TRI POINTE GROUP, INC., 10-K filed on 2/20/2018
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2017
Feb. 8, 2018
Jun. 30, 2017
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2017 
 
 
Document Fiscal Year Focus
2017 
 
 
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 Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
151,212,457 
 
Entity Public Float
 
 
$ 1,950,059,287 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Assets
 
 
Cash and cash equivalents
$ 282,914 
$ 208,657 
Receivables
125,600 
82,500 
Real estate inventories
3,105,553 
2,910,627 
Investments in unconsolidated entities
5,870 
17,546 
Goodwill and other intangible assets, net
160,961 
161,495 
Deferred tax assets, net
76,413 
123,223 
Other assets
48,070 
60,592 
Total assets
3,805,381 
3,564,640 
Liabilities
 
 
Accounts payable
72,870 
70,252 
Accrued expenses and other liabilities
330,882 
263,845 
Unsecured revolving credit facility
200,000 
Seller financed loans
13,726 
Senior notes, net
1,471,302 
1,168,307 
Total liabilities
1,875,054 
1,716,130 
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, 2017 and 2016, respectively
Common stock, $0.01 par value, 500,000,000 shares authorized; 151,162,999 and 158,626,229 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively
1,512 
1,586 
Additional paid-in capital
793,980 
880,822 
Retained earnings
1,134,230 
947,039 
Total stockholders’ equity
1,929,722 
1,829,447 
Noncontrolling interests
605 
19,063 
Total equity
1,930,327 
1,848,510 
Total liabilities and equity
$ 3,805,381 
$ 3,564,640 
Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2017
Dec. 31, 2016
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)
Preferred stock outstanding (shares)
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)
151,162,999 
158,626,229 
Common stock outstanding (shares)
151,162,999 
158,626,229 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 12 Months Ended
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Dec. 31, 2016
Sep. 30, 2016
Jun. 30, 2016
Mar. 31, 2016
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Homebuilding:
 
 
 
 
 
 
 
 
 
 
 
Home sales revenue
 
 
 
 
 
 
 
 
$ 2,732,299 
$ 2,329,336 
$ 2,291,264 
Land and lot sales revenue
 
 
 
 
 
 
 
 
74,269 
72,272 
101,284 
Other operations revenue
 
 
 
 
 
 
 
 
2,333 
2,314 
7,601 
Total revenues
1,128,520 
717,735 
570,626 
393,391 
773,753 
582,029 
625,222 
424,138 
2,808,901 
2,403,922 
2,400,149 
Cost of home sales
 
 
 
 
 
 
 
 
2,173,251 
1,836,327 
1,808,776 
Cost of land and lot sales
 
 
 
 
 
 
 
 
14,888 
17,367 
35,089 
Other operations expense
 
 
 
 
 
 
 
 
2,298 
2,247 
4,360 
Sales and marketing
 
 
 
 
 
 
 
 
137,066 
127,903 
116,217 
General and administrative
 
 
 
 
 
 
 
 
137,764 
124,119 
120,825 
Homebuilding income from operations
 
 
 
 
 
 
 
 
343,634 
295,959 
314,882 
Equity in (loss) income of unconsolidated entities
 
 
 
 
 
 
 
 
(11,433)
179 
1,460 
Other income, net
 
 
 
 
 
 
 
 
151 
312 
858 
Homebuilding income before income taxes
 
 
 
 
 
 
 
 
332,352 
296,450 
317,200 
Financial Services:
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
1,371 
1,220 
1,010 
Expenses
 
 
 
 
 
 
 
 
331 
253 
181 
Equity in income of unconsolidated entities
 
 
 
 
 
 
 
 
6,426 
4,810 
1,231 
Financial services income before income taxes
 
 
 
 
 
 
 
 
7,466 
5,777 
2,060 
Income before income taxes
 
 
 
 
 
 
 
 
339,818 
302,227 
319,260 
Provision for income taxes
 
 
 
 
 
 
 
 
(152,267)
(106,094)
(112,079)
Net income
74,242 
72,289 
32,803 
8,217 
58,085 
35,145 
74,193 
28,710 
187,551 
196,133 
207,181 
Net income attributable to noncontrolling interests
(222)
(25)
(89)
(24)
(224)
(311)
(267)
(160)
(360)
(962)
(1,720)
Net income available to common stockholders
$ 74,020 
$ 72,264 
$ 32,714 
$ 8,193 
$ 57,861 
$ 34,834 
$ 73,926 
$ 28,550 
$ 187,191 
$ 195,171 
$ 205,461 
Earnings per share
 
 
 
 
 
 
 
 
 
 
 
Basic (in dollars per share)
$ 0.49 
$ 0.48 
$ 0.21 
$ 0.05 
$ 0.36 
$ 0.22 
$ 0.46 
$ 0.18 
$ 1.21 
$ 1.21 
$ 1.27 
Diluted (in dollars per share)
$ 0.49 
$ 0.48 
$ 0.21 
$ 0.05 
$ 0.36 
$ 0.22 
$ 0.46 
$ 0.18 
$ 1.21 
$ 1.21 
$ 1.27 
Weighted average shares outstanding
 
 
 
 
 
 
 
 
 
 
 
Basic (shares)
 
 
 
 
 
 
 
 
154,134,411 
160,859,782 
161,692,152 
Diluted (shares)
 
 
 
 
 
 
 
 
155,085,366 
161,381,499 
162,319,758 
Consolidated Statements of Equity (USD $)
In Thousands, except Share data
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Total Stockholders' Equity [Member]
Noncontrolling Interests [Member]
Beginning balance at Dec. 31, 2014
$ 1,472,476 
$ 1,614 
$ 906,159 
$ 546,407 
$ 1,454,180 
$ 18,296 
Beginning balance (shares) at Dec. 31, 2014
 
161,355,490 
 
 
 
 
Net income
207,181 
 
 
205,461 
205,461 
1,720 
Capital contribution by Weyerhaeuser, net
(6,747)
 
(6,747)
 
(6,747)
 
Shares issued under share-based awards
1,616 
1,612 
 
1,616 
 
Shares issued under share-based awards (shares)
 
458,260 
 
 
 
 
Excess tax deficit of share-based awards, net
428 
 
428 
 
428 
 
Minimum tax withholding paid on behalf of employees for restricted stock units
(2,190)
 
(2,190)
 
(2,190)
 
Stock-based compensation expense
11,935 
 
11,935 
 
11,935 
 
Distributions to noncontrolling interests, net
(3,833)
 
