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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x
ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20122014

OR

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

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)

4490 Von Karman Avenue

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

Securities registered pursuant to Section 12(b) of the Act:

None

Title of each class of stockName of each exchange on which registered
Class A Common Stock, $0.01 par valueNew York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  xý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  xý

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  ¨    NO  x.

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  xý    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this

Form 10-K.     xý

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 x  (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  xý



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As of June 29, 2012,30, 2014, the last business dayaggregate market value of the registrant’s most recently completed second quarter, therecommon stock held by non-affiliates of the registrant was no established public market forapproximately $543.8 million based on the registrant’s common stock.

closing sale price as reported on the New York Stock Exchange.


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 March 11, 2013

10, 2015

Convertible preferred stock, par value $0.01

77,005,744

Common stock, Class A, par value $0.01

  70,121,37827,625,405

Common stock, Class B, par value $0.01

  31,464,548

Common stock, Class C, par value $0.01

3,813,884

16,020,338

Common stock, Class D, par value $0.01

5,501,432


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  xý    No  ¨

DOCUMENTS INCORPORATED BY REFERENCE

None

Portions from the registrant's Definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the registrant's 2015 Annual Meeting of Stockholders are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 hereof.


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WILLIAM LYON HOMES

INDEX

  Page No.
PART I
  Page No. 
PART IItem 1.Business
3

Item 1.

Business  
3Item 1A.Risk Factors
15
 
Item 1B.Unresolved Staff Comments
32

Item 1A.

Risk Factors  
16Item 2.Properties
32
 
Item 3.Legal Proceedings
32

Item 1B.

Unresolved Staff Comments  
31Item 4.Mine Safety Disclosure
32
PART II
 

Item 2.

Properties31

Item 3.

Legal Proceedings31

Item 4.

Mine Safety Disclosure31
PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
33
  32

Item 6.

Selected Historical Consolidated Financial Data
33
  33

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations
36
  36

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk
64
  72

Item 8.

Financial Statements and Supplementary Data
65
  73

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
65
  
73Item 9A.Controls and Procedures
66
 
Item 9B.Other Information
67

Item 9A.

PART III
 Controls and Procedures  73

Item 9B.

Other Information73
PART III

Item 10.

Directors, Executive Officers and Corporate Governance
68
  
74Item 11.Executive Compensation
68
 

Item 11.

Executive Compensation87

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
68
  101

Item 13.

Certain Relationships and Related Transactions, and Director Independence
68
  103

Item 14.

Principal Accountant Fees and Services
68
PART IV
  107
PART IV

Item 15.

Exhibits and Financial Statement Schedules
69
  108
 Index to Financial Statements
F-1


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NOTE ABOUT FORWARD-LOOKING STATEMENTS


Investors are cautioned that certain statements contained in this Annual Report on Form 10-K, as well as some statements by the Company in periodic press releases and someinformation included in oral statements or other written statements by Company officials to securities analysts during presentations about 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. In addition, anySuch statements concerning futuremay include, but are not limited to, information related to: anticipated operating results; home deliveries; financial performance (including future revenues, earnings orresources and condition; anticipated timing of project openings; changes in revenues; anticipated benefits to be realized from the acquisition of Polygon Northwest Homes; market and industry trends; changes in profitability; changes in margins; changes in accounting treatment; cost of revenues; selling, general and administrative expenses; interest expense; inventory write-downs; unrecognized tax benefits; anticipated tax refunds; sales paces and prices; effects of home buyer cancellations; growth rates), ongoing business strategies or prospects, and possible future Company actions,expansion; community count; joint ventures in which may be provided by managementwe are also forward-looking statements.involved; the ability to acquire land and pursue real estate opportunities; the ability to gain approvals and open new communities; the ability to sell homes and properties; the ability to deliver homes from backlog; the ability to secure materials and subcontractors; the ability to produce the liquidity and capital necessary to expand and take advantage of opportunities; and legal proceedings 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.


Actual events and results may differ materially from those expressed or forecasted in the forward-looking statements due to a number of factors. The principalWhile it is impossible to identify all such factors, factors that could cause the Company’s actual performance and future events and actionsresults to differ materially from such forward-looking statementsthose estimated by us include, but are not limited to: our ability to realize the anticipated benefits from the acquisition of the residential homebuilding business of Polygon Northwest Homes; our ability to integrate successfully the Polygon Northwest Homes operations with our existing operations; any adverse effect on our business operations, or those of Polygon Northwest Homes, following consummation of the acquisition; worsening in general economic conditions either nationally or in regions in which the Company operates,we operate; worsening in the markets for residential housing, furtherhousing; decline in real estate values resulting in further impairment of the company’sour real estate assets,assets; 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; volatility in the banking industry and credit markets, terrorism or other hostilities involvingmarkets; the United States,timing of receipt of regulatory approvals and the opening of projects; the Company's inability to develop its communities successfully and in a timely manner; the Company's geographic concentration in the Western U.S. region; whether an ownership change occurred whichthat could, under certain circumstances, have resulted in the limitation of the Company’sour ability to offset prior years’ taxable income with net operating losses, changes in home mortgage interest rates,losses; changes in generally accepted accounting principles or interpretations of those principles,principles; changes in prices of homebuilding materials,materials; the availability of labor shortages,and homebuilding materials; adverse weather conditions,conditions; competition for home sales from other sellers of new and resale homes; cancellations and our ability to realize our backlog; the occurrence of events such as landslides, soil subsidence and earthquakes that are uninsurable, not economically insurable or not subject to effective indemnification agreements,agreements; changes in governmental laws and regulations,regulations; inability to comply with financial and other covenants under the Company’sour debt instruments,instruments; whether the Company iswe are able to refinance the outstanding balances of itsour debt obligations at their maturity,maturity; anticipated tax refunds,refunds; limitations on our ability to utilize our tax attributes; limitations on our ability to reverse any remaining portion of our valuation allowance with respect to our deferred tax assets; terrorism or other hostilities involving the timingUnited States; the impact of receiptconstruction defect, product liability and home warranty claims, including the adequacy of regulatory approvalsself-insurance accruals, and the openingapplicability and sufficiency of projectsour insurance coverage; and the availability and cost of land for future growth.development. These and other risks and uncertainties are more fully described in Item 1A. “Risk Factors”. While it is impossible to identify all such factors, factors which could cause actual results to differ materially from those estimated by the Company include, but are not limited to, those factors or conditions described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The Company’s"Risk Factors" in this report. Our past performance, orand past or present economic conditions in the Company’sour housing markets, are not indicative of future performance or conditions. Investors are urged not to place undue reliance on forward-looking statements. In addition, the Company undertakeswe undertake 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 law.

laws.



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PART I

Item 1.Business

Overview
Overview

William Lyon Homes, a Delaware Corporation (“Parent”corporation, which we refer to herein as Parent and, together with its subsidiaries, the “Company”), areCompany, 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 familysingle-family detached and attached homes in California, Arizona, Nevada, Colorado, Washington and Colorado (underOregon. The Company's core markets currently include Orange County, Los Angeles, San Diego, the Village Homes brand)Inland Empire, the San Francisco Bay Area, Phoenix, Las Vegas, Denver, Fort Collins, Seattle and Portland. The Company has a distinguished legacy of more than 58 years of homebuilding operations, over which time the it has sold in excess of 93,000 homes. The Company's markets are characterized by attractive long-term housing fundamentals. The Company holds leading market share positions in most of its markets and it has a significant land supply. As of December 31, 2014, the Company had a total of 17,542 lots owned or controlled and was selling homes out of 56 active selling communities.

The Company has significant expertise in understanding the needs of its homebuyers and designing its product offerings to meet those needs. This allows the Company to maximize the return on its land investments by tailoring its home offerings to meet the buyer demands in each of its markets. The Company builds and sells across a diverse range of product lines at a variety of price points with an emphasis on sales to entry-level, first-time move-up and second-time move-up homebuyers. The Company is committed to achieving the highest standards in design, quality and customer satisfaction and has received numerous industry awards and commendations throughout its operating history in recognition of its achievements.
In 2014, the Company delivered 1,753 homes, with an average selling price of approximately $488,900, and recognized home sales revenues and total revenues of $857.0 million and $896.7 million, respectively. As of December 31, 2014, the Company was selling homes in 56 communities and had a consolidated backlog of 478 sold but unclosed homes, with an associated sales value of $260.1 million, representing a 30% increase in value as compared to its backlog as of December 31, 2013. SinceThe average selling price of homes in backlog as of December 31, 2014 was approximately $544,200, which was approximately 11% higher than the foundingaverage selling price of homes closed for the year ended December 31, 2014.
Through the recent strategic acquisition of the Company’s predecessorresidential homebuilding business of Polygon Northwest, or the Polygon Acquisition, in 1956,August 2014, the Company expanded its geographic footprint and increased the scale of its existing operations within the Western U.S. region, acquiring a company that not only has demonstrated impressive operating results but that also is complementary in terms of product offering and cultural fit, with a similar strong reputation for high customer satisfaction and new home quality. The Company believes that Polygon Northwest was the largest private homebuilder in the Pacific Northwest region at the time of the acquisition, with #2 market positions in each of its core markets of Seattle and Portland. Polygon Northwest has operated in the Pacific Northwest region for over 20 years, delivering approximately 16,000 homes during such time period. For the period from August 12, 2014, the date of closing of the Polygon Acquisition, through December 31, 2014, operating revenue and income before provision for income taxes from Polygon operations, which now operate as the Company's Washington and Oregon segments, were $132.3 million and $12.0 million, respectively. Following the Polygon Acquisition, the Company now operates in 11 core markets across six Western U.S. states, and it believes that it has the people, infrastructure and geographic footprint in place to enable the Company to reach its goal of becoming the premiere Western regional homebuilder.
Initial Public Offering and Common Stock Recapitalization
On May 21, 2013, the Company completed its initial public offering of 10,005,000 shares of Class A Common Stock, which consisted of 7,177,500 shares sold by the Company and its joint ventures have2,827,500 shares sold over 74,000 homes. by the selling stockholder. The 10,005,000 shares in the offering were sold at a price to the public of $25.00 per share. The Company raised total net proceeds of approximately $163.7 million in the offering, after deducting the underwriting discount and offering expenses. The Company did not receive any proceeds from the sale of shares by the selling stockholder.
The Company’s predecessor,authorized capital stock now consists of 190,000,000 shares, 150,000,000 of which are designated as Class A Common Stock with a par value of $0.01 per share, or the Class A Common Stock, 30,000,000 of which are designated as Class B Common Stock with a par value of $0.01 per share, or the Class B Common Stock, and 10,000,000 of which are designated as preferred stock with a par value of $0.01 per share.
In connection with the initial public offering, the Company completed a common stock recapitalization, or the Common Stock Recapitalization, which included a 1-for-8.25 reverse stock split of its Class A Common Stock, or the Class A Reverse Split, the conversion of all the outstanding shares of Parent’s Class C Common Stock, par value $0.01 per share, or the Class C

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Common Stock, Class D Common Stock, par value $0.01 per share, or the Class D Common Stock, and Convertible Preferred Stock, par value $0.01 per share, or the Convertible Preferred Stock, into Class A Common Stock on a one-for-one basis and as automatically adjusted for the Class A Reverse Split, and a 1-for-8.25 reverse stock split of its Class B Common Stock. The Presley Companies, or Presley, was formed in 1956. In 1987, General William Lyon purchased 100%effect of the reverse stock of Presley, which subsequently went public in 1991 andsplit was listed on the New York Stock Exchange under the symbol “PDC.” In 1999, Presley acquired William Lyon Homes, Inc., a California corporation, and changed its name to William Lyon Homes and its ticker symbol to “WLS.” Parent was subsequently taken private in 2006 by way of a tender offer by General William Lyon for the shares of Parent that were then publicly owned. Priorretroactively applied to the consummation of the transactions discussed below under “Chapter 11 Reorganization”, Parent had one class of stock of which 1,000 shares were outstanding. Of these shares, 94.6% (946 shares) were owned by General William Lyon individually and the remaining 5.4% (54 shares) were owned by The William Harwell Lyon Separate Property Trust.

The Company conducts its homebuilding operations through five reportable operating segments (Southern California, Northern California, Arizona, Nevada, and Colorado). For the year ended December 31, 2012, which includes the “Predecessor” entity from January 1, 2012 through February 24, 2012, and the “Successor” entity from February 25, 2012 through December 31, 2012, or the 2012 Period, on a consolidated basis, which includes results from all five reportable operating segments, 45% of home closings were derived from our California operations. In the 2012 period, the Company had revenues from home sales of $261.3 million and delivered 950 homes. For the year ended December 31, 2011, approximately 59% of the home closings of the Company and its joint ventures were derived from its California operations. For the year ended December 31, 2011 the Company had revenues from home sales of $207.1 million and delivered 614 homes.

The Company acquired Village Homes of Denver, Colorado, on December 7, 2012, which marked the beginning of the Colorado segment. Financial data included hereinConsolidated Balance Sheet as of December 31, 2012, andthe Consolidated Statements of Operations for the period from February 25, 2012 through December 31, 2012, includes operationsand the Consolidated Statements of Equity (Deficit), presented herein. Unless otherwise specified, all other information presented in this Annual Report on Form 10-K gives effect to the Common Stock Recapitalization. Upon completion of the Colorado segmentinitial public offering, Parent had 27,146,036 shares of Class A Common Stock outstanding, excluding shares issuable upon exercise of outstanding stock options and restricted shares that had been granted but were unvested, and 3,813,884 shares of Class B Common Stock outstanding, excluding shares underlying a warrant to purchase 1,907,550 additional shares of Class B Common Stock. The warrant was amended in May 2013 to extend the term from December 7, 2012 (date of acquisition) through December 31, 2012.

five years to ten years, and the warrant will now expire on February 24, 2022. The Company designs, constructs and sells a wide range of homes designed to meet the specific needs of each of its markets, although it primarily emphasizes saleschange to the entry-level and first time move-up home buyer markets. In December 31, 2012,warrant had no corresponding impact on the Company marketed its homes through 18 sales locations. In 2012, the average sales price for consolidated homes delivered was $275,100. Base sales prices for actively selling projects in 2012, including affordable projects, ranged from $88,000 to $690,000.

The Company had total operating revenues of $398.3 million, $226.8 million, and $294.7 million for the years ended December 31, 2012, 2011, and 2010, respectively. Homes closed by the Company, including its joint ventures, were 950, 614, and 760 for the years ended December 31, 2012, 2011, and 2010, respectively. The Company’s dollar amount of backlog of homes sold but not closed as of December 31, 2012 was $115.4 million, a 294% increase compared to $29.3 million as of December 31, 2011, which was a 3% decrease from the $30.1 million as of December 31, 2010. The cancellation rate of buyers who contracted to buy a home but did not close escrow was approximately 14% during the year ended December 31, 2012 and 18% during the year ended December 31, 2011.

During the year ended December 31, 2012, the Company’s markets improved significantly in sales absorption rates, new home orders per average sales location and cancellation rates.

financial statements.

In Southern California, net new home orders per average sales location increased 39% to 41.8 during the year ended December 31, 2012 from 30.1 for the same period in 2011. The cancellation rate in

Southern California decreased to 15% during the year ended December 31, 2012 compared to 24% during the year ended December 31, 2011.

In Northern California, net new home orders per average sales location increased 71% to 62.7 during the year ended December 31, 2012 from 36.8 for the same period in 2011. In Northern California, the cancellation rate increased to 23% during the year ended December 31, 2012 from 18% during the year ended December 31, 2011.

In Arizona, net new home orders per average sales location increased to 138.3 during the year ended December 31, 2012 from 101.0 for the same period in 2011. In Arizona, the cancellation rate increased to 10% during the year ended December 31, 2012 compared to 7% during the year ended December 31, 2011.

In Nevada, net new home orders per average sales location increased to 44.7 during the year ended December 31, 2012 from 18.2 during the same period in 2011. In Nevada, the cancellation rate decreased to 14% during the year ended December 31, 2012 from 20% during the year ended December 31, 2011.

In Colorado, there were nine net new home orders during the period from December 7, 2012 through December 31, 2012 with no comparable amount during the year ended December 31, 2011. As of December 31, 2012, Colorado had five sales locations during the period from December 7, 2012 (date of acquisition) through December 31, 2012. In Colorado, the cancellation rate was 10% during the period from December 7, 2012 through December 31, 2012 with no comparable amount during the year ended December 31, 2011.

Chapter 11 Reorganization

On December 19, 2011, William Lyon Homes, or Parent and certain of its direct and indirect wholly-owned subsidiaries filed voluntary petitions, or the Chapter 11 Petitions, in the U.S. Bankruptcy Court for the District of Delaware, or the Bankruptcy Court, to seek approval of the Prepackaged Joint Plan of Reorganization, or the Plan, of Parent and certain of its subsidiaries. The Chapter 11 Petitions arewere jointly administered under the captionIn re William Lyon Homes, et al., Case No. 11-14019, or the Chapter 11 Cases. The sole purpose of the Chapter 11 Cases was to restructure the debt obligations and strengthen the balance sheet of the Parent and certain of its subsidiaries.

On February 10, 2012, the Bankruptcy Court confirmed the Plan. On February 25, 2012, Parent and its subsidiaries consummated the principal transactions contemplated by the Plan, including:

the issuance of 44,793,2555,429,485 shares of Parent’s new Class A Common Stock, $0.01 par value per share, or Class A Common Stock, and $75 million aggregate principal amount of 12% Senior Subordinated Secured Notes due 2017, or the 12% Notes, issued by Parent’s wholly-owned subsidiary, William Lyon Homes, Inc., or California Lyon, in exchange for the claims held by the holders of an aggregate outstanding amount of $299.1 million of the formerly outstanding notes of California Lyon (neither Parent nor California Lyon received any net proceeds from the issuance of the 12% Notes);

the amendment of California Lyon’s loan agreement with ColFin WLH Funding, LLC and certain other lenders, or the Amended Term Loan, which resulted, among other things, in the increase in the principal amount outstanding under the loan agreement from $206 million to $235 million, the reduction in the interest rate payable under the loan agreement, and the elimination of any prepayment penalty under the loan agreement;

the issuance, in exchange for cash and land deposits of $25 million, of 31,464,5483,813,884 shares of Parent’s new Class B Common Stock, $0.01 par value per share, or Class B Common Stock, and a warrant to purchase 15,737,2941,907,551 shares of Class B Common Stock;

the issuance of 64,831,8317,858,404 shares of Parent’s new Convertible Preferred Stock, $0.01 par value per share, or Convertible Preferred Stock, and 12,966,3661,571,681 shares of Parent’s new Class C Common Stock, $0.01 par value per share, or Class C Common Stock in exchange for aggregate cash consideration of $60 million; and

the issuance of an additional 3,144,000381,091 shares of Class C Common Stock to Luxor Capital Group LP, or Luxor, as a transaction fee in consideration for providing the backstop commitment of the offering of shares of Class C sharesCommon Stock and shares of Convertible Preferred Stock in connection with the Plan.

Principal Holders of Debt and Equity Issued In Connection with the Plan

Immediately prior to the consummation of the Plan Luxor Capital Group LP, orin 2012, Luxor held $135.8 million in aggregate principal amount of California Lyon’s formerly outstanding prepetition notes, or the Prepetition Notes. In connection with the consummation of the principal transactions contemplated by the Plan, entities affiliated with Luxor acquired (i) 21,427,1352,597,228 shares of Parent’s Class A Common Stock (47.8% of the then outstanding Class A Common Stock) and $35.9 million in aggregate principal amount of the 12% Notes issued in connection with the Plan in exchange for the Prepetition Notes held by Luxor, (ii) 12,301,8381,491,132 shares of Parent’s Class C Common Stock (76.4% of the then outstanding Class C Common Stock) for approximately $9.5 million in cash consideration, and (iii) 61,509,2047,455,661 shares of Parent’s Convertible Preferred Stock (94.9% of the then outstanding Convertible Preferred Stock) for aggregate cash consideration of approximately $47.4 million. Luxor received an additional 3,144,000 shares of Parent’s Class C Common Stock (19.5% of the then outstanding Class C Common Stock) as a transaction fee in consideration for providing the backstop commitment of the offering of shares of Class C Common Stock and shares of Convertible Preferred Stock in connection with the Plan. As of March 11, 2013,10, 2015, Luxor holds approximately 37.1%9% of the total voting power of Parent’s outstanding capital stock.


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Immediately prior to the consummation of the Plan in 2012, General William Lyon and William H. Lyon, or the Lyons, collectively held 100% of Parent’s then outstanding capital stock and The William Harwell Lyon Separate Property Trust, or the Lyon Trust, of which William H. Lyon is the trustee, separately held approximately $153,000 in aggregate principal amount of the Prepetition Notes. In connection with the recapitalization of Parent upon consummation of the Plan, Lyon Shareholder 2012, LLC, or Lyon LLC, which is now managed by William H. Lyon and held for the Lyonsbenefit of William H. Lyon, acquired beneficial ownership of 31,464,5483,813,884 shares of Class B Common Stock (100% of Parent’s outstanding Class B Common Stock) and a warrant to purchase an additional 15,737,2941,907,550 shares of Class B Common Stock for aggregate cash consideration of $25 million throughmillion. The Lyon Shareholder 2012, LLC, which is now managed by William H. Lyon and held for the benefit of William H. Lyon. The William Harwell Lyon Separate Property Trust separately acquired 24,1992,933 shares of Parent’s Class A Common Stock (less than 1% of the then outstanding Class A Common Stock) and $40,000 in aggregate principal amount of the 12% Notes issued in connection with the Plan in exchange for the Prepetition Notes held by The William Harwellthe Lyon Separate Property Trust. William H. Lyon’sLyon LLC’s Class B Common Stock holdings, assuming exercise in full of the warrant, and the Class A Common Stock holdings provideof the Lyon Trust and William H. Lyon collectively provide such holders with 36.1%approximately 50.5% of the total voting power of the Company’s outstanding capital stock as of March 11, 2013.10, 2015. Throughout the reorganization process, General William Lyon served as Parent’sthe Company’s Chief Executive Officer and a memberchairman of its board of directors and William H. Lyon served as Parent’sthe Company’s President and Chief Operating Officer and a member of its board of directors.

General William Lyon currently serves as the Company's Executive Chairman and chairman of its board of directors and William H. Lyon currently serves as the Company's Chief Executive Officer and a member of its board of directors.

Events leading to Chapter 11 Reorganization

Prior to filing the Chapter 11 Petitions, California Lyon was in default under its prepetition loan agreement with ColFin WLH Funding, LLC and certain other lenders, or the Prepetition Term Loan Agreement, due to its failure to comply with certain financial covenants in the Prepetition Term Loan Agreement. In addition, the Company became increasingly uncertain of its ability to repay or refinance its then outstanding 7 5/8% Senior Notes when they matured on December 15, 2012. Beginning in April 2010, California Lyon entered into a series of amendments and temporary waivers with the lenders under the Prepetition Term Loan Agreement related to these defaults, which prevented acceleration of the indebtedness outstanding under the Prepetition Term Loan Agreement and enabled the Company to negotiate a financial reorganization to be implemented through the bankruptcy process with its key constituents prior to the Chapter 11 Petitions.

The Company’s principal executive offices are located at 4490 Von Karman Avenue, Newport Beach, California 92660 and its telephone number is (949) 833-3600. The Company was incorporated in the State of Delaware on July 15, 1999.


The Company’s Markets

The Company is currently operating in fivesix reportable operating segments: Southern California, Northern California, Arizona, Nevada, Colorado, Washington and Colorado.Oregon. Each of the segments has responsibility for the management of the Company’s homebuilding and development operations within its geographic boundaries.

The current six reportable operating segments represent a change as compared to previous reporting periods, and reflects the Polygon Acquisition, which added our Washington and Oregon divisions as two new reportable operating segments, and the establishment of a distinct operating division in the Inland Empire market, which together with the Southern California and Northern California operating divisions constitutes the California reportable operating segment. The results below reflect the Company's current segment structure, and prior periods have been recast to reflect this change. See Note 5 to the financial statements for further information.

The following table sets forth homebuilding revenue from each of the Company’s homebuilding segments for the years ended December 31, 2014 and 2013, the period from February 25, 2012 through December 31, 2012, and the period from January 1, 2012 through February 24, 2012 and the years ended December 31, 2011, and 2010 (in thousands):

   Successor (1)  

 

  Predecessor (1)   Predecessor (1) 
   Period From
February 25,
through
December 31,
2012		  

 

  Period From
January 1,
through
February 24,
2012		   Year Ended
December 31,		 
        2011   2010 

Southern California (2)

  $99,671      $5,640    $110,969    $195,613  

Northern California (3)

   54,207       4,250     54,141     38,891  

Arizona (4)

   47,989       4,316     20,074     16,595  

Nevada (5)

   37,307       2,481     21,871     15,766  

Colorado (6)

   5,436       —        —        —     
  

 

 

  

 

  

 

 

   

 

 

   

 

 

 
  $244,610      $16,687    $207,055    $266,865  
  

 

 

  

 

  

 

 

   

 

 

   

 

 

 

 Successor (1)  Predecessor (1)
 Year Ended December 31, 
Period From
February 25,
through
December 31,
2012
  
Period From
January 1,
through
February 24,
2012
 2014 2013 
California (2)$498,965
 $262,489
 $153,878
  $9,890
Arizona (3)57,484
 110,397
 47,989
  4,316
Nevada (4)121,815
 78,148
 37,307
  2,481
Colorado (5)46,460
 70,276
 5,436
  —
Washington (6)65,886
 —
 —
  —
Oregon (7)66,415
 —
 —
  —
 $857,025
 $521,310
 $244,610
  $16,687

5
Table of Contents

(1)Successor refers to William Lyon HomesParent and its consolidated subsidiaries on and after February 25, 2012, or the Emergence Date,"Emergence Date", after giving effect to: (i) the cancellation of shares of our common stock issued prior to February 25, 2012; (ii) the issuance of shares of new common stock, and settlement of existing debt and other adjustments in accordance with the Prepackaged Joint Plan of Reorganization;Plan; and (iii) the application of fresh start accounting. Predecessor refers to William Lyon HomesParent and its consolidated subsidiaries up to the Emergence Date. All of the required information related to each operating segment is reflected in Note 65 in the accompanying financial statements for the years endingended December 31, 2014 and 2013, the period from January 1 through February 24, 2012, and the period from February 25 through December 31, 2012, 2011, and 2010, respectively.
(2)The Southern California Segment consists of operations in Orange, Los Angeles, San Diego, Riverside, San Bernardino, Alameda, Contra Costa, and San DiegoJoaquin counties. The offices are located in a leased office buildingspace at 4490 Von Karman Avenue,4695 MacArthur Court, 8th Floor, Newport Beach, California 92660; 4000 Executive Parkway, Suite 250, San Ramon, CA 92660.94583; and 1265 Corona Pointe Court, Suite 105, Corona, CA 92879. The operating segment is led by a California Region President.regional president.
(3)The Northern California Segment consists of operations in Contra Costa, Placer, Sacramento, San Joaquin, Santa Clara and Solano counties. The offices are located in a leased office building at 4000 Executive Parkway, Suite 250, San Ramon, CA 94583. The operating segment is led by a division manager and a California Region President.
(4)(3)The Arizona Segment consists of operations in the Phoenix metropolitan area. The offices are located in a leased office building at 8840 E. Chaparral Road, Suite 200, Scottsdale, AZ 85250. The operating segment is led by a division president.
(5)
(4)The Nevada Segment consists of operations in the Las Vegas metropolitan area.Clark and Nye counties. The offices are located in a leased office building at 500 Pilot Road, Suite G, Las Vegas, NV 89119. The operating segment is led by a division president.
(6)
(5)The Colorado Segment consists of operations in Douglas, Grand, Jefferson, and Larimer counties. The offices are located in a leased office building at 8480 East Orchard Road, Suite 1000, Greenwood Village, CO 80111. The operating segment is led by a division president. Colorado became the Company’s fifth
(6)The Washington Segment consists of operations in King, Snohomish, and Pierce counties. The offices are located in a leased office building at 11624 SE 5th Street, Bellevue, WA 98005. The operating segment on December 7, 2012, upon acquisitionis led by a division president.
(7)The Oregon Segment consists of various entities which operate under the name Village Homes.operations in Clackamas and Washington counties. The offices are located in a leased office building at 109 East 13th Street, Vancouver WA 98660. The operating segment is led by a division president.

Strategy and Lot Position

The Company and its consolidated joint ventures owned approximately 10,59314,103 lots and had options to purchase an additional 1,2493,439 lots as of December 31, 2012.2014. As used in this Annual Report on Form 10-K, “entitled” land has a development agreement and/or vesting tentative map, or a final recorded plat or map from the appropriate county or city government. Development agreements and vesting tentative maps generally provide for the right to develop the land in accordance with the provisions of the development agreement or vesting tentative map unless an issue arises concerning health, safety or general welfare. The Company’s sources of developed lots for its homebuilding operations are (1) purchase of smaller projects with shorter life cycles (merchant homebuilding) and (2) development of larger scale projects and/or master-planned communities.

The Company will continue to utilize its current inventory of lots and future land acquisitions to conduct its operating strategy, which consists of:

focusing on high growth core markets near employment centers or transportation corridors;

identifying future land positions to grow the business;

acquiring strong land positions through disciplined acquisition strategies;

maintaining a low cost structure; and

leveraging an experienced management team.

Land Acquisition and Development

The Company estimates that its current inventory of lots owned and controlled is adequate to supply its homebuilding operations at current operating levels (including future land sales) for approximately three to five years.

To manage the risks associated with land ownership and development, the Company has a Corporate Land Committee. Members are the Executive Chairman, CEO, President and COO (Chairman of the Land Committee), VP & CFO and SVP of Finance and Acquisition. As potential land acquisitions are being analyzed, the Corporate Land Committee must approve all purchases prior to being submitted to the board. Due to the risks inherent in unentitled land, the Company requires the board of directors to approve all purchases of unentitled land, however, as of December 31, 2012, all of the Company’s land is entitled. For entitled land, the board of directors approves purchases of $3.0 million or higher. The Company’s land acquisition strategy has been to undertake projects with shorter life-cycles in order to reduce development and market risk while maintaining an inventory of owned lots sufficient for construction of homes over a two-year period. However, in Arizona and Nevada, the Company owns parcels with a longer term hold strategy.purchases. The Company’s long-term strategy consists of the following elements:


6
Table of Contents

completing due diligence prior to committing to acquire land;

reviewing the status of entitlements and other governmental processing to mitigate zoning and other entitlement or development risk;

focusing on land as a component of a home’s cost structure, rather than on the land’s speculative value;

limiting land acquisition size to reduce investment levels in any one project where possible;

utilizing option, joint venture and other non-capital intensive structures to control land where feasible;

funding land acquisitions whenever possible with non-recourse seller financing;

employing centralized control of approval over all land transactions;

homebuilding operations in the Southwest,western region of the United States, particularly in the Company’s long established markets of California, Arizona, Nevada and more recently, Colorado;Colorado, Washington and

Oregon; and

diversifying with respect to geography, markets and product types.


Prior to committing to the acquisition of land, the Company conducts feasibility studies covering pertinent aspects of the proposed commitment. These studies may include a variety of elements from technical aspects such as title, zoning, soil and seismic characteristics, to marketing studies that review population and employment trends, schools, transportation access, buyer profiles, sales forecasts, projected profitability, cash requirements, and assessment of political risk and other factors. Prior to acquiring land, the Company considers assumptions concerning the needs of the targeted customer and determines whether the underlying land price enables the Company to meet those needs at an affordable price. Before purchasing land, the Company attempts to project the commencement of construction and sales over a reasonable time period. The Company utilizes outside architects and outside consultants, under close supervision, to help review acquisitions and design products.

Homebuilding and Market Strategy

The Company currently has a wide variety of product lines which enables it to meet the specific needs of each of its markets. Although theThe Company primarily emphasizes sales tocreates product for the entry-level, first time move-up, second time move-up, and move-upluxury home markets, itand believes that a diversified product strategy enables it to best serve a wide range of buyers and adapt quickly to a variety of market conditions. In order to reduce exposure to local market conditions, the Company’s sales locations are geographically dispersed.

Because the decision as to which product to develop is based on the Company’s assessment of market conditions and the restrictions imposed by government regulations, home styles and sizes vary from project to project. The Company’s attached housing ranges in size from 950 to 2,729 square feet, and the detached housing ranges from 1,284 to 5,417 square feet. Due to the Company’s product and geographic diversification strategy, the prices of the Company’s homes also vary substantially. Base sales prices for the Company’s attached housing ranged from approximately $280,000 to $600,000 and $103,000 to $565,000 during the years ended December 31, 2012 and 2011, respectively, and base sales prices for detached housing ranged from approximately $88,000 to $690,000 and $110,000 to $690,000 during the years ended December 31, 2012 and 2011, respectively. On a consolidated basis, the average sales prices of homes closed for the years ended December 31, 2012 and 2011 were $275,100 and $337,200, respectively.

The Company generally standardizes and limits the number of home designs within any given product line. This standardization permits on-site mass production techniques and bulk purchasing of materials and components, thus enabling the Company to better control and sometimes reduce construction costs and home construction cycles.

The Company contracts with a number of architects and other consultants who are involved in the design process of the Company’s homes. Designs are constrained by zoning requirements, building codes, energy efficiency laws and local architectural guidelines, among other factors. Engineering, landscaping, master-planning and environmental impact analysis work are subcontracted to independent firms which are familiar with local requirements.

Substantially all construction work is done by subcontractors with the Company acting as the general contractor. The Company manages subcontractor activities with on-site supervisory employees and management control systems. The Company does not have long-term contractual commitments with its subcontractors or suppliers;suppliers, and instead it contracts development work by project and where possible by phase size of 10 to 20 home sites. The Company generally has been able to obtain sufficient materials and subcontractors during times of material shortages.shortages, though it has experienced skilled labor shortages in certain markets during times of peak demand. The Company believes its relationships with its suppliers and subcontractors are in good standing.

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 December 31, 20122014 and only includes projects with lots owned as of December 31, 2012,2014, lots consolidated in accordance with certain accounting principles as of December 31, 20122014 or homes closed for the year ended December 31, 2012.

Project (County or City)

 Year of
First
Delivery		  Estimated
Number of
Homes at
Completion
(1)		  Cumulative
Homes
Closed as of
December 31,
2012 (2)		  Backlog at
December 31,
2012 (3) (4)		  Lots Owned
as of
December 31,
2012 (5)		  Homes
Closed for
the Year
Ended
December 31,
2012		  YTD Orders
as of
December 31,
2012		  Sales
Price
Range (6)		 
SOUTHERN CALIFORNIA  

San Diego County:

        

Carlsbad

        

Mirasol at La Costa Greens

  2010    71    71    0    0    22    22   $610,000 - 690,000  

Escondido

        

Contempo

  2013    84    0    0    84    0    0   $242,000 - 282,000  

San Diego

        

Atrium

  2013    80    0    0    80    0    0   $310,000 - 395,000  

Riverside County:

        

Riverside

        

Bridle Creek

  2015    10    0    0    10    0    0   $415,000 - 436,000  

San Bernardino County:

        

Yucaipa

        

Vista Bella/Redcort

  2013    198    0    0    198    0    0   $240,000 - 265,000  

Orange County:

        

Irvine

        

San Carlos II

  2010    92    92    0    0    26    26   $310,000 - 440,000  

Lyon Branches (7)

  2013    48    0    0    48    0    0   $893,000 - 1,010,000  

Willow Bend .

  2013    58    0    0    58    0    0   $893,000 - 1,010,000  

Rancho Mission Viejo

        

Lyon Cabanas

  2013    97    0    0    97    0    0   $291,000 - 361,000  

Lyon Villas

  2013    96    0    0    96    0    0   $368,000 -408,000  

Santa Ana

        

Canopy Lane

  2011    38    38    0    0    13    10   $500,000 - 580,000  

Project (County or City)

 Year of
First
Delivery		  Estimated
Number of
Homes at
Completion
(1)		  Cumulative
Homes
Closed as of
December 31,
2012 (2)		  Backlog at
December 31,
2012 (3) (4)		  Lots Owned
as of
December 31,
2012 (5)		  Homes
Closed for
the Year
Ended
December 31,
2012		  YTD Orders
as of
December 31,
2012		  Sales
Price
Range (6)		 

Los Angeles County:

        

Hawthorne

        

360 South Bay (8):

        

The Flats

  2010    188    79    15    109    30    44   $350,000 - 530,000  

The Courts

  2010    118    112    3    6    41    43   $435,000 - 560,000  

The Rows

  2012    94    12    6    82    12    17   $512,000 - 647,000  

The Lofts.

  2013    9    0    0    9    0    0   $400,000 - 545,000  

The Gardens

  2013    12    0    0    12    0    0   $565,000 - 715,000  

The Townes

  2013    96    0    0    96    0    0   $545,000 - 665,000  

The Terraces

  2013    93    0    0    93    0    0   $630,000 - 740,000  

Azusa

        

Rosedale

        

Gardenia

  2011    81    48    7    33    42    43   $332,000 - 392,000  

Sage Court

  2011    64    61    1    3    55    46   $302,000 - 402,000  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

SOUTHERN CALIFORNIA TOTAL

   1,627    513    32    1,114    241    251   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  
NORTHERN CALIFORNIA  

Contra Costa County:

        

Pittsburgh

        

Vista Del Mar

        

Villages (7)

  2007    102    50    0    52    0    0   $310,000 - 340,000  

Venue (7)

  2007    127    127    0    0    40    29   $322,000 - 352,000  

Vineyard II

  2012    131    5    15    20    5    20   $397,000 - 427,000  

Antioch

        

Waterford

  2013    130    0    0    130    0    0   $296,000 - 351,000  

Sacramento County:

        

Elk Grove

        

Magnolia Lane (Maderia)

  2010    50    50    0    0    24    22   $245,000 - 285,000  

San Joaquin County:

        

Lathrop

        

The Ranch @ Mossdale Landing

  2010    168    111    13    57    65    69   $226,000 - 271,000  

Solano County:

        

Fairfield

        

Enclave at Paradise Valley

  2010    100    100    0    0    51    48   $360,000 - 425,000  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

NORTHERN CALIFORNIA TOTAL

   808    443    28    259    185    188   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Project (County or City)

 Year of
First
Delivery		  Estimated
Number of
Homes at
Completion
(1)		  Cumulative
Homes
Closed as of
December 31,
2012 (2)		  Backlog at
December 31,
2012 (3) (4)		  Lots Owned
as of
December 31,
2012 (5)		  Homes
Closed for
the Year
Ended
December 31,
2012		  YTD Orders
as of
December 31,
2012		  Sales
Price
Range (6)		 
ARIZONA  

Maricopa County:

        

Gilbert

        

Lyon’s Gate

        

Pride .

  2006    650    650    0    0    113    65   $105,000 - 138,000  

Acacia

  2007    365    365    0    0    110    83   $155,000 - 190,000  

Land (9)

  N/A    0    0    0    213    0    0    N/A  

Queen Creek

        

Hastings Property

        

Villas

  2012    337    52    78    285    52    130   $152,000 - 187,000  

Manor

  2012    141    32    48    109    32    80   $219,000 - 274,000  

Estates

  2012    153    6    26    147    6    32   $272,000 - 338,000  

Church Farms North

  2015    2,310    0    0    2,310    0    0   $148,000 - 324,000  

Mesa

        

Lehi Crossing

        

Settlers Landing

  2012    235    4    3    231    4    7   $213,000 - 256,000  

Wagon Trail

  2013    244    0    9    244    0    9   $228,000 - 287,000  

Monument Ridge

  2013    248    0    8    248    0    8   $251,000 - 328,000  

Pioneer Point

  2014    101    0    0    101    0    0   $290,000 - 391,000  

Land 75 X 120 (9)

  N/A    0    0    0    28    0    0    N/A  

Peoria

        

Agua Fria

  2012    264    1    0    263    1    1   $164,000 - 198,000  

Surprise

        

Rancho Mercado

  2017    1,903    0    0    1,903    0    0   $128,000 - 345,000  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

ARIZONA TOTAL

   6,951    1,110    172    6,082    318    415   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  
NEVADA  

Clark County:

        

North Las Vegas

        

The Cottages .

  2004    360    360    0    0    29    28   $152,000 - 180,000  

Serenity Ridge

  2013    88    0    7    88    0    7   $410,000 - 488,000  

Tularosa at Mountain’s Edge .

  2011    140    60    25    80    41    62   $171,000 - 219,000  

Las Vegas

        

Flagstone

        

Crossings

  2011    77    47    10    30    35    41   $280,000 - 313,000  

Commons

  2011    37    37    0    0    17    15   $197,000 - 230,000  

West Park

        

Villas

  2006    191    107    25    84    0    25   $164,000 - 197,000  

Courtyards

  2006    113    92    16    21    0    16   $183,000 - 234,000  

Project (County or City)

 Year of
First
Delivery		  Estimated
Number of
Homes at
Completion
(1)		  Cumulative
Homes
Closed as of
December 31,
2012 (2)		  Backlog at
December 31,
2012 (3) (4)		  Lots Owned
as of
December 31,
2012 (5)		  Homes
Closed for
the Year
Ended
December 31,
2012		  YTD Orders
as of
December 31,
2012		  Sales
Price
Range (6)		 

Mesa Canyon

  2013    49    0    0    49    0    0   $260,000 - 278,000  

Tierra Este

  2013    118    0    0    118    0    0   $181,000 - 211,000  

Lyon Estates .

  2013    129    0    0    129    0    0   $430,000 - 485,000  

Rhapsody

  2014    63    0    0    63    0    0   $193,000 - 217,000  

The Fields at Aliente .

  2011    60    56    4    4    47    45   $183-000 - 218,000  

Nye County:

        

Pahrump

        

Mountain Falls

        

Series I

  2011    116    41    5    75    24    29   $123,000 - 153,000  

Series II

  2014    218    0    0    218    0    0   $167,000 - 195,000  

Land (9)

  N/A    0    0    0    1,925    0    0    N/A  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

NEVADA TOTAL

   1,759    800    92    2,884    193    268   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  
COLORADO (10)  

Douglas County

        

Castle Rock

        

Watercolor at The Meadows

  2012    31    1    12    30    1    3   $283,000 - 355,000  

Cliffside

  2013    41    0    0    41    0    0   $402,000 - 432,000  

Parker

        

Idyllwilde

  2012    42    5    8    37    5    1   $291,000 - 397,000  

Grand County

        

Granby

        

Granby Ranch

  2012    54    1    8    53    1    1   $415,000 - 465,000  

Jefferson County

        

Arvada

        

Villages of Five Parks

  2012    49    5    29    44    5    2   $339,000 - 379,000  

Larimer County

        

Fort Collins

        

Observatory Village

  2012    50    1    25    49    1    2   $293,000 - 343,000  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

COLORADO TOTAL

   267    13    82    254    13    9   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

GRAND TOTALS

   11,412    2,879    406    10,593    950    1,131   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

2014. The following table includes certain information

7
Table of Contents

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 Annual Report on Form 10-K.

Project (County or City)
Estimated Year of
First
Delivery
 
Estimated
Number of
Homes at
Completion
(1)
 Cumulative Homes Closed as of December 31, 2014 (2) 
Backlog at
December 31,
2014 (3) (4)
 
Lots Owned
as of
December 31,
2014 (5)
 Homes Closed for the Year Ended December 31, 2014 
Estimated Sales
Price
Range (6)
CALIFORNIA             
Orange County:             
Dana Point             
Grand Monarch2015 37
 —
 —
 9
 —
 $ 2,350,000 - 2,850,000
Irvine             
Agave2013 96
 89
 6
 7
 74
 $ 503,000 -  627,000
Lyon Branches (7)2013 48
 48
 —
 —
 14
 (9)
Willow Bend2013 58
 58
 —
 —
 25
 (9)
Lyon Whistler (7)2013 83
 73
 4
 10
 67
 $ 945,000 -  1,125,000
Ladera Ranch             
Covenant Hills2015 14
 —
 —
 14
 —
 $ 2,549,000 -  2,769,000
Rancho Mission Viejo             
Lyon Cabanas2013 97
 79
 6
 18
 63
 $ 370,000 - 450,000
Lyon Villas2013 96
 81
 3
 15
 68
 $ 440,000 - 522,000
Aurora (7)2015 94
 —
 —
 94
 —
 $ 452,000 - 562,000
Vireo (7)2015 90
 —
 —
 90
 —
 $ 543,000 - 633,000
Los Angeles County:             
Glendora             
La Colina Estates2015 121
 —
 —
 64
 —
 $ 1,264,000 -  1,639,000
Hawthorne             
360 South Bay:             
The Flats2010 188
 188
 —
 —
 43
 (9)
The Rows2012 94
 94
 —
 —
 41
 (9)
The Lofts2013 9
 9
 —
 —
 2
 (9)
The Townes2013 96
 83
 2
 13
 67
 $ 650,000 -  738,000
The Terraces2014 93
 58
 19
 35
 58
 $ 755,000 -  945,000
Lakewood             
Canvas2015 72
 —
 2
 72
 —
 $ 430,000 -  465,000
Claremont             
Meadow Park2015 95
 —
 —
 95
 —
 $ 441,000 -  493,000
San Diego County:             
Escondido             
Contempo2013 84
 84
 —
 —
 61
 (9)
San Diego             
Atrium2014 80
 51
 24
 29
 51
 $ 390,000 -  510,000
Riverside County:             
Riverside             
Bridle Creek2015 10
 —
 5
 10
 —
 $ 500,000 -  548,000
SkyRidge2014 90
 3
 1
 87
 3
 $ 500,000 -  543,000
TurnLeaf             
Crossings2014 139
 1
 2
 45
 1
 $ 505,000 -  549,000
Coventry2015 161
 —
 6
 38
 —
 $ 553,000 -  578,000
San Bernardino County:             
Upland             

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Table of Contents


The Orchards (7)             
Citrus Court2015 77
 —
 —
 77
 —
 $ 330,000 -  380,000
Citrus Pointe2015 132
 —
 —
 132
 —
 $ 346,000 -  385,000
Chino             
Laurel Lane2015 70
 —
 —
 70
 —
 $ 498,000 -  543,000
Yucaipa             
Cedar Glen2015 143
 —
 17
 143
 —
 $ 297,000 -  308,000
Alameda County             
Newark             
The Cove2017 115
 —
 —
 115
 —
 $ 540,000 -  603,000
The Strand2017 138
 —
 —
 138
 —
 $ 600,000 -  695,000
The Banks2016 106
 —
 —
 106
 —
 $ 648,000 -  719,000
The Tides2016 111
 —
 —
 111
 —
 $ 726,000 -  766,000
The Isles2016 77
 —
 —
 77
 —
 $ 790,000 -  835,000
Dublin             
Terrace Ridge2015 36
 —
 —
 36
 —
 $ 1,055,000 -  1,120,000
Contra Costa County:             
Pittsburgh             
Vista Del Mar             
Villages II2013 52
 52
 —
 —
 45
 (9)
Vineyard II2012 131
 111
 9
 20
 44
 $ 514,000 -  531,000
Victory II2014 104
 10
 14
 34
 10
 $ 543,000 -  612,000
Brentwood             
Palmilla (7)             
El Sol2014 52
 21
 2
 31
 21
 $ 340,000 -  364,000
Cielo2014 56
 16
 7
 40
 16
 $ 393,000 -  453,000
Antioch             
Oak Crest2013 130
 58
 8
 72
 55
 $ 428,000 -  473,000
San Joaquin County:             
Lathrop             
The Ranch @ Mossdale2010 168
 168
 —
 —
 2
 (9)
Tracy             
Maplewood2014 59
 9
 5
 50
 9
 $ 448,000 -  530,000
Santa Clara County:             
Morgan Hill             
Brighton Oaks2015 110
 —
 5
 110
 —
 $ 470,000 -  595,000
Mountain View             
Guild 332015 33
 —
 11
 33
 —
 $ 1,070,000 -  1,385,000
CALIFORNIA SEGMENT  3,945

1,444

158

2,140

840
  
ARIZONA
Maricopa County:             
Queen Creek             
Hastings Farm             
Villas2012 337
 324
 11
 13
 90
 $166,000 - $207,000
Manor2012 141
 141
 —
 —
 10
 (9)
Estates2012 153
 116
 8
 37
 35
 $304,000 - $359,000
Meridian             
Harvest2015 448
 —
 —
 448
 —
 $185,000 - $215,000
Homestead2015 562
 —
 —
 562
 —
 $219,000 - $285,000
Harmony2015 505
 —
 —
 505
 —
 $250,000 - $264,000
Horizons2015 425
 —
 —
 425
 —
 $280,000 - $325,000
Heritage2015 370
 —
 —
 370
 —
 $348,000 - $370,000

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Table of Contents


Mesa             
Lehi Crossing             
Settlers Landing2012 235
 83
 10
 152
 40
 $221,000 - $261,000
Wagon Trail2013 244
 60
 12
 184
 22
 $238,000 - $295,000
Monument Ridge2013 248
 33
 6
 215
 20
 $261,000 - $365,000
Albany Village2016 228
 —
 —
 228
 —
 $182,000 - $199,000
Peoria             
Agua Fria2015 197
   —
 197
   $158,000 - $196,000
Surprise             
Rancho Mercado             
Land (8)N/A 1,896
 —
 —
 1,896
   N/A
Gilbert             
Lyon’s Gate2016 189
 —
 —
 189
 —
 $215,000 - $236,000
ARIZONA SEGMENT  6,178

757

47

5,421

217
  
NEVADA
Clark County:             
North Las Vegas             
Tierra Este2013 114
 26
 6
 88
 24
 $ 210,000 -  230,000
Rhapsody2014 63
 32
 1
 31
 32
 $ 230,000 -  248,000
Las Vegas             
Serenity Ridge2013 108
 67
 9
 41
 31
 $ 472,000 -  552,000
Tularosa at Mountain’s Edge2011 140
 140
 —
 —
 3
 (9)
West Park2006 191
 191
 —
 —
 2
 (9)
Mesa Canyon2013 49
 49
 —
 —
 39
 (9)
Lyon Estates2014 128
 17
 4
 111
 17
 $ 430,000 -  530,000
Sterling Ridge             
Grand2014 137
 24
 23
 38
 24
 $ 860,000 -  905,000
Premier2014 62
 30
 18
 32
 30
 $ 1,244,000 -  1,312,000
Allegra2016 88
 —
 —
 88
 —
 $ 513,000 -  532,000
Tuscan Cliffs2015 77
 —
 7
 77
 —
 $ 731,000 -  781,000
Brookshire             
Estates2015 35
 —
 —
 35
 —
 $ 565,000 -  598,000
Heights2015 98
 —
 —
 98
 —
 $ 399,000 -  421,000
Henderson             
Lago Vista2016 52
 —
 —
 52
 —
 $ 876,000 -  935,000
Nye County:             
Pahrump             
Mountain Falls             
Series I2011 211
 100
 4
 111
 30
 $ 148,000 -  177,000
Series II2014 218
 4
 1
 214
 4
 $ 216,000 -  299,000
Land (8)N/A —
 —
 —
 1,925
 —
 N/A
NEVADA SEGMENT  1,771

680

73

2,941

236
  
COLORADO
Arapahoe County             
Aurora             
Southshore             
Hometown2014 68
 5
 11
 63
 5
  $ 326,000 -  357,000
Generations2014 64
 1
 1
 63
 1
  $ 380,000 -  345,000
Harmony2015 52
 —
 1
 52
 —
  $ 415,000 -  494,000
Signature2015 37
 —
 1
 37
 —
  $ 531,000 -  584,000
Douglas County             
Castle Rock             

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Cliffside2014 49
 12
 8
 37
 12
  $ 462,000 -  540,000
Parker             
Canterberry2014 37
 4
 13
 33
 4
  $ 316,000 -  346,000
Idyllwilde2012 42
 42
 —
 —
 4
 (9)
Grand County             
Granby             
Granby Ranch2012 54
 25
 —
 29
 10
  $ 499,000 -  526,000
Jefferson County             
Arvada             
Candelas2014 66
 35
 14
 31
 35
  $ 373,000 -  427,000
Candelas II             
Generations2015 91
 —
 —
 91
 —
  $ 394,000 -  453,000
4300's2015 110
 —
 —
 110
 —
  $ 444,000 -  511,000
Leydon Rock             
Garden2014 56
 2
 6
 54
 2
  $ 377,000 -  415,000
Park2015 78
 —
 17
 78
 —
  $ 370,000 -  415,000
Larimer County             
Fort Collins             
Timnath Ranch             
Sonnet2014 179
 10
 4
 169
 10
  $ 347,000 -  418,000
Park2014 92
 12
 5
 80
 12
  $ 318,000 -  380,000
Loveland             
Lakes at Centerra2015 200
 —
 3
 52
 —
  $ 343,000 -  390,000
COLORADO SEGMENT  1,275

148

84

979

95
  
WASHINGTON (10)
King County:             
Cedar Falls Way2014 14
 14
 —
 —
 14
 (9)
Highpoint2014 3
 3
 —
 —
 3
 (9)
Issaquah2015 365
 —
 —
 365
 —
 $ 438,990 - 1,030,990
Cascara2014 69
 13
 9
 56
 13
 $ 242,000 -  419,000
Viewridge at Issaquah Highlands2014 14
 14
 —
 —
 14
 (9)
The Brownstones at Issaquah Highlands2014 176
 23
 22
 153
 23
 $ 417,000 -  629,990
The Towns at Mill Creek Meadows2014 122
 23
 15
 99
 23
 $ 239,000 -  353,000
Bryant Heights2015 89
 —
 —
 89
 —
 $ 535,990 - 1,300,000
Ridgeview Townhomes2016 41
 —
 —
 41
 —
 $ 325,990 - 399,990
Snohomish County:             
Riverfront MF2016 190
 —
 —
 190
 —
 $ 229,990 - 299,990
The Reserve at North Creek2014 127
 37
 15
 90
 37
 $ 449,990 -  578,000
Silverlake Center2015 100
 —
 —
 100
 —
 $ 259,990 - 309,990
Pierce County:             
The Reserve at Maple Valley2014 41
 27
 1
 14
 27
 $ 350,000 -  450,000
Spanaway 2302015 230
 —
 —
 230
 —
 $ 199,990 - 315,990
WASHINGTON SEGMENT  1,581

154

62

1,427

154
  
OREGON (10)
Clackamas County:             
Villebois2014 97
 59
 8
 38
 59
 $229,990 - 474,990
Calais at Villebois2015 84
 —
 —
 84
 —
 $304,990 - 529,990
Grande Pointe at Villebois2016 100
 —
 —
 100
 —
 $409,990 - 489,990
Villebois Zion III2014 147
 19
 15
 128
 19
 $229,990 - 469,990
Villebois V2016 93
 —
 —
 93
 —
 $284,990 - 344,990

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Table of Contents


Sparrow Creek2016 205
 —
 —
 205
 —
 $229,990 - 344,990
Brenchley Estates2014 17
 16
 1
 1
 16
 $329,990 - 339,990
Washington County:             
Baseline Woods2014 232
 56
 14
 176
 56
 $274,990 - 374,990
Edgewater Tualatin2014 33
 33
 —
 —
 33
 (9)
Murray & Weir2014 81
 15
 8
 66
 15
 $344,990 - 449,990
Twin Creeks at Copper Mountain2014 94
 6
 8
 88
 6
 $409,990 - 499,990
The Overlook at Timberland2014 7
 7
 —
 —
 7
 (9)
Bethany Creek Falls2015 305
 —
 —
 41
 —
 $264,990 - 524,990
Orenco Woods SFD2015 71
 —
 —
 71
 —
 $294,990 - 379,990
Polygon at Sunset Ridge2015 104
 —
 —
 104
 —
 $274,990 - 449,990
OREGON SEGMENT  1,670

211

54

1,195

211
  
              
GRAND TOTAL  16,420

3,394

478

14,103

1,753
  
              


(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.
(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 December 31, 2012, 3522014, 454 represent homes completed or under construction.

