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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, 2021
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: 001-35873  
TAYLOR MORRISON HOME CORPORATION
(Exact name of registrant as specified in its Charter)
Delaware 83-2026677
(State or other jurisdiction of
incorporation or organization)		 (I.R.S. Employer
Identification No.)
4900 N. Scottsdale Road, Suite 2000 85251
Scottsdale, Arizona
(Address of principal executive offices) (Zip Code)
(480) 840-8100
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)  

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.00001 par valueTMHCNew York Stock Exchange
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  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).     Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒  Accelerated filer ☐
Non-accelerated filer  ¨  Smaller reporting company ☐
Emerging growth company ☐   


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class  
Outstanding as of October 27, 2021
Common stock, $0.00001 par value  122,890,811

TAYLOR MORRISON HOME CORPORATION
TABLE OF CONTENTS
 Page
1
PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)

September 30,
2021		December 31,
2020
Assets
Cash and cash equivalents$373,407 $532,843 
Restricted cash1,578 1,266 
Total cash, cash equivalents, and restricted cash374,985 534,109 
Owned inventory5,845,767 5,209,653 
Consolidated real estate not owned 58,429 122,773 
Total real estate inventory5,904,196 5,332,426 
Land deposits163,730 125,625 
Mortgage loans held for sale286,006 201,177 
Derivative assets3,638 5,294 
Lease right of use assets71,261 73,222 
Prepaid expenses and other assets, net277,768 242,744 
Other receivables, net127,947 96,241 
Investments in unconsolidated entities145,780 127,955 
Deferred tax assets, net238,078 238,078 
Property and equipment, net146,463 97,927 
Goodwill663,197 663,197 
Total assets$8,403,049 $7,737,995 
Liabilities
Accounts payable$210,920 $215,047 
Accrued expenses and other liabilities488,516 430,067 
Lease liabilities81,642 83,240 
Income taxes payable36,395 12,841 
Customer deposits520,547 311,257 
Estimated development liability39,135 40,625 
Senior notes, net2,452,333 2,452,365 
Loans payable and other borrowings406,859 348,741 
Revolving credit facility borrowings126,692 — 
Mortgage warehouse borrowings235,685 127,289 
Liabilities attributable to consolidated real estate not owned 58,429 122,773 
Total liabilities$4,657,153$4,144,245
COMMITMENTS AND CONTINGENCIES (Note 14)
Stockholders’ Equity
Total stockholders’ equity3,745,896 3,593,750 
Total liabilities and stockholders’ equity$8,403,049 $7,737,995 

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
2
TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
 Three Months Ended
September 30,		Nine Months Ended
September 30,
 2021202020212020
Home closings revenue, net$1,772,495 $1,640,584 $4,780,304 $4,376,218 
Land closings revenue42,228 6,756 79,174 40,241 
Financial services revenue38,046 47,451 119,503 115,787 
Amenity and other revenue5,982 4,643 16,862 39,572 
Total revenue1,858,751 1,699,434 4,995,843 4,571,818 
Cost of home closings1,397,319 1,358,196 3,838,602 3,672,923 
Cost of land closings36,439 5,217 68,604 42,636 
Financial services expenses26,202 22,207 76,136 65,650 
Amenity and other expenses6,341 4,125 16,907 38,986 
Total cost of revenue1,466,301 1,389,745 4,000,249 3,820,195 
Gross margin392,450 309,689 995,594 751,623 
Sales, commissions and other marketing costs97,185 102,015 280,697 282,380 
General and administrative expenses70,425 45,152 201,975 146,790 
Equity in income of unconsolidated entities(1,482)(2,957)(9,269)(8,878)
Interest expense/(income), net710 (347)594 (1,244)
Other expense, net47 1,830 1,067 7,424 
Transaction expenses— 4,791 — 109,877 
Loss on extinguishment of debt, net— 10,247 — 10,247 
Income before income taxes225,565 148,958 520,530 205,027 
Income tax provision53,098 33,759 120,865 52,162 
Net income before allocation to non-controlling interests 172,467 115,199 399,665 152,865 
Net income attributable to non-controlling interests(4,333)(422)(9,363)(3,845)
Net income available to Taylor Morrison Home Corporation$168,134 $114,777 $390,302 $149,020 
Earnings per common share
Basic$1.35 $0.88 $3.07 $1.17 
Diluted$1.34 $0.87 $3.02 $1.16 
Weighted average number of shares of common stock:
Basic124,378 129,775 127,217 127,113 
Diluted125,770 131,433 129,043 128,081 

