UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 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: 001-35873
TAYLOR MORRISON HOME CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware | 90-0907433 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
4900 N. Scottsdale Road, Suite 2000 Scottsdale, Arizona |
85251 | |
(Address of principal executive offices) | (Zip Code) |
(480) 840-8100
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal yearif changed since last report)
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x 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 x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-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 x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:
Class |
Outstanding as of August 5, 2015 | |
Class A common stock, $0.00001 par value |
33,079,677 | |
Class B common stock, $0.00001 par value |
89,200,063 |
TAYLOR MORRISON HOME CORPORATION
Page | ||||
Item 1. Financial Statements of Taylor Morrison Home Corporation (Unaudited) |
2 | |||
Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 |
2 | |||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
7 | ||||
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |
24 | |||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
40 | |||
41 | ||||
42 | ||||
42 | ||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
42 | |||
42 | ||||
42 | ||||
42 | ||||
42 | ||||
44 | ||||
Certification of CEO Pursuant to Section 302 |
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Certification of CFO Pursuant to Section 302 |
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Certification of CEO Pursuant to Section 906 |
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Certification of CFO Pursuant to Section 906 |
1
PART I FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
June 30,
2015 |
December 31,
2014 |
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(Unaudited) | ||||||||
Assets |
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Cash and cash equivalents |
$ | 145,546 | $ | 234,217 | ||||
Restricted cash |
655 | 1,310 | ||||||
Real estate inventory: |
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Owned inventory |
2,944,300 | 2,511,623 | ||||||
Real estate not owned under option agreements |
2,594 | 6,698 | ||||||
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Total real estate inventory |
2,946,894 | 2,518,321 | ||||||
Land deposits |
36,255 | 34,544 | ||||||
Mortgage loans held for sale |
110,526 | 191,140 | ||||||
Prepaid expenses and other assets, net |
99,909 | 89,210 | ||||||
Other receivables, net |
115,847 | 85,274 | ||||||
Investments in unconsolidated entities |
128,473 | 110,291 | ||||||
Deferred tax assets, net |
251,392 | 258,190 | ||||||
Property and equipment, net |
5,690 | 5,337 | ||||||
Intangible assets, net |
5,697 | 5,459 | ||||||
Goodwill |
32,500 | 23,375 | ||||||
Assets of discontinued operations |
| 576,445 | ||||||
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Total assets |
$ | 3,879,384 | $ | 4,133,113 | ||||
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Liabilities |
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Accounts payable |
$ | 151,272 | $ | 122,466 | ||||
Accrued expenses and other liabilities |
174,027 | 200,556 | ||||||
Income taxes payable |
29,821 | 50,096 | ||||||
Customer deposits |
99,875 | 70,465 | ||||||
Senior notes |
1,250,000 | 1,388,840 | ||||||
Loans payable and other borrowings |
123,067 | 147,516 | ||||||
Revolving credit facility borrowings |
105,000 | 40,000 | ||||||
Mortgage warehouse borrowings |
71,485 | 160,750 | ||||||
Liabilities attributable to consolidated option agreements |
2,594 | 6,698 | ||||||
Liabilities of discontinued operations |
| 168,565 | ||||||
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Total liabilities |
2,007,141 | 2,355,952 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 17) |
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Stockholders Equity |
||||||||
Class A common stock, $0.00001 par value, 400,000,000 shares authorized,
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| | ||||||
Class B common stock, $0.00001 par value, 200,000,000 shares authorized,
|
1 | 1 | ||||||
Preferred stock, $0.00001 par value, 50,000,000 shares authorized, no shares issued and outstanding as of June 30, 2015 and December 31, 2014 |
| | ||||||
Additional paid-in capital |
375,745 | 374,358 | ||||||
Retained earnings |
145,987 | 114,948 | ||||||
Accumulated other comprehensive loss |
(17,846 | ) | (10,910 | ) | ||||
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Total stockholders equity attributable to Taylor Morrison Home Corporation |
503,887 | 478,397 | ||||||
Non-controlling interests joint ventures |
6,354 | 6,528 | ||||||
Non-controlling interests Principal Equityholders |
1,362,002 | 1,292,236 | ||||||
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Total stockholders equity |
1,872,243 | 1,777,161 | ||||||
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Total liabilities and stockholders equity |
$ | 3,879,384 | $ | 4,133,113 | ||||
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See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
2
TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts, unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Home closings revenue, net |
$ | 682,387 | $ | 582,859 | $ | 1,175,980 | $ | 1,038,154 | ||||||||
Land closings revenue |
8,743 | 5,974 | 16,931 | 14,892 | ||||||||||||
Mortgage operations revenue |
9,843 | 8,175 | 17,478 | 14,437 | ||||||||||||
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Total revenues |
700,973 | 597,008 | 1,210,389 | 1,067,483 | ||||||||||||
Cost of home closings |
553,652 | 460,044 | 958,757 | 816,344 | ||||||||||||
Cost of land closings |
4,566 | 4,964 | 9,232 | 11,822 | ||||||||||||
Mortgage operations expenses |
6,096 | 4,648 | 11,158 | 8,584 | ||||||||||||
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Total cost of revenues |
564,314 | 469,656 | 979,147 | 836,750 | ||||||||||||
Gross margin |
136,659 | 127,352 | 231,242 | 230,733 | ||||||||||||
Sales, commissions and other marketing costs |
47,022 | 39,546 | 83,242 | 72,930 | ||||||||||||
General and administrative expenses |
24,204 | 19,224 | 44,908 | 38,465 | ||||||||||||
Equity in income of unconsolidated entities |
(1,225 | ) | (1,253 | ) | (1,527 | ) | (2,237 | ) | ||||||||
Interest (income) expense, net |
(82 | ) | 96 | (132 | ) | 782 | ||||||||||
Other expense, net |
3,463 | 4,231 | 9,232 | 7,329 | ||||||||||||
Loss on extinguishment of debt |
33,317 | | 33,317 | | ||||||||||||
Gain on foreign currency forward |
| | (29,983 | ) | | |||||||||||
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Income from continuing operations before income taxes |
29,960 | 65,508 | 92,185 | 113,464 | ||||||||||||
Income tax provision |
9,939 | 20,105 | 31,981 | 31,061 | ||||||||||||
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Net income from continuing operations |
20,021 | 45,403 | 60,204 | 82,403 | ||||||||||||
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Discontinued operations: |
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Income from discontinued operations |
| 14,138 | | 20,573 | ||||||||||||
Transaction expenses from discontinued operations |
| | (9,043 | ) | | |||||||||||
Gain on sale of discontinued operations |
| | 80,205 | | ||||||||||||
Income tax expense from discontinued operations |
| (4,042 | ) | (14,500 | ) | (6,181 | ) | |||||||||
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Net income from discontinued operations |
| 10,096 | 56,662 | 14,392 | ||||||||||||
Net income before allocation to non-controlling interests |
20,021 | 55,499 | 116,866 | 96,795 | ||||||||||||
Net income attributable to non-controlling interests joint ventures |
(920 | ) | (222 | ) | (1,289 | ) | (339 | ) | ||||||||
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Net income before non-controlling interests Principal Equityholders |
19,101 | 55,277 | 115,577 | 96,456 | ||||||||||||
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Net income from continuing operations attributable to non-controlling interests Principal Equityholders |
(14,024 | ) | (33,081 | ) | (43,157 | ) | (60,186 | ) | ||||||||
Net income from discontinued operations attributable to non-controlling interests Principal Equityholders |
| (7,380 | ) | (41,381 | ) | (10,522 | ) | |||||||||
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Net income available to Taylor Morrison Home Corporation |
$ | 5,077 | $ | 14,816 | $ | 31,039 | $ | 25,748 | ||||||||
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Earnings per common share basic: |
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Income from continuing operations |
$ | 0.15 | $ | 0.37 | $ | 0.48 | $ | 0.66 | ||||||||
Income from discontinued operations net of tax |
$ | | $ | 0.08 | $ | 0.46 | $ | 0.12 | ||||||||
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Net income available to Taylor Morrison Home Corporation |
$ | 0.15 | $ | 0.45 | $ | 0.94 | $ | 0.78 | ||||||||
Earnings per common share diluted: |
||||||||||||||||
Income from continuing operations |
$ | 0.15 | $ | 0.37 | $ | 0.48 | $ | 0.66 | ||||||||
Income from discontinued operations net of tax |
$ | | $ | 0.08 | $ | 0.46 | $ | 0.12 | ||||||||
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Net income available to Taylor Morrison Home Corporation |
$ | 0.15 | $ | 0.45 | $ | 0.94 | $ | 0.78 | ||||||||
Weighted average number of shares of common stock: |
||||||||||||||||
Basic |
33,076 | 32,875 | 33,071 | 32,866 | ||||||||||||
Diluted |
122,409 | 122,354 | 122,382 | 122,349 |
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
3
TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)
Three Months Ended
June 30, |
Six Months Ended
June 30, |
|||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Income before non-controlling interests, net of tax |
$ | 20,021 | $ | 55,499 | $ | 116,866 | $ | 96,795 | ||||||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||
Foreign currency translation adjustments, net of tax |
199 | 14,682 | (27,214 | ) | 418 | |||||||||||
Post-retirement benefits adjustments, net of tax |
| (2,118 | ) | 1,757 | (1,780 | ) | ||||||||||
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Other comprehensive income (loss), net of tax |
199 | 12,564 | (25,457 | ) | (1,362 | ) | ||||||||||
Comprehensive income |
20,220 | 68,063 | 91,409 | 95,433 | ||||||||||||
Comprehensive income attributable to non-controlling interests joint ventures |
(920 | ) | (222 | ) | (1,289 | ) | (339 | ) | ||||||||
Comprehensive income attributable to non-controlling interests Principal Equityholders |
(14,219 | ) | (49,650 | ) | (66,017 | ) | (69,712 | ) | ||||||||
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Comprehensive income available to Taylor Morrison Home Corporation |
$ | 5,081 | $ | 18,191 | $ | 24,103 | $ | 25,382 | ||||||||
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See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
4
TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands, except share data, unaudited)
Common Stock | ||||||||||||||||||||||||||||||||||||||||
Additional | ||||||||||||||||||||||||||||||||||||||||
Class A | Class B |
Paid-in
Capital |
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Shares | Amount | Shares | Amount | Amount |
Retained
Earnings |
Accumulated Other
Comprehensive Income (Loss) |
Non-controlling
Interest - Joint Venture |
Non-controlling
Interest - Principal Equityholders |
Total
Stockholders Equity |
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Balance December 31, 2013 |
32,857,800 | $ | | 89,451,164 | $ | 1 | $ | 372,789 | $ | 43,479 | $ | (452 | ) | $ | 7,236 | $ | 1,121,848 | $ | 1,544,901 | |||||||||||||||||||||
Net income |
| | | | | 25,748 | | 339 | 70,708 | 96,795 | ||||||||||||||||||||||||||||||
Other comprehensive loss |
| | | | | | (366 | ) | | (996 | ) | (1,362 | ) | |||||||||||||||||||||||||||
Share based compensation |
| | | | 757 | | | | 2,063 | 2,820 | ||||||||||||||||||||||||||||||
Exchange of New UMM Units and corresponding number of Class B |
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Common Stock |
37,264 | (37,264 | ) | |||||||||||||||||||||||||||||||||||||
Cancellation of forfeited New TMM |
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Units and corresponding number of |
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Class B Common Stock |
(27,724 | ) | ||||||||||||||||||||||||||||||||||||||
Distributions to non-controlling interestsjoint ventures |
| | | | | | (444 | ) | | (444 | ) | |||||||||||||||||||||||||||||
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Balance June 30, 2014 |
32,895,064 | $ | | 89,386,176 | $ | 1 | $ | 373,546 | $ | 69,227 | $ | (818 | ) | $ | 7,131 | $ | 1,193,623 | $ | 1,642,710 | |||||||||||||||||||||
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Balance December 31, 2014 |
33,060,540 | $ | | 89,227,416 | $ | 1 | $ | 374,358 | $ | 114,948 | $ | (10,910 | ) | $ | 6,528 | $ | 1,292,236 | $ | 1,777,161 | |||||||||||||||||||||
Net income |
| | | | | 31,039 | | 1,289 | 84,538 | 116,866 | ||||||||||||||||||||||||||||||
Other comprehensive loss |
| | | | | | (6,936 | ) | | (18,521 | ) | (25,457 | ) | |||||||||||||||||||||||||||
Exchange of New TMM Units and corresponding number of Class B Common Stock |
8,330 | | (8,330 | ) | | | | | | | | |||||||||||||||||||||||||||||
Cancellation of forfeited New TMM Units and corresponding number of Class B Common Stock |
| | (19,023 | ) | | | | | | | | |||||||||||||||||||||||||||||
Issuance of restricted stock units |
10,807 | | | | | | | | | | ||||||||||||||||||||||||||||||
Share based compensation |
| | | | 1,387 | | | | 3,749 | 5,136 | ||||||||||||||||||||||||||||||
Distributions to non-controlling interestsjoint ventures |
| | | | | | | (1,463 | ) | | (1,463 | ) | ||||||||||||||||||||||||||||
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Balance June 30, 2015 |
33,079,677 | $ | | 89,200,063 | $ | 1 | $ | 375,745 | $ | 145,987 | $ | (17,846 | ) | $ | 6,354 | $ | 1,362,002 | $ | 1,872,243 | |||||||||||||||||||||
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See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5
TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
For the Six Months Ended
June 30, |
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2015 | 2014 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
$ | 116,866 | $ | 96,795 | ||||
Adjustments to reconcile net income to net cash used in operating activities: |
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Equity in income of unconsolidated entities |
(1,527 | ) | (10,741 | ) | ||||
Stock compensation expense |
3,596 | 2,820 | ||||||
Loss on extinguishment of debt |
33,317 | | ||||||
Distributions of earnings from unconsolidated entities |
1,437 | 18,861 | ||||||
Depreciation and amortization |
1,852 | 2,625 | ||||||
Net income from discontinued operations |
(56,662 | ) | | |||||
Gain on foreign currency forward |
(29,983 | ) | | |||||
Contingent consideration |
6,705 | | ||||||
Deferred income taxes |
6,798 | (8,226 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
Real estate inventory and land deposits |
(391,680 | ) | (425,710 | ) | ||||
Mortgage loans held for sale, prepaid expenses and other assets |
23,728 | (40,632 | ) | |||||
Customer deposits |
28,597 | 25,499 | ||||||
Accounts payable, accrued expenses and other liabilities |
(15,090 | ) | 6,637 | |||||
Income taxes payable |
(20,862 | ) | (18,832 | ) | ||||
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Net cash used in operating activities |
(292,908 | ) | (350,904 | ) | ||||
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of property and equipment |
(1,499 | ) | (1,774 | ) | ||||
Business acquisitions |
(62,440 | ) | | |||||
Distribution from unconsolidated entities |
6,857 | 1,751 | ||||||
Decrease in restricted cash |
655 | 6,743 | ||||||
Investments of capital into unconsolidated entities |
(24,950 | ) | (56,662 | ) | ||||
Proceeds from sale of discontinued operations |
268,853 | | ||||||
Gain on foreign currency forward |
29,983 | | ||||||
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Net cash provided by (used in) investing activities |
217,459 | (49,942 | ) | |||||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Borrowings on line of credit related to mortgage borrowings |
354,812 | 201,634 | ||||||
Repayment on line of credit related to mortgage borrowings |
(444,077 | ) | (227,244 | ) | ||||
Proceeds from loans payable and other borrowings |
| 28,404 | ||||||
Repayments of loans payable and other borrowings |
(24,449 | ) | (74,334 | ) | ||||
Borrowings on revolving credit facility |
115,000 | 93,000 | ||||||
Payments on revolving credit facility |
(50,000 | ) | (53,000 | ) | ||||
Proceeds from the issuance of senior notes |
350,000 | 350,000 | ||||||
Repayments on senior notes |
(513,608 | ) | ||||||
Deferred financing costs |
(4,538 | ) | (6,255 | ) | ||||
Payment of contingent consideration |
(3,050 | ) | | |||||
Distributions to non-controlling interests joint ventures |
(1,373 | ) | (444 | ) | ||||
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Net cash (used in) provided by financing activities |
(221,283 | ) | 311,761 | |||||
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EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
(19,927 | ) | 725 | |||||
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NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
$ | (316,659 | ) | $ | (88,360 | ) | ||
CASH AND CASH EQUIVALENTS Beginning of period (1) |
462,205 | 389,181 | ||||||
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CASH AND CASH EQUIVALENTS End of period |
$ | 145,546 | $ | 300,821 | ||||
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SUPPLEMENTAL CASH FLOW INFORMATION: |
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Income taxes paid, net |
$ | (59,810 | ) | $ | (63,391 | ) | ||
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SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES: |
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Increase in loans payable issued to sellers in connection with land purchase contracts |
$ | (28,554 | ) | $ | (15,135 | ) | ||
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Accrual of contingent consideration |
$ | 3,200 | ||||||
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Non-cash portion of loss on debt exinguishment |
$ | 5,102 | ||||||
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Decrease (increase) in income taxes payable and related tax indemnification receivable from seller |
$ | | $ | 318 | ||||
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(1) | Cash and cash equivalents shown here include the cash related to Monarch. At December 31, 2014, cash held at Monarch was $227,988. |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
6
TAYLOR MORRISON HOME CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Organization and Description of the Business Taylor Morrison Home Corporation (referred to herein as TMHC, we, our, the Company and us), through its divisions and segments, owns and operates a residential homebuilding business and is a developer of lifestyle communities. We currently operate in Arizona, California, Colorado, Florida, Georgia and Texas. Our homes appeal to entry-level, move-up, 55+ and luxury homebuyers. The Company operates primarily under our Taylor Morrison and Darling Homes brands. Our business has twelve homebuilding operating divisions, and a mortgage operations division, which are organized into three reportable segments: East, West, and Mortgage Operations. The communities in our East and West segments offer single family attached and/or detached homes. We are the general contractors for all real estate projects and retain subcontractors for home construction and site development. Our Mortgage Operations reportable segment provides financial services to customers through our wholly owned mortgage subsidiary, operating as Taylor Morrison Home Funding, LLC (TMHF).
On July 13, 2011, TMM Holdings Limited Partnership (TMM Holdings), an entity formed by a consortium comprised of affiliates of TPG Global, LLC (the TPG Entities or TPG), investment funds managed by Oaktree Capital Management, L.P. (Oaktree) or their respective subsidiaries (the Oaktree Entities), and affiliates of JH Investments, Inc. (the JH Entities and together with the TPG Entities and Oaktree Entities, the Principal Equityholders), acquired (the Acquisition) our predecessor, Taylor Woodrow Holdings (USA), Inc., now known as Taylor Morrison Communities, Inc.
On April 12, 2013, TMHC completed the initial public offering (the IPO) of its Class A common stock, par value $0.00001 per share (the Class A Common Stock). The shares of Class A Common Stock began trading on the New York Stock Exchange on April 10, 2013 under the ticker symbol TMHC. As a result of the completion of the IPO and a series of transactions pursuant to a Reorganization Agreement dated as of April 9, 2013 (the Reorganization Transactions), TMHC became the indirect parent of TMM Holdings through the formation of TMM Holdings II Limited Partnership (New TMM). In the Reorganization Transactions, the TPG Entities and the Oaktree Entities each formed new holding vehicles to hold interests in New TMM (the TPG Holding Vehicle and the Oaktree Holding Vehicle respectively). As of June 30, 2015 and December 31, 2014, the Principal Equityholders owned 73% of the Company.
On January 28, 2015 we closed on the sale of Monarch Corporation, our former Canadian operating segment (Monarch), to an affiliate of Mattamy Homes Limited. As a result of the sale, we do not have significant continuing involvement with Monarch.
On April 30, 2015, we acquired JEH Homes, an Atlanta based homebuilder, for a purchase price of approximately $62.4 million, excluding contingent consideration. See Note 2 Summary of Significant Accounting Policies for further information regarding the assets acquired and allocation of purchase price.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our 2014 Annual Report on Form 10-K. In the opinion of management, the accompanying Condensed Consolidated Financial Statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for a full fiscal year.
Unless otherwise stated, amounts are shown in U.S. dollars. Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date, and revenues and expenses are translated at average rates of exchange prevailing during the period. Translation adjustments resulting from this process are recorded to accumulated other comprehensive income (loss) in the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Stockholders Equity.
Discontinued Operations As a result of our decision in December 2014 to dispose of Monarch, the operating results and financial position of the Monarch business are presented as discontinued operations for all periods presented (see Note 4 Discontinued Operations ).
Non-controlling interests In the Reorganization Transactions, the Company became the sole owner of the general partner of New TMM. As the general partner of New TMM, the Company exercises exclusive and complete control over New TMM. Consequently, the Company consolidates New TMM and records a non-controlling interest in the Condensed Consolidated Balance Sheets for the economic interests in New TMM, that are directly or indirectly held by the Principal Equityholders or by members of management and the Board of Directors.
7
Purchase Price Allocation and Related Acquisition Accounting On April 30, 2015, we acquired JEH Homes, an Atlanta based homebuilder, for a purchase price of approximately $62.4 million, excluding contingent consideration. In accordance with ASC Topic 805 , Business Combinations , the effects of the acquisition were reflected on the date of the transaction in the financial statements of the acquired business by recording the assets at their fair values in order to reflect the purchase price paid in the acquisition, which resulted in goodwill. Cash and cash equivalents were not acquired as part of the business combination and no liabilities were assumed in this transaction.
We determined the fair value of real estate inventory on a community-by-community basis primarily using the sales comparison and income approaches. The income approach derives a value indication for income-producing real property by converting anticipated benefits, such as discounted cash flow, into property value. This approach was used exclusively for finished lots. The income approach using discounted cash flows was also used to value lot option contracts acquired. The sales comparison approach was used for all inventory in process.
These estimated cash flows are significantly affected by the discount rate, estimates related to expected average selling prices and sales incentives, expected sales paces and cancellation rates, expected land development and construction timelines, and anticipated land development, construction, and overhead costs. Such estimates must be made for each individual community and may vary significantly between communities.
