TRI POINTE GROUP, INC., 10-Q filed on 7/27/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2018
Jul. 16, 2018
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q2  
Trading Symbol TPH  
Entity Registrant Name TRI Pointe Group, Inc.  
Entity Central Index Key 0001561680  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Common Stock, Shares Outstanding   152,037,568
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2018
Dec. 31, 2017
Assets    
Cash and cash equivalents $ 239,906 $ 282,914
Receivables 59,611 125,600
Real estate inventories 3,247,786 3,105,553
Investments in unconsolidated entities 4,169 5,870
Goodwill and other intangible assets, net 160,694 160,961
Deferred tax assets, net 66,414 76,413
Other assets 94,105 48,070
Total assets 3,872,685 3,805,381
Liabilities    
Accounts payable 88,936 72,870
Accrued expenses and other liabilities 298,077 330,882
Senior notes, net 1,453,366 1,471,302
Total liabilities 1,840,379 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 June 30, 2018 and December 31, 2017, respectively 0 0
Common stock, $0.01 par value, 500,000,000 shares authorized; 152,027,014 and 151,162,999 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively 1,520 1,512
Additional paid-in capital 796,746 793,980
Retained earnings 1,233,436 1,134,230
Total stockholders’ equity 2,031,702 1,929,722
Noncontrolling interests 604 605
Total equity 2,032,306 1,930,327
Total liabilities and equity $ 3,872,685 $ 3,805,381
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, shares authorized (shares) 50,000,000 50,000,000
Preferred stock, shares issued (shares) 0 0
Preferred stock, shares outstanding (shares) 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (shares) 500,000,000 500,000,000
Common stock, shares issued (shares) 152,027,014 151,162,999
Common stock, shares outstanding (shares) 152,027,014 151,162,999
v3.10.0.1
Consolidated Statements of Operations (unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Dec. 31, 2017
Disaggregation of Revenue [Line Items]          
Total revenues $ 771,303 $ 570,626 $ 1,354,979 $ 964,017  
Other operations expense 589 591 1,191 1,151  
Sales and marketing 45,744 32,330 84,027 59,030  
General and administrative 36,483 33,688 73,297 68,337  
Homebuilding income from operations 82,574 48,787 139,263 60,970  
Equity in income (loss) of unconsolidated entities 69 1,508 (399) 1,646  
Other (expense) income, net (73) 44 98 121  
Homebuilding income before income taxes 82,570 50,339 138,962 62,737  
Equity in income of unconsolidated entities 1,984 1,294 2,986 1,560  
Financial services income before income taxes 2,246 1,562 3,394 1,995  
Income before income taxes 84,816 51,901 142,356 64,732  
Provision for income taxes (21,136) (19,098) (35,796) (23,712)  
Net income 63,680 32,803 106,560 41,020 $ 187,551
Net income attributable to noncontrolling interests 0 (89) 0 (113)  
Net income available to common stockholders $ 63,680 $ 32,714 $ 106,560 $ 40,907  
Earnings per share          
Basic (in dollars per share) $ 0.42 $ 0.21 $ 0.70 $ 0.26  
Diluted (in dollars per share) $ 0.42 $ 0.21 $ 0.70 $ 0.26  
Weighted average shares outstanding          
Basic (shares) 151,983,886 155,603,699 151,725,651 157,335,296  
Diluted (shares) 153,355,965 156,140,543 153,067,342 157,924,561  
Home sales          
Disaggregation of Revenue [Line Items]          
Home sales and Land and lot sales revenue $ 768,795 $ 568,816 $ 1,351,367 $ 960,820  
Cost of sales 604,096 454,241 1,054,598 772,645  
Land and lots          
Disaggregation of Revenue [Line Items]          
Home sales and Land and lot sales revenue 1,518 865 1,741 1,443  
Cost of sales 1,426 644 1,929 1,298  
Other operations          
Disaggregation of Revenue [Line Items]          
Total revenues 599 600 1,197 1,168  
Homebuilding          
Disaggregation of Revenue [Line Items]          
Total revenues 770,912 570,281 1,354,305 963,431  
Financial Services          
Disaggregation of Revenue [Line Items]          
Home sales and Land and lot sales revenue 391 345 674 586  
Total revenues 391 345 674 586  
Cost of sales $ 129 $ 77 $ 266 $ 151  
v3.10.0.1
Consolidated Statements of Equity (unaudited) - USD ($)
$ in Thousands
Total
Common Stock
Additional Paid-in Capital
Retained Earnings
Total Stockholders' Equity
Noncontrolling Interests
Beginning Balance at Dec. 31, 2016 $ 1,848,510 $ 1,586 $ 880,822 $ 947,039 $ 1,829,447 $ 19,063
Beginning Balance, shares at Dec. 31, 2016   158,626,229        
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
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        
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Cumulative effect of accounting change $ (7,354)     (7,354) (7,354)  
Net income 106,560     106,560 106,560  
Shares issued under share-based awards 1,633 $ 8 1,625   1,633  
Shares issued under share-based awards, shares   864,015        
Minimum tax withholding paid on behalf of employees for restricted stock units (6,049)   (6,049)   (6,049)  
Stock-based compensation expense 7,190   7,190   7,190  
Distributions to noncontrolling interests, net (1)         (1)
Ending Balance at Jun. 30, 2018 $ 2,032,306 $ 1,520 $ 796,746 $ 1,233,436 $ 2,031,702 $ 604
Ending Balance, shares at Jun. 30, 2018 152,027,014 152,027,014        
v3.10.0.1
Consolidated Statements of Cash Flows (unaudited) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2018
Jun. 30, 2017
Cash flows from operating activities:    
Net income $ 106,560 $ 41,020
Adjustments to reconcile net income to net cash used in operating activities:    
Depreciation and amortization 12,579 1,698
Equity in income of unconsolidated entities, net (2,587) (3,206)
Deferred income taxes, net 12,428 5,641
Amortization of stock-based compensation 7,190 7,744
Charges for impairments and lot option abandonments 857 828
Changes in assets and liabilities:    
Real estate inventories (188,407) (298,007)
Receivables 65,989 9,717
Other assets (2,792) 4,638
Accounts payable 16,066 (7,001)
Accrued expenses and other liabilities (32,805) 14,171
Returns on investments in unconsolidated entities, net 4,873 2,057
Net cash used in operating activities (49) (220,700)
Cash flows from investing activities:    
Purchases of property and equipment (15,682) (1,793)
Proceeds from sale of property and equipment 3 6
Investments in unconsolidated entities (1,178) (462)
Net cash used in investing activities (16,857) (2,249)
Cash flows from financing activities:    
Borrowings from debt 0 450,000
Repayment of debt (21,685) (213,726)
Debt issuance costs 0 (5,906)
Distributions to noncontrolling interests (1) (987)
Proceeds from issuance of common stock under share-based awards 1,633 2,449
Minimum tax withholding paid on behalf of employees for share-based awards (6,049) (2,896)
Share repurchases 0 (99,697)
Net cash (used in) provided by financing activities (26,102) 129,237
Net decrease in cash and cash equivalents (43,008) (93,712)
Cash and cash equivalents - beginning of period 282,914 208,657
Cash and cash equivalents - end of period $ 239,906 $ 114,945
v3.10.0.1
Organization, Basis of Presentation and Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization, Basis of Presentation and Summary of Significant Accounting Policies
Organization, Basis of Presentation and Summary of Significant Accounting Policies

