Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Jun. 30, 2014 |
Accounting Policies [Abstract] | ' |
Basis of Presentation and Consolidation | ' |
Basis of Presentation and Consolidation — The accompanying unaudited Condensed and Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated and Combined Financial Statements and accompanying notes included in our 2013 Annual Report on Form 10-K. In the Reorganization Transactions, TMHC became the sole owner of the general partner of New TMM. As the general partner of New TMM, we exercise exclusive and complete control over New TMM. Consequently, for periods subsequent to April 9, 2013, we consolidate New TMM and record a non-controlling interest in our consolidated balance sheet for the economic interests in New TMM that are directly or indirectly held by the Principal Equityholders or by members of management and the Board of Directors. The consolidated financial statements for these periods include the accounts of TMHC, TMM Holdings, New TMM, TMC, Monarch and our consolidated subsidiaries, partnerships and other entities for which we have a controlling financial interest, and of variable interest entities in which we are deemed the primary beneficiary. Intercompany balances and transactions have been eliminated on consolidation. In the opinion of management, the accompanying Condensed and Consolidated Financial Statements include all normal and recurring adjustments 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 the full year. |
Unless otherwise stated, amounts are shown in U.S. dollars. Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date, and revenues and expenses are translated at average rates of exchange prevailing during the period. Translation adjustments resulting from this process are recorded to accumulated other comprehensive income (loss) in the Condensed and Consolidated Balance Sheets and Condensed and Consolidated Statements of Stockholders’ Equity. |
Use of Estimates | ' |
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 and consolidated financial statements and accompanying notes. Significant estimates include purchase price allocations, valuation of certain real estate, valuation of equity awards, valuation allowance on deferred tax assets and reserves for warranty and self-insured risks. Actual results could differ from those estimates. |
Investments in Consolidated and Unconsolidated Entities | ' |
Investments in Consolidated and Unconsolidated Entities — We use the equity method of accounting for entities we do not control or exercise significant influence over the operating and financial policies of the investee. For unconsolidated entities in which we function as the managing member, we have evaluated the rights held by our joint venture partners and determined that they have substantive participating rights that preclude the presumption of control. For joint ventures accounted for using the equity method, our share of net earnings or losses is included in equity in income of unconsolidated entities when earned and distributions are credited against our investment in the joint venture when received. See Note 6 – Investments in Unconsolidated Entities for financial statement information related to unconsolidated entities. |
Consolidation | ' |
In the ordinary course of business, we enter into land and lot option purchase contracts in order to procure land or lots for the construction of homes. Lot option contracts enable us to control significant lot positions with a minimal initial capital investment and substantially reduce the risks associated with land ownership and development. In accordance with Accounting Standards Codification (“ASC”) Topic 810, Consolidation, we have concluded that when we enter into an option or purchase agreement to acquire land or lots and pay a non-refundable deposit, a variable interest entity (“VIE”) may be created because we may be deemed to have provided subordinated financial support that will absorb some or all of an entity’s expected losses if they occur. Our exposure to loss related to our option contracts with third parties and unconsolidated entities consists of non-refundable option deposits totaling $46.5 million and $43.7 million, as of June 30, 2014 and December 31, 2013, respectively. Additionally, we posted $18.3 million and $14.9 million of letters of credit in lieu of cash deposits under certain option contracts as of June 30, 2014 and December 31, 2013, respectively. Creditors of these VIEs, if any, generally have no recourse against us outside of the amounts of letters of credit (see Note 9 – Debt – Letters of Credit, Surety Bonds and Guarantees). |
Non-controlling Interests - Joint Ventures | ' |
Non-controlling Interests – Joint Ventures — We are involved in several joint ventures with independent third parties for land development and homebuilding activities. If we exercise control over entities, we consolidate joint ventures when we are the primary beneficiary. For these entities, their financial statements are consolidated in the accompanying Condensed and Consolidated Financial Statements and the other partners’ equity are recorded as non-controlling interests – joint ventures. |
Non-controlling Interests - Principal Equityholders | ' |
