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Equity
6 Months Ended
Jun. 30, 2014
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Equity

15. EQUITY

Capital Stock — Holders of Class A Common Stock and Class B Common Stock are entitled to one vote for each share held on all matters submitted to stockholders for their vote or approval. The holders of Class A Common Stock and Class B Common Stock vote together as a single class on all matters submitted to stockholders for their vote or approval, except with respect to the amendment of certain provisions of the amended and restated Certificate of Incorporation that would alter or change the powers, preferences or special rights of the Class B Common Stock so as to affect them adversely. Such amendments must be approved by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment, voting as a separate class, or as otherwise required by applicable law. The voting power of the outstanding Class B Common Stock (expressed as a percentage of the total voting power of all common stock) is equal to the percentage of New TMM Units not held directly or indirectly by TMHC.

Equity-Based Compensation

Class M Units — Certain members of management and certain members of the Board of Directors were issued partnership units in TMM Holdings prior to the IPO. Those units were subject to both time and performance vesting conditions.

Pursuant to the Reorganization Transactions and IPO, the performance based Class M Units were converted to Holding Vehicle Performance Units, as long term incentive compensation immediately prior to the IPO. Concurrent with the IPO in the second quarter of 2013, we determined that it was probable that the performance conditions for the 752,782 Holding Vehicle Performance Units outstanding would be met. Consequently, we recorded the $2.8 million grant date fair value related to those Holding Vehicle Performance Units as general and administrative expenses in the 2013 Consolidated and Combined Statement of Operations.

Pursuant to the Reorganization Transactions and IPO, the time vesting Class M Units were converted to New TMM Units. As of June 30, 2014 and December 31, 2013 there were 512,977 and 478,246, respectively, vested and unexercised time vesting New TMM Units outstanding. One New TMM Unit together with a corresponding share of Class B Common Stock is exchangeable for one share of Class A Common Stock. The corresponding shares of our Class B Common Stock is included in the 89,386,176 shares of Class B common stock outstanding as of June 30, 2014.

 

     Number of
Awards
    Weighted Average
Grant Date Fair
Value
 

As of December 31, 2013

     1,655,469      $ 5.02   

Exchanges(1)

     (37,264     3.95   

Forfeited(2)

     (27,724     6.09   
  

 

 

   

As of June 30, 2014

     1,590,481      $ 5.02   
  

 

 

   

 

(1) Exchanges during the period represent the exchange of a vested New TMM Unit along with the corresponding share of Class B Common Stock for a newly issued share of Class A Common Stock.
(2) Awards forfeited during the period represent the unvested portion of M Unit awards for employees who have terminated employment with the Company and for which the New TMM Unit and the corresponding Class B Share have been cancelled.

As of June 30, 2014, of the 1,590,481 awards outstanding, there were 1,077,504 New TMM Units unvested, which have an aggregate grant date fair value of $5.4 million. Unamortized compensation expense of $4.2 million for those units is expected to be recorded over a weighted average period of 2.7 years. Compensation expense was $0.4 million and $0.3 million for the three months ended June 30, 2014 and 2013, respectively, and $0.8 million for both the six months ended June 30, 2014 and 2013, and is recorded in general and administrative expenses in the accompanying Condensed and Consolidated Statements of Operations.

There are no unissued Class M Unit awards remaining under the Class M Unit Plan and we do not intend to grant any future awards under the Class M Unit Plan.

Stock-Based Compensation — In April 2013, we adopted the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (the “Plan”). The Plan provides for the grant of stock options, restricted stock units, and other awards based on our common stock. As of June 30, 2014 the maximum number of shares of our Class A Common Stock that may be subject to awards under the Plan is 7,956,955, subject to adjustment in accordance with the terms of the Plan. We had an aggregate of 6,496,399 shares of Common Stock available for future grants under the Plan at June 30, 2014.

 

Stock Options — Options under the Plan granted to employees vest and become exercisable ratably on the second, third, fourth and fifth anniversary of the date of grant. Options granted to members of the Board of Directors vest and become exercisable ratably on the first, second and third anniversary of the date of grant. Vesting of the options is subject to continued employment with TMHC or an affiliate through the applicable vesting dates and expires within ten years from the date of grant. The following table summarizes stock option activity for the Plan during the first six months of 2014:

 

     Shares     Weighted
Average Exercise
Price Per Share
     Weighted
Average
Remaining
Contractual
Life (In Years)
     Aggregate
Intrinsic

Value (in
thousands)
(1)
 

Outstanding at December 31, 2013

     1,250,829     $ 22.45         9.3       $ 520   

Granted

     38,630       24.08         

Exercised

     —         —          

Cancelled

     (21,500 )     22.00         
  

 

 

         

Outstanding at June 30, 2014

     1,267,959     $ 22.51         8.8      $ 494   
  

 

 

         

 

(1) The aggregate intrinsic value is based on the market price of our Common Stock on June 30, 2014, the last trading day in June 2014, which was $22.42, less the applicable exercise price of the underlying option. This aggregate intrinsic value represents the amount that would have been realized if all the option holders had exercised their options on June 30, 2014.