Organization
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 eight states, including Maracay in Arizona, Pardee Homes in California and Nevada, Quadrant Homes in Washington, Trendmaker Homes in Texas, TRI Pointe Homes in California and Colorado and Winchester Homes in Maryland and Virginia.
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”), for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They should be read in conjunction with our consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017. In the opinion of management, all adjustments consisting of normal recurring adjustments, necessary for a fair presentation with respect to interim financial statements, have been included. The results for the three and six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the full year due to seasonal variations and other factors.
The consolidated financial statements include the accounts of TRI Pointe Group and its wholly owned subsidiaries, as well as other entities in which TRI Pointe Group has a controlling interest and variable interest entities (“VIEs”) in which TRI Pointe Group is the primary beneficiary.  The noncontrolling interests as of June 30, 2018 and December 31, 2017 represent the outside owners’ interests in the Company’s consolidated entities.  All significant intercompany accounts have been eliminated upon consolidation.
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.
Significant Accounting Policies Update
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 some cost guidance related to construction-type and production-type contracts. 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 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 where 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
ASC 606 includes Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers (“Subtopic 340-40”), which requires the deferral of incremental costs of obtaining a contract with a customer. The adoption of Subtopic 340-40 impacts 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. For example, we historically capitalized to inventory and amortized through cost of home sales various sales office, model and other marketing related costs with each home delivered in a community. Under Subtopic 340-40, these costs are expensed when incurred or capitalized to other assets and amortized to selling expense.
Recently Issued Accounting Standards Not Yet Adopted
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, (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. We are currently evaluating the impact that the adoption of ASC 842 may have on our consolidated financial statements and disclosures.
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 to 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 Subtopic 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 Significant Accounting Policies Update above.
In accordance with ASC 606 disclosure requirements, the impact of adopting ASC 606 on our consolidated statements of operations and balance sheet for the three and six months ended June 30, 2018 were as follows (in thousands, except per share amounts):
 