Non-controlling Interests – Principal Equityholders — Immediately prior to our IPO, the existing holders of TMM Holdings’ limited partnership interests exchanged their limited partnership interests for limited partnership interests of New TMM (“New TMM Units”) as part of the Reorganization Transactions. For each New TMM received in the exchange, the holders of New TMM Units also received a corresponding number of shares of our Class B common stock, par value $0.00001 per share (the “Class B Common Stock”). Our Class B Common Stock has voting rights but no economic rights. One share of Class B Common Stock, together with one New TMM Unit is exchangeable into one share of our Class A Common Stock in accordance with our Exchange Agreement. |
The composition of our outstanding common stock as of June 30, 2014 was as follows: |
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Class A Common Stock | | | Class B Common Stock | | | Total | | | | | | | |
| 32,895,064 | | | | 89,386,176 | | | | 122,281,240 | | | | | | | |
| 26.9 | % | | | 73.1 | % | | | 100 | % | | | | | | |
Self Insurance and Warranty Reserves | ' |
Self Insurance and Warranty Reserves — We regularly review the reasonableness and adequacy of our self insurance and warranty reserves and make adjustments to the balance of the pre-existing reserves to reflect changes in trends and historical data as information becomes available. Self insurance and warranty reserves are included in accrued expenses and other liabilities in the Condensed and Consolidated Balance Sheets. A summary of the changes in our warranty reserves is as follows (in thousands): |
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| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Reserve — beginning of period | | $ | 45,305 | | | $ | 41,403 | | | $ | 41,403 | | | $ | 39,760 | |
Additions to reserves | | | 5,758 | | | | 2,689 | | | | 8,141 | | | | 8,263 | |
Costs and claims incurred | | | (5,473 | ) | | | (3,066 | ) | | | (8,087 | ) | | | (7,410 | ) |
Change in estimates to pre-existing reserves | | | (718 | ) | | | 678 | | | | 3,631 | | | | 1,248 | |
Foreign currency adjustment | | | 201 | | | | (235 | ) | | | (15 | ) | | | (392 | ) |
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Reserve — end of period | | $ | 45,073 | | | $ | 41,469 | | | $ | 45,073 | | | $ | 41,469 | |
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Revenue Recognition | ' |
Revenue Recognition |
Home Sales — Revenues from home sales are recorded at closing, using the completed contract method of accounting at the time each home is delivered, title and possession are transferred to the buyer, there is no significant continuing involvement with the home, and the buyer has demonstrated sufficient initial and continuing investment in the property. |
Condominium Sales — Revenues from the sale of condominium units is recognized when construction is beyond the preliminary stage, the buyer is committed to the extent of being unable to require a refund from the Company under applicable laws except for non-delivery of the unit, sufficient units in the project have been sold to ensure that the property will not be converted to a rental property, the sales proceeds are collectible, and the aggregate sales proceeds and the total cost of the project can be reasonably estimated. For our Canadian high-rise condominiums, these conditions are met when a certificate of occupancy has been received, all significant conditions of registration have been performed and the purchaser has the right to occupy the unit. |
Land Sales — Revenues from land sales are recognized when title is transferred to the buyer, there is no significant continuing involvement, and the buyer has demonstrated sufficient initial and continuing investment in the property sold. If the buyer has not made an adequate initial or continuing investment in the property, the profit on such sales is deferred until these conditions are met. |
Mortgage Operations — Revenues from loan origination are recognized at the time the related real estate transactions are completed, usually upon the close of escrow. All of the loans Taylor Morrison Home Funding, LLC (“TMHF”) originates are sold within a short period of time, generally 20 days, on a non-recourse basis as further described in Note 9 – Debt – Mortgage Company Loan Facilities. After the loans are sold, we retain potential liability for possible claims by purchasers of the loan, that we breached certain limited industry-standard representations and warranties in the loan sale agreement. Gains or losses from the sale of mortgages are recognized based on the difference between the selling price and carrying value of the related loans upon sale. |
Deposits — Forfeited buyer deposits related to home, condominium, and land sales are recognized as an offset to other expense, net in the accompanying Condensed and Consolidated Statements of Operations in the period in which we determine that the buyer will not complete the purchase of the property and the deposit is determined to be non-refundable to the buyer. |
Sales Discounts and Incentives — We grant home buyers sales discounts and incentives from time to time, including cash discounts, discounts on options included in the home, option upgrades, and seller-paid financing or closing costs. Discounts are generally accounted for as a reduction in the sales price of the home. |
Income Taxes | ' |
Income Taxes — We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities are recorded based on future tax consequences of temporary differences between the amounts reported for financial reporting purposes and the amounts deductible for income tax purposes. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted. |
