Taylor Morrison Home Corp (Form: 10-Q, Received: 10/30/2019 17:16:19)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended September 30, 2019



☐	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		83-2026677
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



4900 N. Scottsdale Road, Suite 2000		85251
Scottsdale,	Arizona
(Address of principal executive offices)		(Zip Code)

(480) 840-8100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00001 par value	TMHC	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

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



Large Accelerated Filer	☒	Accelerated filer	☐

Non-accelerated filer	¨	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange

Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class		Outstanding as of October 30, 2019
Common stock, $0.00001 par value		105,840,502

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TAYLOR MORRISON HOME CORPORATION

TABLE OF CONTENTS



	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements of Taylor Morrison Home Corporation (Unaudited)	2

Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	2

Condensed Consolidated Statements of Operations for the three and nine month periods ended September 30, 2019 and 2018	3

Condensed Consolidated Statements of Comprehensive Income for the three and nine month periods ended September 30, 2019 and 2018	4

Condensed Consolidated Statement of Stockholders’ Equity for the three and nine month periods ended September 30, 2019 and 2018	5

Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2019 and 2018	9

Notes to the Unaudited Condensed Consolidated Financial Statements	11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3. Quantitative and Qualitative Disclosures About Market Risk	45

Item 4. Controls and Procedures	46

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	47

Item 1A. Risk Factors	47

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 3. Defaults Upon Senior Securities	47

Item 4. Mine Safety Disclosures	47

Item 5. Other Information	47

Item 6. Exhibits	48

SIGNATURES	49

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts, unaudited)



	September 30, 2019			December 31, 2018
Assets
Cash and cash equivalents	$	222,049		$	329,645
Restricted cash	1,747			2,214
Total cash, cash equivalents, and restricted cash	223,796			331,859
Owned inventory	4,229,971			3,965,306
Real estate not owned	23,703			15,259
Total real estate inventory	4,253,674			3,980,565
Land deposits	41,790			57,929
Mortgage loans held for sale	108,550			181,897
Derivative assets	2,903			1,838
Operating lease right of use assets	37,751			—
Prepaid expenses and other assets, net	85,725			98,225
Other receivables, net	80,886			86,587
Investments in unconsolidated entities	128,363			140,541
Deferred tax assets, net	142,597			145,076
Property and equipment, net	83,654			86,736
Intangible assets, net	743			1,072
Goodwill	149,428			152,116
Total assets	$	5,339,860		$	5,264,441
Liabilities
Accounts payable	$	189,556		$	151,586
Accrued expenses and other liabilities	252,687			266,686
Operating lease liabilities	43,171			—
Income taxes payable	7,598			—
Customer deposits	184,975			165,432
Estimated development liability	36,762			37,147
Senior notes, net	1,634,176			1,653,746
Loans payable and other borrowings	225,203			225,497
Revolving credit facility borrowings	200,000			200,000
Mortgage warehouse borrowings	56,051			130,353
Liabilities attributable to real estate not owned	23,703			15,259
Total liabilities	2,853,882			2,845,706
COMMITMENTS AND CONTINGENCIES (Note 16)
Stockholders’ Equity
Common stock, $0.00001 par value, 400,000,000 shares authorized, 125,769,993 and 124,519,942 shares issued, 105,826,559 and 112,965,856 shares outstanding as of September 30, 2019 and December 31, 2018, respectively	1			1
Preferred stock, $0.00001 par value, 50,000,000 shares authorized, no shares issued and outstanding as of September 30, 2019 and December 31, 2018	—			—
Additional paid-in capital	2,093,750			2,071,579
Treasury stock at cost, 19,943,432 and 11,554,084 shares as of September 30, 2019 and December 31, 2018, respectively	(343,526		)	(186,087		)
Retained earnings	727,692			527,698
Accumulated other comprehensive income	2,285			2,001
Total stockholders’ equity attributable to Taylor Morrison Home Corporation	2,480,202			2,415,192
Non-controlling interests – joint ventures	5,776			3,543
Total stockholders’ equity	2,485,978			2,418,735
Total liabilities and stockholders’ equity	$	5,339,860		$	5,264,441

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

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TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Home closings revenue, net	$	1,073,110		$	1,014,168		$	3,205,252		$	2,703,692
Land closings revenue	4,420			5,170			14,391			18,335
Financial services revenue	23,254			17,041			62,117			47,513
Amenity and other revenue	4,321			—			13,863			—
Total revenue	1,105,105			1,036,379			3,295,623			2,769,540
Cost of home closings	874,102			822,950			2,619,968			2,202,377
Cost of land closings	2,934			3,979			9,418			14,704
Financial services expenses	12,829			10,451			36,595			31,647
Amenity and other expenses	4,166			—			12,754			—
Total cost of revenue	894,031			837,380			2,678,735			2,248,728
Gross margin	211,074			198,999			616,888			520,812
Sales, commissions and other marketing costs	76,765			67,504			226,809			185,806
General and administrative expenses	42,334			33,016			120,990			101,795
Equity in income of unconsolidated entities	(2,103		)	(2,514		)	(7,983		)	(9,777		)
Interest income, net	(959		)	(670		)	(2,250		)	(1,289		)
Other expense/(income), net	389			798			(1,492		)	4,889
Transaction expenses	617			—			6,496			—
Loss on extinguishment of debt	3,610			—			5,806			—
Income before income taxes	90,421			100,865			268,512			239,388
Income tax provision	23,385			6,424			68,307			38,123
Net income before allocation to non-controlling interests	67,036			94,441			200,205			201,265
Net income attributable to non-controlling interests — joint ventures	(24		)	(159		)	(211		)	(428		)
Net income before non-controlling interests	67,012			94,282			199,994			200,837
Net income attributable to non-controlling interests	—			(714		)	—			(4,391		)
Net income available to Taylor Morrison Home Corporation	$	67,012		$	93,568		$	199,994		$	196,446
Earnings per common share
Basic	$	0.64		$	0.84		$	1.86		$	1.75
Diluted	$	0.63		$	0.83		$	1.84		$	1.73
Weighted average number of shares of common stock:
Basic	105,472			111,396			107,389			112,449
Diluted	106,852			113,440			108,599			116,378

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

Table of Contents

TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Income before non-controlling interests, net of tax	$	67,036		$	94,441		$	200,205		$	201,265
Post-retirement benefits adjustments, net of tax	—			—			(284		)	—
Comprehensive income	67,036			94,441			199,921			201,265
Comprehensive income attributable to non-controlling interests — joint ventures	(24		)	(159		)	(211		)	(428		)
Comprehensive income attributable to non-controlling interests	—			(714		)	—			(4,391		)
Comprehensive income available to Taylor Morrison Home Corporation	$	67,012		$	93,568		$	199,710		$	196,446

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

Table of Contents

TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands, except share data, unaudited)



For the three months ended September 30, 2019

	Common Stock			Additional Paid-in Capital			Treasury Stock				Stockholders' Equity
	Shares	Amount		Amount			Shares	Amount			Retained Earnings		Accumulated Other Comprehensive Income		Non-controlling Interest - Joint Venture			Total Stockholders’ Equity
Balance – June 30, 2019	105,184,522	$	1	$	2,079,224		19,943,432	$	(343,526	)	$	660,680	$	2,285	$	4,587		$	2,403,251
Net income	—	—		—			—	—			67,012		—		24			67,036
Exercise of stock options	635,524	—		10,841			—	—			—		—		—			10,841
Issuance of restricted stock units, net of shares withheld for tax	6,513	—		(8		)	—	—			—		—		—			(8		)
Stock Compensation Expense	—	—		3,693			—	—			—		—		—			3,693
Distributions to non-controlling interests of consolidated joint ventures	—	—		—			—	—			—		—		(18		)	(18		)
Changes in non-controlling interests of consolidated joint ventures	—	—		—			—	—			—		—		1,183			1,183
Balance – September 30, 2019	105,826,559	$	1	$	2,093,750		19,943,432	$	(343,526	)	$	727,692	$	2,285	$	5,776		$	2,485,978

Table of Contents

TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands, except share data, unaudited)



For the three months ended September 30, 2018

	Common Stock
	Class A			Class B			Additional Paid-in Capital			Treasury Stock				Stockholders' Equity
	Shares	Amount		Shares	Amount		Amount			Shares	Amount			Retained Earnings			Accumulated Other Comprehensive Loss			Non-controlling Interest - Joint Venture		Non-controlling Interests		Total Stockholders’ Equity
Balance – June 30, 2018	111,387,224	$	1	863,434	$	—	$	1,877,468		3,049,257	$	(47,622	)	$	425,238		$	(17,968	)	$	1,359	$	19,906	$	2,258,382
Cumulative-effect adjustment to Retained Earnings, net of tax related to adoption of ASU No. 2014-09 (see Note 2)	—	—		—	—		—			—	—			(482		)	—			—		—		(482		)
Net income	—	—		—	—		—			—	—			93,024			—			159		1,258		94,441
Exercise of stock options	20,722	—		—	—		299			—	—			—			—			—		—		299
Issuance of restricted stock units, net of shares withheld for tax	985	—		—	—		(7		)	—	—			—			—			—		—		(7		)
Share based compensation	—	—		—	—		3,513			—	—			—			—			—		78		3,591
Changes in non-controlling interests of consolidated joint ventures	—	—		—	—		—			—	—			—			—			2,986		—		2,986
Balance – September 30, 2018	111,408,931	$	1	863,434	$	—	$	1,881,273		3,049,257	$	(47,622	)	$	517,780		$	(17,968	)	$	4,504	$	21,242	$	2,359,210

Table of Contents

TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands, except share data, unaudited)



For the Nine Months Ended September 30, 2019

	Common Stock				Additional Paid-in Capital			Treasury Stock				Stockholders' Equity
	Shares		Amount		Amount			Shares	Amount			Retained Earnings		Accumulated Other Comprehensive Income		Non-controlling Interest - Joint Venture			Total Stockholders’ Equity
Balance – December 31, 2018	112,965,856		$	1	$	2,071,579		11,554,084	$	(186,087	)	$	527,698	$	2,001	$	3,543		$	2,418,735
Net income	—		—		—			—	—			199,994		—		211			200,205
Other comprehensive income	—		—		—			—	—			—		284		—			284
Exercise of stock options	754,880		—		12,746			—	—			—		—		—			12,746
Issuance of restricted stock units, net of shares withheld for tax	495,171		—		(1,511		)	—	—			—		—		—			(1,511		)
Repurchase of common stock	(8,389,348	)	—		—			8,389,348	(157,439		)	—		—		—			(157,439		)
Stock Compensation Expense	—		—		10,936			—	—			—		—		—			10,936
Distributions to non-controlling interests of consolidated joint ventures	—		—		—			—	—			—		—		(35		)	(35		)
Changes in non-controlling interests of consolidated joint ventures	—		—		—			—	—			—		—		2,057			2,057
Balance – September 30, 2019	105,826,559		$	1	$	2,093,750		19,943,432	$	(343,526	)	$	727,692	$	2,285	$	5,776		$	2,485,978

Table of Contents

TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands, except share data, unaudited)



For the Nine Months Ended September 30, 2018

	Common Stock
	Class A			Class B				Additional Paid-in Capital			Treasury Stock				Stockholders' Equity
	Shares	Amount		Shares		Amount		Amount			Shares	Amount			Retained Earnings		Accumulated Other Comprehensive Loss			Non-controlling Interest - Joint Venture		Non-controlling Interests			Total Stockholders’ Equity
Balance – December 31, 2017	82,399,996	$	1	37,179,616		$	—	$	1,341,873		3,049,257	$	(47,622	)	$	319,833	$	(17,968	)	$	1,663	$	748,765		$	2,346,545
Cumulative-effect adjustment to Retained Earnings, net of tax related to adoption of ASU No. 2014-09 (see Note 2)	—	—		—		—		—			—	—			1,501		—			—		—			1,501
Net income	—	—		—		—		—			—	—			196,446		—			428		4,391			201,265
Exchange of New TMM Units and corresponding number of shares of Class B common stock	20,487	—		(20,487	)	—		1,293			—	—			—		—			—		(1,293		)	—
TMHC repurchase and cancellation of New TMM Units from Former Principal Equityholders	—	—		(7,588,771	)	—		(201,775		)	—	—			—		—			—		—			(201,775		)
Exercise of stock options	118,992	—		—		—		1,887			—	—			—		—			—		—			1,887
Issuance of restricted stock units	162,532	—		—		—		(1,498		)	—	—			—		—			—		—			(1,498		)
Exchange of Class B shares from public offerings	28,706,924	—		—		—		729,954			—	—			—		—			—		—			729,954
Repurchase of New TMM Units from Former Principal Equityholders	—	—		(28,706,924	)	—		—			—	—			—		—			—		(730,963		)	(730,963		)
Share based compensation	—	—		—		—		9,539			—	—			—		—			—		342			9,881
Changes in non-controlling interests of consolidated joint ventures	—	—		—		—		—			—	—			—		—			2,413		—			2,413
Balance – September 30, 2018	111,408,931	$	1	863,434		$	—	$	1,881,273		3,049,257	$	(47,622	)	$	517,780	$	(17,968	)	$	4,504	$	21,242		$	2,359,210

