TPH 10-Q Quarterly Report Sept. 30, 2016 | Alphaminr
TRI Pointe Group, Inc.
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TPH 10-Q Quarter ended Sept. 30, 2016

Balance Sheet
Cash Flow
Income Statement
TRI POINTE GROUP, INC.
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10-Q 1 tphq310-q9302016.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________________________
FORM 10-Q
_____________________________________________________________________________________________
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-35796

_____________________________________________________________________________________________

tripointelogo.jpg
TRI Pointe Group, Inc.
(Exact Name of Registrant as Specified in Its Charter)
_____________________________________________________________________________________________
Delaware
61-1763235
(State or other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)

_____________________________________________________________________________________________
19540 Jamboree Road, Suite 300
Irvine, California 92612
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (949) 438-1400
_____________________________________________________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐ (Do not check if a smaller reporting company)
Smaller reporting company
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐ No ☒
Registrant’s shares of common stock outstanding at October 14, 2016: 160,064,678

- 1 -


EXPLANATORY NOTE
As used in this Quarterly Report on Form 10-Q (including the consolidated financial statements and condensed notes thereto in this report), unless the context otherwise requires:
•
“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
•
“GAAP” refers to U.S. generally accepted accounting principles;
•
“SEC” refers to the United States Securities and Exchange Commission;
•
“Securities Act” refers to the Securities Act of 1933, as amended;
•
“TRI Pointe Homes” refers to TRI Pointe Homes, Inc., a Delaware corporation;
•
“TRI Pointe Group” refers to TRI Pointe Group, Inc., a Delaware corporation;
•
“Weyerhaeuser” refers to Weyerhaeuser Company, a Washington corporation and the former parent of WRECO; and
•
“WRECO” refers to Weyerhaeuser Real Estate Company, a Washington corporation, which following its acquisition by TRI Pointe on July 7, 2014, was renamed “TRI Pointe Holdings, Inc.”
Additionally, references to “TRI Pointe”, “the Company”, “we”, “us” or “our” in this Quarterly Report on Form 10-Q (including the consolidated financial statements and condensed notes thereto in this report) have the following meanings, unless the context otherwise requires:
•
For periods prior to July 7, 2015: TRI Pointe Homes and its subsidiaries; and
•
For periods from and after July 7, 2015: TRI Pointe Group and its subsidiaries.


- 2 -


TRI POINTE GROUP, INC.
FORM 10-Q
INDEX
September 30, 2016
Page
Number
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.


- 2 -


PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements

TRI POINTE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
September 30, 2016
December 31, 2015
(unaudited)
Assets
Cash and cash equivalents
$
128,715

$
214,485

Receivables
35,321

43,710

Real estate inventories
2,969,148

2,519,273

Investments in unconsolidated entities
17,205

18,999

Goodwill and other intangible assets, net
161,629

162,029

Deferred tax assets, net
111,887

130,657

Other assets
65,998

48,918

Total assets
$
3,489,903

$
3,138,071

Liabilities
Accounts payable
$
77,667

$
64,840

Accrued expenses and other liabilities
219,396

216,263

Unsecured revolving credit facility
200,000

299,392

Seller financed loans
17,758

2,434

Senior notes, net
1,166,724

868,679

Total liabilities
1,681,545

1,451,608

Commitments and contingencies (Note 14)


Equity
Stockholders’ Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized; no shares
issued and outstanding as of September 30, 2016 and December 31, 2015,
respectively
—

—

Common stock, $0.01 par value, 500,000,000 shares authorized;
160,064,678 and 161,813,750 shares issued and outstanding at
September 30, 2016 and December 31, 2015, respectively
1,601

1,618

Additional paid-in capital
894,681

911,197

Retained earnings
889,178

751,868

Total stockholders’ equity
1,785,460

1,664,683

Noncontrolling interests
22,898

21,780

Total equity
1,808,358

1,686,463

Total liabilities and equity
$
3,489,903

$
3,138,071

See accompanying condensed notes to the unaudited consolidated financial statements.


- 3 -


TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30,
2016
2015
2016
2015
Homebuilding:
Home sales revenue
$
578,653

$
642,352

$
1,558,633

$
1,443,855

Land and lot sales revenue
2,535

4,876

70,204

74,366

Other operations revenue
606

613

1,790

2,213

Total revenues
581,794

647,841

1,630,627

1,520,434

Cost of home sales
462,323

507,543

1,219,560

1,149,191

Cost of land and lot sales
1,734

3,451

16,973

17,324

Other operations expense
575

570

1,724

1,704

Sales and marketing
31,852

30,038

90,621

78,958

General and administrative
31,150

26,736

89,815

83,150

Restructuring charges
128

2,010

478

2,730

Homebuilding income from operations
54,032

77,493

211,456

187,377

Equity in (loss) income of unconsolidated entities
(20
)
(150
)
181

(82
)
Other income, net
21

47

287

272

Homebuilding income before income taxes
54,033

77,390

211,924

187,567

Financial Services:
Revenues
235

300

762

482

Expenses
72

47

183

131

Equity in income (loss) of unconsolidated entities
1,247

147

3,246

(2
)
Financial services income before income taxes
1,410

400

3,825

349

Income before income taxes
55,443

77,790

215,749

187,916

Provision for income taxes
(20,298
)
(28,021
)
(77,701
)
(66,088
)
Net income
35,145

49,769

138,048

121,828

Net (income) loss attributable to noncontrolling interests
(311
)
393

(738
)
(1,439
)
Net income available to common stockholders
$
34,834

$
50,162

$
137,310

$
120,389

Earnings per share


Basic
$
0.22

$
0.31

$
0.85

$
0.74

Diluted
$
0.22

$
0.31

$
0.85

$
0.74

Weighted average shares outstanding
Basic
160,614,055

161,772,893

161,456,520

161,651,177

Diluted
161,267,509

162,366,744

161,916,352

162,299,282

See accompanying condensed notes to the unaudited consolidated financial statements.


- 4 -


TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
(in thousands, except share amounts)
Number of
Shares of Common
Stock (Note 1)
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Total
Stockholders'
Equity
Noncontrolling
Interests
Total
Equity
Balance at December 31, 2014
161,355,490

$
1,614

$
906,159

$
546,407

$
1,454,180

$
18,296

$
1,472,476

Net income
—

—

—

205,461

205,461

1,720

207,181

Adjustment to capital contribution by Weyerhaeuser, net
—

—

(6,747
)
—

(6,747
)
—

(6,747
)
Shares issued under share-based awards
458,260

4

1,612

—

1,616

—

1,616

Excess tax benefit 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

Balance at December 31, 2015
161,813,750

1,618

911,197

751,868

1,664,683

21,780

1,686,463

Net income
—

—

—

137,310

137,310

738

138,048

Shares issued under share-based awards
356,449

4

457

—

461

—

461

Excess tax deficit of share-based awards, net
—

—

(170
)
—

(170
)
—

(170
)
Minimum tax withholding paid on behalf of employees for restricted stock units
—

—

(1,359
)
—

(1,359
)
—

(1,359
)
Stock-based compensation expense
—

—

9,648

—

9,648

—

9,648

Share repurchases
(2,105,521
)
(21
)
(25,092
)
—

(25,113
)
—

(25,113
)
Distributions to noncontrolling interests, net
—

—

—

—

—

(3,104
)
(3,104
)
Net effect of consolidations, de-consolidations and other transactions
—

—

—

—

—

3,484

3,484

Balance at September 30, 2016
160,064,678

$
1,601

$
894,681

$
889,178

$
1,785,460

$
22,898

$
1,808,358

See accompanying condensed notes to the unaudited consolidated financial statements.


- 5 -


TRI POINTE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Nine Months Ended September 30,
2016
2015
Cash flows from operating activities:
Net income
$
138,048

$
121,828

Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization
2,322

5,416

Equity in (income) loss of unconsolidated entities, net
(3,427
)
84

Deferred income taxes, net
18,770

16,342

Amortization of stock-based compensation
9,648

8,536

Charges for impairments and lot option abandonments
678

1,903

Excess tax deficit of share-based awards
(170
)
—

Changes in assets and liabilities:
Real estate inventories
(442,671
)
(305,889
)
Receivables
8,549

(12,803
)
Other assets
(16,806
)
25,490

Accounts payable
12,827

(1,113
)
Accrued expenses and other liabilities
5,876

195

Returns on investments in unconsolidated entities, net
5,049

—

Net cash used in operating activities
(261,307
)
(140,011
)
Cash flows from investing activities:
Purchases of property and equipment
(2,056
)
(1,059
)
Investments in unconsolidated entities
(32
)
(1,458
)
Distributions from unconsolidated entities
—

319

Net cash used in investing activities
(2,088
)
(2,198
)
Cash flows from financing activities:
Borrowings from debt
491,069

140,000

Repayment of debt
(276,826
)
(57,713
)
Debt issuance costs
(5,061
)
(2,688
)
Net repayments of debt held by variable interest entities
(2,442
)
(5,927
)
Contributions from noncontrolling interests
1,955

4,281

Distributions to noncontrolling interests
(5,059
)
(9,198
)
Proceeds from issuance of common stock under share-based awards
461

1,616

Excess tax benefit of share-based awards
—

392

Minimum tax withholding paid on behalf of employees for share-based awards
(1,359
)
(2,190
)
Share repurchases
(25,113
)
—

Net cash provided by financing activities
177,625

68,573

Net decrease in cash and cash equivalents
(85,770
)
(73,636
)
Cash and cash equivalents - beginning of period
214,485

170,629

Cash and cash equivalents - end of period
$
128,715

$
96,993

See accompanying condensed notes to the unaudited consolidated financial statements.


- 6 -


TRI POINTE GROUP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.
Organization, Basis of Presentation and Summary of Significant Accounting Policies

Organization
TRI Pointe Group is engaged in the design, construction and sale of innovative single-family attached and detached homes through its portfolio of six quality brands across eight states, including Maracay 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 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 Exchange Act), began making filings under the Securities Act 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’ existing unsecured revolving credit facility.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with 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 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 September 30, 2016 and December 31, 2015 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.  In the opinion of management, all adjustments consisting of normal recurring adjustments, necessary for a fair presentation with respect to interim financial statements, have been included.
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.
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 change in reportable segments to include the addition of our financial services operation in the fourth quarter of 2015. These reclassifications had no material impact on the Company's condensed consolidated financial statements.

- 7 -


Recently Issued Accounting Standards
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The core principle of ASU 2014-09 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. ASU 2014-09 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. On July 9, 2015, the FASB voted to defer the effective date of ASU No. 2014-09 by one year and it is now 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 ASU 2014-09.  Early adoption is permitted, but can be no earlier than the original public entity effective date of fiscal years, and the interim periods within those years, beginning after December 15, 2016.  We are currently evaluating the approach for implementation and the potential impact of adopting this guidance on our consolidated financial statements.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15 (“ASU 2014-15”), Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern , which requires management to evaluate, in connection with preparing financial statements for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable) and provide related disclosures. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. We believe the adoption of this guidance will not have a material effect on our consolidated financial statements.
In February 2015, the FASB issued Accounting Standards Update No. 2015-02, (“ASU 2015-02”), Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015.  We adopted ASU 2015-02 on January 1, 2016 and the adoption had no impact on our current or prior year financial statements.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, (“ASU 2015-17”), Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes , which requires deferred tax liabilities and assets be classified as noncurrent in a classified statement of position.  ASU 2015-17 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016.  The adoption of ASU 2015-17 is not expected to have a material effect on our consolidated financial statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, (“ASU 2016-02”), Leases (Topic 842): Leases , 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. ASU 2016-02 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 ASU 2016-02 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, which changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.  ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. We are currently evaluating the impact that the adoption of ASU 2016-09 may have on our consolidated financial statements and disclosures.

- 8 -


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.
2.
Restructuring
Restructuring charges were comprised of the following (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2016
2015
2016
2015
Employee-related charges
$
5

$
1,433

$
30

$
1,568

Lease termination charges
123

577

448

1,162

Total
$
128

$
2,010

$
478

$
2,730


Employee-related charges for the three and nine months ended September 30, 2016 and 2015 relate to severance-related expenses for employees terminated during the period.  Lease termination charges for the three and nine months ended September 30, 2016 , and 2015 relate to contract terminations and the adjustment of restructuring reserves related to the estimate of sublease income.
Changes in employee-related restructuring reserves were as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2016
2015
2016
2015
Accrued employee-related charges, beginning of period
$
100

$
109

$
220

$
3,844

Current year charges
5

1,433

30

1,568

Payments
(20
)
(1,087
)
(165
)
(4,957
)
Accrued employee-related charges, end of period
$
85

$
455

$
85

$
455

Changes in lease termination related restructuring reserves were as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2016
2015
2016
2015
Accrued lease termination charges, beginning of period
$
447

$
644

$
767

$
1,394

Current year charges
123

577

448

1,162

Payments
(352
)
(705
)
(997
)
(2,040
)
Accrued lease termination charges, end of period
$
218

$
516

$
218

$
516

Employee and lease termination restructuring reserves are included in accrued expenses and other liabilities on our consolidated balance sheets.
3.
Segment Information
We operate two principal businesses: homebuilding and financial services.
Our homebuilding operations consist of six homebuilding brands that acquire and develop land and construct and sell single-family detached and attached homes. In accordance with ASC Topic 280, Segment Reporting , in determining the most appropriate reportable segments, we considered similar economic and other characteristics, including product types, average selling prices, gross profits, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, and underlying demand and supply. Based upon the above factors, our homebuilding operations are comprised of 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

- 9 -


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 operation (“TRI Pointe Solutions”) is a reportable segment and is comprised of mortgage financing operations (“TRI Pointe Connect”) and title services operations (“TRI Pointe Assurance”).  While our homebuyers may obtain financing from any mortgage provider of their choice, TRI Pointe Connect, which was formed as a joint venture with an established mortgage lender, can act as a preferred mortgage broker to our homebuyers in all of the markets in which we operate, providing mortgage originations that help facilitate the sale and closing process as well as generate additional fee income for us.  TRI Pointe Assurance provides title examinations for our homebuyers in our Trendmaker Homes and Winchester Homes brands.  TRI Pointe Assurance is a wholly owned subsidiary of TRI Pointe and acts as a title agency for First American Title Insurance Company.  We commenced our financial services operation in the fourth quarter of 2014.
The term “Corporate” refers to 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, Basis of Presentation and Summary of Significant Accounting Policies . Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented.