 
 
 
(3,833)
Net effect of consolidations, de-consolidations and other transactions
5,597 
 
 
 
 
5,597 
Ending balance at Dec. 31, 2015
1,686,463 
1,618 
911,197 
751,868 
1,664,683 
21,780 
Ending 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 
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)
 
Stock 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 
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)
 
Stock 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 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Cash flows from operating activities
 
 
 
Net income
$ 187,551 
$ 196,133 
$ 207,181 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
3,500 
3,087 
8,274 
Equity in loss (income) of unconsolidated entities, net
5,007 
(4,989)
(2,691)
Deferred income taxes, net
46,810 
7,434 
27,164 
Amortization of stock-based compensation
15,906 
12,612 
11,935 
Charges for impairments and lot option abandonments
2,053 
1,470 
1,930 
Excess tax deficit of share-based awards
(165)
Changes in assets and liabilities:
 
 
 
Real estate inventories
(205,229)
(388,145)
(235,030)
Receivables
(44,280)
576 
(23,592)
Other assets
13,487 
(8,501)
35,360 
Accounts payable
2,618 
5,412 
(4,020)
Accrued expenses and other liabilities
67,036 
10,490 
4,494 
Returns on investments in unconsolidated entities, net
7,215 
6,276 
Net cash provided by (used in) operating activities
101,674 
(158,310)
31,005 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(2,605)
(3,985)
(809)
Proceeds from sale of property and equipment
Investments in unconsolidated entities
(980)
(32)
(1,468)
Distributions from unconsolidated entities
1,415 
Net cash used in investing activities
(3,579)
(4,008)
(862)
Cash flows from financing activities:
 
 
 
Borrowings from debt
500,000 
541,069 
140,000 
Repayment of debt
(413,726)
(330,858)
(112,851)
Debt issuance costs
(5,957)
(5,062)
(2,688)
Net repayments of debt held by variable interest entities
(2,442)
(6,769)
Contributions from noncontrolling interests
1,955 
5,990 
Distributions to noncontrolling interests
(1,333)
(5,318)
(9,823)
Proceeds from issuance of common stock under share-based awards
12,291 
587 
1,616 
Excess tax benefits of share-based awards
428 
Minimum tax withholding paid on behalf of employees for share-based awards
(2,896)
(1,359)
(2,190)
Share repurchases
(112,217)
(42,082)
Net cash (used in) provided by financing activities
(23,838)
156,490 
13,713 
Net increase (decrease) in cash and cash equivalents
74,257 
(5,828)
43,856 
Cash and cash equivalents - beginning of year
208,657 
214,485 
170,629 
Cash and cash equivalents - end of year
$ 282,914 
$ 208,657 
$ 214,485 
Organization and Summary of Significant Accounting Policies
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 eight states, including Maracay Homes 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.
Formation of TRI Pointe Group
On July 7, 2015, TRI Pointe Homes, Inc. (“TRI Pointe Homes”) reorganized its corporate structure (the “Reorganization”) whereby TRI Pointe Homes became a direct, wholly owned subsidiary of TRI Pointe Group.  As a result of the Reorganization, each share of common stock, par value $0.01 per share, of TRI Pointe Homes (“Homes Common Stock”) was cancelled and converted automatically into the right to receive one validly issued, fully paid and non-assessable share of common stock, par value $0.01 per share, of TRI Pointe Group (“Group Common Stock”), each share having the same designations, rights, powers and preferences, and the qualifications, limitations and restrictions thereof as the shares of Homes Common Stock being so converted.  TRI Pointe Group, as the successor issuer to TRI Pointe Homes (pursuant to Rule 12g-3(a) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), began making filings under the Securities Act of 1933, as amended, and the Exchange Act on July 7, 2015.
In connection with the Reorganization, TRI Pointe Group (i) became a co-issuer of TRI Pointe Homes’ 4.375% Senior Notes due 2019 (the "2019 Notes") and TRI Pointe Homes' 5.875% Senior Notes due 2024 (the "2024 Notes”); and (ii) replaced TRI Pointe Homes as the borrower under TRI Pointe Homes’ unsecured revolving credit facility.
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 and its wholly owned subsidiaries as described in “Reverse Acquisition” below, 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, 2017 and 2016 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” have the following meanings:
For periods prior to July 7, 2015: TRI Pointe Homes (and its consolidated subsidiaries)
For periods from and after July 7, 2015: 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.
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 and marketing 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, the level of time sensitive costs (such as indirect construction, overhead and carrying costs), and selling and marketing costs (such as model maintenance costs and advertising 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 year ended December 31, 2017 we had $854,000 of real estate inventory impairment charges. For the years ended December 31, 2016 and 2015 we recorded impairment charges of zero and $1.2 million, respectively.  
Revenue Recognition
In accordance with ASC Topic 360, Property, Plant, and Equipment, revenues from home sales and other real estate sales are recorded and a profit is recognized when the respective units are delivered. Home sales and other real estate sales are delivered when all conditions of escrow are met, including delivery of the home or other real estate asset, title passage, appropriate consideration is received and collection of associated receivables, if any, is reasonably assured. Sales incentives are a reduction of revenues when the respective unit is delivered. When it is determined that the earnings process is not complete, the sale and/or the related profit are deferred for recognition in future periods using the percentage-of-completion method. The profit we record is based on the calculation of cost of sales, which is dependent on our allocation of costs, as described in more detail above in the section entitled “Real Estate Inventories and Cost of Sales.”
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, 2016 and 2015 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
Sales and marketing costs incurred to sell real estate projects are capitalized if they are reasonably expected to be recovered from the sale of the project or from incidental operations and are incurred for tangible assets that are used directly through the selling period to aid in the sale of the project or services that have been performed to obtain regulatory approval of sales. All other selling expenses and other marketing costs are expensed in the period incurred.
Restructuring Charges
Restructuring charges were incurred related to the merger (the “Merger”) with Weyerhaeuser Real Estate Company (“WRECO”), in addition to general cost reduction initiatives. These charges are composed of employee retention and severance-related expenses and lease termination costs.  We account for restructuring charges in accordance with ASC Topic 420, Exit or Disposal Cost Obligations or ASC Topic 712 – Compensation – Nonretirement Postemployment Benefits.  We had restructuring charges of $588,000, $649,000 and $3.3 million for the years ended December 31, 2017, 2016 and 2015, respectively. Restructuring charges are included in general and administrative expense on the consolidated statements of operations.
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. The ultimate impact of the Tax Cuts and Jobs Act may be different, possibly materially, due to changes in interpretations and assumptions, and guidance that may be issued and actions we may take in response to the tax law changes.
We classify any interest and penalties related to income taxes as part of income tax expense. 
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, 2017. 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 2017 annual impairment assessment, we determined that no goodwill impairment was indicated. As of December 31, 2017, 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, 2017, 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, 2017, 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
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Codified as "ASC 606"). 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. 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. ASC 606 is effective for public entities for the annual periods ending after December 15, 2017, and for annual and interim periods thereafter.  Companies may use either a full retrospective or a modified retrospective approach to adopt ASC 606, and we will adopt the new standard under the modified retrospective approach, effective January 1, 2018, by recognizing the net cumulative effect to the opening balance of retained earnings.
We have substantially completed our evaluation on the impact that the adoption of ASC 606 will have on our financial statements, and are in process of finalizing the analysis of certain costs, including the impact on income taxes and related accounts, which we do not expect to have a material impact to our consolidated financial statements. Based on our analysis, the adoption of ASC 606 will not have a material impact on the amount or timing of our home sales revenue, but could impact the amount and timing of future land and lot sales. The adoption of ASC 606 will impact 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 currently capitalize and amortize various sales office, model and other marketing related costs with each home delivered in a community. Under the new guidance, these costs will be expensed when incurred or capitalized to other assets and amortized to selling expense. We are adopting the modified retrospective approach and accordingly, the balance of any remaining unallocated capitalized sales office, model and other marketing related costs required to be expensed under ASC 606 will be recorded to our opening balance of retained earnings in our 2018 consolidated balance sheet. We expect to recognize an immaterial decrease to retained earnings.
In addition to the cumulative effect to retained earnings, effective January 1, 2018, the adoption of ASC 606 will result in reclassifications among Consolidated Balance Sheet accounts, notably from real estate inventories to other assets. These reclassifications will not materially change the total amount of net assets existing at December 31, 2017. ASC 606 will result in enhanced disclosure requirements, including changes in contract related assets and liabilities, quantitative and qualitative information about contracts with customers and qualitative information about performance obligations.
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 leased assets and provide additional disclosures. 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 March 2016, the FASB issued Accounting Standards Update No. 2016-09, (“ASU 2016-09”), Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. On January 1, 2017, we adopted ASU 2016-09. This new guidance requires that we record excess tax benefit and tax deficiencies related to the settlement of employee stock-based compensation to the income tax expense line item on our consolidated statement of operations. We previously recorded the excess tax benefits and tax deficiencies to the additional paid-in capital line item on our consolidated balance sheets. Under the new guidance, the Company elected the option to no longer apply a forfeiture rate to our stock-based compensation expense, and to recognize forfeitures as they occur. The adoption of the aforementioned amendments in ASU 2016-09 were applied using the modified retrospective approach and did not have a material impact on our current or prior year financial statements, with no resulting cumulative-effect adjustment to retained earnings. The new guidance also requires excess tax benefits to be classified as an operating activity in the statement of cash flows rather than as a financing activity. Additionally, ASU 2016-09 requires that the minimum tax withholding paid on behalf of employees for share-based awards be classified as a financing activity in the statement of cash flows. Adoption of ASU 2016-09 did not result in any adjustments to prior period disclosures on the statement of cash flows.
In August 2016, the FASB issued Accounting Standards Update No. 2016-15, (“ASU 2016-15”), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact that adoption of ASU 2016-15 may have on our consolidated financial statements and disclosures, however we do not believe the guidance will have a material impact on our financial statements upon adoption.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, (“ASU 2017-04”), Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment, 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.
Segment Information
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 the above factors, our homebuilding operations comprise the following six reportable segments: Maracay Homes, 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 financial services reportable segment (“TRI Pointe Solutions”) comprises our mortgage financing operations and title services operations.  Our mortgage financing operation (“TRI Pointe Connect”) provides mortgage financing 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 Group and acts as a title agency for First American Title Insurance Company.
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 as our consolidated financial statements 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):
 