The Company has completed a preliminary allocation of purchase price as of June 30, 2015 and expects to finalize the allocation within one year from the date of the acquisition. The following is a summary of the fair value of assets acquired and liabilities created as of June 30, 2015 (in thousands):
Financial Statement Caption |
Total | |||
Real estate inventory |
$ | 54,819 | ||
Prepaid expenses and other assets |
1,301 | |||
Property and equipment |
395 | |||
Goodwill |
9,125 | |||
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Total assets |
65,640 | |||
Less contingent consideration |
(3,200 | ) | ||
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Purchase price, net |
$ | 62,440 | ||
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No other intangible assets were acquired as part of the business combination.
Use of Estimates The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Significant estimates include real estate development costs to complete, valuation of real estate, valuation of equity awards, valuation allowance on deferred tax assets and reserves for warranty and self-insured risks. Actual results could differ from those estimates.
Non-controlling Interests Principal Equityholders Immediately prior to our IPO, the existing holders of TMM Holdings limited partnership interests exchanged their limited partnership interests for limited partnership interests of New TMM (New TMM Units) as part of the Reorganization Transactions. For each New TMM Unit received in the exchange, the holders of New TMM Units also received a corresponding number of shares of our Class B common stock (the Class B Common Stock). Our Class B Common Stock has voting rights but no economic rights. One share of Class B Common Stock, together with one New TMM Unit, is exchangeable into one share of our Class A Common Stock in accordance with the Exchange Agreement, dated as of April 9, 2013, among the Company, New TMM and the holders of Class B Common Stock and New TMM Units.
Stock Based Compensation We account for stock-based compensation in accordance with ASC Topic 718-10, Compensation Stock Compensation. The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model. We use a Monte Carlo model for the valuation of our restricted stock grants that have a market condition. These models require the input of subjective assumptions. This guidance also requires us to estimate forfeitures in calculating the expense related to stock-based compensation.
Recently Issued Accounting Pronouncements In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03), which changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs continues to be reported as interest expense. ASU 2015-03 will be effective for us in our fiscal year beginning January 1, 2016. We are currently evaluating the impact the adoption of ASU 2015-03 will have on our condensed consolidated financial statements or disclosures.
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In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (ASU 2015-02). ASU 2015-02 amends the consolidation requirements and changes the required consolidation analysis. ASU 2015-02 requires management to reevaluate all legal entities under a revised consolidation model specifically to (i) modify the evaluation of whether limited partnership and similar legal entities are VIEs, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with VIEs particularly those that have fee arrangements and related party relationships, and (iv) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Act of 1940 for registered money market funds. ASU 2015-02 will be effective for us for our fiscal year beginning January 1, 2016. The adoption of ASU 2015-02 is not expected to have a material effect on our condensed consolidated financial statements or disclosures.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in ASC Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. The standards core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will generally need to use more judgment and make more estimates than under todays guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 has been deferred and will be effective beginning January 1, 2018 and, at that time we will adopt the new standard under either the full retrospective approach or the modified retrospective approach. Early adoption is not permitted. We are currently evaluating the method and impact the adoption of ASU 2014-09 will have our condensed consolidated financial statements or disclosures.
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3. EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income available to TMHC by the weighted average number of Class A Common Stock outstanding during the period. Diluted earnings per share gives effect to the potential dilution that could occur if all shares of Class B Common Stock and their corresponding New TMM Units were exchanged for Class A Common Stock and if equity awards to issue common stock that are dilutive were exercised:
Three Months Ended
June 30, |
Six Months Ended
June 30, |
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Numerator: | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Net income available to TMHC basic |
$ | 5,077 | $ | 14,816 | $ | 31,039 | $ | 25,748 | ||||||||
Income from discontinued operations, net of tax |
| 10,096 | 56,662 | 14,392 | ||||||||||||
Income from discontinued operations, net of tax attributable to non-controlling interest Principal Equityholders |
| (7,380 | ) | (41,381 | ) | (10,522 | ) | |||||||||
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Net income from discontinued operations basic |
$ | | $ | 2,716 | $ | 15,281 | $ | 3,870 | ||||||||
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Net income from continuing operations basic |
$ | 5,077 | $ | 12,100 | $ | 15,758 | $ | 21,878 | ||||||||
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Net income from continuing operations basic |
$ | 5,077 | $ | 12,100 | $ | 15,758 | $ | 21,878 | ||||||||
Net income from continuing operations attributable to non-controlling interest Principal Equityholders |
14,024 | 33,081 | 43,157 | 60,186 | ||||||||||||
Loss fully attributable to public holding company |
110 | 44 | 229 | 244 | ||||||||||||
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Net income from continuing operations diluted |
$ | 19,211 | $ | 45,225 | $ | 59,144 | $ | 82,308 | ||||||||
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Net income from discontinued operations diluted |
$ | | $ | 10,096 | $ | 56,662 | $ | 14,392 | ||||||||
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Denominator: |
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Weighted average shares basic (Class A) |
33,076 | 32,875 | 33,071 | 32,866 | ||||||||||||
Weighted average shares Principal Equityholders non-controlling interest (Class B) |
89,200 | 89,434 | 89,203 | 89,443 | ||||||||||||
Restricted stock units |
133 | 45 | 108 | 40 | ||||||||||||
Stock Options |
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Weighted average shares diluted |
122,409 | 122,354 | 122,382 | 122,349 | ||||||||||||
Earnings per common share basic: |
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Income from continuing operations |
$ | 0.15 | $ | 0.37 | $ | 0.48 | $ | 0.66 | ||||||||
Income from discontinued operations, nets of tax |
$ | | $ | 0.08 | $ | 0.46 | $ | 0.12 | ||||||||
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Net income available to Taylor Morrison Home Corporation |
$ | 0.15 | $ | 0.45 | $ | 0.94 | $ | 0.78 | ||||||||
Earnings per common share diluted: |
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Income from continuing operations |
$ | 0.15 | $ | 0.37 | $ | 0.48 | $ | 0.66 | ||||||||
Income from discontinued operations, net of tax |
$ | | $ | 0.08 | $ | 0.46 | $ | 0.12 | ||||||||
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Net income available to Taylor Morrison Home Corporation |
$ | 0.15 | $ | 0.45 | $ | 0.94 | $ | 0.78 |
We excluded a total weighted average of 1,580,186 and 1,264,137 stock options and Restricted Stock Units (RSUs) and 1,546,380 and 1,252,237 stock options and RSUs from the calculation of earnings per share for the three and six months ended June 30, 2015 and 2014, respectively, as their inclusion is anti-dilutive.
The shares of Class B Common Stock have voting rights but do not have economic rights or rights to dividends or distributions on liquidation and therefore are not participating securities. Accordingly, Class B Common Stock is not included in basic earnings per share. Additionally, the income from Principal Equityholders non-controlling interest and the related Class B Common Stock may produce a slight anti-dilutive effect on diluted earnings per common share.
4. DISCONTINUED OPERATIONS
In connection with the decision to sell Monarch in December 2014, the operating results of the Monarch business are classified as discontinued operations net of applicable taxes in the Condensed Consolidated Statements of Operations for all periods presented, and the assets and liabilities associated with this business are classified as assets of discontinued operations and liabilities of discontinued operations, as appropriate, in the Condensed Consolidated Balance Sheets for all applicable periods presented.
10
In the three and six months ended June 30, 2015, we did not record any revenues related to Monarch. The activity recorded in 2015 consists of post-closing transaction expenses, including administrative costs, legal fees, and stock based compensation charges. The gain on sale of discontinued operations was determined using the purchase price of Monarch, less related costs and tax. In the three and six months ended June 30, 2014 we recorded $60.8 million and $109.5 million, respectively, of revenues related to Monarch, which is included in discontinued operations.
The components of assets and liabilities of discontinued operations at December 31, 2014 are as follows (in thousands):
Cash and cash equivalents |
$ | 227,988 | ||
Restricted cash |
11,474 | |||
Real estate inventory |
149,087 | |||
Land deposits |
7,547 | |||
Loans receivable |
40,808 | |||
Tax indemnification receivable |
5,194 | |||
Prepaid expenses and other assets, net |
11,197 | |||
Other receivables, net |
1,984 | |||
Investments in unconsolidated entities |
111,887 | |||
Deferred tax assets, net |
3,233 | |||
Property and equipment, net |
2,546 | |||
Intangible assets, net |
3,500 | |||
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Assets of discontinued operations |
$ | 576,445 | ||
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Accounts payable |
$ | 14,438 | ||
Accrued expenses and other liabilities |
44,554 | |||
Income taxes payable |
8,076 | |||
Customer deposits |
11,166 | |||
Loans payable and other borrowings |
90,331 | |||
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Liabilities of discontinued operations |
$ | 168,565 | ||
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5. DERIVATIVE FINANCIAL INSTRUMENT
In December 2014, we entered into a derivative financial instrument in the form of a foreign currency forward. The derivative financial instrument hedged our exposure to the Canadian dollar in conjunction with the disposition of the Monarch business. The aggregate notional amount of the foreign exchange derivative financial instrument was $471.2 million at December 31, 2014. At December 31, 2014 the fair value of the instrument was not material to our consolidated financial position or results of operations. The final settlement of the derivative financial instrument occurred on January 30, 2015 and a gain in the amount of $30.0 million was recorded in the gain on foreign currency forward in the Condensed Consolidated Statements of Operations for the six months ended June 30, 2015.
6. REAL ESTATE INVENTORY AND LAND DEPOSITS
In accordance with the provisions of ASC Topic 360, Property, Plant, and Equipment , we review our real estate inventory for indicators of impairment by community during each reporting period. In conducting the review for indicators of impairment, we evaluate, among other things, the margins on homes that have been delivered, margins on homes under sales contracts in backlog, projected margins with regard to future home sales over the life of the community, projected margins with regard to future land sales and the estimated fair value of the land itself. For the three and six months ended June 30, 2015 and 2014, we recorded no impairment charges on real estate assets.
In the ordinary course of business, we enter into various specific performance contracts to acquire lots. Real estate not owned under these contracts is consolidated into real estate inventory with a corresponding liability in liabilities attributable to consolidated option agreements in the Condensed Consolidated Balance Sheets.
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Inventory consists of the following (in thousands):
As of
June 30, 2015 |
As of
December 31, 2014 |
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Operating communities, including capitalized interest |
$ | 2,726,828 | $ | 2,217,067 | ||||
Real estate held for development or held for sale |
217,472 | 294,556 | ||||||
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Total owned inventory |
2,944,300 | 2,511,623 | ||||||
Real estate not owned under option contracts |
2,594 | 6,698 | ||||||
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Total real estate inventory |
$ | 2,946,894 | $ | 2,518,321 | ||||
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The development status of our land inventory is as follows (dollars in thousands):
As of June 30, 2015 | As of December 31, 2014 | |||||||||||||||
Owned Lots |
Book Value of Land
and Development |
Owned Lots |
Book Value of Land
and Development |
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Raw |
8,599 | $ | 385,523 | 9,825 | $ | 464,882 | ||||||||||
Partially developed |
8,819 | 537,531 | 8,680 | 654,759 | ||||||||||||
Finished |
11,309 | 1,235,565 | 8,727 | 787,033 | ||||||||||||
Long-term strategic assets |
3,265 | 14,153 | 3,564 | 27,993 | ||||||||||||
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Total |
31,992 | $ | 2,172,772 | 30,796 | $ | 1,934,667 | ||||||||||
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Land Deposits We provide deposits related to land options and land purchase contracts, which are capitalized when paid and classified as land deposits until the associated property is purchased.
As of June 30, 2015 and December 31, 2014, we had the right to purchase 6,871 and 5,372 lots under land option purchase contracts, respectively, which represents an aggregate purchase price of $549.2 million and $323.5 million as of June 30, 2015 and December 31, 2014, respectively. We do not have title to the property and the creditors generally have no recourse. As of June 30, 2015 and December 31, 2014, our exposure to loss related to our option contracts with third parties and unconsolidated entities consists of non-refundable option deposits totaling $36.3 million and $34.5 million, respectively, in land deposits related to land options and land purchase contracts. Creditors of these VIEs, if any, generally have no recourse against us.
For the three and six months ended June 30, 2015 and 2014, no impairment of option deposits or capitalized pre-acquisition costs were recorded. We continue to evaluate the terms of open land option and purchase contracts and may impair option deposits and capitalized pre-acquisition costs in the future.
Capitalized Interest Interest capitalized, incurred, expensed and amortized is as follows (in thousands):
Three Months Ended
June 30, |
Six Months Ended
June 30, |
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2015 | 2014 | 2015 | 2014 | |||||||||||||
Interest capitalized - beginning of period |
$ | 103,892 | $ | 79,538 | $ | 94,880 | $ | 71,263 | ||||||||
Interest incurred |
23,268 | 22,686 | 48,307 | 40,451 | ||||||||||||
Interest amortized to cost of home closings |
(20,690 | ) | (14,998 | ) | (36,717 | ) | (24,488 | ) | ||||||||
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Interest capitalized - end of period |
$ | 106,470 | $ | 87,226 | $ | 106,470 | $ | 87,226 | ||||||||
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7. INVESTMENTS IN UNCONSOLIDATED ENTITIES
We participate in a number of joint ventures with related and unrelated third parties, with ownership interests up to 50.0%. These entities are generally involved in real estate development, homebuilding and mortgage lending activities.
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Summarized, unaudited financial information of unconsolidated entities that are accounted for by the equity method is as follows (in thousands):
As of
June 30, 2015 |
As of
December 31, 2014 |
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Assets: |
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Real estate inventory |
$ | 536,143 | $ | 396,858 | ||||
Other assets |
109,904 | 59,963 | ||||||
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Total assets |
$ | 646,047 | $ | 456,821 | ||||
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Liabilities and owners equity: |
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Debt |
$ | 223,065 | $ | 129,561 | ||||
Other liabilities |
9,801 | 8,870 | ||||||
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Total liabilities |
232,866 | $ | 138,431 | |||||
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Owners equity: |
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TMHC |
128,473 | 110,291 | ||||||
Others |
284,708 | 208,099 | ||||||
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Total owners equity |
413,181 | 318,390 | ||||||
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Total liabilities and owners equity |
$ | 646,047 | $ | 456,821 | ||||
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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Revenues |
$ | 15,777 | $ | 7,033 | $ | 17,473 | $ | 8,663 | ||||||||
Costs and expenses |
(12,859 | ) | (3,827 | ) | (14,030 | ) | (4,054 | ) | ||||||||
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Income of unconsolidated entities |
$ | 2,918 | $ | 3,206 | $ | 3,443 | $ | 4,609 | ||||||||
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Companys share in income of unconsolidated entities |
$ | 1,225 | $ | 1,253 | $ | 1,527 | $ | 2,237 | ||||||||
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Distributions of earnings from unconsolidated entities |
$ | 7,787 | $ | 714 | $ | 8,294 | $ | 1,751 | ||||||||
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We have investments in, and advances to, a number of joint ventures with related and unrelated parties to develop land and to develop housing communities, including for-sale residential homes. Some of these joint ventures develop land for the sole use of the venture participants, including us, and others develop land for sale to the joint venture participants and to unrelated builders. Our share of the joint venture profit relating to lots we purchase from the joint ventures is deferred until homes are delivered by us and title passes to a homebuyer.
8. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following (in thousands):
As of
June 30, 2015 |
As of
December 31, 2014 |
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Real estate development costs to complete |
$ | 16,484 | $ | 24,222 | ||||
Compensation and employee benefits |
35,371 | 51,475 | ||||||
Self-insurance and warranty reserves |
42,589 | 44,595 | ||||||
Interest payable |
17,715 | 22,033 | ||||||
Property and sales taxes payable |
10,971 | 12,808 | ||||||
Other accruals |
50,897 | 45,423 | ||||||
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Total accrued expenses and other liabilities |
$ | 174,027 | $ | 200,556 | ||||
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Self-Insurance and Warranty Reserves A summary of the changes in our reserves are as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Reserve - beginning of period |
$ | 42,956 | $ | 39,254 | $ | 44,595 | $ | 34,814 | ||||||||
Additions to reserves |
4,814 | 5,513 | 7,514 | 7,707 | ||||||||||||
Costs and claims incurred |
(5,516 | ) | (5,047 | ) | (11,450 | ) | (7,060 | ) | ||||||||
Change in estimates to pre-existing reserves |
335 | 567 | 1,930 | 4,826 | ||||||||||||
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Reserve - end of period |
$ | 42,589 | $ | 40,287 | $ | 42,589 | $ | 40,287 | ||||||||
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9. DEBT
(Dollars in thousands) |
As of
June 30, 2015 |
As of
December 31, 2014 |
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7.75% Senior Notes due 2020, unsecured, with $8.9 million of unamortized debt issuance costs and $3.4 million of unamortized bond premium at December 31, 2014 |
$ | | $ | 488,840 | ||||
5.25% Senior Notes due 2021, unsecured, with $6.9 million and $7.5 million of unamortized debt issuance costs at June 30, 2015 and December 31, 2014, respectively |
550,000 | 550,000 | ||||||
5.875% Senior Notes due 2023, unsecured, with $4.4 million of unamortized debt issuance costs at June 30, 2015 |
350,000 | | ||||||
5.625% Senior Notes due 2024, unsecured, with $4.7 million and $4.9 million of unamortized debt issuance costs at June 30, 2015 and December 31, 2014, respectively |
350,000 | 350,000 | ||||||
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Senior Notes sub-total |
$ | 1,250,000 | $ | 1,388,840 | ||||
Loans payable and other borrowings |
123,067 | 147,516 | ||||||
$500 million Revolving Credit Facility with $5.8 million and $5.6 million of unamortized debt issuance costs at June 30, 2015 and December 31, 2014, respectively |
105,000 | 40,000 | ||||||
Mortgage warehouse borrowings |
71,485 | 160,750 | ||||||
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Total Senior Notes and bank financing |
$ | 1,549,552 | $ | 1,737,106 | ||||
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2020 Senior Notes
Our 7.75% Senior Notes due 2020 (the 2020 Senior Notes) were redeemed in full on May 1, 2015 using the net proceeds from an issuance of new senior unsecured notes, 2023 Senior Notes (as defined below), together with cash on hand. See 2023 Senior Notes and Redemption of 2020 Senior Notes below for additional information regarding the redemption of the 2020 Senior Notes.
2021 Senior Notes
On April 16, 2013, we issued $550.0 million aggregate principal amount of 5.25% Senior Notes due 2021 (the 2021 Senior Notes). The 2021 Senior Notes are unsecured and are not subject to registration rights. The net proceeds from the issuance of the 2021 Senior Notes were used to repay the outstanding balance under the Revolving Credit Facility and for general corporate purposes, including the purchase of additional land inventory.
The 2021 Senior Notes are guaranteed by TMM Holdings, Taylor Morrison Holdings, Inc., Taylor Morrison Communities II, Inc. and the U.S. homebuilding subsidiaries of TMC (collectively, the Guarantors). The 2021 Senior Notes and the guarantees are senior unsecured obligations. The indenture for the 2021 Senior Notes contains covenants that limit (i) the making of investments, (ii) the payment of dividends and the redemption of equity and junior debt, (iii) the incurrence of additional indebtedness, (iv) asset dispositions, (v) mergers and similar corporate transactions, (vi) the incurrence of liens, (vii) the incurrence of prohibitions on payments and asset transfers among the issuers and restricted subsidiaries and (viii) transactions with affiliates, among others. The indenture governing the 2021 Senior Notes contains customary events of default. If we do not apply the net cash proceeds of certain asset sales within specified deadlines, we will be required to offer to repurchase the 2021 Senior Notes at par (plus accrued and unpaid interest) with such proceeds.
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There are no financial maintenance covenants for the 2021 Senior Notes.
2023 Senior Notes and Redemption of 2020 Senior Notes
On April 16, 2015, we issued $350.0 million aggregate principal amount of 5.875% Senior Notes due 2023 (the 2023 Senior Notes). The 2023 Senior Notes are unsecured and are not subject to registration rights. The net proceeds of the offering, together with cash on hand, were used to redeem the entire remaining $485.4 million aggregate principal amount of 2020 Senior Notes on May 1, 2015, at a redemption price of 105.813% of their aggregate principal amount, plus accrued and unpaid interest thereon to, but not including, the date of redemption. As a result of the redemption of the 2020 Senior Notes, we recorded a loss on extinguishment of debt of $33.3 million, which included the payment of the redemption premium and write off of net unamortized deferred financing fees.
The 2023 Senior Notes mature on April 15, 2023. The 2023 Senior Notes are guaranteed by the same Guarantors that guarantee the 2021 and 2024 Senior Notes. The 2023 Senior Notes and the guarantees are senior unsecured obligations. The indenture governing the 2023 Senior Notes contains covenants that are substantially similar to those in the indenture governing the 2024 Senior Notes. The indenture governing the 2023 Senior Notes contains events of default that are similar to those contained in the indentures governing the 2021 and the 2024 Senior Notes. The change of control provisions in the indenture governing the 2023 Senior Notes are similar to those contained in the indenture governing the 2024 Senior Notes.
Prior to January 15, 2023, the 2023 Senior Notes are redeemable at a price equal to 100% plus a make-whole premium for payments through January 15, 2023 (plus accrued and unpaid interest). Beginning January 15, 2023, the 2023 Senior Notes are redeemable at par (plus accrued and unpaid interest).
There are no financial maintenance covenants for the 2023 Senior Notes.
2024 Senior Notes
On March 5, 2014, we issued $350.0 million aggregate principal amount of 5.625% Senior Notes due 2024 (the 2024 Senior Notes). The 2024 Senior Notes are unsecured and are not subject to registration rights. The net proceeds from the issuance of the 2024 Senior Notes were used to repay the outstanding balance under the Revolving Credit Facility and for general corporate purposes.
The 2024 Senior Notes mature on March 1, 2024. The 2024 Senior Notes are guaranteed by the same Guarantors that guarantee the 2021 Senior Notes. The 2024 Senior Notes and the guarantees are senior unsecured obligations. The indenture governing the 2024 Senior Notes contains covenants that limit our ability to incur debt secured by liens and enter into certain sale and leaseback transactions. The indenture governing the 2024 Senior Notes contains events of default that are similar to those contained in the indenture governing the 2021 Senior Notes. The change of control provisions in the indenture governing the 2024 Senior Notes are similar to those contained in the indenture governing the 2021 Senior Notes, but a credit rating downgrade must occur in connection with the change of control before the repurchase offer requirement is triggered for the 2024 Senior Notes.