Three Months Ended June 30, 2018
 
Six Months Ended June 30, 2018
 
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change Higher/(Lower)
 
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change Higher/(Lower)
Statements of Operations
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
 Home sales
$
768,795

 
$
768,550

 
$
245

 
$
1,351,367

 
$
1,351,603

 
$
(236
)
 
 
 
 
 
 
 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
 
 
 
 
 
 
 Cost of home sales
604,096

 
613,702

 
(9,606
)
 
1,054,598

 
1,071,841

 
(17,243
)
 Sales and marketing
45,744

 
38,044

 
7,700

 
84,027

 
70,840

 
13,187

 Provision for income taxes
(21,136
)
 
(20,600
)
 
536

 
(35,796
)
 
(34,835
)
 
961

 Net income
63,680

 
62,065

 
1,615

 
106,560

 
103,701

 
2,859

Diluted earnings per share
$
0.42

 
$
0.40

 
$
0.02

 
$
0.70

 
$
0.68

 
$
0.02

 
 
 
 
 
 
 
 
 
 
 
 
 
As of June 30, 2018
 
 
 
 
 
 
 
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change Higher/(Lower)
 
 
 
 
 
 
Balance Sheet
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 Real estate inventories
$
3,247,786

 
$
3,296,309

 
$
(48,523
)
 
 
 
 
 
 
Deferred tax assets, net
66,414

 
63,025

 
3,389

 
 
 
 
 
 
 Other assets
94,105

 
51,766

 
42,339

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 Accrued expenses and other liabilities
298,077

 
297,615

 
462

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity
 
 
 
 
 
 
 
 
 
 
 
 Retained earnings
1,233,436

 
1,236,693

 
(3,257
)
 
 
 
 
 
 

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 our Trendmaker Homes and Winchester Homes brands.  TRI Pointe Assurance is a wholly-owned subsidiary of TRI Pointe and acts as a title agency for First American Title Insurance Company. Our property and casualty insurance agency operations (“TRI Pointe Advantage”), which launched in early 2018, 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 segment 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 on each of our revenue streams from contracts with customers.
Home sales revenue
We generate the majority of our total revenue 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, shall be 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
6 Months Ended
Jun. 30, 2018
Segment Reporting [Abstract]  
Segment Information
Segment Information
We operate two principal businesses: homebuilding and financial services.
Our homebuilding operations consist of six homebuilding brands that acquire and develop land and construct and sell single-family detached and attached homes. In accordance with ASC Topic 280, Segment Reporting, in determining the most appropriate reportable segments, we considered similar economic and other characteristics, including product types, average selling prices, gross profits, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, and underlying demand and supply. Based upon these factors, our homebuilding operations are comprised of 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 and Colorado; 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, Basis of Presentation 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, Basis of Presentation 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):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Revenues
 
