Taylor Morrison Home CorpTMHC
Taylor Morrison Home Corp Stock Compensation Disclosure
STOCK BASED COMPENSATION
Equity-Based Compensation
In April 2013, we adopted the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (the "Plan"). The Plan was most recently amended and restated in May 2017. The Plan provides for the grant of stock options, restricted stock units ("RSUs"), and other equity-based awards deliverable in shares of our Common Stock. As of December 31, 2019 we had an aggregate of 6,971,796 shares of Common Stock available for future grants under the Plan.
The following table provides information regarding the amount and components of stock-based compensation expense, which is included in general and administrative expenses in the accompanying Consolidated Statements of Operations (in thousands):
(Dollars in thousands) | Year Ended December 31, | ||||||||||
2019 | 2018 | 2017 | |||||||||
Restricted stock units (RSUs) (1) (2) | $ | 10,989 | $ | 17,130 | $ | 6,487 | |||||
Stock options | 3,774 | 3,994 | 4,504 | ||||||||
New TMM Units (3) | — | — | 596 | ||||||||
Total stock compensation | $ | 14,763 | $ | 21,124 | $ | 11,587 | |||||
(1) | Includes compensation expense related to time-based restricted stock units and performance-based restricted stock units. |
(2) | Stock-based compensation expense in 2018 includes approximately $6.5 million of expense recognized for the acceleration of equity awards as part of the acquisition of AV Homes. |
(3) | As of December 31, 2017, all new TMM units were vested, and there was no further expense associated with them. |
At December 31, 2019, 2018, and 2017, the aggregate unamortized value of all outstanding stock-based compensation awards was approximately $20.8 million, $20.4 million, and $19.8 million, respectively.
Stock Options — Options 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, or continued service on the Board of Directors, through the applicable vesting dates, and options expire within ten years from the date of grant.
The following table summarizes stock option activity for the Plan for each year presented:
Year Ended December 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | ||||||||||||||||||
Number of Options | Weighted Average Exercise/Grant Price | Number of Options | Weighted Average Exercise/Grant Price | Number of Options | Weighted Average Exercise/Grant Price | |||||||||||||||
Outstanding, beginning | 3,239,995 | $ | 18.87 | 2,854,213 | $ | 17.50 | 2,431,347 | $ | 17.09 | |||||||||||
Granted | 997,924 | 18.15 | 726,473 | 23.86 | 792,054 | 19.06 | ||||||||||||||
Exercised | (765,781 | ) | 17.29 | (118,992 | ) | 15.85 | (288,808 | ) | 18.13 | |||||||||||
Cancelled/forfeited | (132,894 | ) | 19.86 | (221,699 | ) | 18.71 | (80,380 | ) | 18.64 | |||||||||||
Balance, ending | 3,339,244 | $ | 18.98 | 3,239,995 | $ | 18.87 | 2,854,213 | $ | 17.50 | |||||||||||
Options exercisable, at December 31 | 1,400,974 | $ | 19.09 | 1,537,977 | $ | 18.80 | 906,583 | $ | 19.62 | |||||||||||
As of December 31, | |||||||||||
(Dollars in thousands) | 2019 | 2018 | 2017 | ||||||||
Unamortized value of unvested stock options (net of estimated forfeitures) | $ | 6,759 | $ | 6,470 | $ | 6,749 | |||||
Weighted-average period (in years) that expense is expected to be recognized | 2.5 | 2.5 | 2.4 | ||||||||
Weighted-average remaining contractual life (in years) for options outstanding | 6.9 | 6.9 | 7.5 | ||||||||
Weighted-average remaining contractual life (in years) for options exercisable | 5.1 | 5.6 | 6.1 | ||||||||
The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model. Expected volatilities and expected term are based on the historical information of comparable publicly traded homebuilders. 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 fair value of stock option awards is recognized evenly over the vesting period of the options.
The following table summarizes the weighted-average assumptions and fair value used for stock options grants:
Year Ended December 31, | |||||
2019 | 2018 | 2017 | |||
Expected dividend yield | —% | —% | —% | ||
Expected volatility | 19.33% | 21.31% | 24.37% | ||
Risk-free interest rate | 2.49% | 2.68% | 2.12% | ||
Expected term (in years) | 6.25 | 6.25 | 6.25 | ||
Weighted average fair value of options granted during the period | $4.69 | $6.68 | $5.56 | ||
The following table provides information pertaining to the aggregate intrinsic value of options outstanding and exercisable at December 31, 2019, 2018, and 2017:
As of December 31, | |||||||||||
(Dollars in thousands) | 2019 | 2018 | 2017 | ||||||||
Aggregate intrinsic value of options outstanding | $ | 10,935 | $ | 3,432 | $ | 19,891 | |||||
Aggregate intrinsic value of options exercisable | $ | 4,283 | $ | 1,540 | $ | 4,400 | |||||
The aggregate intrinsic value is based on the market price of our Common Stock on December 31, 2019, the last trading day in December 2019, which was $21.86, 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 December 31, 2019.
Performance-Based Restricted Stock Units – We issued performance-based restricted stock units ("PRSUs") to certain employees of the Company. These awards will vest in full based on the achievement of certain performance goals over a three-year performance period, subject to the employee’s continued employment through the last date of the performance period and
will be settled in shares of our Common Stock. The number of shares that may be issued in settlement of the PRSUs to the award recipients may be greater or lesser than the target award amount depending on actual performance achieved as compared to the performance targets set forth in the awards.