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
3
TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)
 Three Months Ended September 30,Nine Months Ended
September 30,
 2021202020212020
Income before non-controlling interests, net of tax$172,467 $115,199 $399,665 $152,865 
Post-retirement benefits adjustments, net of tax— — — (13)
Comprehensive income172,467 115,199 399,665 152,852 
Comprehensive income attributable to non-controlling interests (4,333)(422)(9,363)(3,845)
Comprehensive income available to Taylor Morrison Home Corporation$168,134 $114,777 $390,302 $149,007 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
4

TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands, except share data, unaudited)
For the three months ended September 30, 2021
 Common StockAdditional
Paid-in
Capital		Treasury StockStockholders' Equity
 SharesAmountAmountSharesAmountRetained
Earnings		Accumulated 
Other
Comprehensive
Loss		Non-controlling
Interest 		Total
Stockholders’
Equity
Balance – June 30, 2021
125,910,318 $1 $2,977,269 32,167,192 $(624,615)$1,247,957 $(1,166)$69,403 $3,668,849 
Net income— — — — 168,134 — 4,333 172,467 
Exercise of stock options276,595 5,778 — — — — — 5,778 
Issuance of restricted stock units, net of shares withheld for tax(1)
8,789 (13)— — — — — (13)
Repurchase of common stock(3,309,196)— 3,309,196 (91,659)— — — (91,659)
Stock compensation expense— 4,793 — — — — — 4,793 
Distributions to non-controlling interests of consolidated joint ventures— — — — — — (14,311)(14,311)
Changes in non-controlling interests of consolidated joint ventures— — — — — — (8)(8)
Balance – September 30, 2021
122,886,506 $1 $2,987,827 35,476,388 $(716,274)$1,416,091 $(1,166)$59,417 $3,745,896 
(1) Dollar amount represents the value of shares withheld for taxes.

For the three months ended September 30, 2020
 Common StockAdditional
Paid-in
Capital		Treasury StockStockholders' Equity
 SharesAmountAmountSharesAmountRetained
Earnings		Accumulated 
Other
Comprehensive
Income		Non-controlling
Interest		Total
Stockholders’
Equity
Balance – June 30, 2020
129,678,751 $1 $2,915,702 25,379,911 $(433,687)$816,593 $871 $125,260 $3,424,740 
Net income— — — — — 114,777 — 422 115,199 
Exercise of stock options137,553 — 2,507 — — — — — 2,507 
Issuance of restricted stock units, net of shares withheld for tax(1)
49,122 — (1,403)— — — — — (1,403)
Issuance of equity in connection with business combinations— — (1,301)— — — — — (1,301)
Stock compensation expense— — 5,272 — — — — — 5,272 
Distributions to non-controlling interests of consolidated joint ventures— — — — — — — (12,628)(12,628)
Changes in non-controlling interests of consolidated joint ventures— — — — — — — 9,749 9,749 
Balance – September 30, 2020
129,865,426 $1 $2,920,777 25,379,911 $(433,687)$931,370 $871 $122,803 $3,542,135 
(1) Dollar amount represents the value of shares withheld for taxes.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5