 
 
 
 
 
 
Maracay
$
56,949

 
$
75,754

 
$
115,404

 
$
126,814

Pardee Homes
243,286

 
180,377

 
423,756

 
264,076

Quadrant Homes
65,404

 
40,266

 
127,307

 
80,818

Trendmaker Homes
77,716

 
65,466

 
119,124

 
117,828

TRI Pointe Homes
255,642

 
154,213

 
446,062

 
285,049

Winchester Homes
71,915

 
54,205

 
122,652

 
88,846

Total homebuilding revenues
770,912

 
570,281

 
1,354,305

 
963,431

Financial services
391

 
345

 
674

 
586

Total
$
771,303

 
$
570,626

 
$
1,354,979

 
$
964,017

 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
 
 
 
 
 
 
Maracay
$
5,014

 
$
6,241

 
$
9,405

 
$
7,998

Pardee Homes
46,917

 
36,270

 
86,108

 
46,163

Quadrant Homes
7,797

 
3,109

 
15,937

 
6,853

Trendmaker Homes
6,228

 
4,542

 
6,598

 
6,424

TRI Pointe Homes
24,175

 
8,958

 
38,706

 
15,397

Winchester Homes
4,179

 
2,219

 
5,786

 
2,619

Corporate
(11,740
)
 
(11,000
)
 
(23,578
)
 
(22,717
)
Total homebuilding income before income taxes
82,570

 
50,339

 
138,962

 
62,737

Financial services
2,246

 
1,562

 
3,394

 
1,995

Total
$
84,816

 
$
51,901

 
$
142,356

 
$
64,732

 
Total real estate inventories and total assets for each of our reportable segments, as of the date indicated, were as follows (in thousands):
 
June 30, 2018
 
December 31, 2017
Real estate inventories
 
 
 
Maracay
$
275,689

 
$
243,883

Pardee Homes
1,331,778

 
1,245,659

Quadrant Homes
297,824

 
257,887

Trendmaker Homes
225,287

 
204,926

TRI Pointe Homes
811,746

 
855,727

Winchester Homes
305,462

 
297,471

Total
$
3,247,786

 
$
3,105,553

 
 
 
 
Total assets
 
 
 
Maracay
$
296,679

 
$
268,866

Pardee Homes
1,444,940

 
1,346,296

Quadrant Homes
325,764

 
312,803

Trendmaker Homes
253,560

 
224,995

TRI Pointe Homes
989,955

 
1,062,920

Winchester Homes
340,160

 
313,921

Corporate
206,453

 
262,740

Total homebuilding assets
3,857,511

 
3,792,541

Financial services
15,174

 
12,840

Total
$
3,872,685

 
$
3,805,381

v3.10.0.1
Earnings Per Share
6 Months Ended
Jun. 30, 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):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Numerator:
 

 
 

 
 

 
 

Net income available to common stockholders
$
63,680

 
$
32,714

 
$
106,560

 
$
40,907

Denominator:
 

 
 

 
 

 
 

Basic weighted-average shares outstanding
151,983,886

 
155,603,699

 
151,725,651

 
157,335,296

Effect of dilutive shares:
 

 
 
 
 

 
 

Stock options and unvested restricted stock units
1,372,079

 
536,844

 
1,341,691

 
589,265

Diluted weighted-average shares outstanding
153,355,965

 
156,140,543

 
153,067,342

 
157,924,561

Earnings per share
 

 
 

 
 

 
 

Basic
$
0.42

 
$
0.21

 
$
0.70

 
$
0.26

Diluted
$
0.42

 
$
0.21

 
$
0.70

 
$
0.26

Antidilutive stock options and unvested restricted stock units not included in diluted earnings per share
584,405

 
3,889,923

 
916,444

 
3,862,763

v3.10.0.1
Receivables
6 Months Ended
Jun. 30, 2018
Receivables [Abstract]  
Receivables
Receivables
Receivables consisted of the following (in thousands):
 