Prior to December 1, 2023, the 2024 Senior Notes are redeemable at a price equal to 100% plus a make-whole premium for payments through December 1, 2023 (plus accrued and unpaid interest). Beginning on December 1, 2023, the 2024 Senior Notes are redeemable at par (plus accrued and unpaid interest).
There are no financial maintenance covenants for the 2024 Senior Notes.
Revolving Credit Facility
The Revolving Credit Facility contains certain springing financial covenants, requiring TMM Holdings and its subsidiaries to comply with a certain maximum debt to capitalization ratio and a certain minimum consolidated tangible net worth test. The financial covenants would be in effect for any fiscal quarter during which any (a) loans under the Revolving Credit Facility are outstanding during the last day of such fiscal quarter or on more than five separate days during such fiscal quarter or (b) undrawn letters of credit (except to the extent cash collateralized) issued under the Revolving Credit Facility in an aggregate amount greater than $40.0 million or unreimbursed letters of credit issued under the Revolving Credit Facility are outstanding on the last day of such fiscal quarter or for more than five consecutive days during such fiscal quarter. For purposes of determining compliance with the financial covenants for any fiscal quarter, the Revolving Credit Facility provides that Taylor Morrison Communities, Inc. (TMC or the Borrower) may exercise an equity cure by issuing certain permitted securities for cash or otherwise recording cash contributions to its capital that will, upon the contribution of such cash to TMC, be included in the calculation of consolidated tangible net worth and consolidated total capitalization. The equity cure right is exercisable up to twice in any period of four consecutive fiscal quarters and up to five times overall. The maximum debt to total capitalization ratio is 0.60 to 1.00. The ratio as calculated by TMC at June 30, 2015 was 0.42 to 1.00. The minimum consolidated tangible net worth requirement was $1.4 billion at June 30, 2015. At June 30, 2015, the Borrowers tangible net worth, as defined in the Revolving Credit Facility, was $1.8 billion.
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The Revolving Credit Facility contains certain restrictive covenants including limitations on incurrence of liens, dividends and other distributions, asset dispositions and investments in entities that are not guarantors, limitations on prepayment of subordinated indebtedness and limitations on fundamental changes. The Revolving Credit Facility contains customary events of default, subject to applicable grace periods, including for nonpayment of principal, interest or other amounts, violation of covenants, incorrectness of representations and warranties in any material respect, cross default and cross acceleration, bankruptcy, material monetary judgments, ERISA events with material adverse effect, actual or asserted invalidity of material guarantees and change of control. As of June 30, 2015, we were in compliance with all of the covenants under the Revolving Credit Facility.
On April 24, 2015, we entered into Amendment No. 3 to the Revolving Credit Facility. Among other things, this amendment increased the amount available under the Revolving Credit Facility up to $500.0 million, extended the maturity of the Restated Revolving Credit Facility to April 12, 2019 and reduced certain margins payable thereunder.
Mortgage Borrowings
The following is a summary of our mortgage subsidiary borrowings (in thousands):
As of June 30, 2015 | ||||||||||||||
Facility |
Amount Drawn | Facility Amount | Interest Rate | Expiration Date | Collateral (1) | |||||||||
Flagstar |
$ | 32,391 | $ | 55,000 | LIBOR + 2.5% | 30 days written notice | Mortgage Loans | |||||||
Comerica |
| 50,000 | LIBOR + 2.75% | August 19, 2015 | Mortgage Loans | |||||||||
J.P. Morgan |
39,094 | 50,000 | (2) | September 28, 2015 | Pledged Cash | |||||||||
|
|
|
|
|||||||||||
Total |
$ | 71,485 | $ | 155,000 | ||||||||||
|
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|
|
|||||||||||
As of December 31, 2014 | ||||||||||||||
Facility |
Amount Drawn | Facility Amount | Interest Rate | Expiration Date | Collateral (1) | |||||||||
Flagstar |
$ | 62,894 | $ | 85,000 | LIBOR + 2.5% | 30 days written notice | Mortgage Loans | |||||||
Comerica |
11,430 | 50,000 | LIBOR + 2.75% | August 19, 2015 | Mortgage Loans | |||||||||
J.P. Morgan |
86,426 | 100,000 | (3) | (2) | September 28, 2015 | Pledged Cash | ||||||||
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|
|
|
|||||||||||
Total |
$ | 160,750 | $ | 235,000 | ||||||||||
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|
(1) | The mortgage borrowings outstanding as of June 30, 2015 and December 31, 2014, are collateralized by $110.5 million and $191.1 million, respectively, of mortgage loans held for sale, which comprise the balance of mortgage loans held for sale and $0.6 million and $1.3 million, respectively, of restricted short-term investments which are included in restricted cash in the accompanying Condensed Consolidated Balance Sheets. |
(2) | Interest under the J.P. Morgan agreement ranges from 2.50% plus 30-day LIBOR to 2.875% plus 30-day LIBOR or 0.25% (whichever is greater). |
(3) | The warehouse facility with J.P. Morgan has a maximum credit line of $50.0 million. On December 12, 2014 the agreement was temporarily amended to increase the capacity from $50.0 million to $100.0 million. Effective January 23, 2015, the temporary increase expired. |
Loans Payable and Other Borrowings
Loans payable and other borrowings as of June 30, 2015 and December 31, 2014 consist of amounts due to various land sellers and a seller carryback note from a prior year acquisition. Loans payable bear interest at rates that ranged from 0% to 8% at June 30, 2015 and December 31, 2014, and generally are secured by the land that was acquired with the loans. We impute interest for loans with no stated interest rates.
10. FAIR VALUE DISCLOSURES
We have adopted ASC Topic 820, Fair Value Measurements for valuation of financial instruments. ASC 820 provides a framework for measuring fair value under GAAP, expands disclosures about fair value measurements, and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are summarized as follows:
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Level 1 Fair value is based on quoted prices for identical assets or liabilities in active markets.
Level 2 Fair value is determined using quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable.
Level 3 Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as a pricing model, discounted cash flow, or similar technique.
The fair value of our mortgage loans held for sale is derived from negotiated rates with partner lending institutions. The fair value of our mortgage borrowings, loans payable and other borrowings and the borrowings under our Revolving Credit Facility approximate carrying value due to their short term nature and variable interest rate terms. The fair value of our Senior Notes is derived from quoted market prices by independent dealers in markets that are not active. The fair value of the contingent consideration liability related to previous acquisitions was estimated by discounting to present value the contingent payments expected to be made for each acquisition based on a probability-weighted scenario approach. As the measurement of the contingent consideration is based primarily on significant inputs not observable in the market, it represents a Level 3 measurement. The carrying value and fair value of our financial instruments are as follows (in thousands):
June 30, 2015 | December 31, 2014 | |||||||||||||||||
Level in Fair
Value Hierarchy |
Carrying
Value |
Estimated
Fair Value |
Carrying
Value |
Estimated
Fair Value |
||||||||||||||
Description: |
||||||||||||||||||
Mortgage loans held for sale |
2 | $ | 110,526 | $ | 110,526 | $ | 191,140 | $ | 191,140 | |||||||||
Mortgage borrowings |
2 | 71,485 | 71,485 | 160,750 | 160,750 | |||||||||||||
Loans payable and other borrowings |
2 | 123,067 | 123,067 | 147,516 | 147,516 | |||||||||||||
7.75% Senior Notes due 2020 |
2 | | | 488,840 | 518,170 | |||||||||||||
5.25% Senior Notes due 2021 |
2 | 550,000 | 541,750 | 550,000 | 539,000 | |||||||||||||
5.875% Senior Notes due 2023 |
2 | 350,000 | 348,250 | | ||||||||||||||
5.625% Senior Notes due 2024 |
2 | 350,000 | 338,625 | 350,000 | 336,000 | |||||||||||||
Revolving Credit Facility |
2 | 105,000 | 105,000 | 40,000 | 40,000 | |||||||||||||
Contingent consideration liability |
3 | 22,586 | 22,586 | 17,932 | 17,932 |
11. INCOME TAXES
The effective tax rate for the three and six months ended June 30, 2015 and 2014 was based on the federal statutory income tax rates, affected by state income taxes, changes in deferred tax assets, changes in valuation allowances, and preferential treatment of deductions relating to homebuilding activities.
As of June 30, 2015 and December 31, 2014, cumulative gross unrecognized tax benefits were $2.4 million and all unrecognized tax benefits, if recognized, would affect the effective tax rate. These amounts are included in income taxes payable in the accompanying Condensed Consolidated Balance Sheets at June 30, 2015 and December 31, 2014. None of the unrecognized tax benefits are expected to reverse in the next 12 months.
In accordance with ASC Topic 740-10, Income Taxes, we assess whether a valuation allowance should be established based on the consideration of available evidence using a more likely than not standard with significant weight being given to evidence that can be objectively verified. This assessment includes a review of both positive and negative evidence including our earnings history, forecasts and future profitability, assessment of the industry, the length of statutory carry-forward periods, experiences of utilizing NOLs and built-in losses, and tax planning alternatives.
12. STOCKHOLDERS EQUITY
Capital Stock Holders of Class A Common Stock and Class B Common Stock are entitled to one vote for each share held on all matters submitted to stockholders for their vote or approval. The holders of Class A Common Stock and Class B Common Stock vote together as a single class on all matters submitted to stockholders for their vote or approval, except with respect to the amendment of certain provisions of the amended and restated Certificate of Incorporation that would alter or change the powers, preferences or special rights of the Class B Common Stock so as to affect them adversely. Such amendments must be approved by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment, voting as a separate class, or as otherwise required by applicable law. The voting power of the outstanding Class B Common Stock (expressed as a percentage of the total voting power of all common stock) is equal to the percentage of partnership interests in New TMM not held directly or indirectly by TMHC.
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The components and respective voting power of our outstanding Common Stock at June 30, 2015 are as follows:
Shares
Outstanding |
Percentage | |||||||
Class A Common Stock |
33,079,677 | 27 | % | |||||
Class B Common Stock |
89,200,063 | 73 | ||||||
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Total |
122,279,740 | 100 | % | |||||
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13. STOCK BASED COMPENSATION
Equity-Based Compensation
In April 2013, we adopted the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (the Plan). The Plan provides for the grant of stock options, restricted stock units and other awards based on our common stock. As of June 30, 2015 we had an aggregate of 5,803,452 shares of common stock available for future grants under the Plan.
The following table provides information regarding the amount and components of stock-based compensation expense, which is included in general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Restricted Stock Units (RSUs) (1) |
$ | 818 | $ | 316 | $ | 1,426 | $ | 608 | ||||||||
Stock options |
828 | 725 | 2,798 | 1,401 | ||||||||||||
New TMM Units |
393 | 434 | 912 | 811 | ||||||||||||
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|
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Total stock compensation (2) |
$ | 2,039 | $ | 1,475 | $ | 5,136 | $ | 2,820 | ||||||||
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(1) | Includes compensation expense related to restricted stock units and performance based restricted stock units. |
(2) | Included in the table above for the six months ended June 30, 2015 is $1.5 million of stock compensation expense related to the acceleration of vesting for equity awards held by Monarch employees. The sale of Monarch triggered a change in control provision provided for in the respective award agreements and Plan document. The expense related to the acceleration of awards is included in transaction expenses from discontinued operations in the accompanying Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2015. |
At June 30, 2015 and December 31, 2014, the aggregate unamortized value of all outstanding stock-based compensation awards was approximately $21.4 million and $16.0 million, respectively.
Restricted Stock the following table summarizes the restricted stock unit and performance-based restricted stock unit activity for the period:
Shares |
Weighted Average
Grant Date Fair Value |
|||||||
Balance at December 31, 2014 |
185,679 | $ | 24.19 | |||||
Granted |
439,563 | 18.44 | ||||||
Vested |
(13,307 | ) | 22.98 | |||||
Forfeited |
(4,856 | ) | 24.30 | |||||
|
|
|||||||
Balance at June 30, 2015 |
607,079 | $ | 20.05 | |||||
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During the three and six months ended June 30, 2015, we issued non-performance RSU awards and performance-based RSU awards to certain employees of the Company. The new non-performance RSU awards vest with respect to 33.3% on the second, third and fourth anniversaries of the grant date. The performance-based RSU awards will cliff-vest based on the achievement of certain performance goals (set by the Company in the year of grant) over a three-year performance period, subject to the employees continued employment through the last date of the performance period and will be settled in shares of our Class A common stock. The number of shares underlying the performance-based RSUs that will be issued to the recipients may range from the target award amount depending on actual performance achieved as compared to the target.
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Stock Options the following table summarizes the stock option activity for the six months ended June 30, 2015:
Shares |
Weighted
Average Exercise Price Per Share |
|||||||
Outstanding at December 31, 2014 |
1,325,029 | $ | 22.35 | |||||
Granted |
393,123 | 18.76 | ||||||
Exercised |
| | ||||||
Cancelled/Forfeited |
(189,250 | ) | 25.07 | |||||
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|
|||||||
Outstanding at June 30, 2015 |
1,528,902 | $ | 21.09 | |||||
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|
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Options exercisable at June 30, 2015 |
266,883 | $ | 22.01 | |||||
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During the six months ended June 30, 2015, we issued stock options to certain employees. These stock options granted vest 25% on the first four anniversaries of the grant date.
New TMM Units Certain members of management and certain members of the Board of Directors were issued Class M partnership units in TMM Holdings. Those units were subject to both time and performance vesting conditions. In addition, TMM Holdings issued phantom Class M Units to certain employees who resided in Canada, which were treated as Class M Units for the purposes of this description and the financial statements. In connection with the sale of Monarch, all of the phantom Class M Units were settled pursuant to change in control provisions provided for in the award agreement. In the six months ended June 30, 2015, we paid $1.4 million in settlement of these awards, however there was no activity for the three months ended June 30, 2015.
Pursuant to the Reorganization Transactions the time-vesting Class M Units in TMM Holdings were exchanged for New TMM Units with vesting terms substantially the same as the Class M Units surrendered for exchange. One New TMM Unit together with a corresponding share of Class B Common Stock is exchangeable for one share of Class A Common Stock. The shares of Class B Common Stock/New TMM Units outstanding as of June 30, 2015 are as follows:
Shares/New
TMM Units |
Weighted
Average Grant Date Fair Value |
|||||||
Balance at December 31, 2014 |
1,431,721 | $ | 5.11 | |||||
Granted |
| | ||||||
Exchanges (1) |
(8,330 | ) | 5.56 | |||||
Forfeited (2) |
(19,023 | ) | 4.23 | |||||
|
|
|||||||
Balance at June 30, 2015 |
1,404,368 | $ | 5.12 | |||||
|
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(1) | Exchanges during the period represent the exchange of a vested New TMM Unit along with the corresponding share of Class B Common Stock for a newly issued share of Class A Common Stock. |
(2) | Awards forfeited during the period represent the unvested portion of New TMM Unit awards for employees who have terminated employment with the Company and for which the New TMM Unit and the corresponding Class B Share have been cancelled. |
14. RELATED-PARTY TRANSACTIONS
From time to time, we may engage in transactions with entities or persons that are affiliated with us or one or more of the Principal Equityholders. There were $16.8 million in real estate inventory acquisitions from such affiliates in the three and six months ended June 30, 2015 and $15.3 million and $31.0 million in real estate inventory acquisitions from such affiliates in the three and six months ended June 30, 2014, respectively. Such real estate transactions with related parties are in the normal course of operations and are executed at arms length, as they are entered into at terms comparable to those with unrelated third parties.
In May 2015, one of our subsidiaries formed a joint venture, Pacific Point Development Partners LLC (PPDP), with affiliates of Oaktree Capital Management, L.P. and DMB Pacific Ventures to acquire and develop Pacifica San Juan, a coastal residential development in San Juan Capistrano, California. The acquisition of the Pacifica San Juan site from Lehman Brothers Holdings Inc., occurred on May 19, 2015. Our subsidiary has made an initial capital investment of approximately $16.8 million in PPDP and is a minority capital partner and also the operating partner responsible for land development and homebuilding on the Pacifica San Juan site.
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15. ACCUMULATED OTHER COMPREHENSIVE INCOME
The table below provides the components of accumulated other comprehensive income (loss) for the six months ended June 30, 2015 (in thousands):
Total Post-
Retirement Benefits Adjustments |
Foreign
Currency Translation Adjustments |
Non-controlling
Interest - Principal Equityholders Reclassification |
Total | |||||||||||||
Balance, beginning of period |
$ | 692 | $ | (52,148 | ) | $ | 40,546 | $ | (10,910 | ) | ||||||
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Other comprehensive income (loss) before reclassifications |
269 | (27,214 | ) | | (26,945 | ) | ||||||||||
Gross amounts reclassified from accumulated other comprehensive income (loss) |
1,488 | | | 1,488 | ||||||||||||
Foreign currency translation |
518 | | (518 | ) | | |||||||||||
Income tax (expense) benefit |
| | | | ||||||||||||
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Other comprehensive income (loss), net of tax |
$ | 2,275 | $ | (27,214 | ) | $ | (518 | ) | $ | (25,457 | ) | |||||
Gross amounts reclassified within accumulated other comprehensive income (loss) |
(2,289 | ) | | 20,810 | 18,521 | |||||||||||
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Balance, end of period |
$ | 678 | $ | (79,362 | ) | $ | 60,838 | $ | (17,846 | ) | ||||||
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Reclassifications for the amortization of the employee retirement plans are included in selling, general and administrative expense in the accompanying Condensed Consolidated Statements of Operations.
16. OPERATING AND REPORTING SEGMENTS
We have twelve homebuilding operating divisions which are aggregated into two reportable homebuilding segments. These segments are engaged in the business of acquiring and developing land, constructing homes, marketing and selling those homes, and providing warranty and customer service. We aggregate our homebuilding operating segments into reporting segments based on similar long-term economic characteristics. We also have a mortgage and financial services segment. We have no inter-segment sales as all sales are to external customers. Our reporting segments are as follows:
East | North Florida, West Florida, Houston, which includes a Taylor Morrison division and a Darling Homes division, Dallas, Austin, and Atlanta | |
West | Denver, Phoenix, Bay Area, Sacramento, and Southern California | |
Mortgage Operations | Mortgage and Financial Services (TMHF) |
Management primarily evaluates segment performance based on GAAP gross margin, defined as homebuilding and land revenue less cost of home construction, commissions and other sales costs, land development and other land sales costs and other costs incurred by, or allocated to each segment, including impairments. Operating results for each segment may not be indicative of the results for such segment had it been an independent, stand-alone entity.
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Segment information, excluding discontinued operations, is as follows (in thousands):
Three Months Ended June 30, 2015 | ||||||||||||||||||||
East | West |
Mortgage
Operations |
Corporate
and Unallocated |
Total | ||||||||||||||||
Total revenues |
$ | 445,131 | $ | 245,999 | $ | 9,843 | $ | | $ | 700,973 | ||||||||||
Gross margin |
91,077 | 41,835 | 3,747 | | 136,659 | |||||||||||||||
Selling, general and administrative expenses |
(38,453 | ) | (17,193 | ) | | (15,580 | ) | (71,226 | ) | |||||||||||
Equity in income/(loss) of unconsolidated entities |
712 | (242 | ) | 755 | | 1,225 | ||||||||||||||
Interest and other (expense) income |
(4,340 | ) | 813 | | 146 | (3,381 | ) | |||||||||||||
Loss on extinguishment of debt |
| | | (33,317 | ) | (33,317 | ) | |||||||||||||
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Income from continuing operations before income taxes |
$ | 48,996 | $ | 25,213 | $ | 4,502 | $ | (48,751 | ) | $ | 29,960 | |||||||||
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|
Three Months Ended June 30, 2014 | ||||||||||||||||||||
East | West |
Mortgage
Operations |
Corporate
and Unallocated |
Total | ||||||||||||||||
Total revenues |
$ | 349,396 | $ | 239,437 | $ | 8,175 | $ | | $ | 597,008 | ||||||||||
Gross margin |
76,343 | 47,482 | 3,527 | | 127,352 | |||||||||||||||
Selling, general and administrative expenses |
(32,159 | ) | (15,374 | ) | | (11,237 | ) | (58,770 | ) | |||||||||||
Equity in income of unconsolidated entities |
572 | 198 | 483 | | 1,253 | |||||||||||||||
Interest and other (expense) income |
(4,725 | ) | 14 | | 384 | (4,327 | ) | |||||||||||||
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Income from continuing operations before income taxes |
$ | 40,031 | $ | 32,320 | $ | 4,010 | $ | (10,853 | ) | $ | 65,508 | |||||||||
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Six Months Ended June 30, 2015 | ||||||||||||||||||||
East | West |
Mortgage
Operations |
Corporate
and Unallocated |
Total | ||||||||||||||||
Total revenues |
$ | 750,886 | $ | 442,025 | $ | 17,478 | $ | | $ | 1,210,389 | ||||||||||
Gross margin |
152,541 | 72,381 | 6,320 | | 231,242 | |||||||||||||||
Selling, general and administrative expenses |
(68,833 | ) | (30,812 | ) | | (28,505 | ) | (128,150 | ) | |||||||||||
Equity in income/(loss) of unconsolidated entities |
855 | (422 | ) | 1,094 | | 1,527 | ||||||||||||||
Interest and other (expense) income |
(8,048 | ) | 529 | | (1,581 | ) | (9,100 | ) | ||||||||||||
Loss on extinguishment of debt |
| | | (33,317 | ) | (33,317 | ) | |||||||||||||
Gain on foreign currency forward |
| | | 29,983 | 29,983 | |||||||||||||||
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|
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Income from continuing operations before income taxes |
$ | 76,515 | $ | 41,676 | $ | 7,414 | $ | (33,420 | ) | $ | 92,185 | |||||||||
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Six Months Ended June 30, 2014 | ||||||||||||||||||||
East | West |
Mortgage
Operations |
Corporate
and Unallocated |
Total | ||||||||||||||||
Total revenues |
$ | 622,423 | $ | 430,623 | $ | 14,437 | $ | | $ | 1,067,483 | ||||||||||
Gross margin |
136,229 | 88,651 | 5,853 | | 230,733 | |||||||||||||||
Selling, general and administrative expenses |
(58,905 | ) | (29,860 | ) | | (22,630 | ) | (111,395 | ) | |||||||||||
Equity in income of unconsolidated entities |
871 | 477 | 889 | | 2,237 | |||||||||||||||
Interest and other (expense) income |
(8,163 | ) | (40 | ) | | 92 | (8,111 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations before income taxes |
$ | 70,032 | $ | 59,228 | $ | 6,742 | $ | (22,538 | ) | $ | 113,464 | |||||||||
|
|
|
|
|
|
|
|
|
|
As of June 30, 2015 | ||||||||||||||||||||
East | West |
Mortgage
Operations |
Corporate
and Unallocated |
Total | ||||||||||||||||
Real estate inventory and land deposits |
$ | 1,501,599 | $ | 1,481,550 | $ | | $ | | $ | 2,983,149 | ||||||||||
Investments in unconsolidated entities |
54,589 | 72,100 | 1,784 | | 128,473 | |||||||||||||||
Other assets |
208,776 | 54,021 | 121,826 | 383,139 | 767,762 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 1,764,964 | $ | 1,607,671 | $ | 123,610 | $ | 383,139 | $ | 3,879,384 | ||||||||||
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014 | ||||||||||||||||||||||||
East | West |
Mortgage
Operations |
Corporate
and Unallocated |
Assets of
Discontinued Operations |
Total | |||||||||||||||||||
Real estate inventory and land deposits |
$ | 1,275,192 | $ | 1,277,673 | $ | | $ | | $ | | $ | 2,552,865 | ||||||||||||
Investments in unconsolidated entities |
57,138 | 51,909 | 1,244 | | | 110,291 | ||||||||||||||||||
Other assets |
166,854 | 37,989 | 204,685 | 483,984 | 576,445 | 1,469,957 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 1,499,184 | $ | 1,367,571 | $ | 205,929 | $ | 483,984 | $ | 576,445 | $ | 4,133,113 | ||||||||||||
|
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|
|
17. COMMITMENTS AND CONTINGENCIES
Letters of Credit and Surety Bonds We are committed, under various letters of credit and surety bonds, to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit and surety bonds under these arrangements totaled $361.4 million and $315.6 million as of June 30, 2015 and December 31, 2014, respectively. Although significant development and construction activities have been completed related to these site improvements, the bonds are generally not released until all development and construction activities are completed. We do not believe that it is probable that any outstanding bonds as of June 30, 2015 will be drawn upon.