(5)Lots owned as of December 31, 20122014 include lots in backlog at December 31, 2012.2014.
(6)Sales price range reflects base price only and excludes any lot premium, buyer incentive and buyer selected options, which vary from project to project.
(7)
Project is a joint venture and is consolidated as a VIE in accordance with ASC 810,Consolidation.
(8)All or a portion of the lots in this project are not owned as of December 31, 2012. The Company consolidated the purchase price of the lots in accordance with certain accounting rules, and considers the lots owned at December 31, 2012.
(9)(8)Represents a parcel of undeveloped land held for future sale. The Company does not plan to develop homes onDevelopment of this land,project is undetermined, thus the “year of first delivery” and “sales price range” are not applicable.
(9)Project is completely sold out, therefore the sales price range is not applicable as of December 31, 2014
(10)Colorado division wasThe Company's Washington and Oregon segments were acquired on December 7, 2012,August 12, 2014 as part of the Village HomesPolygon Acquisition. Estimated number of homes at completion is the number of homes to be built post-acquisition. Homes closed and year to date orders are from acquisition date through December 31, 2012.2014.

Sales and Marketing

The management team responsible for a specific project develops marketing objectives, formulates pricing and sales strategies and develops advertising and public relations programs for approval of senior management. The Company makes extensive use of advertising and other promotional activities, including on-line and social media, newspaper advertisements, brochures, direct mail and the placement of strategically located sign boards in the immediate areas of its developments. In addition, the Company markets all of its products through the internet via email lists and interest lists, as well as its website at www.lyonhomes.com. In general, the Company’s advertising emphasizes each project’s strengths, the quality and value of its products and its reputation in the marketplace.

The Company normally builds, decorates, furnishes and landscapes three to eightfive model homes for each product line and maintains on-site sales offices, which typically are open seven days a week.week, however, in some cases the Company will operate out of an on-site sales trailer prior to model home construction. Management believes that model homes play a particularly

12
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important role in the Company’s marketing efforts. Consequently, the Company expends a significant amount of effort in creating an attractive atmosphere at its model homes. Interior decorations vary among the Company’s models and are carefully selected based upon the lifestyles of targeted buyers. Structural changes in design from the model homes are not generally permitted, but home buyers may select various other optional construction and design amenities.

The Company employs in-house commissioned sales personnel to sell its homes. In some cases, outside brokers are also involved in the selling of the Company’s homes, particularly in the Arizona and Nevada markets.homes. The Company typically engages its sales personnel on a long-term, rather than a project-by-project basis, which it believes results in a more motivated sales force with an extensive knowledge of the Company’s operating policies and products. Sales personnel are trained by the Company and attend weekly meetings to be updated on the availability of financing, construction schedules and marketing and advertising plans.

The Company strives to provide a high level of customer service during the sales process and after a home is sold. The participation of the sales representatives, on-site construction supervisors and the post-closing customer service personnel, working in a team effort, is intended to foster the Company’s reputation for quality and service, and ultimately lead to enhanced customer retention and referrals.

The Company’s homes are typically sold before or during construction through sales contracts which are usually accompanied by a small cash deposit. Such sales contracts are usually subject to certain contingencies such as the buyer’s ability to qualify for financing. The cancellation rate of buyers who contracted to buy a home but did not close escrow at the Company and its joint ventures’ projects was approximately 14% during 2012 and 18% during 2011.2014 and 17% during 2013. Cancellation rates are subject to a variety of factors beyond the Company’s control such as the downturn in the homebuilding industryindividual customer circumstances and current economic conditions. The Company and its joint ventures’ inventory of completed and unsold homes was 19 homes as of December 31, 2012 and 73 homes as of December 31, 2011.

Warranty

The Company provides its homebuyers with a one-year limited warranty covering workmanship and materials.materials, and a three-year warranty in Washington and Oregon. The Company also provides its homebuyers with a limited warranty that covers “construction defects,” as defined in the limited warranty agreement provided to each home buyer, for the length of its legal liability for such defects (which may be up to ten years in some circumstances), as determined by the law of the state in which the Company builds. The limited warranty covering construction defects is transferable to subsequent buyers not under direct contract with the Company and requires that homebuyers agree to the definitions and procedures set forth in the warranty, including the submission of unresolved construction-related disputes to binding arbitration. The Company began providing this type of limited warranty at the end of 2001. In connection with the limited warranty covering construction defects, the Company obtained an insurance policy which expires on December 31, 2013, unless amended or renewed.2016. The Company has been informed by the insurance carrier that this insurance policy will respond to construction defect claims on homes that close during each policy period for the duration of the Company’s legal liability and that the policy will respond, upon satisfaction of the applicable self-insured retention, to potential losses relating to construction, including soil subsidence. The insurance policy provides a single policy of insurance to the Company and the subcontractors enrolled in its insurance program. As a result, the Company is no longer required to obtain proof of insurance from these subcontractors nor be named as an additional insured under their individual insurance policies.policies regarding the subcontractors' general liability policies for work on the Company's projects. The subcontractors still must provide proof of insurance regarding general liability coverage for off-site work, worker's compensation and auto coverage. The Company still requires that subcontractors and design professionals not enrolled in the insurance program provide proof of insurance and name the Company as an additional insured under their insurance policy. Furthermore, the Company generally requires that its subcontractorseach subcontractor and design professional agreement provide the Company with an indemnity prior to receiving payment for their work.

indemnity.

There can be no assurance, however, that the terms and limitations of the limited warranty will be enforceable against the homebuyers, that the Company will be able to renew its insurance coverage or renew it at reasonable rates, that the Company will not be liable for damages, the cost of repairs, and/or the expense of litigation surrounding possible construction defects, soil subsidence or building-related claims or that claims will not arise out of uninsurable events not covered by insurance and not subject to effective indemnification agreements with the Company’s subcontractors.

subcontractors and design professionals or that such subcontractors and design professionals will be viable entities at the time of the claim.

Sale of Lots and Land

In the ordinary course of business, the Company continually evaluates land sales and has sold, and expects that it will continue to sell, land as market and business conditions warrant. The Company may also sell both multiple lots to other builders (bulk sales) and improved individual lots for the construction of custom homes where the presence of such homes adds to the quality of the community. In addition, the Company may acquire sites with commercial, industrial and multi-family parcels which will generally be sold to third-party developers.


13
Table of Contents

Customer Financing

The Company seeks to assist its home buyers in obtaining mortgage financing for qualified buyers. Substantially all home buyers utilize long-term mortgage financing to purchase a home and mortgage lenders will usually make loans only to qualified borrowers.

In connection with the Polygon Acquisition in 2014, the Company acquired a membership interest in an unconsolidated joint venture which provides certain mortgage brokerage services, in part, to its customers in Washington and Oregon. In addition, in 2015 the Company announced the formation of a separate unconsolidated joint venture, of which it holds a membership interest, which will provide a variety of mortgage banking services, in part, to its customers in California, Nevada, Arizona and Colorado. While the joint ventures may offer or provide certain mortgage services to the Company's homebuyers, the Company's homebuyers may obtain mortgage financing to purchase our homes from any lender or other provider of their choice.

Information Systems and Controls

The Company assigns a high priority to the development and maintenance of its budget and cost control systems and procedures. The Company’s divisionsegment offices are connected to corporate headquarters through a fully integrated accounting, financial and operational management information system. Through this system, management regularly evaluates the status of its projects in relation to budgets to determine the cause of any variances and, where appropriate, adjusts the Company’s operations to capitalize on favorable variances or to limit adverse financial impacts.

As of December 31, 2014, the Company had not fully integrated the Washington and Oregon operating segments into its management information system. The Company anticipates that the complete integration of these segments will occur during 2015.

Regulation

The Company and its competitors are subject to various local, state and federal statutes, ordinances, rules and regulations concerning zoning, building design, construction and similar matters, including local regulation which imposes restrictive zoning and density requirements in order to limit the number of homes that can ultimately be built within the boundaries of a particular project. The Company and its competitors may also be subject to periodic delays or may be precluded entirely from developing in certain communities due to building moratoriums or “slow-growth” or “no-growth” initiatives that could be implemented in the future in the states in which it operates. Because the Company usually purchases land with entitlements, the Company believes that the moratoriums would adversely affect the Company only if they arose from unforeseen health, safety and welfare issues such as insufficient water or sewage facilities. Local and state governments also have broad discretion regarding the imposition of development fees for projects in their jurisdiction. However, these are normally locked-in when the Company receives entitlements.

The Company and its competitors are also subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning protection of health and the environment. The particular environmental laws which apply to any given community vary greatly according to the community site, the site’s environmental conditions and the present and former uses of the site. These environmental laws may result in delays, may cause the Company and its competitors to incur substantial compliance and other costs, and may prohibit or severely restrict development in certain environmentally sensitive regions or areas. The Company’s projects in California are especially susceptible to restrictive government regulations and environmental laws. However, environmental laws have not, to date, had a material adverse impact on the Company’s operations. The Company’s wholly-owned subsidiary, California Lyon, is licensed as a general building contractor in California, Arizona and Nevada.Nevada, and in various municipalities within Colorado as required. In addition, California Lyon's wholly-owned subsidiary, Polygon WLH LLC, is licensed as a general building contractor in Washington and Oregon, and the additional special purpose entities acquired through the Polygon Acquisition hold such a license in Washington or Oregon, as applicable to their location of business operations. California Lyon holds a corporate real estate license under the California Real Estate Law.

Competition

The homebuilding industry is highly competitive, particularly in the low and medium-price range where the Company currently concentrates its activities. The Company does not believe it has a significant market position in any geographic area which it serves due to the fragmented nature of the market. A number of the Company’s competitors have larger staffs, larger marketing organizations and substantially greater financial resources than those of the Company. However, the Company believes that it competes effectively in its existing markets as a result of its product and geographic diversity, substantial development expertise and its reputation as a low-cost producer of quality homes. Further, the Company sometimes gains a competitive advantage in locations where changing regulations make it difficult for competitors to obtain entitlements and/or government approvals which the Company has already obtained.



14
Table of Contents

Seasonality

The Company’s operations are historically seasonal, with the highest new order activity in the spring and summer, which is impacted by the timing of project openings and competition in surrounding projects, among other factors. In addition, the Company’s home deliveries typically occur in the third and fourth quarter of each fiscal year, based on the construction cycle times of our homes between three and six months. As a result, the Company’s revenues, cash flow and profitability are higher in that same period.

Financing

The Company provides for its ongoing cash requirements principally from internally generated funds from the sales of real estate, outside borrowings and by forming new joint ventures with venture partners that provide a substantial portion of the capital required for certain projects. In addition, the Company makes use of the funds received from the equity raised in conjunction with the rights offerings provided for in the Plan and othercertain recent corporate transactions.

transactions including the Company's initial public offering of equity securities and senior notes offerings.

As of March 11, 2013,12, 2015, California Lyon has outstanding its 5.75% Senior Notes due 2019, 8.5% Senior Notes due 2020, and7% Senior Notes due 2022, Subordinated Amortizing Notes due 2017, certain construction and land seller notes payable.payable, and a letter of credit from its revolver. Parent, California Lyon and their subsidiaries have financed, and may in the future finance, certain project and land acquisitions with construction loans secured by real estate inventories, seller-provided financing, lot option agreements and land banking transactions.

Corporate Organization and Personnel

The Company’s executive officers and divisionalregional and division presidents average more than 21approximately 27 years of experience in the homebuilding and development industries within California or the SouthwesternWestern region of the United States. The Company combines decentralized management in those aspects of its business where detailed knowledge of local market conditions is important (such as governmental processing, construction, land development and sales and marketing), with centralized management in those functions where the Company believes central control is required (such as approval of land acquisitions, financial, treasury, human resources and legal matters).

As of December 31, 2012,2014, the Company employed 225585 full-time and 34 part-time employees, including corporate staff, supervisory personnel of construction projects, warranty service personnel for completed projects, as well as persons engaged in administrative, finance and accounting, engineering, golf course operations, sales and marketing activities.

The Company believes that its relations with its employees have been good. Some employees of the subcontractors the Company utilizes are unionized, but none of the Company’s employees are union members. Although there have been temporary work stoppages in the building trades in the Company’s areas of operation, none has had any material impact upon the Company’s overall operations.

Reports to Stockholders

We intend to furnish to our stockholders annual reports containing financial statements audited by our independent registered public accounting firm and to make available quarterly reports containing unaudited financial statements for each of the first three quarters of each year.

Available Information

The Company’s Internet address is http://www.lyonhomes.com. The information contained on the Company's website is not incorporated by reference into this report and should not be considered part of this report. The Company makes available free of charge on or through its Internet website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such material was electronically filed with, or furnished to, the Securities and Exchange Commission.

The Company’s principal executive offices are located at 4695 MacArthur Court, 8th Floor, Newport Beach, California 92660 and its telephone number is (949) 833-3600. The Company was incorporated in the State of Delaware on July 15, 1999.

Item 1A.Risk Factors

An investment in the Company entails the following risks and uncertainties. These risk factors should be carefully considered when evaluating any investment in the Company. Any of these risks and uncertainties could cause the actual results to differ materially from the results contemplated by the forward-looking statements set forth herein, and could otherwise have a significant adverse impact on the Company’s business, prospects, financial condition or results of operations. In addition, please read “Note About Forward-Looking Statements” in this Annual Report on Form 10-K, where we describe additional uncertainties associated with our business and the forward-looking statements included in this Annual Report on Form 10-K.

Market



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Risks Related to Our Business

The homebuilding industry is cyclical and Operational Risks

Increasesaffected by changes in general economic, real estate and other business conditions that could reduce the Company’s cancellation rate coulddemand for new homes and, as a result, negatively impact the Company's results of operations, financial condition and cash flows.


Certain economic, real estate and other business conditions that have significant effects on the homebuilding industry include:

employment levels and job and personal income growth;

availability and pricing of financing for homebuyers;

short and long-term interest rates;

overall consumer confidence and the confidence of potential homebuyers in particular;

demographic trends;

changes in energy prices;

housing demand from population growth, household formation and other demographic changes, among other factors;

U.S. and global financial system and credit market stability;

private party and governmental residential consumer mortgage loan programs, and federal and state regulation of lending and appraisal practices;

federal and state personal income tax rates and provisions, including provisions for the deduction of residential consumer mortgage loan interest payments and other expenses;

the supply of and prices for available new or existing homes, including lender-owned homes acquired through foreclosures and short sales and homes held for sale by investors and speculators, and other housing alternatives, such as apartments and other residential rental property;

homebuyer interest in our current or new product designs and community locations, and general consumer interest in purchasing a home compared to choosing other housing alternatives; and

real estate taxes.

These above conditions, among others, are complex and interrelated. Adverse changes in such business conditions may have a significant negative impact on our business, as they did during the Company’s home sales revenuerecent downturn. The negative impact may be national in scope but may also negatively and home building gross margins.

Duringacutely affect some of the years ended December 31, 2012, 2011,regions or markets in which we operate more than others. In addition, adverse economic conditions in markets outside the U.S., such as Asia, India and 2010, the Company experienced cancellation rates of 14%, 18%, and 19%, respectively. Cancellations negatively impact the number of closed homes, net new home orders, home sales revenue and the Company’s results of operations,Canada, as well as the number of homesany restrictive economic policies in backlog. Home order cancellations can result from a number of factors, including declines or slow appreciation in the market value of homes, increases in the supply of homes available to be purchased, increased competition, higher mortgage interest rates, homebuyers’ inability to sell their existing homes, homebuyers’ inability to obtain suitable financing, including providing sufficient down payments, and adverse changes in economic conditions. Continued high levels of home order cancellations would have a negative impact on the Company’s home sales revenue and financial and operating results.

Limitations on the availability of mortgage financing can adversely affect demand for housing.

In general, housing demand is negatively impacted by the unavailability of mortgage financing as a result of declining customer credit quality, tightening of mortgage loan underwriting standards, or other factors. Most buyers finance their home purchases through third-party lenders providing mortgage financing. Over the last several years, many third-party lenders have significantly increased underwriting standards, and many subprime and other alternate mortgage products are no longer available in the marketplace in spite of a decrease in mortgage rates. If these trends continue and mortgage loans continue to be difficult to obtain, the ability and willingness of prospective buyers to finance home purchases or to sell their existing homes will be adversely affected, which will adversely affect the Company’s results of operations through reduced home sales revenue, gross margin and cash flow.

Changes in federal income tax laws may also affect demand for new homes. Various proposals have been publicly discussed to limit mortgage interest deductions and to limit the exclusion of gain from the sale of a principal residence. Enactment of such proposalsoverseas regions, may have an adverse effectimpact on our financial results to the extent such factors decrease the amount of potential homebuyers from such regions in our markets. When such adverse conditions affect any of our markets, those conditions could have a proportionately greater impact on us than on some other homebuilding companies. We cannot predict their occurrence or severity, nor can we provide assurance that our strategic responses to their impacts would be successful.


Further, the prior recession and downturn in the homebuilding industry had a significant adverse effect on us. While we believe that the housing market began to recover in general. No meaningful predictionfiscal year 2012 from the significant slowdown and appears to continue to be recovering in most of the geographies in which we operate, we cannot predict the pace or scope of the recovery, and we have already experienced a more tempered home price appreciation and moderate sales pace during 2014, with a good deal of variation between our markets, following the steep rebound of home prices in 2012 and 2013. We cannot predict the duration or ultimate magnitude of any economic downturn or the continuation of the current recovery, nor can we provide assurance that should the recovery not continue, our response would be made as to whethersuccessful. The recent improvement in housing market conditions

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following a prolonged and severe housing downturn may not continue, and any such proposals will be enactedslowing or reversal of the present housing recovery may materially and if enacted, the particular form such laws would take.

Difficulty in obtaining sufficient capital could result in increased costsadversely affect our business and delays in completionresults of projects.

The homebuilding industry is capital-intensive and requires significant up-front expendituresoperations.

Our long-term growth depends upon our ability to acquire land and begin development. Land acquisition, development and construction activities may be adversely affected by any shortage or increased cost of financing or the unwillingness of third parties to engage in joint ventures. at reasonable prices.
The Company’s current financial position may make it more difficult for the Company to obtain capital for development projects. Any difficulty in obtaining sufficient capital for planned development expenditures could cause project delays and any such delay could result in cost increases and may adversely affect the Company’s sales and future results of operations and cash flows.

Financial condition and results of operations may be adversely affected by any decrease in the value of land inventory, as well as by the associated carrying costs.

The Company continuously acquires land for replacement and expansion of land inventory within the markets in which it builds. The risks inherent in purchasing and developing land increase as consumer demand for housing decreases, and thus, the Company may have bought and developed landbusiness depends on which homes cannot be profitably built and sold. The Company employs measures to manage inventory risks which may not be successful. In addition, inventory carrying costs can be significant and can result in losses in a poorly performing project or market, and the Company may have to sell homes at significantly lower margins or at a loss. Further, the Company may be required to write-down the book value of certain real estate assets in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, and some of those write-downs could be material.

On February 24, 2012, the Company adopted fresh start accounting under ASC 852,Reorganizations, and recorded all real estate inventories at fair value. Subsequent to February 24, 2012 and throughout each quarter of 2012, there were no indicators of impairment, as sales prices and sales absorption rates have improved. For the 2012 period, there were no impairment charges recorded.

During 2011, the Company incurred non-cash impairment losses on real estate assets amounting to $128.3 million. As required by U.S. GAAP, in connection with our emergence from the Chapter 11 Cases, we adopted the fresh start accounting provisions of ASC 852,Reorganizations, effective February 24, 2012. See “Risks Related to Our Emergence from Chapter 11 Bankruptcy Proceedings” for further discussion. Under ASC 852, the reorganization value represents the fair value of the entity before considering liabilities and approximates the amount a willing buyer would pay for the assets of the Company immediately after restructuring. The reorganization value is allocated to the respective fair value of assets. The Company engaged a third-party valuation firm to assist with the analysis of the fair value of the entity, and respective assets and liabilities. In conjunction with the valuation of all of the assets of the Company, the Company re-set value on certain land holdings in the early stages of development, based on: (i) “as-is” development stages of the property instead of a discounted cash flow approach, (ii) relative comparables on similar stage properties that had recently sold, on a per acre basis, and (iii) location of the property, among other factors. As a result, the Company re-valued these particular assets as of February 24, 2012, and since the date of emergence from the Chapter 11 Cases is within six weeks of year end, management made the assumption that the values are approximately the same, and recorded the book value as fair value as of December 31, 2011. Therefore, the adjustment to fair value was made on December 31, 2011, with no subsequent adjustment necessary at February 24, 2012, on these particular assets. The difference between the new value applied to the property on December 31, 2011 and the carrying value as of December 31, 2011, was recorded as impairment loss on real estate assets.

In addition, the Company incurred non-cash impairment losses on real estate assets of $111.9 million for the year ended December 31, 2010. The Company assesses its projects on a quarterly basis, when indicators of impairment exist. Indicators of impairment include a decrease in demand for housing due to soft market conditions, competitive pricing pressures which reduce the average sales price of homes, which includes sales incentives for home buyers, sales absorption rates below management expectations, a decrease in the value of the underlying land and a decrease in projected cash flows for a particular project. The Company was required to write down the book value of its impaired real estate assets in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 360,Property, Plant and Equipment, or ASC 360.

If land is not available at reasonable prices, the Company’s home sales revenue and results of operations could be negatively impacted or the Company could be required to scale back the Company’s operations in a given market.

The Company’s operations depend on the Company’s ability to obtain land for the development of the Company’sits residential communities at reasonable prices and with terms that meet the Company’sits underwriting criteria. The Company’s ability to obtain land for new residential communities may be adversely affected by changes in the general availability of land, the willingness of land sellers to sell land at reasonable prices, given the deterioration in market conditions, competition for available land, availability of financing to acquire land, zoning, regulations that limit housing density, and other market conditions. If the supply of land appropriate for development of residential communities continues to beis limited because of these factors, or for any other reason, the number of homes that the Company’s homebuilding subsidiaries buildCompany builds and sellsells may continue to decline. Additionally, the ability of the Company to open new projects could be impacted if the Company elects not to purchase lots under option contracts. To the extent that the Company is unable to purchase land timely or enter into new contracts for the purchase of land at reasonable prices, due to the lag time between the time the Company acquires land and the time the Company begins selling homes, the Company’s home sales revenue and results of operations could be negatively impacted and/or the Company could be required to scale back the Company’s operations in a given market.

Adverse changes

Limitations on the availability and increases in general economic conditions could reduce the cost of mortgage financing can adversely affect demand for homes and,housing.
In general, housing demand is negatively impacted by the unavailability of mortgage financing, as a result of declining customer credit quality, tightening of mortgage loan underwriting standards and factors that increase the upfront or monthly cost of financing a home such as increases in interest rates, insurance premiums or limitations on mortgage interest deductibility. Most buyers finance their home purchases through third-party lenders providing mortgage financing. Over the last several years, many third-party lenders have significantly increased underwriting standards, and many subprime and other alternate mortgage products are no longer available in the marketplace in spite of a decrease in mortgage rates. Additionally, potential home buyers who have previously experienced a foreclosure or a short-sale of their homes may be precluded from obtaining a mortgage for several years. The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank Act”), which was signed into law in 2010, also established several new standards and requirements relating to the origination, securitization and servicing of residential consumer mortgage loans. These and other regulations, standards, rules and requirements, as and when implemented, could negatively impactfurther restrict the availability of loans and/or increase the costs to borrowers to obtain such loans. In addition, new rules regarding loan estimates, closing disclosures and fees are scheduled to be implemented in August 2015 by the Consumer Financial Protection Bureau. The effect of these rules on the homebuilding industry has yet to be determined, and could affect the availability and cost of mortgage credit. Continued legislative and regulatory actions and more stringent underwriting standards could have a material adverse effect on our business if certain buyers are unable to obtain mortgage financing.
Further, even if potential customers do not need financing, changes in the availability of mortgage products or increases in mortgage costs may make it harder for them to sell their current homes to potential buyers who need financing, which has in some cases led to lower demand for new homes. Although long-term interest rates currently remain near historically low levels, they have risen at certain times over the past several years and it is impossible to predict future increases or decreases in market interest rates. Further increases in interest rates could adversely affect our results of operations through reduced home sales and cash flow. In addition, changes in governmental regulation with respect to mortgage lenders could adversely affect demand for housing. For example, the Federal Housing Administration, or FHA, significantly reduced the limits on loans eligible for insurance by the FHA in 2014, which has impacted the availability and cost of financing in our markets.
If these trends continue and mortgage loans continue to be difficult or costly to obtain, the ability and willingness of prospective buyers to finance home purchases or to sell their existing homes would be adversely affected, which would adversely affect the Company’s results of operations.

operations through reduced home sales revenue, gross margin and cash flow.

The homebuilding industryCompany’s business is sensitive to changesgeographically concentrated, and therefore, the Company’s sales, results of operations, financial condition and business would be negatively impacted by a decline in economic conditions such as the level of employment, consumer confidence, consumer income, availability of financing and interest rate levels. The national recession, credit market disruption, high unemployment levels, the absence of home price stability, and the decreased availability of mortgage financing have, among other factors, adversely impactedgeneral economy or the homebuilding industry in such regions.
The Company presently conducts all of its business in the following geographic areas within the Western U.S. region: Southern California, Northern California, Arizona, Nevada, Colorado, Washington and Oregon. The Company’s geographic concentration in the Western U.S. could adversely impact the Company if the homebuilding business in its current markets should decline, since there may not be a balancing opportunity in a stronger market in other geographic regions.
In addition, a prolonged economic downturn in one or more of these areas, or in any sector of employment on which the residents in such areas are substantially dependent, could have a material adverse effect on our operations andbusiness, prospects, liquidity, financial condition over the last several years. Although the housing market appears to be recovering in most of the geographies in which we operate, we cannot predict the pace or scope of the recovery. If market conditions deteriorate or do not improve as anticipated, ourand results of operations, and a disproportionately greater impact on us than other homebuilders with more

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diversified operations. For example, much of the employment base in the Pacific Northwest and Northern California markets are dependent upon the technology sector, and Nevada the hospitality and gaming sector, and the local economy in the Fort Collins, Colorado market is to a large extent driven by the oil and gas industry. Further, during the downturn from 2008 to 2010, land values, the demand for new homes and home prices declined substantially in California, negatively impacting the Company’s profitability and financial position. In addition, in the past the state of California has experienced severe budget shortfalls and taken measures such as raising taxes and increasing fees to offset the deficit. Accordingly, the Company's sales, results of operations, financial condition and business would be negatively impacted by a decline in the economy, the job sector or the homebuilding industry in the Western U.S. regions in which our operations are concentrated.
Increases in the Company’s cancellation rate could have a negative impact on the Company’s home sales revenue and home building gross margins.
During the years ended December 31, 2014, 2013, and 2012, the Company experienced cancellation rates of 18%, 17%, and 14%, respectively. Cancellations negatively impact the number of closed homes, net new home orders, home sales revenue and the Company’s results of operations, as well as the number of homes in backlog. Home order cancellations can result from a number of factors, including but not limited to declines or slow appreciation in the market value of homes, increases in the supply of homes available to be purchased, increased competition, higher mortgage interest rates, homebuyers’ inability to sell their existing homes, homebuyers’ inability to obtain suitable financing, including providing sufficient down payments, and adverse changes in economic conditions. Many of these factors are beyond the Company’s control. Increased levels of home order cancellations would have a negative impact on the Company’s home sales revenue and financial and operating results.

If we are not able to develop our communities successfully and in a timely manner, our revenues, financial condition and results of operations may be adversely impacted.


Before a community can open for sale, significant expenditures are required to acquire land, to obtain or renew permits, development approvals and entitlements and to construct significant portions of project infrastructure, amenities, model homes and sales facilities. There may be a lag between the time we acquire land or options for land for development or developed home sites and the time we can bring the communities to market and sell homes. We can also experience significant delays in obtaining permits, development approvals and entitlements, delays resulting from local, state or federal government approvals and utility company constraints or delays, or delays in a land seller's lot deliveries or from rights or claims asserted by third parties, which may be outside of our control. Additionally, we may also have to renew existing permits and there can be no assurances that these permits will be renewed. Lag time varies on a project-by-project basis depending on the complexity of the project, its stage of development when acquired, and the regulatory and community issues involved. As a result of these possible delays, we face the risk that demand for housing may decline during this period and we will not be able to open communities and sell homes at expected prices or within anticipated time frames or at all. The market value of home inventories, undeveloped land, options for land and developed home sites can fluctuate significantly because of changing market conditions. Each of these factors may have a significant negative impact on our financial and operational results.
Financial condition and results of operations may be adversely affected by any decrease in the value of land inventory, as well as by the associated carrying costs.
The Company continuously acquires land for replacement and expansion of land inventory within the markets in which it builds. The risks inherent in purchasing and developing land increase as consumer demand for housing decreases, and thus, the Company may have bought and developed land on which homes cannot be profitably built and sold. The Company employs measures to manage inventory risks which may not be successful.
We incur many costs even before we begin to build homes in a community, including costs of preparing land and installing roads, sewage and other utilities, as well as taxes and other costs related to ownership of the land on which we plan to build homes. In addition, inventory carrying costs can be significant and can result in losses in a poorly performing project or market, and the Company may have to sell homes at significantly lower margins or at a loss, which conditions may persist for extended periods of time. If the rate at which we sell and deliver homes slows or falls, or if we delay the opening of new home communities for sales due to adjustments in our marketing strategy or other reasons, each of which occurred throughout the previous housing downturn, we may incur additional costs and it will take a longer period of time for us to recover our costs, including the costs we incurred in acquiring and developing land.
Adverse weather and geological conditions may increase costs, cause project delays and reduce consumer demand for housing, all of which wouldcould materially and adversely affect the Company’s business, prospects, liquidity, financial condition or results of operations and prospects.

operations.


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As a homebuilder, the Company is subject to numerous risks, many of which are beyond management’s control, such as droughts, floods, wildfires, landslides, soil subsidence, earthquakes and other weather-related and geologic events which could damage projects, cause delays in completion of projects, or reduce consumer demand for housing, and shortages in labor or materials, which could delay project completion and cause increases in the prices for labor or materials, thereby affecting the Company’s sales and profitability. Many of the Company’s projects are located in California, which has experienced significant earthquake activity and seasonal wildfires. Areas in Colorado have also been subjected to seasonal wildfires and soil subsidence, as well as periods of extremely cold weather and snow, and the Company now operates in markets in the Pacific Northwest that experience high levels of rain. In addition to directly damaging the Company’s projects, earthquakes or other geologic events could damage roads and highways providing access to those projects, thereby adversely affecting the Company’s ability to market homes in those areas and possibly increasing the costs of completion.

There are some risks of loss for which the Company may be unable to purchase insurance coverage. For example, losses associated with landslides, earthquakes and other geologic events may not be insurable and other losses, such as those arising from terrorism, may not be economically insurable. A sizeable uninsured loss could adversely affect the Company’s business, prospects, liquidity, results of operations andor financial condition.


Shortages in the availability of subcontract labor may delay construction schedules and increase our costs.
The Company’sCompany's business is geographically concentrated, and therefore, the Company’s sales, results of operations financial conditionare dependent on the availability and business wouldskill of subcontractors, as substantially all construction work is done by subcontractors with the Company acting as the general contractor. Accordingly, the timing and quality of construction depend on the availability and skill of the Company’s unaffiliated, third party subcontractors. As the homebuilding market returns to full capacity, we have previously experienced and may again experience skilled labor shortages. The cost of labor may also be negatively impactedadversely affected by shortages of qualified trades people, changes in laws and regulations relating to union activity and changes in immigration laws and trends in labor migration. We cannot be assured that there will be a decline in regional economies.

The Company presently conducts all of its business in five geographic regions: Southern California, Northern California, Arizona, Nevadasufficient supply or satisfactory performance by these unaffiliated third-party consultants and Colorado. The economic downturn in these markets has caused housing prices and sales to decline,subcontractors, which has causedcould have a material adverse effect on the Company’s business, results of operations and financial condition because the Company’s operations are concentrated in these geographic areas.

In particular, the Company generates a significant portion of its revenue and a significant amount of its profits from, and holds approximately one-half of the dollar value of its real estate inventory in, California. Over the last several years, land values, the demand for new homes and home prices have declined substantially in California, negatively impacting the Company’s profitability and financial position. In addition, the state of California is experiencing severe budget shortfalls and is considering raising taxes and increasing fees to offset the deficit. There can be no assurance that the profitability and financial position of the Company will not be further impacted if the challenging conditions in California continue or worsen.

our business.

The Company may not be able to compete effectively against competitors in the homebuilding industry.

The homebuilding industry is highly competitive.competitive and there are relatively low barriers to entry. Homebuilders compete for, among other things, homebuying customers, desirable properties, financing, raw materials and skilled labor. The Company competes both with large homebuilding companies, some of which have greater financial, marketing and sales resources than the Company, and with smaller local builders. Our competitors may independently develop land and construct housing units that are substantially similar to our products and may employ increased sales incentives for such products. Many of these competitors also have longstandinglong-standing relationships with subcontractors and suppliers in the markets in which we operate. We currently

build in several of the top markets in the nation and, therefore, we expect to continue to face additional competition from new entrants into our markets. The Company also competes for sales with individual resales of existing homes and with available rental housing.

These competitive conditions can result in:

our delivering fewer homes;
our selling homes at lower prices;
our offering or increasing sales incentives, discounts or price concessions for our homes;
our experiencing lower housing gross profit margins, particularly if we cannot raise our selling prices to cover increased land development, home construction or overhead costs;
our selling fewer homes or experiencing a higher number of cancellations by homebuyers;
impairments in the value of our inventory and other assets;
difficulty in acquiring desirable land that meets our investment return or marketing standards, and in selling our interests in land that no longer meet such standards on favorable terms;
difficulty in our acquiring raw materials and skilled management and trade labor at acceptable prices;
delays in the development of land and/or the construction of our homes; and/or
difficulty in securing external financing, performance bonds or letter of credit facilities on favorable terms.
These competitive conditions may have a material adverse effect on our business and consolidated financial statements by decreasing our revenues, impairing our ability to successfully implement our current strategies, increasing our costs and/or diminishing growth in our local or regional homebuilding businesses.

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We may not have access to other capital resources to fund our liquidity needs, and difficulty in obtaining sufficient capital could result in increased costs and delays in completion of projects.

The homebuilding industry is capital-intensive and requires significant up-front expenditures to acquire land and begin development. There is no assurance that cash generated from our operations, borrowings incurred under our credit agreements or project-level financing arrangements, or proceeds raised in capital markets transactions, will be sufficient to finance our capital projects or otherwise fund our liquidity needs. If our future cash flows from operations and other capital resources are insufficient to finance our capital projects or otherwise fund our liquidity needs, we may be forced to:

reduce or delay our business activities, land acquisitions and capital expenditures;

sell assets;

obtain additional debt or equity capital; or

restructure or refinance all or a portion of our debt, including the notes, on or before maturity.

These alternative measures may not be successful and we may not be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all. In addition, the terms of our debt, including the notes and our credit agreements, will limit our ability to pursue these alternatives. Further, we may seek additional capital in the form of project-level financing from time to time. The availability of borrowed funds, especially for land acquisition and construction financing, may be greatly reduced nationally, and the lending community may require increased amounts of equity to be invested in a project by borrowers in connection with both new loans and the extension of existing loans. Land acquisition, development and construction activities may be adversely affected by any shortage or increased cost of financing or the unwillingness of third parties to engage in joint ventures. Any difficulty in obtaining sufficient capital for planned development expenditures could cause project delays and any such delay could result in cost increases and may adversely affect the Company’s sales and future results of operations and cash flows.
We may not be successful in integrating acquisitions or implementing our growth strategies.
In December 2012, we acquired Village Homes marking our entry into the Colorado market, and in August 2014, we closed the Polygon Acquisition, marking our entry into the Washington and Oregon markets, and we may in the future consider growth or expansion of our operations in our current markets or in new markets, whether through strategic acquisitions of homebuilding companies or otherwise. The magnitude, timing and nature of any future expansion will depend on a number of factors, including our ability to identify suitable additional markets and/or acquisition candidates, the negotiation of acceptable terms, our financial capabilities and general economic and business conditions. Our expansion into new or existing markets, whether through acquisition or otherwise, could have a material adverse effect on our business, prospects, liquidity, financial condition or results of operations, and any future acquisitions could result in the dilution of existing shareholders if we issue our common shares as consideration. Acquisitions also involve numerous risks, including difficulties in the assimilation of the acquired company’s operations, the incurrence of unanticipated liabilities or expenses, the risk of impairing inventory and other assets related to the acquisition, the diversion of management’s attention and resources from other business concerns, risks associated with entering markets in which we have limited or no direct experience and the potential loss of key employees of the acquired company.

We have incurred and may continue to incur significant transaction and acquisition-related integration costs in connection with the Polygon Acquisition.

We incurred significant transaction costs in connection with the execution and consummation of the Polygon Acquisition as well as the financing transactions in connection therewith. In addition, we are currently implementing a plan to integrate the residential homebuilding operations of Polygon Northwest. Although we anticipate achieving synergies in connection with the Polygon Acquisition, we also expect to continue to incur costs implementing such cost savings measures. Although we believe that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, will offset incremental transaction- and acquisition-related costs over time, this net benefit may not be achieved in the near term, or at all. We have identified some, but not all, of the actions necessary to achieve our anticipated cost and operational savings. Accordingly, the cost and operational savings may not be achievable in our anticipated amount or timeframe or at all.


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We and Polygon Northwest may be subject to business uncertainties after the consummation of the Acquisition that could adversely affect our and its business.

Uncertainty about the effect of the Polygon Acquisition on employees and customers may have an adverse effect on us and Polygon Northwest, which now operates as our Washington and Oregon segments. Although we and Polygon Northwest have taken actions to reduce any adverse effects, and intend to continue to do so, these uncertainties may impair our and their ability to attract, retain and motivate key personnel for a period of time. These uncertainties could cause customers, suppliers and others that deal with us and Polygon Northwest to seek to change existing business relationships with us and Polygon Northwest.

Additionally, the successful integration of Polygon Northwest will depend, in part, upon our ability to retain the employees and members of senior management following the Polygon Acquisition. If, despite our retention efforts, key employees or members of senior management depart, our business could be harmed and we may not realize all of the expected benefits of the Polygon Acquisition.

We have made certain assumptions relating to the Polygon Acquisition that may prove to be materially inaccurate.

We have made certain assumptions relating to the Polygon Acquisition, including, for example:

projections of Polygon Northwest’s future revenues;

the amount of goodwill and intangibles that will result from the acquisition;

acquisition costs, including transaction and integration costs; and

other financial and strategic rationales and risks of the acquisition.

While management has made such assumptions in good faith and believes them to be reasonable, the assumptions may turn out to be materially inaccurate, including for reasons beyond our control. If these assumptions are incorrect we may change or modify our assumptions, and such change or modification could have a material adverse effect on our financial condition or results of operations.

We may write-off intangible assets, such as goodwill.

We have recorded intangible assets, including goodwill in connection with the Polygon Acquisition. On an ongoing basis, we will evaluate whether facts and circumstances indicate any impairment of the value of intangible assets. As circumstances change, we cannot assure you that the value of these intangible assets will be realized by us. If we determine that a significant impairment has occurred, we will be required to write-off the impaired portion of intangible assets, which could have a material adverse effect on our results of operations in the period in which the write-off occurs.
The Company’s success depends on key executive officers and personnel.

The Company’s success is dependent upon the efforts and abilities of its executive officers and other key employees, many of whom have significant experience in the homebuilding industry and in the Company’s divisional markets. In particular, the Company is dependent upon the services of General William Lyon, Chairman of the Board and Executive Chairman, William H. Lyon, Chief Executive Officer, and Matthew R. Zaist, President and Chief Operating Officer, as well as the services of the California regionregional and other division presidents and division management teams and personnel in the corporate office. The loss of the services or limitation in the availability of any of these executives or key personnel, for any reason, could hinder the execution of our business strategy and have a material adverse effect upon the Company’s business, operatingprospects, liquidity, financial condition or results of operation. Further, such a loss could be negatively perceived in the capital markets.
Power and financial condition.

Powernatural resource shortages or price increases could have an adverse impact on operations.

In prior years, certain areas in Northern and Southern California have experienced power and resource shortages, including mandatory periods without electrical power, as well aschanges to water availability and significant increases in utility and resource costs. In addition, certain of the areas in which we operate, particularly in California, have experienced drought conditions from time to time. The Governor of California has proclaimed a Drought State of Emergency warning that drought conditions may place drinking water supplies at risk in many California communities, negatively impact the state’s economy and environment, and increase greatly the risk of wildfires across the state. These conditions may cause us to incur additional

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costs and we may not be able to complete construction on a timely basis if they were to continue for an extended period of time. Shortages of natural resources, particularly water, may make it more difficult to obtain regulatory approval of new developments. The Company may incur additional costs and may not be able to complete construction on a timely basis if such power shortages and utility rate increases continue. Furthermore, power shortages and rate increases may adversely affect the regional economies in which the Company operates, which may reduce demand for housing. The Company’s operations may be adversely impacted if further rate increases and/or power shortages occur.

The Company’s business and results of operations are dependent on the availability and skill of subcontractors.

Substantially all construction work is done by subcontractors with the Company acting as the general contractor. Accordingly, the timing and quality of construction depend on the availability and skill of the Company’s subcontractors. While the Company has been able to obtain sufficient materials and subcontractors during times of material shortages and believes that its relationships with suppliers and subcontractors are good, the Company does not have long-term contractual commitments with any subcontractors or suppliers. The inability to contract with skilled subcontractors at reasonable costs on a timely basis could have a material adverse effect on the Company’s business and results of operations.

Construction defect, home warranty, soil subsidence and building-related and other building-related claims may be asserted against the Company in the ordinary course of business, and the Company may be subject to liability for such claims.

As a homebuilder, we have been, and continue to be, subject to construction defect, product liability and home warranty claims, including moisture intrusion and related claims, arising in the ordinary course of business. These claims are common to the homebuilding industry and can be costly.

California law provides that consumers can seek redress for patent (i.e., observable) defects in new homes within three or four years (depending on the type of claim asserted) from when the defect is discovered or should have been discovered. If the defect is latent (i.e., non-observable), consumers must still seek redress within three or four years (depending on the type of claim asserted) from the date when the defect is discovered or should have been discovered, but in no event later than ten years after the date of substantial completion of the work on the construction. Consumers purchasing homes in Arizona, Nevada, Colorado, Washington and ColoradoOregon may also be able to obtain redress under state laws for either patent or latent defects in their new homes. Because California, our largest market, is one of the most highly regulated and litigious jurisdictions in the United States, our potential losses and expenses due to litigation, new laws and regulations may be greater than those of our competitors who have smaller or no California operations.

With respect to certain general liability exposures, including construction defect claims, product liability claims and related claims, assessment of claims and the related liability and reserve estimation process is highly

judgmental due to the complex nature of these exposures, with each exposure exhibiting unique circumstances. Furthermore, once claims are asserted for construction defects, it can be difficult to determine the extent to which the assertion of these claims will expand. Although we have obtained insurance for construction defect claims subject to applicable self-insurance retentions, such policies may not be available or adequate to cover liability for damages, the cost of repairs, and/or the expense of litigation surrounding current claims, and future claims may arise out of events or circumstances not covered by insurance and not subject to effective indemnification agreements with our subcontractors.

Furthermore, any product liability or warranty claims made against us, whether or not they are viable, may lead to negative publicity, which could impact our reputation and our home sales.

The outcome of any of these construction defect, product liability and home warranty claims and proceedings, including the defense and other litigation-related costs and expenses we may incur, is inherently uncertain and could differ significantly from the estimate reflected in a related accrual, if made, or reserved amount. Therefore, we can make no assurance that the ultimate outcome of any proceeding, if in excess of a related accrual or if no accrual had been made, would not have a material negative impact our consolidated financial statements.
Increased insurance costs and reduced insurance coverages may affect the Company’s results of operations and increase the potential exposure to liability.
Recently, lawsuits have been filed against builders asserting claims of personal injury and property damage, including arising from the presence of mold or other materials in residential dwellings. Some of these lawsuits have resulted in substantial monetary judgments or settlements against these builders. The Company’s insurance may not cover all of the potential claims, including personal injury claims, or such coverage may become prohibitively expensive. If the Company is unable to obtain adequate insurance coverage, a material adverse effect on the Company’s business, prospects, liquidity, results of operations or financial condition could result.
The costs of insuring against construction defect, product liability and director and officer claims are substantial and the cost of insurance for the Company’s operations has risen, deductibles and retentions have increased and the availability of insurance has diminished. Significant increases in the cost of insurance coverage or significant limitations on coverage could have a material adverse effect on the Company’s business, prospects, liquidity, results of operations or financial condition from such increased costs or from liability for significant uninsurable or underinsured claims.
Material and labor shortages could delay or increase the cost of home construction and reduce our sales and earnings.

The residential construction industry experiences serious material shortages from time to time, including shortages of insulation, drywall, cement, steel and lumber. These material shortages can be more severe during periods of strong demand for housing and during periods where the regions in which we operate experience natural disasters that have a significant impact on

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existing residential and commercial structures. From time to time, we have experienced volatile price swings in the cost of materials, including in particular, the cost of lumber, cement, steel and drywall. Shortages and price increases could cause delays in and increase our costs of home construction. The Company generally is unable to pass on increases in construction costs to customers who have already entered into sales contracts, as those sales contracts generally fix the price of the homes at the time the contracts are signed, which may be in advance of the construction of the home. Sustained increases in construction costs may, over time, erode the Company’s gross margins from home sales, particularly if pricing competition restricts the ability to pass on any additional costs of materials or labor, thereby decreasing gross margins from home sales, which in turn could harm our operating results.

The residential construction industry also experiences labor shortages and disruptions from time to time, including: work stoppages; labor disputes; shortages in qualified trades people; lack of availability of adequate utility infrastructure and services; our need to rely on local subcontractors who may not be adequately capitalized or insured; and delays in availability of building materials. Additionally, the Company could experience labor shortages as a result of subcontractors going out of business or leaving the residential construction market due to low levels of housing production and volumes. Any of these circumstances could give rise to delays in the start or completion of the Company’s limited geographic diversificationcommunities, increase the cost of developing one or more of the Company’s communities and increase the construction cost of the Company’s homes. To the extent that market conditions prevent the recovery of increased costs, including, among other things, subcontracted labor, finished lots, building materials, and other resources, through higher sales prices, the Company’s gross margins from home sales and results of operations could be adversely affected.
Elimination or reduction of the tax benefits associated with owning a home could prevent potential customers from buying our homes and could adversely affect our business or financial results.
Changes in federal tax law may affect demand for new homes. Significant expenses of owning a home, including mortgage interest and real estate taxes, generally are deductible expenses for an individual’s federal and, in some cases, state income taxes, subject to certain limitations. If the Companyfederal government or a state government changes its income tax laws to eliminate or substantially modify these income tax deductions, the after-tax cost of owning a new home would increase for many potential customers. The resulting loss or reduction of homeowners’ tax deductions, if such tax law changes were enacted without offsetting provisions, could adversely affect demand for new homes. No meaningful prediction can be made as to whether any such proposals will be enacted and, if enacted, the particular form such laws would take, but enactment of such proposals may have an adverse effect on the homebuilding industry in our markets declines.

The Company has homebuilding operations in California, Nevada, Arizonageneral and Colorado. The Company’s limited geographic diversification could adversely impact the Company if the homebuildingon our business in its current markets should decline, since there may not be a balancing opportunity in a stronger market in other geographic regions.

particular.

Inflation could adversely affect the Company’s business, prospects, liquidity, financial condition andor results of operations, particularly in a period of oversupply of homes.

homes or declining home sale prices.

Inflation can adversely affect the Company by increasing costs of land, materials and labor. However, the Company may be unable to offset these increases with higher sales prices. In addition, inflation is often accompanied by higher interest rates, which have a negative impact on housing demand. In such an environment, the Company may be unable to raise home prices sufficiently to keep up with the rate of cost inflation, and, accordingly, its margins could decrease. Furthermore, if we need to lower the price of our homes to meet demand, the value of our land inventory may decrease. Moreover, with inflation, the costs of capital can increase and purchasing power of the Company’s cash resources can decline. Efforts by the government to stimulate the economy may not be successful, but have increased the risk of significant inflation and its resulting adverse effect on the Company’s business, financial condition and results of operations.

The Company’s business is seasonal in nature and quarterly operating results can fluctuate.

The Company’s quarterly operating results generally fluctuate by season. The Company typically achieves its highest new home sales orders in the spring and summer, although new homes sales order activity is also highly dependent on the number of active selling communities and the timing of new community openings. Because it typically takes the Company three to six months to construct a new home, the Company delivers a greater number of homes in the second half of the calendar year as sales orders convert to home deliveries. As a result, the Company’s revenues from homebuilding operations are higher in the second half of the year, particularly in the fourth quarter, and the Company generally experiences higher capital demands in the first half of the year when it incurs construction costs. If, due to construction delays or other causes, the Company cannot close its expected number of homes in the second half of the year, the Company’s financial condition and full year results of operations may be adversely affected.

The Company may be unable to obtain suitable bonding for the development of its communities.

The Company provides bonds in the ordinary course of business to governmental authorities and others to ensure the completion of its projects. If the Company is unableprojects and/or in support of obligations to provide required surety bonds for its projects, the Company’s business operationsbuild community improvements such as roads, sewers, water systems and revenues could be adversely affected.other utilities, and to support similar development activities by certain of our joint ventures. As a result of the deterioration in market conditions during the recent downturn, surety providers have becomebecame increasingly reluctant to issue new bonds and some providers arewere requesting credit enhancements (such as cash deposits or letters of credit) in order to maintain

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existing bonds or to issue new bonds.bonds, which trends may continue. The Company may also be required to provide performance bonds and/or letters of credit to secure our performance under various escrow agreements, financial guarantees and other arrangements. If the Company is unable to obtain performance bonds and/or letters of credit when required bonds inor the future,cost or is requiredoperational restrictions or conditions imposed by issuers to provide credit enhancements with respect to its current or future bonds,obtain them increases significantly, the Company’s liquidity could be negatively impacted.

Increased insurance costs and reduced insurance coverages may affect the Company’s results of operations and increase the potential exposure to liability.

Recently, lawsuits have been filed against builders asserting claims of personal injury and property damage caused by the presence of mold in residential dwellings. Some of these lawsuits have resulted in substantial monetary judgments or settlements against these builders. The Company’s insuranceCompany may not cover all of the potential claims, including personal injury claims, arising from the presence of moldbe able to develop or such coverage may become prohibitively expensive. If the Company is unable to obtain adequate insurance coverage,be significantly delayed in developing a material adverse effect oncommunity or communities and/or may incur significant additional expenses, and, as a result, the Company’s business, prospects, liquidity, financial condition andor results of operationsoperation could result if the Company is exposed to claims arising from the presence of mold. At this time, the Company has not received any claims from homeowners arising from the presence of mold.

