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EX-31.2 - EX-31.2 - WILLIAM LYON HOMESwlh-3312016xex312.htm
EX-32.2 - EX-32.2 - WILLIAM LYON HOMESwlh-3312016xex322.htm
EX-31.1 - EX-31.1 - WILLIAM LYON HOMESwlh-3312016xex311.htm
EX-10.1 - EX-10.1 - WILLIAM LYON HOMESwlh-3312016xex101.htm
EX-10.2 - EX-10.2 - WILLIAM LYON HOMESwlh-3312016xex102.htm
EX-32.1 - EX-32.1 - WILLIAM LYON HOMESwlh-3312016xex321.htm


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________ 
FORM 10-Q
______________________________________ 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 001-31625
______________________________________ 
WILLIAM LYON HOMES
(Exact name of registrant as specified in its charter)
______________________________________ 
Delaware
 
33-0864902
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
4695 MacArthur Court, 8th Floor
Newport Beach, California
 
92660
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (949) 833-3600

______________________________________ 
Indicate by check mark whether 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
¨
Accelerated filer
x
 
 
 
 
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ý    No  ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class of Common Stock
Outstanding at May 6, 2016
Common stock, Class A, par value $0.01
27,856,010

Common stock, Class B, par value $0.01
3,813,884





WILLIAM LYON HOMES
INDEX
 
 
 
Page
No.
 
Item 1.
Financial Statements as of March 31, 2016, and for the three months ended March 31, 2016 and 2015 (Unaudited)
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.





NOTE ABOUT FORWARD-LOOKING STATEMENTS
Investors are cautioned that certain statements contained in this Quarterly Report on Form 10-Q, as well as some statements by the Company in periodic press releases and information included in oral statements or other written statements by the Company are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21 of the Securities Exchange Act of 1934, as amended. Statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, “hopes”, and similar expressions constitute forward-looking statements. Such statements may include, but are not limited to, information related to: anticipated operating results; home deliveries and backlog conversion; financial resources and condition; cash needs and liquidity; timing of project openings; leverage ratios; revenues and average selling prices of deliveries; sales price ranges for active and future communities; timing of community openings; global and domestic economic conditions; market and industry trends; profitability and gross margins; selling, general and administrative expenses and leverage; interest expense; inventory write-downs; unrecognized tax benefits; land acquisition spending and timing; debt maturities; the Company's ability to achieve tax benefits and utilize its tax attributes; sales pace; effects of home buyer cancellations; community count; joint ventures; the Company's ability to acquire land and pursue real estate opportunities; the Company's ability to gain approvals and open new communities; the Company's ability to sell homes and properties; the Company's ability to secure materials and subcontractors; the Company's ability to produce the liquidity and capital necessary to expand and take advantage of opportunities; and legal proceedings, insurance and claims. Forward-looking statements are based upon expectations and projections about future events and are subject to assumptions, risks and uncertainties about, among other things, the Company, economic and market factors and the homebuilding industry. There is no guarantee that any of the events anticipated by the forward-looking statements in this annual report on Form 10-Q will occur, or if any of the events occur, there is no guarantee what effect it will have on the Company's operations, financial condition or share price. The Company's past performance, and past or present economic conditions in its housing markets, are not indicative of future performance or conditions. Investors are urged not to place undue reliance on forward-looking statements. The Company will not, and undertakes no obligation to, update or revise forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events or changes to projections over time unless required by federal securities laws.

Actual events and results may differ materially from those expressed or forecasted in the forward-looking statements due to a number of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, but are not limited to: the availability of labor and homebuilding materials and increased construction cycle times; adverse weather conditions, including but not limited to the continued drought in California and the Southwest; the Company’s financial leverage and level of indebtedness and any inability to comply with financial and other covenants under its debt instruments; continued volatility and worsening in general economic conditions either internationally, nationally or in regions in which the Company operates; conditions in the Company’s recently entered markets and recently acquired operations; worsening in markets for residential housing; the impact of construction defect, product liability and home warranty claims, including the adequacy of self-insurance accruals, and the applicability and sufficiency of the Company’s insurance coverage; decline in real estate values resulting in impairment of the Company’s real estate assets; volatility in the banking industry and credit markets; uncertainties in the capital and securities markets; terrorism or other hostilities involving the United States; building moratorium or “slow-growth” or “no-growth” initiatives that could be implemented in states in which the Company operates; changes in mortgage and other interest rates; conditions in the capital, credit and financial markets, including mortgage lending standards and the availability of mortgage financing; changes in generally accepted accounting principles or interpretations of those principles; changes in prices of homebuilding materials; competition for home sales from other sellers of new and resale homes; cancellations and the Company’s ability to convert its backlog into deliveries; the occurrence of events such as landslides, soil subsidence and earthquakes that are uninsurable, not economically insurable or not subject to effective indemnification agreements; changes in governmental laws and regulations; whether the Company is able to pay off or refinance the outstanding balances of its debt obligations at their maturity; limitations on the Company’s ability to utilize its tax attributes; whether an ownership change occurred that could, under certain circumstances, have resulted in the limitation of the Company’s ability to offset prior years’ taxable income with net operating losses; the timing of receipt of regulatory approvals and the opening of projects; the availability and cost of land for future development; and other factors, risks and uncertainties. These and other risks and uncertainties are more fully described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as well as those factors or conditions described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


1



EXPLANATORY NOTE

In this interim report on Form 10-Q, unless otherwise stated or the context otherwise requires, the “Company,” “we,” “our,” and “us” refer to William Lyon Homes, a Delaware corporation, and its subsidiaries. In addition, unless otherwise stated or the context otherwise requires, “Parent” refers to William Lyon Homes, and “California Lyon” refers to William Lyon Homes, Inc., a California corporation and wholly-owned subsidiary of Parent.


2



PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements
WILLIAM LYON HOMES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except number of shares and par value per share)
 
March 31,
2016
 
December 31,
2015
 
(unaudited)
 
 
ASSETS
 
 
 
Cash and cash equivalents — Note 1
$
35,798

 
$
50,203

Restricted cash — Note 1
505

 
504

Receivables
6,124

 
14,838

Escrow proceeds receivable
3,024

 
3,041

Real estate inventories — Note 5
1,753,315

 
1,675,106

Investment in joint ventures — Note 3
6,414

 
5,413

Goodwill
66,902

 
66,902

Intangibles, net of accumulated amortization of $4,640 as of March 31, 2016 and December 31, 2015
6,700

 
6,700

Deferred income taxes, net
79,631

 
79,726

Other assets, net
20,622

 
21,017

Total assets
$
1,979,035

 
$
1,923,450

LIABILITIES AND EQUITY
 
 
 
Accounts payable
$
78,854

 
$
75,881

Accrued expenses
71,576

 
70,324

Notes payable — Note 6
185,817

 
175,181

Subordinated amortizing notes — Note 6
12,390

 
14,066

3/4% Senior Notes due April 15, 2019 — Note 6
148,429

 
148,295

8 1/2% Senior Notes due November 15, 2020 — Note 6
422,887

 
422,896

7% Senior Notes due August 15, 2022 — Note 6
345,474

 
345,338

 
1,265,427

 
1,251,981

Commitments and contingencies — Note 12


 


Equity:
 
 
 
William Lyon Homes stockholders’ equity
 
 
 
Preferred stock, par value $0.01 per share, 10,000,000 shares authorized, no shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively

 

Common stock, Class A, par value $0.01 per share; 150,000,000 shares authorized; 28,964,219 and 28,363,879 shares issued, 27,856,010 and 27,657,435 outstanding at March 31, 2016 and December 31, 2015, respectively
290

 
284

Common stock, Class B, par value $0.01 per share; 30,000,000 shares authorized; 3,813,884 shares issued and outstanding at March 31, 2016 and December 31, 2015
38

 
38

Additional paid-in capital
414,226

 
413,810

Retained earnings
226,977

 
217,963

Total William Lyon Homes stockholders’ equity
641,531

 
632,095

Noncontrolling interests — Note 2
72,077

 
39,374

Total equity
713,608

 
671,469

Total liabilities and equity
$
1,979,035

 
$
1,923,450

See accompanying notes to condensed consolidated financial statements

3



WILLIAM LYON HOMES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except number of shares and per share data)
(unaudited)
 
 
Three 
 Months 
 Ended  
 March 31, 
 2016
 
Three 
 Months 
 Ended 
 March 31, 
 2015
Operating revenue
 
 
 
Home sales
$
261,295

 
$
189,715

Construction services — Note 1
3,130

 
7,453

 
264,425

 
197,168

Operating costs
 
 
 
Cost of sales — homes
(215,171
)
 
(154,081
)
Construction services — Note 1
(2,824
)
 
(6,029
)
Sales and marketing
(14,993
)
 
(12,224
)
General and administrative
(17,834
)
 
(13,948
)
Amortization of intangible assets

 
(203
)
Other
(323
)
 
(536
)
 
(251,145
)
 
(187,021
)
Operating income
13,280

 
10,147

Equity in income of unconsolidated joint ventures
1,181

 
248

Other income, net
525

 
781

Income before provision for income taxes
14,986

 
11,176

Provision for income taxes — Note 9
(5,045
)
 
(3,570
)
Net income
9,941

 
7,606

Less: Net income attributable to noncontrolling interests
(927
)
 
(924
)
Net income available to common stockholders
$
9,014

 
$
6,682

Income per common share:
 
 
 
Basic
$
0.25

 
$
0.18

Diluted
$
0.24

 
$
0.18

Weighted average common shares outstanding:
 
 
 
Basic
36,651,846

 
36,463,995

Diluted
38,303,861

 
37,633,831

See accompanying notes to condensed consolidated financial statements


4



WILLIAM LYON HOMES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(in thousands)
(unaudited)
 
 
William Lyon Homes Stockholders
 
 
 
 
 
Common Stock
 
Additional
Paid-In
 
 
 
Non-
Controlling
 
 
 
Shares
 
Amount
 
Capital
 
Retained Earnings
 
Interests
 
Total
Balance - December 31, 2015
32,178

 
$
322

 
$
413,810

 
$
217,963

 
$
39,374

 
$
671,469

Net income

 

 

 
9,014

 
927

 
9,941

Cash contributions from members of consolidated entities

 

 

 

 
33,241

 
33,241

Cash distributions to members of consolidated entities

 

 

 

 
(1,465
)
 
(1,465
)
Shares remitted to Company to satisfy employee tax obligations
(70
)
 
(1
)
 
(843
)
 

 

 
(844
)
Stock based compensation expense
670

 
7

 
1,485

 

 

 
1,492

Reversal of excess income tax benefit from stock based awards

 

 
(226
)
 

 

 
(226
)
Balance - March 31, 2016
32,778


$
328


$
414,226


$
226,977


$
72,077

 
$
713,608

See accompanying notes to condensed consolidated financial statements



5



WILLIAM LYON HOMES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
Three  
 Months 
 Ended 
 March 31, 
 2016
 
Three  
 Months 
 Ended 
 March 31, 
 2015
Operating activities
 
 
 
Net income
$
9,941

 
$
7,606

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Depreciation and amortization
498

 
557

Net change in deferred income taxes
95

 
(322
)
Stock based compensation expense
1,492

 
1,351

Equity in earnings of unconsolidated joint ventures
(1,181
)
 
(248
)
Distributions from unconsolidated joint ventures
324

 
76

Net changes in operating assets and liabilities:
 
 
 
Restricted cash
(1
)
 

Receivables
2,382

 
11

Escrow proceeds receivable
17

 
(4,278
)
Real estate inventories
(77,662
)
 
(63,101
)
Other assets
317

 
978

Accounts payable
2,973

 
7,439

Accrued expenses
1,269

 
(11,165
)
Net cash used in operating activities
(59,536
)
 
(61,096
)
Investing activities
 
 
 
Investments in and advances to unconsolidated joint ventures

 
(1,000
)
Collection of related party note receivable
6,188

 

Purchases of property and equipment
(526
)
 
(150
)
Net cash provided by (used in) investing activities
5,662


(1,150
)
Financing activities
 
 
 
Proceeds from borrowings on notes payable
53,162

 
6,148

Principal payments on notes payable
(26,526
)
 
(6,962
)
Proceeds from borrowings on Revolver
55,000

 
89,000

Payments on Revolver
(71,000
)
 
(40,000
)
Principal payments on subordinated amortizing notes
(1,676
)
 
(1,760
)
Payment of deferred loan costs
(197
)
 
(561
)
Proceeds from stock options exercised

 
106

Shares remitted to, or withheld by the Company for employee tax withholding
(844
)
 
(1,632
)
Excess income tax benefit from stock based awards
(226
)
 

Noncontrolling interest contributions
33,241

 

Noncontrolling interest distributions
(1,465
)
 
(5,414
)
Net cash provided by financing activities
39,469

 
38,925

Net decrease in cash and cash equivalents
(14,405
)
 
(23,321
)
Cash and cash equivalents — beginning of period
50,203

 
52,771

Cash and cash equivalents — end of period
$
35,798

 
$
29,450

 
 
 
 
Cash paid during the year for income taxes
$
100

 
$
6,229

Supplemental disclosures of non-cash investing and financing activities:
 
 
 
Issuance of note payable related to land acquisition
$

 
$
9,500

See accompanying notes to condensed consolidated financial statements

6



WILLIAM LYON HOMES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1—Basis of Presentation and Significant Accounting Policies
Operations
William Lyon Homes, a Delaware corporation (“Parent” and together with its subsidiaries, the “Company”), is primarily engaged in designing, constructing, marketing and selling single-family detached and attached homes in California, Arizona, Nevada, Colorado (under the Village Homes brand), Washington and Oregon (each under the Polygon Northwest Homes brand).
Basis of Presentation
The preparation of the Company’s financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities as of March 31, 2016 and December 31, 2015 and revenues and expenses for the three month periods ended March 31, 2016 and 2015. Accordingly, actual results could differ from those estimates. The significant accounting policies using estimates include real estate inventories and cost of sales, impairment of real estate inventories, warranty reserves, loss contingencies, sales and profit recognition, accounting for variable interest entities, business combinations, and valuation of deferred tax assets. The current economic environment increases the uncertainty inherent in these estimates and assumptions.
The condensed consolidated financial statements include the accounts of the Company and all majority-owned and controlled subsidiaries and joint ventures, and certain joint ventures and other entities which have been determined to be variable interest entities ("VIEs") in which the Company is considered the primary beneficiary (see Note 2). The accounting policies of the joint ventures are substantially the same as those of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation.
The condensed consolidated financial statements were prepared from our books and records without audit and include all adjustments (consisting of only normal recurring accruals) necessary to present a fair statement of results for the interim periods presented. Readers of this quarterly report should refer to our audited consolidated financial statements as of and for the year ended December 31, 2015, which are included in our 2015 Annual Report on Form 10-K, as certain disclosures that would substantially duplicate those contained in the audited financial statements have not been included in this report.
Real Estate Inventories
Real estate inventories are carried at cost net of impairment losses, if any. Real estate inventories consist primarily of land deposits, land and land under development, homes completed and under construction, and model homes. All direct and indirect land costs, offsite and onsite improvements and applicable interest and other carrying charges are capitalized to real estate projects during periods when the project is under development. Land, offsite costs and all other common costs are allocated to land parcels benefited based upon relative fair values before construction. Onsite construction costs and related carrying charges (principally interest and property taxes) are allocated to the individual homes within a phase based upon the relative sales value of the homes. The Company relieves its real estate inventories through cost of sales for the estimated cost of homes sold. Selling expenses and other marketing costs are expensed in the period incurred. From time to time the Company sells land to third parties. The Company does not consider these sales to be core to its homebuilding business, and any gain or loss recognized on these transactions is recorded in other non-operating income. During the three months ended March 31, 2016 the Company sold a parcel of land to a third party that did not result in any gain or loss.
A provision for warranty costs relating to the Company’s limited warranty plans is included in cost of sales and accrued expenses at the time the sale of a home is recorded. The Company generally reserves a percent of the sales price of its homes, or a set amount per home closed depending on the operating division, against the possibility of future charges relating to its warranty programs and similar potential claims. Factors that affect the Company’s warranty liability include the number of homes under warranty, historical and anticipated rates of warranty claims, and cost per claim. The Company continually assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. Changes in the Company’s warranty liability for the three months ended March 31, 2016 and 2015, are as follows (in thousands):
 

7



 
Three  
 Months 
 Ended 
 March 31, 
 2016
 
Three  
 Months 
 Ended 
 March 31, 
 2015
Warranty liability, beginning of period
$
18,117

 
$
18,155

Warranty provision during period
1,429

 
1,391

Warranty payments during period
(3,290
)
 
(2,011
)
Warranty charges related to construction services projects
103

 
180

Warranty liability, end of period
$
16,359

 
$
17,715

The Company began accruing for warranty costs for units closed in the Washington and Oregon segments at a set rate per home in conjunction with the acquisition of Polygon Northwest Homes during 2014. The Company did not assume any warranty liability for units closed prior to the acquisition date.
Interest incurred under the Company’s debt obligations, as more fully discussed in Note 6, is capitalized to qualifying real estate projects under development. Interest activity for the three months ended March 31, 2016 and 2015 are as follows (in thousands):
 
 
Three 
 Months 
 Ended  
 March 31, 
 2016
 
Three 
 Months 
 Ended 
 March 31, 
 2015
Interest incurred
$
20,261

 
$
18,033

Less: Interest capitalized
20,261

 
18,033

Interest expense, net of amounts capitalized
$

 
$

Cash paid for interest
$
14,911

 
$
11,700

Construction Services
The Company accounts for construction management agreements using the Percentage of Completion Method in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 605 Revenue Recognition (“ASC 605”). Under ASC 605, the Company records revenues and expenses as a contracted project progresses, and based on the percentage of costs incurred to date compared to the total estimated costs of the contract.
The Company entered into construction management agreements to build, sell and market homes in certain communities. For such services, the Company will receive fees (generally 3 to 5 percent of the sales price, as defined) and may, under certain circumstances, receive additional compensation if certain financial thresholds are achieved.
Financial Instruments
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents, restricted cash, receivables, and deposits. The Company typically places its cash and cash equivalents in investment grade short-term instruments. Deposits, included in other assets, are due from municipalities or utility companies and are generally collected from such entities through fees assessed to other developers. The Company is an issuer of, or subject to, financial instruments with off-balance sheet risk in the normal course of business which exposes it to credit risks. These financial instruments include letters of credit and obligations in connection with assessment district bonds. These off-balance sheet financial instruments are described in more detail in Note 12.
Cash and Cash Equivalents
Short-term investments with a maturity of three months or less when purchased are considered cash equivalents. The Company’s cash and cash equivalents balance exceeds federally insurable limits as of March 31, 2016 and December 31, 2015. The Company monitors the cash balances in its operating accounts, however, these cash balances could be negatively impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to cash in its operating accounts.


