TRI POINTE GROUP, INC., 10-K filed on 2/26/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2018
Feb. 08, 2019
Jun. 30, 2018
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Trading Symbol TPH    
Entity Registrant Name TRI Pointe Group, Inc.    
Entity Central Index Key 0001561680    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer Yes    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Filer Category Large Accelerated Filer    
Entity Common Stock, Shares Outstanding   141,669,513  
Entity Public Float     $ 2,448,101,287
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Assets    
Cash and cash equivalents $ 277,696 $ 282,914
Receivables 51,592 125,600
Real estate inventories 3,216,059 3,105,553
Investments in unconsolidated entities 5,410 5,870
Goodwill and other intangible assets, net 160,427 160,961
Deferred tax assets, net 67,768 76,413
Other assets 105,251 48,070
Total assets 3,884,203 3,805,381
Liabilities    
Accounts payable 81,313 72,870
Accrued expenses and other liabilities 335,149 330,882
Senior notes, net 1,410,804 1,471,302
Total liabilities 1,827,266 1,875,054
Commitments and contingencies
Stockholders’ Equity:    
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares issued and outstanding as of December 31, 2018 and 2017, respectively 0 0
Common stock, $0.01 par value, 500,000,000 shares authorized; 141,661,713 and 151,162,999 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively 1,417 1,512
Additional paid-in capital 658,720 793,980
Retained earnings 1,396,787 1,134,230
Total stockholders’ equity 2,056,924 1,929,722
Noncontrolling interests 13 605
Total equity 2,056,937 1,930,327
Total liabilities and equity $ 3,884,203 $ 3,805,381
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock authorized (shares) 50,000,000 50,000,000
Preferred stock issued (shares) 0 0
Preferred stock outstanding (shares) 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock authorized (shares) 500,000,000 500,000,000
Common stock issued (shares) 141,661,713 151,162,999
Common stock outstanding (shares) 141,661,713 151,162,999
v3.10.0.1
Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Revenues $ 1,132,697 $ 775,071 $ 771,303 $ 583,676 $ 1,128,520 $ 717,735 $ 570,626 $ 393,391 $ 3,262,747 $ 2,810,272 $ 2,405,142
Other operations expense                 3,174 2,298 2,247
Sales and marketing                 187,267 137,066 127,903
General and administrative                 155,030 137,764 124,119
Homebuilding income from operations                 353,204 343,634 295,959
Equity in (loss) income of unconsolidated entities                 (393) (11,433) 179
Other (loss) income, net                 (419) 151 312
Homebuilding income before income taxes                 352,392 332,352 296,450
Equity in income of unconsolidated entities                 8,517 6,426 4,810
Financial services income before income taxes                 9,673 7,466 5,777
Income before income taxes                 362,065 339,818 302,227
Provision for income taxes                 (90,552) (152,267) (106,094)
Net income 100,984 63,969 63,680 42,880 74,242 72,289 32,803 8,217 271,513 187,551 196,133
Net income attributable to noncontrolling interests (1,602) 0 0 0 (222) (25) (89) (24) (1,602) (360) (962)
Net income available to common stockholders $ 99,382 $ 63,969 $ 63,680 $ 42,880 $ 74,020 $ 72,264 $ 32,714 $ 8,193 $ 269,911 $ 187,191 $ 195,171
Earnings per share                      
Basic (in dollars per share) $ 0.70 $ 0.43 $ 0.42 $ 0.28 $ 0.49 $ 0.48 $ 0.21 $ 0.05 $ 1.82 $ 1.21 $ 1.21
Diluted (in dollars per share) $ 0.70 $ 0.43 $ 0.42 $ 0.28 $ 0.49 $ 0.48 $ 0.21 $ 0.05 $ 1.81 $ 1.21 $ 1.21
Weighted average shares outstanding                      
Basic (shares)                 148,183,431 154,134,411 160,859,782
Diluted (shares)                 149,004,690 155,085,366 161,381,499
Home sales                      
Home sales                 $ 3,244,087 $ 2,732,299 $ 2,329,336
Cost of home sales                 2,536,899 2,173,251 1,836,327
Land and lot sales                      
Home sales                 8,758 74,269 72,272
Cost of home sales                 25,435 14,888 17,367
Other operations                      
Revenues                 8,164 2,333 2,314
Homebuilding                      
Revenues                 3,261,009 2,808,901 2,403,922
Financial services                      
Revenues                 1,738 1,371 1,220
Cost of home sales                 $ 582 $ 331 $ 253
v3.10.0.1
Consolidated Statements of Equity - USD ($)
$ in Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Total Stockholders' Equity [Member]
Noncontrolling Interests [Member]
Beginning balance at Dec. 31, 2015 $ 1,686,463 $ 1,618 $ 911,197 $ 751,868 $ 1,664,683 $ 21,780
Beginning balance (shares) at Dec. 31, 2015   161,813,750        
Net income 196,133     195,171 195,171 962
Shares issued under share-based awards 587 $ 4 583   587  
Shares issued under share-based awards (shares)   373,332        
Excess tax deficit of share-based awards, net (165)   (165)   (165)  
Minimum tax withholding paid on behalf of employees for restricted stock units (1,359)   (1,359)   (1,359)  
Stock-based compensation expense 12,612   12,612   12,612  
Share repurchases (42,082) $ (36) (42,046)   (42,082)  
Share repurchases (shares)   (3,560,853)        
Distributions to noncontrolling interests, net (3,363)         (3,363)
Net effect of consolidations, de-consolidations and other transactions (316)         (316)
Ending balance at Dec. 31, 2016 1,848,510 $ 1,586 880,822 947,039 1,829,447 19,063
Ending balance (shares) at Dec. 31, 2016   158,626,229        
Net income 187,551     187,191 187,191 360
Shares issued under share-based awards 12,291 $ 16 12,275   12,291  
Shares issued under share-based awards (shares)   1,531,475        
Minimum tax withholding paid on behalf of employees for restricted stock units (2,896)   (2,896)   (2,896)  
Stock-based compensation expense 15,906   15,906   15,906  
Share repurchases (112,217) $ (90) (112,127)   (112,217)  
Share repurchases (shares)   (8,994,705)        
Distributions to noncontrolling interests, net (1,333)         (1,333)
Net effect of consolidations, de-consolidations and other transactions (17,485)         (17,485)
Ending balance at Dec. 31, 2017 $ 1,930,327 $ 1,512 793,980 1,134,230 1,929,722 605
Ending balance (shares) at Dec. 31, 2017 151,162,999 151,162,999        
Net income $ 271,513     269,911 269,911 1,602
Shares issued under share-based awards 1,943 $ 9 1,934   1,943  
Shares issued under share-based awards (shares)   891,323        
Minimum tax withholding paid on behalf of employees for restricted stock units (6,049)   (6,049)   (6,049)  
Stock-based compensation expense 14,814   14,814   14,814  
Share repurchases (146,063) $ (104) (145,959)   (146,063)  
Share repurchases (shares)   (10,392,609)        
Distributions to noncontrolling interests, net (2,194)         (2,194)
Ending balance at Dec. 31, 2018 $ 2,056,937 $ 1,417 $ 658,720 $ 1,396,787 $ 2,056,924 $ 13
Ending balance (shares) at Dec. 31, 2018 141,661,713 141,661,713        
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash flows from operating activities      
Net income $ 271,513 $ 187,551 $ 196,133
Adjustments to reconcile net income to net cash provided by (used in) operating activities:      
Depreciation and amortization 29,097 3,500 3,087
Equity in (income) loss of unconsolidated entities, net (8,124) 5,007 (4,989)
Deferred income taxes, net 11,074 46,810 7,434
Amortization of stock-based compensation 14,814 15,906 12,612
Charges for impairments and lot option abandonments 5,085 2,053 1,470
Excess tax deficit of share-based awards 0 0 (165)
Changes in assets and liabilities:      
Real estate inventories (91,757) (205,229) (388,145)
Receivables 74,545 (44,280) 576
Other assets (9,895) 13,487 (8,501)
Accounts payable 3,222 2,618 5,412
Accrued expenses and other liabilities 1,906 67,036 10,490
Returns on investments in unconsolidated entities, net 9,182 7,215 6,276
Net cash provided by (used in) operating activities 310,662 101,674 (158,310)
Cash flows from investing activities:      
Purchases of property and equipment (31,651) (2,605) (3,985)
Proceeds from sale of property and equipment 8 6 9
Investments in unconsolidated entities (2,274) (980) (32)
Net cash paid for acquisition (61,495) 0 0
Net cash used in investing activities (95,412) (3,579) (4,008)
Cash flows from financing activities:      
Borrowings from debt 125,000 500,000 541,069
Repayment of debt (193,105) (413,726) (330,858)
Debt issuance costs 0 (5,957) (5,062)
Net repayments of debt held by variable interest entities 0 0 (2,442)
Contributions from noncontrolling interests 0 0 1,955
Distributions to noncontrolling interests (2,194) (1,333) (5,318)
Proceeds from issuance of common stock under share-based awards 1,943 12,291 587
Minimum tax withholding paid on behalf of employees for share-based awards (6,049) (2,896) (1,359)
Share repurchases (146,063) (112,217) (42,082)
Net cash (used in) provided by financing activities (220,468) (23,838) 156,490
Net (decrease) increase in cash and cash equivalents (5,218) 74,257 (5,828)
Cash and cash equivalents - beginning of year 282,914 208,657 214,485
Cash and cash equivalents - end of year $ 277,696 $ 282,914 $ 208,657
v3.10.0.1
Organization and Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Organization and Summary of Significant Accounting Policies
Organization and Summary of Significant Accounting Policies
Organization
TRI Pointe Group, Inc. (“TRI Pointe Group”) is engaged in the design, construction and sale of innovative single-family attached and detached homes through its portfolio of six quality brands across ten states, including Maracay in Arizona, Pardee Homes in California and Nevada, Quadrant Homes in Washington, Trendmaker Homes in Texas, TRI Pointe Homes in California, Colorado and the Carolinas and Winchester Homes in Maryland and Virginia.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries as well as other entities in which the Company has a controlling interest and variable interest entities (“VIEs”) in which the Company is the primary beneficiary.  The noncontrolling interests as of December 31, 2018 and 2017 represent the outside owners’ interests in the Company’s consolidated entities and the net equity of the VIE owners.  All significant intercompany accounts have been eliminated upon consolidation.
Unless the context otherwise requires, the terms “we”, “us”, “our” and “the Company” used herein refer to TRI Pointe Group and its consolidated subsidiaries.
Reclassifications
Certain amounts in our consolidated financial statements for prior years have been reclassified to conform to the current period presentation, including the Company's condensed reporting of restructuring charges, included in general and administrative expense on the consolidated statements of operations in this annual report on Form 10-K.
Use of Estimates
Our financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from our estimates.
Subsequent Events
We evaluated subsequent events up until our consolidated financial statements were filed with the Securities and Exchange Commission.
Cash and Cash Equivalents and Concentration of Credit Risk
We define cash and cash equivalents as cash on hand, demand deposits with financial institutions, and short-term liquid investments with a maturity date of less than three months from the date of acquisition. The Company’s cash balances exceed federally insurable limits. The Company monitors the cash balances in its operating accounts and adjusts the cash balances as appropriate; however, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to cash in its operating accounts.