The cost of insurance for the Company’s operations has risen, deductiblesbe materially and retentions have increased and the availability of insurance has diminished. Significant increases in the cost of insurance coverage or significant limitations on coverage could have a material adverse effect on the Company’s business, financial condition and results of operations from such increased costs or from liability for significant uninsurable or underinsured claims.

We periodically conduct certain of our operations through unconsolidated joint ventures with independent third parties in which we do not have a controlling interest and we can be adversely impacted by joint venture partners’ failure to fulfill their obligations.

We participate in land development joint ventures, or JVs, in which we have less than a controlling interest. We have entered into JVs in order to acquire attractive land positions, to manage our risk profile and to leverage our capital base. Our JVs are typically entered into with developers, other homebuilders and financial partners to develop finished lots for sale to the JV’s members and other third parties. However, our JV investments are generally very illiquid, due to a lack of a controlling interest in the JVs. In addition, our lack of a controlling interest results in the risk that the JV will take actions that we disagree with, or fail to take actions that we desire, including actions regarding the sale of the underlying property, which could have a negative impact on our operations.

affected.


The Company is the managing member in certain joint venture limited liability companies and may become a managing member or general partner in future joint ventures, and therefore may be liable for joint venture obligations.

Certain of the Company’s active joint ventures, or JVs, are organized as limited liability companies. The Company is the managing member in some of these and may serve as the managing member or general partner, in the case of a limited partnership JV, in future JVs. As a managing member or general partner, the Company may be liable for a JV’s liabilities and obligations should the JV fail or be unable to pay these liabilities or obligations.

We may incur additional healthcare costs arising from federal healthcare reform legislation.

In March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, or the Healthcare Reform Legislation, was signed into law These risks include, among others, that a partner in the United States. The

Healthcare Reform Legislation increasesJV may fail to fund its share of required capital contributions, that a partner may make poor business decisions or delay necessary actions, or that a partner may have economic or other business interests or goals that are inconsistent with our own.

Fluctuations in real estate values may require us to write–down the levelbook value of regulatory complexity for companies that offer health and welfare benefits to their employees. Due to the breadth and complexity of the Healthcare Reform Legislation and the staggered implementation, the uncertain timing of the regulations and limited interpretive guidance, itour real estate assets.
The homebuilding industry is difficult to predict the overall impact of the healthcare reform legislation on our business over the coming years. Possible adverse effects include increased healthcare costs, which could adversely affect our business, financial condition and results of operations.

Risks Related to Our Indebtedness

The Company’s high level of indebtedness could adversely affect its financial condition and prevent it from fulfilling its obligations.

The Company is highly leveraged and, subject to certain restrictions, Parent, California Lyonsignificant variability and their subsidiaries may incur substantial additional indebtedness. At March 11, 2013, the total outstanding principal amount of our debt was $344.2 million. Based on the current outstanding principal amount of debt, the Company’s annual interest payments are $28.7 million. No principal payments are required for California Lyon’s outstanding 8.5% Senior Notes due 2020, or the New Notes, until 2020 and certain construction notes are duefluctuations in 2015. The Company’s high level of indebtedness could have detrimental consequences, including the following:

the ability to obtain additional financing as needed for working capital, land acquisition costs, building costs, other capital expenditures, or general corporate purposes, or to refinance existing indebtedness before its scheduled maturity, may be limited;

the Company will need to usereal estate values. As a substantial portion of cash flow from operations to pay interest and principal on the New Notes and other indebtedness, which will reduce the funds available for other purposes;

if Parent or California Lyon is unable to comply with the terms of the agreements governing the indebtedness of the Company, the holders of that indebtedness could accelerate that indebtedness and exercise other rights and remedies against the Company; and

if the Company has a higher level of indebtedness than some of its competitors, it may put the Company at a competitive disadvantage and reduce the Company’s flexibility in planning for, or responding to, changing conditions in the industry, including increased competition.

The Company cannot be certain that cash flow from operations will be sufficient to allow the Company to pay principal and interest on debt, support operations and meet other obligations. If the Company does not have the resources to meet these and other obligations,result, the Company may be required to refinance allwrite-down the book value of certain real estate assets in accordance with U.S. generally accepted accounting principles, or partU.S. GAAP, and some of the existing debt, including the New Notes, sell assets or borrow more money. The Company may not be able to do so on acceptable terms, in a timely manner, or at all.

The indenture governing the New Notes imposes significant operating and financial restrictions, which may prevent Parent and its subsidiaries from capitalizing on business opportunities and taking some corporate actions.

The indenture governing the New Notes, or the Indenture, impose significant operating and financial restrictions. These restrictions limit the ability of Parent, California Lyon and their subsidiaries, among other things, to:

incur or guarantee additional indebtedness or issue certain equity interests;

pay dividends or distributions, repurchase equity or prepay subordinated debt;

make certain investments;

sell assets;

incur liens;

create certain restrictions on the ability of restricted subsidiaries to transfer assets;

enter into transactions with affiliates;

create unrestricted subsidiaries; and

consolidate, merge or sell all or substantially all of the Company’s assets.

In addition, Parent or its subsidiaries may in the future enter into other agreements refinancing or otherwise governing indebtedness which impose yet additional restrictions. These restrictions may adversely affect Parent’s and its subsidiaries’ ability to finance future operations or capital needs or to pursue available business opportunities. A breach of any of these covenants could result in a default in respect of the related indebtedness. If a default occurs, the relevant lenders could elect to declare the indebtedness, together with accrued interest and other fees, to be immediately due and payable and proceed against any collateral securing that indebtedness.

Potential future downgrades of our credit ratings could adversely affect our access to capital and could otherwise have a material adverse effect on us.

Over the past few years, the rating agencies have downgraded the Company’s corporate credit rating due to the deterioration in our homebuilding operations, credit metrics, other earnings-based metrics, because the Company is highly leveraged and the significant decrease in our tangible net worth. These ratings and our current credit condition affect, among other things, our ability to access new capital, especially debt, and negative changes in these ratings may result in more stringent covenants and higher interest rates under the terms of any new debt. Our credit ratingsthose write downs could be further lowered or rating agencies could issue adverse commentaries in the future, whichmaterial. Any material write–downs of assets could have a material adverse effect on our business, prospects, liquidity, financial condition or results of operations, financial condition and liquidity. In particular, a weakening of our financial condition, including a significant increase in our leverage or decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, result in a credit rating downgrade or change in outlook, or otherwise increase our cost of borrowing. The current corporate credit rating fromoperations.

On February 24, 2012, the ratings agencies Moody’s and Standard & Poor’s is ‘Caa2’ and ‘B-’, respectively.

Risks Related to Our Emergence from Chapter 11 Bankruptcy Proceedings

We cannot be certain that the bankruptcy proceedings will not adversely affect our operations going forward.

We emerged from bankruptcy on February 25, 2012. The full extent to which our bankruptcy will impact our business operations, reputation and relationships with our customers, employees, regulators and agents may not be known for some time, and there may be adverse ongoing effects associated with our voluntary petitions, or the Chapter 11 Petitions, under Chapter 11 of Title 11 of the United States Code, as amended, or the Bankruptcy Code.

Our actual financial results may vary significantly from the projections filed with the U.S. Bankruptcy Court, and investors should not rely on the projections.

Neither the projected financial information that we previously filed with the U.S. Bankruptcy Court, or Bankruptcy Court, in connection with the Chapter 11 Petitions nor the financial information included in the disclosure statement for the Plan filed with, and approved by, the Bankruptcy Court, or the Disclosure Statement, should be considered or relied on in connection with the purchase of our securities. We were required to prepare projected financial information and include certain of such information in the Disclosure Statement to demonstrate to the Bankruptcy Court and creditor classes voting on the Plan the feasibility of the Plan and our ability to continue operations upon emergence from the Chapter 11 Petitions. The projections reflect numerous assumptions concerning our anticipated future performance and prevailing and anticipated market and economic conditions that were and continue to be beyond our control and that may not materialize. Projections are inherently subject to uncertainties and to a wide variety of significant business, economic and competitive risks. Our actual results will vary, potentially significantly, from those contemplated by the projections for a variety of reasons. Furthermore, the projections were limited by the information available to us as of the date of the

preparation of the projections. These projections have since been updated in relation to our adoption ofCompany adopted fresh start accounting in conjunction with the confirmation of the Plan. Therefore, variations from the projections may be material,under ASC 852, and investors should not rely on such projections.

Because of the adoption of Debtor in Possession Accounting, financial information for the period from December 19, 2011 through February 24, 2012 will not be comparable to financial information prior to or subsequent to the debtor in possession accounting period.

Upon filing the Chapter 11 Petitions, we adopted Debtor in Possession Accounting, in accordance with Accounting Standards Codification No. 852,Reorganizations.Accordingly, our financial statements for the period from December 19, 2011 through February 24, 2012 will not be comparable in many respects to our financial statements prior to December 19, 2011 or subsequent to February 24, 2012. The lack of comparable historical financial information may discourage investors from purchasing our securities.

Because of the adoption of Fresh Start Accounting and the effects of the transactions contemplated by the Plan, financial information subsequentrecorded all real estate inventories at fair value. Subsequent to February 24, 2012 will not be comparableand throughout each quarter of 2012, 2013 and 2014, there were no indicators of impairment, as sales prices and sales absorption rates have improved. For the years ended December 31, 2014, 2013 and 2012 there were no impairment charges recorded.

The Company assesses its projects on a quarterly basis, when indicators of impairment exist. Indicators of impairment include a decrease in demand for housing due to financial information prior to February 24, 2012.

Upon our emergence fromsoft market conditions, competitive pricing pressures which reduce the Chapter 11 Petitions, we adopted Fresh Start Accounting,average sales price of homes, which includes sales incentives for home buyers, sales absorption rates below management expectations, a decrease in accordance with Accounting Standards Codification No. 852,Reorganizations, pursuant to which the midpointvalue of the range of our reorganization value was allocated to our assetsunderlying land and a decrease in conformity with the procedures specified by Accounting Standards Codification No. 805,Business Combinations. Accordingly, our financial statements subsequent to February 24, 2012 will not be comparable in many respects to our financial statements prior to February 24, 2012. The lack of comparable historical financial information may discourage investors from purchasing our securities.

Regulatory Risks

projected cash flows for a particular project.

Governmental laws and regulations may increase the Company’s expenses, limit the number of homes that the Company can build or delay completion of projects.

The Company is subject to numerous local, state, federal and other statutes, ordinances, rules and regulations concerning zoning, development, building design, construction and similar matters which impose restrictive zoning and density requirements in order to limit the number of homes that can eventually be built within the boundaries of a particular area. Projectsarea, as well as governmental taxes, fees and levies on the acquisition and development of land parcels. These regulations often provide broad discretion to the administering governmental authorities as to the conditions we must meet prior to being approved, if approved at all. We are subject to determinations by these authorities as to the adequacy of water and sewage facilities, roads and other local services. New housing developments may also be subject to various assessments for schools, parks, streets and other public improvements. Although we do not typically purchase land that is not entitled, to the extent that projects are not entitled, purchased lands may be subjected to periodic delays, changes in use, less intensive development or elimination of development in certain specific areas due to government regulations. The Company may also be subject to periodic delays, or may be precluded entirely from developing in certain communities or may otherwise be restricted in our business activities due to building moratoriums or “slow-growth” or “no-growth” initiatives that could be implemented in the future in the states in which the Company operates. Such moratoriums can occur prior or subsequent to commencement of our operations, without notice or recourse. Local and state governments also have broad discretion regarding the imposition of development fees for projects in their jurisdiction. Projects for which the Company has received land use and development entitlements or approvals may still require a variety of other governmental approvals and permits during the development process and can also be impacted adversely by unforeseen health, safety, and welfare issues, which can further delay these projects or prevent their development. As a result of any of these factors, home sales could decline, and costs increase, and projects could be materially delayed, any of which could negatively affect the Company’s business, prospects, liquidity, financial condition and results of operations.


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The Company is subject to environmental laws and regulations, which may increase costs, limit the areas in which the Company can build homes and delay completion of projects.

The Company is also subject to a variety of local, state, federal and other statutes, ordinances, rules and regulations concerning the environment. The particular environmental laws which apply to any given homebuilding site vary according to the site’s location, its environmental conditions and the present and former uses of the site, as well as adjoining properties. Environmental laws and conditions may result in delays, may cause the Company to incur substantial compliance and other costs, including significant fines and penalties for any violation, and can prohibit or severely restrict

homebuilding activity in environmentally sensitive regions or areas, which could negatively affect the Company’s results of operations.

Under various environmental laws, current or former owners of real estate, as well as certain other categories of parties, may be required to investigate and clean up hazardous or toxic substances or petroleum product releases, and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by such parties in connection with the contamination. In addition, in those cases where an endangered species is involved, environmental rules and regulations can result in the elimination of development in identified environmentally sensitive areas.


We may become subject to litigation, which could materially and adversely affect us.

In the future, we may become subject to litigation, including claims relating to our operations, securities offerings or otherwise in the ordinary course of business. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. We cannot be certain of the ultimate outcomes of any claims that may arise in the future. Resolution of these types of matters against us may result in significant fines, judgments or settlements, which, if uninsured, or if the fines, judgments and settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby materially and adversely affecting us. Litigation or the resolution of litigation may affect the availability or cost of our insurance coverage, which could materially and adversely impact us, expose us to increased risks that would be uninsured, and materially and adversely impact our ability to attract directors and officers.

We recently became party to two joint venture arrangements to provide certain mortgage related services to our customers and other homebuyers, which ventures are subject to extensive government regulations.

In connection with the Polygon Acquisition we acquired a non-controlling interest in a mortgage services joint venture to provide services, in part, to our home buyers in our Washington and Oregon divisions, and recently formed a second mortgage services joint venture, in which we also hold a non-controlling interest, to provide services, in part, to our home buyers in our operating divisions in California, Nevada, Arizona and Colorado. The business operations of these mortgage joint ventures are heavily regulated and subject to the rules and regulations promulgated by a number of governmental and quasi-governmental agencies. The mortgage industry remains under intense scrutiny and continues to face increasing regulation at the federal, state and local level. If either of the ventures are determined to have violated federal or state regulations, they may face the loss of licenses or other required approvals or could be subject to fines, penalties, civil actions or could be required to suspend their activities, and we may face the same consequences for any violations of regulations applicable to us, each of which could have an adverse effect on the ventures’, and our, reputation, results and operations. In addition, to the extent that either of the ventures were faced with any claims for losses or liabilities arising from the services performed that were in excess of any reserve levels, then there may be an adverse impact on the ventures’ financial condition or ability to operate, or cause us to recognize losses with respect to our equity interest in the ventures, or cause our customers to seek mortgage loans from other lenders and/or experience mortgage loan funding issues that could delay our delivering homes to them and/or cause them to cancel their home purchase contracts with us.

Information technology failures, data security breaches and other similar adverse events could harm our business.

We rely on information technology and other computer resources to perform important operational and marketing activities as well as to maintain our business and employee records and financial data. Our computer systems are subject to damage or interruption from power outages, computer attacks by hackers, viruses, catastrophes, hardware and software failures and breach of data security protocols by our personnel. Although we have implemented administrative and technical controls and taken other actions to minimize the risk of cyber incidents and otherwise protect our information technology, computer intrusion efforts are becoming increasingly sophisticated and even the controls that we have installed might be breached. If we were to experience a significant period of disruption in our information technology systems that involve interactions with customers or suppliers, it could result in the loss of sales and customers and significant incremental costs, which could adversely affect our business. Additionally, security breaches of our information technology systems could result in the misappropriation or unauthorized disclosure of proprietary, personal and confidential information, which could result in significant financial or reputational damage to us.

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Risks Related to Our Capital Structure

We have substantial outstanding indebtedness and may incur additional debt in the future.

We are highly leveraged. At December 31, 2014, the total outstanding principal amount of our debt was approximately $940.1 million. In addition, we have the ability to incur additional indebtedness under our Revolving Credit Facility, subject to a borrowing base formula, and under our project-level financing facilities. As of December 31, 2014, we would have had approximately $118.2 million of additional borrowing capacity under our Revolving Credit Facility and our project-level financing facilities. Moreover, the terms of the indentures governing the 2022 Notes, 2020 Notes, the 2019 Notes the Amortizing Notes, and the Revolving Credit Facility permit us to incur additional debt, subject to certain restrictions. Our high level of indebtedness could have detrimental consequences, including the following:

we will need to use a substantial portion of cash flow from operations to pay interest and principal on our indebtedness, which will reduce the funds available for other purposes;

if we are unable to comply with the terms of the agreements governing our indebtedness, the holders of that indebtedness could accelerate that indebtedness and exercise other rights and remedies against us;

if we have a higher level of indebtedness than some of our competitors, it may put us at a competitive disadvantage and reduce our flexibility in planning for, or responding to, changing conditions in the industry, including increased competition; and

the terms of any refinancing may not be as favorable as the debt being refinanced.

We cannot be certain that cash flow from operations will be sufficient to allow us to pay principal and interest on our debt, support operations and meet other obligations. If we do not have the resources to meet these and other obligations, we may be required to refinance all or part of our outstanding debt, sell assets or borrow more money. We may not be able to do so on acceptable terms, in a timely manner, or at all. If we are unable to refinance our debt on acceptable terms, we may be forced to dispose of our assets on disadvantageous terms, potentially resulting in losses.

The agreements governing our debt impose significant operating and financial restrictions, which may prevent us from capitalizing on business opportunities and taking some corporate actions.

The agreements governing our debt impose significant operating and financial restrictions. These restrictions limit our ability, among other things, to:

incur or guarantee additional indebtedness or issue certain equity interests;

pay dividends or distributions, repurchase equity or prepay subordinated debt;

make certain investments;

sell assets;

incur liens;

create certain restrictions on the ability of restricted subsidiaries to transfer assets;

enter into transactions with affiliates;

create unrestricted subsidiaries; and

consolidate, merge or sell all or substantially all of our assets.

As a result of these restrictions, our ability to obtain additional financing as needed for working capital, land acquisition costs, building costs, other capital expenditures, or general corporate purposes, or to refinance existing indebtedness before its

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scheduled maturity, may be limited. In addition, our July 3, 2014 amendment to our Revolving Credit Facility incorporated, among other changes, a minimum borrowing base availability of $50.0 million and increased the maximum leverage ratio from 60% to 75% for the first four fiscal quarters following the Polygon Acquisition. Pursuant to the amendment, the minimum borrowing base availability is scheduled to decrease sequentially by $5.0 million the first day after each fiscal quarter end, commencing on January 1, 2015. In addition, the maximum leverage ratio will decrease from 75% to 70% on the last day of the fifth fiscal quarter following the closing of the Polygon Acquisition, and for the fiscal quarters thereafter, will return to 60%. We cannot assure you that we will have adequate liquidity to meet our obligations, including our obligations with respect to our outstanding senior notes and our other indebtedness, once the minimum borrowing base availability declines or falls away, nor can we assure you that we will be in compliance with our maximum leverage ratio covenant once the required level reverts to 60%. Our leverage ratio as of December 31, 2014, as calculated under the Revolving Credit Facility, was approximately 65%. Failure to have sufficient borrowing base availability in the future or to be in compliance with our maximum leverage ratio under the Revolving Credit Facility could have a material adverse effect on our operations and financial condition.

In addition, we may in the future enter into other agreements refinancing or otherwise governing indebtedness which impose yet additional restrictions and covenants, including covenants limiting our ability to incur additional debt, make certain investments, reduce liquidity below certain levels, make distributions to our stockholders and otherwise affect our operating policies. These restrictions may adversely affect our ability to finance future operations or capital needs or to pursue available business opportunities.

A breach of the covenants under the indentures governing our notes or any of the other agreements governing our indebtedness could result in an event of default under the indentures governing our notes or other such agreements.

A default under the indenture governing our 2022 Notes, 2019 Notes, 2020 Notes and Amortizing Notes, our Revolving Credit Facility or other agreements governing our indebtedness may allow our creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the credit agreement governing the Revolving Credit Facility would permit the lenders thereunder to terminate all commitments to extend further credit under the Revolving Credit Facility. Furthermore, if we were unable to repay the amounts due and payable under our Revolving Credit Facility or other future secured credit facilities, those lenders could proceed against the collateral granted to them to secure that indebtedness. In the event our lenders or the holders of our notes accelerate the repayment of our borrowings, we cannot assure that we and our subsidiaries would have sufficient assets to repay such indebtedness. As a result of these restrictions, we may be:

limited in how we conduct our business;

unable to raise additional debt or equity financing to operate during general economic or business downturns; or

unable to compete effectively or to take advantage of new business opportunities.

These restrictions may affect our ability to grow in accordance with our plans.

Potential future downgrades of our credit ratings could adversely affect our access to capital and could otherwise have a material adverse effect on us.

In the past, rating agencies have downgraded our corporate credit rating due to the deterioration in our homebuilding operations, credit metrics and other earnings-based metrics, as well as our high leverage and a significant decrease in our tangible net worth. These ratings and our current credit condition affect, among other things, our ability to access new capital, especially debt, and negative changes in these ratings may result in more stringent covenants and higher interest rates under the terms of any new debt. Our credit ratings could be downgraded or rating agencies could issue adverse commentaries in the future, which could have a material adverse effect on our business, results of operations, financial condition and liquidity. In particular, a weakening of our financial condition, including a significant increase in our leverage or decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, result in a credit rating downgrade or change in outlook, or otherwise increase our cost of borrowing.
Risks Related to Ownership of Our CapitalClass A Common Stock

Concentration of ownership of the voting power of our capital stock may prevent other stockholders from influencing corporate decisions and create perceived conflicts of interest.

Luxor Capital Group, or Luxor,


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Our common stock consists of two classes: Class A and Class B. Holders of Class A Common Stock are entitled to one vote per share, and holders of Class B Common Stock are entitled to five votes per share, on all matters entitled to be voted on by our common stockholders. As of March 10, 2015, entities affiliated with William H. Lyon hold approximately 50.5% of the voting power of the Company's common stock, assuming exercise in full of the warrant to purchase additional shares of Class B Common Stock, through their ownership of 100% of the outstanding Class B Common Stock, a warrant to purchase 1,907,550 additional shares of Class B Common Stock and ownership of shares of Class A Common Stock. Additionally, affiliates of Luxor Capital Partners, or Luxor, and an affiliate of Paulson & Co. Inc., or Paulson, hold significant ownership interests in the Company, which may allow them to dictate the outcomeapproximately 4.4 million and 3.3 million shares of certain corporate actions requiring stockholder approval. As of March 11, 2013, entities affiliated with Luxor hold 29.7% of the Class A Common Stock, 95.9% of the Class C Common Stockrepresenting approximately 9% and 79.9% of the Convertible Preferred Stock, which provides Luxor with 37.1%7% of the total voting power of the Company’s outstanding capital stock. Ascommon stock, respectively. Further, stockholder entities affiliated with each of March 11, 2013,Luxor, Paulson and William H. Lyon, through his management of Lyon Shareholder 2012, LLC, holds 100% of the Class B Common Stock and a warrant to purchase 15,737,294 additional shares of Class B Common Stock, which in addition to 24,199 shares of Class A Common Stock held by The William Harwell Lyon Separate Property Trust, provides William H. Lyon with 36.1%collectively control approximately 64% of the total voting power of the Company’s outstanding capital stock. Ascommon stock as of March 11, 2013, entities affiliated10, 2015, have entered into a stockholder agreement with Paulson hold 21.7% of the Class A Common stock and 15.8% of the Convertible Preferred Stock, which provides Paulson with 10.4% of the total voting power of the Company’s outstanding capital stock. See Item 12 of Part III of this Annual Report, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

On all matters on which the holders of our common stock are entitled to vote, priorrespect to the occurrenceelection of bothup to six seats, depending on ownership levels at the Conversion Date and the conversion of all Class) B Common Stock, each share of common stock is entitled to one vote per share, with the exception oftime, on our Class B Common Stock, which is entitled to two votes per share. Additionally, prior to the Conversion Date and while any shares of Class B Common Stock remain outstanding, the board of directors, will include two directors elected by the holders of Class A Common Stock, two directors elected by the holders of Class B Common Stock and Class D Common Stock, voting together as a class, three directors elected by the holders of Class C Common Stock and Convertible Preferred Stock, voting together as a class, and one director elected by the holders of (i) 66 2/3%whereby each such stockholder has agreed to vote in favor of the Class A Common Stock, voting separately as a class, (ii) the majoritydirector nominees supported by each of the Class B Common Stock, voting separately as a class, and (iii) the majority of the Class C Common Stock and Convertible Preferred Stock, voting together as a separate class. In light of these and other voting rules provided in the Company’s Second Amended and Restated Certificate of Incorporation, or the Certificate of Incorporation, and described in greater detail in Item 10 of Part III of this Annual Report, “Directors, Executive Officers and Corporate Governance—Board of Directors,” Luxor, Paulson and stockholders. The Company is not party to such agreement.

William H. Lyon, may be able to prevent other stockholders from influencing certain corporate decisions.

Luxor Paulson and William H. LyonPaulson may have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This ownership concentration may adversely impact the trading of our capital stock because of a perceived conflict of interest that may exist, thereby depressing the value of our capital stock.

There may be future

Future sales or other dilution of our equity, whichcommon stock by existing stockholders could cause the price of our Class A Common Stock to decline.
Any sales of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, may adversely affectcause the market price offor our capital stock and may negatively impact the holders’ investment.

We may issue additional capital stock, including securities that are convertible into or exchangeable for, or that represent the right to receive, capital stock or any substantially similar securities. In addition, with the applicable consent of the holders of our Convertible Preferred Stock, we may issue additional preferred stock.

Under our Certificate of Incorporation, we are authorized to issue 340,000,000 shares of Class A Common Stock; 50,000,000 shares of Class B Common Stock; 120,000,000 shares of Class C Common Stock; 30,000,000 shares of Class D Common Stock; and 80,000,000 shares of preferred stock. As of March 11, 2013, weStock to decline. We had (i) 70,121,37827,625,405 shares of Class A Common Stock issued and outstanding, (ii) 31,464,5483,813,884 shares of Class B Common Stock issuedoutstanding as of March 10, 2015, excluding 1,907,550 shares of Class B Common Stock issuable upon the exercise of a warrant held by the holders of our Class B Common Stock and shares of unvested restricted stock and Class A Common Stock issuable upon exercise of outstanding which can be converted into 31,464,548stock options. All of these shares, other than the shares of Class B Common Stock held by William H. Lyon through his management of Lyon Shareholder 2012, LLC, and certain shares of Class A Common Stock (iii) 16,020,338held by our directors and officers and other “affiliates”, as defined in Rule 144 of the Securities Act, or Rule 144, are freely tradeable without restriction under the Securities Act. Stockholders holding 11,534,271 shares of Class C Common Stock issued and outstanding,our common stock as of March 10, 2015, which can be converted into 16,020,338 shares ofincludes the Class A Common Stock (iv) 5,501,432 shares of Class D Common Stockthat may be issued and outstanding, and (v) 77,005,744 shares of Convertible Preferred Stock issued and outstanding, which can be converted into shares of either our Class A Common Stock or Class C Common Stock (depending on the circumstancesupon conversion of the conversion). Accordingly, theoutstanding Class B Common Stock Class C Common Stock and Convertible Preferred Stock, if converted, willon a one-to-one basis, have a dilutive effect on our outstanding Class A Common Stock and, potentially, on our Class C Common Stock. Further, if we issue additionalexercised their registration rights to include their shares of capitalcommon stock in registration statements related to our securities, including our Registration Statement on Form S-3 (File No. 333-194517) that was declared effective by the futureSecurities and doExchange Commission on March 20, 2014. Shares of common stock sold under this shelf registration statement can be freely sold in the public market, and even if not issuesold pursuant to an effective registration statement, shares to all then-existing common and/or preferred stockholders in proportion to their interests, the issuance will result in dilution to each stockholder.

Additionally, as of March 11, 2013, there is a warrant outstanding exercisable for an additional 15,737,294 shares of Class B Common Stock. This warrant, if exercised, and if subsequently converted into shares of our Class A Common Stock, would also have a dilutive effect on our Class A Common Stock. As of March 11, 2013, we also have outstanding stock options to purchase 4,757,303 shares of the Company’s Class D Common Stock at an exercise price of $1.05 per share. To the extent these options are exercised, there willheld by such affiliates may be further dilution.

The requirements of being a reporting company may strain our resources and divert management’s attention from other business concerns.

We aresold under Rule 144 subject to the reportingvolume and manner of sale, and other, requirements thereunder. Any sale of the Securities Exchange Acta large number of 1934, or the Exchange Act, and the Sarbanes-Oxley Actshares of 2002, as amended, or the Sarbanes-Oxley Act. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results, and the Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. Although we have employees to comply with these requirements, we may need to hire more employees in the future or engage outside consultants, which will increase our costs and expenses.

In addition, changing laws, regulations and standards relating to public disclosure are creating uncertainty for reporting companies. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is providedcommon stock by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure practices. As a result, our efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.

Ensuring that we have adequate internal financial and accounting controls and procedures in place to enable the Company to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. We have begun the process of documenting, reviewing and improving our internal controls and procedures in order to meet the requirements of Section 404 of the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our

internal controls over financial reporting beginning with our annual report for the year ending December 31, 2013. We and our independent auditors will be testing our internal controls pursuant to the requirements of Section 404 of the Sarbanes-Oxley Act and could, as part of that documentation and testing, identify areas for further attention or improvement. Implementing any appropriate changes to our internal controls may require additional personnel, specific compliance training of our directors, officers and employees, entail substantial costs in order to modify our existing accounting systems and require a significant period of time to complete.

We may become subject to certain corporate governance requirements, which may result in increased costs to us and affect our ability to attract or retain board members and executive officers.

We may incur costs associated with corporate governance requirements, including requirements under rules implemented bystockholders could reduce the SEC or any stock exchange or inter-dealer quotation system on which our capital stock may be listed in the future. The expenses incurred by companies for corporate governance purposes have increased dramatically in recent years. We expect these rules and regulations to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We are unable to currently estimate these costs with any degree of certainty. We also expect that these rules and regulations may make it difficult and expensive for us to obtain director and officer liability insurance, and if we are able to obtain such insurance, we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain such coverage. Further, our board members and executive officers could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified board members and executive officers, which could harm our business.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the markettrading price of our capitalcommon stock.

Provisions in In addition, investors would incur dilution upon the exercise of stock options or other equity-based awards under our equity incentive plan, and upon any exercise of preemptive rights granted pursuant to our Certificate of Incorporation and Second Amended and Restated Bylaws, or the Bylaws, may have the effect of delaying or preventing a change of control or changes in our management. Our Certificate of Incorporation and Bylaws include the following provisions:

that after the Conversion Date (as defined in the Company’s Certificate of Incorporation), any action to be taken by our stockholders must be effected at a duly called annual or special meeting and not by written consent;

that after the Conversion Date, special meetings of our stockholders can be called only by our board of directors, the Chairman of our board of directors, or our President;

following the later of the Conversion Date and the date on which all of the sharesholders of our Class B Common Stock have been converted into sharesupon the issuance of Class A Common Stock underlying our tangible equity units or the Specified Date, our directorspotential future offerings. We may not be removed without cause;

that from and after the Specified Date, vacancies and newly created directorships resulting from any increaseissue equity securities in the authorizedfuture for a number of directors may be filled by a majorityreasons, including to finance our operations and business strategy, to adjust our ratio of the directors then in office, although less than a quorum,debt to equity, to satisfy our obligations upon exercise of outstanding options or by a sole remaining director or by the stockholders entitled to vote at any annual or special meeting held in accordance with Article II of the Bylaws; and

the approval of a supermajority of our outstanding shares of capital stock is required to amend certain provisions of our Certificate of Incorporation.

These provisions may frustrate or prevent attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because our parent entity is incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder.

Risks Related Specifically to Common Stock

There is currently no public trading market for our common stock and a trading market may not develop, making it difficult for our stockholders to sell their shares.

There is currently no public trading market for our common stock. In the absence of an active public trading market, an investor may be unable to liquidate an investment in our common stock. As a result, investors: (i) may be precluded from transferring their shares of common stock; (ii) may have to hold their shares of common stock for an indefinite period of time; and (iii) must be able to bear the complete economic risk of losing their investment in us. In the event a market for our common stock should develop, there can be no assurance that the market price will equal or exceed the price paid for any of the shares offered herein.

In addition, we intend for our stock to be traded over-the-counter on the OTCBB. Over-the-counter transactions involve risks in addition to those associated with transactions in securities traded on a securities exchange. Many over-the-counter securities trade less frequently and in smaller volumes than exchange-listed securities. Accordingly, our common stock may be less liquid than it would otherwise be and may be difficult to sell. Also, the valueother reasons. Any such future issuances of our common stock or convertible or other equity-linked securities will dilute the ownership interest of the holders of our Class A Common Stock. We cannot predict the size of future issuances of our common stock or other equity-related securities or the effect, if any, that they may be more volatile than exchange-listed securities. In addition, issuers of securities tradedhave on the OTCBB do not have to meet the same specific quantitative and qualitative listing and maintenance standards.

market price of our Class A Common Stock.

We do not currently intend to pay dividends on our common stock.

We have not declared or paid any cash dividends on our common stock and we do not plan to do so in the foreseeable future. Any determination to pay dividends to the holders of our common stock will be at the discretion of our board of directors. Further, the payment of cash dividends is restricted under the terms of the agreements governing our Amended Term Loan Agreement.debt instruments and may be restricted under the terms of our future debt agreements. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future.

Our issued and outstanding shares

The price of Convertible Preferredour Class A Common Stock have rights, preferences and privileges senioris subject to volatility related or unrelated to our common stock.

Asoperations.

The market price of March 11, 2013, there were 77,005,744 sharesthe Class A Common Stock may fluctuate substantially due to a variety of Convertible Preferred Stock issued and outstanding. Our Convertible Preferred Stock has rights, preferences and privileges seniorfactors, including:
actual or anticipated variations in our quarterly operating results;
changes in market valuations of similar companies;

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adverse market reaction to the level of our indebtedness;
market reaction to our capital markets transactions;
additions or departures of key personnel;
actions by stockholders;
speculation in the press or investment community;
general market, economic and political conditions, including an economic slowdown or dislocation in the global credit markets;
our operating performance and the performance of other similar companies;
changes in accounting principles; and
passage of legislation or other regulatory developments that adversely affect us or the homebuilding industry.
In addition, the stock market itself is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons related and unrelated to their operating performance and could have the same effect on our common stock. For instance,
Further, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation. The threat or filing of class action litigation lawsuits could cause the Convertible Preferredprice of our Class A Common Stock ranks seniorto decline.
Any of these factors could have a material adverse effect on your investment in our Class A Common Stock and, prioras a result, you could lose some or all of your investment.
We incur substantial costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could harm our operating results.
As a public company, we are required to incur significant legal, accounting and other expenses, including costs associated with public company reporting requirements. We also incur costs associated with current corporate governance requirements, including requirements under Section 404 and other provisions of the common stockSarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, as well as rules implemented by the SEC and the New York Stock Exchange. The expenses incurred by public companies for reporting and corporate governance purposes have increased dramatically in recent years. We expect these rules and regulations to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. Our efforts to comply with evolving laws, regulations and standards result in increased administrative expenses and a diversion of management’s time and attention from revenue-generating activities. In addition, if we fail to implement or maintain the requirements with respect to paymentour internal accounting and audit functions, our ability to continue to report our operating results on a timely and accurate basis could be impaired and we could be subject to sanctions or investigation by regulatory authorities, such as the SEC or NYSE. Any such action could harm our reputation and the confidence of dividends, redemption paymentsinvestors and rights upon liquidation, dissolution or winding upcustomers in our company and could materially adversely affect our business and cause the price of our Class A Common Stock to decline.
If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.
Ensuring that we have adequate internal financial and accounting controls and procedures in place to enable the Company to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Section 404 of the affairsSarbanes-Oxley Act requires annual management assessments of the Company.

Risks Related Specificallyeffectiveness of our internal controls over financial reporting, and, commencing with the year ended December 31, 2014, our auditors have begun attesting to Preferred Stock

An active trading marketand reporting on our internal controls and could, as part of that documentation and testing, identify areas for further attention or improvement. Implementing any appropriate changes to our internal controls may require additional personnel, specific compliance training of our directors, officers and employees, entail substantial costs in order to modify our existing accounting systems and require a significant period of time to complete.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We may in the Convertible Preferred Stock does not exist and may not develop.

The Convertible Preferred Stock has no established trading market. Until the maturity datefuture discover areas of the Convertible Preferred Stock, investors seeking liquidityour internal controls that need improvement. We cannot be certain that we will be limitedsuccessful in implementing or maintaining adequate internal control over our financial reporting and financial processes. Furthermore, as we grow our business, our internal controls will become more complex, and we will require significantly more resources to selling their sharesensure


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our internal controls remain effective. Additionally, the secondary marketexistence of any material weakness or converting their shares of Convertible Preferred Stock into shares of common stocksignificant deficiency would require management to devote significant time and subsequently seekingincur significant expense to sell those shares of common stock. In the event a market should develop for the Convertible Preferred Stock, there can be no assurance that the market price will equalremediate any such material weaknesses or exceed the price paid for any of the shares offered herein.

Wesignificant deficiencies and management may not be able to repurchaseremediate any such material weaknesses or significant deficiencies in a timely manner. The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause stockholders to lose confidence in our reported financial information, all of which could materially and adversely affect us.

Anti-takeover provisions in our corporate organizational documents, under Delaware law and in our debt covenants could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the Convertible Preferred Stock when required.

Tomarket price of our capital stock.

Provisions in our corporate organizational documents may have the extenteffect of delaying or preventing a change of control or changes in our management. Such provisions include, but are not previously convertedlimited to:
authorizing the issuance of undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;
any action to be taken by holders of our common stock must be effected at a duly called annual or special meeting and not by written consent;
special meetings of our stockholders can be called only by our board of directors, the CompanyChairman of our board of directors, our Chief Executive Officer or our lead independent director;
our dual-class voting structure that provides for five-to-one voting rights for holders of our Class B Common Stock;
vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, but not by stockholders;
our bylaws require advance notice of stockholder proposals and director nominations;
an amendment to our bylaws requires a supermajority vote of stockholders; and
after the conversion of all Class B Common Stock, our board of directors will be requiredstaggered into three separate classes, with classes fixed by the board, and, once staggered, the removal of directors requires a supermajority vote of stockholders.
These provisions may frustrate or prevent attempts by our stockholders to redeem allreplace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the then outstandingmembers of our management. In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, or the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder. In addition, some of our debt covenants contained in the agreements governing our debt may delay or prevent a change in control.
Future offerings of debt securities, which would rank senior to our common stock upon our liquidation, and future offerings of equity securities, which may be senior to our common stock for purposes of liquidating and dividend distributions, may adversely affect the market price of our common stock.
In the future, we may attempt to increase our capital resources by making offerings of debt securities or additional offerings of equity securities. Upon bankruptcy or liquidation, holders of our debt securities and shares of Convertible Preferred Stockpreferred stock, if any, and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common stock, or both. Our preferred stock, if issued, could have a preference on the fifteenth anniversary of the date of first issuance of Convertible Preferred Stock,liquidating distributions or the Maturity Date. We may not have sufficient funds at the Maturity Date to make the required repurchasesa preference on dividend payments or both that could limit our ability to make such repurchases may be restricted bya dividend distribution to the termsholders of our other

debt then outstanding. The source of funds forcommon stock. Our decision to issue securities in any repurchase required atfuture offering will depend on market conditions and other factors beyond our control. As a result, we cannot predict or estimate the Maturity Date will be our available cashamount, timing or cash generated from operating activities or other sources, including borrowings, sales of assets or sales of equity. We cannot assure you, however, that sufficient funds will be available or that the termsnature of our other debt then outstanding will permit us atfuture offerings, and purchasers of our common stock in this offering bear the timerisk of any such events to make any required repurchases ofour future offerings reducing the Convertible Preferred Stock. Furthermore, the use of available cash to fund the repurchase of the Convertible Preferred Stock may impair our ability to obtain additional financing in the future.

The market price of our common stock and diluting their ownership interest in our company.

If securities or industry analysts do not publish, or cease publishing, research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

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The trading market for our Class A Common Stock depends in part on the Convertible Preferredresearch and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades our Class A Common Stock may be directly affected byor publishes inaccurate or unfavorable research about our business, the marketprice of our Class A Common Stock would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our Class A Common Stock could decrease, which could cause the price of our Class A Common Stock and our Class C Common Stock, whichtrading volume to decline.
Non-U.S. holders may be volatile.

Tosubject to United States federal income tax on gain realized on the extent that a secondary market for the Convertible Preferred Stock develops, because the Convertible Preferred Stock may be converted intosale or disposition of shares of our Class A Common StockStock.

The Company believes that it is a “United States real property holding corporation,” or Class C Common StockUSRPHC, for United States federal income tax purposes. If the Company is a USRPHC, non-U.S. holders may be subject to United States federal income tax (including withholding tax) upon the occurrence of certain events and/a sale or conditions, we believe that the market price of the Convertible Preferred Stock will be significantly affected by the market pricedisposition of our Class A Common Stock, and Class C Common Stock, as applicable. Because there is currently no market forif (i) our Class A Common Stock and Class C Common Stock, we cannot predict how the shares ofis not regularly traded on an established securities market, or (ii) our Class A Common Stock is regularly traded on an established securities market, and the non-U.S. holder owned, actually or constructively, Class CA Common Stock will trade in the future. This may result in greater volatility in thewith a fair market pricevalue of more than 5% of the Convertible Preferred Stock than would be expected for non-convertible stock.

The Convertible Preferred Stock has not been rated.

The Convertible Preferred Stock has not been rated by any nationally recognized statistical rating organization. This factor may affecttotal fair market value of such common stock throughout the trading priceshorter of the Convertible Preferred Stock.

Holdersfive-year period ending on the date of the Convertible Preferred Stock dosale or other disposition or the non-U.S. holder’s holding period for such common stock.

Other Risks
Because of the adoption of Debtor in Possession Accounting and Fresh Start Accounting, financial information for certain periods and periods subsequent thereto will not have identical rightsbe comparable to financial information for other periods.
Upon the filing by the Company and certain of our direct and indirect wholly-owned subsidiaries of voluntary petitions under chapter 11 of Title 11 of the United States Code, as amended, or the holdersChapter 11 Petitions, we adopted Debtor in Possession Accounting, in accordance with ASC 852 . Upon our emergence from the cases associated with the Chapter 11 Petitions, we adopted Fresh Start Accounting, in accordance with ASC 852, pursuant to which the midpoint of common stock until they acquire the common stock, but will be subject to all changes made with respectrange of our reorganization value was allocated to our common stock.

Except for voting and dividend rights, the holders of the Convertible Preferred Stock have no rights with respect to the common stock until conversion of their Convertible Preferred Stock, but such stockholders’ investmentassets in the Convertible Preferred Stock may be negatively affected by such events. Even though the holders of the Convertible Preferred Stock vote on an as-converted basisconformity with the holdersprocedures specified by Accounting Standards Codification No. 805, Business Combinations. Accordingly, our financial statements for the period from December 19, 2011 through February 24, 2012 will not be comparable in many respects to our financial statements prior to December 19, 2011 or subsequent to February 24, 2012. The lack of the common stock, upon conversioncomparable historical financial information may discourage investors from purchasing our securities. The lack of the Convertible Preferred Stock, holders will be entitled to exercise the rights of a holder of common stock only as to matters for which the record date occurs on or after the applicable conversion date and only to the extent permitted by law, although holders will be subject to any changes in the powers, preferences, or special rights of common stock thatcomparable historical financial information may occur as a result of any shareholder action taken before the applicable conversion date.

Other Risksdiscourage investors from purchasing our securities.

The Company may not be able to benefit from net operating loss, or NOL carryforwards.

At December 31, 2012, the Company had gross federal and state net operating loss carryforwards totaling approximately $243.8 million and $508.3 million, respectively. Federal net operating loss carryforwards begin to expire in 2028 and state net operating loss carryforwards begin to expire in 2013. In addition, as of December 31, 2012 and 2011, the Company had unused federal and state built-in losses of $42.1 million and $27.9 million, respectively, which expire in 2017. The Company has also has alternative minimumits tax (AMT) credit carryforwards of $2.7 million which do not expire. We have fully reserved against our net deferred tax assets, including the NOL carryforward, due to the possibility that we may not have taxable income and the limitations required under the Internal Revenue Code, or IRC, Sections 382 and 383.

Our emergence from Chapter 11 proceedings may limit our ability to offset future U.S. taxable income with tax losses and credits incurred prior to emergence from Chapter 11 bankruptcy proceedings.

attributes.

In connection with our emergence from Chapter 11 bankruptcy proceedings, we were able to retain the tax basis in our assets as well as a portion of our U.S. net operating loss and tax credit carryforwards, or the “TaxTax Attributes.” However, Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or IRC, Sections 382 and 383the Code, provide an annual limitation with respect to the ability of a corporation to utilize its Tax Attributes against future U.S. taxable income in the event of a change in ownership. OurImplementation of the Plan upon our emergence from Chapter 11 bankruptcy proceedings is consideredtriggered a change in ownership for purposes of IRC Section 382 and our annual Section 382 limitation is approximately $4.0$3.6 million. As a result, our future U.S. taxable income may not be fully offset by the Tax Attributes if such income exceeds our annual limitation, and we may incur a tax liability with respect to such income. In addition, subsequent changes in ownership for purposes of the IRCCode could further diminish our ability to utilize Tax Attributes.

Future terrorist attacks against the United States


Geopolitical risks and market disruption could adversely affect our business, liquidity, financial condition and results of operations.

Geopolitical events, acts of war or increased domestic or international instability could have an adverse effect on our operations.

Adverse developments in the war on terrorism future terrorist attacks against the United States, or any outbreak or escalation of hostilities betweenthroughout the United States and any foreign power, including the armed conflicts in Iraq and Afghanistan,world or health pandemics, may cause disruption tohave a substantial impact on the economy, our Company,consumer confidence, the housing market, our employees and our customers, whichcustomers. Historically, perceived threats to national security and other actual or potential conflicts or wars and related geopolitical risks have also created significant economic and political uncertainties. If any such events were to occur, or there was a perception that they were about to occur, they could adversely affecthave a material adverse impact on our revenues, operating expensesbusiness, liquidity, financial condition and financial condition.

results of operations.




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Item 1B.Unresolved Staff Comments

None.


Item 2.Properties

Headquarters

The Company’s corporate headquarters are located at 4490 Von Karman Avenue, Newport Beach, California, which building is owned by two trusts of which William H. Lyon, a director and the Chief Executive Officer of the Company, is the sole beneficiary. The current lease expires in March 2013 and the Company has decided to relocate its corporate office upon expiration of the lease. The Company has entered into a lease for the new location with an unrelated third party. The Company plans to relocate its corporate headquarters to 4695 MacArthur Court, 8th floor, Newport Beach, California, by the end of the second quarter of 2013.California. The Company leases or owns properties for its divisionsegment offices, but none of these properties are material to the operation of the Company’s business. For information about properties owned by the Company for use in its homebuilding activities, see Item 1 of Part I of this Annual Report, “Business.”


Item 3.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. In the opinion of the Company’s management, none of the uninsured claims involves claims which are material and unreserved or will have a material adverse effect on the financial condition of the Company.


Item 4.Mine Safety Disclosure

Not Applicable.


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PART II

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

No Public Market for Capital Stock

At present, there is no established public trading market for any

Shares of our capital stock. We intend to have a registered broker-dealer apply to have our capital stock quoted on the Over-the-Counter Bulletin Board. However, we cannot offer any assurance about the development or an active trading market or as to whether the market price of our capital stock will equal or exceed the price paid for them.

Historical Trading of ourCompany's Class A Common Stock on the New York Stock Exchange and the OTC Bulletin Board

The Company’s predecessor, The Presley Companies, or Presley, was formed in 1956. In 1987, General William Lyon, our Chairman of the Board and Executive Chairman, purchased 100% of the stock of Presley, which subsequently went public in 1991 and washave been listed on the New York Stock Exchange or the NYSE, under the symbol “PDC.” In 1999, Presley acquired William Lyon Homes, Inc."WLH" since May 16, 2013, the day after our initial public offering. The following table sets forth, for the fiscal quarters indicated, the high and changed its name to William Lyon Homes and its ticker symbol to “WLS.” Our common stock was traded on the NYSE until June 13, 2006. We were taken private by way of a tender offer by General William Lyon. Over-the-counter tradinglow sales prices per share of the Company’s common stock (OTC Pink sheets: WLSM.PK) was also discontinued and the Company continued as a privately held company.

Use of Proceeds

The Company filed a resale shelf registration statement on Form S-1 (File No. 333-183249) with the Securities and Exchange Commission on August 10, 2012, as later amended on December 6, 2012, January 22, 2013, February 8, 2013 and February 12, 2013 (the “Shelf Registration Statement”), pursuant to certain registration rights that the Company granted to certain of its shareholders. The Shelf Registration Statement was declared effective by the Securities and Exchange Commission on February 13, 2013. The selling stockholders covered by the Shelf Registration Statement will receive all of the proceeds from any sale of the capital stock registered thereby and the Company will not receive any proceeds.

Holders

As of March 11, 2013, there are approximately 1,687 holders of record for ourCompany's Class A Common Stock, as reported on the NYSE.

  2014 2013
Calendar Quarter Ended High Low High Low 
March 31 31.77
 21.28
 N/A
 N/A
 
June 30 30.74
 25.40
 26.85
 22.50
 
September 30 31.40
 22.00
 25.70
 19.87
 
December 31 24.54
 17.71
 24.99
 18.81
 
As of March 10, 2015, the Company had approximately nine stockholders of record, eight of which were holders of the Company's Class A Common Stock and one of which was a holder of record for ourthe Company's Class B Common StockStock. The number of stockholders of record is based upon the actual number of stockholders registered at such date and related warrant, twelvedoes not include holders of record for our Class C Common Stock and thirteen holders of record for our Convertible Preferred Stock.

Securities Authorized for Issuance Under Equity Compensation Plans

The information included under Item 12 of Part III of this Annual Report, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters — Equity Compensation Plan Information,” is hereby incorporatedshares in "street name" or persons, partnerships, associates, corporations or other entities identified in security position listings maintained by reference into this Item 5 of Part II of this Annual Report.

Convertible Common Equity and Warrants

The issued and outstanding 31,464,548 shares of Class B Common Stock, 16,020,338 shares of Class C Common Stock, 5,501,432 shares of Class D Common Stock and 77,005,744 shares of Convertible Preferred Stock are convertible intodepositories.

Dividends
Our Class A Common Stock.Stock began trading on May 16, 2013, following our initial public offering. Since that time, the Company has not declared any cash dividends. The issued and outstanding shares of Convertible Preferred Stock are also convertible into Class C Common Stock.

Additionally, the holders of Class B Common Stock hold a warrant to purchase 15,737,294 shares of Class B Common Stock at an exercise price of $2.07 per share. The expiration date of the Class B Warrant is February 24, 2017. As of March 11, 2013, we also have outstanding stock options to purchase 4,757,303 shares of the Company’s Class D common stock at an exercise price of $1.05 per share. To the extent these options are exercised, there will be further dilution.

Dividends

Holders of our Convertible Preferred Stock are entitled to receive cumulative dividends at a rate of 6% per annum consisting of (i) cash dividends at the rate of 4% paid quarterly in arrears, and (ii) accreting dividends accruing at the rate of 2% per annum. With the exception of the dividends to be paid out to holders of our Convertible Preferred Stock, the Company does not intend to declare or pay cash dividends in the foreseeablenear future. Any determination to payFuture cash dividends, to holdersif any, will depend upon the financial condition, results of operations, and capital requirements of the Company, as well as compliance with Delaware law, certain restrictive debt covenants, as well as other factors considered relevant by the Company's board of directors.

Issuer Purchases of Equity Securities
The table below summarizes the number of shares of our common stock will be at the discretion of our board of directors. The payment of cash dividends is restricted under the termsClass A Common Stock that were repurchased from certain employees of the indenture governing California Lyon’s 8.5% Senior Notes due 2020.

Company during the three month period ended December 31, 2014. 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 December 31, 2014.

Month Ended Total Number of Shares Purchased Average Price Per Share
October 31, 2014 252
 23.55
November 30, 2014 —
 —
December 31, 2014 4,611
 19.86
Total 4,863
  


Except as set forth above, the Company did not repurchase any of its equity securities during the three month period ended December 31, 2014.
Recent Sales of Unregistered Securities; Repurchases of Securities

Other than the sales of unregistered securities that we reported in Quarterly Reports on Form 10-Q or Current Reports on Form 8-K during fiscal year 2012,2014, we did not make any sales of unregistered securities during 2012.

2014.