Total revenues and income before income taxes for each of our reportable segments were as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2016
2015
2016
2015
Revenues
Maracay Homes
$
68,024

$
50,505

$
161,318

$
116,556

Pardee Homes
188,148

172,957

547,311

424,680

Quadrant Homes
48,354

48,173

153,575

132,698

Trendmaker Homes
64,251

81,044

172,509

203,235

TRI Pointe Homes
167,769

224,244

452,553

461,654

Winchester Homes
45,248

70,918

143,361

181,611

Total homebuilding revenues
581,794

647,841

1,630,627

1,520,434

Financial services
235

300

762

482

Total
$
582,029

$
648,141

$
1,631,389

$
1,520,916

Income (loss) before income taxes
Maracay Homes
$
4,385

$
3,687

$
9,544

$
5,820

Pardee Homes
37,508

39,776

165,718

121,112

Quadrant Homes
5,497

3,850

14,808

6,176

Trendmaker Homes
3,516

7,214

9,439

17,525

TRI Pointe Homes
11,723

29,561

34,651

55,295

Winchester Homes
1,692

1,557

6,345

7,948

Corporate
(10,288
)
(8,255
)
(28,581
)
(26,309
)
Total homebuilding income before income taxes
54,033

77,390

211,924

187,567

Financial services
1,410

400

3,825

349

Total
$
55,443

$
77,790

$
215,749

$
187,916


- 10 -


Total real estate inventories and total assets for each of our reportable segments, as of the date indicated, were as follows (in thousands):
September 30, 2016
December 31, 2015
Real estate inventories
Maracay Homes
$
252,094

$
206,912

Pardee Homes
1,109,262

1,011,982

Quadrant Homes
217,430

190,038

Trendmaker Homes
221,201

199,398

TRI Pointe Homes
877,941

659,130

Winchester Homes
291,220

251,813

Total
$
2,969,148

$
2,519,273

Total assets
Maracay Homes
$
272,928

$
227,857

Pardee Homes
1,182,282

1,089,586

Quadrant Homes
237,959

202,024

Trendmaker Homes
236,618

213,562

TRI Pointe Homes
1,047,975

832,423

Winchester Homes
314,069

278,374

Corporate
192,654

292,169

Total homebuilding assets
3,484,485

3,135,995

Financial services
5,418

2,076

Total
$
3,489,903

$
3,138,071



4.
Earnings Per Share
The following table sets forth the components used in the computation of basic and diluted earnings per share (in thousands, except share and per share amounts):
Three Months Ended September 30,
Nine Months Ended September 30,
2016
2015
2016
2015
Numerator:




Net income available to common stockholders
$
34,834

$
50,162

$
137,310

$
120,389

Denominator:




Basic weighted-average shares outstanding
160,614,055

161,772,893

161,456,520

161,651,177

Effect of dilutive shares:



Stock options and unvested restricted stock units
653,454

593,851

459,832

648,105

Diluted weighted-average shares outstanding
161,267,509

162,366,744

161,916,352

162,299,282

Earnings per share




Basic
$
0.22

$
0.31

$
0.85

$
0.74

Diluted
$
0.22

$
0.31

$
0.85

$
0.74

Antidilutive stock options and unvested restricted stock not included in diluted earnings per share
3,806,396

2,260,532

4,551,337

2,462,268


- 11 -


5.
Receivables
Receivables consisted of the following (in thousands):
September 30, 2016
December 31, 2015
Escrow proceeds and other accounts receivable, net
$
25,619

$
32,917

Warranty insurance receivable (Note 14)
9,702

10,493

Notes and contracts receivable
—

300

Total receivables
$
35,321

$
43,710

6.
Real Estate Inventories
Real estate inventories consisted of the following (in thousands):
September 30, 2016
December 31, 2015
Real estate inventories owned:
Homes completed or under construction
$
757,707

$
575,076

Land under development
1,720,126

1,443,461

Land held for future development
298,841

295,241

Model homes
140,566

140,232

Total real estate inventories owned
2,917,240

2,454,010

Real estate inventories not owned:
Land purchase and land option deposits
29,608

39,055

Consolidated inventory held by VIEs
22,300

26,208

Total real estate inventories not owned
51,908

65,263

Total real estate inventories
$
2,969,148

$
2,519,273

Homes completed or under construction is comprised of costs associated with homes in various stages of construction and includes direct construction and related land acquisition and land development costs. Land under development primarily consists of land acquisition and land development costs, which include capitalized interest and real estate taxes, associated with land undergoing improvement activity. Land held for future development principally reflects land acquisition and land development costs related to land where development activity has not yet begun or has been suspended, but is expected to occur in the future.
Real estate inventories not owned represents deposits related to land purchase and land and lot option agreements as well as consolidated inventory held by variable interest entities. For further details, see Note 8, Variable Interest Entities .
In June of 2016, our Pardee Homes reporting segment sold two parcels, totaling 102 homebuilding lots, located in the Pacific Highlands Ranch community in San Diego, California. The land sold in these sales were classified as land under development and represented $61.6 million of land and lot sales revenue in the consolidated statements of operations for the nine months ended September 30, 2016 .
Interest incurred, capitalized and expensed were as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2016
2015
2016
2015
Interest incurred
$
18,601

$
15,454

$
50,030

$
45,779

Interest capitalized
(18,601
)
(15,454
)
(50,030
)
(45,779
)
Interest expensed
$
—

$
—

$
—

$
—

Capitalized interest in beginning inventory
$
151,347

$
140,106

$
140,311

$
124,461

Interest capitalized as a cost of inventory
18,601

15,454

50,030

45,779

Interest previously capitalized as a cost of inventory,
included in cost of sales
(14,415
)
(13,339
)
(34,808
)
(28,019
)
Capitalized interest in ending inventory
$
155,533

$
142,221

$
155,533

$
142,221


- 12 -


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 or cost of land and lot sales as related units or lots are delivered.  Interest that is expensed as incurred is included in other income, net.
Real estate inventory impairments and land and lot option abandonments
Land and lot option abandonments and pre-acquisition charges were as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2016
2015
2016
2015
Real estate inventory impairments
$
—

$
29

$
—

$
1,073

Land and lot option abandonments and pre-acquisition charges
389

336

678

830

Total
$
389

$
365

$
678

$
1,903

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.  Charges for inventory impairments are expensed to cost of sales.
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. Charges for such forfeitures are expensed to cost of sales.
7.
Investments in Unconsolidated Entities
As of September 30, 2016 , 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 7% to 55% , 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):
September 30, 2016
December 31, 2015
Limited liability company interests
$
13,946

$
15,739

General partnership interests
3,259

3,260

Total
$
17,205

$
18,999

Unconsolidated Financial Information
Aggregated assets, liabilities and operating results of the entities we account for as equity-method investments are provided below. Because our ownership interest in these entities varies, a direct relationship does not exist between the information presented below and the amounts that are reflected on our consolidated balance sheets as our investments in unconsolidated entities or on our consolidated statements of operations as equity in income (loss) of unconsolidated entities.

- 13 -


Assets and liabilities of unconsolidated entities (in thousands):
September 30, 2016
December 31, 2015
Assets
Cash
$
11,945

$
18,641

Receivables
10,038

13,108

Real estate inventories
96,654

92,881

Other assets
1,065

1,180

Total assets
$
119,702

$
125,810

Liabilities and equity
Accounts payable and other liabilities
$
12,932

$
14,443

Company’s equity
17,205

18,999

Outside interests' equity
89,565

92,368

Total liabilities and equity
$
119,702

$
125,810

Results of operations from unconsolidated entities (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2016
2015
2016
2015
Net sales
$
4,619

$
1,217

$
12,516

$
2,670

Other operating expense
(2,913
)
(1,479
)
(8,067
)
(4,020
)
Other income (loss)
1

(263
)
3

(256
)
Net income (loss)
$
1,707

$
(525
)
$
4,452

$
(1,606
)
Company’s equity in income (loss) of unconsolidated entities
$
1,227

$
(3
)
$
3,427

$
(84
)
8.
Variable Interest Entities
In the ordinary course of business, we enter into land and lot option agreements in order to procure land and residential lots for future development and the construction of homes. The use of such land and lot option agreements generally allows us to reduce the risks associated with direct land ownership and development, and reduces our capital and financial commitments. Pursuant to these land and lot option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. Such deposits are recorded as land purchase and land option deposits under real estate inventories not owned in the accompanying consolidated balance sheets.
We analyze each of our land and lot option agreements and other similar contracts under the provisions of ASC 810 Consolidation to determine whether the land seller is a VIE and, if so, whether we are the primary beneficiary. Although we do not have legal title to the underlying land, if we are determined to be the primary beneficiary of the VIE, we will consolidate the VIE in our financial statements and reflect its assets as real estate inventory not owned included in our real estate inventories, its liabilities as debt (nonrecourse) held by VIEs in accrued expenses and other liabilities and the net equity of the VIE owners as noncontrolling interests on our consolidated balance sheets. In determining whether we are the primary beneficiary, we consider, among other things, whether we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE.
Creditors of the entities with which we have land and lot option agreements have no recourse against us. The maximum exposure to loss under our land and lot option agreements is 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.

- 14 -


The following provides a summary of our interests in land and lot option agreements (in thousands):
September 30, 2016
December 31, 2015
Deposits
Remaining
Purchase
Price
Consolidated
Inventory
Held by VIEs
Deposits
Remaining
Purchase
Price
Consolidated
Inventory
Held by VIEs
Consolidated VIEs
$
600

$
21,700

$
22,300

$
3,003

$
23,239

$
26,208

Unconsolidated VIEs
2,170

58,135

N/A

11,615

74,590

N/A

Other land option agreements
27,438

365,224

N/A

27,440

279,612

N/A

Total
$
30,208

$
445,059

$
22,300

$
42,058

$
377,441

$
26,208

Unconsolidated VIEs represent land option agreements that were not consolidated because we were not the primary beneficiary. Other land and lot option agreements were not considered VIEs.
In addition to the deposits presented in the table above, our exposure to loss related to our land and lot option contracts consisted of capitalized pre-acquisition costs of $4.7 million and $5.0 million as of September 30, 2016 and December 31, 2015 , respectively. These pre-acquisition costs were included in real estate inventories as land under development on our consolidated balance sheets.
9.
Goodwill and Other Intangible Assets
As of September 30, 2016 and December 31, 2015 , $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 3, Segment Information .
We have two intangible assets recorded as of September 30, 2016 , 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):
September 30, 2016
December 31, 2015
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

(5,654
)
22,325

27,979

(5,254
)
22,725

Total
$
167,283

$
(5,654
)
$
161,629

$
167,283

$
(5,254
)
$
162,029

The remaining useful life of our amortizing intangible asset related to the Maracay Homes trade name was 9.4 and 10.2 years as of September 30, 2016 and December 31, 2015 , respectively. Amortization expense related to this intangible asset was $133,000 for each of the three month periods ended September 30, 2016 and 2015 , respectively and was $400,000 for each of the nine month periods ended September 30, 2016 and 2015 , respectively.  Amortization of this intangible asset was charged to sales and marketing expense.  Our $17.3 million indefinite life intangible asset related to the TRI Pointe Homes trade name is not amortizing.  All trade names are evaluated for impairment on an annual basis or more frequently if indicators of impairment exist.
Expected amortization of our intangible asset related to Maracay Homes for the remainder of 2016, the next four years and thereafter is (in thousands):
Remainder of 2016
$
134

2017
534

2018
534

2019
534

2020
534

Thereafter
2,755

Total
$
5,025


- 15 -



10.
Other Assets
Other assets consisted of the following (in thousands):
September 30, 2016
December 31, 2015
Prepaid expenses
$
14,899

$
14,523

Refundable fees and other deposits
21,695

17,056

Development rights, held for future use or sale
4,227

4,360

Deferred loan costs - unsecured revolving credit facility
2,319

2,179

Operating properties and equipment, net
9,525

7,643

Income tax receivable
10,633

—

Other
2,700

3,157

Total
$
65,998

$
48,918

11.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
September 30, 2016
December 31, 2015
Accrued payroll and related costs
$
23,126

$
28,264

Warranty reserves (Note 14)
45,665

45,948

Estimated cost for completion of real estate inventories
53,218

52,818

Customer deposits
19,428

12,132

Debt (nonrecourse) held by VIEs
—

2,442

Income tax liability to Weyerhaeuser (Note 17)
8,999

8,900

Accrued income taxes payable
—

19,279

Liability for uncertain tax positions (Note 17)
—

307

Accrued interest
19,240

2,417

Accrued insurance expense
2,529

1,402

Other tax liability
30,459

21,764

Other
16,732

20,590

Total
$
219,396

$
216,263

12.
Senior Notes, Unsecured Revolving Credit Facility and Seller Financed Loans
Senior Notes
The Senior Notes consisted of the following (in thousands):
September 30, 2016
December 31, 2015
4.375% Senior Notes due June 15, 2019
$
450,000

$
450,000

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

—

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

450,000

Discount and deferred loan costs
(33,276
)
(31,321
)
Total
$
1,166,724

$
868,679

In May 2016, TRI Pointe Group issued $300 million aggregate principal amount of 4.875% Senior Notes due 2021 (the "2021 Notes") at 99.44% of their aggregate principal amount. Net proceeds of this issuance were $293.9 million , after debt issuance costs and discounts. The 2021 Notes mature on July 1, 2021 and interest is paid semiannually in arrears on January 1 and July 1.

- 16 -


TRI Pointe Group and TRI Pointe Homes are 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 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 September 30, 2016 , no principal has been paid on the 2019 Notes, 2021 Notes and 2024 Notes (together, the "Senior Notes"), and there was $22.0 million of capitalized debt financing costs, included in senior notes, net on our consolidated balance sheet, related to the Senior Notes that will amortize over the lives of the Senior Notes. Accrued interest related to the Senior Notes was $18.6 million and $1.9 million as of September 30, 2016 and December 31, 2015 , respectively.
Unsecured Revolving Credit Facility
Unsecured revolving credit facility consisted of the following (in thousands):
September 30, 2016
December 31, 2015
Unsecured revolving credit facility
$
200,000

$
299,392

On April 28, 2016, the Company partially exercised the accordion feature under its existing unsecured revolving credit facility (the “Credit Facility”) to increase the total commitments under the Credit Facility to $625 million from $550 million .  The Credit Facility matures on May 18, 2019 , and contains a sublimit of $75 million for letters of credit. The Company may borrow under the Credit Facility in the ordinary course of business to fund its operations, including its land acquisition, land development and homebuilding activities. Borrowings under the Credit Facility will be governed by, among other things, a borrowing base. Interest rates on borrowings under the Credit Facility will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.45% to 2.20% , depending on the Company’s leverage ratio. As of September 30, 2016 , the outstanding balance under the Credit Facility was $200.0 million with an interest rate of 2.28% per annum and $420.7 million of availability after considering the borrowing base provisions and outstanding letters of credit.  As of September 30, 2016 there was $2.3 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, 2019.  Accrued interest related to the Credit Facility was $645,000 and $407,000 as of September 30, 2016 and December 31, 2015 , respectively.
At September 30, 2016 we had outstanding letters of credit of $4.3 million .  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):
September 30, 2016
December 31, 2015
Seller financed loans
$
17,758

$
2,434

As of September 30, 2016 , the Company had $17.8 million outstanding related to a seller financed loan to acquire land and lots for the construction of homes. Principal and interest payments on this loan are due at various maturity dates, including at the time individual homes associated with the acquired land are delivered. As of September 30, 2016 , the seller financed loan accrues interest at a rate of 7.0% per annum, with interest calculated on a daily basis. A minimum principal payment of $12.1 million is due in June 2017 with any remaining unpaid balance due in June 2018. Accrued interest on seller financed loans was $359,000 and $89,000 as of September 30, 2016 and December 31, 2015 , respectively.

- 17 -


Interest Incurred
During the three month periods ended September 30, 2016 and 2015 , the Company incurred interest of $18.6 million and $15.5 million , respectively, related to all debt during the period. All interest incurred was capitalized to inventory for the three month periods ended September 30, 2016 and 2015 , respectively. Included in interest incurred was amortization of deferred financing and Senior Notes discount costs of $1.8 million and $1.5 million for the three months ended September 30, 2016 and 2015 , respectively.  During the nine month periods ended September 30, 2016 and 2015 , the Company incurred interest of $50.0 million and $45.8 million , respectively, related to all debt during the period. All interest incurred was capitalized to inventory for the nine month periods ended September 30, 2016 and 2015, respectively. Included in interest incurred was amortization of deferred financing and Senior Notes discount costs of $4.7 million and $3.9 million for the nine months ended September 30, 2016 and 2015 , respectively.  Accrued interest related to all outstanding debt at September 30, 2016 and December 31, 2015 was $19.2 million and $2.4 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 September 30, 2016 and December 31, 2015 .

13.
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

- 18 -


Fair Value of Financial Instruments
A summary of assets and liabilities at September 30, 2016 and December 31, 2015 , related to our financial instruments, measured at fair value on a recurring basis, is set forth below (in thousands):
September 30, 2016
December 31, 2015
Hierarchy
Book Value
Fair Value
Book Value
Fair Value
Senior Notes (1)
Level 2
$
1,188,686

$
1,235,250

$
889,054

$
881,460

Unsecured revolving credit facility (2)
Level 2
$
200,000

$
192,772

$
299,392

$
299,392

Seller financed loans (3)
Level 2
$
17,758

$
17,758

$
2,434

$
2,368

__________
(1)
The book value of the Senior Notes is net of discounts, excluding deferred loan costs of $22.0 million and $20.4 million as of September 30, 2016 and December 31, 2015 , respectively. The estimated fair value of the Senior Notes at September 30, 2016 and December 31, 2015 is based on quoted market prices.
(2)
The estimated fair value of the Credit Facility at September 30, 2016 is based on a treasury curve analysis. We believe that the carrying value of the Credit Facility approximated fair value at December 31, 2015 due to the short term nature of the current rate amended on May 18, 2015.
(3)
The estimated fair value of the seller financed loans at September 30, 2016 and December 31, 2015 is based on a treasury curve analysis.

At September 30, 2016 and December 31, 2015 , the carrying value of cash and cash equivalents and receivables approximated fair value.
Fair Value of Nonfinancial Assets
Nonfinancial assets include items such as real estate inventories and long-lived assets that are measured at fair value on a nonrecurring basis when events and circumstances indicate 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):
Nine Months Ended September 30, 2016
Year Ended December 31, 2015
Impairment
Charge
Fair Value
Net of
Impairment
Impairment
Charge
Fair Value
Net of
Impairment
Real estate inventories (1)
$
—

$
—

$
1,167

$
28,540

_______________
(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.

14.
Commitments and Contingencies
Legal Matters
Lawsuits, claims and proceedings have been and may be instituted or asserted against us in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to local, state and federal laws and regulations related to land development activities, house construction standards, sales practices, employment practices, environmental protection and financial services. As a result, we are subject to periodic examinations or inquiry by agencies administering these laws and regulations.
We record a reserve for potential legal claims and regulatory matters when they are probable of occurring and a potential loss is reasonably estimable. We accrue for these matters based on facts and circumstances specific to each matter and revise these estimates when necessary.  In view of the inherent difficulty of predicting outcomes of legal claims and related contingencies, we generally cannot predict their ultimate resolution, related timing or eventual loss. Accordingly, it is possible that the ultimate outcome of any matter, if in excess of a related accrual or if no accrual was made, could be material to our financial statements.  For matters as to which the Company believes a loss is probable and reasonably estimable, we had legal reserves of $225,000 and $450,000 as of September 30, 2016 and December 31, 2015 , respectively.