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Codified as “ASC 606”). ASC 606 supersedes the revenue-recognition requirements in ASC Topic 605, Revenue Recognition, most industry-specific guidance throughout the industry topics of the accounting standards codification, and eliminates certain cost guidance related to construction-type and production-type contracts in accordance with ASC 970. In addition, ASC 606 includes Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers, which provided updated guidance related to certain costs incurred in obtaining and fulfilling contracts with customers. Collectively, we refer to ASC 606 and Subtopic 340-40 as ASC 606 throughout this filing. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: identify the contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognize revenue when (or as) the entity satisfies a performance obligation. We have adopted and applied this updated revenue recognition and cost policy as of January 1, 2018. See Adoption of New Accounting Standards below.
The majority of our revenue is related to fixed-price contracts to deliver completed homes to homebuyers, and to a much lesser degree, to deliver land or lots to other homebuilders or real estate developers. We generally deliver completed homes to homebuyers and land and lots to other homebuilders or real estate developers when all closing conditions are met, including the passage of title and the receipt of consideration, and the collection of associated receivables, if any, is reasonably assured. When it is determined that there are uncompleted performance obligations, the transaction price and the related profit for those uncompleted performance obligations are deferred for recognition in future periods based on the principles of ASC 606. The most common examples of uncompleted performance obligations are unfinished pools or outdoor landscaping features that are unable to be completed due to weather or other circumstances.
Following the adoption of ASC 606, the timing of revenue recognition for all of our contracts remained materially consistent with our historical revenue recognition policy due to the nature of our revenue generating activities, with the most common difference under ASC 606 relating to the deferral of revenue due to these uncompleted performance obligations at the time we deliver new homes to our homebuyers.
When we enter into a contract with a homebuyer, we sometimes receive a nonrefundable deposit that is recognized as revenue under circumstances in which a contract is canceled by the homebuyer. These amounts are recognized as home sales revenue at the time a contract is canceled by the homebuyer. We have not experienced significant contract modifications impacting the timing of revenue recognition under ASC 606, nor will we be required to use estimates in the application of the core revenue recognition principles.
Real Estate Inventories and Cost of Sales
Real estate inventories consist of land, land under development, homes under construction, completed homes and model homes and are stated at cost, net of impairment losses. We capitalize direct carrying costs, including interest, property taxes and related development costs to inventories. Field construction supervision and related direct overhead are also included in the capitalized cost of inventories. Direct construction costs are specifically identified and allocated to homes while other common costs, such as land, land improvements and carrying costs, are allocated to homes within a community based upon their anticipated relative sales or fair value. In accordance with ASC Topic 835, Interest (“ASC 835”), homebuilding interest capitalized as a cost of inventories owned is included in costs of sales as related units or lots are sold. To the extent our debt exceeds our qualified assets as defined in ASC 835, we expense a portion of the interest incurred by us. Qualified assets represent projects that are actively under development. Homebuilding cost of sales is recognized at the same time revenue is recognized and is recorded based upon total estimated costs to be allocated to each home within a community. Any changes to the estimated costs are allocated to the remaining undelivered lots and homes within their respective community. The estimation and allocation of these costs require a substantial degree of judgment by management.
The estimation process involved in determining relative sales or fair values is inherently uncertain because it involves estimating future sales values of homes before delivery. Additionally, in determining the allocation of costs to a particular land parcel or individual home, we rely on project budgets that are based on a variety of assumptions, including assumptions about construction schedules and future costs to be incurred. It is common that actual results differ from budgeted amounts for various reasons, including construction delays, increases in costs that have not been committed or unforeseen issues encountered during construction that fall outside the scope of existing contracts, or costs that come in less than originally anticipated. While the actual results for a particular construction project are accurately reported over time, a variance between the budget and actual costs could result in the understatement or overstatement of costs and have a related impact on gross margins between reporting periods. To reduce the potential for such variances, we have procedures that have been applied on a consistent basis, including assessing and revising project budgets on a periodic basis, obtaining commitments from subcontractors and vendors for future costs to be incurred and utilizing the most recent information available to estimate costs.
If there are indications of impairment, we perform a detailed budget and cash flow review of our real estate assets to determine whether the estimated remaining undiscounted future cash flows of the community are more or less than the asset’s carrying value. If the undiscounted cash flows are more than the asset’s carrying value, no impairment adjustment is required. However, if the undiscounted cash flows are less than the asset’s carrying value, the asset is deemed impaired and is written down to fair value. These impairment evaluations require us to make estimates and assumptions regarding future conditions, including timing and amounts of development costs and sales prices of real estate assets, to determine if expected future undiscounted cash flows will be sufficient to recover the asset’s carrying value.
When estimating undiscounted cash flows of a community, we make various assumptions, including: (i) expected sales prices and sales incentives to be offered, including the number of homes available, pricing and incentives being offered by us or other builders in other communities, and future sales price adjustments based on market and economic trends; (ii) expected sales pace and cancellation rates based on local housing market conditions, competition and historical trends; (iii) costs expended to date and expected to be incurred including, but not limited to, land and land development costs, home construction costs, interest costs, indirect construction and overhead costs, and selling costs; (iv) alternative product offerings that may be offered that could have an impact on sales pace, sales price and/or building costs; and (v) alternative uses for the property.
Many assumptions are interdependent and a change in one may require a corresponding change to other assumptions. For example, increasing or decreasing monthly sales absorption rates has a direct impact on the estimated per unit sales price of a home and the level of time sensitive costs (such as indirect construction, overhead and carrying costs). Depending on the underlying objective of the community, assumptions could have a significant impact on the projected cash flow analysis. For example, if our objective is to preserve operating margins, our cash flow analysis will be different than if the objective is to increase sales. These objectives may vary significantly from community to community and over time.
If assets are considered impaired, impairment is determined by the amount the asset’s carrying value exceeds its fair value. Fair value is determined based on estimated future cash flows discounted for inherent risks associated with real estate assets. These discounted cash flows are impacted by expected risk based on estimated land development, construction and delivery timelines; market risk of price erosion; uncertainty of development or construction cost increases; and other risks specific to the asset or market conditions where the asset is located when assessment is made. These factors are specific to each community and may vary among communities. We perform a quarterly review for indicators of impairment. For the years ended December 31, 2018 and December 31, 2016, we did not incur any real estate inventory impairment charges. For the year ended December 31, 2017, we recorded impairment charges of $854,000
Warranty Reserves
In the normal course of business, we incur warranty-related costs associated with homes that have been delivered to homebuyers. Estimated future direct warranty costs are accrued and charged to cost of sales in the period when the related home sales revenues are recognized while indirect warranty overhead salaries and related costs are charged to cost of sales in the period incurred.  Factors that affect the warranty accruals include the number of homes delivered, historical and anticipated rates of warranty claims and cost per claim.  Our primary assumption in estimating the amounts we accrue for warranty costs is that historical claims experience is a strong indicator of future claims experience.  In addition, we maintain general liability insurance designed to protect us against a portion of our risk of loss from warranty and construction-related claims.  We also generally require our subcontractors and design professionals to indemnify us for liabilities arising from their work, subject to various limitations. However, such indemnity is significantly limited with respect to certain subcontractors that are added to our general liability insurance policy. 
Our warranty reserve is based on actuarial analysis that uses our historical claim and expense data, as well as industry data to estimate these overall costs. Key assumptions used in developing these estimates include claim frequencies, severities and resolution patterns, which can occur over an extended period of time. These estimates are subject to variability due to the length of time between the delivery of a home to a homebuyer and when a warranty or construction defect claim is made, and the ultimate resolution of such claim; uncertainties regarding such claims relative to our markets and the types of product we build; and legal or regulatory actions and/or interpretations, among other factors. Due to the degree of judgment involved and the potential for variability in these underlying assumptions, our actual future costs could differ from those estimated. There can be no assurance that the terms and limitations of the limited warranty will be effective against claims made by homebuyers, that we will be able to renew our insurance coverage or renew it at reasonable rates, that we will not be liable for damages, cost of repairs, and/or the expense of litigation surrounding possible construction defects, soil subsidence or building related claims or that claims will not arise out of uninsurable events or circumstances not covered by insurance and not subject to effective indemnification agreements with certain subcontractors.
We also record expected recoveries from insurance carriers based on actual insurance claims made and actuarially determined amounts that depend on various factors, including, the above-described reserve estimates, our insurance policy coverage limits for the applicable policy years and historical recovery rates. Because of the inherent uncertainty and variability in these assumptions, our actual insurance recoveries could differ significantly from amounts currently estimated.