Legal Proceedings We are involved in various litigation and legal claims in the normal course of our business operations, including actions brought on behalf of various classes of claimants. We are also subject to a variety of local, state, and federal laws and regulations related to land development activities, house construction standards, sales practices, mortgage lending operations, employment practices, and protection of the environment. As a result, we are subject to periodic examination or inquiry by various governmental agencies that administer these laws and regulations. We establish liabilities for legal claims and regulatory matters when such matters are both probable of occurring and any potential loss is reasonably estimable. At June 30, 2015 and December 31, 2014, our legal accruals were $1.0 million and $0.9 million, respectively. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. In view of the inherent difficulty of predicting the outcome of these legal and regulatory matters, we generally cannot predict the ultimate resolution of the pending matters, the related timing, or the eventual loss. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows. However, to the extent the liability arising from the ultimate resolution of any matter exceeds the estimates reflected in the recorded reserves relating to such matter, we could incur additional charges that could be significant.
22
18. SUBSEQUENT EVENTS
Orleans Homes
On July 21, 2015 we completed the acquisition of three divisions of Orleans Homes for approximately $166 million using a combination of cash on hand and borrowings on our Revolving Credit Facility. Approximately 2,100 owned and controlled lots were purchased from divisions in Charlotte, Raleigh and Chicago. The acquired Orleans business will transition to the Taylor Morrison brand in the future. In accordance with Regulation S-X: Rule 1-02, we have performed various significance tests to ensure the acquisition of Orleans Homes does not require proforma or stand-alone financial statement disclosures. We have not completed the initial purchase price allocation with respect to the acquisition of Orleans Homes.
******
23
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
For purposes of this Managements Discussion and Analysis of Financial Condition and Results of Operations, the terms the Company, we, us, or our are to Taylor Morrison Home Corporation (TMHC) and its subsidiaries.
Forward-Looking Statements
This quarterly report includes certain forward-looking statements within the meaning of the federal securities laws regarding, among other things, our or managements intentions, plans, beliefs, expectations or predictions of future events, which are considered forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as may, will, should, believe, expect, anticipate, intend, plan, estimate, can, could, might, project or similar expressions. These statements are based upon assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read this quarterly report, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions, including those described under the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2014 (the Annual Report) filed with the Securities and Exchange Commission (SEC). Although we believe that these forward-looking statements are based upon reasonable assumptions, you should be aware that many factors, including those described under the heading Risk Factors in the Annual Report, could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements.
Our forward-looking statements made herein are made only as of the date of this quarterly report. We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements made herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based, except as required by applicable law. All subsequent written and verbal forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this quarterly report.
Business Overview
Our principal business is residential homebuilding and the development of lifestyle communities with operations geographically focused in Arizona, California, Colorado, Florida, Georgia, and Texas. Our homes appeal to entry-level, move-up, 55+ and luxury homebuyers, with a focus on move-up customers in high-growth markets. Our homebuilding company operates under our Taylor Morrison and Darling Homes brand names. Our business is organized into twelve homebuilding operating divisions, and a mortgage division, which are managed as three reportable segments: East, West and Mortgage Operations, as follows:
East |
North Florida, West Florida, Houston, which includes a Taylor Morrison division and a Darling Homes division, Dallas, Austin, and Atlanta | |
West |
Denver, Phoenix, Bay Area, Sacramento, and Southern California | |
Mortgage Operations |
Mortgage and Financial Services (TMHF) |
We offer single family attached and/or detached homes and revenue is recognized when the homes are costs completed and delivered to the buyers. Our primary costs are the acquisition of land in various stages of development, development costs and the construction costs of the homes we sell.
Our Mortgage Operations reportable segment provides financial services to customers through our wholly owned mortgage subsidiary, TMHF. Revenues from loan origination are recognized at the time the related real estate transactions are completed, usually upon the close of escrow.
On January 28, 2015 we closed on the sale of Monarch Corporation, our former Canadian operating segment (Monarch), to an affiliate of Mattamy Homes Limited (Mattamy). As a result of the sale, we do not have significant continuing involvement with Monarch, and the operating results and financial condition are presented as discontinued operations.
Non-GAAP Measures
In addition to the results reported in accordance with accounting principles generally accepted in the United States (GAAP), we have provided information in this quarterly report relating to adjusted home closings gross margins.
24
Adjusted home closings gross margins
We calculate adjusted home closings gross margin from U.S. GAAP gross margin by adding impairment charges, if any, attributable to the write-down of communities, and the amortization of capitalized interest through cost of home closings. Management uses adjusted home closings gross margin to evaluate our operational and economic performance on a consolidated basis. We believe adjusted home closings gross margin is relevant and useful to investors for evaluating our overall financial performance. This measure is considered a non-GAAP financial measure and should be considered in addition to, rather than as a substitute for, the comparable U.S. GAAP financial measure as a measure of our operating performance. Although other companies in the homebuilding industry report similar information, the methods used may differ. We urge investors to understand the methods used by other companies in the homebuilding industry to calculate gross margins and any adjustments to such amounts before comparing our measures to those of such other companies.
Recent Developments
2023 Senior Notes and Redemption of 2020 Senior Notes
On April 16, 2015, we issued $350.0 million aggregate principal amount of 5.875% Senior Notes due 2023 (the 2023 Senior Notes). The 2023 Senior Notes are unsecured and are not subject to registration rights. The net proceeds of the offering, together with cash on hand, were used to redeem the entire remaining $485.4 million aggregate principal amount of 7.75% 2020 Senior Notes on May 1, 2015, at a redemption price of 105.813% of their aggregate principal amount, plus accrued and unpaid interest thereon to, but not including, the date of redemption. As a result of the redemption of the 2020 Senior Notes, we recorded a loss on extinguishment of debt of $33.3 million, which included the payment of the redemption premium and write off of net unamortized deferred financing fees.
The 2023 Senior Notes mature on April 15, 2023. The 2023 Senior Notes are guaranteed by the same Guarantors that guarantee the 2021 and 2024 Senior Notes. The 2023 Senior Notes and the guarantees are senior unsecured obligations. The indenture governing the 2023 Senior Notes contains covenants and control provisions that are substantially similar to those in the indenture governing the 2024 Senior Notes. The indenture governing the 2023 Senior Notes contains events of default that are similar to those contained in the indentures governing the 2021 and the 2024 Senior Notes.
Prior to January 15, 2023, the 2023 Senior Notes are redeemable at a price equal to 100% plus a make-whole premium for payments through January 15, 2023 (plus accrued and unpaid interest). Beginning January 15, 2023, the 2023 Senior Notes are redeemable at par (plus accrued and unpaid interest).
There are no financial maintenance covenants for the 2023 Senior Notes.
Revolving Credit Facility
On April 24, 2015, TMC and the other subsidiaries of TMHC party thereto, entered into Amendment No. 3 to our senior revolving credit facility (the Revolving Credit Facility). Among other things, this amendment increased the amount available under the Revolving Credit Facility up to $500.0 million, extended the maturity of the Revolving Credit Facility to April 12, 2019 and reduced certain margins payable thereunder.
JEH Homes
On April 30, 2015, we acquired JEH Homes, an Atlanta based homebuilder, for a purchase price of approximately $62.4 million, excluding contingent consideration. We utilized a portion of the funds from the Monarch transaction to fund the acquisition.
Orleans Homes
On July 21, 2015 we completed the acquisition of three divisions of Orleans Homes for approximately $166 million using a combination of cash on hand and borrowings on our Revolving Credit Facility. Approximately 2,100 owned and controlled lots were purchased from divisions in Charlotte, Raleigh and Chicago. The acquired Orleans business will transition to the Taylor Morrison brand in the future.
Second Quarter 2015 Highlights
Key financial results as of and for the three months ended June 30, 2015, as compared to the same period in 2014, are as follows:
| Average community count increased 21% year-over-year to 245 average communities |
| Net sales orders increased 22% to 1,877 |
25
| Home closings increased 15% to 1,480 |
| Backlog of homes under contract was 3,456 units, with a sales value of $1.6 billion as of June 30, 2015 |
| Cancellations as a percentage of gross sales orders were 11%, compared to 13% in the prior year quarter |
| Average price of homes closed increased to $461,000 from $452,000 in the prior year quarter |
| Average monthly absorption pace increased from the prior year quarter to 2.6 |
| Mortgage operations reported gross profit of $3.7 million on revenue of $9.8 million |
26
Results of Operations
The following table sets forth our results of operations (unaudited):
(Dollars in thousands) |
Three Months Ended
June 30, |
Six Months Ended
June 30, |
||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Statements of Operations Data: |
||||||||||||||||
Home closings revenue, net |
$ | 682,387 | $ | 582,859 | $ | 1,175,980 | $ | 1,038,154 | ||||||||
Land closings revenue |
8,743 | 5,974 | 16,931 | 14,892 | ||||||||||||
Mortgage operations revenue |
9,843 | 8,175 | 17,478 | 14,437 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
700,973 | 597,008 | 1,210,389 | 1,067,483 | ||||||||||||
Cost of home closings |
553,652 | 460,044 | 958,757 | 816,344 | ||||||||||||
Cost of land closings |
4,566 | 4,964 | 9,232 | 11,822 | ||||||||||||
Mortgage operations expenses |
6,096 | 4,648 | 11,158 | 8,584 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross margin |
136,659 | 127,352 | 231,242 | 230,733 | ||||||||||||
Sales, commissions and other marketing costs |
47,022 | 39,546 | 83,242 | 72,930 | ||||||||||||
General and administrative expenses |
24,204 | 19,224 | 44,908 | 38,465 | ||||||||||||
Equity in income of unconsolidated entities |
(1,225 | ) | (1,253 | ) | (1,527 | ) | (2,237 | ) | ||||||||
Interest (income) expense, net |
(82 | ) | 96 | (132 | ) | 782 | ||||||||||
Other expense, net |
3,463 | 4,231 | 9,232 | 7,329 | ||||||||||||
Loss on extinguishment of debt |
33,317 | | 33,317 | | ||||||||||||
Gain on foreign currency forward |
| | (29,983 | ) | | |||||||||||
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|
|
|
|
|
|
|
|||||||||
Income from continuing operations before income taxes |
29,960 | 65,508 | 92,185 | 113,464 | ||||||||||||
Income tax provision |
9,939 | 20,105 | 31,981 | 31,061 | ||||||||||||
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|
|
|
|
|
|
|||||||||
Net income from continuing operations |
20,021 | 45,403 | 60,204 | 82,403 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Discontinued operations: |
||||||||||||||||
Income from discontinued operations |
| 14,138 | | 20,573 | ||||||||||||
Transaction expenses from discontinued operations |
| | (9,043 | ) | | |||||||||||
Gain on sale of discontinued operations |
| | 80,205 | | ||||||||||||
Income tax provision from discontinued operations |
| (4,042 | ) | (14,500 | ) | (6,181 | ) | |||||||||
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|
|
|
|
|
|
|||||||||
Net income from discontinued operations |
| 10,096 | 56,662 | 14,392 | ||||||||||||
Net income before allocation to non-controlling interests |
20,021 | 55,499 | 116,866 | 96,795 | ||||||||||||
Net income attributable to non-controlling interests joint ventures |
(920 | ) | (222 | ) | (1,289 | ) | (339 | ) | ||||||||
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|
|
|
|
|
|
|
|||||||||
Net income before non-controlling interests Principal Equityholders |
19,101 | 55,227 | 115,577 | 96,456 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income from continuing operations attributable to non-controlling interests Principal Equityholders |
(14,024 | ) | (33,081 | ) | (43,157 | ) | (60,186 | ) | ||||||||
Net income from discontinued operations attributable to non-controlling interests Principal Equityholders |
| (7,380 | ) | (41,381 | ) | (10,522 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income available to Taylor Morrison Home Corporation |
$ | 5,077 | $ | 14,816 | $ | 31,039 | $ | 25,748 | ||||||||
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|
|
|
|
|
|||||||||
Home closings gross margin as a percentage of home closings revenue |
18.9 | % | 21.1 | % | 18.5 | % | 21.4 | % | ||||||||
Adjusted home closings gross margin as a percentage of home closings revenue |
21.9 | % | 23.6 | % | 21.6 | % | 23.7 | % | ||||||||
Sales, commissions and other marketing costs as a percentage of home closings revenue |
6.9 | % | 6.8 | % | 7.1 | % | 7.0 | % | ||||||||
General and administrative expenses as a percentage of home closings revenue |
3.5 | % | 3.3 | % | 3.8 | % | 3.7 | % | ||||||||
Average sales price per home closed |
$ | 461 | $ | 452 | $ | 462 | $ | 443 |
27
Three and Six Months Ended June 30, 2015 Compared to Three and Six Months Ended June 30, 2014
Average Active Selling Communities
Three Months Ended
June 30, |
||||||||||||
2015 | 2014 | Change | ||||||||||
East |
180 | 148 | 21.6 | % | ||||||||
West |
65 | 55 | 18.2 | |||||||||
|
|
|
|
|||||||||
Total |
245 | 203 | 20.7 | % | ||||||||
|
|
|
|
Average Active Selling Communities
Six Months Ended
June 30, |
||||||||||||
2015 | 2014 | Change | ||||||||||
East |
174 | 142 | 22.5 | % | ||||||||
West |
64 | 53 | 20.8 | |||||||||
|
|
|
|
|||||||||
Total |
238 | 195 | 22.1 | % | ||||||||
|
|
|
|
Consolidated:
Average active selling communities for the three months ended June 30, 2015 increased 20.7% when compared to the prior year, primarily due to significant additions in our Austin, West Florida, Bay Area, and Sacramento divisions, in addition to our acquisition of our Atlanta division. For the six months ended June 30, 2015, average active selling communities increased 22.1% when compared to the prior year, primarily due to significant additions in our West Florida, Bay Area, Sacramento, and Phoenix divisions. We opened new communities and closed out existing communities throughout all of our legacy markets since June 30, 2014. We open communities when we believe we have the greatest probability of capitalizing on favorable market conditions in which the community is located.
Net Sales Orders
(Dollars in thousands) | Three Months Ended June 30, (1) | |||||||||||||||||||||||||||||||||||
Net Homes Sold | Sales Value | Average Selling Price | ||||||||||||||||||||||||||||||||||
2015 | 2014 | Change | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||||||||||||
East |
1,166 | 1,008 | 15.7 | % | $ | 472,106 | $ | 415,090 | 13.7 | % | $ | 405 | $ | 412 | (1.7 | )% | ||||||||||||||||||||
West |
711 | 527 | 34.9 | 345,786 | 298,717 | 15.8 | 486 | 567 | (14.3 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
Total |
1,877 | 1,535 | 22.3 | % | $ | 817,892 | $ | 713,807 | 14.6 | % | $ | 436 | $ | 465 | (6.2 | )% | ||||||||||||||||||||
|
|
|
|
|
|
|
|
(1) | Net sales orders represent the number and dollar value of new sales contracts executed with customers. |
Net Sales Orders
(Dollars in thousands) | Six Months Ended June 30, (1) | |||||||||||||||||||||||||||||||||||
Net Homes Sold | Sales Value Average Selling Price | |||||||||||||||||||||||||||||||||||
2015 | 2014 | Change | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||||||||||||
East |
2,208 | 1,930 | 14.4 | % | $ | 912,570 | $ | 796,310 | 14.6 | % | $ | 413 | $ | 413 | 0.0 | % | ||||||||||||||||||||
West |
1,398 | 1,119 | 24.9 | 676,819 | 611,825 | 10.6 | 484 | 547 | (11.5 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
Total |
3,606 | 3,049 | 18.3 | % | $ | 1,589,389 | $ | 1,408,135 | 12.9 | % | $ | 441 | $ | 462 | (4.5 | )% | ||||||||||||||||||||
|
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|
|
|
|
|
|
(1) | Net sales orders represent the number and dollar value of new sales contracts executed with customers. |
Consolidated:
The increase in the total value of sales orders and the number of net new homes sold in 2015 compared to 2014 for the three and six months ended June 30 was due to an increase in our average active selling communities, and the acquisition of JEH Homes in Atlanta. The increases were also driven by consumer demand for our well-located and desirable product offerings in our markets. Consumer demand increased as a result of relatively steady low interest rates and stabilizing macroeconomic conditions relative to the prior comparable period. Average selling price decreased due to a geographic mix change to homes with a lower sales value. Overall, sales pace increased to 2.6 homes per month per community for the three months ended June 30, 2015 from 2.5 homes per month per community in the prior year comparable period.
28
East:
Net sales orders increased in both units and in sales value in 2015 compared to 2014 for the three and six months ended June 30 due to an increase in average active selling communities and as a result of the acquisition of JEH Homes. The average selling price of net homes sold in the East segment decreased by 1.7% for the three months ended June 30, 2015 and remained flat for the six months ended June 30, 2015 when compared to the same period in the prior year. The decrease in average selling price for the three months ended June 30, 2015 was primarily driven by the Atlanta division which has a lower average selling price compared to the other divisions in the segment. Net homes sold and total sales value increased by 15.7% and 13.7% for the three months ended June 30, 2015, respectively. Similarly, the second quarter of 2015 had an increase of net homes sold of 14.4% and total sales value of 14.6%.
West:
Net sales orders increased in both units and in sales value in 2015 compared to 2014 for the three and six months ended June 30 due to an increase in average active selling communities. However, this was partially offset by a decrease in average selling price of net homes sold, driven by a shift in product mix from Sacramento and the Bay Area to Phoenix and Denver.
Sales Order Cancellations | Three Months Ended June 30, | |||||||||||||||
Cancelled Sales Orders | Cancellation Rate (1) | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
East |
147 | 130 | 11.2 | % | 11.4 | % | ||||||||||
West |
88 | 97 | 11.0 | 15.5 | ||||||||||||
|
|
|
|
|||||||||||||
Total/weighted average |
235 | 227 | 11.1 | % | 12.9 | % | ||||||||||
|
|
|
|
(1) | Cancellation rate represents the number of cancelled sales orders divided by gross sales orders. |
Sales Order Cancellations | Six Months Ended June 30, | |||||||||||||||
Cancelled Sales Orders | Cancellation Rate (1) | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
East |
295 | 256 | 11.8 | % | 11.7 | % | ||||||||||
West |
172 | 165 | 11.0 | 12.9 | ||||||||||||
|
|
|
|
|||||||||||||
Total/weighted average |
467 | 421 | 11.5 | % | 12.1 | % | ||||||||||
|
|
|
|
(1) | Cancellation rate represents the number of cancelled sales orders divided by gross sales orders. |
We believe a favorable financing market, our use of prequalification criteria through TMHF and increased earnest money deposits help us maintain a low cancellation rate.
Sales Order Backlog
As of June 30, | ||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Sold Homes in Backlog (1) | Sales Value | Average Selling Price | |||||||||||||||||||||||||||||||||
2015 | 2014 | Change | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||||||||||||
East |
2,356 | 1,973 | 19.4 | % | $ | 1,067,297 | $ | 901,758 | 18.4 | % | $ | 453 | $ | 457 | (0.9 | )% | ||||||||||||||||||||
West |
1,100 | 898 | 22.5 | 562,835 | 521,862 | 7.9 | 512 | 581 | (11.9 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
Total |
3,456 | 2,871 | 20.4 | % | $ | 1,630,132 | $ | 1,423,620 | 14.5 | % | $ | 472 | $ | 496 | (4.8 | )% | ||||||||||||||||||||
|
|
|
|
|
|
|
|
(1) | Sales order backlog represents homes under contract for which revenue has not yet been recognized at the end of the period (including homes sold but not yet started). Some of the contracts in our sales order backlog are subject to contingencies including mortgage loan approval and buyers selling their existing homes, which can result in cancellations. |
East:
The East increase in backlog units is consistent with our increases in net homes sold and new community openings year over year.