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)



	Nine Months Ended September 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income before allocation to non-controlling interests	$	200,205		$	201,265
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
Equity in income of unconsolidated entities	(7,983		)	(9,777		)
Stock compensation expense	10,936			9,881
Loss on extinguishment of debt	5,806			—
Distributions of earnings from unconsolidated entities	8,633			4,168
Depreciation and amortization	22,087			17,606
Operating lease expense	6,689			—
Debt issuance costs/premium amortization	325			2,442
Contingent consideration	—			146
Deferred income taxes	524			12,782
Changes in operating assets and liabilities:
Real estate inventory and land deposits	(244,276		)	(296,678		)
Mortgages held for sale, prepaid expenses and other assets	45,788			81,769
Customer deposits	19,543			56,587
Accounts payable, accrued expenses and other liabilities	77,502			(19,670		)
Income taxes payable	7,598			(4,525		)
Net cash provided by operating activities	153,377			55,996
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(18,675		)	(14,454		)
Distributions of capital from unconsolidated entities	21,694			22,271
Investments of capital into unconsolidated entities	(10,166		)	(3,547		)
Net cash (used in)/provided by investing activities	(7,147		)	4,270
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in loans payable and other borrowings	13,909			27,158
Repayments of loans payable and other borrowings	(24,664		)	(14,942		)
Borrowings on revolving credit facility	95,000			—
Repayments on revolving credit facility	(95,000		)	—
Borrowings on mortgage warehouse	752,501			552,908
Repayment on mortgage warehouse	(826,803		)	(617,273		)
Proceeds from the issuance of senior notes	950,000			—
Repayments on senior notes	(963,252		)	—
Payment of deferred financing costs	(11,802		)	—
Payment of contingent consideration	—			(265		)
Proceeds from stock option exercises	12,746			1,887
Proceeds from issuance of shares from public offerings	—			767,116
TMHC repurchase and cancellation of New TMM Units from Former Principal Equityholders	—			(201,775		)
Repurchase of shares from Former Principal Equityholders	—			(768,125		)
Repurchase of common stock, net	(157,439		)	—
Payment of taxes related to net share settlement of equity awards	(1,511		)	(1,498		)
Changes and distributions to non-controlling interests of consolidated joint ventures, net	2,022			2,413
Net cash used in financing activities	(254,293		)	(252,396		)
NET DECREASE IN CASH AND CASH EQUIVALENTS	$	(108,063	)	$	(192,130	)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period	331,859			575,503
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period	$	223,796		$	383,373
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid, net	$	(20,605	)	$	(44,569	)
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Change in loans payable issued to sellers in connection with land purchase contracts	$	84,535		$	53,099
Change in inventory not owned	$	8,444		$	11,284
Change in Prepaid expenses and other assets, net due to adoption of ASU 2014-09	$	—		$	(32,004	)
Change in Property and equipment, net due to adoption of ASU 2014-09	$	—		$	32,004
Beginning Operating lease right of use assets due to adoption of ASU 2016-02	$	27,384		$	—
Beginning Operating lease right of use liabilities due to adoption of ASU 2016-02	$	30,331		$	—

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See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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TAYLOR MORRISON HOME CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS

Organization and Description of the Business — Taylor Morrison Home Corporation “TMHC” through its subsidiaries (together with TMHC referred to herein as “we,” “our,” “the Company” and “us”), owns and operates a residential homebuilding business and is a developer of lifestyle communities. As of September 30, 2019, we operated in the states of Arizona, California, Colorado, Florida, Georgia, Illinois, North and South Carolina, and Texas. Our Company serves a wide array of consumer groups from coast to coast, including first time, move-up, luxury, and active adult. Our homebuilding segments operate under our Taylor Morrison and Darling Homes brand names. Our business is organized into multiple homebuilding operating components, and a financial services component, all of which are managed as four reportable segments: East, Central, West, and Financial Services. The communities in our homebuilding segments offer single and multi-family attached and detached homes. We are the general contractors for all real estate projects and retain subcontractors for home construction and land development. Our Financial Services segment provides financial services to customers through our wholly owned mortgage subsidiary, operating as Taylor Morrison Home Funding, LLC (“TMHF”), and title services through our wholly owned title services subsidiary, Inspired Title Services, LLC (“Inspired Title”).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation — The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2018 (the “Annual Report”). In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for a full fiscal year.

Non-controlling interests - During the first quarter of 2018, we completed multiple offerings of our Class A common stock in registered public offerings and used all of the net proceeds from the public offerings to purchase partnership units in New TMM (“New TMM Units”) along with shares of our former Class B common stock held by certain former principal equityholders. In addition on October 26, 2018, in connection with our reorganization transactions, all Class B common shares were converted to Class A common shares and subsequently retired. See Note 12- Stockholders' Equity for additional information. The percentage of the former principal equityholders net income is presented as “Net income attributable to non-controlling interests” on the Consolidated Statements of Operations.

Non-controlling interests - Joint Ventures - We consolidate certain joint ventures in accordance with Accounting Standards Codification (“ASC”) Topic 810, “Consolidation.” The income from the percentage of the joint venture not owned by us is presented as “Net income attributable to non-controlling interests - joint ventures” on the Condensed Consolidated Statements of Operations.

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

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

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

We assess the recoverability of our inventory in accordance with the provisions of ASC Topic 360, Property, Plant, and Equipment. We review our real estate inventory for indicators of impairment by community during each reporting period. If indicators of impairment are present for a community, we first perform an undiscounted cash flow analysis to determine if the carrying value of the assets in that community exceeds the expected undiscounted cash flows. Generally, if the carrying value of the assets exceeds their estimated undiscounted cash flows, then the assets are deemed to be impaired and are recorded at fair value as of the assessment date. Our determination of fair value is primarily based on a discounted cash flow model which includes projections and estimates relating to sales prices, construction costs, sales pace, and other factors. Changes in these expectations may lead to a change in the outcome of our impairment analysis, and actual results may also differ from our assumptions. For the three and nine months ended September 30, 2019 and 2018, no impairment charges were recorded.

In certain cases, we may elect to cease development and/or marketing of an existing community if we believe the economic performance of the community would be maximized by deferring development for a period of time to allow for market conditions to improve. We refer to such communities as long-term strategic assets. The decision may be based on financial and/or operational metrics as determined by us. If we decide to cease development, we will evaluate the project for impairment and then cease future development and marketing activity until such a time when we believe that market conditions have improved and economic performance can be maximized. Our assessment of the carrying value of our long-term strategic assets typically includes subjective estimates of future performance, including the timing of when development will recommence, the type of product to be offered, and the margin to be realized. In the future, some of these inactive communities may be re-opened while others may be sold. As of September 30, 2019 and December 31, 2018, we had no inactive projects.

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

We evaluate our investments in unconsolidated entities for indicators of impairment. A series of operating losses of an investee or other factors may indicate that a decrease in value of our investment in the unconsolidated entity has occurred which is other-than-temporary. The amount of impairment recognized is the excess of the investment’s carrying amount over its estimated fair value. Additionally, we consider various qualitative factors to determine if a decrease in the value of the investment is other-than-temporary. These factors include age of the venture, stage in its life cycle, our intent and ability to recover our investment in the unconsolidated entity, financial condition and long-term prospects of the unconsolidated entity, short-term liquidity needs of the unconsolidated entity, trends in the general economic environment of the land, entitlement status of the land held by the unconsolidated entity, overall projected returns on investment, defaults under contracts with third parties (including bank debt), recoverability of the investment through future cash flows and relationships with the other partners. If the Company believes that the decline in the fair value of the investment is temporary, then no impairment is recorded. We did not record any impairment charges for the three and nine months ended September 30, 2019 and 2018.

Leases — We adopted Accounting Standards Update (“ASU”) No. 2016-02—Leases (Topic 842), as amended, on January 1, 2019, using the modified retrospective approach. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. We also elected the hindsight practical expedient to determine the lease term for existing leases.

Our leases primarily consist of office space, construction trailers, model leasebacks, and equipment or storage units. Certain of our leases offer the option to renew or to increase rental square footage. The execution of such options are at our discretion and may result in a lease modification.

Adoption of the new standard resulted in the recording of an opening balance of Operating lease right of use assets and Operating lease liabilities of approximately $27.4 million and $30.3 million, respectively. The weighted average discount rate used in determining these operating lease liabilities was 5.795% and the weighted average remaining lease term as of September 30, 2019 was 6.2 years. Payments on the lease liabilities for the three and nine months ended September 30, 2019 were approximately $2.5 million and $6.8 million, respectively. For the three and nine months ended September 30, 2019, we recorded lease expense of approximately $2.5 million and $6.7 million, respectively, within General and administrative expenses on our condensed consolidated statement of operations.

The future minimum lease payments required under our leases as of September 30, 2019 are as follows (dollars in thousands):

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Years Ending December 31,	Lease Payments⁽¹⁾
2019⁽¹⁾	$	2,419
2020	9,526
2021	8,644
2022	7,726
2023	7,193
Thereafter	15,693
Total lease payments	$	51,201
Less: Interest	$	8,030
Present value of lease liabilities.	$	43,171

⁽¹⁾Represents lease payments for the period beginning October 1, 2019 through December 31, 2019.

Revenue Recognition

Topic 606

We recognize revenue in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09” or “Topic 606”). The standard's core principle requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services.

Home and land closings revenue

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


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


•	Revenue from land sales is recognized when a significant down payment is received, title passes and collectability of the receivable is reasonably assured, and we have no continuing involvement with the property, which is generally upon the close of escrow.

Amenity and other revenue

We own and operate certain amenities pursuant to recorded mandatory club plans, which require us to provide club members with access to amenity facilities in exchange for the payment of club dues. We collect club dues and other fees from the club members, which are billed on a monthly basis. Revenue from our golf club operations is also included in amenity and other revenue.

Financial services revenue

Mortgage operations and hedging activity related to financial services are not within the scope of Topic 606. Loan origination fees (including title fees, points, and closing costs) are recognized at the time the related real estate transactions are completed, usually upon the close of escrow. All of the loans TMHF originates are sold to third party investors within a short period of time, on a non-recourse basis. Gains and losses from the sale of mortgages are recognized in accordance with ASC Topic 860-20, Sales of Financial Assets. TMHF does not have continuing involvement with the transferred assets, therefore, we derecognize the mortgage loans at time of sale, based on the difference between the selling price and carrying value of the related loans upon sale, recording a gain/loss on sale in the period of sale. Also included in financial services revenue/expenses are realized and unrealized gain and losses from hedging instruments.

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a

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broader range of reasonable and supportable information to estimate credit losses. ASU 2016-13 will be effective for us beginning January 1, 2020. We do not believe the adoption of the ASU 2016-13 will have a material impact on our condensed consolidated financial statements and disclosures.

3. BUSINESS COMBINATIONS

In accordance with ASC Topic 805, Business Combinations, all material assets acquired and liabilities assumed from our acquisition of AV Homes, Inc. ("AV Homes") on October 2, 2018 were measured and recognized at fair value as of the date of the acquisition to reflect the purchase price paid.

We determined the estimated fair value of real estate inventory primarily using the sales comparison and income approaches. To a certain extent, certain inventory was valued using third party appraisals and/or market comparisons. The sales comparison approach was used for all inventory in process. The income approach derives a value using a discounted cash flow for income-producing real property. This approach was used exclusively for finished lots. These estimated cash flows and ultimate valuation are significantly affected by the discount rate, estimates related to expected average selling prices and sales incentives, expected sales paces and cancellation rates, expected land development and construction timelines, and anticipated land development, construction, overhead costs and may vary significantly between communities.

During the third quarter of 2019, we finalized the allocation of the purchase price with immaterial changes to the preliminary amounts disclosed. The following is a summary of the fair value of assets acquired and liabilities assumed.



