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Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2013
Basis of Presentation and Consolidation

Basis of Presentation—The accompanying balance sheet has been prepared in accordance with accounting principles generally accepted in the United States. Separate statements of income, comprehensive income and changes in stockholders equity have not been presented because there have been no significant operating activities or equity transactions of this entity other than a $1,856 ancillary payment. A separate statement of cash flows has not been presented, as the only transactions impacting such statement are fully described below.

TMM Holdings Limited Partnership [Member]
 
Basis of Presentation and Consolidation

Basis of Presentation and Consolidation — The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted 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. These financial statements should be read in conjunction with the consolidated and combined financial statements in our Registration Statement filing on Form S-1 (File No. 333-185269), as amended, made effective on April 10, 2013. The consolidated financial statements include the accounts of TMM Holdings, Taylor Morrison, Monarch and those of our consolidated subsidiaries, partnerships and other entities in which we have a controlling financial interest, and of variable interest entities in which we are deemed the primary beneficiary (collectively, “us”, “we”, “our” and “the Company”). Intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the accompanying financial statements include all adjustments (consisting only of normal recurring entries), 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 the full year.

Unless otherwise stated, amounts are shown in U.S. dollars. Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date, and revenues and expenses are translated at average rates of exchange prevailing during the period. Translation adjustments resulting from this process are recorded to net owners’ equity in the accompanying consolidated balance sheets and statements of equity.

Darling Acquisition

Darling Acquisition

On December 31, 2012, the Company acquired certain assets and liabilities of Darling Interests, Inc. (“Darling”), a Texas based homebuilder. Darling builds homes under the Darling Homes brand for move-up buyers in the Dallas-Fort Worth Metroplex and Houston markets. The acquisition, which consists primarily of real estate inventory, enables the Company to strengthen its presence in these two Texas markets. The assets and liabilities were acquired in exchange for cash consideration of $114.8. million as well as a contingent payment of $50.0 million, plus 5% of any cumulative EBIT (earnings before interest and taxes) above $229.5 million over the four year period following December 31, 2012. A portion of the initial purchase price was financed by $50.0 million of borrowings under the Company’s Credit Facility and approximately $27.6 million was financed by the sellers. The purchase price to be allocated to the assets and liabilities acquired is as follows (in thousands):

 

     Amount  

Initial consideration

   $ 114,845   

Contingent consideration

     8,300   

Seller Financing

     27,605   

Liabilities assumed

     19,021   
  

 

 

 
   $ 169,771   
  

 

 

 

 

In connection with the purchase price allocation for the acquisition, the Company recorded (in thousands):

 

     Preliminary
Amount  (a)
    Final
Amount (b)
    Change  

Real estate inventory

   $ 111,814      $ 112,289      $ 475   

Land deposits

     12,500        12,500        —    

Joint Venture interests before consolidation

     18,999        10,200        (8,799

Other assets

     1,971        3,264        1,293   

Intangibles with finite lives

     9,121        16,924        7,803   

Goodwill

     15,526        14,594        (932

Contingent consideration

     (8,300     (8,300     —    

Seller Financing

     (27,605     (27,605     —    

Liabilities assumed

     (19,021     (19,021     —    
  

 

 

   

 

 

   

 

 

 

Net assets required

   $ 115,005      $ 114,845      $ (160 )
  

 

 

   

 

 

   

 

 

 

 

(a) Preliminary amount recorded on acquisition closing date December 31, 2012.
(b) Final amount recorded as of January 1, 2013.

There is no Statement of Operations impact due to the finalization of the purchase price allocation as the preliminary purchase price allocation was recorded on the December 31, 2012 closing date; consequently no depreciation or amortization related to the purchase price allocation was recorded in 2012.

The $16.9 million of intangible assets with finite useful lives consist of $1.1 million of trade name, $13.0 million of lot option contracts and supplier relationships, $2.6 million of non-compete covenants and $0.2 million of favorable leases.