29
Backlog value increased as a result of a 19.4% increase in units offset by slightly lower average selling prices, particularly in our Atlanta division, from a shift in product mix to homes with a lower average selling price.
West:
Backlog units increased primarily as a result of the shift in product mix from the Bay Area and Southern California divisions to Sacramento, Phoenix and Denver divisions, which also resulted in a decrease in the average selling price. Backlog total sales value increased as the increase in sales volume exceeded the decrease in average sales price.
Home Closings Revenue
Three Months Ended June 30, | ||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Homes Closed | Sales Value (1) | Average Selling Price | |||||||||||||||||||||||||||||||||
2015 | 2014 | Change | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||||||||||||
East |
1,010 | 829 | 21.8 | % | $ | 441,429 | $ | 344,122 | 28.3 | % | $ | 437 | $ | 415 | 5.3 | % | ||||||||||||||||||||
West |
470 | 460 | 2.2 | 240,958 | 238,737 | 0.9 | 513 | 519 | (1.2 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
Total |
1,480 | 1,289 | 14.8 | % | $ | 682,387 | $ | 582,859 | 17.1 | % | $ | 461 | $ | 452 | 2.0 | % | ||||||||||||||||||||
|
|
|
|
|
|
|
|
(1) | Home closings revenue represents homes where possession has transferred to the buyer. |
Home Closings Revenue
Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | Homes Closed | Sales Value (1) | Average Selling Price | |||||||||||||||||||||||||||||||||
2015 | 2014 | Change | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||||||||||||||
East |
1,702 | 1,501 | 13.4 | % | $ | 738,996 | $ | 608,456 | 21.5 | % | $ | 434 | $ | 405 | 7.2 | % | ||||||||||||||||||||
West |
841 | 843 | (0.2 | ) | 436,984 | 429,698 | 1.7 | 520 | 510 | 2.0 | ||||||||||||||||||||||||||
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Total |
2,543 | 2,344 | 8.5 | % | $ | 1,175,980 | $ | 1,038,154 | 13.3 | % | $ | 462 | $ | 443 | 4.3 | % | ||||||||||||||||||||
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(1) | Home closings revenue represents homes where possession has transferred to the buyer. |
East:
Home closings revenue improved as a result of an increase in homes closed and average selling price. The aggregate sales value of homes closed increased by 28.3% and 21.5% for the three and six months ended June 30, 2015, respectively. Economic market improvements, as well as favorable homebuyer reception of communities, helped contribute to home closings revenue increases. Specifically, homes closed in our Darling Dallas and West Florida divisions for the three months ended June 30, 2015 and North Florida for the six months ended June 30, 2015 surpassed that in the prior year same period by a significant amount, driving both units and dollars higher as consumer demand for move-up product benefited our communities in these markets.
West:
During the second quarter of 2015, total homes closed units and home closings revenue increased slightly compared to the prior year period, which was primarily driven by increased closings in our Phoenix division. Average selling price of homes closed during the second quarter decreased by 1.2% to $513,000, driven primarily by a shift of closings from the Bay Area to more moderately priced products in the Phoenix market.
During the first half of 2015, average selling price of homes closed increased by 2.0% to $520,000, driven primarily by a shift to more move-up and higher priced products in Southern California compared to the prior year. This increase in average selling price and consistent number of closed homes drove the aggregate increase in sales value. Homes closed in our Sacramento and Denver divisions surpassed those in the prior year period due to increased active selling communities, although these increases were offset by decreases in homes closed in our Phoenix and Southern California markets on a year-over-year basis.
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Land Closings Revenue
Three Months Ended
June 30, |
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(In thousands) | 2015 | 2014 | Change | |||||||||
East |
$ | 3,702 | $ | 5,274 | (29.8 | )% | ||||||
West |
5,041 | 700 | 620.1 | |||||||||
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Total |
$ | 8,743 | $ | 5,974 | 46.4 | % | ||||||
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Land Closings Revenue
Six Months Ended June 30, | ||||||||||||
(In thousands) | 2015 | 2014 | Change | |||||||||
East |
$ | 11,890 | $ | 13,967 | (14.9 | )% | ||||||
West |
5,041 | 925 | 445.0 | |||||||||
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Total |
$ | 16,931 | $ | 14,892 | 13.7 | % | ||||||
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Consolidated:
We generally purchase land and lots with the intent to build and sell homes on them. However, in some locations where we act as a developer, we occasionally purchase land that includes commercially zoned parcels or areas designated for school or government use, which we typically sell to commercial developers or municipalities. We also sell residential lots or land parcels to manage our land and lot supply on larger tracts of land on which we would otherwise not achieve financial returns that are in line with our internal expectations. Land and lot sales occur at various intervals and varying degrees of profitability. Therefore, the revenue and gross margin from land closings will fluctuate from period to period.
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Segment Home Closings Gross Margins
The following tables set forth a reconciliation between our GAAP home closings gross margins and adjusted home closings gross margins. See Non-GAAP MeasuresAdjusted home closings gross margins.
East | West | Consolidated | ||||||||||||||||||||||
Three Months Ended June 30, | ||||||||||||||||||||||||
(Dollars in thousands) | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||
Home Closings |
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Home closings revenue, net |
$ | 441,429 | $ | 344,122 | $ | 240,958 | $ | 238,737 | $ | 682,387 | $ | 582,859 | ||||||||||||
Cost of home closings |
352,212 | 268,726 | 201,440 | 191,318 | 553,652 | 460,044 | ||||||||||||||||||
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Home closings gross margin |
89,217 | 75,396 | 39,518 | 47,419 | 128,735 | 122,815 | ||||||||||||||||||
Capitalized interest amortization |
13,149 | 5,829 | 7,541 | 9,169 | 20,690 | 14,998 | ||||||||||||||||||
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Adjusted home closings gross margin |
$ | 102,366 | $ | 81,225 | $ | 47,059 | $ | 56,588 | $ | 149,425 | $ | 137,813 | ||||||||||||
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Home closings gross margin % |
20.2 | % | 21.9 | % | 16.4 | % | 19.9 | % | 18.9 | % | 21.1 | % | ||||||||||||
Adjusted home closings gross margin % |
23.2 | % | 23.6 | % | 19.5 | % | 23.7 | % | 21.9 | % | 23.6 | % | ||||||||||||
East | West | Consolidated | ||||||||||||||||||||||
Six Months Ended June 30, | ||||||||||||||||||||||||
(Dollars in thousands) | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||||
Home Closings |
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Home closings revenue, net |
$ | 738,996 | $ | 608,456 | $ | 436,984 | $ | 429,698 | $ | 1,175,980 | $ | 1,038,154 | ||||||||||||
Cost of home closings |
591,837 | 475,239 | 366,920 | 341,105 | 958,757 | 816,344 | ||||||||||||||||||
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Home closings gross margin |
147,159 | 133,217 | 70,064 | 88,593 | 217,223 | 221,810 | ||||||||||||||||||
Capitalized interest amortization |
22,357 | 9,675 | 14,360 | 14,813 | 36,717 | 24,488 | ||||||||||||||||||
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Adjusted home closings gross margin |
$ | 169,516 | $ | 142,892 | $ | 84,424 | $ | 103,406 | $ | 253,940 | $ | 246,298 | ||||||||||||
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Home closings gross margin % |
19.9 | % | 21.9 | % | 16.0 | % | 20.6 | % | 18.5 | % | 21.4 | % | ||||||||||||
Adjusted home closings gross margin % |
22.9 | % | 23.5 | % | 19.3 | % | 24.1 | % | 21.6 | % | 23.7 | % |
Consolidated:
Our consolidated adjusted home closings gross margin percentage for the three and six months ended June 30, 2015 decreased compared to the same period in 2014. Geographic and product mix had an impact on margin rate as well as the lower margin communities in our Atlanta division. In addition, we are experiencing higher land and development costs as we naturally deplete our legacy land supply. Our legacy land holdings have lower carrying costs and as a result home closings gross margin percentage is decreasing as those legacy holdings are at a reduced proportion of our overall mix.
East:
Home closings gross margin and adjusted home closings gross margin percentage decreased for the three and six months ended June 30, 2015 compared to the prior year same periods, primarily as a result of lower margin communities in our Atlanta division, community and product mix, and higher commodities pricing. Additionally, construction costs are negatively impacted by labor supply constraints in the Texas markets.
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West:
The home closings gross margin percentage and adjusted home closings gross margin percentage decreased in the three and six months ended June 30, 2015 primarily due to a geographic shift in the percentage of homes closed in Southern California where the margin rate is lower although margin dollars are higher. In addition, a shift in product penetration within the West divisions, as well as commodity and labor pricing in construction costs continued to negatively affect margin rates.
Mortgage Operations
Our Mortgage Operations segment provides mortgage lending through our subsidiary, TMHF. The following is a summary of mortgage operations gross margin:
Three Months Ended
June 30, |
Six Months Ended
June 30, |
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(Dollars in thousands) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Mortgage operations revenue |
$ | 9,843 | $ | 8,175 | $ | 17,478 | $ | 14,437 | ||||||||
Mortgage operations expenses |
6,096 | 4,648 | 11,158 | 8,584 | ||||||||||||
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Mortgage operations gross margin |
$ | 3,747 | $ | 3,527 | $ | 6,320 | $ | 5,853 | ||||||||
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Mortgage operations margin % |
38.1 | % | 43.1 | % | 36.2 | % | 40.5 | % |
Our Mortgage Operations segments revenue increased due primarily to increased closings volume and average loan amounts, while operating gross margin percentage decreased period over period due to increases in underwriting costs.
The following details the number of loans closed, the aggregate value and capture rate on our loans for the last two comparable periods:
Closed
Loans |
Aggregate
Loan Volume (in millions) |
Capture Rate | ||||||||||
Three Months Ended June 30, 2015 |
856 | $ | 286.4 | 77 | % | |||||||
Three Months Ended June 30, 2014 |
745 | 237.4 | 72 |
Closed
Loans |
Aggregate
Loan Volume (in millions) |
Capture Rate | ||||||||||
Six Months Ended June 30, 2015 |
1,507 | $ | 503.8 | 76 | % | |||||||
Six Months Ended June 30, 2014 |
1,353 | 429.3 | 73 |
Our mortgage capture rate represents the percentage of our homes sold to a home purchaser that utilized a mortgage, for which the borrower obtained such mortgage from TMHF or one of our preferred third party lenders. Our capture rate improved slightly during the three and six months ended June 30, 2015 as compared to the same periods in 2014. In the second quarter of 2015 and 2014, the average FICO score of customers who obtained mortgages through TMHF was 744 and 739, respectively. In the first half of 2015 and 2014, the average FICO score of customers who obtained mortgages through TMHF was 740 and 741, respectively.
Sales, Commissions and Other Marketing Costs
Sales, commissions and other marketing costs, as a percentage of home closings revenue, were relatively consistent period of over period at 6.9% and 6.8% for the three months ended June 30, 2015 and 2014, respectively. Sales commissions, and other marketing costs such as advertising and sales office expenses increased to $47.0 million from $39.5 million, as a result of a 17.1% increase in home closings revenue.
As a percentage of home closings revenue; sales, commissions and other marketing costs were at 7.1% and 7.0% for the six months ended June 30, 2015 and 2014. For the six months ended June 30, 2015 and 2014, sales commissions, and other marketing costs such as advertising and sales office expenses increased to $83.2 million from $72.9 million as a result of a 13.3% increase in home closings revenue.
General and Administrative Expenses
General and administrative expenses were 3.5% and 3.3% of home closings revenue for the three months ended June 30, 2015 and 2014, respectively. For the six months ended June 30, 2015 and 2014, general and administrative expenses were at 3.8% and 3.7% of
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home closings revenue, respectively. General and administrative expenses increased to $44.9 million for the six months ended June 30, 2015 from $38.5 million in the same period in 2014, which represents a 16.8% increase. We continue to utilize our scalable platform, providing leverage with existing infrastructure in an effort to maintain stable operating costs.
Equity in Income of Unconsolidated Entities
Equity in income of unconsolidated entities was $1.2 million and $1.5 million for the three and six months ended June 30, 2015, respectively compared to $1.3 million and $2.2 million for the three and six months ended June 30, 2014, respectively. The slight decrease was due to a combination of the closeout of two joint ventures in June 2014, the start-up of two new joint ventures which began during the second half 2014, as well as the incurrence of start-up costs from one new joint venture in the second quarter of 2015.
Interest (Income) Expense, Net
Interest expense, net represents interest incurred, but not capitalized on our long-term debt and other borrowings. In the three and six months ended June 30, 2015 compared to June 30, 2014, the change from net interest expense to net interest income was due to increased capitalization of interest as a result of higher levels of qualified assets and an increase in interest earning cash on deposit. The increase in cash on deposit generated positive net interest income.
Other Expense, Net
Other expense, net for the three months ended June 30, 2015 and 2014 was $3.5 million and $4.2 million, respectively. For the six months ended June 30, 2015 and 2014, other expense was $9.2 million and $7.3 million, respectively. The majority of the expense for both periods relate to accruals for contingent consideration. Other expense also generally consists of mothball community expense, pre-acquisition costs on unpursued land projects, captive insurance claims costs and financing fees on our Revolving Credit Facility.
Loss on Extinguishment of Debt
On May 1, 2015 we redeemed the entire outstanding aggregate principal amount of our 2020 Senior Notes at a redemption price of 105.813% of their aggregate principal amount, plus accrued and unpaid interest thereon to, but not including, the date of redemption. The redemption was made using the proceeds from the issuance of our $350.0 million 2023 Senior Notes, which was completed on April 16, 2015. As a result of the redemption of the 2020 Senior Notes, we recorded a loss on extinguishment of debt of $33.3 million which included the redemption premium and the write off of net unamortized deferred financing fees.
We did not incur any losses on extinguishment of debt for the three or six months ended June 30, 2014.
Gain on Foreign Currency Forward
In December 2014, we entered into a derivative financial instrument in the form of a foreign currency forward. The derivative financial instrument hedged our exposure to the Canadian dollar in conjunction with the disposition of the Monarch business. The final settlement of the derivative financial instrument occurred on January 30, 2015 and a gain in the amount of $30.0 million was recorded in foreign currency forward in the accompanying Condensed Consolidated Statements of Operations for the six months ended June 30, 2015.
Income Tax Provision
The effective income tax rate from continuing operations for the three months ended June 30, 2015 was 33.2% compared to 30.7% for the same period in 2014. Both rates reflect the benefit for the domestic production activities deduction, however, the prior year results also benefitted from a discrete item related to a release of a portion of the valuation allowance against deferred tax assets.
For the six months ended June 30, 2015 and 2014, the effective income tax rate from continuing operations was 34.7% and 27.4%, respectively. Both rates reflect the benefit for the domestic production activities deduction, however, the prior year results also benefited from discrete items related to U.S. repatriation of foreign funds and a release of a portion of the valuation allowance against deferred tax assets.
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Liquidity and Capital Resources
Liquidity
We finance our operations through the following:
| Borrowings under our Revolving Credit Facility; |
| Our various series of Senior Notes; |
| Project-level financing (including non-recourse loans); |
| Mortgage warehouse facilities; and |
| Performance, payment and completion surety bonds, and letters of credit. |
We believe that we can fund our current and foreseeable liquidity needs for the next 12 months from:
| Cash generated from operations; |
| Borrowings under our Revolving Credit Facility; |
| Additional offerings of senior notes, if needed; and |
| Access to the equity markets as we are a publically traded company. |
Our principal uses of capital in the three and six months ended June 30, 2015 and 2014 were land purchases, lot development, home construction, operating expenses, payment of debt service, income taxes, investments in joint ventures, the payment of various liabilities and the acquisition of JEH Homes. Cash flows for each of our communities depend on the status of the development cycle and can differ substantially from reported earnings. Early stages of development or expansion require significant capital expenditures for land acquisitions, plats, vertical and horizontal development, construction of model homes, general landscaping and other amenities. Because these costs are a component of our inventory and are not recognized in our statement of operations until a home closes, we incur significant cash outflows prior to recognition of earnings.
Depending upon future homebuilding market conditions and our expectations for these conditions, we may use a portion of our cash and cash equivalents to take advantage of land opportunities. We intend to maintain adequate liquidity and balance sheet strength, and we will continue to evaluate opportunities to access the debt and equity capital markets on an opportunistic basis.
Capital Resources
Cash and Cash Equivalents
As of June 30, 2015, we had cash and cash equivalents of $145.5 million. Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions and short-term, highly liquid investments. In addition, at June 30, 2015, our aggregate total cash on hand and availability under credit facilities was approximately $506.0 million. We consider all highly liquid investments with original maturities of 90 days or less, such as certificates of deposit, money market funds, and commercial paper, to be cash equivalents. Cash accounts are insured up to $250,000 in the United States by the Federal Deposit Insurance Corporation.
The following table summarizes our outstanding senior unsecured notes (collectively, the Senior Notes), as of June 30, 2015.
(Dollars in thousands) | Date Issued |
Principal
Amount |
Initial Offering
Price |
Interest Rate |
Original Net
Proceeds |
Original Debt
Issuance Cost |
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Senior Notes due 2021 |
April 16, 2013 | 550,000 | 100.0 | % | 5.250 | % | 541,700 | 8,300 | ||||||||||||||||
Senior Notes due 2023 |
April 16, 2015 | 350,000 | 100.0 | % | 5.875 | % | 345,500 | 4,500 | ||||||||||||||||
Senior Notes due 2024 |
March 5, 2014 | 350,000 | 100.0 | % | 5.625 | % | 345,300 | 4,700 | ||||||||||||||||
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Total |
$ | 1,250,000 | $ | 1,232,500 | $ | 17,500 | ||||||||||||||||||
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2020 Senior Notes
The 2020 Senior Notes were redeemed in full on May 1, 2015 using the net proceeds from an issuance of new 2023 senior unsecured notes, together with cash on hand. See 2023 Senior Notes and Redemption of 2020 Senior Notes below for additional information regarding the redemption of the 2020 Senior Notes.
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2021 Senior Notes
On April 16, 2013, we issued $550.0 million aggregate principal amount of 5.25% Senior Notes due 2021 (the 2021 Senior Notes). The 2021 Senior Notes are unsecured and are not subject to registration rights. The net proceeds from the issuance of the 2021 Senior Notes were used to repay the outstanding balance under the Revolving Credit Facility and for general corporate purposes, including the purchase of additional land inventory.
The 2021 Senior Notes are guaranteed by TMM Holdings, Taylor Morrison Holdings, Inc., Taylor Morrison Communities II, Inc. and the U.S. homebuilding subsidiaries of TMC (collectively, the Guarantors). The 2021 Senior Notes and the guarantees are senior unsecured obligations. The indenture for the 2021 Senior Notes contains covenants that limit (i) the making of investments, (ii) the payment of dividends and the redemption of equity and junior debt, (iii) the incurrence of additional indebtedness, (iv) asset dispositions, (v) mergers and similar corporate transactions, (vi) the incurrence of liens, (vii) the incurrence of prohibitions on payments and asset transfers among the issuers and restricted subsidiaries and (viii) transactions with affiliates, among others. The indenture governing the 2021 Senior Notes contains customary events of default. If we do not apply the net cash proceeds of certain asset sales within specified deadlines, we will be required to offer to repurchase the 2021 Senior Notes at par (plus accrued and unpaid interest) with such proceeds.
There are no financial maintenance covenants for the 2021 Senior Notes.
2023 Senior Notes and Redemption of 2020 Senior Notes
On April 16, 2015, we issued $350.0 million aggregate principal amount of 5.875% Senior Notes due 2023 (the 2023 Senior Notes). The 2023 Senior Notes are unsecured and are not subject to registration rights. The net proceeds of the offering, together with cash on hand, were used to redeem the entire remaining $485.4 million aggregate principal amount of 7.75% 2020 Senior Notes on May 1, 2015, at a redemption price of 105.813% of their aggregate principal amount, plus accrued and unpaid interest thereon to, but not including, the date of redemption. As a result of the redemption of the 2020 Senior Notes, we recorded a loss on extinguishment of debt of $33.3 million, which included the payment of the redemption premium and write off of net unamortized deferred financing fees.
The 2023 Senior Notes mature on April 15, 2023. The 2023 Senior Notes are guaranteed by the same Guarantors that guarantee the 2021 and 2024 Senior Notes. The 2023 Senior Notes and the guarantees are senior unsecured obligations. The indenture governing the 2023 Senior Notes contains covenants and control provisions that are substantially similar to those in the indenture governing the 2024 Senior Notes. The indenture governing the 2023 Senior Notes contains events of default that are similar to those contained in the indentures governing the 2021 and the 2024 Senior Notes.
Prior to January 15, 2023, the 2023 Senior Notes are redeemable at a price equal to 100% plus a make-whole premium for payments through January 15, 2023 (plus accrued and unpaid interest). Beginning January 15, 2023, the 2023 Senior Notes are redeemable at par (plus accrued and unpaid interest).
There are no financial maintenance covenants for the 2023 Senior Notes.
2024 Senior Notes
On March 5, 2014, we issued $350.0 million aggregate principal amount of 5.625% Senior Notes due 2024 (the 2024 Senior Notes). The 2024 Senior Notes are unsecured and are not subject to registration rights. The net proceeds from the issuance of the 2024 Senior Notes were used to repay the outstanding balance under the Revolving Credit Facility and for general corporate purposes.
The 2024 Senior Notes mature on March 1, 2024. The 2024 Senior Notes are guaranteed by the same Guarantors that guarantee the 2021 Senior Notes. The 2024 Senior Notes and the guarantees are senior unsecured obligations. The indenture governing the 2024 Senior Notes contains covenants that limit our ability to incur debt secured by liens and enter into certain sale and leaseback transactions. The indenture governing the 2024 Senior Notes contains events of default that are similar to those contained in the indenture governing the 2021 Senior Notes. The change of control provisions in the indenture governing the 2024 Senior Notes are similar to those contained in the indenture governing the 2021 Senior Notes, but a credit rating downgrade must occur in connection with the change of control before the repurchase offer requirement is triggered for the 2024 Senior Notes.