Investments in Unconsolidated Entities
We have investments in unconsolidated entities over which we have significant influence that we account for using the equity method with taxes provided on undistributed earnings. We record earnings and accrue taxes in the period that the earnings are recorded by our affiliates. Under the equity method, our share of the unconsolidated entities’ earnings or loss is included in equity in (loss) income of unconsolidated entities in the accompanying consolidated statements of operations. We evaluate our investments in unconsolidated entities for impairment when events and circumstances indicate that the carrying value of the investment has been impaired beyond a temporary period of time. For the year ended December 31, 2017, we had a $13.2 million impairment charge related to a joint venture formed as a limited liability company in 1999 for the entitlement and development of land located in Los Angeles County, California. For the years ended December 31, 2018 and 2016, we did not have any impairment charges related to investments in unconsolidated entities.
Variable Interest Entities
The Company accounts for variable interest entities in accordance with ASC Topic 810, Consolidation (“ASC 810”). Under ASC 810, a variable interest entity (“VIE”) is created when: (a) the equity investment at risk in the entity is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by other parties, including the equity holders; (b) the entity’s equity holders as a group (i) lack the direct or indirect ability to make decisions about the entity, (ii) are not obligated to absorb expected losses of the entity or (iii) do not have the right to receive expected residual returns of the entity; or (c) the entity’s equity holders have voting rights that are not proportionate to their economic interests, and the activities of the entity involve, or are conducted on behalf of, the equity holder with disproportionately few voting rights. If an entity is deemed to be a VIE pursuant to ASC 810, the enterprise that has both (a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (b) the obligation to absorb the expected losses of the entity or right to receive benefits from the entity that could be potentially significant to the VIE is considered the primary beneficiary and must consolidate the VIE.
Under ASC 810, a non-refundable deposit paid to an entity is deemed to be a variable interest that will absorb some or all of the entity’s expected losses if they occur. Our land purchase and lot option deposits generally represent our maximum exposure to the land seller if we elect not to purchase the optioned property. In some instances, we may also expend funds for due diligence, development and construction activities with respect to optioned land prior to takedown. Such costs are classified as inventories owned, which we would have to write off should we not exercise the option. Therefore, whenever we enter into a land option or purchase contract with an entity and make a non-refundable deposit, a VIE may have been created. In accordance with ASC 810, we perform ongoing reassessments of whether we are the primary beneficiary of a VIE.
Stock-Based Compensation
We account for share-based awards in accordance with ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. ASC 718 requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees.  Share-based awards are expensed on a straight-line basis over the expected vesting period.
Sales and Marketing Expense
Following the adoption of ASC 606 on January 1, 2018, costs incurred for tangible assets directly used in the sales process that were previously capitalized to real estate inventories and amortized to cost of home sales, such as our sales offices, and model landscaping and furnishings, are capitalized to other assets and amortized to selling expense as the underlying homes are delivered. All other sales and marketing costs that were previously capitalized to real estate inventories and amortized to cost of home sales, such as advertising signage, brochures, and model and sales office conversion costs are expensed as incurred as selling expense. See Adoption of New Accounting Standards below.
Income Taxes
We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities are recorded based on future tax consequences of both temporary differences between the amounts reported for financial reporting purposes and the amounts deductible for income tax purposes, and are measured using enacted tax rates expected to apply in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the changes are enacted.
Each quarter we assess our deferred tax assets to determine whether all or any portion of the assets is more likely than not unrealizable under ASC 740. We are required to establish a valuation allowance for any portion of the asset we conclude is more likely than not to be unrealizable. Our assessment considers, among other things, the nature, frequency and severity of our current and cumulative losses, forecasts of our future taxable income, the duration of statutory carryforward periods and tax planning alternatives. Due to uncertainties inherent in the estimation process, it is possible that actual results may vary from estimates.
The enactment of the Tax Cuts and Jobs Act in the fourth quarter of 2017, among other things, reduced the federal corporate tax rate to 21% from 35%, effective January 1, 2018. This resulted in a $22.0 million reduction in our deferred tax asset for the year ended December 31, 2017. For further details, see Note 15, Income Taxes.
We classify any interest and penalties related to income taxes as part of income tax expense. 
Business Combinations
We account for business combinations in accordance with ASC Topic 805, Business Combinations, if the assets acquired and liabilities assumed constitute a business. For acquired companies constituting a business, we recognize the identifiable assets acquired and liabilities assumed at their acquisition-date fair values and recognize any excess of total consideration paid over the fair value of the identifiable assets as goodwill. During the fourth quarter of 2018 we acquired a Dallas-based homebuilder for an all cash purchase price of approximately $61.5 million. This transaction was accounted for as a business combination in accordance with ASC 805, Business Combinations. For further details, see Note 5, Real Estate Inventories.
Goodwill and Other Intangible Assets
In accordance with ASC Topic 350, Intangibles-Goodwill and Other (“ASC 350”), we evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis, or more frequently if events or changes in circumstances between annual tests indicate that it is more likely than not that the asset is impaired. We have identified one reporting unit with goodwill, TRI Pointe Homes, and performed our annual goodwill impairment evaluation as of October 1, 2018. For further details on goodwill, see Note 8, Goodwill and Other Intangible Assets.
For our TRI Pointe Homes reporting unit, we performed a qualitative assessment to determine whether it is more likely than not that its fair value is less than its carrying amount. Upon completion of the October 2018 annual impairment assessment, we determined that no goodwill impairment was indicated. As of December 31, 2018, we are not aware of any significant indicators of impairment that exist for our goodwill that would require additional analysis.
An impairment of our indefinite-lived intangible asset is based on a comparison of its fair value to book value, without consideration of any recoverability due to the indefinite nature of the asset. As of December 31, 2018, we believe that our indefinite-lived intangible asset continues to have an indefinite life and that its fair value exceeds its carrying value. For further details on our indefinite-lived intangible asset, see Note 8, Goodwill and Other Intangible Assets.
In accordance with ASC Topic 360, Property, Plant and Equipment ("ASC 360"), we evaluate finite-lived intangible assets for impairment on an annual basis, or more frequently if events or changes in circumstances between annual tests indicate that it is more likely than not that the asset is impaired. An impairment in the carrying value of our finite-lived intangible asset is recognized whenever anticipated future undiscounted cash flows from the asset become unrecoverable and are estimated to be less than its carrying value. As of December 31, 2018, we believe that the carrying value of our finite-lived intangible asset is recoverable and that its fair value is greater than its carrying value. For further details on our finite-lived intangible asset, see Note 8, Goodwill and Other Intangible Assets.
Significant management judgment is required in the forecasts of future operating results that are used in our impairment evaluations. Our estimates are consistent with the plans and estimates that we use to manage our business. It is possible, however, that the plans may change and estimates used may prove to be inaccurate. If our actual results, or the plans and estimates used in future impairment analyses, are lower than the original estimates used to assess the recoverability of these assets, we could incur future impairment charges.
Recently Issued Accounting Standards Not Yet Adopted
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Codified as “ASC 842”), which requires an entity to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases with durations of greater than 12 months, but record expenses on the statements of operations in a manner similar to current accounting. The guidance also requires more disclosures about leases in the notes to consolidated financial statements. ASC 842 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and, at that time, we will adopt the new standard using a modified retrospective approach by recognizing a cumulative effect adjustment to the opening balance sheet. We have elected the transition package of three practical expedients permitted under ASC 842, which among other things, allows us to retain the current operating classification for all our existing leases prior to the effective adoption period. We have substantially completed our evaluation on the impact that the adoption of ASC 842 may have on our consolidated financial statements and disclosures, and we expect to recognize additional lease assets and liabilities of approximately $58 million to reflect the present value of remaining lease payments under existing leasing arrangements. The actual impact may differ from our estimate. While the adoption of ASC 842 will impact on our consolidated balance sheet, we do not expect that there will be a material impact to our consolidated statements of operations or cash flows.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”), which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted, and applied prospectively. We do not expect ASU 2017-04 will have a material impact on our financial statements.
Adoption of New Accounting Standards
In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. We adopted ASU 2016-15 on January 1, 2018 and our adoption did not have a material impact on our consolidated financial statements.
On January 1, 2018, we adopted ASC 606 using the modified retrospective approach applying the method of presenting the standard of ASC 606 to only those contracts not considered completed under legacy GAAP. As a result of this application of ASC 606, no prior period results have been recast and the standard has been applied prospectively as of January 1, 2018. The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet resulting from the adoption of ASC 606 was as follows (in thousands):
 