Item 6.Selected Historical Consolidated Financial Data

The following table sets forth certain of the Company’s historical financial data. The selected historical consolidated financial data as of December 31, 20122014 and 2011December 31, 2013 and for the years ended December 31, 2014, December 31, 2013, the period from January 1, 2012 through February 24, 2012, and the period from February 25, 2012 through December 31, 2012 and the years ended December 31, 2011, and 2010 has been derived from the Company’s audited consolidated financial statements and the related notes

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included elsewhere herein. The selected historical consolidated financial data as of December 31, 2010, 20092012, 2011, and 20082010 and for the years ended December 31, 20092011 and 2008 has2010 have been derived from the Company’s audited financial statements for such years, which are not included herein.

As a result of the consummation of the Prepackaged Joint Plan of Reorganization on February 25, 2012, or the Plan, the Company adopted Fresh Start Accounting in accordance with Accounting Standards Codification No. 852,Reorganizations, or ASC 852. Accordingly, the financial statement information prior to February 25, 2012 is not comparable with the financial statement information for periods on and after February 25, 2012. Unless otherwise stated or the context otherwise requires, any reference hereinafter to the “Successor” reflects the operations of the Company post-emergence from February 25, 2012 through December 31, 20122014 and any reference to the “Predecessor” refers to the operations of the Company pre-emergence prior to February 25, 2012.

Upon emergence from the Chapter 11 Cases on February 25, 2012, we adopted fresh start accounting as prescribed under ASC 852 (as defined above), which required us to value our assets and liabilities toat their related fair values. In addition, we adjusted our accumulated deficit to zero at the emergence date. Items such as accumulated depreciation, amortization and accumulated deficit were reset to zero. We allocated the reorganization value to the individual assets and liabilities based on their estimated fair values. Items such as accounts receivable, prepaid and other assets, accounts payable, certain accrued liabilities and cash, whose fair values approximated their book values, reflected values similar to those reported prior to emergence. Items such as real estate inventories, property, plant and equipment, certain notes receivable, certain accrued liabilities and notes payable were adjusted from amounts previously reported. Because we adopted fresh start accounting at emergence and because of the significance of liabilities subject to compromise that were relieved upon emergence, the historical financial statements of the Predecessor and the financial statements of the Successor are

not comparable. Refer to the notes to our consolidated financial statements included in this Annual Report on Form 10-K for further details relating to fresh start accounting.

You should read this summary in conjunction with the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the historical consolidated financial statements and accompanying notes included elsewhere herein.

  Successor (1)     Predecessor (1) 
  Period From     Period From             
  February 25,     January 1,             
  through     through  Year Ended 
  December 31,     February 24,  December 31, 
  2012     2012  2011  2010  2009  2008 
(in thousands except number of shares and per share
data)		                     

Statement of Operations Data:

        

Revenues

        

Home sales

 $244,610     $16,687   $207,055   $266,865   $253,874   $468,452  

Lots, land and other sales

  104,325      —       —   17,204    21,220    39,512  

Construction services

  23,825      8,883    19,768    10,629    34,149    18,114  
 

 

 

    

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total revenues

  372,760      25,570    226,823    294,698    309,243    526,078  
 

 

 

    

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income (loss)

  4,666      (2,684)   (148,015)   (117,843)   (161,301)   (193,859) 

Loss before reorganization items and (provision) benefit from income taxes

  (4,325)     (4,961)   (171,706)   (135,867)   (122,861)   (163,676) 

Reorganization items, net (2)

  (2,525)     233,458    (21,182)   —   —   — 

Net (loss) income

  (6,861)     228,497    (192,898)   (135,455)   (20,953)   (122,084) 

Net (loss) income available to common stockholders

 $(11,602)    $228,383   $(193,330)  $(136,786)  $(20,525)  $(111,638) 
 

 

 

    

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(Loss) income per common share:

        

Basic and diluted

 $(0.11)    $228,383   $(193,330)  $(136,786)  $(20,525)  $(111,638) 

Weighted average common shares outstanding:

        

Basic and diluted

  103,037,842      1,000    1,000    1,000    1,000    1,000  
 

Operating Data (including consolidated joint ventures) (unaudited):

        

Number of net new home orders

  956      175    669    650    869    1,221  

Number of homes closed

  883      67    614    760    915    1,260  

Average sales price of homes closed

 $277     $249   $337   $351   $278   $372  

Cancellation rates

  15%     8%   18%   19%   21%   28% 

Backlog at end of period, number of
homes (3)

  406      246    139    84    194    240  

Backlog at end of period, aggregate sales value (3)

 $115,449     $63,434   $29,329   $30,077   $56,472   $80,750  

  Successor (1)     Predecessor (1) 
  December 31,     December 31, 
  2012     2011  2010  2009  2008 
(in thousands)                  

Balance Sheet Data:

       

Cash and cash equivalents

 $71,075     $20,061   $71,286   $117,587   $67,017  

Real estate inventories—Owned

  421,630      398,534    488,906    523,336    754,489  

Real estate inventories—Not owned

  39,029      47,408    55,270    55,270    107,763  

Total assets

  581,147      496,951    649,004    860,099    1,044,843  

Total debt

  338,248      563,492    519,731    590,290    670,905  

Redeemable convertible preferred stock

  71,246      —     —     —     —   

Total William Lyon Homes stockholders’ equity (deficit)

  62,712      (179,516)   13,814    150,600    171,125  


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 Successor (1) Predecessor (1)
     
Period From
February 25,
 
Period From
January 1,
    
 Year Ended December 31, 
through
December 31,
 
through
February 24,
 
Year Ended
December 31,
 2014 2013 2012 2012 2011 2010
(in thousands except number of shares and per share data)           
Statement of Operations Data:           
Revenues           
Home sales$857,025
 $521,310
 $244,610
 $16,687
 $207,055
 $266,865
Lots, land and other sales1,926
 18,692
 104,325
 —
 —
 17,204
Construction services37,728
 32,533
 23,825
 8,883
 19,768
 10,629
Total revenues896,679
 572,535
 372,760
 25,570
 226,823
 294,698
Operating income (loss)76,425
 55,857
 4,666
 (2,684) (148,015) (117,843)
Income (loss) before reorganization items and (provision) benefit from income taxes78,323
 53,765
 (4,325) (4,961) (171,706) (135,867)
Reorganization items, net (2)—
 (464) (2,525) 233,458
 (21,182) —
(Provision) benefit for income taxes(23,797) 82,302
 (11) —
 (10) 412
Net income (loss)54,526
 135,603
 (6,861) 228,497
 (192,898) (135,455)
Net income (loss) available to common stockholders$44,625
 $127,604
 $(11,602) $228,383
 $(193,330) $(136,786)
Income (loss) per common share:           
Basic$1.41
 $5.16
 $(0.93) $228,383
 $(193,330) $(136,786)
       Diluted$1.34
 $4.95
 $(0.93) $228,383
 $(193,330) $(136,786)
Weighted average common shares outstanding:           
Basic31,753,110
 24,736,841
 12,489,435
 1,000
 1,000
 1,000
Diluted33,236,343
 25,796,197
 12,489,435
 1,000
 1,000
 1,000
Operating Data (including consolidated joint ventures) (unaudited):           
Number of net new home orders1,677
 1,322
 956
 175
 669
 650
Number of homes closed1,753
 1,360
 883
 67
 614
 760
Average sales price of homes closed$489
 $383
 $277
 $249
 $337
 $351
Cancellation rates18% 17% 15% 8% 18% 19%
Backlog at end of period, number of homes478
 368
 406
 246
 139
 84
Backlog at end of period, aggregate sales value$260,127
 $199,523
 $115,449
 $63,434
 $29,329
 $30,077

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 Successor (1) Predecessor (1)
 December 31, December 31,
 2014 2013 2012 2011 2010
(in thousands)         
Balance Sheet Data:         
Cash and cash equivalents$52,771
 $171,672
 $71,075
 $20,061
 $71,286
Real estate inventories—Owned1,404,639
 671,790
 421,630
 398,534
 488,906
Real estate inventories—Not owned—
 12,960
 39,029
 47,408
 55,270
Total assets1,674,427
 1,010,411
 581,147
 496,951
 649,004
Total debt940,101
 469,355
 338,248
 563,492
 519,731
Redeemable convertible preferred stock—
 —
 71,246
 —
 —
Total William Lyon Homes stockholders’ equity (deficit)569,915
 428,179
 62,712
 (179,516) 13,814
Noncontrolling interests27,231
 22,615
 9,407
 9,646
 11,563

(1)Successor refers to William Lyon Homes and its consolidated subsidiaries on and after February 25, 2012, or the Emergence Date, after giving effect to: (i) the cancellation of shares of our common stock issued prior to February 25, 2012; (ii) the issuance of shares of new common stock, and settlement of existing debt and other adjustments in accordance with the Prepackaged Joint Plan of Reorganization;Plan; and (iii) the application of fresh start accounting. Predecessor refers to William Lyon Homes and its consolidated subsidiaries up to the Emergence Date. In relation to the adoption of fresh start accounting in conjunction with the confirmation of the Plan, the results of operations for 2012 separately present the period from January 1, 2012 through February 24, 2012 as the pre-emergence, predecessor entity and the period from February 25, 2012 through December 31, 2012 as the successor entity. As such, the application of fresh start accounting as described in Note 21 of the “Notes to Consolidated Financial Statements” is reflected in the years ended December 31, 2014, December 31, 2013, and the period from February 25, 2012 through December 31, 2012 and not the period from January 1, 2012 through February 24, 2012. Certain statistics including (i) net new home orders, (ii) average number of sales locations, (iii) backlog, (iv) number of homes closed, (v) homes sales revenue and (vi) average sales price of homes closed are not affected by the fresh start accounting.
(2)The Company recorded reorganization items of $0.0 million, $(0.5) million, $(2.5) million, and $233.5 million and $(21,182)$(21.2) million during the year ended December 31, 2014, the year ended December 31, 2013, the period from February 25, 2012 through December 31, 2012, the period from January 1, 2012 through February 24, 2012, and the year ended December 31, 2011, respectively. See Note 43 of “Notes to Consolidated Financial Statements.”

(3)Backlog consists of homes sold under pending sales contracts that have not yet closed, some of which are subject to contingencies, including mortgage loan approval and the sale of existing homes by customers. There can be no assurance that homes sold under pending sales contracts will close. Of the total homes sold subject to pending sales contracts as of December 31, 2012, 352 represent homes completed or under construction and 54 represent homes not yet under construction.

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of results of operations and financial condition should be read in conjunction with Item 6 of Part II of this Annual Report, “Selected Historical Consolidated Financial Data,” Item 8 of Part II of this Annual Report, “Financial Statements and Supplementary Data,” and other financial information appearing elsewhere in this Annual Report on Form 10-K. As used herein, “on a consolidated basis” means the total of operations in wholly-owned projects and in consolidated joint venture projects.

Overview
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 familysingle-family detached and attached homes in California, Arizona, Nevada, Colorado, Washington and Colorado (underOregon. The Company's core markets currently include Orange County, Los Angeles, San Diego, the Village Homes brand).Inland Empire, the San Francisco Bay Area, Phoenix, Las Vegas, Denver, Fort Collins, Seattle and Portland. The Company conducts itshas a distinguished legacy of more than 58 years of homebuilding operations, through five reportable operating segments: Southern California, Northern California, Arizona, Nevadaover which time we have sold in excess of 93,000 homes. The Company's markets are characterized by attractive long-term housing fundamentals. The Company holds leading market share positions in most of our markets and Colorado. For the year ended we have a significant land supply. As of December 31, 2012, which includes the “Predecessor” entity from January 1, 2012 through February 24, 2012, and the “Successor” entity from February 25, 2012 through December 31, 2012, or the 2012 Period, on a consolidated basis, which includes results from all five reportable operating segments,2014, the Company had revenuesa total of 17,542 lots owned or controlled and were selling homes out of 56 active selling communities.
During 2014, the overall U.S. housing market experienced a more gradual recovery as compared to the steep rebound in home prices in 2012 and 2013, representing a more tempered price appreciation in 2014 and what the Company

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believes to be reflective of a more normalized market. The Company believes that such moderate price appreciation is indicative of a more sustainable growth cycle than the rapid appreciation experienced over recent years. Despite historically low mortgage rates, financing conditions remain a challenge, especially for entry level home buyers. Against this industry backdrop, the Company delivered another year of strong financial and operational results in 2014, increasing its home sales revenue by 64% in 2014 as compared to 2013, delivering 1,753 homes, an increase of 29% over the prior year, and generating net income of $44.6 million. From a strategic perspective, 2014 was a transformational year for the Company as it expanded its geographic footprint with the acquisition of Polygon Northwest, or the Polygon Acquisition, which now operates as the Company's Washington and Oregon segments, and through its Coastal California infill portfolio land acquisition. In 2014, the Company opened 19 new home communities in its legacy segments, and added an incremental 12 active selling communities from homes salesthe Polygon Acquisition. At the end of $261.3 million,2014, the Company was selling out of 56 new-home communities, a 26%75% increase over the end of 2013, demonstrating the progress made in building out and strengthening the Company's operating platform. The Company's acquisitions in 2014 expanded its operating platform, while remaining true to its strategy of geographic concentration in Western regional markets that benefit from $207.1 millionfavorable economic factors, including high population and job growth, desirable lifestyle and weather characteristics, and positive migration patterns. The Company believes that this business strategy and continued focus on opening new communities position it well to capitalize on the continued, albeit gradual, housing market recovery.
The Company completed the Polygon Acquisition on August 12, 2014, which marked the beginning of the Washington and Oregon segments. Financial data included herein as of and for the year ended December 31, 2011, or2014, includes operations of the 2011 Period. The Company had net new home ordersWashington and Oregon segments from August 12, 2014 (date of 1,131 homes in the 2012 period, a 69% increase from 669 in the 2011 period, and the average sales price for homes closed decreased 18% to $275,100 in the 2012 period from $337,200 in the 2011 period.

acquisition) through December 31, 2014. The Company acquired Village Homes of Denver, Colorado on December 7, 2012, which marked the beginning of the Colorado segment. Financial data included herein as of December 31, 2012, and for the period from February 25, 2012 through December 31, 2012, includes operations of the Colorado segment from December 7, 2012 (date of acquisition) through December 31, 2012.

Comparing2012, and the 2011 periodyear ended December 31, 2013.

As a result of the Polygon Acquisition and the establishment of a distinct operating division to serve the Inland Empire market in Southern California, the Company now organizes its business into six reporting segments from the existing five segments at December 31, 2013. Southern California and Northern California were combined with the Inland Empire division to constitute the California reporting segment, and the newly acquired Washington and Oregon divisions were established as two new reporting segments. The results presented below reflect the Company's current segment structure, and prior periods have been recast to reflect this change. See Note 5 to the 2010 period, homebuildingfinancial statements for further information.
Results of Operations
In the year ended December 31, 2014, the Company delivered 1,753 homes, with an average selling price of approximately $488,900, and recognized home sales revenues decreased 22%and total revenues of $857.0 million and $896.7 million, respectively. The Company has continued to $207.1 millionbuild on the significant operating momentum since 2013, during which time a variety of key housing, employment and other related economic statistics in our markets have increasingly demonstrated signs of recovery. This rebound in market conditions, when combined with the 2011 period from $266.9 millionCompany’s disciplined operating strategy, has resulted in the 2010 period,twelve consecutive quarters of year-over-year improvement in certain key financial metrics, including new home orders and dollar value of backlog. The improving market conditions and increase in pricing is reflected in its average sales price of homes in backlog of $544,200 at December 31, 2014 which is 11% higher than the average sales price forof homes closed decreased 4%for the year ended December 31, 2014 of $488,900.
As of December 31, 2014, the Company had a consolidated backlog of 478 sold but unclosed homes, with an associated sales value of $260.1 million, representing a 30% increase in both units and dollars, respectively, as compared to $337,200 in the 2011 period from $351,100 in the 2010 period and net new home orders increased 3% to 669 in the 2011 period from 650 in the 2010 period.backlog at December 31, 2013. The Company recorded non-cash impairment lossesbelieves that the attractive fundamentals in its markets, its leading market share positions, its long-standing relationships with land developers, its significant land supply and its focus on real estate assets of $128.3 million inproviding the 2011 period and $111.9 million in the 2010 period.

Chapter 11 Reorganization

On December 19, 2011, William Lyon Homes, or Parent, and certain of its direct and indirect wholly-owned subsidiaries filed voluntary petitions, or the Chapter 11 Petitions, in the U.S. Bankruptcy Court for the District of Delaware, or the Bankruptcy Court, to seek approval of the Prepackaged Joint Plan of Reorganization, or the Plan, of Parent and certain of its subsidiaries. Prior to filing the Chapter 11 Petitions, Parent’s wholly-owned subsidiary, William Lyon Homes, Inc., or California Lyon, was in default under its prepetition loan agreement with ColFin WLH Funding, LLC and certain other lenders, or the Prepetition Term Loan Agreement, due to its failure to comply with certain financial covenants in the Prepetition Term Loan Agreement. In addition, the Company became increasingly uncertain of its ability to repay or refinance its then outstanding 7 5/8% Senior Notes when they matured on December 15, 2012. Beginning in April 2010, California Lyon entered into a series of amendments and temporary waivers with the lenders under the Prepetition Term Loan Agreement related to these defaults, which prevented acceleration of the indebtedness outstanding under the Prepetition Term Loan Agreement and enabledbest possible customer experience, positions the Company to negotiate a financial reorganizationcapitalize on meaningful growth.

Homebuilding gross margin percentage and adjusted homebuilding gross margin percentage was 20.9% and 25.2%, respectively, for the year ended December 31, 2014, as compared to be implemented through22.2% and 29.7%, respectively, for the bankruptcy process with its key constituents prior toyear ended December 31, 2013.
The Company completed the Chapter 11 Petitions. The Chapter 11 Petitions were jointly administered underPolygon Acquisition on August 12, 2014, which marked the captionIn re William Lyon Homes, et al., Case No. 11-14019, orCompany’s entry into the Chapter 11 Cases. The sole purposeWashington and Oregon markets and the beginning of the Chapter 11 Cases was to restructure the debt obligationsrelated operating segments. There were no operations in its Washington and strengthen the balance sheet of the Parent and certain of its subsidiaries.

On February 10, 2012, the Bankruptcy Court confirmed the Plan. On February 25, 2012, Parent and its subsidiaries consummated the principal transactions contemplated by the Plan, including:

the issuance of 44,793,255 shares of Parent’s new Class A Common Stock, $0.01 par value per share, or the Class A Common Stock, and $75 million aggregate principal amount of 12% Senior

Subordinated Secured Notes due 2017, or the Notes, issued by California Lyon, in exchange for the claims held by the holders of the formerly outstanding notes of California Lyon;

the amendment of California Lyon’s Prepetition Term Loan Agreement with ColFin WLH Funding, LLC and certain other lenders, or the Amended Term Loan Agreement, which resulted, among other things, in the increase in the principal amount outstanding under the Prepetition Term Loan Agreement, the reduction in the interest rate payable under the Prepetition Term Loan Agreement, and the elimination of any prepayment penalty under the Prepetition Term Loan Agreement;

the issuance, in exchange for cash and land deposits of $25 million, of 31,464,548 shares of Parent’s new Class B Common Stock, $0.01 par value per share, or Class B Common Stock, and a warrant to purchase 15,737,294 shares of Class B Common Stock;

the issuance of 64,831,831 shares of Parent’s new Convertible Preferred Stock, $0.01 par value per share, or Convertible Preferred Stock, and 12,966,366 shares of Parent’s new Class C Common Stock, $0.01 par value per share, or Class C Common Stock, in exchange for aggregate cash consideration of $60 million; and

the issuance of an additional 3,144,000 shares of Class C Common Stock pursuant to an agreement with certain selling stockholders to backstop the offering of shares of Class C Common Stock and shares of Convertible Preferred Stock in connection with the Plan.

Basis of Presentation

The accompanying consolidated financial statements included herein have been prepared under U.S. Generally Accepted Accounting Principles, or U.S. GAAP, and the rules and regulations of the Securities and Exchange Commission, or 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.

Consequences of Chapter 11 Cases—Debtor in Possession Accounting

Accounting Standards Codification Topic 852-10-45,Reorganizations-Other Presentation Matters, which is applicable to companies in Chapter 11 proceedings, generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for the periods subsequent to the filing of the Chapter 11 Cases (defined below) distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Amounts that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the statement of operationsOregon segments for the year ended December 31, 2011 and all subsequent periods through the date of emergence. The balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that2013, therefore year over year comparisons are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, cash provided or used by reorganization items must be disclosed separatelymeaningful (“N/M”) as indicated in the statement of cash flows. The Company applied ASC 852-10-45 effective on December 19, 2011 and is segregating those items as outlined above for all reporting periods subsequent to such date through the date of emergence, as applicable.

The Predecessor consolidated financial statements included in the consolidated financial statements provide for the outcome of the Plan, in particular:

pre-petition liabilities, the amounts that will ultimately be allowed for claims or contingencies, or the status and priority thereof;

the reorganization items upon confirmation of the reorganization;

the fair value of all asset, liability and equity accounts and the effect of any changes that may be made in the capitalization.

In preparing the Consolidated Financial Statements for the Predecessor, we applied ASC Topic 852Reorganization, or ASC 852, which requires that the financial statements for periods subsequent to the reorganization filing distinguish transactions and events that were directly associated with the reorganization from the ongoing operations of the business. Accordingly, professional fees associated with the Plan, interest income earned during the reorganization process and certain gains and losses resulting from reorganization of our business have been reported separately as reorganization items. In addition, interest expense has been reported only to the extent that it was paid or expected to be paid during the reorganization process or that it is probable that it will be an allowed priority, secured, or unsecured claim under the Plan.

Upon emergence from the reorganization process, we adopted fresh start accounting in accordance with ASC 852. The adoption of fresh start accounting results in our becoming a new entity for financial reporting purposes. Accordingly, the Consolidated Financial Statements on or after February 25, 2012 are not comparable to the Consolidated Financial Statements prior to that date. See Note 2 of “Notes to Consolidated Financial Statements”.

Fresh start accounting requires resetting the historical net book value of assets and liabilities to fair value by allocating the entity’s reorganization value to its assets pursuant to Accounting Standards Codification Topic 805,Business Combinations, or ASC 805, and Accounting Standards Codification Topic 820,Fair Value Measurements and Disclosures,or ASC 820. The excess reorganization value over the fair value of tangible and identifiable intangible assets is recorded as goodwill on the Consolidated Balance Sheet. Deferred taxes are determined in conformity with Accounting Standards Codification Topic 740,Income Taxes,or ASC 740. For additional information regarding the impact of fresh start accounting on our Consolidated Balance Sheet as of December 31, 2012, see Note 3 of “Notes to Consolidated Financial Statements.”

Results of Operations

During 2012, the Company has seen an improvement in all of its markets, with an increase in sales absorption rates, an increase in net sales prices, backlog units and an improvement in gross margins. Previous negative trends seem to be improving including (i) stabilizing unemployment rates, which correlate to improved consumer confidence, (ii) decreasing foreclosure activity with decreasing volumes of shadow inventory, (iii) sustained historically low mortgage rates, which is leading to increased homebuyer demand, as well as (iv) better overall economic conditions. The Company strives to optimize the momentum of 2012 and the signs of recovery by increasing prices where appropriate and reducing incentives.

The Company continues to review acquisitions of select land positions where it makes strategic and economic sense to do so, targeting finished lots in core coastal markets, near high employment job centers or transportation corridors. Management also evaluates owned lots and land parcels to determine if values support holding the parcels for future projects or selling projects at current values.

comparative tables below. The Company acquired Village Homes of Denver, Colorado on December 7, 2012, which marked the Company’s entry into the Colorado market and the beginning of the Colorado segment. Financial data included herein as of and for the period ended December 31, 2012, includes operations of the Colorado segment from December 7, 2012 (date of acquisition) through December 31, 2012. There were no operations in ourthe Colorado division as of orsegment for the years endedperiod from January 1, 2012 through February 24, 2012,


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and the period from February 25, 2012 through December 31, 2011 and 2010,7, 2012, therefore year over year comparisons are not meaningful (“N/M”) as indicated in the comparative tables below.

In Southern California, net new home orders per average sales location increased to 41.8 during the year ended December 31, 2012 from 30.1 for the same period in 2011. In Northern California, net new home orders per average sales location increased to 62.7 during the 2012 period from 36.8 during the 2011 period. In Arizona, net new home orders per average sales location increased to 138.3 during the year ended December 31, 2012 from 101 for the same period in 2011. In Nevada, net new home orders per average sales location increased to

44.7 during the 2012 period from 18.2 during the 2011 period. In Southern California, the cancellation rate decreased to 15% in the 2012 period compared to 24% in the 2011 period. In Northern California, the cancellation rate increased to 23% in the 2012 period compared to 18% in the 2011 period. In Arizona, the cancellation rate increased to 10% in the 2012 period compared to 7% in the 2011 period. In Nevada, the cancellation rate decreased to 14% in the 2012 period compared to 20% in the 2011 period. In Colorado, the cancellation rate was 10% in the 2012 period with no comparable amount in the 2011 period. The lower overall cancellation rate is due to an increase in the number of highly qualified, credit worthy homebuyers.

The Company experienced increased homebuilding gross margin percentages of 16.6% for the year ended December 31, 2012 compared to 10.9% in the 2011 period particularly impacted by an increase in Northern California’s homebuilding gross margin percentages to 22.2% in the 2012 period compared to 11.1% in the 2011 period. Also contributing to the overall increase, was an increase in Nevada’s homebuilding gross margin percentages to 15.5% in the 2012 period from 9.7% in the 2011 period, an increase in Arizona’s homebuilding gross margin percentages to 13.1% in the 2012 period compared to 11.8% in the 2011 period, and an increase in Southern California’s homebuilding gross margin percentages to 15.9% in the 2012 period from 10.9% in the 2011 period. Colorado’s homebuilding gross margin percentages were 14.9% in the 2012 period with no comparable amount in the 2011 period. The increase in gross margins is primarily related to an increase in absorption, which decreases certain project related costs, and an increase in net sales prices during the year. The increase in gross margins is also attributed to the impact of fresh start accounting which resulted in a net decrease to the cost basis of our properties, which subsequently increased gross margins.

Comparisons of the Year Ended December 31, 20122014 to December 31, 20112013

 Year Ended December 31, Increase (Decrease)    
 2014 2013 Amount %
Number of Net New Home Orders       
California792
 597
 195
 33 %
Arizona201
 339
 (138) (41)%
Nevada237
 271
 (34) (13)%
Colorado152
 115
 37
 32 %
Subtotal1,382

1,322

60
 5 %
Washington134
 —
 134
 N/M
Oregon161
 —
 161
 N/M
Total1,677
 1,322
 355
 27 %
Cancellation Rate18% 17% 1%  
The 27% increase in the number of net new home orders is driven by the Polygon Acquisition, which contributed 295 orders from the Washington and Oregon segments, the 33% improvement in California, and the 32% increase in Colorado, offset by a decrease in Arizona and Nevada. The absorption rates during the year ended December 31, 2013 were particularly strong, totaling 52.9 orders per community, or 1.0 per week, compared to 38.1 sales per community, or 0.7 per week in the 2014 period.
 Year Ended December 31, Increase (Decrease)    
 2014 2013 Amount %
Average Number of Sales Locations       
California17
 9
 8
 89%
Arizona6
 6
 —
 —%
Nevada9
 6
 3
 50%
Colorado8
 4
 4
 100%
Subtotal40

25

15
 60%
Washington2
 —
 2
 N/M
Oregon2
 —
 2
 N/M
Total44
 25
 19
 76%

The average number of sales locations for the Company increased to 44 locations for the year ended December 31, 2014 compared to 25 for the year ended December 31, 2013, including an average of four sales locations from our Washington and Oregon segments. California increased by eight sales locations, and Colorado and Nevada increased by four and three sales locations in the 2014 period compared to the 2013 period, while Arizona remained consistent between periods. As of December 31, 2014 the Company had 56 locations, up from 32 at December 31, 2013. During the 2014 period, the Company opened 19 new sales locations, closed 7, and acquired 12 through the Polygon Acquisition.

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  December 31, Increase (Decrease)    
  2014 2013 Amount %
Backlog (units)        
California 158
 206
 (48) (23)%
Arizona 47
 63
 (16) (25)%
Nevada 73
 72
 1
 1 %
Colorado 84
 27
 57
 211 %
Subtotal 362
 368
 (6) (2)%
Washington 62
 —
 62
 N/M
Oregon 54
 —
 54
 N/M
Total 478
 368
 110
 30 %
The Company’s backlog at December 31, 2014 increased 30% to 478 units from 368 units at December 31, 2013. The increase includes 116 units from the newly acquired Washington and Oregon segments, and an increase in the Colorado segment of 211%. The increase in backlog was driven by a 60% increase in orders during the fourth quarter of 2014 when compared with the prior year, partially offset by a backlog conversion rate of 98%.
  December 31, Increase (Decrease)
  2014 2013 Amount %
    (dollars in thousands)      
Backlog (dollars)        
California $93,912
 $131,174
 $(37,262) (28)%
Arizona 13,408
 17,676
 (4,268) (24)%
Nevada 62,847
 37,514
 25,333
 68 %
Colorado 37,935
 13,159
 24,776
 188 %
Subtotal 208,102
 199,523
 8,579
 4 %
Washington 34,309
 —
 34,309
 N/M
Oregon 17,716
 —
 17,716
 N/M
Total $260,127
 $199,523
 $60,604
 30 %
The dollar amount of backlog of homes sold but not closed as of December 31, 2014 was $260.1 million, up 30% from $199.5 million as of December 31, 2013. The increase is driven by the addition of the Washington and Oregon segments, a shift in product mix in Nevada to homes with a higher selling price, and an increase in units in backlog in Colorado. These increases are partially offset by a decrease in units in backlog in the California and Arizona segments. 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 decreased 28% to $93.9 million as of December 31, 2014 from $131.2 million as of December 31, 2013, which is attributable to a 23% decrease in the number of homes in backlog in California to 158 homes as of December 31, 2014 compared to 206 homes as of December 31, 2013, driven by an 86% increase in homes closed to 840 during the year ended December 31, 2014, from 451 during the 2013 period, offset by a 33% increase in net new home orders to 792 for the year ended December 31, 2014 compared to 597 homes for the year ended December 31, 2014, and a 7% decrease in the average sales price of homes in backlog to $594,400 as of December 31, 2014 compared to $636,800 as of December 31, 2013.
In Arizona, the dollar amount of backlog decreased 24% to $13.4 million as of December 31, 2014 from $17.7 million as of December 31, 2013, which is attributable to a 25% decrease in the number of units in backlog to 47 as of December 31, 2014 from 63 as of December 31, 2013.
In Nevada, the dollar amount of backlog increased 68% to $62.8 million as of December 31, 2014 from $37.5 million as of December 31, 2013, which is attributable to an increase in the average selling price of homes in backlog to $860,900 as of December 31, 2014, up 65% from $521,000 as of December 31, 2013.
In Colorado, the dollar amount of backlog increased 188% to $37.9 million as of December 31, 2014, from $13.2 million as of December 31, 2013. The increase is attributable to a 211% increase in the number of units in backlog at December 31,

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2014, to 84 from 27 at December 31, 2013, slightly offset by a 7% decrease in the average selling price of homes in backlog as of December 31, 2014 to $451,600 from $487,400 at December 31, 2013.
The Company acquired the Washington and Oregon segments through its Polygon Acquisition on August 12, 2014. At December 31, 2014 the combined dollar amount of backlog attributable to these segments was $52.0 million, with no comparable amount in the 2013 period.
 December 31, Increase (Decrease)    
 2014 2013 Amount %
Number of Homes Closed       
California840
 451
 389
 86 %
Arizona217
 448
 (231) (52)%
Nevada236
 291
 (55) (19)%
Colorado95
 170
 (75) (44)%
Subtotal1,388
 1,360
 28
 2 %
Washington154
 —
 154
 N/M
Oregon211
 —
 211
 N/M
Total1,753
 1,360
 393
 29 %

During the year ended December 31, 2014, the number of homes closed increased 29% to 1,753 in the 2014 period from 1,360 in the 2013 period, the highest since 2007. The increase is primarily attributable to an increase in community count. There was an 86% increase in California to 840 homes closed in the 2014 period compared to 451 homes closed in the 2013 period, and the newly acquired Washington and Oregon segments contributed an additional 365 closings during the 2014 period for which there was no comparable amount in the 2013 period. These increases were partially offset by decreases experienced in the Arizona, Nevada, and Colorado segments of 52%, 19%, and 44%, respectively, when comparing the 2014 and 2013 periods.
 Year Ended December 31, Increase (Decrease)    
 2014 2013 Amount %
 (dollars in thousands)
Home Sales Revenue       
California$498,965
 $262,489
 $236,476
 90 %
Arizona57,484
 110,397
 (52,913) (48)%
Nevada121,815
 78,148
 43,667
 56 %
Colorado46,460
 70,276
 (23,816) (34)%
Subtotal724,724
 521,310
 203,414
 39 %
Washington65,886
 —
 65,886
 N/M
Oregon66,415
 —
 66,415
 N/M
Total$857,025
 $521,310
 $335,715
 64 %
The increase in homebuilding revenue of 64% to $857.0 million for the year ended December 31, 2014 from $521.3 million for the year ended December 31, 2013 is primarily attributable to a 29% increase in the number of homes closed to 1,753 during the 2014 period from 1,360 in the 2013 period, which includes 365 homes closed in our newly acquired Washington and Oregon segments, and a 28% increase in the average sales price of homes closed to $488,900 during the 2014 period from $383,300 during the 2013 period. The increase in average home sale price resulted in a $185.1 million increase in revenue, coupled with a $150.6 million increase in revenue attributable to a 29% increase in the number of homes closed.

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 Year Ended December 31, Increase (Decrease)
 2014 2013 Amount %
Average Sales Price of Homes Closed       
California$594,000
 $582,000
 $12,000
 2%
Arizona264,900
 246,400
 18,500
 8%
Nevada516,200
 268,500
 247,700
 92%
Colorado489,100
 413,400
 75,700
 18%
Subtotal average522,100
 383,300
 138,800
 36%
Washington427,800
 —
 427,800
 N/M
Oregon314,800
 —
 314,800
 N/M
Total average$488,900
 $383,300
 $105,600
 28%

The average sales price of homes closed for the 2014 period increased primarily due to product mix of our actively selling projects to projects available to our "move up" buyers, particularly in our Nevada segment, coupled with increasing price points in many of our actively selling communities. In Nevada, the increase in average sales price of homes closed was attributable to 54 closings with an average sales price in excess of $800,000 during 2014 for which there were no comparable closings in the 2013 period, and in Colorado the increase was due to 23 closings with an average sales price in excess of $500,000 compared to 14 closings in the prior period.
Gross Margin
Homebuilding gross margins decreased to 20.9% for the year ended December 31, 2014 from 22.2% in the 2013 period. Relative to the Company's previously established segments, the two segments contributing the most revenue and gross margin dollars during the year ended December 31, 2014 were California and Nevada, which also had the largest change in vintage mix year-over-year, with each having less than a third of their closings at projects we owned at the time we reset basis in conjunction with fresh start accounting in February 2012. In addition, a number of the closings occurring in those segments were located within master planned communities which typically have a lower margin and include some form of profit participation. Finally, with the application of purchase accounting related to the acquisition of our Washington and Oregon segments, gross margins were impacted by 110 basis points.
For the comparison of the year ended December 31, 2014 and the year ended December 31, 2013, 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 25.2% for the 2014 period compared to 29.7% for the 2013 period. The decrease was primarily a result of the non-purchase accounting related changes for homebuilding gross margins described previously.
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 its 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 segments. See table set forth below reconciling this non-GAAP measure to homebuilding gross margin.

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 Year Ended December 31,
 2014 2013
 (dollars in thousands)
Home sales revenue$857,025
 $521,310
Cost of home sales677,531
 405,496
Homebuilding gross margin179,494
 115,814
Homebuilding gross margin percentage20.9% 22.2%
Add: Interest in cost of sales26,510
 31,853
Add: Purchase accounting adjustments$9,979
 $6,915
Adjusted homebuilding gross margin$215,983
 $154,582
Adjusted homebuilding gross margin percentage25.2% 29.7%

Construction Services Revenue
Construction services revenue, which was all recorded in California, was $37.7 million during the year ended December 31, 2014, compared to $32.5 million for the year ended December 31, 2013. The increase is primarily due to an increase in revenue attributable to one project in Northern California with expanded activity in the current 2014 period when compared with the prior period.
Sales and Marketing Expense
 Year Ended December 31, Increase (Decrease)
 2014 2013 Amount %
 (dollars in thousands)
Sales and Marketing Expense       
California$23,807
 $12,338
 $11,469
 93 %
Arizona3,066
 5,179
 (2,113) (41)%
Nevada7,911
 4,401
 3,510
 80 %
Colorado4,224
 4,184
 40
 1 %
Subtotal39,008
 26,102
 12,906
 49 %
Washington4,171
 —
 4,171
 N/M
Oregon2,724
 —
 2,724
 N/M
Total$45,903
 $26,102
 $19,801
 76 %
For the year ended December 31, 2014 and the year ended December 31, 2013, sales and marketing expense as a percentage of homebuilding revenue increased to 5.4% in the 2014 period from 5.0% in the 2013 period. This is primarily due to an increase in advertising expense to $12.1 million, or 1.4% of revenue in the 2014 period, from $5.6 million, or 1.1% of revenue in the 2013 period. The increase in total dollars is driven by an increase in community count. The increase in advertising expense as a percentage of revenue is due to lower absorption rates during the current year.








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General and Administrative Expense
 Year Ended December 31, Increase (Decrease)
 2014 2013 Amount %
 (dollars in thousands)
General and Administrative Expense       
California$13,357
 $9,275
 $4,082
 44%
Arizona3,211
 2,951
 260
 9%
Nevada4,273
 3,577
 696
 19%
Colorado3,619
 2,627
 992
 38%
Corporate26,465
 22,340
 4,125
 18%
Subtotal50,925

40,770

10,155
 25%
Washington2,430
 —
 2,430
 N/M
Oregon1,271
 —
 1,271
 N/M
Total$54,626
 $40,770
 $13,856
 34%
General and administrative expense as a percentage of homebuilding revenues decreased to 6.4% for the year ended December 31, 2014 from 7.8% in the 2013 period. The decrease is driven by increased revenues, offset by an increase in salaries and benefits due to increased headcount in the 2014 period, to 585 as of December 31, 2014, from 350 at December 31, 2013.
Other Items
Combined other operating costs remained relatively consistent at $2.3 million for the year ended December 31, 2014, compared to $2.2 million for the year ended December 31, 2013.
Interest activity for the years ended December 31, 2014 and 2013 are as follows (in thousands):
 Year Ended December 31,
 2014 2013
Interest incurred$65,560
 $31,875
Less: Interest capitalized(65,560) (29,273)
Interest expense, net of amounts capitalized$—
 $2,602
Cash paid for interest$46,779
 $29,769
The increase in interest incurred for the year ended December 31, 2014, compared to the interest incurred for the year ended December 31, 2013, reflects an increase in the Company's overall debt, offset by a decrease in effective interest rates. Interest capitalized relative to the amount incurred was higher in the 2014 period due to higher qualifying assets in the 2014 period as compared to the 2013 period.
Provision for Income Taxes
During the year ended December 31, 2014 the Company recorded a provision for income taxes of $23.8 million, reflecting an effective tax rate of 30.4%, compared to a net benefit from income taxes for the year ended December 31, 2013 (net of a provision for income taxes) of $82.3 million. During 2013, the benefit primarily related to the Company's determination during the fourth quarter of 2013 that $95.6 million of deferred income tax assets that had previously been reserved were more likely than not (likelihood of greater than 50%) to be realized, resulting in the release of the valuation allowance against those deferred tax assets.
Net Income Attributable Noncontrolling Interest
Net income attributable to noncontrolling interest increased to $9.9 million during the year ended December 31, 2014, compared to income of $6.5 million for the year ended December 31, 2013. The increase is due to increased joint venture activity in 2014, with the formation of three joint ventures during the 2014 period. Units closed by our joint ventures increased to 118 during the year ended December 31, 2014, compared to 40 during the 2013 period.

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Net Income (Loss) Attributable to William Lyon Homes
As a result of the preceding factors, net income attributable to William Lyon Homes for the years ended December 31, 2014 and 2013 was $44.6 million and $127.6 million, respectively.
Preferred Stock Dividends
The Company did not have preferred stock outstanding during the 2014 period. As such, the Company did not record any amounts for preferred stock dividends in the 2014 period compared to $1.5 million in the 2013 period. The Company’s preferred stock was converted to common stock in conjunction with the Company’s Initial Public Offering on May 21, 2013 and the related common stock recapitalization.


Lots Owned and Controlled
The table below summarizes the Company’s lots owned and controlled as of the periods presented:
  December 31,  
  2014 2013 Amount %
Lots Owned        
California 2,140
 1,935
 205
 11 %
Arizona 5,421
 5,376
 45
 1 %
Nevada 2,941
 2,828
 113
 4 %
Colorado 979
 762
 217
 28 %
Subtotal 11,481
 10,901
 580
 5 %
Washington 1,427
 —
 1,427
 N/M
Oregon 1,195
 —
 1,195
 N/M
Total 14,103
 10,901
 3,202
 29 %
Lots Controlled(1)        
California 1,538
 1,853
 (315) (17)%
Arizona —
 210
 (210) (100)%
Nevada 156
 285
 (129) (45)%
Colorado 183
 498
 (315) (63)%
Subtotal 1,877
 2,846
 (969) (34)%
Washington 728
 —
 728
 N/M
Oregon 834
 —
 834
 N/M
Total 3,439
 2,846
 593
 21 %
Total Lots Owned and Controlled 17,542
 13,747
 3,795
 28 %
(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 28% to 17,542 lots owned and controlled at December 31, 2014 from 13,747 lots at December 31, 2013. The increase is primarily attributable to the addition of the Washington and Oregon segments as a result of the acquisition of Polygon Northwest Homes on August 12, 2014. Net of closings, the Company acquired or otherwise gained control of 3,795 lots during the year ended December 31, 2014.

Comparisons of the Year Ended December 31, 2013 to December 31, 2012
On a combined basis, which combines the predecessor and successor entities for the year ended December 31, 2012, revenues from homes sales increased 26%100% to $521.3 million during the year ended December 31, 2013 compared to $261.3 million during the year ended December 31, 2012 compared to $207.1 million during the year ended December 31, 2011.2012. The increase is primarily due to an increase of 55%43% in homes closed to 1,360 homes during the 2013 period compared to 950 homes during the 2012 period, compared to 614 homes during the 2011 period, offset by a decreasecoupled with an increase in the average sales price of homes closed to $383,300 in the 2013 period compared to $275,100 in the 2012 period compared to $337,200 in the 2011 period. On a combined basis, the number of net new home orders for the year ended December 31, 20122013 increased 69%17% to 1,1311,322 homes from 6691,131 homes for the year ended December 31, 2011.

2012.


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The average number of sales locations of the Company decreasedincreased to 1825 locations for the year ended December 31, 20122013 compared to 19 at18 for the year ended December 31, 2011.2012. The Company’s number of new home orders per average sales location increased 78%decreased 16% to 52.9 for the year ended December 31, 2013 as compared to 62.8 for the year ended December 31, 2012, as comparedwhich is at the one sale per week average rate we expect to 35.2 for the year ended December 31, 2011.

sell homes.

In relation to the adoption of fresh start accounting in conjunction with the confirmation of the Plan, the results of operations for 2012 separately present the period from January 1, 2012 through February 24, 2012 as Predecessor and the period from February 25, 2012 through December 31, 2012 as Successor. As such, the application of fresh start accounting as described in Note 31 of the “Notes to Consolidated Financial Statements” is reflected in the period from February 25, 2012 through December 31, 2012 and not the period from January 1, 2012 through February 24, 2012. The accounts reflected in the tables below, include gross margin percentage, sales and marketing expense, and general and administrative expense, are affected by the fresh start accounting. Certain statistics including (i) net new home orders, (ii) average number of sales locations, (iii) backlog,

(iv) number of homes closed, (v) homes sales revenue and (vi) average sales price of homes closed are not affected by the fresh start accounting. These items are described period over period “on a combined basis”, which combines the predecessor and successor entities for the year ended December 31, 2012.

   Successor      Predecessor   Combined  Predecessor      Increase (Decrease)     
   Period from      Period from              
   February 25 through      January 1 through   Year Ended       
  December 31,      February 24,   December 31,       
   2012      2012   2012  2011  Amount  % 

Number of Net New Home Orders

           

Southern California

   213       38     251    211    40    19% 

Northern California

   165       23     188    147    41    28% 

Arizona

   322       93     415    202    213    105% 

Nevada

   247       21     268    109    159    146% 

Colorado

   9       —       9    —      9    N/M  
  

 

 

     

 

 

   

 

 

  

 

 

  

 

 

  

Total

   956       175     1,131    669    462    69% 
  

 

 

     

 

 

   

 

 

  

 

 

  

 

 

  

Cancellation Rate

         14%   18%   (4%)  
        

 

 

  

 

 

  

 

 

  

Net new home orders in each segment increased period over period primarily attributable to improving market conditions. Excluding our Colorado division which only had sales activity from December 7, 2012 through December 31, 2012, the weekly average sales rates for the period were 1.2 sales per project during the 2012 period compared to 0.7 sales per project during the 2011 period. In Arizona, net new home orders more than doubled from 202

 Successor  Predecessor Combined Increase (Decrease)    
   Period from  Period from      
 Year Ended
December 31,		 
February 25 through
December 31,
  
January 1 through
February 24,
 
Year Ended
December 31,
    
 2013 2012  2012 2012 Amount %
Number of Net New Home Orders            
California597
 378
  61
 439
 158
 36 %
Arizona339
 322
  93
 415
 (76) (18)%
Nevada271
 247
  21
 268
 3
 1 %
Colorado115
 9
  —
 9
 106
 N/M
Total1,322
 956
  175
 1,131
 191
 17 %
Cancellation Rate17%      14% 3%  
The 17% increase in the 2011 period to 415 in the 2012 period driven by the openingnumber of three new projects in the second quarter of 2012 and an additional three new projects in the fourth quarter of 2012. In Nevada, net new home orders more than doubled from 109 in the 2011 period to 268 in the 2012 period. The increase in net new home orders is due to andriven by the 36% improvement in the housing marketCalifornia, and overall homebuyer demand.full year activity from our Colorado segment, offset by a decrease in Arizona. In addition, we have opened new communities in well located areas with strong homebuyer demand. The increase in netArizona, new home orders positively impactsper sales location were exceptionally high during the number2012 period at 138.3, and have returned to a more normalized rate of homes in backlog, which are homes that will close in future periods. As new home orders and backlog increase, it has a positive impact on revenues and cash flow in future periods.

56.5 during the 2013 period, or approximately one sale per week. Cancellation rates during the 20122013 period decreasedincreased to 14%17% from 18%14% during the 20112012 period. The change includes a decrease in Southern California’s cancellation rate to 15% in the 2012 period compared to 24% in the 2011 period, a decrease in Nevada’s cancellation rate to 14% in the 2012 period from 20% in the 2011 period, offset by an increase in Northern California’s cancellation rate to 23% in the 2012 period from 18% in the 2011 period and an increase in Arizona’s cancellation rate to 10% in the 2012 period from 7% in the 2011 period. The cancellation rate in Colorado was 10% in the 2012 period, with no comparable amount in the 2011 period. The overall lower cancellation rate is due to an increase in the number of highly qualified, credit worthy customers purchasing homes.

   Successor      Predecessor        
   Year Ended December 31,       Increase (Decrease)     
   2012      2011   Amount  % 

Average Number of Sales Locations

         

Southern California

   6       7     (1)   (14%) 

Northern California

   3       4     (1)   (25%) 

Arizona

   3       2     1    50% 

Nevada

   6       6     —      0% 
  

 

 

     

 

 

   

 

 

  

Total

   18       19     (1)   (5%) 
  

 

 

     

 

 

   

 

 

  

 Successor    
 Year Ended December 31, Increase (Decrease)    
 2013 2012 Amount %
Average Number of Sales Locations       
California9
 9
 —
 —%
Arizona6
 3
 3
 100%
Nevada6
 6
 —
 —%
Colorado4
 —
 4
 N/M
Total average25
��18
 7
 39%

The average number of sales locations for the Company decreasedincreased to 1825 locations for the year ended December 31, 20122013 compared to 19 at18 for the year ended December 31, 2011. Southern2012, including an average of four sales locations in our Colorado segment. The average number of sales locations in California and Northern California each decreased by one sales locationremained consistent in the 20122013 period compared to the 20112012 period, while Arizona increased by onethree sales locationlocations and Nevada remained consistent inbetween periods. During the 2012 period compared toyear ended December 2013, the 2011 period.Company opened 21 new sales locations, closed-out 12, and ended the year with 32 sales locations. As of December 31, 2012, the Colorado divisionsegment had five sales locations, however itno amount is not includedreflected in the table above as there were only operations from December 7, 2012 (date of acquisition) through December 31, 2012.

   Successor      Predecessor         
   December 31,       Increase (Decrease)     
   2012      2011   Amount   % 

Backlog (units)

          

Southern California

   32       22     10     45% 

Northern California

   28       25     3     12% 

Arizona

   172       75     97     129% 

Nevada

   92       17     75     441% 

Colorado

   82       —       82     N/M  
  

 

 

     

 

 

   

 

 

   

Total

   406       139     267     192% 
  

 

 

  

 

  

 

 

   

 

 

   


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Table of Contents

  Successor    
  December 31, Increase (Decrease)    
  2013 2012 Amount %
Backlog (units)        
California 206
 60
 146
 243 %
Arizona 63
 172
 (109) (63)%
Nevada 72
 92
 (20) (22)%
Colorado 27
 82
 (55) (67)%
Total 368
 406
 (38) (9)%
The Company’s backlog at December 31, 2012 increased 192%2013 decreased 9% from 139 units at December 31, 2011 to 406 units at December 31, 2012.2012 to 368 units at December 31, 2013. The increase is primarily attributable to an increase in net new home orders during the perioddecrease was driven by the Nevada division, which had a 146% increase in net new home orders, which contributed to a 441% increase in backlog, and the Arizona division, which had a 105% increase in net new home orders, which contributed to a 129% increase in backlog. The increase in backlog at year end reflects an43% increase in the number of homes closed to 950delivered during the year, ended December 31, 2012 from 614 during the year ended December 31, 2011, and a 69%an increase in total net new order activity to 1,131 homes during the year ended December 31, 2012 from 669 homes during the year ended December 31, 2011. All divisions continue their strong performance due to increased homebuyer confidence and improvement in allhome orders of our markets.

   Successor      Predecessor         
  December 31,   Increase (Decrease) 
   2012      2011   Amount   % 
          (dollars in thousands)         

Backlog (dollars)

          

Southern California

  $15,640      $8,148    $7,492     92% 

Northern California

   8,948       7,125     1,823     26% 

Arizona

   37,287       10,294     26,993     262% 

Nevada

   20,487       3,762     16,725     445% 

Colorado

   33,087       —       33,087     N/M  
  

 

 

     

 

 

   

 

 

   

Total

  $115,449      $29,329    $86,120     294% 
  

 

 

     

 

 

   

 

 

   

17%.

  Successor    
  December 31, Increase (Decrease)
  2013 2012 Amount %
    (dollars in thousands)      
Backlog (dollars)        
California $131,174
 $24,588
 $106,586
 433 %
Arizona 17,676
 37,287
 (19,611) (53)%
Nevada 37,514
 20,487
 17,027
 83 %
Colorado 13,159
 33,087
 (19,928) (60)%
Total $199,523
 $115,449
 $84,074
 73 %
The dollar amount of backlog of homes sold but not closed as of December 31, 20122013 was $115.4$199.5 million, up 294%73% from $29.3$115.4 million as of December 31, 2011. The increase during this period reflects a 192% increase in the number of homes in backlog to 406 homes as of December 31, 2012 compared to 139 homes as of December 31, 2011.2012. The increase in the dollar amount of backlog reflects an increase in average sales prices for new home orders. The Company experienced an increase of 35%91% in the average sales price of homes in backlog to $542,200 as of December 31, 2013 compared to $284,400 as of December 31, 2012 compared to $211,000 as of December 31, 2011.2012. The increase is driven by a higher price pointconcentration of our actively selling projectsunits in Arizona in three new communities that opened in 2012, as well as an average sales price of homes inour backlog in Colorado of $403, 500 with no comparable amountour California region, which generally carry higher average selling prices than units in the year ended December 31, 2011.other regions. 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.

The increase in dollar amount is slightly offset by a decrease in the number of units in the backlog, down 9% as of December 31, 2013 to 368 units from 406 at December 31, 2012.

In Southern California, the dollar amount of backlog increased 92%433% to $15.6$131.2 million as of December 31, 2013 from $24.6 million as of December 31, 2012, from $8.1 million as of December 31, 2011, which is attributable to a 45%243% increase in the number of homes in backlog in Southern California to 32206 homes as of December 31, 2013 compared to 60 homes as of December 31, 2012, compared to 22 homes as of December 31, 2011, and a 19%driven by an 36% increase in net new home orders to 251597 for the year ended December 31, 2013 compared to 378 homes for the year ended December 31, 2012, compared to 211 homes for the year ended December 31, 2011, and a 32%55% increase in the average sales price of homes in backlog to $488,800$636,800 as of December 31, 20122013 compared to $370,400$409,800 as of December 31, 2011. 2012.
In Southern California, the cancellation rate decreased to 15% for the year ended December 31, 2012 from 24% for the year ended December 31, 2011.