Prior to December 1, 2023, the 2024 Senior Notes are redeemable at a price equal to 100% plus a make-whole premium for payments through December 1, 2023 (plus accrued and unpaid interest). Beginning on December 1, 2023, the 2024 Senior Notes are redeemable at par (plus accrued and unpaid interest).
There are no financial maintenance covenants for the 2024 Senior Notes.
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TMHC Compared to TMM Holdings
The financial information of TMHC is substantially identical to the financial performance and operations of TMM Holdings except for certain SEC and regulatory fees which are attributable to TMHC.
Revolving Credit Facility
The Revolving Credit Facility contains certain springing financial covenants, requiring TMM Holdings and its subsidiaries to comply with a certain maximum debt to capitalization ratio and a certain minimum consolidated tangible net worth test. The financial covenants would be in effect for any fiscal quarter during which any (a) loans under the Revolving Credit Facility are outstanding during the last day of such fiscal quarter or on more than five separate days during such fiscal quarter or (b) undrawn letters of credit (except to the extent cash collateralized) issued under the Revolving Credit Facility in an aggregate amount greater than $40.0 million or unreimbursed letters of credit issued under the Revolving Credit Facility are outstanding on the last day of such fiscal quarter or for more than five consecutive days during such fiscal quarter. For purposes of determining compliance with the financial covenants for any fiscal quarter, the Revolving Credit Facility provides that Taylor Morrison Communities, Inc. (TMC or the Borrower) may exercise an equity cure by issuing certain permitted securities for cash or otherwise recording cash contributions to its capital that will, upon the contribution of such cash to TMC, be included in the calculation of consolidated tangible net worth and consolidated total capitalization. The equity cure right is exercisable up to twice in any period of four consecutive fiscal quarters and up to five times overall. The maximum debt to total capitalization ratio is 0.60 to 1.00. The ratio as calculated by the Borrower at June 30, 2015 was 0.42 to 1.00. The minimum consolidated tangible net worth requirement was $1.4 billion at June 30, 2015. At June 30, 2015, the Borrowers tangible net worth, as defined in the Revolving Credit Facility, was $1.8 billion.
The Revolving Credit Facility contains certain restrictive covenants including limitations on incurrence of liens, dividends and other distributions, asset dispositions and investments in entities that are not guarantors, limitations on prepayment of subordinated indebtedness and limitations on fundamental changes. The Revolving Credit Facility contains customary events of default, subject to applicable grace periods, including for nonpayment of principal, interest or other amounts, violation of covenants (including financial covenants, subject to the exercise of an equity cure), incorrectness of representations and warranties in any material respect, cross default and cross acceleration, bankruptcy, material monetary judgments, ERISA events with material adverse effect, actual or asserted invalidity of material guarantees and change of control. As of June 30, 2015, we were in compliance with all of the covenants under the Revolving Credit Facility.
On April 24, 2015, TMC and the other subsidiaries of TMHC party thereto, entered into Amendment No. 3 to our senior revolving credit facility (the Revolving Credit Facility). Among other things, this amendment increased the amount available under the Revolving Credit Facility up to $500.0 million, extended the maturity of the Revolving Credit Facility to April 12, 2019 and reduced certain margins payable thereunder.
Mortgage Company Loan Facilities
Borrowings under our TMHF warehouse facilities are accounted for as secured borrowings under ASC Topic 860, Transfers and Servicing . Total capacity under the TMHF warehouse facilities available to TMHC at June 30, 2015 is $155.0 million. The following table summarizes the terms of our TMHF warehouse facilities:
As of June 30, 2015 | ||||||||||||||
Facility |
Amount Drawn | Facility Amount | Interest Rate | Expiration Date | Collateral (1) | |||||||||
Flagstar |
$ | 32,391 | $ | 55,000 | LIBOR + 2.5% | 30 days written notice | Mortgage Loans | |||||||
Comerica |
| 50,000 | LIBOR + 2.75% | August 19, 2015 | Mortgage Loans | |||||||||
J.P. Morgan |
39,094 | 50,000 | (2) | September 28, 2015 | Pledged Cash | |||||||||
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Total |
$ | 71,485 | $ | 155,000 | ||||||||||
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(1) | The mortgage borrowings outstanding as of June 30, 2015 and December 31, 2014, are collateralized by $110.5 million and $191.1 million, respectively, of mortgage loans held for sale, which comprise the balance of mortgage loans held for sale and $0.6 million and $1.3 million, respectively, of restricted short-term investments which are included in restricted cash in the accompanying Condensed Consolidated Balance Sheets. |
(2) | Interest under the J.P. Morgan agreement ranges from 2.50% plus 30-day LIBOR to 2.875% plus 30-day LIBOR or 0.25% (whichever is greater). |
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Loans Payable and Other Borrowings
Loans payable and other borrowings as of June 30, 2015 consist of project-level debt due to various land sellers and municipalities, and are generally secured by the land that was acquired. Principal payments generally coincide with corresponding project lot sales or a principal reduction schedule. The weighted average interest rate on $86.3 million of the loans as of June 30, 2015 was 5.5% per annum, and $36.8 million of the loans were non-interest bearing.
Letters of Credit, Surety Bonds and Financial Guarantees
In the course of land development and acquisition, we have issued letters of credit under our Revolving Credit Facility to various land sellers and municipalities in the amounts below as of the dates indicated:
As of June 30, 2015 | As of December 31, 2014 | |||||||||||||||
(In thousands) | Available | Issued | Available | Issued | ||||||||||||
Revolving Credit FacilityLetters of Credit |
$ | 200,000 | $ | 34,662 | $ | 200,000 | $ | 35,071 |
Operating Cash Flow Activities
Our net cash used in operating activities was $292.9 million for the six months ended June 30, 2015, compared to $350.9 million for the six months ended June 30, 2014. The primary drivers of the change year over year include an increase in net income, a decrease in real estate inventory and land deposits, and a decrease in mortgage loans held for sale. Also, contributing to the change was the $33.3 million loss on extinguishment of debt which was offset by an approximately $30.0 million gain on a foreign currency forward and a decrease in investments of capital into unconsolidated entities year over year.
Investing Cash Flow Activities
Net cash provided by investing activities was $217.5 million for the six months ended June 30, 2015, as compared to cash used in investing activities of $49.9 million for the six months ended June 30, 2014. The increase in cash provided by investing activities was primarily the result of our Monarch disposition in the first quarter of 2015, and cash received from a foreign currency forward. This increase was partially offset by the $62.4 million acquisition of JEH Homes.
Financing Cash Flow Activities
Net cash used in financing activities was $221.3 million for the six months ended June 30, 2015, compared to $311.8 million of net cash provided by financing activities for the six months ended June 30, 2014. The change in net cash from financing activities year over year was primarily attributable to an increase in net repayments on our lines of credit related to mortgage borrowings and the redemption of the 2020 Senior Notes, offset by increased net borrowings on our Revolving Credit Facility.
Commercial Commitments and Off-Balance Sheet Arrangements
The following table summarizes our letters of credit and surety bonds as of the dates indicated:
(In thousands) |
As of June 30,
2015 |
As of December 31,
2014 |
||||||
Letters of credit |
$ | 34,662 | $ | 35,071 | ||||
Surety bonds |
$ | 326,754 | $ | 280,559 | ||||
|
|
|
|
|||||
Total outstanding letters of credit and surety bonds |
$ | 361,416 | $ | 315,630 | ||||
|
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Investments in Land Development and Homebuilding Joint Ventures or Unconsolidated Entities
We participate in strategic land development and homebuilding joint ventures with related and unrelated third parties. The use of these entities, in some instances, enables us to acquire land to which we could not otherwise obtain access, or could not obtain access on terms that are favorable. Our partners in these joint ventures historically have been land owners/developers, other homebuilders and financial or strategic partners. Joint ventures with land owners/developers have given us access to sites owned or controlled by our partners. Joint ventures with other homebuilders have provided us with the ability to bid jointly with our partners for large or expensive land parcels. Joint ventures with financial partners have allowed us to combine our homebuilding expertise with access to our partners capital. Joint ventures with strategic partners have allowed us to combine our homebuilding expertise with the specific expertise (e.g. commercial or infill experience) of our partners.
In certain of our unconsolidated joint ventures, we enter into loan agreements, whereby one of our subsidiaries will provide the lenders with customary guarantees, including completion, indemnity and environmental guarantees subject to usual non-recourse terms.
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The following is a rollforward of the investments in unconsolidated land development and homebuilding joint ventures:
(In thousands) | East | West | Corporate | Total | ||||||||||||
Investment balance, December 31, 2014 |
$ | 57,138 | $ | 51,909 | $ | 1,244 | $ | 110,291 | ||||||||
Joint venture income |
856 | (422 | ) | 1,093 | 1,527 | |||||||||||
Distributions |
(7,200 | ) | | (1,094 | ) | (8,294 | ) | |||||||||
Contributions |
3,795 | 20,614 | 540 | 24,949 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Investment balance, June 30, 2015 |
$ | 54,589 | $ | 72,101 | $ | 1,783 | $ | 128,473 | ||||||||
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|
|
|
|
|
|
Land Purchase and Land Option Contracts
We enter into land purchase and option contracts to procure land or lots for the construction of homes in the ordinary course of business. Lot option contracts enable us to control significant lot positions with a minimal capital investment and substantially reduce the risks associated with land ownership and development. As of June 30, 2015, we had outstanding land purchase and lot option contracts of $549.2 million. We are obligated to close the transaction under our land purchase contracts. However, our obligations with respect to the option contracts are generally limited to the forfeiture of the related non-refundable cash deposits and/or letters of credit provided to obtain the options.
Seasonality
Our business is seasonal. We have historically experienced, and in the future expect to continue to experience, variability in our results on a quarterly basis. We generally have more homes under construction, close more homes and have greater revenues and operating income in the third and fourth quarters of the year. Therefore, although new home contracts are obtained throughout the year, a higher portion of our home closings occur during the third and fourth calendar quarters. Our revenue therefore may fluctuate significantly on a quarterly basis and we must maintain sufficient liquidity to meet short-term operating requirements. Factors expected to contribute to these fluctuations include:
| the timing of the introduction and start of construction of new projects; |
| the timing of project sales; |
| the timing of closings of homes, lots and parcels; |
| our ability to continue to acquire land and options on that land on acceptable terms; |
| the timing of receipt of regulatory approvals for development and construction; |
| the condition of the real estate market and general economic conditions in the areas in which we operate; |
| mix of homes closed; |
| construction timetables; |
| the prevailing interest rates and the availability of financing, both for us and for the purchasers of our homes; |
| the cost and availability of materials and labor; and |
| weather conditions in the markets in which we build. |
As a result of seasonal activity, our quarterly results of operations and financial position are not necessarily representative of the results we expect at year end.
Inflation
We and the homebuilding industry in general may be adversely affected during periods of high inflation, primarily because of higher land, financing, labor and material construction costs. In addition, higher mortgage interest rates can significantly affect the affordability of permanent mortgage financing to prospective homebuyers. We attempt to pass through to our customers any increases in our costs through increased sales prices. However, during periods of soft housing market conditions, we may not be able to offset our cost increases with higher selling prices.
Critical Accounting Policies
There have been no significant changes to our critical accounting policies during the three or six months ended June 30, 2015 as compared to those we disclosed in Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2014.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk
Our operations are interest rate sensitive. We monitor our exposure to changes in interest rates and incur both fixed rate and variable rate debt. At June 30, 2015, approximately 88.6% of our debt was fixed rate and 11.4% was variable rate. None of our market sensitive instruments were entered into for trading purposes. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument but may affect our future earnings and cash flows, and may also impact our variable rate borrowing costs, which principally relate to any borrowings under our Revolving Credit Facility and to any borrowings by TMHF under its various warehouse facilities. As of June 30, 2015, we had $105.0 million outstanding borrowings under our Revolving Credit Facility. We had $360.3 million of additional availability for borrowings and $165.3 million of additional availability for letters of credit (giving effect to $34.7 million of letters of credit outstanding as of such date). Our fixed rate debt is subject to a requirement that we offer to purchase the 2020 Senior Notes and 2021 Senior Notes at par with certain proceeds of asset sales (to the extent not applied in accordance with the indenture governing such Senior Notes). We are also required to offer to purchase all of the outstanding Senior Notes at 101% of their aggregate principal amount upon the occurrence of specified change of control events. Other than in those circumstances, we do not have an obligation to prepay fixed rate debt prior to maturity and, as a result, interest rate risk and changes in fair value would not be expected to have a significant impact on our cash flows related to our fixed rate debt until such time as we are required to refinance, repurchase or repay such debt.
We are not materially exposed to interest rate risk associated with TMHFs mortgage loan origination business because at the time any loan is originated, TMHF has identified the investor who will agree to purchase the loan on the interest rate terms that are locked in with the borrower at the time the loan is originated.
The following table sets forth principal cash flows by scheduled maturity and effective weighted average interest rates and estimated fair value of our debt obligations as of June 30, 2015. The interest rate for our variable rate debt represents the interest rate on our borrowings under our Revolving Credit Facility and mortgage warehouse facilities. Because the mortgage warehouse facilities are effectively secured by certain mortgage loans held for sale which are typically sold within 20 days, its outstanding balance is included as a variable rate maturity in the most current period presented.
Expected Maturity Date |
Fair
Value |
|||||||||||||||||||||||||||||||
(In millions, except percentage data) | 2015 | 2016 | 2017 | 2018 | 2019 | Thereafter | Total | |||||||||||||||||||||||||
Fixed Rate Debt |
$ | 37.1 | $ | 38.2 | $ | 16.4 | $ | 12.6 | $ | 12.2 | 1,256.6 | 1,373.1 | 1,351.7 | |||||||||||||||||||
Average interest rate (1) |
3.9 | % | 3.9 | % | 3.9 | % | 3.9 | % | 3.9 | % | 5.5 | % | 5.4 | % | | |||||||||||||||||
Variable Rate Debt (2) |
$ | 176.5 | $ | | $ | | $ | | $ | | $ | | $ | 176.5 | $ | 176.5 | ||||||||||||||||
Average interest rate |
2.4 | % | | | | | | 2.4 | % | |
(1) | Represents the coupon rate of interest on the full principal amount of the debt. |
(2) | Based upon the amount of variable rate debt at June 30, 2015, and holding the variable rate debt balance constant, each 1% increase in interest rates would increase the interest incurred by us by approximately $1.8 million per year. |
Currency Exchange Risk
In December 2014, we entered into a derivative financial instrument in the form of a foreign currency forward. The derivative financial instrument hedged our exposure to the Canadian dollar in conjunction with the disposition of the Monarch business. The aggregate notional amount of the foreign exchange derivative financial instrument was $471.2 million at December 31, 2014. At December 31, 2014 the fair value of the instrument was not material to our consolidated financial position or results of operations. The final settlement of the derivative financial instrument occurred on January 30, 2015 and a gain in the amount of $30.0 million was recorded in foreign currency forward in the accompanying Condensed Consolidated Statements of Operations for the six months ended June 30, 2015.
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ITEM 4. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934) as of June 30, 2015. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the periods specified in the Securities and Exchange Commissions rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of controls.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or because the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
Changes in Internal Controls
No change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarter ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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ITEM 1. | LEGAL PROCEEDINGS |
We are involved in various litigation and legal claims in the normal course of our business operations, including actions brought on behalf of various classes of claimants. We are also subject to a variety of local, state, and federal laws and regulations related to land development activities, house construction standards, sales practices, mortgage lending operations, employment practices, and protection of the environment. As a result, we are subject to periodic examination or inquiry by various governmental agencies that administer these laws and regulations. We establish liabilities for legal claims and regulatory matters when such matters are both probable of occurring and any potential loss is reasonably estimable. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. In view of the inherent difficulty of predicting the outcome of these legal and regulatory matters, we generally cannot predict the ultimate resolution of the pending matters, the related timing, or the eventual loss. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows. However, to the extent the liability arising from the ultimate resolution of any matter exceeds the estimates reflected in the recorded reserves relating to such matter, we could incur additional charges that could be significant.
ITEM 1A. | RISK FACTORS |
There have been no material changes to the Risk Factors set forth in Part 1, Item 1A. of our 2014 Annual Report on Form 10-K. These Risk Factors may materially affect our business, financial condition or results of operations. You should carefully consider the Risk Factors set forth in our 2014 Annual Report on Form 10-K and the other information set forth elsewhere in this quarterly report. You should be aware that these Risk Factors and other information may not describe every risk facing our Company.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. | MINE SAFETY DISCLOSURE |
None.
ITEM 5. | OTHER INFORMATION |
Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which added Section 13(r) of the Securities Exchange Act of 1934, as amended, we incorporate herein by reference Exhibit 99.1 of this report, which includes disclosure related to a vessel that is indirectly owned by funds managed by Oaktree Capital Management, L.P. (Oaktree Capital). Funds managed by Oaktree Capital control approximately 36% of our voting power and a holding vehicle formed by such funds is entitled to nominate members of our Board of Directors. As a result, an affiliate of Oaktree Capital may be deemed to be an affiliate of ours.
ITEM 6. | EXHIBITS |
Exhibit
|
Description |
|
3.1 | Amended and Restated Certificate of Incorporation (included as Exhibit 3.1 to the Companys Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference). | |
3.2 | Amended and Restated By-laws (included as Exhibit 3.2 to the Companys Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference). | |
10.1* | Form of Employee Nonqualified Option Award Agreement for use with the 2013 Taylor Morrison Home Corporation Omnibus Equity Award Plan. |
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Exhibit
|
Description |
|
10.2* | Form of Restricted Stock Unit Agreement for use with the 2013 Taylor Morrison Home Corporation Omnibus Equity Award Plan. | |
10.3* | Form of Performance-Based Restricted Stock Unit Agreement for use with the 2013 Taylor Morrison Home Corporation Omnibus Equity Award Plan. | |
31.1* | Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 302 of the SarbanesOxley Act of 2002. | |
31.2* | Certification of C. David Cone, Chief Financial Officer, pursuant to Section 302 of the SarbanesOxley Act of 2002. | |
32.1* | Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 906 of the SarbanesOxley Act of 2002. | |
32.2* | Certification of C. David Cone, Chief Financial Officer, pursuant to Section 906 of the SarbanesOxley Act of 2002. | |
99.1* | Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934. | |
101.INS | XBRL Instance Document. | |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
* | Filed herewith. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TAYLOR MORRISON HOME CORPORATION | ||
Registrant | ||
DATE: August 5, 2015 | ||
/s/ Sheryl D. Palmer |
||
Sheryl D. Palmer | ||
President and Chief Executive Officer (Principal Executive Officer) |
||
/s/ C. David Cone |
||
C. David Cone | ||
Vice President and Chief Financial Officer (Principal Financial Officer) |
||
/s/ Joseph Terracciano |
||
Joseph Terracciano | ||
Chief Accounting Officer (Principal Accounting Officer) |
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EXHIBIT INDEX
Exhibit
|
Description |
|
3.1 | Amended and Restated Certificate of Incorporation (included as Exhibit 3.1 to the Companys Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference). | |
3.2 | Amended and Restated By-laws (included as Exhibit 3.2 to the Companys Current Report on Form 8-K, filed on April 15, 2013, and incorporated herein by reference). | |
10.1* | Form of Employee Nonqualified Option Award Agreement for use with the 2013 Taylor Morrison Home Corporation Omnibus Equity Award Plan. | |
10.2* | Form of Restricted Stock Unit Agreement for use with the 2013 Taylor Morrison Home Corporation Omnibus Equity Award Plan. | |
10.3* | Form of Performance-Based Restricted Stock Unit Agreement for use with the 2013 Taylor Morrison Home Corporation Omnibus Equity Award Plan. | |
31.1* | Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 302 of the SarbanesOxley Act of 2002. | |
31.2* | Certification of C. David Cone, Chief Financial Officer, pursuant to Section 302 of the SarbanesOxley Act of 2002. | |
32.1* | Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 906 of the SarbanesOxley Act of 2002. | |
32.2* | Certification of C. David Cone, Chief Financial Officer, pursuant to Section 906 of the SarbanesOxley Act of 2002. | |
99.1* | Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934. | |
101.INS | XBRL Instance Document. | |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
* | Filed herewith. |
45
EXHIBIT 10.1
TAYLOR MORRISON HOME CORPORATION
2013 OMNIBUS EQUITY AWARD PLAN
FORM OF EMPLOYEE NONQUALIFIED
OPTION AWARD AGREEMENT
THIS NONQUALIFIED OPTION AWARD AGREEMENT (the Agreement ), dated as of [Grant Date] (the Date of Grant ), is made by and between Taylor Morrison Home Corporation, a Delaware corporation (the Company ), and [Participant Name] ( Participant ). Any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan.
WHEREAS, the Company has adopted the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (as amended from time to time, the Plan ), pursuant to which Options may be granted; and
WHEREAS, the Committee has determined that it is in the best interests of the Company and its shareholders to grant the Option provided for herein to Participant subject to the terms set forth herein.
NOW, THEREFORE, for and in consideration of the premises and the covenants of the parties contained in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, for themselves, their successors and assigns, hereby agree as follows:
1. Grant of Option.
(a) Grant . The Company hereby grants to Participant an Option (the Option ) to purchase [Number of Awards Granted] shares of Class A common stock, par value $0.00001 per share, of the Company ( Shares ) (such Shares, the Option Shares ), on the terms and conditions set forth in this Agreement and as otherwise provided in the Plan. The Option is not intended to qualify as an Incentive Stock Option under Section 422 of the Code. The Exercise Price, being the price at which Participant shall be entitled to purchase the Option Shares upon the exercise of all or any portion of the Option, shall be $[Grant Price] per Option Share.
(b) Incorporation by Reference, Etc. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. The Committee shall have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decision shall be binding and conclusive upon Participant and his or her legal representative in respect of any questions arising under the Plan or this Agreement. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail.