The following table summarizes the activity of our PRSUs:
Year Ended December 31, | ||||||||
2019 | 2018 | 2017 | ||||||
Balance, beginning | 1,155,723 | 1,190,740 | 824,217 | |||||
Granted | 416,874 | 338,472 | 392,404 | |||||
Vested | (511,984 | ) | (61,343 | ) | — | |||
Forfeited | (61,974 | ) | (312,146 | ) | (25,881 | ) | ||
Balance, ending | 998,639 | 1,155,723 | 1,190,740 | |||||
Year Ended December 31, | |||||||||||
(Dollars in thousands): | 2019 | 2018 | 2017 | ||||||||
PRSU expense recognized | $ | 5,866 | $ | 5,779 | $ | 3,257 | |||||
Unamortized value of PRSUs | $ | 7,912 | $ | 7,501 | $ | 6,756 | |||||
Weighted-average period expense is expected to be recognized (in years) | 1.8 | 1.8 | 1.8 | ||||||||
Non-Performance-Based Restricted Stock Units — Our non-performance-based RSUs consist of shares of our Common Stock that have been awarded to our employees and members of our Board of Directors. Vesting of RSUs is subject to continued employment with TMHC or an affiliate, or continued service on the Board of Directors, through the applicable vesting dates. Time-based RSUs granted to employees generally vest ratably over a three to four year period, based on the grant date. Time-based RSUs granted to members of the Board of Directors generally vest on the first anniversary of the grant date.
The following tables summarize the activity of our RSUs:
Year Ended December 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | ||||||||||||||||||
(Dollars in thousands except per share data): | Number of RSUs | Weighted Average Grant Date Fair Value | Number of RSUs | Weighted Average Grant Date Fair Value | Number of RSUs | Weighted Average Grant Date Fair Value | ||||||||||||||
Outstanding, beginning | 769,641 | $ | 16.73 | 698,819 | $ | 15.65 | 534,484 | $ | 14.01 | |||||||||||
Granted | 299,481 | 18.42 | 333,397 | 20.35 | 257,182 | 19.48 | ||||||||||||||
Vested | (320,701 | ) | 15.25 | (181,904 | ) | 13.01 | (75,315 | ) | 17.43 | |||||||||||
Forfeited | (38,667 | ) | 16.91 | (80,671 | ) | 16.90 | (17,532 | ) | 14.10 | |||||||||||
Balance, ending | 709,754 | $ | 18.11 | 769,641 | $ | 16.73 | 698,819 | $ | 15.65 | |||||||||||
Year Ended December 31, | |||||||||||
(Dollars in thousands): | 2019 | 2018 | 2017 | ||||||||
RSU expense recognized | $ | 5,123 | $ | 4,854 | $ | 3,148 | |||||
Unamortized value of RSUs | $ | 6,176 | $ | 6,435 | $ | 6,261 | |||||
Weighted-average period expense is expected to be recognized (in years) | 1.7 | 1.9 | 2.5 | ||||||||
The Plan permits us to withhold from the total number of shares that would otherwise be distributed to a recipient on vesting of an RSU, an amount equal to the number of shares having a fair value at the time of distribution equal to the applicable income tax withholdings due and remit the remaining RSU shares to the recipient.
Equity-Based Compensation Prior to the IPO
New TMM Units — Certain members of management and certain members of the Board of Directors were issued Class M partnership units in TMM Holdings. Those units were subject to both time and performance vesting conditions.
Pursuant to the Reorganization Transactions, the time-vesting Class M Units in TMM Holdings were exchanged for New TMM Units with vesting terms substantially the same as the Class M Units surrendered for exchange. One New TMM Unit together with a corresponding share of Class B Common Stock was exchangeable for one share of Common Stock. The shares of Class B Common Stock/New TMM Units outstanding as of December 31, 2018 and 2017 are shown in the table below. All shares of Class B Common Stock were exchanged for Common Stock as of December 31, 2018.
Year Ended December 31, | |||||||||||||
2018 | 2017 | ||||||||||||
Number of Awards | Weighted Average Grant Date Fair Value | Number of Awards | Weighted Average Grant Date Fair Value | ||||||||||
Outstanding, beginning | 883,921 | $ | 5.24 | 1,146,357 | $ | 5.58 | |||||||
Exchanges (1) | (883,921 | ) | 5.24 | (260,389 | ) | 6.72 | |||||||
Forfeited (2) | — | — | (2,047 | ) | 8.52 | ||||||||
Balance, ending | — | $ | — | 883,921 | $ | 5.24 | |||||||
Unvested TMM Units included in ending balance (3) | — | $ | — | — | $ | — | |||||||
(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 Common Stock. |
(2) | Awards forfeited during the period represent the unvested portion of New TMM 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 canceled. |
(3) | All New TMM units vested as of December 31, 2017. |
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2019 | Feb 19, 2020 | Showing above |
| 2018 | Feb 20, 2019 | |
| 2017 | Feb 21, 2018 | |
| 2016 | Feb 21, 2017 | |
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.