8



Restricted Cash
Restricted cash consists of deposits made by the Company to a bank account as collateral for the use of letters of credit to guarantee the Company’s financial obligations under certain other contractual arrangements in the normal course of business.
Deferred Loan Costs
Deferred loan costs represent debt issuance costs and are primarily amortized to interest incurred using the straight line method which approximates the effective interest method.
Goodwill
In accordance with the provisions of ASC 350, Intangibles, Goodwill and Other, goodwill amounts are not amortized, but rather are analyzed for impairment at the reporting segment level. Goodwill is analyzed on an annual basis, or when indicators of impairment exist. We have determined that we have six reporting segments, as discussed in Note 4, and we perform an annual goodwill impairment analysis during the fourth quarter of each fiscal year.
Intangibles
Recorded intangible assets primarily relate to brand names of acquired entities, construction management contracts, homes in backlog, and joint venture management fee contracts recorded in conjunction with FASB ASC Topic 852, Reorganizations ("ASC 852"), or FASB ASC Topic 805, Business Combinations ("ASC 805"). All Intangible assets with the exception of those relating to brand names were valued based on expected cash flows related to home closings, and the asset is amortized on a per unit basis, as homes under the contracts close. Our brand name intangible assets are deemed to have an indefinite useful life.
Income per common share
The Company computes income per common share in accordance with FASB ASC Topic 260, Earnings per Share, which requires income per common share for each class of stock to be calculated using the two-class method. The two-class method is an allocation of income between the holders of common stock and a company’s participating security holders.
Basic income per common share is computed by dividing income or loss available to common stockholders by the weighted average number of shares of common stock outstanding. For purposes of determining diluted income per common share, basic income per common share is further adjusted to include the effect of potential dilutive common shares.
Income Taxes
Income taxes are accounted for under the provisions of Financial Accounting Standards Board ASC 740, Income Taxes, using an asset and liability approach. Deferred income taxes reflect the net effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating loss and tax credit carryforwards measured by applying currently enacted tax laws. A valuation allowance is provided to reduce net deferred tax assets to an amount that is more likely than not to be realized. ASC 740 prescribes a recognition threshold and a measurement criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be considered “more-likely-than-not” to be sustained upon examination by taxing authorities. In addition, the Company has elected to recognize interest and penalties related to uncertain tax positions in the income tax provision.
Impact of Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which clarifies existing accounting literature relating to how and when revenue is recognized by an entity. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. ASU 2014-09 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. In doing so, an entity will need to exercise a greater degree of judgment and make more estimates than under the current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation. ASU 2014-09 also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. ASU 2014-09 is effective for public companies for interim and annual

9



reporting periods beginning after December 15, 2017, and is to be applied either retrospectively or using the cumulative effect transition method, with early adoption not permitted. The Company has not yet selected a transition method, and is currently evaluating the impact the adoption of ASU 2014-09 will have on its consolidated financial statements and related disclosures.

In February 2015, FASB issued ASU No. 2015-02 "Consolidation (Topic 810): Amendments to the Consolidation Analysis" ("ASU 2015-02"). ASU 2015-02 amends the consolidation guidance for variable interest entities and voting interest entities, among other items, by eliminating the consolidation model previously applied to limited partnerships, emphasizing the risk of loss when determining a controlling financial interest and reducing the frequency of the application of related-party guidance when determining a controlling financial interest. ASU 2015-02 is effective for public companies for interim and annual reporting periods beginning after December 15, 2015. The adoption of this ASU did not have a material impact on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (ASU 2016-09”). ASU 2016-09 simplifies several aspects for the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual and interim periods in fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the potential impact the adoption of ASU 2016-09 will have on its consolidated financial statements.


Note 2—Variable Interest Entities and Noncontrolling Interests
As of March 31, 2016 and December 31, 2015, the Company was party to eleven and eight joint ventures, respectively, for the purpose of land development and homebuilding activities which we have determined to be VIEs. The Company, as the managing member, has the power to direct the activities of the VIEs since it manages the daily operations and has exposure to the risks and rewards of the VIEs, based upon the allocation of income and loss per the respective joint venture agreements. Therefore, the Company is the primary beneficiary of the joint ventures, and the VIEs were consolidated as of March 31, 2016 and December 31, 2015.
As of March 31, 2016, the assets of the consolidated VIEs totaled $226.7 million, of which $5.1 million was cash and cash equivalents and $220.2 million was real estate inventories. The liabilities of the consolidated VIEs totaled $127.1 million, primarily comprised of notes payable, accounts payable and accrued liabilities.
As of December 31, 2015, the assets of the consolidated VIEs totaled $155.0 million, of which $2.8 million was cash and cash equivalents and $148.6 million was real estate inventories. The liabilities of the consolidated VIEs totaled $97.1 million, primarily comprised of notes payable, accounts payable and accrued liabilities.

Note 3—Investments in Unconsolidated Joint Ventures

The table set forth below summarizes the combined unaudited statements of operations for our unconsolidated mortgage joint ventures that we accounted for under the equity method (in thousands):

 
Three Months Ended March 31, 2016
 
Three Months Ended March 31, 2015
Revenues
$
3,967

 
$
706

Cost of sales
(1,925
)
 
(382
)
Income of unconsolidated joint ventures
$
2,042

 
$
324


Income from unconsolidated joint ventures reflected in the accompanying consolidated statements of operations represents our share of the income of our unconsolidated mortgage joint ventures, which is allocated based on the provisions of the underlying joint venture operating agreements less any additional impairments recorded against our investments in joint ventures which we do not deem recoverable.  For the three months ended March 31, 2016, and 2015, the Company recorded

10



income of $1.2 million and $0.2 million, respectively, from its unconsolidated joint ventures. This income was primarily attributable to our share of income related to mortgages that were generated and issued to qualifying home buyers during the periods.

During the three months ended March 31, 2016, and 2015, all of our unconsolidated joint ventures were reviewed for impairment.  Based on the impairment review, no joint ventures were determined to be impaired.
The table set forth below summarizes the combined unaudited balance sheets for our unconsolidated joint ventures that we accounted for under the equity method (in thousands):
 
 
 
 
March 31, 2016
 
December 31, 2015
Assets
 
 
 
 
 
Cash
 
$
7,037

 
$
6,340

 
Loans held for sale
 
30,294

 
29,312

 
Accounts receivable
 
159

 
309

 
Other assets
 
61

 
390

 
 
Total Assets
 
$
37,551

 
$
36,351

 
 
 
 
 
 
 
Liabilities and Equity
 
 
 
 
 
Accounts payable
 
$
326

 
$
651

 
Accrued expenses
835

 
774

 
Credit lines payable
27,613

 
27,350

 
Other liabilities
21

 
515

 
Members equity
8,756

 
7,061

 
 
Total Liabilities and Equity
$
37,551

 
$
36,351


Note 4—Segment Information
The Company operates one principal homebuilding business. In accordance with FASB ASC Topic 280, Segment Reporting ("ASC 280"), the Company has determined that each of its operating divisions is an operating segment.The Company’s President and Chief Executive Officer has been identified as the chief operating decision maker. The Company’s chief operating decision maker directs the allocation of resources to operating segments based on the profitability and cash flows of each respective segment.
The Company’s homebuilding operations design, construct and sell a wide range of homes designed to meet the specific needs in each of its markets. As such, in accordance with the aggregation criteria defined by FASB ASC Topic 280, Segment Reporting (“ASC 280”), the Company’s homebuilding operating segments have been grouped into six reportable segments:
California, consisting of operating divisions in i) Southern California, consisting of operations in Orange, Los Angeles, Riverside and San Bernardino counties; and ii) Northern California, consisting of operations in Alameda, Contra Costa, San Joaquin, and Santa Clara counties.
Arizona, consisting of operations in the Phoenix, Arizona metropolitan area.
Nevada, consisting of operations in the Las Vegas, Nevada metropolitan area.
Colorado, consisting of operations in the Denver, Colorado metropolitan area.
Washington, consisting of operations in the Seattle, Washington metropolitan area.
Oregon, consisting of operations in the Portland, Oregon metropolitan area.
Corporate develops and implements strategic initiatives and supports the Company’s operating segments by centralizing key administrative functions such as finance and treasury, information technology, risk management and litigation and human resources. All prior periods have been restated to reflect the Company's current segment reporting structure.
Segment financial information relating to the Company’s operations was as follows (in thousands):

11



 
Three 
 Months 
 Ended  
 March 31, 
 2016
 
Three 
 Months 
 Ended 
 March 31, 
 2015
Operating revenue:
 
 
 
California (1)
$
95,884

 
$
86,793

Arizona
21,047

 
7,186

Nevada
30,741

 
27,242

Colorado
26,393

 
18,189

Washington
32,901

 
31,280

Oregon
57,459

 
26,478

Total operating revenue
$
264,425

 
$
197,168

 
 
 
 
(1) Operating revenue in the California segment includes construction services revenue.
 
Three 
 Months 
 Ended  
 March 31, 
 2016
 
Three 
 Months 
 Ended 
 March 31, 
 2015
Income before provision for income taxes
 
 
 
California
$
9,923

 
$
9,312

Arizona
1,499

 
304

Nevada
2,558

 
3,362

Colorado
429

 
(170
)
Washington
1,423

 
2,573

Oregon
6,958

 
2,245

Corporate
(7,804
)
 
(6,450
)
Income before provision for income taxes
$
14,986

 
$
11,176

 
 
March 31, 2016
 
December 31, 2015
Homebuilding assets:
 
 
 
California
$
705,240

 
$
721,066

Arizona
203,202

 
197,828

Nevada
206,081

 
183,019

Colorado
118,789

 
118,307

Washington
324,574

 
249,615

Oregon
231,654

 
228,183

Corporate (1)
189,495

 
225,432

Total homebuilding assets
$
1,979,035

 
$
1,923,450

 
(1)
Comprised primarily of cash and cash equivalents, deferred income taxes, receivables, and other assets.
Note 5—Real Estate Inventories
Real estate inventories consist of the following (in thousands):
 

12



 
March 31, 2016
 
December 31, 2015
Real estate inventories:
 
 
 
Land deposits
$
68,885

 
$
61,514

Land and land under development
1,041,612

 
1,013,650

Homes completed and under construction
539,746

 
495,966

Model homes
103,072

 
103,976

Total
$
1,753,315

 
$
1,675,106

 

Note 6—Senior Notes, Secured, and Unsecured Indebtedness
Senior notes, secured, and unsecured indebtedness consist of the following (in thousands):
 
 
March 31, 2016
 
December 31, 2015
Notes payable:
 
 
 
Construction notes payable
$
136,817

 
$
110,181

Revolving line of credit
49,000

 
65,000

Total notes payable
185,817

 
175,181

 
 
 
 
Subordinated amortizing notes
12,390

 
14,066

 
 
 
 
Senior notes:
 
 
 
3/4% Senior Notes due April 15, 2019
148,429

 
148,295

1/2% Senior Notes due November 15, 2020
422,887

 
422,896

7% Senior Notes due August 15, 2022
345,474

 
345,338

Total senior notes
916,790

 
916,529

 
 
 
 
Total notes payable and senior notes
$
1,114,997

 
$
1,105,776


As of March 31, 2016, the maturities of the Notes payable, Subordinated amortizing notes, 5 3/4% Senior Notes, 8 1/2% Senior Notes, and 7% Senior Notes are as follows (in thousands):
 
Year Ending December 31,
 
2016
$
15,179

2017
135,829

2018
14,673

2019
182,526

2020
425,000

Thereafter
350,000

 
$
1,123,207

Maturities above exclude premium on the 8 1/2% and 7% Senior Notes in an aggregate of $4.5 million, and deferred loan costs on the 5 3/4%, 8 1/2% and 7% Senior Notes of $12.7 million as of March 31, 2016.



13



Notes Payable
Construction Notes Payable
         
The Company and certain of its consolidated joint ventures have entered into construction notes payable agreements. These loans will be repaid with proceeds from closings and are secured by the underlying projects. The issuance date, facility size, maturity date and interest rate are listed in the table below as of March 31, 2016 (in millions):

Issuance Date
 
Facility Size
 
Outstanding
 
Maturity
 
Current Rate
 
March, 2016
 
$
33.4

 
$
14.7

 
September, 2018
 
3.44
%
(1)
January, 2016
 
35.0

 
17.6

 
February, 2019
 
3.68
%
(2)
November, 2015
 
42.5

 
15.3

 
November, 2017
 
4.50
%
(1)
August, 2015 (4)
 
14.2

 
2.8

 
August, 2017
 
4.50
%
(1)
August, 2015 (4)
 
37.5

 
10.4

 
August, 2017
 
4.50
%
(1)
July, 2015
 
22.5

 
14.9

 
July, 2018
 
4.00
%
(3)
April, 2015
 
18.5

 
13.2

 
October, 2017
 
4.00
%
(3)
November, 2014
 
24.0

 
17.2

 
November, 2017
 
4.00
%
(3)
November, 2014
 
22.0

 
15.5

 
November, 2017
 
4.00
%
(3)
March, 2014
 
26.0

 
15.2

 
October, 2016
 
3.43
%
(1)
 
 
$
275.6

 
$
136.8

 
 
 
 
 
(1) Loan bears interest at the Company's option of either LIBOR +3.0% or the prime rate +1.0%.
(2) Loan bears interest at LIBOR +3.25%
(3) Loan bears interest at the prime rate +0.5%.
(4) Loan relates to a project that is wholly-owned by the Company.
Revolving Line of Credit
On March 27, 2015, William Lyon Homes, Inc., a California corporation ("California Lyon") and Parent entered into an amendment and restatement agreement pursuant to which its existing credit agreement for a revolving credit facility of up to $100 million (the "Revolver") was amended and restated in its entirety (as so amended and restated, the “Amended Facility”). The Amended Facility amends and restates the Revolver and provides for total lending commitments of $130.0 million. In addition, the Amended Facility has an uncommitted accordion feature under which the Company may increase the total principal amount up to a maximum aggregate of $200.0 million under certain circumstances (up from a maximum aggregate of $125.0 million under the previous facility), as well as a sublimit of $50.0 million for letters of credit, and extends the maturity date of the previous facility by one year to August 7, 2017.
The Amended Facility contains various covenants, including financial covenants relating to tangible net worth, leverage, liquidity and interest coverage, as well as a limitation on investments in joint ventures and non-guarantor subsidiaries. The Amended Facility contains customary events of default, subject to cure periods in certain circumstances, including: nonpayment of principal, interest and fees or other amounts; violation of covenants; inaccuracy of representations and warranties; cross default to certain other indebtedness; unpaid judgments; and certain bankruptcy and other insolvency events. The occurrence of any event of default could result in the termination of the commitments under the Amended Facility and permit the lenders to accelerate payment on outstanding borrowings under the Amended Facility and require cash collateralization of outstanding letters of credit. If a change in control (as defined in the Amended Facility) occurs, the lenders may terminate the commitments under the Amended Facility and require that the the Company repay outstanding borrowings under the Amended Facility and cash collateralize outstanding letters of credit. Interest rates on borrowings generally will be based on either LIBOR or a base rate, plus the applicable spread. The commitment fee on the unused portion of the Amended Facility currently accrues at an annual rate of 0.50%. The Company was in compliance with all covenants under the Amended Facility as of March 31, 2016.
Borrowings under the Amended Facility, the availability of which is subject to a borrowing base formula, are required to be guaranteed by Parent and certain of Parent’s direct and indirect wholly-owned subsidiaries, are secured by a pledge of all equity interests held by such guarantors, and may be used for general corporate purposes. As of March 31, 2016 and December 31, 2015, the Company had $49.0 million and $65.0 million outstanding against the Amended Facility, respectively, at effective rates of 3.50% and 3.32%, respectively as well as a letter of credit for $8.6 million outstanding at both dates.