(Dollars in thousands)	AV Homes
Acquisition Date	October 2, 2018
Assets acquired
Real estate inventory	$	782,424
Prepaid expenses and other assets⁽¹⁾	107,004
Deferred tax assets, net	69,456
Property and equipment	50,996
Goodwill⁽²⁾	83,230
Total assets	$	1,093,110

Less liabilities assumed
Accrued expenses and other liabilities	$	94,308
Customer deposits	14,130
Estimated development liability⁽³⁾	37,230
Senior notes, net	412,520
Net assets acquired	$	534,922

⁽¹⁾ Includes cash acquired.

⁽²⁾Goodwill is not deductible for tax purposes. We allocated $43.3 million of goodwill to the East homebuilding segment, $30.0 million to the Central homebuilding segment, and $9.9 million to the West homebuilding segment.

⁽³⁾ See Note 8 - Estimated Development Liability

Unaudited Pro Forma Results of Business Combinations

The following unaudited pro forma information for the periods presented include the results of operations of our acquisition of AV Homes as if it had been completed on January 1 in the year prior to the acquisition year. The pro forma results are presented for informational purposes only and do not purport to be indicative of the results of operations or future results that would have been achieved if the acquisition had taken place one year prior to the acquisition year. The pro forma information combines the historical results of the Company with the historical results of AV Homes for the periods presented.

The unaudited pro forma results do not give effect to any synergies, operating efficiencies, other costs savings that may result from the acquisitions, or other significant non-reoccurring expenses or transactions that do not have a continuing impact. Earnings per share utilizes net income and total weighted average shares of common stock. The pro forma amounts are based on available information and certain assumptions that we believe are reasonable.

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	For the three months ended September 30,						For the nine months ended September 30,
(Dollars in thousands except per share data)	2019 (As reported)			2018 (Pro forma)			2019 (As reported)			2018 (Pro forma)
Total revenues	$	1,105,105		$	1,233,556		$	3,295,623		$	3,322,285

Net income before allocation to non-controlling interests	$	67,036		$	94,555		$	200,205		$	202,035
Net income attributable to non-controlling interests — joint ventures	(24		)	(159		)	(211		)	(428		)
Net income attributable to non-controlling interest - Former Principal Equityholders	—			(714		)	—			(4,391		)
Net income available to TMHC - Basic	$	67,012		$	93,682		$	199,994		$	197,216
Net income attributable to non-controlling interest - Former Principal Equityholders	—			714			—			4,391
Loss fully attributable to public holding company	—			100			—			349
Net income - Diluted	$	67,012		$	94,496		$	199,994		$	201,956

Weighted average shares - Basic	105,472			120,520			107,389			121,440
Weighted average shares - Diluted	106,852			122,564			108,599			125,369

Earnings per share - Basic	$	0.64		$	0.78		$	1.86		$	1.62
Earnings per share - Diluted	$	0.63		$	0.77		$	1.84		$	1.61

4. EARNINGS PER SHARE

Basic earnings per common share is computed by dividing net income available to TMHC by the weighted average number of shares of Common Stock outstanding during the period. Diluted earnings per share gives effect to the potential dilution that could occur if all outstanding dilutive equity awards to issue shares of Common Stock were exercised or settled.

The following is a summary of the components of basic and diluted earnings per share (in thousands, except per share amounts):



	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
Numerator:
Net income available to TMHC – basic	$	67,012	$	93,568	$	199,994	$	196,446
Net income attributable to non-controlling interest	—		714		—		4,391
Loss fully attributable to public holding company	—		100		—		349
Net income – diluted	$	67,012	$	94,382	$	199,994	$	201,186
Denominator:
Weighted average shares – basic	105,472		111,396		107,389		112,449
Weighted average shares – non-controlling interest	—		863		—		2,508
Restricted stock units	938		904		912		1,043
Stock Options	442		277		298		378
Weighted average shares – diluted	106,852		113,440		108,599		116,378
Earnings per common share – basic:
Net income available to Taylor Morrison Home Corporation	$	0.64	$	0.84	$	1.86	$	1.75
Earnings per common share – diluted:
Net income available to Taylor Morrison Home Corporation	$	0.63	$	0.83	$	1.84	$	1.73

We excluded a total weighted average of 766,948 and 2,562,840 outstanding anti-dilutive stock options and unvested restricted stock units (“RSUs”) and 2,775,689 and 1,442,767 stock options and unvested RSUs from the calculation of earnings per share for the three and nine months ended September 30, 2019 and 2018, respectively.

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5. REAL ESTATE INVENTORY AND LAND DEPOSITS

Inventory consists of the following (in thousands):



	As of
	September 30, 2019		December 31, 2018
Real estate developed and under development	$	2,911,874	$	2,833,875
Real estate held for development or held for sale⁽¹⁾	121,236		61,415
Operating communities ⁽²⁾	1,078,185		973,985
Capitalized interest	118,676		96,031
Total owned inventory	4,229,971		3,965,306
Real estate not owned	23,703		15,259
Total real estate inventory	$	4,253,674	$	3,980,565

⁽¹⁾ Real estate held for development or held for sale includes raw land recently purchased or awaiting entitlement and properties where we have ceased development and/or marketing.

⁽²⁾ Operating communities consist of all vertical construction costs relating to homes in progress and completed homes for all active production of inventory.

The development status of our land inventory is as follows (dollars in thousands):



	As of
	September 30, 2019			December 31, 2018
	Owned Lots	Book Value of Land and Development		Owned Lots	Book Value of Land and Development
Raw	13,631	$	500,370	9,653	$	461,387
Partially developed	14,902	1,001,852		12,036	756,376
Finished	14,953	$	1,530,888	21,975	1,677,527
Total	43,486	$	3,033,110	43,664	$	2,895,290

Land Deposits — We provide deposits related to land option and land purchase contracts, which are capitalized when paid and classified as land deposits until the associated property is purchased.

As of September 30, 2019 and December 31, 2018, we had the right to purchase 4,597 and 4,781 lots under land option purchase contracts, respectively, for an aggregate purchase price of $300.3 million and $393.8 million, respectively. We do not have title to the properties, and the creditors generally have no recourse against the Company. As of September 30, 2019 and December 31, 2018, our exposure to loss related to our option contracts with third parties and unconsolidated entities consisted of non-refundable deposits totaling $41.8 million and $57.9 million, respectively.

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Interest capitalized - beginning of period	$	111,802		$	95,693		$	96,031		$	90,496
Interest incurred	29,018			20,164			85,770			59,979
Interest amortized to cost of home closings	(22,144		)	(21,345		)	(63,125		)	(55,963		)
Interest capitalized - end of period	$	118,676		$	94,512		$	118,676		$	94,512

6. INVESTMENTS IN UNCONSOLIDATED ENTITIES

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

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



	As of
	September 30, 2019		December 31, 2018
Assets:
Real estate inventory	$	388,937	$	508,795
Other assets	126,900		125,436
Total assets	$	515,837	$	634,231
Liabilities and owners’ equity:
Debt	$	189,971	$	176,564
Other liabilities	20,114		16,061
Total liabilities	210,085		192,625
Owners’ equity:
TMHC	128,363		140,541
Others	177,389		301,075
Total owners’ equity	305,752		441,616
Total liabilities and owners’ equity	$	515,837	$	634,241



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenues	$	68,734		$	95,085		$	228,002		$	264,624
Costs and expenses	(59,851		)	(84,409		)	(197,151		)	(227,061		)
Income of unconsolidated entities	$	8,883		$	10,676		$	30,851		$	37,563
TMHC’s share in income of unconsolidated entities	$	2,103		$	2,514		$	7,983		$	9,777
Distributions to TMHC from unconsolidated entities	$	8,309		$	13,176		$	30,327		$	26,439

7. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following (in thousands):



	As of September 30, 2019		As of December 31, 2018
Real estate development costs to complete	$	16,328	$	16,591
Compensation and employee benefits	66,629		73,955
Self-insurance and warranty reserves	74,259		93,790
Interest payable	26,103		21,385
Property and sales taxes payable	18,941		14,861
Other accruals	50,427		46,104
Total accrued expenses and other liabilities	$	252,687	$	266,686

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Reserve - beginning of period	$	81,111		$	53,011		$	93,790		$	51,010
Additions to reserves	10,114			9,438			18,809			24,763
Costs and claims incurred	(18,107		)	(9,592		)	(43,815		)	(22,525		)
Change in estimates to existing reserves	1,141			551			5,475			160
Reserve - end of period	$	74,259		$	53,408		$	74,259		$	53,408

8. ESTIMATED DEVELOPMENT LIABILITY

The estimated development liability consists primarily of the estimated cost of future utilities improvements in Poinciana, Florida and Rio Rico, Arizona for more than 8,000 home sites previously sold, in most cases prior to 1980. The estimated development liability is reduced by actual expenditures and is evaluated and adjusted, as appropriate, to reflect management’s estimate of potential completion costs. We obtained third-party engineer evaluations and recorded this liability at fair value to reflect the estimated completion costs. Future increases or decreases of costs for construction, material and labor, as well as other land development and utilities infrastructure costs, may have a significant effect on the estimated development liability.

9. DEBT

Total debt consists of the following (in thousands):



	As of
	September 30, 2019							December 31, 2018
	Principal		Unamortized Debt Issuance (Costs)			Carrying Value		Principal		Unamortized Debt Issuance (Costs) / Premium			Carrying Value
5.25% Senior Notes due 2021	$	—	$	—		$	—	$	550,000	$	(2,695	)	$	547,305
6.625% Senior Notes due 2022	—		—			—		400,000		11,656			411,656
5.875% Senior Notes due 2023	350,000		(2,009		)	347,991		350,000		(2,434		)	347,566
5.625% Senior Notes due 2024	350,000		(2,378		)	347,622		350,000		(2,781		)	347,219
5.875% Senior Notes due 2027	500,000		(6,131		)	493,869		—		—			—
5.75% Senior Notes due 2028	450,000		(5,306		)	444,694		—		—			—
Senior Notes subtotal	1,650,000		(15,824		)	1,634,176		1,650,000		3,746			1,653,746
Loans payable and other borrowings	225,203		—			225,203		225,497		—			225,497
Revolving Credit Facility	—		—			—		—		—			—
364-Day Credit Agreement	200,000		—			200,000		200,000		—			200,000
Mortgage warehouse borrowings	56,051		—			56,051		130,353		—			130,353
Total Senior Notes and other financing	$	2,131,254	$	(15,824	)	$	2,115,430	$	2,205,850	$	3,746		$	2,209,596

2021 Senior Notes

Our 5.25% Senior Notes due 2021 (the “2021 Senior Notes”) were redeemed in full on June 20, 2019 using the net proceeds from the issuance of the 2027 Senior Notes (as defined below), together with cash on hand. As a result of the redemption of the 2021 Senior Notes, we recorded a loss on extinguishment of debt of $2.2 million, which included the write-off of net unamortized deferred financing fees. See “2027 Senior Notes and Redemption of 2021 Senior Notes” below for additional information regarding the redemption of the 2021 Senior Notes.

2022 Senior Notes

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Our 6.625% Senior Notes due 2022 (the “2022 Senior Notes”) were redeemed in full on August 19, 2019 using the net proceeds from the issuance of the 2028 Senior Notes (as defined below). As a result of the redemption of the 2022 Senior Notes, we recorded a loss on extinguishment of debt of $3.6 million, inclusive of a prepayment premium of approximately $13.2 million, offset by the write-off of approximately $9.6 million in 2022 Senior Notes unamortized debt premium. See “2028 Senior Notes and Redemption of 2022 Senior Notes” below for additional information regarding the redemption of the 2022 Senior Notes.

2023 Senior Notes

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

The 2023 Senior Notes mature on April 15, 2023. The 2023 Senior Notes are guaranteed by TMM Holdings Limited Partnership, Taylor Morrison Holdings, Inc., Taylor Morrison Communities II, Inc. and their homebuilding subsidiaries (collectively, the “Guarantors”), which are all subsidiaries directly or indirectly of TMHC. The indenture governing the 2023 Senior Notes contains covenants that limit our ability to incur debt secured by liens and enter into certain sale and leaseback transactions. The indenture governing the 2023 Senior Notes contains customary events of default that are similar to those contained in the indentures governing our other Senior Notes. We are required to offer to repurchase the 2023 Senior Notes at price equal to 101% of their aggregate par value (plus accrued and unpaid interest) upon certain change of control events where there is a credit rating downgrade that occurs in connection with the change of control.

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

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

2024 Senior Notes

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

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

2027 Senior Notes and Redemption of 2021 Senior Notes

On June 5, 2019, we issued $500.0 million aggregate principal amount of 5.875% Senior Notes due 2027 (the "2027 Senior Notes"). The net proceeds of the offering, together with cash on hand, were used to redeem the entire remaining $550.0 million aggregate principal amount of the 2021 Senior Notes on June 20, 2019, at a redemption price of 100% of their aggregate principal amount, plus accrued and unpaid interest thereon through, but not including, the date of redemption.