- 19 -


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 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 a significant majority of our subcontractors, which are enrolled in our general liability insurance policy. Included in our warranty reserve accrual are allowances to cover our estimated costs of self-insured retentions and deductible amounts under these policies and estimated costs for claims that may not be covered by applicable insurance or indemnities. Estimation of these accruals include consideration of our claims history, including current claims and estimates of claims incurred but not yet reported.  In addition, management estimates warranty reserves and allowances necessary to cover any current or future construction-related claims based on actuarial analysis. Under this analysis, reserve amounts are estimated using our historical expense and claim data, as well as industry data. In addition, we record expected recoveries from insurance carriers when proceeds are probable and estimable.  Outstanding warranty insurance receivables were $9.7 million and $10.5 million as of September 30, 2016 and December 31, 2015 , respectively. Warranty insurance receivables are recorded in receivables on the accompanying consolidated balance sheets.
There can be no assurance that our warranty reserves will sufficiently cover the costs of future warranty 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.
Warranty reserves consisted of the following (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2016
2015
2016
2015
Warranty reserves, beginning of period
$
45,272

$
35,375

$
45,948

$
33,270

Warranty reserves accrued
3,329

4,201

8,373

10,427

Adjustments to pre-existing reserves
200

(14
)
460

1,286

Warranty expenditures
(3,136
)
(2,819
)
(9,116
)
(8,240
)
Warranty reserves, end of period
$
45,665

$
36,743

$
45,665

$
36,743

Performance Bonds
We obtain surety bonds in the normal course of business to ensure completion of certain infrastructure improvements of our projects. As of September 30, 2016 and December 31, 2015 , the Company had outstanding surety bonds totaling $433.6 million and $414.1 million , respectively. The beneficiaries of the bonds are various municipalities.

- 20 -


15.
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 September 30, 2016 there were 7,604,642 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) 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):
Three Months Ended September 30,
Nine Months Ended September 30,
2016
2015
2016
2015
Total stock-based compensation
$
3,285

$
2,994

$
9,648

$
8,536

Stock-based compensation is charged to general and administrative expense on the accompanying consolidated statements of operations.  As of September 30, 2016 , total unrecognized stock-based compensation related to all stock-based awards was $20.3 million and the weighted average term over which the expense was expected to be recognized was 1.9 years .
Summary of Stock Option Activity
The following table presents a summary of stock option awards for the nine months ended September 30, 2016 :
Options
Weighted
Average
Exercise
Price
Per Share
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
(in thousands)
Options outstanding at December 31, 2015
3,220,147

$
13.12

5.2

$
3,081

Granted
—

—

—

—

Exercised
(79,689
)
9.89

—

—

Forfeited
(155,380
)
12.39

—

—

Options outstanding at September 30, 2016
2,985,078

13.24

4.6

3,282

Options exercisable at September 30, 2016
2,616,544

13.05

4.3

3,282


- 21 -


The intrinsic value of each stock option award outstanding or exercisable is the difference between the fair market value of the Company’s common stock at the end of the period and the exercise price of each stock option award to the extent it is considered “in-the-money”. A stock option award is considered to be “in-the-money” if the fair market value of the Company’s stock is greater than the exercise price of the stock option award. The aggregate intrinsic value of options outstanding and options exercisable represents the value that would have been received by the holders of stock option awards had they exercised their stock option award on the last trading day of the period and sold the underlying shares at the closing price on that day.

Summary of Restricted Stock Unit Activity
The following table presents a summary of restricted stock units (“RSUs”) for the nine months ended September 30, 2016 :
Restricted
Stock
Units
Weighted
Average
Grant Date
Fair Value
Per Share
Aggregate
Intrinsic
Value
(in thousands)
Nonvested RSUs at December 31, 2015
1,958,033

$
12.21

$
24,808

Granted
1,904,389

8.41

25,100

Vested
(431,758
)
14.53

—

Forfeited
(19,781
)
12.17

—

Nonvested RSUs at September 30, 2016
3,410,883

9.77

44,993

On March 5, 2015, the Company granted an aggregate of 440,800 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 years period.  The fair value of each RSU granted on March 5, 2015 was measured using a price of $14.97 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 9, 2015, the Company granted 411,804 , 384,351 , and 274,536 performance-based RSUs to the Company’s Chief Executive Officer, President, and Chief Financial Officer, respectively, with 1/3 of the performance-based RSU amounts being allocated to each of the three following separate performance goals: total shareholder return (compared to a group of peer homebuilding companies); earnings per share; and stock price. The performance-based RSUs granted will vest in each case, if at all, based on the percentage of attainment of the applicable performance goal. The performance periods for the performance-based RSUs with vesting based on total shareholder return and earnings per share are January 1, 2015 to December 31, 2017 . The performance period for the performance-based RSUs with vesting based on stock price is January 1, 2016 to December 31, 2017 . The fair value of the performance-based RSUs related to the total shareholder return and stock price performance goals was determined to be $7.55 and $7.90 per share, respectively, 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 $14.57 per share, which was the closing stock price on the date of grant. Each grant will be expensed over the requisite service period.
On August 12, 2015, the Company granted an aggregate of 69,008 RSUs to the non-employee members of its board of directors. These RSUs vested in their entirety on June 6, 2016. The fair value of each RSU granted on August 12, 2015 was measured using $14.49 per share, which was the closing price on the date of grant. Each award was expensed on a straight-line basis over the vesting period.
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.

- 22 -


On March 1, 2016, the Company granted 297,426 , 285,986 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 to the total stockholder returns 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. These RSUs vest in their entirety on the day immediately prior to the Company's 2017 Annual Meeting of Stockholders. 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 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.

16.
Stock Repurchase Program
On January 27, 2016, the Company announced that the board of directors approved a stock repurchase program, authorizing the repurchase of the Company’s common stock with an aggregate value of up to $100 million through January 25, 2017.  Purchases of common stock may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act.  We are not obligated under the program to repurchase any specific number or amount of shares of common stock, and we may modify, suspend or discontinue the program at any time.  Our management will determine the timing and amount of repurchase in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions and legal requirements. For the three months ended September 30, 2016 , 852,500 shares of our common stock were repurchased and retired under this program at an average price of $12.22 per share for a total cost of $10.4 million . For the nine months ended September 30, 2016 , 2,105,521 shares of our common stock were repurchased and retired under this program at an average price of $11.93 per share for a total of cost of $25.1 million . Subsequent to September 30, 2016 and through the date of this filing, the Company repurchased and retired an additional 618,532 shares of our common stock under this program at an average price of $12.43 per share for a total cost of $7.7 million .

17.
Income Taxes
We account for income taxes in accordance with ASC Topic 740, Income Taxes (“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.
We had net deferred tax assets of $111.9 million and $130.7 million as of September 30, 2016 and December 31, 2015 , respectively.  We had a valuation allowance related to those net deferred tax assets of $3.5 million and $4.4 million as of September 30, 2016 and December 31, 2015 , respectively.  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.

- 23 -


TRI Pointe has certain liabilities with Weyerhaeuser related to a tax sharing agreement.   As of September 30, 2016 and December 31, 2015 , we had an income tax liability to Weyerhaeuser of $9.0 million and $8.9 million , respectively, which is recorded in accrued expenses and other liabilities on the accompanying consolidated balance sheets.
Our provision for income taxes totaled $20.3 million and $28.0 million for the three months ended September 30, 2016 and 2015, respectively.  Our provision for income taxes totaled $77.7 million and $66.1 million for the nine months ended September 30, 2016 and 2015 , respectively.  The Company classifies any interest and penalties related to income taxes assessed by jurisdiction as part of income tax expense.  The Company had zero and $307,000 of liabilities for uncertain tax positions recorded as of September 30, 2016 and December 31, 2015 , respectively.  The Company has not been assessed interest or penalties by any major tax jurisdictions related to prior years.
18.
Related Party Transactions
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, a greater than 5% holder of our common stock. TRI Pointe’s Chairman of the Board is also the Chairman and Chief Executive Officer of Starwood Capital Group. This acquisition was approved by the TRI Pointe independent directors. In August of 2016, TRI Pointe entered into an agreement to purchase an additional 257 lots located in Castle Rock, Colorado, for a purchase price of approximately $8.6 million from an entity managed by an affiliate of Starwood Capital Group. This acquisition was approved by the TRI Pointe independent directors.
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 million .  BlackRock, Inc. is a greater than five percent holder of our common stock. This acquisition was approved by the executive land committee, which was comprised of independent directors. In September of 2016, we acquired an additional 45 lots located in Dublin, California, for a purchase price of approximately $10.0 million from an affiliate of BlackRock, Inc. This acquisition was approved by a majority of the TRI Pointe independent directors.

19.
Supplemental Disclosure to Consolidated Statements of Cash Flows
The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):
Nine Months Ended September 30,
2016
2015
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized of $50,030 and $45,779 (Note 6)
$
—

$
—

Income taxes
$
89,269

$
44,394

Supplemental disclosures of noncash activities:
Amortization of senior note discount capitalized to real estate inventory
$
1,321

$
1,155

Amortization of deferred loan costs capitalized to real estate inventory
$
2,865

$
2,690

Effect of net consolidation and de-consolidation of variable interest entities:
Increase (decrease) in consolidated real estate inventory not owned
$
3,484

$
(3,556
)
Increase in deposits on real estate under option or contract and other assets
$
—

$
300

(Increase) decrease in noncontrolling interests
$
(3,484
)
$
3,256


- 24 -


20.
Supplemental Guarantor Information
2021 Notes
On May 26, 2016, TRI Pointe Group issued the 2021 Notes. All of TRI Pointe Group’s 100% owned subsidiaries that are guarantors (each a “Guarantor” and, collectively, the “Guarantors”) of the Company’s Credit Facility, including TRI Pointe Homes and certain other of its 100% owned subsidiaries, are party to a supplemental indenture pursuant to which they jointly and severally guarantee TRI Pointe Group’s obligations with respect to the 2021 Notes. Each Guarantor of the 2021 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, 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 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; (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 September 30, 2016 and December 31, 2015 , condensed consolidating statements of operations for the three and nine months ended September 30, 2016 and 2015 and condensed consolidating statement of cash flows for the nine month periods ended September 30, 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.

- 25 -


Condensed Consolidating Balance Sheet (in thousands):
September 30, 2016
Issuer (1)
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Group, Inc.
Assets
Cash and cash equivalents
$
61,073

$
67,642

$
—

$
128,715

Receivables
12,496

22,825

—

35,321

Intercompany receivables
856,866

—

(856,866
)
—

Real estate inventories
877,940

2,091,208

—

2,969,148

Investments in unconsolidated entities
—

17,205

—

17,205

Goodwill and other intangible assets, net
156,604

5,025

—

161,629

Investments in subsidiaries
1,241,559

—

(1,241,559
)
—

Deferred tax assets, net
18,958

92,929

—

111,887

Other assets
9,266

56,732

—

65,998

Total Assets
$
3,234,762

$
2,353,566

$
(2,098,425
)
$
3,489,903

Liabilities
Accounts payable
$
21,099

$
56,568

$
—

$
77,667

Intercompany payables
—

856,866

(856,866
)
—

Accrued expenses and other liabilities
43,721

175,675

—

219,396

Unsecured revolving credit facility
200,000

—

—

200,000

Seller financed loans
17,758

—

—

17,758

Senior notes
1,166,724

—

—

1,166,724

Total Liabilities
1,449,302

1,089,109

(856,866
)
1,681,545

Equity
Total stockholders’ equity
1,785,460

1,241,559

(1,241,559
)
1,785,460

Noncontrolling interests
—

22,898

—

22,898

Total Equity
1,785,460

1,264,457

(1,241,559
)
1,808,358

Total Liabilities and Equity
$
3,234,762

$
2,353,566

$
(2,098,425
)
$
3,489,903

__________
(1)
References to “Issuer” in this Note 20 , Supplemental Guarantor Information have the following meanings:
a.
for periods prior to July 7, 2015: TRI Pointe Homes only
b.
for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers of the 2019 Notes and 2024 Notes



- 26 -


Condensed Consolidating Balance Sheet (in thousands):
December 31, 2015
Issuer (1)
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Group, Inc.
Assets
Cash and cash equivalents
$
147,771

$
66,714

$
—

$
214,485

Receivables
17,358

26,352

—

43,710

Intercompany receivables
783,956

—

(783,956
)
—

Real estate inventories
657,221

1,862,052

—

2,519,273

Investments in unconsolidated entities
—

18,999

—

18,999

Goodwill and other intangible assets, net
156,604

5,425

—

162,029

Investments in subsidiaries
1,093,261

—

(1,093,261
)
—

Deferred tax assets, net
19,061

111,596

—

130,657

Other assets
12,219

36,699

—

48,918

Total Assets
$
2,887,451

$
2,127,837

$
(1,877,217
)
$
3,138,071

Liabilities
Accounts payable
$
20,444

$
44,396

$
—

$
64,840

Intercompany payables
—

783,956

(783,956
)
—

Accrued expenses and other liabilities
32,219

184,044

—

216,263

Unsecured revolving credit facility
299,392

—

—

299,392

Seller financed loans
2,034

400

—

2,434

Senior notes
868,679

—

—

868,679

Total Liabilities
1,222,768

1,012,796

(783,956
)
1,451,608

Equity
Total stockholders’ equity
1,664,683

1,093,261

(1,093,261
)
1,664,683

Noncontrolling interests
—

21,780

—

21,780

Total Equity
1,664,683

1,115,041

(1,093,261
)
1,686,463

Total Liabilities and Equity
$
2,887,451

$
2,127,837

$
(1,877,217
)
$
3,138,071

__________
(1)
References to “Issuer” in this Note 20 , Supplemental Guarantor Information have the following meanings:
a.
for periods prior to July 7, 2015: TRI Pointe Homes only
b.
for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers of the 2019 Notes and 2024 Notes





- 27 -


Condensed Consolidating Statement of Operations (in thousands):
Three Months Ended September 30, 2016
Issuer (1)
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:
Home sales revenue
$
167,769

$
410,884

$
—

$
578,653

Land and lot sales revenue
—

2,535

—

2,535

Other operations revenue
—

606

—

606

Total revenues
167,769

414,025

—

581,794

Cost of home sales
144,217

318,106

—

462,323

Cost of land and lot sales
—

1,734

—

1,734

Other operations expense
—

575

—

575

Sales and marketing
6,598

25,254

—

31,852

General and administrative
15,192

15,958

—

31,150

Restructuring charges
—

128

—

128

Homebuilding income from operations
1,762

52,270

—

54,032

Equity in loss of unconsolidated entities
—

(20
)
—

(20
)
Other (loss) income, net
(345
)
366

—

21

Homebuilding income before income taxes
1,417

52,616

—

54,033

Financial Services:
Revenues
—

235

—

235

Expenses
—

72

—

72

Equity in income of unconsolidated entities
—

1,247

—

1,247

Financial services income before income taxes
—

1,410

—

1,410

Income before income taxes
1,417

54,026

—

55,443

Equity of net income of subsidiaries
34,639

—

(34,639
)
—

Provision for income taxes
(1,222
)
(19,076
)
—

(20,298
)
Net income
34,834

34,950

(34,639
)
35,145

Net income attributable to noncontrolling interests
—

(311
)
—

(311
)
Net income available to common stockholders
$
34,834

$
34,639

$
(34,639
)
$
34,834

__________
(1)
References to “Issuer” in this Note 20 , Supplemental Guarantor Information have the following meanings:
a.
for periods prior to July 7, 2015: TRI Pointe Homes only
b.
for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers of the 2019 Notes and 2024 Notes



- 28 -


Condensed Consolidating Statement of Operations (in thousands):
Three Months Ended September 30, 2015
Issuer (1)
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:
Home sales revenue
$
224,244

