controlled as
of December 31, 2015
39%*
$2,291,264,000
*year-over-year home sales revenue increase
#1rated local
management teams2
4,057 new
homes delivered
in 2015
31%
increase
over 2014
1 BUILDER Magazine named TRI Pointe Group the Builder of the Year in 2015. The Builder of the Year Award is BUILDER’s highest yearly honor.
2 Leading homebuilding analyst firm, Zelman & Associates, found TRI Pointe Group to have the highest-rated local management teams among public homebuilders in their
2015 survey of land developers and private homebuilders.
3
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2015 LETTER
TO STOCKHOLDERS.
At our core, TRI Pointe Group is a homebuilder, utilizing decades of
industry experience, local market knowledge and operational expertise
to deliver life inspiring homes to our customers. As our life inspiring
homes vision suggests, business as usual isn’t the business we’re in.
We are innovators who are focused on not just
where the housing market is now, but where it will
be in the future. What will Millennials want in a new
home, and how will the next chapter of housing
evolve for Baby Boomers? We explore these
questions constantly and in 2015 we built two
concept homes designed specifically for Millennials,
unveiled at the International Builders Show,
while planning for our first large-scale 55+ age
qualified community.
In addition to our homebuilding operations in eight
states, we are also asset managers overseeing an
enviable, longstanding land position in entitlement
constrained California. We are developing these
land assets and building homes in San Diego, the
Inland Empire and the Los Angeles basin in order
to continue to produce value for our stockholders.
In short, we are a progressive company in a very
conventional industry. We believe our distinct
competitive advantage is combining the resources
and thought-leadership of one of the largest
homebuilders in the nation with the local insights
and agility of our six homebuilding brands.
This competitive advantage was evident in our
performance in 2015 as we were at, or near, the top
of our peer group for year-over-year growth in home
deliveries, revenue, new home orders and pretax
Setting the foundation
TRI Pointe Homes was
formed and began operations
in Southern California
Opened operations in
Northern California
First Public
Offering of a
homebuilder
in over 10 years
2009
2010
2011
2012
2013
$150 million Starwood
Capital Group
equity commitment
Opened operations
in Colorado
4
This letter to stockholders contains “forward-looking statements”. Please refer to the Cautionary Note Concerning Forward-Looking Statements in the accompanying
annual report on Form 10-K.
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income. For the full year, we generated home sales
revenue of $2.3 billion and earnings per share of
drivers of job growth and household formations.
This outlook allows us to feel confident in achieving
$1.27, representing year-over-year increases of 39%
and 119%, respectively. While careful planning,
execution and a keen focus on customer satisfaction
were essential in achieving these results, our
our deliveries goal of 5,100 to 5,400 homes in 2018.
Our commitment to delivering life inspiring homes is
unwavering, and we believe this commitment will serve
our homebuyers and stockholders well for years to come.
commitment to new ideas and innovation were
equally as important. It was this combination of
operational excellence and innovation that earned
TRI Pointe Group the title of the Builder of the Year
in 2015, according to BUILDER Magazine.
As always, we want to thank our Board of Directors for
their wisdom and guidance, our stockholders for their
support and our team members for the experience they
create for our customers. Each of you played a vital part
in the great execution that TRI Pointe Group
We are very pleased with our operational results in
demonstrated in 2015.
2015 and our market positioning as we head into
2016. We remain focused on increasing stockholder
value through our opportunistic homebuilding, land
and lot sales and financial services operations.
We believe the housing industry is poised for an
elongated cycle that is supported by the demand
Sincerely,
Barry Sternlicht
Chairman
Douglas F. Bauer
Chief Executive Officer
First Public
Offering of a
homebuilder
in over 10 years
Launched TRI Pointe
Connect and TRI Pointe
Assurance for mortgage
and title services
2015 Builder
of the Year1
#1 Rated local
management teams2
Millennial
“Responsive
Home” completed
2014
2015
WRECO
transaction closes
2014 Developer
of the Year
Expansion
to Austin, Texas
TRI Pointe Connect
operational in all states
1 BUILDER Magazine named TRI Pointe Group the Builder of the Year in 2015. The Builder of the Year Award is BUILDER’s highest yearly honor.
2 Leading homebuilding analyst firm, Zelman & Associates, found TRI Pointe Group to have the highest-rated local management teams among public homebuilders in their
2015 survey of land developers and private homebuilders.
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THE MILLENNIALS
ARE COMING
Last year, investing in the future was a big focus for
TRI Pointe Group, as the burgeoning Millennial market
represents billions of dollars in building opportunities—if
one can precisely appeal to their unique and discerning
point-of-view. To maximize our Millennial outreach
moving forward, we wanted to “get” this distinctive
cohort. The 2016 International Builders Show in
Las Vegas represented the perfect catalyst, with
TRI Pointe Group and BUILDER producing two
Responsive Homes, informed by strategic consumer
research performed by Ketchum Global Research and
Millennials are interested in maximizing space,
affordability, personalization and maintaining a level
of community typically found in urban environments.
Armed with these findings, we brought on celebrity
Creative Director Bobby Berk—a millennial himself—who
infused the show stopping designs with youthful energy.
Since their January debut, the Responsive Homes at
Inspirada in Las Vegas, Nevada, have earned coverage
in a number of national news and media publications.
Thanks to these efforts, our objective to design homes
compelling to the Millennial generation now rests on
Analytics. From Ketchum’s data, we learned that
a thoughtful and informed foundation.
The Contemporary Farmhouse,
one of two Responsive Homes at
Inspirada in Las Vegas.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-35796
TRI Pointe Group, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or other Jurisdiction of Incorporation)
61-1763235
(I.R.S. Employer Identification No.)
19540 Jamboree Road, Suite 300
Irvine, California 92612
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (949) 438-1400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes No
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on June 30, 2015, based on the closing price of $15.30 as
reported by the New York Stock Exchange, was $2,238,080,435.
161,910,115 shares of common stock were issued and outstanding as of February 19, 2016.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions from the registrant’s Proxy Statement relating to its 2016 Annual Meeting of Stockholders are incorporated by reference into Part III, Items 10, 11, 12,
13 and 14.
TRI Pointe Group, Inc.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2015
Table of Contents
Part I
Part II
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships Related Party Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits, Financial Statements and Financial Statement Schedules
Signatures
Part IV
1
Page
Number
5
20
38
38
38
38
39
41
43
61
61
61
61
62
63
63
63
63
63
64
105
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains certain statements relating to future events of our intentions, beliefs, expectations,
predictions for the future and other matters that are “forward-looking” statements within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended.
These statements:
use forward-looking terminology;
are based on various assumptions made by us; and
may not be accurate because of risks and uncertainties surrounding the assumptions that are made.
Factors listed in this section - as well as other factors not included - may cause actual results to differ significantly from the
forward-looking statements included in this annual report on Form 10-K. There is no guarantee that any of the events anticipated by
the forward-looking statements in this annual report on Form 10-K will occur, or if any of the events occurs, there is no guarantee
what effect it will have on our operations, financial condition or share price.
We will not update the forward-looking statement contained in this annual report on Form 10-K, unless otherwise required by
law.
Forward-Looking Statements
These forward-looking statements are generally accompanied by words such as “anticipate,” “believe,” “could,” “estimate,”
“expect,” “goal,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “will,” “would,” or other words that convey the
uncertainty of future events or outcomes, including, without limitation, our transaction with Weyerhaeuser Real Estate Company
(WRECO). These forward-looking statements include, but are not limited to, statements regarding expected benefits of the WRECO
transaction, integration plans and expected synergies therefrom, and our anticipated future financial and operating performance and
results, including our estimates for growth.
Forward-looking statements are based on a number of factors, including the expected effects of:
the economy;
laws and regulations;
adverse litigation outcome and the adequacy of reserves;
changes in accounting principles;
projected benefit payments; and
projected tax rates and credits.
Risks, Uncertainties and Assumptions
The major risks and uncertainties – and assumptions that are made – that affect our business and may cause actual results to
differ from these forward-looking statements include, but are not limited to:
the effect of general economic conditions, including employment rates, housing starts, interest rate levels, availability of
financing for home mortgages and strength of the U.S. dollar;
market demand for our products, which is related to the strength of the various U.S. business segments and U.S. and
international economic conditions;
levels of competition;
the successful execution of our internal performance plans, including restructuring and cost reduction initiatives;
global economic conditions;
raw material prices;
oil and other energy prices;
2
the effect of weather, including the continuing drought in California;
the risk of loss from earthquakes, volcanoes, fires, floods, droughts, windstorms, hurricanes, pest infestations and other
natural disasters;
transportation costs;
federal and state tax policies;
the effect of land use, environment and other governmental regulations;
legal proceedings;
risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses,
earnings, synergies, indebtedness, financial condition, losses and future prospects;
change in accounting principles;
risks related to unauthorized access to our computer systems, theft of our homebuyers’ confidential information or other
forms of cyber-attack; and
other factors described in “Risk Factors.”
EXPLANATORY NOTE
As used in this annual report on Form 10-K, unless the context otherwise requires:
“Closing Date” refers to July 7, 2014;
“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
“GAAP” refers to U.S. generally accepted accounting principles;
“legacy TRI Pointe” refers to the operations of TRI Pointe before the Closing Date;
“Merger” refers to the merger of a wholly-owned subsidiary of TRI Pointe with and into WRECO, with WRECO
surviving the merger and becoming a wholly-owned subsidiary of TRI Pointe;
“SEC” refers to the United States Securities and Exchange Commission;
“Transaction Agreement” refers to the agreement dated as of November 3, 2013 by and among Weyerhaeuser, TRI Pointe,
WRECO, and a wholly-owned subsidiary of TRI Pointe;
“TRI Pointe Homes” refers to TRI Pointe Homes, Inc., a Delaware corporation;
“TRI Pointe Group” refers to TRI Pointe Group, Inc., a Delaware corporation;
“Weyerhaeuser” refers to Weyerhaeuser Company, a Washington corporation and the former parent of WRECO; and
“WRECO” refers to Weyerhaeuser Real Estate Company, a Washington corporation, which following the Closing Date
was renamed “TRI Pointe Holdings, Inc.”
Additionally, references to “TRI Pointe”, “ the Company”, “we”, “us”, or “our” in this annual report on Form 10-K (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 July 7, 2015: TRI Pointe Homes and its subsidiaries; and
For periods from and after July 7, 2015: TRI Pointe Group and its subsidiaries.
Formation of TRI Pointe Group
On July 7, 2015, TRI Pointe Homes reorganized its corporate structure (the “Reorganization”) whereby TRI Pointe Homes
became a direct, wholly-owned subsidiary of TRI Pointe Group. As a result of the reorganization, each share of common stock, par
value $0.01 per share, of TRI Pointe Homes (“Homes Common Stock”) was cancelled and converted automatically into the right to
receive one validly issued, fully paid and non-assessable share of common stock, par value $0.01 per share, of TRI Pointe Group
(“Group Common Stock”), each share having the same designations, rights, powers and preferences, and the qualifications, limitations
and restrictions thereof as the shares of Homes Common Stock being so converted. TRI Pointe Group, as the successor issuer to TRI
3
Pointe Homes (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 July 7, 2015.
In connection with the Reorganization, TRI Pointe Group (i) became a co-issuer of TRI Pointe Homes’ 4.375% Senior Notes
due 2019 and TRI Pointe Homes' 5.875% Senior Notes due 2024; and (ii) replaced TRI Pointe Homes as the borrower under TRI
Pointe Homes’ existing unsecured revolving credit facility.
The business, executive officers and directors of TRI Pointe Group, and the rights and limitations of the holders of Group
Common Stock immediately following the Reorganization were identical to the business, executive officers and directors of TRI
Pointe Homes, and the rights and limitations of holders of Homes Common Stock immediately prior to the Reorganization.
Merger with WRECO
On the Closing Date, TRI Pointe consummated the previously announced Merger with WRECO. In the Merger, TRI Pointe
issued 129,700,000 shares of TRI Pointe common stock to the former holders of WRECO common shares, together with cash in lieu
of any fractional shares. On the Closing Date, WRECO became a wholly-owned subsidiary of TRI Pointe. Immediately following the
consummation of the Merger, the ownership of TRI Pointe common stock on a fully diluted basis was as follows: (i) the WRECO
common shares held by former Weyerhaeuser shareholders were converted into the right to receive, in the aggregate, approximately
79.6% of the then outstanding TRI Pointe common stock, (ii) the TRI Pointe common stock outstanding immediately prior to the
consummation of the Merger represented approximately 19.4% of the then outstanding TRI Pointe common stock, and (iii) the
outstanding equity awards of WRECO and TRI Pointe employees represented the remaining 1.0% of the then outstanding TRI Pointe
common stock.
The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and
related notes thereto contained elsewhere in this annual report on Form 10-K. The section entitled “Risk Factors” set forth in Part I,
Item 1A of this annual report on Form 10-K discuss some of the important risk factors that may affect our business, results of
operations and financial condition. Investors should carefully consider those risks, in addition to the information in this annual report
on Form 10-K, before deciding to invest in, or maintain an investment in, our common stock.
4
Item 1.
Business
Our Company
PART I
TRI Pointe was founded in April 2009, towards the end of an unprecedented downturn in the national homebuilding industry.
Since then, we have grown from a Southern California fee homebuilder into a regionally focused national homebuilder with a
portfolio of the following six quality homebuilding brands operating in ten markets across eight states:
Maracay Homes in Arizona;
Pardee Homes in California and Nevada;
Quadrant Homes in Washington;
Trendmaker Homes in Texas;
TRI Pointe Homes in California and Colorado; and
Winchester Homes in Maryland and Virginia.
Our growth strategy is to capitalize on high demand in selected "core" markets with favorable population and employment
growth as a result of proximity to job centers or primary transportation corridors. As of December 31, 2015, our operations consisted
of 104 active selling communities and 27,602 lots owned or controlled. See “Lots Owned or Controlled” below. Our construction
expertise across an extensive product offering allows us flexibility to pursue a wide array of land acquisition opportunities and appeal
to a broad range of potential homebuyers, including entry-level, first time move-up and second-time move-up homes. As a result, we
build across a variety of base sales price points, ranging from approximately $167,000 to $2.3 million, and home sizes, ranging from
approximately 1,000 to 6,200 square feet. See “Description of Projects and Communities under Development” below. For the years
ended December 31, 2015 and 2014, we delivered 4,057 and 3,100 homes and the average sales price of our new homes delivered was
approximately $565,000 and $531,000, respectively.
Our founders firmly established our core values of quality, integrity and excellence. These are the driving forces behind our
innovative designs and strong commitment to our homebuyers.
Our Competitive Strengths
We believe the following strengths provide us with a significant competitive advantage in implementing our business strategy:
Experienced and Proven Leadership
Douglas Bauer, our Chief Executive Officer, Thomas Mitchell, our President and Chief Operating Officer, and Michael Grubbs,
our Chief Financial Officer, have worked together for over 25 years and have a successful track record of managing and growing a
public homebuilding company. Spanning over a century, their combined real estate industry experience includes land acquisition,
financing, entitlement, development, construction, marketing and sales of single-family detached and attached homes in communities
in a variety of markets. In addition, each of the presidents of our homebuilding subsidiaries has substantial industry knowledge and
local market expertise. The average homebuilding experience of these presidents exceeds 20 years. We believe that our management
team's prior experience, extensive relationships and strong local reputation provide us with a competitive advantage in securing
projects, obtaining entitlements, building quality homes and completing projects within budget and on schedule.
Focus on High Growth Core Markets
Our business is well-positioned to capitalize on the broader national housing market recovery. We are focused on the design,
construction and sale of innovative single-family detached and attached homes in major metropolitan areas in California, Colorado,
Houston and Austin, Phoenix and Tucson, Las Vegas, the Washington, D.C. metro area and the Puget Sound region of Washington
State. These markets are generally characterized by high job growth and increasing populations, creating strong demand for new
housing. We believe they represent attractive homebuilding markets with opportunities for long-term growth and that we have strong
land positions strategically located within these markets. Moreover, our management team has deep local market knowledge of the
homebuilding and development industries. We believe this experience and strong relationships with local market participants enable
us to source, acquire, and entitle land efficiently.
5
Strong Operational Discipline and Controls
Our management team pursues a hands-on approach. Our strict operating discipline, including financial accountability at the
project management level, is a key part of our strategy to maximize returns while minimizing risk.
Acquire Attractive Land Positions While Reducing Risk
We believe that our reputation and extensive relationships with land sellers, master plan developers, financial institutions,
brokers and other builders enable us to continue to acquire well-positioned land parcels in our target markets and provide us access to
a greater number of acquisition opportunities. We believe our expertise in land development and planning enables us to create
desirable communities that meet or exceed our target homebuyers' expectations, while operating at competitive costs.
Increase Market Position in Growth Markets
We believe that there are significant opportunities to expand profitably in our existing and target markets, and we continually
review our selection of markets based on both aggregate demographic information and our own operating results. We use the results
of these reviews to re-allocate our investments to those markets where we believe we can maximize our profitability and return on
capital over the next several years. While our primary growth strategy has focused on increasing our market position in our existing
markets, we may, on an opportunistic basis, explore expansion into other markets through organic growth or acquisition.
Provide Superior Design and Homeowner Experience and Service
We consider ourselves a "progressive" homebuilder driven by an exemplary homeowner experience, cutting-edge product
development and exceptional execution. Our core operating philosophy is to provide a positive, memorable experience to our
homeowners through active engagement in the building process, tailoring our product to the homeowners' lifestyle needs and
enhancing communication, knowledge and satisfaction. We believe that the new generation of home buying families has different
ideas about the kind of home buying experience it wants. As a result, our selling process focuses on the home's features, benefits,
quality and design in addition to the traditional metrics of price and square footage. In addition, we devote significant resources to the
research and design of our homes to better meet the needs of our homebuyers. Through our "LivingSmart" platform, we provide
homes that we believe are earth-friendly, enhance homeowners' comfort, promote a healthier lifestyle and deliver tangible operating
cost savings versus less efficient resale homes. Collectively, we believe these steps enhance the selling process, lead to a more
satisfied homeowner and increase the number of homebuyers referred to our communities.
Offer a Diverse Range of Products
We are a builder with a wide variety of product lines that enable us to meet the specific needs of each of our core markets,
which we believe provides us with a balanced portfolio and an opportunity to increase market share. We have demonstrated expertise
in effectively building homes across product offerings from entry-level through first-time and second-time move-up housing. We
spend extensive time studying and designing our products through the use of architects, consultants and homebuyer focus groups for
all levels and price points in our target markets. We believe our diversified product strategy enables us to best serve a wide range of
homebuyers, adapt quickly to changing market conditions and optimize performance and returns while strategically reducing portfolio
risk. Within each of our core markets we determine the profile of homebuyers we hope to address and design neighborhoods and
homes with the specific needs of those homebuyers in mind.
Focus on Efficient Cost Structure and Target Attractive Returns
Our experienced management team is vigilant in maintaining its focus on controlling costs. We competitively bid new projects
and phases while maintaining strong relationships with our trade partners by managing production schedules closely and paying our
vendors on time.
We combine decentralized management in those aspects of our business in which we believe detailed knowledge of local market
conditions is critical (such as governmental processing, construction, land acquisition, land development and sales and marketing),
with centralized management in those functions in which we believe central control is required (such as approval of land acquisitions,
financial, treasury, human resources and legal matters). We have also made significant investments in systems and infrastructure to
operate our business efficiently and to support the planned future growth of our company as a result of executing our expansion
strategy.
6
Utilize Prudent Leverage
Our ongoing financial strategy includes redeployment of cash flows from continuing operations and debt to provide us with the
financial flexibility to access capital on the best terms available. In that regard, we expect to employ prudent levels of leverage to
finance the acquisition and development of our lots and construction of our homes. See "Our Financing Strategy" below.
Lots Owned or Controlled
As of December 31, 2015, we owned or controlled, pursuant to land option contracts or purchase contracts, an aggregate of
27,602 lots. We refer to lots that are under land option contracts as "controlled," see "Acquisition Process" below. Excluded from lots
owned or controlled are those related to Note 8, Investments in Unconsolidated Entities, of the notes to our consolidated financial
statements included elsewhere in this annual report on Form 10-K. The following table presents certain information with respect to
our lots owned or controlled as of December 31, 2015.
Maracay Homes
Pardee Homes
Quadrant Homes
Trendmaker Homes
TRI Pointe Homes
Winchester Homes
Total
Lots
Owned
Lots
Controlled
Lots
Owned or
Controlled
1,566
16,314
1,027
1,367
2,504
1,955
24,733
245
365
247
491
1,124
397
2,869
1,811
16,679
1,274
1,858
3,628
2,352
27,602
Description of Projects and Communities under Development
Our lot inventory includes land that we are holding for future development. The development of these lots will be subject to a
variety of marketing, regulatory and other factors and in some cases we may decide to sell the land prior to development. The
following table presents project information relating to each of our markets as of December 31, 2015 and includes information on
current projects under development where we are building and selling homes as of December 31, 2015.
7
Maracay Homes
County, Project, City
Phoenix, Arizona
Town of Buckeye:
Verrado Tilden
Verrado Palisades
Verrado Victory
City of Chandler:
Artesian Ranch
Vaquero Ranch
Maracay at Layton Lakes
Sendera Place
Chandler Heights
Town of Gilbert:
Arch Crossing at Bridges of Gilbert
Trestle Place at Bridges of Gilbert
Artisan at Morrison Ranch
Marquis at Morrison Ranch
City of Goodyear:
Calderra at Palm Valley
Los Vientos at Palm Valley
City of Mesa:
Kinetic Point at Eastmark
Lumiere Garden at Eastmark
Aileron Square at Eastmark
Curie Court at Eastmark
Palladium Point
Town of Peoria:
The Reserve at Plaza del Rio
Maracay at Northlands
Meadows - 5500's
Meadows - 6500's
Meadows - Oversized
Town of Queen Creek:
Montelena
The Preserve at Hastings Farms
Villagio
Phoenix, Arizona Total
Tucson, Arizona
Marana:
Tortolita Vistas
Oro Valley:
Rancho del Cobre
Desert Crest - Center Pointe Vistoso
The Cove - Center Pointe Vistoso
Summit (South) - Center Pointe Vistoso
The Pinnacle - Center Pointe Vistoso
Tucson:
Deseo at Sabino Canyon
Ranches at Santa Catalina
Tucson, Arizona Total
Maracay Homes Total
Cumulative
Homes
Delivered as of
Total
Number of December 31,
Year of
First
Delivery(1)
Lots(2)
2015
Lots
Homes Delivered
for the Twelve
Owned as of Backlog as of Months Ended
December 31, December 31, December 31,
2015(4)(5)
2015(3)
2015
Sales Price
Range
(in thousands)(6)
2012
2015
2015
2013
2013
2015
2015
2017
2014
2014
2016
2016
2013
2013
2013
2013
2016
2016
2016
2013
2014
2016
2016
2016
2012
2014
2013
2014
2014
2016
2016
2016
2016
2014
2016
102
63
98
90
74
47
39
84
67
73
105
66
81
57
80
85
58
106
53
162
58
80
56
37
59
89
135
2,104
49
68
103
83
87
70
39
34
533
2,637
94
16
17
57
67
11
12
—
60
63
—
—
80
57
60
60
—
—
—
87
35
—
—
—
59
43
89
967
24
43
—
—
—
—
37
—
8
47
81
33
7
36
27
84
7
10
105
66
1
—
20
25
58
106
53
75
23
80
56
37
—
46
46
1,137
25
25
103
83
87
70
2
34
104
1,071
429
1,566
2
—
4
25
7
21
11
—
4
10
—
—
1
—
13
10
9
9
—
15
19
—
—
—
—
17
15
192
5
4
—
—
—
—
2
—
11
203
21
16
17
27
29
11
12
—
39
35
—
—
24
5
31
25
—
—
—
37
27
—
—
—
7
28
29
420
$239 - $304
$305 - $378
$368 - $381
$342 - $398
$298 - $373
$475 - $515
$260 - $307
$467 - $500
$283 - $341
$344 - $424
$285 - $333
$355 - $439
$275 - $352
Closed
$270 - $350
$318 - $398
$318 - $398
$270 - $350
$308 - $377
$205 - $254
$318 - $399
$355 - $437
$417 - $535
$417 - $535
Closed
$285 - $369
$282 - $341
15
$449 - $506
$407 - $475
$239 - $289
$305 - $364
$352 - $389
$398 - $439
$419 - $505
$395 - $415
30
—
—
—
—
15
—
60
480
8
Pardee Homes
County, Project
California
San Diego County:
Alta Del Mar Homes
Sorrento Heights Prestige Collection
Watermark
Canterra
Casabella
Verana
Pacific Highlands Ranch Future
Olive Hill Estate
Castlerock
Meadowood
Sea View Terrace
Parkview Condos
Ocean View Hills Future
South Otay Mesa
Los Angeles County:
LivingSmart at Fair Oaks Ranch
Golden Valley
Skyline Ranch
Ventura County:
LivingSmart at Moorpark Highlands,
Moorpark
Riverside County:
Hillside
Meadow Ridge
Amberleaf
Meadow Glen
Summerfield
Canyon Hills Future
Senterra
LivingSmart Tournament Hills
Lakeside
Tournament Hills Future
LivingSmart Sundance
LivingSmart Estrella
Woodmont
Cielo
Northstar
Skycrest
Sundance Future
Banning
Sacramento County:
Natomas
San Joaquin County:
Bear Creek
California Total
Nevada
Clark County:
LivingSmart at Eldorado Ridge
LivingSmart at Eldorado Heights
LivingSmart Sandstone
Ridgeview
North Peak
Castle Rock
Eldorado Future
Horizon Terrace
Solano
Alterra
Bella Verdi
Milennial
Escala
POD 5-1 Future
Durango Ranch
Durango Trail
Meridian
LivingSmart at Providence
Encanto
Summerglen
The Canyons at MacDonald Ranch
Cumulative
Homes
Delivered as of
Total
Number of December 31,
Year of
First
Delivery(1)
Lots(2)
2015
Lots
Homes Delivered
for the Twelve
Owned as of Backlog as of Months Ended
December 31, December 31, December 31,
2015(4)(5)
2015(3)
2015
2013
2014
2013
2015
2015
2015
TBD
2015
TBD
TBD
2014
2016
2017
TBD
2011
2017
TBD
2013
2012
2013
2014
2014
2015
TBD
2016
2010
2012
TBD
2013
2013
2014
2015
2015
2015
TBD
TBD
TBD
TBD
2012
2013
2013
2015
2015
2015
2016
2014
2014
2014
2015
2016
2016
2017
2012
2014
2016
2012
2015
2014
2017
117
20
160
89
122
78
963
37
415
844
40
73
1,020
893
124
498
1,260
133
182
132
131
142
85
581
82
235
167
268
152
127
84
92
123
125
1,603
4,318
80
20
131
25
22
38
—
—
—
—
40
—
—
—
124
—
—
133
182
108
86
89
52
—
—
235
167
—
152
127
68
78
18
30
—
—
37
—
29
64
100
40
963
37
415
844
—
73
913
893
—
498
1,260
—
—
24
45
53
33
581
82
—
—
268
—
—
16
14
105
95
1,603
4,318
120
—
120
1,252
16,887
—
2,005
1,252
14,775
169
135
145
4
150
150
145
165
132
106
106
2
78
215
153
77
78
106
129
140
126
160
122
90
4
6
4
—
60
61
25
19
—
—
—
147
74
—
106
—
68
—
9
13
55
—
144
146
145
105
71
81
87
2
78
215
6
3
74
—
129
72
104
26
—
25
8
16
20
—
3
—
—
—
—
—
—
—
—
—
—
—
14
19
13
15
—
—
—
—
—
—
—
7
10
8
11
—
—
—
—
195
6
6
14
—
5
14
—
6
4
4
3
—
—
—
2
3
7
—
—
5
—
79
274
Sales Price
Range
(in thousands)(6)
$1,800 - $2,300
$890 - $950
$1,200 - $1,310
$758 - $912
$920 - $1,000
$996 - $1,094
TBD
$650 - $771
$473 - $708
$290 - $590
$308 - $370
$400 - $460
TBD
$185 - $530
$483 - $509
$499 - $807
$510 - $640
42
2
68
25
22
38
—
—
—
—
39
—
—
—
1
—
—
49
$600 - $650
$284 - $301
$367 - $464
$312 - $362
$345 - $408
$303 - $320
TBD
$360 - $460
$261 - $334
$260 - $282
TBD
$280 - $332
$214 - $237
$320 - $390
$249 - $275
$353 - $375
$311 - $350
TBD
$167 - $250
TBD
TBD
$260 - $310
$310 - $395
$220 - $250
$185 - $210
$280 - $330
$350 - $410
TBD
$400 - $455
$294 - $326
$424 - $506
$372 - $440
TBD
$545 - $591
TBD
$467 - $560
$380 - $410
$566 - $666
$260 - $323
$406 - $468
$293 - $299
TBD
2
52
65
47
52
—
—
2
19
—
42
6
57
78
18
30
—
—
—
—
756
37
36
47
4
6
4
—
32
56
25
19
—
—
—
38
33
—
1
—
36
—
374
1,130
Nevada Total
Pardee Homes Total
2,511
19,398
946
2,951
1,539
16,314
9
Quadrant Homes
County, Project, City
Washington
Skagit County:
Skagit Highlands, Mt Vernon
Skagit Clearwater Court, Mt Vernon
Skagit Surplus Pod E, Mt Vernon
Snohomish County:
Kings Corner 1&2, Mill Creek
King's Corner 3, Mill Creek
Evergreen Heights, Monroe
The Grove at Canyon Park, Bothell
Palm Creek, Bothell
King County:
Sonata Hill, Auburn
The Gardens at Eastlake, Sammamish
Heathers Ridge, Kirkland
Hedgewood, Redmond
Grasslawn Estates, Redmond
Vintner's Place, Kirkland
Hedgewood East, Redmond
Copperwood, Renton
Viscaia, Bellevue
Trailside, Redmond
Parkwood Terrace, Woodinville
Hazelwood Ridge, Newcastle
Inglewood Landing, Sammamish
Jacobs Landing, Issaquah
Kirkwood Terrace, Sammamish
English Landing P2, Redmond
English Landing P1, Redmond
Heathers Ridge South, Redmond
Cedar Landing, North Bend
Monarch Ridge, Sammamish
42nd Avenue Townhomes, Seattle
Wynstone, Federal Way
Pierce County:
Harbor Hill S-9, Gig Harbor
Harbor Hill S-8, Gig Harbor
Harbor Hill S-7, Gig Harbor
Chambers Ridge, Tacoma
Tehaleh, Bonney Lake
The Enclave at Harbor Hill, Gig Harbor
Thurston County:
Campus Fairways, Lacey
Kitsap County:
McCormick Meadows, Poulsbo
Vinland Pointe, Poulsbo
Mountain Aire, Poulsbo
Closed Communities
Washington Total
Quadrant Homes Total
Sales Price
Range
(in thousands)(6)
$227 - $292
$299 - $319
TBD
$440 - $540
$456 - $492
$359 - $407
$558 - $658
$845 - $905
$351 - $379
$902 - $963
$715 - $935
$800 - $920
$1350
$610 - $780
$825 - $975
$520 - $626
$617 - $672
$686 - $735
$680 - $750
$605 - $790
$880 - $962
$834 - $929
$1,200 - $1,500
$910 - $1,029
$910 - $1,029
$590 - $890
$500 - $650
$761 - $961
TBD
TBD
$385 - $454
$385 - $454
$407 - $437
$480 - $525
$321
$555 - $595
49
—
—
55
—
—
—
—
30
3
12
3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
25
4
—
16
29
—
13
$405 - $465
$280 - $357
$334 - $354
$390 - $440
N/A
44
47
—
81
411
411
Cumulative
Year of
First
Homes
Delivered as of
Number of December 31,
Total
Delivery(1)
Lots(2)
2015
Lots
Homes Delivered
for the Twelve
Owned as of Backlog as of Months Ended
December 31, December 31, December 31,
2015(4)(5)
2015(3)
2015
2005
2016
TBD
2014
2016
2016
2017
2017
2014
2015
2015
2015
2016
2016
2016
2016
2016
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
TBD
TBD
2014
2015
2016
2014
2013
2016
2015
2012
2013
2016
N/A
423
11
4
116
29
71
60
41
71
8
41
11
4
35
15
46
18
9
15
30
21
20
12
25
50
8
138
59
40
4
40
33
7
24
85
33
39
167
90
145
—
2,098
2,098
409
—
—
99
—
—
—
—
37
3
12
3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
36
4
—
17
84
—
13
119
82
—
—
918
918
14
11
4
17
29
71
32
41
34
5
29
8
4
35
15
46
18
9
15
30
21
20
12
25
50
8
13
59
40
4
4
29
7
7
1
33
26
48
8
145
—
1,027
1,027
12
8
—
10
11
—
—
—
10
1
19
3
1
—
6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
17
—
3
1
7
8
19
7
—
—
143
143
10
Trendmaker Homes
County, Project, City
Texas
Brazoria County:
Sedona Lakes, Pearland
Southern Trails, Pearland
Pomona, Manvel
Rise Meridiana
Fort Bend County:
Cross Creek Ranch 60', Fulshear
Cross Creek Ranch 65', Fulshear
Cross Creek Ranch 70', Fulshear
Cross Creek Ranch 80', Fulshear
Cross Creek Ranch 90', Fulshear
Villas at Cross Creek Ranch, Fulshear
Cinco Ranch, Katy
Harvest Green 75', Richmond
Sienna Plantation 80', Missouri City
Sienna Plantation 85', Missouri City
Villas at Sienna South, Missouri City
Lakes of Bella Terra, Richmond
Villas at Aliana, Richmond
Riverstone 55', Sugar Land
Riverstone 80', Sugar Land
Riverstone Avanti at Avalon 100',
Sugar Land
The Townhomes at Imperial, Sugar Land
Galveston County:
Harborwalk, Hitchcock
Harris County:
Fairfield, Cypress
Lakes of Fairhaven, Cypress
Towne Lake Living Views, Cypress
Calumet Townhomes, Houston
The Groves, Humble
Lakes of Creekside
Bridgeland '80
Hidden Arbor, Cypress
Clear Lake, Houston
Montgomery County:
Barton Woods, Conroe
Villas at Oakhurst, Porter
Woodtrace, Woodtrace
Northgrove, Tomball
Bender's Landing Estates, Spring
The Woodlands, Creekside Park
Waller County:
Cane Island, Katy
Hays County:
Belterra, Austin
Other:
Avanti Custom Homes
Texas Casual Cottages, Round Top
Texas Casual Cottages, Hill Country
Texas Total
Trendmaker Homes Total
Cumulative
Homes
Delivered as of
Total
Number of December 31,
Year of
First
Delivery(1)
Lots(2)
2015
Lots
Homes Delivered
for the Twelve
Owned as of Backlog as of Months Ended
December 31, December 31, December 31,
2015(4)(5)
2015(3)
2015
Sales Price
Range
(in thousands)(6)
2014
2014
2015
2015
2013
2013
2013
2013
2013
2013
2012
2015
2013
2015
2015
2013
2013
2013
2013
2015
2015
2014
2010
2008
2013
2015
2015
2015
2015
2015
2015
2013
2013
2014
2015
2014
2015
2015
2015
2007
2010
2012
30
40
17
7
53
52
56
29
25
101
55
19
45
25
19
109
89
34
30
5
27
50
39
166
122
4
26
10
5
59
752
118
55
30
25
104
25
15
20
125
88
46
2,751
2,751
17
29
—
—
30
21
37
9
12
91
54
—
39
—
—
80
60
17
28
1
20
44
25
157
104
4
14
—
—
—
78
102
50
11
—
23
—
—
—
—
—
107
76
44
1,384
1,384
13
11
17
7
23
31
19
20
13
10
1
19
6
25
19
29
29
17
2
4
7
6
14
9
18
—
12
10
5
59
674
16
5
19
25
81
25
15
20
1
3
1
—
1
—
3
4
2
1
1
3
3
5
2
—
5
1
2
1
5
2
3
9
—
—
4
—
—
—
23
2
1
1
—
5
—
5
—
18
12
2
1,367
1,367
19
15
3
136
136
15
20
—
—
19
15
17
20
12
29
30
—
23
—
—
25
25
16
21
$452 - $506
$493 - $569
$420 - $471
$420 - $480
$421 - $447
$432 - $488
$497 - $567
$541 - $656
$627 - $755
$454 - $496
$349 - $420
$438 - $518
$542 - $650
$531 - $650
$445 - $507
$465 - $506
$407 - $503
$397 - $460
$559 - $710
1
20
$1,174 - $1,232
$396 - $530
5
$587 - $645
24
35
20
4
14
—
—
—
16
15
18
11
—
22
—
$474 - $573
$544 - $664
$445 - $540
$637
$454 - $505
$549 - $648
$549 - $648
$480
$383 - $658
$421 - $623
$375 - $458
$485 - $536
$498 - $551
$458 - $621
$488 - $641
—
$537 - $647
—
$550
$416 - $643
$203 - $443
22
16
9
539
539
11
TRI Pointe Homes
County, Project, City
Southern California
Orange County:
Rancho Mission Viejo
Truewind, Huntington Beach
Arcadia, Irvine
Arcadia II, Irvine
Fairwind, Huntington Beach
Cariz, Irvine
Messina, Irvine
Aria-Rancho Mission Viejo
Aubergine-Rancho Mission Viejo
Aubergine II-Rancho Mission Viejo
(SFD)
San Diego County:
Altana, San Diego
Riverside County:
Topazridge, Riverside
Topazridge II, Riverside
Alegre, Temecula
Aldea, Temecula
Kite Ridge, Riverside
Serrano Ridge at Sycamore Creek,
Riverside
Terrassa Courts, Corona
Terrassa Villas, Corona
Los Angeles County:
Avenswood, Azusa
Woodson, Playa Vista
Grayson, Santa Clarita
San Bernardino County:
Sedona at Parkside, Ontario
Kensington at Park Place, Ontario
St. James at Park Place, Ontario
Ventura County:
The Westerlies, Oxnard
Southern California Total
Northern California
Contra Costa County:
Berkshire at Barrington, Brentwood
Hawthorne at Barrington, Brentwood
Marquette at Barrington, Brentwood
Wynstone at Barrington, Brentwood
Penrose at Barrington, Brentwood
Santa Clara County:
Avellino, Mountain View
Cobblestone, Milpitas
San Mateo County:
Canterbury, San Mateo
Solano County:
Redstone, Vacaville
San Joaquin County:
Ventana, Tracy
Sundance, Mountain House
Alameda County:
Cadence, Alameda Landing
Linear, Alameda Landing
Symmetry, Alameda Landing
Commercial, Alameda Landing
Parasol, Fremont
Blackstone at the Cannery,
Hayward SFA
Blackstone at the Cannery,
Hayward SFD
Catalina Crossing, Livermore
Jordan Ranch, Dublin
Jordan Ranch, Dublin
Northern California Total
California Total
Cumulative
Year of
First
Homes
Delivered as of
Number of December 31,
Total
Delivery(1)
Lots(2)
2015
Lots
Homes Delivered
for the Twelve
Owned as of Backlog as of Months Ended
December 31, December 31, December 31,
2015(4)(5)
2015(3)
2015
Sales Price
Range
(in thousands)(6)
2013
2014
2013
2014
2015
2014
2014
2015
2016
2017
2013
2012
2014
2014
2014
2014
2015
2015
2015
2013
2014
2015
2015
2015
2015
2015
2014
2014
2015
2016
2016
2013
2015
2014
2015
2015
2015
2015
2015
2016
2016
2016
2016
2017
2017
2017
105
49
61
66
80
112
59
87
66
57
45
68
49
96
90
87
87
94
52
66
66
119
152
67
57
105
49
46
54
63
94
38
3
—
—
45
63
45
96
77
18
4
—
—
66
66
6
13
6
17
—
—
—
12
17
18
12
84
66
57
—
5
4
—
13
69
83
94
52
—
—
113
139
61
40
—
—
1
7
14
16
10
4
8
—
—
4
3
—
13
3
2
—
—
—
—
10
9
4
6
116
2,053
—
974
116
1,055
—
114
89
105
90
92
34
63
32
76
141
93
113
91
106
56
2
39
105
52
31
56
105
1,571
3,624
63
58
17
—
—
63
22
76
27
22
9
38
54
—
—
—
—
—
—
—
—
449
1,423
26
47
73
92
34
—
10
—
114
71
104
53
52
56
2
39
105
52
31
56
57
1,074
2,129
12
17
11
8
—
—
—
7
—
5
6
29
2
7
—
—
—
—
—
—
—
—
92
206
24
40
1
43
63
75
30
3
—
—
Closed
$1,065 - $1,180
$1,199 - $1,420
$1,199 - $1,281
$937 - $1,032
$495 - $650
$1,515 - $1,630
$615 - $652
$1,005 - $1,115
TBD
1
Closed
—
22
77
54
18
4
—
—
12
26
6
13
6
17
—
535
46
39
17
—
—
8
22
$464 - $530
$459 - $515
$287 - $323
$262 - $298
$445 - $470
$363 - $393
$400 - $438
$438 - $478
Closed
Closed
$517 - $550
$346 - $381
$486 - $509
$453 - $468
$370 - $499
$506 - $553
$549 - $615
$480 - $715
$450 - $550
$498 - $515
Closed
$960 - $1,163
50
$940 - $1,230
27
$455 - $527
22
9
38
54
—
—
—
$438 - $540
$555 - $635
$1,057 - $1,234
$685 - $915
$775 - $875
$620
$590 - $850
—
$530 - $600
$865 - $915
$865 - $915
$865 - $915
$865 - $915
—
—
—
—
332
867
County, Project, City
Colorado
Douglas County:
Terrain 4000 Series, Castle Rock
Terrain 3500 Series, Castle Rock
Jefferson County:
Leyden Rock 4000 Series, Arvada
Leyden Rock 5000 Series, Arvada
Candelas 6000 Series, Arvada
Denver County:
Platt Park North, Denver
Larimer County:
Centerra 5000 Series, Loveland
Arapahoe County:
Whispering Pines, Aurora
Colorado Total
TRI Pointe Homes Total
Cumulative
Year of
First
Homes
Delivered as of
Number of December 31,
Total
Delivery(1)
Lots(2)
2015
Lots
Homes Delivered
for the Twelve
Owned as of Backlog as of Months Ended
December 31, December 31, December 31,
2015(4)(5)
2015(3)
2015
Sales Price
Range
(in thousands)(6)
2013
2015
2014
2015
2015
2014
2015
2015
149
67
51
67
76
29
150
115
704
4,328
100
37
45
30
6
28
12
49
30
6
37
70
1
67
—
258
1,681
115
375
2,504
24
20
2
17
5
—
16
—
84
290
44
37
40
30
6
$345 - $398
$321 - $344
$385 - $441
$454 - $509
$498 - $625
24
$611 - $615
12
$394 - $426
$518 - $600
—
193
1,060
13
Winchester Homes
County, Project, City
Maryland
Anne Arundel County:
Watson's Glen, Millersville
Frederick County:
Landsdale, Monrovia
Landsdale Village SFD
Landsdale Townhomes
Landsdale TND Neo SFD
Howard County:
Walnut Creek, Ellicott City
Montgomery County:
Cabin Branch, Clarksburg
Cabin Branch SFD
Cabin Branch Boulevard Townhomes
Cabin Branch Townhomes
Preserve at Stoney Spring-Lots for Sale
Preserve at Rock Creek, Rockville
Poplar Run, Silver Spring
Poplar Run Townhomes
Poplar Run SFD
Potomac Highlands, Potomac
Glenmont MetroCenter, Silver Spring
Closed Communities
Maryland Total
Virginia
Fairfax County:
Reserve at Waples Mill, Oakton
Stuart Mill & Timber Lake, Oakton
Prince William County:
Villages of Piedmont, Haymarket
Loudoun County:
Brambleton, Ashburn
English Manor Townhomes
Glenmere at Brambleton SFD
Glenmere at Brambleton Townhomes
Vistas at Lansdowne, Lansdowne
Willowsford Grant II, Aldie
Willowsford Greens, Aldie
Closed Communities
Virginia Total
Winchester Homes Total
TRI Pointe Group Total
Year of
First
Delivery(1)
2015
2015
2015
2015
2014
2014
2016
2014
N/A
2012
2013
2010
2016
2016
N/A
2013
2014
2015
2014
2014
2014
2015
2016
2014
N/A
Cumulative
Homes Delivered
for the Twelve
Backlog as of Months Ended
Number of December 31, December 31, December 31, December 31,
2015(3)
Delivered as of Owned as of
Homes
2015(4)(5)
Lots(2)
Total
2015
2015
Lots
Sales Price
Range
(in thousands)(6)
103
2
101
—
2
Closed
222
100
77
21
359
61
567
—
68
136
326
23
89
—
2,152
28
19
168
41
77
85
120
3
38
—
579
2,731
16
3
—
15
43
—
63
—
63
118
209
—
—
—
532
25
5
17
25
63
72
18
—
24
—
249
781
206
97
77
6
316
61
504
5
5
18
117
23
89
—
1,625
3
14
151
16
14
13
102
3
14
—
330
1,955
7
—
3
8
22
—
6
—
2
12
17
—
—
—
77
2
2
1
3
13
1
8
—
3
—
33
110
16
3
—
$495 - $635
$340 - $365
$435 - $468
6
$950 - $1,293
$480 - $719
TBD
$375 - $390
NA
$685 - $935
$390 - $435
$562 - $717
TBD
TBD
27
—
42
—
17
49
44
—
—
3
209
8
3
$1460
$1,363 - $1,675
17
$370 - $422
$492 - $532
$650 - $723
$464 - $468
$569 - $650
TBD
$750 - $840
18
41
44
18
—
15
64
228
437
33,943
8,786
24,733
1,156
4,057
(1)
(2)
(3)
(4)
(5)
(6)
Year of first delivery for future periods is based upon management's estimates and is subject to change.