The 2027 Senior Notes mature on June 15, 2027. The 2027 Senior Notes are guaranteed by the same Guarantors that guarantee our other Senior Notes. The 2027 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights. The indenture governing the 2027 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 2027 Senior Notes contains customary events of default that are similar to those contained in the indentures governing our other Senior Notes. The change

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of control provisions in the indenture governing the 2027 Senior Notes are similar to those contained in the indentures governing our other Senior Notes.

Prior to March 15, 2027, the 2027 Senior Notes are redeemable at a price equal to 100% plus a "make-whole" premium for payments through March 15, 2027 (plus accrued and unpaid interest).

There are no financial maintenance covenants for the 2027 Senior Notes.

2028 Senior Notes and Redemption of 2022 Senior Notes

On August 1, 2019, we issued $450.0 million aggregate principal amount of 5.75% Senior Notes due 2028 (the "2028 Senior Notes"). The net proceeds of the offering were used to redeem the entire remaining $400.0 million aggregate principal amount of the 2022 Senior Notes on August 19, 2019, at the redemption price of 103.313% of their aggregate principal amount, plus accrued and unpaid interest thereon through, but not including, the date of redemption.

The 2028 Senior Notes mature on January 15, 2028. The 2028 Senior Notes are guaranteed by the same Guarantors that guarantee our other Senior Notes. The 2028 Senior Notes and the related guarantees are senior unsecured obligations and are not subject to registration rights. The indenture governing the 2028 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 2028 Senior Notes contains customary events of default that are similar to those contained in the indentures governing our other Senior Notes. The change of control provisions in the indenture governing the 2028 Senior Notes are similar to those contained in the indentures governing our other Senior Notes.

Prior to October 15, 2027, the 2028 Senior Notes are redeemable at a price equal to 100% plus a "make-whole" premium for payments through October 15, 2027 (plus accrued and unpaid interest).

There are no financial maintenance covenants for the 2028 Senior Notes.

Revolving Credit Facility

Our $600.0 million Revolving Credit Facility matures on January 26, 2022 and is guaranteed by the same Guarantors that guarantee the various Senior Notes.

The Revolving Credit Facility includes $2.0 million and $2.7 million of unamortized debt issuance costs as of September 30, 2019 and December 31, 2018, respectively, which are included in prepaid expenses and other assets, net on the condensed consolidated balance sheets. As of September 30, 2019 and December 31, 2018, we had $82.6 million and $62.3 million, respectively, of utilized letters of credit, resulting in $517.4 million and $537.7 million, respectively, of availability under the Revolving Credit Facility.

The Revolving Credit Facility contains certain “springing” financial covenants, requiring us and our subsidiaries to comply with a maximum debt to capitalization ratio of not more than 0.60 to 1.00 and a minimum consolidated tangible net worth level of at least $1.9 billion. The financial covenants would be in effect for any fiscal quarter during which any (a) loans under the Revolving Credit Facility are outstanding during the last day of such fiscal quarter or on more than five separate days during such fiscal quarter or (b) undrawn letters of credit (except to the extent cash collateralized) issued under the Revolving Credit Facility in an aggregate amount greater than $40.0 million or unreimbursed letters of credit issued under the Revolving Credit Facility are outstanding on the last day of such fiscal quarter or for more than five consecutive days during such fiscal quarter. For purposes of determining compliance with the financial covenants for any fiscal quarter, the Revolving Credit Facility provides that we may exercise an equity cure by issuing certain permitted securities for cash or otherwise recording cash contributions to our capital that will, upon the contribution of such cash to the borrower, be included in the calculation of consolidated tangible net worth and consolidated total capitalization. The equity cure right is exercisable up to twice in any period of four consecutive fiscal quarters and up to five times overall.

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

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As of September 30, 2019, we were in compliance with all of the covenants under the Revolving Credit Facility.

364-Day Credit Agreement

Our 364-Day Credit Agreement matured on October 1, 2019 and was a term loan facility under which we borrowed an aggregate principal amount of $200.0 million.

The 364-Day Credit Agreement contained certain financial covenants, requiring us and our subsidiaries to comply on a quarterly basis with a maximum debt to capitalization ratio of not more than 0.60 to 1.00 and a minimum consolidated tangible net worth level of at least $1.9 billion. As of September 30, 2019, we were in compliance with all of the covenants under the 364-Day Credit Agreement.

Refer to Note 19 - Subsequent Events for discussion regarding the repayment of the 364-Day Credit Agreement.

Mortgage Warehouse Borrowings

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



	As of September 30, 2019
Facility	Amount Drawn		Facility Amount		Interest Rate	Expiration Date	Collateral ⁽¹⁾
Warehouse A	$	13,962	$	45,000	LIBOR + 1.75%	On Demand	Mortgage Loans
Warehouse B	$	18,899	$	50,000	LIBOR + 1.75%	On Demand	Mortgage Loans
Warehouse C	$	23,190	$	75,000	LIBOR + 1.95%	On Demand	Mortgage Loans and Restricted Cash
Total	$	56,051	$	170,000

	As of December 31, 2018
Facility	Amount Drawn		Facility Amount		Interest Rate	Expiration Date	Collateral ⁽¹⁾
Warehouse A	$	29,484	$	45,000	LIBOR + 1.75%	On Demand	Mortgage Loans
Warehouse B	38,164		85,000		LIBOR + 1.75%	On Demand	Mortgage Loans
Warehouse C	62,705		100,000		LIBOR + 1.95%	On Demand	Mortgage Loans and Restricted Cash
Total	$	130,353	$	230,000

⁽¹⁾ The mortgage warehouse borrowings outstanding as of September 30, 2019 and December 31, 2018 were collateralized by a) $108.6 million and $181.9 million, respectively, of mortgage loans held for sale, which comprised the balance of mortgage loans held for sale and b) approximately $1.1 million and $1.6 million, respectively, of cash which are included in restricted cash in the accompanying Condensed Consolidated Balance Sheets.

Loans Payable and Other Borrowings

Loans payable and other borrowings as of September 30, 2019 and December 31, 2018 consist of project-level debt due to various land sellers and seller financing notes from current and prior year acquisitions. Project-level debt is generally secured by the land that was acquired and the principal payments generally coincide with corresponding project lot sales or a principal reduction schedule. Loans payable bear interest at rates that ranged from 0% to 8% at each of September 30, 2019 and December 31, 2018. We impute interest for loans with no stated interest rates.

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10. FAIR VALUE DISCLOSURES

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

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

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

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

The fair value of our mortgage loans held for sale is derived from negotiated rates with partner lending institutions. The fair value of derivative assets includes interest rate lock commitments (“IRLCs”) and mortgage backed securities (“MBS”). The fair value of IRLCs is based on the value of the underlying mortgage loan, quoted MBS prices and the probability that the mortgage loan will fund within the terms of the IRLCs. We estimate the fair value of the forward sales commitments based on quoted MBS prices. The fair value of our mortgage warehouse borrowings, loans payable and other borrowings, the borrowings under our Revolving Credit Facility and our 364-Day Credit Agreement 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. There were no changes to or transfers between the levels of the fair value hierarchy for any of our financial instruments as of September 30, 2019, when compared to December 31, 2018.

The carrying value and fair value of our financial instruments are as follows:



		September 30, 2019				December 31, 2018
(Dollars in thousands)	Level in Fair Value Hierarchy	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Description:
Mortgage loans held for sale	2	$	108,550	$	108,550	$	181,897	$	181,897
Derivative assets, net	2	2,903		2,903		1,099		1,099
Mortgage warehouse borrowings	2	56,051		56,051		130,353		130,353
Loans payable and other borrowings	2	225,203		225,203		225,497		225,497
5.25% Senior Notes due 2021 ⁽¹⁾	2	—		—		547,304		544,500
6.625% Senior Notes due 2022 ⁽²⁾	2	—		—		411,656		400,520
5.875% Senior Notes due 2023 ⁽¹⁾	2	347,991		372,750		347,566		337,750
5.625% Senior Notes due 2024 ⁽¹⁾	2	347,622		370,580		347,219		332,500
5.875% Senior Notes due 2027 ⁽¹⁾	2	493,869		543,150		—		—
5.75% Senior Notes due 2028⁽¹⁾	2	444,694		489,375		—		—
Revolving Credit Facility	2	—		—		—		—
364-Day Credit Agreement	2	200,000		200,000		200,000		200,000

⁽¹⁾ Carrying value for Senior Notes, as presented, includes unamortized debt issuance costs. Debt issuance costs are not factored into the fair value calculation for the Senior Notes.

⁽²⁾Carrying value for the 2022 Senior Notes reflects the acquisition fair value adjustment, net of amortization, whereas the fair value reflects current market pricing.

Fair value measurements are used for inventories on a nonrecurring basis when events and circumstances indicate that their carrying value is not recoverable. The following table presents the fair value for our inventories measured at fair value on a nonrecurring basis:

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(Dollars in thousands)		For the Year Ended December 31,
Description:	Level in Fair Value Hierarchy	2018
Inventories	3	$	5,545

At September 30, 2019, the fair value for such inventories was not determined as there were no events and circumstances that indicated their carrying value was not recoverable.

11. INCOME TAXES

Our effective tax rate for the three and nine months ended September 30, 2019 was 25.9% and 25.4%, respectively, compared to 6.4% and 15.9% for the same periods in 2018, respectively. For the three and nine months ended September 30, 2019 and 2018, the effective tax rate differed from the U.S. federal statutory income tax rate primarily due to state income taxes, non-deductible executive compensation, uncertain tax positions, and discrete tax adjustments related to certain deferred tax assets and liabilities.

The effective tax rate for the three and nine months ended September 30, 2018 was favorably impacted by the adjustments to our existing deferred tax assets resulting from tax accounting method changes affirmatively accepted by the IRS and adjustments to the provisional tax expense for the mandatory deemed repatriation of foreign earnings resulting from completing our calculations of the transition tax as a result of the Tax Cuts and Jobs Act ("Tax Act") and finalizing our 2017 U.S. federal income tax returns.

At both September 30, 2019 and December 31, 2018, cumulative gross unrecognized tax benefits were $7.4 million. If the unrecognized tax benefits as of September 30, 2019 were to be recognized, approximately $5.9 million would affect the effective tax rate. We had $0.9 million and $0.7 million of gross interest and penalties related to unrecognized tax positions accrued as of September 30, 2019 and December 31, 2018, respectively.

12. STOCKHOLDERS’ EQUITY

Capital Stock

As of October 26, 2018, as a result of a holding company reorganization and related transactions each share of the Company’s former Class B common stock, par value $0.00001 per share (the “Class B common stock”), and paired partnership units of TMM Holdings II Limited Partnership were exchanged on a one-for-one basis for shares of Class A common stock, par value $0.00001 per share (“Class A common stock”). Following this exchange, all of the shares of Class B common stock were canceled, and the Company had only one class of common stock outstanding. On May 29, 2019, the Company’s stockholders approved the amendment and restatement of the Company’s certificate of incorporation to (i) delete provisions no longer applicable following the cancellation of all outstanding shares of the former Class B common stock; and (ii) to rename the Company’s Class A common stock as “Common Stock, par value $0.00001 per share.” Following this amendment and restatement, under the Company’s certificate of incorporation, its authorized capital stock consists of 400,000,000 shares of common stock, par value $0.00001 per share (the “Common Stock”), and 50,000,000 shares of preferred stock, par value $0.00001 per share.

References to “Common Stock” refer to “Class A Common Stock” for dates prior to June 10, 2019.

Stock Repurchase Program

On March 11, 2019, we announced that our Board of Directors authorized the repurchase of up to $100 million of Common Stock through December 31, 2019 in open market purchases, privately negotiated transactions or other transactions. We did not repurchase shares during the three months ended September 30, 2019. During the nine months ended September 30, 2019, we repurchased 8,389,348 shares of Common Stock under the Company's stock repurchase program. As of September 30, 2019, we have fully utilized the authorization and currently do not have additional authorization for stock repurchases.

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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 was most recently amended and restated in May 2017. The Plan provides for the grant of stock options, RSUs and other equity-based awards deliverable in shares of our Common Stock. As of September 30, 2019, we had an aggregate of 6,926,110 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, all of which is included in general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Restricted stock units ⁽¹⁾	$	2,747	$	2,673	$	8,105	$	6,778
Stock options	946		918		2,831		3,103
Total stock compensation	$	3,693	$	3,591	$	10,936	$	9,881

⁽¹⁾Includes compensation expense related to time-based RSUs and performance-based RSUs. Outstanding performance-based RSUs reflected in the table above are reported at target level of performance.