June 30, 2018
 
December 31, 2017
Escrow proceeds and other accounts receivable, net
$
24,323

 
$
89,783

Warranty insurance receivable (Note 13)
35,288

 
35,817

Total receivables
$
59,611

 
$
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 $501,000 and $330,000 as of June 30, 2018 and December 31, 2017, respectively.
v3.10.0.1
Real Estate Inventories
6 Months Ended
Jun. 30, 2018
Inventory Disclosure [Abstract]  
Real Estate Inventories
Real Estate Inventories
Real estate inventories consisted of the following (in thousands):
 
June 30, 2018
 
December 31, 2017
Real estate inventories owned:
 
 
 
Homes completed or under construction
$
1,132,976

 
$
793,685

Land under development
1,601,462

 
1,934,556

Land held for future development
200,627

 
138,651

Model homes
248,201

 
211,658

Total real estate inventories owned
3,183,266

 
3,078,550

Real estate inventories not owned:
 
 
 
Land purchase and land option deposits
64,520

 
27,003

Total real estate inventories not owned
64,520

 
27,003

Total real estate inventories
$
3,247,786

 
$
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, Basis of Presentation and Summary of Significant Accounting Policies.
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):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Interest incurred
$
21,627

 
$
19,931

 
$
43,147

 
$
38,804

Interest capitalized
(21,627
)
 
(19,931
)
 
(43,147
)
 
(38,804
)
Interest expensed
$

 
$

 
$

 
$

Capitalized interest in beginning inventory
$
183,626

 
$
166,515

 
$
176,348

 
$
157,329

Interest capitalized as a cost of inventory
21,627

 
19,931

 
43,147

 
38,804

Interest previously capitalized as a cost of
inventory, included in cost of sales
(19,664
)
 
(13,185
)
 
(33,906
)
 
(22,872
)
Capitalized interest in ending inventory
$
185,589

 
$
173,261

 
$
185,589

 
$
173,261


 
Interest is capitalized to real estate inventory during development and other qualifying activities. During all periods presented, we capitalized all interest incurred to real estate inventory in accordance with ASC Topic 835, Interest, as our qualified assets exceeded our debt. Interest that is capitalized to real estate inventory is included in cost of home sales or cost of land and lot sales as related units or lots are delivered.  Interest that is expensed as incurred is included in other income, net.
Real Estate Inventory Impairments and Land Option Abandonments
Real estate inventory impairments and land and lot option abandonments and pre-acquisition charges consisted of the following (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Real estate inventory impairments
$

 
$
234

 
$

 
$
267

Land and lot option abandonments and pre-acquisition charges
609

 
273

 
857

 
561

Total
$
609

 
$
507

 
$
857

 
$
828


 
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.  
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
6 Months Ended
Jun. 30, 2018
Equity Method Investments and Joint Ventures [Abstract]  
Investments in Unconsolidated Entities
Investments in Unconsolidated Entities
As of June 30, 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 5% 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):
 
June 30, 2018
 
December 31, 2017
Limited liability company interests
$
1,474

 
$
2,687

General partnership interests
2,695

 
3,183

Total
$
4,169

 
$
5,870


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 investments in unconsolidated entities or on our consolidated statements of operations as equity in income of unconsolidated entities.
Assets and liabilities of unconsolidated entities (in thousands):
 
 
June 30, 2018
 
December 31, 2017
Assets
 
 
 
Cash
$
12,207

 
$
11,678

Receivables
4,394

 
6,564

Real estate inventories
97,818

 
99,997

Other assets
866

 
936

Total assets
$
115,285

 
$
119,175

Liabilities and equity
 
 
 
Accounts payable and other liabilities
$
8,165

 
$
12,208

Company’s equity
4,169

 
5,870

Outside interests' equity
102,951

 
101,097

Total liabilities and equity
$
115,285

 
$
119,175

 
Results of operations from unconsolidated entities (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net sales
$
9,325

 
$
5,228

 
$
13,715

 
$
10,318

Other operating expense
(7,272
)
 
(3,579
)
 
(10,559
)
 