$
418,108

$
—

$
642,352

Land and lot sales revenue
—

4,876

—

4,876

Other operations revenue
—

613

—

613

Total revenues
224,244

423,597

—

647,841

Cost of home sales
182,754

324,789

—

507,543

Cost of land and lot sales
—

3,451

—

3,451

Other operations expense
—

570

—

570

Sales and marketing
7,286

22,752

—

30,038

General and administrative
12,942

13,794

—

26,736

Restructuring charges
(83
)
2,093

—

2,010

Homebuilding income from operations
21,345

56,148

—

77,493

Equity in loss of unconsolidated entities
—

(150
)
—

(150
)
Other (loss) income, net
(37
)
84

—

47

Homebuilding income before income taxes
21,308

56,082

—

77,390

Financial Services:
Revenues
—

300

—

300

Expenses
—

47

—

47

Equity in income of unconsolidated entities
—

147

—

147

Financial services income before income taxes
—

400

—

400

Income before income taxes
21,308

56,482

—

77,790

Equity of net income of subsidiaries
37,924

—

(37,924
)
—

Provision for income taxes
(9,070
)
(18,951
)
—

(28,021
)
Net income
50,162

37,531

(37,924
)
49,769

Net income attributable to noncontrolling interests
—

393

—

393

Net income available to common stockholders
$
50,162

$
37,924

$
(37,924
)
$
50,162

__________
(1)
References to “Issuer” in this Note 20 , Supplemental Guarantor Information have the following meanings:
a.
for periods prior to July 7, 2015: TRI Pointe Homes only
b.
for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers of the 2019 Notes and 2024 Notes







- 29 -



Condensed Consolidating Statement of Operations (in thousands):
Nine Months Ended September 30, 2016
Issuer (1)
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:
Home sales revenue
$
452,553

$
1,106,080

$
—

$
1,558,633

Land and lot sales revenue
—

70,204

—

70,204

Other operations revenue
—

1,790

—

1,790

Total revenues
452,553

1,178,074

—

1,630,627

Cost of home sales
383,574

835,986

—

1,219,560

Cost of land and lot sales
—

16,973

—

16,973

Other operations expense
—

1,724

—

1,724

Sales and marketing
19,683

70,938

—

90,621

General and administrative
42,984

46,831

—

89,815

Restructuring charges
—

478

—

478

Homebuilding income from operations
6,312

205,144

—

211,456

Equity in income of unconsolidated entities
—

181

—

181

Other income, net
157

130

—

287

Homebuilding income before income taxes
6,469

205,455

—

211,924

Financial Services:
Revenues
—

762

—

762

Expenses
—

183

—

183

Equity in income of unconsolidated entities
—

3,246

—

3,246

Financial services income before income taxes
—

3,825

—

3,825

Income before income taxes
6,469

209,280

—

215,749

Equity of net income of subsidiaries
135,024

—

(135,024
)
—

Provision for income taxes
(4,183
)
(73,518
)


(77,701
)
Net income
137,310

135,762

(135,024
)
138,048

Net income attributable to noncontrolling interests
—

(738
)
—

(738
)
Net income available to common stockholders
$
137,310

$
135,024

$
(135,024
)
$
137,310

__________
(1)
References to “Issuer” in this Note 20 , Supplemental Guarantor Information have the following meanings:
a.
for periods prior to July 7, 2015: TRI Pointe Homes only
b.
for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers of the 2019 Notes and 2024 Notes


- 30 -




Condensed Consolidating Statement of Operations (in thousands):
Nine Months Ended September 30, 2015
Issuer (1)
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Group, Inc.
Homebuilding:
Home sales revenue
$
461,654

$
982,201

$
—

$
1,443,855

Land and lot sales revenue
—

74,366

—

74,366

Other operations revenue
—

2,213

—

2,213

Total revenues
461,654

1,058,780

—

1,520,434

Cost of home sales
376,100

773,091

—

1,149,191

Cost of land and lot sales
—

17,324

—

17,324

Other operations expense
—

1,704

—

1,704

Sales and marketing
17,714

61,244

—

78,958

General and administrative
38,874

44,276

—

83,150

Restructuring charges
(169
)
2,899

—

2,730

Homebuilding income from operations
29,135

158,242

—

187,377

Equity in loss of unconsolidated entities
—

(82
)
—

(82
)
Other (loss) income, net
(149
)
421

—

272

Homebuilding income before income taxes
28,986

158,581

—

187,567

Financial Services:
Revenues
—

482

—

482

Expenses
—

131

—

131

Equity in loss of unconsolidated entities
—

(2
)
—

(2
)
Financial services loss before income taxes
—

349

—

349

Income before income taxes
28,986

158,930

—

187,916

Equity of net income of subsidiaries
103,688

—

(103,688
)
—

Provision for income taxes
(12,285
)
(53,803
)
—

(66,088
)
Net income
120,389

105,127

(103,688
)
121,828

Net income attributable to noncontrolling interests
—

(1,439
)
—

(1,439
)
Net income available to common stockholders
$
120,389

$
103,688

$
(103,688
)
$
120,389

__________
(1)
References to “Issuer” in this Note 20 , Supplemental Guarantor Information have the following meanings:
a.
for periods prior to July 7, 2015: TRI Pointe Homes only
b.
for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers of the 2019 Notes and 2024 Notes


- 31 -



Condensed Consolidating Statement of Cash Flows (in thousands):
Nine Months Ended September 30, 2016
Issuer (1)
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Group, Inc.
Cash flows from operating activities
Net cash used in operating activities
$
(186,487
)
$
(74,820
)
$
—

$
(261,307
)
Cash flows from investing activities:
Purchases of property and equipment
(831
)
(1,225
)
—

(2,056
)
Investments in unconsolidated entities
—

(32
)
—

(32
)
Intercompany
(82,951
)
—

82,951

—

Net cash (used in) provided by investing activities
(83,782
)
(1,257
)
82,951

(2,088
)
Cash flows from financing activities:
Borrowings from debt
491,069

—

—

491,069

Repayment of debt
(276,426
)
(400
)
—

(276,826
)
Debt issuance costs
(5,061
)
—

—

(5,061
)
Net repayments of debt held by variable interest entities
—

(2,442
)
—

(2,442
)
Contributions from noncontrolling interests
—

1,955

—

1,955

Distributions to noncontrolling interests
—

(5,059
)
—

(5,059
)
Proceeds from issuance of common stock under
share-based awards
461

—

—

461

Minimum tax withholding paid on behalf of employees for
restricted stock units
(1,359
)
—

—

(1,359
)
Share repurchases
(25,113
)
—

—

(25,113
)
Intercompany
—

82,951

(82,951
)
—

Net cash provided by (used in) financing activities
183,571

77,005

(82,951
)
177,625

Net decrease in cash and cash equivalents
(86,698
)
928

—

(85,770
)
Cash and cash equivalents - beginning of period
147,771

66,714

—

214,485

Cash and cash equivalents - end of period
$
61,073

$
67,642

$
—

$
128,715

__________
(1)
References to “Issuer” in this Note 20 , Supplemental Guarantor Information have the following meanings:
a.
for periods prior to July 7, 2015: TRI Pointe Homes only
b.
for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers of the 2019 Notes and 2024 Notes



- 32 -



Condensed Consolidating Statement of Cash Flows (in thousands):
Nine Months Ended September 30, 2015
Issuer (1)
Guarantor
Subsidiaries
Consolidating
Adjustments
Consolidated
TRI Pointe
Group, Inc.
Cash flows from operating activities
Net cash used in operating activities
$
(69,362
)
$
(70,649
)
$
—

$
(140,011
)
Cash flows from investing activities:
Purchases of property and equipment
(382
)
(677
)
—

(1,059
)
Investments in unconsolidated entities
—

(1,458
)
—

(1,458
)
Distributions from unconsolidated entities
—

319

—

319

Intercompany
(78,354
)
—

78,354

—

Net cash (used in) provided by investing activities
(78,736
)
(1,816
)
78,354

(2,198
)
Cash flows from financing activities:
Borrowings from notes payable
140,000

—

—

140,000

Repayment of notes payable
(57,513
)
(200
)
—

(57,713
)
Debt issuance costs
(2,688
)
—

—

(2,688
)
Net proceeds of debt held by variable interest entities
—

(5,927
)
—

(5,927
)
Contributions from noncontrolling interests
—

4,281

—

4,281

Distributions to noncontrolling interests
—

(9,198
)
—

(9,198
)
Proceeds from issuance of common stock under
share-based awards
1,616

—

—

1,616

Excess tax benefit of share-based awards
—

392

—

392

Minimum tax withholding paid on behalf of employees for restricted stock units
(2,190
)
—

—

(2,190
)
Intercompany
—

78,354

(78,354
)
—

Net cash provided by (used in) financing activities
79,225

67,702

(78,354
)
68,573

Net decrease increase in cash and cash equivalents
(68,873
)
(4,763
)
—

(73,636
)
Cash and cash equivalents - beginning of period
105,888

64,741

—

170,629

Cash and cash equivalents - end of period
$
37,015

$
59,978

$
—

$
96,993

__________
(1)
References to “Issuer” in this Note 20 , Supplemental Guarantor Information have the following meanings:
a.
for periods prior to July 7, 2015: TRI Pointe Homes only
b.
for periods from and after July 7, 2015:  TRI Pointe Homes and TRI Pointe Group as co-issuers of the 2019 Notes and 2024 Notes




- 33 -


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

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain statements relating to future events of our intentions, beliefs, expectations, predictions for the future and other matters that are “forward-looking” statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.
These statements:
•
use forward-looking terminology;
•
are based on various assumptions made by TRI Pointe; and
•
may not be accurate because of risks and uncertainties surrounding the assumptions that are made.
Factors listed in this section – as well as other factors not included – may cause actual results to differ significantly from the forward-looking statements included in this Quarterly Report on Form 10-Q. There is no guarantee that any of the events anticipated by the forward-looking statements in this Quarterly Report on Form 10-Q will occur, or if any of the events occurs, there is no guarantee of what effect it will have on our operations, financial condition or share price.
We will not update the forward-looking statements contained in this Quarterly Report on Form 10-Q, unless otherwise required by law.
Forward-Looking Statements
These forward-looking statements are generally accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “will,” “would,” or other words that convey the uncertainty of future events or outcomes. These forward-looking statements include, but are not limited to, statements regarding our anticipated future financial and operating performance and results, including our estimates for growth.
Forward-looking statements are based on a number of factors, including the expected effect of:
•
the economy;
•
laws and regulations;
•
adverse litigation outcome and the adequacy of reserves;
•
changes in accounting principles;
•
projected benefit payments; and
•
projected tax rates and credits.
Risks, Uncertainties and Assumptions
The major risks and uncertainties – and assumptions that are made – that affect our business and may cause actual results to differ from these forward-looking statements include, but are not limited to:
•
the effect of general economic conditions, including employment rates, housing starts, interest rate levels, availability of financing for home mortgages and the strength of the U.S. dollar;
•
market demand for our products, which is related to the strength of the various U.S. business segments and U.S. and international economic conditions;
•
levels of competition;
•
the successful execution of our internal performance plans, including restructuring and cost reduction initiatives;
•
global economic conditions;
•
raw material prices;
•
oil and other energy prices;

- 34 -


•
the effect of weather, including the continuing drought in California;
•
the risk of loss from earthquakes, volcanoes, fires, floods, droughts, windstorms, hurricanes, pest infestations and other natural disasters;
•
transportation costs;
•
federal and state tax policies;
•
the effect of land use, environment and other governmental regulations;
•
legal proceedings and disputes;
•
risks relating to any unforeseen changes to or effects on liabilities, future capital expenditures, revenues, expenses, earnings, synergies, indebtedness, financial condition, losses and future prospects;
•
change in accounting principles;
•
risks related to unauthorized access to our computer systems, theft of our customers’ confidential information or other forms of cyber-attack; and
•
other factors described in “Risk Factors.”
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related condensed notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our securities. We urge investors to review and consider carefully the various disclosures made by us in this report and in our other reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2015 and subsequent reports on Form 8-K, which discuss our business in greater detail. The section entitled “Risk Factors” set forth in Item 1A of our Annual Report on Form 10-K, and similar disclosures in our other SEC filings, discuss some of the important risk factors that may affect our business, results of operations and financial condition. Investors should carefully consider those risks, in addition to the information in this report and in our other filings with the SEC, before deciding to invest in, or maintain an investment in, our common stock.
Formation of TRI Pointe Group
On July 7, 2015, 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 Exchange Act), began making filings under the Securities Act 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 and TRI Pointe Homes' 5.875% Senior Notes due 2024; and (ii) replaced TRI Pointe Homes as the borrower under TRI Pointe Homes’ existing unsecured revolving credit facility.
The business, executive officers and directors of TRI Pointe Group, and the rights and limitations of the holders of Group Common Stock immediately following the Reorganization were identical to the business, executive officers and directors of TRI Pointe Homes, and the rights and limitations of holders of Homes Common Stock immediately prior to the Reorganization.

- 35 -


Overview and Outlook
We continue to be encouraged by the strength of the overall U.S. new-home market, which continues to improve on a slow, sustainable growth trajectory, supported by stronger general economic conditions, low unemployment levels, modest wage gains, low interest rates, and increasing consumer confidence combined with a limited supply of new homes.  We believe demand will continue to be strong across the U.S. in general and in a majority of the markets in which we operate over the next several years. Nevertheless, we continue to see variability from market to market with demand generally driven by general local market economic conditions.  Homebuilding activity in many markets continues to be constrained by land and labor availability, as well as fee increases and delays imposed by local municipalities, which we expect will continue to constrict supply.  We expect these demand and supply trends will result in a continued slow and steady recovery in the homebuilding market. See "Cautionary Note Concerning Forward-Looking Statements".
Our third quarter 2016 results reflect a decrease in net income available to common stockholders of 31% as compared to the prior year period due primarily to a 10% decrease in new home deliveries and a 90 basis point decrease in homebuilding gross margin percentage. The decline in new home deliveries was largely due to the timing of deliveries, as we delivered a large number of our backlog units in the second quarter of 2016, and a lower number of backlog units going into the quarter compared to the prior year period. The decline in homebuilding gross margins was primarily due to the mix of deliveries, including an 11% decrease in deliveries in California, which have generally had higher margins than the Company average. For the nine months ended September 30, 2016, net income available to common stockholders increased 14% as compared to the prior year period as a result of a 7% increase in deliveries and a 140 basis point increase in homebuilding gross margin percentage.