14





Subordinated Amortizing Notes
On November 21, 2014, in order to pay down amounts borrowed under the senior unsecured bridge loan facility entered into in conjunction with the Polygon Acquisition, the Company completed its public offering and sale of 1,000,000 6.50% tangible equity units (“TEUs”, or "Units"), sold for a stated amount of $100 per Unit, featuring a 17.5% conversion premium.  On December 3, 2014, the Company sold an additional 150,000 TEUs pursuant to an over-allotment option granted to the underwriters. Each TEU is a unit composed of two parts: 
a prepaid stock purchase contract (a “purchase contract”); and
a senior subordinated amortizing note (an “amortizing note”).

Unless settled earlier at the holder’s option, each purchase contract will automatically settle on December 1, 2017 (the "mandatory settlement date"), and the Company will deliver not more than 5.2247 shares of Class A Common Stock and not less than 4.4465 shares of Class A Common Stock on the mandatory settlement date, subject to adjustment, based upon the applicable settlement rate and applicable market value of Class A Common Stock.
Each amortizing note had an initial principal amount of $18.01, bears interest at the annual rate of 5.50% and has a final installment payment date of December 1, 2017. On each March 1, June 1, September 1 and December 1, commencing on March 1, 2015, William Lyon Homes will pay equal quarterly installments of $1.6250 on each amortizing note (except for the March 1, 2015 installment payment, which was $1.8056 per amortizing note). Each installment will constitute a payment of interest and a partial repayment of principal. The amortizing notes rank equally in right of payment to all of the Company's existing and future senior indebtedness, other than borrowings under the Amended Facility and the Company's secured project level financing, which will be senior in right of payment to the obligations under the amortizing notes, in each case to the extent of the value of the assets securing such indebtedness.
Each TEU may be separated into its constituent purchase contract and amortizing note on any business day during the period beginning on, and including, the business day immediately succeeding the date of initial issuance of the Units to, but excluding, the third scheduled trading day immediately preceding the mandatory settlement date. Prior to separation, the purchase contracts and amortizing notes may only be purchased and transferred together as Units. The net proceeds received from the TEU issuance were allocated between the amortizing note and the purchase contract under the relative fair value method, with amounts allocated to the purchase contract classified as additional paid-in capital. As of March 31, 2016 and December 31, 2015, the amortizing notes had an unamortized carrying value of $12.4 million and $14.1 million, respectively.
Senior Notes
5 3/4% Senior Notes Due 2019
On March 31, 2014, California Lyon completed its private placement with registration rights of 5.75% Senior Notes due 2019 (the "5.75% Notes"), in an aggregate principal amount of $150 million. The 5.75% Notes were issued at 100% of their aggregate principal amount. In August 2014, we exchanged 100% of the initial 5.75% Notes for notes that are freely transferable and registered under the Securities Act of 1933, as amended (the “Securities Act”).
As of March 31, 2016, the outstanding principal amount of the 5.75% Notes was $150 million, excluding deferred loan costs of $1.6 million. The 5.75% Notes bear interest at a rate of 5.75% per annum, payable semiannually in arrears on April 15 and October 15, and mature on April 15, 2019. The 5.75% Notes are unconditionally guaranteed on a joint and several unsecured basis by Parent and certain of its existing and future restricted subsidiaries. The 5.75% Notes and the related guarantees are California Lyon’s and the guarantors’ unsecured senior obligations and rank equally in right of payment with all of California Lyon’s and the guarantors’ existing and future unsecured senior debt, including California Lyon’s $425 million in aggregate principal amount of 8.5% Senior Notes due 2020 and $350 million in aggregate principal amount of 7.00% Notes, each as described below. The 5.75% Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The 5.75% Notes and the guarantees are and will be effectively junior to California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.

8 1/2% Senior Notes Due 2020
On November 8, 2012, California Lyon completed its private placement with registration rights of 8.5% Senior Notes due 2020, (the "initial 8.5% notes"), in an aggregate principal amount of $325 million. The initial 8.5% Notes were issued at 100%

15



of their aggregate principal amount. In July 2013, we exchanged 100% of the initial 8.5% Notes for notes that are freely transferable and registered under the Securities Act.

On October 24, 2013, California Lyon completed its private placement with registration rights of an additional $100.0 million in aggregate principal amount of its 8.5% Senior Notes due 2020 (the “additional 8.5 % Notes”, and together with the initial 8.5% notes, the "8.5% Notes" ) at an issue price of 106.5% of their aggregate principal amount, plus accrued interest from and including May 15, 2013, resulting in net proceeds of approximately $104.7 million. In February 2014, we exchanged 100% of the additional 8.5% Notes for notes that are freely transferable and registered under the Securities Act.
As of March 31, 2016 the outstanding principal amount of the 8.5% Notes was $425 million, excluding unamortized premium of $3.6 million and deferred loan costs of $5.7 million. The 8.5% Notes bear interest at a rate of 8.5% per annum, payable semiannually in arrears on May 15 and November 15, and mature on November 15, 2020. The 8.5% Notes are unconditionally guaranteed on a joint and several unsecured basis by Parent and by certain of its existing and future restricted subsidiaries. The 8.5% Notes and the related guarantees are California Lyon's and the guarantors' unsecured senior obligations and rank equally in right of payment with all of California Lyon’s and the guarantors’ existing and future unsecured senior debt, including the 5.75% Notes, as described above, and the 7.00% Notes, as described below. The 8.5% Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The 8.5% Notes and the guarantees are and will be effectively junior to any of California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.

7% Senior Notes Due 2022
On August 11, 2014, WLH PNW Finance Corp. (“Escrow Issuer”), completed its private placement with registration rights of 7.00% Senior Notes due 2022 (the “initial 7.00% Notes”), in an aggregate principal amount of $300 million. The initial 7.00% Notes were issued at 100% of their aggregate principal amount. On August 12, 2014, in connection with the consummation of the Polygon Acquisition, Escrow Issuer merged with and into California Lyon, and California Lyon assumed the obligations of the Escrow Issuer under the initial 7.00% Notes and the related indenture by operation of law (the “Escrow Merger”). Following the Escrow Merger, California Lyon is the obligor under the initial 7.00% Notes. In January 2015, we exchanged 100% of the initial 7.00% Notes for notes that are freely transferable and registered under the Securities Act.

On September 15, 2015, California Lyon completed its private placement with registration rights of an additional $50.0 million in aggregate principal amount of its 7.00% Senior Notes due 2022 (the “additional 7.00% Notes”, and together with the intial 7.00% Notes, the "7.00% Notes") at an issue price of 102.0% of their principal amount, plus accrued interest from August 15, 2015, resulting in net proceeds of approximately $50.5 million. In January 2016, we exchanged 100% of the additional 7.00% Notes for notes that are freely transferable and registered under the Securities Act.

As of March 31, 2016 the outstanding amount of the 7.00% Notes was $350 million, excluding unamortized premium of $0.9 million and deferred loan costs of $5.5 million. The 7.00% Notes bear interest at a rate of 7.00% per annum, payable semiannually in arrears on February 15 and August 15, and mature on August 15, 2022. The 7.00% Notes are unconditionally guaranteed on a joint and several unsecured basis by Parent and certain of its existing and future restricted subsidiaries. The 7.00% Notes and the related guarantees are California Lyon’s and the guarantors’ unsecured senior obligations and rank equally in right of payment with all of California Lyon’s and the guarantors’ existing and future unsecured senior debt, including California Lyon’s $150 million in aggregate principal amount of 5.75% Senior Notes due 2019 and $425 million in aggregate principal amount of 8.5% Senior Notes due 2020, each as described above. The 7.00% Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The 7.00% Notes and the guarantees are and will be effectively junior to California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.

Senior Note Covenant Compliance
The indentures governing the 5.75% Notes, the 8.5% Notes, and the 7.00% Notes contain covenants that limit the ability of Parent, California Lyon, and their restricted subsidiaries to, among other things: (i) incur or guarantee certain additional indebtedness; (ii) pay dividends, distributions, or repurchase equity or make payments in respect of subordinated indebtedness; (iii) make certain investments; (iv) sell assets; (v) incur liens; (vi) enter into agreements restricting the ability of the Company’s restricted subsidiaries to pay dividends or transfer assets; (vii) enter into transactions with affiliates; (viii) create unrestricted subsidiaries; and (viii) consolidate, merge or sell all or substantially all of its assets. These covenants are subject to a number of

16



important exceptions and qualifications as described in the indentures. The Company was in compliance with all such covenants as of March 31, 2016.

GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS
The following consolidating financial information includes:
(1) Consolidating balance sheets as of March 31, 2016 and December 31, 2015; consolidating statements of operations for the three and three months ended March 31, 2016 and 2015; and consolidating statements of cash flows for the three month periods ended March 31, 2016 and 2015, of (a) William Lyon Homes, as the parent, or “Delaware Lyon”, (b) William Lyon Homes, Inc., as the subsidiary issuer, or “California Lyon”, (c) the guarantor subsidiaries, (d) the non-guarantor subsidiaries and (e) William Lyon Homes, Inc. on a consolidated basis; and
(2) Elimination entries necessary to consolidate Delaware Lyon, with California Lyon and its guarantor and non-guarantor subsidiaries.
Delaware Lyon owns 100% of all of its guarantor subsidiaries and all guarantees are full and unconditional, joint and several. As a result, in accordance with Rule 3-10 (d) of Regulation S-X promulgated by the SEC, no separate financial statements are required for these subsidiaries as of March 31, 2016 and December 31, 2015, and for the three month periods ended March 31, 2016 and 2015.

17




CONDENSED CONSOLIDATING BALANCE SHEET
(Unaudited)
As of March 31, 2016
(in thousands)
 
 
Unconsolidated
 
 
 
 
 
Delaware
Lyon
 
California
Lyon
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Company
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
30,178

 
$
194

 
$
5,426

 
$

 
$
35,798

Restricted cash

 
505

 

 

 

 
505

Receivables

 
2,261

 
624

 
3,239

 

 
6,124

Escrow proceeds receivable

 

 
3,024

 

 

 
3,024

Real estate inventories

 
898,212

 
620,678

 
234,425

 

 
1,753,315

Investment in unconsolidated joint ventures

 
6,264

 
150

 

 

 
6,414

Goodwill

 
14,209

 
52,693

 

 

 
66,902

Intangibles, net

 

 
6,700

 

 

 
6,700

Deferred income taxes, net

 
79,631

 

 

 

 
79,631

Other assets, net

 
18,610

 
1,708

 
304

 

 
20,622

Investments in subsidiaries
641,531

 
(25,858
)
 
(597,916
)
 

 
(17,757
)
 

Intercompany receivables

 

 
241,527

 

 
(241,527
)
 

Total assets
$
641,531

 
$
1,024,012

 
$
329,382

 
$
243,394

 
$
(259,284
)
 
$
1,979,035

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
54,077

 
$
21,037

 
$
3,740

 
$

 
$
78,854

Accrued expenses

 
67,200

 
4,265

 
111

 

 
71,576

Notes payable

 
62,201

 

 
123,616

 

 
185,817

Subordinated amortizing notes

 
12,390

 

 

 

 
12,390

5 3/4% Senior Notes

 
148,429

 

 

 

 
148,429

8  1/2% Senior Notes

 
422,887

 

 

 

 
422,887

7% Senior Notes

 
345,474

 

 

 

 
345,474

Intercompany payables

 
171,819

 

 
69,708

 
(241,527
)
 

Total liabilities

 
1,284,477

 
25,302

 
197,175

 
(241,527
)
 
1,265,427

Equity
 
 
 
 
 
 
 
 
 
 
 
William Lyon Homes stockholders’ equity (deficit)
641,531

 
(260,465
)
 
304,080

 
(25,858
)
 
(17,757
)
 
641,531

Noncontrolling interests

 

 

 
72,077

 

 
72,077

Total liabilities and equity
$
641,531

 
$
1,024,012

 
$
329,382

 
$
243,394

 
$
(259,284
)
 
$
1,979,035


18




CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2015
(in thousands)
 
 
Unconsolidated
 
 
 
 
 
Delaware
Lyon
 
California
Lyon
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Company
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
44,332

 
$
2,723

 
$
3,148

 
$

 
$
50,203

Restricted cash

 
504

 

 

 

 
504

Receivables

 
8,986

 
937

 
4,915

 

 
14,838

Escrow proceeds receivable

 
2,020

 
1,021

 

 

 
3,041

Real estate inventories

 
922,990

 
589,762

 
162,354

 

 
1,675,106

Investment in unconsolidated joint ventures

 
5,263

 
150

 

 

 
5,413

Goodwill

 
14,209

 
52,693

 

 

 
66,902

Intangibles, net

 

 
6,700

 

 

 
6,700

Deferred income taxes, net

 
79,726

 

 

 

 
79,726

Other assets, net

 
18,980

 
1,738

 
299

 

 
21,017

Investments in subsidiaries
632,095

 
(34,522
)
 
(561,546
)
 

 
(36,027
)
 

Intercompany receivables

 

 
239,248

 

 
(239,248
)
 

Total assets
$
632,095

 
$
1,062,488

 
$
333,426

 
$
170,716

 
$
(275,275
)
 
$
1,923,450

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
45,065

 
$
27,807

 
$
3,009

 
$

 
$
75,881

Accrued expenses

 
62,167

 
8,059

 
98

 

 
70,324

Notes payable

 
80,915

 

 
94,266

 

 
175,181

Subordinated amortizing notes

 
14,066

 

 

 

 
14,066

5 3/4% Senior Notes

 
148,295

 

 

 

 
148,295

1/2% Senior Notes

 
422,896

 

 

 

 
422,896

7% Senior Notes

 
345,338

 

 

 

 
345,338

Intercompany payables

 
170,757

 

 
68,491

 
(239,248
)
 

Total liabilities

 
1,289,499

 
35,866

 
165,864

 
(239,248
)
 
1,251,981

Equity

 

 

 

 

 

William Lyon Homes stockholders’ equity (deficit)
632,095

 
(227,011
)
 
297,560

 
(34,522
)
 
(36,027
)
 
632,095

Noncontrolling interests

 

 

 
39,374

 

 
39,374

Total liabilities and equity
$
632,095

 
$
1,062,488

 
$
333,426

 
$
170,716

 
$
(275,275
)
 
$
1,923,450


19




CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended March 31, 2016
(in thousands)
 
 
Unconsolidated
 
 
 
 
 
Delaware
Lyon
 
California
Lyon
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Company
Operating revenue
 
 
 
 
 
 
 
 
 
 
 
Sales
$

 
$
100,824

 
$
137,800

 
$
22,671

 
$

 
$
261,295

Construction services

 
3,130

 

 

 

 
3,130

Management fees

 
(680
)
 

 

 
680

 

 

 
103,274

 
137,800

 
22,671

 
680

 
264,425

Operating costs
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 
(78,879
)
 
(115,560
)
 
(20,052
)
 
(680
)
 
(215,171
)
Construction services

 
(2,824
)
 

 

 

 
(2,824
)
Sales and marketing

 
(5,950
)
 
(7,625
)
 
(1,418
)
 

 
(14,993
)
General and administrative

 
(14,006
)
 
(3,828
)
 

 

 
(17,834
)
Other

 
(369
)
 
46

 

 

 
(323
)
 

 
(102,028
)
 
(126,967
)
 
(21,470
)
 
(680
)
 
(251,145
)
Income from subsidiaries
9,014

 
2,237

 

 

 
(11,251
)
 

Operating income
9,014

 
3,483

 
10,833

 
1,201

 
(11,251
)
 
13,280

Equity in income from unconsolidated joint ventures

 
1,002

 
179

 

 

 
1,181

Other income (expense), net

 
773

 
(9
)
 
(239
)
 

 
525

Income before provision for income taxes
9,014

 
5,258

 
11,003

 
962

 
(11,251
)
 
14,986

Provision for income taxes

 
(5,045
)
 

 

 

 
(5,045
)
Net income
9,014

 
213

 
11,003

 
962

 
(11,251
)
 
9,941

Less: Net income attributable to noncontrolling interests

 

 

 
(927
)
 

 
(927
)
Net income available to common stockholders
$
9,014

 
$
213

 
$
11,003

 
$
35

 
$
(11,251
)
 
$
9,014


20




CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended March 31, 2015
(in thousands)
 
 
Unconsolidated
 
 
 
 
 
Delaware
Lyon
 
California
Lyon
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Company
Operating revenue
 
 
 
 
 
 
 
 
 
 
 
Sales
$

 
$
89,544

 
$
83,134

 
$
17,037

 
$

 
$
189,715

Construction services

 
7,453

 