The number of homes to be built at completion is subject to change, and there can be no assurance that we will build these homes.
Owned lots as of December 31, 2015 include owned lots in backlog as of December 31, 2015.
Backlog consists of homes under sales contracts that had not yet been delivered, and there can be no assurance that delivery of sold
homes will occur. See “Backlog” below.
Of the total homes subject to pending sales contracts that have not been delivered as of December 31, 2015, 716 homes are under
construction, 237 homes have completed construction, and 203 homes have not started construction.
Sales price range reflects base price only and excludes any lot premium, homebuyer incentives and homebuyer-selected options, which
may vary from project to project. Sales prices for homes required to be sold pursuant to affordable housing requirements are excluded
from sales price range. Sales prices reflect current pricing and might not be indicative of past or future pricing.
14
Acquisition Process
We believe that our current inventory of lots owned or controlled will be adequate to supply our homebuilding operations for the
foreseeable future.
Our acquisition process generally includes the following steps to reduce development and market cycle risk:
review of the status of entitlements and other governmental processing, including title reviews;
limitation on the size of an acquisition to minimize investment levels in any one project;
completion of due diligence on the land parcel prior to committing to the acquisition;
preparation of detailed budgets for all cost categories;
completion of environmental reviews and third-party market studies;
utilization of options, joint ventures and other land acquisition arrangements, if necessary; and
employment of centralized control of approval over all acquisitions through a land committee process.
Before purchasing a land parcel, we also engage outside architects and consultants to help review our proposed acquisition and
design our homes and communities.
We acquire land parcels pursuant to purchase agreements that are often structured as option contracts. These option contracts
require us to pay non-refundable deposits, which can vary by transaction, and entitle (but do not obligate) us to acquire the land
typically at fixed prices. The term within which we can exercise our option varies by transaction and our acquisition is often
contingent upon the completion of entitlement or other work with regard to the land (such as "backbone" improvements, which
include the installation of main roads or sewer mains). Depending upon the transaction, we may be required to purchase all of the
land involved at one time or we may have a right to acquire identified groups of lots over a specified timetable. In some transactions,
a portion of the consideration that we pay for the land may be in the form of a share of the profits of a project after we receive an
agreed upon level of profits from the project. In limited instances such as when we acquire land from a master developer that is part
of a larger project, the seller may have repurchase rights entitling it to repurchase the land from us under circumstances when we do
not develop the land by an outside deadline (unless the delay is caused by certain circumstances outside our control), or when we seek
to sell the land directly to a third party or indirectly through a change in control of our company. Repurchase rights typically allow the
seller to repurchase the land at the price that we paid the seller to acquire the land plus the cost of improvements that we have made to
the land and less some specified discount.
Our Community Development, Construction and Sales and Marketing Process
Community Development
In California, we typically develop community phases based upon projected sales, and we construct homes in each phase
whether or not they have been pre-sold. We have the ability to control the timing of construction of subsequent phases in the same
community based on sales activity in the prior phase, market conditions and other factors. We also will attempt to delay much of the
customization of a home until a qualified homebuyer has been approved, so as to enable the homebuyer to tailor the home to that
homebuyer's specifications; however, we will complete the build out of any unsold homes in a particular phase when deemed
appropriate for marketing purposes of such home. In our other regions, we typically develop communities on a lot by lot basis driven
by sales demand.
The design of our homes is limited by factors such as zoning requirements, building codes and energy efficiency laws. As a
result, we contract with a number of architects and other consultants in connection with the design process.
Construction
Substantially all of our construction work is done by subcontractors with us acting as the general contractor. We also enter into
contracts as needed with design professionals and other service providers who are familiar with local market conditions and
requirements. We do not have long-term contractual commitments with our subcontractors, suppliers or laborers. We maintain strong
and long-standing relationships with many of our subcontractors. We believe that our relationships have been enhanced through both
maintaining our schedules and making timely payment to our subcontractors. By dealing fairly with our key subcontractors, we are
able to keep them attentive to our projects.
15
Sales and Marketing
In connection with the sale and marketing of our homes, we make extensive use of online and offline advertising and other
promotional activities, including digital paid search and display advertising, the website of each of our six regional brands, print media
advertisements, brochures, direct mail and the placement of signboards in the immediate areas of our developments.
We sell our homes through our own sales representatives and through independent real estate brokers. Our in-house sales force
typically works from sales offices located in model homes close to or in each community. Sales representatives assist potential
homebuyers by providing them with basic floor plans, price information, development and construction timetables, tours of model
homes, and the selection of options. Sales personnel are licensed by the applicable real estate bodies in their respective markets, are
trained by us and generally have had prior experience selling new homes in the local market. Our personnel, along with subcontracted
marketing and design consultants, carefully design exteriors and interiors of each home to coincide with the lifestyles of targeted
homebuyers.
As of December 31, 2015, we owned 252 model homes that were either completed or under construction. Generally, we build
model homes at each project and have them professionally decorated to display design features. We believe that model homes play a
significant role in helping homebuyers understand the efficiencies and value provided by each floor plan type. Interior decorations
vary among our models and are selected based upon the lifestyles of our targeted homebuyers. Structural changes in design from the
model homes are not generally permitted, but homebuyers may select various other optional construction and design amenities. In
addition to model homes, homebuyers can gain an understanding of the various design features and options available to them using
design centers. At each design center, homebuyers can meet with a designer and are shown the standard and upgraded selections
available to them.
We typically sell homes using sales contracts that include cash deposits by the purchasers. However, purchasers can generally
cancel sales contracts if they are unable to sell their existing homes, if they fail to qualify for financing, or under certain other
circumstances. Although cancellations can delay the sale of our homes, they have historically not had a material impact on our
operating results. The cancellation rate of homebuyers who contracted to buy a home but did not close escrow (as a percentage of
overall orders) was consistent at 16% for each of the years ended December 31, 2015 and 2014. Cancellation rates are subject to a
variety of factors beyond our control such as adverse economic conditions and increases in mortgage interest rates. Our inventory of
completed and unsold production homes was 351 and 288 homes as of December 31, 2015 and 2014, respectively.
Homebuyer Financing and Title Services
We seek to assist our homebuyers in obtaining financing by arranging with mortgage lenders to offer qualified homebuyers a
variety of financing options. Substantially all homebuyers utilize long-term mortgage financing to purchase a home and mortgage
lenders will usually make loans only to qualified borrowers. Our financial services operation (“TRI Pointe Solutions”) is comprised of
mortgage financing operations (“TRI Pointe Connect”), which was formed as a joint venture with an established mortgage lender, and
title services operations (“TRI Pointe Assurance”). While our homebuyers may obtain financing from any mortgage provider of their
choice, TRI Pointe Connect can act as a preferred mortgage broker to our homebuyers in all of the markets in which we operate,
providing mortgage financing that helps facilitate the sale and closing process as well as generate additional fee income for us. TRI
Pointe Assurance provides title examinations for our homebuyers in our Trendmaker Homes and Winchester Homes brands. TRI
Pointe Assurance is a wholly-owned subsidiary of TRI Pointe and acts as a title agency for First American Title Insurance Company.
Quality Control and Customer Service
We pay particular attention to the product design process and carefully consider quality and choice of materials in order to
attempt to eliminate building deficiencies. We monitor the quality and workmanship of the subcontractors that we employ and we
make regular inspections and evaluations of our subcontractors to seek to ensure that our standards are met.
We maintain quality control and customer service staff whose role includes providing a positive experience for each homebuyer
throughout the pre-sale, sale, building, delivery and post-delivery periods. These employees are also responsible for providing after
sales customer service. Our quality and service initiatives include taking homebuyers on a comprehensive tour of their home prior to
delivery and using homebuyer survey results to improve our standards of quality and homebuyer satisfaction.
Warranty Program
In the normal course of business, we incur warranty-related costs associated with homes that have been delivered to
homebuyers. Estimated future direct warranty costs are accrued and charged to cost of sales in the period when the related home sales
revenues are recognized while indirect warranty overhead salaries and related costs are charged to cost of sales in the period incurred.
Estimation of accruals include consideration of our claims history, including current claims and estimates of claims incurred but not
16
yet reported. We also periodically utilize the services of an independent third party actuary to assist us with evaluating the level of our
accruals. Factors that affect the warranty accruals include the number of homes delivered, historical and anticipated rates of warranty
claims and cost per claim. Although we consider the warranty accruals reflected in our consolidated balance sheet to be adequate,
actual future costs could differ significantly from our currently estimated amounts. Our warranty accrual is included in accrued
expenses and other liabilities in the accompanying consolidated balance sheets.
We maintain general liability insurance designed to protect us against a portion of our risk of loss from construction-related
claims. We also generally require our subcontractors and design professionals to indemnify us for liabilities arising from their work,
subject to various limitations. However, such indemnity is significantly limited with respect to certain subcontractors that are added to
our general liability insurance policy. We record expected recoveries from insurance carriers when proceeds are probable and
estimable. Warranty insurance receivables are recorded in receivables on the accompanying consolidated balance sheet.
There can be no assurance that the terms and limitations of the limited warranty will be effective against claims made by
homebuyers, that we will be able to renew our insurance coverage or renew it at reasonable rates, that we will not be liable for
damages, cost of repairs, and/or the expense of litigation surrounding possible construction defects, soil subsidence or building related
claims or that claims will not arise out of uninsurable events or circumstances not covered by insurance and not subject to effective
indemnification agreements with certain subcontractors.
Seasonality
We have experienced seasonal variations in our quarterly operating results and capital requirements. We typically take orders
for more homes in the first half of the fiscal year than in the second half, which creates additional working capital requirements in the
second and third quarters to build our inventories to satisfy the deliveries in the second half of the year. We expect this seasonal
pattern to continue over the long-term, although it may be affected by volatility in the homebuilding industry and the geographic mix
of the homes we sell.
Backlog
Backlog units reflects the number of homes, net of actual cancellations experienced during the period, for which we have
entered into a sales contract with a homebuyer but for which we have not yet delivered the home. Homes in backlog are generally
delivered within three to nine months, although we may experience cancellations of sales contracts prior to delivery. For information
concerning backlog units, the dollar value and average sales price by segment, see Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in this annual report on Form 10-K.
Raw Materials
Typically, all of the raw materials and most of the components used in our business are readily available in the United States.
Most are standard items carried by major suppliers. However, a rapid increase in the number of homes started or other market
conditions could cause delays in the delivery of, shortages in, or higher prices for necessary materials. Delivery delays or the inability
to obtain necessary materials could result in delays in the delivery of homes under construction. We have established national
purchase programs for certain materials and we continue to monitor the supply markets to achieve the best prices available.
Our Financing Strategy
We intend to employ both debt and equity as part of our ongoing financing strategy, coupled with redeployment of cash flows
from continuing operations, to provide us with the financial flexibility to access capital on the best terms available. In that regard, we
expect to employ prudent levels of leverage to finance the acquisition and development of our lots and construction of our homes. As
of December 31, 2015, we had $299.4 million outstanding related to our unsecured revolving credit facility, $2.4 million of seller
financed loans and $868.7 million of outstanding senior notes as well as $214.5 million in cash and cash equivalents and $242.2 million
available under our unsecured revolving credit facility. Our board of directors considers a number of factors when evaluating our level
of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the purchase price of assets to be
acquired with debt financing, the estimated market value of our assets and the ability of particular assets, and our company as a whole,
to generate cash flow to cover the expected debt service. As a means of sustaining our long-term financial health and limiting our
exposure to unforeseen dislocations in the debt and financing markets, we currently expect to remain conservatively capitalized.
However, our charter does not contain a limitation on the amount of debt we may incur and our board of directors may change our
target debt levels at any time without the approval of our stockholders.
We intend to finance future acquisitions and developments with the most advantageous source of capital available to us at the
time of the transaction, which may include a combination of common and preferred equity, secured and unsecured corporate level
debt, property-level debt and mortgage financing and other public, private or bank debt.
17
Segments
The Company's operations are organized in two principal businesses: homebuilding and financial services.
Our homebuilding operation consists of six reportable segments: Maracay Homes, consisting of operations in Arizona; Pardee
Homes, consisting of operations in California and Nevada; Quadrant Homes, consisting of operations in Washington; Trendmaker
Homes, consisting of operations in Texas; TRI Pointe Homes, consisting of operations in California and Colorado; and Winchester
Homes, consisting of operations in Maryland and Virginia.
Our financial services operation (TRI Pointe Solutions) is a reportable segment and is comprised of our TRI Pointe Connect
mortgage financing operations and our TRI Pointe Assurance title services operations.
For financial information about our segments, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 4, Segment Information, of the notes to our consolidated financial statements included elsewhere in
this annual report on Form 10-K.
Government Regulation and Environmental Matters
We are subject to numerous local, state, federal and other statutes, ordinances, rules and regulations concerning zoning,
development, building design, construction and similar matters which impose restrictive zoning and density requirements, the result of
which is to limit the number of homes that can be built within the boundaries of a particular area. Projects that are not entitled may be
subjected to periodic delays, changes in use, less intensive development or elimination of development in certain specific areas due to
government regulations. We may also be subject to periodic delays or may be precluded entirely from developing in certain
communities due to building moratoriums or "slow-growth" or "no-growth" initiatives that could be implemented in the future. Local
governments also have broad discretion regarding the imposition of development fees and exactions for projects in their jurisdiction.
Projects for which we have received land use and development entitlements or approvals may still require a variety of other
governmental approvals and permits during the development process and can also be impacted adversely by unforeseen health, safety
and welfare issues, which can further delay these projects or prevent their development.
We are also subject to a variety of local, state, federal and other statutes, ordinances, rules and regulations concerning the
environment. The particular environmental laws that apply to any given homebuilding site vary according to multiple factors,
including the site's location, its environmental conditions and the present and former uses of the site, as well as adjoining properties.
Environmental laws and conditions may result in delays, may cause us to incur substantial compliance and other costs, and can
prohibit or severely restrict homebuilding activity in environmentally sensitive regions or areas. In addition, in those cases where an
endangered or threatened species is involved, environmental rules and regulations can result in the restriction or elimination of
development in identified environmentally sensitive areas. From time to time, the United States Environmental Protection Agency
and similar federal or state agencies review homebuilders' compliance with environmental laws and may levy fines and penalties for
failure to strictly comply with applicable environmental laws or impose additional requirements for future compliance as a result of
past failures. Any such actions taken with respect to us may increase our costs. Further, we expect that as concerns about climate
change and other environmental issues continue to grow, homebuilders will be required to comply with increasingly stringent laws
and regulations. Environmental laws and regulations can also have an adverse impact on the availability and price of certain raw
materials such as lumber. California is especially susceptible to restrictive government regulations and environmental laws. In
addition, home deliveries in California may be delayed or prevented due to governmental responses to California’s long-term drought,
even when we have obtained water rights for those projects.
Under various environmental laws, current or former owners of real estate, as well as certain other categories of parties, may be
required to investigate and clean up hazardous or toxic substances or petroleum product releases, and may be held liable to a
governmental entity or to third parties for related damages, including for bodily injury, and for investigation and clean-up costs
incurred by such parties in connection with the contamination. A mitigation system may be installed during the construction of a
home if a cleanup does not remove all contaminants of concern or to address a naturally occurring condition such as methane. Some
homebuyers may not want to purchase a home with a mitigation system.
Our general contractor, real estate broker, mortgage joint venture and title agency operations are subject to licensing and
regulation in the jurisdictions in which they operate. Consequently, they are subject to net worth, bonding, disclosure, record-keeping
and other requirements. Failure to comply with applicable requirements could result in loss of license, financial penalties, or other
sanctions.
Refer to Part I, Item 1A. "Risk Factors" of this annual report on Form 10-K for risks related to government regulation and
environmental matters.
18
Competition
Competition in the homebuilding industry is intense, and there are relatively low barriers to entry into our business.
Homebuilders compete for, among other things, homebuyers, desirable land parcels, financing, raw materials and skilled labor. We
compete for homebuyers primarily on the basis of a number of interrelated factors including home design and location, price,
homebuyer satisfaction, construction quality, reputation and the availability of mortgage financing. Increased competition could hurt
our business, as it could prevent us from acquiring attractive land parcels on which to build homes or make such acquisitions more
expensive, hinder our market share expansion, and lead to pricing pressures on our homes that may adversely impact our margins and
revenues. Our competitors may independently develop land and construct housing units that are superior or substantially similar to
our products. Furthermore, several of our primary competitors are significantly larger, have longer operating histories and may have
greater resources or lower cost of capital than ours; accordingly, they may be able to compete more effectively in one or more of the
markets in which we operate. Many of these competitors also have longstanding relationships with subcontractors and suppliers in the
markets in which we operate. We also compete for sales with individual resales of existing homes and with available rental housing.
Employees
As of December 31, 2015, we had 1,036 employees, 435 of whom were executive, management and administrative personnel,
251 of whom were sales and marketing personnel and 350 of whom were involved in field construction. Although none of our
employees are covered by collective bargaining agreements, certain of the subcontractors engaged by us are represented by labor
unions or are subject to collective bargaining arrangements. We believe that our relations with our employees and subcontractors are
good.
Our Offices and Access to Information
Our principal executive offices are located at 19540 Jamboree Road, Suite 300, Irvine, California 92612. Our main telephone
number is (949) 438-1400. Our internet website is www.tripointegroup.com. We will make available through our website our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or
furnished pursuant to Section 13(d) or 15(d) of the Exchange Act as soon as reasonably practicable after filing with, or furnishing to,
the SEC. Copies of these reports, and any amendment to them, are available free of charge upon request. The information contained
in, or that can be accessed through, our website is not incorporated by reference and is not a part of this annual report on Form 10-K.
19
Item 1A. Risk Factors
Investors should carefully consider the following risk factors, which address the material risks concerning our business,
together with the other information contained in this annual report on Form 10-K. If any of the risks discussed in this annual report
on Form 10-K occur, our business, liquidity, financial condition and results of operations (individually and collectively referred to in
these risk factors as “Financial Performance”) could be materially and adversely affected, in which case the trading price of our
common stock could decline significantly and stockholders could lose all or a part of their investment. Some statements in this annual
report on Form 10-K, including statements in the following risk factors, constitute forward-looking statements. Please refer to the
initial section of this annual report on Form 10-K entitled “Cautionary Note Concerning Forward-Looking Statements.”
Risks Related to Our Business
Our long-term growth depends upon our ability to successfully identify and acquire desirable land parcels for residential
buildout.
Our future growth depends upon our ability to successfully identify and acquire attractive land parcels for development of our
projects at reasonable prices and with terms that meet our underwriting criteria. Our ability to acquire land parcels for new projects
may be adversely affected by changes in the general availability of land parcels, the willingness of land sellers to sell land parcels at
reasonable prices, competition for available land parcels, availability of financing to acquire land parcels, zoning and other market
conditions. If the supply of land parcels appropriate for development of projects is limited because of these factors, or for any other
reason, our ability to grow could be significantly limited, and the number of homes that we build and sell could decline. Additionally,
our ability to begin new projects could be impacted if we elect not to purchase land parcels under option contracts. To the extent that
we are unable to purchase land parcels in a timely manner or enter into new contracts for the purchase of land parcels at reasonable
prices, our home sales revenue and Financial Performance could be negatively impacted.
Our quarterly results of operations may fluctuate because of the seasonal nature of our business and other factors.
We have experienced seasonal fluctuations in quarterly results of operations and capital requirements that can have a material
and adverse impact on our Financial Performance. We typically experience the highest new home order activity during the first and
second quarters of our fiscal year, although sales velocity is also highly dependent on the number of active selling communities,
timing of new community openings and other market factors, including seasonal natural disasters such as hurricanes, tornadoes, floods
and fires. Since it typically takes four to six months to construct a new home, the number of homes delivered and associated home
sales revenue typically increases in the third and fourth quarters of our fiscal year as new home orders sold earlier in the year convert
to home deliveries. We believe that this type of seasonality reflects the historical tendency of homebuyers to purchase new homes in
the spring and summer with deliveries scheduled in the fall or winter, as well as the scheduling of construction to accommodate
seasonal weather conditions in certain markets. We expect this seasonal pattern to continue over the long-term, although it may be
affected by market cyclicality, but there can be no assurance that historical seasonal patterns will continue to exist in future reporting
periods. In addition, as a result of seasonal variability, our historical performance may not be a meaningful indicator of future results.
Seasonality also requires us to finance construction activities in advance of the receipt of sales proceeds. In many cases, we may
not be able to recapture increased costs by raising prices because prices are established upon signing the purchase contract.
Accordingly, there is a risk that we will invest significant amounts of capital in the acquisition and development of land and
construction of homes that we do not sell at anticipated pricing levels or within anticipated time frames. If, due to market conditions,
construction delays or other causes, we do not complete sales of our homes at anticipated pricing levels or within anticipated time
frames, our Financial Performance could be materially and adversely affected.
Our business is cyclical and subject to risks associated with the real estate industry, and adverse changes in general
economic or business conditions could reduce the demand for homes and materially and adversely affect us.
The residential homebuilding and land development industry is cyclical and is substantially affected by adverse changes in
general economic or business conditions that are outside of our control, including changes in:
short- and long-term interest rates;
the availability and cost of financing for real estate industry participants, including financing for acquisitions, construction
and permanent mortgages;
unanticipated increases in expenses, including, without limitation, insurance costs, labor and materials costs, development
costs, real estate assessments and other taxes and costs of compliance with laws, regulations and governmental policies;
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changes in enforcement of laws, regulations and governmental policies, including, without limitation, health, safety,
environmental, labor, employment, zoning and tax laws, governmental fiscal policies and the Americans with Disabilities
Act of 1990;
consumer confidence generally and the confidence of potential homebuyers and others in the real estate industry in
particular;
financial conditions of buyers and sellers of properties, particularly residential homes and land suitable for development of
residential homes;
the ability of existing homeowners to sell their existing homes at prices that are acceptable to them;
the U.S. and global financial systems and credit markets, including stock market and credit market volatility;
private and federal mortgage financing programs and federal and state regulation of lending practices;
the availability and cost of construction, labor and materials;
federal and state income tax provisions, including provisions for the deduction of mortgage interest payments and capital
gain tax rates;
housing demand from population growth, household formation and demographic changes (including immigration levels
and trends in urban and suburban migration);
the supply of available new or existing homes and other housing alternatives, such as condominiums, apartments and
other residential rental property;
competition from other real estate investors with significant capital, including other real estate operating companies and
developers and institutional investment funds;
employment levels and job and personal income growth and household debt-to-income levels;
the rate of inflation;
real estate taxes; and
the supply of, and demand for, developable land in our current and expected markets.
Adverse changes in these or other general economic or business conditions may affect our business nationally or in particular
regions or localities. During the recent economic downturn, several of the markets we serve, and the U.S. housing market as a whole,
experienced a prolonged decrease in demand for new homes, as well as an oversupply of new and existing homes available for sale.
Demand for new homes is affected by weakness in the resale market because many new homebuyers need to sell their existing homes
in order to buy a home from us. In addition, demand may be adversely affected by alternatives to new homes, such as rental
properties and existing homes. In the event of another economic downturn or if general economic conditions should worsen, our home
sales could decline and we could be required to write down or dispose of assets or restructure our operations or debt, any of which
could have a material adverse effect on our Financial Performance.
Adverse changes in economic or business conditions can also cause increased home order cancellation rates, diminished demand
and prices for our homes, and diminished value of our real estate investments. These changes can also cause us to take longer to build
homes and make it more costly for us to do so. We may not be able to recover any of the increased costs by raising prices because of
weak market conditions and increasing pricing pressure. Additionally, the price of each home we sell is usually set several months
before the home is delivered, as many homebuyers sign their home purchase contracts before or early in the construction process. The
potential difficulties described above could impact our homebuyers’ ability to obtain suitable financing and cause some homebuyers to
cancel or refuse to honor their home purchase contracts altogether.
Because most of our homebuyers finance the purchase of their homes, the terms and availability of mortgage financing can
affect the demand for and the ability to complete the purchase of a home, which could materially and adversely affect us.
Our business depends on the ability of our homebuyers to obtain financing for the purchase of their homes. Many of our
homebuyers must sell their existing homes in order to buy a home from us. Since 2009, the U.S. residential mortgage market as a
whole has experienced significant instability due to, among other things, defaults on subprime and other loans, resulting in the
declining market value of such loans. In light of these developments, lenders, investors, regulators and other third parties questioned
the adequacy of lending standards and other credit requirements for several loan programs made available to borrowers before the
recent downturn. This has led to tightened credit requirements and an increase in indemnity claims for mortgages. Deterioration in
credit quality among subprime and other nonconforming loans has caused most lenders to eliminate subprime mortgages and most
other loan products that do not conform to Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage
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Corporation (“Freddie Mac”), Federal Housing Administration (the “FHA”) or Veterans Administration (the “VA”) standards. Fewer
loan products and tighter loan qualifications, in turn, make it more difficult for a borrower to finance the purchase of a new home or
the purchase of an existing home from a potential homebuyer who wishes to purchase one of our homes. If our potential homebuyers
or the buyers of our homebuyers’ existing homes cannot obtain suitable financing, our Financial Performance could be materially and
adversely affected.
Interest rate increases or changes in federal lending programs or other regulations could lower demand for our homes,
which could materially and adversely affect us.
Substantially all purchasers of our homes finance their acquisitions with mortgage financing. Rising interest rates, decreased
availability of mortgage financing or of certain mortgage programs, higher down payment requirements or increased monthly
mortgage costs may lead to reduced demand for our homes. Increased interest rates can also hinder our ability to realize our backlog
because our home purchase contracts provide homebuyers with a financing contingency. Financing contingencies allow homebuyers
to cancel their home purchase contracts in the event that they cannot arrange for adequate financing. As a result, rising interest rates
can decrease our home sales and mortgage originations. Any of these factors could have a material adverse effect on our Financial
Performance.
In addition, as a result of the turbulence in the credit markets and mortgage finance industry, the federal government has taken
on a significant role in supporting mortgage lending through its conservatorship of Fannie Mae and Freddie Mac, both of which
purchase home mortgages and mortgage-backed securities originated by mortgage lenders, and its insurance of mortgages originated
by lenders through the FHA and the VA. The availability and affordability of mortgage loans, including consumer interest rates for
such loans, could be adversely affected by a curtailment or cessation of the federal government's mortgage-related programs or
policies. The FHA may continue to impose stricter loan qualification standards, raise minimum down payment requirements, impose
higher mortgage insurance premiums and other costs, and/or limit the number of mortgages it insures. Due to federal budget deficits,
the U.S. Treasury may not be able to continue supporting the mortgage-related activities of Fannie Mae, Freddie Mac, the FHA and
the VA at present levels, or it may revise significantly the federal government's participation in and support of the residential mortgage
market. Because the availability of Fannie Mae, Freddie Mac, FHA- and VA-backed mortgage financing is an important factor in
marketing and selling many of our homes, any limitations, restrictions or changes in the availability of such government-backed
financing could reduce our home sales, which could have a material adverse effect on our Financial Performance.
Furthermore, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law. This
legislation provides for a number of new requirements relating to residential mortgages and mortgage lending practices, many of
which are to be developed further by implementing rules. These include, among others, minimum standards for mortgages and lender
practices in making mortgages, limitations on certain fees and incentive arrangements, retention of credit risk and remedies for
borrowers in foreclosure proceedings. The effect of such provisions on lending institutions will depend on the rules that are ultimately
adopted. However, these requirements, as and when implemented, are expected to reduce the availability of loans to borrowers and/or
increase the costs to borrowers to obtain such loans. Any such reduction could result in a decline of our home sales, which could have
a material adverse effect on our Financial Performance.
Any limitation on, or reduction or elimination of, tax benefits associated with owning a home would have an adverse effect
upon the demand for our home products, which could be material to our business.
Changes in federal income tax laws may affect demand for new homes. Current tax laws generally permit significant expenses
associated with owning a home, primarily mortgage interest expense and real estate taxes, to be deducted for the purpose of
calculating an individual’s federal, and in many cases, state, taxable income. Various proposals have been publicly discussed to limit
mortgage interest deductions and to limit the exclusion of gain from the sale of a principal residence. If such proposals were enacted
without offsetting provisions, the after-tax cost of owning a new home would increase for many of our potential homebuyers.
Enactment of any such proposal may have an adverse effect on the homebuilding industry in general, as the loss or reduction of
homeowner tax deductions could decrease the demand for new homes.
We face numerous risks associated with controlling, purchasing, holding and developing land.
We acquire land for expansion into new markets and for replacement of land inventory and expansion within our current
markets. Risks inherent in controlling, purchasing, holding and developing land parcels for new home construction are substantial and
increase when demand for consumer housing decreases. Moreover, the market value of our land and housing inventories depends on
market conditions and may decline after purchase, and the measures we employ to manage inventory risk may not be adequate to
insulate our operations from a severe drop in inventory values. In addition, inventory carrying costs can be significant and can result in
reduced margins or losses in a poorly performing community or market. We may have bought and developed, or acquired options on,
land at a cost that we will not be able to recover fully or on which we cannot build and sell homes profitably. When market conditions
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are such that land values are not appreciating, existing option agreements may become less desirable, at which time we may elect to
forfeit deposits and pre-acquisition costs and terminate the agreements.
The valuation of real property is inherently subjective and based on the individual characteristics of each property. Factors such
as changes in regulatory requirements and applicable laws (including in relation to land development and building regulations,
taxation and planning), political conditions, environmental conditions and requirements, the condition of financial markets, both local
and national economic conditions, the financial condition of homebuyers, potentially adverse tax consequences, and interest and
inflation rate fluctuations subject valuations of real property to uncertainty. Moreover, all valuations of real property are made on the
basis of assumptions that may not prove to accurately reflect economic or demographic conditions. If housing demand decreases
below what we anticipated when we acquired our inventory, our profitability may be materially and adversely affected and we may
not be able to recover our costs when we build and sell houses, land and lots.
The U.S. housing markets experienced dynamic demand and supply patterns in recent years due to volatile economic conditions,
including increased amounts of home and land inventory that entered certain housing markets from foreclosure sales or short sales. In
certain periods of market weakness, we have sold homes and land for lower margins or at a loss and have recognized significant
inventory impairment charges, and such conditions may recur. Write-downs and impairments have had an adverse effect on our
Financial Performance. We review the value of our land holdings on a periodic basis. Further material write-downs and impairments
in the value of inventory may be required, and we may sell land or homes at a loss, which could materially and adversely affect our
Financial Performance.
Adverse weather and natural disasters may increase costs, cause project delays and reduce consumer demand for housing.
As a homebuilder and land developer, we are subject to the risks associated with numerous weather-related events and natural
disasters that are beyond our control. These weather-related events and natural disasters include, but are not limited to, droughts,
floods, wildfires, landslides, soil subsidence, hurricanes, tornadoes and earthquakes. The occurrence of any of these events could
damage our land and projects, cause delays in, or prevent, completion of our projects, reduce consumer demand for housing, and cause
shortages and price increases in labor or raw materials, any of which could materially and adversely affect our Financial Performance.
We have substantial operations in Southern and Northern California that have historically experienced significant earthquake activity
and seasonal wildfires. Our markets in Colorado have also experienced seasonal wildfires, floods and soil subsidence. In addition, our
Washington market has historically experienced significant earthquake, volcanic and seismic activity and our Texas market
occasionally experiences extreme weather conditions such as tornadoes and hurricanes.
In addition to directly damaging our land or projects, earthquakes, hurricanes, tornadoes, volcanoes, floods, wildfires or other
natural events could damage roads and highways providing access to those assets or affect the desirability of our land or projects,
thereby materially and adversely affecting our ability to market homes or sell land in those areas and possibly increasing the cost to
complete construction of our homes.
There are some risks of loss for which we may be unable to purchase insurance coverage. For example, losses associated with
landslides, earthquakes and other geologic events may not be insurable and other losses, such as those arising from terrorism, may not
be economically insurable. A sizeable uninsured loss could materially and adversely affect our Financial Performance.
Continuing drought conditions in California and other areas in which we operate may negatively impact the economy,
increase the risk of wildfires, cause us to incur additional costs, and delay or prevent new home deliveries.
Certain of the areas in which we operate, particularly in California, have experienced drought conditions from time to time.
Continuing drought conditions could negatively impact the economy and environment as well as increase greatly the risk of wildfires.
In 2014, the Governor of California proclaimed a Drought State of Emergency warning that drought conditions may place
drinking water supplies at risk in many California communities. In April 2015, the Governor issued an executive order that, among
other things, directs the State Water Resources Control Board to implement mandatory water reductions in cities and towns across
California to reduce water usage by 25 percent and to prohibit irrigation with potable water outside newly constructed homes that is
not delivered by drip or micro-spray systems. The Governor's order also calls on local water agencies to adjust their rate structures to
implement conservation pricing, directs the Department of Water Resources to update the Model Water Efficient Landscape
Ordinance, and directs the California Energy Commission to adopt emergency regulations establishing standards to improve the
efficiency of water appliances such as toilets and faucets. In February 2016, the State Water Resources Control Board extended
restrictions on urban water use through October 2016. These and other measures that are instituted to respond to drought conditions
could cause us to incur additional costs. In addition, new home deliveries in some areas may be delayed or prevented due to the
unavailability of water, even when we have obtained water rights for those projects.
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We may be unable to find and retain suitable contractors and subcontractors at reasonable rates.
Substantially all of our construction work is performed by subcontractors with us acting as the general contractor. Accordingly,
the timing and quality of our construction depend on the availability, cost and skill of contractors and subcontractors and their
employees.
The residential construction industry experiences serious shortages of skilled labor from time to time. The difficult operating
environment during the recent downturn in the United States has resulted in the failure of the businesses of some contractors and
subcontractors and may result in further failures. In addition, reduced levels of homebuilding in the United States have caused some
skilled tradesmen to leave the real estate industry to take jobs in other industries. These shortages can be more severe during periods
of strong demand for housing or during periods following natural disasters that have a significant impact on existing residential and
commercial structures. While we anticipate being able to obtain sufficient reliable contractors and subcontractors during times of
material shortages and believe that our relationships with contractors and subcontractors are good, we do not have long-term
contractual commitments with any contractors or subcontractors, and there can be no assurance that skilled contractors, subcontractors
or tradesmen will continue to be available in the areas in which we conduct our operations. If skilled contractors and subcontractors
are not available on a timely basis for a reasonable cost, or if contractors and subcontractors are not able to recruit sufficient numbers
of skilled employees, our development and construction activities may suffer from delays and quality issues, which could lead to
reduced levels of homebuyer satisfaction and materially and adversely affect our Financial Performance.
Moreover, some of the subcontractors engaged by us are represented by labor unions or are subject to collective bargaining
arrangements. A strike or other work stoppage involving any of our subcontractors could also make it difficult for us to retain
subcontractors for their construction work. In addition, union activity could result in higher costs for us to retain our subcontractors.
Access to qualified labor at reasonable rates may also be affected by other circumstances beyond our control, including: (i) shortages
of qualified tradespeople, such as carpenters, roofers, electricians and plumbers; (ii) high inflation; (iii) changes in laws relating to
employment and union organizing activity; (iv) changes in trends in labor force migration; and (v) increases in contractor,
subcontractor and professional services costs. The inability to contract with skilled contractors and subcontractors at reasonable rates
on a timely basis could materially and adversely affect our Financial Performance.
The supply of skilled labor may be adversely affected by changes in immigration laws and policies.
The timing and quality of our construction activities depend upon the availability, cost and skill of contractors and
subcontractors and their employees. The supply of labor in the markets in which we operate could be adversely affected by changes in
immigration laws and policies as well as changes in immigration trends. Accordingly, it cannot be assured that a sufficient supply of
skilled labor will be available to us in the future. In addition, federal and state immigration laws and policies may have the effect of
increasing our labor costs. The lack of adequate supply of skilled labor or a significant increase in labor costs could materially and
adversely affect our Financial Performance.
We could be responsible for employment-related liabilities with respect to our contractors’ employees.
Several other homebuilders have received inquiries from regulatory agencies concerning whether homebuilders using
contractors are deemed to be employers of the employees of such contractors under certain circumstances. Although contractors are
independent of the homebuilders that contract with them under normal management practices and the terms of trade contracts and
subcontracts within the homebuilding industry, if regulatory agencies reclassify the employees of contractors as employees of
homebuilders, homebuilders using contractors could be responsible for wage and hour labor laws, workers’ compensation and other
employment-related liabilities of their contractors. Even if we are not deemed to be joint employers with our contractors, we may be
subject to legislation, such as California Labor Code Section 2810.3 that requires us to share liability with our contractors for the
payment of wages and the failure to secure valid workers’ compensation coverage.
We may incur costs and liabilities if our subcontractors engage in improper construction practices or install defective
materials.