(6,182
)
Other income
21

 
22

 
84

 
24

Net income
$
2,074

 
$
1,671

 
$
3,240

 
$
4,160

Company’s equity in income of unconsolidated entities
$
2,053

 
$
2,802

 
$
2,587

 
$
3,206

v3.10.0.1
Variable Interest Entities
6 Months Ended
Jun. 30, 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 and lot option agreements in order to procure land and residential lots for future development and the construction of homes. The use of such land and lot 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 and lot 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 and lot option agreements and other similar contracts under the provisions of ASC 810 Consolidation 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 and lot option agreements have no recourse against us. The maximum exposure to loss under our land and lot option agreements is generally 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 and lot option agreements (in thousands):
 
June 30, 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
32,874

 
299,711

 
N/A

 
3,418

 
112,590

 
N/A

Other land option agreements
31,646

 
372,354

 
N/A

 
23,585

 
269,349

 
N/A

Total
$
64,520

 
$
672,065

 
$

 
$
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 and lot option contracts consisted of capitalized pre-acquisition costs of $11.3 million and $4.5 million as of June 30, 2018 and December 31, 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
6 Months Ended
Jun. 30, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
As of June 30, 2018 and December 31, 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 June 30, 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 Weyerhaeuser Real Estate Company (“WRECO”) in 2014, which has an indefinite useful life.
Goodwill and other intangible assets consisted of the following (in thousands):
 
June 30, 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

 
(6,589
)
 
21,390

 
27,979

 
(6,322
)
 
21,657

Total
$
167,283

 
$
(6,589
)
 
$
160,694

 
$
167,283

 
$
(6,322
)
 
$
160,961


 
The remaining useful life of our amortizing intangible asset related to the Maracay trade name was 7.7 and 8.2 years as of June 30, 2018 and December 31, 2017, respectively. The net carrying amount related to this intangible asset was $4.1 million and $4.4 million as of June 30, 2018 and December 31, 2017, respectively. Amortization expense related to this intangible asset was $134,000 for each of the three-month periods ended June 30, 2018 and 2017, respectively, and $267,000 for each of the six-month periods ended June 30, 2018 and 2017, respectively. Amortization of this intangible was charged to sales and marketing expense.  Our $17.3 million indefinite life intangible asset related to the 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 remainder of 2018, the next four years and thereafter is (in thousands):
Remainder of 2018
$
267

2019
534

2020
534

2021
534

2022
534

Thereafter
1,687

Total
$
4,090

v3.10.0.1
Other Assets
6 Months Ended
Jun. 30, 2018
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]  
Other Assets
Other Assets
Other assets consisted of the following (in thousands):
 
June 30, 2018
 
December 31, 2017
Prepaid expenses
$
17,842

 
$
13,040

Refundable fees and other deposits
13,614

 
16,012

Development rights, held for future use or sale
2,569

 
2,569

Deferred loan costs - unsecured revolving credit facility
2,926

 
3,427

Operating properties and equipment, net
54,094

 
10,528

Other
3,060

 
2,494

Total
$
94,105

 
$
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, Basis of Presentation and Summary of Significant Accounting Policies.
v3.10.0.1
Accrued Expenses and Other Liabilities
6 Months Ended
Jun. 30, 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):
 
June 30, 2018
 
December 31, 2017
Accrued payroll and related costs
$
24,232

 
$
36,863

Warranty reserves (Note 13)
72,342

 
69,373

Estimated cost for completion of real estate inventories
102,176

 
105,864

Customer deposits
28,947

 
19,568

Income tax liability to Weyerhaeuser
8,321

 
7,706

Accrued income taxes payable

 
30,672

Liability for uncertain tax positions (Note 15)
1,458

 
1,458

Accrued interest
10,861

 
11,014

Accrued insurance expense
4,124

 
1,187

Other tax liability
28,297

 
33,671

Other
17,319

 
13,506

Total
$
298,077

 
$
330,882

v3.10.0.1
Senior Notes and Unsecured Revolving Credit Facility
6 Months Ended
Jun. 30, 2018
Debt Disclosure [Abstract]  
Senior Notes and Unsecured Revolving Credit Facility
Senior Notes and Unsecured Revolving Credit Facility
Senior Notes
The Company's outstanding senior notes (together, the "Senior Notes") consisted of the following (in thousands):
 