In Northern California,Arizona, the dollar amount of backlog increased 26%decreased 53% to $8.9$17.7 million as of December 31, 2013 from $37.3 million as of December 31, 2012, from $7.1 million as of December 31, 2011, which is attributable to a 12% increase63% decrease in the number of units in backlog to 2863 as of December 31, 2013 from 172 as of December 31, 2012, from 25 as of December 31, 2011, along withpartially offset by a 12%29% increase in the average sales price of homes in backlog to $319,600$280,600 as of December 31, 20122013 compared to $285,000$216,800 as of December 31, 2011, as well as a 28% increase in net new home orders in Northern California to 188 homes for the year ended December 31, 2012 compared to 147 homes for the year ended December 31, 2011. 2012.

In Northern California, the cancellation rate increased to 23% for the year ended December 31, 2012 from 18% for the year ended December 31, 2011.

In Arizona,Nevada, the dollar amount of backlog increased 262%83% to $37.3$37.5 million as of December 31, 2013 from $20.5 million as of December 31, 2012, from $10.3 millionwhich is attributable to an increase in the average selling price of homes in backlog to $521,000 as of December 31, 2011, which2013, up 133% from $222,700 as of December 31, 2012. This increase is attributable topartially offset by a 129% increase22% decrease in the number of units in backlog to 17272 as of December 31, 20122013 from 75 as of December 31, 2011, along with a 105% increase in net new home orders in Arizona to 415 homes during the year ended December 31, 2012 compared to 202 homes during the year ended December 31, 2011, and a 58% increase in the average sales price of homes in backlog to $216,800 as of December 31, 2012 compared to $137,300 as of December 31, 2011. In Arizona, the cancellation rate increased to 10% for the year ended December 31, 2012 from 7% for the year ended December 31, 2011.

In Nevada, the dollar amount of backlog increased 445% to $20.5 million as of December 31, 2012 from $3.8 million as of December 31, 2011, which is attributable to a 441% increase in the number of units in backlog to 92 as of December 31, 2012 from 17 as of December 31, 2011, along with a 146% increase in net new home orders in Nevada to 268 homes during the year ended December 31, 2012 compared to 109 homes during the year ended December 31, 2011, and a slight increase in the average sales price of homes in backlog to $222,700 as of December 31, 2012 compared to $221,300 as of December 31, 2011. In Nevada, the cancellation rate decreased to 14% for the year ended December 31, 2012 from 20% for the year ended December 31, 2011.

2012.

In Colorado, the dollar amount of backlog wasdecreased 60% to $13.2 million as of December 31, 2013, from $33.1 million as of December 31, 2012, with no comparable amount2012. The decrease is attributable to a 67% decrease in the number of units in the backlog at December 31, 2013, to 27 from 82 at December 31, 2012. The average selling price of homes in backlog as of December 31, 2011.

   Successor      Predecessor   Combined   Predecessor       Increase (Decrease)     
   Period from      Period from                 
   February 25 through      January 1 through   Year Ended         
  December 31,      February 24,   December 31,         
   2012      2012   2012   2011   Amount   % 

Number of Homes Closed

              

Southern California

   228       13     241     223     18     8% 

Northern California

   170       15     185     141     44     31% 

Arizona

   291       27     318     135     183     136% 

Nevada

   181       12     193     115     78     68% 

Colorado

   13       —       13     —       13     N/M  
  

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

Total

   883       67     950     614     336     55% 
  

 

 

     

 

 

   

 

 

   

 

 

   

 

 

   

2013 was $487,400 up 21% from $403,500 at December 31, 2012.


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Table of Contents

 Successor  Predecessor Combined Increase (Decrease)    
   Period from  Period from      
 Year Ended December 31, 
February 25 through
December 31,
  
January 1 through
February 24,
 
Year Ended
December 31,
    
 2013 2012  2012 2012 Amount %
Number of Homes Closed            
California451
 398
  28
 426
 25
 6%
Arizona448
 291
  27
 318
 130
 41%
Nevada291
 181
  12
 193
 98
 51%
Colorado170
 13
  —
 13
 157
 1,208%
Total1,360
 883
  67
 950
 410
 43%

During the year ended December 31, 2012,2013, the number of homes closed increased 55%43% to 1,360 in the 2013 period from 950 in the 2012 period from 614 in the 2011 period. The increase in home closings is primarily attributable to an increase in beginning backlog for the period of 65% to 139 units at December 31, 2011 compared to 84 units at December 31, 2010. There was a 136%51% increase in ArizonaNevada to 318291 homes closed in the 2013 period compared to 193 homes closed in the 2012 period, compared to 135 homes closed in the 2011 period, a 31%41% increase in homes closed in Northern CaliforniaArizona to 185448 in the 2013 period from 318 in the 2012 period, from 141 in the 2011 period, and a 68%6% increase in homes closed in NevadaCalifornia to 193451 in the 2013 period compared to 426 in the 2012 period compared to 115 in the 2011 period. Colorado had 13 home closingsclosed 157 more homes during the 2013 period than the 2012 period with no comparable activityas a result of the inclusion of a full year of operations in the 2011 period.

   Successor      Predecessor   Combined   Predecessor       Increase (Decrease)     
   Period from      Period from                
   February 25 through      January 1 through   Year Ended        
  December 31,      February 24,   December 31,        
   2012      2012   2012   2011   Amount  % 
          (dollars in thousands) 

Home Sales Revenue

             

Southern California

  $99,671      $5,640    $105,311    $110,969    $(5,658)   (5%) 

Northern California

   54,207       4,250     58,457     54,141     4,316    8% 

Arizona

   47,989       4,316     52,305     20,074     32,231    161% 

Nevada

   37,307       2,481     39,788     21,871     17,917    82% 

Colorado

   5,436       —       5,436     —       5,436    N/M  
  

 

 

     

 

 

   

 

 

   

 

 

   

 

 

  

Total

  $244,610      $16,687    $261,297    $207,055    $54,242    26% 
  

 

 

     

 

 

   

 

 

   

 

 

   

 

 

  

Company's results.

 Successor  Predecessor Combined Increase (Decrease)    
   Period from  Period from      
 Year Ended December 31, 
February 25 through
December 31,
  
January 1 through
February 24,
 
Year Ended
December 31,
    
 2013 2012  2012 2012 Amount %
 (dollars in thousands)
Home Sales Revenue            
California$262,489
 $153,878
  $9,890
 $163,768
 $98,721
 60%
Arizona110,397
 47,989
  4,316
 52,305
 58,092
 111%
Nevada78,148
 37,307
  2,481
 39,788
 38,360
 96%
Colorado70,276
 5,436
  —
 5,436
 64,840
 1,193%
Total$521,310
 $244,610
  $16,687
 $261,297
 $260,013
 100%
The increase in homebuilding revenue of 26%100% to $521.3 million for the year ended December 31, 2013 from $261.3 million for the period ending 2012 from $207.1 million for the period ending 2011 is primarily attributable to a 55%43% increase in the number of homes closed to 1,360 during the 2013 period from 950 duringin the 2012 period, from 614 in the 2011 period, offset by an 18% decreaseand a 39% increase in the average sales price of homes closed to $383,300 during the 2013 period from $275,100 during the 2012 period from $337,200 during the 2011 period. The decreaseincrease in average home sale price resulted in a $59.0$147.1 million decreaseincrease in revenue, offset bycoupled with a $113.2$112.9 million increase in revenue attributable to a 55%43% increase in the number of homes closed.

   Successor      Predecessor   Combined   Predecessor   Increase (Decrease) 
   Period from      Period from                
   February 25 through      January 1 through   Year Ended        
  December 31,      February 24,   December 31,        
   2012      2012   2012   2011   Amount  % 

Average Sales Price of Homes Closed

             

Southern California

  $437,200      $433,800    $437,000    $497,600    $(60,600)   (12%) 

Northern California

   318,900       283,300     316,000     384,000     (68,000)   (18%) 

Arizona

   164,900       159,900     164,500     148,700     15,800    11% 

Nevada

   206,100       206,800     206,200     190,200     16,000    8% 

Colorado

   418,200       —        418,200     —        418,200    N/M  
  

 

 

     

 

 

   

 

 

   

 

 

   

 

 

  

Total

  $277,000      $249,100    $275,100    $337,200    $(62,100)   (18%) 
  

 

 

     

 

 

   

 

 

   

 

 

   

 

 

  

 Successor  Predecessor Combined Increase (Decrease)
   Period from  Period from      
 Year Ended December 31 
February 25 through
December 31,
  
January 1 through
February 24,
 
Year Ended
December 31,
    
 2013 2012  2012 2012 Amount %
Average Sales Price of Homes Closed            
California$582,000
 $386,600
  $353,200
 $384,400
 $197,600
 51 %
Arizona246,400
 164,900
  159,900
 164,500
 81,900
 50 %
Nevada268,500
 206,100
  206,800
 206,200
 62,300
 30 %
Colorado413,400
 418,200
  —
 418,200
 (4,800) (1)%
Total average$383,300
 $277,000
  $249,100
 $275,100
 $108,200
 39 %


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Table of Contents

The average sales price of homes closed for the 20122013 period decreasedincreased primarily due to a lowerincreasing price pointpoints, as well as product mix of our actively selling projects to projects available to first timeour "move up" buyers, or first time “move up” buyers.particularly in California and Arizona. In the Southern California and Northern California segments,segment, the overall average sales price decreaseincrease is primarily dueattributable to a change67 closings in product mix, in which the number of homes closed with a sale price in excess of $500,000 was 153 in the 2011 period and 81 in the 2012 period. The decrease in average sales prices for the period was due to new projectstwo communities that were releasedopened during 20122013 with an average sales price of $326,900, which is belowover $1.0 million. In the priorArizona segment the average sales price of homes closed was positively impacted by a shift in product mix with the opening of two projects classified as first move-up. On a same store basis, the average sales price of homes closed for the 2013 period averagewas $328,100, a 14% increase over $287,600 in the 2012 period.
Gross Margin
For comparison of $337,200.

   Successor      Predecessor  Predecessor 
   Period from      Period from  Year 
   February 25 through      January 1 through  Ended 
  December 31,      February 24,  December 31, 
   2012      2012  2011 

Homebuilding Gross Margin Percentage

       

Southern California

   16.1%      11.8%   10.9% 

Northern California

   22.8%      14.6%   11.1% 

Arizona

   13.2%      11.6%   11.8% 

Nevada

   15.7%      12.0%   9.7% 

Colorado

   14.9%      —      —    
  

 

 

     

 

 

  

 

 

 

Total

   16.9%      12.5%   10.9% 
  

 

 

     

 

 

  

 

 

 

Adjusted Homebuilding Gross Margin Percentage

   26.2%      20.7%   19.6% 
  

 

 

     

 

 

  

 

 

 

For homebuilding gross margins, the comparison ofSuccessor entity for the year ended December 31, 2013, and the Successor entity from February 25, 2012 through December 31, 2012, andhomebuilding gross margin increased 530 basis points, to 22.2% in the Predecessor2013 period from 16.9% in the 2012 period. The increase in gross margins is primarily due to a shift to higher margin products across the Company, particularly in our California segment, along with a significant increase in pricing at our existing locations. On a same store basis, the average sales price of homes closed increased to $328,100 during the 2013 period compared to $287,600 during the 2012 period. These increase are offset by slightly lower margins from our Colorado segment, as upon acquisition in December 2012, the Company recorded inventory at fair value which created lower margins as compared to the other segments.

For comparison of the Successor entity for the year ended December 31, 2011 are as follows:

In Southern California, homebuilding gross margins increased to 16.1% during the 2012 period compared to 10.9% during the 2011 period. Margins were slightly impacted by fresh start accounting on the real estate values, which decreased the cost basis on some properties in the division2013, and increased the cost basis on others, and subsequently increased gross margins by 0.9%. Average sales price of homes closed in Southern California for new projects released during 2012 was $585,400 as compared to prior period average sales price of homes closed of $497,600. In addition, the Company has experienced increases in sales prices and decreases in incentives during 2012.

In Northern California, homebuilding gross margins more than doubled to 22.8% in the 2012 period due to (i) the impact of fresh start accounting on the real estate values, which decreased the cost basis in each property in the division, and subsequently increased gross margins by 4.6%, and (ii) cost savings from previously closed out projects. In addition, the Company has experienced increases in sales prices and decreases in incentives during 2012.

In Arizona, homebuilding gross margins remained relatively consistent due to the impact of fresh start accounting on the real estate values, which increased the cost basis in each property in the division, and subsequently decreased gross margins by 1.1%, and an 11% increase in average sales price of homes closed. Average sales price of homes closed in Arizona for new projects released during 2012 was $217,000 as compared to prior period average sales price of homes closed of $148,700. In addition, the Company has experienced increases in sales prices and decreases in incentives during 2012.

In Nevada, homebuilding gross margins increased 6.0% due to the impact of fresh start accounting on the real estate values, which decreased the cost basis on some properties in the division and increased the cost basis on others, and subsequently increased gross margins by 0.8%, and an increase in average sales prices in Nevada from $190,200 in the 2011 period to $206,100 in the 2012 period. In addition, the Company has experienced increases in sales prices and decreases in incentives during 2012.

In Colorado, homebuilding gross margins were 14.9% during the 2012 period, with no comparable amount in the 2011 period.

For homebuilding gross margins, the comparison of the Predecessor entity from January 1, 2012 through February 24, 2012, and the Predecessor entity for the year ended December 31, 2011 are as follows:

In Southern California, homebuilding gross margin increased 970 basis points, to 22.2% in the 2013 period from 12.5% in the 2012 period. The increase in gross margins remained relatively consistentis primarily due to a 13% decreaseshift to higher margin products across the Company, particularly in our California segment, along with a significant increase in pricing at our existing locations. On a same store basis, the average sales price of homes closed of $433,800 inincreased to $333,500 during the 2012 period from $497,600 in the 2011 period, offset by a decrease in the average cost per home closed of 14% from $443,500 in the 2011 period to $382,500 in the 2012 period.

In Northern California, homebuilding gross margins increased 3.5% in the 2012 period due to a decrease in the average cost per home closed of 29% from $341,400 in the 2011 period to $241,900 in the 2012 period, offset by a 26% decrease in the average sales price of homes closed of $283,300 in the 2012 period from $384,000 in the 2011 period.

In Arizona, homebuilding gross margins remained relatively consistent due to an increase in the average cost per home closed of 8% from $131,200 in the 2011 period to $141,100 in the 2012 period, offset by an 8% increase in the average sales price of homes closed to $159,900 in the 2012 period from $148,700 in the 2011 period.

In Nevada, homebuilding gross margins increased 2.3% in the 2012 period due to a 9% increase in the average sales price of homes closed of $206,800 in the 2012 period from $190,200 in the 2011 period, offset by an increase in the average cost per home closed of 6% from $171,800 in the 2011 period to $181,900 in the 2012 period.

For the comparison of the Successor entity from February 25, 2012 through December 31, 2012 and the Predecessor entity for the year ended December 31, 2011, adjusted homebuilding gross margin percentage, which excludes previously capitalized interest included in cost of sales, was 26.2% for the 20122013 period compared to 19.6% for the 2011 period. The increase was primarily a result of the changes discussed for homebuilding gross margins described previously.

For the comparison of the Predecessor entity from January 1, 2012 through February 24, 2012 and the Predecessor entity for the year ended December 31, 2011, adjusted homebuilding gross margin percentage was 20.7% for$279,600 during the 2012 period compared to 19.6% for the 2011 period.

Adjusted homebuilding gross margin is a non-GAAP financial measure. The Company believes this information is meaningful as it isolates the impact that interest has on homebuilding gross margin and permits investors to make better comparisons with its competitors, who also break out and adjust gross margins in a similar fashion. See table set forth below reconciling this non-GAAP measure to homebuilding gross margin.

   Successor      Predecessor  Predecessor 
   Period from      Period from  Year 
   February 25 through      January 1 through  Ended 
   December 31,      February 24,  December 31, 
   2012      2012  2011 
          (dollars in thousands) 

Home sales revenue

  $244,610      $16,687   $207,055  

Cost of home sales

   203,203       14,598    184,489  
  

 

 

     

 

 

  

 

 

 

Homebuilding gross margin

   41,407       2,089    22,566  

Add: Interest in cost of sales

   22,728       1,360    18,082  
  

 

 

     

 

 

  

 

 

 

Adjusted homebuilding gross margin

  $64,135      $3,449   $40,648  
  

 

 

     

 

 

  

 

 

 

Adjusted homebuilding gross margin percentage

   26.2%      20.7%   19.6% 
  

 

 

     

 

 

  

 

 

 

 Successor  Predecessor
 Year Ended December 31, 2013 
Period from
February 25 through
December 31,
2012
  
Period from
January 1 through
February 24,
2012
 (dollars in thousands)
Home sales revenue$521,310
 $244,610
  $16,687
Cost of home sales405,496
 203,203
  14,598
Homebuilding gross margin115,814
 41,407
  2,089
Homebuilding gross margin percentage22.2% 16.9%   
Add: Interest in cost of sales31,853
 22,728
  1,360
Add: Purchase accounting adjustments6,915
 547
  —
Adjusted homebuilding gross margin$154,582

$64,682
  $3,449
Adjusted homebuilding gross margin percentage29.7%
26.4%  20.7%

Lots, Land, and Other Sales Revenue

Lots, land and other sales increaseddecreased to $18.7 million in the 2013 period from $104.3 million in the 2012 period with no comparable amountattributable to sales of land in Mesa, Arizona for a sales price of $15.2 million and Surprise, Arizona for a sales price of $3.5 million in the 20112013 period, primarily attributablecompared to the sale of a 27-acre parcel in Palo Alto and Mountain View, California, known as the former Mayfield Mall for a sales price of $90.0 million in the second quarter of 2012, thea sale of 58 lots in Mesa, Arizona for a sales price of $6.5 million in the third quarter of 2012, thea sale of 40 lots in Elk Grove, California for a sales price of $2.8 million in the third quarter of 2012, and thea sale of 84 lots in Peoria, Arizona for a sales price of $4.2 million in the fourth quarter of 2012. AsThe Company incurred $14.7 million in Cost of sales-lots, land and other for the year ended December 31, 2013, compared to $94.8 million in the 2012 period as a result of the sales described above cost of sales – lots, land and other increased to $94.8 million, which includes adjustments to land basis for fresh start accounting, in the 2012 period compared to a negligible amount in the 2011 period.

referenced transactions.

Construction Services Revenue

Construction services revenue, which was all recorded in Southern California and Northern California, was $32.5 million during the year ended December 31, 2013, compared to $23.8 million for the period from February 25, 2012 through

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December 31, 2012, and $8.9 million for the period from January 1, 2012 through February 24, 2012 compared with $19.8 million in the 2011 period.2012. The increasedecrease is primarily due to an increasea slight decrease in the number of construction services projects in the 20122013 period, compared to the 2011 period. In Northern California, the Company started construction on one project which contributed approximately $14.4 million in the 2012 period. See Note 1 of “Notes to Consolidated Financial Statements” for further discussion.

Impairment Loss on Real Estate Assets

   Successor      Predecessor   Predecessor 
   Period from      Period from   Year 
   February 25 through      January 1 through   Ended 
   December 31,      February 24,   December 31, 
   2012      2012   2011 
          (in thousands) 

Land under development and homes completed and under construction

        

Southern California

  $—        $—      $17,962  

Northern California

   —          —        2,074  

Arizona

   —          —        10,650  

Nevada

   —          —        4,149  
  

 

 

     

 

 

   

 

 

 

Total

  $ —        $—      $34,835  

Land held for future development or sold

        

Arizona

   —          —        76,957  

Nevada

   —          —        16,522  
  

 

 

     

 

 

   

 

 

 

Total

   —          —        93,479  
  

 

 

     

 

 

   

 

 

 

Total impairment loss on real estate assets

  $ —        $ —      $128,314  
  

 

 

     

 

 

   

 

 

 

The Company evaluates homebuilding assets for impairment when indicators of impairments are present. Indicators of potential impairment include, but are not limited to, a decrease in housing market values, sales absorption rates, and sales prices. On February 24, 2012, the Company adopted fresh start accounting under ASC 852,Reorganizations, and recorded all real estate inventories at fair value. Subsequent to February 24, 2012 and throughout each quarter of 2012, there were no indicators of impairment, as sales prices and sales absorption rates have improved and incentives have decreased. For the 2012 period, there were no impairment charges recorded.

During the year ended December 31, 2011, the Company recorded impairment loss on real estate assets of $128.3 million. The impairment loss related to land under development and homes completed and under construction recorded during the year ended December 31, 2011, resulted from (i) in certain projects, a decrease in home sales prices related to increased incentives and (ii) a decrease in sales absorption rates which increased the length of time of the project and increased period costs related to the project. During 2011, the Company updated project budgets and cash flows of each real estate project on a quarterly basis to determine whether the estimated remaining undiscounted future cash flows of the project are more or less than the carrying amount (net book value) of the asset. If the undiscounted cash flows were more than the net book value of the project, then there was no impairment. If the undiscounted cash flows were less than the net book value of the asset, then the asset was deemed to be impaired and was written-down to its fair value. During the 2011 period, the Company adjusted discount rates to a range of 18% to 22%.

The impairment loss related to land held for future development or sold during the year ended December 31, 2011, resulted from the reduced value of the land in the project. The Company values land held for future development using, (i) projected cash flows with the strategy of selling the land, on a finished or unfinished basis, or building out the project, (ii) recent, legitimate offers received, (iii) prices for land in recent comparable sales transactions, and other factors. In addition, the Company may use appraisals to best determine the as-is value. The Company continues to evaluate land values to determine whether to hold for development or to sell at current prices, which may lead to additional impairment on real estate assets.

Sales and Marketing Expense

   Successor       Predecessor   Predecessor 
   Period from       Period from   Year 
   February 25 through       January 1 through   Ended 
  December 31,       February 24,   December 31, 
   2012       2012   2011 
           (in thousands) 

Sales and Marketing Expense

         

Homebuilding

         

Southern California

  $5,796       $942    $8,480  

Northern California

   2,732        463     4,227  

Arizona

   2,805        260     1,318  

Nevada

   2,291        279     2,823  

Colorado

   304        —        —     
  

 

 

      

 

 

   

 

 

 

Total

  $13,928       $1,944    $16,848  
  

 

 

      

 

 

   

 

 

 

 Successor  Predecessor
 Year Ended December 31, 2013 
Period from
February 25 through
December 31,
2012
  
Period from
January 1 through
February 24,
2012
 (dollars in thousands)
Sales and Marketing Expense      
Homebuilding      
California$12,338
 $8,528
  $1,405
Arizona5,179
 2,805
  260
Nevada4,401
 2,291
  279
Colorado4,184
 304
  —
Total$26,102
 $13,928
  $1,944
For the comparison of the Successor entity for the year ended December 31, 2013 and the Successor entity for the period from February 25, 2012 through December 31, 2012, and the Predecessor entity for the year ended December 31, 2011, sales and marketing expense as a percentage of homebuilding revenue decreased to 5.0% in the 2013 period from 5.7% in the 2012 period, compared to 8.1%reflecting the impact of higher housing revenues in the 2011current period. This is primarily attributable to a decrease in advertisingcommission expense as a percentage of homes sales revenue to $2.9 million2.8% in the 2013 period compared to 3.7% in the 2012 period compared to $5.8 million in the 2011 period, due to cost reduction efforts to use more economically efficient platforms for advertising. Such decrease is partially offset by an increase in commission expense to $9.5 million in the 2012 period from $7.9 million in the 2011 period, due to a 55% increase in home closings in the 2012 period.

For the comparison of the Successor entity for the year ended December 31, 2013 to the Predecessor entity from January 1, 2012 through February 24, 2012, and the Predecessor entity for the year ended December 31, 2011, sales and marketing expense as a percentage of revenue increaseddecreased to 5.0% from 11.6% in the 2012 period compared to 8.1 % in the 2011 period. This is primarily attributable to the cost of operating the sales models and base sales person compensation incurred on a monthly basis relative to the respective revenue in each period.


General and Administrative Expense

   Successor      Predecessor   Predecessor 
   Period from      Period from   Year 
   February 25 through      January 1 through   Ended 
  December 31,      February 24,   December 31, 
   2012      2012   2011 
          (in thousands) 

General and Administrative Expense

        

Homebuilding

        

Southern California

  $3,540      $707    $3,665  

Northern California

   1,098       222     1,388  

Arizona

   2,102       318     1,884  

Nevada

   2,114       357     2,349  

Colorado

   235       —        —     

Corporate

   17,006       1,698     13,125  
  

 

 

     

 

 

   

 

 

 

Total

  $26,095      $3,302    $22,411  
  

 

 

     

 

 

   

 

 

 

 Successor  Predecessor
 Year Ended December 31, 2013 
Period from
February 25 through
December 31,
2012
  
Period from
January 1 through
February 24,
2012
 (dollars in thousands)
General and Administrative Expense      
Homebuilding      
California$9,275
 $4,638
  $929
Arizona2,951
 2,102
  318
Nevada3,577
 2,114
  357
Colorado2,627
 235
  —
Corporate22,340
 17,006
  1,698
Total$40,770
 $26,095
  $3,302
For the comparison of the Successor entity for the year ended December 31, 2013 and the Successor entity from February 25, 2012 through December 31, 2012, and the Predecessor entity for the year ended December 31, 2011, general and administrative expense as a percentage of homebuilding revenues, remained consistent atdecreased to 7.8% from 10.7% in the 2012 period and 10.8% in the 2011 period, reflecting the impact of higher housing revenues in the current period, partially offset by $3.7 millionan increase in stock based compensation expense recordedsalaries and benefits in the fourth quarter of 2012.

2013 period.

For the comparison of the Successor entity for the year ended December 31, 2013 and the Predecessor entity from January 1, 2012 through February 24, 2012, and the Predecessor entity for the year ended December 31, 2011, general and administrative expense as a percentage of homebuilding revenues increaseddecreased to 7.8% from 19.8% in the 2012 period compared to 10.8% in the 2011 period. This is primarily attributable to the fixed costs of salaries and benefits incurred on a monthly basis relative to the respective revenue in each period.


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Other Items

Combined other operating costs remained relatively consistent at $3.1$2.2 million infor the 2012 periodyear ended December 31, 2013, compared to $4.0$2.9 million infor the 2011 period.

Equity in income of unconsolidated joint ventures was $0 inSuccessor entity for the period from February 25, 2012 period compared to income of $3.6through December 31, 2012 and $0.2 million duringfor the 2011 period. The income duringPredecessor entity from January 1, 2012 through February 24, 2012.

Interest activity for the 2011 period was primarily due to the sale of the Company’s interest in one of its unconsolidated joint ventures.

Duringyear ended December 31, 2013, the period from February 25, 2012 through December 31, 2012, and the period from January 1 2012 through February 24, 2012 are as follows (in thousands):

 Successor Predecessor
 Year Ended December 31, 2013 Period from
February 25
through
December 31,
2012		 Period from
January 1
through
February 24,
2012
 
Interest incurred$31,875
 $30,526
 $7,145
Less: Interest capitalized(29,273) (21,399) (4,638)
Interest expense, net of amounts capitalized$2,602
 $9,127
 $2,507
Cash paid for interest$29,769
 $26,560
 $8,924
The decrease in interest incurred for the year ended December 31, 2013, compared to the period from February 25 through December 31, 2012, and the period from January 1 through February 24, 2012 reflects a decrease in the Company's average cost of capital, as well as a decrease in the Company's overall debt. Interest capitalized relative to the amount incurred was higher in the 2013 period when compared to the 2012 period due to an increased amount of qualifying assets relative to our increasing inventory balance in the 2013 period.
Reorganization Items
During the year ended December 31, 2013, the Company incurred interest of $30.5$0.5 million and $7.1in reorganization costs compared to $2.5 million respectively. Duringduring the period from February 25, 2012 through December 31, 2012 for legal and the period from January 1, 2012 through February 24, 2012, the Company capitalized interest of $21.4 million, and $4.6 million, respectively. During the period from February 25, 2012 through December 31, 2012, and the period from January 1, 2012 through February 24, 2012, the Company recorded $9.1 million, and $2.5 million, respectively, of interest expense. During the 2011 period, the Company incurred interest related to its outstanding debt of $61.4 million, of which $36.9 million was capitalized, resulting in net interest expense of $24.5 million. The decrease in interest expense in the 2012 period as compared to the 2011 period is primarily attributable to the lower interest rate and reduced outstanding debt obtained as a result of the debt restructuring in the 2012 period.

Reorganization Items

professional fees. During the period from January 1, 2012 through February 24, 2012, the Company recorded reorganization items of $233.5 million associated with or resulting from the reorganization and restructuring of the business. During the period from February 25, 2012 through December 31, 2012, the Company incurred reorganization costs of $2.5 million for legal and professional fees. The Company incurred reorganization costs of $21.2 million for legal and professional fees during the year ended December 31, 2011.

Noncontrolling Interest

For the comparison of the Successor entity from February 25, 2012 through December 31, 2012 and the Predecessor entity for the year ended December 31, 2011, net income attributable to noncontrolling interest increased to income of $2.0 million in the 2012 period compared to income of $0.4 million in the 2011 period. The change is primarily due to an increase in the numbers of homes closed in consolidated joint ventures to 45 in the 2012 period from 29 in the 2011 period.

Preferred Stock Dividends

The preferred stock dividends were $2.7 million in the 2012 period with no comparable amount in the 2011 period due to the issuance of preferred stock in conjunction with the Company’s reorganization.

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. In 2012 and 2011, the Company only paid $11,000 and $10,000, respectively, in minimum tax payments for the year.

Net (Loss) Income Attributable to William Lyon Homes

Net income includes reorganization items of approximately $233.5 million for the period from January 1, 2012 through February 24, 2012 which primarily consistsconsisted of a gain of approximately $298.8 million which resultedresulting from cancellation of debt. The overall gain was partially offset by approximately $49.3 million in adjustments related to plan implementation and fresh start adjustments, approximately $7.8 million in professional fees, and approximately $8.3 million of debt financing cost write-off. Forwrite-off associated with or resulting from the reorganization and restructuring of the business.

Provision for Income Taxes
The Company recorded a net benefit from income taxes for the year ended December 31, 2013 (net of a provision for income taxes) of $82.3 million. The benefit primarily relates to the Company's determination during the fourth quarter of 2013 that $95.6 million of deferred income tax assets that had previously been reserved were more likely than not (likelihood of greater than 50%) to be realized. Under Accounting Standards Codification Topic 740, Income Taxes ("ASC 740"), a Company is required to reduce its deferred tax assets by a valuation allowance if, based on the the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized. The valuation allowance recorded must be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. The Company performs an assessment of the realizability of its deferred tax assets on a quarterly basis. In performing this assessment, the Company must evaluate all available evidence, both positive and negative.
The positive evidence considered in reaching the conclusion to reverse a substantial portion of our valuation allowance included:

Three-year cumulative book income position during the three-year period ended December 31, 2013;
Three consecutive quarters of pre-tax book income;
Improvement of the housing market evidenced by the fact that home sales and prices have steadily trended upwards in all of our markets and homebuyer confidence had increased with reports of falling unemployment and historically low interest rates. We had eight consecutive quarters of period over period growth in net new home orders, home closings and the dollar value of backlog through December 31, 2013;
Forecasted positive future results which were “stress tested” by modifying management’s expectations for various potential less favorable conditions;

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Taxable income was generated in 2012 and 2013, and based on our projections, we anticipate generating taxable income in 2014 and beyond;
Third party analysis of the homebuilder market from economists and analysts which are consistent with our forecast for positive future financial results; and
Similar positive financial results have been experienced by industry peers.

The negative evidence considered in reaching the conclusion to reverse a substantial portion of our valuation allowance included:

Three-year cumulative book income position during the three-year cumulative period ended December 31, 2013 was aided by a book gain from our reorganization in 2012;
During the housing downturn, the Company incurred significant non-recurring losses from impairment, land sales and interest cost;
Mortgage rates are at a historic low and are expected to increase in the future which could have an impact on home prices;
Land prices have increased which may impact our ability to add to our lot position; and
The Company has an annual limitation on tax attributes under IRC §382. It is expected that some of the Company’s NOLs will expire unused at the end of their carry forward period.

Taking all of the foregoing information into account, the Company's analysis demonstrated that even if the Company were unable to generate the level of sales activity and pre-tax income that it generated during 2013, the Company would continue to generate sufficient taxable income in future periods to realize the majority of its deferred tax assets. In order to realize the deferred tax asset, the minimum amount of taxable income the Company must generate is the Company’s annual limitation under IRC §382 of $3.6 million during the 20 year carryforward period allowed under tax law. The Company's analysis projects annual taxable income in excess of this amount for the foreseeable future. This fact, coupled with other positive evidence described above, significantly outweighed the negative evidence and based on this analysis management concluded, in accordance with ASC 740, that it was more likely than not that the majority of its deferred tax assets as of December 31, 2013 would be realized. In order to realize the Company’s annual limitation of $3.6 million during the 20 year carryforward period allowed under tax law, the Company may incur a tax liability with respect to such income.
Net Income Attributable Noncontrolling Interest
Net income attributable to noncontrolling interest increased to $6.5 million during the year ended December 31, 2013, compared to income of $2.0 million for the Successor entity from February 25, 2012 through December 31, 2012 net loss includes reorganization itemsand $0.1 million for the Predecessor entity for the period from January 1, 2012 through February 24, 2012. The increase is due to increased joint venture activity in 2013, with the formation of $2.5 million which consist of professional fees relatingtwo joint ventures during the 2013 period.
Net Income (Loss) Attributable to the restructure. William Lyon Homes
As a result of the foregoingpreceding factors, net income (loss) income attributable to William Lyon Homes for the year ended December 31, 2013, the period from February 25, 2012 through December 31, 2012, and the period from January 1, 2012 through February 24, 2012 was anet income of $129.1 million, net loss of $8.9 million, and net income of $228.4 million, respectively
Preferred Stock Dividends
The preferred stock dividends were $1.5 million in the 2013 period compared to net loss for$2.7 million in the year ended December 31, 20112012 period. The decrease in 2013 is attributed to approximately five months of $193.3 million.

dividends, from January 2013 through the Company's initial public offering on May 21, 2013, upon which all of the Company's convertible preferred stock was converted into Class A common stock, as compared to approximately ten months of dividends in the 2012 Successor period.


Lots Owned and Controlled

The table below summarizes the Company’s lots owned and controlled as of the periods presented:

   Successor      Predecessor   Increase (Decrease) 
  December 31,   
   2012      2011   Amount  % 

Lots Owned

         

Southern California

   1,114       713     401    56% 

Northern California

   259       767     (508)   (66%) 

Arizona

   6,082       6,194     (112)   (2%) 

Nevada

   2,884       2,676     208    8% 

Colorado

   254       —        254    N/M  
  

 

 

     

 

 

   

 

 

  

Total

   10,593       10,350     243    2% 
  

 

 

     

 

 

   

 

 

  

Lots Controlled(1)

         

Southern California

   96       114     (18)   (16%) 

Northern California

   674       —        674    100% 

Colorado

   479       —        479    N/M  
  

 

 

     

 

 

   

 

 

  

Total

   1,249       114     1,135    996% 
  

 

 

     

 

 

   

 

 

  

Total Lots Owned and Controlled

   11,842       10,464     1,378    13% 
  

 

 

     

 

 

   

 

 

  


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  Successor Increase (Decrease)
December 31, 
  2013 2012 Amount %
Lots Owned        
California 1,935
 1,373
 562
 41 %
Arizona 5,376
 6,082
 (706) (12)%
Nevada 2,828
 2,884
 (56) (2)%
Colorado 762
 254
 508
 200 %
Total 10,901
 10,593
 308
 3 %
Lots Controlled(1)        
California 1,853
 770
 1,083
 141 %
Arizona 210
 —
 210
 — %
Nevada 285
 —
 285
 — %
Colorado 498
 479
 19
 4 %
Total 2,846
 1,249
 1,597
 128 %
Total Lots Owned and Controlled 13,747
 11,842
 1,905
 16 %
(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 13%16% to 11,84213,747 lots owned and controlled at December 31, 20122013 from 10,46411,842 lots at December 31, 2011.2012. The increase is primarily dueattributable to certainsignificant land acquisition to increase lot acquisitions during the period, and the lots acquired through the purchase of Village Homescount in December 2012, offset by the closing of 950 homes during the 2012 period.

Comparisons of Years Ended December 31, 2011 and 2010

On a consolidated basis, homes sales revenue decreased $59.8 millioncore markets in order to $207.1 millionsupport continued growth. Most notably during the year ended December 31, 2013, the Company had a net increase of 562 lots owned in the California segment, and 508 lots owned in the Colorado segment.


Financial Condition and Liquidity
Throughout 2014 the U.S. housing market has continued to improve on the momentum experienced during 2013 and continues to improve from the cyclical low points reached during the 2008—2009 national recession. In 2011, early signs of a recovery began to materialize in many markets around the country as a result of an improving macroeconomic backdrop and excellent housing affordability. Historically, strong housing markets have been associated with great affordability, a healthy domestic economy, positive demographic trends such as population growth and household formation, falling mortgage rates, increases in renters that qualify as homebuyers and locally based dynamics such as housing demand relative to housing supply. Many markets across the U.S. are exhibiting most of these positive characteristics.
In the year ended December 31, 2014, the Company delivered 1,753 homes, with an average selling price of approximately $488,900, and recognized home sales revenues and total revenues of $857.0 million and $896.7 million, respectively. The Company has experienced significant operating momentum since the beginning of 2013, during which time a variety of key housing, employment and other related economic statistics in our markets have increasingly demonstrated signs of recovery. This rebound in market conditions, when combined with the Company’s disciplined operating strategy, has resulted in twelve consecutive quarters of year-over-year improvement in certain key financial metrics, including new home orders and dollar value of backlog.
In the year ended December 31, 2014, net new home orders increased 27% to 1,677 in the 2014 period from 1,322 in the 2013 period, while home closings increased 29% to 1,753 in the 2014 period from 1,360 in the 2013 period. On a consolidated basis, the cancellation rate increased to 18% in the 2014 period compared to $266.9 million17% in the 2013 period. Homebuilding gross margin percentage and adjusted homebuilding gross margin percentage decreased to 20.9% and 25.2%, respectively, for the year ended December 31, 2010. The decrease is primarily attributable2014, as compared to a decrease in homes closed of 19% to 614 homes22.2% and 29.7%, respectively, for the year ended December 31, 2011 from 760 homes for the year ended December 31, 2010 and a decrease in average sales price of 4% to $337,200 in the year ended December 31, 2011, from $351,100 in the year ended December 31, 2010. The number of net new home orders for the year ended December 31, 2011 increased 3% to 669 homes from 650 homes for the year ended December 31, 2010. The cancellation rate of buyers who contracted to buy a home but did not close escrow at the Company’s projects was approximately 18% during 2011 and 19% during 2010. The inventory of completed and unsold homes was 73 homes as2013.
As of December 31, 2011,2014, the Company is selling homes in 56 communities and had a consolidated backlog of 478 sold but unclosed homes, with an associated sales value of $260.1 million, representing a 30% increase in both units and dollars, respectively, as compared to 107 homes as of December 31, 2010.

On a consolidated basis, the backlog of homes sold but not closed as of December 31, 2011 was 139 homes, up 65% from 84 homes as of December 31, 2010. Homes in backlog are generally closed within three to six months. The dollar amount of backlog of homes sold but not closed on a consolidated basis as of December 31, 2011 was $29.3 million, down 2% from $30.1 million as of December 31, 2010.

The Company’s average number of sales locations increased for the year ended December 31, 2011 to 19, up 6% from 18 for the year ended December 31, 2010. The Company’s number of new home orders per average sales location decreased to 35.2 for the year ended December 31, 2011 from 36.1 for the year ended December 31, 2010.

The Company’s operations are historically seasonal, with the highest new order activity in the spring and summer, which is impacted by the timing of project openings and competition in surrounding projects, among other factors. In addition, the Company’s home deliveries typically occur in the third and fourth quarter of each fiscal year, based on the construction cycle times of our homes between three and six months. As a result, the Company’s revenues, cash flow and profitability are higher in that same period.

   Year Ended
December 31,		      Increase (Decrease)     
   2011  2010  Amount  % 

Number of Net New Home Orders

     

Southern California

   211    369    (158)   (43)% 

Northern California

   147    114    33    29% 

Arizona

   202    90    112    124% 

Nevada

   109    77    32    42% 
  

 

 

  

 

 

  

 

 

  

Total

   669    650    19    3% 
  

 

 

  

 

 

  

 

 

  

Cancellation Rate

   18%   19%   (1)%  
  

 

 

  

 

 

  

 

 

  

Three of the Company’s homebuilding segments experienced increases in net new home orders during the year ended December 31, 2011, primarily attributable to stabilized market conditions. However, the Company’s Southern California segment experienced a decrease in new home orders during this same period, due to slowing absorption in the markets in which the Company operates. The weekly average sales rates for the period were 0.7 sales per project during the 2011 period compared to 0.7 sales per project during the 2010 period. The increase in net new home orders positively impacts the number of homes in backlog, which are homes we will close in future periods. As new home orders and backlog increase, it has a positive impact on revenue and cash flow in future periods. The increase in the Company’s new home orders is driven by significant improvement in Arizona. New home orders during the 2010 period were 90 from three sales locations compared to 202 during the 2011 period from two sales locations. The increase is due to increased consumer confidence and diminished shadow foreclosure inventory, which has yielded stabilized prices.

Cancellation rates during the year ended December 31, 2011 decreased to 18% in the 2011 period from 19% during the 2010 period. The decline resulted from a decrease in the cancellation rate in two of the Company’s homebuilding segments. Northern California decreased to 18% in the 2011 period compared to 23% in the 2010 period, Arizona decreased to 7% in the 2011 period from 15% in the 2010 period, Southern California increased to 24% in the 2011 period from 19% in the 2010 period and Nevada increased to 20% in the 2011 period from 14% in the 2010 period. The decrease in cancellation rates, period over period, is an indication of an increase in home buyer confidence and stabilization in the Company’s markets.

   Year Ended
December 31,		       Increase (Decrease)     
   2011   2010   Amount  % 

Average Number of Sales Locations

       

Southern California

   7     7     —     —   

Northern California

   4     5     (1)   (20)% 

Arizona

   2     3     (1)   (33)% 

Nevada

   6     3     3    100% 
  

 

 

   

 

 

   

 

 

  

Total

   19     18     1    6% 
  

 

 

   

 

 

   

 

 

  

The average number of sales locations in Southern California remained consistent with the prior year. However, the Southern California homebuilding segment had final deliveries and project close out in three projects and commenced selling in three new projects during the year. The average number of sales locations in Northern California and Arizona decreased by one in each segment, due to final deliveries and project close out.

Nevada gained three additional sales locations on average due to the reintroduction of sales of two suspended projects and the addition of one newly acquired project during the year.

   December 31,       Increase (Decrease)     
   2011   2010   Amount  % 

Backlog (units)

       

Southern California

   22     34     (12)   (35)% 

Northern California

   25     19     6    32% 

Arizona

   75     8     67    838% 

Nevada

   17     23     (6)   (26)% 
  

 

 

   

 

 

   

 

 

  

Total

   139     84     55    65% 
  

 

 

   

 

 

   

 

 

  

The Company’s backlog at December 31, 2011 increased 65% from levels at December 31, 2010, primarily resulting from a2013. The Company believes that the attractive fundamentals in its markets, its leading market share positions, its long-standing relationships with land developers, its significant increase inland supply and its focus on providing the numberbest possible customer experience positions the Company to capitalize on meaningful growth as the U.S. housing market continues to rebound.


52
Table of Contents

Since our initial public offering, which raised approximately $163.7 million of net new home orders in Arizona. The increase in backlog during this period reflects an increase in net new order activity in Arizona of 124% to 202 homes in the 2011 period compared to 90 homes in the 2010 period in addition to a decrease in the number of homes closed companywide by 19% to 614 in the 2011 period from 760 in the 2010 period. The increase in backlog is driven by the significant improvement in Arizona. The Arizona division had 202 new home orders during the 2011 period, offset by 135 closings, increasing backlog from 8 units as of December 31, 2010 to 75 units as of December 31, 2011.

   December 31,       Increase (Decrease)     
   2011   2010   Amount  % 
   (Dollars in thousands) 

Backlog

       

Southern California

  $8,148    $16,726    $(8,578)   (51)% 

Northern California

   7,125     8,184     (1,059)   (13)% 

Arizona

   10,294     995     9,299    935% 

Nevada

   3,762     4,172     (410)   (10)% 
  

 

 

   

 

 

   

 

 

  

Total

  $29,329    $30,077    $(748)   (2)% 
  

 

 

   

 

 

   

 

 

  

The dollar amount of backlog of homes sold but not closed on a consolidated basis as of December 31, 2011 was $29.3 million, slightly down from $30.1 million as of December 31, 2010. The slight decrease in dollar amount of backlog during this period reflects: (i) a decrease in the average sales price of homes in backlog to $211,000 as of December 31, 2011 compared to $358,000 as of December 31, 2010, which was driven by the number of homes in backlog in the Arizona division of 75, with an average price in backlog of $137,000 as of the 2011 period, compared to eight with an average price in backlog of $124,000 in the 2010 period, and (ii) an increase in the number of homes in backlog to 139 homes in the 2011 period compared to 84 in the 2010 period. In addition, the Company’s product mix continues to shift, with five homes, or 4% of total homes in backlog greater than $500,000 per unit at December 31, 2011, compared to 28 homes, or 33% in backlog greater than $500,000 per unit at December 31, 2010.

In Southern California, the dollar amount of backlog decreased 51% to $8.1 million as of December 31, 2011 from $16.7 million as of December 31, 2010, which is attributable to a 43% decrease in net new home orders in Southern California to 211 homes in the 2011 period compared to 369 homes in the 2010 period in addition to a decrease in the number of closings from 493 in the 2010 period to 223 in the 2011 period. In Southern California, the cancellation rate increased to 24% for the period ended December 31, 2011 compared to 19% for the period ended December 31, 2010.

In Northern California, the dollar amount of backlog decreased 13% to $7.1 million as of December 31, 2011 from $8.2 million as of December 31, 2010, which is attributable to a 34% decrease in the average sales

price of homes in backlog to $285,000 as of December 31, 2011 compared to $430,700 as of December 31, 2010. However, homes in backlog increased 32% to 25 homes for the period ended December 31, 2011 from 19 homes for the same period ending 2010, primarily attributable to a 29% increase in the number of new orders to 147 in 2011 compared to 114 in 2010. In Northern California, the cancellation rate decreased to 18% for the period ended December 31, 2011 from 23% for the period ended December 31, 2010.

In Arizona, the dollar amount of backlog increased tenfold to $10.3 million as of December 31, 2011 from $1.0 million as of December 31, 2010, which is attributable to an eightfold increase in the number of homes in backlog to 75 homes at December 31, 2011 from 8 homes at December 31, 2010 and to a 10% increase in the average sales price of homes in backlog to $137,300 as of December 31, 2011 compared to $124,400 as of December 31, 2010. In Arizona, the cancellation rate decreased to 7% for the period ended December 31, 2011 from 15% for the period ended December 31, 2010.

In Nevada, the dollar amount of backlog decreased 10% to $3.8 million as of December 31, 2011 from $4.2 million as of December 31, 2010, which is attributable to a 26% decrease in homes in backlog to 17 homes at December 31, 2011 from 23 homes at December 31, 2010 offset by a 22% increase in the average sales price of homes in backlog to $221,300 as of December 31, 2011 compared to $181,400 as of December 31, 2010. In Nevada, the cancellation rate increased to 20% for the period ended December 31, 2011 from 14% for the period ended December 31, 2010.

The decrease in the dollar amount of backlog of homes sold but not closed as described above generally results in a reduction in operating revenues in the subsequent period as compared to the previous period. Revenue from sales of homes decreased 22% to $207.1 million during the period ended December 31, 2011 from $266.9 million during the period ended December 31, 2010. A decrease in homebuilding revenues on a project basis is a potential indicator for impairment. If market prices and home values decrease in certain of the Company’s projects and cancellation rates increase in the future, the Company’s revenue and liquidity would likely be negatively impacted.

   Year Ended
December 31,		       Increase (Decrease)     
   2011   2010   Amount  % 

Number of Homes Closed

       

Southern California

   223     493     (270)   (55)% 

Northern California

   141     101     40    40% 

Arizona

   135     99     36    36% 

Nevada

   115     67     48    72% 
  

 

 

   

 

 

   

 

 

  

Total

   614     760     (146)   (19)% 
  

 

 

   

 

 

   

 

 

  

During the year ended December 31, 2011, the number of homes closed decreased 19% to 614 during the 2011 period from 760 in the 2010 period. The decrease was primarily driven by the completion and closeout of two larger projects in the Southern California segment in 2011, which had 145 closings in 2010 compared to 39 in 2011. The decrease in closings in the 2011 period for Southern California is related to decreased absorption rates at its projects as net new home orders decreased 43% on the same number of average sales locations. All

three of the other divisions had an increase in home closings, related to an increase in net new home orders of 40% in Northern California, 36% in Arizona and 72% in Nevada.

   Year Ended
December 31,		       Increase (Decrease)     
   2011   2010   Amount  % 
   (Dollars in thousands) 

Home Sales Revenue

       

Southern California

  $110,969    $195,613    $(84,644)   (43)% 

Northern California

   54,141     38,891     15,250    39% 

Arizona

   20,074     16,595     3,479    21% 

Nevada

   21,871     15,766     6,105    39% 
  

 

 

   

 

 

   

 

 

  

Total

  $207,055    $266,865    $(59,810)   (22)% 
  

 

 

   

 

 

   

 

 

  

The decrease in homebuilding revenue of 22%, or $59.8 million, to $207.1 million during the year ended December 31, 2011 from $266.9 million during the year ended December 31, 2010 is attributable to (i) a decrease in average sales prices of homes closed of 4%, or $13,900 per unit, which contributed to $10.6 million of the decrease and (ii) a 19% decrease in closings, or 146 units, which contributed to $49.2 million of the decrease.

   Year Ended
December 31,		       Increase (Decrease)     
   2011   2010   Amount  % 

Average Sales Price of Homes Closed

       

Southern California

  $497,600    $396,800    $100,800    25% 

Northern California

   384,000     385,100     (1,100)   (0)% 

Arizona

   148,700     167,600     (18,900)   (11)% 

Nevada

   190,200     235,300     (45,100)   (19)% 
  

 

 

   

 

 

   

 

 

  

Total

  $337,200    $351,100    $(13,900)   (4)% 
  

 

 

   

 

 

   

 

 

  

The average sales price of homes closed during the year ended December 31, 2011 decreased 4% to $337,200 compared to $351,100 in 2010, particularly driven by an increase in Southern California of $100,800 per unit, offset by a decrease in Arizona and Nevada. The increase in Southern California was driven by product mix, due to the Company strategically closing out of projects in the Inland Empire sub-market of Southern California, which projects delivered 193 units in 2010 at sales prices ranging from $208,000 to $408,000, with 1 unit being delivered in 2011. In Arizona, average sales prices for homes closed decreased in the 2011 period due to strategic price decreases, in an attempt to increase absorption rates. The price ranges of homes closed in 2010 ranged from $121,000 to $200,000 and in 2011 the price ranges decreased to $104,000 to $181,000 on the same communities. In Nevada, average sales prices decreased as result of strategic price decreases in an attempt to spur absorption rates.

   Year Ended
December 31,		  Increase
(Decrease)		 
  2011  2010  

Homebuilding Gross Margin Percentage

    

Southern California

   10.9%   14.6%   (3.7)% 

Northern California

   11.1%   22.3%   (11.2)% 

Arizona

   11.8%   4.9%   6.9% 

Nevada

   9.7%   19.7%   (10.0)% 
  

 

 

  

 

 

  

 

 

 

Total

   10.9%   15.4%   (4.5)% 
  

 

 

  

 

 

  

 

 

 

Homebuilding gross margin percentage during the year ended December 31, 2011 decreased to 10.9% from 15.4% during the year ended December 31, 2010, which is primarily attributable to a decrease in the average sales price of homes closed of 4% from $351,100 in the 2010 period to $337,200 in the 2011 period in addition to 1% increase in the average cost of homes closed from $297,000 in the 2010 period to $300,500 in the 2011 period.

Homebuilding gross margins may be negatively impacted by a weak economic environment, which includes homebuyers’ reluctance to purchase new homes, increase in foreclosure rates, tightening of mortgage loan origination requirements, high cancellation rates, which could affect our ability to maintain existing home prices and/or home sales incentive levels, and continued deterioration in the demand for new homes in our markets, among other things.

Lots, Land and Other

Land sales revenue was $17.2 million during the year ended December 31, 2010, with no comparable amount for the year ended December 31, 2011. As part of an opportunistic land sale, in June 2010, the Company sold land in Santa Clara County and generated a net profit of $2.9 million. The Company determined that the best economic value to the Company of these lots was to sell them in their current condition as opposed to holding the lots and eventually building and selling homes. The Company continues to evaluate its options and the marketplace with respect to developing lots.