Despite our quality control efforts, we may discover that our subcontractors were engaging in improper construction practices or
installing defective materials in our homes. When we discover these issues, we, generally through our subcontractors, repair the
homes in accordance with our new home warranty and as required by law. We reserve a percentage of the sales price of each home
we sell to provide the customer service to our homebuyers. These reserves are established based on market practices, our historical
experiences, and our judgment of the qualitative risks associated with the types of homes built. However, the cost of satisfying our
warranty and other legal obligations in these instances may be significantly higher than our warranty reserves, and we may be unable
to recover the cost of repair from such subcontractors. Regardless of the steps we take, we can in some instances be subject to fines or
other penalties, and our reputation may be materially and adversely affected.
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Raw material shortages and price fluctuations could cause delays and increase our costs.
We require raw materials to build our homes. The residential construction industry experiences serious raw material shortages from
time to time, including shortages in supplies of insulation, drywall, cement, steel, lumber and other building materials. These shortages
can be more severe during periods of strong demand for housing or during periods following natural disasters that have a significant
impact on existing residential and commercial structures. The cost of raw materials may also be materially and adversely affected during
periods of shortages or high inflation. Shortages and price increases could cause delays in and increase our costs of home construction.
We generally are unable to pass on increases in construction costs to homebuyers who have already entered into home purchase contracts.
Sustained increases in construction costs may adversely affect our gross margins, which in turn could materially and adversely affect our
Financial Performance.
Utility shortages or price increases could have an adverse impact on operations.
Certain of the markets in which we operate, including California, have experienced power shortages, including mandatory
periods without electrical power, as well as significant increases in utility costs. Reduced water supplies as a result of drought
conditions may negatively affect electric power generation. Additionally, municipalities may restrict or place moratoriums on the
availability of utilities, such as water and sewer taps. We may incur additional costs and may not be able to complete construction on a
timely basis if such utility shortages, restrictions, moratoriums and rate increases continue. In addition, these utility issues may
adversely affect the local economies in which we operate, which may reduce demand for housing in those markets. Our results of
operations may be materially and adversely impacted if further utility shortages, restrictions, moratoriums or rate increases occur in
our markets.
Some of our markets have been and may continue to be adversely affected by declining oil prices.
The significant decline in oil prices that began in 2014 has adversely affected and may continue to adversely affect the
economies in our Colorado and Houston markets, as energy is an important employment sector in both of those markets. As a result,
demand for our homes may be reduced in these markets and our Financial Performance could be negatively impacted.
Government regulations and legal challenges may delay the start or completion of our communities, increase our expenses
or limit our building or other activities.
The approval of numerous governmental authorities must be obtained in connection with our development activities, and these
governmental authorities often have broad discretion in exercising their approval authority. We incur substantial costs related to
compliance with legal and regulatory requirements, and any increase in legal and regulatory requirements may cause us to incur
substantial additional costs, or in some cases cause us to determine that certain communities are not feasible for development.
Various federal, state and local statutes, ordinances, rules and regulations concerning building, health and safety, environment,
land use, zoning, density requirements, sales and similar matters apply to or affect the housing industry. Projects that are not entitled
may be subjected to periodic delays, changes in use, less intensive development or elimination of development in certain specific areas
due to government regulations. We may also be subject to periodic delays or may be precluded entirely from developing in certain
communities due to building moratoriums or “slow-growth” or “no-growth” initiatives that could be implemented in the future. Local
governments also have broad discretion regarding the imposition of development fees and exactions for projects in their jurisdiction.
Projects for which we have received land use and development entitlements or approvals may still require a variety of other
governmental approvals and permits during the development process and can also be impacted adversely by unforeseen
environmental, health, safety and welfare issues, which can further delay these projects or prevent their development. We may also be
required to modify our existing approvals because of changes in local circumstances or applicable law. Further, we may experience
delays and increased expenses as a result of legal challenges to our proposed communities, or to permits or approvals required for such
communities, whether brought by governmental authorities or private parties. As a result, home sales could decline and costs could
increase, which could materially and adversely affect our Financial Performance.
We may be unable to obtain suitable bonding for the development of our housing projects.
We are often required to provide bonds to governmental authorities and others to ensure the completion of our projects. If we
are unable to obtain required bonds in the future for our projects, or if we are required to provide credit enhancements with respect to
our current or future bonds, our Financial Performance could be materially and adversely affected.
We are subject to environmental laws and regulations that may impose significant costs, delays, restrictions or liabilities.
We are subject to a variety of local, state and federal statutes, rules and regulations concerning land use and the protection of
health and the environment, including those governing discharge of pollutants to water and air, impact on wetlands, protection of flora
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and fauna, handling of or exposure to hazardous materials, including asbestos, and cleanup of contaminated sites. We may be liable
for the costs of removal, investigation, mitigation or remediation of hazardous or toxic substances located at any property currently or
formerly owned, leased or occupied by us, or at third-party sites to which we have sent or send wastes for disposal, whether or not we
caused or knew of such conditions. These conditions can also give rise to claims by governmental authorities or other third parties,
including for personal injury, property damage and natural resources damages. Insurance coverage for such claims is nonexistent or
impractical. The presence of any of these conditions, or the failure to address any of these conditions properly, or any significant
environmental incident, may materially and adversely affect our ability to develop our properties or sell our homes, lots or land in
affected communities or to borrow using the affected land as security, or impact our reputation. Environmental impacts have been
identified at certain of our active communities, some of which will need to be addressed prior to or during development. We could
incur substantial costs in excess of amounts budgeted by us to address such impacts or other environmental or hazardous material
conditions that may be discovered in the future at our properties. Any failure to adequately address such impacts or conditions could
delay, impede or prevent our development projects.
The particular impact and requirements of environmental laws and regulations that apply to any given community vary greatly
according to the community location, the site’s environmental conditions and the development and use of the site. Any failure to
comply with applicable requirements could subject us to fines, penalties, third-party claims or other sanctions. We expect that these
environmental requirements will become increasingly stringent in the future. Compliance with, or liability under, these environmental
laws and regulations may result in delays, cause us to incur substantial compliance and other costs and prohibit or severely restrict
development, particularly in environmentally sensitive areas. In those cases where an endangered or threatened species is involved and
related agency rulemaking and litigation are ongoing, the outcome of such rule-making and litigation can be unpredictable and can
result in unplanned or unforeseeable restrictions on, or the prohibition of, development and building activity in identified
environmentally sensitive areas. In addition, project opponents can delay or impede development activities by bringing challenges to
the permits and other approvals required for projects and operations under environmental laws and regulations.
As a result, we cannot assure that our costs, obligations and liabilities relating to environmental matters will not materially and
adversely affect our Financial Performance.
Changes in global or regional climate conditions and governmental response to such changes may limit, prevent or increase
the costs of our planned or future growth activities.
Projected climate change, if it occurs, may exacerbate the scarcity or presence of water and other natural resources in affected
regions, which could limit, prevent or increase the costs of residential development in certain areas. In addition, a variety of new
legislation is being enacted, or considered for enactment, at the federal, state and local level relating to energy and climate change, and
as climate change concerns continue to grow, legislation and regulations of this nature are expected to continue. This legislation
relates to items such as carbon dioxide emissions control and building codes that impose energy efficiency standards. Government
mandates, standards or regulations intended to mitigate or reduce greenhouse gas emissions or projected climate change impacts could
result in prohibitions or severe restrictions on land development in certain areas, increased energy and transportation costs, and
increased compliance expenses and other financial obligations to meet permitting or land development or home construction-related
requirements that we may be unable to fully recover (due to market conditions or other factors), any of which could cause a reduction
in our homebuilding gross margins and materially and adversely affect our Financial Performance. Energy-related initiatives could
similarly affect a wide variety of companies throughout the United States and the world, and because our results of operations are
heavily dependent on significant amounts of raw materials, these initiatives could have an indirect adverse impact on our Financial
Performance to the extent the manufacturers and suppliers of our materials are burdened with expensive cap and trade or other climate
related regulations.
As a result, climate change impacts, and laws and land development and home construction standards, and/or the manner in
which they are interpreted or implemented, to address potential climate change concerns could increase our costs and have a long-term
adverse impact on our Financial Performance. This is a particular concern in the western United States, where some of the most
extensive and stringent environmental laws and residential building construction standards in the country have been enacted. For
example, California has enacted the Global Warming Solutions Act of 2006 to achieve the goal of reducing greenhouse gas emissions
to 1990 levels by 2020. As a result, California has adopted and is expected to continue to adopt significant regulations to meet this
goal.
We may be unable to develop our communities successfully or within expected timeframes.
Before a community generates any revenue, time and material expenditures are required to acquire land, obtain development
approvals and construct significant portions of project infrastructure, amenities, model homes and sales facilities. It can take several
years from the time we acquire control of a property to the time we makes our first home sale on the site. Our costs or the time
required to complete development of our communities could increase beyond our estimates after commencing the development
process. Delays in the development of communities expose us to the risk of changes in market conditions for homes. A decline in our
ability to successfully develop and market our communities and to generate positive cash flow from these operations in a timely
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manner could materially and adversely affect our Financial Performance and our ability to service our debt and to meet our working
capital requirements.
Poor relations with the residents of our communities could negatively impact our sales and reputation.
Residents of communities developed by us rely on us to resolve issues or disputes that may arise in connection with the
operation or development of our communities. Efforts we make to resolve these issues or disputes could be deemed unsatisfactory by
the affected residents, and subsequent actions by these residents could materially and adversely affect sales and our reputation. In
addition, we could be required to make material expenditures related to the settlement of such issues or disputes or to modify our
community development plans, which could materially and adversely affect our Financial Performance.
The homebuilding industry is highly competitive, and if our competitors are more successful or offer better value to potential
homebuyers, our business could decline.
We operate in a very competitive environment that is characterized by competition from a number of other homebuilders and
land developers in each geographical market in which we operate. There are relatively low barriers to entry into our business. We
compete with numerous large national and regional homebuilding companies and with smaller local homebuilders and land developers
for, among other things, homebuyers, desirable land parcels, financing, raw materials and skilled management and labor resources. If
we are unable to compete effectively in our markets, our business could decline disproportionately to the businesses of our
competitors and our Financial Performance could be materially and adversely affected.
Increased competition could hurt our business by preventing us from acquiring attractive land parcels on which to build homes
or making acquisitions more expensive, hindering our market share expansion and causing us to increase our selling incentives and
reduce our prices. Additionally, an oversupply of homes available for sale or a discounting of home prices could materially and
adversely affect pricing for homes in the markets in which we operate.
We also compete with the resale, or “previously owned,” home market, the size of which may change significantly as result of
changes in the rate of home foreclosures, which is affected by changes in economic conditions both nationally and locally.
We may be at a competitive disadvantage with respect to larger competitors whose operations are more geographically
diversified than ours, as these competitors may be better able to withstand any future regional downturn in the housing market. Due to
historical and other factors, some competitors may have a competitive advantage in marketing their products, securing materials and
labor at lower prices and allowing their homes to be delivered to homebuyers more quickly and at more favorable prices. This
competitive advantage could materially and adversely reduce our market share and limit our ability to continue to expand our business
as planned.
Increases in our cancellation rate could have a negative impact on our home sales revenue and homebuilding margins.
Our backlog reflects homes that may close in future periods. We have received a deposit from a homebuyer for each home
reflected in our backlog, and generally we have the right, subject to certain exceptions, to retain the deposit if the homebuyer fails to
comply with his or her obligations under the purchase contract, including as a result of state and local law, the homebuyer’s inability
to sell his or her current home or the homebuyer’s inability to make additional deposits required under the purchase contract. Home
order cancellations can result from a number of factors, including declines or slow appreciation in the market value of homes,
increases in the supply of homes available to be purchased, increased competition and use of sales incentives by competitors, higher
mortgage interest rates, homebuyers’ inability to sell their existing homes, homebuyers’ inability to obtain suitable mortgage financing,
including providing sufficient down payments, and adverse changes in local, regional or national economic conditions. In these
circumstances, homebuyers may terminate their existing purchase contracts in order to negotiate for a lower price or because they
cannot, or will not, complete the purchase. Our cancellation rate was consistent at 16% for each of the years ended December 31, 2015
and 2014.
Cancellation rates may rise significantly in the future. If uncertain economic conditions continue, if mortgage financing becomes
less available or if current homeowners find it difficult to sell their current homes, more homebuyers may cancel their purchase
contracts. An increase in the level of home order cancellations could have a material and adverse impact on our Financial Performance.
Homebuilding is subject to products liability, home warranty and construction defect claims and other litigation in the
ordinary course of business that can be significant and may not be covered by insurance.
As a homebuilder, we are currently subject to home warranty, products liability and construction defect claims arising in the
ordinary course of business, in addition to other potentially significant lawsuits, arbitration proceedings and other claims, including
breach of contract claims, contractual disputes, personal injury claims and disputes relating to defective title or property
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misdescription. In connection with the Merger, we also assumed responsibility for a substantial amount of WRECO’s pending and
potential lawsuits, arbitration proceedings and other claims, as well as any future claims relating to WRECO. Furthermore, since
WRECO self-insured a significant portion of its general liability exposure relating to its operations outside of California and Nevada
prior to the Merger, it is likely that most of these claims will not be covered by insurance.
There can be no assurance that any current or future developments undertaken by us will be free from defects once completed.
Construction defects may occur on projects and developments and may arise during a significant period of time after completion.
Defects arising on a development attributable to us may lead to significant contractual or other liabilities. For these and other reasons,
we establish warranty, claim and litigation reserves that we believe are adequate based on historical experience in the markets in
which we operate and judgment of the risks associated with the types of homes, lots and land we sell. We also obtain indemnities and
insurance as an “additional insured” from contractors and subcontractors generally covering claims related to damages resulting from
faulty workmanship and materials.
With respect to certain general liability exposures, including construction defects and related claims and product liability claims,
interpretation of underlying current and future trends, assessment of claims and the related liability and reserve estimation process
require us to exercise significant judgment due to the complex nature of these exposures, with each exposure often exhibiting unique
circumstances. Furthermore, once claims are asserted for construction defects, it is difficult to determine the extent to which the
assertion of these claims will expand geographically. Plaintiffs may seek to consolidate multiple parties in one lawsuit or seek class
action status in some of these legal proceedings with potential class sizes that vary from case to case. Consolidated and class action
lawsuits can be costly to defend and, if we were to lose any consolidated or certified class action suit, it could result in substantial
liability.
In addition to difficulties with respect to claim assessment and liability and reserve estimation, some types of claims may not be
covered by insurance or may exceed applicable coverage limits. Furthermore, contractual indemnities with contractors and
subcontractors can be difficult to enforce, and we may also be responsible for applicable self-insured retentions with respect to our
insurance policies. This is particularly true in our markets where we include our subcontractors on our general liability insurance and
our ability to seek indemnity for insured claims is significantly limited. Furthermore, any product liability or warranty claims made
against us, whether or not they are viable, may lead to negative publicity, which could impact our reputation and future home sales.
We also currently conduct a material portion of our business in California, one of the most highly regulated and litigious
jurisdictions in the United States, which imposes a ten year, strict liability tail on many construction liability claims. As a result, our
potential losses and expenses due to litigation, new laws and regulations may be greater than those of our competitors who have
smaller California operations.
For these reasons, although we actively manage our claims and litigation and actively monitor our reserves and insurance
coverage, because of the uncertainties inherent in these matters, we cannot provide assurance that our insurance coverage, indemnity
arrangements and reserves will be adequate to cover liability for any damages, the cost of repairs and litigation, or any other related
expenses surrounding the current claims to which we are subject or any future claims that may arise. Such damages and expenses, to
the extent that they are not covered by insurance or redress against contractors and subcontractors, could materially and adversely
affect our Financial Performance.
Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties for reasonable
prices in response to changing economic, financial and investment conditions may be limited and we may be forced to hold non-
income producing properties for extended periods of time.
Real estate investments are relatively difficult to sell quickly. As a result, our ability to promptly sell one or more properties in
response to changing economic, financial and investment conditions is limited and we may be forced to hold non-income producing
assets for an extended period of time. We cannot predict whether we will be able to sell any property for the price or on the terms that
we set or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the
length of time needed to find a willing purchaser and to close the sale of a property.
Fluctuations in real estate values may require us to write-down the book value of our real estate assets.
The homebuilding industry is subject to significant variability and fluctuations in real estate values. As a result, we may be
required to write-down the book value of our real estate assets in accordance with GAAP, and some of those write-downs could be
material. Any material write-downs of assets could have a material adverse effect on our Financial Performance.
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The geographic concentration of our operations in certain regions subjects us to an increased risk of loss of revenue or
decreases in the market value of our land and homes in those regions from factors which may affect any of those regions.
Our operations are currently confined to Arizona, California, Colorado, Maryland, Nevada, Texas, Virginia and Washington.
Because our operations are limited to these areas, a prolonged economic downturn in one or more of these areas, particularly within
California, could have a material adverse effect on our Financial Performance and could have a disproportionately greater impact on
us than other homebuilders with more diversified operations. Moreover, some or all of these regions could be affected by:
severe weather;
natural disasters (such as earthquakes or fires);
shortages in the availability of, or increased costs in obtaining, land, equipment, labor or building supplies;
changes to the population growth rates and therefore the demand for homes in these regions; and
changes in the regulatory and fiscal environment.
For the years ended December 31, 2015 and 2014, respectively, we generated a significant amount of our revenues and profits
from our California real estate inventory. During the downturn from 2008 to 2010, land values, the demand for new homes and home
prices declined substantially in California. In addition, California is facing significant unfunded liabilities and may raise taxes and
increase fees to meet these obligations. If these conditions in California persist or worsen, it could materially and adversely affect our
Financial Performance.
Inflation could materially and adversely affect us by increasing the costs of land, raw materials and labor, negatively
impacting housing demand, raising our costs of capital, and decreasing our purchasing power.
Inflation could materially and adversely affect us by increasing costs of land, raw materials and labor. We may respond to
inflation by increasing the sales prices of land or homes in order to offset any such increases in costs, maintain satisfactory margins or
realize a satisfactory return on our investment. However, if the market has an oversupply of homes relative to demand, prevailing
market prices may prevent us from doing so. In addition, inflation is often accompanied by higher interest rates, which historically
have had a negative impact on housing demand and the real estate industry generally and which could materially and adversely impact
potential homebuyers’ ability to obtain mortgage financing on favorable terms. In such an environment, we may not be able to raise
prices sufficiently to keep up with the rate of inflation and our margins and returns could decrease. Additionally, if we are required to
lower home prices to meet demand, the value of our land inventory may decrease. Inflation may also raise our costs of capital and
decrease our purchasing power, making it more difficult to maintain sufficient funds to operate our business. Current or future efforts
by the government to stimulate the economy may increase the risk of significant inflation and its adverse impact on our Financial
Performance.
Acts of war, terrorism or outbreaks of contagious disease may seriously harm our business.
Acts of war, any outbreak or escalation of hostilities between the United States and any foreign power, acts of terrorism, or
outbreaks of contagious diseases such as Ebola may cause disruption to the U.S. economy, or the local economies of the markets in
which we operate, cause shortages of building materials, increase costs associated with obtaining building materials, result in building
code changes that could increase costs of construction, affect job growth and consumer confidence, or cause economic changes that
we cannot anticipate, all of which could reduce demand for our homes and materially and adversely impact our Financial
Performance.
Laws and regulations governing the residential mortgage and title insurance industries could materially and adversely affect
our Financial Performance.
We recently established a joint venture to provide mortgage related services to homebuyers and a wholly-owned title
agency. The residential mortgage lending and title insurance industries are each heavily regulated. Changes to existing laws or
regulations or adoption of new laws or regulations could require us to incur significant compliance costs. A material failure to comply
with any of these laws or regulations could result in the loss or suspension of required licenses or other approvals, the imposition of
monetary penalties, and restitution awards or other relief. In addition, we could be subject to individual or class action litigation
alleging violations of these laws and regulations. Any of these could result in substantial costs and we could incur judgments or enter
into settlements of claims that could have a material adverse effect on our business. Any of these outcomes could materially and
adversely affect our Financial Performance.
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Deliveries of homes may be delayed as a result of lender compliance with a new rule governing the content and timing of
mortgage loan disclosures to borrowers.
The Consumer Financial Protection Bureau (CFPB) has adopted a new rule governing the content and timing of mortgage loan
disclosures to borrowers. This new rule, commonly known as TILA-RESPA Integrated Disclosures or TRID, became effective on
October 3, 2015. Lender compliance with TRID could result in delays in loan closings and the delivery of homes that materially and
adversely affect our Financial Performance.
We are subject to other litigation, which could materially and adversely affect us.
Lawsuits, claims and proceedings have been, or in the future may be, instituted or asserted against us in the normal course of
business. Moreover, in connection with the Merger, we also assumed responsibility for a substantial amount of WRECO’s pending
and potential lawsuits, arbitration proceedings and other claims, as well as any future claims relating to WRECO. Some of these
claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be,
insured against. We generally intend to defend ourselves vigorously. However, we cannot be certain of the ultimate outcomes of any
claims that may arise. To resolve these matters, we may have to pay significant fines, judgments, or settlements, which, if uninsured,
or if the fines, judgments and settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby
materially and adversely affect our Financial Performance. Certain litigation or the resolution of certain litigation may affect the
availability or cost of some of our insurance coverage, which could materially and adversely impact us, expose us to increased risks
that would be uninsured, and materially and adversely impact our ability to attract directors and officers. Uncertainty with respect to
claims or litigation may adversely affect the availability and costs of future financings and may materially and adversely affect the
trading prices of our outstanding securities.
Information technology failures and data security breaches could harm our business.
We use information technology and other computer resources to carry out important operational and marketing activities as well
as maintain our business records. Many of these resources are provided to us or are maintained on our behalf by third-party service
providers pursuant to agreements that specify certain security and service level standards. Our ability to conduct our business may be
materially and adversely impaired if our computer resources are compromised, degraded, damaged or fail, whether due to a virus or
other harmful circumstance, intentional penetration or disruption of our information technology resources by a third-party, natural
disaster, hardware or software corruption or failure or error (including a failure of security controls incorporated into or applied to
such hardware or software), telecommunications system failure, service provider error or failure, intentional or unintentional personnel
actions (including the failure to follow our security protocols), or lost connectivity to its networked resources.
A significant and extended disruption in the functioning of these resources could damage our reputation and cause us to lose
homebuyers, sales and revenue, result in the unintended public disclosure or the misappropriation of proprietary, personal and
confidential information (including information about our homebuyers and business partners), and require us to incur significant
expense to address and resolve these kinds of issues. The release of confidential information may also lead to litigation or other
proceedings against us by affected individuals, business partners and/or regulators, and the outcome of such proceedings, which could
include penalties or fines, could materially and adversely affect our Financial Performance. In addition, the costs of maintaining
adequate protection against such threats, depending on their evolution, pervasiveness and frequency and/or government-mandated
standards or obligations regarding protective efforts, could be material to our Financial Performance.
A major health and safety incident relating to our business could be costly in terms of potential liabilities and reputational
damage.
Building sites are inherently dangerous, and operating in the homebuilding and land development industry poses certain inherent
health and safety risks. Due to health and safety regulatory requirements and the number of our projects, health and safety
performance is critical to the success of all areas of our business.
Any failure in health and safety performance may result in penalties for non-compliance with relevant regulatory requirements
or litigation, and a failure that results in a major or significant health and safety incident is likely to be costly in terms of potential
liabilities incurred as a result. Such a failure could generate significant negative publicity and have a corresponding impact on our
reputation, our relationships with relevant regulatory agencies, governmental authorities and local communities, and our ability to win
new business, which in turn could materially and adversely affect our Financial Performance.
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Risks Related to the Merger
For additional information concerning the WRECO transaction, please refer to Note 1, Organization and Summary of
Significant Accounting Policies, and Note 2, Merger with Weyerhaeuser Real Estate Company, of the notes to our consolidated
financial statements included elsewhere in this annual report on Form 10-K.
Our tax sharing agreement with WRECO’s former parent restricts our ability to undertake significant actions.
In connection with the WRECO transaction, we entered into a tax sharing agreement (the “Tax Sharing Agreement”) with
Weyerhaeuser. The Tax Sharing Agreement generally restricts our and our affiliates’ ability to take certain actions that could cause
the Merger and related transactions to fail to qualify as tax-free transactions. In particular, for a two-year period following the Closing
Date, our and our affiliates’ ability to undertake any of the following is restricted:
enter into any agreement, understanding or arrangement pursuant to which any person would (directly or indirectly)
acquire, or have the right to acquire, our capital stock or WRECO capital stock (excepting certain limited circumstances
set forth in the Tax Sharing Agreement);
merge or consolidate TRI Pointe or WRECO with any other person;
liquidate or partially liquidate TRI Pointe or WRECO;
cause or permit TRI Pointe or WRECO to be treated as other than a corporate taxpayer for U.S. federal income tax
purposes; or
cause or permit WRECO to discontinue its engagement in the Real Estate Business (as defined in the Transaction
Agreement).
If we intend to take any such restricted action, Weyerhaeuser will be required to cooperate with us in obtaining an Internal
Revenue Service ruling or an unqualified tax opinion reasonably acceptable to Weyerhaeuser to the effect that such action will not
affect the status of the transactions as tax-free transactions. However, if we take any of the actions above and those actions result in
tax-related losses to Weyerhaeuser, then we generally will be required to indemnify Weyerhaeuser for such losses, without regard to
whether Weyerhaeuser had given us prior consent.
Due to these restrictions and indemnification obligations under the Tax Sharing Agreement, we will be limited in our ability to
pursue strategic transactions, equity or convertible debt financings or other transactions that may otherwise be in our best interests.
Also, our potential indemnity obligation to Weyerhaeuser might discourage, delay or prevent a change of control during this two-year
period that our stockholders may consider favorable to our ability to pursue strategic transactions, equity or convertible debt
financings or other transactions that may otherwise be in our best interests.
The historical financial information of WRECO may not be representative of its results or financial condition if it had been
operated independently of Weyerhaeuser and, as a result, is not a reliable indicator of its future results.
As discussed in Note 1, Organization and Summary of Significant Accounting Policies, of the notes to our consolidated financial
statements included elsewhere in this annual report on Form 10-K, the Merger is treated as a “reverse acquisition” and WRECO is
considered the accounting acquirer. Accordingly, WRECO is reflected as the predecessor and acquirer and therefore consolidated
financial statements included in this annual report on Form 10-K reflect the historical consolidated financial statements of WRECO
for all periods presented and do not include the historical financial statements of legacy TRI Pointe prior to the Closing Date. Prior to
the consummation of the Merger, WRECO was a business segment of Weyerhaeuser. Consequently, the historical financial
information included in this annual report on Form 10-K was derived from the consolidated financial statements and accounting
records of WRECO and reflects all direct costs as well as assumptions and allocations made by management of Weyerhaeuser. The
financial position, results of operations and cash flows of WRECO presented may be different from those that would have resulted had
WRECO been operated independently of Weyerhaeuser during the applicable periods or at the applicable dates. For example, in
preparing the financial statements of WRECO, Weyerhaeuser made allocations of Weyerhaeuser corporate general and administrative
expense deemed to be attributable to WRECO. However, these allocations reflect the corporate general and administrative expense
attributable to WRECO operated as part of a larger organization and do not necessarily reflect the corporate general and administrative
expense that would be incurred by WRECO had it been operated independently. Further, WRECO’s historical financial information
does not reflect changes in WRECO’s operations that occurred in connection with the Merger. As a result, the historical financial
information of WRECO is not a reliable indicator of future results.
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Risks Related to Conflicts of Interest
The Starwood Fund has the right to nominate one member of our board of directors and its interests may not be aligned with
other stockholders.
Pursuant to an Investor Rights Agreement, VII/TPC Holdings, L.L.C., a private equity fund managed by an affiliate of the
Starwood Capital Group (the “Starwood Fund”), has the right to nominate one member of our board of directors for as long as it owns
at least 5% of our outstanding common stock. The Starwood Fund’s interests may not be fully aligned with other stockholders and
this could lead to a strategy that is not in the best interests of other stockholders. Barry Sternlicht, our Chairman of the Board, is also
the Chairman and Chief Executive Officer of Starwood Capital Group and Chris Graham, another member of our board of directors, is
also a Senior Managing Director at Starwood Capital Group. As a result, Messrs. Sternlicht and Graham will devote only a portion of
their business time to their duties with our board of directors and will devote a majority of their business time to their duties with
Starwood Capital Group and its affiliates and other commitments. Moreover, we have engaged, and in the future may engage in
transactions, such as land purchases, with Starwood Capital Group, Starwood Property Trust (which is managed by Starwood Capital
Group) or their affiliates that could present an actual or perceived conflict of interest. As a result, Messrs. Sternlicht and Graham may
recuse themselves from actions of our board of directors with respect to approval of these transactions. See Note 18, Related Party
Transactions, of the notes to our consolidated financial statements included elsewhere in this annual report on Form 10-K
As previously disclosed in a Form 8-K that we filed with the SEC on September 5, 2014, the Starwood Fund has informed us
that it has pledged certain of its shares of our common stock as collateral in connection with a margin loan. We are not a party to the
margin loan documents; however, a foreclosure on the pledged shares could materially and adversely affect the price of our common
stock. In addition, the pledged shares of our common stock and margin loan could present an actual or perceived conflict of interest
with respect to Messrs. Sternlicht and Graham.
Risks Related to Our Indebtedness
Our use of leverage in executing our business strategy exposes us to significant risks.
We employ what we believe to be prudent levels of leverage to finance the acquisition and development of our lots and
construction of our homes. Our existing indebtedness is recourse to us and we anticipate that future indebtedness will likewise be
recourse.
Our board of directors considers a number of factors when evaluating our level of indebtedness and when making decisions
regarding the incurrence of new indebtedness, including the purchase price of assets to be acquired with debt financing, the estimated
market value of such assets and the ability of the particular assets, and our company as a whole, to generate cash flow to cover the
expected debt service. As a means of sustaining our long-term financial health and limiting our exposure to unforeseen dislocations in
the debt and financing markets, we currently expect to remain conservatively capitalized. However, our charter does not contain a
limitation on the amount of debt we may incur, and our board of directors may change target debt levels at any time without the
approval by our stockholders.
Incurring substantial debt could subject us to many risks that, if realized, would materially and adversely affect our Financial
Performance, including the risks that:
it may be more difficult for us to satisfy our obligations with respect to our debt or to our other creditors;
our cash flow from operations may be insufficient to make required payments of principal of and interest on our debt,
which is likely to result in acceleration of our debt;
our debt may increase our vulnerability to adverse economic and industry conditions, including fluctuations in market
interest rates, with no assurance that investment yields will increase with higher financing cost, particularly in the case of
debt with a floating interest rate;
our debt may limit our ability to obtain additional financing to fund capital expenditures and acquisitions, particularly
when the availability of financing in the capital markets is limited;
we may be required to dedicate a portion of our cash flow from operations to payments on our debt, thereby reducing
funds available for operations and capital expenditures, future investment opportunities or other purposes;
in the case of secured indebtedness, we could lose our ownership interests in our land parcels or other assets because
defaults thereunder may result in foreclosure actions initiated by lenders;
our debt may limit our ability to buy back our common stock or pay cash dividends;
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our debt may limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we
operate, thereby limiting our ability to compete with companies that are not as highly leveraged; and
the terms of any refinancing may not be as favorable as the terms of the debt being refinanced.
We cannot make any assurances that our business will generate sufficient cash flow from operations or that future borrowings
will be available to us through capital markets financings or otherwise in an amount sufficient to enable us to service or refinance our
indebtedness, or to fund our other liquidity needs. We may also need to refinance all or a portion of our existing or future indebtedness
on or before its maturity, and we cannot make any assurances that we will be able to refinance any of our indebtedness on
commercially reasonable terms or at all. If, at the time of any refinancing, prevailing interest rates or other factors result in higher
interest rates on the refinanced debt, increases in interest expense could materially and adversely affect our Financial Performance. If
we are unable to refinance our debt on acceptable terms, we may be forced to dispose of our assets on disadvantageous terms,
potentially resulting in significant losses.
We may incur additional indebtedness in order to finance our operations or to repay existing indebtedness. If we cannot service
our indebtedness, we will risk losing to foreclosure some or all of our assets that may be pledged to secure our obligations and we may
have to take actions such as selling assets, seeking additional debt or equity financing or reducing or delaying capital expenditures,
strategic acquisitions, investments and alliances. We cannot make any assurances that any such actions, if necessary, could be effected
on commercially reasonable terms or at all, or on terms that would be advantageous to our stockholders or on terms that would not
require us to breach the terms and conditions of our existing or future debt agreements. Additionally, unsecured debt agreements may
contain specific cross-default provisions with respect to specified other indebtedness, giving the unsecured lenders the right to declare
a default if we are in default under other loans in some circumstances. Defaults under our debt agreements could materially and
adversely affect our Financial Performance.
We may require significant additional capital in the future and may not be able to secure adequate funds on acceptable terms.
The expansion and development of our business may require significant additional capital, which we may be unable to obtain, to
fund our operating expenses, including working capital needs.
We may fail to generate sufficient cash flow from the sales of our homes and land to meet our cash requirements. To a large
extent, our cash flow generation ability is subject to general economic, financial, competitive, legislative and regulatory factors and
other factors that are beyond our control. Further, our capital requirements may vary materially from those currently planned if, for
example, our revenues do not reach expected levels or we have to incur unforeseen capital expenditures and make investments to
maintain our competitive position. If this is the case, we may need to refinance all or a portion of our debt on or before its maturity, or
obtain additional equity or debt financing sooner than anticipated, which could materially and adversely affect our liquidity and
financial condition if financing cannot be secured on reasonable terms. As a result, we may have to delay or abandon some or all of
our development and expansion plans or otherwise forego market opportunities.
Our access to additional third-party sources of financing will depend, in part, on:
general market conditions;
the market’s perception of our growth potential, including relative to other opportunities;
with respect to acquisition and/or development financing, the market’s perception of the value of the land parcels to be
acquired and/or developed;
our current debt levels;
our current and expected future earnings;
our cash flow;
pending litigation and claims; and
the market price per share of our common stock.
During the recent economic downturn, domestic financial markets experienced unusual volatility, uncertainty and a restricting
of liquidity in both the debt and equity capital markets. Credit spreads for major sources of capital widened significantly during the
U.S. credit crisis as investors demanded a higher risk premium. In the event of another economic downturn or if general economic
conditions should worsen, potential lenders may be unwilling or unable to provide us with suitable financing or may charge us
prohibitively high fees in order to obtain financing. Moreover, due to the restrictions under the Tax Sharing Agreement, we are also
currently limited in our ability to pursue equity or convertible debt financings. As a result, depending on market conditions at the
relevant time, we may have to rely more heavily on less efficient forms of debt financing that require a larger portion of our cash flow
33
from operations to service, thereby reducing funds available for our operations, future business opportunities and other purposes.
Consequently, there is substantial uncertainty regarding our ability to access the credit and capital markets in order to attract financing
on reasonable terms. Investment returns on our assets and our ability to make acquisitions could be materially and adversely affected
by our inability to secure additional financing on reasonable terms, if at all. Additionally, if we cannot obtain additional financing to
fund the purchase of land under our option contracts or purchase contracts, we may incur contractual penalties and fees. Any difficulty
in obtaining sufficient capital for planned development expenditures could also cause project delays and any such delay could result in
cost increases. Any of the foregoing factors could materially and adversely affect our Financial Performance.
Our current financing arrangements contain, and our future financing arrangements likely will contain, restrictive
covenants relating to our operations.
Our current financing arrangements contain, and the financing arrangements we may enter into in the future will likely contain,
covenants affecting our ability to, among other things:
incur or guarantee additional indebtedness;
make certain investments;
reduce liquidity below certain levels;
pay dividends or make distributions on our capital stock;
sell assets, including capital stock of restricted subsidiaries;
agree to payment restrictions affecting our restricted subsidiaries;
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
enter into transactions with our affiliates;
incur liens;
engage in sale-leaseback transactions; and
designate any of our subsidiaries as unrestricted subsidiaries.
If we fail to meet or satisfy any of these covenants in our debt agreements, we would be in default under these agreements,
which could result in a cross-default under other debt agreements, and our lenders could elect to declare outstanding amounts due and
payable, terminate their commitments, require the posting of additional collateral and enforce their respective interests against existing
collateral. A default also could significantly limit our financing alternatives, which could cause us to curtail our investment activities
and/or dispose of assets when we otherwise would not choose to do so. If we default on several of our debt agreements or any single
significant debt agreement, it could materially and adversely affect our Financial Performance. These and certain other restrictions
could also limit our ability to plan for or react to market conditions, meet capital needs or make acquisitions or otherwise restrict our
activities or business plans.
Higher interest rates may materially and adversely affect our Financial Performance.
We employ what we believe to be prudent levels of leverage to finance the acquisition and development of our lots and
construction of our homes. Some of our current debt has, and any additional debt we subsequently incur may have, a floating rate of
interest. Higher interest rates could increase debt service requirements on our current floating rate debt and on any floating rate debt
we may subsequently incur, and could reduce funds available for operations, future business opportunities or other purposes. If we
need to repay existing debt during periods of rising interest rates, we could be required to refinance our then-existing debt on
unfavorable terms, or liquidate one or more of our assets to repay such debt at times which may not permit realization of the maximum
return on such assets and could result in a loss. The occurrence of either or both of these events could materially and adversely affect
our Financial Performance.
Failure to hedge effectively against interest rate changes may materially and adversely affect our Financial Performance.
We may obtain one or more forms of interest rate protection—in the form of swap agreements, interest rate cap contracts or
similar agreements—to hedge against the possible negative effects of interest rate fluctuations. However, we cannot assure
stockholders that any hedging will adequately relieve the adverse effects of interest rate increases or that counterparties under these
agreements will honor their obligations thereunder. In addition, we may be subject to risks of default by hedging counterparties.
Adverse economic conditions could also cause the terms on which we borrow to be unfavorable. We could be required to liquidate one
or more of our assets at times which may not permit us to receive an attractive return on our assets in order to meet our debt service
obligations. Failure of our hedging mechanisms could materially and adversely affect our Financial Performance.
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Risks Related to Our Organization and Structure
We are and will continue to be dependent on key personnel and certain members of our management team.
Our business involves complex operations and requires a management team and employee workforce that is knowledgeable and
expert in many areas necessary for its operations. Our success and ability to obtain, generate and manage opportunities depends to a
significant degree upon the contributions of key personnel, including, but not limited to, Douglas Bauer, our Chief Executive Officer,
Thomas Mitchell, our President and Chief Operating Officer, and Michael Grubbs, our Chief Financial Officer and Treasurer. Our
investors must rely to a significant extent upon the ability, expertise, judgment and discretion of this management team and other key
personnel, and their loss or departure could be detrimental to our future success. Although we have entered into employment
agreements with Messrs. Bauer, Mitchell and Grubbs, there is no guarantee that these executives will remain employed with us and we
have not adopted a succession plan. Additionally, key employees working in the real estate, homebuilding and construction industries
are highly sought after and failure to attract and retain such personnel may materially and adversely affect the standards of our future
service and may have a material and adverse impact on our Financial Performance.
Our ability to retain our management team and key personnel or to attract suitable replacements should any members of our
management team leave is dependent on the competitive nature of the employment market. The loss of services from any member of
our management team or key personnel, or the potential that they could have competing obligations and will only spend a portion of
their time working for us, could materially and adversely impact our Financial Performance. Further, the process of attracting and
retaining suitable replacements for key personnel whose services we may lose would result in transition costs and would divert the
attention of other members of our management from existing operations. Moreover, such a loss could be negatively perceived in the
capital markets.
Although we are currently considering our insurance coverage, we have not obtained key man life insurance that would provide
us with proceeds in the event of death or disability of any of our key personnel.
Termination of the employment agreements with the members of our management team could be costly and prevent a
change in control of our company.
Our employment agreements with Messrs. Bauer, Mitchell and Grubbs each provide that if their employment with us terminates
under certain circumstances, we may be required to pay them significant amounts of severance compensation, thereby making it costly
to terminate their employment. Furthermore, these provisions could delay or prevent a transaction or a change in control of our
company that might involve a premium paid for shares of our common stock or otherwise be in the best interests of our stockholders,
which could adversely affect the market price of our common stock.
Certain anti-takeover defenses and applicable law may limit the ability of a third-party to acquire control of us.
Our charter and bylaws and Delaware law contain provisions that may delay or prevent a transaction or a change in control of
our company that might involve a premium paid for shares of our common stock or otherwise be in the best interests of our
stockholders, which could adversely affect the market price of our common stock. Certain of these provisions are described below.
Selected provisions of our charter and bylaws.
Our charter and/or bylaws contain anti-takeover provisions that:
authorize our board of directors, without further action by the stockholders, to issue up to 50,000,000 shares of preferred
stock in one or more series, and with respect to each series, to fix the number of shares constituting that series and
establish the rights and other terms of that series;
require that actions to be taken by our stockholders may be taken only at an annual or special meeting of our stockholders
and not by written consent;
specify that special meetings of our stockholders can be called only by our board of directors, the chairman of our board
of directors or our chief executive officer (or if there is no chief executive officer, the president);
establish advance notice procedures for stockholders to submit nominations of candidates for election to our board of
directors and other proposals to be brought before a stockholders meeting;
provide that our bylaws may be amended by our board of directors without stockholder approval;
allow our directors to establish the size of our board of directors by action of our board, subject to a minimum of three
members;
35
provide that vacancies on our board of directors or newly created directorships resulting from an increase in the number of
our directors may be filled only by a majority of directors then in office, even though less than a quorum;
do not give the holders of our common stock cumulative voting rights with respect to the election of directors; and
prohibit us from engaging in certain business combinations with any “interested stockholder” unless specified conditions
are satisfied as described below under “—Selected provisions of Delaware law.”