The Company valued the $50.0 million of contingent purchase price using probability weightings of the anticipated liability under four different scenarios: (1) business enterprise forecast of liability; (2) the contribution margin and earnings before income and tax estimates from a valuation income forecast; (3) alternative estimates of contribution margin and earnings before interest and taxes and (4) as if the full buy out obligation was paid to Darling. The mid point of the range of the results of these probability weighted valuations was discounted, resulting in a $8.3 million liability that is included within Loans payable and other borrowings at December 31, 2012 and March 31, 2013.

In the course of finalizing the purchase price allocation, the Company consolidated one joint venture resulting from the Darling acquisition. The final purchase price allocation yielded an $18.9 million adjustment to the non controlling interests to account for joint venture partner debts.

Additionally, the Company incurred $1.8 million of transaction costs which were recorded as Other expense in 2012. Darling’s Dallas and Houston operations will be integrated into the Company’s East Region for segment reporting purposes.

Use of Estimates

Use of Estimates — The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates include the purchase price allocations, valuation of certain real estate, valuations of the M and J Units, deferred tax assets valuation allowance and reserves for warranty and self-insured risks. Actual results could differ from those estimates.

Loans Receivable

Loans Receivable — Loans receivable consist of amounts due from land buyers and certain of our joint ventures, are generally secured by underlying land, bear interest at average interest rates of 3.4% and 5.5% as of March 31, 2013 and December 31, 2012, respectively, and mature at various dates through 2013. The Company imputes interest based on relevant market data for loans with no stated interest rate.

Other Receivables

Other Receivables — Other receivables primarily consist of amounts due from buyers of condominiums, as well as other amounts expected to be recovered from various community development districts and utility deposits. Allowances of $1.1 million at March 31, 2013 and $1.1 million at December 31, 2012 are maintained for potential credit losses based on historical experience, present economic conditions, and other factors considered relevant by management for these receivables.

Real Estate Inventory

Real Estate Inventory — Inventory consists of land, land under development, homes under construction, completed homes, and model homes. Inventory is carried at cost, net of impairment charges. 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 construction costs are accumulated and charged to cost of sales at home closing using the specific identification method. Land acquisition, development, interest, taxes, overhead, and condominium construction costs are allocated to homes and units using methods that approximate the relative sales value method. These costs are capitalized to inventory from the point development begins to the point construction is completed. For those communities that have been temporarily closed or where development has been discontinued, we do not allocate interest or other costs to the community’s inventory until activity begins again. Changes in estimated costs to be incurred in a community are generally allocated to the remaining homes on a prospective basis.

 

In accordance with the provisions of ASC Topic 360, Property, Plant, and Equipment, “ASC 360” we review our real estate inventory for indicators of impairment by evaluating each community during each reporting period. In conducting our review for indicators of impairment on a community level, we evaluate, among other things, the margins on homes that have been delivered, margins on homes under sales contracts in backlog, projected margins with regard to future home sales over the life of the community, projected margins with regard to future land sales and the estimated fair value of the land itself. The Company pays particular attention to communities in which inventory is moving at a slower than anticipated absorption pace and communities whose average sales price and/or margins are trending downward and are anticipated to continue to trend downward. From this review, the Company identifies communities with indicators of impairment and then performs additional analysis to determine if the carrying value exceeds the communities’ undiscounted cash flows. ASC 360 requires that companies evaluate long-lived assets that are expected to be held and used in operations, including inventories, for recoverability based on undiscounted future cash flows of the assets at the lowest level for which there are identifiable cash flows. 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. The Company estimates the fair value of its communities using a discounted cash flow model. The projected cash flows for each community are significantly impacted by estimates related to market supply and demand, product type by community, homesite sizes, sales pace, sales prices, sales incentives, construction costs, sales and marketing expenses, the local economy, competitive conditions, labor costs, costs of materials and other factors for that particular community. Every division evaluates the historical performance of each of its communities, as well as current trends in the market and economy impacting the community and its surrounding areas. These trends are analyzed for each of the estimates listed above.

The Company’s projected cash flows are impacted by many assumptions. Some of the most critical assumptions in the Company’s cash flow model are the projected absorption pace for home sales, sales prices and costs to build and deliver homes on a community by community basis.