 

 

 
7,453

Management fees

 
(511
)
 

 

 
511

 

 

 
96,486

 
83,134

 
17,037

 
511

 
197,168

Operating costs
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 
(68,876
)
 
(70,384
)
 
(14,310
)
 
(511
)
 
(154,081
)
Construction services

 
(6,029
)
 

 

 

 
(6,029
)
Sales and marketing

 
(5,754
)
 
(5,524
)
 
(946
)
 

 
(12,224
)
General and administrative

 
(11,319
)
 
(2,629
)
 

 

 
(13,948
)
Amortization of intangible assets

 
(203
)
 

 

 

 
(203
)
Other

 
(1,136
)
 
600

 

 

 
(536
)
 

 
(93,317
)
 
(77,937
)
 
(15,256
)
 
(511
)
 
(187,021
)
Income from subsidiaries
6,682

 
(6,744
)
 

 

 
62

 

Operating income (loss)
6,682

 
(3,575
)
 
5,197

 
1,781

 
62

 
10,147

Equity in income from unconsolidated joint ventures

 

 
248

 

 

 
248

Other income (expense), net

 
4,366

 
4,813

 
(8,398
)
 

 
781

Income (loss) before provision for income taxes
6,682

 
791

 
10,258

 
(6,617
)
 
62

 
11,176

Provision for income taxes

 
(3,570
)
 

 

 

 
(3,570
)
Net income (loss)
6,682

 
(2,779
)
 
10,258

 
(6,617
)
 
62

 
7,606

Less: Net income attributable to noncontrolling interests

 

 

 
(924
)
 

 
(924
)
Net income (loss) available to common stockholders
$
6,682

 
$
(2,779
)
 
$
10,258

 
$
(7,541
)
 
$
62

 
$
6,682



















21







CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31, 2016
(in thousands)
 
 
Unconsolidated
 
 
 
 
 
Delaware
Lyon
 
California
Lyon
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Company
Operating activities
 
 
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
$
(422
)
 
$
41,317

 
$
(32,162
)
 
$
(68,691
)
 
$
422

 
$
(59,536
)
Investing activities
 
 
 
 
 
 
 
 
 
 
 
Collection of related party note receivable

 
6,188

 

 

 

 
6,188

Purchases of property and equipment

 
(548
)
 
25

 
(3
)
 

 
(526
)
Investments in subsidiaries

 
(6,427
)
 
36,370

 

 
(29,943
)
 

Net cash (used in) provided by investing activities


(787
)

36,395


(3
)

(29,943
)

5,662

Financing activities
 
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings on notes payable

 
57

 

 
53,105

 

 
53,162

Principal payments on notes payable

 
(2,771
)
 

 
(23,755
)
 

 
(26,526
)
Proceeds from borrowings on Revolver

 
55,000

 

 

 

 
55,000

Payments on Revolver

 
(71,000
)
 

 

 

 
(71,000
)
Principal payments on subordinated amortizing notes

 
(1,676
)
 

 

 

 
(1,676
)
Payment of deferred loan costs

 
(197
)
 

 

 

 
(197
)
Shares remitted to or withheld by Company for employee tax withholding

 
(844
)
 

 

 

 
(844
)
Excess income tax benefit from stock based awards

 
(226
)
 

 

 

 
(226
)
Noncontrolling interest contributions

 

 

 
33,241

 

 
33,241

Noncontrolling interest distributions

 

 

 
(1,465
)
 

 
(1,465
)
Advances to affiliates

 

 
(4,483
)
 
8,629

 
(4,146
)
 

Intercompany receivables/payables
422

 
(33,027
)
 
(2,279
)
 
1,217

 
33,667

 

Net cash provided by (used in) financing activities
422

 
(54,684
)
 
(6,762
)
 
70,972

 
29,521

 
39,469

Net (decrease) increase in cash and cash equivalents

 
(14,154
)
 
(2,529
)
 
2,278

 

 
(14,405
)
Cash and cash equivalents at beginning of period

 
44,332

 
2,723

 
3,148

 

 
50,203

Cash and cash equivalents at end of period
$

 
$
30,178

 
$
194

 
$
5,426

 
$

 
$
35,798


22




CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31, 2015
(in thousands)
 
 
Unconsolidated
 
 
 
 
 
Delaware
Lyon
 
California
Lyon
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Company
Operating activities
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
175

 
$
(53,883
)
 
$
(6,375
)
 
$
(838
)
 
$
(175
)
 
$
(61,096
)
Investing activities
 
 
 
 
 
 
 
 
 
 
 
Investments in and advances to unconsolidated joint ventures

 
(1,000
)
 

 

 

 
(1,000
)
Purchases of property and equipment

 
(173
)
 
15

 
8

 

 
(150
)
Investments in subsidiaries

 
(4,896
)
 
11,916

 

 
(7,020
)
 

Net cash (used in) provided by investing activities

 
(6,069
)
 
11,931

 
8

 
(7,020
)
 
(1,150
)
Financing activities
 
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings on notes payable

 

 

 
6,148

 

 
6,148

Principal payments on notes payable

 
(384
)
 
(162
)
 
(6,416
)
 

 
(6,962
)
Proceeds from borrowings on Revolver

 
89,000

 

 

 

 
89,000

Payments on revolver

 
(40,000
)
 

 

 

 
(40,000
)
Principal payments on subordinated amortizing notes

 
(1,760
)
 

 

 

 
(1,760
)
Payment of deferred loan costs

 
(561
)
 

 

 

 
(561
)
Proceeds from exercise of stock options

 
106

 

 

 

 
106

Shares remitted to Company for employee tax witholding

 
(1,632
)
 

 

 

 
(1,632
)
Noncontrolling interest distributions

 

 

 
(5,414
)
 

 
(5,414
)
Advances to affiliates

 

 
(4,808
)
 
5,693

 
(885
)
 

Intercompany receivables/payables
(175
)
 
(6,620
)
 
(779
)
 
(506
)
 
8,080

 

Net cash provided by (used in) financing activities
(175
)
 
38,149

 
(5,749
)
 
(495
)
 
7,195

 
38,925

Net decrease in cash and cash equivalents

 
(21,803
)
 
(193
)
 
(1,325
)
 

 
(23,321
)
Cash and cash equivalents at beginning of period

 
48,462

 
573

 
3,736

 

 
52,771

Cash and cash equivalents at end of period
$

 
$
26,659

 
$
380

 
$
2,411

 
$

 
$
29,450


23



Note 7—Fair Value of Financial Instruments
In accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosure (“ASC 820”), the Company is required to disclose the estimated fair value of financial instruments. As of March 31, 2016 and December 31, 2015, the Company used the following assumptions to estimate the fair value of each type of financial instrument for which it is practicable to estimate:

Notes payable—The carrying amount is a reasonable estimate of fair value of the notes payable because market rates are unchanged and/or the outstanding balance at quarter end is expected to be repaid within one year.

Subordinated amortizing notes—The Subordinated amortizing notes are traded over the counter and their fair values were based upon quotes from industry sources.

    5 3/4% Senior Notes due April 15, 2019 —The 5 3/4% Senior Notes are traded over the counter and their fair values were based upon quotes from industry sources.

8 1/2% Senior Notes due November 15, 2020 —The 8 1/2% Senior Notes are traded over the counter and their fair values were based upon quotes from industry sources.

7% Senior Notes due August 15, 2022 —The 7% Senior Notes are traded over the counter and their fair values were based upon quotes from industry sources.

The following table excludes cash and cash equivalents, restricted cash, receivables and accounts payable, which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments. The estimated fair values of financial instruments are as follows (in thousands):
 
 
March 31, 2016
 
December 31, 2015
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Financial liabilities:
 
 
 
 
 
 
 
Notes payable
$
185,817

 
$
185,817

 
$
175,181

 
$
175,181

Subordinated amortizing notes
$
12,390

 
$
9,514

 
$
14,066

 
$
12,122

5 3/4% Senior Notes due 2019
$
148,429

 
$
143,250

 
$
148,295

 
$
147,750

8 1/2% Senior Notes due 2020
$
422,887

 
$
434,563

 
$
422,896

 
$
449,438

7% Senior Notes due 2022
$
345,474

 
$
334,250

 
$
345,338

 
$
350,875

ASC 820 establishes a framework for measuring fair value, expands disclosures regarding fair value measurements and defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires the Company to maximize the use of observable market inputs, minimize the use of unobservable market inputs and disclose in the form of an outlined hierarchy the details of such fair value measurements. The Company used Level 3 to measure the fair value of its Notes payable, and Level 2 to measure the fair value of its Senior notes and Subordinated amortizing notes. ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. The three levels of the hierarchy are as follows:
Level 1—quoted prices for identical assets or liabilities in active markets;
Level 2—quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3—valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.



24




Note 8—Related Party Transactions

On September 3, 2009, Presley CMR, Inc., a California corporation (“Presley CMR”) and a wholly owned subsidiary of California Lyon, entered into an Aircraft Purchase and Sale Agreement (“PSA”) with an affiliate of General William Lyon to sell an aircraft (the “Aircraft”). The PSA provided for an aggregate purchase price for the Aircraft of $8.3 million, (which value was the appraised fair market value of the Aircraft), which consisted of: (i) cash in the amount of $2.1 million to be paid at closing and (ii) a promissory note from the affiliate in the amount of $6.2 million. The note was secured by the Aircraft and required semiannual interest payments to California Lyon of approximately $0.1 million. The note provided for a maturity date in September 2016. During the three months ended March 31, 2016 the promissory note was paid in full by the borrower prior to the September 2016 maturity date, along with all accrued interest to date.
Note 9—Income Taxes
Since inception, the Company has operated solely within the United States. The Company’s effective income tax rate was 33.7% and 31.9% for the three months ended March 31, 2016 and 2015, respectively. The significant drivers of the effective tax rate are allocation of income to noncontrolling interests and the domestic production activities deduction.
Management assesses its deferred tax assets quarterly to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740. The Company is required to establish a valuation allowance for any portion of the asset that management concludes is more likely than not to be unrealizable. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company's assessment considers all evidence, both positive and negative, including the nature, frequency and severity of any current and cumulative losses, taxable income in carry back years, the scheduled reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income in making this assessment. At March 31, 2016 the Company’s had no amounts recorded as a valuation allowance against its deferred tax assets.
At March 31, 2016, the Company had no remaining federal net operating loss carryforwards and $54.2 million of remaining state net operating loss carryforwards. State net operating loss carryforwards begin to expire in 2031 and 2016, respectively. In addition, as of March 31, 2016, the Company had unused federal and state built-in losses of $53.2 million and $7.5 million, respectively. The five year testing period for built-in losses expires in 2017 and the unused built-in loss carryforwards begin to expire in 2032. The Company had AMT credit carryovers of $1.4 million at March 31, 2016, which have an indefinite life.
FASB ASC Topic 740, Income Taxes (“ASC 740”), prescribes a recognition threshold and a measurement criterion for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be considered more likely than not to be sustained upon examination by taxing authorities. The Company records interest and penalties related to uncertain tax positions as a component of the provision for income taxes. The Company has no unrecognized tax benefits.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is subject to U.S. federal income tax examination for calendar tax years ended 2012 through 2015 and forward. The Company is subject to various state income tax examinations for calendar tax years ended 2008 through 2015 and forward. The Company does not have any tax examinations currently in progress.







25



Note 10—Income Per Common Share
Basic and diluted income per common share for the three months ended March 31, 2016 and 2015 were calculated as follows (in thousands, except number of shares and per share amounts):
 
 
Three 
 Months 
 Ended  
 March 31, 
 2016
 
Three 
 Months 
 Ended 
 March 31, 
 2015
Basic weighted average number of common shares outstanding
36,651,846

 
36,463,995

Effect of dilutive securities:
 
 
 
Stock options, unvested common shares, and warrants
757,085

 
1,169,836

Tangible equity units
894,930

 

Diluted average shares outstanding
38,303,861

 
37,633,831

Net income available to common stockholders
$
9,014

 
$
6,682

Basic income per common share
$
0.25

 
$
0.18

Dilutive income per common share
$
0.24

 
$
0.18

Antidilutive securities not included in the calculation of diluted income per common share (weighted average):
 
 
 
Unvested stock options
240,000

 

Warrants
1,907,551

 

Tangible equity units

 
894,930


Note 11—Stock Based Compensation
We account for share-based awards in accordance with ASC Topic 718, Compensation-Stock Compensation, which requires the fair value of stock-based compensation awards to be amortized as an expense over the vesting period. Stock-based compensation awards are valued at the fair value on the date of grant. Compensation expense for awards with performance based conditions is recognized over the vesting period once achievement of the performance condition is deemed probable.
During the three months ended March 31, 2016, the Company granted 259,797 shares of restricted stock, and 566,092 shares of performance based restricted stock. On the Consolidated Balance Sheets and Statement of Equity, the Company considers unvested shares of restricted stock to be issued, but not outstanding.
The Company recorded total stock based compensation expense during the three months ended March 31, 2016 and 2015 of $1.5 million and $1.4 million, respectively.


Performance-Based Restricted Stock Awards

With respect to the performance based restricted stock awards granted to certain employees during the three months ended March 31, 2016, the actual number of such shares of restricted stock that will be earned (the “Earned Shares”) is subject to the Company’s achievement of pre-established performance targets as of the end of the 2016 fiscal year. For each of the aforementioned awards, one-third of the Earned Shares will vest on March 1st of each of 2017, 2018 and 2019, subject to each grantee’s continued service through each vesting date. Based on the assessment as of March 31, 2016, management determined that the currently available data was not sufficient to support that the achievement of performance targets is probable, and as such no compensation expense has been recognized for these awards to date.
Restricted Stock Awards
With respect to the restricted stock awards granted to certain employees during the three months ended March 31, 2016, representing 218,733 shares of restricted stock, 163,269 of such shares are subject to a vesting schedule pursuant to which one-third of the shares will vest on March 1st of each of 2017, 2018 and 2019, and 55,464 of such shares are subject to a vesting schedule pursuant to which one-half of the shares will vest on March 1st of each of 2017 and 2018. With respect to the restricted stock awards granted to certain non-employee directors of the Company during the three months ended March 31, 2016, representing 41,064 shares of restricted stock, the awards vest in equal quarterly installments on each of June 1, 2016,

26



September 1, 2016, December 1, 2016 and March 1, 2017, subject to each grantee’s continued service on the board through each vesting date.
Note 12—Commitments and Contingencies
The Company’s commitments and contingent liabilities include the usual obligations incurred by real estate developers in the normal course of business. In the opinion of management, these matters will not have a material effect on the Company’s condensed consolidated financial position, results of operations or cash flows.
The Company is a defendant in various lawsuits related to its normal business activities. We believe that the accruals we have recorded for probable and reasonably estimable losses with respect to these proceedings are adequate and that, as of March 31, 2016, it was not reasonably possible that an additional material loss had been incurred in an amount in excess of the estimated amounts already recognized on our condensed consolidated financial statements. We evaluate our accruals for litigation and regulatory proceedings, and as appropriate, adjust them to reflect (i) the facts and circumstances known to us at the time, including information regarding negotiations, settlements, rulings and other relevant events and developments; (ii) the advice and analyses of counsel; and (iii) the assumptions and judgment of management. Similar factors and considerations are used in establishing new accruals for proceedings as to which losses have become probable and reasonably estimable at the time an evaluation is made. The outcome of any of these proceedings, including the defense and other litigation-related costs and expenses we may incur, however, is inherently uncertain and could differ significantly from the estimate reflected in a related accrual, if made. Therefore, it is possible that the ultimate outcome of any proceeding, if in excess of a related accrual or if no accrual had been made, could be material to our consolidated financial statements.
We have non-cancelable operating leases primarily associated with our office facilities. Rent expense under cancelable and non-cancelable operating leases totaled $1.0 million and $1.0 million, respectively, in the three months ended March 31, 2016 and 2015, respectively, and is included in general and administrative expense in our consolidated statements of operations for the respective periods. The table below shows the future minimum payments under non-cancelable operating leases at March 31, 2016 (in thousands).
 
Year Ending December 31
 
2016
$
1,826

2017
2,282

2018
2,274

2019
2,054

2020
1,832

Thereafter
2,603

Total
$
12,871

As of March 31, 2016 and December 31, 2015, the Company had $0.5 million and $0.5 million, respectively, in deposits as collateral for outstanding surety bonds to guarantee the Company’s financial obligations under certain contractual arrangements in the normal course of business. The standby letters of credit were secured by cash as reflected as restricted cash on the accompanying consolidated balance sheet.
The Company also had outstanding performance and surety bonds of $166.2 million at March 31, 2016, related principally to its obligations for site improvements at various projects. The Company does not believe that draws upon these bonds, if any, will have a material effect on the Company’s financial position, results of operations or cash flows. As of March 31, 2016, the Company had $259.1 million of project commitments relating to the construction of projects.
See Note 6 for additional information relating to the Company’s guarantee arrangements.
The Company has entered into various purchase option agreements with third parties to acquire land. As of March 31, 2016, the Company has made non-refundable deposits of $69.4 million. The Company is under no obligation to purchase the land, but would forfeit remaining deposits if the land were not purchased. The total remaining purchase price under the option agreements is $479.9 million as of March 31, 2016.