For the nine months ended September 30, 2021
 Common StockAdditional
Paid-in
Capital		Treasury StockStockholders' Equity
 SharesAmountAmountSharesAmountRetained
Earnings		Accumulated 
Other
Comprehensive
Income		Non-controlling
Interest		Total
Stockholders’
Equity
Balance – December 31, 2020
129,476,914 $1 $2,926,773 25,884,756 $(446,856)$1,025,789 $(1,166)$89,209 $3,593,750 
Net income— — — — — 390,302 — 9,363 399,665 
Exercise of stock options908,221 — 18,212 — — — — — 18,212 
Issuance of restricted stock units, net of shares withheld for tax(1)
388,798 — (4,870)— — — — — (4,870)
Warrant exercises1,704,205 — 32,584 — — — — — 32,584 
Repurchase of common stock(8,565,933)— 8,565,933 (236,831)— — — (236,831)
Common stock surrendered in connection with warrant exercise(1,025,699)— — 1,025,699 (32,587)— — — (32,587)
Stock compensation expense— — 15,128 — — — — — 15,128 
Distributions to non-controlling interests of consolidated joint ventures— — — — — — — (39,155)(39,155)
Balance – September 30, 2021
122,886,506 $1 $2,987,827 35,476,388 $(716,274)$1,416,091 $(1,166)$59,417 $3,745,896 
(1) Dollar amount represents the value of shares withheld for taxes

For the nine months ended September 30, 2020
 Common StockAdditional
Paid-in
Capital		Treasury StockStockholders' Equity
 SharesAmountAmountSharesAmountRetained
Earnings		Accumulated 
Other
Comprehensive
Income		Non-controlling
Interest		Total
Stockholders’
Equity
Balance – December 31, 2019
105,851,285 $1 $2,097,995 19,943,432 $(343,524)$782,350 $884 $8,006 $2,545,712 
Net income— — — — — 149,020 — 3,845 152,865 
Other comprehensive income— — — (13)— (13)
Exercise of stock options440,075 — 7,878 — — — — — 7,878 
Issuance of restricted stock units, net of shares withheld for tax(1)
683,255 — (8,655)— — — — — (8,655)
Issuance of equity in connection with business combinations28,327,290 — 787,877 — — — — — 787,877 
Repurchase of common stock(5,436,479)— — 5,436,479 (90,163)— — — (90,163)
Stock compensation expense— — 22,154 — — — — — 22,154 
Stock compensation expense related to WLH acquisition— — 5,107 — — — — — 5,107 
WLH equity award accelerations due to change in control— — 8,421 — — — — — 8,421 
Distributions to non-controlling interests of consolidated joint ventures— — — — — — — (36,301)(36,301)
Changes in non-controlling interests of consolidated joint ventures— — — — — — — 147,253 147,253 
Balance – September 30, 2020
129,865,426 $1 $2,920,777 25,379,911 $(433,687)$931,370 $871 $122,803 $3,542,135 
(1) Dollar amount represents the value of shares withheld for taxes