During the year ended December 31, 2011, the Company recorded a loss of $4.2 million compared to a loss of $3.2 million during the 2010 period. Included in these amounts are the write-off of land deposits and pre-acquisition costs of $0.3 million and $6.0 million, respectively. The write-off of land deposits and pre-acquisition costs of $6.0 million in 2010 are attributable to projects where the value of the land was less than the contracted price. Management of the Company determined that the remaining purchase prices of the lots in the arrangements were priced above current market values.

Construction Services Revenue

Construction services revenue, which is all recognized in Southern California and Northern California, was $19.8 million during the year ended December 31, 2011, compared with $10.6 million in the 2010 period. The increase is due to an increase in the number of construction services projects from four in the 2010 period to five in the 2011 period, which contributed an incremental $9.1 million in revenue during the 2011 period.

Impairment Loss on Real Estate Assets

   Year Ended
December 31,		   Increase
(Decrease)		 
  2011   2010   
   (in thousands) 

Impairment Loss on Real Estate Assets

      

Land under development and homes completed and under construction

      

Southern California

  $17,962    $70,801    $(52,839) 

Northern California

   2,074     3,103     (1,029) 

Arizona

   10,650     6,293     4,357  

Nevada

   4,149     —      4,149  
  

 

 

   

 

 

   

 

 

 

Total

  $34,835    $80,197    $(45,362) 
  

 

 

   

 

 

   

 

 

 

Land held for future development or sold

      

Arizona

   76,957     16,116     60,841  

Nevada

   16,522     15,547     975  
  

 

 

   

 

 

   

 

 

 

Total

   93,479     31,663     61,816  
  

 

 

   

 

 

   

 

 

 

Total Impairment Loss on Real Estate Assets

  $128,314    $111,860    $16,454  
  

 

 

   

 

 

   

 

 

 

During the year ended December 31, 2011, the Company recorded impairment loss on real estate assets of $128.3 million, compared to $111.9 million during the year ended December 31, 2010.

The impairment loss related to land under development and homes completed and under construction recorded during the year ended December 31, 2011, resulted from (i) in certain projects, a decrease in home sales prices related to increased incentives and (ii) a decrease in sales absorption rates which increased the length of time of the project and increased period costs related to the project. The Company updates project budgets and cash flows of each real estate project on a quarterly basis to determine whether the estimated remaining undiscounted future cash flows of the project are more or less than the carrying amount (net book value) of the asset. If the undiscounted cash flows are more than the net book value of the project, then there is no impairment. If the undiscounted cash flows are less than the net book value of the asset, then the asset is deemed to be impaired and is written-down to its fair value. During the 2011 period, the Company adjusted discount rates to a range of 18% to 22% from a range of 21% to 29% during the 2010 period. During the 2011 period, the Company decreased discount rates due to (i) a decrease in the Company’s cancellation rate to 18% in the 2011 period from 19% in the 2010 period and (ii) an increase in the number of homes in backlog to 139 homes as of December 31, 2011 compared to 84 homes as of December 31, 2010.

The Company engaged a third-party valuation firm to assist with the analysis of the fair value of the entity, and respective assets and liabilities in connection with its reorganization. Since the valuation was completed near December 31, 2011, management used such valuation to evaluate the book value as of December 31, 2011.

The impairment loss related to land under development and homes completed and under construction incurred during the year ended December 31, 2010, resulted from (i) a decrease in certain projects in home sales prices related to increased incentives, (ii) increased future costs in certain projects for outside broker expense and sales and marketing expense, (iii) the decision by the Company in certain projects to cancel certain land option agreements to purchase lots in projects where sales were deteriorating and the underlying value of the land to be purchased was less than the purchase price using a residual land value approach, (iv) the need in certain projects to preserve the liquidity of the Company and, therefore, canceling certain land option agreements, and (v) the renegotiations in certain other projects of the land purchase schedule for land under option, to delay the required purchases, to allow markets to recover, and reduce the amount of lots to be purchased over time. The extended time of the projects increased carrying costs that lead to the future undiscounted cash flows of the projects being less than the current book value of the land. During the 2010 period, the Company increased discount rates to a range of 21% to 29%. These rates resulted from a full year of interest incurred on the Senior Secured Term Loan due 2014, or the Old Term Loan, of 14%. During the 2009 period, the Company increased the discount rates used in the estimated discounted cash flow assessments to a range of 19% to 27%. These rates resulted from an increase in the leverage component of our discount rate related to the interest cost on the Old Term Loan and a decrease in risk-related discount rates in California projects due to improving market conditions, including: (i) a decrease in the cancellation rate for the Company at 19% in the 2010 period compared to 21% in the 2009 period, (ii) an increase of 1.9% in the Company’s gross margin percentage and (iii) an increase in the number of net home orders per sale location from 34.8 in the 2009 period to 36.1 in the 2010 period.

The impairment loss related to land held for future development or sold incurred during the years ended December 31, 2011 and 2010, resulted from the reduced value of the land in the project. The Company values land held for future development using (i) projected cash flows with the strategy of selling the land on a finished or unfinished basis, or building out the project, (ii) considering recent, legitimate offers received, and (iii) prices for land in recent comparable sales transactions, among other factors. In addition, the Company may use appraisals to best determine the as-is value. The Company continues to evaluate land values to determine whether to hold for development or to sell at current prices, which may lead to additional impairment on real estate assets.

Sales and Marketing Expenses

   Year Ended
December 31,		       Increase (Decrease)     
   2011   2010   Amount  % 
   (Dollars in thousands) 

Sales and Marketing Expenses

       

Homebuilding

       

Southern California

  $8,480    $12,582    $(4,102)   (33)% 

Northern California

   4,227     4,247     (20)   0% 

Arizona

   1,318     1,207     111    9% 

Nevada

   2,823     1,710     1,113    65% 
  

 

 

   

 

 

   

 

 

  

Total

  $16,848    $19,746    $(2,898)   (15)% 
  

 

 

   

 

 

   

 

 

  

Sales and marketing expenses decreased $2.9 million to $16.8 million in the 2011 period from $19.7 million in the 2010 period primarily due to a decrease of $1.5 million in direct selling expenses, including a decrease of $1.3 million in salaries and commissions paid in 2011 as compared to 2010, and a decrease of $0.3 million in seller closing costs and referral fees in 2011 as compared to 2010 due to the decrease in units closed in 2011 as compared to 2010. In addition, advertising costs decreased $1.0 million, due to the opening of fewer new model complexes in 2011 as compared to 2010. Sales and marketing expenses as a percentage of homebuilding revenue remained relatively consistent at 8.1% and 7.4% for the period ended December 31, 2011 and 2010, respectively, as there was a decrease in both sales and marketing expenses and homebuilding revenues.

General and Administrative Expenses

   Year Ended
December 31,		       Increase (Decrease)     
   2011   2010   Amount  % 
   (Dollars in thousands) 

General and Administrative Expenses

       

Homebuilding

       

Southern California

  $3,665    $5,093    $(1,428)   (28)% 

Northern California

   1,388     2,960     (1,572)   (53)% 

Arizona

   1,884     2,568     (684)   (27)% 

Nevada

   2,349     2,651     (302)   (11)% 

Corporate

   13,125     11,857     1,268    11% 
  

 

 

   

 

 

   

 

 

  

Total

  $22,411    $25,129    $(2,718)   (11)% 
  

 

 

   

 

 

   

 

 

  

General and administrative expenses decreased $2.7 million, or 11%, in the 2011 period to $22.4 million from $25.1 million in the 2010 period. In 2010, the Company incurred $2.1 million in outside services expense in connection with the Old Term Loan, which is included in general and administrative expenses. In addition to the $2.1 million decrease in general and administrative expenses relating to outside services in connection with the Old Term Loan, the additional decrease in general and administrative expenses in 2011 reflects the Company’s overhead costs savings measures taken during the year. The bonus expense incurred in the 2010 and 2011 periods was a decision by management to award bonuses to employees in order to encourage employee retention and reward individual employee performance. General and administrative expense as a percentage of homebuilding revenue increased slightly to 10.8% for the period ended December 31, 2011 from 9.4% for the period ended December 31, 2010, as there was a decrease in both general and administrative expenses and homebuilding revenues.

Other Items

Other operating costs increased to $4.0 million in the 2011 period compared to $2.7 million in the 2010 period. The increase is due to the increase in property tax expense incurred as a period expense on projects in which development was temporarily suspended. The Company incurred $1.8 million in the 2011 period, compared to $1.6 million in the 2010 period. In addition, operating losses realized by golf course operations decreased to $1.0 million in the 2011 period from $1.1 million in the 2010 period.

Equity in income from unconsolidated joint ventures increased to $3.6 million in the 2011 period compared to income of $0.9 million in the 2010 period, primarily due to the sale of the Company’s interest in one of its unconsolidated joint ventures.

During 2010, the Company redeemed $37.3 million principal amount of its then outstanding 7 5/8% Senior Notes due 2012, 10 3/4% Senior Notes due 2013 and 7 1/2% Senior Notes due 2014, or collectively, the Old Senior Notes, at a cost of $31.3 million, plus accrued interest. The net gain resulting from the redemptions, after giving effect to amortization of related deferred loan costs, was $5.6 million. During 2011, the Company did not redeem any of its outstanding Old Senior Notes.

During the year ended December 31, 2011, the Company incurred interest related to its outstanding debt of $61.4 million and capitalized $36.9 million, resulting in net interest expense of $24.5 million. During the year ended December 31, 2010, the Company incurred interest related to its outstanding debt of $62.8 million and capitalized $39.1 million, resulting in net interest expense of $23.7 million. The year over year increase in net interest expense is due to a decrease in real estate assets which qualify for interest capitalization during the 2011 period.

Other income primarily consists of marketing services and human resource management income slightly offset by mortgage company expense. During the 2011 period, the Company had income of $0.8 million compared to a negligible amount in the 2010 period.

Income from noncontrolling interest of consolidated entities decreased to $0.4 million in the 2011 period compared to $1.3 million in the 2010 period, primarily due to a decrease in the number of joint venture homes closed.

Income Taxes

On November 6, 2009, an expanded carry back election was signed into law as part of the Worker, Homeownership, and Business Assistance Act of 2009. As a result of this legislation, the Company elected to carry back for five years the taxable losses generated in 2009. As of December 31, 2009, the Company recorded an income tax refund receivable and the related income tax benefit of $101.8 million. The Company received the tax refund during the first quarter of 2010. As of December 31, 2010, the Company received an additional refund related to the 2009 loss carry back of $347,000 and recorded the related income tax benefit as of December 31, 2010. In 2011, the Company only paid $10,000 in minimum tax payments for the year.

Net (Loss) Income Attributable to William Lyon Homes

As a result of the foregoing factors, net loss for the year ended December 31, 2011 was $193.3 million compared to net loss for the year ended December 31, 2010 of $136.8 million.

Lots Owned and Controlled

The table below summarizes the Company’s lots owned and controlled as of the periods presented:

   December 31,   Increase (Decrease) 
   2011   2010   Amount  % 

Lots Owned

       

Southern California

   713     922     (209)   (23)% 

Northern California

   767     616     151    25% 

Arizona

   6,194     5,836     358    6% 

Nevada

   2,676     2,791     (115)   (4)% 
  

 

 

   

 

 

   

 

 

  

Total

   10,350     10,165     185    2% 
  

 

 

   

 

 

   

 

 

  

Lots Controlled(1)

       

Southern California

   114     114     —     —   

Northern California

   —      303     (303)   (100)% 
  

 

 

   

 

 

   

 

 

  

Total

   114     417     (303)   (73)% 
  

 

 

   

 

 

   

 

 

  

Total Lots Owned and Controlled

   10,464     10,582     118    1% 
  

 

 

   

 

 

   

 

 

  

(1)Lots controlled may be purchased by the Company as consolidated projects or may be purchased by newly formed unconsolidated joint ventures.

Total lots owned and controlled has increased 1% to 10,464 lots owned and controlled at December 31, 2011 from 10,582 lots at December 31, 2010. The increase is primarily due to certain lot acquisitions during the period, offset by the closing of 614 homes during the 2011 period and cancelation of certain lot option contracts.

Financial Condition and Liquidity

During 2012,proceeds, the Company has experienced an overall improvement in all of its markets, with an increase in sales absorption rates, an increase in net sales prices, backlog units and an improvement in gross margins. Previous negative trends seem to be improving including (i) stabilizing unemployment rates, which correlate to improved consumer confidence, (ii) decreasing foreclosure activity with decreasing volumes of shadow inventory, (iii) sustained historically low mortgage rates, which is leading to increased homebuyer demand, as well as (iv) better overall economic conditions. The Company continues to optimize on the momentum of the last two quarters and the signs of recovery by increasing prices where appropriate and reducing incentives. These trends are shown in our year over year results for the year ended December 31, 2012. During the year ended December 31, 2012, the Company recorded a 69% increase in net new home orders comparedaccess to the year ended December 31, 2011. In addition, the number of homes closed on a consolidated basis, increased 55% during the year ended December 31, 2012 compared to the year ended December 31, 2011,public equity and the backlog of homes sold but not closed increased 192% from December 31, 2011 to December 31, 2012.

During the year ended December 31, 2012, the Company’sdebt markets, improved significantly in sales absorption rates, new home orders per average sales location and cancellation rates.

In Southern California, net new home orders per average sales location increased 39% to 41.8 during the year ended December 31, 2012 from 30.1 for the same period in 2011. The cancellation rate in Southern California decreased to 15% during the year ended December 31, 2012 compared to 24% during the year ended December 31, 2011.

In Northern California, net new home orders per average sales location increased 71% to 62.7 during the year ended December 31, 2012 from 36.8 for the same period in 2011. In Northern California, the cancellation rate increased to 23% during the year ended December 31, 2012 from 18% during the year ended December 31, 2011.

In Arizona, net new home orders per average sales location increased to 138.3 during the year ended December 31, 2012 from 101.0 for the same period in 2011. In Arizona, the cancellation rate increased to 10% during the year ended December 31, 2012 compared to 7% during the year ended December 31, 2011.

In Nevada, net new home orders per average sales location increased to 44.7 during the year ended December 31, 2012 from 18.2 during the same period in 2011. In Nevada, the cancellation rate decreased to 14% during the year ended December 31, 2012 from 20% during the year ended December 31, 2011.

In Colorado, there were nine net new home orders during the period from December 7, 2012 through December 31, 2012 with no comparable amount during the year ended December 31, 2011. As of December 31, 2012, Colorado had five sales locations during the period from December 7, 2012 (date of acquisition) through December 31, 2012. In Colorado, the cancellation rate was 10% during the period from December 7, 2012 through December 31, 2012 with no comparable amount during the year ended December 31, 2011.

On a consolidated basis, the Company’s cancellation rate decreased to approximately 14% during the year ended December 31, 2012 compared to approximately 18% during the year ended December 31, 2011.

The Company continues to operate cautiously, particularly with the potential impact of (i) upward trending mortgage rates, as the current level of low mortgage rateswhich is not expected to remain in the long-term; (ii) increased costs and standards related to FHA loans, which continue to be a significant source of homebuyer financing; (iii) an increasefinancing for investing in land in our existing markets or financing expansion into new markets, such as the Company’s acquisition of the residential homebuilding business of Polygon Northwest, or the Polygon Acquisition. Since the IPO, and prior to the Polygon Acquisition as discussed below, the Company has raised approximately $355.0 million in the cost of building materials and sub-contractor labor costs; and (iv) an increasedebt markets, which has provided capital for growth, investing in land prices.

The Company continues to review acquisitions of select land positions where it makes strategic and economic sense to do so, targeting finished lots in core coastal markets, near high employment job centers or transportation corridors. In addition, management of the Company is focused on adding to its lots controlled in order to add to community count and position itself for growth in future periods. Management also continues to evaluate owned lots and land parcels to determine if values support holding the parcels for future projects or selling projects at current values.

On February 24, 2012, the Company received the proceeds from the Plan as discussed elsewhere herein. The Company received $50.0 million in cash related to the issuance of its Convertible Preferred Stock, $10.0 million related to the issuance of its Class C Common Stock, $21.0 million in cash and $4.0 million of land option value related to the assignment of an option to purchase certain real estate, related to the issuance of its Class B Common Stock, offset by certain fees and payments related to the Plan, for a net of $67.7 million in cash. The Plan allowed the Company to restructure its debt from $563.5 million as of December 31, 2011, to $384.5 million principal outstanding as of February 24, 2012, which subsequently reduces the Company’s interest exposure.

In June 2012, the Company consummated a transaction with Colony Capital which added over 1,000 lots, eight selling communities, and $21.5 million of inventory for $11 million in cash and $10.5 million in equity. In October 2012, the Company raised $30.0 million through the issuance of (i) 15,238,095 shares of Class A Common Stock, for $16,000,000 in cash and (ii) 12,173,913 shares of the Company’s Convertible Preferred Stock, for $14,000,000 in cash. ongoing operations.

In addition, the Company refinanced its outstanding debt with 8.5% Senior Notes due in 2020 as described below, which will reduce the amount of interest incurred by $6.4 million annually.

The Company provides for its ongoing cash requirements with the proceeds identified above, as well as from internally generated funds from the sales of homes and/or land sales. During the successor period from February 25, 2012 throughyear ended December 31, 2012,2014, before land acquisitions, the Company generated cash from operations of $186.6 million. Including cash consumed by land acquisitions of $347.2 million, the Company had cash flows provided byused in operations of $50.0 million.$160.2 million during the year ended December 31, 2014. In addition, the Company has the option to use additional outside borrowings,borrowing, form new joint

ventures with venture partners that provide a substantial portion of the capital required for certain projects, one of which was closed in October 2012, buyingand buy land via lot options or land banking arrangements. 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 and land banking transactions. The managementCompany may also draw on its revolving line of credit to fund land acquisitions, as discussed below.


Acquisition of Polygon Northwest Homes
On August 12, 2014, the Company completed the Polygon Acquisition for an aggregate cash purchase price of $520.0 million, an additional approximately $28.0 million at closing pursuant to initial working capital adjustments, plus an additional $4.3 million of consideration in accordance with the terms of the purchase agreement. The Company financed the Polygon Acquisition with a combination of proceeds from its issuance of $300 million in aggregate principal amount of 7.00% senior notes due 2022, proceeds from the Senior Unsecured Facility, and cash on hand including approximately $100 million of aggregate proceeds from several separate land banking arrangements with respect to land parcels located in California, Washington and Oregon, and including parcels acquired in the Polygon Acquisition, and $120 million of borrowings under a new one-year Senior Unsecured Facility, which was subsequently paid off in full using proceeds from the November 2014 tangible equity units offering, as described below.

Tangible Equity Units
On November 21, 2014, in order to pay down amounts borrowed under the Senior Unsecured 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, or TEUs, 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, or 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 settlement date, subject to adjustment, based upon the applicable settlement rate and applicable market value of Class A Common Stock.
Each amortizing note will have an initial principal amount of $18.01, bear interest at the annual rate of 5.50% and have 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 will be $1.8056 per amortizing note). Each installment will constitute a payment of interest and a partial repayment of principal.
Each Unit 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.

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The Company used the net proceeds from the offering of the TEUs to pay down approximately $111.2 million of outstanding debt under its Senior Unsecured Facility.
Senior Unsecured Facility
On August 12, 2014, the Company entered into a senior unsecured loan facility, or the Senior Unsecured Facility, pursuant to which the Company borrowed $120 million in order to pay a portion of the purchase price for the Polygon Acquisition. The Company repaid the borrowings on this facility during December 2014, at which time all obligations of the Company continuesunder the facility had been paid in full and the facility remained of no further force and effect.

7.00% Senior Notes due 2022
On August 11, 2014, WLH PNW Finance Corp., or the Escrow Issuer, completed its private placement with registration rights of 7.00% Senior Notes due 2022, or the 7.00% Notes, in an aggregate principal amount of $300 million. The 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 7.00% Notes and the related indenture by operation of law, or the Escrow Merger. Following the Escrow Merger, California Lyon is the obligor under the 7.00% Notes.
As of December 31, 2014, the outstanding amount of the 7.00% Notes was $300 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, as described below. The 7.00% Notes rank senior in right of payment to focusall 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.

5 3/4% Senior Notes Due 2019
On March 31, 2014, California Lyon completed its offering of 5.75% Senior Notes due 2019, or 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.
As of December 31, 2014, the outstanding amount of the 5.75% Notes was $150.0 million. The 5.75% Notes bear interest at a rate of 5.75% per annum, payable semiannually in arrears on generating positive cash flow, reducing overallApril 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, levelsincluding California Lyon’s $425 million in aggregate principal amount of 8.5% Senior Notes due 2020, as described below, and returning$300 million in aggregate principal amount of 7.00% Notes, as described above. The 5.75% Notes rank senior in right of payment to all of California Lyon’s and the Companyguarantors’ future subordinated debt. The 5.75% Notes and the guarantees are and will be effectively junior to profitability by growingCalifornia Lyon’s and the Company through additional land acquisitions.

guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.

8.5% Senior Notes Due 2020

On November 8, 2012, California Lyon completed its offering of 8.5% Senior Notes due 2020, or the New Notes, in an aggregate principal amount of $325 million. The New Notes were issued at 100% of their aggregate principal amount. The Company used the net proceeds from the sale of the New Notes, together with cash on hand, to refinance the Company’s (i) $235 million 10.25% Senior Secured Term Loan due 2015, (ii) approximately $76 million in aggregate principal amount of 12% Senior Subordinated Secured Notes due 2017, (iii) approximately $11 million in principal amount of project related debt, and (iv) to pay accrued and unpaid interest thereon.

On October 24, 2013, California Lyon completed the sale to certain purchasers of an additional $100.0 million in aggregate principal amount of its New Notes at an issue price of 106.5% of their aggregate principal amount, plus accrued interest from and including May 15, 2013, in a private placement, resulting in net proceeds of approximately $104.7 million

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including the premium on issuance.
As of December 31, 2012,2014 the outstanding principal amount of the New Notes is $325 million, and thewas $425 million. The New Notes bear interest at an annual rate of 8.5% per annum. Interest is payable semiannually in arrears on May 15 and November 15, commencing on May 15, 2013, and mature on November 15, 2020. The New Notes are senior unsecured obligations of California Lyon and are unconditionally guaranteed on a senior subordinated securedjoint and several unsecured basis by Parent and by certain of Parent’sits existing and future restricted subsidiaries. The New Notes and the related guarantees are California Lyon's and the guarantors' unsecured senior obligations and rank senior toequally in right of payment with all of California Lyon’sLyon's and the guarantors’guarantors' existing and future unsecured senior debt, including California Lyon's 5.75% Notes, and 7.00% Notes, each as described above. The New Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The New Notes and the guarantees are and will be effectively junior to any of California Lyon’s and the guarantors’ existing and future secured debt.

The Newindentures governing the 5.75% Notes, bear interest at an annual rate ofthe 8.5% per annumNotes, and will be payable semiannually in arrears on May 15 and November 15, commencing on May 15, 2013.

The indenture containsthe 7.00% Notes contain covenants that limit the ability of the CompanyParent, California Lyon, and itstheir restricted subsidiaries to, among other things: (i) incur or guarantee certain additional indebtedness; (ii) pay dividends, or make other distributions, or repurchase stock;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 the Company’s and California Lyon’sits assets. These covenants are subject to a number of important exceptions and qualifications as described in the Indenture.indentures. The Indenture also provides for eventsCompany was in compliance with all such covenants as of default which, if anyDecember 31, 2014.


Revolving Lines of them occurs, would permit or require the principal ofCredit
On August 7, 2013, California Lyon and accrued interest on such New Notes to be declared due and payable.

Construction Notes Payable

In September 2012, the Company entered into twoa credit agreement providing for a revolving credit facility of up to $100 million, or the Revolver. The Revolver will mature on August 5, 2016, unless terminated earlier pursuant to the terms of the Revolver. The Revolver contains an uncommitted accordion feature under which its aggregate principal amount can be increased to up to $125 million under certain circumstances, as well as a sublimit of $50 million for letters of credit. The Revolver 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 Revolver contains customary events of default, subject to cure periods in certain circumstances, that would result in the termination of the commitment and permit the lenders to accelerate payment on outstanding borrowings and require cash collateralization of letters of credit, 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. If a change in control of the Company occurs, the lenders may terminate the commitment and require that California Lyon repay outstanding borrowings under the Revolver and cash collateralize 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 Revolver currently accrues at an annual rate of 0.50%.
On July 3, 2014, California Lyon and the lenders party thereto entered into an amendment to the Revolver, which amendment, among other changes, incorporated a minimum borrowing base availability of $50.0 million and increased the maximum leverage ratio from 60% to 75% for the first four quarters following the Polygon Acquisition.
Borrowings under the Revolver, 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 December 31, 2014, the Revolver was undrawn, other than a letter of credit for $4.0 million, reducing the amount available under the Revolver.
Construction Notes Payable
Certain of the Company's 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 first agreement hasissuance date, total availability under each facility outstanding, maturity date and interest rate are listed in the facilitytable below as of $19.0 million, to be drawn for land development and construction on oneDecember 31, 2014 (in millions):


55
Table of its wholly-owned projects. The loan matures in September 2015 andContents

Issuance Date Facility Size Outstanding Maturity Current Rate 
November, 2014 $24.0
 $11.9
 November 2015 3.75%(3)
November, 2014 22.0
 11.1
 November 2017 3.75%(3)
March, 2014 26.0
 4.3
 October, 2016 3.15%(1)
December, 2013 18.6
 11.4
 January, 2016 4.25%(1)
June, 2013 28.0
 —
 June, 2016 4.00%(2)
  $72.6
 $38.7
     
(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 the prime rate + 1.0%+0.5%, with a rate floor of 5.0%4.0%. As of December 31, 2012, the Company had borrowed $7.8 million under this facility. The loan will be repaid with proceeds from home closings of the project and is secured by the underlying project. The second construction notes payable agreement has total availability under the facility of $17.0 million, to be drawn for land development and construction on one of its joint venture projects. The loan matures in March 2015 and
(3) Loan bears interest at the prime rate + 1%, with a rate floor of 5.0%. As of December 31, 2012, the Company had borrowed $5.4 million under this facility. The loan will be repaid with proceeds from home closings of the project and is secured by the underlying project.

+0.5%

Net Debt to Total Capital

The Company’s ratio of net debt to total capital was 65.0%59.8% and 39.7% as of December 31, 20122014 and 2013, respectively.The ratio of net debt to total 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 total capital (notes payable and Senior Notes, net of cash and cash equivalents and restricted cash, plus redeemable convertible preferred stock and total equity (deficit))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      Predecessor 
   December 31, 
   2012      2011 
   (dollars in thousands) 

Notes payable and Senior Notes

  $338,248      $563,492  

Redeemable convertible preferred stock

   71,246       — 

Total equity (deficit)

   72,119       (169,870) 
  

 

 

     

 

 

 

Total capital

  $481,613      $393,622  

Ratio of debt to total capital

   70.2%      143.2% 

Notes payable and Senior Notes

  $338,248      $563,492  

Less: Cash and cash equivalents and restricted cash

   (71,928)      (20,913) 
  

 

 

     

 

 

 

Net debt

   266,320       542,579  

Redeemable convertible preferred stock

   71,246       — 

Total equity (deficit)

   72,119       (169,870) 
  

 

 

     

 

 

 

Total capital

  $409,685      $372,709  

Ratio of net debt to total capital

   65.0%      145.6% 

  December 31,
  2014 2013
  (dollars in thousands)
Notes payable and Senior Notes $940,101
 $469,355
Total equity 597,146
 450,794
Total capital $1,537,247
 $920,149
Ratio of debt to total capital 61.2% 51.0%
Notes payable and Senior Notes $940,101
 $469,355
Less: Cash and cash equivalents and restricted cash (53,275) (172,526)
Net debt 886,826
 296,829
Total equity 597,146
 450,794
Total capital $1,483,972
 $747,623
Ratio of net debt to total capital 59.8% 39.7%
Land Banking Arrangements

The Company enters into purchase agreements with various land sellers. As a method of acquiring land in staged takedowns, thereby minimizing the use of funds from the Company’s available cash or other corporate financing sources and limiting the Company’s risk, the Company employs a method from time to time in the ordinary course of business whereby it transfers itsthe Company’s right in such purchase agreements to entities owned by third parties, or land banking arrangements. These entities use equity contributions and/or incur debt to finance the acquisition and development of the land being purchased.land. The entities grant the Company an option to acquire lots in staged takedowns. In consideration for this option, the Company makes a non-refundable deposit of 15% to 25% of the total purchase price. The Company is under no obligation to purchase the balance of the lots, but would forfeit remainingexisting deposits and could be subject to penalties if the lots were not purchased. The Company does not have legal title to these entities or their assets and has not guaranteed their liabilities. These land banking arrangements help the Company manage the financial and market risk associated with land holdings. The use of these land banking arrangements is dependent on, among other things, the availability of capital to the option provider, general housing market conditions and geographic preferences.

The Company participatesparticipated in one land banking arrangement, thatwhich is not a variable interest entityVIE in accordance with FASB ASC Topic 810,Consolidation, (“ASC 810”), but which is consolidated in accordance with FASB ASC Topic 470,Debt, (“ASC 470”). The remaining lots under this land banking agreement were purchased by the Company during April 2014. No further obligations remain under the agreement. Under the provisions of ASC 470, the Company hashad determined it iswas economically compelled, based on certain factors, to purchase the land in the land banking arrangement. Therefore, theThe Company hashad recorded the remaining purchase price of the land of $39.0$13.0 million as of December 31, 2012, which is included in real estate inventories not owned and liabilities from inventories not owned in the accompanying

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consolidated balance sheet.

sheets as of December 31, 2013, and represented the remaining net cash to be paid on the remaining land takedowns.

Summary information with respect to the Company’s land banking arrangements is as follows as of the periods presented (dollars in thousands):

   Successor  

 

  Predecessor 
   December 31, 
   2012  

 

  2011 

Total number of land banking projects

   1       1  
  

 

 

  

 

  

 

 

 

Total number of lots (1)

   610       625  
  

 

 

  

 

  

 

 

 

Total purchase price

  $161,465      $161,465  
  

 

 

  

 

  

 

 

 

Balance of lots still under option and not purchased:

      

Number of lots

   199       225  
  

 

 

  

 

  

 

 

 

Purchase price

  $39,029      $47,408  
  

 

 

  

 

  

 

 

 

Forfeited deposits if lots are not purchased

  $27,734      $25,234  
  

 

 

  

 

  

 

 

 

(1)Total number of lots in the land banking project was reduced by 15 as of December 31, 2012 as compared to December 31, 2011 because of a change in product mix in future projects.

 December 31, December 31,
 2014 2013
Total number of land banking projects—
 1
Total number of lots—
 610
Total purchase price$—
 $161,465
Balance of lots still under option and not purchased:   
Number of lots—
 65
Purchase price$—
 $12,960
Forfeited deposits if lots are not purchased$—
 $9,210
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, 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 year ended December 31, 2014, the Company acquired a non-controlling interest in an unconsolidated mortgage joint venture as a result of the Polygon Acquisition, and had made an initial investment in a second non-controlling interest in an unconsolidated mortgage joint venture. As of December 31, 2012 and 2011,2013, the Company’sCompany had no investment in and advances to unconsolidated joint ventures.

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. See Note 15 of “Notes to Consolidated Financial Statements” for the year ended December 31, 2012.


Cash Flows — Comparison of Year Ended December 31, 20122014 to Year Ended December 31, 2011

2013

For the comparison of the year ended December 31, 2014 and the year ended December 31, 2013, the comparison of cash flows is as follows:
Net cash used in operating activities decreased to a use of $160.2 million in the 2014 period from $174.5 million in the 2013 period. The change was the result of (i) an decrease in net income to $54.5 million in the 2014 period from $135.6 million in the 2013 period, (ii) an increase in accounts payable in the 2014 period of $34.1 million compared to a decrease of $1.6 million in the 2013 period due to the timing of payments, and (iii) an increase in net changes in deferred tax assets of $7.8 million in the 2014 period from a decrease of $95.6 million in the 2013 period. These amounts were partially offset by (iv) a net increase in real estate inventories-owned of $278.0 million in the 2014 period primarily driven by $347.2 million of land acquisitions, compared to $234.1 million in the 2013 period.

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Net cash used in investing activities increased to a use of $494.6 million in the 2014 period from $3.8 million in the 2013. The change was primarily a result of net cash paid in the 2014 period of $492.4 million related to the acquisition of Polygon Northwest Homes, with no comparable amount in the 2013 period.
Net cash provided by financing activities increased to $535.9 million in the 2014 period from $278.9 million in the 2013 period. The change was primarily as a result of (i) proceeds from the issuance of $300.0 million of 7% senior notes during the 2014 period with no comparable amount in the 2013 period, (ii) proceeds from issuance of 5 3/4% Senior notes of $150.0 million in the 2014 period, with no comparable amount in the 2013 period, and (iii) proceeds from the issuance of TEUs of $111.4 million in the 2014 period for which there was no comparable amount in the 2013 period, offset by (iv) proceeds from the issuance of common stock during the 2013 period of $179.4 million with no comparable amount in the 2014 period, and (v) proceeds from the issuance of $106.5 million of 8 1/2% Senior notes in the 2013 period for which there was no comparable amount in the 2014 period.
Based on the aforementioned, the Company believes it has sufficient cash and sources of financing for at least the next twelve months.

Cash Flows — Comparison of Year Ended December 31, 2013 to Year Ended December 31, 2012
For the comparison of the Successor entity for the year ended December 31, 2013 and the Successor entity from February 25, 2012 through December 31, 2012, and the Predecessor entity for the year ended December 31, 2011, the comparison of cash flows is as follows:

Net cash (used in) provided by (used in) operating activities increased to a use of $174.5 million in the 2013 period from a source of $50.0 million in the 2012 period from a use of $38.7 million in the 2011 period. The change was primarily a result of (i) a net decreaseincrease in real estate inventories-owned of $234.1 million compared to a decrease of $30.3 million in the 2012 period, compared to aprimarily driven by $254.8 million of land acquisitions during the 2013 period. These uses of cash were partially offset by (i) net decreaseincome of $18.2$135.6 million in the 20112013 period primarily driven by(including the increase in homes closed in the 2012 period asnon-cash reversal of $95.6 million of valuation allowances recorded against deferred tax assets) compared to the 2011 period, (ii) a decrease in other assets of $0.6 million in the 2012 period compared to an increase of $4.4 million in the 2011 period attributable to insurance premiums payments and the related amortization expense, (iii) an increase in accounts payable of $7.7 million in the 2012 period compared to a decrease of $1.5 million in the 2011 period attributed to the timing of payments to subcontractors, and (iv) consolidated net loss of $192.9 million in the 2011 period compared to consolidated net loss of $6.9 million in the 2012 period, and (v)(ii) an increase in receivablesaccrued expenses of $2.9$18.6 million in the 2013 period compared to an increase of $9.8 million in the 2012 period, compareddue to an increase in taxes payable and the timing of payments.

Net cash used in investing activities decreased to a decreaseuse of $4.8$3.8 million in the 20112013 period primarily attributable to the timing of proceeds received from escrow for home closings.

Net cash (used in) provided by investing activities decreasedcompared to a use of $33.5 million in the 2012 period from a source of $1.3 million in the 2011 period. The change was primarily a result of (i) net cash paid in the 2012 period of $33.2 million related to the acquisition of a homebuilder inour Colorado known as Village Homes,segment, with no comparable amount in the 20112013 period, and (ii) distributionspurchases of income from unconsolidated joint venturesproperty, plant, and equipment of $1.4$3.8 million in the 20112013 period with no distributions of income from unconsolidated joint venturescompared to $0.3 million in the 2012 period.

Net cash provided by (used in) provided by financing activities increased to a source of $278.9 million in the 2013 period from a use of $25.9 million in the 2012 period from a use of $13.9 million in the 2011 period. The changeincrease was primarily as a result of (i) principal paymentsproceeds from issuance of common stock of $179.4 million, less offering costs of $15.8 million, in the 2013 period related to the Company's initial public offering, compared to proceeds from the issuance of common stock of $16.0 million related to the issuance of 1,847,041 shares of the company’s common stock to Paulson & Co in the 2012 period, (ii) proceeds from borrowings on notes payable of $73.7$73.6 million in the 2013 period compared to $13.2 million in the 2012 period, from $11.5 million in the 2011 period, (ii) (iii)principal payments on Senior Secured Term Loan of $235.0 million in the 2012 period with no comparable amount in the 20112013 period, (iii)(iv) principal payments on Senior Subordinated Secured Notes of $75.9 million in the 2012 period with no comparable amount in the 20112013 period, (v) principal payments on notes payable of $65.0 million in the 2013 period compared to $73.7 million in the 2012 period, and (iv)(vi) payment of deferred loan costs of $4.1 million in the 2013 period compared to $7.2 million in the 2012 period with no comparable amount in the 2011 period,period. These increases were partially offset by (v) proceeds from borrowings on notes payable of $13.2 million in the 2012 period with no comparable amount in the 2011 period, (vi)(i) proceeds from issuance of 8½% Senior Notes of $106.5 million in the 2013 period compared to $325.0 million with no comparable amount in the 20112012 period, (vii)and (ii) proceeds from issuance of convertible preferred stock of $14.0 million related to the issuance of 12,173,9131,475,626 shares of the company’s convertible preferred stock to Paulson & Co in the 2012 period with no comparable amount in the 2011 period, and (viii) proceeds from issuance of common stock of $16.0 million related to the issuance of 15,238,095 shares of the company’s common stock to Paulson & Co in the 2012 period with no comparable amount in the 20112013 period.

For the comparison of the Successor entity for the year ended December 31, 2013 and the Predecessor entity from January 1, 2012 through February 24, 2012, and the Predecessor entity for the year ended December 31, 2011, the comparison of cash flows is as follows:

Net cash used in operating activities decreasedincreased to a use of $174.5 million in the 2013 period from a use of $17.3 million in the 2012 period from a use of $38.7 million in the 2011 period. The change was primarily a result of (i) equitya net increase in incomereal estate inventories-owned of unconsolidated joint ventures$234.1 million compared to an increase of $3.6$7.0 million in the 20112012 period, due toprimarily driven by $254.8 million of land acquisitions during the final cash distribution and related allocation of income from unconsolidated joint ventures with no comparable amount in the 20122013 period, (ii) a decrease in other assets of $0.2 millionaccounts payable in the 20122013 period of $1.6 million compared to an increase of $4.4 million in the 2011 period attributable to insurance premiums paid and the related amortization expense, (iii) an increase in accounts payable of $4.6 million in the 2012 period due to the timing of payments, and (iii) an increase in receivables in the 2013 period of $6.1 million compared to a decrease of $1.5$0.9 million in the 20112012 period. These increases in uses of cash were partially offset by (i) net reorganization items of $241.3 million in the 2012 period attributedwith


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no comparable amount in the 2013 period, (ii) net income of $135.6 million in the 2013 period (including the non-cash reversal of $95.6 million of valuation allowances recorded against deferred tax assets) compared to the timing of payments to subcontractors, and (iv) consolidated net income of $228.5 million in the 2012 period, compared to consolidated net lossand (iiii) an increase in accrued expenses of $192.9$18.6 million in the 20112013 period offset by (v) impairment loss on real estate assetscompared to a decrease of $128.3$3.9 million in the 20112012 period, due to an increase in taxes payable and the timing of payments.
Net cash used in investing activities decreased to a use of $3.8 million in the 2013 period compared to zero in the 2012 period. The 2013 activity relates to purchases of property, plant, and equipment in the 2013 period of $3.8 million.
Net cash provided by financing activities increased to a source of $278.9 million in the 2013 period from $77.8 million in the 2012 period. The increase was primarily as a result of (i) proceeds from issuance of common stock of $179.4 million, less offering costs of $15.8 million, in the 2013 period related to the Company's initial public offering, with no comparable amount in the 2012 period, (ii) proceeds from issuance of 8½% Senior Notes of $106.5 million in the 2013 period with no comparable amount in the 2012 period (vi) net reorganization itemsand (iii) proceeds from borrowings on notes payable of

$241.3 million in the 2012 $73.6 million in the 2013 period with no comparable amount in the 2011 period and (vii) a decrease in receivables of $0.9 million in the 2012 period compared to a decrease of $4.8 million in the 2011 period primarily attributable to the timing of proceeds received from escrow for home closings, (viii) an increase in real estate inventories-owned of $7.0 million in the 2012 period compared to an a decrease of $18.2 million in the 2011 period, primarily driven by fewer homes closed in the 2012 period as compared to the 2011 period, and (iv) a decrease in accrued expenses of $3.9 million in the 2012 period relating to consulting costs incurred related to the restructure that were accrued at the end of 2011, compared to an increase of $7.8 million in the 2011 period.

Net cash (used in) provided by investing activities decreased to zero in the 2012 period from a sourceperiod. These increases were partially offset by (i) principal payments on notes payable of $1.3$65.0 million in the 2011 period. The change was primarily a result of distributions of income from unconsolidated joint ventures of $1.4 million in the 20112013 period with no distributions of income from unconsolidated joint ventures in the 2012 period.

Net cash provided by (used in) financing activities increasedcompared to a source of $77.8$0.6 million in the 2012 period from a use of $13.9 million in the 2011 period. The change was primarily as a result of (i)(ii) proceeds from preferred stock of $50.0 million in the 2012 period with no comparable amount in the 20112013 period, (ii)(iii) proceeds from reorganization of $31.0 million in the 2012 period with no comparable amount in the 20112013 period, and (iii) a decrease in principal payments on notes payable to $0.6 million in the 2012 period from $11.5 million in the 2011 period.

Based on the aforementioned, the Company believes they have sufficient cash and sources(iv)payment of financing for at least the next twelve months.

Cash Flows—Comparison of Years Ended December 31, 2011 and 2010

Net cash (used in) provided by operating activities decreased to a use of $38.7 million in the 2011 period from a source of $24.1 million in the 2010 period. The change was primarily a result of (i) a decrease in income tax refunds receivable of $107.4 million in the 2010 period relating to refunds received for the 2009 loss carry back, with no comparable amount in the 2011 period, (ii) a decrease in real estate inventories-owned of $18.2 million in the 2011 period compared to an increase of $66.3 million in the 2010 period, primarily driven by fewer homes under construction relative to the number of homes closings in the 2011 period as compared to the 2010 period, (iii) a decrease in accounts payable of $1.5 million in the 2011 period compared to a decreasedeferred loan costs of $4.1 million in the 20102013 period duecompared to the timing of payments to subcontractors, (iv) an increase in accrued expenses of $7.8$2.5 million in the 2011 period compared to a decrease of $3.6 million in the 2010 period primarily related to an increase in accrued interest due to the non-payment of interest in conjunction with the prepackaged joint plan of reorganization as described elsewhere herein, (v) a decrease in receivables of $4.8 million in the 2011 period compared to an increase of $2.2 million in the 2010 period primarily related to the timing of proceeds received from escrow for homes closed and the receipt of property tax refunds, and (vi) consolidated net loss of $192.9 million in the 2011 period compared to consolidated net loss of $135.5 million in the 2010 period, offset by (vii) impairment loss on real estate assets of $128.3 million in the 2011 period compared to $111.9 million in the 20102012 period.

Net cash provided by investing activities decreased to a source of $1.3 million in the 2011 period from a source of $3.9 million in the 2010 period. The change was primarily a result of a decrease in distributions of capital from unconsolidated joint ventures to $1.4 million in the 2011 period from $4.2 million in the 2010 period.

Net cash used in financing activities decreased to a use of $13.9 million in the 2011 period from a use of $74.3 million in the 2010 period, primarily as a result of the decrease in net proceeds received from borrowings on notes payable of $7.1 million in the 2010 period with no comparable amount in the 2011 period, a decrease in the net cash paid for the redemption of Old Senior Notes of $31.3 million in the 2010 period, with no comparable amount in the 2011 period and a decrease in the net cash paid for principal payments on notes payable of $11.5 million in the 2011 period, compared to $52.8 million in the 2010 period.


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 54 and 1916 of “Notes to Consolidated Financial Statements.” In addition, the Company is party to certain contractual obligations, including land purchases and project commitments, which are detailed in Note 1916 of “Notes to Consolidated Financial Statements.”

The Company’s contractual obligations consisted of the following at December 31, 20122014 (in thousands):

   Payments due by period 
   Total(1)   Less than
1 year
(2013)		   1-3 years
(2014-2015)		   3-5 years
(2016-2017)		   More than
5 years		 

Other notes payable

  $13,249    $—      $13,249    $—      $—    

Other notes payable interest

   1,706     662     1,044     —       —    

Senior Notes

   325,000     —       —       —       325,000  

Senior Notes interest

   219,849     27,625     55,250     55,250     81,724  

Operating leases

   7,017     1,349     1,878     1,136     2,654  

Surety bonds

   64,400     12,571     51,723     106     —    

Purchase obligations

          

Land purchases and option commitments(2)

   132,376     101,987     30,389     —       —    

Project commitments(3)

   60,887     13,567     47,320     —       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $824,484    $157,761    $200,853    $56,492    $409,378  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  Payments due by period
  Total(1) 
Less than
1 year
(2015)
 
1-3 years
(2016-2018)
 
3-5 years
(2018-2019)
 
More than
5 years
Notes Payable $39,235
 $547
 $38,688
 $—
 $—
Notes Payable interest 3,247
 1,493
 1,754
 —
 —
Subordinated Amortizing Notes 20,717
 6,651
 14,066
 —
 —
Subordinated Amortizing Notes interest 1,916
 1,032
 884
 —
 —
Senior Notes 875,000
 —
 —
 —
 875,000
Senior Notes interest 425,453
 16,437
 131,500
 131,500
 146,016
Operating leases 10,679
 2,185
 3,516
 2,854
 2,124
Surety bonds 98,970
 78,334
 20,621
 15
 —
Purchase obligations: 
        
Land purchases and option commitments(2) 448,985
 251,814
 192,190
 4,981
 —
Project commitments(3) 106,957
 74,870
 32,087
 —
 —
Total $2,031,159
 $433,363
 $435,306
 $139,350
 $1,023,140
(1)The summary of contractual obligations above includes interest on all interest-bearing obligations. Interest on all fixed rate interest-bearing obligations is based on the stated rate and is calculated to the stated maturity date. Interest on all variable rate interest bearing obligations is based on the rates effective as of December 31, 20122014 and is calculated to the stated maturity date.
(2)Represents the Company’s obligations in land purchases, lot option agreements and land banking arrangements. If the Company does not purchase the land under contract, it will forfeit its non-refundable deposit related to the land.
(3)Represents the Company’s homebuilding project purchase commitments for developing and building homes in the ordinary course of business.


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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 its ability to recover through higher sales prices, 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.

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. Management believes that the following accounting policies are among the

most important to a portrayal of the Company’s financial condition and results of operations and require among the most difficult, subjective or complex judgments:

Consequences of Chapter 11 Cases—Debtor in Possession Accounting

Accounting Standards Codification Topic 852-10-45,Reorganizations-Other Presentation Matters, which is applicable to companies in Chapter 11 proceedings, generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for the periods subsequent to the filing of the Chapter 11 Cases distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Amounts that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the statement of operations for the year ended December 31, 2011 and all subsequent periods. The balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, cash provided or used by reorganization items must be disclosed separately in the statement of cash flows. The Company applied ASC 852-10-45 effective on December 19, 2011 and segregated those items as outlined above for the reporting periods subsequent to such date through February 24, 2012.

Fresh Start Accounting

As required by U.S. GAAP, in connection with our emergence from the Chapter 11 Cases, we adopted the fresh start accounting provisions of ASC 852, reorganizations, effective February 24, 2012. Under ASC 852, reorganizations, the reorganization value represents the fair value of the entity before considering liabilities and approximates the amount a willing buyer would pay for the assets of the Company immediately after restructuring. The reorganization value is allocated to the respective fair value of assets. The excess reorganization value over the fair value of the identified tangible and intangible assets is recorded as goodwill. Liabilities, other than deferred taxes, are stated at the present valuesvalue of amounts expected to be paid. Fair values of assets and liabilities represent our best estimates based on our appraisals and valuations. Where the foregoing were not available, industry data and trends or references to relevant market rates and transactions were used. These estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond our reasonable control. Moreover, the market value of our capital stock may differ materially from the fresh start equity valuation.

Real Estate Inventories and Cost of Sales

Real estate inventories are carried at cost net of impairment losses, if any. Real estate inventories consist primarily of deposits to purchase land, raw land, lots under development, homes under construction, completed homes and model homes of real estate projects. 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 estimation process involved in determining relative fair values and sales values is inherently uncertain because it involves estimates of current market values for land parcels before construction as well as future sales values of individual homes within a phase. The Company’s estimate of future sales values is supported by the Company’s budgeting process. The estimate of future sales values is inherently uncertain because it requires estimates of current market conditions as well as future market events and conditions. Additionally, in determining the

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allocation of costs to a particular land parcel or individual home, the Company relies on project budgets that are based on a variety of assumptions, including assumptions about construction schedules and future costs to be incurred. It is possible that actual results could differ from budgeted amounts for various reasons, including construction delays, increases in costs which have not yet been

committed, or unforeseen issues encountered during construction that fall outside the scope of contracts obtained. While the actual results for a particular construction project are accurately reported over time, a variance between the budget and actual costs could result in the understatement or overstatement of costs and a related impact on gross margins in a specific reporting period. To reduce the potential for such distortion, the Company has set forth procedures which have been applied by the Company on a consistent basis, including assessing and revising project budgets on a monthly basis, obtaining commitments from subcontractors and vendors for future costs to be incurred, reviewing the adequacy of warranty accruals and historical warranty claims experience, and utilizing the most recent information available to estimate costs. The variances between budget and actual amounts identified by the Company have historically not had a material impact on its consolidated results of operations. Management believes that the Company’s policies provide for reasonably dependable estimates to be used in the calculation and reporting of costs. The Company relieves its accumulated real estate inventories through cost of sales by the budgeted amount of cost of homes sold, as described more fully below in the section entitled “Sales and Profit Recognition.”

Impairment of Real Estate Inventories

The Company accounts for its real estate inventories in accordance with FASB ASC Topic 360,Property, Plant & Equipment. ASC Topic 360 requires impairment losses to be recorded on real estate inventories when indicators of impairment are present and the undiscounted cash flows estimated to be generated by real estate inventories are less than the carrying amount of such assets. Indicators of impairment include a decrease in demand for housing due to softening market conditions, competitive pricing pressures which reduce the average sales price of homes, which includes sales incentives for homebuyers, slowing sales absorption rates, a decrease in home values in the markets in which the Company operates, significant decreases in gross margins and a decrease in project cash flows for a particular project.

For land and land under development, homes completed and under construction and model homes, the Company estimates expected cash flows at the project level by maintaining current budgets using recent historical information and current market assumptions. The Company updates project budgets and cash flows of each real estate project on a quarterly basis to determine whether the estimated remaining undiscounted future cash flows of the project are more or less than the carrying amount (net book value) of the asset. If the undiscounted cash flows are more than the net book value of the project, then there is no impairment. If the undiscounted cash flows are less than the net book value of the asset, then the asset is deemed to be impaired and is written-down to its fair value. Fair value represents the amount at which an asset could be bought or sold in a current transaction between willing parties (i.e., other than a forced or liquidation sale). Management determines the estimated fair value of each project by determining the present value of estimated future cash flows at discount rates that are commensurate with the risk of each project. The estimation process involved in determining if assets have been impaired and in the determination of fair value is inherently uncertain because it requires estimates of future revenues and costs, current market yields as well as future events and conditions. As described more fully above in the section entitled “Real Estate Inventories and Cost of Sales,” estimates of revenues and costs are supported by the Company’s budgeting process.

Under FASB ASC Topic 360, when indicators of impairment are present the Company is required to make certain assumptions to estimate undiscounted future cash flows of a project, which include: (i) estimated sales prices, including sales incentives, (ii) anticipated sales absorption rates and sales volume, (iii) project costs incurred to date and the estimated future costs of the project based on the project budget, (iv) the carrying costs related to the time a project is actively selling until it closes the final unit in the project, and (v) alternative strategies including selling the land to a third-party or temporarily suspending development on the project. Each project has different assumptions and is based on management’s assessment ofDuring the current market conditions that exist in each project location. Interest incurred allocated to each project is included in future cash flows at effective borrowing rates of 11% for the reporting periodsyear ended March 31, June 30, September 30 and December 31, 2012, which would yield discount rates2014, no indicators of 21% to 29% forimpairment were noted by the 2012 period. Interest incurred allocated to each project is included in future cash flows at effective borrowing rates of 11% for the reporting periods ended March 31, June 30, September 30

and December 31, 2011, which would yield discount rates of 21% to 29% for the 2011 period. Interest allocated to each project for cash flows in 2013 and beyond is 8.75% based on the Company’s current capital structure.

Company.

The assumptions and judgments used by the Company in the estimation process to determine the future undiscounted cash flows of a project and its fair value are inherently uncertain and require a substantial degree of judgment. The realization of the Company’s real estate inventories is dependent upon future uncertain events and market conditions. Due to the subjective nature of the estimates and assumptions used in determining the future cash flows of a project, the continued decline in the current housing market, the uncertainty in the banking and credit markets, actual results could differ materially from current estimates.