 
Balance at December 31, 2017
 
Adjustments due to ASC 606
 
Balance at January 1, 2018
Assets
 
 
 
 
 
 
 Real estate inventories
 
$
3,105,553

 
$
(49,317
)
 
$
3,056,236

 Deferred income tax asset
 
76,413

 
2,429

 
78,842

 Other assets
 
48,070

 
39,534

 
87,604

Equity
 
 
 
 
 
 
 Retained earnings
 
1,134,230

 
(7,354
)
 
1,126,876


Our cumulative adjustment to retained earnings on January 1, 2018 related primarily to the impact of ASC 340-40 and the timing of recognition and classification in our consolidated financial statements of certain sales office, model and other marketing related costs that we incur to obtain sales contracts from our customers. See our Real Estate Inventories and Cost of Sales and Revenue Recognition accounting policy above.
In accordance with ASC 606 disclosure requirements, the impact of adopting ASC 606 on our consolidated statements of operations and balance sheets for the year ended December 31, 2018 was as follows (in thousands, except per share amounts):
 
 
Year Ended December 31, 2018
 
 
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change Higher/(Lower)
Statements of Operations
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 Home sales
 
$
3,244,087

 
$
3,244,669

 
$
(582
)
 
 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
 
 Cost of home sales
 
2,536,899

 
2,575,992

 
(39,093
)
 Sales and marketing
 
187,267

 
159,482

 
27,785

 Provision for income taxes
 
(90,552
)
 
(87,871
)
 
2,681

 Net income
 
269,911

 
261,866

 
8,045

Diluted earnings per share
 
$
1.81

 
$
1.76

 
$
0.05

 
 
 
 
 
 
 
 
 
As of December 31, 2018
 
 
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change Higher/(Lower)
Balance Sheet
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 Real estate inventories
 
$
3,216,059

 
$
3,258,232

 
$
(42,173
)
Deferred tax assets, net
 
67,768

 
62,656

 
5,112

 Other assets
 
105,251

 
64,033

 
41,218

 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 Accrued expenses and other liabilities
 
335,149

 
335,344

 
(195
)
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 Retained earnings
 
1,396,787

 
1,392,435

 
4,352


Contracts with Customers
In consideration of the appropriate revenue recognition for our contracts with customers, we first assessed our ordinary operations in order to capture all revenue transactions with a counter-party appropriately considered a customer. Historically, our ordinary homebuilding revenue generating activities have included contracts with homebuyers to deliver completed homes and to a much lesser extent, contracts with other homebuilders or real estate developers to deliver land or lots in exchange for consideration. The majority of our homebuilding contracts with customers typically include a single performance obligation, which is the transfer of control of the real estate property when all closing conditions are met.
In addition to our core homebuilding operations, we undertake service operations with customers in the form of our financial services reportable segment (“TRI Pointe Solutions”), which is comprised of our mortgage financing operations, title services operations and property and casualty insurance agency operations.  Our mortgage financing operation (“TRI Pointe Connect”) can act as a preferred mortgage broker to our homebuyers in all of the markets in which we operate.  TRI Pointe Connect was formed as a joint venture with an established mortgage lender and is accounted for under the equity method of accounting.  Our title services operation (“TRI Pointe Assurance”) provides title examinations for our homebuyers in Texas, Maryland and Virginia.  TRI Pointe Assurance is a wholly owned subsidiary of TRI Pointe and acts as a title agency for First American Title Insurance Company. Our property and casualty insurance agency operations (“TRI Pointe Advantage”) is a wholly owned subsidiary of TRI Pointe that provides property and casualty insurance agency services that help facilitate the closing process in all of the markets in which we operate.
We do not currently have any long-term contracts with customers. ASC 606 provides certain practical expedients that limit some of the accounting treatments and disclosure requirements existing under this accounting standard. We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
Disaggregation of Revenues
We generate revenues from a mix of homebuilding operations and financial services operations. Due to the nature of our revenue generating activities, the disaggregated revenue reported on our consolidated statement of operations, in conjunction with the revenues reported in our segment disclosure, is deemed sufficient to report revenue from contracts with customers in accordance with the disaggregation disclosure requirements of ASC 606. We report total revenues in Note 2, Segment Information, which is fully comprised of our revenues from contracts with customers. While the total homebuilding revenues by segment include a mix of home sales revenue, land and lot sales revenue and other operations revenue, all material revenue amounts outside of home sales revenue are attributed to their respective homebuilding segments in the discussion below. Our consideration of disaggregated revenue consisted of a variety of facts and circumstances pertaining to our contracts with customers. These considerations included the nature, amounts, timing and other characteristics and economic factors present within each revenue line item appearing on our consolidated statement of operations. See below for further commentary regarding each of our revenue streams from contracts with customers.
Home sales revenue
We generate the majority of our total revenues from home sales, which consists of our core business operation of building and delivering completed homes to homebuyers. Included in home sales revenue are forfeited deposits, which occur when homebuyers cancel home purchase contracts that include a nonrefundable deposit. Both revenue from forfeited deposits and deferred revenue resulting from uncompleted performance obligations existing at the time we deliver new homes to our homebuyers is immaterial.
Land and lot sales revenue
Historically, we have generated land and lot sales revenue from a small number of transactions, although in some years we have realized a significant amount of revenue and gross margin. We do not expect our future land and lot sales revenue to be material, but we still consider these sales to be an ordinary part of our business, thus meeting the definition of contracts with customers. Similar to our home sales, revenue from land and lot sales is typically fully recognized when the land and lot sales transactions are consummated, at which time no further performance obligations are left to be satisfied. Some of our historical land and lot sales have included future profit participation rights. We will recognize future land and lot sales revenue in the periods in which all closing conditions are met, subject to the constraint on variable consideration related to profit participation rights, if such rights exist in the sales contract.
Other operations revenue
The majority of our other homebuilding operations revenue relates to a ground lease at our Quadrant Homes reporting segment. We are responsible for making lease payments to the land owner, and we collect sublease payments from the buyers of the buildings. This ground lease is accounted for in accordance with ASC Topic 840, Leases. We do not recognize a material profit on this ground lease.
Financial services revenues
TRI Pointe Solutions is a reportable segment and is comprised of our TRI Pointe Connect mortgage financing operations, TRI Pointe Assurance title services operations, and TRI Pointe Advantage property and casualty insurance agency operations.
Mortgage financing operations
TRI Pointe Connect was formed as a joint venture with an established mortgage lender and is accounted for under the equity method of accounting.  Based on our percentage stake in this joint venture, we record a percentage of income earned by TRI Pointe Connect. Revenue by TRI Pointe Connect is recognized in the period in which the home sales transactions are consummated. TRI Pointe Connect does not have a history of uncollectable amounts from these operations. TRI Pointe Connect activity appears as equity in income of unconsolidated entities under the Financial Services section of our consolidated statements of operations.
Title services operations
TRI Pointe Assurance provides title examinations for our homebuyers in Texas, Maryland and Virginia.  TRI Pointe Assurance is a wholly owned subsidiary of TRI Pointe and acts as a title agency for First American Title Insurance Company. At the time of the consummation of the home sales transactions, we recognize a percentage of revenue captured by First American Title Insurance Company. We do not have a history of uncollectable amounts from these operations. TRI Pointe Assurance revenue is included in the Financial Services section of our consolidated statements of operations.
Property and casualty insurance agency operations
TRI Pointe Advantage is a wholly owned subsidiary of TRI Pointe and provides property and casualty insurance agency services that help facilitate the closing process in all of the markets in which we operate. These operations began in February 2018 and have not generated a material amount of revenue.  We expect revenue from these operations to increase as customers use these services to procure homeowners insurance, with further revenue potential as customers renew their insurance coverages beyond the initial coverage periods.  The total consideration for these services, including renewal options, is estimated upon the issuance of the initial insurance policy, subject to constraint. TRI Pointe Advantage revenue is included in the Financial Services section of our consolidated statements of operations.
v3.10.0.1
Segment Information
12 Months Ended
Dec. 31, 2018
Segment Reporting [Abstract]  
Segment Information
Segment Information

We operate two principal businesses: homebuilding and financial services.
Our homebuilding operations consist of six homebuilding companies, each operating under different brand names, through which we acquire and develop land and construct and sell single-family detached and attached homes. In accordance with ASC Topic 280, Segment Reporting, in determining the most appropriate reportable segments, we considered similar economic and other characteristics, including product types, average selling prices, gross profits, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, brand names, and underlying demand and supply. Based upon these factors, our homebuilding operations comprise the following six reportable segments: Maracay, consisting of operations in Arizona; Pardee Homes, consisting of operations in California and Nevada; Quadrant Homes, consisting of operations in Washington; Trendmaker Homes, consisting of operations in Texas; TRI Pointe Homes, consisting of operations in California, Colorado and the early stages of expansion into the Carolinas; and Winchester Homes, consisting of operations in Maryland and Virginia.
Our TRI Pointe Solutions financial services operation is a reportable segment and is comprised of our TRI Pointe Connect mortgage financing operations, our TRI Pointe Assurance title services operations, and our TRI Pointe Advantage property and casualty insurance agency operations. For further details, see Note 1, Organization and Summary of Significant Accounting Policies.
Corporate is a non-operating segment that develops and implements company-wide strategic initiatives and provides support to our homebuilding reporting segments by centralizing certain administrative functions, such as marketing, legal, accounting, treasury, insurance, internal audit and risk management, information technology and human resources, to benefit from economies of scale. Our Corporate non-operating segment also includes general and administrative expenses related to operating our corporate headquarters. A portion of the expenses incurred by Corporate is allocated to the homebuilding reporting segments.
The reportable segments follow the same accounting policies used for our consolidated financial statements, as described in Note 1, Organization and Summary of Significant Accounting Policies. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented.
Total revenues and income before income taxes for each of our reportable segments were as follows (in thousands):
 
 
2018
 
2017
 
2016
Revenues
 
 
 
 
 
Maracay
$
263,321

 
$
296,768

 
$
255,253

Pardee Homes
999,710

 
826,033

 
730,848

Quadrant Homes
307,706

 
247,939

 
213,221

Trendmaker Homes
310,730

 
253,825

 
244,001

TRI Pointe Homes
1,073,592

 
927,247

 
723,186

Winchester Homes
305,950

 
257,089

 
237,413

Total homebuilding revenues
3,261,009

 
2,808,901

 
2,403,922

Financial services
1,738

 
1,371

 
1,220

Total
$
3,262,747

 
$
2,810,272

 
$
2,405,142

Income before taxes
 

 
 

 
 

Maracay
$
23,281

 
$
23,987

 
$
17,189

Pardee Homes
191,793

 
198,738

 
204,237

Quadrant Homes
38,366

 
32,671

 
21,209

Trendmaker Homes
25,228

 
16,764

 
15,353

TRI Pointe Homes
115,632

 
89,811

 
62,013

Winchester Homes
23,981

 
15,472

 
16,147

Corporate
(65,889
)
 