2. Vesting. Except as may otherwise be provided herein, subject to Participants continued Employment with the Company or an Affiliate through the applicable vesting date, the Option shall become vested and exercisable with respect to twenty-five percent [Insert]% of the Option Shares on each of the [Insert] of the Date of Grant (each such date, a Vesting Date ). Any fractional Option Shares resulting from the application of the vesting schedule shall be aggregated and the Option Shares resulting from such aggregation shall vest on the final Vesting Date.
3. Termination of Employment. Except as otherwise provided in Section 13 of the Plan, if Participants Employment with the Company or any Affiliate, as applicable, terminates for any reason, then the unvested portion of the Option shall be cancelled immediately and Participant shall immediately forfeit any rights to the Option Shares subject to such unvested portion.
4. Expiration.
(a) In no event shall all or any portion of the Option be exercisable after the tenth anniversary of the Date of Grant (the Option Period ).
(b) If, prior to the end of the Option Period, Participants Employment with the Company and all of its Affiliates is terminated by the Company or its Affiliates without Cause or by Participant for any reason other than at a time when grounds to terminate Participants Employment for Cause exist, the Option shall expire on the earlier of the last day of the Option Period or the date that is 90 days after the date of such termination. In the event of a termination described in this subsection (b), the Option shall remain exercisable by Participant until its expiration only to the extent the Option was exercisable at the time of such termination.
(c) If Participant dies or is terminated on account of Disability prior to the end of the Option Period and while still in the employ or service of the Company or an Affiliate, the Option shall remain exercisable by Participant or his or her beneficiary, as applicable, until the earlier of the last day of the Option Period or the date that is one year after the date of death or termination on account of Disability of Participant, as applicable.
(d) If Participant ceases Employment with the Company or any of its Affiliates due to a termination for Cause or a termination by Participant for any reason at a time when grounds to terminate Participants Employment for Cause exist, the Option (including any vested portion of the Option) shall expire immediately upon such cessation of Employment.
5. Method of Exercise.
(a) Options which have become exercisable may be exercised by delivery of a duly executed written notice of exercise to the Company at its principal business office using such form as attached hereto as Annex A or such other form, as may be required from time to time by the Company. Participant may obtain such form(s) by contacting the General Counsel at Taylor Morrison Home Corporation, 4900 N. Scottsdale Road, Suite 2000, Scottsdale, Arizona 85251.
(b) No Option Shares shall be delivered pursuant to any exercise of the Option until payment in full of the Exercise Price therefor is received by the Company in accordance with Section 5(c) of this Agreement and Participant has paid to the Company an amount equal to any federal, state, local and non-U.S. income and employment taxes required to be withheld.
(c) Subject to applicable law, the Exercise Price and applicable tax withholding shall be payable (i) in cash, check, cash equivalent and/or shares of Common Stock valued at the Fair Market Value at the time the Option is exercised (including, pursuant to procedures approved by the Committee, by means of attestation of ownership of a sufficient number of Shares in lieu of actual delivery of such shares to the Company); provided , that such Shares are not subject to any pledge or other security interest; (ii) in other property having a fair market value on the date of exercise equal to the Exercise Price and the applicable minimum required statutory withholding liability; (iii) if there is a public market for the Shares at such time, by means of a broker-assisted cashless exercise pursuant to which the Company is delivered (including telephonically to the extent permitted by the Committee) a copy of irrevocable instructions to a stockbroker to sell the Shares otherwise deliverable upon the exercise of the Option and to deliver promptly to the Company an amount equal to the Exercise Price and the applicable minimum required statutory withholding liability; (iv) by means of a net exercise procedure effected by withholding the minimum number of Shares otherwise deliverable in respect of an Option that are needed
2
to pay for the Exercise Price and the applicable minimum statutory withholding liability or (iv) by such other method as the Committee may permit in its sole discretion. Notwithstanding the foregoing, if, on the last day of the Option Period, the Fair Market Value exceeds the Exercise Price, Participant has not exercised the Option, and the Option has not expired, such Option shall be deemed to have been exercised by Participant on such last day by means of a net exercise and the Company shall deliver to Participant the number of Shares for which the Option was deemed exercised less such number of Shares required to be withheld to cover the payment of the Exercise Price and all applicable required withholding taxes. Any fractional Share shall be settled in cash.
6. Rights as a Shareholder. Participant shall not be deemed for any purpose to be the owner of any Shares subject to this Option unless, until and to the extent that (i) this Option shall have been exercised pursuant to its terms, (ii) the Company shall have issued and delivered to Participant the Option Shares, and (iii) Participants name shall have been entered as a shareholder of record with respect to such Option Shares on the books of the Company.
7. Restrictive Covenants . In consideration of the grant of the Option, Participant agrees that Participant will comply with noncompetition, nonsolicitation and confidentiality restrictions set forth in any restrictive covenant agreement, employment agreement or similar agreement between Participant and the Company or any of its Affiliates as in effect on the Date of Grant, or any such agreement that the Company or any of its Affiliates requires Participant to enter into as a condition to receipt of this Option. In the event that Participant violates any of the restrictive covenants set forth in any such agreement, the Option shall be automatically forfeited effective as of the date on which such violation first occurs, and, in the event that Participant has previously exercised all or any portion of the Option during the one year period immediately preceding the date on which such restrictive covenant violation first occurs, Participant shall forfeit any compensation, gain or other value realized on the exercise of such Option, or the subsequent sale of Shares acquired in respect of such Option (if any), and must promptly repay such amounts to the Company. The foregoing rights and remedies are in addition to any other rights and remedies that may be available to the Company and shall not prevent (and Participant shall not assert that they shall prevent) the Company from bringing one or more actions in any applicable jurisdiction to recover damages as a result of Participants breach of such restrictive covenants.
8. Compliance with Legal Requirements.
(a) Generally . The granting and exercising of the Option, and any other obligations of the Company under this Agreement, shall be subject to all applicable federal, provincial, state, local and foreign laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required. The Committee shall have the right to impose such restrictions on the Option as it deems necessary or advisable under applicable federal securities laws, the rules and regulations of any stock exchange or market upon which Shares are then listed or traded, and/or any blue sky or state securities laws applicable to such Shares. Participant agrees to take all steps the Committee or the Company determines are necessary to comply with all applicable provisions of federal and state securities law in exercising his or her rights under this Agreement.
(b) Tax Withholding . The exercise of the Option (or any portion thereof) shall be subject to Participant satisfying any applicable federal, state, local and foreign tax withholding obligations. The Company shall have the power and the right to deduct or withhold from all amounts payable to Participant in connection with the Option or otherwise, or require Participant to remit to the Company, an amount sufficient to satisfy the minimum statutory withholding liability required by law. Further, the
3
Company may permit or require Participant to satisfy, in whole or in part, such tax obligations by withholding Shares that would otherwise be received upon exercise of the Option.
9. Clawback. In the event of an accounting restatement due to material noncompliance by the Company with any financial reporting requirement under the securities laws or as a result of any mistake in calculations or other administrative error, in each case, which reduces the amount payable in respect of the Option that would have been earned had the financial results been properly reported (as determined by the Committee) (i) the Option will be cancelled and (ii) Participant will forfeit (A) the Shares (or cash) received or payable on the vesting or exercise of the Option and (B) the amount of the proceeds of the sale, gain or other value realized on the vesting or exercise of the Option or the Shares acquired in respect of such Option (and Participant may be required to return or pay such Shares or amount to the Company). Notwithstanding anything to the contrary contained herein, if Participant, without the consent of the Company, while employed by or providing services to the Company or any Affiliate or after termination of such Employment, violates a non-competition, non-solicitation, non-disparagement or non-disclosure covenant or agreement, including but not limited to the covenants described in Section 7 above, or otherwise has engaged in or engages in activity that constitutes Cause under the Plan or is in conflict with or adverse to the interest of the Company or any Affiliate as determined by the Committee in its sole discretion, then (i) any outstanding, vested or unvested, earned or unearned portion of the Option may, at the Committees discretion, be canceled without any payment therefor and (ii) the Committee, in its discretion, may require Participant or other person to whom any payment has been made or Shares or other property have been transferred in connection with the exercise of the Option to forfeit and pay over to the Company, on demand, all or any portion of the compensation, gain or other value (whether or not taxable) realized upon the exercise of such Option, or the subsequent sale of the Shares acquired upon exercise of such Option. To the extent required by applicable law (including without limitation Section 304 of the Sarbanes-Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act) and/or the rules and regulations of New York Stock Exchange or other securities exchange or inter-dealer quotation system on which the Shares are listed or quoted, or if so required pursuant to a written policy adopted by the Company, which may be amended from time to time, the Option (or the Shares acquired upon exercise of such Option) shall be subject (including on a retroactive basis) to clawback, forfeiture or similar requirements (and such requirements shall be deemed incorporated by reference into this Agreement).
10. Miscellaneous.
(a) Transferability . The Option may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant other than by will or by the laws of descent and distribution, pursuant to a qualified domestic relations order or as otherwise permitted under Section 15(b) of the Plan. In the event of Participants death, the Option shall thereafter be exercisable (to the extent otherwise exercisable hereunder) only by Participants executors or administrators.
(b) Waiver . Any right of the Company contained in this Agreement may be waived in writing by the Committee. No waiver of any right hereunder by any party shall operate as a waiver of any other right, or as a waiver of the same right with respect to any subsequent occasion for its exercise, or as a waiver of any right to damages. No waiver by any party of any breach of this Agreement shall be held to constitute a waiver of any other breach or a waiver of the continuation of the same breach.
(c) Section 409A . The Option is not intended to be subject to Section 409A of the Code. Notwithstanding the foregoing or any provision of the Plan or this Agreement, if any provision of the Plan or this Agreement contravenes Section 409A of the Code or could cause Participant to incur any tax, interest or penalties under Section 409A of the Code, the Committee may, in its sole discretion and without Participants consent, modify such provision to (i) comply with, or avoid being subject to,
4
Section 409A of the Code, or to avoid the incurrence of taxes, interest and penalties under Section 409A of the Code, and/or (ii) maintain, to the maximum extent practicable, the original intent and economic benefit to Participant of the applicable provision without materially increasing the cost to the Company or contravening the provisions of Section 409A of the Code. This Section 10(c) does not create an obligation on the part of the Company to modify the Plan or this Agreement and does not guarantee that the Option or the Option Shares will not be subject to interest and penalties under Section 409A.
(d) Notices . Any written notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax, pdf/email or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to Participant, at Participants address indicated by the Companys records, or if to the Company, to the attention of the General Counsel at the Companys principal business office.
(e) Severability The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law.
(f) No Rights to Employment . Nothing contained in this Agreement shall be construed as giving Participant any right to be retained, in any position with the Company or its Affiliates or shall interfere with or restrict in any way the right of the Company or its Affiliates, which are hereby expressly reserved, to remove, terminate or discharge Participant at any time for any reason whatsoever.
(g) Fractional Shares . In lieu of issuing a fraction of a Share resulting from any exercise of the Option, resulting from an adjustment of the Option pursuant to Section 12 of the Plan or otherwise, the Company shall be entitled to pay to Participant an amount equal to the Fair Market Value of such fractional Share.
(h) Beneficiary . Participant may file with the Committee a written designation of a beneficiary on such form as may be prescribed by the Committee and may, from time to time, amend or revoke such designation. Any notice should be made to the attention of the General Counsel of the Company at the Companys principal business office. If no designated beneficiary survives Participant, Participants estate shall be deemed to be Participants beneficiary.
(i) Bound by Plan and Acceptance of Agreement . By signing this Agreement, Participant acknowledges that Participant has received a copy of the Plan and has had an opportunity to review the Plan and agrees to be bound by all the terms and provisions of the Plan. By accepting this Agreement, Participant consents to the electronic delivery of prospectuses, annual reports and other information required to be delivered by Securities and Exchange Commission rules (which consent may be revoked in writing by Participant at any time upon three business days notice to the Company, in which case subsequent prospectuses, annual reports and other information will be delivered in hard copy to Participant).
(j) Successors . The terms of this Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns, and of Participant and the beneficiaries, executors, administrators, heirs and successors of Participant.
(k) Entire Agreement . This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and supersede all prior communications, representations and negotiations in respect thereto. No change, modification or
5
waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto, except for any changes permitted without consent under Section 12 of the Plan.
(l) Governing Law; JURY TRIAL WAIVER . To the extent not otherwise governed by the Code or the laws of the United States, this Agreement shall be governed, construed and interpreted in accordance with the laws of the state of Delaware without regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction which could cause the application of the laws of any jurisdiction other than the laws of the United States, as applicable. THE PARTIES EXPRESSLY AND KNOWINGLY WAIVE ANY RIGHT TO A JURY TRIAL IN THE EVENT ANY ACTION ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT IS LITIGATED OR HEARD IN ANY COURT.
(m) Headings . The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation or construction, and shall not constitute a part, of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company and Participant have executed this Agreement as set forth below.
TAYLOR MORRISON HOME CORPORATION | ||
By: |
|
|
Name: | Sheryl D. Palmer | |
Title: | Chief Executive Officer | |
Date: | [Grant Date] |
Agreed to and Accepted by: |
[Participant Name] |
Date: |
Acceptance Date |
[Signature Page to Nonqualified Stock Option Agreement]
Annex A
NOTICE OF OPTION EXERCISE
PURSUANT TO THE TAYLOR MORRISON HOME CORPORATION
2013 OMNIBUS EQUITY AWARD PLAN
To exercise your option to purchase shares of Taylor Morrison Home Corporation, a Delaware corporation (the Company ) Common Stock ( Shares ), please fill out this form and return it to the Secretary of the Company, together with a check in the amount of the exercise price due , which is the product of the number of Shares with respect to which you are exercising the option and the per share exercise price. You are not required to exercise your option with respect to all Shares thereunder. You also must include, as applicable, a check in the amount of any required payroll tax withholding and income tax withholding due in connection with your exercise unless the Board administering the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan specifically provides for such obligation to be satisfied in a different manner.
I hereby exercise my right to purchase Shares under the option granted to me pursuant to the Nonqualified Stock Option Agreement between myself and the Company, dated as of , 20 . I am vested in my option as to the Shares being purchased hereunder. I have enclosed one or more checks covering both the exercise price of $ and the required payroll tax withholding and income tax withholding of $ . (Please contact the office of the Secretary of the Company to determine the amount of any required payroll tax withholding and income tax withholding.) I hereby represent that, to the best of my knowledge and belief, I am legally entitled to exercise this option.
Signature:
Printed Name:
Social Security Number:
Date:
EXHIBIT 10.2
TAYLOR MORRISON HOME CORPORATION
2013 OMNIBUS EQUITY AWARD PLAN
FORM OF EMPLOYEE RESTRICTED STOCK UNIT AGREEMENT
THIS RESTRICTED STOCK UNIT AWARD AGREEMENT (the Agreement ), dated as of [Grant Date] (the Date of Grant ), is made by and between Taylor Morrison Home Corporation, a Delaware corporation (the Company ), and [Participant Name] ( Participant ). Any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan.
WHEREAS, the Company has adopted the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (as amended from time to time, the Plan ), pursuant to which Restricted Stock Units may be granted; and
WHEREAS, the Committee has determined that it is in the best interests of the Company and its shareholders to grant the Restricted Stock Units provided for herein to Participant subject to the terms set forth herein.
NOW, THEREFORE, for and in consideration of the premises and the covenants of the parties contained in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, for themselves, their successors and assigns, hereby agree as follows:
1. Grant of Restricted Stock Units.
(a) Grant . The Company hereby grants to Participant an award of [Number of Awards Granted] Restricted Stock Units (the RSUs ), on the terms and conditions set forth in this Agreement and as otherwise provided in the Plan. Each RSU represents the right to receive payment in respect of one share of Class A Common Stock, par value $0.00001 per share, of the Company (a Share ) as of the Settlement Date (as defined below), subject to the terms of this Agreement and the Plan. The RSUs are subject to the restrictions described herein, including forfeiture under the circumstances described in Section 4 hereof. The RSUs shall vest and become nonforfeitable in accordance with Section 2 and Section 4 hereof.
(b) Incorporation by Reference, Etc. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. The Committee shall have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decision shall be binding and conclusive upon Participant and his or her legal representative in respect of any questions arising under the Plan or this Agreement. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail.
2. Vesting . Except as may otherwise be provided herein, subject to Participants continued Employment with the Company or an Affiliate through the applicable vesting date, the RSUs shall become vested with respect to thirty-three and [Insert]% of the RSUs on each of the [Insert] anniversaries of the Date of Grant. Notwithstanding the foregoing, the Committee shall have the authority to remove the restrictions on the RSUs whenever it may determine that, by reason of
changes in applicable laws or other changes in circumstances arising after the Date of Grant, such action is appropriate.
3. Settlement . The obligation to make payments and distributions with respect to RSUs shall be satisfied through the issuance of one Share for each vested RSU (the settlement ), and the settlement of the RSUs may be subject to such conditions, restrictions and contingencies as the Committee shall determine. The RSUs shall be settled as soon as practicable after the RSUs vest, but in no event later than March 15 of the year following the calendar year in which the RSUs vested (as applicable, the Settlement Date ). Notwithstanding the foregoing, the payment dates set forth in this Section 3 have been specified for the purpose of being exempt from the provisions of Section 409A of the Code.
4. Termination of Employment. If Participants Employment with the Company or any Affiliate, as applicable, terminates for any reason, then the unvested portion of the RSUs shall be cancelled immediately and Participant shall immediately forfeit any rights to the RSUs subject to such unvested portion.
5. Dividend Equivalents; No Voting Rights. Each outstanding RSU shall be credited with dividend equivalents with respect to any extraordinary dividends, if so determined by the Committee, declared and paid to other shareholders of the Company in respect of one Share. Dividend equivalents shall not bear interest. On the Settlement Date, such dividend equivalents, if any, in respect of each vested RSU shall be settled by delivery to Participant of a number of Shares equal to the quotient obtained by dividing (i) the aggregate accumulated value of such dividend equivalents by (ii) the Fair Market Value of a Share on the applicable vesting date, rounded down to the nearest whole share, less any applicable withholding taxes. No dividend equivalents shall be accrued for the benefit of Participant with respect to record dates occurring prior to the Date of Grant, or with respect to record dates occurring on or after the date, if any, on which Participant has forfeited the RSUs. Participant shall have no voting rights with respect to the RSUs or any dividend equivalents.
6. No Rights as Shareholder . Participant shall not be deemed for any purpose to be the owner of any Shares subject to the RSUs until such Shares, if any, are delivered to Participant in accordance with Section 3 hereof. The Company shall not be required to set aside any fund for the payment of the RSUs.
7. Restrictive Covenants . In consideration of the grant of the RSUs, Participant agrees that Participant will comply with noncompetition, nonsolicitation and confidentiality restrictions set forth in any restrictive covenant agreement, employment agreement or similar agreement between Participant and the Company or any of its Affiliates as in effect on the Date of Grant, or any such agreement that the Company or any of its Affiliates requires Participant to enter into as a condition to receipt of the RSUs. In the event that Participant violates any of the restrictive covenants set forth in any such agreement, the RSUs shall be automatically forfeited effective as of the date on which such restrictive covenant violation first occurs, and, in the event that Participant has previously vested in all or any portion of the RSUs during the one year period immediately preceding the date on which such violation first occurs, Participant shall forfeit any compensation, gain or other value realized on the settlement of such RSUs, or the subsequent sale of Shares acquired upon settlement of the such RSUs (if any), and must promptly repay such amounts to the Company. The foregoing rights and remedies are in addition to any other rights and remedies that may be available to the Company and shall not prevent (and Participant shall not assert that they shall prevent) the Company from bringing one or more actions in any
applicable jurisdiction to recover damages as a result of Participants breach of such restrictive covenants.
8. Compliance with Legal Requirements.
(a) Generally . The granting and settlement of the RSUs, and any other obligations of the Company under this Agreement, shall be subject to all applicable federal, provincial, state, local and foreign laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required. The Committee shall have the right to impose such restrictions or delay the settlement of the RSUs as it deems necessary or advisable under applicable income tax laws, federal securities laws, the rules and regulations of any stock exchange or market upon which the Shares are then listed or traded, and/or any blue sky or state securities laws applicable to the Shares; provided that any settlement shall be delayed only until the earliest date on which settlement would not be so prohibited. Participant agrees to take all steps the Committee or the Company determines are necessary to comply with all applicable provisions of federal and state securities law in exercising his or her rights under this Agreement.
(b) Tax Withholding . All distributions under the Plan are subject to withholding of all applicable federal, state, local and foreign taxes, and the Committee may condition the settlement of the RSUs on satisfaction of the applicable withholding obligations. The Company shall have the power and the right to deduct or withhold from all amounts payable to Participant in connection with the RSUs or otherwise, or require Participant to remit to the Company, an amount sufficient to satisfy the minimum statutory withholding liability required by law. Further, the Company may permit or require Participant to satisfy, in whole or in part, such tax obligations by withholding Shares or other property deliverable to Participant in connection with the settlement of RSUs or from any compensation or other amounts owing to Participant the amount (in cash, Shares or other property) of any required tax withholding upon the settlement of the RSUs.