In order to arrive at the assumed absorption pace for home sales included in the Company’s cash flow model, the Company analyzes its historical absorption pace in the community as well as other comparable communities in the geographical area. In addition, the Company considers internal and external market studies and trends, which generally include, but are not limited to, statistics on population demographics, unemployment rates and availability of competing product in the geographic area where the community is located. When analyzing the Company’s historical absorption pace for home sales and corresponding internal and external market studies, the Company places greater emphasis on more current metrics and trends such as the absorption pace realized in its most recent quarters as well as forecasted population demographics, unemployment rates and availability of competing product.

In order to determine the assumed sales prices included in its cash flow models, the Company analyzes the historical sales prices realized on homes it delivered in the community and other comparable communities in the geographical area as well as the sales prices included in its current backlog for such communities. In addition, the Company considers internal and external market studies and trends, which generally include, but are not limited to, statistics on sales prices in neighboring communities and sales prices on similar products in non-neighboring communities in the geographic area where the community is located. When analyzing its historical sales prices and corresponding market studies, the Company places greater emphasis on more current metrics and trends such as future forecasted sales prices in neighboring communities as well as future forecasted sales prices for similar products in non-neighboring communities.

In order to arrive at the Company’s assumed costs to build and deliver homes, the Company generally assumes a cost structure reflecting contracts currently in place with its vendors adjusted for any anticipated cost reduction initiatives or increases in cost structure. Costs assumed in the cash flow model for the Company’s communities are generally based on the rates the Company is currently obligated to pay under existing contracts with its vendors adjusted for any anticipated cost reduction initiatives or increases in cost structure.

Since the estimates and assumptions included in the Company’s cash flow models are based upon historical results and projected trends, they do not anticipate unexpected changes in market conditions or strategies that may lead the Company to incur additional impairment charges in the future. Using all available information, the Company calculates its best estimate of projected cash flows for each community. While many of the estimates are calculated based on historical and projected trends, all estimates are subjective and change from market to market and community to community as market and economic conditions change. The determination of fair value also requires discounting the estimated cash flows at a rate the Company believes a market participant would determine to be commensurate with the inherent risks associated with the assets and related estimated cash flow streams. The discount rate used in determining each asset’s fair value depends on the community’s projected life and development stage. Inventory impairment charges are recognized against all inventory costs of a community, such as land, land improvements, cost of home construction and capitalized interest. For the three months ended March 31, 2013, and March 31, 2012, no impairment charges were identified and recorded. In certain cases, the Company may elect to stop development and/or marketing of an existing community if it believes the economic performance of the community would be maximized by deferring development for a period of time to allow market conditions to improve. The decision may be based on financial and/or operational metrics. If the Company decides to stop developing a project, it will impair such project if necessary to its fair value as discussed above and then cease future development and/or marketing activity until such a time when management believes that market conditions have improved and economic performance can be maximized. We review all communities quarterly for potential impairments.

 

When the Company elects to stop development of a community, it is management’s belief that the community is affected by local market conditions that are expected to improve within the next 3 to 5 years. Therefore, a temporary postponement of construction and development is expected to yield better returns. For these communities, as well as real estate held for development or sale, management’s assessment of the carrying value of these 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 March 31, 2013, there were 19 inactive communities with a carrying value of $39.7 million of which $17.0 and $22.7 million is in the East and West Region, respectively. During the three months ended March 31, 2013, the Company placed 1 community into inactive status and moved 2 communities into active status.

The life cycle of a community generally ranges from three to five years, commencing with the acquisition of unentitled or entitled land, continuing through the land development phase, and concluding with the sale, construction, and delivery of homes. Actual community lives will vary based on the size of the community, the sales absorption rate, and whether we purchased the property as raw land or finished lots. As of March 31, 2013 and 2012, we were actively selling in 173, including the acquisition of 44 communities from Darling Homes, and 124 communities, respectively.