See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
6

TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 Nine Months Ended September 30,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income before allocation to non-controlling interests$399,665 $152,865 
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
Equity in income of unconsolidated entities(9,269)(8,878)
Stock compensation expense15,128 27,260 
Loss on extinguishment of debt— 10,247 
Distributions of earnings from unconsolidated entities9,050 9,251 
Depreciation and amortization29,726 26,939 
Operating lease expense12,167 12,918 
Debt issuance costs/(premium) amortization355 (1,970)
Land held for sale write-downs4,590 4,347 
Deferred income taxes— 11,696 
Changes in operating assets and liabilities:
Real estate inventory and land deposits(678,809)439,842 
Mortgages held for sale, prepaid expenses and other assets(216,121)20,129 
Customer deposits209,290 84,475 
Accounts payable, accrued expenses and other liabilities97,129 (31,303)
Income taxes payable23,554 40,211 
Net cash (used in)/provided by operating activities(103,545)798,029 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment(15,698)(25,276)
Payments for business acquisitions, net of cash acquired— (279,048)
Distributions of capital from unconsolidated entities14,237 30,853 
Investments of capital into unconsolidated entities(31,843)(24,011)
Investments in equity securities(10,000)— 
Net cash used in investing activities(43,304)(297,482)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in loans payable and other borrowings103,805 72,848 
Repayments on loans payable and other borrowings(89,635)(110,177)
Borrowings on revolving credit facilities126,692 830,000 
Repayments on revolving credit facilities— (545,000)
Borrowings on mortgage warehouse facilities2,287,791 1,750,669 
Repayments on mortgage warehouse facilities(2,179,395)(1,809,252)
Proceeds from the issuance of senior notes— 500,000 
Repayments on senior notes— (861,775)
Payment of deferred financing costs— (6,202)
Proceeds from stock option exercises18,212 7,877 
Payment of principle portion of finance lease(1,325)(1,325)
Repurchase of common stock, net(236,831)(90,163)
Payment of taxes related to net share settlement of equity awards(5,494)(8,654)
Cash and distributions to non-controlling interests of consolidated joint ventures, net(36,095)(8,905)
Net cash used in financing activities(12,275)(280,059)
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH$(159,124)$220,488 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period534,109 328,572 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — End of period$374,985 $549,060 
SUPPLEMENTAL CASH FLOW INFORMATION:
Income tax payments, net$(96,753)$(2,490)
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Change in loans payable issued to sellers in connection with land purchase contracts$174,297 $136,803 
Change in inventory not owned$(64,344)$(86,390)
Issuance of common stock in connection with business acquisition$— $797,970 
Net non-cash (distributions)/contributions from non-controlling interests$(3,060)$5,784 
Non-cash portion of loss on debt extinguishment$— $1,723 
Common stock surrendered in connection with warrant exercises$32,587 $— 
Common stock issued in connection with warrant exercises$(32,584)$— 
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
7
TAYLOR MORRISON HOME CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Description of the Business — Taylor Morrison Home Corporation “TMHC” through its subsidiaries (together with TMHC referred to herein as “we,” “our,” “the Company” and “us”), owns and operates a residential homebuilding business and is a developer of lifestyle communities. We operate in the states of Arizona, California, Colorado, Florida, Georgia, Nevada, North and South Carolina, Oregon, Texas, and Washington. Our Company serves a wide array of consumer groups from coast to coast, including first time, move-up, luxury, and 55-plus active lifestyle (formerly referred to as active adult). Our homebuilding segments operate under our Taylor Morrison, Darling Homes Collection by Taylor Morrison, and Esplanade brand names. Our business is organized into multiple homebuilding operating components, and a financial services component, all of which are managed as four reportable segments: East, Central, West, and Financial Services. The communities in our homebuilding segments generally offer single and multi-family attached and detached homes. We are the general contractors for all real estate projects and retain subcontractors for home construction and land development. We have an exclusive partnership with Christopher Todd Communities, a Phoenix-based developer of innovative, luxury rental communities to operate a “Build-to-Rent” homebuilding business. Build-to-Rent serves as a land acquirer, developer, and homebuilder, while Christopher Todd Communities provides community design and property management consultation. We also operate Urban Form Development, LLC (“Urban Form”), which primarily develops and constructs multi-use properties consisting of commercial space, retail, and multi-family units. Our Financial Services segment provides financial services to customers through our wholly owned mortgage subsidiary, operating as Taylor Morrison Home Funding, INC (“TMHF”), title services through our wholly owned title services subsidiary, Inspired Title Services, LLC (“Inspired Title”), and homeowner’s insurance policies through our insurance agency, Taylor Morrison Insurance Services, LLC (“TMIS”).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation — The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”). In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for a full fiscal year.
We consolidate certain joint ventures in accordance with Accounting Standards Codification (“ASC”) Topic 810, Consolidation. The income from the percentage of the joint venture not owned by us is presented as “Net income attributable to non-controlling interests” on the Condensed Consolidated Statements of Operations.

Use of Estimates — The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and these accompanying notes. Significant estimates include real estate development costs to complete, valuation of real estate, valuation of acquired assets, valuation of goodwill, valuation of development liabilities, valuation of equity awards, valuation allowance on deferred tax assets, and reserves for warranty and self-insured risks. Actual results could differ from those estimates.