- 36 -


Consolidated Financial Data (in thousands, except per share amounts):
Three Months Ended September 30,
Nine Months Ended September 30,
2016
2015
2016
2015
Homebuilding:


Home sales revenue
$
578,653

$
642,352

$
1,558,633

$
1,443,855

Land and lot sales revenue
2,535

4,876

70,204

74,366

Other operations revenue
606

613

1,790

2,213

Total revenues
581,794

647,841

1,630,627

1,520,434

Cost of home sales
462,323

507,543

1,219,560

1,149,191

Cost of land and lot sales
1,734

3,451

16,973

17,324

Other operations expense
575

570

1,724

1,704

Sales and marketing
31,852

30,038

90,621

78,958

General and administrative
31,150

26,736

89,815

83,150

Restructuring charges
128

2,010

478

2,730

Homebuilding income from operations
54,032

77,493

211,456

187,377

Equity in (loss) income of unconsolidated entities
(20
)
(150
)
181

(82
)
Other income, net
21

47

287

272

Homebuilding income before income taxes
54,033

77,390

211,924

187,567

Financial Services:


Revenues
235

300

762

482

Expenses
72

47

183

131

Equity in income (loss) of unconsolidated entities
1,247

147

3,246

(2
)
Financial services income before income taxes
1,410

400

3,825

349

Income before income taxes
55,443

77,790

215,749

187,916

Provision for income taxes
(20,298
)
(28,021
)
(77,701
)
(66,088
)
Net income
35,145

49,769

138,048

121,828

Net (income) loss attributable to noncontrolling interests
(311
)
393

(738
)
(1,439
)
Net income available to common stockholders
$
34,834

$
50,162

$
137,310

$
120,389

Earnings per share


Basic
$
0.22


$
0.31


$
0.85


$
0.74

Diluted
$
0.22


$
0.31


$
0.85


$
0.74

Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015
Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment
Three Months Ended September 30, 2016
Three Months Ended September 30, 2015
Percentage Change
Net New
Home
Orders
Average
Selling
Communities
Monthly
Absorption
Rates
Net New
Home
Orders
Average
Selling
Communities
Monthly
Absorption
Rates
Net New
Home
Orders
Average
Selling
Communities
Monthly
Absorption
Rates
Maracay Homes
134

17.8

2.5

150

17.2

2.9

(11
)%
3
%
(14
)%
Pardee Homes
283

22.5

4.2

291

25.0

3.9

(3
)%
(10
)%
8
%
Quadrant Homes
49

7.3

2.3

87

11.8

2.5

(44
)%
(38
)%
(8
)%
Trendmaker Homes
130

29.0

1.5

125

25.0

1.7

4
%
16
%
(12
)%
TRI Pointe Homes
239

28.7

2.8

234

28.3

2.8

2
%
1
%
—
%
Winchester Homes
97

13.7

2.4

109

13.5

2.7

(11
)%
1
%
(11
)%
Total
932

119.0

2.6

996

120.8

2.7

(6
)%
(1
)%
(4
)%

- 37 -


Net new home orders for the three months ended September 30, 2016 decreased by 64 units or 6% to 932 , compared to 996 during the prior year period.  Average selling communities decreased slightly to 119.0 from 120.8 for the periods ended September 30, 2016 and 2015, respectively. The decrease in net new home orders at Pardee Homes was primarily due to a 10% decrease in average selling communities, although absorption rates increased slightly. The significant decrease in net new home orders at Quadrant Homes was primarily due to a 38% decrease in average selling communities as a result of the timing of new community openings and closings and to a lesser extent, a decrease in absorption pace. The decrease in net new home orders at Maracay Homes and Winchester Homes was mainly due to slower absorption rates.
Backlog Units, Dollar Value and Average Sales Price by Segment (dollars in thousands)
As of September 30, 2016
As of September 30, 2015
Percentage Change
Backlog
Units
Backlog
Dollar
Value
Average
Sales
Price
Backlog
Units
Backlog
Dollar
Value
Average
Sales
Price
Backlog
Units
Backlog
Dollar
Value
Average
Sales
Price
Maracay Homes
329

$
144,127

$
438

293

$
118,164

$
403

12
%
22
%
9
%
Pardee Homes
382

182,263

477

448

296,477

662

(15
)%
(39
)%
(28
)%
Quadrant Homes
130

83,467

642

169

79,955

473

(23
)%
4
%
36
%
Trendmaker Homes
186

98,874

532

205

108,250

528

(9
)%
(9
)%
1
%
TRI Pointe Homes
495

319,823

646

567

388,336

685

(13
)%
(18
)%
(6
)%
Winchester Homes
189

121,617

643

174

118,685

682

9
%
2
%
(6
)%
Total
1,711

$
950,171

$
555

1,856

$
1,109,867

$
598

(8
)%
(14
)%
(7
)%
Backlog units reflect the number of homes, net of actual cancellations experienced during the period, for which we have entered into sales contracts with customers but for which we have not yet delivered the homes. Homes in backlog are generally delivered within three to nine months, although we may experience cancellations of sales contracts prior to delivery. Our cancellation rate of buyers who contracted to buy a home but did not close escrow (as a percentage of overall orders) was 17% for the three months ended September 30, 2016 compared to 16% for the prior year period.  The dollar value of backlog was $950.2 million as of September 30, 2016 , a decrease of $159.7 million , or 14% , compared to $1.1 billion as of September 30, 2015 .  The decrease in dollar value of backlog was due to a decline in backlog units to 1,711 as of September 30, 2016 from 1,856 as of September 30, 2015 , representing $86.7 million of the decline. Additionally, a 7% decrease in the average sales price of homes in backlog to $555,000 as of September 30, 2016 from $598,000 as of September 30, 2015 , impacted the decrease in dollar value of backlog by $73.0 million. The average sales price of homes in backlog decreased as a result of our Pardee Homes and TRI Pointe Homes segments closing out of communities with higher average sales prices resulting in a decrease in average sales price at the active selling communities in those segments.
New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands)
Three Months Ended September 30, 2016
Three Months Ended September 30, 2015
Percentage Change
New
Homes
Delivered
Home
Sales
Revenue
Average
Sales
Price
New
Homes
Delivered
Home
Sales
Revenue
Average
Sales
Price
New
Homes
Delivered
Home
Sales
Revenue
Average
Sales
Price
Maracay Homes
165

$
68,024

$
412

131

$
50,504

$
386

26
%
35
%
7
%
Pardee Homes
302

188,148

623

314

170,450

543

(4
)%
10
%
15
%
Quadrant Homes
90

47,749

531

117

47,560

406

(23
)%
—
%
31
%
Trendmaker Homes
121

62,408

516

163

80,732

495

(26
)%
(23
)%
4
%
TRI Pointe Homes
260

167,769

645

298

224,243

752

(13
)%
(25
)%
(14
)%
Winchester Homes
81

44,555

550

115

68,863

599

(30
)%
(35
)%
(8
)%
Total
1,019

$
578,653

$
568

1,138

$
642,352

$
564

(10
)%
(10
)%
1
%

- 38 -


Home sales revenue decreased $63.7 million , or 10% , to $578.7 million for the three months ended September 30, 2016 from $642.4 million for the prior year period. The decrease was comprised of: (i) $67.2 million related to a 10% decrease in homes delivered to 1,019 for the three months ended September 30, 2016 from 1,138 in the prior year period; and (ii) offset by an increase of $3.5 million due to an increase in average sales price of $4,000 per home to $568,000 for the three months ended September 30, 2016 from $564,000 in the prior year period. The decrease in new home deliveries for the quarter was largely due to the timing of deliveries, as we delivered a large number of our backlog units in the second quarter of 2016, and had a lower number of backlog units going into the quarter compared to the prior year.
Homebuilding Gross Margins (dollars in thousands)
Three Months Ended September 30,
2016
%
2015
%
Home sales revenue
$
578,653

100.0
%
$
642,352

100.0
%
Cost of home sales
462,323

79.9
%
507,543

79.0
%
Homebuilding gross margin
116,330

20.1
%
134,809

21.0
%
Add:  interest in cost of home sales
14,385

2.5
%
13,189

2.1
%
Add:  impairments and lot option abandonments
389

0.1
%
366

0.1
%
Adjusted homebuilding gross margin (1)
$
131,104

22.7
%
$
148,364

23.1
%
Homebuilding gross margin percentage
20.1
%
21.0
%
Adjusted homebuilding gross margin percentage (1)
22.7
%
23.1
%
__________
(1)
Non-GAAP financial measure (as discussed below).
Our homebuilding gross margin percentage decreased to 20.1% for the three months ended September 30, 2016 as compared to 21.0% for the prior year period.  The decrease in gross margin was primarily due to the mix of deliveries, particularly the 11% decrease in deliveries from our TRI Pointe Homes and Pardee Homes segments in California, which produce gross margins above the Company average. Excluding interest and impairment and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 22.7% for the three months ended September 30, 2016 , compared to 23.1% for the prior year period. The decrease in the adjusted homebuilding gross margin was consistent with the change in homebuilding gross margin.
Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates the impact that leverage and noncash charges have on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. Because adjusted homebuilding gross margin is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.  See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the nearest GAAP equivalent.
Land and Lot Gross Margins (dollars in thousands)
Three Months Ended September 30,
2016
%
2015
%
Land and lot sales revenue
$
2,535

100.0
%
$
4,876

100.0
%
Cost of land and lot sales
1,734

68.4
%
3,451

70.8
%
Land and lot gross margin
$
801

31.6
%
$
1,425

29.2
%

Our land and lot gross margin percentage increased to 31.6% for the three months ended September 30, 2016 as compared to 29.2% for the prior year period. Land and lot sales gross margin percentage can vary significantly due to the type of land and its related cost basis.

- 39 -


Sales and Marketing, General and Administrative Expense (dollars in thousands)
Three Months Ended September 30,
As a Percentage of
Home Sales Revenue
2016
2015
2016
2015
Sales and marketing
$
31,852

$
30,038

5.5
%
4.7
%
General and administrative (G&A)
31,150

26,736

5.4
%
4.2
%
Total sales and marketing and G&A
$
63,002

$
56,774

10.9
%
8.8
%
Sales and marketing expense as a percentage of home sales revenue increased to 5.5% for the three month period ended September 30, 2016 compared to 4.7% for the prior year period. The increase was the result of lower operating leverage on the fixed components of sales and marketing expenses as a result of the 10% decrease in homes sales revenue. Total sales and marketing expense increased by $1.8 million to $31.9 million for the three months ended September 30, 2016 compared to $30.0 million in the same prior year period, and is primarily attributable to an increase in broker co-op payments and opening more communities in the quarter compared to the prior year period.
General and administrative (“G&A”) expenses as a percentage of home sales revenue increased to 5.4% of home sales revenue for the three months ended September 30, 2016 compared to 4.2% for the prior year period.  The increase is due primarily to decreased operating leverage resulting from the 10% decrease in home sales revenue. G&A expenses increased to $31.2 million for the three months ended September 30, 2016 compared to $26.7 million in the same prior year period primarily as a result of additional headcount to support future growth.
Total sales and marketing and G&A (“SG&A”) as a percentage of home sales revenue increased to 10.9% for the three month period ended September 30, 2016 compared to 8.8% in the prior year period. Total SG&A expense increased $6.2 million , or 11.0%, to $63.0 million for the three months ended September 30, 2016 from $56.8 million in the prior year period.
Restructuring Charges
Restructuring charges decreased to $128,000 for the three months ended September 30, 2016 compared to $2.0 million in the same period in the prior year.  The decrease was mainly due to lower lease termination costs in 2016.
Interest
Interest, which was incurred principally to finance land acquisitions, land development and home construction, totaled $18.6 million and $15.5 million for the three months ended September 30, 2016 and 2015 , respectively.  All interest incurred in both periods was capitalized.  The increase in interest incurred during the three months ended September 30, 2016 as compared to the prior year period was primarily attributable to an increase in our debt balance and our weighted average interest rate as a result of the issuance of our 2021 Notes in May of 2016.
Income Tax
For the three months ended September 30, 2016 , we recorded a tax provision of $20.3 million based on an effective tax rate of 36.6% .  For the three months ended September 30, 2015 , we recorded a tax provision of $ 28.0 million based on an effective tax rate of 36.0% . The decrease in provision for income taxes is due to a decrease in income before income taxes of $22.3 million to $55.4 million for the three months ended September 30, 2016 compared to $77.8 million for the prior year period. The increase in the effective tax rate was the result of discrete tax adjustments recorded during the quarter.

- 40 -


Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015
Net New Home Orders, Average Selling Communities and Monthly Absorption Rates by Segment
Nine Months Ended September 30, 2016
Nine Months Ended September 30, 2015
Percentage Change
Net New
Home
Orders
Average
Selling
Communities
Monthly
Absorption
Rates
Net New
Home
Orders
Average
Selling
Communities
Monthly
Absorption
Rates
Net New
Home
Orders
Average
Selling
Communities
Monthly
Absorption
Rates
Maracay Homes
526

18.1

3.2

495

17.3

3.2

6
%
5
%
—
%
Pardee Homes
936

22.8

4.6

954

22.8

4.6

(2
)%
—
%
—
%
Quadrant Homes
274

8.5

3.6

353

10.8

3.6

(22
)%
(21
)%
—
%
Trendmaker Homes
385

26.8

1.6

381

26.0

1.6

1
%
3
%
—
%
TRI Pointe Homes
883

27.3

3.6

935

27.0

3.8

(6
)%
1
%
(5
)%
Winchester Homes
335

13.5

2.8

310

13.5

2.6

8
%
—
%
8
%
Total
3,339

117.0

3.2

3,428

117.4

3.2

(3
)%
—
%
—
%

Net new home orders for the nine months ended September 30, 2016 decreased by 89 units, or 3% , to 3,339 , compared to 3,428 during the prior year period.  The decrease in net new home orders at Quadrant Homes was primarily due to a decrease in average selling communities as a result of timing of new community openings and closings. The decrease in net new home orders at TRI Pointe Homes was mainly due to a decrease in absorptions rates, although absorptions remained strong at 3.6 orders per community per month. Maracay Homes' orders increased 6% as a result of increased communities while Winchester Homes' orders increased 8% due to increased absorption as a result of better market conditions.
New Homes Delivered, Homes Sales Revenue and Average Sales Price by Segment (dollars in thousands)
Nine Months Ended September 30, 2016
Nine Months Ended September 30, 2015
Percentage Change
New
Homes
Delivered
Home
Sales
Revenue
Average
Sales
Price
New
Homes
Delivered
Home
Sales
Revenue
Average
Sales
Price
New
Homes
Delivered
Home
Sales
Revenue
Average
Sales
Price
Maracay Homes
400

$
161,318

$
403

307

$
116,555

$
380

30
%
38
%
6
%
Pardee Homes
828

485,683

587

724

366,339

506

14
%
33
%
16
%
Quadrant Homes
287

147,935

515

297

126,585

426

(3
)%
17
%
21
%
Trendmaker Homes
335

169,423

506

394

201,592

512

(15
)%
(16
)%
(1
)%
TRI Pointe Homes
678

452,553

667

611

461,654

756

11
%
(2
)%
(12
)%
Winchester Homes
256

141,721

554

271

171,130

631

(6
)%
(17
)%
(12
)%
Total
2,784

$
1,558,633

$
560

2,604

$
1,443,855

$
554

7
%
8
%
1
%
Home sales revenue increased $114.8 million , or 8% , to $1.6 billion for the nine months ended September 30, 2016 from $1.4 billion for the prior year period. The increase was comprised of: (i) $99.8 million related to a 7% increase in homes delivered to 2,784 for the nine months ended September 30, 2016 from 2,604 in the prior year period; and (ii) $15.0 million due to an increase in average sales price of $6,000 per home to $560,000 for the nine months ended September 30, 2016 from $554,000 in the prior year period.

- 41 -


Homebuilding Gross Margins (dollars in thousands)
Nine Months Ended September 30,
2016
%
2015
%
Home sales revenue
$
1,558,633

100.0
%
$
1,443,855

100.0
%
Cost of home sales
1,219,560

78.2
%
1,149,191

79.6
%
Homebuilding gross margin
339,073

21.8
%
294,664

20.4
%
Add:  interest in cost of home sales
34,653

2.2
%
27,540

1.9
%
Add:  impairments and lot option abandonments
678

0.0
%
1,593

0.1
%
Adjusted homebuilding gross margin (1)
$
374,404

24.0
%
$
323,797

22.4
%
Homebuilding gross margin percentage
21.8
%
20.4
%
Adjusted homebuilding gross margin percentage (1)
24.0
%
22.4
%
__________
(1)
Non-GAAP financial measure (as discussed below).
Our homebuilding gross margin percentage increased to 21.8% for the nine months ended September 30, 2016 as compared to 20.4% for the prior year period.  The increase in gross margin was primarily due to mix of deliveries, particularly the 13% increase in deliveries from our TRI Pointe Homes and Pardee Homes segments in California, which produce gross margins above the Company average. Excluding interest and impairment and lot option abandonments in cost of home sales, adjusted homebuilding gross margin percentage was 24.0% for the nine months ended September 30, 2016 , compared to 22.4% for the prior year period. The increase in the adjusted homebuilding gross margin was consistent with the change in homebuilding gross margin.
Adjusted homebuilding gross margin is a non-GAAP financial measure. We believe this information is meaningful as it isolates the impact that leverage and noncash charges have on homebuilding gross margin and permits investors to make better comparisons with our competitors, who adjust gross margins in a similar fashion. Because adjusted homebuilding gross margin is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.  See the table above reconciling this non-GAAP financial measure to homebuilding gross margin, the nearest GAAP equivalent.
Land and Lot Gross Margins (dollars in thousands)
Nine Months Ended September 30,
2016
%
2015
%
Land and lot sales revenue
$
70,204

100.0
%
$
74,366

100.0
%
Cost of land and lot sales
16,973

24.2
%
17,324

23.3
%
Land and lot gross margin
$
53,231

75.8
%
$
57,042

76.7
%
Our land and lot gross margin percentage was 75.8% for the nine months ended September 30, 2016 as compared to 76.7% for the same prior year period. In June of 2016, our Pardee Homes reporting segment sold two parcels, totaling 102 homebuilding lots, located in the Pacific Highlands Ranch community in San Diego, California. Pardee Homes received $61.6 million in cash proceeds from the sales. In June of 2015 our Pardee Homes reporting segment sold a commercial site in the Pacific Highlands Ranch community for $53.0 million in cash proceeds. These transactions involving the Pacific Highlands Ranch community included significant gross margins due to the low land basis of the community which was acquired in 1981. Land and lot sales gross margin percentage can vary significantly due to the type of land and its related cost basis.
Sales and Marketing, General and Administrative Expense (dollars in thousands)
Nine Months Ended September 30,
As a Percentage of
Home Sales Revenue
2016
2015
2016
2015
Sales and marketing
$
90,621