Inventory consists of the following (in thousands):

 

     March 31, 2013      December 31, 2012  

Operating communities

   $ 1,403,577       $ 1,296,763   

Real estate held for development or sale

     334,272         336,287   
  

 

 

    

 

 

 

Total

   $ 1,737,849       $ 1,633,050   
  

 

 

    

 

 

 
Capitalized Interest

Capitalized Interest — The Company capitalizes certain interest costs to inventory during the development and construction periods. During the three months ended March 31, 2013 and 2012 we capitalized all interest costs into real estate inventory because the levels of our active real estate inventory exceeded our debt costs. Capitalized interest is charged to cost of sales when the related inventory is delivered. Interest capitalized, incurred, and expensed is as follows (in thousands):

 

     March 31, 2013     March 31, 2012  

Interest capitalized — beginning of period

   $ 59,643      $ 27,491   

Interest capitalized

     17,243        18,150   

Interest amortized to cost of sales

     (8,059     (5,789
  

 

 

   

 

 

 

Interest capitalized — end of period

   $ 68,827      $ 39,852   
  

 

 

   

 

 

 

Interest incurred during the three months ended March 31, 2013 and 2012 was $17.2 million and $18.2 million respectively.

Land Deposits

Land Deposits — Deposits we pay related to land options and land purchase contracts are capitalized when paid and classified as land deposits until the associated property is purchased. Deposits are recorded as a component of inventory at the time the deposit is applied to the acquisition price of the land based on the terms of the underlying agreements. To the extent the deposits are nonrefundable, deposits are charged to expense if the land acquisition process is terminated or no longer determined probable. We review the likelihood of the acquisition of contracted lots in conjunction with our periodic real estate impairment analysis.

The Company is subject to the usual obligations associated with entering into contracts, including option contracts, for the purchase, development, and sale of real estate in the routine conduct of our business. We have a number of land purchase option contracts, generally through cash deposits or letters of credit, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property and the creditors generally have no recourse against us, except in Canada where sellers have full recourse under statutory regulations. Our obligations with respect to the option contracts are generally limited to the forfeiture of the related nonrefundable cash deposits and/or letters of credit. As of March 31, 2013 and December 31, 2012, we had the right to purchase approximately 6,177 and 5,013 lots under land option and land purchase contracts, respectively, which represents purchase commitments of $383.5 million and $268.0 million as of March 31, 2013 and December 31, 2012, respectively. As of March 31, 2013, we had $29.6 million in land deposits and $4.6 million in letters of credit related to land options and land purchase. As of December 31, 2012, we had $28.7 million in land deposits and $0.2 million in letters of credit related to land options and land purchase contracts.

 

For the three months ended March 31, 2013 and 2012 no impairment of option deposits and capitalized pre-acquisition costs for abandoned projects was recorded. We continue to evaluate the terms of open land option and purchase contracts in light of housing market conditions and may impair option deposits and capitalized pre-acquisition costs in the future, particularly in those instances where land sellers or third-party financial entities are unwilling to renegotiate significant contract terms.

Investments in Unconsolidated Entities and Variable Interest Entities (VIEs)

Investments in Unconsolidated Entities and Variable Interest Entities (VIEs) — In the ordinary course of business, we enter into land and lot option purchase contracts in order to procure land or lots for the construction of homes. Lot option contracts enable us to control significant lot positions with a minimal capital investment and substantially reduce the risks associated with land ownership and development. In June 2009, the FASB revised its guidance regarding the determination of a primary beneficiary of a VIE.