(45,091
)
 
(39,698
)
Total homebuilding income before income taxes
352,392

 
332,352

 
296,450

Financial services
9,673

 
7,466

 
5,777

Total
$
362,065

 
$
339,818

 
$
302,227



Total real estate inventories and total assets for each of our reportable segments, as of the date indicated, were as follows (in thousands):
 
 
December 31, 2018
 
December 31, 2017
Real estate inventories
 

 
 

Maracay
$
293,217

 
$
243,883

Pardee Homes
1,286,877

 
1,245,659

Quadrant Homes
279,486

 
257,887

Trendmaker Homes
271,061

 
204,926

TRI Pointe Homes
812,799

 
855,727

Winchester Homes
272,619

 
297,471

Total
$
3,216,059

 
$
3,105,553

Total assets
 

 
 

Maracay
$
318,703

 
$
268,866

Pardee Homes
1,391,503

 
1,346,296

Quadrant Homes
313,947

 
312,803

Trendmaker Homes
325,943

 
224,995

TRI Pointe Homes
987,610

 
1,062,920

Winchester Homes
298,602

 
313,921

Corporate
228,010

 
262,740

Total homebuilding assets
3,864,318

 
3,792,541

Financial services
19,885

 
12,840

Total
$
3,884,203

 
$
3,805,381

v3.10.0.1
Earnings Per Share
12 Months Ended
Dec. 31, 2018
Earnings Per Share [Abstract]  
Earnings Per Share
Earnings Per Share  
The following table sets forth the components used in the computation of basic and diluted earnings per share (in thousands, except share and per share amounts):
 
 
Year Ended December 31,
 
2018
 
2017
 
2016
Numerator:
 

 
 

 
 

Income available to common stockholders
$
269,911

 
$
187,191

 
$
195,171

Denominator:
 

 
 

 
 

Basic weighted-average shares outstanding
148,183,431

 
154,134,411

 
160,859,782

Effect of dilutive shares:
 
 
 
 
 
Stock options and unvested restricted stock units
821,259

 
950,955

 
521,717

Diluted weighted-average shares outstanding
149,004,690

 
155,085,366

 
161,381,499

Earnings per share
 

 
 

 
 

Basic
$
1.82

 
$
1.21

 
$
1.21

Diluted
$
1.81

 
$
1.21

 
$
1.21

Antidilutive stock options not included in diluted earnings per share
1,645,816

 
3,288,340

 
4,551,337

v3.10.0.1
Receivables, Net
12 Months Ended
Dec. 31, 2018
Receivables [Abstract]  
Receivables, Net
Receivables, Net
Receivables, net consisted of the following (in thousands):
 
December 31, 2018
 
December 31, 2017
Escrow proceeds and other accounts receivable, net
$
13,995

 
$
89,783

Warranty insurance receivable (Note 13)
37,597

 
35,817

Total receivables
$
51,592

 
$
125,600



Receivables are evaluated for collectability and allowances for potential losses are established or maintained on applicable receivables when collection becomes doubtful.  Receivables were net of allowances for doubtful accounts of $667,000 in 2018 and $330,000 in 2017.
v3.10.0.1
Real Estate Inventories
12 Months Ended
Dec. 31, 2018
Inventory Disclosure [Abstract]  
Real Estate Inventories
Real Estate Inventories  

Real estate inventories consisted of the following (in thousands):
 
December 31, 2018
 
December 31, 2017
Real estate inventories owned:
 

 
 

Homes completed or under construction
$
959,911

 
$
793,685

Land under development
1,743,537

 
1,934,556

Land held for future development
201,874

 
138,651

Model homes
238,828

 
211,658

Total real estate inventories owned
3,144,150

 
3,078,550

Real estate inventories not owned:
 

 
 

Land purchase and land option deposits
71,909

 
27,003

Total real estate inventories not owned
71,909

 
27,003

Total real estate inventories
$
3,216,059

 
$
3,105,553


 
Homes completed or under construction is comprised of costs associated with homes in various stages of construction and includes direct construction and related land acquisition and land development costs. Land under development primarily consists of land acquisition and land development costs, which include capitalized interest and real estate taxes, associated with land undergoing improvement activity. Land held for future development principally reflects land acquisition and land development costs related to land where development activity has not yet begun or has been suspended, but is expected to occur in the future. The real estate inventories owned balance was impacted by our one-time cumulative adjustment entry resulting from the adoption of ASC 606. As a result of our cumulative adjustment, the December 31, 2017 balance decreased by $49.3 million on January 1, 2018. For further details, see Note 1, Organization and Summary of Significant Accounting Policies.
During the fourth quarter of 2018, we acquired a Dallas-based homebuilder for an all cash purchase price of approximately $61.5 million. This transaction was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations ("ASC 805"). As a result of this transaction, we recorded approximately $63.2 million of real estate inventories owned, approximately $5.5 million of other assets and approximately $7.2 million of accounts payable and other accrued liabilities. As of December 31, 2018, the purchase price accounting reflected in the accompanying financial statements is substantially complete and is based on estimates and assumptions that are subject to change within the measurement period that may impact the fair value of the assets and liabilities above (including inventories, other assets and accrued liabilities). All net assets and operations acquired in this transaction are included in the Trendmaker Homes reporting segment in Note 2, Segment Information. This transaction did not materially impact our statement of operations for the year ended December 31, 2018.
Real estate inventories not owned represents deposits related to land purchase and land and lot option agreements as well as consolidated inventory held by variable interest entities. For further details, see Note 7, Variable Interest Entities.
Interest incurred, capitalized and expensed were as follows (in thousands):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Interest incurred
$
91,631

 
$
84,264

 
$
68,306

Interest capitalized
(91,631
)
 
(84,264
)
 
(68,306
)
Interest expensed
$

 
$

 
$

Capitalized interest in beginning inventory
$
176,348

 
$
157,329

 
$
140,311

Interest capitalized as a cost of inventory
91,631

 
84,264

 
68,306

Interest previously capitalized as a cost of inventory, included in
   cost of sales
(83,579
)
 
(65,245
)
 
(51,288
)
Capitalized interest in ending inventory
$
184,400

 
$
176,348

 
$
157,329


 
Interest is capitalized to real estate inventory during development and other qualifying activities. Interest that is capitalized to real estate inventory is included in cost of home sales as related units are delivered. Interest that is expensed as incurred is included in other income, net on the consolidated statements of operations.
Real Estate Inventory Impairments and Land Option Abandonments
Real estate inventory impairments and land option abandonments consisted of the following (in thousands):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Real estate inventory impairments
$

 
$
854

 
$

Land and lot option abandonments and pre-acquisition costs
5,085

 
1,199

 
1,470

Total
$
5,085

 
$
2,053

 
$
1,470


 
Impairments of real estate inventory relate primarily to projects or communities that include homes completed or under construction. Within a project or community, there may be individual homes or parcels of land that are currently held for sale. Impairment charges recognized as a result of adjusting individual held-for-sale assets within a community to estimated fair value less cost to sell are also included in the total impairment charges above.  
In addition to owning land and residential lots, we also have option agreements to purchase land and lots at a future date. We have option deposits and capitalized pre-acquisition costs associated with the optioned land and lots. When the economics of a project no longer support acquisition of the land or lots under option, we may elect not to move forward with the acquisition. Option deposits and capitalized pre-acquisition costs associated with the assets under option may be forfeited at that time. 
Real estate inventory impairments and land option abandonments are recorded in cost of home sales and cost of land and lot sales on the consolidated statements of operations.
v3.10.0.1
Investments in Unconsolidated Entities
12 Months Ended
Dec. 31, 2018
Equity Method Investments and Joint Ventures [Abstract]  
Investments in Unconsolidated Entities
Investments in Unconsolidated Entities

As of December 31, 2018, we held equity investments in four active homebuilding partnerships or limited liability companies and one financial services limited liability company. Our participation in these entities may be as a developer, a builder, or an investment partner. Our ownership percentage varies from 3% to 65%, depending on the investment, with no controlling interest held in any of these investments.
Investments Held
Our cumulative investment in entities accounted for on the equity method, including our share of earnings and losses, consisted of the following (in thousands):
 
 
December 31,
 
2018
 
2017
Limited liability company interests
$
2,701

 
$
2,687

General partnership interests
2,709

 
3,183

Total
$
5,410

 
$
5,870


 
In the fourth quarter of 2017, we fully impaired a $13.2 million investment in a joint venture formed as a limited liability company in 1999 for the entitlement and development of land located in Los Angeles County, California. This $13.2 million impairment charge is included in equity in (loss) income of unconsolidated entities under our homebuilding operations on the consolidated statements of operations. Although we continue to hold a 3% equity stake in the joint venture, we are a non-funding member of the limited liability company and we expect our equity stake to be further diluted. This impairment charge is included in the Pardee Homes reporting segment in Note 2, Segment Information.
Unconsolidated Financial Information
Aggregated assets, liabilities and operating results of the entities we account for as equity-method investments are provided below. Because our ownership interest in these entities varies, a direct relationship does not exist between the information presented below and the amounts that are reflected on our consolidated balance sheets as our investment in unconsolidated entities or on our consolidated statement of operations as equity in (loss) income of unconsolidated entities.
Assets and liabilities of unconsolidated entities (in thousands):
 
December 31,
 
2018
 
2017
Assets
 
 
 
Cash
$
13,337

 
$
11,678

Receivables
4,674

 
6,564

Real estate inventories
99,864

 
99,997

Other assets
811

 
936

Total assets
$
118,686

 
$
119,175

Liabilities and equity
 
 
 