27



Note 13—Subsequent Events

No events have occurred subsequent to March 31, 2016, that would require recognition or disclosure in the Company’s financial statements.

28



Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
WILLIAM LYON HOMES
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company is one of the largest Western U.S. regional homebuilders. Headquartered in Newport Beach, California, the Company is primarily engaged in the design, construction, marketing and sale of single-family detached and attached homes in California, Arizona, Nevada, Colorado, Oregon, and Washington. The Company’s core markets include Orange County, Los Angeles, the San Francisco Bay Area, Phoenix, Las Vegas, Denver, Portland, and Seattle. The Company has a distinguished legacy of more than 60 years of homebuilding operations, over which time it has sold in excess of 96,000 homes. For the three months ended March 31, 2016 (the "2016 period"), the Company had revenues from homes sales of $261.3 million, a 38% increase from $189.7 million for the three months ended March 31, 2015 (the "2015 period"), which includes results from all reportable operating segments. The Company had net new home orders of 689 homes in the 2016 period, a 17% increase from 588 in the 2015 period, while the average sales price ("ASP") for homes closed decreased 2% to $481,200 in the 2016 period from $489,000 in the 2015 period.
Basis of Presentation
The accompanying condensed consolidated financial statements included herein have been prepared under U.S. Generally Accepted Accounting Principles ("U.S. GAAP"), and the rules and regulations of the Securities and Exchange Commission (the "SEC"), and are presented on a going concern basis, which assumes the Company will be able to operate in the ordinary course of its business and realize its assets and discharge its liabilities for the foreseeable future.
Results of Operations
In the three months ended March 31, 2016, the Company delivered 543 homes, with an ASP of approximately $481,200, and recognized home sales revenue of $261.3 million. The Company generated net income of $9.0 million for the three months ended March 31, 2016, and earnings per share of $0.24, on a diluted basis. The Company continues to see positive trends in price appreciation at most of its projects over the course of the year, and our average sales price of homes in backlog is approximately $533,000 as of March 31, 2016, which is 11% higher than the average sales price of homes closed for the three months ended March 31, 2016 of $481,200.
As of March 31, 2016, the Company was selling homes in 67 communities, and our average community count for the three month period then ended was 69 locations. We had a consolidated backlog of 885 homes sold but not closed, with an associated sales value of $471.7 million, representing a 31% increase in units, and a 41% increase in dollar value, as compared to the backlog at March 31, 2015.
Homebuilding gross margin percentage and adjusted homebuilding gross margin percentage was 17.7% and 24.7%, respectively, for the three months ended March 31, 2016, as compared to 18.8% and 24.6%, respectively, for the three months ended March 31, 2015.
Comparisons of the Three Months Ended March 31, 2016 to March 31, 2015
Revenues from homes sales increased 38% to $261.3 million during the three months ended March 31, 2016, compared to $189.7 million during the three months ended March 31, 2015. The increase is primarily due to the opening of new communities across our reporting segments. The number of net new home orders for the three months ended March 31, 2016 increased 17% to 689 homes from 588 homes for the three months ended March 31, 2015. 

29



 
Three Months Ended March 31,
 
Increase (Decrease)
 
2016
 
2015
 
Amount
 
%
Number of Net New Home Orders
 
 
 
 
 
 
 
California
162

 
184

 
(22
)
 
(12
)%
Arizona
108

 
44

 
64

 
145
 %
Nevada
66

 
46

 
20

 
43
 %
Colorado
78

 
85

 
(7
)
 
(8
)%
Washington
84

 
114

 
(30
)
 
(26
)%
Oregon
191

 
115

 
76

 
66
 %
Total
689

 
588

 
101

 
17
 %
Cancellation Rate
14
%
 
17
%
 
(3
)%
 

The 17% increase in net new homes orders is driven by a 28% increase in average number of sales locations to 69 average locations in 2016, compared to 54 in the 2015 period, driven by the opening of new communities in Oregon, Arizona, Nevada, and Washington. This increase was partially offset by a shift in product mix in the California and Colorado reporting segments to homes with higher ASPs, which generally sell at a slower pace. In addition, the Company's absorption decreased slightly for the three months ended March 31, 2016 to 3.3 sales per month per project from 3.6 in the 2015 period. Cancellation rates during the 2016 period decreased to 14% from 17% during the 2015 period.

 
Three Months Ended March 31,
 
Increase (Decrease)
 
2016
 
2015
 
Amount
 
%
Average Number of Sales Locations
 
 
 
 
 
 
 
California
18

 
17

 
1

 
6
 %
Arizona
8

 
5

 
3

 
60
 %
Nevada
12

 
9

 
3

 
33
 %
Colorado
10

 
13

 
(3
)
 
(23
)%
Washington
6

 
5

 
1

 
20
 %
Oregon
15

 
5

 
10

 
200
 %
Total
69

 
54

 
15

 
28
 %
The average number of sales locations for the Company increased to 69 locations for the three months ended March 31, 2016 compared to 54 for the three months ended March 31, 2015, driven by the opening of new communities in Oregon, Arizona, Nevada, and Washington during 2016, as the Company continues to convert its land supply into home sites.
 
 
March 31,
 
Increase (Decrease)
 
2016
 
2015
 
Amount
 
%
Backlog (units)
 
 
 
 
 
 
 
California
214

 
207

 
7

 
3
 %
Arizona
235

 
66

 
169

 
256
 %
Nevada
119

 
85

 
34

 
40
 %
Colorado
103

 
128

 
(25
)
 
(20
)%
Washington
60

 
100

 
(40
)
 
(40
)%
Oregon
154

 
92

 
62

 
67
 %
Total
885

 
678

 
207

 
31
 %
The Company’s backlog at March 31, 2016 increased 31% to 885 units from 678 units at March 31, 2015. The increase is primarily attributable to the Arizona, Oregon and Nevada reporting segments, which added 169, 62 and 34 units, respectively over the 2015 period. These increases were partially offset by Washington and Colorado, which experienced a decrease of 40

30



and 25 units, respectively, from the 2015 period. The California reporting segment reported backlog levels that were fairly consistent between periods.
 
March 31,
 
Increase (Decrease)
 
2016
 
2015
 
Amount
 
%
 
(dollars in thousands)
Backlog (dollars)
 
 
 
 
 
 
 
California
$
166,193

 
$
124,341

 
$
41,852

 
34
 %
Arizona
62,169

 
18,147

 
44,022

 
243
 %
Nevada
86,863

 
56,715

 
30,148

 
53
 %
Colorado
53,011

 
57,237

 
(4,226
)
 
(7
)%
Washington
35,492

 
44,128

 
(8,636
)
 
(20
)%
Oregon
67,969

 
34,500

 
33,469

 
97
 %
Total
$
471,697

 
$
335,068

 
$
136,629

 
41
 %
The dollar amount of backlog of homes sold but not closed as of March 31, 2016 was $471.7 million, up 41% from $335.1 million as of March 31, 2015. The increase primarily reflects an increase in net new orders as described above, coupled with an 8% increase in the ASP of homes in backlog when compared with the prior period. The increase in the dollar amount of backlog of homes sold but not closed as described above generally results in an increase in operating revenues in the subsequent period as compared to the previous period.
In California, the dollar amount of backlog increased 34% to $166.2 million as of March 31, 2016 from $124.3 million as of March 31, 2015, which is attributable to a 29% increase in the ASP of homes in backlog to $776,600 in the 2016 period from $600,700 in the 2015 period. The increase in average sales price of homes in backlog reflects a greater number of homes in backlog with price points above $1.0 million dollars, to 36 in the 2016 period from 23 in the 2015 period. In California, the cancellation rate remained relatively consistent at 20% for the three months ended March 31, 2016, compared to 19% for the three months ended March 31, 2015.
In Arizona, the dollar amount of backlog increased 243% to $62.2 million as of March 31, 2016 from $18.1 million as of March 31, 2015, which is attributable to a 256% increase in the number of homes in backlog, to 235 at March 31, 2016, from 66 at March 31, 2015, driven by consistently higher absorption rates over the last several quarters. In the Arizona reporting segment, the cancellation rate decreased to 9% for the three months ended March 31, 2016 from 14% for the three months ended March 31, 2015.
In Nevada, the dollar amount of backlog increased 53% to $86.9 million as of March 31, 2016 from $56.7 million as of March 31, 2015, attributable to a 40% increase in units in backlog, to 119 as of March 31, 2016 from 85 as of March 31, 2015, and a 9% increase in average sales price of homes in backlog to $729,900 as of March 31, 2016, from $667,200 as of March 31, 2015. The increase in average sales price of homes in backlog reflects a larger number of homes in backlog with price points above $1.0 million dollars, to 16 in the 2016 period from 13 in the 2015 period. In Nevada, the cancellation rate decreased to 20% for the three months ended March 31, 2016 from 22% for the three months ended March 31, 2015.
In Colorado, the dollar amount of backlog decreased 7% to $53.0 million as of March 31, 2016 from $57.2 million as of March 31, 2015, which is attributable to a 20% decrease in the number of units in backlog, to 103 units as of March 31, 2016, from 128 units as of March 31, 2015, partially offset by a 15% increase of the ASP of homes in backlog to $514,700 as of March 31, 2016 from $447,200 as of March 31, 2015. In Colorado, the cancellation rate increased to 11% for the three months ended March 31, 2016 from 9% for the three months ended March 31, 2015.
In Washington, the dollar amount of backlog decreased 20% to $35.5 million as of March 31, 2016 from $44.1 million as of March 31, 2015, which is attributable to a 40% decrease in the number of units in backlog, to 60 units as of March 31, 2016, from 100 units as of March 31, 2015. This decrease is partially offset by a 34% increase in the ASP of homes in backlog to $591,500 as of March 31, 2016 from $441,300 as of March 31, 2015. In Washington, the cancellation rate decreased to 10% for the three months ended March 31, 2016 from 20% for the three months ended March 31, 2015.
In Oregon, the dollar amount of backlog increased 97% to $68.0 million as of March 31, 2016 from $34.5 million as of March 31, 2015, which is primarily attributable to a 67% increase in the number of units in backlog, to 154 units as of March 31, 2016, from 92 units as of March 31, 2015, coupled with a 18% increase in the ASP of homes in backlog to $441,400 in the 2016 period from $375,000 in the 2015 period. In Oregon, the cancellation rate decreased to 10% for the three months ended March 31, 2016 from 19% for the three months ended March 31, 2015.

31



 
 
Three Months Ended March 31,
 
Increase (Decrease)
 
2016
 
2015
 
Amount
 
%
Number of Homes Closed
 
 
 
 
 
 
 
California
142

 
135

 
7

 
5
 %
Arizona
82

 
25

 
57

 
228
 %
Nevada
62

 
34

 
28

 
82
 %
Colorado
53

 
41

 
12

 
29
 %
Washington
68

 
76

 
(8
)
 
(11
)%
Oregon
136

 
77

 
59

 
77
 %
Total
543

 
388

 
155

 
40
 %

During the three months ended March 31, 2016, the number of homes closed increased 40% to 543 from 388 in the 2015 period. The increase was primarily attributable to the Arizona, Nevada, and Oregon reporting segments, driven by a higher number of homes in backlog to begin the quarter when compared with the 2015 period, as well as moderate increases in the Colorado and California reporting segments.
 
Three Months Ended March 31,
 
Increase (Decrease)
 
2016
 
2015
 
Amount
 
%
 
(dollars in thousands)
Home Sales Revenue
 
 
 
 
 
 
 
California
$
92,754

 
$
79,340

 
$
13,414

 
17
%
Arizona
21,047

 
7,186

 
13,861

 
193
%
Nevada
30,741

 
27,242

 
3,499

 
13
%
Colorado
26,393

 
18,189

 
8,204

 
45
%
Washington
32,901

 
31,280

 
1,621

 
5
%
Oregon
57,459

 
26,478

 
30,981

 
117
%
Total
$
261,295

 
$
189,715

 
$
71,580

 
38
%
The 38% increase in homebuilding revenue is driven by the 40% increase in homes closed discussed above, partially offset by a minor decrease in ASP of homes closed during the period.
 
 
Three Months Ended March 31,
 
Increase (Decrease)
 
2016
 
2015
 
Amount
 
%
Average Sales Price of Homes Closed
 
 
 
 
 
 
 
California
$
653,200

 
$
587,700

 
$
65,500

 
11
 %
Arizona
256,700

 
287,400

 
(30,700
)
 
(11
)%
Nevada
495,800

 
801,200

 
(305,400
)
 
(38
)%
Colorado
498,000

 
443,600

 
54,400

 
12
 %
Washington
483,800

 
411,600

 
72,200

 
18
 %
Oregon
422,500

 
343,900

 
78,600

 
23
 %
Total
$
481,200

 
$
489,000

 
$
(7,800
)
 
(2
)%

The average sales price of homes closed during the 2016 period decreased 2% due to a greater proportion of overall deliveries in the current period in the Arizona and Oregon reporting segments, which have lower price points, and a change in product mix in Nevada. In Nevada, the decrease in average sales price of homes closed was attributable to 4 closings with an average sales price in excess of $900,000 during 2016, compared with 18 comparable closings in the 2015 period.


32



Gross Margin
Homebuilding gross margins decreased to 17.7% for the three months ended March 31, 2016 from 18.8% in the 2015 period, primarily driven by the application of purchase accounting related to the acquisition of our Washington and Oregon reporting segments, which negatively impacted gross margins by 250 basis points during the 2016 period. Additionally, homebuilding gross margins were negatively impacted by rising labor and land costs, as well as an increase in capitalized interest being amortized through cost of sales.
For the comparison of the three months ended March 31, 2016 and the three months ended March 31, 2015, adjusted homebuilding gross margin percentage, which excludes previously capitalized interest included in cost of sales as well as the effect of adjustments recorded in relation to purchase accounting, was 24.7% for the 2016 period compared to 24.6% for the 2015 period. The increase was primarily a result of the increase in cost of sales, slightly offset by a decrease in the impact of purchase accounting.
Adjusted homebuilding gross margin is a non-GAAP financial measure. The Company believes this information is meaningful as it isolates the impact that interest and purchase accounting have on homebuilding gross margin and permits investors to make better comparisons with the Company's competitors, who also break out and adjust gross margins in a similar fashion. For comparative purposes purchase accounting is the net adjustment in basis related to the acquisition of our Colorado, Washington and Oregon operating divisions. See table set forth below reconciling this non-GAAP measure to homebuilding gross margin.
 