Selected provisions of Delaware law.
We have opted out of Section 203 of the Delaware General Corporation Law, which regulates corporate takeovers. However,
our charter contains provisions that are similar to Section 203. Specifically, our charter provides that we may not engage in certain
“business combinations” with any “interested stockholder” for a three-year period following the time that the person became an
interested stockholder, unless:
prior to the time that person became an interested stockholder, our board of directors approved either the business
combination or the transaction which resulted in the person becoming an interested stockholder;
upon consummation of the transaction which resulted in the person becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced,
excluding certain shares; or
at or subsequent to the time the person became an interested stockholder, the business combination is approved by our
board of directors and by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
Generally, a business combination includes a merger, consolidation, asset or stock sale or other transaction resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions, an interested stockholder is a person who, together with
that person’s affiliates and associates, owns, or within the previous three years owned, 15% or more of our voting stock. However, in
the case of our company, the Starwood Fund and any of its affiliates and subsidiaries and any of their permitted transferees receiving
15% or more of our voting stock will not be deemed to be interested stockholders regardless of the percentage of our voting stock
owned by them. This provision could prohibit or delay mergers or other takeover or change in control attempts with respect to us and,
accordingly, may discourage attempts to acquire us.
We may change our operational policies, investment guidelines and our business and growth strategies without stockholder
consent, which may subject us to different and more significant risks in the future.
Our board of directors will determine our operational policies, investment guidelines and our business and growth strategies.
Our board of directors may make changes to, or approve transactions that deviate from, those policies, guidelines and strategies
without a vote of, or notice to, our stockholders. This could result in us conducting operational matters, making investments or
pursuing different business or growth strategies than those contemplated currently. Under any of these circumstances, we may expose
ourselves to different and more significant risks in the future, which could have a material adverse effect on our Financial
Performance.
If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial
results or prevent fraud. As a result, our stockholders could lose confidence in our financial results, which could materially and
adversely affect us and the market price of our common stock.
A system of internal control over financial reporting, no matter how well conceived and operated can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. The design of control systems reflects resource constraints
and the benefits of controls must be considered in relationship to their costs. Accordingly, there can be no assurance that all control
issues or fraud will be detected. We cannot be certain that we will be successful in maintaining adequate internal control over our
financial reporting and financial processes. Furthermore, as we continue to grow our business, our internal controls will become more
complex, and we will require significantly more resources to ensure that our internal controls remain effective. Additionally, the
existence of any material weakness or significant deficiency would require management to devote significant time and incur
significant expense to remediate any such material weaknesses, or significant deficiencies and management may not be able to
remediate any such material weaknesses or significant deficiencies in a timely manner. There is no assurance that our independent
auditor will be able to provide an unqualified attestation report on internal control over financial reporting in future years. If our
independent auditor is unable to provide an unqualified attestation report, investors could lose confidence in the reliability of our
financial statements, and our stock price could be materially and adversely affected. The existence of any material weakness in our
internal control over financial reporting could result in errors in our financial statements that could require us to restate our financial
36
statements, cause us to fail to meet our reporting obligations, and cause stockholders to lose confidence in our reported financial
information, all of which could materially and adversely affect us and the market price for our common stock.
Changes in accounting rules, assumptions and/or judgments could delay the dissemination of our financial statements and
cause us to restate prior period financial statements.
Accounting rules and interpretations for certain aspects of our operations are highly complex and involve significant
assumptions and judgment. These complexities could lead to a delay in the preparation and dissemination of our financial statements.
Furthermore, changes in accounting rules and interpretations or in our accounting assumptions and/or judgments, such as asset
impairments, could significantly impact our financial statements. In some cases, we could be required to apply a new or revised
standard retroactively, resulting in restating prior period financial statements. Any of these circumstances could have a material
adverse effect on our Financial Performance.
Our joint venture investments could be materially and adversely affected by lack of sole decision making authority, reliance
on co-venturers’ financial condition and disputes between us and our co-venturers.
We have co-invested, and we may co-invest in the future, with third parties through partnerships, joint ventures or other entities,
acquiring non-controlling interests in or sharing responsibility for managing the affairs of land acquisition and/or developments. We
will not be in a position to exercise sole decision-making authority regarding the land acquisitions and/or developments undertaken by
our current joint ventures and any future joint ventures in which we may co-invest, and our investment may be illiquid due to our lack
of control. Investments in partnerships, joint ventures or other entities may, under certain circumstances, involve risks not present
when a third-party is not involved, including the possibility that partners or co-venturers might become bankrupt, fail to fund their
share of required capital contributions or otherwise meet their contractual obligations, make poor business decisions or block or delay
necessary decisions. Partners or co-venturers may have economic or other business interests or goals which are inconsistent with our
business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may also
have the potential risk of impasses on decisions, such as a sale, because neither us nor the partner or co-venturer would have full
control over the partnership or joint venture. Disputes between us and partners or co-venturers may result in litigation or arbitration
that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. In
addition, we may in certain circumstances be liable for the actions of its third-party partners or co-venturers.
Risks Related to Ownership of Our Common Stock
We do not intend to pay dividends on our common stock for the foreseeable future.
We currently intend to retain our future earnings, if any, to finance the development and expansion of our business and,
therefore, do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination to pay
dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital
requirements, restrictions contained in any financing instruments and such other factors as our board of directors deems relevant.
Accordingly, stockholders may need to sell their shares of our common stock to realize a return on their investment, and stockholders
may not be able to sell their shares at or above the price they paid for them.
Future sales of our common stock or other securities convertible into our common stock could cause the market value of our
common stock to decline and could result in dilution of stockholders’ shares.
Our board of directors is authorized, without stockholder approval, to cause us to issue additional shares of our common stock or
to raise capital through the issuance of preferred stock (including equity or debt securities convertible into common stock), options,
warrants and other rights, on terms and for consideration as our board of directors in its sole discretion may determine. Sales of
substantial amounts of our common stock could cause the market price of our common stock to decrease significantly. We cannot
predict the effect, if any, of future sales of our common stock, or the availability of our common stock for future sales, on the value of
our common stock. Sales of substantial amounts of our common stock by the Starwood Fund or another large stockholder or
otherwise, or the perception that such sales could occur, may adversely affect the market price of our common stock.
Future offerings of debt securities, which would rank senior to our common stock in the event of our bankruptcy or
liquidation, and future offerings of equity securities that may be senior to our common stock for the purposes of dividend and
liquidating distributions, may adversely affect the market price of our common stock.
In the future, we may attempt to increase our capital resources by making additional offerings of debt securities or additional
offerings of equity securities. Upon bankruptcy or liquidation, holders of our debt securities and shares of preferred stock and lenders
with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock.
Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common stock, or
37
both. Our preferred stock, if issued, could have a preference on liquidating distributions or a preference on dividend payments or both
that could limit our ability to make a dividend distribution to the holders of our common stock. Our decision to issue securities in any
future offering will depend on market conditions and other factors beyond our control. As a result, we cannot predict or estimate the
amount, timing or nature of our future offerings, and purchasers of our common stock bear the risk of our future offerings reducing the
market price of our common stock and diluting their ownership interest in our company.
Non-U.S. holders may be subject to United States federal income tax on gain realized on the sale or disposition of shares of
our common stock.
We believe we are and will remain a “United States real property holding corporation” for United States federal income tax
purposes. As a result, a non-U.S. holder generally will be subject to United States federal income tax on any gain realized on a sale or
disposition of shares of our common stock, and a purchaser of the stock generally will be required to withhold and remit to the Internal
Revenue Service (the “IRS”) 10% of the purchase price, unless our common stock is regularly traded on an established securities
market (such as the New York Stock Exchange) and such non-U.S. holder did not actually or constructively hold more than 5% of our
common stock at any time during the shorter of (a) the five-year period preceding the date of the sale or disposition and (b) the non-
U.S. holder’s holding period in such stock. A non-U.S. holder also will be required to file a United States federal income tax return
for any taxable year in which it realizes a gain from the disposition of our common stock that is subject to United States federal
income tax.
No assurance can be given that our common stock will remain regularly traded in the future. Non-U.S. holders should consult
their tax advisors concerning the consequences of disposing of shares of our common stock.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2.
Properties
We lease our corporate headquarters located in Irvine, California. Our homebuilding division offices and financial services
operations are located in leased space in the markets where we conduct business.
We believe that such properties, including the equipment located therein, are suitable and adequate to meet the needs of our
businesses.
Item 3.
Legal Proceedings
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
38
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “TPH”. The following table
sets forth the high and low intra-day sales prices per share of our common stock for the periods indicated, as reported by the NYSE.
PART II
Quarter Ended
March 31
June 30
September 30
December 31
Quarter Ended
March 31
June 30
September 30
December 31
High
16.57 $
16.15 $
15.70 $
14.60 $
High
20.00 $
17.45 $
16.45 $
15.42 $
$
$
$
$
$
$
$
$
2015
Low
Dividends
Declared
13.48 $
13.94 $
12.89 $
12.28 $
2014
Low
Dividends
Declared
16.19 $
14.71 $
12.78 $
12.59 $
—
—
—
—
—
—
—
—
The following performance graph shows a comparison of the cumulative total returns to stockholders of the Company, as
compared with the Standard & Poor’s 500 Composite Stock Index and the Dow Jones Industry Group-U.S. Home Construction Index.
The performance graph and related information shall not be deemed to be “soliciting material” or to be “filed” with the
Securities and Exchange Commission, nor shall such information be incorporated by reference into any filing under the Securities Act
of 1933, as amended, or the Exchange Act, except to the extent that we specifically incorporate it by reference.
Comparison of the Cumulative Total Stockholders’ Return Among TRI Pointe Group, Inc., the Standard & Poor’s 500
Composite Stock Index and the Dow Jones Industry Group-U.S. Home Construction Index
Comparison of Cumulative Total Return
Assumes $100 invested on January 31, 2013 in TRI Point Group, Inc.,
the S&P 500 Index, and the Dow Jones U.S. Home Construction Index
$200
$150
$100
$50
$0
1/31/13
6/30/13
12/31/13
6/30/14
12/31/14
6/30/15
12/31/15
TRI Pointe Group, Inc.
S&P 500 Index
Dow Jones U.S. Home Construction Index
39
The above graph is based upon common stock and index prices calculated as of the dates indicated. The Company’s common
stock closing price on December 31, 2015 was $12.67 per share. The stock price performance of the Company’s common stock
depicted in the graph above represents past performance only and is not necessarily indicative of future performance.
As of February 19, 2016, we had 104 holders of record of our common stock. We have not paid any dividends on our common
stock and currently intend to retain our future earnings, if any, to finance the development and expansion of our business and,
therefore, do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination to pay
dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital
requirements, restrictions contained in any financing instruments and such other factors as our board of directors deems relevant.
Accordingly, stockholders may need to sell their shares of our common stock to realize a return on their investment, and stockholders
may not be able to sell their shares at or above the price they paid for them. See Part I, Item 1A, “Risk Factors—Risks Related to
Ownership of Our Common Stock—we do not intend to pay dividends on our common stock for the foreseeable future” of this annual
report on Form 10-K.
As discussed in Note 21, Subsequent Events, of the notes to our consolidated financial statements included elsewhere in this
annual report on Form 10-K on January 27, 2016, our board of directors approved a $100 million stock repurchase program, effective
January 26, 2016. Under the program, the company may repurchase common stock with an aggregate value of up to $100 million
through January 25, 2017. As of this reporting date no shares have been repurchased under this program. We are not obligated under
the program to repurchase any specific number of shares, and we may modify, suspend or discontinue the program at any time. Our
management will determine the timing and amount of repurchase in its discretion based on a variety of factors, such as the market
price of our common stock, corporate requirements, general market economic conditions and legal requirements. Purchases of
common stock may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades,
or by other means in accordance with federal securities laws.
40
Item 6.
Selected Financial Data
The following sets forth our selected financial and operating data on a historical basis. The following summary of selected
financial data should be read in conjunction with our consolidated financial statements and the related notes and with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this annual report on
Form 10-K.
WRECO Transaction
For a description of the Merger, please see the “Explanatory Note” appearing before Part I, Item 1 of this annual report on Form
10-K. The Merger is accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business
Combinations (“ASC 805”). For accounting purposes, the Merger is treated as a “reverse acquisition” and WRECO is considered the
accounting acquirer. Accordingly, WRECO is reflected as the predecessor and acquirer and therefore the accompanying consolidated
financial statements reflect the historical consolidated financial statements of WRECO for all periods presented and do not include the
historical financial statements of legacy TRI Pointe prior to the Closing Date. Subsequent to the Closing Date and on a go forward
basis, the consolidated financial statements reflect the results of the combined company.
Year Ended December 31,
Statement of Operations Data:
Homebuilding:
Home sales revenue
Land and lot sales revenue
Other operations
Total revenues
Cost of home sales
Cost of land and lot sales
Other operations
Impairments and lot option abandonments
Sales and marketing
General and administrative
Restructuring charges
Homebuilding income (loss) from operations
Equity in income (loss) of unconsolidated entities
Transaction expenses
Other income (loss), net
Homebuilding income (loss) from continuing operations before
taxes
Financial Services:
Revenues
Expenses
Equity in income (loss) of unconsolidated entities
Financial services income (loss) from continuing operations
before taxes
Income (loss) from continuing operations before taxes
(Provision) benefit for income taxes
Income (loss) from continuing operations
Discontinued operations, net of income taxes
Net income (loss)
Net income attributable to noncontrolling interests
Net income (loss) available to common stockholders
Amounts attributable to TRI Pointe Group, Inc. common stockholders:
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss) available to common stockholders
Earnings (loss) per share
Basic
Continuing operations
Discontinued operations
Net earnings (loss) per share
Diluted
Continuing operations
Discontinued operations
Net earnings (loss) per share
2015
$ 2,291,264
101,284
7,601
2,400,149
1,807,091
34,844
4,360
1,930
116,217
117,496
3,329
314,882
1,460
—
858
2014
2013
(dollars in thousands, except per share amounts)
2012
$ 1,646,274
47,660
9,682
1,703,616
1,316,470
37,560
3,324
2,515
103,600
82,358
10,543
147,246
(278)
(17,960)
(1,019)
$ 1,218,430 $
52,261
4,021
1,274,712
870,596
192,489
7,221
1,070,306
690,578
116,143
5,214
3,591
78,022
75,583
2,460
98,715
2,490
—
(1,576)
948,561
38,052
2,854
345,448 (1)
94,521
74,244
10,938
(239,906)
2
—
2,450
$
2011
768,071
66,703
2,971
837,745
589,574
36,542
2,682
11,019
71,587
71,348
2,801
52,192
1,584
—
496
317,200
127,989
(237,454)
99,629
54,272
1,010
181
1,231
2,060
319,260
(112,079)
207,181
—
207,181
(1,720)
205,461
205,461
—
205,461
1.27
—
1.27
1.27
—
1.27
$
$
$
$
$
$
$
—
15
(10)
(25)
127,964
(43,767)
84,197
—
84,197
—
84,197
84,197
—
84,197
0.58
—
0.58
0.58
—
0.58
$
$
$
$
$
$
$
—
—
—
—
(237,454)
86,161 (2)
(151,293)
1,838
(149,455)
—
(149,455) $
—
—
—
—
99,629
(38,910)
60,719
762
61,481
—
61,481
(151,293) $
1,838
(149,455) $
61,481
762
62,243
(1.17) $
0.02
(1.15) $
(1.17) $
0.02
(1.15) $
0.47
—
0.47
0.47
—
0.47
$
$
$
$
$
$
$
—
—
—
—
54,272
(19,333)
34,939
589
35,528
—
35,528
34,939
589
35,528
0.27
—
0.27
0.27
—
0.27
$
$
$
$
$
$
$
41
Operating Data-Owned Projects:
Net new home orders
New homes delivered
Average sales price of homes delivered
Cancellation rate
Average selling communities
Selling communities at end of period
Backlog at end of period, number of homes
Backlog at end of period, aggregate sales value
Balance Sheet Data (at period end):
Cash and cash equivalents
Real estate inventories
Total assets
Total debt, net
Total liabilities
Total equity
2015
2014
2013
2012
2011
Year Ended December 31,
(dollars in thousands)
4,181
4,057
565
$
16%
2,947
3,100
531
$
16%
3,055
2,939
415
$
15 %
$
115.9
104
1,156
$ 697,334
99.1
108
1,032
$ 653,096
$
85.5
89
897
507,064
$
2,665
2,314
376
$
15%
71.9
68
781
342,497
$
2015
2014
Year Ended December 31,
2013
(in thousands)
2012
1,902
1,912
402
16%
74.6
69
430
167,505
2011
4,510 $
214,485 $
170,629 $
$
3,170
$ 2,519,273 $ 2,280,183 $ 1,465,526 $ 1,643,691 $ 1,538,490
$ 3,138,071 $ 2,889,838 $ 1,910,464 $ 1,999,537 $ 1,933,849
851,303
$ 1,170,505 $ 1,138,493 $
$ 1,451,608 $ 1,417,362 $ 1,084,947 $ 1,005,810 $ 1,044,142
889,707
$ 1,686,463 $ 1,472,476 $
825,517 $
834,589 $
993,727 $
798,808 $
5,212 $
(1)
(2)
Includes $343.3 million of impairment and related charges for Coyote Springs, a large master planned community north of Las Vegas,
Nevada that was owned by Pardee Homes and excluded under the Transaction Agreement.
The tax benefit was primarily the result of a loss from continuing operations due to the Coyote Springs impairment.
42
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following should be read in conjunction with the sections of this annual report on Form 10-K entitled “Explanatory Note,”
“Risk Factors,” “Cautionary Note Concerning Forward-Looking Statements,” “Selected Financial Data,” “Business” and our
historical financial statements and related notes thereto included elsewhere in this annual report on Form 10-K. This discussion
contains forward-looking statements reflecting current expectations that involve risks and uncertainties. Actual results and the timing
of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those
discussed in the section entitled “Risk Factors” and elsewhere in this annual report on Form 10-K.
For a description of the Merger, please see the "Explanatory Note" appearing before Part I, Item 1 of this annual report on
Form 10-K. The Merger is accounted for in accordance with ASC 805. For accounting purposes, the Merger is treated as a "reverse
acquisition" and WRECO is considered the accounting acquirer. Accordingly, WRECO is reflected as the predecessor and acquirer
and therefore the accompanying consolidated financial statements reflect the historical consolidated financial statements of WRECO
for all periods presented and do not include the historical financial statements of legacy TRI Pointe prior to the Closing Date.
Subsequent to the Closing Date and on a go forward basis, the consolidated financial statements reflect the results of the combined
company.
43
Consolidated Financial Data (in thousands, except share and per share amounts):
Homebuilding:
Home sales revenue
Land and lot sales revenue
Other operations
Total revenues
Cost of home sales
Cost of land and lot sales
Other operations
Impairments and lot option abandonments
Sales and marketing
General and administrative
Restructuring charges
Homebuilding income (loss) from operations
Equity in income (loss) of unconsolidated entities
Transaction expenses
Other income (loss), net
Homebuilding income (loss) from continuing operations before taxes
Financial Services:
Revenues
Expenses
Equity in income (loss) of unconsolidated entities
Financial services income (loss) from continuing operations before taxes
Income (loss) from continuing operations before taxes
(Provision) benefit for income taxes
Income (loss) from continuing operations
Discontinued operations, net of income taxes
Net income (loss)
Net income attributable to noncontrolling interests
Net income (loss) available to common stockholders
Amounts attributable to TRI Pointe Group, Inc. common stockholders:
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss) available to common stockholders
Earnings (loss) per share
Basic
Continuing operations
Discontinued operations
Net earnings (loss) per share
Diluted
Continuing operations
Discontinued operations
Net earnings (loss) per share
Weighted average shares outstanding
Year Ended December 31,
2015
2014
2013
$
$
$
$
$
$
$
$
2,291,264
101,284
7,601
2,400,149
1,807,091
34,844
4,360
1,930
116,217
117,496
3,329
314,882
1,460
—
858
317,200
1,010
181
1,231
2,060
319,260
(112,079)
207,181
—
207,181
(1,720)
205,461
205,461
—
205,461
1.27
—
1.27
1.27
—
1.27
$
$
$
$
$
$
$
$
1,646,274 $
47,660
9,682
1,703,616
1,316,470
37,560
3,324
2,515
103,600
82,358
10,543
147,246
(278 )
(17,960 )
(1,019 )
127,989
—
15
(10 )
(25 )
127,964
(43,767 )
84,197
—
84,197
—
84,197 $
1,218,430
52,261
4,021
1,274,712
948,561
38,052
2,854
345,448 (1)
94,521
74,244
10,938
(239,906)
2
—
2,450
(237,454)
—
—
—
—
(237,454)
86,161 (2)
(151,293)
1,838
(149,455)
—
(149,455)
84,197 $
—
84,197 $
(151,293)
1,838
(149,455)
0.58 $
—
0.58 $
0.58 $
—
0.58 $
(1.17)
0.02
(1.15)
(1.17)
0.02
(1.15)
Basic
Diluted
(1)
(2)
Includes $343.3 million of impairment and related charges for Coyote Springs, a large master planned community north of Las Vegas,
Nevada that was owned by Pardee Homes and excluded under the Transaction Agreement.
The tax benefit was primarily the result of a loss from continuing operations due to the Coyote Springs impairment.
161,692,152
162,319,758
145,044,351
145,531,289
129,700,000
129,700,000
44
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment
Year Ended December 31, 2015
Year Ended December 31, 2014
Net New Average
Home
Selling
Orders Communities Rates
Monthly Net New
Absorption Home
Average
Selling
Monthly Net New
Absorption Home
Orders Communities
Rates
Orders
Percentage Change
Average
Selling
Communities
Monthly
Absorption
Rates
Maracay Homes
Pardee Homes
Quadrant Homes
Trendmaker Homes
TRI Pointe Homes
Winchester Homes
Total
578
1,186
441
457
1,107
412
4,181
16.6
23.1
10.7
25.1
26.9
13.5
115.9
385
2.9
970
4.3
337
3.4
557
1.5
359
3.4
2.5
339
3.0 2,947
16.4
20.2
12.2
24.0
9.2
17.1
99.1
2.0
4.0
2.3
1.9
3.3
1.7
2.5
50 %
22 %
31 %
(18 )%
208 %
22 %
42 %
1%
14%
(12)%
5%
192%
(21)%
17%
48%
7%
49%
(20)%
4%
50%
20%
Net new home orders for the year ended December 31, 2015 increased 42% to 4,181, compared to 2,947 during the prior year.
The increase in net new home orders was due to a 20% increase in absorption rates and a 17% increase in average selling
communities. Net new home orders increased at all but one of our reporting segments, highlighted by the addition of TRI Pointe
Homes for the full year ended December 31, 2015 resulting in 1,107 net new home orders compared to 359 in the prior year period.
Trendmaker Homes in Houston reported an 18% decline in net new home orders compared to the prior year period resulting from a
slowdown in the premium housing market in Houston as a result of uncertainty around the oil and gas industry.
Backlog Units, Dollar Value and Average Sales Price by Segment (dollars in thousands)
As of December 31, 2015
As of December 31, 2014
Backlog
Backlog Dollar
Value
Units
203 $ 82,171 $
274 200,588
72,249
143
72,604
136
290 192,097
77,625
110
1,156 $ 697,334 $
Average
Sales
Price
Backlog
Units
Backlog
Dollar
Value
105 $
40,801 $
405
218 147,044
732
113
51,568
505
218 114,948
534
243 192,802
662
706
135 105,933
603 1,032 $ 653,096 $
Average
Sales
Price
Backlog
Units
Percentage Change
Backlog
Dollar
Value
Average
Sales
Price
389
675
456
527
793
785
633
93 %
26 %
27 %
(38 )%
19 %
(19 )%
12 %
101%
36%
40%
(37)%
(0)%
(27)%
7%
4%
9%
11%
1%
(17)%
(10)%
(5)%
Maracay Homes
Pardee Homes
Quadrant Homes
Trendmaker Homes
TRI Pointe Homes
Winchester Homes
Total
Backlog units reflect the number of homes, net of actual cancellations experienced during the period, for which we have entered
into a sales contract with a homebuyer but for which we have not yet delivered the home. Homes in backlog are generally delivered
within three to nine months, although we may experience cancellations of sales contracts prior to delivery. Our cancellation rate of
homebuyers who contracted to buy a home but did not close escrow (as a percentage of overall orders) was consistent at 16% for each
of the years ended December 31, 2015 and 2014. The dollar value of backlog was approximately $697.3 million as of December 31,
2015, an increase of $44.2 million, or 7%, compared to $653.1 million as of December 31, 2014. This increase is due to an increase in
the number of homes in backlog of 124, or 12%, to 1,156 homes as of December 31, 2015 from 1,032 homes as of December 31,
2014. The increase in backlog units was slightly offset by a decrease in the average sales price of homes in backlog of $30,000, or
5%, to $603,000 as of December 31, 2015.
45
New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands)
Average
Sales
Price
Year Ended December 31, 2015
Home
Sales
New
Homes
Delivered Revenue
480 $
1,130
411
539
1,060
437
185,645 $
606,161
180,772
275,658
774,005
269,023
4,057 $ 2,291,264 $
Homes
Delivered Revenue
396 $
1,032
320
561
404
387
150,689 $
486,176
134,304
278,038
324,219
272,848
3,100 $ 1,646,274 $
387
536
440
511
730
616
565
Maracay Homes
Pardee Homes
Quadrant Homes
Trendmaker Homes
TRI Pointe Homes
Winchester Homes
Total
381
471
420
496
803
705
531
21 %
10 %
28 %
(4 )%
162 %
13 %
31 %
23%
25%
35%
(1)%
139%
(1)%
39%
2%
14%
5%
3%
(9)%
(13)%
6%
Year Ended December 31, 2014
Home
New
Sales
Average
Sales
Price
New
Homes
Delivered
Percentage Change
Home
Sales
Revenue
Average
Sales
Price
Home sales revenue increased $645.0 million, or 39%, to $2.3 billion for the year ended December 31, 2015 from $1.6 billion
for the prior year period. The increase was comprised of: (i) $508.2 million related to an increase in homes delivered to 4,057 for the
year ended December 31, 2015 from 3,100 in the prior year; and (ii) $136.8 million due to a 6% increase in the average sales price of
homes delivered to $565,000 for the year ended December 31, 2015 from $531,000 in the prior year. Home sales revenue was either
up or relatively flat at all six of our homebuilding brands for the year ended December 31, 2015 compared to the prior year period.
The increase in new home deliveries was primarily attributable to the addition of legacy TRI Pointe Homes for the full year ended
December 31, 2015 compared to partial prior year activity due to the timing of the Merger in July, 2014. The addition of full year
legacy TRI Pointe Homes resulted in a 656 increase in new homes delivered and a $450 million increase in home sales revenue, a
162% and 139% increase, respectively, compared to the same prior year period.
Homebuilding Gross Margins (dollars in thousands)
Home sales revenue
Cost of home sales
Homebuilding impairments and lot option abandonments
Homebuilding gross margin
Add: interest in cost of home sales
Add: impairments and lot option abandonments
Adjusted homebuilding gross margin(1)
Homebuilding gross margin percentage
Adjusted homebuilding gross margin percentage(1)
(1)
Non-GAAP financial measure (as discussed below).
2015
$ 2,291,264
1,807,091
1,685
482,488
44,299
1,685
528,472
$
21.1%
23.1%
Year Ended December 31,
2014
%
100.0 % $ 1,646,274
78.9 % 1,316,470
2,147
327,657
28,354
2,147
358,158
0.1 %
21.1 %
1.9 %
0.1 %
23.1 % $
%
100.0%
80.0%
0.1%
19.9%
1.7%
0.1%
21.8%
19.9%
21.8%
Our homebuilding gross margin percentage increased to 21.1% for the year ended December 31, 2015 as compared to 19.9% for
the prior year period. The prior year margin was impacted by a $17.2 million or 100 basis point noncash purchase accounting
adjustment related to the fair value increase to legacy TRI Pointe’s inventory as a result of the Merger. Excluding interest and
impairment and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 23.1% for the
year ended December 31, 2015 compared to 21.8% for the prior year period. The increase in the adjusted homebuilding gross margin
was consistent with the change in homebuilding gross margin described above.
Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates
the impact that leverage and non-cash charges have on homebuilding gross margin and permits investors to make better comparisons
with our competitors, who adjust gross margins in a similar fashion. See the table above reconciling this non-GAAP financial measure
to homebuilding gross margin, the nearest GAAP equivalent.
46
Land and Lot Gross Margins (dollars in thousands)
Land and lot sales revenue
Cost of land and lot sales
Land and lot impairments and lot options abandonments
Land and lot gross margin
Add: interest in cost of land and lot sales
Add: impairments and land and lot assets
Adjusted land and lot gross margin(1)
Land and lot gross margin percentage
Adjusted land and lot gross margin percentage(1)
(1)
Non-GAAP financial measure (as discussed below).
2015
101,284
34,844
245
66,195
816
245
67,256
$
$
65.4%
66.4%
Year Ended December 31,
2014
%
100.0 % $
34.4 %
0.2 %
65.4 %
0.8 %
0.2 %
66.4 % $
47,660
37,560
346
9,754
23,791
346
33,891
20.5%
71.1%
%
100.0%
78.8%
0.7%
20.5%
49.9%
0.7%
71.1%
Our land and lot gross margin percentage increased to 65.4% for the year ended December 31, 2015 as compared to 20.5% for
the prior year period. The increase in land and lot sales revenue and gross margin percentage were mainly due to the sale of a 15.72
acre employment center located in the Pacific Highlands Ranch community in the San Diego, California division of our Pardee Homes
reporting segment. The sale was completed in June for $53 million in cash. The transaction included significant gross margins due to
the low land basis of the Pacific Highlands Ranch community which was acquired in 1981.
Adjusted land and lot gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates
the impact that leverage and non-cash charges have on land and lot gross margin and permits investors to make better comparisons
with our competitors, who adjust gross margins in a similar fashion. See the table above reconciling this non-GAAP financial measure
to land and lot gross margin, the nearest GAAP equivalent.
Sales and Marketing, General and Administrative Expense (dollars in thousands)
Sales and marketing
General and administrative (G&A)
Total sales and marketing and G&A
Year Ended
December 31,
2015
116,217 $
117,496
233,713 $
2014
103,600
82,358
185,958
$
$
As a Percentage of
Home Sales Revenue
2015
2014
5.1%
5.1%
10.2%
6.3%
5.0%
11.3%
Sales and marketing expense decreased to 5.1% of home sales revenue for the year ended December 31, 2015 from 6.3% of
home sales revenue for the year ended December 31, 2014 mainly due to the addition of full year TRI Pointe Homes which has a
lower sales and marketing expense as a percentage of home sales revenue due primarily to higher average sales prices per community.
In addition, we experienced efficiencies in our sales and marketing spending due to the 20% increase in our absorption rates. Sales and
marketing expense increased $12.6 million, or 12%, to $116.2 million for the year ended December 31, 2015 from $103.6 million for
the prior year period. The increase in sales and marketing expense was related primarily to the increase in new home deliveries
compared to the prior year and the addition of TRI Pointe Homes for the full year compared to the prior year with no comparable
amounts before the Merger.
General and administrative expense increased by $35.1 million to $117.5 million for the year ended December 31, 2015 from
$82.4 million for the prior year ended December 31, 2014. General and administrative expense increased slightly to 5.1% of home
sales revenue for the year ended December 31, 2015 from 5.0% of home sales revenue for the same period in the prior year. The
increase in general and administrative expenses is primarily related to the addition of TRI Pointe Homes with no comparable amounts
in the prior year before the Merger.
Total sales and marketing and G&A (“SG&A”) expense increased $47.7 million, or 26%, to $233.7 million for the year ended
December 31, 2015 from $186.0 million in the prior year period, but improved to 10.2% of home sales revenue from 11.3% for the
years ended December 31, 2015 and 2014, respectively.
47
Restructuring Charges
Restructuring charges decreased to $3.3 million for the year ended December 31, 2015 compared to $10.5 million in the same
period in the prior year. The decrease was mainly due to higher employee-related restructuring costs in 2014 related to retention,
severance and related costs in connection with the Merger.
Transaction Expenses
As a result of the Merger, the Company has incurred advisory, financing, integration and other transaction expenses during the
year ended December 31, 2014 of $18.0 million. We did not incur any transaction related expenses during the years ended December
31, 2013 and 2015.
Interest
Interest, which was incurred principally to finance the Merger, land acquisitions, land development and home construction,
totaled $61.0 million and $41.7 million for the years ended December 31, 2015 and 2014, respectively. The capitalized portion of
interest incurred was $61.0 million and $39.0 million for the years ended December 31, 2015 and 2014, respectively. The increase in
interest incurred during the year ended December 31, 2015 as compared to the prior year period was primarily attributable to an
increase in our outstanding debt for the full year in 2015 compared to a partial prior year period, as the senior note debt was issued in
June of 2014.
All interest incurred in 2015 was capitalized. Interest expense was $2.7 million for the year ended December 31, 2014. Interest
expense is included in other income (loss), net on the consolidated statements of operations.
Income Tax
For the year ended December 31, 2015, we have recorded a tax provision of $112.1 million based on an effective tax rate of
35.1%. For the year ended December 31, 2014, we recorded a tax provision of $43.8 million based on an effective tax rate of 34.2%.
The increase in our provision for income tax was primarily the result of the increase in income from operations for the year ended
December 31, 2015.
Financial Services Segment
Income from our financial services operations increased to $2.1 million for the year ended December 31, 2015 compared to a
loss of $25,000 in the same period in the prior year. The increase in financial services income for the year ended December 31, 2015
primarily relates to the growth of our mortgage financing and title services operations. Both our mortgage financing and title service
operations were started in late 2014 and therefore had minimal activity in 2014.
48
Lots Owned or Controlled by Segment
Excluded from owned or controlled lots are those related to Note 8, Investments in Unconsolidated Entities, of the notes to our
consolidated financial statements included elsewhere in this annual report on Form 10-K. The table below summarizes our lots owned
or controlled by segment as of the dates presented:
Lots Owned
Maracay Homes
Pardee Homes
Quadrant Homes
Trendmaker Homes
TRI Pointe Homes
Winchester Homes
Total
Lots Controlled(1)
Maracay Homes
Pardee Homes
Quadrant Homes
Trendmaker Homes
TRI Pointe Homes
Winchester Homes
Total
Total Lots Owned or Controlled(1)
December 31,
Increase
(Decrease)
2015
2014
Amount
%
1,566
16,314
1,027
1,367
2,504
1,955
24,733
245
365
247
491
1,124
397
2,869
27,602
1,280
17,354
973
805
2,868
2,255
25,535
705
285
571
1,268
858
496
4,183
29,718
286
(1,040)
54
562
(364)
(300)
(802)
(460)
80
(324)
(777)
266
(99)
(1,314)
(2,116)
22%
(6)%
6%
70%
(13)%
(13)%
(3)%
(65)%
28%
(57)%
(61)%
31%
(20)%
(31)%
(7)%
(1)
As of December 31, 2015 and 2014, lots controlled included lots that were under land option contracts or purchase contracts.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment
Net New
Home
Orders
Year Ended December 31, 2014
Average
Selling
Monthly
Absorption
Communities Rates
16.4
20.2
12.2
24.0
9.2
17.1
99.1
385
970
337
557
359
339
2,947
2.0
4.0
2.3
1.9
3.3
1.7
2.5
Maracay Homes
Pardee Homes
Quadrant Homes
Trendmaker Homes
TRI Pointe Homes
Winchester Homes
Total
Year Ended December 31, 2013
Average
Selling
Net New
Home
Orders Communities
Monthly Net New
Absorption Home
Orders
Rates
Percentage Change
Average
Selling
Communities
Monthly
Absorption
488
1,152
354
649
—
412
3,055
12.8
17.9
12.2
22.0
—
20.6
85.5
(21 )%
(16 )%
(5 )%
(14 )%
3.2
5.4
2.4
2.5
— N/A
1.7
3.0
(18 )%
(4 )%
28%
13%
0%
9%
N/A
(17)%
16%
Rates
(38)%
(25)%
(5)%
(21)%
N/A
(1)%
(17)%
Net new home orders for the year ended December 31, 2014 decreased 4% to 2,947, compared to 3,055 during the prior year.
The decrease in net new home orders was due to a decrease in our monthly absorption rate in each of our segments which reported in
the comparable prior year. Our overall absorption rate for the year ended December 31, 2014 was 29.7 per average selling community
(2.5 monthly), compared to 35.7 per average selling community (3.0 monthly) during the prior year period. Net new home orders
decreased at Maracay Homes and Winchester Homes due to the overall softening market conditions in the Arizona, Maryland and
Virginia markets compared to the prior year. Trendmaker’s net new home orders and absorption pace declined mainly due to a focus
on margin and selling price over sales pace and a slowdown in the premium housing market in Houston that was driven by falling oil
prices. Pardee’s absorption rate decreased compared to the prior year but remained strong overall at 4.0 orders per month per
community.
49
Backlog Units, Dollar Value and Average Sales Price by Segment (dollars in thousands)
As of December 31, 2014
As of December 31, 2013
Backlog
Backlog Dollar
Value
Units
105 $ 40,801 $
218 147,044
113
51,568
218 114,948
243 192,802
135 105,933
1,032 $ 653,096 $
Average
Sales
Price
Backlog
Units
Backlog
Dollar
Value
116 $
42,068 $
280 171,077
44,262
222 108,491
—
183 141,166
897 $ 507,064 $
96
—
389
675
456
527
793
785
633
Average
Sales
Price
Backlog
Units
Percentage Change
Backlog
Dollar
Value
Average
Sales
Price
363
611
461
489
—
771
565
(10 )%
(22 )%
18 %
(2 )%
N/A
(26 )%
15 %
(3)%
(14)%
17%
6%
N/A
(25)%
29%
7%
10%
(1)%
8%
N/A
2%
12%
Maracay Homes
Pardee Homes
Quadrant Homes
Trendmaker Homes
TRI Pointe Homes
Winchester Homes
Total
Backlog units reflects the number of homes, net of actual cancellations experienced during the period, for which we have
entered into a sales contract with a homebuyer but for which we have not yet delivered the home. Homes in backlog are generally
delivered within three to nine months, although we may experience cancellations of sales contracts prior to delivery. Our cancellation
rate of homebuyers who contracted to buy a home but did not close escrow (as a percentage of overall orders) was 16% for the year
ended December 31, 2014 as compared to 15% during the prior year period. The dollar value of backlog was approximately $653.1
million as of December 31, 2014, an increase of $146.0 million, or 29%, compared to $507.1 million as of December 31, 2013. This
increase is due to an increase in the number of homes in backlog of 135, or 15%, to 1,032 homes as of December 31, 2014 from 897
homes as of December 31, 2013, in addition to an increase in the average sales price of homes in backlog of $68,000, or 12%, to
$633,000 as of December 31, 2014 compared to $565,000 as of December 31, 2013. The increase in the number of homes in backlog
and the average sales price of homes in backlog was mainly the result of the addition of TRI Pointe Homes, which had 243 homes in
backlog and an average sales price in backlog of $793,000 as of December 31, 2014. The increase associated with the addition of TRI
Pointe Homes in the current year was partially offset by decreases in backlog at Maracay Homes, Pardee Homes, Trendmaker Homes
and Winchester Homes. These decreases were in line with the new home order decreases discussed above and the result of the same
market conditions.
New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands)
Maracay Homes
Pardee Homes
Quadrant Homes
Trendmaker Homes
TRI Pointe Homes
Winchester Homes
Total
New
Homes
Delivered Revenue
396 $
1,032
320
561
404
387
150,689 $
486,176
134,304
278,038
324,219
272,848
3,100 $ 1,646,274 $
Year Ended December 31, 2014
Home
Sales
Average
Sales
Price
Year Ended December 31, 2013
Home
New
Sales
Revenue
Homes
Delivered
Sales
Price
Percentage Change
Home
Sales
Revenue
Homes
Delivered
Average New
Average
381
471
420
496
803
705
531
463 $
1,183
363
585
—
345
145,822 $
477,956
116,270
260,566
—
217,816
2,939 $ 1,218,430 $
315
404
320
445
—
631
415
(15 )%
(13 )%
(12 )%
(4 )%
N/A
12 %
6 %
3%
2%
16%
7%
N/A
25%
35%
Sales
Price
21%
17%
31%
11%
N/A
12%
28%
Home sales revenue increased $427.8 million, or 35%, to $1.6 billion for the year ended December 31, 2014 from $1.2 billion
for the prior year period. The increase was comprised of: (i) $342.3 million related to an increase in average sales price of $116,000
per home to $531,000 for the year ended December 31, 2014 from $415,000 in the prior year; and (ii) $85.5 million due to a 6%
increase in homes delivered to 3,100 for the year ended December 31, 2014 from 2,939 in the prior year. The increase in the average
sales price and new home deliveries was primarily attributable to the addition of legacy TRI Pointe Homes with no comparable
amounts in the prior year period. In addition, the average sales price of homes delivered increased at all of our reporting segments due
to a change in product mix with a shift to a more move-up product in certain markets and price increases in certain markets.