In accordance with the provisions of ASC 740, we periodically assess our deferred tax assets, including the benefit from net operating losses, to determine if a valuation allowance is required. A valuation allowance must be established when, based upon available evidence, it is more likely than not that all or a portion of the deferred tax assets will not be realized. Realization of the deferred tax assets is dependent upon, among other matters, taxable income in prior years available for carryback, estimates of future income, tax planning strategies, and reversal of existing temporary differences. |
Recently Issued Accounting Pronouncements | ' |
Recently Issued Accounting Pronouncements — In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-12, Compensation – Stock Compensation (“ASU 2014-12”), which provides guidance on the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. ASU 2014-12 is effective beginning January 1, 2016. We do not anticipate that the adoption of ASU 2014-12 will have a material effect on our consolidated financial statements or disclosures. |
In June 2014, the FASB issued ASU No. 2014-11, Transfers and Servicing (“ASU 2014-11”), which requires that repurchase-to-maturity transactions be accounted for as secured borrowings consistent with the accounting for other repurchase agreements. In additions, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. ASU 2014-11 is effective beginning January 1, 2015. We do not anticipate that the adoption of ASU 2014-11 will have a material effect on our consolidated financial statements or disclosures. |
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, “Revenue Recognition-Construction-Type and Production-Type Contracts.” The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for the Company beginning January 1, 2017 and, at that time the Company may adopt the new standard under the full retrospective approach or the modified retrospective approach. Early adoption is not permitted. We are currently evaluating the method and impact the adoption of ASU 2014-09 will have on the Company’s condensed consolidated financial statements and disclosures. |
In July 2013 the FASB issued ASU No. 2013-11 Income Taxes (“ASU 2013–11”), which provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, similar tax loss, or tax credit carryforward exists. ASU 2013-11 is effective beginning January 1, 2014. The adoption of ASU 2013-11 did not have a material effect on our consolidated financial statements or disclosures. |
In April 2013, the FASB issued ASU No. 2013-04, Liabilities (“ASU 2013-04”), which provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. ASU 2013-04 is effective beginning January 1, 2014. The adoption of ASU 2013-04 did not have a material effect on our consolidated financial statements or disclosures. |
Real Estate Inventory | ' |
Real Estate Inventory — Inventory consists of raw land, land under development, land held for future development, homes under construction, completed homes, and model homes. Inventory is carried at cost, less any impairment, if applicable. In addition to direct carrying costs, we also capitalize interest, real estate taxes, and related development costs that benefit the entire community, such as field construction supervision and related direct overhead. Home construction costs are accumulated and charged to cost of sales at home closing using the specific identification method. Land acquisition, development, interest, taxes, overhead, and condominium construction costs are allocated to homes and units using methods that approximate the relative sales value method. These costs are capitalized to inventory from the point development begins to the point construction is completed. Changes in estimated costs to be incurred in a community are generally allocated to the remaining homes on a prospective basis. For those communities that have been temporarily closed or where development has been discontinued, we do not allocate interest or other costs to the community’s inventory until operations begin again. |
In accordance with the provisions of ASC Topic 360, Property, Plant, and Equipment, we review our real estate inventory for indicators of impairment by community during each reporting period. In conducting the review for indicators of impairment on a community level, we evaluate, among other things, the margins on homes that have been delivered, margins on homes under sales contracts in backlog, projected margins with regard to future home sales over the life of the community, projected margins with regard to future land sales and the estimated fair value of the land itself. For the three and six months ended June 30, 2014 and 2013, we recorded no impairments on real estate assets. |
As discussed in Note 2 under Investments in Consolidated and Unconsolidated Entities, in the ordinary course of business, we acquire various specific performance lots through existing lot option agreements. Real estate not owned under these contracts is consolidated into real estate inventory with a corresponding liability in liabilities attributable to consolidated option agreements in the Condensed and Consolidated Balance Sheets. |
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Inventory consists of the following (in thousands): |