$
78,958

5.8
%
5.5
%
General and administrative (G&A)
89,815

83,150

5.8
%
5.8
%
Total sales and marketing and G&A
$
180,436

$
162,108

11.6
%
11.2
%

- 42 -


Sales and marketing expense as a percentage of home sales revenue increased to 5.8% for the nine months ended September 30, 2016 compared to 5.5% for the prior year period. The increase was primarily attributable to the increase in active selling communities, as well as pre-marketing efforts for new communities opening in the fourth quarter of 2016, and the expansion into the Austin, Texas and Los Angeles, California markets. Total sales and marketing expense increased by $11.7 million to $90.6 million for the nine months ended September 30, 2016 compared to $79.0 million in the same prior year period, and is primarily attributable to direct selling costs related to the 7% increase in new home deliveries, an increase in broker co-op payments and opening more communities in the nine months ended September 30, 2016 compared to the prior year period.
G&A expenses as a percentage of home sales revenue remained flat at 5.8% for the nine months ended September 30, 2016 and September 30, 2015 , respectively.  G&A expenses increased to $89.8 million for the nine months ended September 30, 2016 compared to $83.2 million in the same prior year period as a result of additional headcount to support future growth.
Total SG&A as a percentage of home sales revenue increased to 11.6% for the nine month period ended September 30, 2016 compared to 11.2% in the prior year period.  Total SG&A expense increased $18.3 million , or 11.2%, to $180.4 million for the nine months ended September 30, 2016 from $162.1 million in the prior year period.
Restructuring Charges
Restructuring charges decreased to $478,000 for the nine months ended September 30, 2016 compared to $2.7 million in the same period in the prior year.  The decrease was due to lower lease termination and severance costs in 2016.
Interest
Interest, which was incurred principally to finance land acquisitions, land development and home construction, totaled $50.0 million and $45.8 million for the nine months ended September 30, 2016 and 2015 , respectively.  All interest incurred in both periods was capitalized.  The increase in interest incurred during the nine months ended September 30, 2016 as compared to the prior year period was primarily attributable to an increase in our weighted average interest rate as a result of the issuance of our 2021 Notes in May of 2016.
Income Tax
For the nine months ended September 30, 2016 , we recorded a tax provision of $ 77.7 million based on an effective tax rate of 36.0% .  For the nine months ended September 30, 2015 , we recorded a tax provision of $ 66.1 million based on an effective tax rate of 35.2% . The increase in provision for income taxes was primarily due to an increase in income before income taxes of $27.8 million to $215.7 million for the nine months ended September 30, 2016 compared to $187.9 million for the prior year period. The increase in the effective tax rate was the result of discrete tax adjustments recorded during the quarter ended September 30, 2016.


- 43 -


Lots Owned or Controlled by Segment
Excluded from owned and controlled lots are those related to Note 7, Investments in Unconsolidated Entities .  The table below summarizes our lots owned or controlled by segment as of the dates presented:
September 30,
Increase
(Decrease)
2016
2015
Amount
%
Lots Owned
Maracay Homes
1,662

1,582

80

5
%
Pardee Homes
15,906

16,835

(929
)
(6
)%
Quadrant Homes
969

1,087

(118
)
(11
)%
Trendmaker Homes
1,757

1,158

599

52
%
TRI Pointe Homes
3,048

2,644

404

15
%
Winchester Homes
1,886

2,178

(292
)
(13
)%
Total
25,228

25,484

(256
)
(1
)%
Lots Controlled (1)
Maracay Homes
596

216

380

176
%
Pardee Homes
1,081

240

841

350
%
Quadrant Homes
926

335

591

176
%
Trendmaker Homes
373

818

(445
)
(54
)%
TRI Pointe Homes
912

749

163

22
%
Winchester Homes
597

398

199

50
%
Total
4,485

2,756

1,729

63
%
Total Lots Owned or Controlled (1)
29,713

28,240

1,473

5
%
__________
(1)
As of September 30, 2016 and 2015 lots controlled included lots that were under land or lot option contracts or purchase contracts.

Liquidity and Capital Resources
Overview
Our principal uses of capital for the three and nine months ended September 30, 2016 were operating expenses, land purchases, land development and home construction. We used funds generated by our operations and available borrowings to meet our short-term working capital requirements. We remain focused on generating positive margins in our homebuilding operations and acquiring desirable land positions in order to maintain a strong balance sheet and keep us poised for growth. As of September 30, 2016 , we had $128.7 million of cash and cash equivalents. We believe we have sufficient cash and sources of financing to fund operations for at least the next twelve months.
Our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the purchase price of assets to be acquired with debt financing, the estimated market value of our assets and the ability of particular assets, and our Company as a whole, to generate cash flow to cover the expected debt service. Our charter does not contain a limitation on the amount of debt we may incur and our board of directors may change our target debt levels at any time without the approval of our stockholders.
Senior Notes
In May 2016, TRI Pointe Group issued $300 million aggregate principal amount of 4.875% Senior Notes due 2021 (the “2021 Notes”) at 99.44% of their aggregate principal amount. Net proceeds of this issuance was $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.

- 44 -


TRI Pointe Group and TRI Pointe Homes are co-issuers of $450 million aggregate principal amount of 4.375% Senior Notes due 2019 (“2019 Notes”) and $450 million aggregate principal amount of 5.875% Senior Notes due 2024 (“2024 Notes”). The 2019 Notes were issued at 98.89% of their aggregate principal amount and the 2024 Notes were issued at 98.15% of their aggregate principal amount. The net proceeds from the offering were $861.3 million , after debt issuance costs and discounts. The 2019 Notes and 2024 Notes mature on June 15, 2019 and June 15, 2024. Interest is payable semiannually in arrears on June 15 and December 15.
As of September 30, 2016 , no principal has been paid on the 2019 Notes, 2021 Notes and 2024 Notes (together, the "Senior Notes"), and there was $22.0 million of capitalized debt financing costs, included in senior notes, net on our consolidated balance sheet, related to the Senior Notes that will amortize over the lives of the Senior Notes. Accrued interest related to the Senior Notes was $18.6 million and $1.9 million as of September 30, 2016 and December 31, 2015 , respectively.
Unsecured Revolving Credit Facility
On April 28 2016, the Company partially exercised the accordion feature under its existing unsecured revolving credit facility (the “Credit Facility”) to increase the total commitments under the Credit Facility to $625 million from $550 million .  The Credit Facility matures on May 18, 2019 , and contains a sublimit of $75 million for letters of credit. The Company may borrow under the Credit Facility in the ordinary course of business to fund its operations, including its land development and homebuilding activities. Borrowings under the Credit Facility will be governed by, among other things, a borrowing base. The Credit Facility contains customary affirmative and negative covenants, including financial covenants relating to consolidated tangible net worth, leverage, and liquidity or interest coverage. Interest rates on borrowings will be based on either a daily Eurocurrency base rate or a Eurocurrency rate, in either case, plus a spread ranging from 1.45% to 2.20% depending on the Company’s leverage ratio. As of September 30, 2016 , the outstanding balance under the Credit Facility was $200.0 million with an interest rate 2.28% per annum and $420.7 million of availability after considering the borrowing base provisions and outstanding letters of credit.  At September 30, 2016 , we had outstanding letters of credit of $4.3 million .  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 Loan
As of September 30, 2016 , the Company had $17.8 million outstanding related to a seller financed loan to acquire lots for the construction of homes. Principal and interest payments on this loan are due at various maturity dates, including at the time individual homes associated with the acquired land are delivered. The seller financed loan accrues interest at a rate of 7.0% per annum, with interest calculated on a daily basis. A minimum principal payment of $12.1 million is due in June 2017 with any remaining unpaid balance due in June 2018.
Stock Repurchase Program
On January 27, 2016, the Company announced that the board of directors approved a stock repurchase program, authorizing the repurchase of the Company’s common stock with an aggregate value of up to $100 million through January 25, 2017.  Purchases of common stock may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act.  We are not obligated under the program to repurchase any specific number or amount of shares of common stock, and we may modify, suspend or discontinue the program at any time.  Our management will determine the timing and amount of repurchase in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions and legal requirements. As of September 30, 2016 , 2,105,521 shares of our common stock had been repurchased and retired under this program at an average price of $11.93 per share for a total of cost of $25.1 million .

- 45 -


Covenant Compliance
Under our Credit Facility, we are required to comply with certain financial covenants, including, but not limited to, those set forth in the table below (dollars in thousands):
Actual at
September 30,
Covenant
Requirement at
September 30,
Financial Covenants
2016
2016
Consolidated Tangible Net Worth
$
1,623,831

$
1,039,622

(Not less than $875.9 million plus 50% of net income and
50% of the net proceeds from equity offerings after
March 31, 2015)

Leverage Test
44.1
%
<55%

(Not to exceed 55%)

Interest Coverage Test
6.4

>1.5

(Not less than 1.5:1.0)

As of September 30, 2016 , we were in compliance with all of these financial covenants.
Leverage Ratios
We believe that our leverage ratios provide useful information to the users of our financial statements regarding our financial position and cash and debt management. The ratio of debt-to-capital and the ratio of net debt-to-capital are calculated as follows (dollars in thousands):
September 30, 2016
December 31, 2015
Unsecured revolving credit facility
$
200,000

$
299,392

Seller financed loans
17,758

2,434

Senior Notes
1,166,724

868,679

Total debt
1,384,482

1,170,505

Stockholders’ equity
1,785,460

1,664,683

Total capital
$
3,169,942

$
2,835,188

Ratio of debt-to-capital (1)
43.7
%
41.3
%
Total debt
$
1,384,482

$
1,170,505

Less: Cash and cash equivalents
(128,715
)
(214,485
)
Net debt
1,255,767

956,020

Stockholders’ equity
1,785,460

1,664,683

Total capital
$
3,041,227

$
2,620,703

Ratio of net debt-to-capital (2)
41.3
%
36.5
%
__________
(1)
The ratio of debt-to-capital is computed as the quotient obtained by dividing debt by the sum of total debt plus equity.
(2)
The ratio of net debt-to-capital is a non-GAAP measure and is computed as the quotient obtained by dividing net debt (which is debt less cash and cash equivalents) by the sum of net debt plus equity. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. We believe the ratio of net debt-to-capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing. See the table above reconciling this non-GAAP financial measure to the ratio of debt-to-capital.  Because the ratio of net debt-to-capital is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.

- 46 -


Cash Flows— Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015
For the nine months ended September 30, 2016 as compared to the nine months ended September 30, 2015 , the comparison of cash flows is as follows:
•
Net cash used in operating activities increased by $121.3 million to $261.3 million for the nine months ended September 30, 2016 from $140.0 million for the nine months ended September 30, 2015 . The change was comprised of offsetting activity, including (i) an increase in real estate inventories of $442.7 million in 2016 compared to an increase of $305.9 million in 2015 to support our future community count growth and (ii) other offsetting activity included changes in other assets, receivables, accounts payable, accrued expenses, and net income.
•
Net cash used in investing activities was $2.1 million for the nine months ended September 30, 2016 compared to $2.2 million for the same prior year period in 2015.  The decrease in cash used in investing activities was due mainly due to lower investments in unconsolidated entities, offset by increases in the purchase of property and equipment.
•
Net cash provided by financing activities increased to $177.6 million for the nine months ending September 30, 2016 from $68.6 million for the same period in the prior year. The change was primarily a result of higher net borrowings from debt of $214.2 million during the nine months ended September 30, 2016 compared to $82.3 million for the nine months ended September 30, 2015 , offset by an increase in spending related to the share repurchase program of $25.1 million during the current year period with no comparable prior year activity.
As of September 30, 2016 , our cash and cash equivalents balance was $128.7 million .
Off-Balance Sheet Arrangements and Contractual Obligations
In the ordinary course of business, we enter into land and lot 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 land and lots over a specified period of time at pre-determined prices.  We generally have the right, at our discretion, to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash deposit with no further financial responsibility to the land seller.  As of September 30, 2016 , we had $30.2 million of cash deposits, the majority of which are non-refundable, pertaining to land and lot option contracts and purchase contracts with an aggregate remaining purchase price of $445.1 million (net of deposits).
Our utilization of land and lot 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 finance the development of optioned land and 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.
As of September 30, 2016 , we had $420.7 million of availability under our Credit Facility after considering the borrowing base provisions and outstanding letters of credit.
Inflation
Our operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs.  In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers.  While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices.

- 47 -


Seasonality
Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements.  We typically experience the highest new home order activity during the first and second quarters of our fiscal year, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors.  Since it typically takes three to nine months to construct a new home, the number of homes delivered and associated home sales revenue typically increases in the third and fourth quarters of our fiscal year as new home orders sold earlier in the year convert to home deliveries.  Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters of our fiscal year, and the majority of cash receipts from home deliveries occur during the second half of the year.  We expect this seasonal pattern to continue over the long-term, although it may be affected by volatility in the homebuilding industry.

Description of Projects and Communities under Development
The following table presents project information relating to each of our markets as of September 30, 2016 and includes information on current projects under development where we are building and selling homes.

- 48 -


Maracay Homes
County, Project, City
Year of
First
Delivery (1)
Total
Number of
Lots (2)
Cumulative
Homes
Delivered
as of
September 30,
2016
Lots
Owned as of
September 30,
2016 (3)
Backlog as of
September 30,
2016 (4)(5)
Homes
Delivered
for the Nine
Months Ended
September 30,
2016
Sales Price
Range
(in thousands) (6)
Phoenix, Arizona
Town of Buckeye:
Verrado Tilden
2012
102

102

—

—

8

$239 - $304
Verrado Palisades
2015
63

20

43

17

4

$310 - $383
Verrado Victory
2015
98

23

75

9

6

$357 - $392
City of Chandler:
Artesian Ranch
2013
90

89

1

1

32

$344 - $400
Vaquero Ranch
2013
74

74

—

—

7

$298 - $373
Maracay at Layton Lakes
2015
47

41

6

6

30

$484 - $524
Sendera Place
2015
79

40

39

22

28

$273 - $320
Hawthorn Manor
2017
84

—

84

—

—

$467 - $500
Town of Gilbert:
Arch Crossing at Bridges of Gilbert
2014
67

67

—

—

7

$283 - $341
Trestle Place at Bridges of Gilbert
2014
73

73

—

—

10

$344 - $424
Marquis at Morrison Ranch
2016
66

15

51

25

15

$405 - $492
Artisan at Morrison Ranch
2016
105

18

87

22

18

$314 - $367
Adora Trails
2017
82

—

82

—

—

$368 - $407
City of Goodyear:
Calderra at Palm Valley
2013
81

81

—

—

1

Closed
City of Mesa:
Kinetic Point at Eastmark
2013
80

75

5

—

15

$283 - $361
Lumiere Garden at Eastmark
2013
85

75

10

2

15

$327 - $404
Aileron Square at Eastmark
2016
58

12

46

18

12

$327 - $404
Curie Court at Eastmark
2016
106

17

89

16

17

$283 - $361
Palladium Point
2016
53

—

53

11

—

$310 - $379
Hendrix Point
2018
37

—

37

—

—

$381 - $456
Town of Peoria:
The Reserve at Plaza del Rio
2013
162

118

44

21

31

$205 - $267
Maracay at Northlands
2014
90

60

30

23

25

$330 - $411
Legacy at The Meadows
2017
74

—

74

5

—

$397 - $423
Estates at The Meadows
2017
99

—

99

16

—

$456 - $530
Meadows 1 & 3
2018
299

—

299

—

—

$365 - $523
Town of Queen Creek:
The Preserve at Hastings Farms
2014
89

73

16

12

30

$300 - $385
Villagio
2013
135

116

19

15

27

$291 - $352
Phoenix, Arizona Total
2,478

1,189

1,289

241

338

Tucson, Arizona
Marana:
Tortolita Vistas
2014
55

35

20

8

11

$458 - $515
Oro Valley:
Rancho del Cobre
2014
68

53

15

4

10

$410 - $478
Desert Crest - Center Pointe Vistoso
2016
103

8

95

14

8

$252 - $297
The Cove - Center Pointe Vistoso
2016
83

4

79

16

4

$327 - $387
Summit N & S - Center Pointe Vistoso
2016
88

17

71

14

17

$376 - $411
The Pinnacle - Center Pointe Vistoso
2016
69

7

62

29

7

$435 - $467
Tucson:
Deseo at Sabino Canyon
2014
39

39

—

—

2

$419 - $505
Ranches at Santa Catalina
2016
34

3

31

3

3

$404 - $450
Tucson, Arizona Total
539

166

373

88

62

Maracay Total
3,017

1,355

1,662

329

400



- 49 -


Pardee Homes
County, Project, City
Year of
First
Delivery (1)
Total
Number of
Lots (2)
Cumulative
Homes
Delivered
as of
September 30,
2016
Lots
Owned as of
September 30,
2016 (3)
Backlog as of
September 30,
2016 (4)(5)
Homes
Delivered
for the Nine
Months Ended
September 30,
2016
Sales Price
Range
(in thousands) (6)
California
San Diego County:
Alta Del Mar Homes
2013
117