Accounts payable and other liabilities
$
11,631

 
$
12,208

Company’s equity
5,410

 
5,870

Outside interests' equity
101,645

 
101,097

Total liabilities and equity
$
118,686

 
$
119,175


Results of operations from unconsolidated entities (in thousands):
 
 
Year Ended December 31,
 
2018
 
2017
 
2016
Net sales
$
28,745

 
$
24,247

 
$
18,725

Other operating expense
(17,447
)
 
(13,904
)
 
(11,315
)
Other income
97

 
120

 
4

Net income
$
11,395

 
$
10,463

 
$
7,414

Company’s equity in income (loss) of unconsolidated entities
$
8,124

 
$
(5,007
)
 
$
4,989

v3.10.0.1
Variable Interest Entities
12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Variable Interest Entities
Variable Interest Entities

In the ordinary course of business, we enter into land option agreements in order to procure land and residential lots for future development and the construction of homes. The use of such land option agreements generally allows us to reduce the risks associated with direct land ownership and development, and reduces our capital and financial commitments. Pursuant to these land option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. Such deposits are recorded as land purchase and land option deposits under real estate inventories not owned in the accompanying consolidated balance sheets.
We analyze each of our land option agreements and other similar contracts under the provisions of ASC 810 to determine whether the land seller is a VIE and, if so, whether we are the primary beneficiary. Although we do not have legal title to the underlying land, if we are determined to be the primary beneficiary of the VIE, we will consolidate the VIE in our financial statements and reflect its assets as real estate inventory not owned included in our real estate inventories, its liabilities as debt (nonrecourse) held by VIEs in accrued expenses and other liabilities and the net equity of the VIE owners as noncontrolling interests on our consolidated balance sheets. In determining whether we are the primary beneficiary, we consider, among other things, whether we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE.
Creditors of the entities with which we have land option agreements have no recourse against us. The maximum exposure to loss under our land option agreements is limited to non-refundable option deposits and any capitalized pre-acquisition costs. In some cases, we have also contracted to complete development work at a fixed cost on behalf of the land owner and budget shortfalls and savings will be borne by us. Additionally, we have entered into land banking arrangements which require us to complete development work even if we terminate the option to procure land or lots.
The following provides a summary of our interests in land option agreements (in thousands):
 
December 31, 2018
 
December 31, 2017
 
Deposits
 
Remaining
Purchase
Price
 
Consolidated
Inventory
Held by VIEs
 
Deposits
 
Remaining
Purchase
Price
 
Consolidated
Inventory
Held by VIEs
Consolidated VIEs
$

 
$

 
$

 
$

 
$

 
$

Unconsolidated VIEs
41,198

 
433,720

 
N/A

 
3,418

 
112,590

 
N/A

Other land option agreements
30,711

 
307,498

 
N/A

 
23,585

 
269,349

 
N/A

Total
$
71,909

 
$
741,218

 
$

 
$
27,003

 
$
381,939

 
$


 
Unconsolidated VIEs represent land option agreements that were not consolidated because we were not the primary beneficiary. Other land option agreements were not considered VIEs.
In addition to the deposits presented in the table above, our exposure to loss related to our land option contracts consisted of capitalized pre-acquisition costs of $7.5 million and $4.5 million as of December 31, 2018 and 2017, respectively. These pre-acquisition costs were included in real estate inventories as land under development on our consolidated balance sheets.
v3.10.0.1
Goodwill and Other Intangible Assets
12 Months Ended
Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
The Company recorded $139.3 million of goodwill in connection with the Merger with WRECO. As of December 31, 2018 and 2017, $139.3 million of goodwill is included in goodwill and other intangible assets, net, on each of the consolidated balance sheets. The Company's goodwill balance is included in the TRI Pointe Homes reporting segment in Note 2, Segment Information.
We have two intangible assets as of December 31, 2018, comprised of an existing trade name from the acquisition of Maracay in 2006, which has a 20 year useful life, and a TRI Pointe Homes trade name resulting from the acquisition of WRECO in 2014, which has an indefinite useful life.
Goodwill and other intangible assets consisted of the following (in thousands):
 
December 31, 2018
 
December 31, 2017
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Goodwill
$
139,304

 
$

 
$
139,304

 
$
139,304

 
$

 
$
139,304

Trade names
27,979

 
(6,856
)
 
21,123

 
27,979

 
(6,322
)
 
21,657

Total
$
167,283

 
$
(6,856
)
 
$
160,427

 
$
167,283

 
$
(6,322
)
 
$
160,961


 
The remaining useful life of our amortizing intangible asset related to Maracay was 7.2 and 8.2 years as of December 31, 2018 and 2017, respectively. Amortization expense related to this intangible asset was $534,000 for each of the years ended December 31, 2018 and 2017, and was charged to sales and marketing expense.  Our $17.3 million indefinite life intangible asset related to TRI Pointe Homes trade name is not amortizing.  All trade names are evaluated for impairment on an annual basis or more frequently if indicators of impairment exist.
Expected amortization of our intangible asset related to Maracay for the next five years and thereafter is (in thousands):
2019
$
534

2020
534

2021
534

2022
534

2023
534

Thereafter
1,153

Total
$
3,823

v3.10.0.1
Other Assets
12 Months Ended
Dec. 31, 2018
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Other Assets
Other Assets
Other assets consisted of the following (in thousands):
 
December 31, 2018
 
December 31, 2017
Prepaid expenses
$
31,983

 
$
13,040

Refundable fees and other deposits
12,376

 
16,012

Development rights, held for future use or sale
845

 
2,569

Deferred loan costs
2,424

 
3,427

Operating properties and equipment, net
54,198

 
10,528

Other
3,425

 
2,494

Total
$
105,251

 
$
48,070


    
Operating properties and equipment, net was impacted by our one-time cumulative adjustment resulting from the adoption of ASC 606. As a result of our cumulative adjustment, the December 31, 2017 balance increased by $39.5 million on January 1, 2018. For further details, see Note 1, Organization and Summary of Significant Accounting Policies.
v3.10.0.1
Accrued Expenses and Other Liabilities
12 Months Ended
Dec. 31, 2018
Payables and Accruals [Abstract]  
Accrued Expenses and Other Liabilities
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
 
December 31, 2018
 
December 31, 2017
Accrued payroll and related costs
$
44,010

 
$
36,863

Warranty reserves (Note 13)
71,836

 
69,373

Estimated cost for completion of real estate inventories
114,928

 
105,864

Customer deposits
17,464

 
19,568

Income tax liability to Weyerhaeuser
6,577

 
7,706

Accrued income taxes payable
8,335

 
30,672

Liability for uncertain tax positions
972

 
1,458

Accrued interest
12,572

 
11,014

Accrued insurance expense

 
1,187

Other tax liabilities
21,892

 
33,671

Other
36,563

 
13,506

Total
$
335,149

 
$
330,882

v3.10.0.1
Senior Notes and Unsecured Revolving Credit Facility
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Senior Notes and Unsecured Revolving Credit Facility
Senior Notes and Unsecured Revolving Credit Facility
Senior Notes
Senior notes consisted of the following (in thousands): 
 
December 31,
2018
 
December 31,
2017
4.375% Senior Notes due June 15, 2019
$
381,895

 
$
450,000

4.875% Senior Notes due July 1, 2021
300,000

 
300,000

5.875% Senior Notes due June 15, 2024
450,000

 
450,000

5.250% Senior Notes due June 1, 2027
300,000

 
300,000

Discount and deferred loan costs
(21,091
)
 