 
Three Months Ended March 31,
 
2016
 
2015
 
(dollars in thousands)
Home sales revenue
$
261,295

 
$
189,715

Cost of home sales
215,171

 
154,081

Homebuilding gross margin
46,124

 
35,634

Homebuilding gross margin percentage
17.7
%
 
18.8
%
Add: Interest in cost of sales
11,747

 
6,701

Add: Purchase accounting adjustments
6,593

 
4,333

Adjusted homebuilding gross margin
$
64,464

 
$
46,668

Adjusted homebuilding gross margin percentage
24.7
%
 
24.6
%
Construction Services Revenue
Construction services revenue, which is only in the California reporting segment, was $3.1 million for the three months ended March 31, 2016, and $7.5 million for the three months ended March 31, 2015. The decrease is primarily due to a decrease in revenue attributable to one project in Northern California. During the fourth quarter of 2015 and continuing into 2016, the Company wound down significant construction services projects.
Sales and Marketing, General and Administrative
 
Three Months Ended March 31,
 
As a Percentage of Home Sales Revenue
 
2016
 
2015
 
2016
 
2015
 
(dollars in thousands)
 
 
 
 
Sales and Marketing
$
14,993

 
$
12,224

 
5.7
%
 
6.4
%
General and Administrative
17,834

 
13,948

 
6.8
%
 
7.4
%
Total Sales and Marketing & General and Administrative
$
32,827

 
$
26,172

 
12.5
%
 
13.8
%
Sales and marketing expense as a percentage of home sales revenue decreased to 5.7% in the 2016 period compared to 6.4% in the 2015 period as result of lower advertising and upfront marketing costs, in addition to improved leverage on our existing headcount. General and administrative expense as a percentage of home sales revenues decreased to 6.8% in the 2016

33



period compared to 7.4% in the 2015 period. The decrease is driven by increased revenues and improved operating leverage on our increased headcount.
Equity in Income of Unconsolidated Joint Ventures
Equity in income of unconsolidated joint ventures increased to $1.2 million for the three months ended March 31, 2016 from $0.2 million during the 2015 period. The increase reflects the expanding operations of the mortgage joint ventures in which the Company holds a non-controlling interest.
Other Items
Interest activity for the three months ended March 31, 2016 and March 31, 2015 is as follows (in thousands):
 
 
Three Months Ended March 31,
 
2016
 
2015
Interest incurred
$
20,261

 
$
18,033

Less: Interest capitalized
20,261

 
18,033

Interest expense, net of amounts capitalized
$

 
$

Cash paid for interest
$
14,911

 
$
11,700

The increase in interest incurred for the three months ended March 31, 2016, compared to the interest incurred for the three months ended March 31, 2015, reflects an increase in the Company's overall debt, offset by a decrease in effective interest rates. The Company capitalized all of the interest it incurred during both periods presented due to its qualifying assets exceeding its outstanding debt.
During the three months ended March 31, 2016 the Company sold a parcel of land to a third party that did not result in any gain or loss.
Provision for Income Taxes
During the three months ended March 31, 2016, the Company recorded a provision for income taxes of $5.0 million, for an effective tax rate of 33.7%. The significant drivers of the effective rate are the allocation of income to noncontrolling interests and domestic production activities deduction. During the three months ended March 31, 2015, the Company recorded a provision for income taxes of $3.6 million for an effective tax rate of 31.9%.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was consistent between periods, totalling $0.9 million during both the 2016 period and 2015 period.
Net Income Attributable to William Lyon Homes
As a result of the foregoing factors, net income attributable to William Lyon Homes for the three months ended March 31, 2016, and 2015 was $9.0 million, and $6.7 million, respectively.
Lots Owned and Controlled
The table below summarizes the Company’s lots owned and controlled as of the periods presented:
 

34



 
March 31,
 
Increase (Decrease)
 
2016
 
2015
 
Amount
 
%
Lots Owned
 
 
 
 
 
 
 
California
1,653

 
2,318

 
(665
)
 
(29
)%
Arizona
5,122

 
5,396

 
(274
)
 
(5
)%
Nevada
3,319

 
2,982

 
337

 
11
 %
Colorado
745

 
938

 
(193
)
 
(21
)%
Washington
1,570

 
1,351

 
219

 
16
 %
Oregon
1,142

 
1,148

 
(6
)
 
(1
)%
Total
13,551

 
14,133

 
(582
)
 
(4
)%
Lots Controlled(1)
 
 
 
 
 
 
 
California
1,317

 
1,097

 
220

 
20
 %
Arizona

 

 

 
 %
Nevada
64

 
83

 
(19
)
 
(23
)%
Colorado
822

 
183

 
639

 
349
 %
Washington
361

 
728

 
(367
)
 
(50
)%
Oregon
1,920

 
1,249

 
671

 
54
 %
Total
4,484

 
3,340

 
1,144

 
34
 %
Total Lots Owned and Controlled
18,035

 
17,473

 
562

 
3
 %
 
(1)
Lots controlled may be purchased by the Company as consolidated projects or may be purchased by newly formed joint ventures.
Total lots owned and controlled has increased to 18,035 lots owned and controlled at March 31, 2016 from 17,473 lots at March 31, 2015.

Financial Condition and Liquidity
Throughout 2015 and into 2016 the U.S. housing market has continued to improve on the momentum experienced during 2012 and 2013, albeit at a more moderate pace than in those recent years, and continues to improve from the cyclical low points of previous years. Strong housing markets have been associated with great affordability, a healthy domestic economy, positive demographic trends, including employment and population growth. While the homebuilding industry encountered some challenges during 2015 and into 2016, including constrained labor availability, increased cycle times, volatility in global and financial markets, and weather challenges, during the first three months of 2016 the Company has continued to show year-over-year improvement in deliveries, revenues, orders, and pre-tax income.
The Company benefits from a sizable and well-located lot supply, and as of March 31, 2016, the Company owned 13,551 lots, all of which are entitled, and had options to purchase an additional 4,484 lots. The Company’s lot supply reflects its balanced approach to land investment. The Company has a diverse mix of finished lots available for near-term homebuilding operations and longer-term strategic land positions to support future growth. The Company believes that its current inventory of owned and controlled lots is sufficient to supply the vast majority of its projected future home closings for the next three years. The Company has continued to experience increased cycle times in a number of its operating segments in the start of 2016, and the availability of qualified trades with the associated delays and cost increases are challenges faced by the Company and the entire homebuilding industry during 2015 and into 2016. The Company continues to implement new strategies to temper the impact of these challenges in an effort to manage cycle times and deliveries.
Since our initial public offering, which raised approximately $163.7 million of net proceeds, the Company has access to the public equity and debt markets, which it has utilized as a significant source of financing for investing in land in our existing markets or financing expansion into new markets, such as the Company’s acquisition of Polygon Northwest Homes during 2014.

35



The Company provides for its ongoing cash requirements with the proceeds from capital markets transactions, as well as from internally generated funds from the sales of homes and/or land sales. During the three months ended March 31, 2016 the Company has closed 543 homes and recorded total revenues of $261.3 million. During the three months ended March 31, 2016, the Company used cash in operations of $59.5 million, which included investment in land acquisitions of $60.2 million, for net cash generated by operations of $0.7 million. In addition, the Company has the option to use additional outside borrowing, form new joint ventures with partners that could provide a substantial portion of the capital required for certain projects, buy land via lot options or land banking arrangements, and engage in future transactions in the public equity and debt markets. The Company has financed, and may in the future finance, certain projects and land acquisitions with construction loans secured by real estate inventories, seller-provided financing, land banking transactions, and capital markets transactions. The Company may also draw on its revolving line of credit to fund land acquisitions, as discussed below. We believe we are well-positioned with a strong balance sheet and sufficient liquidity for supporting our ongoing operations and growth initiatives.
Tangible Equity Units
On November 21, 2014, in order to pay down amounts borrowed under the senior unsecured bridge loan facility entered into in conjunction with the Polygon Acquisition, the Company completed its public offering and sale of 1,000,000 6.50% tangible equity units (“TEUs”, or "Units"), sold for a stated amount of $100 per Unit, featuring a 17.5% conversion premium.  On December 3, 2014, the Company sold an additional 150,000 TEUs pursuant to an over-allotment option granted to the underwriters. Each TEU is a unit composed of two parts: 
a prepaid stock purchase contract (a “purchase contract”); and
a senior subordinated amortizing note (an “amortizing note”).

Unless settled earlier at the holder’s option, each purchase contract will automatically settle on December 1, 2017 (the "mandatory settlement date"), and the Company will deliver not more than 5.2247 shares of Class A Common Stock and not less than 4.4465 shares of Class A Common Stock on the mandatory settlement date, subject to adjustment, based upon the applicable settlement rate and applicable market value of Class A Common Stock.

Each amortizing note had an initial principal amount of $18.01, bears interest at the annual rate of 5.50% and has a final installment payment date of December 1, 2017. On each March 1, June 1, September 1 and December 1, commencing on March 1, 2015, William Lyon Homes will pay equal quarterly installments of $1.6250 on each amortizing note (except for the March 1, 2015 installment payment, which was $1.8056 per amortizing note). Each installment will constitute a payment of interest and a partial repayment of principal. The amortizing notes rank equally in right of payment to all of the Company's existing and future senior indebtedness, other than borrowings under the Amended Facility and the Company's secured project level financing, which will be senior in right of payment to the obligations under the amortizing notes, in each case to the extent of the value of the assets securing such indebtedness.
Each TEU may be separated into its constituent purchase contract and amortizing note on any business day during the period beginning on, and including, the business day immediately succeeding the date of initial issuance of the Units to, but excluding, the third scheduled trading day immediately preceding the mandatory settlement date. Prior to separation, the purchase contracts and amortizing notes may only be purchased and transferred together as Units. The net proceeds received from the TEU issuance were allocated between the amortizing note and the purchase contract under the relative fair value method, with amounts allocated to the purchase contract classified as additional paid-in capital. As of March 31, 2016 and December 31, 2015, the amortizing notes had an unamortized carrying value of $12.4 million and $14.1 million, respectively.
The Company used the net proceeds from the offering of the TEUs to pay down approximately $111.2 million of outstanding debt under a senior unsecured bridge loan facility used to finance the Company's acquisition of Polygon Northwest Homes during 2014.
            
5 3/4% Senior Notes Due 2019
On March 31, 2014, California Lyon completed its offering of 5.75% Senior Notes due 2019 (the "5.75% Notes"), in an aggregate principal amount of $150 million. The 5.75% Notes were issued at 100% of their aggregate principal amount.

36



As of March 31, 2016, the outstanding principal amount of the 5.75% Notes was $150.0 million, excluding deferred loan costs of $1.6 million. The 5.75% Notes bear interest at a rate of 5.75% per annum, payable semiannually in arrears on April 15 and October 15, and mature on April 15, 2019. The 5.75% Notes are unconditionally guaranteed on a joint and several unsecured basis by Parent and certain of its existing and future restricted subsidiaries. The 5.75% Notes and the related guarantees are California Lyon’s and the guarantors’ unsecured senior obligations and rank equally in right of payment with all of California Lyon’s and the guarantors’ existing and future unsecured senior debt, including California Lyon’s $425 million in aggregate principal amount of 8.5% Senior Notes due 2020 and $350 million in aggregate principal amount of 7.00% Notes, each as described below. The 5.75% Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The 5.75% Notes and the guarantees are and will be effectively junior to California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.
8 1/2% Senior Notes Due 2020
On November 8, 2012, California Lyon completed its offering of 8.5% Senior Notes due 2020, (the "initial 8.5% Notes"), in an aggregate principal amount of $325 million. The initial 8.5% Notes were issued at 100% of their aggregate principal amount.

On October 24, 2013, California Lyon completed the sale to certain purchasers of an additional $100.0 million in aggregate principal amount of its 8.5% Senior Notes due 2020 (the “additional 8.5% Notes”, and together with the initial 8.5% notes, the "8.5% Notes" ) at an issue price of 106.5% of their aggregate principal amount, plus accrued interest from and including May 15, 2013, resulting in net proceeds of approximately $104.7 million.
As of March 31, 2016 the outstanding principal amount of the 8.5% Notes was $425 million, excluding unamortized premium of $3.6 million and deferred loan costs of $5.7 million. The 8.5% Notes bear interest at a rate of 8.5% per annum, payable semiannually in arrears on May 15 and November 15, and mature on November 15, 2020. The 8.5% Notes are unconditionally guaranteed on a joint and several unsecured basis by Parent and by certain of its existing and future restricted subsidiaries. The 8.5% Notes and the related guarantees are California Lyon's and the guarantors' unsecured senior obligations and rank equally in right of payment with all of California Lyon’s and the guarantors’ existing and future unsecured senior debt, including, the 5.75% Notes, as described above, and the 7.00% Notes, as described below. The 8.5% Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The 8.5% Notes and the guarantees are and will be effectively junior to any of California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.

7.00% Senior Notes due 2022
On August 11, 2014, WLH PNW Finance Corp. (“Escrow Issuer”), completed its offering of 7.00% Senior Notes due 2022 (the “initial 7.00% Notes”), in an aggregate principal amount of $300 million. The initial 7.00% Notes were issued at 100% of their aggregate principal amount. On August 12, 2014, in connection with the consummation of the Polygon Acquisition, Escrow Issuer merged with and into California Lyon, and California Lyon assumed the obligations of the Escrow Issuer under the initial 7.00% Notes and the related indenture by operation of law (the “Escrow Merger”). Following the Escrow Merger, California Lyon is the obligor under the initial 7.00% Notes. In January 2015, we exchanged 100% of the initial 7.00% Notes for notes that are freely transferable and registered under the Securities Act.

On September 15, 2015, California Lyon completed its private placement with registration rights of an additional $50.0 million in aggregate principal amount of its 7.00% Senior Notes due 2022 (the “additional 7.00% Notes”, and together with the initial 7.00% Notes, the "7.00% Notes") at an issue price of 102.0% of their principal amount, plus accrued interest from August 15, 2015, resulting in net proceeds of approximately $50.5 million. In January 2016, we exchanged 100% of the additional 7.00% Notes for notes that are freely transferable and registered under the Securities Act.
As of March 31, 2016, the outstanding principal amount of the 7.00% Notes was $350 million, excluding unamortized premium of $0.9 million and deferred loan costs of $5.5 million. The 7.00% Notes bear interest at a rate of 7.00% per annum, payable semiannually in arrears on February 15 and August 15, and mature on August 15, 2022. The 7.00% Notes are unconditionally guaranteed on a joint and several unsecured basis by Parent and certain of its existing and future restricted subsidiaries. The 7.00% Notes and the related guarantees are California Lyon’s and the guarantors’ unsecured senior obligations and rank equally in right of payment with all of California Lyon’s and the guarantors’ existing and future unsecured senior debt, including California Lyon’s $150 million in aggregate principal amount of 5.75% Senior Notes due 2019 and $425 million in aggregate principal amount of 8.5% Senior Notes due 2020, each as described above. The 7.00% Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The 7.00% Notes and the

37



guarantees are and will be effectively junior to California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.

Senior Notes Covenant Compliance
The indentures governing the 5.75% Notes, the 8.5% Notes, and the 7.00% Notes contain covenants that limit the ability of Parent, California Lyon, and their restricted subsidiaries to, among other things: (i) incur or guarantee certain additional indebtedness; (ii) pay dividends, distributions, or repurchase equity or make payments in respect of subordinated indebtedness; (iii) make certain investments; (iv) sell assets; (v) incur liens; (vi) enter into agreements restricting the ability of the Company’s restricted subsidiaries to pay dividends or transfer assets; (vii) enter into transactions with affiliates; (viii) create unrestricted subsidiaries; and (viii) consolidate, merge or sell all or substantially all of its assets. These covenants are subject to a number of important exceptions and qualifications as described in the Indenture. The Company was in compliance with all such covenants as of March 31, 2016.

Revolving Lines of Credit
On March 27, 2015, California Lyon and Parent entered into an amendment and restatement agreement pursuant to which its existing credit agreement for a revolving credit facility of up to $100 million (the "Revolver") was amended and restated in its entirety (as so amended and restated, the “Amended Facility”). The Amended Facility amends and restates the Revolver and provides for total lending commitments of $130.0 million. In addition, the Amended Facility has an uncommitted accordion feature under which the Company may increase the total principal amount up to a maximum aggregate of $200.0 million under certain circumstances (up from a maximum aggregate of $125.0 million under the previous facility), as well as a sublimit of $50.0 million for letters of credit, and extends the maturity date of the previous facility by one year to August 7, 2017.
The Amended Facility contains various covenants, including financial covenants relating to tangible net worth, leverage, liquidity and interest coverage, as well as a limitation on investments in joint ventures and non-guarantor subsidiaries. The Amended Facility contains customary events of default, subject to cure periods in certain circumstances, including: nonpayment of principal, interest and fees or other amounts; violation of covenants; inaccuracy of representations and warranties; cross default to certain other indebtedness; unpaid judgments; and certain bankruptcy and other insolvency events. The occurrence of any event of default could result in the termination of the commitments under the Amended Facility and permit the lenders to accelerate payment on outstanding borrowings under the Amended Facility and require cash collateralization of outstanding letters of credit. If a change in control (as defined in the Amended Facility) occurs, the lenders may terminate the commitments under the Amended Facility and require that the the Company repay outstanding borrowings under the Amended Facility and cash collateralize outstanding letters of credit. Interest rates on borrowings generally will be based on either LIBOR or a base rate, plus the applicable spread. The commitment fee on the unused portion of the Amended Facility currently accrues at an annual rate of 0.50%. The Company was in compliance with all covenants under the Amended Facility as of March 31, 2016.
Borrowings under the Amended Facility, the availability of which is subject to a borrowing base formula, are required to be guaranteed by the Company and certain of the Company’s wholly-owned subsidiaries, are secured by a pledge of all equity interests held by such guarantors, and may be used for general corporate purposes. As of March 31, 2016, the Company had $49.0 million outstanding against the Amended Facility at an effective rate of 3.50%, as well as a letter of credit for $8.6 million further reducing the amount available under the Amended Facility.
Construction Notes Payable
  
    The Company and certain of its consolidated joint ventures have entered into construction notes payable agreements. The issuance date, facility size, maturity date and interest rate are listed in the table below as of March 31, 2016 (in millions):




38



Issuance Date
 
Facility Size
 
Outstanding
 
Maturity
 
Current Rate
 
March, 2016
 
$
33.4

 
$
14.7

 
September, 2018
 
3.44
%
(1)
January, 2016
 
35.0

 
17.6

 
February, 2019
 
3.68
%
(2)
November, 2015
 
42.5

 
15.3

 
November, 2017
 
4.50
%
(1)
August, 2015 (4)
 
14.2

 
2.8

 
August, 2017
 
4.50
%
(1)
August, 2015 (4)
 
37.5

 
10.4

 
August, 2017
 
4.50
%
(1)
July, 2015
 
22.5

 
14.9

 
July, 2018
 
4.00
%
(3)
April, 2015
 
18.5

 
13.2

 
October, 2017
 
4.00
%
(3)
November, 2014
 
24.0

 
17.2

 
November, 2017
 
4.00
%
(3)
November, 2014
 
22.0

 
15.5

 
November, 2017
 
4.00
%
(3)
March, 2014
 
26.0

 
15.2

 
October, 2016
 
3.43
%
(1)
 
 
$
275.6

 
$
136.8

 
 
 
 
 
(1) Loan bears interest at the Company's option of either LIBOR +3.0% or the prime rate +1.0%.
(2) Loan bears interest at LIBOR +3.25%
(3) Loan bears interest at the prime rate +0.5%.
(4) Loan relates to a project that is wholly-owned by the Company.