These estimates are dependent on specific market or sub-market conditions for each subdivision. While the Company considers available information to determine what it believes to be its best estimates as of the end of a reporting period, these estimates are subject to change in future reporting periods as facts and circumstances change. Local market-specific conditions that may impact these estimates for a subdivision include:


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historical subdivision results, and actual operating profit, base selling prices and home sales incentives;

forecasted operating profit for homes in backlog;

the intensity of competition within a market or sub-market, including publicly available home sales prices and home sales incentives offered by our competitors;

increased levels of home foreclosures;

the current sales pace for active subdivisions;

subdivision specific attributes, such as location, availability of lots in the sub-market, desirability and uniqueness of subdivision location and the size and style of homes currently being offered;

changes by management in the sales strategy of a given subdivision; and

current local market economic and demographic conditions and related trends and forecasts.

These and other local market-specific conditions that may be present are considered by personnel in the Company’s homebuilding divisions as they prepare or update the forecasted assumptions for each subdivision. Quantitative and qualitative factors other than home sales prices could significantly impact the potential for future impairments. The sales objectives can differ among subdivisions, even within a given sub-market. For example, facts and circumstances in a given subdivision may lead the Company to price its homes with the objective of yielding a higher sales absorption pace, while facts and circumstances in another subdivision may lead the Company to price its homes to minimize deterioration in home gross margins, even though this could result in a slower sales absorption pace. Furthermore, the key assumptions included in estimated future undiscounted cash flows may be interrelated. For example, a decrease in estimated base sales price or an increase in home sales incentives may result in a corresponding increase in sales absorption pace. Additionally, a decrease in the average sales price of homes to be sold and closed in future reporting periods for one subdivision that has not been generating what management believes to be an adequate sales absorption pace may impact the estimated cash flow assumptions of a nearby subdivision. Changes in key assumptions, including estimated construction and land development costs, absorption pace, selling strategies or discount rates could materially impact future cash flow and fair value estimates. Due to the number of possible scenarios that would result from various changes in these factors, the Company does not believe it is possible to develop a sensitivity analysis with a level of precision that would be meaningful to an investor.

Management assesses land deposits for impairment when estimated land values are deemed to be less than the agreed upon contract price. The Company considers changes in market conditions, the timing of land purchases, the ability to renegotiate with land sellers the terms of the land option contract in question, the availability and best use of capital, and other factors. If land values are determined to be less than the contract price, the future project will not be purchased. The Company records abandoned land deposits and related pre-

acquisitionpre-acquisition costs to cost of sales-land in the consolidated statement of operations in the period that it is abandoned.

The following table summarizes inventory impairment charges recorded during the period from February 25, 2012 through December 31, 2012, the period from January 1, 2012 through February 24, 2012, and the years ended December 31, 2011 and 2010:

   Successor     Predecessor 
   Period from
February 25 through
December 31,
2012		  

 

 Period from
January 1 through
February 24,
2012		   Year Ended
December 31,		 
         2011   2010 
   (dollars in thousands) 

Inventory impairments related to:

         

Land under development and homes completed and under construction

  $—       $—      $34,835    $80,197  

Land held for future development or sold

   —        —       93,479     31,663  
  

 

 

    

 

 

   

 

 

   

 

 

 

Total inventory impairments

  $—       $—      $128,314    $111,860  
  

 

 

    

 

 

   

 

 

   

 

 

 

Number of projects impaired during the year

   —        —       16     14  
  

 

 

    

 

 

   

 

 

   

 

 

 

Number of projects assessed for impairment during the year

   —        —       42     73  
  

 

 

    

 

 

   

 

 

   

 

 

 

The Company evaluates homebuilding assets for impairment when indicators of impairments are present. Indicators of potential impairment include, but are not limited to, a decrease in housing market values, sales absorption rates, and sales prices. On February 24, 2012, the Company adopted fresh start accounting under ASC 852,Reorganizations, and recorded all real estate inventories at fair value. For the yearyears ended December 31, 2014 and 2013, the period from February 25, 2012 through December 31, 2012, and the period from January 1, 2012 through February 24, 2012 there were no impairment charges recorded.

During the year ended December 31, 2011, the Company recorded2014, no indicators of impairment loss on real estate assets of $128.3 million, compared to $111.9 million during the year ended December 31, 2010.

During the year ended December 31, 2011, impairment loss related to land under development and homes completed and under construction resulted from projected cash flows with the strategy of selling the lots on a finished or unfinished basis, or building out the project. During the 2011 period, the Company adjusted discount rates to a range of 18% to 22%, which were also validatednoted by the third party valuation firm, discussed below.

The Company engaged a third-party valuation firm to assist with the analysis of the fair value of the entity, and respective assets and liabilities in connection with its reorganization. Since the valuation was completed near December 31, 2011, management used such valuation to evaluate the book value as of December 31, 2011.

These charges were included in impairment loss on real estate assets in the accompanying consolidated statements of operations. The impairment charges recorded during the periods noted above stemmed from lower home prices which were driven by increased incentives and discounts resulting from weakened demand experienced during 2007 through 2011.

Company.

Sales and Profit Recognition

A sale is recorded and profit recognized when a sale is consummated, the buyer’s initial and continuing investments are adequate, any receivables are not subject to future subordination, and the usual risks and rewards of ownership have been transferred to the buyer in accordance with the provisions of FASB ASC Topic 976-605-25,Real Estate. When it is determined that the earnings process is not complete, profit is deferred for recognition in future periods. The profit recorded by the Company is based on the calculation of cost of sales which is dependent

on the Company’s allocation of costs which is described in more detail above in the section entitled “Real Estate Inventories and Cost of Sales.”

Variable Interest Entities

The Company accounts for variable interest entities in accordance with ASC 810,Consolidation (“ASC 810”). Under ASC 810, a variable interest entity (“VIE”) is created when: (a) the equity investment at risk in the entity is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by other parties, including

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the equity holders; (b) the entity’s equity holders as a group either (i) lack the direct or indirect ability to make decisions about the entity, (ii) are not obligated to absorb expected losses of the entity or (iii) do not have the right to receive expected residual returns of the entity; or (c) the entity’s equity holders have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of the equity holder with disproportionately few voting rights. If an entity is deemed to be a VIE pursuant to ASC 810, the enterprise that has both (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb the expected losses of the entity or right to receive benefits from the entity that could be potentially significant to the VIE is considered the primary beneficiary and must consolidate the VIE. In accordance with ASC 810, we perform ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE.
As of December 31, 2014 and 2013, the Company had 6 and 3 joint ventures, respectively, which were deemed to be VIEs under ASC 810 for which the Company is considered the primary beneficiary. The Company manages the joint ventures, by using its sales, development and operations teams and has significant control over these projects and therefore the power to direct the activities that most significantly impact the joint venture’s performance, in addition to being obligated to absorb expected losses or receive benefits from the joint venture, and therefore the Company is deemed to be the primary beneficiary of these VIEs.
Under ASC 810, a non-refundable deposit paid to an entity is deemed to be a variable interest that will absorb some or all of the entity’s expected losses if they occur. Our land purchase and lot option deposits generally represent our maximum exposure to the land seller if we elect not to purchase the optioned property. In some instances, we may also expend funds for due diligence, development and construction activities with respect to optioned land prior to takedown. Such costs are classified as inventories owned, which we would have to write-off should we not exercise the option. Therefore, whenever we enter into a land option or purchase contract with an entity and make a non-refundable deposit, a VIE may have been created. As of December 31, 2014 and 2013, the Company was not required to consolidate any VIEs nor did the Company write-off any costs that had been capitalized under lot option contracts. In accordance with ASC 810, we perform ongoing reassessments of whether we are the primary beneficiary of a VIE.

Business Combinations
The Company accounts for business combinations in accordance with FASB ASC Topic 805, Business Combinations. ASC Topic 805 requires that business combinations be accounted for under the acquisition method. The acquisition method requires: i) identifying the acquirer; ii) determining the acquisition date; iii) recognizing and measuring the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; and iv) recognizing and measuring goodwill or a gain from a bargain purchase. Under this method, all acquisition costs are expensed as incurred, and the assets and liabilities of the acquired entity are recorded at their acquisition date fair value, with any excess recorded as goodwill. Goodwill is allocated to the appropriate segments which benefited from the business combination when the goodwill arose. The allocation of the purchase price to the fair value of acquired assets and liabilities assumed requires the use of significant estimates and assumptions. Significant assumptions can include i) expected selling prices of acquired projects, ii) anticipated sales pace of acquired projects , iii) cost to complete estimates of acquired projects, iv) highest and best use of acquired projects prior to acquisition, and v) comparable land values. Where appropriate, we consult with external advisors to assist with the determination of fair value.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes ("ASC 740"). ASC 740 requires an asset and liability approach for measuring deferred taxes based on temporary and permanent differences between the financial statement and tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered. Under ASC 740, a Company is required to reduce its deferred tax assets by a valuation allowance if, based on the the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized. The valuation allowance recorded must be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized. The ultimate realization of a deferred tax asset depends on the Company's ability to generate future taxable income in periods in which the related temporary differences become deductible, and can also be affected by changes in existing tax laws.
The Company performs an assessment of the realizability of its deferred tax assets on a quarterly basis. In performing this assessment, the Company must evaluate all available evidence, both positive and negative. Factors considered in this assessment include the nature, frequency, and severity of current and cumulative losses, forecasts of future profitability, the length of statutory carryforward periods, the Company's experience with operating losses and its ability to utilize past tax credit carryforwards prior to their expiration, and tax planning alternatives. This process requires significant judgment on the part of management, and differences between forecasted and actual outcomes of these future tax consequences could have a material

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impact on the Company's consolidated financial position and results of operations. Changes in existing tax laws and tax rates also affect actual tax results and the valuation of deferred tax assets over time.
As of December 31, 2012, the Company had generated significant deferred tax assets through its operations, but as a result of the Company's ongoing assessments had determined that it was not more likely than not that the Company would be able to utilize these assets. As a result, the Company had recorded a full valuation allowance against the $200.0 million deferred tax asset balance. During the quarter ended December 31, 2013, the Company determined that it would be able to utilize $95.6 million of its deferred tax assets, and recognized an income tax benefit in its results of operations in this amount. This conclusion was based upon the recent operating results of the Company, most notably three consecutive quarters of net income, reduced interest expense as a result of the 2012 restructure, and eight consecutive quarters of period over period growth in net new home orders, home closings, and dollar value of backlog, in addition to continued improving conditions in the single family home market. As of December 31, 2014, the Company maintained a valuation allowance of $1.6 million against a portion of its deferred tax assets. The Company will continue to assess the realizability of it deferred tax assets, and to the extent that it is more likely than not that it will be able to utilize these assets will be able to reduce the recorded valuation allowance and recognize additional income tax benefits, thereby reducing the Company's effective tax rate. Conversely, should the Company recognize significant operating losses in the future, it may determine that it is no longer more likely than not that the Company will utilize its deferred tax assets, and may record future valuation allowances.

Related Party Transactions
See Note 11 of “Notes to Consolidated Financial Statements” for the year ended December 31, 2014 for a description of the Company’s transactions with related parties.
Recent Events
None.
Recently Issued Accounting Standards
See Note 1 of “Notes to Consolidated Financial Statements” for a description of the recently issued accounting standards.
Item 7A.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 December 31, 2014 of $38.7 million where the interest rate is variable based upon certain bank reference or prime rates. The average prime rate during the year ended December 31, 2014 was 3.25%. 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 $0.4 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 December 31, 2014 (dollars in thousands):
 Year ended December 31,     
Fair Value  at
December 31,
2014
 2015 2016 2017 2018 2019 Thereafter Total 
Fixed rate debt$547
 $—
 $20,717
 $—
 $150,000
 $725,000
 $896,264
 $933,674
Interest rate4.0% to 7.0%
 —
 5.5% —
 5.75% 7.0% to 8.5%
    
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 year ended December 31, 2014. The Company does not enter into or hold derivatives for trading or speculative purposes.


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Item 8.Financial Statements and Supplementary Data
The information required by this Item is incorporated by reference to the financial statements set forth in Section 15 of Part IV of this Annual Report, “Exhibits and Financial Statement Schedules”.

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.


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Item 9A.Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
As of the end of the period covered by this annual report on Form 10-K, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e), including controls and procedures to timely alert management to material information relating to William Lyon Homes and subsidiaries required to be included in our periodic SEC filings. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. 
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of controls.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or because the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
Management’s Annual Report on Internal Control Over Financial Reporting
    Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria in Internal Control-Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We acquired Polygon Northwest Homes during the year ended December 31, 2014. We have excluded from our overall assessment of the Company's internal control over financial reporting as of December 31, 2014, internal control over financial reporting associated with Polygon Northwest Homes total assets of $482 million and total revenues of $132 million. Based on our evaluation under the framework in Internal Control-Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2014.

Management's assessment of internal control over financial reporting as of December 31, 2014 has been audited by KPMG LLP, our independent registered public accounting firm, as stated in its attestion report which is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
William Lyon Homes:

We have audited William Lyon Homes’ internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). William Lyon Homes’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, William Lyon Homes maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
William Lyon Homes acquired Polygon Northwest Homes (Polygon) during the year ended December 31, 2014, and management excluded from its assessment of the effectiveness of William Lyon Homes’ internal control over financial reporting as of December 31, 2014, Polygon’s internal control over financial reporting associated with total assets of $482 million and total revenues of $132 million included in the consolidated financial statements of William Lyon Homes and subsidiaries as of and for the year ended December 31, 2014. Our audit of internal control over financial reporting of William Lyon Homes also excluded an evaluation of the internal control over financial reporting of Polygon.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of William Lyon Homes and subsidiaries as of December 31, 2014 and 2013 (Successor), and the related consolidated statements of operations, equity (deficit), and cash flows for each of the years ended December 31, 2014 and 2013 (Successor), and the periods from January 1, 2012 through February 24, 2012 (Predecessor), and February 25, 2012 through December 31, 2012 (Successor), and our report dated March 12, 2015 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Irvine, California
March 12, 2015


Item 9B.Other Information
None.

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PART III
Item 10.Directors, Executive Officers and Corporate Governance

The information required by this item will be set forth in the Proxy Statement for our 2015 Annual Meeting of Stockholders, to be filed by the Company with the U.S. Securities and Exchange Commission no later than 120 days after the close of our fiscal year ended December 31, 2014 (the "Proxy Statement"). For the limited purpose of providing the information necessary to comply with this Item 10, the Proxy Statement is incorporated herein by reference.


Item 11.Executive Compensation

The information required by this item will be set forth in the Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 11, the Proxy Statement is incorporated herein by reference.


Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item will be set forth in the Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 12, the Proxy Statement is incorporated herein by reference.

Item 13.Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be set forth in the Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 13, the Proxy Statement is incorporated herein by reference.



Item 14.Principal Accountant Fees and Services
The information required by this item will be set forth in the Proxy Statement. For the limited purpose of providing the information necessary to comply with this Item 14, the Proxy Statement is incorporated herein by reference.

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PART IV
Item 15.Exhibits and Financial Statement Schedules

(a)(1) Financial Statements
The following financial statements of the Company are included in a separate section of this Annual Report on Form 10-K commencing on the page numbers specified below:
Page
Financial Statements as of December 31, 2014 and 2013 (Successor), and for the years ended December 31, 2014 and 2013 (Successor), the period from February 25, 2012 through December 31, 2012 (Successor), and the period from January 1, 2012 through February 24, 2012 (Predecessor).
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets
F-3
Consolidated Statements of Operations
F-4
Consolidated Statements of Equity (Deficit)
F-5
Consolidated Statements of Cash Flows
F-7
Notes to Consolidated Financial Statements
F-10
(2) Financial Statement Schedules:
Financial Statement Schedules have been omitted because they are either not required or not applicable, or because the information required to be presented is included in the financial statements or the notes thereto included in this Annual Report.
(3) Listing of Exhibits:
EXHIBIT INDEX



Exhibit
Number
Description
2.1
Purchase and Sale Agreement, dated as of June 22, 2014, by and among PNW Home Builders, L.L.C., PNW Home Builders North, L.L.C., PNW Home Builders South, L.L.C., Crescent Ventures, L.L.C. and William Lyon Homes, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on June 23, 2014).
3.1
Third Amended and Restated Certificate of Incorporation of William Lyon Homes (incorporated by reference to William Lyon Homes’s Current Report on Form 8-K filed with the Commission on May 28, 2013).
3.2
Amended and Restated Bylaws of William Lyon Homes (incorporated by reference to William Lyon Homes’s Current Report on Form 8-K filed with the Commission on May 28, 2013).
4.1
Indenture (including form of 8.5% Senior Note due 2020), dated as of November 8, 2012, by and between William Lyon Homes, Inc., William Lyon Homes, certain of William Lyon Homes’s subsidiaries (as guarantors) and U.S. Bank National Association, as trustee (incorporated by reference to William Lyon Homes’s Current Report on Form 8-K filed with the Commission on November 8, 2012).
4.2
Officers' certificate, dated October 24, 2013, delivered pursuant to the Indenture, and setting forth the terms of the notes (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed on October 25, 2013).

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Exhibit
Number
Description
4.3
Indenture (including form of 5.75% Senior Notes due 2019), dated March 31, 2014, among William Lyon Homes, Inc., William Lyon Homes, certain of William Lyon Homes' subsidiaries (as guarantors) and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on April 1, 2014).
4.4
Indenture (including form of 7.00% Senior Notes due 2022), dated August 11, 2014, among WLH PNW Finance Corp., the guarantors from time to time party thereto and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Company's Form 8-K filed August 13, 2014).
4.5
Second Supplemental Indenture, dated as of August 12, 2014, among William Lyon Homes, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, relating to the 8.5% Senior Notes due 2020 (incorporated by reference to Exhibit 4.3 of the Company's Form 8-K filed August 13, 2014).
4.6
First Supplemental Indenture, dated as of August 12, 2014, among William Lyon Homes, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, relating to the 5.75% Senior Notes due 2019 (incorporated by reference to Exhibit 4.4 of the Company's Form 8-K filed August 13, 2014).
4.7
First Supplemental Indenture, dated as of August 12, 2014, among William Lyon Homes, Inc., William Lyon Homes, the subsidiary guarantors named therein and U.S. Bank National Association, relating to the 7.00% Senior Notes due 2022 (incorporated by reference to Exhibit 4.5 of the Company's Form 8-K filed August 13, 2014).
4.8
Second Supplemental Indenture, dated as of August 12, 2014, among William Lyon Homes, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, relating to the 7.00% Senior Notes due 2022 (incorporated by reference to Exhibit 4.6 of the Company's Form 8-K filed August 13, 2014).
4.9
Indenture, dated November 21, 2014, between William Lyon Homes and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to William Lyon Homes’ Current Report on Form 8-K filed with the SEC on November 21, 2014).
4.10
First Supplemental Indenture (including form of 5.50% Senior Subordinated Amortizing Notes due December 1, 2017), dated November 21, 2014, between William Lyon Homes and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to William Lyon Homes’ Current Report on Form 8-K filed with the SEC on November 21, 2014).
4.11
Purchase Contract Agreement (including form of unit and form of prepaid stock purchase contract), dated November 21, 2014, among William Lyon Homes, U.S. Bank National Association, as trustee, and U.S. Bank National Association, as purchase contract agent and as attorney-in-fact for the holders from time to time as provided therein (incorporated by reference to Exhibit 4.3 to William Lyon Homes’ Current Report on Form 8-K filed with the SEC on November 21, 2014).
10.1
Form of Indemnity Agreement, between William Lyon Homes, a Delaware corporation, and the directors and officers of William Lyon Homes (incorporated by reference to William Lyon Homes’s Annual Report on Form 10-K for the year-ended December 31, 1999).
10.2
The Presley Companies Non-Qualified Retirement Plan for Outside Directors (incorporated by reference to William Lyon Homes’s Annual Report on Form 10-K for the year-ended December 31, 2002).
10.3
Aircraft Purchase and Sale Agreement dated as of September 3, 2009, by and between Presley CMR, Inc., and Martin Aviation, Inc., or its designee (incorporated by reference to William Lyon Homes’s Current Report on Form 8-K filed with the Commission on September 10, 2009).
10.4
Secured Promissory Note dated September 9, 2009 from Martin Aviation, Inc., a California corporation payable to William Lyon Homes, Inc., a California corporation (incorporated by reference to William Lyon Homes’s Current Report on Form 8-K filed with the Commission on September 10, 2009).

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Exhibit
Number
Description
10.5
Aircraft Mortgage and Security Agreement between Martin Aviation, Inc., a California corporation and William Lyon Homes, Inc., dated as of September 9, 2009 (incorporated by reference to William Lyon Homes’s Current Report on Form 8-K filed with the Commission on September 10, 2009).
10.6
Form of Class A Common Stock Registration Rights Agreement, dated as of February 25, 2012, by and among William Lyon Homes and the Holders (as defined therein) (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.7
Class B Common Stock and Warrant Purchase Agreement, dated as of February 25, 2012, by and between William Lyon Homes and the Purchaser (as defined therein) (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.8
Warrant to Purchase Shares of Class B Common Stock of William Lyon Homes, dated as of February 25, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.9
Class B Common Stock Registration Rights Agreement, dated as of February 25, 2012, by and among William Lyon Homes and the Holders (as defined therein) (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.10
Form of Convertible Preferred Stock and Class C Common Stock Registration Rights Agreement, dated as of February 25, 2012, by and among William Lyon Homes and the Holders party thereto (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.11†
Employment Agreement, dated as of February 25, 2012, by and among William Lyon Homes, William Lyon Homes, Inc. and General William Lyon (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.12†
Employment Agreement, dated as of February 25, 2012, by and among William Lyon Homes, William Lyon Homes, Inc. and William H. Lyon (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.13†
William Lyon Homes 2012 Equity Incentive Plan (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.14†
William Lyon Homes 2012 Equity Incentive Plan form of Stock Option Agreement (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.15†
William Lyon Homes 2012 Equity Incentive Plan form of Restricted Stock Award Agreement (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.16†
Form of Employment Agreement, dated September 1, 2012 (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.17
Class A Common Stock and Convertible Preferred Stock Subscription Agreement, dated October 12, 2012, by and between William Lyon Homes and WLH Recovery Acquisition LLC (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).

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Exhibit
Number
Description
10.18
Amendment of and Joinder to Class A Common Stock Registration Rights Agreement, dated October 12, 2012, by and between WLH Recovery Acquisition LLC and William Lyon Homes (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.19
Amendment of and Joinder to Convertible Preferred Stock and Class C Common Stock Registration Rights Agreement, dated October 12, 2012, by and between WLH Recovery Acquisition LLC and William Lyon Homes (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.20†
William Lyon Homes 2012 Equity Incentive Plan Form of Restricted Stock Award Agreement (performance-based) (incorporated by reference to William Lyon Homes’s Form S-1 Registration Statement filed April 9, 2013 (File No. 333-187819)).
10.21†
Revised Form of Employment Agreement, dated April 1, 2013 (incorporated by reference to William Lyon Homes’s Form S-1 Registration Statement filed April 9, 2013 (File No. 333-187819)).
10.22†
Amendment to Employment Agreement, dated March 6, 2013, by and between William Lyon Homes, Inc., and Matthew R. Zaist (incorporated by reference to William Lyon Homes’s Form S-1 Registration Statement filed April 9, 2013 (File No. 333-187819)).
10.23
Amendment No. 1 to Warrant to Purchase Shares of Class B Common Stock (incorporated by reference to William Lyon Homes’s Current Report on Form 8-K filed with the Commission on May 28, 2013).
10.24
Form of indemnification agreement (incorporated by reference to William Lyon Homes’s Current Report on Form 8-K filed with the Commission on May 28, 2013).
10.25†
Amendment No. 1 to the William Lyon Homes 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.23(a) to the Company’s Form S-1 Registration Statement filed May 6, 2013 (File No. 333-187819)).
10.26
Credit Agreement among William Lyon Homes, Inc., as Borrower, William Lyon Homes, as Parent, The Lenders from time to time party thereto, and Credit Suisse AG, as Administrative Agent, dated as of August 7, 2013 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2013).
10.27†
Amendment No. 2 to the William Lyon Homes 2012 Equity Incentive Plan (incorporated by reference to Exhibit 99.3 of the Company’s Form S-8 Registration Statement filed August 12, 2013 (File No. 333-190571)).
10.28†
William Lyon Homes 2012 Equity Incentive Plan Form of Restricted Stock Award Agreement (performance-based) (incorporated by reference to Exhibit 10.42 of the Company's Form S-4 Registration Statement filed December 27, 2013 (file no. 333-193112)).
10.29†
William Lyon Homes 2012 Equity Incentive Plan Form of Restricted Stock Award Agreement. (incorporated by reference to Exhibit 10.43 of the Company's Form S-4 Registration Statement filed December 27, 2013 (file no. 333-193112)).
10.30†
William Lyon Homes 2012 Equity Incentive Plan Form of Stock Option Agreement. (incorporated by reference to Exhibit 10.44 of the Company's Form S-4 Registration Statement filed December 27, 2013 (file no. 333-193112)).

72
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Exhibit
Number
Description
10.31†
William Lyon Homes 2012 Equity Incentive Plan Form of Amendment No. 1 to Stock Option Agreement (Five-Year Options). (incorporated by reference to Exhibit 10.45 of the Company's Form S-4 Registration Statement filed December 27, 2013 (file no. 333-193112)).
10.32
Bridge Loan Agreement, dated as of August 12, 2014, among William Lyon Homes, Inc., as Borrower, William Lyon Homes, as Parent, the Lenders from time to time party thereto, and J.P. Morgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed August 13, 2014).
10.33
Amendment No. 1 to Credit Agreement among William Lyon Homes, Inc., as Borrower, William Lyon Homes, as Parent, The Lenders from time to time party thereto, and Credit Suisse AG, as Administrative Agent, dated as of August 7, 2013 (incorporated by reference to Exhibit 10.2 of the Company's Form 10-Q filed on November 12, 2014)..
10.34†
Amendment No. 1 to Employment Agreement, dated as of February 25, 2012, by and among William Lyon Homes, William Lyon Homes, Inc. and General William Lyon (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed December 31, 2014).
10.35†
Amendment No. 1 to Employment Agreement, dated as of February 25, 2012, by and among William Lyon Homes, William Lyon Homes, Inc. and William H. Lyon (incorporated by reference to Exhibit 10.2 of the Company's Form 8-K filed December 31, 2014).
12.1+
Statement Regarding the Computation of Ratio of Earnings (Loss) to Fixed Charges and Preferred Stock Dividends for the Years Ended December 31, 2014 and 2013, the Period from January 1, 2012 through February 24, 2012, the Period from February 25, 2012 through December 31, 2012, and for the Years Ended December 31, 2011 and 2010.
21.1+
List of Subsidiaries of the Company.
23.1+
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
31.1*
Certification of Principal Executive Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
31.2*
Certification of Principal Financial Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
32.1*
Certification of Principal Executive Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350
32.2*
Certification of Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350
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

73
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Exhibit
Number
Description
101.LAB* **
XBRL Taxonomy Extension Label Linkbase Document
101.PRE* **
XBRL Taxonomy Extension Presentation Linkbase 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.

74
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Newport Beach, State of California, on the 12th day of March, 2015.
WILLIAM LYON HOMES,
a Delaware corporation
By:/s/ William H. Lyon
William H. Lyon
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons in the capacities and on the dates indicated:
SignatureTitleDate
/s/ William H. Lyon
William H. Lyon
Chief Executive Officer, Director (Principal Executive Officer)March 12, 2015
/s/ Colin T. Severn
Colin T. Severn
Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)March 12, 2015
/s/ General William Lyon
General William Lyon
Executive Chairman, DirectorMarch 12, 2015
/s/ Douglas K. Ammerman
Douglas K. Ammerman
DirectorMarch 12, 2015
/s/ Michael Barr
Michael Barr
DirectorMarch 12, 2015
/s/ Gary H. Hunt
Gary H. Hunt
DirectorMarch 12, 2015
/s/ Matthew R. Niemann
Matthew R. Niemann
DirectorMarch 12, 2015
/s/ Nathaniel Redleaf
Nathaniel Redleaf
DirectorMarch 12, 2015
/s/ Lynn Carlson Schell
Lynn Carlson Schell
DirectorMarch 12, 2015

75
Table of Contents

INDEX TO FINANCIAL STATEMENTS
Page
Financial Statements as of December 31, 2014 and 2013 (Successor), and for the years ended December 31, 2014 and 2013 (Successor), the period from February 25, 2012 through December 31, 2012 (Successor), and the period from January 1, 2012 through February 24, 2012 (Predecessor).
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets
F-3
Consolidated Statements of Operations
F-4
Consolidated Statements of Equity (Deficit)F-5
Consolidated Statements of Cash Flows
F-7
Notes to Consolidated Financial Statements
F-10

F-1
Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
William Lyon Homes:

We have audited the accompanying consolidated balance sheets of William Lyon Homes and subsidiaries (the Company) as of December 31, 2014 and 2013 (Successor), and the related consolidated statements of operations, equity (deficit) and cash flows for each of the years ended December 31, 2014 and 2013 (Successor) and the periods from January 1, 2012 through February 24, 2012 (Predecessor) and February 25, 2012 through December 31, 2012 (Successor). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of William Lyon Homes and subsidiaries as of December 31, 2014 and 2013 (Successor) and the results of their operations and their cash flows for each of the years ended December 31, 2014 and 2013 (Successor) and the periods from January 1, 2012 through February 24, 2012 (Predecessor) and February 25, 2012 through December 31, 2012 (Successor), in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), William Lyon Homes’ internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 12, 2015 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.


/s/ KPMG LLP
Irvine, California
March 12, 2015


F-2
Table of Contents

WILLIAM LYON HOMES
CONSOLIDATED BALANCE SHEETS
(in thousands except number of shares and par value per share)
    
 December 31,
 2014 2013
ASSETS   
Cash and cash equivalents — Note 1$52,771
 $171,672
Restricted cash — Note 1504
 854
Receivables21,250
 16,459
Escrow proceeds receivable2,915
 4,380
Real estate inventories — Note 6   
Owned1,404,639
 671,790
Not owned—
 12,960
Deferred loan costs, net15,988
 9,575
Goodwill — Note 760,887
 14,209
Intangibles, net of accumulated amortization of $9,420 and $7,611 and as of December 31, 2014 and 2013, respectively — Note 87,657
 2,766
Deferred income taxes, net valuation allowance of $1,626 and $3,959 at December 31, 2014 and 2013 respectively — Note 1288,039
 95,580
Other assets, net19,777
 10,166
Total assets$1,674,427
 $1,010,411
LIABILITIES AND EQUITY   
Accounts payable$51,814
 $17,099
Accrued expenses85,366
 60,203
Liabilities from inventories not owned — Note 16—
 12,960
Notes payable — Note 939,235
 38,060
Subordinated amortizing note due December 1, 2017 — Note 920,717
 —
5 3/4% Senior Notes due April 15, 2019 — Note 9150,000
 —
8 1/2% Senior notes due November 15, 2020 — Note 9430,149
 431,295
7% Senior Notes due August 15, 2022 — Note 9300,000
 —
 1,077,281
 559,617
Commitments and contingencies — Note 16

 

Equity:   
William Lyon Homes stockholders’ equity — Note 14   
Preferred stock, par value $0.01 per share; 10,000,000 authorized and no shares issued and outstanding at December 31, 2014 and 2013, respectively—
 —
Common stock, Class A, par value $0.01 per share; 150,000,000 shares authorized; 28,073,438 and 27,622,283 shares issued, 27,487,257 and 27,216,813 shares outstanding at December 31, 2014 and 2013, respectively281
 276
Common stock, Class B, par value $0.01 per share; 30,000,000 shares authorized; 3,813,884 shares issued and outstanding at December 31, 2014 and 2013, respectively38
 38
Additional paid-in capital408,969
 311,863
Retained earnings160,627
 116,002
Total William Lyon Homes stockholders’ equity569,915
 428,179
Noncontrolling interests — Note 427,231
 22,615
Total equity597,146
 450,794
Total liabilities and equity$1,674,427
 $1,010,411
See accompanying notes to consolidated financial statements

F-3
Table of Contents

WILLIAM LYON HOMES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except number of shares and per share data)
 Successor  Predecessor
 Year Ended
December 31,		 
Period from
February 25
through
December  31,
2012
  
Period from
January 1
through
February  24,
2012
 2014 2013 
Operating revenue      
Home sales$857,025
 $521,310
 $244,610
$16,687
Lots, land and other sales1,926
 18,692
 104,325
—
Construction services — Note 137,728
 32,533
 23,825
  8,883
 896,679
 572,535
 372,760
  25,570
Operating costs        
Cost of sales — homes(677,531) (405,496) (203,203)  (14,598)
Cost of sales — lots, land and other(1,529) (14,692) (94,786)  —
Construction services — Note 1(30,700) (25,598) (21,416)  (8,223)
Sales and marketing(45,903) (26,102) (13,928)  (1,944)
General and administrative(54,626) (40,770) (26,095)  (3,302)
Transaction expenses(5,832) —
 —
  —
Amortization of intangible assets — Note 8(1,814) (1,854) (5,757)  —
Other(2,319) (2,166) (2,909)  (187)
 (820,254) (516,678) (368,094)  (28,254)
Operating income (loss)76,425
 55,857
 4,666
  (2,684)
Loss on extinguishment of debt — Note 9—
 —
 (1,392)  —
Interest expense, net of amounts capitalized — Note 1—
 (2,602) (9,127)  (2,507)
Other income, net1,898
 510
 1,528
  230
Income (loss) before reorganization items and (provision) benefit from income taxes78,323
 53,765
 (4,325)  (4,961)
Reorganization items, net — Note 3—
 (464) (2,525)  233,458
Income (loss) before (provision) benefit for income taxes78,323
 53,301
 (6,850)  228,497
(Provision) benefit for income taxes — Note 12(23,797) 82,302
 (11)  —
Net income (loss)54,526
 135,603
 (6,861)  228,497
Less: Net income attributable to noncontrolling interests(9,901) (6,471) (1,998)  (114)
Net income (loss) attributable to William Lyon Homes44,625
 129,132
 (8,859)  228,383
Preferred stock dividends—
 (1,528) (2,743)  —
Net income (loss) available to common stockholders$44,625
 $127,604
 $(11,602)  $228,383
Income (loss) per common share:        
     Basic$1.41
 $5.16
 $(0.93)  $228,383
     Diluted$1.34
 $4.95
 $(0.93)  $228,383
Weighted average common shares outstanding:        
     Basic31,753,110
 24,736,841
 12,489,435
  1,000
     Diluted33,236,343
 25,796,197
 12,489,435
  1,000
See accompanying notes to consolidated financial statements


F-4
Table of Contents

WILLIAM LYON HOMES
CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
(in thousands)
 William Lyon Homes Stockholders 
Non-
Controlling
Interest
 Total
 Common Stock 
Additional
Paid-In
Capital
 
Retained
Earnings
(Accumulated
Deficit)
  
 Shares Amount    
Balance — December 31, 2011 (Predecessor)1
 $—
 $48,867
 $(228,383) $9,646
 $(169,870)
Cash contributions from members of consolidated entities—  
 —  
 —  
 —
 1,825
 1,825
Cash distributions to members of consolidated entities—
 —
 —
 —
 (1,897) (1,897)
Net (loss) income—
 —
 —
 (7,201) 114
 (7,087)
Balance — February 24, 2012 (Predecessor)1
 —
 48,867
 (235,584) 9,688
 (177,029)
Cancellation of predecessor common stock(1) —
 —
 —
 —
 —
Plan of reorganization and fresh start valuation adjustments—
 —
 —
 186,717
 (1,588) 185,129
Elimination of predecessor accumulated deficit—
 —
 (48,867) 48,867
 —
 —
Balance — February 24, 2012 (Predecessor)—
 —
 —
 —
 8,100
 8,100
Issuance of new common stock in connection with emergence from Chapter 1111,196
 112
 44,003
 —
 —
 44,115
Balance — February 24, 2012 (Successor)11,196
 112
 44,003
 —
 8,100
 52,215
Net (loss) income—
 —
 —
 (8,859) 1,998
 (6,861)
Cash contributions from members of consolidated entities—
 —
 —  
 —
 15,313
 15,313
Cash distributions to members of consolidated entities—
 —
 —
 —
 (16,004) (16,004)
Issuance of common stock3,059
 31
 26,469
 —
 —
 26,500
Issuance of restricted stock303
 3
 (3) —
 —
 —
Stock based compensation—
 —
 3,699
 —
 —
 3,699
Preferred stock dividends—
 —
 —
 (2,743) —
 (2,743)
Balance — December 31, 2012 (Successor)14,558
 146
 74,168
 (11,602) 9,407
 72,119
Net income—
 —
 —
 129,132
 6,471
 135,603
Cash contributions from members of consolidated entities—
 —
 —
 —
 37,184
 37,184
Cash distributions to members of consolidated entities—
 —
 —
 —
 (30,447) (30,447)
Conversion of redeemable preferred stock to Class A common stock9,334
 93
 70,293
 —
 —
 70,386
Issuance of common stock, net of offering costs7,178
 72
 163,612
 —
 —
 163,684
Issuance of restricted stock366
 3
 (3) —
 —
 —
Stock based compensation—
 —
 3,793
 —
 —
 3,793
Preferred stock dividends—
 —
 —
 (1,528) —
 (1,528)
Balance — December 31, 2013 (Successor)31,436
 314
 311,863
 116,002
 22,615
 450,794
Net income—
 —
 —
 44,625
 9,901
 54,526
Cash contributions from members of consolidated entities—
 —
 —
 —
 22,041
 22,041
Cash distributions to members of consolidated entities—
 —
 —
 —
 (27,326) (27,326)
Exercise of stock options158
 1
 284
 —
 —
 285
Offering costs related to secondary sale of common stock—
 —
 (105) —
 —
 (105)
Shares remitted to Company to satisfy employee personal income tax liabilities resulting from share based compensation plans(99) —
 (1,774) —
 —
 (1,774)

F-5
Table of Contents

Stock based compensation392
 4
 6,110
 —
 —
 6,114
Excess income tax benefit from stock based awards—
 —
 1,866
 —
 —
 1,866
Issuance of TEUs net of offering costs—
 —
 90,725
 —
 —
 90,725
Balance - December 31, 2014 (Successor)31,887
 $319
 $408,969
 $160,627
 $27,231
 $597,146
See accompanying notes to consolidated financial statements

F-6
Table of Contents
WILLIAM LYON HOMES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 Successor  Predecessor
Year Ended
December 31,		 
Period from
February 25
through
December  31,
2012
  
Period from
January 1
through
February  24,
2012
2014 2013 
Operating activities        
Net income (loss)$54,526
 $135,603
 $(6,861)  $228,497
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:        
Depreciation and amortization2,874
 3,795
 6,631
  586
Stock based compensation expense6,114
 3,793
 3,699
  —
Equity in income of unconsolidated joint ventures(555) —
 —
  —
Loss on sale of fixed asset—
 4
 —
  —
Reorganization items:        
Cancellation of debt—
 —
 —
  (298,831)
Plan implementation and fresh start adjustments—
 —
 —
  49,302
Write-off of deferred loan costs—
 —
 —
  8,258
Loss on extinguishment of debt—
 —
 1,104
  —
Net change in deferred income taxes7,812
 (95,580)     
Net changes in operating assets and liabilities, net of impact of Acquisition of Polygon Northwest Homes:        
Restricted cash350
 (1) (1)  —
Receivables(4,554) (6,050) (2,924)  941
Escrow proceeds receivable1,465
 —
 —
  —
Real estate inventories — owned(277,997) (234,127) 30,256
  (7,047)
Real estate inventories — not owned12,960
 26,069
 7,129
  1,250
Other assets(5,588) 1,069
 605
  206
Accounts payable34,103
 (1,636) 7,706
  4,618
Accrued expenses21,290
 18,596
 9,778
  (3,851)
Liabilities from real estate inventories not owned(12,960) (26,069) (7,129)  (1,250)
Net cash (used in) provided by operating activities(160,160) (174,534) 49,993
  (17,321)
Investing activities        
Investment in and advances to unconsolidated joint ventures(500) —
 —
  —
Distributions from unconsolidated joint ventures353
 —
 —
  —
Cash paid for acquisitions, net(492,418) —
 (33,201)  —
Purchases of property and equipment(2,078) (3,754) (312)  —
Net cash used in investing activities(494,643) (3,754) (33,513)  —

F-7
Table of Contents
WILLIAM LYON HOMES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 Successor  Predecessor
Year Ended
December 31,		 
Period from
February 25
through
December  31,
2012
  
Period from
January 1
through
February  24,
2012
2014 2013 
Financing activities        
Proceeds from borrowings on notes payable95,227
 73,610
 13,248
  —
Principal payments on notes payable(96,465) (65,037) (73,676)  (616)
Proceeds from issuance of 5 3/4% Senior Notes150,000
 —
 —
  —
Proceeds from issuance of 7% Senior Notes300,000
 —
 —
  —
Proceeds from issuance of bridge loan120,000
 —
 —
  —
Payments on bridge loan(120,000) —
 —
  —
Proceeds from borrowings on revolver20,000
 —
 —
  —
Payments on revolver(20,000) —
 —
  —
Issuance of TEUs - Purchase Contracts94,284
 —
 —
  —
Offering costs related to TEUs(3,830) —
 —
  —
Issuance of TEUs - Amortizing notes20,717
 —
 —
  —
Proceeds from issuance of 8 1/2% Senior Notes—
 106,500
 325,000
  —
Principal payments on Senior Secured Term Loan—
 —
 (235,000)  —
Principal payments on Senior Subordinated Secured Notes—
 —
 (75,916)  —
Proceeds from reorganization—
 —
 —
  30,971
Proceeds from issuance of convertible preferred stock—
 —
 14,000
  50,000
Proceeds from stock options exercised285
 —
 —
  —
Proceeds from issuance of common stock—
 179,438
 16,000
  —
Offering costs related to issuance of common stock(105) (15,753) —
  —
Purchase of common stock(1,774) —
 —
  —
Excess income tax benefit from stock based awards1,866
 —
 —
  —
Proceeds from debtor in possession financing—
 —
 —
  5,000
Principal payment of debtor in possession financing—
 —
 —
  (5,000)
Payment of deferred loan costs(19,018) (4,060) (7,181)  (2,491)
Payment of preferred stock dividends—
 (2,550) (1,721)  —
Noncontrolling interest contributions22,041
 37,184
 15,313
  1,825
Noncontrolling interest distributions(27,326) (30,447) (16,004)  (1,897)
Net cash provided by (used in) financing activities535,902
 278,885
 (25,937)  77,792
Net (decrease) increase in cash and cash equivalents(118,901) 100,597
 (9,457)  60,471
Cash and cash equivalents — beginning of period171,672
 71,075
 80,532
  20,061
Cash and cash equivalents — end of period$52,771
 $171,672
 $71,075
  $80,532
Supplemental disclosures:        
Cash paid for taxes$25,392
 $9,300
 $—
  $—
Cash paid for professional fees relating to the reorganization$—
 $464
 $3,228
  $7,813
Supplemental disclosures of non-cash investing and financing activities:        
Conversion of convertible preferred stock to common stock$—
 $70,386
 $—
  $—

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Table of Contents
WILLIAM LYON HOMES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 Successor  Predecessor
Year Ended
December 31,		 
Period from
February 25
through
December  31,
2012
  
Period from
January 1
through
February  24,
2012
2014 2013 
Issuance of common stock related to land acquisition$—
 $—
 $10,500
  $—
Land contributed in lieu of cash for common stock$—
 $—
 $—
  $4,029
Accretion of payable in kind dividends on convertible preferred stock$—
 $—
 $860
  $—
Preferred stock dividends, accrued$—
 $—
 $162
  $—
Notes payable issued in conjunction with land acquisitions$2,413
 $16,238
 $—
  $—
Liabilities assumed as part of cash acquisition of Polygon Northwest Homes$4,574
 $—
 $—
  $—


See accompanying notes to consolidated financial statements


F-9
Table of Contents

WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Basis of Presentation and Significant Accounting Policies
Operations
William Lyon Homes, a Delaware corporation (“Parent” and together with its subsidiaries, the “Company”), are primarily engaged in designing, constructing and selling single family detached and attached homes in California, Arizona, Nevada, Colorado (under the Village Homes brand), Washington and Oregon (together, under the Polygon Northwest Homes brand).
Initial Public Offering
On May 21, 2013, the Company completed its initial public offering of 10,005,000 shares of Class A Common Stock, which consisted of 7,177,500 shares sold by the Company and 2,827,500 shares sold by the selling stockholder. The 10,005,000 shares in the offering were sold at a price to the public of $25.00 per share. The Company raised total net proceeds of approximately $163.7 million in the offering, after deducting the underwriting discount and offering expenses. The Company did not receive any proceeds from the sale of shares by the selling stockholder.
In connection with the initial public offering, Parent completed a common stock recapitalization which included a 1-for-8.25 reverse stock split of its Class A Common Stock (the “Class A Reverse Split”), the conversion of all outstanding shares of Parent’s Class C Common Stock, Class D Common Stock and Convertible Preferred Stock into Class A Common Stock on a one-for-one basis and as automatically adjusted for the Class A Reverse Split, and a 1-for-8.25 reverse stock split of its Class B Common Stock. The effect of the reverse stock split was retroactively applied to the Consolidated Statements of Operations for the period from February 25, 2012 through December 31, 2012, and the Consolidated Statements of Equity (Deficit), presented herein. Upon completion of the initial public offering, Parent had 27,146,036 shares of Class A Common Stock outstanding, excluding shares issuable upon exercise of outstanding stock options and restricted shares that have been granted but were unvested, and 3,813,884 shares of Class B Common Stock outstanding, excluding shares underlying a warrant to purchase additional shares of Class B Common Stock. The warrant was amended to extend the term from 5 years to 10 years, and the warrant will now expire on February 24, 2022. The change to the warrant had no corresponding impact on the financial statements.
Emergence from Chapter 11 and Fresh Start Accounting
On December 19, 2011, Parent and certain of its direct and indirect wholly-owned subsidiaries filed voluntary petitions, under chapter 11 of Title 11 of the United States Code, as amended (the “Chapter 11 Petitions”), in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) to seek approval of the Prepackaged Joint Plan of Reorganization (the “Plan”) of the Company and certain of its subsidiaries. The Chapter 11 Petitions were jointly administered under the caption In re William Lyon Homes, et al., Case No. 11-14019 (the “Chapter 11 Cases”). The sole purpose of the Chapter 11 Cases was to restructure the Company’s debt obligations and strengthen its balance sheet. On February 10, 2012, the Bankruptcy Court confirmed the Plan.
As required by U.S. GAAP, effective as of February 24, 2012, we adopted fresh start accounting following the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 852 (“ASC 852”), “Reorganizations”. Fresh start accounting results in the Company becoming a new entity for financial reporting purposes. Accordingly, our consolidated financial statements for periods prior to February 25, 2012 are not comparable to consolidated financial statements presented on or after February 25, 2012. References to the “Successor” in the consolidated financial statements and the notes thereto refer to the Company after giving effect to the reorganization and application of ASC 852. References to the “Predecessor” refer to the Company prior to the reorganization and application of ASC 852.
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 December 31, 2014 and 2013 and revenues and expenses for the years ended December 31, 2014 and December 31, 2013, the period from January 1, 2012 through February 24, 2012, and the period from February 25, 2012 through December 31, 2012. 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, valuation of deferred tax assets, and the fair value of assets acquired and liabilities assumed in connection with acquisition accounting. The current economic environment increases the uncertainty inherent in these estimates and assumptions.

F-10
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WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


The 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 in which the Company is considered the primary beneficiary (see Note 4). 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.
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 accumulated 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.
The Company accounts for its real estate inventories under FASB ASC 360 Property, Plant, & Equipment (“ASC 360”). ASC 360 requires impairment losses to be recorded on real estate inventories when indicators of impairment are present and the undiscounted cash flows estimated to be generated by real estate inventories are less than the carrying amount of such assets. Indicators of impairment include a decrease in demand for housing due to softening market conditions, competitive pricing pressures, which reduce the average sales price of homes including an increase in sales incentives offered to buyers, slowing sales absorption rates, decreases in home values in the markets in which the Company operates, significant decreases in gross margins and a decrease in project cash flows for a particular project.
For land, construction in progress, completed inventory, including model homes, and inventories not owned, the Company estimates expected cash flows at the project level by maintaining current budgets using recent historical information and current market assumptions. The Company updates project budgets and cash flows of each real estate project on an as needed basis to determine whether the estimated remaining undiscounted future cash flows of the project are more or less than the carrying amount (net book value) of the asset. If the undiscounted cash flows are more than the net book value of the project, then there is no impairment. If the undiscounted cash flows are less than the net book value of the asset, then the asset is deemed to be impaired and is written-down to its fair value.
Fair value represents the amount at which an asset could be bought or sold in a current transaction between willing parties (i.e., other than a forced or liquidation sale). Management determines the estimated fair value of each project by determining the present value of estimated future cash flows at discount rates that are commensurate with the risk of each project and each domain, market or sub-market or may use recent appraisals if they more accurately reflect fair value. The estimation process involved in determining if assets have been impaired and in the determination of fair value is inherently uncertain because it requires estimates of future revenues and costs, as well as future events and conditions. Estimates of revenues and costs are supported by the Company’s budgeting process, and are based on recent sales in backlog, pricing required to get the desired pace of sales, pricing of competitive projects, incentives offered by competitors and current estimates of costs of development and construction or current appraisals.
The assumptions and judgments used by the Company in the estimation process to determine the future undiscounted cash flows of a project and its fair value are inherently uncertain and require a substantial degree of judgment. The realization of the Company’s real estate inventories is dependent upon future uncertain events and market conditions. Due to the subjective nature of the estimates and assumptions used in determining the future cash flows of a project, actual results could differ materially from current estimates.
Management assesses land deposits for impairment when estimated land values are deemed to be less than the agreed upon contract price. The Company considers changes in market conditions, the timing of land purchases, the ability to renegotiate with land sellers, the terms of the land option contracts in question, the availability and best use of capital, and other factors. The Company records abandoned land deposits and related pre-acquisition costs in cost of sales-lots, land and other in the consolidated statements of operations in the period that it is abandoned.
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 approximately one to one and one quarter percent of the sales price of its homes, or a set amount per home closed depending on operating segment, against the possibility of future charges relating to its warranty programs and similar potential claims. Factors that affect the Company’s warranty

F-11
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


liability include the number of homes under warranty, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. Changes in the Company’s warranty liability for the year ended December 31, 2014, the year ended December 31, 2013, the period from February 25, 2012 through December 31, 2012, and the period from January 1, 2012 through February 24, 2012 are as follows (in thousands):
  Successor Predecessor
  Year Ended December 31, 2014 Year Ended December 31, 2013 
Period from
February 25
through
December 31,
2012
 
Period from
January 1
through
February 24,
2012
 
 Warranty liability, beginning of period$14,935
 $14,317
 $14,000
 $14,314
 Warranty provision during period9,601
 5,641
 2,877
 272
 Warranty payments during period(7,409) (5,676) (3,216) (845)
 Warranty charges related to construction services projects1,028
 653
 656
 114
 Fresh start adjustment—
 —
 —
 145
      Warranty liability, end of period$18,155
 $14,935
 $14,317
 $14,000
Interest incurred under the Company’s debt obligations, as more fully discussed in Note 9, is capitalized to qualifying real estate projects under development. Any additional interest charges related to real estate projects not under development are expensed in the period incurred. Interest activity for the year ended December 31, 2014, the year ended December 31, 2013, the period from February 25, 2012 through December 31, 2012, and the period from January 1, 2012 through February 24, 2012 are as follows (in thousands):
 Successor Predecessor
 Year Ended December 31, 2014 Year Ended December 31, 2013 
Period from
February 25
through
December 31,
2012
 
Period from
January 1
through
February 24,
2012
 
Interest incurred$65,560
 $31,875
 $30,526
 $7,145
Less: Interest capitalized(65,560) (29,273) (21,399) (4,638)
Interest expense, net of amounts capitalized$—
 $2,602
 $9,127
 $2,507
Cash paid for interest$46,779
 $29,769
 $26,560
 $8,924
Construction Services
The Company accounts for construction management agreements using the Percentage of Completion Method in accordance with FASB 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. For the years ended December 31, 2014 and 2013, the Company recorded additional compensation of $3.9 million and $4.2 million, respectively. The Company did not record any addional compensation during 2012.
Financial Instruments
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash investments, receivables, escrow proceeds receivable, our indebtedness, and deposits. The Company typically places its cash investments 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

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WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


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 16.
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 December 31, 2014 and 2013. 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.
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 amortized to interest expense 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 is tested for impairment on an annual basis, or more frequently if events or circumstances indicate that goodwill may be impaired. The impairment test is performed at the reporting unit level, and an impairment loss is recognized to the extent that the carrying amount of goodwill exceeds the fair value. The Company has determined that we have six reporting segments, as discussed in Note 7, and will perform an annual goodwill impairment analysis during the fourth quarter of each fiscal year.
Intangible Assets
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 (loss) per common share
The Company computes income (loss) per common share in accordance with FASB ASC Topic 260, Earnings per Share, which requires income (loss) 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 (loss) between the holders of common stock and a company’s participating security holders.
Basic income (loss) 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 (loss) per common share, basic income (loss) per common share is further adjusted to include the effect of potential dilutive common shares outstanding.
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 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-

F-13
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


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.
Comprehensive Income or Loss
The Company had no other transactions or activity, other than net income or loss, that would be considered as part of comprehensive income or loss.