 
2017
 
2016
 
2015
Revenues
 
 
 
 
 
Maracay Homes
$
296,768

 
$
255,253

 
$
185,645

Pardee Homes
826,033

 
730,848

 
670,063

Quadrant Homes
247,939

 
213,221

 
189,401

Trendmaker Homes
253,825

 
244,001

 
278,759

TRI Pointe Homes
927,247

 
723,186

 
774,005

Winchester Homes
257,089

 
237,413

 
302,276

Total homebuilding revenues
2,808,901

 
2,403,922

 
2,400,149

Financial services
1,371

 
1,220

 
1,010

Total
$
2,810,272

 
$
2,405,142

 
$
2,401,159

Income before taxes
 

 
 

 
 

Maracay Homes
$
23,987

 
$
17,189

 
$
9,849

Pardee Homes
198,738

 
204,237

 
183,077

Quadrant Homes
32,671

 
21,209

 
10,478

Trendmaker Homes
16,764

 
15,353

 
25,004

TRI Pointe Homes
89,811

 
62,013

 
104,970

Winchester Homes
15,472

 
16,147

 
22,411

Corporate
(45,091
)
 
(39,698
)
 
(38,589
)
Total homebuilding income before income taxes
332,352

 
296,450

 
317,200

Financial services
7,466

 
5,777

 
2,060

Total
$
339,818

 
$
302,227

 
$
319,260



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, 2017
 
December 31, 2016
Real estate inventories
 

 
 

Maracay Homes
$
243,883

 
$
228,965

Pardee Homes
1,245,659

 
1,098,608

Quadrant Homes
257,887

 
221,386

Trendmaker Homes
204,926

 
211,035

TRI Pointe Homes
855,727

 
868,088

Winchester Homes
297,471

 
282,545

Total
$
3,105,553

 
$
2,910,627

Total assets
 

 
 

Maracay Homes
$
268,866

 
$
255,466

Pardee Homes
1,346,296

 
1,201,302

Quadrant Homes
312,803

 
242,208

Trendmaker Homes
224,995

 
225,025

TRI Pointe Homes
1,062,920

 
1,052,400

Winchester Homes
313,921

 
305,379

Corporate
262,740

 
275,923

Total homebuilding assets
3,792,541

 
3,557,703

Financial services
12,840

 
6,937

Total
$
3,805,381

 
$
3,564,640

Earnings Per Share
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,
 
2017
 
2016
 
2015
Numerator:
 

 
 