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| | June 30, 2014 | | | December 31, 2013 | | | | | | | | | |
Operating communities | | $ | 2,287,201 | | | $ | 1,862,649 | | | | | | | | | |
Real estate held for development or sale | | | 426,601 | | | | 381,095 | | | | | | | | | |
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Total owned inventory | | | 2,713,802 | | | | 2,243,744 | | | | | | | | | |
Real estate not owned | | | 15,623 | | | | 18,595 | | | | | | | | | |
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Total real estate inventory | | $ | 2,729,425 | | | $ | 2,262,339 | | | | | | | | | |
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The development status of our land inventory is as follows (dollars in thousands): |
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| | June 30, 2014 | | | December 31, 2013 | |
| | Owned Lots (1) | | | Book Value of Land | | | Owned Lots (1) | | | Book Value of Land | |
and Development | and Development |
Raw | | | 12,268 | | | $ | 529,368 | | | | 13,982 | | | $ | 425,759 | |
Partially developed | | | 11,478 | | | | 602,828 | | | | 10,828 | | | | 516,492 | |
Finished | | | 8,643 | | | | 839,104 | | | | 7,559 | | | | 732,015 | |
Long-term strategic assets | | | 3,557 | | | | 25,580 | | | | 3,729 | | | | 27,988 | |
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Total | | | 35,946 | | | $ | 1,996,880 | | | | 36,098 | | | $ | 1,702,254 | |
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-1 | Includes 1,991 and 2,370 lots which are owned within unconsolidated joint ventures at June 30, 2014 and December 31, 2013, respectively. | | | | | | | | | | | | | | | |
Capitalized Interest | ' |
Capitalized Interest — We capitalize certain interest costs to real estate inventory during the active development and construction periods. Capitalized interest is amortized to cost of revenues when the related inventory is delivered to the homebuyer. Interest capitalized, incurred, expensed and amortized is as follows (in thousands): |
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| | Three Months Ended | | | Six Months Ended | |
June 30, | June 30, |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Interest capitalized – beginning of period | | $ | 97,875 | | | $ | 68,827 | | | $ | 87,101 | | | $ | 59,643 | |
Interest incurred | | | 25,943 | | | | 19,954 | | | | 48,133 | | | | 37,197 | |
Interest expense not qualified for capitalization and recorded as interest expense | | | 300 | | | | (700 | ) | | | — | | | | (700 | ) |
Interest amortized to cost of revenues | | | (17,064 | ) | | | (11,566 | ) | | | (28,180 | ) | | | (19,625 | ) |
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Interest capitalized – end of period | | $ | 107,054 | | | $ | 76,515 | | | $ | 107,054 | | | $ | 76,515 | |
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Land Deposits | ' |
Land Deposits — We pay deposits related to land options and land purchase contracts, which are capitalized when paid and classified as land deposits until the associated property is purchased. To the extent the deposits are non-refundable, they are charged to expense if the land acquisition process is terminated or no longer determined probable. We review the likelihood of the acquisition of contracted lots in conjunction with our periodic real estate inventory impairment analysis. Non-refundable deposits are recorded as a component of real estate inventory in the accompanying Condensed and Consolidated Balance Sheets at the time the deposit is applied to the acquisition price of the land based on the terms of the underlying agreements. Refundable deposits are recorded in prepaid expenses and other assets, net in the accompanying Condensed and Consolidated Balance Sheets. |
We are subject to the usual obligations associated with entering into contracts, including option contracts, for the purchase, development, and sale of real estate inventory in the routine conduct of our business. We have entered into a number of land purchase option contracts, generally through cash deposits or letters of credit, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property and the creditors generally have no recourse against us, except in Canada where sellers generally have full recourse under statutory regulations. 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. As of June 30, 2014 and December 31, 2013, we had the right to purchase approximately 4,372 and 6,570 lots under land option purchase contracts, respectively, which represents an aggregate purchase price of $438.1 million and $500.9 million as of June 30, 2014 and December 31, 2013, respectively. As of June 30, 2014, we had $46.5 million in land deposits and had posted $18.3 million in letters of credit related to land options and land purchase contracts. As of December 31, 2013, we had $43.7 million in land deposits and had posted $14.9 million in letters of credit related to land options and land purchase contracts. |
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For the three and six months ended June 30, 2014 and 2013, no impairment of option deposits or capitalized pre-acquisition costs. We continue to evaluate the terms of open land option and purchase contracts and may impair option deposits and capitalized pre-acquisition costs in the future, particularly in those instances where land sellers or third-party financial entities are unwilling to renegotiate significant contract terms. |