 
June 30, 2018
 
December 31, 2017
4.375% Senior Notes due June 15, 2019
$
428,315

 
$
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
(24,949
)
 
(28,698
)
Total
$
1,453,366

 
$
1,471,302


 
In June 2017, TRI Pointe Group issued $300 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 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 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 three months ended June 30, 2018, we repurchased and cancelled an aggregate principal amount of $21.7 million of the 2019 Notes.
As of June 30, 2018, there was $17.3 million of capitalized debt financing costs, included in senior notes, net on our consolidated balance sheet, related to the Senior Notes that will amortize over the lives of the Senior Notes. Accrued interest related to the Senior Notes was $10.4 million and $10.6 million as of June 30, 2018 and December 31, 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 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 June 30, 2018, we had no outstanding indebtedness under the Credit Facility and $586.8 million of availability after considering the borrowing base provisions and outstanding letters of credit.  As of June 30, 2018, there was $2.9 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, including loan commitment fees, related to the Credit Facility was $455,000 and $426,000 as of June 30, 2018 and December 31, 2017, respectively.
At June 30, 2018 and December 31, 2017, we had outstanding letters of credit of $13.2 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 three months ended June 30, 2018 and 2017, the Company incurred interest of $21.6 million and $19.9 million, respectively, related to all debt during the period.  Included in interest incurred was amortization of deferred financing and Senior Note discount costs of $2.1 million and $1.8 million for the three months ended June 30, 2018 and 2017, respectively. During the six-month periods ended June 30, 2018 and 2017, the Company incurred interest of $43.1 million and $38.8 million, respectively, related to all debt during the period. Included in interest incurred was amortization of deferred financing and Senior Notes discount costs of $4.1 million and $3.7 million for the six months ended June 30, 2018 and 2017, respectively. Accrued interest related to all outstanding debt at June 30, 2018 and December 31, 2017 was $10.9 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 June 30, 2018 and December 31, 2017.
v3.10.0.1
Fair Value Disclosures
6 Months Ended
Jun. 30, 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 June 30, 2018 and December 31, 2017, related to our financial instruments, measured at fair value on a recurring basis, is set forth below (in thousands):
 
 
 
June 30, 2018
 
December 31, 2017
 
Hierarchy
 
Book Value
 
Fair Value
 
Book Value
 
Fair Value
Senior Notes (1)
Level 2
 
$
1,470,664

 
$
1,450,708

 
$
1,491,229

 
$
1,552,335

 __________
(1) 
The book value of the Senior Notes is net of discounts, excluding deferred loan costs of $17.3 million and $19.9 million as of June 30, 2018 and December 31, 2017, respectively. The estimated fair value of the Senior Notes at June 30, 2018 and December 31, 2017 is based on quoted market prices.

At June 30, 2018 and December 31, 2017, the carrying value of cash and cash equivalents and receivables approximated fair value.
Fair Value of Nonfinancial Assets
Nonfinancial assets include items such as real estate inventories and long-lived assets that are measured at fair value on a nonrecurring basis when 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):
 