 
 

Income available to common stockholders
$
187,191

 
$
195,171

 
$
205,461

Denominator:
 

 
 

 
 

Basic weighted-average shares outstanding
154,134,411

 
160,859,782

 
161,692,152

Effect of dilutive shares:
 
 
 
 
 
Stock options and unvested restricted stock units
950,955

 
521,717

 
627,606

Diluted weighted-average shares outstanding
155,085,366

 
161,381,499

 
162,319,758

Earnings per share
 

 
 

 
 

Basic
$
1.21

 
$
1.21

 
$
1.27

Diluted
$
1.21

 
$
1.21

 
$
1.27

Antidilutive stock options not included in diluted earnings per share
3,288,340

 
4,551,337

 
2,622,391

Receivables, Net
Receivables, Net
Receivables, Net
Receivables, net consisted of the following (in thousands):
 
December 31, 2017
 
December 31, 2016
Escrow proceeds and other accounts receivable, net
$
89,783

 
$
35,625

Warranty insurance receivable (Note 13)
35,817

 
46,875

Total receivables
$
125,600

 
$
82,500



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 $330,000 in 2017 and $286,000 in 2016.
Real Estate Inventories
Real Estate Inventories
Real Estate Inventories  

Real estate inventories consisted of the following (in thousands):
 
December 31, 2017
 
December 31, 2016
Real estate inventories owned:
 

 
 

Homes completed or under construction
$
793,685

 
$
659,210

Land under development
1,934,556

 
1,824,989

Land held for future development
138,651

 
226,915

Model homes
211,658

 
155,039

Total real estate inventories owned
3,078,550

 
2,866,153

Real estate inventories not owned:
 

 
 

Land purchase and land option deposits
27,003

 
26,174

Consolidated inventory held by VIEs

 
18,300

Total real estate inventories not owned
27,003

 
44,474

Total real estate inventories
$
3,105,553

 
$
2,910,627


 
Homes completed or under construction comprises 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.
Real estate inventories not owned represents deposits related to land purchase and land option agreements as well as consolidated inventory held by a VIE. For further details, see Note 7, Variable Interest Entities.
Interest incurred, capitalized and expensed were as follows (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Interest incurred
$
84,264

 
$
68,306

 
$
60,964

Interest capitalized
(84,264
)
 
(68,306
)
 
(60,964
)
Interest expensed
$

 
$

 
$

Capitalized interest in beginning inventory
$
157,329

 
$
140,311

 
$
124,461

Interest capitalized as a cost of inventory
84,264

 
68,306

 
60,964

Interest previously capitalized as a cost of inventory, included in
   cost of sales
(65,245
)
 
(51,288
)
 
(45,114
)
Capitalized interest in ending inventory
$
176,348

 
$
157,329

 
$
140,311


 
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,
 
2017
 
2016
 
2015
Real estate inventory impairments
$
854

 
$

 
$
1,167

Land and lot option abandonments and pre-acquisition costs
1,199

 
1,470

 
763

Total
$
2,053

 
$
1,470

 
$
1,930


 
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.
Investments in Unconsolidated Entities
Investments in Unconsolidated Entities
Investments in Unconsolidated Entities

As of December 31, 2017, we held equity investments in five 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):
 
 
December 31,
 
2017
 
2016
Limited liability company interests
$
2,687

 
$
14,327

General partnership interests
3,183

 
3,219

Total
$
5,870

 
$
17,546


 
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 5% 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,
 
2017
 
2016
Assets
 
 
 
Cash
$
11,678

 
$
9,796

Receivables
6,564

 
10,203

Real estate inventories
99,997

 
97,402

Other assets
936

 
1,087

Total assets
$
119,175

 
$
118,488

Liabilities and equity
 
 
 
Accounts payable and other liabilities
$
12,208

 
$
12,844

Company’s equity
5,870

 
17,546

Outside interests' equity
101,097

 
88,098

Total liabilities and equity
$
119,175

 
$
118,488


Results of operations from unconsolidated entities (in thousands):
 
 
Year Ended December 31,
 
2017
 
2016
 
2015
Net sales
$
24,247

 
$
18,725

 
$
7,326

Other operating expense
(13,904
)
 
(11,315
)
 
(6,690
)
Other income (expense)
120

 
4

 
(279
)
Net income
$
10,463

 
$
7,414

 
$
357

Company’s equity in (loss) income of unconsolidated entities
$
(5,007
)
 
$
4,989

 
$
2,691

Variable Interest Entities
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.
The following provides a summary of our interests in land option agreements (in thousands):
 
December 31, 2017
 
December 31, 2016
 
Deposits
 
Remaining
Purchase
Price
 
Consolidated
Inventory
Held by VIEs
 
Deposits
 
Remaining
Purchase
Price
 
Consolidated
Inventory
Held by VIEs
Consolidated VIEs
$

 
$

 
$

 
$
400

 
$
17,900

 
$
18,300

Unconsolidated VIEs
3,418

 
112,590

 
N/A

 
2,375

 
49,016

 
N/A

Other land option agreements
23,585

 
269,349

 
N/A

 
23,799

 
246,658

 
N/A

Total
$
27,003

 
$
381,939

 
$

 
$
26,574

 
$
313,574

 
$
18,300


 
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 $4.5 million and $3.6 million as of December 31, 2017 and 2016, respectively. These pre-acquisition costs were included in real estate inventories as land under development on our consolidated balance sheets.
Goodwill and Other Intangible Assets
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, 2017 and 2016, $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, 2017, comprised of an existing trade name from the acquisition of Maracay Homes 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, 2017
 
December 31, 2016
 
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

 
(6,322
)
 
21,657

 
27,979

 
(5,788
)
 
22,191

Total
$
167,283

 
$
(6,322
)
 
$
160,961

 
$
167,283

 
$
(5,788
)
 
$
161,495


 
The remaining useful life of our amortizing intangible asset related to Maracay was 8.2 and 9.2 years as of December 31, 2017 and 2016, respectively. Amortization expense related to this intangible asset was $534,000 for each of the years ended December 31, 2017 and 2016, 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 Homes for the next five years and thereafter is (in thousands):
2018
$
534

2019
534

2020
534

2021
534

2022
534

Thereafter
1,687

Total
$
4,357

Other Assets
Other Assets
Other Assets
Other assets consisted of the following (in thousands):
 