Net Debt to Total Capital
The Company’s ratio of net debt to net book capital was 60.2% and 61.1% as of March 31, 2016 and December 31, 2015, respectively. The ratio of net debt to net book capital is a non-GAAP financial measure, which is calculated by dividing notes payable and Senior Notes, net of cash and cash equivalents and restricted cash, by net book capital (notes payable and Senior Notes, net of cash and cash equivalents and restricted cash, plus total equity). The Company believes this calculation is a relevant and useful financial measure to investors in understanding the leverage employed in its operations, and may be helpful in comparing the Company with other companies in the homebuilding industry to the extent they provide similar information. See table set forth below reconciling this non-GAAP measure to the ratio of debt to total capital.
 
 
Successor
 
March 31, 2016
 
December 31, 2015
 
(dollars in thousands)
Notes payable and Senior Notes
$
1,114,997

 
$
1,105,776

Total equity
713,608

 
671,469

Total capital
$
1,828,605

 
$
1,777,245

Ratio of debt to total capital
61.0
%
 
62.2
%
Notes payable and Senior Notes
$
1,114,997

 
$
1,105,776

Less: Cash and cash equivalents and restricted cash
(36,303
)
 
(50,707
)
Net debt
1,078,694

 
1,055,069

Total equity
713,608

 
671,469

Total capital
$
1,792,302

 
$
1,726,538

Ratio of net debt to total capital
60.2
%
 
61.1
%
Joint Venture Financing
The Company and certain of its subsidiaries are general partners or members in joint ventures involved in the development and sale of residential projects. As described more fully in Critical Accounting Policies—Variable Interest Entities, certain joint ventures have been determined to be variable interest entities in which the Company is considered the primary beneficiary. Accordingly, the assets, liabilities and operations of these joint ventures have been consolidated with the Company’s financial statements for the periods presented. The financial statements of joint ventures in which the Company is not considered the primary beneficiary are not consolidated with the Company’s financial statements. The Company’s investments in unconsolidated joint ventures are accounted for using the equity method because the Company has a 50% or less voting or economic interest (and thus such joint ventures are not controlled by the Company). Based upon current estimates,

39



substantially all future development and construction costs incurred by the joint ventures will be funded by the venture partners or from the proceeds of construction financing obtained by the joint ventures.
During the three months ended March 31, 2015, the Company acquired a non-controlling interest in an unconsolidated mortgage joint venture.
Assessment District Bonds
In some jurisdictions in which the Company develops and constructs property, assessment district bonds are issued by municipalities to finance major infrastructure improvements and fees. Such financing has been an important part of financing master-planned communities due to the long-term nature of the financing, favorable interest rates when compared to the Company’s other sources of funds and the fact that the bonds are sold, administered and collected by the relevant government entity. As a landowner benefited by the improvements, the Company is responsible for the assessments on its land. When the Company’s homes or other properties are sold, the assessments are either prepaid or the buyers assume the responsibility for the related assessments.
Cash Flows—Comparison of the Three Months Ended March 31, 2016 to the Three Months Ended March 31, 2015
For the three months ended March 31, 2016 and 2015, the comparison of cash flows is as follows:
Net cash used in operating activities decreased to $59.5 million in the 2016 period from $61.1 million in the 2015 period. The change was primarily a result of (i) an increase in accrued expenses of $1.3 million in the 2016 period compared to an decrease of $11.2 million in the 2015 period primarily due to the timing of payments, (ii) a decrease in receivables of $2.4 million in the 2016 period compared to a negligible change in the 2015 period, and (iii) a negligible change in escrow proceeds receivable in the 2016 period compared to an increase of $4.3 million in the 2015 period due to the timing of homes closed, partially offset by (iv) a net increase in spending on real estate inventories-owned of $77.7 million in the 2016 period compared to spending of $63.1 million in the 2015 period, and (iv) an increase in accounts payable of $3.0 million in the 2016 period compared to an increase of $7.4 million in the 2015 period due to timing of payments.
Net cash provided by investing activities was $5.7 million in the 2016 period compared net cash used of $1.2 million in the 2015 period, primarily driven by (i) collections of related party notes of $6.2 million in the 2016 period with no comparable amount in the 2015 period, (ii) net cash paid to unconsolidated joint ventures of $1.0 million in the 2015 period, with no comparable amount in the 2016 period and (iii) purchases of property and equipment of $0.5 million in the 2016 period, compared to $0.2 million in the 2015 period.
Net cash provided by financing activities increased to $39.5 million in the 2016 period from $38.9 million in the 2015 period. The change was primarily the result of (i) net noncontrolling interest contributions of $31.8 million in the 2016 period versus net distributions of $5.4 million in the 2015 period and (ii) net borrowings of notes payable of $26.6 million in the 2016 period, with net payments of $0.8 million in the 2015 period, offset by (iii) net payments of $16.0 million against the revolving line of credit in the 2016 period versus net borrowing of $49.0 million in the 2015 period.
Based on capital market access and expected sales volume, the Company believes it has sufficient cash and sources of financing for at least the next twelve months.

Contractual Obligations and Off-Balance Sheet Arrangements
The Company enters into certain off-balance sheet arrangements including joint venture financing, option agreements, land banking arrangements and variable interests in consolidated and unconsolidated entities. These arrangements are more fully described above and in Notes 2 and 12 of “Notes to Condensed Consolidated Financial Statements.” In addition, the Company is party to certain contractual obligations, including land purchases and project commitments, which are detailed in Note 12 of “Notes to Condensed Consolidated Financial Statements.”
Inflation
The Company’s revenues and profitability may be affected by increased inflation rates and other general economic conditions. In periods of high inflation, demand for the Company’s homes may be reduced by increases in mortgage interest rates. Further, the Company’s profits will be affected by increases in the costs of land, construction, labor and administrative expenses. The Company’s ability to raise prices at such times will depend upon demand and other competitive factors.

40





Description of Projects and Communities Under Development
The Company’s homebuilding projects usually take two to five years to develop. The following table presents project information relating to each of the Company’s homebuilding operating segments as of March 31, 2016. The section for "Active Projects" includes only projects with lots owned as of March 31, 2016, lots consolidated in accordance with certain accounting principles as of March 31, 2016 or homes closed for the period ended March 31, 2016, and in each case, with an estimated year of first delivery of 2016 or earlier. The section for "Future Owned and Controlled" includes projects with lots owned as of March 31, 2016 but with an estimated year of first delivery of 2017 or later, parcels of undeveloped land held for future sale, and lots controlled as of March 31, 2016, in each case aggregated by county. The following table includes certain information that is forward-looking or predictive in nature and is based on expectations and projections about future events. Such information is subject to a number of risks and uncertainties, and actual results may differ materially from those expressed or forecast in the table below. In addition, we undertake no obligation to update or revise the information in the table below to reflect changed assumptions, the occurrence of anticipated or unanticipated events or changes to projections over time. See "NOTE ABOUT FORWARD-LOOKING STATEMENTS" included in this Quarterly Report on Form 10-Q.

 
Active Projects (County or City)
Estimated
Year of
First
Delivery
 
Estimated
Number of
Homes at
Completion
(1)
 
Cumulative
Homes
Closed as
of March 31,
2016 (2)
 
Backlog
at
March 31,
2016 (3)
(4)
 
Lots
Owned
as of
March 31,
2016 (5)
 
Homes
Closed
for the
Period
Ended
March 31,
2016
 
Estimated Sales Price Range (6)
 
CALIFORNIA
 
 
 
 
 
 
 
 
 
Orange County:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Anaheim
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Avelina
2016
 
38

 

 

 
38

 

 
$ 540,000 - 575,000
 
Buena Park
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Covey (7)
2016
 
67

 

 

 
67

 

 
$ 790,000 - 840,000
 
Cypress
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Mackay Place (7)
2016
 
47

 

 
1

 
47

 

 
$ 838,000 - 896,000
  
Dana Point
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Grand Monarch
2015
 
37

 
6

 
8

 
27

 

 
$ 2,604,000 - 2,904,000
 
Ladera Ranch
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Artisan
2015
 
29

 
3

 

 
18

 

 
$ 2,550,000 - 3,025,000
  
Irvine
 
 
 
 
 
 
 
 
 
 
 
 
 
  
The Vine
2016
 
106

 

 
6

 
18

 

 
$ 485,000 - 620,000
 
Rancho Mission Viejo
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Aurora (7)
2016
 
94

 
20

 
13

 
74

 
20

 
$ 454,000 - 589,000
 
Vireo (7)
2015
 
90

 
18

 
14

 
72

 
8

 
$ 575,000 - 635,000
 
Briosa (7)
2016
 
50

 

 

 
50

 

 
$ 935,000 - 1,055,000
 
Rancho Santa Margarita
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dahlia Court
2016
 
36

 

 

 
36

 

 
$ 499,000 - 619,000
 
Los Angeles County:
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Glendora
 
 
 
 
 
 
 
 
 
 
 
 
 
  
La Colina Estates
2015
 
121

 
8

 
6

 
94

 
2

 
$ 1,274,000 - 1,654,000
 
Lakewood
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Canvas
2015
 
72

 
44

 
15

 
28

 
8

 
$ 443,000 - 487,000
 
Riverside County:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Riverside
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SkyRidge
2014
 
90

 
19

 
1

 
71

 
1

 
$ 500,000 - 543,000
 
TurnLeaf
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Crossings
2014
 
139

 
12

 
2

 
91

 
2

 
$ 495,000 - 549,000
 

41



Coventry
2015
 
161

 
6

 
2

 
115

 

 
$ 535,000 - 560,000
 
Eastvale
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Nexus
2015
 
220

 
36

 
15

 
184

 
26

 
$ 338,000 - 362,000
 
San Bernardino County:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Upland
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Orchards (7)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Citrus Court
2015
 
77

 
17

 
4

 
60

 
5

 
$ 324,000 - 394,000
 
Citrus Pointe
2015
 
132

 
13

 
7

 
119

 
4

 
$ 339,000 - 404,000
 
Yucaipa
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cedar Glen
2015
 
143

 
74

 
17

 
69

 
4

 
$ 306,000 - 322,000
 
Alameda County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dublin
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Terrace Ridge
2015
 
36

 
18

 
17

 
18

 
3

 
$ 1,110,000 - 1,170,000
 
Contra Costa County:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pittsburgh
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Vista Del Mar
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Victory II
2014
 
104

 
68

 
13

 
36

 
6

 
$ 573,000 - 642,000
  
Victory III
2016
 
11

 
7

 
4

 
4

 
7

 
$ 573,000 - 642,000
 
Brentwood
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Palmilla (7)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cielo
2014
 
56

 
55

 

 
1

 
7

 
$ 399,000 - 454,000
 
Antioch
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oak Crest
2013
 
130

 
125

 
4

 
5

 
6

 
$ 443,000 - 488,000
 
San Joaquin County:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tracy
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maplewood
2014
 
59

 
52

 
7

 
7

 
3

 
$ 450,000 - 532,000
 
Santa Clara County:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Morgan Hill
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brighton Oaks
2015
 
110

 
55

 
53

 
55

 
8

 
$ 550,000 - 680,000
 
Mountain View
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Guild 33
2015
 
33

 
28

 
5

 
5

 
22

 
$ 1,180,000 - 1,495,000
  
CALIFORNIA TOTAL
 
 
2,288


684


214


1,409


142

 
 
 




Active Projects (County or City)
Estimated
Year of
First
Delivery
 
Estimated
Number of
Homes at
Completion
(1)
 
Cumulative
Homes
Closed as
of March 31,
2016 (2)
 
Backlog
at
March 31,
2016 (3)
(4)
 
Lots
Owned
as of
March 31,
2016 (5)
 
Homes
Closed
for the
Period
Ended
March 31,
2016
 
Estimated Sales Price Range (6)
 
ARIZONA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maricopa County:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Queen Creek
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hastings Farm
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Estates
2012
 
153

 
145

 
8

 
8

 
5

 
$ 307,000 - 361,000
  
Meridian
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Harvest
2015
 
448

 
61

 
46

 
387

 
17

 
$ 192,000 - 232,000
 
Homestead
2015
 
562

 
21

 
20

 
541

 
4

 
$ 230,000 - 300,000
  
Harmony
2015
 
505

 
14

 
10

 
491

 
5

 
$ 260,000 - 274,000
 
Horizons
2016
 
425

 

 
4

 
425

 

 
$ 292,000 - 360,000
 
Mesa
 
 
 
 
 
 
 
 
 
 
 
 
 
 

42



Lehi Crossing
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Settlers Landing
2012
 
235

 
140

 
29

 
95

 
8

 
$ 234,490 - 269,490
 
Wagon Trail
2013
 
244

 
108

 
26

 
136

 
8

 
$ 249,000 - 305,000
 
Monument Ridge
2013
 
248

 
56

 
19

 
192

 
5

 
$ 279,000 - 370,000
  
Albany Village
2016
 
228

 

 

 
228

 

 
$ 182,000 - 231,000
  
Peoria
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Rio Vista
2015
 
197

 
68

 
73

 
129

 
30

 
$ 196,000 - 223,000
 
ARIZONA TOTAL
 
 
3,245

 
613

 
235

 
2,632

 
82

 
 
 
NEVADA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Clark County:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North Las Vegas
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tierra Este
2013
 
114

 
74

 
15

 
40

 
12

 
$ 219,000 - 239,000
  
Las Vegas
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Serenity Ridge
2013
 
108

 
106

 
2

 
2

 
9

 
$ 478,000 - 558,000
 
Lyon Estates
2014
 
128

 
38

 
18

 
90

 
8

 
$ 408,000 - 538,000
 
Sterling Ridge
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Grand
2014
 
137

 
57

 
19

 
80

 
2

 
$ 875,000 - 920,000
 
Premier
2014
 
62

 
50

 
4

 
12

 
1

 
$ 1,244,000 - 1,312,000
  
Allegra
2016
 
88

 
2

 
15

 
86

 
2

 
$ 523,000 - 542,000
  
Silver Ridge
2016
 
83

 

 
9

 
22

 

 
$ 1,294,000 - 1,362,000
 
Tuscan Cliffs
2015
 
77

 
13

 
7

 
64

 
1

 
$ 650,000 - 786,000
 
Brookshire
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Estates
2015
 
35

 
10

 
13

 
25

 
7

 
$ 595,000 - 631,000
 
Heights
2015
 
98

 
17

 
3

 
81

 
5

 
$ 369,000 - 391,000
 
Charleston & 215 (7)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Affinity - Type 1
2016
 
192

 

 

 
192

 

 
$ 233,000 - 290,000
 
Affinity - Type 2
2016
 
117

 

 

 
117

 

 
$ 296,000 - 358,000
 
Affinity - Type 3
2016
 
96

 

 

 
96

 

 
$ 370,000 - 390,000
 
Affinity - Type 4
2016
 
80

 

 

 
80

 

 
$ 442,000 - 445,000
 
Henderson
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lago Vista
2016
 
52

 
1

 
3

 
51

 
1

 
$ 765,000 - 935,000
  
The Peaks
2016
 
88

 

 

 
88

 

 
$ 475-000 - 495,000
  
Nye County:
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Pahrump
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mountain Falls
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series I
2011
 
211

 
142

 
5

 
69

 
13

 
$ 154,000 - 183,000
 
Series II
2014
 
218

 
19

 
6

 
199

 
1

 
$ 221,000 - 304,000
 
NEVADA TOTAL
 
 
1,984

 
529

 
119

 
1,394

 
62

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
COLORADO
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Arapahoe County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Aurora Southshore
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hometown I
2014
 
68

 
44

 
15

 
24

 
3

 
 $ 359,000 - 385,000
 
Generations
2014
 
15

 
13

 

 
2

 
2

 
 $ 401,000 - 494,000
 
Harmony
2015
 
10

 
7

 
1

 
3

 
1

 
 $ 418,000 - 509,000
 
Signature I
2015
 
7

 
3

 
3

 
4

 
2

 
 $ 538,000 - 591,000
 
Hometown II
2016
 
30

 
2

 

 
28

 
2

 
 $ 384,000 - 417,000
 
Artistry
2016
 
61

 
2

 
6

 
59

 
2

 
 $ 420,000 - 481,000
 
Centennial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Greenfield
2016
 
35

 

 

 
35

 

 
 $ 440,000 - 495,000
 
Douglas County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Castle Rock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cliffside
2014
 
49

 
31

 
10

 
18

 
4

 
 $ 518,000 - 596,000
 

43



Grand County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Granby
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Granby Ranch
2012
 
19

 
19

 

 

 
1

 
 (8)
 
Jefferson County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Arvada
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Candelas Sundance
2014
 
66

 
64

 
1

 
2

 
4

 
 $ 391,000 - 440,000
 
Candelas II
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Generations
2015
 