9. Clawback. In the event of an accounting restatement due to material noncompliance by the Company with any financial reporting requirement under the securities laws or as a result of any mistake in calculations or other administrative error, in each case, which reduces the amount payable in respect of the RSUs that would have been earned had the financial results been properly reported (as determined by the Committee) (i) the RSUs will be cancelled and (ii) Participant will forfeit (A) the Shares (or cash) received or payable on the settlement of the RSUs and (B) the amount of the proceeds of the sale, gain or other value realized on the settlement of the RSUs (and Participant may be required to return or pay such Shares or amount to the Company). Notwithstanding anything to the contrary contained herein, if Participant, without the consent of the Company, while employed by or providing services to the Company or any Affiliate or after termination of such Employment, violates a non-competition, non-solicitation, non-disparagement or non-disclosure covenant or agreement, including but not limited to the covenants described in Section 7 above, or otherwise has engaged in or engages in activity that constitutes Cause under the Plan or is in conflict with or adverse to the interest of the Company or any Affiliate as determined by the Committee in its sole discretion, then (i) any outstanding, vested or unvested, earned or unearned portion of the RSUs, may at the Committees discretion, be canceled without payment therefor and (ii) the Committee, in its discretion, may require Participant or other person to whom any payment has been made or Shares or other property have been transferred in connection with the settlement of the RSUs to forfeit and pay over to the Company, on demand, all or any portion of the compensation, gain or other value (whether or not taxable) realized upon on the settlement of such RSUs, or the subsequent sale of acquired Shares
(if any). To the extent required by applicable law (including without limitation Section 304 of the Sarbanes-Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act) and/or the rules and regulations of New York Stock Exchange or other securities exchange or inter-dealer quotation system on which the Shares are listed or quoted, or if so required pursuant to a written policy adopted by the Company, which may be amended from time to time, the RSUs (or the Shares acquired upon settlement of the RSUs (if any)) shall be subject (including on a retroactive basis) to clawback, forfeiture or similar requirements (and such requirements shall be deemed incorporated by reference into this Agreement).
10. Miscellaneous.
(a) Transferability . The RSUs may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant other than by will or by the laws of descent and distribution, pursuant to a qualified domestic relations order or as otherwise permitted under Section 15(b) of the Plan.
(b) Waiver . Any right of the Company contained in this Agreement may be waived in writing by the Committee. No waiver of any right hereunder by any party shall operate as a waiver of any other right, or as a waiver of the same right with respect to any subsequent occasion for its exercise, or as a waiver of any right to damages. No waiver by any party of any breach of this Agreement shall be held to constitute a waiver of any other breach or a waiver of the continuation of the same breach.
(c) Section 409A . The RSUs are intended to be exempt from Section 409A of the Code. Notwithstanding the foregoing or any provision of the Plan or this Agreement, if any provision of the Plan or this Agreement contravenes Section 409A of the Code or could cause Participant to incur any tax, interest or penalties under Section 409A of the Code, the Committee may, in its sole discretion and without Participants consent, modify such provision to (i) comply with, or avoid being subject to, Section 409A of the Code, or to avoid the incurrence of taxes, interest and penalties under Section 409A of the Code, and/or (ii) maintain, to the maximum extent practicable, the original intent and economic benefit to Participant of the applicable provision without materially increasing the cost to the Company or contravening the provisions of Section 409A of the Code. This Section 10(c) does not create an obligation on the part of the Company to modify the Plan or this Agreement and does not guarantee that the RSUs will not be subject to interest and penalties under Section 409A.
(d) Notices . Any written notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax, pdf/email or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to Participant, at Participants address indicated by the Companys records, or if to the Company, to the attention of the General Counsel at the Companys principal business office.
(e) Severability . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law.
(f) No Rights to Employment . Nothing contained in this Agreement shall be construed as giving Participant any right to be retained, in any position with the Company or its
Affiliates or shall interfere with or restrict in any way the right of the Company or its Affiliates, which are hereby expressly reserved, to remove, terminate or discharge Participant at any time for any reason whatsoever.
(g) Beneficiary . Participant may file with the Committee a written designation of a beneficiary on such form as may be prescribed by the Committee and may, from time to time, amend or revoke such designation. Any notice should be made to the attention of the General Counsel of the Company at the Companys principal business office. If no designated beneficiary survives Participant, Participants estate shall be deemed to be Participants beneficiary.
(h) Bound by Plan and Acceptance of Agreement . By signing this Agreement, Participant acknowledges that Participant has received a copy of the Plan and has had an opportunity to review the Plan and agrees to be bound by all the terms and provisions of the Plan. By accepting this Agreement, Participant consents to the electronic delivery of prospectuses, annual reports and other information required to be delivered by Securities and Exchange Commission rules (which consent may be revoked in writing by Participant at any time upon three business days notice to the Company, in which case subsequent prospectuses, annual reports and other information will be delivered in hard copy to Participant).
(i) Successors . The terms of this Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns, and of Participant and the beneficiaries, executors, administrators, heirs and successors of Participant.
(j) Entire Agreement . This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and supersede all prior communications, representations and negotiations in respect thereto. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto, except for any changes permitted without consent under Section 12 of the Plan.
(k) Governing Law; JURY TRIAL WAIVER . To the extent not otherwise governed by the Code or the laws of the United States, this Agreement shall be governed, construed and interpreted in accordance with the laws of the State of Delaware without regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction which could cause the application of the laws of any jurisdiction other than the laws of the United States, as applicable. THE PARTIES EXPRESSLY AND KNOWINGLY WAIVE ANY RIGHT TO A JURY TRIAL IN THE EVENT ANY ACTION ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT IS LITIGATED OR HEARD IN ANY COURT.
(l) Headings . The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation or construction, and shall not constitute a part, of this Agreement.
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IN WITNESS WHEREOF, the Company and Participant have executed this Agreement as set forth below.
TAYLOR MORRISON HOME CORPORATION | ||
By: |
|
|
Name: | Sheryl D. Palmer | |
Title: | Chief Executive Officer | |
Date: | [Grant Date] |
Agreed to and Accepted by: |
|
[Participant Name] |
Date: Acceptance Date |
[Signature Page to RSU Award Agreement]
EXHIBIT 10.3
TAYLOR MORRISON HOME CORPORATION
2013 OMNIBUS EQUITY AWARD PLAN
FORM OF PERFORMANCE-BASED
RESTRICTED STOCK UNIT AGREEMENT
THIS PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD AGREEMENT (this Agreement ), dated as of [Grant Date] (the Date of Grant ), is made by and between Taylor Morrison Home Corporation, a Delaware corporation (the Company ), and [Participant Name] ( Participant ). Any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan.
WHEREAS, the Company has adopted the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (as amended from time to time, the Plan ), pursuant to which Restricted Stock Units may be granted; and
WHEREAS, the Committee has determined that it is in the best interests of the Company and its shareholders to grant the performance-based Restricted Stock Units provided for herein (the PSUs ) to Participant subject to the terms set forth herein.
NOW, THEREFORE, for and in consideration of the premises and the covenants of the parties contained in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, for themselves, their successors and assigns, hereby agree as follows:
1. Grant of Performance-Based Restricted Stock Units.
(a) Grant . The Company hereby grants to Participant an award of a target number of PSUs equal to [Number of Awards Granted] on the terms and conditions set forth in this Agreement and as otherwise provided in the Plan, including the vesting and forfeiture provisions set forth in Sections 2 and 4 below and on Exhibit A hereto. The actual number of PSUs earned and vested under this Agreement may be higher or lower than the target number granted in this Section 1(a), depending on the extent of satisfaction of the vesting conditions referred to in the preceding sentence and other provisions of this Agreement and the Plan. Each PSU represents the right to receive payment in respect of one share of Class A Common Stock, par value $0.00001 per share, of the Company (a Share ) as of the Settlement Date (as defined below), subject to the terms of this Agreement and the Plan. The PSUs shall be credited to a separate book-entry account maintained for the Participant on the books of the Company. The PSUs are subject to the restrictions described herein.
(b) Incorporation by Reference, Etc. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. The Committee shall have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decision shall be binding and conclusive upon Participant and his or her legal representative in respect of any questions arising under the Plan or this Agreement. In the event of a conflict between any term or provision contained herein and a term or provision of the Plan, the applicable terms and provisions of the Plan will govern and prevail.
2. Vesting. Except as may otherwise be provided herein, the PSUs shall vest (if at all) in accordance with the terms set forth on Exhibit A attached hereto for the period beginning on [Date] and ending on [Date] (the Performance Period ), subject to the Participants continued Employment with the Company or an Affiliate through the last day of the Performance Period. As soon as administratively practicable after the end of the Performance Period, the Committee shall determine and certify the level attained for the Performance Goal set forth on Exhibit A (such date, the Determination Date ); provided , that in no event shall a Participant (i) vest in PSUs prior to the Determination Date; provided , further , that in no event shall the PSUs be settled (in accordance with Section 3 below) prior to the Determination Date. Notwithstanding the foregoing, the Committee shall have the authority to remove the restrictions on the PSUs whenever it may determine that, by reason of changes in applicable laws or other changes in circumstances arising after the Date of Grant, such action is appropriate.
3. Settlement. The obligation to make payments and distributions with respect to PSUs shall be satisfied through the issuance of one Share for each vested PSU (the settlement ), and the settlement of the PSUs may be subject to such conditions, restrictions and contingencies as the Committee shall determine. The PSUs shall be settled as soon as practicable after the Determination Date, but in no event later than March 15 of the year following the calendar year in which the PSUs vested (as applicable, the Settlement Date ). Notwithstanding the foregoing, the payment dates set forth in this Section 3 have been specified for the purpose of being exempt from the provisions of Section 409A of the Code.
4. Termination of Employment. If Participants Employment with the Company or any Affiliate, as applicable, terminates for any reason, then the unvested portion of the PSUs shall be cancelled immediately and Participant shall immediately forfeit any rights to the PSUs subject to such unvested portion.
5. Dividend Equivalents; No Voting Rights. Each outstanding PSU shall be credited with dividend equivalents with respect to any extraordinary dividends, if so determined by the Committee, declared and paid to other shareholders of the Company in respect of one Share. Dividend equivalents shall not bear interest. On the Settlement Date, such dividend equivalents, if any, in respect of each vested PSU shall be settled by delivery to Participant of a number of Shares equal to the quotient obtained by dividing (i) the aggregate accumulated value of such dividend equivalents by (ii) the Fair Market Value of a Share on the applicable vesting date, rounded down to the nearest whole share, less any applicable withholding taxes. No dividend equivalents shall be accrued for the benefit of Participant with respect to record dates occurring prior to the Date of Grant, or with respect to record dates occurring on or after the date, if any, on which Participant has forfeited the PSUs. Participant shall have no voting rights with respect to the PSUs or any dividend equivalents.
6. No Rights as Shareholder . Participant shall not be deemed for any purpose to be the owner of any Shares subject to the PSUs until such Shares, if any, are delivered to Participant in accordance with Section 3 hereof. The Company shall not be required to set aside any fund for the payment of the PSUs.
7. Restrictive Covenants . In consideration of the grant of the PSUs, Participant agrees that Participant will comply with noncompetition, nonsolicitation and confidentiality restrictions set forth in any restrictive covenant agreement, employment agreement or similar agreement between Participant and the Company or any of its Affiliates as in effect on the Date of Grant, or any such agreement that the Company or any of its Affiliates requires Participant to enter into as a condition to receipt of the PSUs. In the event that Participant violates any of the restrictive
2
covenants set forth in any such agreement, the PSUs shall be automatically forfeited effective as of the date on which such violation first occurs, and, in the event that Participant has previously vested in all or any portion of the PSUs during the one year period immediately preceding the date on which such restrictive covenant violation first occurs, Participant shall forfeit any compensation, gain or other value realized on the settlement of such PSUs, or the subsequent sale of Shares acquired upon settlement of the such PSUs (if any), and must promptly repay such amounts to the Company. The foregoing rights and remedies are in addition to any other rights and remedies that may be available to the Company and shall not prevent (and Participant shall not assert that they shall prevent) the Company from bringing one or more actions in any applicable jurisdiction to recover damages as a result of Participants breach of such restrictive covenants.
8. Compliance with Legal Requirements.
(a) Generally . The granting and settlement of the PSUs, and any other obligations of the Company under this Agreement, shall be subject to all applicable federal, provincial, state, local and foreign laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required. The Committee shall have the right to impose such restrictions or delay the settlement of the PSUs as it deems necessary or advisable under applicable income tax laws, federal securities laws, the rules and regulations of any stock exchange or market upon which the Shares are then listed or traded, and/or any blue sky or state securities laws applicable to the Shares; provided that any settlement shall be delayed only until the earliest date on which settlement would not be so prohibited. Participant agrees to take all steps the Committee or the Company determines are necessary to comply with all applicable provisions of federal and state securities law in exercising his or her rights under this Agreement.
(b) Tax Withholding . All distributions under the Plan are subject to withholding of all applicable federal, state, local and foreign taxes, and the Committee may condition the settlement of the PSUs on satisfaction of the applicable withholding obligations. The Company shall have the power and the right to deduct or withhold from all amounts payable to Participant in connection with the PSUs or otherwise, or require Participant to remit to the Company, an amount sufficient to satisfy the minimum statutory withholding liability required by law. Further, the Company may permit or require Participant to satisfy, in whole or in part, such tax obligations by withholding Shares or other property deliverable to Participant in connection with the settlement of PSUs or from any compensation or other amounts owing to Participant the amount (in cash, Shares or other property) of any required tax withholding upon the settlement of the PSUs.
9. Clawback. In the event of an accounting restatement due to material noncompliance by the Company with any financial reporting requirement under the securities laws or as a result of any mistake in calculations or other administrative error, in each case, which reduces the amount payable in respect of the PSUs that would have been earned had the financial results been properly reported (as determined by the Committee) (i) the PSUs will be cancelled and (ii) Participant will forfeit (A) the Shares (or cash) received or payable on the settlement of the PSUs and (B) the amount of the proceeds of the sale, gain or other value realized on the settlement of the PSUs (and Participant may be required to return or pay such Shares or amount to the Company). Notwithstanding anything to the contrary contained herein, if Participant, without the consent of the Company, while employed by or providing services to the Company or any Affiliate or after termination of such Employment, violates a non-competition, non-solicitation, non-disparagement or non-disclosure covenant or agreement, including but not limited to the
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covenants described in Section 7 above, or otherwise has engaged in or engages in activity that constitutes Cause under the Plan or is in conflict with or adverse to the interest of the Company or any Affiliate as determined by the Committee in its sole discretion, then (i) any outstanding, vested or unvested, earned or unearned portion of the PSUs, may at the Committees discretion, be canceled without payment therefor and (ii) the Committee, in its discretion, may require Participant or other person to whom any payment has been made or Shares or other property have been transferred in connection with the settlement of the PSUs to forfeit and pay over to the Company, on demand, all or any portion of the compensation, gain or other value (whether or not taxable) realized upon on the settlement of such PSUs, or the subsequent sale of acquired Shares (if any). To the extent required by applicable law (including without limitation Section 304 of the Sarbanes-Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act) and/or the rules and regulations of New York Stock Exchange or other securities exchange or inter-dealer quotation system on which the Shares are listed or quoted, or if so required pursuant to a written policy adopted by the Company, which may be amended from time to time, the PSUs (or the Shares acquired upon settlement of the PSUs (if any)) shall be subject (including on a retroactive basis) to clawback, forfeiture or similar requirements (and such requirements shall be deemed incorporated by reference into this Agreement).
10. Miscellaneous.
(a) Transferability . The PSUs may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant other than by will or by the laws of descent and distribution, pursuant to a qualified domestic relations order or as otherwise permitted under Section 15(b) of the Plan.
(b) Waiver . Any right of the Company contained in this Agreement may be waived in writing by the Committee. No waiver of any right hereunder by any party shall operate as a waiver of any other right, or as a waiver of the same right with respect to any subsequent occasion for its exercise, or as a waiver of any right to damages. No waiver by any party of any breach of this Agreement shall be held to constitute a waiver of any other breach or a waiver of the continuation of the same breach.
(c) Section 409A . The PSUs are intended to be exempt from Section 409A of the Code. Notwithstanding the foregoing or any provision of the Plan or this Agreement, if any provision of the Plan or this Agreement contravenes Section 409A of the Code or could cause Participant to incur any tax, interest or penalties under Section 409A of the Code, the Committee may, in its sole discretion and without Participants consent, modify such provision to (i) comply with, or avoid being subject to, Section 409A of the Code, or to avoid the incurrence of taxes, interest and penalties under Section 409A of the Code, and/or (ii) maintain, to the maximum extent practicable, the original intent and economic benefit to Participant of the applicable provision without materially increasing the cost to the Company or contravening the provisions of Section 409A of the Code. This Section 10(c) does not create an obligation on the part of the Company to modify the Plan or this Agreement and does not guarantee that the PSUs will not be subject to interest and penalties under Section 409A.
(d) Notices . Any written notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax, pdf/email or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to Participant, at Participants address indicated by the
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Companys records, or if to the Company, to the attention of the General Counsel at the Companys principal business office.
(e) Severability . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law.
(f) No Rights to Employment . Nothing contained in this Agreement shall be construed as giving Participant any right to be retained, in any position with the Company or its Affiliates or shall interfere with or restrict in any way the right of the Company or its Affiliates, which are hereby expressly reserved, to remove, terminate or discharge Participant at any time for any reason whatsoever.
(g) Beneficiary . Participant may file with the Committee a written designation of a beneficiary on such form as may be prescribed by the Committee and may, from time to time, amend or revoke such designation. Any notice should be made to the attention of the General Counsel of the Company at the Companys principal business office. If no designated beneficiary survives Participant, Participants estate shall be deemed to be Participants beneficiary.
(h) Bound by Plan and Acceptance of Agreement . By signing this Agreement, Participant acknowledges that Participant has received a copy of the Plan and has had an opportunity to review the Plan and agrees to be bound by all the terms and provisions of the Plan. By accepting this Agreement, Participant consents to the electronic delivery of prospectuses, annual reports and other information required to be delivered by Securities and Exchange Commission rules (which consent may be revoked in writing by Participant at any time upon three business days notice to the Company, in which case subsequent prospectuses, annual reports and other information will be delivered in hard copy to Participant).
(i) Successors . The terms of this Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns, and of Participant and the beneficiaries, executors, administrators, heirs and successors of Participant.
(j) Entire Agreement . This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and supersede all prior communications, representations and negotiations in respect thereto. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto, except for any changes permitted without consent under Section 12 of the Plan.
(k) Governing Law; JURY TRIAL WAIVER . To the extent not otherwise governed by the Code or the laws of the United States, this Agreement shall be governed, construed and interpreted in accordance with the laws of the State of Delaware without regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction which could cause the application of the laws of any jurisdiction other than the laws of the United States, as applicable. THE PARTIES EXPRESSLY AND KNOWINGLY WAIVE ANY RIGHT TO A JURY TRIAL IN THE EVENT ANY ACTION ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT IS LITIGATED OR HEARD IN ANY COURT.
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(l) Headings . The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation or construction, and shall not constitute a part, of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company and Participant have executed this Agreement as set forth below.
TAYLOR MORRISON HOME CORPORATION | ||
By: |
|
|
Name: | Sheryl D. Palmer | |
Title: | Chief Executive Officer | |
Date: | [Grant Date] |
Agreed to and Accepted by: |
|
[Participant Name] |
Date: Acceptance Date |
[Signature Page to Performance-Based Restricted Stock Unit Award Agreement]
Exhibit A
Except as may otherwise be provided herein, the PSUs shall vest as to the performance conditions based on the achievement of specified levels of the Performance Goals for the Performance Period, as set forth herein.
[Insert performance vesting conditions and terms]
Exhibit A to Performance-Based Restricted Stock Unit Agreement
EXHIBIT 31.1
CEO CERTIFICATION
PURSUANT TO SECTION 302 OF THE
SARBANES OXLEY ACT OF 2002
I, Sheryl D. Palmer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Taylor Morrison Home Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants Board of Directors (or persons performing the equivalent functions):
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 5, 2015
By: |
/s/ Sheryl D. Palmer |
|
Sheryl D. Palmer | ||
President and Chief Executive Officer | ||
Taylor Morrison Home Corporation |
EXHIBIT 31.2
CFO CERTIFICATION
PURSUANT TO SECTION 302 OF THE
SARBANES OXLEY ACT OF 2002
I, C. David Cone, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Taylor Morrison Home Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants Board of Directors (or persons performing the equivalent functions):
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 5, 2015
By: |
/s/ C. David Cone |
|
C. David Cone | ||
Vice President and Chief Financial Officer Taylor Morrison Home Corporation |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Taylor Morrison Home Corporation (the Company) on Form 10-Q for the period ending June 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Sheryl D. Palmer, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
August 5, 2015 |
/s/ Sheryl D. Palmer |
|
Sheryl D. Palmer | ||
President and Chief Executive Officer | ||
Taylor Morrison Home Corporation |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Taylor Morrison Home Corporation (the Company) on Form 10-Q for the period ending June 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, C. David Cone, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
August 5, 2015 |
/s/ C. David Cone |
|
C. David Cone | ||
Vice President and Chief Financial Officer | ||
Taylor Morrison Home Corporation |
EXHIBIT 99.1
Section 13(r) Disclosure
In accordance with Section 13(r) of the Securities Exchange Act of 1934, as amended, Oaktree Capital Group, LLC provided us with the following disclosure regarding activities that occurred during the quarterly period ended June 30, 2015. The disclosure relates to a vessel that is indirectly owned by funds managed by Oaktree Capital Management, L.P. (Oaktree Capital), an affiliate of Oaktree Capital Group, LLC. Taylor Morrison Home Corporation (Taylor Morrison) might be deemed to be an affiliate of Oaktree Capital pursuant to Exchange Act Rule 12b-2 .
Taylor Morrison did not independently verify or participate in the preparation of any of the disclosure reproduced below.
Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934
Section 13(r) of the Securities Exchange Act of 1934 requires each issuer registered with the SEC to disclose in its annual or quarterly reports whether it or any of its affiliates have knowingly engaged in certain specified activities, including transactions or dealings with the Government of Iran. Because the term affiliate is broadly interpreted pursuant to Exchange Act Rule 12b-2, certain activities that occurred during the fiscal quarter ended June 30, 2015 may be deemed to have been conducted by one of our affiliates.
On or around April 28, 2015, the Maersk Tigris, a Marshall Islands-flagged vessel (the Vessel) that is indirectly owned by funds managed by Oaktree Capital Management, L.P. as investment manager, was seized by the Iran Revolutionary Guard Corps and escorted towards the Iranian port of Bandar Abbas. The Vessel was detained by the Iran Revolutionary Guard until May 7, 2015. During the pendency of the Vessels seizure, the Vessels ship master purchased certain necessary provisions to maintain the health, safety and/or security of the Vessels crew. Neither the Vessel nor any entity affiliated with the Vessel derived any revenues or profits from this activity, and neither the Vessel nor any entity affiliated with the Vessel intends for the activity to continue.