(28,698
)
Total
$
1,410,804

 
$
1,471,302


In June 2017, TRI Pointe Group issued $300.0 million aggregate principal amount of 5.250% Senior Notes due 2027 (the “2027 Notes”) at 100.00% of their aggregate principal amount. Net proceeds of this issuance were $296.3 million, after debt issuance costs and discounts. The 2027 Notes mature on June 1, 2027 and interest is paid semiannually in arrears on June 1 and December 1 of each year until maturity, beginning on December 1, 2017.
In May 2016, TRI Pointe Group issued $300.0 million aggregate principal amount of 4.875% Senior Notes due 2021 (the “2021 Notes”) at 99.44% of their aggregate principal amount. Net proceeds of this issuance were $293.9 million, after debt issuance costs and discounts. The 2021 Notes mature on July 1, 2021 and interest is paid semiannually in arrears on January 1 and July 1.
TRI Pointe Group and its 100% owned subsidiary TRI Pointe Homes, Inc. ("TRI Pointe Homes") are co-issuers of the 4.375% Senior Notes due 2019 (the "2019 Notes") and the 5.875% Senior Notes due 2024 (the "2024 Notes"). The 2019 Notes were issued at 98.89% of their aggregate principal amount and the 2024 Notes were issued at 98.15% of their aggregate principal amount. The net proceeds from the offering were $861.3 million, after debt issuance costs and discounts. The 2019 Notes and the 2024 Notes mature on June 15, 2019 and June 15, 2024, respectively. Interest is payable semiannually in arrears on June 15 and December 15. During the year ended December 31, 2018 we repurchased and cancelled an aggregate principal amount of $68.1 million of the 2019 Notes.
As of December 31, 2018 there was $14.6 million of capitalized debt financing costs, included in senior notes, net on our consolidated balance sheet, that will amortize over the lives of the Senior Notes. Accrued interest related to the Senior Notes was $11.5 million and $10.6 million as of December 31, 2018 and 2017, respectively.
Unsecured Revolving Credit Facility
On June 20, 2017, the Company modified its existing unsecured revolving credit facility (the “Credit Facility”) to extend the maturity date by two years to May 18, 2021, while decreasing the total commitments under the Credit Facility to $600 million from $625 million. In addition, the Credit Facility was modified to give the Company the option to make offers to the lenders to extend the maturity date of the Credit Facility in twelve-month increments, subject to the satisfaction of certain conditions. The Credit Facility contains a sublimit of $75.0 million for letters of credit. The Company may borrow under the Credit Facility in the ordinary course of business to fund its operations, including its land acquisition, land development and homebuilding activities. Borrowings under the Credit Facility will be governed by, among other things, a borrowing base. Interest rates on borrowings under the Credit Facility will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.25% to 2.00%, depending on the Company’s leverage ratio. As of December 31, 2018, we had no outstanding debt under the Credit Facility and $568.2 million of availability after considering the borrowing base provisions and outstanding letters of credit.  As of December 31, 2018 there was $2.4 million of capitalized debt financing costs, included in other assets on our consolidated balance sheet, related to the Credit Facility that will amortize over the life of the Credit Facility, maturing on May 18, 2021.  Accrued interest related to the Credit Facility was $402,000 and $426,000 as of December 31, 2018 and 2017, respectively.
At December 31, 2018 and 2017, we had outstanding letters of credit of $31.8 million and $7.7 million, respectively.  These letters of credit were issued to secure various financial obligations.  We believe it is not probable that any outstanding letters of credit will be drawn upon.
Interest Incurred
During the years ended December 31, 2018 and 2017, the Company incurred interest of $91.6 million and $84.3 million, respectively, related to all notes payable and Senior Notes outstanding during the period. All interest incurred was capitalized to inventory for the years ended December 31, 2018 and 2017, respectively. Included in interest incurred was amortization of deferred financing and Senior Notes discount costs of $8.0 million and $7.6 million for the years ended December 31, 2018 and 2017, respectively.  Accrued interest related to all outstanding debt at December 31, 2018 and 2017 was $12.6 million and $11.0 million, respectively.
Covenant Requirements
The Senior Notes contain covenants that restrict our ability to, among other things, create liens or other encumbrances, enter into sale and leaseback transactions, or merge or sell all or substantially all of our assets. These limitations are subject to a number of qualifications and exceptions.
Under the Credit Facility, the Company is required to comply with certain financial covenants, including but not limited to (i) a minimum consolidated tangible net worth; (ii) a maximum total leverage ratio; and (iii) a minimum interest coverage ratio. The Company was in compliance with all applicable financial covenants as of December 31, 2018 and December 31, 2017.
v3.10.0.1
Fair Value Disclosures
12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Disclosures
Fair Value Disclosures
Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures, defines “fair value” as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:
Level 1—Quoted prices for identical instruments in active markets
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date
Level 3—Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date

Fair Value of Financial Instruments
A summary of assets and liabilities at December 31, 2018 and 2017, related to our financial instruments, measured at fair value on a recurring basis, is set forth below (in thousands):
 
 
 
December 31, 2018
 
December 31, 2017
 
Hierarchy
 
Book Value
 
Fair Value
 
Book Value
 
Fair Value
Senior Notes (1)
Level 2
 
$
1,425,397

 
$
1,308,826

 
$
1,491,229

 
$
1,552,335

   __________
(1) 
The book value of the Senior Notes is net of discounts, excluding deferred loan costs of $14.6 million and $19.9 million as of December 31, 2018 and 2017, respectively. The estimated fair value of our Senior Notes at December 31, 2018 and 2017 is based on quoted market prices.
At December 31, 2018 and 2017, the carrying value of cash and cash equivalents, receivables, other assets, accounts payable and accrued expenses and other liabilities approximated fair value due to their short-term nature and variable interest rate terms.

Fair Value of Nonfinancial Assets
Nonfinancial assets include items such as real estate inventories and long-lived assets that are measured at fair value on a nonrecurring basis with events and circumstances indicating the carrying value is not recoverable. The following table presents impairment charges and the remaining net fair value for nonfinancial assets that were measured during the periods presented (in thousands):
 
Year Ended December 31, 2018
 
Year Ended December 31, 2017
 
Impairment
Charge
 
Fair Value
Net of
Impairment
 
Impairment
Charge
 
Fair Value
Net of
Impairment
Real estate inventories (1)
$

 
$

 
$
854

 
$
12,950

 
(1) 
Fair value of real estate inventories, net of impairment charges represents only those assets whose carrying values were adjusted to fair value in the respective periods presented.  The fair value of these real estate inventories impaired was determined based on recent offers received from outside third parties or actual contracts.
v3.10.0.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies  

Legal Matters
Lawsuits, claims and proceedings have been and may be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices, environmental protection and financial services. As a result, we are subject to periodic examinations or inquiry by agencies administering these laws and regulations.
We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. We accrue for these matters based on facts and circumstances specific to each matter and revise these estimates when necessary.  In view of the inherent difficulty of predicting outcomes of legal claims and related contingencies, we generally cannot predict their ultimate resolution, related timing or eventual loss. Accordingly, it is possible that the ultimate outcome of any matter, if in excess of a related accrual or if no accrual was made, could be material to our financial statements. Legal reserves were $17.5 million and zero as of December 31, 2018 and 2017, respectively.
On April 3, 2017, Pardee Homes was named as a defendant in a lawsuit filed in San Diego County Superior Court by Scripps Health (“Scripps”) related to the April 1989 sale by Pardee Homes of real property located in Carmel Valley, California to Scripps pursuant to a purchase agreement dated December 18, 1987 (as amended, the “Purchase Agreement”). In March 2003, Scripps contacted Pardee Homes and alleged Pardee Homes had breached a covenant in the Purchase Agreement by failing to record a restriction against the development of the surrounding property then owned by Pardee Homes for medical office use. In November 2003, the parties entered into a tolling agreement, pursuant to which the parties agreed to toll any applicable statutes of limitation from November 3, 2003 until the expiration of the agreement. The tolling agreement did not revive any cause of action already time barred by a statute of limitation as of November 3, 2003. The tolling agreement was terminated as of February 21, 2017. Pardee Homes became an indirect, wholly owned subsidiary of TRI Pointe on July 7, 2014 in connection with TRI Pointe’s acquisition of WRECO.
On May 18, 2018, Pardee Homes filed a motion for summary judgment in the action, which had a rescheduled hearing date of September 28, 2018. At the hearing, the court denied the motion for summary judgment. On October 22, 2018, Pardee Homes filed with an appellate court a writ of mandate appealing the trial court's denial of the motion for summary judgment, which writ of mandate was denied by the appellate court. On January 30, 2019, Pardee Homes and Scripps entered into a confidential settlement agreement and mutual general release pursuant to which Pardee Homes agreed to pay a settlement amount of $17.5 million and Scripps agreed to dismiss the lawsuit with prejudice. The parties also agreed to mutual general releases of all claims. On February 4, 2019, Pardee Homes paid the $17.5 million settlement amount to Scripps, and Scripps filed a request for dismissal of the lawsuit on February 7, 2019, which was entered by the court on February 21, 2019. This amount was included in accrued expenses and other liabilities on our consolidated balance sheet and in cost of land and lot sales in our consolidated statements of operations as of and for the year ended December 31, 2018.
Warranty
Warranty reserves are accrued as home deliveries occur. Our warranty reserves on homes delivered will vary based on product type and geographic area and also depending on state and local laws. The warranty reserve is included in accrued expenses and other liabilities on our consolidated balance sheets and represents expected future costs based on our historical experience over previous years. Estimated warranty costs are charged to cost of home sales in the period in which the related home sales revenue is recognized.
We maintain general liability insurance designed to protect us against a portion of our risk of loss from warranty and construction defect-related claims. We also generally require our subcontractors and design professionals to indemnify us for liabilities arising from their work, subject to various limitations. However, such indemnity is significantly limited with respect to certain subcontractors that are added to our general liability insurance policy. 
Our warranty reserve and related estimated insurance recoveries are based on actuarial analysis that uses our historical claim and expense data, as well as industry data to estimate these overall costs and related recoveries. Key assumptions used in developing these estimates include claim frequencies, severities and resolution patterns, which can occur over an extended period of time. These estimates are subject to variability due to the length of time between the delivery of a home to a homebuyer and when a warranty or construction defect claim is made, and the ultimate resolution of such claim; uncertainties regarding such claims relative to our markets and the types of product we build; and legal or regulatory actions and/or interpretations, among other factors. Due to the degree of judgment involved and the potential for variability in these underlying assumptions, our actual future costs could differ from those estimated. There can be no assurance that the terms and limitations of the limited warranty will be effective against claims made by homebuyers, that we will be able to renew our insurance coverage or renew it at reasonable rates, that we will not be liable for damages, cost of repairs, and/or the expense of litigation surrounding possible construction defects, soil subsidence or building related claims or that claims will not arise out of uninsurable events or circumstances not covered by insurance and not subject to effective indemnification agreements with certain subcontractors.
We also record expected recoveries from insurance carriers based on actual insurance claims made and actuarially determined amounts that depend on various factors, including, the above-described reserve estimates, our insurance policy coverage limits for the applicable policy years and historical recovery rates. Because of the inherent uncertainty and variability in these assumptions, our actual insurance recoveries could differ significantly from amounts currently estimated. Outstanding warranty insurance receivables were $37.6 million and $35.8 million as of December 31, 2018 and 2017, respectively. Warranty insurance receivables are recorded in receivables on the accompanying consolidated balance sheet.
Warranty reserves consisted of the following (in thousands):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Warranty reserves, beginning of period
$
69,373

 
$
83,135

 
$
45,948

Warranty reserves accrued
25,340

 
13,336

 
12,712

Adjustments to pre-existing reserves(1)
(4,286
)
 
(9,354
)
 
36,826

Warranty expenditures
(18,591
)
 
(17,744
)
 