Six Months Ended June 30, 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 an analysis of future undiscounted net cash flows.  In the case of lots for sale, fair value was determined based on recent land and lot sales for similar assets.
v3.10.0.1
Commitments and Contingencies
6 Months Ended
Jun. 30, 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.  For matters as to which the Company believes a loss is probable and reasonably estimable, we had no legal reserves as of June 30, 2018 or December 31, 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.
We intend to vigorously defend the action, and intend to continue challenging Scripps' claims. On May 18, 2018, Pardee Homes filed a motion for summary judgment in the action, which currently has a hearing date of September 14, 2018. Although we cannot predict or determine the timing or final outcome of the lawsuit or the effect that any adverse findings or determinations may have on us, we believe Scripps has no actionable claims against Pardee Homes and that this dispute will not have a material impact on our business, liquidity, financial condition and results of operations. An unfavorable determination could result in the payment by us of monetary damages, which could be significant. The complaint does not indicate the amount of relief sought, and an estimate of possible loss or range of loss cannot presently be made with respect to this matter. No reserve with respect to this matter has been recorded on our consolidated financial statements.
In April 2018, the California Regional Water Quality Control Board, San Diego Region (“RWQCB”), notified Pardee Homes of its intention to assess a penalty for alleged violations of a General Permit for Storm Water Discharges Associated with Construction and Land Disturbance Activities (the “General Permit”). The alleged violations of the General Permit related to the discharge of stormwater during heavy rains in 2017 in connection with the development of a community in San Diego County, California. On June 4, 2018, Pardee Homes reached a settlement with the RWQCB staff and agreed to pay a fine in the sum of $291,286.
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 $35.3 million and $35.8 million as of June 30, 2018 and December 31, 2017, respectively. Warranty insurance receivables are recorded in receivables on the accompanying consolidated balance sheet.
Warranty reserve activity consisted of the following (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Warranty reserves, beginning of period
$
70,482

 
$
80,953

 
$
69,373

 
$
83,135

Warranty reserves accrued
6,666

 
3,794

 
11,412

 
5,674

Adjustments to pre-existing reserves

 
699

 

 
621

Warranty expenditures
(4,806
)
 
(5,318
)
 
(8,443
)
 
(9,302
)
Warranty reserves, end of period
$
72,342

 
$
80,128

 
$
72,342

 
$
80,128


 
Performance Bonds
We obtain surety bonds in the normal course of business to ensure completion of certain infrastructure improvements of our projects. The beneficiaries of the bonds are various municipalities. As of June 30, 2018 and December 31, 2017, the Company had outstanding surety bonds totaling $724.4 million and $627.1 million, respectively. As of June 30, 2018 and December 31, 2017, our estimated cost to complete obligations related to these surety bonds was $430.2 million and $537.4 million, respectively.
v3.10.0.1
Stock-Based Compensation
6 Months Ended
Jun. 30, 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 and amended, with the approval of our stockholders, in 2014 and 2015. 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. 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.
As amended, the number of shares of our common stock that may be issued under the 2013 Incentive Plan is 11,727,833 shares. To the extent that shares of our common stock subject to an outstanding option, stock appreciation right, stock award or performance award granted under the 2013 Incentive Plan are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or the settlement of such award in cash, then such shares of our common stock generally shall again be available under the 2013 Incentive Plan. As of June 30, 2018, there were 6,454,995 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):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Total stock-based compensation
$
3,720

 
$
3,903

 
$
7,190

 
$
7,744


 
Stock-based compensation is charged to general and administrative expense on the accompanying consolidated statements of operations.  As of June 30, 2018, total unrecognized stock-based compensation related to all stock-based awards was $24.5 million and the weighted average term over which the expense was expected to be recognized was 2.0 years.
Summary of Stock Option Activity
The following table presents a summary of stock option awards for the six months ended June 30, 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
(154,993
)
 
$
12.33

 

 

Forfeited
(18,154
)
 
$
11.77

 

 

Options outstanding at June 30, 2018
981,511

 
$
14.49

 
4.7

 
$
2,028

Options exercisable at June 30, 2018
981,511

 
$
14.49

 
4.7

 
$
2,028


 
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.

Summary of Restricted Stock Unit Activity
The following table presents a summary of restricted stock units (“RSUs”) for the six months ended June 30, 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
1,124,554

 
$
15.76

 

Vested
(1,102,727
)
 
$
12.47

 

Forfeited
(987,808
)
 
$
9.37

 

Nonvested RSUs at June 30, 2018
3,341,611

 
$
11.05

 
$
54,669


 
On April 30, 2018, the Company granted an aggregate of 40,910 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 2019 Annual Meeting of Stockholders. The fair value of each RSU granted on April 30, 2018 was measured using a price of $17.11 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 May 7, 2018 and February 22, 2018, the Company granted an aggregate of 4,258 and 633,107, respectively, of time-vested RSUs to certain 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 May 7, 2018 and February 22, 2018 was measured using a price of $17.61 and $16.94 per share, respectively, which was the closing