116

1

1

36

$1,800 - $2,200
Watermark
2013
160

160

—

—

29

$1,000 - $1,310
Canterra
2015
89

67

22

19

42

$760 - $900
Casabella
2015
122

78

44

19

56

$900 - $1,000
Verana
2015
78

78

—

—

40

$990 - $1,100
Casavia
2017
83

—

83

5

—

$980 - $1,000
Artesana
2017
56

—

56

—

—

$1,650 - $1,850
Pacific Highlands Ranch Future
TBD
786

—

786

—

—

TBD
Olive Hill Estate
2016
37

10

27

4

10

$650 - $770
Castlerock
TBD
415

—

415

—

—

$510 - $770
Meadowood
TBD
844

—

844

—

—

$290 - $590
Parkview Condos
2016
73

28

45

19

28

$435 - $500
Luna
2017
96

—

96

—

—

$330 - $400
Azul
2017
121

—

121

—

—

$325 - $370
Ocean View HillsFuture
2017
700

—

700

—

—

TBD
South Otay Mesa
TBD
893

—

893

—

—

$185 - $530
Los Angeles County:
Golden Valley
2017
498

—

498

—

—

$558 - $839
Skyline Ranch
TBD
1,260

—

1,260

—

—

$510 - $640
Riverside County:
Meadow Ridge
2013
132

132

—

—

24

$370 - $470
Meadow Glen
2014
142

137

5

4

48

$350 - $410
Amberleaf
2014
131

130

1

1

44

$320 - $370
Summerfield
2015
85

85

—

—

33

$310 - $330
Senterra
2016
82

—

82

29

—

$390 - $460
Vantage
2016
83

—

83

21

—

$350 - $370
Viewpoint
2016
75

—

75

15

—

$290 - $310
Overlook
2016
112

—

112

19

—

$305 - $335
Canyon Hills Future
TBD
311

—

311

—

—

TBD
Tournament Hills Future
TBD
268

—

268

—

—

TBD
Woodmont
2014
84

84

—

—

16

$320 - $390
Cielo
2015
92

92

—

—

14

$220 - $275
Northstar
2015
123

55

68

4

38

$300 - $330
Skycrest
2015
125

60

65

3

29

$330 - $380
Flagstone
2016
79

13

66

16

13

$380 - $440
Lunetta
2016
89

33

56

16

33

$270 - $300
Elara
2016
118

—

118

24

—

$260 - $290
Sundance Future
TBD
1,317

—

1,317

—

—

TBD
Tierra Del Rey
2017
84

—

84

—

—

$390 - $430
Banning
TBD
4,318

—

4,318

—

—

$170 - $250
Sacramento County:
Natomas
TBD
120

—

120

—

—

TBD
San Joaquin County:
Bear Creek
TBD
1,252

—

1,252

—

—

TBD
California Total
15,650

1,358

14,292

219

533

Nevada
Clark County:
LivingSmart at Eldorado Ridge
2012
169

169

—

—

9

$260 - $310
LivingSmart at Eldorado Heights
2013
135

135

—

—

13

$310 - $395
LivingSmart Sandstone
2013
145

138

7

7

48

$228 - $255

- 50 -


North Peak
2015
150

40

110

22

34

$280 - $330
Castle Rock
2015
150

41

109

17

37

$350 - $410
Camino
2016
86

9

77

10

9

$250 - $260
Eldorado Future
2017
59

—

59

—

—

TBD
Solano
2014
132

95

37

13

34

$300 - $330
Alterra
2014
47

40

7

5

15

$425 - $500
Bella Verdi
2015
49

40

9

5

21

$373 - $440
Escala
2016
154

3

151

18

3

$510 - $575
Montero
2016
74

—

74

11

—

$420 - $480
Strada
2017
116

—

116

—

—

$380 - $400
Responsive Home
2016
2

—

2

2

—

$590 - $940
POD 5-1/2-2 Future
2017
31

—

31

—

—

TBD
Durango Ranch
2012
153

152

1

1

5

$467 - $560
Durango Trail
2014
77

77

—

—

3

$380 - $410
Meridian
2016
82

7

75

15

7

$580 - $680
Encanto
2016
129

5

124

7

5

$470 - $525
Horizon Terrace
2014
165

82

83

11

22

$400 - $455
Summerglen
2014
140

98

42

13

30

$295 - $300
Keystone
2017
70

—

70

6

—

$450 - $530
Cobalt
2017
110

—

110

—

—

$340 - $370
Axis
2017
78

—

78

—

—

$680 - $780
The Canyons at MacDonald Ranch
2017
22

—

22

—

—

$535 - $565
Sunridge Heights
2017
108

—

108

—

—

$392 - $455
Nova Ridge
2018
112

—

112

—

—

$680 - $715
Nevada Total
2,745

1,131

1,614

163

295

Pardee Total
18,395

2,489

15,906

382

828



- 51 -


Quadrant Homes
County, Project, City
Year of
First
Delivery (1)
Total
Number of
Lots (2)
Cumulative
Homes
Delivered
as of
September 30,
2016
Lots
Owned as of
September 30,
2016 (3)
Backlog as of
September 30,
2016 (4)(5)
Homes
Delivered
for the Nine
Months Ended
September 30,
2016
Sales Price
Range
(in thousands) (6)
Washington
Skagit County:
Skagit Surplus Pod E, Mt Vernon
TBD
4

—

4

—

—

TBD
Snohomish County:
King's Corner 3, Mill Creek
2016
29

26

3

3

26

$477 - $491
Evergreen Heights, Monroe
2016
71

—

71
10

—

$450 - $515
The Grove at Canyon Park, Bothell
2017
60

—

60

—

—

$645 - $720
Greenstone Heights, Bothell
2017
41

—

41

—

—

$859 - $919
King County:
Sonata Hill, Auburn
2014
71

68

3

2

31

$368 - $415
Heathers Ridge, Kirkland
2015
41

40

1

1

28

$810
Hedgewood, Redmond
2015
11

10

1

1

7

$810
Hedgewood East, Redmond
2016
15

8

7

6

8

$747 - $925
Grasslawn Estates, Redmond
2016
4

3

1

1

3

$1,450
Vintner's Place, Kirkland
2016
35

6

29

28

6

$712 - $850
Copperwood, Renton
2016
46

3

43

30

3

$610 - $737
Viscaia, Bellevue
2017
18

—

18

—

—

$690 - $788
Trailside, Redmond
2017
9

—

9

—

—

$870 - $1,005
Parkwood Terrace, Woodinville
2017
15

—

15

—

—

$759 - $960
Hazelwood Ridge, Newcastle
2017
30

—

30

—

—

$760 - $905
Inglewood Landing, Sammamish
2018
21

—

21

—

—

$865 - $1,000
Jacobs Landing, Issaquah
2017
20

—

20

—

—

$935 - $1,000
Kirkwood Terrace, Sammamish
2017
12

—

12

—

—

$1,310 - $1,610
English Landing P2, Redmond
2017
25

—

25

—

—

$930 - $1,070
English Landing P1, Redmond
2017
50

—

50

—

—

$945 - $1,095
Heathers Ridge South, Redmond
2017
8

—

8

—

—

$625 - $925
Cedar Landing, North Bend
2017
138

—

138

—

—

$590 - $740
Monarch Ridge, Sammamish
2017
59

—

59

—

—

$860 - $975
Ray Meadows, Redmond
2018
27

—

27

—

—

$930 - $1,080
Wynstone, Federal Way
TBD
4

—

4

—

—

TBD
Breva, Bellevue
2017
29

—

29

—

—

$642 - $714
Canton Crossing, Maple Valley
2017
51

—

51

—

—

$560 - $655
Pierce County:
Harbor Hill S-9, Gig Harbor
2014
40

38

2

—

2

$422
Harbor Hill S-8, Gig Harbor
2015
33

31

2

1

27

$422 - $454
Harbor Hill S-7, Gig Harbor
2016
16

—

16

8

—

$412 - $472
Chambers Ridge, Tacoma
2014
24

23

1

1

6

$630
The Enclave at Harbor Hill, Gig Harbor
2016
33

11

22

4

11

$520 - $560
Thurston County:
Campus Fairways, Lacey
2015
39

29

10

6

16

$365 - $430
Kitsap County:
McCormick Meadows, Port Orchard
2012
167

161

6

6

42

$300 - $354
Mountain Aire, Poulsbo
2016
145

15

130

22

15

$393 - $455
Closed Communities
N/A
—

—

—

—

56

N/A
Washington Total
1,441

472

969

130

287

Quadrant Total
1,441

472

969

130

287







- 52 -


Trendmaker Homes
County, Project, City
Year of
First
Delivery (1)
Total
Number of
Lots (2)
Cumulative
Homes
Delivered
as of
September 30,
2016
Lots
Owned as of
September 30,
2016 (3)
Backlog as of
September 30,
2016 (4)(5)
Homes
Delivered
for the Nine
Months Ended
September 30,
2016
Sales Price
Range
(in thousands) (6)
Texas
Brazoria County:
Sedona Lakes, Pearland
2014
34

19

15

1

2

$387 - $458
Southern Trails, Pearland
2014
40

37

3

1

8

$499 - $550
Pomona, Manvel
2015
31

3

28

5

3

$358 - $450
Rise Meridiana
2016
16

—

16

5

—

$303 - $336
Fort Bend County:
Cross Creek Ranch 60', Fulshear
2013
109

74

35

6

3

$356 - $442
Cross Creek Ranch 65', Fulshear
2013
98

72

26

2

10

$405 - $458
Cross Creek Ranch 70', Fulshear
2013
110

88

22

8

7

$450 - $510
Cross Creek Ranch 80', Fulshear
2013
120

108

12

3

13

$541 - $656
Cross Creek Ranch 90', Fulshear
2013
43

28

15

4

4

$604 - $680
Villas at Cross Creek Ranch, Fulshear
2013
101

100

1

—

9

$454 - $496
Fulshear Run, Richmond
2016
15

—

15

7

—

$542 - $638
Cinco Ranch, Katy
2015
93

93

—

—

1

$396 - $530
Harvest Green 75', Richmond
2015
19

7

12

1

7

$421 - $486
Sienna Plantation 80', Missouri City
2013
38

38

—

—

6

$542 - $650
Sienna Plantation 85', Missouri City
2015
25

8

17

5

8

$530 - $635
Villas at Sienna South, Missouri City
2015
19

6

13

2

6

$445 - $507
Lakes of Bella Terra, Richmond
2013
109

99

10

3

19

$465 - $553
Villas at Aliana, Richmond
2013
109

78

31

7

18

$380 - $503
Riverstone 55', Sugar Land
2013
97

94

3

1

14

$437 - $467
Riverstone 80', Sugar Land
2013
102

102

—

—

2

$559 - $710
Riverstone Avanti at Avalon 100', Sugar Land
2015
5

4

1

1

3

$1,197
The Townhomes at Imperial, Sugar Land
2015
27

27

—

—

7

$396 - $530
Galveston County:
Harborwalk, Hitchcock
2014
50

50

—

—

6

$680 - $686
Harris County:
Fairfield, Cypress
2010
91

90

1

1

13

$530 - $595
Lakes of Fairhaven, Cypress
2008
257

257

—

—

9

$409 - $505
Towne Lake Living Views, Cypress
2013
122

115

7

4

11

$468 - $561
The Groves, Humble
2015
41

23

18

10

9

$436 - $498
Lakes of Creekside
2015
21

1

20

4

1

$476 - $550
Bridgeland '80, Cypress
2015
92

73

19

12

3

$487 - $569
Bridgeland Patio, Cypress
2016
10

—

10

—

—

TBD
Elyson 70', Cypress
2016
6

—

6

—

—

$445 - $501
Hidden Arbor, Cypress
2015
129

8

121

21

8

$332 - $587
Clear Lake, Houston
2015
774

150

624

42

40

$360 - $660
Montgomery County:
Barton Woods, Conroe
2013
118

117

1

1

15

$447 - $624
Villas at Oakhurst, Porter
55

55

—

—

5

$542 - $650
Woodtrace, Woodtrace
2014
36

16

20

4

5

$430 - $479
Northgrove, Tomball
2015
25

—

25

—

—

$440 - $490
Bender's Landing Estates, Spring
2014
104

36

68

2

13

$457 - $567
The Woodlands, Creekside Park
2015
92

6

86

5

6

$430 - $618
Waller County:
Cane Island, Katy
2015
17

9

8

3

9

$498 - $574
Mustang Estates
2016
350

—

350

—

—

TBD
Williamson County:
Crystal Falls
TBD
29

—

29

3

—

$450 - $525

- 53 -


Rancho Sienna 60'
TBD
28

22

6

—

—

TBD
Hays County:
Belterra 60', Austin
2016
10

—

10

—

—

$530 - $603
Belterra 80', Austin
2016
30

3

27

2

3

$530 - $603
Headwaters, Dripping Springs
2016
14

—

14

—

—

$410 - $512
Other:
Avanti Custom Homes
2007
125

117

8

6

17

$480 - $856
Texas Casual Cottages, Round Top
2010
88

85

3

3

11

$389 - $520
Texas Casual Cottages, Hill Country
2012
46

45

1

1

1

$443 - $500
Texas Total
4,120

2,363

1,757

186

335

Trendmaker Homes Total
4,120

2,363

1,757

186

335



- 54 -


TRI Pointe Homes
County, Project, City
Year of
First
Delivery (1)
Total
Number of
Lots (2)
Cumulative
Homes
Delivered
as of
September 30,
2016
Lots
Owned as of
September 30,
2016 (3)
Backlog as of
September 30,
2016 (4)(5)
Homes
Delivered
for the Nine
Months Ended
September 30,
2016
Sales Price
Range
(in thousands) (6)
Southern California
Orange County:
Arcadia, Irvine
2013
61

59

2

2

13

$1,199 - $1,420
Arcadia II, Irvine
2014
66

66

—

—

12

$1,199 - $1,281
Fairwind, Huntington Beach
2015
80

80

—

—

17

$937 - $1,032
Cariz, Irvine
2014
112

112

—

—

18

$495 - $649
Messina, Irvine
2014
59

50

—

—

12

$1,515 - $1,660
Messina II, Irvine
2016
43

8

18

16

8

$1,515 - $1,660
Aria, Rancho Mission Viejo
2016
87

32

55

18

29

$618 - $669
Aria II, Rancho Mission Viejo
2017
64

—

64

—

—

TBD
Aubergine, Rancho Mission Viejo
2016
66

17

49

7

17

$1,110 - $1,135
Aubergine II, Rancho Mission Viejo
2017
57

—

57

—

—

TBD
Carlisle 10-Pack Garden Court, Irvine
2017
74

—

74

—

—

$685 - $770
Sterling Row Townhomes, Irvine
2017
96

—

96

—

—

$589 - $702
Varenna at Orchard Hills, Irvine
2016
71

—

37

8

—

$1,160 - $1,235
Alston, Anaheim
2017
75

—

75

—

—

$780 - $820
StrataPointe, Buena Park
2017
149

—

149

—

—

$480 - $600
Riverside County:
Topazridge, Riverside
2012
68

68

—

—

5

$464 - $529
Topazridge II, Riverside
2014
49

49

—

—

4

$459 - $515
Aldea, Temecula
2014
90

90

—

—

13

$262 - $298
Kite Ridge, Riverside
2014
87

45

42

25

27

$459 - $487
Serrano Ridge at Sycamore Creek, Riverside
2015
87

32

55

35

28

$397 - $423
Terrassa Court, Corona
2015
94

8

86

12

8

$400 - $438
Terrassa Villas, Corona
2015
52

2

50

4

2

$438 - $478
Los Angeles County:
Grayson, Santa Clarita
2015
119

34

85

16

28

$520 - $553
Garvey Square, El Monte
2017
102

—

102

—

—

TBD
San Bernardino County:
Sedona at Parkside, Ontario
2015
152

53

99

49

40

$371 - $408
Kensington at Park Place, Ontario
2015
67

28

39

21

22

$492 - $524
St. James at Park Place, Ontario
2015
57

44

13

7

27

$456 - $468
Ventura County:
The Westerlies, Oxnard
2015
116

9

107

47

9

$388 - $512
Southern California Total
2,300

886

1,354

267

339

Northern California
Contra Costa County:
Berkshire at Barrington, Brentwood
2014
89