Goodwill — The excess of the purchase price of a business acquisition over the net fair value of assets acquired and liabilities assumed is capitalized as goodwill in accordance with ASC Topic 350, Intangibles — Goodwill and Other. ASC 350 requires that goodwill and intangible assets that do not have finite lives not be amortized, but rather assessed for impairment at least annually or more frequently if certain impairment indicators are present. We perform our annual impairment test during the fourth quarter or whenever impairment indicators are present. We did not perform an impairment test during the third quarter of 2021 as indicators of impairment were not present as of September 30, 2021.

Real Estate Inventory — Inventory consists of raw land, land under development, homes under construction, completed homes, and model homes, all of which are stated at cost. In addition to direct carrying costs, we also capitalize interest, real estate taxes, and related development costs that benefit the entire community, such as field construction supervision and related direct overhead. Home vertical construction costs are accumulated and charged to cost of sales at the time of home closing using the specific identification method. Land acquisition, development, interest, and real estate taxes are allocated to homes and units generally using the relative sales value method. Generally, all overhead costs relating to our materials procurement
8
process, vertical construction of a home, and construction utilities are considered overhead costs and allocated on a per unit basis. These costs are capitalized to inventory from the point development begins to the point construction is completed. Changes in estimated costs to be incurred in a community are generally allocated to the remaining lots on a prospective basis. For those communities that have been temporarily closed or development has been discontinued, we do not allocate interest or other costs to the community’s inventory until activity resumes. Such costs are expensed as incurred.

We capitalize qualifying interest costs to inventory during the development and construction periods. Capitalized interest is charged to cost of sales when the related inventory is charged to cost of sales.

We assess the recoverability of our inventory in accordance with the provisions of ASC Topic 360, Property, Plant, and Equipment. We review our real estate inventory for indicators of impairment on a community-level basis during each reporting period. If indicators of impairment are present for a community, we first perform an undiscounted cash flow analysis to determine if the carrying value of the assets in that community exceeds the expected undiscounted cash flows. Generally, if the carrying value of the assets exceeds their estimated undiscounted cash flows, then the assets are deemed to be impaired and are recorded at fair value as of the assessment date. Our determination of fair value is primarily based on a discounted cash flow model which includes projections and estimates relating to sales prices, construction costs, sales pace, and other factors. Changes in these expectations may lead to a change in the outcome of our impairment analysis, and actual results may also differ from our assumptions. For the three and nine months ended September 30, 2021 and 2020, no impairment charges were recorded.

In certain cases, we may elect to cease development and/or marketing of an existing community if we believe the economic performance of the community would be maximized by deferring development for a period of time to allow for market conditions to improve. We refer to such communities as long-term strategic assets. The decision may be based on financial and/or operational metrics as determined by us. If we decide to cease development, we will evaluate the project for impairment and then cease future development and marketing activity until such a time when we believe that market conditions have improved and economic performance can be maximized. Our assessment of the carrying value of our long-term strategic assets typically includes subjective estimates of future performance, including the timing of when development will recommence, the type of product to be offered, and the margin to be realized. In the future, some of these inactive communities may be re-opened while others may be sold. As of September 30, 2021 we had no inactive projects and December 31, 2020, we had one inactive project in our East region with a carrying value of $13.5 million.

We have land purchase agreements with various land sellers. As a method of acquiring land in staged takedowns, while limiting risk and minimizing the use of funds from our available cash or other financing sources, we may transfer our right under certain specific performance purchase agreements to entities owned by third parties (“land banking arrangements”). These entities use equity contributions from their owners and/or incur debt to finance the acquisition and development of the land. The entities grant us an option to acquire lots in staged takedowns. In consideration for this option, we make a non-refundable deposit typically equal to 15% to 25% of the total purchase price. We are not legally obligated to purchase the balance of the lots but would forfeit any existing deposits and could be subject to financial and other penalties if the lots were not purchased. We do not have an ownership interest in these entities or title to their assets and do not guarantee their liabilities. These land banking arrangements help us manage the financial and market risk associated with land holdings.