December 31, 2017
 
December 31, 2016
Prepaid expenses
$
13,040

 
$
24,495

Refundable fees and other deposits
16,012

 
17,731

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

 
2,569

Deferred loan costs
3,427

 
2,101

Operating properties and equipment, net
10,528

 
10,884

Other
2,494

 
2,812

Total
$
48,070

 
$
60,592

Accrued Expenses and Other Liabilities
Accrued Expenses and Other Liabilities
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
 
December 31, 2017
 
December 31, 2016
Accrued payroll and related costs
$
36,863

 
$
33,761

Warranty reserves (Note 13)
69,373

 
83,135

Estimated cost for completion of real estate inventories
105,864

 
59,531

Customer deposits
19,568

 
13,437

Income tax liability to Weyerhaeuser
7,706

 
8,589

Accrued income taxes payable
30,672

 
1,200

Liability for uncertain tax positions
1,458

 

Accrued interest
11,014

 
11,570

Accrued insurance expense
1,187

 
529

Other tax liabilities
33,671

 
34,961

Other
13,506

 
17,132

Total
$
330,882

 
$
263,845

Senior Notes and Notes Payable and Other Borrowings
Senior Notes and Notes Payable and Other Borrowings
Senior Notes and Notes Payable and Other Borrowings
Senior Notes
Senior notes consisted of the following (in thousands): 
 
December 31,
2017
 
December 31,
2016
4.375% Senior Notes due June 15, 2019
$
450,000

 
$
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

 

Discount and deferred loan costs
(28,698
)
 
(31,693
)
Total
$
1,471,302

 
$
1,168,307


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.
In connection with the Reorganization, TRI Pointe Group and TRI Pointe Homes became co-issuers of the 2019 Notes and 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.
As of December 31, 2017, no principal has been paid on the 2019 Notes, 2021 Notes, 2024 Notes and 2027 Notes (collectively, the “Senior Notes”), and there was $19.9 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 $10.6 million and $10.7 million as of December 31, 2017 and 2016, respectively.
Unsecured Revolving Credit Facility
Unsecured revolving credit facility consisted of the following (in thousands): 
 
December 31, 2017
 
December 31, 2016
Unsecured revolving credit facility
$

 
$
200,000


 
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 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, 2017, we had no outstanding debt under the Credit Facility and $592.3 million of availability after considering the borrowing base provisions and outstanding letters of credit.  As of December 31, 2017 there was $3.4 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 $426,000 and $658,000 as of December 31, 2017 and 2016, respectively.
At December 31, 2017 and 2016, we had outstanding letters of credit of $7.7 million and $4.3 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.
Seller Financed Loans
Seller financed loans consisted of the following (in thousands):
 
December 31, 2017
 
December 31, 2016
Seller financed loans
$

 
$
13,726


 
Accrued interest on a seller finance loan outstanding as of December 31, 2016 was $519,000.
Interest Incurred
During the years ended December 31, 2017 and 2016, the Company incurred interest of $84.3 million and $68.3 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, 2017 and 2016, respectively. Included in interest incurred was amortization of deferred financing and Senior Notes discount costs of $7.6 million and $6.5 million for the years ended December 31, 2017 and 2016, respectively.  Accrued interest related to all outstanding debt at December 31, 2017 and 2016 was $11.0 million and $11.6 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, 2017 and December 31, 2016.
Fair Value Disclosures
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, 2017 and 2016, related to our financial instruments, measured at fair value on a recurring basis, is set forth below (in thousands):
 
 
 
December 31, 2017
 
December 31, 2016
 
Hierarchy
 
Book Value
 
Fair Value
 
Book Value
 
Fair Value
Senior Notes (1)
Level 2
 
$
1,491,229

 
$
1,552,335

 
$
1,189,180

 
$
1,219,125

Unsecured revolving credit facility (2)
Level 2
 
$

 
$

 
$
200,000

 
$
177,410

Seller financed loans (3)
Level 2
 
$

 
$

 
$
13,726

 
$
13,189

   __________
(1) 
The book value of the Senior Notes is net of discounts, excluding deferred loan costs of $19.9 million and $20.9 million as of December 31, 2017 and 2016, respectively. The estimated fair value of our Senior Notes at December 31, 2017 and 2016 is based on quoted market prices.
(2) 
The estimated fair value of the Credit Facility at December 31, 2016 was based on a treasury curve analysis.
(3) 
The estimated fair value of the seller financed loan at December 31, 2016 was based on a treasury curve analysis.
At December 31, 2017 and 2016, 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 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, 2017
 
Year Ended December 31, 2016
 
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.
Commitments and Contingencies
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.  As of December 31, 2017 we did not have any matters to which the Company believes a loss is probable and reasonably estimable. Legal reserves were zero and $225,000 as of December 31, 2017 and 2016, 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. 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.
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 $35.8 million and $46.9 million as of December 31, 2017 and 2016, 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,
 
2017
 
2016
 
2015
Warranty reserves, beginning of period
$
83,135

 
$
45,948

 
$
33,270

Warranty reserves accrued
13,336

 
12,712

 
16,557

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

 
7,451

Warranty expenditures
(17,744
)
 
(12,351
)
 
(11,330
)
Warranty reserves, end of period
$
69,373

 
$
83,135

 
$
45,948


  __________
(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, 2017 and December 31, 2016, the Company had outstanding surety bonds totaling $537.4 million and $449.6 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 nine 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):
 
2018
$
7,006

2019
6,744

2020
6,769

2021
5,544

2022
3,107

Thereafter
3,044

 
$
32,214


 
For the years ended December 31, 2017, 2016 and 2015, rental expense was $6.9 million, $6.4 million and $6.2 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):
 
2018
$
2,239

2019
2,239

2020
2,239

2021
2,239

2022
2,239

Thereafter
72,753

 
$
83,948


 
This ground lease has been subleased through 2041 to the buyers of the commercial buildings. Our lease commitments through 2041 total $53.7 million as of December 31, 2017, 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, 2017, 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 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. Option contracts generally require a non-refundable deposit for the right to acquire 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. As of December 31, 2017, we had $27.0 million of non-refundable cash deposits pertaining to land option contracts and purchase contracts with an aggregate remaining purchase price of approximately $381.9 million (net of deposits).
Our utilization of land option contracts is dependent on, among other things, the availability of land sellers willing to enter into 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.
Stock-Based Compensation
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 December 31, 2017 there were 6,228,769 shares available for future grant under the 2013 Incentive Plan.
Converted Awards
On July 16, 2014, the Company filed a registration statement on Form S-8 (Registration No. 333-197461) on July 16, 2014 to register 4,105,953 shares of common stock related to converted equity awards issued in connection with the Company's acquisition of WRECO. The converted awards have the same terms and conditions as the prior equity awards except that all performance share units were surrendered in exchange for time-vesting restricted stock units without any performance-based vesting conditions or requirements and the exercise price of each converted stock option is equal to the original exercise price divided by an exchange ratio of 2.1107, rounded down to the nearest whole number of shares of common stock. There will be no future grants under the WRECO equity incentive plans.