86

3

—

23

$508 - $587
Hawthorne at Barrington, Brentwood
2014
105

83

22

12

25

$572 - $620
Marquette at Barrington, Brentwood
2015
90

36

54

18

19

$480 - $740
Wynstone at Barrington, Brentwood
2016
92

—

92

—

—

$475 - $595
Penrose at Barrington, Brentwood
2016
34

11

23

7

11

$508 - $587
Santa Clara County:
Cobblestone, Milpitas
2015
32

31

1

1

9

$960 - $1,163
Derose, Morgan Hill
2018
65

—

65

—

—

$555 - $755
Solano County:
Redstone, Vacaville
2015
141

49

92

14

22

$464 - $538
Green Valley-Lewis, Fairfield
2018
95

—

95

—

—

$475 - $510
Green Valley-Westgate, Fairfield
2018
53

—

53

—

—

$527 - $572
San Joaquin County:

- 55 -


Ventana, Tracy
2015
93

47

46

10

25

$447 - $552
Sundance, Mountain House
2015
113

53

60

19

44

$580 - $660
Alameda County:
Cadence, Alameda Landing
2015
91

52

39

11

14

$1,082 - $1,279
Linear, Alameda Landing
2015
106

54

52

10

—

$699 - $935
Symmetry, Alameda Landing
2016
56

20

36

6

20

$885 - $990
Commercial, Alameda Landing
TBD
2

—

2

—

—

$620
Parasol, Fremont
2016
39

—

39

19

—

$770 - $1,050
Blackstone at the Cannery, Hayward SFA
2016
105

3

102

19

3

$563 - $678
Blackstone at the Cannery, Hayward SFD
2016
52

6

46

9

6

$669 - $719
Coopers Place, Livermore
2017
31

—

31

—

—

$655 - $662
Slate at Jordan Ranch, Dublin
2017
56

—

56

—

—

$1,010 - $1,135
Onyx at Jordan Ranch, Dublin
2017
105

—

57

—

—

$880 - $945
Jordan Ranch II, Dublin
2018
45

—

45

—

—

$850 - $1,030
Mission Stevenson, Fremont
2018
77

—

77

—

—

$655 - $925
Palm Avenue, Fremont
2018
31

—

31

—

—

$2,000 - $2,200
Northern California Total
1,798

531

1,219

155

221

California Total
4,098

1,417

2,573

422

560

Colorado
Douglas County:
Terrain 4000 Series, Castle Rock
2013
149

132

17

12

32

$355 - $408
Terrain 3500 Series, Castle Rock
2015
67

62

5

2

25

$327 - $350
Jefferson County:
Leyden Rock 4000 Series, Arvada
2014
51

51

—

—

6

$390 - $446
Leyden Rock 5000 Series, Arvada
2015
67

56

11

8

26

$454 - $509
Candelas 6000 Series, Arvada
2015
76

14

62

16

8

$508 - $645
Candelas 3500 Series, Arvada
2016
97

—

97

8

—

$388 - $450
Denver County:
Platt Park North, Denver
2014
29

29

—

—

1

$611 - $615
Larimer County:
Centerra 5000 Series, Loveland
2015
79

32

47

19

20

$411 - $447
Arapahoe County:
Whispering Pines, Aurora
2015
115

—

115

8

—

$560 - $626
Adams County:
Amber Creek, Thornton
2017
121

—

121

—

—

$391 - $457
Colorado Total
851

376

475

73

118

TRI Pointe Total
4,949

1,793

3,048

495

678



- 56 -


Winchester Homes
County, Project, City
Year of
First
Delivery (1)
Total
Number of
Lots (2)
Cumulative
Homes
Delivered
as of
September 30,
2016
Lots
Owned as of
September 30,
2016 (3)
Backlog as of
September 30,
2016 (4)(5)
Homes
Delivered
for the Nine
Months Ended
September 30,
2016
Sales Price
Range
(in thousands) (6)
Maryland
Anne Arundel County:
Watson's Glen, Millersville
2015
103

4

99

—

2

Closed
Frederick County:
Landsdale Village SFD
2015
222

32

190

14

16

$495 - $607
Landsdale Townhomes
2015
100

19

81

5

16

$335 - $375
Landsdale TND Neo SFD
2015
77

8

69

6

8

$435 - $468
Howard County:
Walnut Creek, Ellicott City
2014
25

22

3

2

7

$1,182 - $1,409
Montgomery County:
Cabin Branch SFD
2014
359

72

287

31

29

$498 - $668
Cabin Branch Boulevard Townhomes
TBD
121

—

121

—

—

TBD
Cabin Branch Townhomes
2014
507

108

399

17

45

$380 - $423
Preserve at Stoney Spring
N/A
5

—

5

—

—

N/A
Preserve at Rock Creek, Rockville
2012
68

65

3

2

2

$784 - $818
Poplar Run Townhomes
2013
136

136

—

—

18

$390 - $435
Poplar Run SFD
2010
305

240

65

21

23

$567 - $766
Poplar Run Single Family Neos
2016
29

3

26

20

3

$545 - $635
Potomac Highlands, Potomac
2016
23

—

23

1

—

$1,191 - $1,289
Two Rivers, Crofton
2017
4

—

4

—

—

TBD
Glenmont MetroCenter, Silver Spring
2016
171

—

171

3

—

$485 - $568
Maryland Total
2,255

709

1,546

122

169

Virginia
Fairfax County:
Reserve at Waples Mill, Oakton
2013
28

28

—

—

3

$1,460
Stuart Mill & Timber Lake, Oakton
2014
14

6

8

2

1

$1,363 - $1,675
Stuart Mill , Oakton
N/A
5

—

5

—

—

N/A
Prince William County:
Villages of Piedmont, Haymarket
2015
168

33

135

14

16

$370 - $428
Loudoun County:
English Manor Villas
2014
58

37

21

13

12

$495 - $545
Glenmere at Brambleton SFD
2014
100

83

17

16

20

$650 - $733
Glenmere at Brambleton Townhomes
2014
107

92

15

10

20

$470 - $474
Vistas at Lansdowne, Lansdowne
2015
120

27

93

9

9

$569 - $670
Westbrook, Fairfax
2018
24

—

24

—

—

TBD
Willowsford Grant II, Aldie
2016
14

—

14

2

—

$1,200 - $1,326
Willowsford Greens, Aldie
2014
38

30

8

1

6

$760 - $840
Virginia Total
676

336

340

67

87

Winchester Total
2,931

1,045

1,886

189

256

Combined Company Total
34,853

9,517

25,228

1,711

2,784

__________
(1)
Year of first delivery for future periods is based upon management’s estimates and is subject to change.
(2)
The number of homes to be built at completion is subject to change, and there can be no assurance that we will build these homes.
(3)
Owned lots as of September 30, 2016 include owned lots in backlog as of September 30, 2016 .
(4)
Backlog consists of homes under sales contracts that had not yet been delivered, and there can be no assurance that delivery of sold homes will occur.
(5)
Of the total homes subject to pending sales contracts that have not been delivered as of September 30, 2016 , 1,130 homes are under construction, 282 homes have completed construction, and 299 homes have not started construction.
(6)
Sales price range reflects base price only and excludes any lot premium, buyer incentives and buyer-selected options, which may vary from project to project. Sales prices for homes required to be sold pursuant to affordable housing requirements are excluded from sales price range. Sales prices reflect current pricing and might not be indicative of past or future pricing.

- 57 -


Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements contained elsewhere in this report, which have been prepared in accordance with GAAP. Our notes to the unaudited condensed consolidated financial statement contained elsewhere in this report and the audited financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015 describe the significant accounting policies essential to our unaudited condensed consolidated financial statements. The preparation of our financial statements requires our management to make estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions that we have used are appropriate and correct based on information available at the time they were made. These estimates, judgments and assumptions can affect our reported assets and liabilities as of the date of the financial statements, as well as the reported revenues and expenses during the period presented. If there is a material difference between these estimates, judgments and assumptions and actual facts, our financial statements may be affected.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require our judgment in its application. There are areas in which our judgment in selecting among available alternatives would not produce a materially different result, but there are some areas in which our judgment in selecting among available alternatives would produce a materially different result. See the notes to the unaudited condensed consolidated financial statements that contain additional information regarding our accounting policies and other disclosures.
Recently Issued Accounting Standards
See Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies , to the accompanying condensed notes to consolidated financial statements included in this Quarterly Report on Form 10-Q.

Item 3.
Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks related to fluctuations in interest rates on our outstanding debt.  We did not utilize swaps, forward or option contracts on interest rates or commodities, or other types of derivative financial instruments as of or during the three or nine months ended September 30, 2016 . We did not enter into during the nine months ended September 30, 2016 , and currently do not hold, derivatives for trading or speculative purposes.

Item 4.
Controls and Procedures

We have established disclosure controls and procedures to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and accumulated and communicated to management, including the Chief Executive Officer (the “Principal Executive Officer”) and Chief Financial Officer (the “Principal Financial Officer”), as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of senior management, including our Principal Executive Officer and Principal Financial Officer, we evaluated our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2016 .
Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal control over financial reporting to determine whether any change occurred during the three or nine months ended September 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the three or nine months ended September 30, 2016 .

- 58 -


PART II. OTHER INFORMATION

Item 1.
Legal Proceedings
Not applicable.

Item 1A.
Risk Factors
See Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2015 and Part II, Item 1A "Risk Factors" in our Quarterly Reports on Form 10-Q for the three months ended March 31, 2016 and June 30, 2016.  If any of the risks discussed in our Annual Report on Form 10-K or Quarterly Reports on Form 10-Q occur, our business, prospects, liquidity, financial condition and results of operations could be materially and adversely affected, in which case the trading price of our common stock could decline significantly and you could lose all or a part of your investment.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
On January 27, 2016, we announced that our board of directors approved a stock repurchase program, authorizing the repurchase of our common stock with an aggregate value of up to $100 million through January 25, 2017.  Purchases of common stock may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act.  We are not obligated under the program to repurchase any specific number or amount of shares of common stock, and we may modify, suspend or discontinue the program at any time.  Our management will determine the timing and amount of repurchase in its discretion based on a variety of factors, such as the market price of our common stock, corporate requirements, general market economic conditions and legal requirements.
During the three months ended September 30, 2016 , we repurchased the following shares under our repurchase program:
Total number of shares purchased
Average price paid per share
Total number of shares purchased as part of publicly announced program
Approximate dollar value of shares that may yet be purchased under the program (1)
July 1, 2016 to July 31, 2016
254,700

$
11.71

254,700

$
82,320,008

August 1, 2016 to August 31, 2016
—

$
—

—

$
82,320,008

September 1, 2016 to September 30, 2016
597,800

$
12.43

597,800

$
74,886,579

Total
852,500

$
12.22

852,500

__________
(1) During the three and nine months ended September 30, 2016, there was an aggregate of 852,500 and 2,105,521 shares of common stock repurchased for $10.4 million and $25.1 million , respectively. No shares of common stock were repurchased during the year ended December 31, 2015.


- 59 -



Item 6.
Exhibits
Exhibit
Number
Exhibit Description
2.1
Agreement and Plan of Merger to Form Holding Company, dated as of July 7, 2015, by and among TRI Pointe Homes, Inc., TRI Pointe Group, Inc. and TPG Merger, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K (filed July 7, 2015))
3.1
Amended and Restated Certificate of Incorporation of TRI Pointe Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K (filed July 7, 2015))
3.2
Amended and Restated Bylaws of TRI Pointe Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (filed October 27, 2016))
4.1
Specimen Common Stock Certificate of TRI Pointe Group, Inc. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (filed Dec. July 7, 2015))
4.2
Investor Rights Agreement, dated as of January 30, 2013, by and among TRI Pointe Homes, Inc., VIII/TPC Holdings, L.L.C., BMG Homes, Inc., The Bauer Revocable Trust U/D/T Dated December 31, 2003, Grubbs Family Trust Dated June 22, 2012, The Mitchell Family Trust U/D/T Dated February 8, 2000, Douglas J. Bauer, Thomas J. Mitchell and Michael D. Grubbs. (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-4 (filed Jan. 9, 2014))
4.3
First Amendment to Investor Rights Agreement, dated as of November 3, 2013, by and among TRI Pointe Homes, Inc., VIII/TPC Holdings, L.L.C., BMG Homes, Inc., The Bauer Revocable Trust U/D/T Dated December 31, 2003, Grubbs Family Trust Dated June 22, 2012, The Mitchell Family Trust U/D/T Dated February 8, 2000, Douglas F. Bauer, Thomas J. Mitchell and Michael D. Grubbs (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K (filed Nov. 4, 2013))
4.4
Second Amendment to Investor Rights Agreement, dated as of July 7, 2015, among TRI Pointe Group, Inc., TRI Pointe Homes, Inc., VIII/TPC Holdings, L.L.C., BMG Homes, Inc., The Bauer Revocable Trust U/D/T Dated December 31, 2003, Grubbs Family Trust Dated June 22, 2012, The Mitchell Family Trust U/D/T Dated February 8, 2000, Douglas F. Bauer, Thomas J. Mitchell and Michael D. Grubbs (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8‑K (filed July 7, 2015))
4.5
Registration Rights Agreement, dated as of January 30, 2013, among TRI Pointe Homes, Inc., VIII/TPC Holdings, L.L.C., and certain TRI Pointe Homes, Inc. stockholders (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-4 (filed Jan. 9, 2014))
4.6
First Amendment to Registration Rights Agreement, dated as of July 7, 2015, among TRI Pointe Group, Inc., TRI Pointe Homes, Inc., VIII/TPC Holdings, L.L.C. and certain TRI Pointe Homes, Inc. stockholders (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8‑K (filed July 7, 2015))
4.7
Indenture, dated as of June 13, 2014, by and among Weyerhaeuser Real Estate Company and U.S. Bank National Association, as trustee (including form of 4.375% Senior Notes due 2019) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (filed June 19, 2014))
4.8
First Supplemental Indenture, dated as of July 7, 2014, among TRI Pointe Homes, Inc., Weyerhaeuser Real Estate Company and U.S. Bank National Association, as trustee, relating to the 4.375% Senior Notes due 2019 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (filed July 7, 2014))
4.9
Second Supplemental Indenture, dated as of July 7, 2014, among the guarantors party thereto and U.S. Bank National Association, as trustee, relating to the 4.375% Senior Notes due 2019 (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K (filed July 7, 2014))
4.10
Third Supplemental Indenture, dated as of July 7, 2015, among TRI Pointe Group, Inc., TRI Pointe Homes, Inc. and U.S. Bank National Association, as trustee, relating to the 4.375% Senior Notes due 2019 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8‑K (filed July 7, 2015))
4.11
Indenture, dated as of June 13, 2014, by and among Weyerhaeuser Real Estate Company and U.S. Bank National Association, as trustee (including form of 5.875% Senior Notes due 2024) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (filed June 19, 2014))
4.12
First Supplemental Indenture, dated as of July 7, 2014, among TRI Pointe Homes, Inc., Weyerhaeuser Real Estate Company and U.S. Bank National Association, as trustee, relating to the 5.875% Senior Notes due 2024 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (filed July 7, 2014))
4.13
Second Supplemental Indenture, dated as of July 7, 2014, among the guarantors party thereto and U.S. Bank National Association, as trustee, relating to the 5.875% Senior Notes due 2024 (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K (filed July 7, 2014))

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4.14
Third Supplemental Indenture, dated as of July 7, 2015, among TRI Pointe Group, Inc., TRI Pointe Homes, Inc. and U.S. Bank National Association, as trustee, relating to the 5.875% Senior Notes due 2024 (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8‑K (filed July 7, 2015))
4.15
Indenture, dated as of May 23, 2016, by and between TRI Pointe Group, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3ASR (filed May 23, 2016))
4.16
First Supplemental Indenture, dated as of May 26, 2016, among TRI Pointe Group, Inc., the guarantors party thereto and U.S. Bank National Association, as trustee, relating to the 4.875% Senior Notes due 2021 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (filed May 26, 2016))
31.1
Chief Executive Officer Section 302 Certification of the Sarbanes-Oxley Act of 2002
31.2
Chief Financial Officer Section 302 Certification of the Sarbanes-Oxley Act of 2002
32.1
Chief Executive Officer Section 906 Certification of the Sarbanes-Oxley Act of 2002
32.2
Chief Financial Officer Section 906 Certification of the Sarbanes-Oxley Act of 2002
101
The following materials from TRI Pointe Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Cash Flows, and (v) Condensed Notes to Consolidated Financial Statement.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TRI Pointe Group, Inc.
By:
/s/ Douglas F. Bauer
Douglas F. Bauer
Chief Executive Officer
By:
/s/ Michael D. Grubbs
Michael D. Grubbs
Date: October 27, 2016
Chief Financial Officer

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