Investments in Consolidated and Unconsolidated Entities

Consolidated Entities — In the ordinary course of business, we enter into land purchase contracts, lot option contracts and land banking arrangements in order to procure land or lots for the construction of homes. Such contracts enable us to control significant lot positions with a minimal initial capital investment and substantially reduce the risks associated with land ownership and development. In accordance with ASC Topic 810, Consolidation, we have concluded that when we enter into these agreements to acquire land or lots and pay a non-refundable deposit, a Variable Interest Entity (“VIE”) may be created because we are deemed to have provided subordinated financial support that will absorb some or all of an entity’s expected losses if they occur. If we are the primary beneficiary of the VIE, we will consolidate the VIE in our Condensed Consolidated Financial Statements and reflect such assets and liabilities as Consolidated real estate not owned within our real estate inventory balance and Liabilities attributable to consolidated real estate not owned, respectively, in the Consolidated Balance Sheets.

Unconsolidated Joint Ventures — We use the equity method of accounting for entities over which we exercise significant influence but do not have a controlling interest over the operating and financial policies of the investee. For unconsolidated entities in which we function as the managing member, we have evaluated the rights held by our joint venture partners and determined that they have substantive participating rights that preclude the presumption of control. Our share of net earnings or losses is included in Equity in income of unconsolidated entities when earned and distributions are credited against our investment in the joint venture when distributions are received. Our share of the joint venture profit relating to lots we purchase
9
from the joint ventures is deferred until homes are delivered by us and title passes to a third party. These joint ventures are recorded in Investments in unconsolidated entities on the Consolidated Balance Sheets.

We evaluate our investments in unconsolidated entities for indicators of impairment at least semi-annually, or whenever indicators of impairment are present. A series of operating losses of an investee or other factors may indicate that a decrease in value of our investment in the unconsolidated entity has occurred which is other-than-temporary. The amount of impairment recognized is the excess of the carrying amount of our investment over its estimated fair value. Additionally, we consider various qualitative factors to determine if a decrease in the value of the investment is other-than-temporary. These factors include age of the venture, stage in its life cycle, intent and ability for us to recover our investment in the entity, financial condition and long-term prospects of the entity, short-term liquidity needs of the unconsolidated entity, trends in the general economic environment of the land, entitlement status of the land held by the unconsolidated entity, overall projected returns on investment, defaults under contracts with third parties (including bank debt), recoverability of the investment through future cash flows and relationships among the partners. If we believe that the decline in the fair value of the investment is temporary, then no impairment is recorded. We did not record any impairment charges for the three and nine months ended September 30, 2021 and 2020.

Revenue Recognition — We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”). The standard's core principle requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services.

Home and land closings revenue
Under Topic 606, the following steps are applied to determine the proper home closings revenue and land closings revenue recognition: (1) we identify the contract(s) with our customer; (2) we identify the performance obligations in the contract; (3) we determine the transaction price; (4) we allocate the transaction price to the performance obligations in the contract; and (5) we recognize revenue when (or as) we satisfy the performance obligation. For our home sales transactions, we have one contract, with one performance obligation, with each customer to build and deliver the home purchased (or develop and deliver land). Based on the application of the five steps, the following summarizes the timing and manner of home and land sales revenue:
•Revenue from closings of residential real estate is recognized when closings have occurred, the buyer has made the required minimum down payment, obtained necessary financing, the risks and rewards of ownership are transferred to the buyer, and we have no continuing involvement with the property, which is generally upon the close of escrow. Revenue is reported net of any discounts and incentives.       
•Revenue from land sales is recognized when a significant down payment is received, title passes and collectability of the receivable, if any, is reasonably assured, and we have no continuing involvement with the property, which is generally upon the close of escrow.

Amenity and other revenue
We own and operate certain amenities such as golf courses, club houses, and fitness centers, which require us to provide club members with access to the facilities in exchange for the payment of club dues. We collect club dues and other fees from the club members, which are invoiced on a monthly basis. Revenue from our golf club operations is also included in amenity and other revenue. Amenity and other revenue also includes revenue from the sale of assets which include multi-use properties as part of our Urban Form operations.