Consolidation

In accordance with ASC Topic 810, Consolidation, we have concluded that when we enter into an option or purchase agreement to acquire land or lots and pay a nonrefundable deposit, a 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. For each VIE, we assess whether we are the primary beneficiary by first determining if we have the ability to control the activities of the VIE that most significantly affect its economic performance. Such activities include, but are not limited to, the ability to determine the budget and scope of land development work, if any; the ability to control financing decisions for the VIE; the ability to acquire additional land into the VIE or dispose of land in the VIE not under contract with the Company; and the ability to change or amend the existing option contract with the VIE. If we are not able to control such activities, we are not considered the primary beneficiary of the VIE. If we do have the ability to control such activities, we will continue our analysis by determining if we are expected to absorb a potentially significant amount of the VIE’s losses or, if no party absorbs the majority of such losses, if we will potentially benefit from a significant amount of the VIE’s expected gains. If we are the primary beneficiary of the VIE, we will consolidate the VIE in our consolidated financial statements and reflect such assets and liabilities as consolidated real estate not owned within our inventory balance in the accompanying consolidated balance sheets. We currently have no VIE’s that we consolidate. Our exposure to loss related to our option contracts with third parties and unconsolidated entities consisted of our nonrefundable option deposits totaling $29.6 million and $28.7 million, as of March 31, 2013 and December 31, 2012, respectively. Additionally, we posted $4.6 million and $0.2 million of letters of credit in lieu of cash deposits under certain option contracts as of March 31, 2013 and December 31, 2012, respectively. Creditors of these VIEs, if any, have no recourse against us.

We are also involved in several joint ventures with independent third parties for our homebuilding activities. We use the equity method of accounting for entities that we do not control or where we do not own a majority of the economic interest, but have the ability to exercise significant influence over the operating and financial policies of the investee. For those 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. For joint ventures accounted for using the equity method, our share of net earnings or losses is included in equity in net income of unconsolidated entities when earned and distributions are credited against our investment in the joint venture when received. See Note 3 for financial statement information related to unconsolidated entities.

We evaluate our investments in unconsolidated entities for indicators of impairment during each reporting period. A series of operating losses of an investee or other factors may indicate that a decrease in value of the Company’s investment in the unconsolidated entity has occurred which is other-than-temporary. The amount of impairment recognized is the excess of the investment’s carrying amount over its estimated fair value.

The evaluation of the Company’s investment in unconsolidated entities includes certain critical assumptions made by management: (1) projected future distributions from the unconsolidated entities, (2) discount rates applied to the future distributions and (3) various other factors. The Company’s assumptions on the projected future distributions from the unconsolidated entities are dependent on market conditions. Specifically, distributions are dependent on cash to be generated from the sale of inventory by the unconsolidated entities. Such inventory is also reviewed for potential impairment by the unconsolidated entities. The unconsolidated entities generally use a discount rate of approximately 12-18% in their reviews for impairment, subject to the perceived risks associated with the community’s cash flow streams relative to its inventory. If a valuation adjustment is recorded by an unconsolidated entity related to its assets, the Company’s proportionate share is reflected in the equity in loss from unconsolidated entities with a corresponding decrease to its investment in unconsolidated entities.

Additionally, the Company considers 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 the Company to recover its 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 with the other partners. If the Company believes that the decline in the fair value of the investment is temporary, then no impairment is recorded.

Noncontrolling Interests

Noncontrolling Interests — We consolidate joint ventures when we are the primary beneficiary. Therefore, those entities’ financial statements are consolidated in the Company’s consolidated financial statements and the other partners’ equity is recorded as noncontrolling interests.

Goodwill

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.” ASC 350 requires that goodwill and intangible assets that do not have finite lives not be amortized, but instead be assessed for impairment at least annually or more frequently if certain impairment indicators are present. No goodwill impairment charges were recorded in the three months ended March 31, 2013 and 2012. The Company recorded $15.0 million of goodwill related to the purchase price allocation for the Darling acquisition which closed on December 31, 2012.

Warranty Reserves

Warranty Reserves:

U.S. Operations — We offer warranties on our homes that generally provide for one-year warranties to cover various defects in workmanship or materials or to cover structural construction defects. We may also offer a longer structural warranty in certain markets or to comply with regulatory requirements. Warranty reserves are established as homes close in an amount estimated to be adequate to cover expected costs of materials and outside labor during warranty periods. Our warranty reserves are based on factors that include an actuarial study for structural warranty, historical and anticipated warranty claims, trends related to similar product types, number of home closings, and geographical areas. The structural warranty is carried by Beneva, a wholly owned subsidiary of Taylor Morrison. We also provide third-party warranty coverage on homes where required by Federal Housing Administration or Veterans Administration lenders.