50
Homebuilding Gross Margins (dollars in thousands)
Home sales revenue
Cost of home sales
Homebuilding impairments and lot option abandonments
Homebuilding gross margin
Add: interest in cost of home sales
Add: impairments and lot option abandonments
Adjusted homebuilding gross margin(1)
Homebuilding gross margin percentage
Adjusted homebuilding gross margin percentage(1)
(1)
Non-GAAP financial measure (as discussed below).
2014
$ 1,646,274
1,316,470
2,147
327,657
28,354
2,147
358,158
$
19.9%
21.8%
Year Ended December 31,
2013
%
100.0 % $ 1,218,430
948,561
80.0 %
1,719
0.1 %
268,150
19.9 %
25,584
1.2 %
1,719
0.1 %
295,453
21.8 % $
%
100.0%
77.9%
0.1%
22.0%
2.1%
0.1%
24.2%
22.0%
24.2%
Our homebuilding gross margin percentage decreased to 19.9% for the year ended December 31, 2014 as compared to 22.0%
for the prior year period. This decrease was primarily due to a $17.2 million or 100 basis point non-cash purchase accounting
adjustment related to the fair value increase to legacy TRI Pointe Homes’ inventory as result of the Merger. Excluding interest in cost
of home sales and homebuilding impairment charges, adjusted homebuilding gross margin percentage was 21.8% for the year ended
December 31, 2014, compared to 24.2% for the prior year period. The decrease in the adjusted homebuilding gross margin was due to
price incentives in some of our markets that have experienced softening market conditions as discussed above.
Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates
the impact that leverage and non-cash charges have on homebuilding gross margin and permits investors to make better comparisons
with our competitors, who adjust gross margins in a similar fashion. See the table above reconciling this non-GAAP financial measure
to homebuilding gross margin, the nearest GAAP equivalent.
Land and Lot Gross Margins (dollars in thousands)
Land and lot sales revenue
Cost of land and lot sales
Land and lot impairments and lot options abandonments
Land and lot gross margin
Add: interest in cost of land and lot sales
Add: impairments and lot option abandonments
Adjusted land and lot gross margin(1)
Land and lot gross margin percentage
Adjusted land and lot gross margin percentage(1)
(1)
Non-GAAP financial measure (as discussed below).
2014
%
2013
%
Year Ended December 31,
$
$
47,660
37,560
346
9,754
23,791
346
33,891
20.5%
71.1%
100.0% $
78.8%
0.7%
20.5%
49.9%
0.7%
71.1% $
52,261
38,052
343,660
(329,451)
11,087
343,660
25,296
(630.4)%
48.4%
100.0%
72.8%
657.6%
(630.4)%
21.2%
657.6%
48.4%
Our land and lot gross margin percentage increased to 20.5% for the year ended December 31, 2014 as compared to (630.4)%
for the prior year period. Results for the year ended December 31, 2013 include $343.3 million of impairment and related charges for
Coyote Springs, a large master planned community north of Las Vegas, Nevada. Under the terms of the Transaction Agreement,
certain assets and liabilities of WRECO and its subsidiaries were excluded from the transaction and retained by Weyerhaeuser,
including assets and liabilities relating to the Coyote Springs Property. Excluding interest in cost of land and lot sales and land and lot
impairment charges, adjusted land and lot gross margin percentage was 71.1% for the year ended December 31, 2014, compared to
48.4% for the prior year period.
Adjusted land and lot gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates
the impact that leverage and non-cash charges have on land and lot gross margin and permits investors to make better comparisons
with our competitors, who adjust gross margins in a similar fashion. See the table above reconciling this non-GAAP financial measure
to land and lot gross margin, the nearest GAAP equivalent.
51
Sales and Marketing, General and Administrative Expense (dollars in thousands)
Sales and marketing
General and administrative (G&A)
Total sales and marketing and G&A
Year Ended
December 31,
As a Percentage of
Home Sales Revenue
2014
103,600 $
82,358
185,958 $
$
$
2013
2014
2013
94,521
74,244
168,765
6.3%
5.0%
11.3%
7.8%
6.1%
13.9%
Sales and marketing expense decreased to 6.3% of home sales revenue for the year ended December 31, 2014 from 7.8% of
home sales revenue for the year ended December 31, 2013 mainly due to the addition of TRI Pointe which has a lower sales and
marketing expense as a percentage of home sales revenue due primarily to higher average sales prices per community. Sales and
marketing expense increased $9.1 million, or 10%, to $103.6 million for the year ended December 31, 2014 from $94.5 million for the
prior year period. The increase in sales and marketing expense was related primarily to the addition of the homebuilding operations
conducted directly by TRI Pointe for the period from July 7, 2014 through December 31, 2014, representing $9.7 million of sales and
marketing expenses, with no comparable amounts in the prior year period.
General and administrative expense decreased to 5.0% of home sales revenue for the year ended December 31, 2014 from 6.1%
of home sales revenue for the same period in the prior year. The decrease was mainly due to greater operating leverage as a result of
the 28% increase in the average sales prices of homes delivered during the year ended December 31, 2014, primarily as a result of the
addition of legacy TRI Pointe, along with higher average selling prices across all of our existing segments. General and administrative
expenses increased $8.2 million, or 11%, to $82.4 million for the year ended December 31, 2014 from $74.2 million for the prior year.
This increase was due primarily to the addition of TRI Pointe for the period from July 7, 2014 through December 31, 2014,
representing $16.5 million of general and administrative expenses, offset by cost savings initiatives to reduce duplicate corporate and
divisional overhead costs and expenses during the year. Prior to the Merger, a portion of G&A expenses was based on an allocation
from Weyerhaeuser, which may not have been indicative of the actual levels of G&A that would have been incurred by WRECO had
it operated independently, or of expenses to be incurred in the future.
Total sales and marketing and G&A (“SG&A”) expense increased $17.3 million, or 10%, to $186.0 million for the year ended
December 31, 2014 from $168.7 million in the prior year period, but improved to 11.3% of home sales revenue from 13.9% for the
years ended December 31, 2014 and 2013, respectively.
Restructuring Charges
Restructuring charges decreased to $10.5 million for the year ended December 31, 2014 compared to $10.9 million in the same
period in the prior year. The restructuring charges for the year ended December 31, 2014 primarily relate to a plan initiated to reduce
duplicate corporate and divisional overhead costs and expenses as a result of the Merger. Employee-related costs incurred during the
year ended December 31, 2014 included employee retention and severance-related expenses of $8.3 million and stock-based
compensation expense of $947,000 for employees terminated during the period. Lease termination costs of $1.3 million for the year
ended December 31, 2014 relate to contract terminations in both the current and prior years related to general cost reduction
initiatives. The restructuring charges for the year ended December 31, 2013 relate to $5.7 million of employee-related costs incurred
in connection with the expected Merger and $5.2 million of lease termination costs as a result of general cost reduction initiatives.
Transaction Expenses
As a result of the Merger, the Company has incurred advisory, financing, integration and other transaction costs during the year
ended December 31, 2014 of $18.0 million. We did not incur any transaction related expenses during the years ended December 31,
2013 and 2015.
Interest
Interest, which was incurred principally to finance the Merger, land acquisitions, land development and home construction,
totaled $41.7 million and $22.7 million for the years ended December 31, 2014 and 2013, respectively. The capitalized portion of
interest incurred was $39.0 million and $19.1 million for the years ended December 31, 2014 and 2013, respectively. The increase in
interest incurred during the year ended December 31, 2014 as compared to the prior year period was primarily attributable to an
increase in our outstanding debt and higher interest rates as a result of the issuance of the senior notes in connection with the Merger.
Interest expense was $2.7 million and $3.6 million during the years ended December 31, 2014 and 2013, respectively. Interest
expense is included in other income (loss), net on the consolidated statements of operations.
52
Income Tax
For the year ended December 31, 2014, we recorded a tax provision of $43.8 million based on an effective tax rate of 34.2%.
For the year ended December 31, 2013, we recorded a tax benefit of $86.2 million based on an effective tax rate of 36.3%. The
increase in our provision for income tax was primarily the result of the increase in income from operations for the year ended
December 31, 2014. Loss from operations for the year ended December 31, 2013 included a $343.3 million impairment charge related
to Coyote Springs which was an excluded asset per the Transaction Agreement.
Lots Owned or Controlled by Segment
Excluded from owned or controlled lots are those related to Note 8, Investments in Unconsolidated Entities, of the notes to our
consolidated financial statements included elsewhere in this annual report on Form 10-K. The table below summarizes our lots owned
or controlled by segment as of the dates presented:
Lots Owned
Maracay Homes
Pardee Homes(2)
Quadrant Homes
Trendmaker Homes
TRI Pointe Homes
Winchester Homes
Total
Lots Controlled(1)
Maracay Homes
Pardee Homes(2)
Quadrant Homes
Trendmaker Homes
TRI Pointe Homes
Winchester Homes
Total
Total Lots Owned or Controlled(1)
December 31,
Increase
(Decrease)
2014
2013
Amount
%
1,280
17,354
973
805
2,868
2,255
25,535
705
285
571
1,268
858
496
4,183
29,718
1,118
17,950
864
679
—
2,105
22,716
1,189
1,026
520
1,074
—
1,088
4,897
27,613
162
(596)
109
126
2,868
150
2,819
(484)
(741)
51
194
858
(592)
(714)
2,105
14%
(3)%
13%
19%
N/A
7%
12%
(41)%
(72)%
10%
18%
N/A
(54)%
(15)%
8%
(1)
(2)
As of December 31, 2014 and 2013, lots controlled included lots that were under land option contracts or purchase contracts.
As of December 31, 2013, excludes 10,686 lots owned and 56,413 lots controlled relating to Coyote Springs, which were excluded
assets per the Transaction Agreement.
Liquidity and Capital Resources
Overview
Our principal uses of capital for the year ended December 31, 2015 were operating expenses, land purchases, land development
and home construction. We used funds generated by our operations and available borrowings to meet our short-term working capital
requirements. We remain focused on generating positive margins in our homebuilding operations and acquiring desirable land
positions in order to maintain a strong balance sheet and keep us poised for growth. As of December 31, 2015, we had $214.5 million
of cash and cash equivalents. We believe we have sufficient cash and sources of financing for at least the next twelve months.
Our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions
regarding the incurrence of new indebtedness, including the purchase price of assets to be acquired with debt financing, the estimated
market value of our assets and the ability of particular assets, and our company as a whole, to generate cash flow to cover the expected
debt service. Our charter does not contain a limitation on the amount of debt we may incur and our board of directors may change our
target debt levels at any time without the approval of our stockholders.
Assumption of Senior Notes
On the Closing Date, TRI Pointe assumed WRECO’s obligations as issuer of $450 million aggregate principal amount of its
4.375% Senior Notes due 2019 (“2019 Notes”) and $450 million aggregate principal amount of its 5.875% Senior Notes due 2024
53
(“2024 Notes” and together with the 2019 Notes, the “Senior Notes”). The 2019 Notes were issued at 98.89% of their aggregate
principal amount and the 2024 Notes were issued at 98.15% of their aggregate principal amount. The net proceeds of approximately
$861.3 million, after debt issuance costs and discounts, from the offering were deposited into two separate escrow accounts following
the closing of the offering on June 13, 2014. Upon release of the escrowed funds on the Closing Date, and prior to the consummation
of the Merger, WRECO paid approximately $743.7 million in cash to the former direct parent entity of WRECO, which cash was
retained by Weyerhaeuser and its subsidiaries (other than WRECO and its subsidiaries). The payment consisted of the $739 million
Payment Amount (as defined in the Transaction Agreement) as well as approximately $4.7 million in payment of all unpaid interest on
the debt payable to Weyerhaeuser that accrued from November 3, 2013 to the Closing Date. The remaining $117.6 million of proceeds
was retained by TRI Pointe and used for general corporate purposes.
The 2019 Notes and 2024 Notes mature on June 15, 2019 and June 15, 2024, respectively. Interest is payable semiannually in
arrears on June 15 and December 15. As of December 31, 2015, $19.7 million and $26.4 million of interest was paid on the 2019
Notes and the 2024 Notes, respectively. As of December 31, 2015, no principal has been paid on the Senior Notes, and there was
$20.4 million of capitalized debt financing costs related to the Senior Notes on our consolidated balance sheet. These costs will
amortize over the respective lives of the Senior Notes.
Unsecured Revolving Credit Facility
In May 2015, the Company amended its unsecured revolving credit facility (the “Credit Facility”) to increase the aggregate
commitment amount from $425 million to $550 million. The Credit Facility matures on May 18, 2019, and contains a sublimit of $75
million for letters of credit. The Company may borrow under the Credit Facility in the ordinary course of business to fund its
operations, including its land development and homebuilding activities. Borrowings under the Credit Facility will be governed by,
among other things, a borrowing base. The Credit Facility contains customary affirmative and negative covenants, including financial
covenants relating to consolidated tangible net worth, leverage, and liquidity or interest coverage. Interest rates on borrowings will be
based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.45% to 2.20%
depending on the Company’s leverage ratio.
As of December 31, 2015, the outstanding balance under the Credit Facility was $299.4 million with an interest rate 2.35% per
annum and $242.2 million of availability after considering the borrowing base provisions and outstanding letters of credit. At
December 31, 2015, we had outstanding letters of credit of $8.4 million. These letters of credit were issued to secure various financial
obligations. We believe it is not probable that any outstanding letters of credit will be drawn upon.
Seller Financed Loans
As of December 31, 2015, the Company had $2.4 million outstanding related to seller financed loans to acquire lots for the
construction of homes. Principal and interest payments on these loans are due at various maturity dates, including at the time
individual homes associated with the acquired land are delivered. The seller financed loans will accrue interest at a weighted average
rate of 6.84% per annum, with interest calculated on a daily basis. Any remaining unpaid balance on these loans is due in May 2016.
Covenant Compliance
Under our Facility, we are required to comply with certain financial covenants, including, but not limited to, those set forth in
the table below (dollars in thousands):
Financial Covenants
Consolidated Tangible Net Worth
(Not less than $875.9 million plus 50% of net income and 50% of the net
proceeds from equity offerings after March 31, 2015)
Leverage Test
(Not to exceed 55%)
Interest Coverage Test
(Not less than 1.5:1.0)
Actual at
December 31,
2015
Covenant
Requirement at
December 31,
2015
$
1,502,654 $
970,967
39.5 %
6.4
<55%
>1.5
As of December 31, 2015 we were in compliance with all of the above financial covenants.
54
Leverage Ratios
We believe that our leverage ratios provide useful information to the users of our financial statements regarding our financial
position and cash and debt management. The ratio of debt-to-capital and the ratio of net debt-to-capital are calculated as follows
(dollars in thousands):
December 31,
2015
December 31,
2014
Unsecured revolving credit facility
Seller financed loans
Senior Notes
Total debt
Stockholders’ equity
Total capital
Ratio of debt-to-capital(1)
Total debt
Less: Cash and cash equivalents
Net debt
Stockholders’ equity
Total capital
Ratio of net debt-to-capital(2)
$
$
$
$
$
299,392
2,434
868,679
1,170,505
1,664,683
2,835,188
$
41.3 %
1,170,505
$
(214,485 )
956,020
1,664,683
2,620,703
$
36.5 %
260,000
14,677
863,816
1,138,493
1,454,180
2,592,673
43.9%
1,138,493
(170,629)
967,864
1,454,180
2,422,044
40.0%
(1)
(2)
The ratio of debt-to-capital is computed as the quotient obtained by dividing debt by the sum of total debt plus equity.
The ratio of net debt-to-capital is computed as the quotient obtained by dividing net debt (which is debt less cash and cash equivalents)
by the sum of net debt plus equity. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. We believe the
ratio of net debt-to-capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an
indicator of our ability to obtain financing. See the table above reconciling this non-GAAP financial measure to the ratio of debt-to-
capital.
Cash Flows—Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
The comparison of cash flows for the years ended December 31, 2015 and 2014 is as follows:
Net cash provided by operating activities increased by $144.4 million to $31.0 million in 2015 from a use of
$113.4 million in 2014. The change was primarily comprised of net income of $207.2 million in 2015 compared to $84.2
million in 2014. Other activity included, (i) a decrease in the new cash outflow related to real estate inventories of $235.0
million in 2015 compared to $276.3 million in 2014 and (ii) other offsetting activity included changes in other assets,
receivables and deferred income taxes.
Net cash used in investing activities was $862,000 in 2015 compared to cash provided of $44.7 million in 2014. Cash
provided by investing activities for 2014 was primarily related to cash acquired in the Merger.
Net cash provided by financing activities decreased to $13.7 million in 2015 from $234.8 million in 2014. The change
was primarily a result of prior year activity associated with proceeds from the issuance of senior notes of $886.7 million,
offset by payments of debt payable to Weyerhaeuser of $623.6 million.
As of December 31, 2015, our cash and cash equivalents balance was $214.5 million.
55
Cash Flows—Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
The comparison of cash flows for the years ended December 31, 2014 and 2013 is as follows:
Net cash used in operating activities increased by $92.4 million to $113.4 million in 2014 from a use of $21.0 million in
2013. The change was primarily comprised of an increase in real estate inventories of $276.3 million in 2014 compared to
an increase of $165.5 million in 2013. Other offsetting activity included net income of $84.2 million in 2014 compared to
a net loss of $149.5 million in 2013. The net loss in 2013 was due primarily to $345.5 million of non-cash impairment
and related charges, offset by a deferred tax benefit of $108.9 million which was primarily related to the impairment
charge.
Net cash provided by investing activities was $44.7 million in 2014 compared to $8.3 million of cash used in 2013. Cash
provided by investing activities for 2014 was primarily related to cash acquired in the Merger.
Net cash provided by financing activities increased to $234.8 million in 2014 from $28.6 million in 2013. The change was
primarily a result of (i) proceeds from the issuance of Senior Notes, and (ii) borrowings from notes payable, offset by (iii)
payments on debt payable to Weyerhaeuser.
As of December 31, 2014, our cash and cash equivalents balance was $170.6 million.
Off-Balance Sheet Arrangements
In the ordinary course of business, we enter into land option contracts in order to procure lots for the construction of our homes.
We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots. These
purchase contracts typically require a cash deposit and the purchase of properties under these contracts is generally contingent upon
satisfaction of certain requirements by the sellers, including obtaining applicable property and development entitlements. We also
utilize option contracts with land sellers as a method of acquiring land in staged takedowns, to help us manage the financial and
market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources. Option contracts
generally require a non-refundable deposit for the right to acquire lots over a specified period of time at pre-determined prices. We
generally have the right at our discretion to terminate our obligations under both purchase contracts and option contracts by forfeiting
our cash deposit with no further financial responsibility to the land seller. When market conditions are such that land values are not
appreciating, existing option agreements may become less desirable, at which time we may elect to forfeit deposits and pre-acquisition
costs and terminate the agreements. As of December 31, 2015, we had $42.1 million of non-refundable cash deposits pertaining to
land option contracts and purchase contracts with an aggregate remaining purchase price of approximately $377.4 million (net of
deposits).
Our utilization of land option contracts is dependent on, among other things, the availability of land sellers willing to enter into
option takedown arrangements, the availability of capital to financial intermediaries to finance the development of optioned lots,
general housing market conditions, and local market dynamics. Options may be more difficult to procure from land sellers in strong
housing markets and are more prevalent in certain geographic regions.
As of December 31, 2015, we had $242.2 million of availability under our secured revolving credit facilities after considering
the borrowing base provisions and outstanding letters of credit.
Contractual Obligations Table
The following table summarizes our future estimated cash payments under existing contractual obligations as of December 31,
2015, including estimated cash payments due by period. Our purchase obligations primarily represent commitments for land purchases
under land purchase and land option contracts with non-refundable deposits.
Contractual Obligations
Long-term debt principal payments(1)
Long-term debt interest payments
Operating leases(2)
Purchase obligations(3)
Total
Payments Due by Period
Total
Less Than 1 Year
1-3 Years
(in thousands)
4-5 Years
After 5 Years
$ 1,201,826 $
313,986
35,643
377,441
$ 1,928,896 $
2,434 $
— $ 749,392 $
53,327
106,321
64,010
7,448
12,095
9,057
—
158,039
219,402
282,611 $ 276,455 $ 822,459 $
450,000
90,328
7,043
—
547,371
(1)
For a more detailed description of our long-term debt, please see Note 13, Senior Notes and Notes Payable and Other Borrowings, of
the notes to our consolidated financial statements included elsewhere in this annual report on Form 10-K.
56
(2)
(3)
For a more detailed description of our operating leases, please see Note 15, Commitments and Contingencies, of the notes to our
consolidated financial statements included elsewhere in this annual report on Form 10-K.
Includes $377.4 million (net of deposits) of the remaining purchase price for all land options contracts and purchase contracts as of
December 31, 2015. For a more detailed description of our land purchase and option contracts, please see the discussion set forth above
in the section entitled “—Off-Balance Sheet Arrangements.”
Inflation
Our homebuilding operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material and
construction costs. In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage
financing to homebuyers. While we attempt to pass on cost increases to homebuyers through increased prices, when weak housing
market conditions exist, we are often unable to offset cost increases with higher selling prices. In addition, inflation can lead to higher
mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers.
Seasonality
Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements.
We typically experience the highest new home order activity during the first and second quarters of our fiscal year, although this
activity is also highly dependent on the number of active selling communities, timing of new community openings and other market
factors. Since it typically takes four to six months to construct a new home, the number of homes delivered and associated home sales
revenue typically increases in the third and fourth quarters of our fiscal year as new home orders sold earlier in the year convert to
home deliveries. Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest
in the second and third quarters of our fiscal year, and the majority of cash receipts from home deliveries occur during the second half
of the year. We expect this seasonal pattern to continue over the long-term, although it may be affected by volatility in the
homebuilding industry.
Critical Accounting Policies
Our financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires
our management to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of costs and expenses during the reporting period. On an ongoing basis, our management
evaluates its estimates and judgments, including those which impact our most critical accounting policies. Our management bases its
estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the
circumstances. Actual results may differ from our estimates under different assumptions or conditions. Our management believes that
the following accounting policies are among the most important to the portrayal of our financial condition and results of operations
and require among the most difficult, subjective or complex judgments:
Real Estate Inventories and Cost of Sales
Real estate inventories consist of land, land under development, homes under construction, completed homes and model homes
and are stated at cost, net of impairment losses. We capitalize direct carrying costs, including interest, property taxes and related
development costs to inventories. Field construction supervision and related direct overhead are also included in the capitalized cost of
inventories. Direct construction costs are specifically identified and allocated to homes while other common costs, such as land, land
improvements and carrying costs, are allocated to homes within a community based upon their anticipated relative sales or fair value.
In accordance with ASC Topic 835, Interest (“ASC 835”), homebuilding interest capitalized as a cost of inventories owned is included
in costs of sales as related units or lots are sold. To the extent our debt exceeds our qualified assets as defined in ASC 835, we expense
a portion of the interest incurred by us. Qualified assets represent projects that are actively under development. Homebuilding cost of
sales is recognized at the same time revenue is recognized and is recorded based upon total estimated costs to be allocated to each
home within a community. Any changes to the estimated costs are allocated to the remaining undelivered lots and homes within their
respective community. The estimation and allocation of these costs require a substantial degree of judgment by management.
The estimation process involved in determining relative sales or fair values is inherently uncertain because it involves estimating
future sales values of homes before delivery. Additionally, in determining the allocation of costs to a particular land parcel or
individual home, we rely on project budgets that are based on a variety of assumptions, including assumptions about construction
schedules and future costs to be incurred. It is common that actual results differ from budgeted amounts for various reasons, including
construction delays, increases in costs that have not been committed or unforeseen issues encountered during construction that fall
outside the scope of existing contracts, or costs that come in less than originally anticipated. While the actual results for a particular
construction project are accurately reported over time, a variance between the budget and actual costs could result in the
understatement or overstatement of costs and have a related impact on gross margins between reporting periods. To reduce the
potential for such variances, we have procedures that have been applied on a consistent basis, including assessing and revising project
57
budgets on a periodic basis, obtaining commitments from subcontractors and vendors for future costs to be incurred and utilizing the
most recent information available to estimate costs.
If there are indications of impairment, we perform a detailed budget and cash flow review of our real estate assets to determine
whether the estimated remaining undiscounted future cash flows of the community are more or less than the asset’s carrying value. If
the undiscounted cash flows are more than the asset’s carrying value, no impairment adjustment is required. However, if the
undiscounted cash flows are less than the asset’s carrying value, the asset is deemed impaired and is written down to fair value. These
impairment evaluations require us to make estimates and assumptions regarding future conditions, including timing and amounts of
development costs and sales prices of real estate assets, to determine if expected future undiscounted cash flows will be sufficient to
recover the asset’s carrying value.
When estimating undiscounted cash flows of a community, we make various assumptions, including: (i) expected sales prices
and sales incentives to be offered, including the number of homes available, pricing and incentives being offered by us or other
builders in other communities, and future sales price adjustments based on market and economic trends; (ii) expected sales pace and
cancellation rates based on local housing market conditions, competition and historical trends; (iii) costs expended to date and
expected to be incurred including, but not limited to, land and land development costs, home construction costs, interest costs, indirect
construction and overhead costs, and selling and marketing costs; (iv) alternative product offerings that may be offered that could have
an impact on sales pace, sales price and/or building costs; and (v) alternative uses for the property.
Many assumptions are interdependent and a change in one may require a corresponding change to other assumptions. For
example, increasing or decreasing sales absorption rates has a direct impact on the estimated per unit sales price of a home, the level
of time sensitive costs (such as indirect construction, overhead and carrying costs), and selling and marketing costs (such as model
maintenance costs and advertising costs). Depending on the underlying objective of the community, assumptions could have a
significant impact on the projected cash flow analysis. For example, if our objective is to preserve operating margins, our cash flow
analysis will be different than if the objective is to increase sales. These objectives may vary significantly from community to
community and over time. If assets are considered impaired, impairment is determined by the amount the asset’s carrying value
exceeds its fair value. Fair value is determined based on estimated future cash flows discounted for inherent risks associated with real
estate assets. These discounted cash flows are impacted by expected risk based on estimated land development, construction and
delivery timelines; market risk of price erosion; uncertainty of development or construction cost increases; and other risks specific to
the asset or market conditions where the asset is located when assessment is made. These factors are specific to each community and
may vary among communities. We perform a quarterly review for indicators of impairment. For the years ended December 31, 2015,
2014 and 2013 we recorded real estate inventory impairment charges of $1.2 million, $931,000 and $341.1 million, respectively. The
impairment charge in 2013 is primarily related to the impairment of Coyote Springs, which was an excluded asset per the Transaction
Agreement.
Revenue Recognition
In accordance with ASC 360, Property, Plant, and Equipment, revenues from home sales and other real estate sales are recorded
and a profit is recognized when the respective units are delivered. Home sales and other real estate sales are delivered when all
conditions of escrow are met, including delivery of the home or other real estate asset, title passage, appropriate consideration is
received and collection of associated receivables, if any, is reasonably assured. Sales incentives are a reduction of revenues when the
respective unit is delivered. When it is determined that the earnings process is not complete, the sale and/or the related profit are
deferred for recognition in future periods. The profit we record is based on the calculation of cost of sales, which is dependent on our
allocation of costs, as described in more detail above in the section entitled “Real Estate Inventories and Cost of Sales.”
Warranty Reserves
In the normal course of business, we incur warranty-related costs associated with homes that have been delivered to
homebuyers. Estimated future direct warranty costs are accrued and charged to cost of sales in the period when the related home sales
revenues are recognized while indirect warranty overhead salaries and related costs are charged to cost of sales in the period incurred.
Factors that affect the warranty accruals include the number of homes delivered, historical and anticipated rates of warranty claims
and cost per claim. Our primary assumption in estimating the amounts we accrue for warranty costs is that historical claims
experience is a strong indicator of future claims experience. In addition, we maintain general liability insurance designed to protect us
against a portion of our risk of loss from construction-related claims. Included in our warranty reserve accrual are allowances to cover
our estimated costs of self-insured retentions and deductible amounts under these policies and estimated costs for claims that may not
be covered by applicable insurance or indemnities. Estimation of these accruals include consideration of our claims history, including
current claims and estimates of claims incurred but not yet reported. In 2015, we engaged a third-party actuary to analyze our warranty
reserves and allowances to cover any current or future construction-related claims. The third-party actuary used our historical expense
and claim data, as well as industry data, to estimate a reserve amount. As result of this analysis, we increased our warranty liability by
$6.0 million during the fourth quarter of 2015. Although we consider the warranty accruals reflected in our consolidated balance sheet
58
to be adequate, actual future costs could differ significantly from our currently estimated amounts. Our warranty accrual is included in
accrued expenses and other liabilities in the accompanying consolidated balance sheets.
Stock-Based Compensation
We account for share-based awards in accordance with ASC 718, Compensation-Stock Compensation (“ASC 718”). ASC 718
requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. ASC 718 requires
all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees.
Share-based awards are expensed on a straight-line basis over the expected vesting period.
Income Taxes
We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities
are recorded based on future tax consequences of both temporary differences between the amounts reported for financial reporting
purposes and the amounts deductible for income tax purposes, and are measured using enacted tax rates expected to apply in the years
in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in earnings in the period when the changes are enacted.
Each quarter we assess our deferred tax assets to determine whether all or any portion of the assets is more likely than not
unrealizable under ASC 740. We are required to establish a valuation allowance for any portion of the asset we conclude is more
likely than not to be unrealizable. Our assessment considers, among other things, the nature, frequency and severity of our current and
cumulative losses, forecasts of our future taxable income, the duration of statutory carryforward periods and tax planning
alternatives. Due to uncertainties inherent in the estimation process, it is possible that actual results may vary from estimates.
We classify any interest and penalties related to income taxes as part of income tax expense. As of December 31, 2015 and
2014, the Company had liabilities for gross unrecognized tax benefits of $272,000 and $14.9 million, respectively, the majority of
which were assumed in connection with the Merger.
Goodwill
In accordance with ASC Topic 350, Intangibles-Goodwill and Other (“ASC 350”), we will evaluate goodwill for possible
impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not
be recoverable. Based on our qualitative analysis, we have concluded as of December 31, 2015, our goodwill was not impaired. For
further details on the goodwill, see Note 2, Merger with Weyerhaeuser Real Estate Company, of the notes to our consolidated
financial statements included elsewhere in this annual report on Form 10-K.
Related Party Transactions
In June of 2014, TRI Pointe acquired 46 lots located in Castle Rock, Colorado, for a purchase price of approximately
$2.7 million from an entity managed by an affiliate of the Starwood Capital Group. In January of 2015, TRI Pointe acquired an
additional 46 lots located in Castle Rock, Colorado, for a purchase price of approximately $2.8 million from an entity managed by an
affiliate of the Starwood Capital Group. The chairman of the Company’s board of directors is Barry Sternlicht who is also the
chairman of the Starwood Capital Group. This acquisition was approved by TRI Pointe’s independent directors.
In October of 2015, we entered into an agreement with an affiliate of BlackRock, Inc. to acquire 161 lots located in Dublin,
California, for a purchase price of approximately $60 million. BlackRock, Inc. is a greater than five percent holder of our common
stock. This acquisition was approved by the Executive Land Committee, which is comprised of independent directors.
Prior to the Merger, WRECO was a wholly-owned subsidiary of Weyerhaeuser. Weyerhaeuser provided certain services
including payroll processing and related employee benefits, other corporate services such as corporate governance, cash management
and other treasury services, administrative services such as government relations, tax, internal audit, legal, accounting, human
resources and equity-based compensation plan administration, lease of office space, aviation services and insurance coverage.
WRECO was allocated a portion of Weyerhaeuser corporate general and administrative costs on either a proportional cost or usage
basis.
During the year ended December 31, 2014 and prior to the Merger, WRECO sold $4.8 million of mineral rights and $21.2
million of land to Weyerhaeuser.
59
Recently Issued Accounting Standards
In April 2014, the FASB issued amendments to Accounting Standards Update 2014-08, Reporting Discontinued Operations and
Disclosures of Disposals of Components of an Entity. The update requires that a disposal representing a strategic shift that has (or will
have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued
operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for
individually significant dispositions that do not qualify as discontinued operations. We adopted ASU 2014-08 on January 1, 2015 and
the adoption had no impact on our current or prior year financial statements.
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-
09”). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. To achieve that core principle, an entity should apply the following steps: identify the contract(s) with a customer; identify
the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance
obligations in the contract; and recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 supersedes
the revenue-recognition requirements in ASC Topic 605, Revenue Recognition, most industry-specific guidance throughout the
industry topics of the accounting standards codification, and some cost guidance related to construction-type and production-type
contracts. On July 9, 2015, the FASB voted to defer the effective date of ASU No. 2014-09 by one year and it is now effective for
public entities for the annual periods ending after December 15, 2017, and for annual and interim periods thereafter. Companies may
use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. Early adoption is permitted, but can be no
earlier than the original public entity effective date of fiscal years, and the interim periods within those years, beginning after
December 15, 2016. We are currently evaluating the approach for implementation and the potential impact of adopting this guidance
on our consolidated financial statements.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15 (“ASU 2014-15”), Presentation of Financial
Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern, which requires management to evaluate, in connection with preparing financial statements for each annual and interim
reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s
ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after
the date that the financial statements are available to be issued when applicable) and provide related disclosures. ASU 2014-15 is
effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is
permitted. We believe the adoption of this guidance will not have a material effect on our consolidated financial statements.
In February 2015, the FASB issued Accounting Standards Update No. 2015-02, (“ASU 2015-02”), Consolidation (Topic 810):
Amendments to the Consolidation Analysis. ASU 2015-02 changes the analysis that a reporting entity must perform to determine
whether it should consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2015. We believe the adoption of ASU 2015-02 will not have a material effect on our
consolidated financial statements.
In April 2015 and August 2015, the FASB issued Accounting Standards Update No. 2015-03, (“ASU 2015-03”), Interest -
Imputation of Interest (Subtopic 835-30) and Accounting Standards Update No. 2015-15, Presentation and Subsequent Measurement
of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which changes the presentation of debt issuance costs related to
a recognized debt liability in financial statements. Under ASU 2015-03, an entity presents such costs in the balance sheet as a direct
deduction from the related debt liability rather than as an asset. The FASB will permit debt issuance costs related to line-of-credit
agreements to be deferred and presented as an asset, regardless of whether there are any outstanding borrowings on the line-of-credit
arrangement. Amortization of the costs is reported as interest expense. We adopted ASU 2015-03 on December 31, 2015 and applied
the new guidance retrospectively to all prior periods presented in the financial statements. As a result of the adoption of ASU 2015-03,
$20.4 million and $23.7 million of deferred loan costs at December 31, 2015 and 2014, respectively, were reclassified from “Other
assets” to “Senior notes” in our Consolidated Balance Sheets. See Note 13, Senior Notes and Notes Payable and Other Borrowings,
of the notes to our consolidated financial statements included elsewhere in this annual report on Form 10-K for additional information.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, (“ASU 2015-17”), Income Taxes (Topic 740):
Balance Sheet Classification of Deferred Taxes, which requires deferred tax liabilities and assets be classified as noncurrent in a
classified statement of position. ASU 2015-17 is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2017. The adoption of ASU 2015-17 will not have a material effect on our consolidated financial statements.
60
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks related to fluctuations in interest rates on our outstanding debt. We did not utilize swaps,
forward or option contracts on interest rates or commodities, or other types of derivative financial instruments as of or during the year
ended December 31, 2015. We have not entered into and currently do not hold derivatives for trading or speculative purposes. Many
of the statements contained in this section are forward looking and should be read in conjunction with our disclosures under the
heading “Cautionary Note Concerning Forward-Looking Statements.”
The table below details the principal amount and the average interest rates for the outstanding debt for each category based upon
the expected maturity or disposition dates. The fair value of our debt, which consists of our unsecured revolving credit facility, seller
financed loans and Senior Notes, is based on quoted market prices for the same or similar instruments as of December 31, 2015.
December 31,
2016
2017
2018
2019
2020 Thereafter
Total
(dollars in thousands)
Estimated
Fair Value
Expected Maturity Date
Liabilities:
Variable rate debt
Weighted average interest rate
Fixed rate debt
Weighted average interest rate
$ — $ — $ — $ 299,392 $ — $
2.4% 0.0%
0.0% 0.0% 0.0%
— $ 299,392 $ 299,392
2.4%
2.4%
0.0 %
$ 2,434 $ — $ — $ 450,000 $ — $ 450,000 $ 902,434 $ 883,828
5.1%
6.8% 0.0% 0.0%
4.4% 0.0%
5.9 %
5.1%
Based on the current interest rate management policies we have in place with respect to our outstanding debt, we do not believe
that the future market rate risks related to the above securities will have a material adverse impact on our financial position, results of
operations or liquidity. For a more detailed description of our long-term debt, please see Note 13, Senior Notes and Notes Payable and
Other Borrowings, of the notes to our consolidated financial statements included elsewhere in this annual report on Form 10-K.
Item 8.
Financial Statements and Supplementary Data
See Item 15 included in this report.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that information we are required to disclose in the reports we
file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s
rules and forms, and accumulated and communicated to management, including the Chief Executive Officer (the “Principal Executive
Officer”) and Chief Financial Officer (the “Principal Financial Officer”), as appropriate, to allow timely decisions regarding required
disclosure. Under the supervision and with the participation of senior management, including our Principal Executive Officer and
Principal Financial Officer, we evaluated our disclosure controls and procedures, as such term is defined under Rule 13a-15(e)
promulgated under the Exchange Act. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer
concluded that our disclosure controls and procedures were effective as of December 31, 2015.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external
purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria in
Internal Control-Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway
61
Commission. Based on our evaluation under the framework in Internal Control-Integrated Framework, our management concluded
that our internal control over financial reporting was effective as of December 31, 2015.
The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by Ernst & Young
LLP, our independent registered public accounting firm, as stated in its attestation report which is included herein.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of TRI Pointe Group, Inc.
We have audited TRI Pointe Group, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). TRI Pointe Group, Inc.’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included
in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, TRI Pointe Group, Inc. maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of TRI Pointe Group, Inc. as of December 31, 2015 and 2014, and the related consolidated statement of
operations, equity, and cash flows for each of the two years in the period ended December 31, 2015 of TRI Pointe Group, Inc. and our
report dated February 26, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Irvine, California
February 26, 2016
Changes in Internal Control Over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal control over
financial reporting to determine whether any change occurred during the fourth quarter of the year ended December 31, 2015 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation,
there has been no such change during the fourth quarter of the period covered by this report.
Item 9B. Other Information
None.
62
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required in response to this item is incorporated by reference from the information contained in our 2016 Proxy
Statement under the captions “Board of Directors,” “Management,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and
“Corporate Governance.”
Item 11. Executive Compensation
The information required in response to this item is incorporated by reference to our 2016 Proxy Statement under the captions
“Executive Compensation,” “Compensation Committee Report,” and “Corporate Governance – Compensation Committee Interlocks
and Insider Participation.”
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholders
The information required in response to this item is incorporated by reference to our 2016 Proxy Statement under the captions
“Ownership of Our Common Stock” and “Equity Compensation Plan Information.”
Item 13. Certain Relationships and Related Party Transactions, and Director Independence
The information required in response to this item is incorporated by reference to our 2016 Proxy Statement under the captions
“Corporate Governance” and “Certain Relationships and Related Party Transactions.”
Item 14. Principal Accountant Fees and Services
The information required in response to this item is incorporated by reference to our 2016 Proxy Statement under the caption
“Audit Committee Matters.”
63
PART IV
Item 15. Exhibits, Financial Statements and Financial Statement Schedules
(a) The following documents are filed as part of this annual report on Form 10-K:
(1) Financial Statements:
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Equity for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Cash Flows the years ended December 31, 2015, 2014 and 2013
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Page:
65
67
68
69
70
71
All other schedules have been omitted since the required information is presented in the financial statements and the
related notes or is not applicable.
(3) Exhibits
The exhibits filed or furnished as part of this annual report on Form 10-K are listed in the Index to Exhibits immediately
preceding those exhibits, which Index is incorporated in this Item by reference.
64
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
TRI Pointe Group, Inc.
We have audited the accompanying consolidated balance sheets of TRI Pointe Group, Inc. (formerly TRI Pointe Homes, Inc.) as
of December 31, 2015 and 2014, and the related consolidated statements of operations, equity, and cash flows for each of the two
years in the period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of TRI Pointe Group, Inc. at December 31, 2015 and 2014, and the consolidated results of its operations and cash flows for
each of the two years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company changed its reporting of debt issuance costs as a
result of the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards
Update No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.”