There were 3,788 stock options vested and exercisable at June 30, 2014. There were no options vested and exercisable at June 30, 2013.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model considering the weighted average assumptions noted in the following table. Expected volatilities are based on the historical stock price volatility of five comparable publicly traded home builders. Expected term, which represents the period of time that options granted are expected to be outstanding, is estimated using expected term data disclosed by five comparable publicly traded home builders. Due to the limited number and homogeneous nature of option holders, the expected term was evaluated using a single group. The risk-free rate is based on the U.S. Treasury yield curve for periods equivalent to the expected term of the options on the grant date.

The weighted-average assumptions and fair value used for stock option grants in the six month periods ended June 30, 2014 and 2013 were as follows:

 

     2014     2013  

Expected dividend yield

     0.0     0.0

Expected volatility

     48.6     56.6

Risk-free interest rate

     1.13% – 1.23     0.52

Expected term (years)

     4.50        4.28   

Weighted average fair value of options granted during the period

   $ 9.88      $ 11.56   

As of June 30, 2014 approximately $11.2 million of unrecognized stock based compensation related to unvested stock options, net of estimated forfeitures, is expected to be recognized over a weighted average period of 3.8 years.

Restricted Stock Units — Restricted stock units (“RSUs”) consist of shares of our Class A Common Stock that have been awarded to employees and directors. The RSUs contain both service and market performance vesting conditions. The RSUs granted in connection with the IPO shall become vested with respect to 25% of the RSUs on each of the first four anniversaries of the grant date; provided, that, if the performance condition has not been met as of any such annual vesting date, then such portion of the RSUs shall continue to have the opportunity to become vested with respect to the performance condition on such subsequent date on which the performance condition is first satisfied. The performance condition shall be satisfied only if the weighted average price (after reduction for underwriting discount and commissions) at which TPG TMM Holdings II L.P. (the “TPG Holding Vehicle”) and OCM TMM Holdings II L.P. (the “Oaktree Holding Vehicle”) have previously sold their New TMM Units or related shares of Class A Common Stock, exceeds the $22.00 price per share of our Class A Common Stock paid by the public in our IPO. If the performance condition has not been met as of December 31, 2015, all of the RSUs granted subject to the performance condition will be automatically forfeited without consideration. As these awards contained both service and market performance conditions, we have recorded the compensation expense related to these awards over the service period as that condition is longer than the market performance condition.

 

In periods subsequent to the IPO, RSUs granted to employees will become vested with respect to 25% of the RSUs on each of the first four anniversaries of the grant date. RSUs granted to members of the Board of Directors will become fully vested on the first anniversary of the grant date. Vesting of all RSUs is subject to continued employment with TMHC or an affiliate through the applicable vesting dates. The following table summarizes the RSU activity for the period:

 

     Shares     Weighted
Average
Grant
Date

Fair
Value
 

Balance at December 31, 2013

     188,816     $ 24.14  

Granted

     7,922       22.09  

Vested

     —         —    

Forfeited

     (4,141 )     24.30  
  

 

 

   

Balance at June 30, 2014

     192,597     $ 24.05  
  

 

 

   

As of June 30, 2014, approximately $3.2 million of unrecognized stock-based compensation expense related to unvested RSUs, net of estimated forfeitures, is expected to be recognized over a weighted-average period of approximately 2.7 years.

Summary of Stock-Based Compensation Expense

The following table summarizes the components and classification of stock-based compensation expense, which is included in general and administrative expenses in the Condensed and Consolidated Statements of Operations (in thousands):

 

     Three Months Ended
June 30,
     Six Months
Ended
June 30,
 
     2014      2013      2014      2013  

M Units/New TMM Units

   $ 434       $ 3,145       $ 811       $ 3,640  

J Units

     —           80,190         —           80,190   

Stock options

     725         421         1,401         421   

RSUs

     316         179         608         179   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

   $ 1,475       $ 83,935       $ 2,820       $ 84,430   
  

 

 

    

 

 

    

 

 

    

 

 

 

Tax benefits attributable to stock options and restricted stock units represented 38.5% of the related stock-based compensation expense. Stock based compensation expense related to the M Units is not deductible for tax purposes.