The following table presents compensation expense recognized related to all stock-based awards (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Total stock-based compensation
$
15,906

 
$
12,612

 
$
11,935


 
Stock-based compensation is charged to general and administrative expense on the accompanying consolidated statements of operations. As of December 31, 2017, total unrecognized stock-based compensation related to all stock-based awards was $17.3 million and the weighted average term over which the expense was expected to be recognized was 1.57 years.
Summary of Stock Option Activity
The following table presents a summary of stock option awards for the year ended December 31, 2017:
 
 
Options
 
Weighted
Average
Exercise
Price
Per Share
 
Weighted
Average
Remaining
Contractual
Life
 
Aggregate
Intrinsic
Value
(in thousands)
Options outstanding at December 31, 2016
2,971,370

 
$
13.12

 
4.4

 
$
1,568

Granted

 

 

 


Exercised
(1,066,298
)
 
11.74

 
 
 
 
Forfeited
(750,414
)
 
14.09

 
 
 
 
Options outstanding at December 31, 2017
1,154,658

 
14.16

 
4.9

 
$
4,350

Options exercisable at December 31, 2017
1,039,819

 
$
14.15

 
4.8

 
$
3,933


 
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, 2017, 2016 and 2015 was $4.5 million, $324,000 and $642,000, respectively. There were no stock option awards granted or assumed during the years ended December 31, 2017, 2016 and 2015.

Summary of Restricted Stock Unit Activity
The following table presents a summary of restricted stock units (“RSUs”) for the year ended December 31, 2017:
 
Restricted
Stock
Units
 
Weighted
Average
Grant Date
Fair Value
Per Share
 
Aggregate
Intrinsic
Value
(in thousands)
Nonvested RSUs at December 31, 2016
3,412,719

 
$
9.77

 
$
39,179

Granted
1,670,936

 
11.00

 


Vested
(714,612
)
 
12.34

 
 
Forfeited
(61,451
)
 
11.66

 
 
Nonvested RSUs at December 31, 2017
4,307,592

 
$
9.80

 
$
77,192



The total intrinsic value of restricted stock units that vested during the years ended December 31, 2017, 2016 and 2015 was $8.8 million, $4.6 million and $6.8 million, respectively. The total grant date fair value of restricted stock awards granted during the years ended December 31, 2017, 2016 and 2015 were $18.4 million, $21.8 million and $18.3 million, respectively.

On March 1, 2016, the Company granted an aggregate of 1,120,677 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 March 1, 2016 was measured using a price of $10.49 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 March 1, 2016, the Company granted 297,426285,986 and 125,834 performance-based RSUs to the Company’s Chief Executive Officer, President, and Chief Financial Officer, respectively. 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 percentage of these performance-based RSUs that vest will be determined by comparing the Company’s total stockholder return ("TSR") to the TSRs of a group of peer homebuilding companies. The performance period for these performance-based RSUs is January 1, 2016 to December 31, 2018. These performance-based RSUs will not vest if the Company’s total stockholder return from January 1, 2016 to December 31, 2018 is not a positive number, provided that the executive will thereafter become vested in the award units, or portion thereof, that would have otherwise vested on December 31, 2018 if on any day after December 31, 2018 and on or before December 31, 2020, the Company’s total stockholder return is greater than zero and the executive is employed by the Company on that date. If the performance-based RSUs have not vested on or before December 31, 2020, such performance-based RSUs shall be cancelled and forfeited for no consideration. The fair value of these performance-based RSUs was determined to be $4.76 per share based on a Monte Carlo simulation. Each award will be expensed over the requisite service period.

On June 6, 2016, the Company granted an aggregate of 74,466 RSUs to the non-employee members of its board of directors. On March 27, 2017, 21,276 of these RSUs vested in their entirety and on May 25, 2017, 53,190 of these RSUs vested in their entirety. The fair value of each RSU granted on June 6, 2016 was measured using a price of $11.75 per share, which was the closing stock price on the date of grant. Each award was expensed on a straight-line basis over the vesting period.

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 was the closing stock price on the date of grant. Each award will be expensed on a straight-line basis over the vesting period.

As RSUs vest for employees, a portion of the shares awarded is generally withheld to cover employee tax withholdings. As a result, the number of RSUs vested and the number of shares of TRI Pointe common stock issued will differ.
Income Taxes
Income Taxes
Income Taxes  
The provision for income tax attributable to income before income taxes consisted of (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Current:
 

 
 
 
 

Federal
$
95,814

 
$
90,387

 
$
91,343

State
8,961

 
8,744

 
6,715

Total current taxes
104,775

 
99,131

 
98,058

Deferred:
 

 
 

 
 

Federal
37,151

 
5,749

 
8,296

State
10,341

 
1,214

 
5,725

Total deferred taxes
47,492

 
6,963

 
14,021

Total income tax expense
$
152,267

 
$
106,094

 
$
112,079


 
The Company’s provision for income taxes was different from the amount computed by applying the statutory federal income tax rate of 35% to the underlying income before income taxes as a result of the following (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Taxes at the U.S. federal statutory rate
$
118,936

 
$
105,779

 
$
111,846

State income taxes, net of federal tax impact
10,712

 
9,539

 
9,627

Domestic production activities deduction
(7,108
)
 
(5,037
)
 
(5,566
)
Non-deductible transaction costs
541

 
305

 

Change in valuation allowance
3,256

 
(4,038
)
 
(1,872
)
Tax Cuts and Jobs Act
21,961

 

 

Other, net
3,969

 
(454
)
 
(1,956
)
Total income tax expense
$
152,267

 
$
106,094

 
$
112,079

Effective income tax rate
44.8
%
 
35.1
%
 
35.1
%

 
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax basis, and for operating loss and tax credit carryforwards. Deferred taxes consisted of the following at December 31, 2017 and 2016 (in thousands):
 
Year Ended
December 31,
 
2017
 
2016
Deferred tax assets:
 
 
 