At September 30, 2019 and December 31, 2018, the aggregate unrecognized value of all outstanding stock-based compensation awards was approximately $24.9 million and $20.4 million, respectively.

Restricted Stock Units – The following table summarizes the time-based RSU and performance-based RSU activity for the nine months ended September 30, 2019:



	Shares		Weighted Average Grant Date Fair Value
Balance at December 31, 2018	1,925,364		$	16.49
Granted	713,247		18.45
Vested	(813,430	)	13.20
Forfeited ⁽¹⁾	(87,032	)	18.25
Balance at September 30, 2019	1,738,149		$	18.86

⁽¹⁾Forfeitures on time-based RSUs are a result of terminations of employment, while forfeitures on performance-based RSUs are a result of failing to attain certain goals as outlined in our stock based compensation awards or termination of employment. Outstanding performance-based RSUs reflected in the table above are reported at target level of performance.

During the nine months ended September 30, 2019, we granted time-based RSU awards and performance-based RSU awards to certain employees and members of the Board of Directors of the Company.

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

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

Stock Options – The following table summarizes the stock option activity for the nine months ended September 30, 2019:

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	Shares		Weighted Average Exercise Price Per Share
Outstanding at December 31, 2018	3,239,995		$	18.87
Granted	985,885		18.08
Exercised	(754,880	)	17.23
Canceled/Forfeited	(116,220	)	19.78
Outstanding at September 30, 2019	3,354,780		$	18.98
Options exercisable at September 30, 2019	1,410,017		$	19.11

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

14. ACCUMULATED OTHER COMPREHENSIVE INCOME

The table below provides the components of accumulated other comprehensive income (loss) (“AOCI”) for the periods presented (in thousands). There was no activity in the three months ended September 30, 2019 and 2018, therefore such periods are not presented.



	Nine Months Ended September 30, 2019
	Total Post- Retirement Benefits Adjustments		Foreign Currency Translation Adjustments		Non-controlling Interest - Former Principal Equityholders Reclassification		Total
Balance, beginning of period	$	2,001	$	—	$	—	$	2,001
Other comprehensive income, net of tax	$	284	$	—	$	—	$	284
Balance, end of period	$	2,285	$	—	$	—	$	2,285



	Nine Months Ended September 30, 2018
	Total Post- Retirement Benefits Adjustments		Foreign Currency Translation Adjustments			Non-controlling Interest - Former Principal Equityholders Reclassification			Total
Balance, beginning of period	$	2,082	$	(45,205	)	$	25,155		$	(17,968	)
Gross amounts reclassified within AOCI	—		25,155			(25,155		)	—
Balance, end of period	$	2,082	$	(20,050	)	$	—		$	(17,968	)

15. REPORTING SEGMENTS

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

Our reporting segments are as follows:

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East	Atlanta, Charlotte, Chicago, Jacksonville, Orlando, Raleigh, Southwest Florida, and Tampa
Central	Austin, Dallas, Denver, and Houston
West	Bay Area, Phoenix, Sacramento and Southern California
Financial Services	TMHF and Inspired Title Services

Segment information is as follows (in thousands):



	Three Months Ended September 30, 2019
	East			Central			West			Financial Services		Corporate and Unallocated			Total
Total revenues	$	439,498		$	313,643		$	328,710		$	23,254	$	—		$	1,105,105

Gross margin	74,368			58,021			68,260			10,425		—			211,074
Selling, general and administrative expenses	(39,560		)	(29,918		)	(23,366		)	—		(26,255		)	(119,099		)
Equity in (loss)/income of unconsolidated entities	—			(50		)	1,215			939		(1		)	2,103
Interest and other (expense)/ income, net ⁽¹⁾	(531		)	(159		)	63			—		(3,030		)	(3,657		)
Income/(loss) before income taxes	$	34,277		$	27,894		$	46,172		$	11,364	$	(29,286	)	$	90,421

⁽¹⁾Interest and other (expense)/ income, net includes loss on extinguishment of debt.



	Three Months Ended September 30, 2018
	East			Central			West			Financial Services		Corporate and Unallocated			Total
Total revenues	$	393,476		$	277,441		$	348,421		$	17,041	$	—		$	1,036,379

Gross margin	70,427			47,715			74,267			6,590		—			198,999
Selling, general and administrative expenses	(32,182		)	(25,612		)	(20,630		)	—		(22,096		)	(100,520		)
Equity in income of unconsolidated entities	137			196			1,309			872		—			2,514
Interest and other (expense)/ income, net	(247		)	204			84			—		(169		)	(128		)
Income/(loss) before income taxes	$	38,135		$	22,503		$	55,030		$	7,462	$	(22,265	)	$	100,865




	Nine Months Ended September 30, 2019
	East			Central			West			Financial Services		Corporate and Unallocated			Total
Total revenues	$	1,279,826		$	931,592		$	1,022,088		$	62,117	$	—		$	3,295,623

Gross margin	212,693			163,015			215,658			25,522		—			616,888
Selling, general and administrative expenses	(116,579		)	(87,478		)	(68,906		)	—		(74,836		)	(347,799		)
Equity in (loss)/ income of unconsolidated entities	—			(220		)	3,771			4,274		158			7,983
Interest and other expense, net ⁽¹⁾	(4,066		)	(715		)	(148		)	—		(3,631		)	(8,560		)
Income/(loss) before income taxes	$	92,048		$	74,602		$	150,375		$	29,796	$	(78,309	)	$	268,512

⁽¹⁾Interest and other (expense)/ income, net includes loss on extinguishment of debt.

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	Nine Months Ended September 30, 2018
	East			Central			West			Financial Services		Corporate and Unallocated			Total
Total revenues	$	1,038,756		$	789,665		$	893,606		$	47,513	$	—		$	2,769,540

Gross margin	187,844			141,994			175,108			15,866		—			520,812
Selling, general and administrative expenses	(91,920		)	(74,015		)	(56,256		)	—		(65,410		)	(287,601		)
Equity in income of unconsolidated entities	378			951			3,879			4,569		—			9,777
Interest and other (expense)/ income, net	(846		)	(34		)	2			—		(2,722		)	(3,600		)
Income/(loss) before income taxes	$	95,456		$	68,896		$	122,733		$	20,435	$	(68,132	)	$	239,388



	As of September 30, 2019
	East		Central		West		Financial Services		Corporate and Unallocated		Total
Real estate inventory and land deposits	$	2,025,102	$	1,041,838	$	1,228,524	$	—	$	—	$	4,295,464
Investments in unconsolidated entities	—		37,408		86,682		4,015		258		128,363
Other assets	170,692		122,883		82,445		178,807		361,206		916,033
Total assets	$	2,195,794	$	1,202,129	$	1,397,651	$	182,822	$	361,464	$	5,339,860



	As of December 31, 2018
	East		Central		West		Financial Services		Corporate and Unallocated		Total
Real estate inventory and land deposits	$	1,862,756	$	1,011,659	$	1,164,079	$	—	$	—	$	4,038,494
Investments in unconsolidated entities	—		35,476		100,693		4,015		357		140,541
Other assets	162,339		118,187		55,433		236,291		513,156		1,085,406
Total assets	$	2,025,095	$	1,165,322	$	1,320,205	$	240,306	$	513,513	$	5,264,441

16. 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 $533.9 million and $397.2 million as of September 30, 2019 and December 31, 2018, 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 September 30, 2019 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 September 30, 2019 and December 31, 2018, our legal accruals were $7.5 million and $5.7 million, respectively. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. Predicting the ultimate resolution of the pending matters, the related timing or the eventual loss associated with these matters is inherently difficult. Accordingly, the liability arising from the ultimate resolution of any matter may exceed the estimate reflected in the recorded reserves relating to such matters. 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.

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17. MORTGAGE HEDGING ACTIVITIES

We enter into IRLCs to originate residential mortgage loans held for sale, at specified interest rates and within a specified period of time (generally between 30 and 60 days), with customers who have applied for a loan and meet certain credit and underwriting criteria. These IRLCs meet the definition of a derivative and are reflected on the balance sheet at fair value with changes in fair value recognized in Financial Services revenue/expenses on the statements of operations and other comprehensive income. Unrealized gains and losses on the IRLCs, reflected as derivative assets or liabilities, are measured based on the fair value of the underlying mortgage loan, quoted Agency MBS prices, estimates of the fair value of the mortgage servicing rights (“MSRs”) and the probability that the mortgage loan will fund within the terms of the IRLC, net of commission expense and broker fees. The fair value of the forward loan sales commitment and mandatory delivery commitments being used to hedge the IRLCs and mortgage loans held for sale not committed to be purchased by investors are based on quoted Agency MBS prices.

The following summarizes derivative instrument assets (liabilities) as of the periods presented:



	As of
	September 30, 2019				December 31, 2018
(Dollars in thousands)	Fair Value		Notional Amount		Fair Value			Notional Amount
IRLCs	$	2,861	$	148,452	$	1,838		$	75,090
MBSs	42		185,000		(739		)	118,000
Total	$	2,903			$	1,099

Total commitments to originate loans approximated $163.9 million and $83.4 million as of September 30, 2019 and December 31, 2018, respectively. This amount represents the commitments to originate loans that have been locked and approved by underwriting. The notional amounts in the table above includes mandatory and best effort loans, that have been locked and approved by underwriting.

We have exposure to credit loss in the event of contractual non-performance by our trading counterparties in derivative instruments that we use in our rate risk management activities. We manage this credit risk by selecting only counterparties that we believe to be financially strong, spreading the risk among multiple counterparties, by placing contractual limits on the amount of unsecured credit extended to any single counterparty, and by entering into netting agreements with counterparties, as appropriate. Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon.

18. RELATED-PARTY TRANSACTIONS

From time to time, we may engage in transactions with entities or persons that are affiliated with us. For the three and nine months ended September 30, 2019, we had no transactions with related parties.

During the nine months ended September 30, 2018, we completed sales of our Class A Common Stock in registered public offerings, totaling 30.2 million shares. We used all of the net proceeds from these public offerings to purchase partnership units in New TMM, our direct subsidiary, along with shares of our Class B common stock, held by certain of our former principal equityholders. The aggregate number of partnership units and corresponding shares of Class B Common Stock we purchased was equal to the number of shares of Class A Common Stock sold by the Company in the public offerings. In addition, in a series of transactions following each public offering, the Company purchased a total of 7.6 million shares of Class B common stock directly from such former principal equityholders at the same respective net purchase price per share in each public offering.

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19. SUBSEQUENT EVENTS

On October 1, 2019, utilizing funds borrowed from our Revolving Credit Facility, we repaid our 364-Day Credit Agreement. The total amount paid, including interest, was $200.5 million.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Forward-Looking Statements

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

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

Business Overview

Our principal business is residential homebuilding and the development of lifestyle communities with operations in Arizona, California, Colorado, Florida, Georgia, Illinois, North and South Carolina and Texas. Our Company serves a wide array of consumer groups from coast to coast, including first time, move-up, luxury and active adult. Our homebuilding segments operate under our Taylor Morrison and Darling Homes brand names. Our business is organized into multiple homebuilding operating components, and a financial services component, all of which are managed as four reportable segments: East, Central, West and Financial Services, as follows:



East		Atlanta, Charlotte, Chicago, Jacksonville, Orlando, Raleigh, Southwest Florida, and Tampa
Central		Austin, Dallas, Denver, and Houston
West		Bay Area, Phoenix, Sacramento and Southern California
Financial Services		TMHF and Inspired Title

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

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

Factors Affecting Comparability of Results

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The Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed consolidated financial statements included elsewhere in this quarterly report. The primary factor that affects the comparability of our results of operations is the acquisition of AV Homes. The acquisition of AV Homes resulted in transaction expenses which are presented in Transaction expenses on the condensed consolidated statements of operations as well as impacts of purchase accounting which are included in Cost of home closings in the condensed consolidated statements of operations. As a result of the redemption of our 2021 and 2022 Senior Notes, we recorded loss on extinguishment of debt which included the write off of unamortized fees for the three and nine months ended September 30, 2019. In 2018, we experienced a lower effective tax rate as a result of certain changes in tax accounting methods.

Recent Developments

On October 1, 2019 we repaid our $200.0 million 364-Day Credit Agreement which was entered into on October 2, 2018 for the acquisition of AV Homes. The total amount paid, including interest, was $200.5 million.