Financial services revenue
Mortgage operations and hedging activity related to financial services are not within the scope of Topic 606. Loan origination fees (including title fees, points, and closing costs) are recognized at the time the related real estate transactions are completed, which is usually upon the close of escrow. All of the loans TMHF originates are sold to third party investors within a short period of time, on a non-recourse basis. Gains and losses from the sale of mortgages are recognized in accordance with ASC Topic 860-20, Sales of Financial Assets. TMHF does not have continuing involvement with the transferred assets; therefore, we derecognize the mortgage loans at time of sale, based on the difference between the selling price and carrying value of the related loans upon sale, recording a gain/loss on sale in the period of sale. Also included in Financial services revenue/expenses are realized and unrealized gains and losses from hedging instruments.

Recently Issued Accounting Pronouncements — In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides optional expedients for applying U.S. GAAP to contracts affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The guidance was effective beginning March
10
12, 2020 and entities may elect to apply the amendments prospectively through December 31, 2022. We are currently evaluating the effect of adopting the new guidance on our consolidated financial statements and related disclosures.


3. BUSINESS COMBINATIONS

In accordance with ASC Topic 805, Business Combinations, all assets acquired and liabilities assumed from our acquisition of William Lyon Homes (“WLH”) on February 6, 2020 were measured and recognized at fair value as of the date of the acquisition to reflect the purchase price paid. Upon finalization, total purchase consideration of the WLH acquisition was $1.1 billion, consisting of multiple components: (i) cash of $157.8 million, (ii) the issuance of approximately 28.3 million shares of TMHC Common Stock with a value of $773.9 million, (iii) the repayment of $160.8 million of borrowings under WLH's Revolving Credit Facility, and (iv) the conversion of WLH issued equity instruments consisting of restricted stock units, restricted stock awards, options and warrants to TMHC awards and warrants with a value of $24.1 million.

We determined the estimated fair value of real estate inventory on a community-level basis, using a reasonable range of market comparable gross margins based on the inventory geography and product type. These estimates are significantly impacted by assumptions related to expected average home selling prices and sales incentives, expected sales paces and cancellation rates, expected land development and construction timelines, and anticipated land development, construction, and overhead costs. Such estimates were made for each individual community and varied significantly between communities. We believe our estimates and assumptions are reasonable.

The following is a summary of the final fair value of assets acquired and liabilities assumed.
(Dollars in thousands)
Acquisition DateFebruary 6, 2020
Assets acquired
Real estate inventory$2,069,323 
Prepaid expenses and other assets(1)
265,729 
Deferred tax assets, net148,193 
Goodwill(2)
513,768 
Total assets$2,997,013 
Less liabilities assumed
Accrued expenses and other liabilities$457,365 
Total debt1,306,578 
Non-controlling interest116,157 
Net assets acquired$1,116,913 
(1) Includes cash acquired.
(2) Goodwill is not deductible for tax purposes. We allocated $465.6 million and $48.2 million of goodwill to the West and Central homebuilding segments, respectively.

Unaudited Pro Forma Results of Business Combinations

The following unaudited pro forma information for the period presented includes the results of operations of our acquisition of WLH as if it had been completed on January 1, 2019. The pro forma results are presented for informational purposes only and do not purport to be indicative of the results of operations or future results that would have been achieved if the acquisition had taken place one year prior to the acquisition year. The pro forma information combines the historical results of the Company with the historical results of WLH for the periods presented.

The unaudited pro forma results do not give effect to any synergies, operating efficiencies, or other costs savings that may result from the acquisition, or other significant non-reoccurring expenses or transactions that do not have a continuing impact. Earnings per share utilizes pro forma net income available to TMHC and total weighted average shares of common stock. The pro forma amounts are based on available information and certain assumptions that we believe are reasonable.
11
For the three months ended September 30,
For the nine months ended
September 30,
(Dollars in thousands except per share data)
2020
(Pro forma)
2020
(Pro for