(12,351
)
Warranty reserves, end of period
$
71,836

 
$
69,373

 
$
83,135


    __________
(1) 
Included in this amount for 2016 is approximately $38.0 million of additional warranty liabilities estimated to be covered by our insurance policies that were adjusted to present the warranty reserves and related estimated warranty insurance receivable on a gross basis at December 31, 2016. Of the $38.0 million adjusted in 2016, approximately $36.5 million related to prior year estimated warranty insurance recoveries.
Performance Bonds
We obtain surety bonds in the normal course of business with various municipalities and other government agencies to secure completion of certain infrastructure improvements of our projects.  As of December 31, 2018 and December 31, 2017, the Company had outstanding surety bonds totaling $685.7 million and $627.1 million, respectively. As of December 31, 2018 and December 31, 2017, our estimated cost to complete obligations related to these surety bonds was $423.4 million and $537.4 million, respectively. If any such performance bonds or letters of credit are called, we would be obligated to reimburse the issuer of the performance bond or letter of credit. We do not believe that a material amount of any currently outstanding performance bonds or letters of credit will be called.  Performance bonds do not have stated expiration dates. Rather, we are released from the performance bonds as the underlying performance is completed.
Operating Leases
Office Space, Buildings and Equipment
We lease certain property and equipment under non-cancelable operating leases. Office leases are for terms up to ten years and generally provide renewal options for terms up to an additional five years. In most cases, we expect that, in the normal course of business, leases that expire will be renewed or replaced by other leases. Equipment leases are typically for terms of three to four years.  The future minimum rental payments under operating leases, which primarily consist of office leases having initial or remaining noncancellable lease terms in excess of one year, are as follows (in thousands):
 
2019
$
7,502

2020
7,883

2021
6,776

2022
5,198

2023
4,088

Thereafter
8,094

 
$
39,541


 
For the years ended December 31, 2018, 2017 and 2016, rental expense was $7.8 million, $6.9 million and $6.4 million, respectively.  Rental expense is included in general and administrative expenses on the consolidated statements of operations.
Ground Leases
In 1987, we obtained two 55-year ground leases of commercial property that provided for three renewal options of ten years each and one 45-year renewal option.  We exercised the three ten year extensions on one of these ground leases extending the lease through 2071.  The commercial buildings on these properties have been sold and the ground leases have been sublet to the buyers.
For one of these leases, we are responsible for making lease payments to the land owner, and we collect sublease payments from the buyers of the buildings.  Our lease commitments under this ground lease, which extends through 2071, were (in thousands):
 
2019
$
2,359

2020
2,359

2021
2,359

2022
2,359

2023
2,359

Thereafter
75,592

 
$
87,387


 
This ground lease has been subleased through 2041 to the buyers of the commercial buildings. Our lease commitments through 2041 total $54.2 million as of December 31, 2018, and are fully offset by sublease receipts under the noncancellable subleases.
For the second lease, the buyers of the buildings are responsible for making lease payments directly to the land owner. However, we have guaranteed the performance of the buyers/lessees. As of December 31, 2018, guaranteed future payments on the lease, which expires in 2041, were $12.5 million.
Purchase Obligations
In the ordinary course of business, we enter into land option contracts in order to procure lots for the construction of our homes. We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots. These purchase contracts typically require a cash deposit and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, including obtaining applicable property and development entitlements. We also utilize option contracts with land sellers and land banking arrangements as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources. These option contracts and land banking arrangements generally require a non-refundable deposit for the right to acquire land and lots over a specified period of time at pre-determined prices. We generally have the right at our discretion, to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash deposit with no further financial responsibility to the land seller. In some cases, however, we may be contractually obligated to complete development work even if we terminate the option to procure land or lots. As of December 31, 2018, we had $71.9 million of non-refundable cash deposits pertaining to land option contracts and purchase contracts with an aggregate remaining purchase price of approximately $741.2 million (net of deposits).
Our utilization of land option contracts and land banking arrangements is dependent on, among other things, the availability of land sellers or land banking firms willing to enter into such option takedown arrangements, the availability of capital to financial intermediaries to finance the development of optioned lots, general housing market conditions, and local market dynamics. Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.
v3.10.0.1
Stock-Based Compensation
12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation
Stock-Based Compensation

2013 Long-Term Incentive Plan
The Company’s stock compensation plan, the 2013 Long-Term Incentive Plan (the “2013 Incentive Plan”), was adopted by TRI Pointe in January 2013, amended with the approval of our stockholders in 2014 and 2015, and amended and restated in 2019. In addition, our board of directors amended the 2013 Incentive Plan in 2014 to prohibit repricing (other than in connection with any equity restructuring or any change in capitalization) of outstanding options or stock appreciation rights without stockholder approval. On February 21, 2019, our board of directors approved an amendment and restatement of the 2013 Incentive Plan. The 2013 Incentive Plan provides for the grant of equity-based awards, including options to purchase shares of common stock, stock appreciation rights, bonus stock, restricted stock, restricted stock units and performance awards. The 2013 Incentive Plan will automatically expire on the tenth anniversary of its effective date. Our board of directors may terminate or amend the 2013 Incentive Plan at any time, subject to any requirement of stockholder approval required by applicable law, rule or regulation.
The number of shares of our common stock that may be issued under the 2013 Incentive Plan is 11,727,833 shares. To the extent that shares of our common stock subject to an outstanding option, stock appreciation right, stock award or performance award granted under the 2013 Incentive Plan are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or the settlement of such award in cash, then such shares of our common stock generally shall again be available under the 2013 Incentive Plan. As of December 31, 2018 there were 6,455,011 shares available for future grant under the 2013 Incentive Plan.

The following table presents compensation expense recognized related to all stock-based awards (in thousands):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Total stock-based compensation
$
14,814

 
$
15,906

 
$
12,612


 
Stock-based compensation is charged to general and administrative expense on the accompanying consolidated statements of operations. As of December 31, 2018, total unrecognized stock-based compensation related to all stock-based awards was $16.9 million and the weighted average term over which the expense was expected to be recognized was 1.7 years.
Summary of Stock Option Activity
The following table presents a summary of stock option awards for the year ended December 31, 2018:
 
 
Options
 
Weighted
Average
Exercise
Price
Per Share
 
Weighted
Average
Remaining
Contractual
Life
 
Aggregate
Intrinsic
Value
(in thousands)
Options outstanding at December 31, 2017
1,154,658

 
$
14.16

 
4.9

 
$
4,350

Granted

 

 

 


Exercised
(171,747
)
 
$
12.05

 
 
 
 
Forfeited
(29,006
)
 
$
12.73

 
 
 
 
Options outstanding at December 31, 2018
953,905

 
$
14.58

 
4.2

 
$
296

Options exercisable at December 31, 2018
953,905

 
$
14.58

 
4.2

 
$
296


 
The intrinsic value of each stock option award outstanding or exercisable is the difference between the fair market value of the Company's common stock at the end of the period and the exercise price of each stock option award to the extent it is considered "in-the-money". A stock option award is considered to be "in-the-money" if the fair market value of the Company's stock is greater than the exercise price of the stock option award. The aggregate intrinsic value of options outstanding and options exercisable represents the value that would have been received by the holders of stock option awards had they exercised their stock option award on the last trading day of the period and sold the underlying shares at the closing price on that day. The total intrinsic value of stock option awards exercised during the years ended December 31, 2018, 2017 and 2016 was $873,000, $4.5 million and $324,000, respectively. There were no stock option awards granted during the years ended December 31, 2018, 2017 and 2016.

Summary of Restricted Stock Unit Activity
The following table presents a summary of restricted stock units (“RSUs”) for the year ended December 31, 2018:
 
Restricted
Stock
Units
 
Weighted
Average
Grant Date
Fair Value
Per Share
 
Aggregate
Intrinsic
Value
(in thousands)
Nonvested RSUs at December 31, 2017
4,307,592

 
$
9.80

 
$
77,192

Granted
1,131,231

 
$
15.77

 


Vested
(1,102,727
)
 
$
12.47

 
 
Forfeited
(994,248
)
 
$
9.40

 
 
Nonvested RSUs at December 31, 2018
3,341,848

 
$
11.05

 
$
36,526



The total intrinsic value of restricted stock units that vested during the years ended December 31, 2018, 2017 and 2016 was $17.8 million, $8.8 million and $4.6 million, respectively. The total grant date fair value of restricted stock awards granted during the years ended December 31, 2018, 2017 and 2016 were $15.8 million, $18.4 million and $21.8 million, respectively.

On February 27, 2017, the Company granted an aggregate of 990,279 time-vested RSUs to employees and officers. The RSUs granted vest in equal installments annually on the anniversary of the grant date over a three year period.  The fair value of each RSU granted on February 27, 2017 was measured using a price of $12.10 per share, which was the closing stock price on the date of grant. Each award will be expensed on a straight-line basis over the vesting period.

On February 27, 2017, the Company granted 257,851247,933 and 119,008 performance-based RSUs to the Company’s Chief Executive Officer, President, and Chief Financial Officer, respectively. These performance-based RSUs are allocated in equal parts to two separate performance metrics: (i) TSR, with vesting based on the Company’s TSR relative to its peer-group homebuilders; and (ii) earnings per share. The vesting, if at all, of these performance-based RSUs may range from 0% to 100% and will be based on the Company’s percentage attainment of specified threshold, target and maximum performance goals. The performance period for these performance-based RSUs is January 1, 2017 to December 31, 2019. The fair value of the performance-based RSUs related to the TSR metric was determined to be $6.16 per share based on a Monte Carlo simulation. The fair value of the performance-based RSUs related to the earnings per share goal was measured using a price of $12.10 per share, which was the closing stock price on the date of grant. Each award will be expensed over the requisite service period.

On May 30, 2017, the Company granted an aggregate of 55,865 RSUs to the non-employee members of its board of directors. These RSUs vest in their entirety on the day immediately prior to the Company's 2018 Annual Meeting of Stockholders. The fair value of each RSU granted on May 30, 2017 was measured using a price of $12.53 per share, which