Impairment and other valuation reserves
$
40,438

 
$
73,890

Incentive compensation
5,851

 
8,322

Indirect costs capitalized
19,574

 
25,377

Net operating loss carryforwards (state)
25,172

 
24,583

State taxes
2,181

 
2,985

Other costs and expenses
11,354

 
15,214

Gross deferred tax assets
104,570

 
150,371

Valuation allowance
(3,478
)
 
(323
)
Deferred tax assets, net of valuation allowance
101,092

 
150,048

Deferred tax liabilities:
 
 
 
Interest capitalized
(7,144
)
 
(814
)
Basis difference in inventory
(9,207
)
 
(14,186
)
Fixed assets
(1,710
)
 
(1,101
)
Intangibles
(5,360
)
 
(8,456
)
Deferred financing costs
(898
)
 
(924
)
Other
(360
)
 
(1,344
)
Deferred tax liabilities
(24,679
)
 
(26,825
)
Net deferred tax assets
$
76,413

 
$
123,223



On December 22, 2017, the Tax Cuts and Jobs Act was enacted, reducing the U.S. federal corporate income tax rate from 35% to 21%, among other changes. The SEC staff issued Staff Accounting Bulletin 118, which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act, for which the accounting under ASC 740 is incomplete. To the extent that a company's accounting for certain income tax effects of the Tax Cuts and Jobs Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before enactment of the Tax Cuts and Jobs Act. 
As of December 31, 2017, we have completed the majority of our accounting for the tax effects of the Tax Cuts and Jobs Act. However, there is some uncertainty around the grandfathering provisions related to performance-based executive compensation. In addition, we also re-measured the applicable deferred tax assets and liabilities based on the rates at which they are expected to reverse. However, we are still analyzing certain aspects of the Tax Cuts and Jobs Act and state conformity to those provisions and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. As of December 31, 2017, the Company recorded an income tax charge of $22.0 million related to the re-measurement of our deferred tax assets related to the Tax Cuts and Jobs Act.
The Company accounts for income taxes in accordance with ASC 740, which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates for the years in which taxes are expected to be paid or recovered. Each quarter we assess our deferred tax asset to determine whether all or any portion of the asset 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.
As of December 31, 2017, the Company had a state net operating loss carryforward of $385.9 million, which will expire between 2028 and 2036. As of December 31, 2017 and 2016, we had a valuation allowance on our deferred tax assets of $3.5 million and $323,000, respectively. The increase in our valuation allowance in 2017 was related to the $13.2 million impairment of our investment in a limited liability company joint venture for the entitlement and development of land located in a Los Angeles County, California that was recorded in the fourth quarter of 2017. A valuation allowance was recorded against the deferred tax asset related to this impairment due to the fact that the joint venture if disposed at its carrying value would result in a capital loss, the realization of which is uncertain. The decrease in the valuation allowance in 2016 was principally due to a release of the valuation allowance against the deferred tax asset related to state net operating loss carryovers as realization of tax benefits are more likely than not to occur.
The Company will continue to evaluate both positive and negative evidence in determining the need for a valuation allowance against its deferred tax assets. Changes in positive and negative evidence, including differences between the Company’s future operating results and the estimates utilized in the determination of the valuation allowance, could result in changes in the Company’s estimate of the valuation allowance against its deferred tax assets. The accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on the Company’s consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation allowance against the Company’s deferred tax assets.
Unrecognized tax benefits represent potential future obligations to taxing authorities if uncertain tax positions we have taken on previously filed tax returns are not sustained. These amounts represent the gross amount of exposure in individual jurisdictions and do not reflect any additional benefits expected to be realized if such positions were not sustained, such as federal deduction that could be realized if an unrecognized state deduction was not sustained.
The Company files income tax returns in the U.S., including federal and multiple state and local jurisdictions. The Company’s tax years 2014-2016 will remain open to examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss or credit carryforwards.
The following table summarizes the activity related to the Company’s gross unrecognized tax benefits (in thousands):
 
Year Ended
December 31,
 
2017
 
2016
Balance at beginning of year
$

 
$
272

Increase (decrease) related to prior year tax positions
1,521

 
(272
)
Balance at end of year
$
1,521

 
$


 The Company classifies interest and penalties related to income taxes as part of income tax expense. The Company has not recorded any tax expense for interest and penalties on uncertain tax positions during the years ended December 31, 2017, 2016 and 2015. The Company estimates that the uncertain tax positions, if reversed, would result in a tax benefit of approximately $1.4 million.
Related Party Transactions
Related Party Transactions
Related Party Transactions
TRI Pointe has certain liabilities with Weyerhaeuser related to a tax sharing agreement executed in connection with the Merger. The liabilities under the tax sharing agreement relate to a portion of the California net operating loss generated prior to the WRECO Merger that are expected to be realized after July 7, 2014; federal tax credits generated prior to the Merger that are expected to be realized after July 7, 2014; and deductions for stock option awards granted through December 31, 2013 that are expected to be realized after July 7, 2014.  As of December 31, 2017 and 2016, we had an income tax liability to Weyerhaeuser of $7.7 million and $8.6 million, respectively, which is recorded in accrued expenses and other liabilities on the accompanying balance sheet.
We had no related party transactions for the twelve months ended December 31, 2017.
In May of 2016, we entered into an agreement with an affiliate of Starwood Capital Group, a then greater than 5% holder of our common stock, to acquire 52 lots located in Azusa, California, for an aggregate purchase price of $18.4 million. In October of 2016, we acquired 27 of these lots for a purchase price of $9.6 million. Our former Chairman of the Board is also the Chairman and Chief Executive Officer of Starwood Capital Group. This acquisition was approved by our independent directors. In January of 2015, TRI Pointe acquired 46 lots located in Castle Rock, Colorado, for a purchase price of approximately $2.8 million from an entity managed by an affiliate of Starwood Capital Group. In August of 2016, we agreed to purchase 257 additional lots for an aggregate purchase price of approximately $8.6 million. In October of 2016, we acquired 126 of these lots for a purchase price of $4.2 million. This acquisition was approved by our independent directors. As of March 27, 2017, Starwood Capital Group is no longer a related party.
In October of 2015, TRI Pointe entered into an agreement with an affiliate of BlackRock, Inc. to acquire 161 lots located in Dublin, California, for a purchase price of approximately $60.0 million.  BlackRock, Inc. is a greater than 5% holder of our common stock.  This acquisition was approved by the executive land committee, which was comprised of independent directors. In the second half of 2016, we acquired an additional 93 lots located in Dublin, California, for a combined purchase price of approximately $25.5 million from an affiliate of BlackRock, Inc. This acquisition was approved by a majority of the TRI Pointe independent directors.
Supplemental Disclosure to Consolidated Statement of Cash Flow
Supplemental Disclosure to Consolidated Statement of Cash Flow
Supplemental Disclosure to Consolidated Statement of Cash Flow