Third Quarter 2019 Highlights:


•	Net sales orders were 2,540, a 39% increase over the prior year quarter


•	Average monthly sales pace per community was 2.4, compared to 2.2 for the prior year quarter


•	Home closings were 2,296, a 9% increase over the prior year quarter


•	Total revenue was $1.1 billion, a 7% increase over the prior year quarter


•	GAAP home closings gross margin was 18.5%


•	SG&A as a percent of home closings revenue was 11.1%


•	Net income was $67 million with diluted earnings per share of $0.63

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Results of Operations

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



	Three Months Ended September 30, 2019						Nine Months Ended September 30,
(Dollars in thousands)	2019			2018			2019			2018
Statements of Operations Data:
Home closings revenue, net	$	1,073,110		$	1,014,168		$	3,205,252		$	2,703,692
Land closings revenue	4,420			5,170			14,391			18,335
Financial services revenue	23,254			17,041			62,117			47,513
Amenity and other revenue	4,321			—			13,863			—
Total revenues	1,105,105			1,036,379			3,295,623			2,769,540
Cost of home closings	874,102			822,950			2,619,968			2,202,377
Cost of land closings	2,934			3,979			9,418			14,704
Financial services expenses	12,829			10,451			36,595			31,647
Amenity and Other Expense	4,166			—			12,754			—
Gross margin	211,074			198,999			616,888			520,812
Sales, commissions and other marketing costs	76,765			67,504			226,809			185,806
General and administrative expenses	42,334			33,016			120,990			101,795
Equity in income of unconsolidated entities	(2,103		)	(2,514		)	(7,983		)	(9,777		)
Interest income, net	(959		)	(670		)	(2,250		)	(1,289		)
Other expense/(income), net	389			798			(1,492		)	4,889
Transaction expenses	617			—			6,496			—
Loss on extinguishment of debt	3,610			—			5,806			—
Income before income taxes	90,421			100,865			268,512			239,388
Income tax provision	23,385			6,424			68,307			38,123
Net income before allocation to non-controlling interests	67,036			94,441			200,205			201,265
Net income attributable to non-controlling interests — joint ventures	(24		)	(159		)	(211		)	(428		)
Net income before non-controlling interests	67,012			94,282			199,994			200,837
Net income from continuing operations attributable to non-controlling interests	—			(714		)	—			(4,391		)
Net income available to Taylor Morrison Home Corporation	$	67,012		$	93,568		$	199,994		$	196,446
Home closings gross margin	18.5		%	18.9		%	18.3		%	18.5		%
Sales, commissions and other marketing costs as a percentage of home closings revenue, net	7.2		%	6.7		%	7.1		%	6.9		%
General and administrative expenses as a percentage of home closings revenue, net	3.9		%	3.3		%	3.8		%	3.8		%

Three and Nine Months Ended September 30, 2019 Compared to Three and Nine Months Ended September 30, 2018

Average Active Selling Communities



	Three Months Ended September 30,
	2019	2018	Change
East	153	109	40.4	%
Central	135	118	14.4
West	58	48	20.8
Total	346	275	25.8	%

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	Nine Months Ended September 30,
	2019	2018	Change
East	162	119	36.1	%
Central	138	119	16.0
West	59	50	18.0
Total	359	288	24.7	%

Average active selling communities for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 increased by 24.7% primarily due to the acquisition of AV Homes in the fourth quarter of 2018, resulting in additional communities across all reporting regions with the largest concentration in the East.

Net Sales Orders



	Three Months Ended September 30,
	Net Sales Orders ⁽¹⁾				Sales Value ⁽¹⁾						Average Selling Price
(Dollars in thousands)	2019	2018	Change		2019		2018		Change		2019		2018		Change
East	1,161	710	63.5	%	$	463,201	$	289,200	60.2	%	$	399	$	407	(2.0	)%
Central	759	617	23.0		360,413		298,111		20.9		475		483		(1.7	)
West	620	495	25.3		331,133		306,004		8.2		534		618		(13.6	)
Total	2,540	1,822	39.4	%	$	1,154,747	$	893,315	29.3	%	$	455	$	490	(7.1	)%




	Nine Months Ended September 30,
	Net Sales Orders ⁽¹⁾				Sales Value ⁽¹⁾						Average Selling Price
(Dollars in thousands)	2019	2018	Change		2019		2018		Change		2019		2018		Change
East	3,611	2,604	38.7	%	$	1,469,468	$	1,096,008	34.1	%	$	407	$	421	(3.3	)%
Central	2,380	2,204	8.0		1,129,506		1,064,852		6.1		475		483		(1.7	)
West	1,974	1,799	9.7		1,061,312		1,128,763		(6.0	)	538		627		(14.2	)
Total	7,965	6,607	20.6	%	$	3,660,286	$	3,289,623	11.3	%	$	460	$	498	(7.6	)%

⁽¹⁾Net sales orders and sales value represent the number and dollar value, respectively, of new sales contracts executed with customers, net of cancellations.

East:

The number of net sales orders increased by 63.5% and 38.7%, respectively, for the three and nine months ended September 30, 2019 compared to the same periods in the prior year. Additional active selling communities resulting from the acquisition of AV Homes in the fourth quarter of 2018 were the primary contributor to the increase in net sales orders. The average selling price of net sales orders decreased 2.0% and 3.3%, respectively, for the same comparative periods. Product and geographical mix primarily resulting from the acquisition of AV Homes contributed to the decrease in average selling prices.

Central:

The number of net sales orders increased by 23.0% and 8.0%, respectively, for the three and nine months ended September 30, 2019 compared to the same periods in the prior year. Our Dallas market contributed to the increase for both periods primarily as a result of additional active selling communities resulting from the acquisition of AV Homes in the fourth quarter of 2018. Product and geographical mix contributed to the relatively flat average selling price compared to the same periods in the prior year.

West:

The number of net sales orders increased by 25.3% and 9.7%, respectively, for the three and nine months ended September 30, 2019 compared to the same periods in the prior year. Additional active selling communities resulting from the acquisition of AV Homes and higher average sales pace in these communities were the primary contributors to the increase in net sales orders. The average selling price of net sales orders decreased 13.6% and 14.2%, respectively, for the same comparative periods. Product and geographical mix among all the divisions within the region contributed to the decrease in average selling price of net sales orders.

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Sales Order Cancellations



	Cancellation Rate⁽¹⁾
	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
East	10.9	%	10.8	%	11.6	%	10.6	%
Central	13.8		13.6		12.8		11.1
West	11.0		17.5		13.3		11.6
Total Company	11.8	%	13.6	%	12.4	%	11.0	%

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

The total company cancellation rate increased for the nine months ended September 30, 2019 compared to the same period in the prior year. The volatility in the mortgage rate environment, especially during the first quarter of 2019, was the primary cause of the increase across all regions. However, the total company cancellation rate decreased for the three months ended September 30, 2019 compared to the same period in the prior year, as a result of stabilization in the mortgage rates.

Sales Order Backlog



	As of September 30,
	Sold Homes in Backlog ⁽¹⁾				Sales Value						Average Selling Price
(Dollars in thousands)	2019	2018	Change		2019		2018		Change		2019		2018		Change
East	2,186	1,589	37.6	%	$	935,273	$	754,666	23.9	%	$	428	$	475	(9.9	)%
Central	1,856	1,610	15.3		936,889		814,173		15.1		505		506		(0.2	)
West	1,253	1,250	0.2		662,440		771,135		(14.1	)	529		617		(14.3	)
Total	5,295	4,449	19.0	%	$	2,534,602	$	2,339,974	8.3	%	$	479	$	526	(8.9	)%

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

Total backlog units and total sales value increased by 19.0% and 8.3% at September 30, 2019, respectively, compared to September 30, 2018. The increase in backlog units and dollars is primarily a result of increased active selling communities resulting from the acquisition of AV Homes as well as organic growth.

Home Closings Revenue



	Three Months Ended September 30,
	Homes Closed				Home Closings Revenue, Net						Average Selling Price
(Dollars in thousands)	2019	2018	Change		2019		2018		Change		2019		2018		Change
East	1,029	953	8.0	%	$	434,446	$	392,767	10.6	%	$	422	$	412	2.4	%
Central	653	594	9.9		309,954		272,980		13.5		475		460		3.3
West	614	568	8.1		328,710		348,421		(5.7	)	535		613		(12.7	)
Total	2,296	2,115	8.6	%	$	1,073,110	$	1,014,168	5.8	%	$	467	$	480	(2.7	)%




	Nine Months Ended September 30,
	Homes Closed				Home Closings Revenue, Net						Average Selling Price
(Dollars in thousands)	2019	2018	Change		2019		2018		Change		2019		2018		Change
East	3,063	2,528	21.2	%	$	1,258,758	$	1,033,553	21.8	%	$	411	$	409	0.5	%
Central	1,944	1,645	18.2		924,411		780,682		18.4		476		475		0.2
West	1,821	1,481	23.0		1,022,083		889,457		14.9		561		601		(6.7	)
Total	6,828	5,654	20.8	%	$	3,205,252	$	2,703,692	18.6	%	$	469	$	478	(1.9	)%

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East:

The number of homes closed increased by 8.0% and 21.2%, respectively, for the three and nine months ended September 30, 2019 compared to the same periods in the prior year. Home closings revenue, net increased 10.6% and 21.8%, respectively, for the same comparative periods. The increase in both units and dollars is primarily due to the increase in active selling communities resulting from the acquisition of AV Homes in the fourth quarter of 2018.

Central:

The number of homes closed increased by 9.9% and 18.2%, respectively, for the three and nine months ended September 30, 2019 compared to the same periods in the prior year. Home closing revenue, net increased 13.5% and 18.4%, respectively, for the same comparative periods. The increase in both units and dollars was partially a result of our Houston market experiencing increased housing demand as well as the acquisition of AV Homes contributing to an increase in the number of communities and an increase in home closings in the Dallas market in the current year period compared to the prior year period.

West:

The number of homes closed increased by 8.1% and 23.0%, respectively, for the three and nine months ended September 30, 2019 compared to the same periods in the prior year. The increase in units is primarily due to the increase in active selling communities resulting from the acquisition of AV Homes as well as increased demand from certain California markets. Home closings revenue, net decreased 5.7% and increased 14.9%, respectively, for the three and nine months ended September 30, 2019 compared to the same periods in the prior year. The decrease in home closings revenue, net for the three months ended September 30, 2019 is primarily due to product mix with lower average selling prices in our Southern California market, whereas overall demand in the majority of our markets contributed to the increase in home closings revenue, net for the nine months ended September 30, 2019 compared to the same period in the prior year.

Land Closings Revenue



	Three Months Ended September 30,
(Dollars in thousands)	2019		2018		Change
East	$	731	$	709	$	22
Central	3,689		4,461		(772		)
West	—		—		—
Total	$	4,420	$	5,170	$	(750	)




	Nine Months Ended September 30,
(Dollars in thousands)	2019		2018		Change
East	$	7,205	$	5,201	$	2,004
Central	7,181		8,984		(1,803		)
West	5		4,150		(4,145		)
Total	$	14,391	$	18,335	$	(3,944	)

We generally purchase land and lots with the intent to build and sell homes. However, in some locations where we act as a

developer, we occasionally purchase land that includes commercially zoned parcels or areas designated for school or

government use, which we typically sell to commercial developers or municipalities, as applicable. We also sell residential lots

or land parcels to manage our land and lot supply on larger tracts of land. As a developer, we may include land sales in our

underwriting strategies in many of our master plan communities where we may mitigate risk, enhance our returns or pursue

opportunities allowing access to new land positions. Land and lot sales occur at various intervals and varying degrees of

profitability. Therefore, the revenue and gross margin from land closings will fluctuate from period to period, depending upon

market opportunities. The decrease in land closings revenue for the nine months ended September 30, 2019 in the West region is due to the sale of certain long-term strategic assets in the prior year.

Amenity and Other Revenue

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	Three Months Ended September 30,
(Dollars in thousands)	2019		2018		Change
East	$	4,321	$	—	$	4,321
Central	—		—		—
West	—		—		—
Total	$	4,321	$	—	$	4,321



	Nine Months Ended September 30,
(Dollars in thousands)	2019		2018		Change
East	$	13,863	$	—	$	13,863
Central	—		—		—
West	—		—		—
Total	$	13,863	$	—	$	13,863

As the result of the acquisition of AV Homes, our East region includes communities that operate amenities such as golf courses, club houses, and fitness centers. We provide club members access to the amenity facilities and other services in exchange for club dues and fees. We do not currently own or operate significant amenity facilities in our Central or West regions.