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
TRI Pointe Group’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
Framework) and our report dated February 26, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Irvine, California
February 26, 2016
65
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholder
Weyerhaeuser Real Estate Company:
We have audited the accompanying consolidated statements of operations, changes in equity, and cash flows for the year ended
December 31, 2013 of Weyerhaeuser Real Estate Company and subsidiaries as of December 31, 2013. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of
operations and cash flows of Weyerhaeuser Real Estate Company and subsidiaries for the year ended December 31, 2013, in
conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Seattle, WA
February 18, 2014
66
TRI POINTE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
Assets
Cash and cash equivalents
Receivables
Real estate inventories
Investments in unconsolidated entities
Goodwill and other intangible assets, net
Deferred tax assets, net
Other assets
Total assets
Liabilities
Accounts payable
Accrued expenses and other liabilities
Unsecured revolving credit facility
Seller financed loans
Senior notes, net
Total liabilities
Commitments and contingencies (Note 15)
Equity
Stockholders’ Equity:
December 31,
2015
December 31,
2014
$
$
$
214,485 $
43,710
2,519,273
18,999
162,029
130,657
48,918
3,138,071 $
64,840 $
216,263
299,392
2,434
868,679
1,451,608
170,629
20,118
2,280,183
16,805
162,563
157,821
81,719
2,889,838
68,860
210,009
260,000
14,677
863,816
1,417,362
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares
issued and outstanding as of December 31, 2015 and 2014, respectively
Common stock, $0.01 par value, 500,000,000 shares authorized;
161,813,750 and 161,355,490 shares issued and outstanding at
December 31, 2015 and 2014, respectively
Additional paid-in capital
Retained earnings
Total stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
—
—
1,618
911,197
751,868
1,664,683
21,780
1,686,463
3,138,071 $
1,614
906,159
546,407
1,454,180
18,296
1,472,476
2,889,838
$
See accompanying notes.
67
TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
$
$
$
$
$
$
$
$
2015
Year Ended December 31,
2014
2013
2,291,264
101,284
7,601
2,400,149
1,807,091
34,844
4,360
1,930
116,217
117,496
3,329
314,882
1,460
—
858
317,200
1,010
181
1,231
2,060
319,260
(112,079)
207,181
—
207,181
(1,720)
205,461
205,461
—
205,461
1.27
—
1.27
1.27
—
1.27
$
$
$
$
$
$
$
$
1,646,274 $
47,660
9,682
1,703,616
1,316,470
37,560
3,324
2,515
103,600
82,358
10,543
147,246
(278 )
(17,960 )
(1,019 )
127,989
—
15
(10 )
(25 )
127,964
(43,767 )
84,197
—
84,197
—
84,197 $
1,218,430
52,261
4,021
1,274,712
948,561
38,052
2,854
345,448
94,521
74,244
10,938
(239,906)
2
—
2,450
(237,454)
—
—
—
—
(237,454)
86,161
(151,293)
1,838
(149,455)
—
(149,455)
84,197 $
—
84,197 $
(151,293)
1,838
(149,455)
0.58 $
—
0.58 $
0.58 $
—
0.58 $
(1.17)
0.02
(1.15)
(1.17)
0.02
(1.15)
161,692,152
162,319,758
145,044,351
145,531,289
129,700,000
129,700,000
Homebuilding:
Home sales revenue
Land and lot sales revenue
Other operations
Total revenues
Cost of home sales
Cost of land and lot sales
Other operations
Impairments and lot option abandonments
Sales and marketing
General and administrative
Restructuring charges
Homebuilding income (loss) from operations
Equity in income (loss) of unconsolidated entities
Transaction expenses
Other income (loss), net
Homebuilding income (loss) from continuing operations before taxes
Financial Services:
Revenues
Expenses
Equity in income (loss) of unconsolidated entities
Financial services income (loss) from continuing operations before
taxes
Income (loss) from continuing operations before taxes
(Provision) benefit for income taxes
Income (loss) from continuing operations
Discontinued operations, net of income taxes
Net income (loss)
Net income attributable to noncontrolling interests
Net income (loss) available to common stockholders
Amounts attributable to TRI Pointe Group, Inc. common stockholders:
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss) available to common stockholders
Earnings (loss) per share
Basic
Continuing operations
Discontinued operations
Net earnings (loss) per share
Diluted
Continuing operations
Discontinued operations
Net earnings (loss) per share
Weighted average shares outstanding
Basic
Diluted
See accompanying notes.
68
Balance at December 31, 2012
Net loss
Return of capital to Weyerhaeuser
Excess tax benefit of share-based
awards, net
Stock-based compensation expense
Distributions to noncontrolling
interests, net
Net effect of consolidations,
de-consolidations and other
transactions
Balance at December 31, 2013
Net income
Capital contribution by Weyerhaeuser,
net
Common shares issued in connection
with the Merger (Note 2)
Shares issued under share-based
awards
Excess tax benefit of share-based
awards, net
Stock-based compensation expense
Distributions to noncontrolling
interests, net
Net effect of consolidations,
de-consolidations and other
transactions
Balance at December 31, 2014
Net income
Adjustment to capital contribution by
Weyerhaeuser, net
Shares issued under share-based
awards
Excess tax benefit of share-based
awards, net
Minimum tax withholding paid on
behalf of employees for restricted
stock units
Stock-based compensation expense
Distributions to noncontrolling
interests, net
Net effect of consolidations,
de-consolidations and other
transactions
Balance at December 31, 2015
See accompanying notes.
TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except share amounts)
Number of
Common
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Total
Stockholders' Noncontrolling
Shares (Note 1)
129,700,000 $ 1,297 $ 340,817 $ 611,665 $
(149,455)
—
—
(13,920)
—
—
—
—
Equity
Interests
953,779 $
(149,455 )
(13,920 )
39,948 $
—
—
Total
Equity
993,727
(149,455)
(13,920)
—
—
—
—
—
—
1,690
5,002
—
—
—
—
1,690
5,002
—
—
1,690
5,002
—
(7,121)
(7,121)
—
129,700,000
—
—
—
1,297 333,589
—
—
—
462,210
84,197
—
797,096
84,197
(4,406)
28,421
—
(4,406)
825,517
84,197
—
—
63,355
—
63,355
—
63,355
31,632,533
317 498,656
—
498,973
—
498,973
22,957
—
—
—
—
—
—
—
176
1,757
8,626
—
—
—
—
—
176
1,757
8,626
—
—
—
176
1,757
8,626
—
(17,248)
(17,248)
—
161,355,490
—
—
—
1,614 906,159
—
—
—
—
546,407 1,454,180
205,461
205,461
7,123
7,123
18,296 1,472,476
207,181
1,720
—
—
(6,747)
—
(6,747 )
—
(6,747)
458,260
4
1,612
—
1,616
—
1,616
—
—
428
—
428
—
428
—
—
—
—
—
—
(2,190)
11,935
—
—
—
—
(2,190 )
11,935
—
—
(2,190)
11,935
—
(3,833)
(3,833)
—
161,813,750 $ 1,618 $ 911,197 $ 751,868 $ 1,664,683 $
—
—
—
—
5,597
5,597
21,780 $ 1,686,463
69
TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
2015
Year Ended December 31,
2014
2013
$
207,181 $
84,197 $
(149,455)
8,274
(2,691)
27,164
11,935
1,930
—
—
—
(235,030)
(23,592)
35,360
(4,020)
4,494
—
—
31,005
(809)
—
—
(1,468)
—
1,415
(862)
140,000
(112,851)
(2,688)
—
—
—
—
—
(6,769)
5,990
(9,823)
1,616
428
(2,190)
13,713
43,856
170,629
214,485 $
$
11,423
288
5,716
8,626
2,515
—
—
10,322
(276,315 )
40,933
(6,680 )
5,571
(46 )
80
—
(113,370 )
(7,850 )
53,800
23
(1,311 )
—
—
44,662
100,600
(53,051 )
(23,000 )
886,698
(10,322 )
(623,589 )
(22,491 )
(8,606 )
3,903
1,895
(19,143 )
176
1,757
—
234,827
166,119
4,510
170,629 $
13,489
(2)
(108,869)
5,002
345,448
(1,946)
645
—
(165,471)
44,689
(19,391)
(6,538)
20,200
1,111
84
(21,004)
(10,350)
—
5
(1,571)
3,623
—
(8,293)
—
(109,900)
—
—
—
145,036
6,821
(13,920)
5,582
925
(8,046)
—
2,097
—
28,595
(702)
5,212
4,510
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization
Equity in (income) loss of unconsolidated entities, net
Deferred income taxes, net
Amortization of stock-based compensation
Charges for impairments and lot option abandonments
Net gain on sale of discontinued operations
Charge for early extinguishment of debt
Bridge commitment fee
Changes in assets and liabilities:
Real estate inventories
Receivables
Other assets
Accounts payable
Accrued expenses and other liabilities
Returns on investments in unconsolidated entities, net
Other operating cash flows
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchases of property and equipment
Cash acquired in the Merger
Proceeds from sale of property and equipment
Investments in unconsolidated entities
Proceeds from the sale of discontinued operations
Distributions from unconsolidated entities
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Borrowings from debt
Repayment of debt
Debt issuance costs
Proceeds from issuance of senior notes
Bridge commitment fee
Repayment of debt payable to Weyerhaeuser
Decrease in book overdrafts
Distributions to Weyerhaeuser
Net (repayments) proceeds of debt held by variable interest entities
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Proceeds from issuance of common stock under share-based
awards
Excess tax benefits of share-based awards
Minimum tax withholding paid on behalf of employees for
share-based awards
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents - beginning of year
Cash and cash equivalents - end of year
See accompanying notes.
70
TRI POINTE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization
TRI Pointe Group, Inc. is engaged in the design, construction and sale of innovative single-family attached and detached homes
through its portfolio of six quality brands across eight states, including Maracay Homes in Arizona, Pardee Homes in California and
Nevada, Quadrant Homes in Washington, Trendmaker Homes in Texas, TRI Pointe Homes in California and Colorado and
Winchester Homes in Maryland and Virginia.
Formation of TRI Pointe Group
On July 7, 2015, TRI Pointe Homes reorganized its corporate structure (the “Reorganization”) whereby TRI Pointe Homes
became a direct, wholly-owned subsidiary of TRI Pointe Group. As a result of the reorganization, each share of common stock, par
value $0.01 per share, of TRI Pointe Homes (“Homes Common Stock”) was cancelled and converted automatically into the right to
receive one validly issued, fully paid and non-assessable share of common stock, par value $0.01 per share, of TRI Pointe Group
(“Group Common Stock”), each share having the same designations, rights, powers and preferences, and the qualifications, limitations
and restrictions thereof as the shares of Homes Common Stock being so converted. TRI Pointe Group, as the successor issuer to TRI
Pointe Homes (pursuant to Rule 12g-3(a) under the 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 July 7, 2015.
In connection with the Reorganization, TRI Pointe Group (i) became a co-issuer of TRI Pointe Homes’ 4.375% Senior Notes
due 2019 and TRI Pointe Homes' 5.875% Senior Notes due 2024; and (ii) replaced TRI Pointe Homes as the borrower under TRI
Pointe Homes’ existing unsecured revolving credit facility.
The business, executive officers and directors of TRI Pointe Group, and the rights and limitations of the holders of Group
Common Stock immediately following the Reorganization were identical to the business, executive officers and directors of TRI
Pointe Homes, and the rights and limitations of holders of Homes Common Stock immediately prior to the Reorganization.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries as described in
“Reverse Acquisition” below, as well as other entities in which the Company has a controlling interest and variable interest entities
(“VIEs”) in which the Company is the primary beneficiary. The noncontrolling interests as of December 31, 2015 and 2014 represent
the outside owners’ interests in the Company’s consolidated entities and the net equity of the VIE owners. All significant
intercompany accounts have been eliminated upon consolidation.
As a result of the adoption of ASU 2015-03, $20.4 million and $23.7 million of deferred loan costs at December 31, 2015 and
2014, respectively, were reclassified from “Other assets” to “Senior notes” in our Consolidated Balance Sheets. See Note 13, Senior
Notes and Notes Payable and Other Borrowings, for additional information.
Unless the context otherwise requires, the terms “we”, “us”, “our” and “the Company” have the following meanings:
For periods prior to July 7, 2015: TRI Pointe Homes (and its consolidated subsidiaries)
For periods from and after July 7, 2015: TRI Pointe Group (and its consolidated subsidiaries)
Reverse Acquisition
On July 7, 2014 (the “Closing Date”), TRI Pointe Homes, Inc. consummated the previously announced merger (the “Merger”)
of our wholly-owned subsidiary, Topaz Acquisition, Inc. (“Merger Sub”), with and into Weyerhaeuser Real Estate Company
(“WRECO”), with WRECO surviving the Merger and becoming our wholly-owned subsidiary, as contemplated by the Transaction
Agreement, dated as of November 3, 2013 (the “Transaction Agreement”), by and among us, Weyerhaeuser Company
(“Weyerhaeuser”), the Company, WRECO and Merger Sub. The Merger is accounted for in accordance with ASC Topic 805,
Business Combinations (“ASC 805”). For accounting purposes, the Merger is treated as a “reverse acquisition” and WRECO is
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considered the accounting acquirer. Accordingly, WRECO is reflected as the predecessor and acquirer and therefore the
accompanying consolidated financial statements reflect the historical consolidated financial statements of WRECO for all periods
presented and do not include the historical financial statements of TRI Pointe prior to the Closing Date. Subsequent to the Closing
Date, the consolidated financial statements reflect the results of the combined company.
See Note 2, Merger with Weyerhaeuser Real Estate Company, for further information on the Merger. In the Merger, each issued
and outstanding WRECO common share was converted into 1.297 shares of TRI Pointe common stock. The historical issued and
outstanding WRECO common shares (100,000,000 common shares for all periods presented prior to the Merger) have been recast (as
129,700,000 common shares of the Company for all periods prior to the Merger) in all periods presented to reflect this conversion.
Reclassifications
Certain amounts in our consolidated financial statements for prior years have been reclassified to conform to the current period
presentation.
Financial Services Reporting Segment
During the three months ended December 31, 2015, we revised our comparative segment information to reflect our new
reportable segment structure. The adjusted segment information constitutes a reclassification for our financial services revenues,
expenses and equity in income (loss) of unconsolidated entities previously reported in other operations and has no impact on reported
net income (loss) or earnings (loss) per share for preceding periods. This change does not restate information previously reported in
the consolidated balance sheets, consolidated statements of equity or consolidated statements of cash flows for the preceding periods.
See Note 4. Segment Information, for additional information.
Use of Estimates
Our financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires
our management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosures of
contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from our estimates.
Cash and Cash Equivalents and Concentration of Credit Risk
We define cash and cash equivalents as cash on hand, demand deposits with financial institutions, and short-term liquid
investments with an initial maturity date of less than three months. The Company’s cash balances exceed federally insurable limits.
The Company monitors the cash balances in its operating accounts and adjusts the cash balances as appropriate; however, these cash
balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial
markets. To date, the Company has experienced no loss or lack of access to cash in its operating accounts.
Real Estate Inventories and Cost of Sales
Real estate inventories consist of land, land under development, homes under construction, completed homes and model homes
and are stated at cost, net of impairment losses. We capitalize direct carrying costs, including interest, property taxes and related
development costs to inventories. Field construction supervision and related direct overhead are also included in the capitalized cost of
inventories. Direct construction costs are specifically identified and allocated to homes while other common costs, such as land, land
improvements and carrying costs, are allocated to homes within a community based upon their anticipated relative sales or fair value.
In accordance with ASC Topic 835, Interest (“ASC 835”), homebuilding interest capitalized as a cost of inventories owned is included
in costs of sales as related units or lots are sold. To the extent our debt exceeds our qualified assets as defined in ASC 835, we expense
a portion of the interest incurred by us. Qualified assets represent projects that are actively under development. Homebuilding cost of
sales is recognized at the same time revenue is recognized and is recorded based upon total estimated costs to be allocated to each
home within a community. Any changes to the estimated costs are allocated to the remaining undelivered lots and homes within their
respective community. The estimation and allocation of these costs require a substantial degree of judgment by management.
The estimation process involved in determining relative sales or fair values is inherently uncertain because it involves estimating
future sales values of homes before delivery. Additionally, in determining the allocation of costs to a particular land parcel or
individual home, we rely on project budgets that are based on a variety of assumptions, including assumptions about construction
schedules and future costs to be incurred. It is common that actual results differ from budgeted amounts for various reasons, including
construction delays, increases in costs that have not been committed or unforeseen issues encountered during construction that fall
outside the scope of existing contracts, or costs that come in less than originally anticipated. While the actual results for a particular
construction project are accurately reported over time, a variance between the budget and actual costs could result in the
72
understatement or overstatement of costs and have a related impact on gross margins between reporting periods. To reduce the
potential for such variances, we have procedures that have been applied on a consistent basis, including assessing and revising project
budgets on a periodic basis, obtaining commitments from subcontractors and vendors for future costs to be incurred and utilizing the
most recent information available to estimate costs.
If there are indications of impairment, we perform a detailed budget and cash flow review of our real estate assets to determine
whether the estimated remaining undiscounted future cash flows of the community are more or less than the asset’s carrying value. If
the undiscounted cash flows are more than the asset’s carrying value, no impairment adjustment is required. However, if the
undiscounted cash flows are less than the asset’s carrying value, the asset is deemed impaired and is written down to fair value. These
impairment evaluations require us to make estimates and assumptions regarding future conditions, including timing and amounts of
development costs and sales prices of real estate assets, to determine if expected future undiscounted cash flows will be sufficient to
recover the asset’s carrying value.
When estimating undiscounted cash flows of a community, we make various assumptions, including: (i) expected sales prices
and sales incentives to be offered, including the number of homes available, pricing and incentives being offered by us or other
builders in other communities, and future sales price adjustments based on market and economic trends; (ii) expected sales pace and
cancellation rates based on local housing market conditions, competition and historical trends; (iii) costs expended to date and
expected to be incurred including, but not limited to, land and land development costs, home construction costs, interest costs, indirect
construction and overhead costs, and selling and marketing costs; (iv) alternative product offerings that may be offered that could have
an impact on sales pace, sales price and/or building costs; and (v) alternative uses for the property.
Many assumptions are interdependent and a change in one may require a corresponding change to other assumptions. For
example, increasing or decreasing sales absorption rates has a direct impact on the estimated per unit sales price of a home, the level
of time sensitive costs (such as indirect construction, overhead and carrying costs), and selling and marketing costs (such as model
maintenance costs and advertising costs). Depending on the underlying objective of the community, assumptions could have a
significant impact on the projected cash flow analysis. For example, if our objective is to preserve operating margins, our cash flow
analysis will be different than if the objective is to increase sales. These objectives may vary significantly from community to
community and over time. If assets are considered impaired, impairment is determined by the amount the asset’s carrying value
exceeds its fair value. Fair value is determined based on estimated future cash flows discounted for inherent risks associated with real
estate assets. These discounted cash flows are impacted by expected risk based on estimated land development, construction and
delivery timelines; market risk of price erosion; uncertainty of development or construction cost increases; and other risks specific to
the asset or market conditions where the asset is located when assessment is made. These factors are specific to each community and
may vary among communities. We perform a quarterly review for indicators of impairment. For the years ended December 31, 2015,
2014 and 2013 we recorded impairment charges of $1.2 million, $931,000 and $341.1 million, respectively. The impairment charge
in 2013 was primarily related to the impairment of the Coyote Springs Property, which was an excluded asset per the Transaction
Agreement.
Revenue Recognition
In accordance with ASC Topic 360, Property, Plant, and Equipment, revenues from home sales and other real estate sales are
recorded and a profit is recognized when the respective units are delivered. Home sales and other real estate sales are delivered when
all conditions of escrow are met, including delivery of the home or other real estate asset, title passage, appropriate consideration is
received and collection of associated receivables, if any, is reasonably assured. Sales incentives are a reduction of revenues when the
respective unit is delivered. When it is determined that the earnings process is not complete, the sale and/or the related profit are
deferred for recognition in future periods. The profit we record is based on the calculation of cost of sales, which is dependent on our
allocation of costs, as described in more detail above in the section entitled “Real Estate Inventories and Cost of Sales.”
Warranty Reserves
In the normal course of business, we incur warranty-related costs associated with homes that have been delivered to
homebuyers. Estimated future direct warranty costs are accrued and charged to cost of sales in the period when the related home sales
revenues are recognized while indirect warranty overhead salaries and related costs are charged to cost of sales in the period incurred.
Factors that affect the warranty accruals include the number of homes delivered, historical and anticipated rates of warranty claims
and cost per claim. Our primary assumption in estimating the amounts we accrue for warranty costs is that historical claims
experience is a strong indicator of future claims experience. In addition, we maintain general liability insurance designed to protect us
against a portion of our risk of loss from construction-related claims. Included in our warranty reserve accrual are allowances to cover
our estimated costs of self-insured retentions and deductible amounts under these policies and estimated costs for claims that may not
be covered by applicable insurance or indemnities. Estimation of these accruals include consideration of our claims history, including
current claims and estimates of claims incurred but not yet reported. In 2015, we engaged a third-party actuary to analyze our warranty
reserves and allowances to cover any current or future construction-related claims. The third-party actuary used our historical expense
and claim data, as well as industry data, to estimate a reserve amount. As result of this analysis, we increased our warranty liability by
73
$6.0 million during the fourth quarter of 2015. Although we consider the warranty accruals reflected in our consolidated balance sheet
to be adequate, actual future costs could differ significantly from our currently estimated amounts. Our warranty accrual is included in
accrued expenses and other liabilities in the accompanying consolidated balance sheets.
Investments in Unconsolidated Entities
We have investments in unconsolidated entities over which we have significant influence that we account for using the equity
method with taxes provided on undistributed earnings. We record earnings and accrue taxes in the period that the earnings are
recorded by our affiliates. Under the equity method, our share of the unconsolidated entities’ earnings or loss is included in equity in
income (loss) of unconsolidated entities in the accompanying consolidated statement of operations. We evaluate our investments in
unconsolidated entities for impairment when events and circumstances indicate that the carrying value of the investment may not be
recoverable.
Variable Interest Entities
The Company accounts for variable interest entities in accordance with ASC Topic 810, Consolidation (“ASC 810”). Under
ASC 810, a variable interest entity (“VIE”) is created when: (a) the equity investment at risk in the entity is not sufficient to permit the
entity to finance its activities without additional subordinated financial support provided by other parties, including the equity holders;
(b) the entity’s equity holders as a group (i) lack the direct or indirect ability to make decisions about the entity, (ii) are not obligated
to absorb expected losses of the entity or (iii) do not have the right to receive expected residual returns of the entity; or (c) the entity’s
equity holders have voting rights that are not proportionate to their economic interests, and the activities of the entity involve, or are
conducted on behalf of, the equity holder with disproportionately few voting rights. If an entity is deemed to be a VIE pursuant to
ASC 810, the enterprise that has both (a) the power to direct the activities of a VIE that most significantly impact the entity’s
economic performance and (b) the obligation to absorb the expected losses of the entity or right to receive benefits from the entity that
could be potentially significant to the VIE is considered the primary beneficiary and must consolidate the VIE.
Under ASC 810, a non-refundable deposit paid to an entity is deemed to be a variable interest that will absorb some or all of the
entity’s expected losses if they occur. Our land purchase and lot option deposits generally represent our maximum exposure to the
land seller if we elect not to purchase the optioned property. In some instances, we may also expend funds for due diligence,
development and construction activities with respect to optioned land prior to takedown. Such costs are classified as inventories
owned, which we would have to write off should we not exercise the option. Therefore, whenever we enter into a land option or
purchase contract with an entity and make a non-refundable deposit, a VIE may have been created. In accordance with ASC 810, we
perform ongoing reassessments of whether we are the primary beneficiary of a VIE.
Stock-Based Compensation
We account for share-based awards in accordance with ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). ASC
718 requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. ASC 718
requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with
employees. Share-based awards are expensed on a straight-line basis over the expected vesting period.
Sales and Marketing Expense
Sales and marketing costs incurred to sell real estate projects are capitalized if they are reasonably expected to be recovered
from the sale of the project or from incidental operations and are incurred for tangible assets that are used directly through the selling
period to aid in the sale of the project or services that have been performed to obtain regulatory approval of sales. All other selling
expenses and other marketing costs are expensed in the period incurred.
Restructuring Charges
Restructuring charges are incurred related to the Merger in addition to general cost reduction initiatives. These charges are
comprised of employee retention and severance-related expenses and lease termination costs. We account for restructuring charges in
accordance with ASC Topic 420, Exit or Disposal Cost Obligations or ASC Topic 712 – Compensation – Nonretirement
Postemployment Benefits.
Income Taxes
We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities
are recorded based on future tax consequences of both temporary differences between the amounts reported for financial reporting
purposes and the amounts deductible for income tax purposes, and are measured using enacted tax rates expected to apply in the years
74
in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in earnings in the period when the changes are enacted.
Each quarter we assess our deferred tax assets to determine whether all or any portion of the assets is more likely than not
unrealizable under ASC 740. We are required to establish a valuation allowance for any portion of the asset we conclude is more
likely than not to be unrealizable. Our assessment considers, among other things, the nature, frequency and severity of our current and
cumulative losses, forecasts of our future taxable income, the duration of statutory carryforward periods and tax planning
alternatives. Due to uncertainties inherent in the estimation process, it is possible that actual results may vary from estimates.
We classify any interest and penalties related to income taxes as part of income tax expense. As of December 31, 2015 and 2014
the Company had liabilities for gross unrecognized tax benefits of $272,000 and $14.9 million, respectively, the majority of which
were assumed in connection with the Merger.
Goodwill
In accordance with ASC Topic 350, Intangibles-Goodwill and Other (“ASC 350”), we evaluate goodwill for possible
impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not
be recoverable. Based on our qualitative analysis, we have concluded as of December 31, 2015, our goodwill was not impaired.
Recently Issued Accounting Standards
In April 2014, the FASB issued amendments to Accounting Standards Update 2014-08, Reporting Discontinued Operations and
Disclosures of Disposals of Components of an Entity. The update requires that a disposal representing a strategic shift that has (or will
have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued
operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for
individually significant dispositions that do not qualify as discontinued operations. We adopted ASU 2014-08 on January 1, 2015 and
the adoption had no impact on our current or prior year financial statements.
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-
09”). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. To achieve that core principle, an entity should apply the following steps: identify the contract(s) with a customer; identify
the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance
obligations in the contract; and recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 supersedes
the revenue-recognition requirements in ASC Topic 605, Revenue Recognition, most industry-specific guidance throughout the
industry topics of the accounting standards codification, and some cost guidance related to construction-type and production-type
contracts. On July 9, 2015, the FASB voted to defer the effective date of ASU No. 2014-09 by one year and it is now effective for
public entities for the annual periods ending after December 15, 2017, and for annual and interim periods thereafter. Companies may
use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. Early adoption is permitted, but can be no
earlier than the original public entity effective date of fiscal years, and the interim periods within those years, beginning after
December 15, 2016. We are currently evaluating the approach for implementation and the potential impact of adopting this guidance
on our consolidated financial statements.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15 (“ASU 2014-15”), Presentation of Financial
Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern, which requires management to evaluate, in connection with preparing financial statements for each annual and interim
reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s
ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after
the date that the financial statements are available to be issued when applicable) and provide related disclosures. ASU 2014-15 is
effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is
permitted. We believe the adoption of this guidance will not have a material effect on our consolidated financial statements.
In February 2015, the FASB issued Accounting Standards Update No. 2015-02, (“ASU 2015-02”), Consolidation (Topic 810):
Amendments to the Consolidation Analysis. ASU 2015-02 changes the analysis that a reporting entity must perform to determine
whether it should consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2015. We believe the adoption of ASU 2015-02 will not have a material effect on our
consolidated financial statements.
In April 2015 and August 2015, the FASB issued Accounting Standards Update No. 2015-03, (“ASU 2015-03”), Interest -
Imputation of Interest (Subtopic 835-30) and Accounting Standards Update No. 2015-15, Presentation and Subsequent Measurement
75
of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which changes the presentation of debt issuance costs related to
a recognized debt liability in financial statements. Under ASU 2015-03, an entity presents such costs in the balance sheet as a direct
deduction from the related debt liability rather than as an asset. The FASB will permit debt issuance costs related to line-of-credit
agreements to be deferred and presented as an asset, regardless of whether there are any outstanding borrowings on the line-of-credit
arrangement. Amortization of the costs is reported as interest expense. We adopted ASU 2015-03 on December 31, 2015 and applied
the new guidance retrospectively to all prior periods presented in the financial statements. As a result of the adoption of ASU 2015-03,
$20.4 million and $23.7 million of deferred loan costs at December 31, 2015 and 2014, respectively, were reclassified from “Other
assets” to “Senior notes” in our Consolidated Balance Sheets. See Note 13, Senior Notes and Notes Payable and Other Borrowings,
for additional information.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, (“ASU 2015-17”), Income Taxes (Topic 740):
Balance Sheet Classification of Deferred Taxes, which requires deferred tax liabilities and assets be classified as noncurrent in a
classified statement of position. ASU 2015-17 is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2017. The adoption of ASU 2015-17 will not have a material effect on our consolidated financial statements.
2. Merger with Weyerhaeuser Real Estate Company
In the Merger, TRI Pointe issued 129,700,000 shares of TRI Pointe common stock to the former holders of WRECO common
shares, together with cash in lieu of any fractional shares. On the Closing Date, WRECO became a wholly-owned subsidiary of TRI
Pointe. Immediately following the consummation of the Merger, the ownership of TRI Pointe common stock on a fully diluted basis
was as follows: (i) the WRECO common shares held by former Weyerhaeuser shareholders were converted into the right to receive, in
the aggregate, approximately 79.6% of the then outstanding TRI Pointe common stock, (ii) the TRI Pointe common stock outstanding
immediately prior to the consummation of the Merger represented approximately 19.4% of the then outstanding TRI Pointe common
stock, and (iii) the outstanding equity awards of WRECO and TRI Pointe employees represented the remaining 1.0% of the then
outstanding TRI Pointe common stock. On the Closing Date, the former direct parent entity of WRECO paid TRI Pointe $31.5 million
in cash in accordance with the Transaction Agreement. Following the Merger, WRECO changed its name to TRI Pointe Holdings,
Inc.
Assumption of Senior Notes
On the Closing Date, TRI Pointe Homes assumed WRECO’s obligations as issuer of $450 million aggregate principal amount
of its 4.375% Senior Notes due 2019 (the “2019 Notes”) and $450 million aggregate principal amount of its 5.875% Senior Notes due
2024 (the “2024 Notes” and together with the 2019 Notes, the “Senior Notes”). Additionally, WRECO and certain of its subsidiaries
(collectively, the “Guarantors”) entered into supplemental indentures pursuant to which they guaranteed TRI Pointe’s obligations with
respect to the Senior Notes. The Guarantors also entered into a joinder agreement to the Purchase Agreement, dated as of June 4,
2014, among WRECO, TRI Pointe, and the initial purchasers of the Senior Notes (collectively, the “Initial Purchasers”), pursuant to
which the Guarantors became parties to the Purchase Agreement. Additionally, TRI Pointe and the Guarantors entered into joinder
agreements to the Registration Rights Agreements, dated as of June 13, 2014, among WRECO and the Initial Purchasers with respect
to the Senior Notes, pursuant to which TRI Pointe and the Guarantors were joined as parties to the Registration Rights Agreements. In
connection with the Reorganization, TRI Pointe Group became a co-issuer with TRI Pointe Homes of the Senior Notes.
The net proceeds of $861.3 million from the offering of the Senior Notes were deposited into two separate escrow accounts
following the closing of the offering on June 13, 2014. Upon release of the escrowed funds on the Closing Date and prior to the
consummation of the Merger, WRECO paid $743.7 million in cash to its former direct parent, which cash was retained by
Weyerhaeuser and its subsidiaries (other than WRECO and its subsidiaries). The payment consisted of the $739.0 million Payment
Amount (as defined in the Transaction Agreement) as well as $4.7 million in payment of all unpaid interest on the debt payable to
Weyerhaeuser that accrued from November 3, 2013 to the Closing Date. The remaining $117.6 million of proceeds was retained by
TRI Pointe.
Transaction Expenses
Advisory, financing, integration and other transaction costs directly related to the Merger, excluding the impact of restructuring
costs and purchase accounting adjustments, totaled $18.0 million for the year ended December 31, 2014. No additional transaction-
related costs were incurred in 2015.
76
Fair Value of Assets Acquired and Liabilities Assumed
The following table summarizes the calculation of the fair value of the total consideration transferred and the provisional
amounts recognized as of the Closing Date (in thousands, except shares and closing stock price):
Calculation of consideration transferred
TRI Pointe shares outstanding
TRI Pointe closing stock price on July 7, 2014
Consideration attributable to common stock
Consideration attributable to TRI Pointe share-based equity awards
Total consideration transferred
Assets acquired and liabilities assumed
Cash and cash equivalents
Accounts receivable
Real estate inventories
Intangible asset
Goodwill
Other assets
Total assets acquired
Accounts payable
Accrued expenses and other liabilities
Notes payable and other borrowings
Total liabilities assumed
Total net assets acquired
$
$
$
$
$
31,632,533
15.85
501,376
1,072
502,448
53,800
654
539,677
17,300
139,304
28,060
778,795
(26,105)
(23,114)
(227,128)
(276,347)
502,448
Cash and cash equivalents, accounts receivable, other assets, accounts payable, accrued payroll liabilities, and accrued expenses
and other liabilities were generally stated at historical carrying values given the short-term nature of these assets and liabilities. Notes
payable and other borrowings are stated at carrying value due to the limited amount of time since the notes payable and other
borrowings were entered into prior to the Closing Date.
The Company determined the fair value of real estate inventories on a community-by-community basis primarily using a
combination of market-comparable land transactions, land residual analysis and discounted cash flow models. The estimated fair value
is significantly impacted by estimates related to expected average selling prices, sales pace, cancellation rates and construction and
overhead costs. Such estimates must be made for each individual community and may vary significantly between communities.
The fair value of the acquired intangible asset was determined based on a valuation performed by an independent valuation
specialist. The $17.3 million intangible asset is related to the TRI Pointe Homes trade name which is deemed to have an indefinite
useful life.
Goodwill is primarily attributed to expected synergies from combining WRECO’s and TRI Pointe’s existing businesses,
including, but not limited to, expected cost synergies from overhead savings resulting from streamlining certain redundant corporate
functions, improved operating efficiencies, including provision of certain corporate level administrative and support functions at a
lower cost than was historically allocated to WRECO for such services by its former direct parent, and growth of ancillary operations
in various markets as permitted under applicable law, including a mortgage business, a title company and other ancillary operations.
The Company also anticipates opportunities for growth through expanded geographic and homebuyer segment diversity and the ability
to leverage additional brands. The acquired goodwill is not deductible for income tax purposes.
The Company completed its business combination accounting during the first quarter of 2015.
77
Supplemental Pro Forma Information (Unaudited)
The following represents unaudited pro forma operating results as if the acquisition had been completed as of January 1, 2013
(in thousands, except per share amounts):
Total revenues
Net income
Earnings per share – basic
Earnings per share – diluted
Year Ended December 31,
2013
2014
1,532,667
1,865,723 $
91,028
88,416 $
0.56
0.55 $
0.56
0.55 $
$
$
$
$
The unaudited pro forma operating results have been determined after adjusting the operating results of TRI Pointe to reflect the
purchase accounting and other acquisition adjustments including interest expense associated with the debt used to fund a portion of the
Merger. The unaudited pro forma results do not reflect any cost savings, operating synergies or other enhancements that we may
achieve as a result of the Merger or the costs necessary to integrate the operations to achieve these cost savings and synergies.
Accordingly, the unaudited pro forma amounts are for comparative purposes only and may not necessarily reflect the results of
operations had the Merger been completed at the beginning of the period or be indicative of the results we will achieve in the future.
3.
Restructuring Charges
In connection with the Merger, the Company initiated a restructuring plan to reduce duplicate corporate and divisional overhead
costs and expenses. In addition, WRECO previously recognized restructuring expenses related to general cost reduction initiatives.
Restructuring costs were comprised of the following (in thousands):
Employee-related costs
Lease termination costs
Total
2015
Year Ended December 31,
2014
2013
$
$
1,546 $
1,783
3,329 $
9,211 $
1,332
10,543 $
5,736
5,202
10,938
Employee-related costs incurred during the year ended December 31, 2015 included severance-related expenses of $1.5 million.
Employee-related costs incurred during the year ended December 31, 2014 included employee retention and severance-related
expenses of $8.3 million and stock-based compensation expense of $947,000 for employees terminated during the period. Employee
retention and severance-related expenses were $5.7 million for the year ended December 31, 2013. Lease termination costs of $1.8
million, $1.3 million and $5.2 million during the years ended December 31, 2015, 2014 and 2013, respectively, relate to contract
terminations as a result of general cost reduction initiatives.
Changes in employee-related restructuring reserves were as follows (in thousands):
Accrued employee-related costs, beginning of period
Current year charges
Payments
Accrued employee-related costs, end of period
2015
Year Ended December 31,
2014
2013
$
$
3,844 $
1,546
(5,170)
220 $
4,336 $
8,264
(8,756 )
3,844 $
28
5,736
(1,428)
4,336
Changes in lease termination related restructuring reserves were as follows (in thousands):
Accrued lease termination costs, beginning of period
Current year charges
Payments
Accrued lease termination costs, end of period
2015
Year Ended December 31,
2014
2013
$
$
1,394 $
1,783
(2,410)
767 $
3,506 $
1,332
(3,444 )
1,394 $
2,335
5,202
(4,031)
3,506
Employee and lease termination restructuring reserves are included in accrued expenses and other liabilities on our consolidated
balance sheets.
78
4.
Segment Information
We operate two principal businesses: homebuilding and financial services.
Our homebuilding operations consist of six homebuilding companies where we acquire and develop land and construct and sell
single-family detached and attached homes. In accordance with ASC Topic 280, Segment Reporting, in determining the most
appropriate reportable segments, we considered similar economic and other characteristics, including product types, average selling
prices, gross profits, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, and underlying
demand and supply. Based upon the above factors, our homebuilding operations are comprised of the following six reportable
segments: Maracay Homes, consisting of operations in Arizona; Pardee Homes, consisting of operations in California and Nevada;
Quadrant Homes, consisting of operations in Washington; Trendmaker Homes, consisting of operations in Texas; TRI Pointe Homes,
consisting of operations in California and Colorado; and Winchester Homes, consisting of operations in Maryland and Virginia.
Our financial services operation (“TRI Pointe Solutions”) is comprised of mortgage financing operations and title services
operations. Our mortgage financing operation (“TRI Pointe Connect”) provides mortgage financing to our homebuyers in all of the
markets in which we operate. TRI Pointe Connect was formed as a joint venture with imortgage and is accounted for under the equity
method of accounting. Our title services operation (“TRI Pointe Assurance”) provides title examinations for our homebuyers in our
Trendmaker Homes and Winchester Homes brands. TRI Pointe Assurance is a wholly-owned subsidiary of TRI Pointe Group and
acts as a title agency for First American Title Insurance Company.
Corporate is a non-operating segment that develops and implements company-wide strategic initiatives and provides support to
our homebuilding reporting segments by centralizing certain administrative functions, such as marketing, legal, accounting, treasury,
insurance, internal audit and risk management, information technology and human resources, to benefit from economies of scale. Our
Corporate non-operating segment also includes general and administrative expenses related to operating our corporate headquarters. A
portion of the expenses incurred by Corporate is allocated to the homebuilding reporting segments.
The reportable segments follow the same accounting policies as our consolidated financial statements described in Note 1.
Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the
reportable segment been an independent, stand-alone entity during the periods presented.
79
Total revenues and income from continuing operations before income taxes for each of our reportable segments were as follows
(in thousands):
Revenues
Maracay Homes
Pardee Homes
Quadrant Homes
Trendmaker Homes
TRI Pointe Homes
Winchester Homes
Total homebuilding revenues
Financial services
Total
Income (loss) before taxes
Maracay Homes
Pardee Homes
Quadrant Homes
Trendmaker Homes
TRI Pointe Homes
Winchester Homes
Corporate (1)
Total homebuilding income (loss) before taxes
Financial services
Total
Impairments and lot option abandonments
Maracay Homes
Pardee Homes
Quadrant Homes
Trendmaker Homes
TRI Pointe Homes
Winchester Homes
Total
(1)
(2)
2015
Year Ended December 31,
2014
2013
185,645 $
670,063
189,401
278,759
774,005
302,276
2,400,149
1,010
2,401,159 $
150,689 $
525,381
145,377
281,270
324,208
276,691
1,703,616
—
1,703,616 $
145,822
519,074
127,237
260,566
—
222,013
1,274,712
—
1,274,712
9,849 $
183,077
10,478
25,004
104,970
22,411
(38,589)
317,200
2,060
319,260 $
86 $
35
25
118
460
1,206
1,930 $
10,845 $
74,898
9,028
31,684
19,272
24,612
(42,350 )
127,989
(25 )
127,964 $
10,438
(258,138)
1,504
28,452
—
24,561
(44,271)
(237,454)
—
(237,454)
443 $
306
1,059
45
49
613
2,515 $
203
343,661 (2)
1,146
7
—
431
345,448
$
$
$
$
$
$
Includes $18.0 million of Merger related transaction costs and $5.5 million of restructuring charges for the year ended
December 31, 2014. No similar costs were incurred for the year ended December 31, 2015.