Canadian Operations — We offer a limited warranty that generally provides for seven years of structural coverage; two years of coverage for water penetration, electrical, plumbing, heating, and exterior cladding defects; and one year of coverage for workmanship and materials. We are responsible for performing all of the work during the warranty period. As a result, warranty reserves are established as homes close in an amount estimated to be adequate to cover expected costs of materials and labor during warranty periods. The warranty reserves are determined using historical experience and trends related to similar product types, and number of home closings.

We regularly review the reasonableness and adequacy of our recorded warranty reserves and make adjustments to the balance of the preexisting reserves to reflect changes in trends and historical data as information becomes available. Warranty reserves are included in accrued expenses and other liabilities in the accompanying consolidated and combined balance sheets. A summary of changes in our self-insurance and warranty reserves is as follows (in thousands):

 

     For the Three Months Ended March 31,  
     2013     2012  

Reserve — beginning of period

   $ 39,760      $ 43,158   

Additions to reserves

     5,574        1,502   

Costs and claims incurred

     (4,345     (3,007

Change in estimates to preexisting reserves

     571        348   

Foreign currency adjustment

     (157     (2
  

 

 

   

 

 

 

Reserve — end of period

   $ 41,403      $ 41,999   
  

 

 

   

 

 

 
Revenue Recognition

Revenue Recognition:

Home Sales — Revenues from home sales are recorded using the completed contract method of accounting at the time each home is delivered, title and possession are transferred to the buyer, there is no significant continuing involvement with the home, and the buyer has demonstrated sufficient initial and continuing investment in the property.

Condominium Sales — Revenues from the sale of condominium units is recognized when construction is beyond the preliminary stage, the buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit, sufficient units in the project have been sold to ensure that the property will not be converted to a rental property, the sales proceeds are collectible, and the aggregate sales proceeds and the total cost of the project can be reasonably estimated. For our Canadian high rise condominiums, these conditions are met when a certificate of occupancy has been received, all significant conditions of registration have been performed and the purchaser has the right to occupy the unit.

Land Sales — Revenues from land sales are recognized when title is transferred to the buyer, there is no significant continuing involvement, and the buyer has demonstrated sufficient initial and continuing investment in the property sold. If the buyer has not made an adequate initial or continuing investment in the property, the profit on such sales is deferred until these conditions are met.

 

Financial Services Revenues — Revenues from loan origination are recognized at the time the related real estate transactions are completed, usually upon the close of escrow. All of the loans Taylor Morrison Home Funding, LLC (TMHF) originates are sold within a short period of time, generally 20 days, on a nonrecourse basis as further described in Note 13. After the loans are sold, the Company retains potential liability for possible claims by purchasers that it breached certain limited industry-standard representations and warranties in the loan sale agreement. Gains or losses from the sale of mortgages are recognized based on the difference between the selling price and carrying value of the related loans upon sale.

Deposits — Forfeited buyer deposits related to home, condominium, and land sales are recognized in other income in the accompanying consolidated statements of operations in the period in which we determine that the buyer will not complete the purchase of the property and the deposit is determined to be nonrefundable to the buyer.

Sales Discounts and Incentives — We grant our home buyers sales discounts and incentives from time to time, including cash discounts, discounts on options included in the home, option upgrades, and seller-paid financing or closing costs. Discounts are accounted for as a reduction in the sales price of the home.

Earnings per Unit

Earnings per Unit — Basic earnings per unit is computed by dividing net earnings attributable to Owners by the weighted average number of common units outstanding for the period. Diluted earnings per unit reflects the potential dilution that could occur if securities or other contracts to issue partnership units were exercised or converted into partnership units that then shared in earnings of the Company.

Recently Adopted Accounting Pronouncements

Recently Issued Accounting Pronouncements — In April 2013, the Financial Accounting Standards Board issued ASU 2013-04, Liabilities (“ASU 2013-04”), which provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. ASU 2013-04 is effective for the Company beginning January 1, 2014. The Company does not anticipate the adoption of ASU 2013-04 to have an effect on our consolidated financial statements or disclosures.