Home Closings Gross Margin



	Three Months Ended September 30,
	East						Central						West						Consolidated
(Dollars in thousands)	2019			2018			2019			2018			2019			2018			2019			2018
Home closings revenue, net	$	434,446		$	392,767		$	309,954		$	272,980		$	328,710		$	348,421		$	1,073,110		$	1,014,168
Cost of home closings	360,071			322,134			253,581			226,662			260,450			274,154			874,102			822,950
Home closings gross margin	74,375			70,633			56,373			46,318			68,260			74,267			199,008			191,218
Home closings gross margin %	17.1		%	18.0		%	18.2		%	17.0		%	20.8		%	21.3		%	18.5		%	18.9		%

	Nine Months Ended September 30,
	East						Central						West						Consolidated
(Dollars in thousands)	2019			2018			2019			2018			2019			2018			2019			2018
Home closings revenue, net	$	1,258,758		$	1,033,553		$	924,411		$	780,682		$	1,022,083		$	889,457		$	3,205,252		$	2,703,692
Cost of home closings	1,048,841			845,883			764,699			641,566			806,428			714,928			2,619,968			2,202,377
Home closings gross margin	209,917			187,670			159,712			139,116			215,655			174,529			585,284			501,315
Home closings gross margin %	16.7		%	18.2		%	17.3		%	17.8		%	21.1		%	19.6		%	18.3		%	18.5		%

East:

Home closings gross margin percentage decreased to 17.1% from 18.0% for the three months ended September 30, 2019 and 2018, respectively, and to 16.7% from 18.2% for the nine months ended September 30, 2019 and 2018, respectively. The primary driver for these decreases was product mix primarily resulting from the acquisition of AV Homes. These decreases were partially offset by lower discounts.

Central:

Home closings gross margin percentage increased to 18.2% from 17.0% for the three months ended September 30, 2019 and 2018, respectively, and decreased to 17.3% from 17.8% for the nine months ended September 30, 2019 and 2018, respectively.

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The increase for the three months ended September 30, 2019 is primarily driven by an increase in demand in the majority of our Central region's markets. The primary driver for the decrease for the nine months ended September 30, 2019 was product mix resulting from the acquisition of AV Homes. This decrease was partially offset by lower discounts.

West:

Home closings gross margin percentage decreased to 20.8% from 21.3% for the three months ended September 30, 2019 and 2018, respectively, and increased to 21.1% from 19.6% for the nine months ended September 30, 2019 and 2018, respectively. The primary drivers for the fluctuations in both periods were product and geographical mix changes and lower discounts in our California markets.

Financial Services

Our Financial Services segment provides mortgage lending through our subsidiary, TMHF, and title services through our subsidiary, Inspired Title. The following is a summary for the periods presented of financial services income before income taxes as well as supplemental data:




	Three Months Ended September 30,						Nine Months Ended September 30,
($ In thousands)	2019		2018		Change		2019		2018		Change
Mortgage operations revenue	$	18,904	$	14,363	31.6	%	$	50,632	$	40,341	25.5	%
Mortgage operations revenue - other	1,180		549		114.9		2,889		1,702		69.7
Title services revenue	3,170		2,129		48.9		8,596		5,470		57.1
Total financial services revenue	23,254		17,041		36.5	%	62,117		47,513		30.7	%
Financial services equity in income of unconsolidated entities	939		872		7.7		4,274		4,569		(6.5	)
Total revenue	24,193		17,913		35.1		66,391		52,082		27.5
Financial services expenses	12,829		10,451		22.8		36,595		31,647		15.6
Financial services income before income taxes	$	11,364	$	7,462	52.3	%	$	29,796	$	20,435	45.8
Total originations:
Number of Loans	1,372		1,158		18.5	%	3,663		3,129		17.1	%
Principal	$	474,332	$	401,093	18.3	%	$	1,279,905	$	1,081,858	18.3	%



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Supplemental data:
Average FICO score	748		748		749		747
Funded origination breakdown:
Government (FHA,VA,USDA)	15	%	15	%	14	%	16	%
Other agency	73	%	71	%	72	%	70	%
Total agency	88	%	86	%	86	%	86	%
Non-agency	12	%	14	%	14	%	14	%
Total funded originations	100	%	100	%	100	%	100	%

Financial services revenue increased by 36.5% and 30.7% for the three and nine months ended September 30, 2019 compared to the same periods in the prior year. The increase in financial services revenue is due to increased closings primarily due to the acquisition of AV Homes.

Sales, Commissions and Other Marketing Costs

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Sales, commissions and other marketing costs, as a percentage of home closings revenue, net, increased to 7.2% from 6.7% for the three months ended September 30, 2019 and to 7.1% from 6.9% for the nine months ended September 30, 2019 compared to the same periods in 2018. The increase was primarily driven by increased advertising expenses due to increased community count as a result of newly acquired AV Homes' divisions. Our new communities typically have higher sales and marketing costs during their earlier stages of sales due to various start up costs.

General and Administrative Expenses

General and administrative expenses as a percentage of home closings revenue, net, increased to 3.9% from 3.3% for the three months ended September 30, 2019 and remained flat at 3.8% for the nine months ended September 30, 2019, compared to the same periods in the prior year. We continue our efforts to utilize our scalable platform, including from our AV Homes operations, providing leverage with existing infrastructure to maintain stable operating costs.

Equity in Income of Unconsolidated Entities

Equity in income of unconsolidated entities was $2.1 million and $2.5 million for the three months ended September 30, 2019 and 2018, respectively, and $8.0 million and $9.8 million for the nine months ended September 30, 2019 and 2018, respectively. The decreases were primarily due to several of our joint ventures being in their close out stage with less product availability during 2019 compared to 2018.

Interest Income, Net

Interest income, net was $1.0 million and $0.7 million for the three months ended September 30, 2019 and 2018, respectively, and $2.3 million and $1.3 million for the nine months ended September 30, 2019 and 2018, respectively. Interest income, net includes interest earned on cash balances offset by interest incurred but not capitalized on our long-term debt and other borrowings.

Other Income/Expense, Net

Other income/expense, net was $0.4 million and $0.8 million in expense for the three months ended September 30, 2019 and 2018, respectively. Other income/expense, net was $1.5 million in income for the nine months ended September 30, 2019 compared to an expense of $4.9 million for the nine months ended September 30, 2018. The increase in other income for the nine months ended September 30, 2019 is a result of insurance recoveries for losses incurred from previous years' hurricanes.

Transaction Expenses

Transaction expenses were $0.6 million for the three months ended September 30, 2019 and $6.5 million for the nine months ended September 30, 2019. Transaction expenses consisted of acquisition related costs, related to the acquisition of AV Homes, which include compensation, legal fees, and other various integration costs.

Income Tax Provision

The effective tax rate for the three and nine months ended September 30, 2019 was 25.9% and 25.4%, respectively, compared to 6.4% and 15.9% for the same periods in 2018, respectively. The effective tax rate for the three and nine months ended September 30, 2019 was based on the U.S. federal statutory income tax rate and was affected primarily by state income taxes and non-deductible executive compensation, uncertain tax positions, and discrete tax adjustments related to certain deferred tax assets and liabilities. The effective tax rate for the three and nine months ended September 30, 2018 reflected the effects from tax accounting method changes affirmatively accepted by the IRS in response to the Tax Act and our adjustments to the provisional tax expense from completing our calculations of the transition tax as a result of the Tax Act and finalizing our 2017 U.S. federal income tax returns.

Net Income

Net income and diluted earnings per share for the three months ended September 30, 2019 was $67.0 million and $0.63, respectively. Net income and diluted earnings per share for the three months ended September 30, 2018 was $94.4 million and $0.83, respectively. The decreases in net income and earnings per share from the prior year are attributable to lower homebuilding gross margin and loss on extinguishment of debt in 2019. In addition, in 2018 we experienced a lower effective tax rate during the three and nine months ended September 30, 2018 which was impacted by adjustments to our existing deferred tax assets resulting from tax accounting method changes affirmatively accepted by the IRS in response to the Tax Act

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and our adjustments to the provisional tax expense from completing our calculations of the transition tax and finalizing our U.S. federal income tax returns.

Liquidity and Capital Resources

Liquidity

We finance our operations through the following:


•	Borrowings under our Revolving Credit Facility;


•	Our various series of Senior Notes;


•	Mortgage warehouse facilities;


•	Project-level real estate financing (including non-recourse loans);


•	Performance, payment and completion surety bonds, and letters of credit; and


•	Cash generated from operations.

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


•	Cash generated from operations; and


•	Borrowings under our Revolving Credit Facility.

We may also access the capital markets to obtain additional liquidity through debt and equity offerings on an opportunistic basis. Generally, our principal uses of capital relate to land purchases, lot development, home construction, operating expenses, payment of debt service, income taxes, investments in joint ventures, stock repurchases, and the payment of various liabilities.

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

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



	As of
(Dollars in thousands)	September 30, 2019			December 31, 2018
Cash, excluding Restricted Cash	$	222,049		$	329,645

Revolving Credit Facility	600,000			600,000
364-Day Credit Agreement⁽¹⁾	200,000			200,000
Letters of Credit Outstanding	(82,612		)	(62,315		)
Revolving Credit Facility Borrowings Outstanding	—			—
364-Day Credit Agreement Borrowings Outstanding⁽¹⁾	(200,000		)	(200,000		)
Revolving Credit Facility Availability	517,388			537,685

Total Liquidity	$	739,437		$	867,330

⁽¹⁾ Refer to Note 19 - Subsequent Events for discussion regarding our repayment of the 364-Day Credit Agreement.

Cash Flow Activities

Operating Cash Flow Activities

Our net cash provided by operating activities was $153.4 million for the nine months ended September 30, 2019 compared to $56.0 million provided by operating activities for the nine months ended September 30, 2018. The primary drivers of the increase in cash provided by operating activities compared to the same period in the prior year was less spend on real estate

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inventory and land deposits and an increase accounts payable, accrued expenses, and other liabilities. Such changes were partially offset by a smaller increase in customer deposits.

Investing Cash Flow Activities

Net cash used in investing activities was $7.1 million for the nine months ended September 30, 2019, as compared to $4.3 million provided by investing activities for the nine months ended September 30, 2018. We increased spending on property and equipment in 2019, offset by higher net distributions from joint ventures, compared to the same period in 2018.

Financing Cash Flow Activities

Net cash used in financing activities was $254.3 million for the nine months ended September 30, 2019 compared to $252.4 million used in financing activities for the nine months ended September 30, 2018. The cash used in financing activities during 2019 was primarily for net repayments of debt and Common Stock repurchases, partially offset by proceeds from the issuance of Senior Notes. The cash used in financing activities in 2018 was primarily attributable to net debt repayments and repurchases of partnership units in our subsidiary from our former principal equityholders as part of our public equity offerings completed in January.

Debt Instruments

Senior Notes:

The following table summarizes our outstanding senior unsecured notes (collectively, the “Senior Notes”) as of September 30, 2019.



(Dollars in thousands)	Date Issued	Principal Amount		Initial Offering Price		Interest Rate		Original Net Proceeds		Original Debt Issuance Cost
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
Senior Notes due 2027	June 5, 2019	500,000		100.0	%	5.875	%	495,000		5,000
Senior Notes due 2028	August 1, 2019	$	450,000	100.0	%	5.750	%	444,500		5,500
Total		$	1,650,000					$	1,630,300	$	19,700

2021 Senior Notes

2022 Senior Notes

2023 Senior Notes

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(collectively, the “Guarantors”). The indenture governing the 2023 Senior Notes contains covenants that limit our ability to incur debt secured by liens and enter into certain sale and leaseback transactions. The indenture governing the 2023 Senior Notes contains customary events of default that are similar to those contained in the indentures governing our other Senior Notes. We are required to offer to repurchase the 2023 Senior Notes at price equal to 101% of their aggregate par value (plus accrued and unpaid interest) upon certain change of control events where there is a credit downgrade that occurs in connection with the change of control.

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

2024 Senior Notes

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

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

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

2027 Senior Notes and Redemption of 2021 Senior Notes

Prior to March 15, 2027, the 2027 Senior Notes are redeemable at a price equal to 100% plus a "make-whole" premium for payments through March 15, 2027 (plus accrued and unpaid interest).

There are no financial maintenance covenants for the 2027 Senior Notes.

2028 Senior Notes and Redemption of 2022 Senior Notes

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Prior to October 15, 2027, the 2028 Senior Notes are redeemable at a price equal to 100% plus a "make-whole" premium for payments through October 15, 2027 (plus accrued and unpaid interest).