Includes $343.3 million of impairment and related charges for Coyote Springs, a large master planned community north of Las Vegas,
Nevada that was owned by Pardee Homes and excluded under the Transaction Agreement.
80
Total real estate inventories and total assets for each of our reportable segments, as of the date indicated, were as follows (in
thousands):
Real estate inventories
Maracay Homes
Pardee Homes
Quadrant Homes
Trendmaker Homes
TRI Pointe Homes
Winchester Homes
Total
Total assets
Maracay Homes
Pardee Homes
Quadrant Homes
Trendmaker Homes
TRI Pointe Homes
Winchester Homes
Corporate
Total homebuilding assets
Financial services
Total
5.
Earnings Per Share
December 31,
2015
December 31,
2014
$
$
$
$
206,912 $
1,011,982
190,038
199,398
659,130
251,813
2,519,273 $
227,857 $
1,089,586
202,024
213,562
832,423
278,374
292,169
3,135,995
2,076
3,138,071 $
153,577
924,362
153,493
176,696
613,666
258,389
2,280,183
170,932
1,000,489
167,796
195,829
781,301
281,547
291,944
2,889,838
—
2,889,838
The following table sets forth the components used in the computation of basic and diluted earnings per share (in thousands,
except share and per share amounts):
Numerator:
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss) available to common stockholders
Denominator:
Basic weighted-average shares outstanding
Effect of dilutive shares:
Stock options and unvested restricted stock units
Diluted weighted-average shares outstanding
Earnings per share
Basic
Continuing operations
Discontinued operations
Net earnings (loss) per share
Diluted
Continuing operations
Discontinued operations
Net earnings (loss) per share
2015
Year Ended December 31,
2014
2013
$
$
205,461 $
—
205,461 $
84,197 $
—
84,197 $
(151,293)
1,838
(149,455)
161,692,152
145,044,351
129,700,000
627,606
162,319,758
486,938
145,531,289
—
129,700,000
$
$
$
$
1.27 $
—
1.27 $
1.27 $
—
1.27 $
0.58 $
—
0.58 $
0.58 $
—
0.58 $
(1.17)
0.02
(1.15)
(1.17)
0.02
(1.15)
—
Antidilutive stock options not included in diluted earnings per share
2,622,391
1,295,280
In the Merger, each issued and outstanding WRECO common share was converted into 1.297 shares of TRI Pointe common
stock. The historical issued and outstanding WRECO common shares (100,000,000 common shares for all periods presented prior to
81
the Merger) have been recast (as 129,700,000 common shares of the Company for all periods prior to the Merger) in all periods
presented to reflect this conversion. See Note 2, Merger with Weyerhaeuser Real Estate Company, for further information on the
Merger.
6.
Receivables, Net
Receivables, net consisted of the following (in thousands):
Escrow proceeds and other accounts receivable, net
Warranty insurance receivable (Note 15)
Notes and contracts receivable
Total receivables
December 31,
2015
December 31,
2014
$
$
32,917 $
10,493
300
43,710 $
9,771
10,047
300
20,118
Each receivable is evaluated for collectability at least quarterly, and allowances for potential losses are established or maintained
on applicable receivables when collection becomes doubtful. Receivables were net of allowances for doubtful accounts of $1.7
million in 2015 and $1.4 million in 2014.
7.
Real Estate Inventories
Real estate inventories consisted of the following (in thousands):
Real estate inventories owned:
Homes completed or under construction
Land under development
Land held for future development
Model homes
Total real estate inventories owned
Real estate inventories not owned:
Land purchase and land option deposits
Consolidated inventory held by VIEs
Total real estate inventories not owned
Total real estate inventories
December 31,
2015
December 31,
2014
$
575,076 $
1,443,461
295,241
140,232
2,454,010
39,055
26,208
65,263
2,519,273 $
$
461,712
1,391,303
245,673
103,270
2,201,958
44,155
34,070
78,225
2,280,183
Homes completed or under construction is comprised of costs associated with homes in various stages of construction and
includes direct construction and related land acquisition and land development costs. Land under development primarily consists of
land acquisition and land development costs, which include capitalized interest and real estate taxes, associated with land undergoing
improvement activity. Land held for future development principally reflects land acquisition and land development costs related to
land where development activity has not yet begun or has been suspended, but is expected to occur in the future.
Real estate inventories not owned represents deposits related to land purchase and land option agreements as well as
consolidated inventory held by a VIE. For further details, see Note 9, Variable Interest Entities.
Interest incurred, capitalized and expensed were as follows (in thousands):
Interest incurred
Interest capitalized
Interest expensed
Capitalized interest in beginning inventory
Interest capitalized as a cost of inventory
Interest previously capitalized as a cost of inventory, included in
cost of sales
Capitalized interest in ending inventory
82
2015
Year Ended December 31,
2014
2013
60,964 $
(60,964)
— $
124,461 $
60,964
41,706 $
(38,975)
2,731 $
138,233 $
38,975
(45,114)
140,311 $
(52,747)
124,461 $
22,674
(19,081)
3,593
155,823
19,081
(36,671)
138,233
$
$
$
$
Interest is capitalized to real estate inventory during development and other qualifying activities. Interest that is capitalized to
real estate inventory is included in cost of home sales as related units are delivered. Interest that is expensed as incurred is included in
other income (loss), net on the consolidated statements of operations.
Real estate inventory impairments and land option abandonments
Real estate inventory impairments and land option abandonments consisted of the following (in thousands):
Real estate inventory impairments
Land and lot option abandonments and pre-acquisition costs
Total
2015
Year Ended December 31,
2014
1,167 $
763
1,930 $
931 $
1,584
2,515 $
$
$
2013
341,086
4,362
345,448
Impairments of real estate inventory relate primarily to projects or communities that include homes completed or under
construction. Within a project or community, there may be individual homes or parcels of land that are currently held for sale.
Impairment charges recognized as a result of adjusting individual held-for-sale assets within a community to estimated fair value less
cost to sell are also included in the total impairment charges above.
In addition to owning land and residential lots, we also have option agreements to purchase land and lots at a future date. We
have option deposits and capitalized pre-acquisition costs associated with the optioned land and lots. When the economics of a project
no longer support acquisition of the land or lots under option, we may elect not to move forward with the acquisition. Option deposits
and capitalized pre-acquisition costs associated with the assets under option may be forfeited at that time.
The real estate inventory impairment charge in 2013 is primarily related to the $340.3 million impairment of the Coyote Springs
Property in December 2013. Under the terms of the Transaction Agreement, certain assets and liabilities of WRECO and its
subsidiaries were excluded from the transaction and retained by Weyerhaeuser, including assets and liabilities relating to the Coyote
Springs Property.
8.
Investments in Unconsolidated Entities
As of December 31, 2015, we held equity investments in six active homebuilding partnerships or limited liability companies and
one financial services limited liability company. Our participation in these entities may be as a developer, a builder, or an investment
partner. Our ownership percentage varies from 7% to 55%, depending on the investment, with no controlling interest held in any of
these investments.
Investments Held
Our cumulative investment in entities accounted for on the equity method, including our share of earnings and losses, consisted
of the following (in thousands):
Limited liability company interests
General partnership interests
Total
Unconsolidated Financial Information
December 31,
2015
2014
$
$
15,739 $
3,260
18,999 $
13,710
3,095
16,805
Aggregated assets, liabilities and operating results of the entities we account for as equity-method investments are provided
below. Because our ownership interest in these entities varies, a direct relationship does not exist between the information presented
below and the amounts that are reflected on our consolidated balance sheets as our investment in unconsolidated entities or on our
consolidated statement of operations as equity in income (loss) of unconsolidated entities.
83
Assets and liabilities of unconsolidated entities (in thousands):
Assets
Cash
Receivables
Real estate inventories
Other assets
Total assets
Liabilities and equity
Accounts payable and other liabilities
Company’s equity
Outside interests' equity
Total liabilities and equity
December 31,
2015
2014
$
$
$
$
18,641 $
13,108
92,881
1,180
125,810 $
14,443 $
18,999
92,368
125,810 $
17,154
9,550
95,500
620
122,824
10,914
16,805
95,105
122,824
Results of operations from unconsolidated entities (in thousands):
\
Net sales
Other operating expense
Other expense
Net income (loss)
Company’s equity in income (loss) of unconsolidated entities
9. Variable Interest Entities
2015
Year Ended December 31,
2014
2013
$
$
$
7,326 $
(6,690)
(279)
357 $
2,691 $
606 $
(4,290 )
(2 )
(3,686 ) $
(288 ) $
6,271
(7,521)
(18)
(1,268)
2
In the ordinary course of business, we enter into land option agreements in order to procure land and residential lots for future
development and the construction of homes. The use of such land option agreements generally allows us to reduce the risks associated
with direct land ownership and development, and reduces our capital and financial commitments. Pursuant to these land option
agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future,
usually at predetermined prices. Such deposits are recorded as land purchase and land option deposits under real estate inventories not
owned in the accompanying consolidated balance sheets.
We analyze each of our land option agreements and other similar contracts under the provisions of ASC 810 to determine
whether the land seller is a VIE and, if so, whether we are the primary beneficiary. Although we do not have legal title to the
underlying land, if we are determined to be the primary beneficiary of the VIE, we will consolidate the VIE in our financial statements
and reflect its assets as real estate inventory not owned included in our real estate inventories, its liabilities as debt (nonrecourse) held
by VIEs in accrued expenses and other liabilities and the net equity of the VIE owners as noncontrolling interests on our consolidated
balance sheets. In determining whether we are the primary beneficiary, we consider, among other things, whether we have the power
to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include,
among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by
the VIE, or arranging financing for the VIE.
Creditors of the entities with which we have land option agreements have no recourse against us. The maximum exposure to
loss under our land option agreements is limited to non-refundable option deposits and any capitalized pre-acquisition costs. In some
cases, we have also contracted to complete development work at a fixed cost on behalf of the land owner and budget shortfalls and
savings will be borne by us.
84
The following provides a summary of our interests in land option agreements (in thousands):
December 31, 2015
Remaining
Purchase
Price
Consolidated
Inventory
Held by VIEs
Deposits
December 31, 2014
Remaining
Purchase
Price
Deposits
Consolidated VIEs
Unconsolidated VIEs
Other land option agreements
Total
$
$
3,003 $
11,615
27,440
42,058 $
23,239 $
74,590
279,612
377,441 $
26,208 $
N/A
N/A
26,208 $
8,071
13,309
30,846
52,226
$
$
43,432 $
129,637
284,819
457,888 $
Consolidated
Inventory
Held by VIEs
34,070
N/A
N/A
34,070
Unconsolidated VIEs represent land option agreements that were not consolidated because we were not the primary beneficiary.
Other land option agreements were not considered VIEs.
In addition to the deposits presented in the table above, our exposure to loss related to our land option contracts consisted of
capitalized pre-acquisition costs of $5.0 million and $5.3 million as of December 31, 2015 and 2014, respectively. These pre-
acquisition costs were included in real estate inventories as land under development on our consolidated balance sheets.
10. Goodwill and Other Intangible Assets
In connection with the Merger, $139.3 million of goodwill has been recorded as of December 31, 2015. For further details on
the goodwill recorded during the quarter, see Note 2, Merger with Weyerhaeuser Real Estate Company.
We have two intangible assets as of December 31, 2015, including an existing trade name from the acquisition of Maracay
Homes in 2006 which has a 20 year useful life, and a new trade name, TRI Pointe Homes, resulting from the Merger in 2014 which
has an indefinite useful life. For further details on the TRI Pointe Homes trade name see Note 2, Merger with Weyerhaeuser Real
Estate Company.
Goodwill and other intangible assets consisted of the following (in thousands):
Goodwill
Trade names
Total
Gross
Carrying
Amount
December 31, 2015
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
December 31, 2014
Accumulated
Amortization
Net
Carrying
Amount
$
$
139,304 $
27,979
$
167,283
— $
(5,254)
(5,254) $
139,304 $
22,725
162,029 $
139,304 $
27,979
167,283 $
— $
(4,720)
(4,720) $
139,304
23,259
162,563
The remaining useful life of our amortizing intangible asset related to Maracay was 10.2 and 11.2 years as of December 31,
2015 and 2014, respectively. Amortization expense related to this intangible asset was $534,000 for the year ended December 31,
2015 and 2014, respectively, and was charged to sales and marketing expense. Our $17.3 million indefinite life intangible asset
related to TRI Pointe Homes trade name is not amortizing. All trade names are evaluated for impairment on an annual basis or more
frequently if indicators of impairment exist.
Expected amortization of our intangible asset related to Maracay for the next five years and thereafter is (in thousands):
2016
2017
2018
2019
2020
Thereafter
Total
$
$
534
534
534
534
534
2,755
5,425
85
11. Other Assets
Other assets consisted of the following (in thousands):
Prepaid expenses
Refundable fees and other deposits
Development rights, held for future use or sale
Deferred loan costs
Operating properties and equipment, net
Income tax receivable
Other
Total
12. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
Accrued payroll and related costs
Warranty reserves (Note 15)
Estimated cost for completion of real estate inventories
Customer deposits
Debt (nonrecourse) held by VIEs
Income tax liability to Weyerhaeuser (Note 18)
Accrued income taxes payable
Liability for uncertain tax positions (Note 17)
Accrued interest
Accrued insurance expense
Other tax liability
Other
Total
13. Senior Notes and Notes Payable and Other Borrowings
Senior Notes
Senior notes consisted of the following (in thousands):
4.375% Senior Notes due June 15, 2019
5.875% Senior Notes due June 15, 2024
Discount and deferred loan costs
Total
December 31,
December 31,
2015
2014
$
$
14,523 $
17,056
4,360
2,179
7,643
—
3,157
48,918 $
29,111
15,581
7,409
—
11,719
10,713
7,186
81,719
December 31,
2015
December 31,
2014
$
$
28,264 $
45,948
52,818
12,132
2,442
8,900
19,279
307
2,417
1,402
21,764
20,590
216,263 $
24,717
33,270
48,737
14,229
9,512
15,659
—
13,797
3,059
9,180
9,079
28,770
210,009
December 31,
December 31,
2015
450,000 $
450,000
(31,321 )
868,679 $
2014
450,000
450,000
(36,184)
863,816
$
$
As discussed in Note 1, Organization and Summary of Significant Accounting Policies, we adopted ASU 2015-03 on
December 31, 2015 and applied the new guidance retrospectively to all prior periods presented in the financial statements. As a result
of the adoption of ASU 2015-03, $20.4 million and $23.7 million of deferred loan costs at December 31, 2015 and 2014, respectively,
were reclassified from “Other assets” to “Senior notes” in our Consolidated Balance Sheets.
As discussed in Note 2, Merger with Weyerhaeuser Real Estate Company, on the Closing Date, TRI Pointe assumed WRECO’s
obligations as issuer of the 2019 Notes and the 2024 Notes (collectively, the “Senior Notes”). The 2019 Notes were issued at 98.89%
of their aggregate principal amount and the 2024 Notes were issued at 98.15% of their aggregate principal amount. The net proceeds
of approximately $861.3 million, after debt issuance costs and discounts, from the offering were deposited into two separate escrow
accounts following the closing of the offering on June 13, 2014. Upon release of the escrowed funds on the Closing Date, and prior to
the consummation of the Merger, WRECO paid approximately $743.7 million in cash to the former direct parent entity of WRECO,
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which cash was retained by Weyerhaeuser and its subsidiaries (other than WRECO and its subsidiaries). The payment consisted of the
$739 million Payment Amount (as defined in the Transaction Agreement) as well as approximately $4.7 million in payment of all
unpaid interest on the debt payable to Weyerhaeuser that accrued from November 3, 2013 to the Closing Date. The remaining $117.6
million of proceeds was retained by TRI Pointe and used for general corporate purposes.
The 2019 Notes and the 2024 Notes mature on June 15, 2019 and June 15, 2024, respectively. Interest is payable semiannually
in arrears on June 15 and December 15. As of December 31, 2015, no principal has been paid on the Senior Notes, and there was
$20.4 million of capitalized debt financing costs, included in senior notes on our consolidated balance sheet, that will amortize over
the lives of the Senior Notes. Accrued interest related to the Senior Notes was $1.9 million as of December 31, 2015 and 2014,
respectively.
Other Borrowings
Other borrowings consisted of the following (in thousands):
Unsecured revolving credit facility
Unsecured Revolving Credit Facility
December 31,
December 31,
2015
299,392 $
2014
260,000
$
In May 2015, the Company amended its unsecured revolving credit facility (the “Credit Facility”) to increase the aggregate
commitment amount from $425 million to $550 million. The Credit Facility matures on May 18, 2019, and contains a sublimit of $75
million for letters of credit. The Company may borrow under the Credit Facility in the ordinary course of business to fund its
operations, including its land development and homebuilding activities. Borrowings under the Credit Facility will be governed by,
among other things, a borrowing base. Interest rates on borrowings under the Credit Facility will be based on either a daily
Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.45% to 2.20%, depending on the
Company’s leverage ratio. As of December 31, 2015, the outstanding balance under the Credit Facility was $299.4 million with an
interest rate of 2.35% per annum and $242.2 million of availability after considering the borrowing base provisions and outstanding
letters of credit. As of December 31, 2015 there was $2.2 million of capitalized debt financing costs, included in Other Assets on our
consolidated balance sheet, related to the Credit Facility that will amortize over the life of the Credit Facility, maturing on May 18,
2019. There were no capitalized debt financing costs related to the Credit Facility as of December 31, 2014. Accrued interest related
to the Credit Facility was $407,000 and $620,000 as of December 31, 2015 and December 31, 2014, respectively.
At December 31, 2015 and 2014, we had outstanding letters of credit of $8.4 million and $11.8 million, respectively. These
letters of credit were issued to secure various financial obligations. We believe it is not probable that any outstanding letters of credit
will be drawn upon.
Seller Financed Loans
Seller financed loans consisted of the following (in thousands):
Seller financed loans
December 31,
December 31,
2015
2014
$
2,434 $
14,677
Principal and interest payments on these loans are due at various maturity dates, including at the time individual homes
associated with the acquired land are delivered. The seller financed loans accrue interest at a weighted average rate of 6.84% per
annum, with interest calculated on a daily basis. Any remaining unpaid balance on these loans is due in May 2016. Accrued interest
on these loans was $89,000 and $517,000 as of December 31, 2015 and 2014, respectively.
Interest Incurred
During the years ended December 31, 2015 and 2014, the Company incurred interest of $61.0 million and $41.7 million,
respectively, related to all notes payable, Senior Notes and debt payable to Weyerhaeuser outstanding during the period. Of the
interest incurred, $61.0 million and $39.0 million was capitalized to inventory for the years ended December 31, 2015 and 2014,
respectively. Included in interest incurred was amortization of deferred financing and Senior Note discount costs of $5.4 million and
$2.4 million for the years ended December 31, 2015 and 2014, respectively. Accrued interest related to all outstanding debt at
December 31, 2015 and 2014 was $2.4 million and $3.1 million, respectively.
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Covenant Requirements
The Senior Notes contain covenants that restrict our ability to, among other things, create liens or other encumbrances, enter into
sale and leaseback transactions, or merge or sell all or substantially all of our assets. These limitations are subject to a number of
qualifications and exceptions.
Under the Credit Facility, the Company is required to comply with certain financial covenants, including but not limited to (i) a
minimum consolidated tangible net worth; (ii) a maximum total leverage ratio; and (iii) a minimum interest coverage ratio. The
Company was in compliance with all applicable financial covenants as of December 31, 2015 and December 31, 2014.
14. Fair Value Disclosures
Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures, defines “fair value” as the price that would be received for selling
an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets
and liabilities carried at fair value to be classified and disclosed in the following three categories:
Level 1—Quoted prices for identical instruments in active markets
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in
markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are
observable in active markets at measurement date
Level 3—Valuations derived from techniques where one or more significant inputs or significant value drivers are
unobservable in active markets at measurement date
Fair Value of Financial Instruments
A summary of assets and liabilities at December 31, 2015 and 2014, related to our financial instruments, measured at fair value
on a recurring basis, is set forth below (in thousands):
Senior Notes (1)
Unsecured revolving credit facility (2)
Seller financed loans (3)
Hierarchy
Level 2
Level 2
Level 2
December 31, 2015
December 31, 2014
Book Value
Fair Value
Book Value
Fair Value
889,054
299,392
2,434
881,460
299,392
2,368
887,502
260,000
14,677
896,625
260,000
14,677
(1)
The book value of the Senior Notes is net of discounts, excluding deferred loan costs of $20.4 million and $23.7 million as of December
31, 2015 and 2014, respectively. The estimated fair value of our Senior Notes at December 31, 2015 and 2014 is based on quoted
market prices.
(2) We believe that the carrying value of our Credit Facility approximates fair value based on the recent amendment on May 18, 2015.
(3) We believe that the carrying value of our Seller financed loans approximates fair value based on a two year treasury curve analysis.
At December 31, 2015 and 2014, the carrying value of cash and cash equivalents and receivables approximated fair value.
Fair Value of Nonfinancial Assets
Nonfinancial assets include items such as real estate inventories and long-lived assets that are measured at fair value on a
nonrecurring basis with events and circumstances indicating the carrying value is not recoverable. The following table presents
impairment charges and the remaining net fair value for nonfinancial assets that were measured during the periods presented (in
thousands):
Year Ended
December 31, 2015
Year Ended
December 31, 2014
Fair Value
Fair Value
Real estate inventories (1)
$
1,167 $
28,540 $
931 $
Impairment
Charge
Net of
Impairment
Impairment
Charge
Net of
Impairment
20,329
(1)
Fair value of real estate inventories, net of impairment charges represents only those assets whose carrying values were adjusted to fair
value in the respective periods presented. The fair value of these real estate inventories impaired was determined based on recent offers
received from outside third parties or actual contracts.
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15. Commitments and Contingencies
Legal Matters
Lawsuits, claims and proceedings have been and may be instituted or asserted against us in the normal course of business,
including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations
related to land development activities, house construction standards, sales practices, employment practices and environmental
protection. As a result, we are subject to periodic examinations or inquiry by agencies administering these laws and regulations.
We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is
reasonably estimable. We accrue for these matters based on facts and circumstances specific to each matter and revise these estimates
when necessary.
In view of the inherent difficulty of predicting outcomes of legal claims and related contingencies, we generally cannot predict
their ultimate resolution, related timing or eventual loss. If our evaluations indicate loss contingencies that could be material are not
probable, but are reasonably possible, we will disclose their nature with an estimate of a possible range of losses or a statement that
such loss is not reasonably estimable.
Warranty
Warranty reserves are accrued as home deliveries occur. Our warranty reserves on homes delivered will vary based on product
type and geographic area and also depending on state and local laws. The warranty reserve is included in accrued expenses and other
liabilities on our consolidated balance sheets and represents expected future costs based on our historical experience over previous
years. Estimated warranty costs are charged to cost of home sales in the period in which the related home sales revenue is recognized.
We maintain general liability insurance designed to protect us against a portion of our risk of loss from construction-related
claims. We also generally require our subcontractors and design professionals to indemnify us for liabilities arising from their work,
subject to various limitations. However, such indemnity is significantly limited with respect to certain subcontractors that are added to
our general liability insurance policy. Included in our warranty reserve accrual are allowances to cover our estimated costs of self-
insured retentions and deductible amounts under these policies and estimated costs for claims that may not be covered by applicable
insurance or indemnities. Estimation of these accruals include consideration of our claims history, including current claims and
estimates of claims incurred but not yet reported. In 2015, we engaged a third-party actuary to analyze our warranty reserves and
allowances to cover any current or future construction-related claims. The third-party actuary used our historical expense and claim
data, as well as industry data, to estimate a reserve amount. As result of this analysis, we increased our warranty liability by $6.0
million during the fourth quarter of 2015. We also record expected recoveries from insurance carriers when proceeds are probable and
estimable. Outstanding warranty insurance receivables were $10.5 million and $10.0 million as of December 31, 2015 and 2014,
respectively. Warranty insurance receivables are recorded in receivables on the accompanying consolidated balance sheet.
There can be no assurance that the terms and limitations of the limited warranty will be effective against claims made by
homebuyers, that we will be able to renew our insurance coverage or renew it at reasonable rates, that we will not be liable for
damages, cost of repairs, and/or the expense of litigation surrounding possible construction defects, soil subsidence or building related
claims or that claims will not arise out of uninsurable events or circumstances not covered by insurance and not subject to effective
indemnification agreements with certain subcontractors.
Warranty reserves consisted of the following (in thousands):
Warranty reserves, beginning of period
Warranty reserves accrued
Liabilities assumed in the Merger
Adjustments to pre-existing reserves
Warranty expenditures
Warranty reserves, end of period
Performance Bonds
2015
Year Ended December 31,
2014
2013
$
$
33,270 $
16,557
—
7,451
(11,330)
45,948 $
24,449 $
11,659
7,481
199
(10,518)
33,270 $
24,485
8,102
—
1,933
(10,071)
24,449
We obtain surety bonds in the normal course of business with various municipalities and other government agencies to secure
completion of certain infrastructure improvements of our projects. As of December 31, 2015 and December 31, 2014, the Company
had outstanding surety bonds totaling $414.1 million and $355.2 million, respectively. If any such performance bonds or letters of
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credit are called, we would be obligated to reimburse the issuer of the performance bond or letter of credit. We do not believe that a
material amount of any currently outstanding performance bonds or letters of credit will be called. Performance bonds do not have
stated expiration dates. Rather, we are released from the performance bonds as the underlying performance is completed.
Operating Leases
Office Space, Buildings and Equipment
We lease certain property and equipment under non-cancelable operating leases. Office leases are for terms up to nine years and
generally provide renewal options for terms up to an additional five years. In most cases, we expect that, in the normal course of
business, leases that expire will be renewed or replaced by other leases. Equipment leases are typically for terms of three to four years.
The future minimum rental payments under operating leases, which primarily consist of office leases having initial or remaining
noncancellable lease terms in excess of one year, are as follows (in thousands):
2016
2017
2018
2019
2020
Thereafter
$
$
7,448
6,920
5,175
4,947
4,110
7,043
35,643
For the years ended December 31, 2015, 2014 and 2013, rental expense was $6.2 million, $4.9 million and $5.1 million,
respectively. Rent expense is included in general and administrative expenses on the consolidated statements of operations.
Ground Leases
In 1987, we obtained two 55-year ground leases of commercial property that provided for three renewal options of ten years
each and one 45-year renewal option. We exercised the three ten year extensions on one of these ground leases extending the lease
through 2071. The commercial buildings on these properties have been sold and the ground leases have been sublet to the buyers.
For one of these leases, we are responsible for making lease payments to the land owner, and we collect sublease payments from
the buyers of the buildings. Our lease commitments under this ground lease, which extends through 2071, were (in thousands):
2016
2017
2018
2019
2020
Thereafter
$
$
2,265
2,265
2,265
2,265
2,265
77,770
89,095
This ground lease has been subleased through 2041 to the buyers of the commercial buildings. Our lease commitments through
2041 total $58.9 million as of December 31, 2015, and are fully offset by sublease receipts under the noncancellable subleases.
For the second lease, the buyers of the buildings are responsible for making lease payments directly to the land owner. However,
we have guaranteed the performance of the buyers/lessees. As of December 31, 2015, guaranteed future payments on the lease, which
expires in 2041, were $11.0 million.
Purchase Obligations
In the ordinary course of business, we enter into land option contracts in order to procure lots for the construction of our homes.
We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots. These
purchase contracts typically require a cash deposit and the purchase of properties under these contracts is generally contingent upon
satisfaction of certain requirements by the sellers, including obtaining applicable property and development entitlements. We also
utilize option contracts with land sellers as a method of acquiring land in staged takedowns, to help us manage the financial and
market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources. Option contracts
generally require a non-refundable deposit for the right to acquire lots over a specified period of time at pre-determined prices. We
generally have the right at our discretion to terminate our obligations under both purchase contracts and option contracts by forfeiting
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our cash deposit with no further financial responsibility to the land seller. As of December 31, 2015, we had $42.1 million of non-
refundable cash deposits pertaining to land option contracts and purchase contracts with an aggregate remaining purchase price of
approximately $377.4 million (net of deposits).
Our utilization of land option contracts is dependent on, among other things, the availability of land sellers willing to enter into
option takedown arrangements, the availability of capital to financial intermediaries to finance the development of optioned lots,
general housing market conditions, and local market dynamics. Options may be more difficult to procure from land sellers in strong
housing markets and are more prevalent in certain geographic regions.
16. Stock-Based Compensation
2013 Long-Term Incentive Plan
The Company’s stock compensation plan, the 2013 Long-Term Incentive Plan (the “2013 Incentive Plan”), was adopted by
legacy TRI Pointe in January 2013 and amended with the approval of our stockholders in 2014. The 2013 Incentive Plan provides for
the grant of equity-based awards, including options to purchase shares of common stock, stock appreciation rights, common stock,
restricted stock, restricted stock units and performance awards. The 2013 Incentive Plan will automatically expire on the tenth
anniversary of its effective date. Our board of directors may terminate or amend the 2013 Incentive Plan at any time, subject to any
requirement of stockholder approval required by applicable law, rule or regulation.
As amended, the number of shares of our common stock that may be issued under the 2013 Incentive Plan is 11,727,833 shares.
To the extent that shares of our common stock subject to an outstanding option, stock appreciation right, stock award or performance
award granted under the 2013 Incentive Plan are not issued or delivered by reason of the expiration, termination, cancellation or
forfeiture of such award or the settlement of such award in cash, then such shares of our common stock generally shall again be
available under the 2013 Incentive Plan. As of December 31, 2015 there were 9,565,094 shares available for future grant under the
2013 Incentive Plan.
Converted Awards
Under the Transaction Agreement, each outstanding Weyerhaeuser equity award held by an employee of WRECO was
converted into a similar equity award with TRI Pointe, based on the final exchange ratio of 2.1107 (the “Exchange Ratio”), rounded
down to the nearest whole number of shares of common stock. The Company filed a registration statement on Form S-8 (Registration
No. 333-197461) on July 16, 2014 to register 4,105,953 shares related to these equity awards. The converted awards have the same
terms and conditions as the Weyerhaeuser equity awards except that all performance share units were surrendered in exchange for
time-vesting restricted stock units without any performance-based vesting conditions or requirements and the exercise price of each
converted stock option is equal to the original exercise price divided by the Exchange Ratio. There will be no future grants under the
WRECO equity incentive plans.
The fair value of stock option awards assumed in the Merger was determined by using an option-based model with the following
assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life (in years)
2014 Grants
2013 Grants
2012 Grants
2.92%
31.71%
1.57%
4.97
2.23%
38.00%
0.92%
4.97
2.94 %
40.41 %
1.01 %
5.33
2011 Grants
2.48%
38.56%
2.65%
5.73
The following table presents compensation expense recognized related to all stock-based awards (in thousands):
Total stock-based compensation
$
11,935 $
7,679 $
5,002
2015
Year Ended December 31,
2014
2013
As of December 31, 2015, total unrecognized stock-based compensation related to all stock-based awards was $15.8 million and
the weighted average term over which the expense was expected to be recognized was 1.75 years.
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Summary of Stock Option Activity
The following table presents a summary of stock option awards for the year ended December 31, 2015:
Options outstanding at December 31, 2014
Granted
Exercised
Forfeited
Options outstanding at December 31, 2015
Options exercisable at December 31, 2015
Weighted
Average
Exercise
Price
Per Share
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
(in thousands)
13.05
—
11.54
13.60
13.12
12.40
6.0 $
—
5.2
4.5
7,642
—
3,081
765
Options
3,467,086 $
—
(171,716)
(75,223)
3,220,147
2,791,472
The total intrinsic value of stock option awards exercised during the years ended December 31, 2015, 2014 and 2013 was
$642,000, $51,000 and $0(1), respectively. The total grant date fair value of stock option awards granted or assumed during the years
ended December 31, 2015, 2014 and 2013 was $0, $11.8 million and $2.0 million(1).
The fair value of stock option awards granted under the 2013 Incentive Plan at legacy TRI Pointe during the years ended
December 31, 2015, 2014 and 2013 were established at the date of grant using an option based model with the following assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life (in years)
Summary of Restricted Stock Unit Activity
2015 Grants
2014 Grants
N/A
N/A
N/A
N/A
0.00 %
63.01 %
1.96 %
6.00
2013 Grants
0.00%
44.00%
1.89%
5.00
The following table presents a summary of restricted stock units (“RSUs”) for the year ended December 31, 2015:
Nonvested RSUs at December 31, 2014
Granted
Vested
Forfeited
Nonvested RSUs at December 31, 2015
Restricted
Stock
Units
900,547 $
1,580,499
(453,685)
(69,328)
1,958,033
Weighted
Average
Grant Date
Fair Value
Per Share
Aggregate
Intrinsic
Value
(in thousands)
14.25 $
11.59
13.85
14.58
12.21
13,733
18,315
24,808
The total intrinsic value of restricted stock units that vested during the years ended December 31, 2015, 2014 and 2013 was $6.8
million, $1.0 million and $0(1), respectively. The total grant date fair value of restricted stock awards granted or assumed during the
years ended December 31, 2015, 2014 and 2013 was $18.3 million, $15.2 million and $2.6 million(1), respectively.
On March 5, 2015, the Company granted an aggregate of 440,800 restricted stock units to employees and officers. The restricted
stock units granted vest annually on the anniversary of the grant date over a three year period. The fair value of each restricted stock
award granted on March 5, 2015 was measured using a price of $14.97 per share, which was the closing stock price on the date of
grant. Each award will be expensed on a straight-line basis over the vesting period.
On March 9, 2015, the Company granted 411,804, 384,351, and 274,536 performance-based RSUs to the Company’s Chief
Executive Officer, President, and Chief Financial Officer, respectively, with 1/3 of the performance-based RSU amounts being
allocated to each of the three following separate performance goals: total stockholder return (compared to a group of similarly sized
homebuilders); earnings per share; and stock price. The performance-based restricted stock units granted will vest in each case, if at all,
(1) Amounts disclosed for 2013 relate to activity under the 2013 Incentive Plan at legacy TRI Pointe.
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based on the percentage of attainment of the applicable performance goal. The performance periods for the performance-based RSUs
with vesting based on total stockholder return and earnings per share are January 1, 2015 to December 31, 2017. The performance
period for the performance-based RSUs with vesting based on stock price is January 1, 2016 to December 31, 2017. The fair value of
the performance-based RSUs related to the total stockholder return and stock price performance goals was determined to be $7.55 and
$7.90 per share, respectively, based on a Monte Carlo simulation. The fair value of the performance-based RSUs related to the
earnings per share goal was measured using a price of $14.57 per share, which was the closing stock price on the date of grant. Each
grant will be expensed on a straight-line basis over the expected vesting period.
On August 12, 2015, the Company granted an aggregate of 69,008 restricted stock units to members of its board of directors.
The restricted stock units granted to directors on August 12, 2015 vest in their entirety on the day immediately prior to the Company’s
2016 Annual Meeting of Stockholders. The fair value of each restricted stock award granted on August 12, 2015 was measured using
$14.49 per share, which was the closing price on the date of grant. Each award will be expensed on a straight-line basis over the
vesting period.
On April 7, 2014, the Company granted an aggregate of 217,839 restricted stock units to employees, officers and directors. The
restricted stock units granted to employees and officers on April 7, 2014 ratably vest annually on the anniversary of the grant date over
a three year period. The restricted stock units granted to directors on April 7, 2014 vest on January 31, 2015, except the restricted
stock units granted to directors who left the board upon the closing of the Merger vested on the date they left the board based on the
number of days served in 2014. The fair value of each restricted stock award granted on April 7, 2014 was measured using a price of
$16.17 per share, which was the closing stock price on the date of grant. Each award will be expensed on a straight-line basis over the
vesting period.
On August 5, 2014, the Company granted an aggregate of 56,448 restricted stock units to members of its board of directors. The
restricted stock units granted to directors on August 5, 2014 vest in their entirety on May 1, 2015. The fair value of each restricted
stock award granted on August 5, 2014 was measured using $13.34 per share, which was the closing stock price on the date of grant.
Each award will be expensed on a straight-line basis over the vesting period.
As restricted stock units vest, a portion of the shares awarded is generally withheld to cover employee minimum tax
withholdings. As a result, the number of restricted stock units vested and the number of shares of TRI Pointe common stock issued
will differ.
17.
Income Taxes
The provision (benefit) for income tax attributable to income (loss) from continuing operations before income taxes consisted of
(in thousands):
Current:
Federal
State
Total current taxes
Deferred:
Federal
State
Total deferred taxes
Total income tax expense (benefit)
2015
Year Ended December 31,
2014
2013
$
$
91,343 $
6,715
98,058
(109,565 ) $
5,339
(104,226 )
21,773
1,646
23,419
8,296
5,725
14,021
112,079 $
147,797
196
147,993
43,767 $
(107,651)
(1,929)
(109,580)
(86,161)
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The Company’s provision (benefit) for income taxes was different from the amount computed by applying the statutory federal
income tax rate of 35% to the underlying income before income taxes as a result of the following (in thousands):
Taxes at the U.S. federal statutory rate
State income taxes, net of federal tax impact
Tax loss on the sale of WRI
Non deductible transaction costs
Other, net
Total income tax expense (benefit)
Effective income tax rate
$
$
Year Ended December 31,
2014
2015
111,846 $
9,627
—
—
(9,394)
112,079 $
35.1%
44,788 $
3,822
(5,786 )
2,594
(1,651 )
43,767 $
34.2 %
2013
(83,109)
(859)
—
—
(2,193)
(86,161)
36.3%
Deferred taxes consisted of the following at December 31, 2015 and 2014 (in thousands):
Deferred tax assets:
Impairment and other valuation reserves
Incentive compensation
Indirect costs capitalized
Net operating loss carryforwards (state)
Transaction costs
State taxes
Other costs and expenses
Gross deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Interest capitalized
Basis difference in inventory
Fixed assets
Intangibles
Other
Deferred tax liabilities
Net deferred tax assets
Year Ended
December 31,
2015
2014
$
$
89,057 $
3,617
20,266
29,461
(833 )
2,903
13,641
158,112
(4,361 )
153,751
268
(14,128 )
1,274
(9,015 )
(1,493 )
(23,094 )
130,657 $
110,816
2,646
27,202
29,975
2,610
1,368
17,230
191,847
(6,233)
185,614
(2,590)
(14,029)
(555)
(8,944)
(1,675)
(27,793)
157,821
In connection with the Merger, the Company acquired $16.8 million of net deferred tax assets and assumed $15.5 million of
liabilities for uncertain tax positions.
The Company accounts for income taxes in accordance with ASC 740, which requires an asset and liability approach for
measuring deferred taxes based on temporary differences between the financial statements and tax bases of assets and liabilities using
enacted tax rates for the years in which taxes are expected to be paid or recovered. Each quarter we assess our deferred tax asset to
determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740. We are required to establish a
valuation allowance for any portion of the asset we conclude is more likely than not to be unrealizable. Our assessment considers,
among other things, the nature, frequency and severity of our current and cumulative losses, forecasts of our future taxable income, the
duration of statutory carryforward periods and tax planning alternatives.
As of December 31, 2015, the Company had state net operating loss carryforward of $560.7 million, which will expire between
2016 and 2034. We had a valuation allowance related to deferred tax assets of $4.4 million and $6.2 million as of December 31, 2015
and December 31, 2014, respectively, related to certain state net operating loss carryforwards as the tax benefits from those state
losses are not more likely than not to be realized. The decrease in the valuation allowance in 2015 is principally due to the expiration
of state net operating loss carryovers on which a full valuation allowance was previously recorded.
The Company will continue to evaluate both positive and negative evidence in determining the need for a valuation allowance
against its deferred tax assets. Changes in positive and negative evidence, including differences between the Company’s future
operating results and the estimates utilized in the determination of the valuation allowance, could result in changes in the Company’s
94
estimate of the valuation allowance against its deferred tax assets. The accounting for deferred taxes is based upon estimates of future
results. Differences between the anticipated and actual outcomes of these future results could have a material impact on the
Company’s consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates
could affect future tax results and the valuation allowance against the Company’s deferred tax assets.
Unrecognized tax benefits represent potential future obligations to taxing authorities if uncertain tax positions we have taken on
previously filed tax returns are not sustained. These amounts represent the gross amount of exposure in individual jurisdictions and do
not reflect any additional benefits expected to be realized if such positions were not sustained, such as federal deduction that could be
realized if an unrecognized state deduction was not sustained.
The Company files income tax returns in the U.S., including federal and multiple state and local jurisdictions. The Company’s
tax years 2011-2015 will remain open to examination by the federal and state authorities for three and four years, respectively, from
the date of utilization of any net operating loss or credit carryforwards.
The following table summarizes the activity related to the Company’s gross unrecognized tax benefits (in thousands):
Balance at beginning of year
Increase due to Merger
Decreases related to prior year tax positions
Decreases related to current year tax positions
Balance at end of year
Year Ended
December 31,
2015
2014
$
$
14,857 $
—
(1,706 )
(12,879 )
272 $
—
16,716
—
(1,859)
14,857
The amount of unrecognized tax benefit that, if recognized and realized, would affect the effective tax rate is none as of
December 31, 2015. Management believes it is reasonably possible that the total amount of unrecognized tax benefits will decrease
within the next 12 months.