91

 
9

 
14

 
82

 
6

 
 $ 405,000 - 481,000
 
Tapestry
2015
 
110

 
1

 
3

 
109

 
1

 
 $ 444,000 - 525,000
 
Leydon Rock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Garden
2014
 
56

 
19

 
8

 
37

 
2

 
 $ 406,000 - 446,000
 
Park
2015
 
78

 
46

 
11

 
32

 
9

 
 $ 387,000 - 452,000
 
Larimer County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fort Collins
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Timnath Ranch
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonnet
2014
 
179

 
31

 
7

 
148

 
1

 
 $ 388,000 - 461,000
 
Park
2014
 
92

 
36

 
12

 
56

 
9

 
 $ 359,000 - 394,000
 
Loveland
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lakes at Centerra
2015
 
200

 
15

 
12

 
51

 
4

 
 $ 358,000 - 398,000
 
COLORADO TOTAL
 
 
1,166


342


103


690


53

 
 
 




Active Projects (County or City)
Estimated
Year of
First
Delivery
 
Estimated
Number of
Homes at
Completion
(1)
 
Cumulative
Homes
Closed as
of March 31,
2016 (2)
 
Backlog
at
March 31,
2016 (3)
(4)
 
Lots
Owned
as of
March 31,
2016 (5)
 
Homes
Closed
for the
Period
Ended
March 31,
2016
 
Estimated Sales Price Range (6)
 
WASHINGTON (9)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
King County:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Brownstones at Issaquah Highlands
2014
 
176

 
137

 
11

 
39

 
23

 
$ 519,990 - 649,990
 
The Towns at Mill Creek Meadows
2014
 
122

 
122

 

 

 
5

 
 (8)
 
Bryant Heights
2015
 
89

 
8

 
2

 
81

 
5

 
$ 535,990 - 1,390,000
 
Highcroft at Sammamish
2016
 
121

 

 
14

 
77

 

 
$ 874,990 - 1,049,990
 
Peasley Canyon
2016
 
153

 

 
3

 

 

 
$ 389,990 - 459,990
 
Ridgeview Townhomes
2016
 
40

 

 

 
40

 

 
$ 399,990 - 515,990
 
High Point Block 34
2016
 
54

 

 

 
54

 

 
$ 335,990 - 545,990
 
North Bend Cottages
2016
 
37

 

 

 
37

 

 
$ 375,990 - 455,990
 
Snohomish County:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Reserve at North Creek
2014
 
127

 
123

 
4

 
4

 
2

 
$ 549,990 - 564,990
 
Silverlake Center
2015
 
100

 
61

 
10

 
39

 
16

 
$ 246,990 - 329,990
 
Riverfront
2016
 
425

 

 

 
425

 

 
$ 249,990 - 499,990
 
Pierce County:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Spanaway 230
2015
 
230

 
64

 
16

 
166

 
17

 
$ 234,990 - 349,990
 
WASHINGTON TOTAL
 
 
1,674


515


60


962


68

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OREGON (9)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Clackamas County:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Calais at Villebois - Rumpf Alley
2015
 
58

 
45

 
5

 
13

 
2

 
$ 419,990 - 459,990
 

44



Calais at Villebois - Rumpf Traditional
2015
 
26

 
24

 
2

 
2

 
9

 
$ 499,990 - 579,500
 
Villebois
2014
 
183

 
144

 
4

 
39

 
5

 
$ 284,990 - 469,990
 
Villebois Zion III - Alley
2015
 
51

 
24

 
4

 
27

 
8

 
$ 329,990 - 389,990
 
Villebois Lund Cottages
2015
 
75

 
27

 
7

 
48

 
7

 
$ 254,990 - 289,990
 
Villebois Lund Townhomes
2015
 
42

 
8

 
2

 
34

 
4

 
$ 239,990 - 259,990
 
Villebois Lund Alley
2015
 
88

 
4

 
7

 
84

 
2

 
$ 304,990 - 354,990
 
Grande Pointe at Villebois
2016
 
100

 

 
3

 
100

 

 
$ 439,990 - 589,990
 
Villebois V
2016
 
93

 

 

 
93

 

 
$ 304,990 - 354,990
 
Villebois Village Center 75 & 83 & 80
2016
 
149

 

 

 
149

 

 
$ 237,990 - 258,990
 
Washington County:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Baseline Woods
2014
 
130

 
113

 
1

 
17

 

 
$ 289,990 - 379,990
 
Baseline Woods SFD II
2015
 
102

 
77

 
24

 
25

 
29

 
$ 329,990 - 454,990
 
Cornelius Pass
2016
 
157

 

 

 
157

 

 
$ 234,990 - 239,990
 
Murray & Weir
2014
 
81

 
78

 
3

 
3

 
6

 
$ 394,990 - 424,990
 
Twin Creeks at Cooper Mountain
2014
 
94

 
61

 
14

 
33

 
7

 
$ 479,990 - 614,990
 
Bethany West - Alley
2015
 
94

 
34

 
12

 
27

 
4

 
$ 374,990 - 459,990
 
Bethany West - Cottage
2015
 
61

 
17

 
13

 
22

 
1

 
$ 319,990 - 389,990
 
Bethany West - Traditional
2015
 
82

 
58

 
1

 
3

 
13

 
$ 569,990 - 664,990
 
Bethany West - Townhomes
2016
 
32

 

 

 

 

 
$ 264,990 - 284,990
 
Bethany West - Weisenfluh
2016
 
36

 
1

 
10

 
35

 
1

 
$ 569,990 - 659,990
 
BM2 West River Terrace - Townhomes
2016
 
46

 

 

 

 

 
$ 264,990 - 294,990
 
BM2 West River Terrace - Alley
2016
 
60

 

 

 
2

 

 
$ 364,990 - 409,990
 
BM2 West River Terrace - Med/Std
2016
 
31

 

 

 
2

 

 
$ 464,990 -564,990
 
Bull Mountain Dickson
2016
 
82

 

 

 
82

 

 
$ 539,990 - 649,990
 
Orenco Woods SFD
2015
 
71

 
64

 
7

 
7

 
21

 
$ 359,990 - 519,990
 
North Plains at Sunset Ridge
2015
 
104

 
36

 
35

 
68

 
17

 
$ 324,990 - 429,990
 
OREGON TOTAL
 
 
2,128


815


154


1,072


136

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Future Owned and Controlled (by County)
 
 
 
 
 
 
 
 
 Lots Owned or Controlled as of March 31, 2016 (10)
 
 
 
 
 
CALIFORNIA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Orange County
 
 
 
 
 
 
 
 
357

 
 
 
 
 
Los Angeles County
 
 
 
 
 
 
 
 
114

 
 
 
 
 
Riverside County
 
 
 
 
 
 
 
 
76

 
 
 
 
 
San Bernardino County
 
 
 
 
 
 
 
 
70

 
 
 
 
 
Alameda County
 
 
 
 
 
 
 
 
594

 
 
 
 
 
Contra Costa County
 
 
 
 
 
 
 
 
296

 
 
 
 
 
Sonoma County
 
 
 
 
 
 
 
 
54

 
 
 
 
 
ARIZONA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Maricopa County (11)
 
 
 
 
 
 
 
 
2,490

 
 
 
 
 
NEVADA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nye County (11)
 
 
 
 
 
 
 
 
1,925

 
 
 
 
 
Clark County
 
 
 
 
 
 
 
 
64

 
 
 
 
 

45



COLORADO
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Grand County (11)
 
 
 
 
 
 
 
 
25

 
 
 
 
 
Larimer County
 
 
 
 
 
 
 
 
134

 
 
 
 
 
Arapahoe
 
 
 
 
 
 
 
 
30

 
 
 
 
 
Denver
 
 
 
 
 
 
 
 
688

 
 
 
 
 
WASHINGTON
 
 
 
 
 
 
 
 
 
 
 
 
 
 
King County
 
 
 
 
 
 
 
 
895

 
 
 
 
 
Snohomish County
 
 
 
 
 
 
 
 
74

 
 
 
 
 
OREGON
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Clackamas County
 
 
 
 
 
 
 
 
197

 
 
 
 
 
Washington County
 
 
 
 
 
 
 
 
1,793

 
 
 
 
 
TOTAL FUTURE
 
 
 
 
 
 
 
 
9,876

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
GRAND TOTALS
 
 
12,485

 
3,498

 
885

 
18,035

 
543

 
 
 
 
(1)
The estimated number of homes to be built at completion is subject to change, and there can be no assurance that the Company will build these homes. Includes lots owned, controlled or previously closed as of periods presented.
(2)
“Cumulative Homes Closed” represents homes closed since the project opened, and may include prior years, in addition to the homes closed during the current year presented.
(3)
Backlog consists of homes sold under sales contracts that have not yet closed, and there can be no assurance that closings of sold homes will occur.
(4)
Of the total homes subject to pending sales contracts as of March 31, 2016, 794 represent homes completed or under construction.
(5)
Lots owned as of March 31, 2016 include lots in backlog at March 31, 2016.
(6)
Estimated sales price range reflects the most recent pricing updates of the base price only and excludes any lot premium, buyer incentive and buyer selected options, which vary from project to project. Sales prices reflect current pricing estimates and might not be indicative of past or future pricing. Further, any potential benefit to be gained from an increase in sales price ranges as compared to previously estimated amounts may be offset by increases in costs, profit participation, and other factors.
(7)
Project is a joint venture and is consolidated as a VIE in accordance with ASC 810, Consolidation.
(8)
Project is completely sold out, therefore the sales price range is not applicable as of March 31, 2016.
(9)
The Company's Washington and Oregon segments were acquired on August 12, 2014 as part of the Polygon Acquisition. Estimated number of homes at completion is the number of homes to be built post-acquisition. Homes closed are from acquisition date through March 31, 2016.
(10)
Includes projects with lots owned as of March 31, 2016 but with an estimated year of first delivery of 2017 or later, as well as lots controlled as of March 31, 2016, and parcels of undeveloped land held for future sale. Certain lots controlled are under land banking arrangements which may become owned and produce deliveries during 2016. Actual homes at completion may change prior to the marketing and sales of homes in these projects and the sales price ranges for these projects are to be determined and will be based on current market conditions and other factors upon the commencement of active selling. There can be no assurance that the Company will acquire any of the controlled lots reflected in these amounts.
(11)
Represents a parcel of undeveloped land held for future sale. It is unknown when the Company plans to develop homes on this land.
Income Taxes
See Note 9 of “Notes to Condensed Consolidated Financial Statements” for a description of the Company’s income taxes.
Critical Accounting Policies
The Company’s financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and costs and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those which impact its most critical accounting policies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, the Company’s most critical accounting policies are debtor in possession accounting;

46



fresh start accounting; real estate inventories and cost of sales; impairment of real estate inventories; sales and profit recognition; variable interest entities; business combinations; and income taxes. Management believes that there have been no significant changes to these policies during the three months ended March 31, 2016, as compared to those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Annual Report on Form 10-K for the year ended December 31, 2015.


47



Item 3.
Quantitative and Qualitative Disclosures About Market Risk
The Company’s exposure to market risk for changes in interest rates relates to the Company’s floating rate debt with a total outstanding balance at March 31, 2016 of $185.8 million where the interest rate is variable based upon certain bank reference or prime rates. The average prime rate during the three months ended March 31, 2016 was 3.50%. Based upon the amount of variable rate debt held by the Company, and holding the variable rate debt balance constant, each 1% increase in interest rates would increase the amount of interest expense incurred by the Company by approximately $1.9 million.
The following table presents principal cash flows by scheduled maturity, interest rates and the estimated fair value of our long-term fixed rate debt obligations as of March 31, 2016 (dollars in thousands):
 
 
Years ending December 31,
 
Thereafter
 
Total
 
Fair Value  at
March 31,  2016
 
2016
 
2017
 
2018
 
2019
 
2020
 
Fixed rate debt
$

 
$
12,390

 
$

 
$
150,000

 
$
425,000

 
$
350,000

 
$
937,390

 
$
921,577

Interest rate
%
 
5.5
%
 
%
 
5.75
%
 
8.50
%
 
7.0
%
 

 

The Company does not utilize swaps, forward or option contracts on interest rates, foreign currencies or commodities, or other types of derivative financial instruments as of or during the three months ended March 31, 2016. The Company does not enter into or hold derivatives for trading or speculative purposes.
 

48



Item 4.
Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined under Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and, in reaching a reasonable level of assurance, our management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures.
Evaluation of Disclosure Controls and Procedures. We carried out an evaluation as of March 31, 2016, under the supervision and with the participation of our management, including our President and Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon their evaluation and subject to the foregoing, our President and Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2016, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting. Our management determined that as of March 31, 2016, there were no changes in our internal control over financial reporting that occurred during the fiscal quarter then ended that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

49



WILLIAM LYON HOMES
PART II. OTHER INFORMATION
 
Item 1.
Legal Proceedings
The Company is involved in various legal proceedings, most of which relate to routine litigation and some of which are covered by insurance. These matter are subject to many uncertainties and the outcomes of these matters are not within our control and may not be known for prolonged periods of time. Nevertheless, in the opinion of the Company’s management, the Company does not have any currently pending litigation of which the outcome will have a material adverse effect on the Company’s operations or financial position.
 
Item 1A.
Risk Factors
You should carefully consider the risks described in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2015, as our business, financial condition and results of operations could be adversely affected by any of the risks and uncertainties described therein. There have been no material changes to the risk factors we previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The table below summarizes the number of shares of our Class A Common Stock that were repurchased from certain employees of the Company during the three month period ended March 31, 2016. Such shares were not repurchased pursuant to a publicly announced plan or program. Those shares were repurchased to facilitate income tax withholding payments pertaining to stock-based compensation awards that vested during the three month period ended March 31, 2016.
Month Ended
 
Total Number of Shares Purchased
 
Average Price Per Share
January 31, 2016
 

 
N/A

February 29, 2016
 

 
N/A

March 31, 2016
 
69,912

 
$
11.87

Total
 
69,912

 
 


Except as set forth above, the Company did not repurchase any of its equity securities during the three month period ended March 31, 2016.

 
Item 3.
Defaults Upon Senior Securities
None.
 
Item 4.
Mine Safety Disclosure
Not applicable.
 

50



Item 5.
Other Information
Not applicable.

51



Item 6.
Exhibits
Exhibit Index
 
Exhibit
No.
Description
 
 
10.1†+
William Lyon Homes 2012 Equity Incentive Plan Form of Restricted Stock Award Agreement (Performance Based).
 
 
10.2†+
William Lyon Homes 2012 Equity Incentive Plan Form of Restricted Stock Award Agreement.
 
 
10.3†
Offer letter by and between William Lyon Homes, Inc. and General William Lyon, dated as of March 22, 2016 (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed March 22, 2016)
 
 
31.1+
Certification of Chief Executive Officer Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
 
 
31.2+
Certification of Chief Financial Officer Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
 
 
32.1*
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
 
 
32.2*
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
 
 
101.INS**
XBRL Instance Document.
 
 
101.SCH**
XBRL Taxonomy Extension Schema Document.
 
 
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
101.DEF**
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
101.LAB**
XBRL Taxonomy Extension Label Linkbase Document.
 
 
101.PRE**
XBRL Taxonomy Extension Presentation Linkbased Document.

+
Filed herewith
 
 
Management contract or compensatory agreement
 
 
*
The information in Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act (including this Report), unless the Registrant specifically incorporates the foregoing information into those documents by reference.
**
Pursuant to Rule 406T of Regulation S-T, the XBRL information will not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 and will not be deemed filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, or otherwise subject to liability under those Sections.


52



WILLIAM LYON HOMES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
WILLIAM LYON HOMES,
 
a Delaware corporation
 
 
 
Date: May 9, 2016
By:
/S/    COLIN T. SEVERN        
 
 
Colin T. Severn
 
 
Senior Vice President, Chief Financial Officer
(Principal Accounting Officer and Duly Authorized Signatory)


53



Exhibit Index
 
Exhibit
No.
Description
 
 
10.1†+
William Lyon Homes 2012 Equity Incentive Plan Form of Restricted Stock Award Agreement (Performance Based).
 
 
10.2†+
William Lyon Homes 2012 Equity Incentive Plan Form of Restricted Stock Award Agreement.
 
 
10.3†
Offer letter by and between William Lyon Homes, Inc. and General William Lyon, dated as of March 22, 2016 (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed March 22, 2016)
 
 
31.1+
Certification of Chief Executive Officer Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
 
 
31.2+
Certification of Chief Financial Officer Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
 
 
32.1*
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
 
 
32.2*
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
 
 
101.INS**
XBRL Instance Document.
 
 
101.SCH**
XBRL Taxonomy Extension Schema Document.
 
 
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
101.DEF**
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
101.LAB**
XBRL Taxonomy Extension Label Linkbase Document.
 
 
101.PRE**
XBRL Taxonomy Extension Presentation Linkbased Document.

+
Filed herewith
 
 
Management contract or compensatory agreement
 
 
*
The information in Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act (including this Report), unless the Registrant specifically incorporates the foregoing information into those documents by reference.
**
Pursuant to Rule 406T of Regulation S-T, the XBRL information will not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 and will not be deemed filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, or otherwise subject to liability under those Sections.


54