There are no financial maintenance covenants for the 2028 Senior Notes.

Revolving Credit Facility

Our $600.0 million Revolving Credit Facility matures on January 26, 2022 and is guaranteed by the same Guarantors that guarantee the various Senior Notes.

As of September 30, 2019, we were in compliance with all of the covenants under the Revolving Credit Facility.

364-Day Credit Agreement

Our 364-Day Credit Agreement matured on October 1, 2019 and was a term loan facility under which we borrowed an aggregate principal amount of $200.0 million.

Refer to Note 19 - Subsequent events for discussion regarding the repayment of our 364-Day Credit Agreement, using borrowings from our Revolving Credit Facility.

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Mortgage Warehouse Borrowings

The following is a summary of our mortgage warehouse borrowings:

(Dollars in thousands)

As of September 30, 2019

Facility

Amount Drawn

Facility Amount

Interest Rate

Expiration Date

Collateral ⁽¹⁾

Warehouse A

13,962

45,000

LIBOR + 1.75%

On Demand

Mortgage Loans

Warehouse B

18,899

50,000

LIBOR + 1.75%

On Demand

Mortgage Loans

Warehouse C

23,190

75,000

LIBOR + 1.95%

On Demand

Mortgage Loans and Restricted Cash

Total

56,051

170,000

⁽¹⁾ The mortgage warehouse borrowings outstanding as of September 30, 2019 were collateralized by a) $108.6 million of mortgage loans held for sale, which comprised the balance of mortgage loans held for sale and b) approximately $1.1 million of cash which is included in restricted cash in the accompanying Condensed Consolidated Balance Sheets.

Loans Payable and Other Borrowings

Loans payable and other borrowings as of September 30, 2019 consist of project-level debt due to various land sellers and seller financing notes from current and prior year acquisitions. Project-level debt is generally secured by the land that was acquired and the principal payments generally coincide with corresponding project lot sales or a principal reduction schedule. Loans payable bear interest at rates that ranged from 0% to 8% at each of September 30, 2019 and December 31, 2018. We impute interest for loans with no stated interest rates.

Letters of Credit, Surety Bonds and Financial Guarantees

The following table summarizes our letters of credit and surety bonds as of the dates indicated:



	As of
(Dollars in thousands)	September 30, 2019		December 31, 2018
Letters of credit ⁽¹⁾	$	85,055	$	62,315
Surety bonds	448,875		334,892
Total outstanding letters of credit and surety bonds	$	533,930	$	397,207

⁽¹⁾ As of September 30, 2019, there was $82.6 million of letters of credit outstanding and $160 million total capacity for letters of credit available under our Revolving Credit Facility. Additional letters of credit outstanding are under other various borrowing facilities.

Off-Balance Sheet Arrangements as of September 30, 2019

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. Our participation in these entities, in some instances, enables us to acquire land to which we could not otherwise obtain access, or could not obtain access on terms that are as favorable. Our partners in these joint ventures historically have been land owners/developers, other homebuilders and financial or strategic partners. Joint ventures with land owners/developers have given us access to sites owned or controlled by our partners. Joint ventures with other homebuilders have provided us with the ability to bid jointly with our partners for large or expensive land parcels. Joint ventures with financial partners have allowed us to combine our homebuilding expertise with access to our partners’ capital.

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

For the nine months ended September 30, 2019, total cash invested in unconsolidated joint ventures was $10.2 million.

Land Purchase and Land Option Contracts

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We enter into land purchase and option contracts to procure land or lots for the construction of homes in the ordinary course of business. Lot option contracts enable us to control significant lot positions with a minimal initial capital investment and substantially reduce the risks associated with land ownership and development. As of September 30, 2019, we had outstanding land purchase and lot option contracts of $300.3 million. We are obligated to close the transaction under our land purchase contracts. However, our obligations with respect to the option contracts are generally limited to the forfeiture of the related non-refundable cash deposits and/or letters of credit provided to obtain the options. At September 30, 2019, we had non-refundable deposits totaling $41.8 million.

Seasonality

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


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


•	the timing of project sales;


•	the timing of closings of homes, lots and parcels;


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


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


•	mix of homes closed;


•	construction timetables;


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


•	the cost and availability of materials and labor; and


•	weather conditions in the markets in which we build.

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

Inflation

We and the homebuilding industry in general may be adversely affected during periods of high inflation, primarily because of higher land, financing, labor and construction material costs. In addition, higher mortgage interest rates can significantly affect the affordability of mortgage financing to prospective homebuyers. We attempt to pass through to our customers increases in our costs through increased sales prices. However, during periods of soft housing market conditions, we may not be able to offset our cost increases with higher selling prices.

Critical Accounting Policies -

In January 2019, we adopted ASU No. 2016-02, Leases (Topic 842), which provides new guidance for lease recognition and elected to use the modified retrospective approach to account for prior periods. Refer to Note 2 - Summary of Significant Accounting Policies for additional discussion. There have been no other significant changes to our critical accounting policies during the nine months ended September 30, 2019 as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report.

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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 September 30, 2019, approximately 88% of our debt was fixed rate and 12% 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, 364-Day Credit Agreement, and borrowings by TMHF under its various warehouse facilities. As of September 30, 2019, we had no outstanding borrowings under our Revolving Credit Facility and $200.0 million outstanding borrowings under our 364-Day Credit Agreement. Refer to Note 19 - Subsequent Events for discussion regarding the repayment of the 364-Day Credit Agreement. We had $517.4 million of additional availability for borrowings including, $77.4 million of additional availability for letters of credit under our Revolving Credit Facility as of September 30, 2019 (giving effect to $82.6 million of letters of credit outstanding as of such date). We are required to offer to purchase all of our outstanding Senior Notes at 101% of their aggregate principal amount upon the occurrence of specified change of control events. Other than in those circumstances, we do not have an obligation to prepay fixed rate debt prior to maturity and, as a result, we would not expect interest rate risk and changes in fair value to have a significant impact on our cash flows related to our fixed rate debt until such time as we are required to refinance, repurchase or repay such debt.

The following table sets forth principal cash flows by scheduled maturity and effective weighted average interest rates and estimated fair value of our debt obligations as of September 30, 2019. The interest rate for our variable rate debt represents the interest rate on our borrowings under our Revolving Credit Facility, 364-Day Credit Agreement, and mortgage warehouse facilities. Because the mortgage warehouse facilities are secured by certain mortgage loans held for sale which are typically sold within approximately 20 - 30 days, its outstanding balance is included as a variable rate maturity in the most current period presented.



	Expected Maturity Date																					Fair Value
(In millions, except percentage data)	2019			2020			2021			2022			2023			Thereafter			Total			Fair Value
Fixed Rate Debt	$	57.4		$	50.0		$	46.5		$	15.7		$	374.5		$	1,331.1		$	1,875.2		$	2,001.1
Weighted average interest rate⁽¹⁾	2.4		%	2.4		%	2.4		%	2.4		%	5.6		%	5.7		%	5.4		%
Variable Rate Debt⁽²⁾	$	256.1		$	—		$	—		$	—		$	—		$	—		$	256.1		$	256.1
Weighted average interest rate	3.9		%	—			—			—			—			—			3.9		%

⁽¹⁾ Represents the coupon rate of interest on the full principal amount of the debt.

⁽²⁾ Based upon the amount of variable rate debt outstanding at September 30, 2019, and holding the variable rate debt balance constant, each 1% increase in interest rates would increase the interest incurred by us by approximately $2.6 million per year.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our principal executive officer, principal financial officer and principal accounting officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of September 30, 2019. Based on this evaluation, our principal executive officer, principal financial officer and principal accounting officer concluded that, as of September 30, 2019, the Company's disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level. Management excluded from its assessment the internal control over financial reporting for AV Homes, which was acquired on October 2, 2018, and represented 9.4% of the Company's consolidated total assets (excluding capitalized interest, inclusive of goodwill) and 15.4% of the Company's consolidated homebuilding revenues as of and for the three months ended September 30, 2019.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS



Exhibit No.		Description

2.1^†		Agreement and Plan of Merger, dated June 7, 2018, by and among Taylor Morrison Home Corporation, Taylor Morrison Communities, Inc., Thor Merger Sub, Inc. and AV Homes, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed on June 7, 2018).

2.2		Agreement and Plan of Merger, dated as of October 26, 2018, by and among Taylor Morrison Home Corporation, Taylor Morrison Home II Corporation and Second Half 2018 Mergerco Inc. (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on October 26, 2018).

3.1		Amended and Restated Certificate of Incorporation. (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 30, 2019).

3.2		Amended and Restated By-laws. (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on October 26, 2018).

3.3		Amendment to the Amended and Restated By-laws. (incorporated herein by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K filed on October 26, 2018).

4.1*		Indenture, dated as of August 1, 2019, relating to Taylor Morrison Communities, Inc.'s 5.75% Senior Notes due 2028, by and among Taylor Morrison Communities, Inc., the guarantors party thereto and U.S. Bank National Association.

31.1*		Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.

31.2*		Certification of C. David Cone, Chief Financial Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.

32.1**		Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.

32.2**		Certification of C. David Cone, Chief Financial Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.

101.INS*		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH*		Inline XBRL Taxonomy Extension Schema Document.

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104.1*		Cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in inline XBRL (and contained in Exhibit 101).

* Filed herewith

** Furnished herewith

† Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish supplementally copies of any of the omitted schedules upon request by the SEC.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them other than for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		TAYLOR MORRISON HOME CORPORATION
		Registrant
DATE:	October 30, 2019
		/s/ Sheryl D. Palmer
		Sheryl D. Palmer
		Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)

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

		/s/ Joseph Terracciano
		Joseph Terracciano
		Chief Accounting Officer (Principal Accounting Officer)


(1)	with respect to Moody’s, any of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories); and


(2)	with respect to S&P, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories).



Term	Defined in Section
“Aggregate Payments”	10.01(e)
“Authentication Order”	2.02
“Calculation Date”	1.01 (Definition of “Specified Inventory Ratio”)
“Change of Control Offer”	4.09(a)
“Change of Control Payment”	4.09(a)
“Change of Control Payment Date”	4.09(a)
“Contributing Guarantors”	10.01(e)
“Covenant Defeasance”	8.03
“Covenant Termination Event”	4.13
“Covenant Termination Event Notice”	4.13
“DTC”	2.03
“Event of Default”	6.01
“Equal and Ratable Secured Indebtedness”	4.08(a)
“Exchange Rate”	12.17
“Exempt Sale and Leaseback Transaction”	4.07(c)
“Fair Share”	10.01(e)
“Fair Share Contribution Amount”	10.01(e)
“Financial Reports”	4.03(g)
“Funding Guarantor”	10.01(e)
“Increased Amount”	4.08(d)
“Legal Defeasance”	8.02
“OID Legend”	2.06(f)
“Paying Agent”	2.03
“Payment Default”	6.01
“Permitted Sale and Leaseback Transaction”	4.07(b)
“Registrar”	2.03
“Substitute Reports”	4.03(i)
“Triggering Lien”	4.08(a)



TAYLOR MORRISON COMMUNITIES, INC.

By:	/s/ Darrell C. Sherman
	Name: Darrell C. Sherman Title: Executive Vice President, Chief Legal Officer and Secretary



U.S. BANK NATIONAL ASSOCIATION, as Trustee
By:	/s/ Richard Prokosch
	Name: Richard Prokosch Title: Vice President



TMM HOLDINGS LIMITED PARTNERSHIP By: TMM Holdings (G.P.) ULC, its General Partner

By:	/s/ Darrell C. Sherman
	Name: Darrell C. Sherman
	Title: Executive Vice President, Chief Legal Officer and Secretary



TAYLOR MORRISON HOLDINGS, INC.

By:	/s/ Darrell C. Sherman
	Name: Darrell C. Sherman
	Title: Executive Vice President, Chief Legal Officer and Secretary



TAYLOR MORRISON HOLDINGS ULC

By:	/s/ Darrell C. Sherman
	Name: Darrell C. Sherman
	Title: Executive Vice President, Chief Legal Officer and Secretary


*	Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).



Date of Exchange	Amount of decrease in Principal Amount of this Global Note	Amount of increase in Principal Amount of this Global Note	Principal Amount of this Global Note following such decrease (or increase)	Signature of authorized signatory of Trustee or Custodian


*	This schedule should be included only if the Note is issued in global form.



TMM HOLDINGS LIMITED PARTNERSHIP By: TMM Holdings (G.P.) Inc., its General Partner

By:
	Name:
	Title:



U.S. BANK NATIONAL ASSOCIATION, as Trustee

By:
	Authorized Signature


(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.