The Company classifies interest and penalties related to income taxes as part of income tax expense. Accrued interest and
penalties are included within the related liabilities in the balance sheet. The Company has recorded $35,000 of unpaid interest as a
result of uncertain tax positions as of December 31, 2015.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial
statement carrying amounts of assets and liabilities and their respective tax bases and for operating loss and tax credit carryforwards.
If we were to calculate income taxes using the separate return method, the effect on pro forma unaudited income from
continuing operations and pro forma unaudited earnings per share would be as follows (in thousands, except per share amounts):
Income (loss) from continuing operations before taxes as
reported in the accompanying financial statements
(Provision) benefit for income taxes
Pro forma income (loss) from continuing operations
Net income attributable to noncontrolling interests
Pro forma net income (loss) from continuing operations available to
common stockholders
Pro forma earnings (loss) per share - basic
Pro forma earnings (loss) per share - diluted
Year Ended December 31,
2014
2013
2015
(unaudited)
(unaudited)
(unaudited)
$
319,260 $
(112,079 )
207,181
(1,720 )
127,964 $ (237,454)
86,161
(49,553)
(151,293)
78,411
—
—
$
$
$
205,461
$
1.27 $
1.27 $
78,411 $ (151,293)
0.54 $
0.54 $
(1.17)
(1.17)
Assuming computation on a separate return basis, our income tax provision would have increased by $5.8 million for the year
ended December 31, 2014 related to the tax loss on the sale of Weyerhaeuser Realty Investors, Inc. to Weyerhaeuser NR Company
that would not have provided a benefit to our income tax provision assuming computation on a separate return basis. There would be
no change to our income tax provision for the years ended December 31, 2015 and 2013.
Refer to Note 18, Related Party Transactions, for a description of the tax sharing agreement between TRI Pointe and
Weyerhaeuser.
95
18. Related Party Transactions
Prior to the Merger, WRECO was a wholly-owned subsidiary of Weyerhaeuser. Weyerhaeuser provided certain services
including payroll processing and related employee benefits, other corporate services such as corporate governance, cash management
and other treasury services, administrative services such as government relations, tax, internal audit, legal, accounting, human
resources and equity-based compensation plan administration, lease of office space, aviation services and insurance coverage.
WRECO was allocated a portion of Weyerhaeuser corporate general and administrative costs on either a proportional cost or usage
basis.
Weyerhaeuser-allocated corporate general and administrative expenses were as follows (in thousands):
Weyerhaeuser-allocated costs
2015
Year Ended December 31,
2014
2013
$
— $
10,735 $
22,884
These expenses may not be indicative of the actual level of expense WRECO would have incurred if it had operated as an
independent company or of expenses expected to be incurred in the future after the Closing Date.
During the year ended December 31, 2014 and prior to the Merger, WRECO sold $4.8 million of mineral rights and $21.2
million of land to Weyerhaeuser.
TRI Pointe has certain liabilities with Weyerhaeuser related to a tax sharing agreement executed in connection with the Merger.
The liabilities under the tax sharing agreement relate to a portion of the California net operating loss generated prior to the Merger that
are expected to be realized after July 7, 2014; federal tax credits generated prior to the Merger that are expected to be realized after
July 7, 2014; and deductions for stock option awards granted through December 31, 2013 that are expected to be realized after July 7,
2014. As of December 31, 2015 and 2014, we had an income tax liability to Weyerhaeuser of $8.9 million and $15.7, million,
respectively, which is recorded in accrued expenses and other liabilities on the accompanying balance sheet.
In January of 2014, TRI Pointe acquired 46 lots located in Castle Rock, Colorado, for a purchase price of approximately
$2.7 million from an entity managed by an affiliate of the Starwood Capital Group. In January of 2015, TRI Pointe acquired an
additional 46 lots located in Castle Rock, Colorado, for a purchase price of approximately $2.8 million from an entity managed by an
affiliate of the Starwood Capital Group. The chairman of the Company’s board of directors is Barry Sternlicht who is also the
chairman of the Starwood Capital Group. Starwood Fund, a greater than five percent holder of our common stock, is managed by
affiliates of Starwood Capital Group. This acquisition was approved by TRI Pointe’s independent directors.
In October of 2015, we entered into an agreement with an affiliate of BlackRock, Inc. to acquire 161 lots located in Dublin,
California, for a purchase price of approximately $60 million. BlackRock, Inc. is a greater than five percent holder of our common
stock. This acquisition was approved by the Executive Land Committee, which is comprised of independent directors.
19. Discontinued Operations
On October 31, 2013, a wholly-owned subsidiary of WRECO, Weyerhaeuser Realty Investors, Inc., (“WRI”), was sold to
Weyerhaeuser NR Company. The results of operations for WRI have been recorded as discontinued operations in the accompanying
consolidated financial statements. Cash flows of WRI through the date of the sale to Weyerhaeuser remain fully consolidated in the
accompanying consolidated statement of cash flow for the year ended December 31, 2013.
Earnings of discontinued operations is as follows (in thousands):
Earnings before income taxes
Gain on sale of discontinued operations
(Provision) benefit for income taxes
Discontinued operations, net of income taxes
2015
Year Ended December 31,
2014
2013
$
$
— $
—
—
— $
— $
—
—
— $
602
1,946
(710)
1,838
On October 31, 2013, Weyerhaeuser NR Company acquired WRI for $3.6 million. The purchase price was recorded as a
reduction in the debt payable to Weyerhaeuser. The transaction resulted in a net gain of approximately $1.9 million, which was
recognized in the fourth quarter of 2013.
96
20. Supplemental Disclosure to Consolidated Statement of Cash Flow
The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):
2015
Year Ended December 31,
2014
2013
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest, net of amounts capitalized of $60,964, $38,975 and
$19,081 (Note 7)
Income taxes
Supplemental disclosures of noncash activities:
Increase in real estate inventory due to distribution of land
from an unconsolidated joint venture
Distribution to Weyerhaeuser of excluded assets and liabilities
Amounts owed to Weyerhaeuser related to the tax sharing
agreement
Noncash settlement of debt payable to Weyerhaeuser
Accrued liabilities related to the purchase of operating properties
and equipment
Amortization of senior note discount capitalized to real estate
inventory
Amortization of deferred loan costs capitalized to real estate
inventory
Effect of net consolidation and de-consolidation of variable
interest entities:
Increase (decrease) in consolidated real estate inventory
not owned
Increase in deposits on real estate under option or
contract and other assets
Increase in accrued expenses and other liabilities
(Increase) decrease in noncontrolling interests
Merger:
Fair value of assets, excluding cash acquired
Liabilities assumed
21. Subsequent Events
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,372 $
43,005 $
2,091
(10,521)
—
69,917
—
—
—
—
$
$
$
$
$
$
5,052 $
126,687 $
15,688 $
70,082 $
3,976
$
— $
1,552
$
804 $
3,312
$
— $
—
—
—
—
—
—
—
5,297
$
6,343 $
(7,411)
—
300
(5,597)
—
—
$
$
$
$
$
780 $
— $
(7,123) $
724,995 $
(276,347) $
3,005
—
4,406
—
—
On January 27, 2016, our Board of Directors approved a $100 million stock repurchase program, effective January 26, 2016.
Under the program, the company may repurchase common stock with an aggregate value of up to $100 million through January 25,
2017. The share repurchase program does not obligate the company to repurchase any particular amount of common stock, and it
could be modified, suspended or discontinued at any time. The timing and amount of repurchases are determined by the company’s
management at its discretion based on a variety of factors such as the market price of its common stock, corporate requirements,
general market and economic conditions and legal requirements. Purchases of the company’s common stock may be made in open
market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with
federal securities laws. As of this reporting date no shares have been repurchased under this program.
22. Supplemental Guarantor Information
On the Closing Date, the TRI Pointe Homes assumed WRECO’s obligations as issuer of the Senior Notes. Additionally, all of
TRI Pointe’s wholly-owned subsidiaries that are guarantors of the Company’s unsecured $550 million revolving credit facility,
including WRECO and certain of its wholly-owned subsidiaries, entered into supplemental indentures pursuant to which they jointly
and severally guaranteed TRI Pointe’s obligations with respect to the Senior Notes. In connection with the Reorganization, TRI
Pointe Group became a co-issuer with TRI Pointe Homes of the Senior Notes.
97
Presented below are the condensed consolidating balance sheets at December 31, 2015 and 2014, condensed consolidating
statements of operations for the years ended December 31, 2015 and 2014 and condensed consolidating statement of cash flows for
the years ended December 31, 2015 and 2014. TRI Pointe’s non-guarantor subsidiaries represent less than 3% on an individual and
aggregate basis of consolidated total assets, total revenues, and income from operations before taxes and cash flow from operating
activities. Therefore, the non-guarantor subsidiaries’ information is not separately presented in the tables below, but is included with
the guarantor subsidiaries.
As discussed in Note 1, the Merger was treated as a “reverse acquisition” with WRECO being considered the accounting
acquirer. Accordingly, the financial statements reflect the historical results of WRECO for all periods and do not include the historical
financial information of TRI Pointe prior to the Closing Date. Subsequent to the Closing Date, the consolidated financial statements
reflect the results of the combined company. As a result, we have not included condensed consolidated financial statements for the
years ending December 31, 2013 because those results are of WRECO and are already included on the face of the consolidated
financial statements. In addition, there is no financial information for TRI Pointe Group, Inc., issuer of the Senior Notes, in the
periods prior to the Merger.
Condensed Consolidating Balance Sheet (in thousands):
Assets
Cash and cash equivalents
Receivables
Intercompany receivables
Real estate inventories
Investments in unconsolidated entities
Goodwill and other intangible assets, net
Investments in subsidiaries
Deferred tax assets, net
Other assets
Total Assets
Liabilities
Accounts payable
Intercompany payables
Accrued expenses and other liabilities
Unsecured revolving credit facility
Seller financed loans
Senior notes
Total Liabilities
Equity
Total stockholders’ equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
$
$
$
December 31, 2015
Issuer (1)
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Group, Inc.
147,771 $
17,358
783,956
657,221
—
156,604
1,093,261
19,061
12,219
2,887,451 $
66,714 $
26,352
—
1,862,052
18,999
5,425
—
111,596
36,699
— $
—
(783,956)
—
—
—
(1,093,261)
—
—
2,127,837 $ (1,877,217) $
214,485
43,710
—
2,519,273
18,999
162,029
—
130,657
48,918
3,138,071
20,444 $
—
32,219
299,392
2,034
868,679
1,222,768
44,396 $
783,956
184,044
—
400
—
1,012,796
— $
(783,956)
—
—
—
—
(783,956)
64,840
—
216,263
299,392
2,434
868,679
1,451,608
1,664,683
—
1,664,683
2,887,451 $
(1,093,261)
1,093,261
—
21,780
(1,093,261)
1,115,041
2,127,837 $ (1,877,217) $
1,664,683
21,780
1,686,463
3,138,071
$
(1)
References to “Issuer” in Note 22, Supplemental Guarantor Information have the following meanings:
a.
b.
for periods prior to July 7, 2015: TRI Pointe Homes only
for periods from and after July 7, 2015: TRI Pointe Homes and TRI Pointe Group as co-issuers
98
Condensed Consolidating Balance Sheet (in thousands):
Assets
Cash and cash equivalents
Receivables
Intercompany receivables
Real estate inventories
Investments in unconsolidated entities
Goodwill and other intangible assets, net
Investments in subsidiaries
Deferred tax assets, net
Other assets
Total Assets
Liabilities
Accounts payable
Intercompany payables
Accrued expenses and other liabilities
Unsecured revolving credit facility
Seller financed loans
Senior notes
Total Liabilities
Equity
Total stockholders’ equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
$
$
$
December 31, 2014
Issuer (1)
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Homes, Inc.
105,888 $
5,050
797,480
613,666
—
156,603
941,397
23,630
31,512
2,675,226 $
64,741 $
15,068
—
1,666,517
16,805
5,960
—
134,191
50,207
— $
—
(797,480)
—
—
—
(941,397)
—
—
1,953,489 $ (1,738,877) $
170,629
20,118
—
2,280,183
16,805
162,563
—
157,821
81,719
2,889,838
25,800 $
—
57,353
260,000
14,077
863,816
1,221,046
43,060 $
797,480
152,656
—
600
—
993,796
— $
(797,480)
—
—
—
—
(797,480)
68,860
—
210,009
260,000
14,677
863,816
1,417,362
1,454,180
—
1,454,180
2,675,226 $
941,397
18,296
959,693
(941,397)
—
(941,397)
1,953,489 $ (1,738,877) $
1,454,180
18,296
1,472,476
2,889,838
$
(1)
References to “Issuer” in Note 22, Supplemental Guarantor Information have the following meanings:
a.
b.
for periods prior to July 7, 2015: TRI Pointe Homes only
for periods from and after July 7, 2015: TRI Pointe Homes and TRI Pointe Group as co-issuers
99
Condensed Consolidating Statement of Operations (in thousands):
Homebuilding:
Home sales revenue
Land and lot sales revenue
Other operations
Total revenues
Cost of home sales
Cost of land and lot sales
Other operations
Impairments and lot option abandonments
Sales and marketing
General and administrative
Restructuring charges
Homebuilding income from operations
Equity in loss of unconsolidated entities
Transaction expenses
Other (loss) income, net
Homebuilding income from continuing operations
before taxes
Financial Services:
Revenues
Expenses
Equity in income of unconsolidated entities
Financial services income from continuing operations
before taxes
Income from continuing operations before taxes
Provision for income taxes
Equity of net income (loss) of subsidiaries
Net income (loss)
Net income attributable to noncontrolling interests
Net income (loss) available to common stockholders
Year Ended December 31, 2015
Guarantor
Consolidating
Consolidated
TRI Pointe
Issuer (1)
Subsidiaries
Adjustments
Group, Inc.
$
774,005 $
—
—
774,005
624,331
—
—
460
26,792
55,611
(169)
66,980
—
—
(127)
1,517,259 $
101,284
7,601
1,626,144
1,182,760
34,844
4,360
1,470
89,425
61,885
3,498
247,902
1,460
—
985
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,291,264
101,284
7,601
2,400,149
1,807,091
34,844
4,360
1,930
116,217
117,496
3,329
314,882
1,460
—
858
66,853
250,347
—
317,200
—
—
—
1,010
181
1,231
—
66,853
(20,001)
158,609
205,461
—
205,461 $
2,060
252,407
(92,078 )
—
160,329
(1,720 )
158,609 $
$
—
—
—
—
—
(158,609)
(158,609)
—
(158,609) $
1,010
181
1,231
2,060
319,260
(112,079)
—
207,181
(1,720)
205,461
(1)
References to “Issuer” in Note 22, Supplemental Guarantor Information have the following meanings:
a.
b.
for periods prior to July 7, 2015: TRI Pointe Homes only
for periods from and after July 7, 2015: TRI Pointe Homes and TRI Pointe Group as co-issuers
100
Condensed Consolidating Statement of Operations (in thousands):
Homebuilding:
Home sales revenue
Land and lot sales revenue
Other operations
Total revenues
Cost of home sales
Cost of land and lot sales
Other operations
Impairments and lot option abandonments
Sales and marketing
General and administrative
Restructuring charges
Homebuilding income from operations
Equity in loss of unconsolidated entities
Transaction expenses
Other income (loss), net
Homebuilding income from continuing operations
before taxes
Financial Services:
Revenues
Expenses
Equity in loss of unconsolidated entities
Financial services loss from continuing operations
before taxes
Income from continuing operations before taxes
Provision for income taxes
Net income
Equity of net income (loss) of subsidiaries
Net income (loss) available to common stockholders
Year Ended December 31, 2014
Guarantor
Consolidating
Consolidated
TRI Pointe
Issuer (1)
Subsidiaries
Adjustments
Homes, Inc.
$
324,219 $
—
(12)
324,207
271,530
—
—
49
9,678
16,532
—
26,418
—
(7,138)
17
1,322,055 $
47,660
9,694
1,379,409
1,044,940
37,560
3,324
2,466
93,922
65,826
10,543
120,828
(278 )
(10,822 )
(1,036 )
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,646,274
47,660
9,682
1,703,616
1,316,470
37,560
3,324
2,515
103,600
82,358
10,543
147,246
(278)
(17,960)
(1,019)
19,297
108,692
—
127,989
—
—
—
—
15
(10 )
—
—
—
—
19,297
(11,586)
7,711
76,486
84,197 $
(25 )
108,667
(32,181 )
76,486
—
76,486 $
—
—
—
—
(76,486)
(76,486) $
$
—
15
(10)
(25)
127,964
(43,767)
84,197
—
84,197
(1)
References to “Issuer” in Note 22, Supplemental Guarantor Information have the following meanings:
a.
b.
for periods prior to July 7, 2015: TRI Pointe Homes only
for periods from and after July 7, 2015: TRI Pointe Homes and TRI Pointe Group as co-issuers
101
Condensed Consolidating Statement of Cash Flows (in thousands):
Cash flows from operating activities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Investments in unconsolidated entities
Distributions from unconsolidated entities
Intercompany
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Borrowings from debt
Repayment of debt
Debt issuance costs
Net repayments of debt held by variable interest entities
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Proceeds from issuance of common stock under
share-based awards
Excess tax benefits of share-based awards
Minimum tax withholding paid on behalf of employees for
restricted stock units
Intercompany
Net cash provided by (used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents - beginning of period
Cash and cash equivalents - end of period
$
Year Ended December 31, 2015
Guarantor
Consolidating
Consolidated
TRI Pointe
Issuer (1)
Subsidiaries
Adjustments
Group, Inc.
$
1,714 $
29,291 $
— $
31,005
(1,063)
—
—
16,717
15,654
140,000
(112,651)
(2,688)
—
—
—
1,616
428
(2,190)
—
24,515
41,883
105,888
147,771 $
254
(1,468 )
1,415
—
201
—
(200 )
—
(6,769 )
5,990
(9,823 )
—
—
—
—
—
(16,717)
(16,717)
—
—
—
—
—
—
—
—
—
(16,717 )
(27,519 )
1,973
64,741
66,714 $
—
16,717
16,717
—
—
— $
(809)
(1,468)
1,415
—
(862)
140,000
(112,851)
(2,688)
(6,769)
5,990
(9,823)
1,616
428
(2,190)
—
13,713
43,856
170,629
214,485
(1)
References to “Issuer” in Note 22, Supplemental Guarantor Information have the following meanings:
a.
b.
for periods prior to July 7, 2015: TRI Pointe Homes only
for periods from and after July 7, 2015: TRI Pointe Homes and TRI Pointe Group as co-issuers
102
Condensed Consolidating Statement of Cash Flows (in thousands):
Cash flows from operating activities
Net cash used in operating activities
Cash flows from investing activities:
Purchases of property and equipment
Cash acquired in the Merger
Proceeds from sale of property and equipment
Investments in unconsolidated entities
Intercompany
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Borrowings from debt
Repayment of debt
Debt issuance costs
Proceeds from issuance of senior notes
Bridge commitment fee
Changes in debt payable to Weyerhaeuser
Change in book overdrafts
Distributions to Weyerhaeuser
Net proceeds of debt held by variable interest entities
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Proceeds from issuance of common stock under
share-based awards
Excess tax benefits of share-based awards
Intercompany
Year Ended December 31, 2014
Guarantor
Consolidating
Consolidated
TRI Pointe
Issuer (1)
Subsidiaries
Adjustments
Homes, Inc.
$
(62,715) $
(50,655 ) $
— $
(113,370)
(2,293)
53,800
—
—
69,971
121,478
100,000
(53,051)
—
—
—
—
—
—
—
—
—
176
—
(5,557 )
—
23
(1,311 )
—
(6,845 )
—
—
—
—
(69,971)
(69,971)
600
—
(23,000 )
886,698
(10,322 )
(623,589 )
(22,491 )
(8,606 )
3,903
1,895
(19,143 )
—
1,757
(69,971 )
117,731
60,231
4,510
64,741 $
—
—
—
—
—
—
—
—
—
—
—
—
—
69,971
69,971
—
—
— $
(7,850)
53,800
23
(1,311)
—
44,662
100,600
(53,051)
(23,000)
886,698
(10,322)
(623,589)
(22,491)
(8,606)
3,903
1,895
(19,143)
176
1,757
—
234,827
166,119
4,510
170,629
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents - beginning of period
Cash and cash equivalents - end of period
47,125
105,888
—
105,888 $
$
(1)
References to “Issuer” in Note 22, Supplemental Guarantor Information have the following meanings:
a.
b.
for periods prior to July 7, 2015: TRI Pointe Homes only
for periods from and after July 7, 2015: TRI Pointe Homes and TRI Pointe Group as co-issuers
103
23. Results of Quarterly Operations (Unaudited)
The following table presents our unaudited quarterly financial data. As discussed in Note 1, the Merger was treated as a reverse
acquisition and WRECO is considered the accounting acquirer. Accordingly, WRECO is reflected as the predecessor and acquirer
and therefore consolidated financial statements included in this Annual Report on Form 10-K reflect historical consolidated financial
statements of WRECO for all periods presented, and do not include the historical financial statements of legacy TRI Pointe prior to the
Closing Date. As a result, quarterly financial data presented in the following table for periods prior to the third quarter of 2014 will
differ from amounts previously reported on the Form 10-Q from the same periods. In our opinion, this information has been prepared
on a basis consistent with that of our audited consolidated financial statements and all necessary material adjustments, consisting of
normal recurring accruals and adjustments, have been included to present fairly the unaudited quarterly financial data. Our quarterly
results of operations for these periods are not necessarily indicative of future results of operations (in thousands, except per share
amounts):
2015
Total revenues
Cost of homes sales and other
Impairments and lot option abandonments
Gross margin
Net income
Net (income) loss attributable to noncontrolling interests
Net income available to common stockholders
Earnings per share
Basic
Diluted
2014
Total revenues
Cost of homes sales and other
Impairments and lot option abandonments
Gross margin
Net income
Net (income) loss attributable to noncontrolling interests
Net income available to common stockholders
Earnings per share
Basic
Diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
377,258 $
302,417
360
74,481 $
15,297 $
—
15,297 $
495,517 $
352,720
1,178
141,619 $
56,762 $
(1,832 ) $
54,930 $
648,141 $
511,353
211
136,577 $
49,769 $
393
50,162 $
880,243
679,825
181
200,237
85,353
(281)
85,072
0.09 $
0.09 $
0.34 $
0.34 $
0.31 $
0.31 $
0.53
0.52
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
248,132 $
195,595
468
52,069 $
7,581 $
—
7,581 $
342,563 $
267,937
104
74,522 $
24,225 $
—
24,225 $
477,920 $
387,721
552
89,647 $
10,965 $
—
10,965 $
635,001
506,101
1,391
127,509
41,426
—
41,426
0.06 $
0.06 $
0.19 $
0.19 $
0.07 $
0.07 $
0.26
0.26
$
$
$
$
$
$
$
$
$
$
$
$
Quarterly and year-to-date computations of per share amounts are made independently. Therefore, the sum of per share
amounts for the quarter may not agree with per share amounts for the year.
104
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
TRI Pointe Group, Inc.
By: /s/ Douglas F. Bauer
Douglas F. Bauer
Chief Executive Officer
Date: February 26, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated:
Signature
/s/ Barry S. Sternlicht
Barry S. Sternlicht
/s/ Douglas F. Bauer
Douglas F. Bauer
/s/ Michael D. Grubbs
Michael D. Grubbs
/s/ Glenn J. Keeler
Glenn J. Keeler
/s/ Lawrence B. Burrows
Lawrence B. Burrows
/s/ Daniel S. Fulton
Daniel S. Fulton
/s/ Kristin F. Gannon
Kristin F. Gannon
/s/ Steven J. Gilbert
Steven J. Gilbert
/s/ Christopher D. Graham
Christopher D. Graham
/s/ Constance B. Moore
Constance B. Moore
/s/ Thomas B. Rogers
Thomas B. Rogers
Title
Date
Chairman of the Board of Directors, Director
February 26, 2016
Chief Executive Officer and Director (Principal Executive
February 26, 2016
Officer)
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
Chief Financial Officer & Treasurer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
105
Exhibit
Number
2.1
Transaction Agreement, dated as of November 3, 2013, among TRI Pointe Homes, Inc., Weyerhaeuser Company,
Weyerhaeuser Real Estate Company, and Topaz Acquisition, Inc. (incorporated by reference to Exhibit 2.1 to the
Company’s Registration Statement on Form S-4 (filed March 28, 2014))
Exhibit
Description
3.1
Amended and Restated Certificate of Incorporation of TRI Pointe Homes, Inc. (incorporated by reference to Exhibit 3.1
to the Company’s Current Report on Form 8-K (filed July 7, 2015)
3.2
Amended and Restated Bylaws of TRI Pointe Homes, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s
Current Report on Form 8-K (filed July 7, 2015))
4.1
4.2
4.3
4.4
Specimen Common Stock Certificate of TRI Pointe Group, Inc. (incorporated by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8-K (filed July 7, 2015))
Investor Rights Agreement, dated as of January 30, 2013, by and among TRI Pointe Homes, Inc., VIII/TPC Holdings,
L.L.C., BMG Homes, Inc., The Bauer Revocable Trust U/D/T Dated December 31, 2003, Grubbs Family Trust Dated
June 22, 2012, The Mitchell Family Trust U/D/T Dated February 8, 2000, Douglas J. Bauer, Thomas J. Mitchell and
Michael D. Grubbs. (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-4
(filed Jan. 9, 2014))
First Amendment to Investor Rights Agreement, dated as of November 3, 2013, by and among TRI Pointe Homes, Inc.,
VIII/TPC Holdings, L.L.C., BMG Homes, Inc., The Bauer Revocable Trust U/D/T Dated December 31, 2003, Grubbs
Family Trust Dated June 22, 2012, The Mitchell Family Trust U/D/T Dated February 8, 2000, Douglas F. Bauer, Thomas J.
Mitchell and Michael D. Grubbs (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K
(filed Nov. 4, 2013))
Second Amendment to Investor Rights Agreement, dated as of July 7, 2015, among TRI Pointe Group, Inc., TRI Pointe
Homes, Inc., VIII/TPC Holdings, L.L.C., BMG Homes, Inc., The Bauer Revocable Trust U/D/T Dated December 31,
2003, Grubbs Family Trust Dated June 22, 2012, The Mitchell Family Trust U/D/T Dated February 8, 2000, Douglas F.
Bauer, Thomas J. Mitchell and Michael D. Grubbs (incorporated by reference to Exhibit 10.8 to the Company’s Current
Report on Form 8-K (filed July 7, 2015))
4.5
Registration Rights Agreement, dated as of January 30, 2013, among TRI Pointe Homes, Inc., VIII/TPC Holdings,
L.L.C., and certain TRI Pointe Homes, Inc. stockholders (incorporated by reference to Exhibit 4.4 to the Company’s
Registration Statement on Form S-4 (filed Jan. 9, 2014))
4.6
4.7
4.8
4.9
4.10
4.11
4.12
First Amendment to Registration Rights Agreement, dated as of July 7, 2015, among TRI Pointe Group, Inc., TRI Pointe
Homes, Inc., VIII/TPC Holdings, L.L.C. and certain TRI Pointe Homes, Inc. stockholders (incorporated by reference to
Exhibit 10.9 to the Company’s Current Report on Form 8-K (filed July 7, 2015))
Indenture, dated as of June 13, 2014, by and among Weyerhaeuser Real Estate Company and U.S. Bank National
Association, as trustee (including form of 4.375% Senior Note due 2019) (incorporated by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8-K (filed June 19, 2014))
First Supplemental Indenture, dated as of July 7, 2014, among TRI Pointe Homes, Inc., Weyerhaeuser Real Estate
Company and U.S. Bank National Association, as trustee, relating to the 4.375% Senior Notes due 2019 (incorporated by
reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (filed July 7, 2014))
Second Supplemental Indenture, dated as of July 7, 2014, among the guarantors party thereto and U.S. Bank National
Association, as trustee, relating to the 4.375% Senior Notes due 2019 (incorporated by reference to Exhibit 4.3 to the
Company’s Current Report on Form 8-K (filed July 7, 2014))
Third Supplemental Indenture, dated as of July 7, 2015, among TRI Point Group, Inc., TRI Pointe Homes, Inc. and U.S.
Bank National Association, as trustee, relating to the 4.375% Senior Notes due 2019 (incorporated by reference to
Exhibit 4.2 to the Company’s Current Report on Form 8-K (filed July 7, 2015))
Indenture, dated as of June 13, 2014, by and among Weyerhaeuser Real Estate Company and U.S. Bank National
Association, as trustee (including form of 5.875% Senior Note due 2024) (incorporated by reference to Exhibit 4.2 to the
Company’s Current Report on Form 8-K (filed June 19, 2014))
First Supplemental Indenture, dated as of July 7, 2014, among TRI Pointe Homes, Inc., Weyerhaeuser Real Estate
Company and U.S. Bank National Association, as trustee, relating to the 5.875% Senior Notes due 2024 (incorporated by
reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (filed July 7, 2014))
106
Exhibit
Number
4.13
4.14
10.1
10.2
Exhibit
Description
Second Supplemental Indenture, dated as of July 7, 2014, among the guarantors party thereto and U.S. Bank National
Association, as trustee, relating to the 5.875% Senior Notes due 2024 (incorporated by reference to Exhibit 4.4 to the
Company’s Current Report on Form 8-K (filed July 7, 2014))
Third Supplemental Indenture, dated as of July 7, 2015, among TRI Point Group, Inc., TRI Pointe Homes, Inc. and U.S.
Bank National Association, as trustee, relating to the 5.875% Senior Notes due 2024 (incorporated by reference to
Exhibit 4.3 to the Company’s Current Report on Form 8-K (filed July 7, 2015))
Joinder Agreement to Purchase Agreement, dated as of July 7, 2014, relating to the 4.375% Senior Notes due 2019 and
5.875% Senior Notes due 2024 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form
8-K (filed July 7, 2014))
Issuer Joinder Agreement to Registration Rights Agreement, dated as of July 7, 2014, relating to 4.375% Senior Notes
due 2019 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (filed July 7, 2014))
10.3
Guarantor Joinder Agreement to Registration Rights Agreement, dated as of July 7, 2014, relating to 4.375% Senior
Notes due 2019 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (filed July 7,
2014))
10.4
Issuer Joinder Agreement to Registration Rights Agreement, dated as of July 7, 2014, relating to 5.875% Senior Notes
due 2024 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (filed July 7, 2014))
10.5
Guarantor Joinder Agreement to Registration Rights Agreement, dated as of July 7, 2014, relating to 5.875% Senior
Notes due 2024 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K (filed July 7,
2014))
10.6
Registration Rights Agreement with respect to 4.375% Senior Notes due 2019, dated as of June 23, 2014, by and among
Weyerhaueser Real Estate Company, CitiGroup Global Markets, Inc. and Deutsche Bank Securities Inc., as
representatives of the Initial Purchasers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K (filed June 19, 2014))
10.7
Registration Rights Agreement with respect to 5.875% Senior Notes due 2024, dated as of June 13, 2014, by and among
Weyerhaueser Real Estate Company, CitiGroup Global Markets, Inc. and Deutsche Bank Securities Inc., as
representatives of the Initial Purchasers (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K (filed June 19, 2014))
10.8
10.9
Tax Sharing Agreement, dated as of July 7, 2014, among Weyerhaeuser Company, Weyerhaeuser Real Estate Company,
and TRI Pointe Homes, Inc. (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K
(filed July 7, 2014))
First Amendment to Tax Sharing Agreement, dated as of July 7, 2015, among TRI Pointe Group, Inc., TRI Pointe
Homes, Inc., TRI Pointe Holdings, Inc. (f/k/a Weyerhaeuser Real Estate Company) and Weyerhaeuser Company
(incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K (filed July 7, 2015))
10.10
Amended and Restated Revolving Line of Credit Loan Agreement by and between California Bank & Trust and TRI
Pointe Homes, LLC, dated as of May 29, 2012 (incorporated by reference to Exhibit 10.1 to the Company’s Registration
Statement on Form S-1 (filed Dec. 21, 2012))
10.11
10.12
First Amendment to Modify Loan Documents by and between California Bank & Trust and TRI Pointe Homes, LLC,
dated as of December 21, 2012 (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on
Form S-1 (Amendment No. 1, filed Jan. 9, 2013))
Second Amendment to Modify Loan Documents, dated as of March 25, 2014, by and between TRI Pointe Homes, Inc.
and California Bank & Trust (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
(filed April 1, 2014))
10.13 Credit Agreement, dated as of June 26, 2014, among TRI Pointe Homes, Inc., U.S. Bank National Association, d/b/a
Housing Capital Company, and the lender parties thereto (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K (filed June 27, 2014))
10.14
Amended and Restated Credit Agreement, dated as of July 7, 2015, among TRI Point Group, Inc., U.S. Bank National
Association and the lenders party thereto (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on
Form 8-K (filed July 7, 2015))
10.15†
2013 Long-Term Incentive Plan (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on
Form S-1 (Amendment No. 1, filed Jan. 9, 2013))
107
Exhibit
Number
Exhibit
Description
10.16† Amendment No. 1 to 2013 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K (filed June 23, 2014))
10.17† Amendment No. 2 to 2013 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K (filed June 23, 2014))
10.18† Weyerhaeuser Real Estate Company 2004 Long-Term Incentive Plan (filed as Exhibit 99.1 to the Company’s
Registration Statement on Form S-8 (filed July 16, 2014))
10.19† Weyerhaeuser Real Estate Company 2013 Long-Term Incentive Plan (filed as Exhibit 99.1 to the Company’s
Registration Statement on Form S-8 (filed July 16, 2014))
10.20† Omnibus Amendment to the TRI Pointe Homes, Inc. 2013 Long-Term Incentive Plan, TRI Pointe Group Short-Term
Incentive Plan, Weyerhaeuser Real Estate Company 2004 Long-Term Incentive Plan and the Weyerhaeuser Real Estate
Company 2013 Long-Term Incentive Plan and their related stock option, restricted stock unit, cash incentive award
agreements and performance share unit agreements, dated as of July 7, 2015 (incorporated by reference to Exhibit 10.7 to
the Company’s Current Report on Form 8-K (filed July 7, 2015))
10.21† Amendment No. 4 to TRI Pointe Homes, Inc. 2013 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.7
to the Company’s Current Report on Form 8-K (filed August 13, 2015))
10.22† Executive Employment Agreement dated as of November 19, 2015 between TRI Pointe Group, Inc. and Douglas F.
Bauer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed November 20,
2015))
10.23† Executive Employment Agreement dated as of November 19, 2015 between TRI Pointe Group, Inc. and Thomas J.
Mitchell (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (filed November 20,
2015))
10.24† Executive Employment Agreement dated as of November 19, 2015 between TRI Pointe Group, Inc. and Michael D.
Grubbs (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (filed November 20,
2015))
10.25†
Form of Indemnification Agreement between TRI Pointe Homes, Inc. and each of its directors and officers (incorporated
by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1 (filed Dec. 21, 2012))
10.26†
Form of Amendment to Indemnification Agreement between TRI Pointe Group, Inc. and each of its directors and
officers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed July 7, 2015))
10.27†
2013 Long-Term Incentive Plan form of Option Award and Stock Option Agreement (incorporated by reference to
Exhibit 10.9 to the Company’s Annual Report on Form 10-K (filed March 28, 2013))
10.28†
2013 Long-Term Incentive Plan form of Restricted Stock Unit Award Agreement (incorporated by reference to
Exhibit 10.10 to the Company’s Annual Report on Form 10-K (filed March 28, 2013))
10.29†
2013 Long-Term Incentive Plan form of Non-Employee Director Agreement (incorporated by reference to Exhibit 10.11
to the Company’s Annual Report on Form 10-K (filed March 28, 2013))
10.30†
2013 Bonus Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed
March 27, 2013))
10.31 Revolving Credit Agreement, dated July 18, 2013, among TRI Pointe Homes, Inc. and U.S. Bank National Association
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (filed July 25, 2013))
10.32 Modification Agreement dated December 26, 2013 between TRI Pointe Homes, Inc. and U.S. Bank National
Association, d/b/a Housing Capital Company (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K (filed Jan. 2, 2014))
10.33
Second Modification Agreement, dated as of May 18, 2015, among TRI Pointe Homes, Inc., U.S. Bank National
Association, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K (filed May 18, 2015))
10.34 Voting Agreement, dated as of November 3, 2013, among Weyerhaeuser Company, Thomas J. Mitchell and The
Mitchell Family Trust U/D/T Dated February 8, 2000 (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K (filed Nov. 4, 2013))
108
Exhibit
Number
10.35 Voting Agreement, dated as of November 3, 2013, among Weyerhaeuser Company, Michael D. Grubbs and Grubbs
Exhibit
Description
Family Trust Dated June 22, 2012 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K (filed Nov. 4, 2013))
10.36 Voting Agreement, dated as of November 3, 2013, among Weyerhaeuser Company, Douglas F. Bauer and The Bauer
Family Revocable Trust U/D/T Dated December 31, 2003 (incorporated by reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K (filed Nov. 4, 2013))
10.37 Voting Agreement, dated as of November 3, 2013, among Weyerhaeuser Company, VIII/TPC Holdings, L.L.C. and
SOF-VIII U.S. Holdings, L.P. (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
(filed Nov. 4, 2013))
10.38 Letter re Voting Agreement, dated as of November 3, 2013, between TRI Pointe Homes, Inc. and Thomas J. Mitchell
(incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K (filed Nov. 4, 2013))
10.39 Letter re Voting Agreement, dated as of November 3, 2013, between TRI Pointe Homes, Inc. and Michael D. Grubbs
(incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K (filed Nov. 4, 2013))
10.40 Letter re Voting Agreement, dated as of November 3, 2013, between TRI Pointe Homes, Inc. and Douglas F. Bauer
(incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K (filed Nov. 4, 2013))
10.41 Letter re Voting Agreement, dated as of November 3, 2013, between TRI Pointe Homes, Inc. and VIII/TPC Holdings,
L.L.C. (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K (filed Nov. 4, 2013))
12.1 Ratio of Earnings to Fixed Charges
21.1 List of subsidiaries of TRI Pointe Group, Inc.
23.1
Consent of Independent Registered Public Accounting Firm, KPMG LLP
23.2
Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP
31.1
Chief Executive Officer Section 302 Certification of the Sarbanes-Oxley Act of 2002
31.2
Chief Financial Officer Section 302 Certification of the Sarbanes-Oxley Act of 2002
32.1
Chief Executive Officer Section 906 Certification of the Sarbanes-Oxley Act of 2002
32.2
Chief Financial Officer Section 906 Certification of the Sarbanes-Oxley Act of 2002
101
The following materials from TRI Pointe Group, Inc.’s Annual Report on Form 10-K for the year ended December 31,
2015, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated
Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Cash
Flows, and (v) Condensed Notes to Consolidated Financial Statement.
†
Management Contract or Compensatory Plan or Arrangement
109
[THIS PAGE INTENTIONALLY LEFT BLANK]
DIRECTORS
Barry S. Sternlicht,
Chairman of the Board
Douglas F. Bauer,
Chief Executive Officer
Steven J. Gilbert,
Lead Independent Director
Lawrence B. Burrows
Daniel S. Fulton
Kristin F. Gannon
Christopher D. Graham
Constance B. Moore
Thomas B. Rogers
EXECUTIVE OFFICERS
Douglas F. Bauer
Chief Executive Officer
Thomas J. Mitchell
President and Chief Operating Officer
Michael D. Grubbs
Chief Financial Officer
Bradley W. Blank
VP, General Counsel and Secretary
Glenn J. Keeler
VP and Chief Accounting Officer
Corporate Office:
19540 Jamboree Road,
Suite 300, Irvine, CA 92612
Website: www.TriPointeGroup.com
Common Stock Info: The New York Stock
Exchange—NYSE
Symbol: TPH
Forms 10-K and Governance Materials:
Our Annual Report on Form 10-K (excluding
exhibits), our Board committee charters, our
code of ethics and our corporate governance
guidelines are available on our website, and
stockholders may request printed copies
(which will be provided free of charge) from:
Investor Relations:
Tel: (949) 478-8696
Email: InvestorRelations@TriPointeGroup.com
www.TriPointeGroup.com
The SEC also maintains a website that contains
reports, proxy information and statements,
and other information regarding registrants who file
electronically with the SEC. The website address is
www.sec.gov.
Annual Meeting Date
Friday, June 3, 2016
10:00 am (Pacific Time)
TRI Pointe Group Corporate Office
19540 Jamboree Road, Suite 300
Irvine, CA 92612
Independent Registered Public Accounting Firm
Ernst & Young LLP
Irvine, CA
Transfer Agent and Registrar
American Stock Transfer & Trust Company
6201 15th Avenue
Brooklyn, NY 11219
www.amstock.com
Tel: 800-937-5449
Email: info@amstock.com
TRIP 138MS 16 Annual_Report_2015_8_25x10_75_ƒ3.indd 7
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7
Market: Greater
Puget Sound Area
Markets: Orange County,
Los Angeles,
San Diego, San Francisco
Bay Area, Denver
Markets: Los Angeles/
Ventura, Inland Empire,
San Diego, Las Vegas
Markets:
Maryland, Virginia
Markets:
Phoenix, Tucson
Markets:
Houston, Austin
TriPointeGroup.com
TRIP 138MS 16 Annual_Report_2015_8_25x10_75_ƒ3.indd 8
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