The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Supplemental disclosure of cash flow information:
 

 
 

 
 
Cash paid during the period for:
 

 
 

 
 
Interest, net of amounts capitalized of $77,193, $53,028 and $60,964
$

 
$

 
$

Income taxes
$
74,388

 
$
117,215

 
$
69,917

Supplemental disclosures of noncash activities:
 

 
 

 
 

Accrued liabilities related to the purchase of operating properties
   and equipment
$

 
$
1,828

 
$
3,976

Amortization of senior note discount capitalized to real estate
   inventory
$
2,048

 
$
1,815

 
$
1,552

Amortization of deferred loan costs capitalized to real estate
   inventory
$
5,578

 
$
4,642

 
$
3,820

Effect of net consolidation and de-consolidation of variable
   interest entities:
 

 
 

 
 

(Decrease) increase in consolidated real estate inventory
   not owned
$
(17,485
)
 
$
(316
)
 
$
5,297

Increase in accrued expenses and other liabilities
$

 
$

 
$
300

Decrease (increase) in noncontrolling interests
$
17,485

 
$
316

 
$
(5,597
)
Supplemental Guarantor Information
Supplemental Guarantor Information
Supplemental Guarantor Information
2021 Notes and 2027 Notes
On May 26, 2016, TRI Pointe Group issued the 2021 Notes. On June 5, 2017, TRI Pointe Group issued the 2027 Notes. All of TRI Pointe Group’s 100% owned subsidiaries that are guarantors (each a “Guarantor” and, collectively, the “Guarantors”) of the Credit Facility, including TRI Pointe Homes, are party to supplemental indentures pursuant to which they jointly and severally guarantee TRI Pointe Group’s obligations with respect to the 2021 Notes and the 2027 Notes. Each Guarantor of the 2021 Notes and the 2027 Notes is 100% owned by TRI Pointe Group, and all guarantees are full and unconditional, subject to customary exceptions pursuant to the indentures governing the 2021 Notes and the 2027 Notes, as described in the following paragraph. All of our non-Guarantor subsidiaries have nominal assets and operations and are considered minor, as defined in Rule 3-10(h) of Regulation S-X. In addition, TRI Pointe Group has no independent assets or operations, as defined in Rule 3-10(h) of Regulation S-X. There are no significant restrictions upon the ability of TRI Pointe Group or any Guarantor to obtain funds from any of their respective wholly owned subsidiaries by dividend or loan. None of the assets of our subsidiaries represent restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X.
A Guarantor of the 2021 Notes and the 2027 Notes shall be released from all of its obligations under its guarantee if (i) all of the assets of the Guarantor have been sold; (ii) all of the equity interests of the Guarantor held by TRI Pointe Group or a subsidiary thereof have been sold; (iii) the Guarantor merges with and into TRI Pointe Group or another Guarantor, with TRI Pointe Group or such other Guarantor surviving the merger; (iv) the Guarantor is designated “unrestricted” for covenant purposes; (v) the Guarantor ceases to guarantee any indebtedness of TRI Pointe Group or any other Guarantor which gave rise to such Guarantor guaranteeing the 2021 Notes or the 2027 Notes; (vi) TRI Pointe Group exercises its legal defeasance or covenant defeasance options; or (vii) all obligations under the applicable supplemental indenture are discharged.
2019 Notes and 2024 Notes
TRI Pointe Group and TRI Pointe Homes are co-issuers of the 2019 Notes and the 2024 Notes. All of the Guarantors (other than TRI Pointe Homes) have entered into supplemental indentures pursuant to which they jointly and severally guarantee the obligations of TRI Pointe Group and TRI Pointe Homes with respect to the 2019 Notes and the 2024 Notes. Each Guarantor of the 2019 Notes and the 2024 Notes is 100% owned by TRI Pointe Group and TRI Pointe Homes, and all guarantees are full and unconditional, subject to customary exceptions pursuant to the indentures governing the 2019 Notes and the 2024 Notes, as described below.
A Guarantor of the 2019 Notes and the 2024 Notes shall be released from all of its obligations under its guarantee if (i) all of the assets of the Guarantor have been sold; (ii) all of the equity interests of the Guarantor held by TRI Pointe or a subsidiary thereof have been sold; (iii) the Guarantor merges with and into TRI Pointe or another Guarantor, with TRI Pointe or such other Guarantor surviving the merger; (iv) the Guarantor is designated “unrestricted” for covenant purposes; (v) the Guarantor ceases to guarantee any indebtedness of TRI Pointe or any other Guarantor which gave rise to such Guarantor guaranteeing the 2019 Notes and 2024 Notes; (vi) TRI Pointe exercises its legal defeasance or covenant defeasance options; or (vii) all obligations under the applicable indenture are discharged.
Presented below are the condensed consolidating balance sheets at December 31, 2017 and December 31, 2016, condensed consolidating statements of operations for the full years ended December 31, 2017, 2016 and 2015, and condensed consolidating statements of cash flows for the full years ended December 31, 2017, 2016 and 2015 Because TRI Pointe’s non-Guarantor subsidiaries are considered minor, as defined in Rule 3-10(h) of Regulation S-X, the non-Guarantor subsidiaries’ information is not separately presented in the tables below, but is included with the Guarantors. Additionally, because TRI Pointe Group has no independent assets or operations, as defined in Rule 3-10(h) of Regulation S-X, the condensed consolidated financial information of TRI Pointe Group and TRI Pointe Homes, the co-issuers of the 2019 Notes and 2024 Notes, is presented together in the column titled “Issuer” for all periods presented after July 7, 2015, the date of the Reorganization.
Condensed Consolidating Balance Sheet (in thousands):
 
 
December 31, 2017
 
Issuer (1)
 
Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
TRI Pointe
Group, Inc.
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
176,684

 
$
106,230

 
$

 
$
282,914

Receivables
56,021

 
69,579

 

 
125,600

Intercompany receivables
794,550

 

 
(794,550
)
 

Real estate inventories
855,727