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 reporting periods beginning after December 15, 2016, 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, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis, which improves targeted areas of the consolidation guidance and reduces the number of consolidation models. The amendments in the ASU are effective for annual and interim periods in fiscal years beginning after December 15, 2015, with early adoption permitted. The Company is currently evaluating the effect the guidance will have on our consolidated financial statements

Reclassifications
Certain balances on the financial statements and certain amounts presented in the notes have been reclassified in order to conform to current year presentation.
Note 2—Acquisition of Polygon Northwest Homes

On August 12, 2014 ("Acquisition date"), the Company completed its acquisition of the residential homebuilding business of PNW Home Builders, L.L.C. (“PNW Parent”) pursuant to the Purchase and Sale Agreement (the “Purchase Agreement”) dated June 22, 2014 among William Lyon Homes, Inc., a California corporation and wholly-owned subsidiary of Parent ("California Lyon"), PNW Parent, PNW Home Builders North, L.L.C., PNW Home Builders South, L.L.C. and Crescent Ventures, L.L.C. Prior to such completion, California Lyon assigned its interests in the Purchase Agreement to Polygon WLH LLC, a newly formed Delaware limited liability company and wholly-owned subsidiary of California Lyon (“Polygon WLH”). Pursuant to the Purchase Agreement, Polygon WLH acquired, for cash, all of the membership interests of the underlying limited liability companies and certain service companies and other assets that comprised the residential homebuilding operations of PNW Parent (such operations being referred herein as "Polygon Northwest Homes") and which conducts business as Polygon Northwest Company (“Polygon”), for an aggregate cash purchase price of $520.0 million, an additional approximately $28.0 million at closing pursuant to initial working capital adjustments, plus an additional $4.3 million of consideration in accordance with the terms of the Purchase Agreement (the “Acquisition”). The acquired entities now operate as two new segments of the Company under the Polygon name, one in Washington, with a core market of Seattle, and the other in Oregon, with a core market of Portland.
The Company financed the Acquisition with a combination of proceeds from its issuance of $300 million in aggregate principal amount of 7.00% senior notes due 2022, cash on hand including approximately $100 million of aggregate proceeds from several separate land banking arrangements with respect to land parcels located in California, Washington and Oregon,

F-14
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


and including parcels acquired in the Acquisition, and $120 million of borrowings under a new one-year senior unsecured loan facility, which was repaid during the fourth quarter of 2014 with proceeds from the Company's Tangible Equity Unit offering (see Notes 9 and 14), as well as cash on hand.
As a result of the Acquisition, the entities comprising the business of Polygon Northwest Homes became wholly-owned direct or indirect subsidiaries of the Company, and its results are included in our condensed consolidated financial statements and related disclosures from the Acquisition date. For the period from August 12, 2014 through December 31, 2014, operating revenue and income before provision for income taxes from Polygon Northwest Homes operations, were $132.3 million and $12.0 million, respectively.
The Acquisition was accounted for as a business combination in accordance with ASC 805. Under ASC 805, the Company recorded the acquired assets and assumed liabilities of Polygon Northwest Homes at their estimated fair values, with the excess allocated to Goodwill, as shown below. Goodwill represents the value the Company expects to achieve through the operational synergies and the expansion of the Company into new markets. The Company estimates that the entire $46.7 million of goodwill resulting from the Acquisition will be tax deductible. Goodwill will be allocated to the Washington and Oregon operating segments (see Note 7). A reconciliation of the consideration transferred as of the acquisition date is as follows:
Purchase consideration$552,252
Net proceeds received from Polygon inventory involved in land banking transactions(59,834)
 $492,418

As of December 31, 2014 the Company had not completed its final allocation of the fair value of the net assets of Polygon Northwest Homes, as the Company is waiting for additional information to finalize valuation of real estate inventories, intangible assets, goodwill and tax related matters, which is expected to be completed during 2015. As such, the estimates used as of December 31, 2014 are subject to change. The following table summarizes the preliminary amounts for acquired assets and liabilities recorded at their fair values as of the acquisition date (in thousands):
Assets Acquired  
 Real estate inventories $441,069
 Goodwill 46,678
 Intangible asset - brand name 6,700
 Joint venture in mortgage business 2,000
 Other 545
 Total Assets $496,992
    
Liabilities Assumed  
 Accounts payable $603
 Accrued expenses 3,971
 Total liabilities 4,574
 Net assets acquired $492,418
The Company determined the preliminary fair value of real estate inventories on a project level basis using a combination of discounted cash flow models, and market comparable land transactions, where available. These methods are significantly impacted by estimates relating to i) expected selling prices, ii) anticipated sales pace, iii) cost to complete estimates, iv) highest and best use of projects prior to acquisition, and v) comparable land values. These estimates were developed and used at the individual project level, and may vary significantly between projects. Homes in backlog as of the acquisition date were included as a component of the valuation of real estate inventories.
The acquisition date fair value of the intangible asset relating to brand name was estimated using a discounted cashflow method. This asset is deemed to have an indefinite life. Additionally, the Company acquired a non-controlling

F-15
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


interest in a joint venture mortgage business. The fair value of this investment was estimated using the discounted cash flow method, which was significantly impacted by estimated cash flow streams and income of the joint venture, and has been ascribed an indefinite life.
The acquisition date fair value of other assets, accounts payable, and accrued expenses were determined to be at historical value due to the short-term nature of these liabilities.
The Company recorded $5.8 million in acquisition related costs for the year ended December 31, 2014, which is included in the Consolidated Statement of Operations in Transaction expenses. Such costs were expensed as incurred in accordance with ASC 805.
Supplemental Pro Forma Information
The following table presents unaudited pro forma amounts for the years ended December 31, 2014 and 2013 as if the Acquisition had been completed as of January 1, 2013 (amounts in thousands, except per share data):
  Year Ended December 31, 2014 Year Ended December 31, 2013
Operating revenues $1,048.6
 $864.4
Net income available to common stockholders $53.4
 $141.1
Income per share - basic $1.68
 $5.70
Income per share - diluted $1.61
 $5.47
The unaudited pro forma operating results have been determined after adjusting the unaudited operating results of Polygon Northwest Homes to reflect the estimated purchase accounting and other acquisition adjustments including interest expense associated with the debt used to fund a portion of the acquisition. The unaudited pro forma results presented above do not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the Acquisition, the costs to combine the operations of the Company and Polygon Northwest Homes or the costs necessary to achieve any of the foregoing cost savings, operating synergies or revenue enhancements. As such, the unaudited pro forma amounts are for comparative purposes only and may not necessarily reflect the results of operations which would have resulted had the acquisition been completed at the beginning of the applicable period or indicative of the results that will be attained in the future.

Note 3—Reorganization Items
In accordance with authoritative accounting guidance issued by the FASB, separate disclosure is required for reorganization items, such as certain expenses, provisions for losses and other charges directly associated with or resulting from the reorganization and restructuring of the business, which have been realized or incurred during the Chapter 11 Cases. Reorganization items were comprised of the following (in thousands):
 Successor Predecessor
 Year Ended December 31, 2014 Year Ended December 31, 2013 
Period from
February 25
through
December 31,
2012
 
Period from
January 1
through
February 24,
2012
  
  
Cancellation of debt$—
 $—
 $—
 $298,831
Plan implementation and fresh start valuation adjustments—
 —
 —
 (49,302)
Professional fees—
 (464) (2,525) (7,813)
Write-off of old notes deferred loan costs—
 —
 —
 (8,258)
Total reorganization items, net$—
 $(464) $(2,525) $233,458


F-16
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Note 4—Variable Interest Entities and Noncontrolling Interests
The Company accounts for variable interest entities in accordance with ASC 810, Consolidation (“ASC 810”). Under ASC 810, a variable interest entity (“VIE”) is created when: (a) the equity investment at risk in the entity is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by other parties, including the equity holders; (b) the entity’s equity holders as a group either (i) lack the direct or indirect ability to make decisions about the entity, (ii) are not obligated to absorb expected losses of the entity or (iii) do not have the right to receive expected residual returns of the entity; or (c) the entity’s equity holders have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of the equity holder with disproportionately few voting rights. If an entity is deemed to be a VIE pursuant to ASC 810, the enterprise that has both (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb the expected losses of the entity or right to receive benefits from the entity that could be potentially significant to the VIE is considered the primary beneficiary and must consolidate the VIE. In accordance with ASC 810, we perform ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE.

Joint Ventures
As of December 31, 2012,2014 and 2013, the Company had two joint ventures which were deemed to be VIEs. The Company manages the joint ventures, by using its sales, developmentsix and operations teams and has significant control over these projects and therefore the power to direct the activities that most significantly impact the joint venture’s performance in addition to being obligated to absorb expected losses or receive benefits from the joint venture, and therefore the Company is deemed to be the primary beneficiary of these VIEs.

Under ASC 810, a non-refundable deposit paid to an entity is deemed to be a variable interest that will absorb some or all of the entity’s expected losses if they occur. Our land purchase and lot option deposits generally represent our maximum exposure to the land seller if we elect not to purchase the optioned property. In some instances, we may also expend funds for due diligence, development and construction activities with respect to optioned land prior to takedown. Such costs are classified as inventories owned, which we would have to write-off should we not exercise the option. Therefore, whenever we enter into a land option or purchase contract with an entity and make a non-refundable deposit, a VIE may have been created. As of December 31, 2012 and December 31, 2011, the Company was not required to consolidate any VIEs nor did the Company write-off any costs that had been capitalized under lot option contracts. In accordance with ASC 810, we perform ongoing reassessments of whether we are the primary beneficiary of a VIE.

Related Party Transactions

See Item 13 of Part III of this Annual Report, “Certain Relationships and Related Party Transactions, and Director Independence” and Note 12 of “Notes to Consolidated Financial Statements” for the year ended December 31, 2012 for a description of the Company’s transactions with related parties.

Recent Events

Paulson Transaction

On October 12, 2012, the Company entered into a Subscription Agreement, or the Subscription Agreement, between the Company and WLH Recovery Acquisition LLC, a Delaware limited liability company and investment vehicle managed by affiliates of Paulson & Co. Inc., or Paulson, pursuant to which, the Company issued to Paulson (i) 15,238,095 shares of the Company’s Class A Common Stock, for $16,000,000 in cash, and (ii) 12,173,913 shares of the Company’s Convertible Preferred Stock, for $14,000,000 in cash, for an aggregate purchase price of $30,000,000, or the Paulson Transaction. In connection with the Paulson Transaction, the Company also amended (i) its Class A Common Stock Registration Rights Agreement and Convertible Preferred

Stock and Class C Common Stock Registration Rights Agreement to include in such agreements the shares issued to Paulson so that Paulson may become a party to such agreements with equal rights, benefits and obligations as the other stockholders who are parties thereto, and (ii) its Amended and Restated Certificate of Incorporation, or the Certificate of Incorporation, and Amended and Restated Bylaws to (a) increase the size of the Company’s board of directors, or the Board, from seven to eight members, up to and until the Conversion Date (as defined in the Certificate of Incorporation), (b) provide the holders of Class A Common Stock the right to elect the director to fill the newly created Board seat, (c) revise the definition of “Convertible Preferred Original Issue Price” to equal the price per share at which shares of Convertible Preferred Stock are issued and (d) incorporate various clarifying and conforming changes.

Equity Grants Under the Company’s 2012 Equity Incentive Plan

As previously disclosed in the Company’s Current Report on Form 8-K filed on October 16, 2012, the Company’s board of directors and stockholders approved the Company’s 2012 Equity Incentive Plan (the “2012 Plan”) in October 2012. The purpose of the 2012 Plan is to (1) provide an increased incentive for eligible employees, consultants and directors to assert their best efforts by conferring benefits based on the achievement of certain performance goals, (2) better align the interests of eligible participants with the interests of stockholders by providing an opportunity for increased stock ownership by such participants, and (3) encourage such participants to remain in the service of the Company. The Company approved its first grants under the 2012 Plan in October 2012 and has continued to make grants in accordance with the 2012 Plan under the administration of the Company’s Compensation Committee. See Item 11 of Part III of this Annual Report, “Executive Compensation,” for additional information.

Senior Notes Offering and Debt Refinancing

On November 8, 2012, California Lyon completed its offering of 8.5% Senior Notes due 2020, or the New Notes, in an aggregate principal amount of $325 million. The New Notes were issued at 100% of their aggregate principal amount. The Company used the net proceeds from the sale of the New Notes, together with cash on hand, to refinance the Company’s (i) $235 million 10.25% Senior Secured Term Loan due 2015, (ii) approximately $76 million in aggregate principal amount of 12% Senior Subordinated Secured Notes due 2017, (iii) approximately $11 million in principal amount of project related debt, and (iv) to pay accrued and unpaid interest thereon. The issuance of the New Notes will reduce the amount of interest incurred by the Company by approximately $6.4 million annually.

Recently Issued Accounting Standards

See Note 1 of “Notes to Consolidated Financial Statements” for a description of the recently issued accounting standards.

Item 7A.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 December 31, 2012 of $13.2 million where the interest rate is variable based upon certain bank reference or prime rates. The average prime rate during the year ended December 31, 2012 was 3.25%. If variable interest rates were to increase by 10%, there would be no impact on the Company’s consolidated financial statements because the outstanding debt has an interest rate floor of 5.0%.

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 December 31, 2012 (dollars in thousands):

   Year ended December 31,          Fair Value  at
December 31,
2012		 
   2013   2014   2015   2016   2017   Thereafter  Total   

Fixed rate debt

  $—      $—      $—      $—      $—      $325,000   $325,000    $338,000  

Interest rate

   —       —       —       —       —       8.5%   —       —    

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 year ended December 31, 2012. The Company does not enter into or hold derivatives for trading or speculative purposes.

Item 8.Financial Statements and Supplementary Data

The information required by this Item is incorporated by reference to the financial statements set forth in Section 15 of Part IV of this Annual Report, “Exhibits and Financial Statement Schedules”.

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None. As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on April 24, 2012, the Company changed its independent registered public accountants effective for the fiscal year ended December 31, 2012.

Item 9A.Controls and Procedures

Management’s Report on Internal Control over Financial Reporting

The SEC, as required by Section 404 of the Sarbanes-Oxley Act, adopted rules requiring every company that files reports with the SEC to include a management report on such company’s internal control over financial reporting in its annual report. In addition, our independent registered public accounting firm must attest to our internal control over financial reporting. This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by SEC rules applicable to newly public companies.

We believe we will have adequate resources and expertise, both internal and external, in place to meet these requirements. However, there is no guarantee that our efforts will result in management’s ability to conclude, or our independent registered public accounting firm to attest, that our internal control over financial reporting is effective as of the applicable date.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.Other Information

None.

PART III

Item 10.Directors, Executive Officers and Corporate Governance

Information Regarding the Directors of William Lyon Homes

The following table lists the Directors of the Company and provides their respective ages and current positions with the Company as of March 11, 2013. Each director holds office until the Company’s next Annual Meeting and until his successor is duly elected and qualified. Except as described below, there are no family relationships between any director or executive officer and any other director or executive officer of William Lyon Homes. Biographical information for each Director is provided below.

Name

Age

Position

General William Lyon90Chairman of the Board of Directors and Executive Chairman
William H. Lyon39Director, Chief Executive Officer
Douglas K. Ammerman (a, b, c)61Director
Michael Barr (b, c)42Director
Gary H. Hunt (a, b, c)64Director
Matthew R. Niemann (a, b, c)48Director
Nathaniel Redleaf (c)28Director
Lynn Carlson Schell (a, b, c)52Director

(a)Member of the Audit Committee
(b)Member of the Compensation Committee
(c)Member of the Nominating and Corporate Governance Committee

Composition and Qualifications

The Board of Directors seeks to ensure that the Board of Directors is composed of members whose particular experience, qualifications, attributes and skills, when taken together, will allow the Board of Directors to satisfy its oversight responsibilities effectively. New Directors are approved by the Board of Directors after recommendation by the Nominating and Corporate Governance Committee (the “Nominating and Corporate Governance Committee”). In the case of a vacancy on the Board of Directors, the Board of Directors approves a Director to fill the vacancy following the recommendation of a candidate by the Chairman of the Board. In identifying candidates for Director, the Nominating and Corporate Governance Committee and the Board of Directors take into account (1) the comments and recommendations of board members regarding the qualifications and effectiveness of the existing Board or Directors or additional qualifications that may be required when selecting new board members that may be made in connection with annual assessments prepared by each Director of the effectiveness of the Board of Directors and of each committee of the Board of Directors on which he serves, (2) the requisite expertise and sufficiently diverse backgrounds of the Board of Directors’ overall membership composition, (3) the independence of outside Directors and other possible conflicts of interest of existing and potential members of the Board of Directors and (4) all other factors it considers appropriate. The Board seeks to ensure that the Board is composed of members whose particular background, expertise, qualifications, attributes and skills, when taken together, allow the Board to satisfy its oversight responsibilities effectively.

When considering whether directors and nominees have the experience, qualifications, attributes and skills, taken as a whole, to enable the Board of Directors to satisfy its oversight responsibilities effectively in light of the Company’s business and structure, the Nominating and Corporate Governance Committee and the Board of Directors focused primarily on the information discussed in each of the Directors’ individual biographies set forth below. In particular, with regard to General Lyon, our Executive Chairman and Chairman of the Board, the Board of Directors considered his more than 57 years of experience in the homebuilding industry. With regard to Mr. Lyon, our Chief Executive Officer, the Board of Directors considered his strong background, extensive experience, and training in the industry from land acquisition to project management and operations.

With regard to Mr. Ammerman, the Board of Directors considered his significant experience, expertise and background with regard to accounting, finance, and tax matters, including the broad perspective brought by his experience in consulting to clients in many diverse industries. With regard to Mr. Hunt, the Board of Directors considered his significant experience, expertise and background with regard to urban planning, construction and other real estate matters, which includes specialization in homebuilding and land development companies.

General William Lyon was elected director and Chairman of the Board of The Presley Companies, the predecessor of the Company, in 1987 and has served in that capacity in addition to his role as Chief Executive Officer of the Company since November 1999. General Lyon also served as the Chairman of the Board, President and Chief Executive Officer of the former William Lyon Homes, which sold substantially all of its assets to the Company in 1999 and subsequently changed its name to Corporate Enterprises, Inc. In his current role as Executive Chairman, General Lyon works with the top executives of the Company to set the leadership and strategic direction for the organization. In recognition of his distinguished career in real estate development, General Lyon was elected to the California Building Industry Foundation Hall of Fame in 1985. General Lyon is a retired USAF Major General and was Chief of the Air Force Reserve from 1975 to 1979. General Lyon is a director of Fidelity National Financial, Inc. and Woodside Credit LLC, and is Chairman of the Board of Directors of Commercial Bank of California. Since 2005, General Lyon has served on the Board of Leaders of USC’s Marshall School of Business. General Lyon has received countless awards and honors for his tremendous and sustained success in the building industry and his extensive public service record.

General Lyon provides our board of directors with extensive senior leadership and industry and operational experience and therefore is well-suited to serve as our Chairman of the Board. Through his experience, his knowledge of our operations and the markets in which we compete, and his professional relationships within our industry, General Lyon is exceptionally qualified to identify important matters for board review and deliberation and is instrumental in assisting the board of directors in determining our corporate strategy. In addition, by serving as both our Chairman of the Board and Executive Chairman, General Lyon serves as an invaluable bridge between management and the board of directors and ensures that they act with a common purpose.

William H. Lyon, the Company’s current Chief Executive Officer, worked full time with the former William Lyon Homes from November 1997 through November 1999 as an assistant project manager, has been employed by the Company since November 1999 and has been a member of the Board since January 25, 2000. Since joining the Company as assistant project manager, Mr. Lyon has served as a Project Manager, the Director of Corporate Development (beginning in 2002), the Director of Corporate Affairs (from February 2003 to February 2005), Vice President and Chief Administrative Officer (from February 2005 to March 2007), and Executive Vice President and Chief Administrative Officer (from March 2007 to March 2009). Mr. Lyon also actively served as the President of William Lyon Financial Services from June 2008 to April 2009. Effective on March 18, 2009, Mr. Lyon was appointed as President and Chief Operating Officer of the Company. In his current role as Chief Executive Officer, Mr. Lyon is responsible for the overall strategic leadership of the Company working closely with the Executive Chairman and executive leaders to establish implement and direct the long-range goals, strategies, plans and policies of the Company. Mr. Lyon is Chairman of the Company’s Management Development and Risk Management Committee and Vice Chair of the Executive Committee. Mr. Lyon is also a member of the Company’s Land Committee. Mr. Lyon is a member of the Board of Directors of Commercial Bank of California, Pretend City Children’s Museum in Irvine, CA and The Bowers Museum in Santa Ana, CA. Mr. Lyon holds a dual B.S. in Industrial Engineering and Product Design from Stanford University. Mr. Lyon is the son of General William Lyon.

With over 15 years of service with our Company, Mr. Lyon brings to our board of directors significant executive and real estate development and homebuilding industry experience, as well as an in-depth understanding of the Company’s business model and operations.

Douglas K. Ammerman was appointed to the board of directors on February 27, 2007. Mr. Ammerman’s business career includes almost three decades of service with KPMG, independent public accountants, until his retirement in 2002. He was the Managing Partner of the Orange County office and was a National Partner in Charge—Tax. He is a certified public accountant (inactive). Since 2005, Mr. Ammerman has served as a member

of the Board of Directors of Fidelity National Financial (a company listed on the New York Stock Exchange), where he also serves as Chairman of the Audit Committee. He also is a member of the Board of Directors of El Pollo Loco, where he also serves as Chairman of the Audit Committee. From 2005 through March of this year, Mr. Ammerman served as a member of the Board of Directors of Quiksilver (a company listed on the New York

Stock Exchange), where he served as Chairman of the Audit Committee and a member of both the Compensation and Nominating and Corporate Governance committees. Mr. Ammerman has served as a director of The Pacific Club for twelve years and is a past president. He also has served as a director of the UCI Foundation for fourteen years. Mr. Ammerman is a member of the Audit Committee of Stantec. Mr. Ammerman holds a B.A. in Accounting from California State University, Fullerton, and a master’s degree in Business Taxation from University of Southern California. Mr. Ammerman recently received the Distinguished Alumni Award from the University of Southern California (2010) and the Director of the Year Award from the Forum for Corporate Directors (2011).

With nearly three decades of accounting experience, as well as significant executive and board experience, Mr. Ammerman provides our board of directors with operational, financial and strategic planning insights. Mr. Ammerman developed his finance and accounting expertise while holding positions such as Managing Partner and National Partner at KPMG. With this experience, Mr. Ammerman possesses the financial acumen requisite to serve as our Audit Committee Financial Expert and provides the board with valuable insight into finance and accounting related matters.

Michael Barr was appointed to the board of directors on November 7, 2012 to fill a new Board seat created in connection with the Company’s execution of a Subscription Agreement with affiliates of Paulson & Co. Inc., or Paulson, pursuant to which the Company issued to Paulson (i) 15,238,095 shares of the Company’s Class A Common Stock for $16,000,000 and 12,173,193 shares of the Company’s Convertible Preferred Stock for $14,000,000 in cash, for an aggregate purchase price of $30,000,000. Mr. Barr currently serves as the Portfolio Manager for the Paulson Real Estate Funds where he is responsible for all aspects of the real estate private equity business. He is also a partner in Paulson & Co. Inc., which he joined in 2008.

From 2001 through 2008, Mr. Barr worked within the Lehman Brothers Real Estate Private Equity Group, serving most recently as a Managing Director of the firm and a principal of Lehman Brothers Real Estate Partners. In this capacity, he was responsible for identifying, evaluating and executing transactions throughout the United States and across all asset classes. While at Lehman Brothers, Mr. Barr led the acquisition of over $8 billion in assets. Prior to joining Lehman Brothers, Mr. Barr served as a principal and a member of the Investment Committee of Westbrook Partners, a real estate merchant banking firm founded by Tiger Management Corporation. During his tenure at Westbrook, which spanned three real estate investment funds, Mr. Barr originated and executed a wide range of real estate transactions. He began his career in the Real Estate Investment Banking group at Merrill Lynch & Co., where he participated in numerous financing and advisory assignments for both public and private real estate companies. Mr. Barr holds a B.B.A. from the University of Wisconsin. He currently serves on the board of Extended Stay Hotels and previously was a board member of Gables Residential Trust and Tishman Hotel & Realty.

With his extensive experience managing a wide variety of real estate transactions, Mr. Barr brings to our board of directors a deep understanding of and valuable expertise in real estate investment and finance.

Gary H. Hunt joined the board of directors on October 17, 2005 with over 30 years of experience in real estate. He spent 25 years with The Irvine Company, one of the nation’s largest master planning and land development organizations, serving 10 years as its Executive Vice President and member of its Board of Directors and Executive Committee. Mr. Hunt led the company’s major entitlement, regional infrastructure, planning, legal and strategic government relations, as well as media and community relations activities.

As a founding Partner in 2001 and now the Vice Chairman of California Strategies, LLC, Mr. Hunt serves as a Senior Advisor to the largest master-planned community and real estate developers in the Western United

States, including Tejon Ranch, DMB Pacific Ventures, Five Point Communities, Lennar, Kennecott Land Company, Lewis Group of Companies, Newhall Land, Strategic Hotels and Resorts REIT, Inland American Trust REIT, to name a few. Mr. Hunt also works or has worked with major national financial institutions, including Morgan Stanley, Alvarez & Marsal Capital Group, LLC, and regional banks, to manage projects through the current real estate macro-economic restructuring and re-entitlement period.

Mr. Hunt currently serves on the boards of Glenair Corporation, University of California, Irvine Foundation and is Vice Chairman of CT Realty. He formally was a member and lead independent director of Grubb & Ellis Corporation and for sixteen months served as interim President and CEO.

Matthew R. Niemannwas appointed to the board of directors on February 25, 2012. Mr. Niemann is a Managing Director and Head of Houlihan Lokey Capital’s Real Estate Investment Banking Group. He is a senior member of Houlihan Lokey’s Financial Restructuring business, and first joined the firm in 1999. Before rejoining Houlihan Lokey in 2008, Mr. Niemann spent three years with Cerberus Capital and served as senior managing director and chief strategic officer of GMAC ResCap (a Cerberus portfolio company) in charge of strategy for its $5.0 billion portfolio of builder and developer real estate investments. Mr. Niemann has been involved as a principal or advisor in a wide range of M&A, financing, restructuring and real estate transactions throughout his career, and is a frequent speaker and regularly testifies as an expert in these areas. Earlier in his career, Mr. Niemann was with KPMG and PricewaterhouseCoopers and practiced law for several years in the Corporate, Banking & Real Estate practice of Bryan Cave in St. Louis. Mr. Niemann holds a law and finance degree from St. Louis University, where he served on the Law Review. He was a guest lecturer at the Kellogg Graduate School of Management at Northwestern University in Chicago; a member of the Ph.D. Dissertation Committee at Webster University; and has also served on the Board of Directors and Executive Committee (Treasurer) of the Ronald McDonald Houses of Greater St. Louis.

With extensive experience as an attorney, financial advisor and investment principal, Mr. Niemann brings to the board of directors demonstrated leadership skills and expertise in capital markets, real estate investment and finance.

Nathaniel Redleaf was appointed to the board of directors on February 25, 2012. Since 2006, he has served in an analyst capacity at Luxor Capital Group, a diversified investment fund with several billion dollars under management. Mr. Redleaf’s investment practice focuses primarily on the homebuilding, commercial real estate, finance and gaming sectors. Mr. Redleaf currently serves as a member of the board of directors of Innovate Managed Holdings LLC and Eastland Tire Australia Pty. He holds a degree in Political Economy of Industrial Societies from UC Berkeley.

With his investment practice focusing primarily on the homebuilding and other-related sectors, Mr. Redleaf brings to our board of directors valuable experience in real estate investment and finance.

Lynn Carlson Schell was appointed to the board of directors on February 25, 2012. Ms. Carlson Schell currently serves as the Managing Principal and Chief Executive Officer of Shelter Corporation and The Waters Senior Living, directing the firm’s strategic planning and long-term growth. Since founding Shelter Corporation in 1993, Ms. Carlson Schell has developed or acquired multi-family and senior housing consisting of over 15,000 units and comprising $800 million of real estate. Ms. Carlson Schell’s core accomplishments include her leadership role in driving Shelter Corporation’s development of affordable housing and spearheading its successful diversification into senior living communities with the 1998 formation of The Waters Senior Living. In 2009, Ms. Carlson Schell was honored as an Industry Leader by the Minneapolis/St. Paul Business Journal. Prior to founding Shelter Corporation, Ms. Carlson Schell spent nine years working as an associate and senior developer with Can-American Corporation. She was responsible for residential, condominium and apartment developments in the Midwest and Florida. Ms. Carlson Schell currently serves as the chair of the board of directors at the Friends of the Hennepin County Library Foundation and previously served as the Treasurer of the Twin Cities Chapter of the Young Presidents’ Organization. She also serves on the board of directors of the Walker Art Center.

With over thirty years of real estate and executive experience, as well as significant board experience, Ms. Carlson Schell provides our board of directors with operational, financial and strategic planning insights.

Board of Directors

Our board of directors currently consists of eight directors, seven of whom were appointed pursuant to the Plan. In accordance with the Plan, the initial directors were appointed as follows: (i) Mr. Niemann was appointed by the holders of at least 66 2/3% of the Class A Common Stock, (ii) General William Lyon and William H. Lyon were appointed by the holders of at least a majority of the Class B Common Stock, (iii) Ms. Schell and Mr. Redleaf were appointed by the holders of at least a majority of the Class C Common Stock and Convertible Preferred Stock, voting as a single class, and (iv) Douglas K. Ammerman and Gary H. Hunt were appointed by the holders of (a) 66 2/3% of the Class A Common Stock, (b) a majority of the Class B Common Stock and (c) a majority of the Convertible Preferred Stock and the Class C Common Stock voting as a class. Our eighth director, Mr. Barr, was appointed by our board of directors on November 7, 2012, to fill a new board seat created in connection with the Company’s execution of a Subscription Agreement with affiliates of Paulson & Co., Inc., or Paulson. The current directors will hold office until the annual meeting of stockholders to be held in 2013 and until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal. Other than as provided for in the Paulson Subscription Agreement, we are not aware of any understandings between the directors or any other persons pursuant to which such individuals were elected as directors or are to be selected as a director or nominee in the future; however, pursuant to our Second Amended and Restated Certificate of Incorporation, or Certificate of Incorporation, and as described below, certain classes of stockholders have the right to elect certain of our directors.

Our Second Amended and Restated Bylaws, or Bylaws, provide that, prior to the later of the Conversion Date (as defined in our Certificate of Incorporation) and the date on which all of the shares of our Class B Common Stock have been converted into shares of our Class A Common Stock, or the Specified Date, our board of directors shall consist of eight members and shall be elected by the stockholders of record entitled to vote for such directors as set forth in the Certificate of Incorporation. Directors are elected by the holders of record of a plurality of the votes entitled to vote for such directors, and each director shall hold office until the next annual meeting of stockholders and until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal.

Our Certificate of Incorporation provides that prior to the earlier to occur of (i) the Conversion Date and (ii) the conversion in full of all shares of Class B Common Stock into Class A Common Stock, the board of directors will consist of the following eight members: (i) two Class A Directors; (ii) two Class B/D Directors; (iii) two Class C Directors; (iv) one Class C Independent Director; and (v) one Class A/B/C Independent Director. Luxor Capital Group or Luxor, currently holds 29.7% of the Class A Common Stock, 95.9% of the Class C Common Stock and 79.9% of the Convertible Preferred Stock through its affiliated entities. General William Lyon and William H. Lyon each hold 100% of the Class B Common Stock through their membership in Lyon Shareholder 2012, LLC. Colony Capital Group LP currently holds 14.3% of the Class A Common Stock through its affiliated entities. Paulson currently holds 21.7% of the Class A Common Stock and 15.8% of the Convertible Preferred Stock. Certain officers, directors and employees of the Company hold an aggregate of 5,501,432 shares of Class D Common Stock, which constitutes 100% of the outstanding Class D shares, and options to purchase an additional 4,757,303 Class D shares. See Item 12 of Part III of this Annual Report, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

Such directors will be elected, appointed and removed in the following manner:

the Class A Directors will be elected (and may be removed with or without cause, at any time) by the holders of the Class A Common Stock, voting together as a class;

the Class B/D Directors will be elected (and may be removed with or without cause, at any time) by the holders of the Class B Common Stock and Class D Common Stock, voting together as a class;

the Class C Directors will be elected (and may be removed with or without cause, at any time) by the holders of the Class C Common Stock and the Convertible Preferred Stock, voting together as a class;

the Class C Independent Director will be elected (and may be removed with or without cause, at any time) by the holders of a majority of the Class C Common Stock and the Convertible Preferred Stock, voting together as a class; and

•

the Class A/B/C Independent Director will be elected (and may be removed with or without cause, at any time) by the holders of (i) 66 2/3% of the Class A Common Stock, voting separately as a class, (ii) the majority of the Class B Common Stock, voting separately as a class, and (iii) the majority of the Class C Common Stock and Convertible Preferred Stock, voting together as a separate class.

From and after the date of the first annual meeting, no individual may be nominated or appointed as a Class C Independent Director or Class A/B/C Independent Director, nor may any individual serve as a Class C Independent Director or Class A/B/C Independent Director, unless such individual is independent at the time of nomination and appointment and continues to be independent throughout such individual’s period of service.

On or following the Conversion Date while any shares of Class B Common Stock remain outstanding, the board of directors will consist of seven members, and such directors will be elected, appointed and removed in the following manner:

three directors will be elected (and may be removed with or without cause, at any time) by the holders of the Class A Common Stock, voting together as a class;

two directors will be elected (and may be removed with or without cause, at any time) by the holders of the Class B Common Stock, voting together as a class;

one director will be elected (and may be removed with or without cause, at any time), by the holders of the Class A Common Stock, voting together as a class; provided, however, that no individual may be nominated or appointed as such director, nor may any individual serve as such director, unless such individual is independent at the time of nomination and appointment and continues to be independent throughout such individual’s period of service; and

one director will be elected (and may be removed with or without cause, at any time), by the holders of (i) the majority of the Class A Common Stock, voting separately as a class, and (ii) the majority of the Class B Common Stock, voting separately as a class; provided, however, that no individual may be nominated or appointed as such director, nor may any individual serve as such director, unless such individual is independent at the time of nomination and appointment and continues to be independent throughout such individual’s period of service.

Following the conversion in full of all shares of Class B Common Stock and prior to the Conversion Date, the number of members of the board of directors will be fixed at eight, and such directors will be elected, appointed and removed in the following manner:

four directors will be elected (and may be removed with or without cause, at any time) by the holders of the Class A Common Stock and the Class D Common Stock, voting together as a separate class;

two directors will be elected (and may be removed with or without cause, at any time) by the holders of the Class C Common Stock and the Convertible Preferred Stock, voting together as a class;

one director will be elected (and may be removed with or without cause, at any time), by the holders of the Class C Common Stock and the Convertible Preferred Stock, voting together as a class; provided, however, that no individual may be nominated or appointed as such director pursuant to, nor may any individual serve as such director, unless such individual is independent at the time of nomination and appointment and continues to be independent throughout such individual’s period of service; and

one director will be elected (and may be removed with or without cause, at any time), by the holders of (i) the majority of the Class A Common Stock, voting together as a separate class, and (ii) the majority of the Class C Common Stock and the Convertible Preferred Stock, voting together separately as a class; provided, however, that no individual may be nominated or appointed as such director, nor may any individual serve as such director, unless such individual is independent at the time of nomination and appointment and continues to be independent throughout such individual’s period of service.

From and after the Specified Date, the board of directors will consist of one or more members. The number of directors will be fixed and may be changed from time to time by resolution duly adopted by the board of directors or the stockholders, and all of the directors will be elected (and may be removed with or without cause, at any time) by the holders of the Class A Common Stock. Except as provided in the Certificate of Incorporation, directors will be elected by the holders of record of a plurality of the votes cast at annual meetings of stockholders, and each director so elected will hold office until the next annual meeting and until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal.

As the Company intends for its securities to be quoted on the Over-the-Counter Bulletin Board and not one of the national securities exchanges, it is not subject to any director independence requirements. However, based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, with us, our senior management and our independent registered public accounting firm, our board of directors has determined that all but two of our directors, General William Lyon and William H. Lyon, are independent directors under standards established by the Securities and Exchange Commission, or the SEC, and the New York Stock Exchange, or the NYSE.

Prior to the Specified Date, vacancies may be filled by the vote of the stockholders entitled to appoint such directors. From and after the Specified Date, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director or by the stockholders entitled to vote at any annual or special meeting held in accordance with the Certificate of Incorporation, and the directors so chosen will hold office until the next annual or special meeting called for that purpose and until their successors are duly elected and qualified, or until their earlier resignation or removal.

The board of directors seeks to ensure that the board of directors is composed of members whose particular experience, qualifications, attributes and skills, when taken together, will allow the board of directors to satisfy its oversight responsibilities effectively. New directors are approved by the board of directors after recommendation by the Nominating and Corporate Governance Committee. In the case of a vacancy on the board of directors, the board of directors approves a Director to fill the vacancy following the recommendation of a candidate by the Chairman of the Board. In identifying candidates for director, the Nominating and Corporate Governance Committee and the board of directors take into account (1) the comments and recommendations of board members regarding the qualifications and effectiveness of the existing board of directors or additional qualifications that may be required when selecting new board members that may be made in connection with annual assessments prepared by each director of the effectiveness of the board of directors and of each committee of the board of directors on which he or she serves, (2) the requisite expertise and sufficiently diverse backgrounds of the board of directors’ overall membership composition, (3) the independence of outside directors and other possible conflicts of interest of existing and potential members of the board of directors and (4) all other factors it considers appropriate.

When considering whether directors and nominees have the experience, qualifications, attributes and skills, taken as a whole, to enable the board of directors to satisfy its oversight responsibilities effectively in light of the Company’s business and structure, the Nominating and Corporate Governance Committee and the board of directors focused primarily on the information discussed in each of the directors’ individual biographies set forth above. Although diversity may be a consideration in the selection of directors, the Company and the board of directors do not have a formal policy with regard to the consideration of diversity in identifying director nominees.

Board Meetings

Our board of directors held 16 meetings during fiscal year 2012. During fiscal year 2012, all incumbent directors attended at least 75% of the combined total of (i) all board of directors meetings and (ii) all meetings of committees of the board of directors of which the incumbent director was a member. Matthew R. Niemann,

Nathaniel Redleaf and Lynn Carlson Schell were appointed to our board on February 25, 2012 and Michael Barr was appointed on November 7, 2012. Each of Messrs. Niemann, Redleaf and Barr and Ms. Carlson Schell attended at least 75% of the combined total of board meetings and committee meetings of which they were a member. The board has a policy that all directors attend the annual meeting of stockholders, absent unusual circumstances. The Company did not hold an annual meeting of its stockholders in 2012.

Committees of the Board of Directors

We currently have three standing committees: an audit committee, a compensation committee and a nominating and corporate governance committee. The charters of all three of our standing board committees are available on our website, www.lyonhomes.com, under the Company—Governance section. The inclusion of our website address in this Annual Report on Form 10-K does not include or incorporate by reference the information on our website into this Annual Report on Form 10-K.

Audit Committee

The Company has a standing Audit Committee, which is chaired by Douglas Ammerman and consists of Messrs. Ammerman, Hunt and Niemann and Ms. Schell. The board of directors has determined that each of these directors is independent as defined by the applicable rules of the NYSE and the SEC, and that each member of the Audit Committee meets the financial literacy and experience requirements of the applicable SEC and NYSE rules. In addition, the board of directors has determined that Mr. Ammerman is an “audit committee financial expert” as defined by the SEC. The Audit Committee met seven times in 2012.

Our Audit Committee charter requires that the Audit Committee oversee our corporate accounting and financial reporting processes. The primary responsibilities and functions of our Audit Committee are, among other things, as follows:

approve in advance all auditing services, including the provision of comfort letters in connection with securities offerings and various non-audit services permitted by applicable law to be provided to the Company by its independent auditors;

evaluate our independent auditor’s qualifications, independence and performance;

determine and approve the engagement and compensation of our independent auditor;

meet with our independent auditor to review and approve the plan and scope for each audit and review and recommend action with respect to the results of such audit;

annually evaluate our independent auditor’s internal quality-control procedures and all relationships between the independent auditor and the Company which may impact their objectivity and independence;

monitor the rotation of partners and managers of the independent auditor as required;

review our consolidated financial statements;

review our critical accounting policies and estimates, including any significant changes in the Company’s selection or application of accounting principles;

review analyses prepared by management and/or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements;

resolve any disagreements between management and the independent auditor regarding financial reporting;

review and discuss with the Company’s independent auditor and management the Company’s audited financial statements, including related disclosures;

discuss with our management and our independent auditor the results of our annual audit and the review of our audited financial statements;

meet periodically with our management and internal audit team to consider the adequacy of our internal controls and the objectivity of our financial reporting;

establish procedures for the receipt, retention and treatment of complaints regarding internal accounting controls or auditing matters and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and

retain, in its sole discretion, its own separate advisors.

Compensation Committee

The Company has a standing Compensation Committee, which is chaired by Matthew R. Niemann and consists of Messrs. Hunt, Ammerman, Barr, and Niemann and Ms. Schell. Our board of directors has determined that each of these directors is independent under NYSE rules and qualifies as a non-employee director for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The Compensation Committee met five times in 2012.

Pursuant to its charter, the primary responsibilities and functions of our Compensation Committee are, among other things, as follows:

evaluate the performance of executive officers in light of certain corporate goals and objectives and determine and approve their compensation packages;

recommend to the board of directors new compensation programs or arrangements if deemed appropriate;

recommend to the board of directors compensation programs for directors based on the practices of similarly situated companies;

counsel management with respect to personnel compensation policies and programs;

review and approve all equity compensation plans of the Company;

oversee the Company’s assessment of any risks arising from its compensation programs and policies likely to have a material adverse effect on the Company;

prepare an annual report on executive compensation for inclusion in our proxy statement; and

retain, in its sole discretion, its own separate advisors.

Nominating and Corporate Governance Committee

The Company has a standing Nominating and Corporate Governance Committee, which is chaired by Gary H. Hunt and consists of Messrs. Hunt, Ammerman, Barr, Niemann and Redleaf and Ms. Schell. Our board of directors has determined that each of these directors is independent under NYSE rules. The Nominating and Corporate Governance Committee did not meet in 2012.

Pursuant to its charter, the primary responsibilities and functions of our Nominating and Corporate Governance Committee are, among other things, as follows:

establish standards for service on our board of directors and nominating guidelines and principles;

identify, screen and review qualified individuals to be nominated for election to our board of directors and to fill vacancies or newly created board positions;

assist the board of directors in making determinations regarding director independence as well as the financial literacy and expertise of Audit Committee members and nominees;

establish criteria for committee membership and recommend directors to serve on each committee;

consider and make recommendations to our board of directors regarding its size and composition, committee composition and structure and procedures affecting directors;

conduct an annual evaluation and review of the performance of existing directors;

review and monitor compliance with, and the effectiveness of, the Company’s Corporate Governance Guidelines and its Code of Business Conduct and Ethics;

monitor our corporate governance principles and practices and make recommendations to our board of directors regarding governance matters, including our certificate of incorporation, bylaws and charters of our committees; and

retain, in its sole discretion, its own separate advisors.

Other Committees

Our board of directors may establish other committees as it deems necessary or appropriate from time to time.

Board Leadership Structure

Our current leadership structure permits the roles of Chairman of the Board and Chief Executive Officer to be filled by the same or different individuals. Effective as of March 6, 2013, William H. Lyon assumed the role of Chief Executive Officer, with General Lyon continuing as Chairman of the Board and Executive Chairman. Our board of directors has determined this structure to be in the best interests of the Company and its stockholders at this time due to General Lyon’s extensive history with the Company. Separating the Chairman of the Board and Chief Executive Officer roles further allows the Chief Executive Officer to focus his time and energy on operating and managing the Company and leveraging the experience and perspectives of the Chairman of the Board.

Furthermore, Mr. Hunt serves as our lead independent director, and has served in such role since May 2012. As the board’s lead independent director, Mr. Hunt holds a critical role in assuring effective corporate governance and in managing the affairs of our board of directors. Among other responsibilities, Mr. Hunt:

presides over executive sessions of the board of directors and over board meetings when the Chairman of the Board is not in attendance;

consults with the Chairman of the Board and other board members on corporate governance practices and policies, and assuming the primary leadership role in addressing issues of this nature if, under the circumstances, it is inappropriate for the Chairman of the Board to assume such leadership;

meets informally with other outside directors between board meetings to assure free and open communication within the group of outside directors;

assists the Chairman of the Board in preparing the board agenda so that the agenda includes items requested by non-management members of our board of directors;

administers the annual board evaluation and reporting the results to the Nominating and Corporate Governance Committee; and

assumes other responsibilities that the non-management directors might designate from time to time.

The Board periodically reviews the leadership structure and may make changes in the future.

Board Risk Oversight

The board of directors is actively involved in oversight of risks that could affect the Company. The board of directors satisfies this responsibility through full reports by each committee chair (principally, the Audit Committee chair) regarding such committee’s considerations and actions, as well as through regular reports directly from the officers responsible for oversight of particular risks within the Company.

The Audit Committee is primarily responsible for overseeing the risk management function at the Company on behalf of the board of directors. In carrying out its responsibilities, the Audit Committee works closely with management. The Audit Committee meets at least quarterly with members of management and, among things, receives an update on management’s assessment of risk exposures (including risks related to liquidity, credit and operations, among others). The Audit Committee chair provides periodic reports on risk management to the full board of directors.

In addition to the Audit Committee, the other committees of the board of directors consider the risks within their areas of responsibility. For example, the Compensation Committee considers the risks that may be implicated by the Company’s executive compensation programs. The Company does not believe that risks relating to its compensation policies and practices are reasonably likely to have a material adverse effect on the Company.

Compensation Committee Interlocks and Insider Participation

The members of the Company’s Compensation Committee are Douglas K. Ammerman, Michael Barr, Gary H. Hunt, Matthew R. Niemann and Lynn Carlson Schell. None of the members of the Compensation Committee has ever been an officer or employee of the Company or any of its subsidiaries. None of the Company’s named executive officers has ever served as a director or member of the Compensation Committee (or other board committee performing equivalent functions) of another entity, one of whose executive officers served in either of those capacities for the Company.

Stockholder Communications with the Board of Directors

Stockholders may send communications to our board of directors by writing to the Company, c/o William Lyon Homes, 4490 Von Karman Avenue, Newport Beach, California 92660, Attention: Board of Directors.

Information Regarding Executive Officers of William Lyon Homes

The executive officers of the Company are chosen annually by the Board of Directors and each holds office until his or her successor is chosen and qualified or until his or her death, resignation or removal. There are no family relationships between any director or executive officer and any other director or executive officer of the Company, except for William Lyon and William H. Lyon, who are father and son. The following table lists the Company’s executive officers and provides their respective ages as of March 11, 2013 and their current positions.

Name

Age

Position

William H. Lyon39Director and Chief Executive Officer
Matthew R. Zaist38

President and Chief Operating Officer

General William Lyon90Chairman of the Board of Directors and Executive Chairman
Colin T. Severn41Vice President, Chief Financial Officer and Corporate Secretary
Richard S. Robinson65Senior Vice President of Finance
Mary J. Connelly61Senior Vice President and Nevada Division President
W. Thomas Hickcox60Senior Vice President and Arizona Division President
Brian W. Doyle49Senior Vice President and California Region President
J. Eric Eckberg52Senior Vice President and Colorado Division President
Maureen L. Singer49Vice President of Human Resources

Officers serve at the discretion of the Board of Directors, subject to rights, if any, under contracts of employment. See “Employment Agreements and Severance Benefits” in Part III, Item 11. Biographical information for General Lyon and Mr. William H. Lyon is provided above.

Matthew R. Zaist, the Company’s current President and Chief Operating Officer, joined the Company in 2000 as the Company’s Chief Information Officer. Since joining the Company, Mr. Zaist has served in a number of corporate operational roles, including Executive Vice President from January 2010 to March 2013 and previously, Corporate Vice President—Business Development & Operations from April 2009 to January 2010. Prior to that, Mr. Zaist served as Project Manager and Director of Land Acquisition for the Company’s Southern California Region. In his current role, Mr. Zaist is responsible for the overall management of the Company’s operations and is a member of the Company’s Executive Committee, Chairman of the Company’s Land Committee and Vice Chairman of the Company’s Management Development and Risk Management Committee. In his most recent role as Executive Vice President, Mr. Zaist oversaw and managed the Company’s restructuring efforts and successful recapitalization. Mr. Zaist is a member of the Executive Committee for the University of Southern California’s Lusk Center for Real Estate. Prior to joining William Lyon Homes, Mr. Zaist was a principal with American Management Systems (now CGI) in their State & Local Government practice. Mr. Zaist holds a B.S. from Rensselaer Polytechnic Institute in Troy, New York.

Colin T. Severn, Vice President, Chief Financial Officer and Corporate Secretary, joined the Company in December 2003, and served in the role of Financial Controller until April 3, 2009. Since April 3, 2009, Mr. Severn served as Vice President, Corporate Controller and Corporate Secretary until his promotion to Chief Financial Officer by approval of the board of directors of the Company on August 11, 2009. Mr. Severn oversees the Company’s accounting and finance, treasury, and investor relations functions. Mr. Severn is a member of the Company’s Land Committee. Mr. Severn is a CPA (inactive) and has more than 17 years of experience in real estate accounting and finance, including positions with an international accounting firm, and other real estate and homebuilding companies. Mr. Severn holds a B.A. in Business Administration with concentrations in Accounting and Finance from California State University, Fullerton.

Richard S. Robinson, Senior Vice President of Finance, has held this title and served in this capacity since joining the Company in 1999 when it acquired substantially all of the assets of the former William Lyon Homes, where Mr. Robinson had served since May 1997 as Senior Vice President, and as Vice President—Treasurer and other administrative positions at The William Lyon Company or one of its subsidiaries or affiliates since his hire in June 1979. His experience in residential real estate development and homebuilding finance totals more than 30 years.

Mary J. Connelly, Senior Vice President and Nevada Division President, has held this title and served in this capacity since joining The Presley Companies in May 1995, after eight years’ association with Gateway Development, six of which were served as Managing Partner in Nevada. Ms. Connelly was Vice President of Finance for the Company’s San Diego Division from 1985 to 1987, and she has more than 25 years of experience in the real estate development and homebuilding industry. She received her bachelor’s degree in Arts Business Administration with a concentration in accounting from the University of California, Los Angeles and Cal State University, Fullerton and her Masters of Science in Business Administration from the University of California, Irvine.

W. Thomas Hickcox, Senior Vice President and Arizona Division President, has held this title and served in this capacity since joining the Company in May 2000. Mr. Hickcox was previously President of Continental Homes in Phoenix, Arizona, with 16 years of service at that company. Mr. Hickcox has more than 25 years of experience in the real estate development and homebuilding industry. He received his bachelor’s degree in finance from Indiana University.

Brian W. Doyle, Senior Vice President and California Region President, joined the Company in 1999 when it acquired substantially all of the assets of the former William Lyon Homes, where Mr. Doyle had served as Director of Sales and Marketing for the Southern California Division after his hire in November 1997. In January 2006, Mr. Doyle became Vice President and Division Manager for the San Diego Division. In January 2008, Mr. Doyle became Division President for the San Diego/Inland Division. In February 2009, Mr. Doyle became the Southern California Division President and in 2010, was promoted to California Region President. Mr. Doyle has more than 23 years of experience in the real estate development and homebuilding industry.

J. Eric Eckberg, Senior Vice President and Colorado Division President, has held this position since the acquisition of Village Homes in December 2012, where he served as President of Village Homes. Mr. Eckberg has over 25 years of senior level experience in community development and homebuilding in Colorado. He serves on the Executive Committee for HomeAid Colorado as Past President and is a board member for the Homebuilders Association of Metropolitan Denver. Mr. Eckberg received a BBSA in Real Estate and Construction Management from the University of Denver.

Maureen L. Singer, Vice President of Human Resources, joined the Company in 2003 as Director of Human Resources, and was promoted to Vice President in 2007. Ms. Singer is responsible for all aspects of human resources including employee relations, compensation, benefits, compliance and staffing. Prior to joining the Company, she worked for Automatic Data Processing for over 16 years. Ms. Singer has more than 20 years of experience and holds a B.A. in Business Administration from California State University, Fullerton.

On December 19, 2011, the Company and its subsidiaries filed voluntary petitions with the U.S. Bankruptcy Court for the District of Delaware to seek approval of the Prepackaged Joint Plan of Reorganization, or the Plan. At that time, the officers listed above, with the exception of Mr. Eckberg, served as executive officers of the Company in their respective capacities. Post-emergence from bankruptcy on February 25, 2012, such officers continued to serve as executive officers of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

During 2012, the Company had no class of equity securities registered under Section 12 of the Securities Exchange Act of 1934. Accordingly, no reports were required to be filed during or with respect to the year ended December 31, 2012 on Form 3, Form 4 and Form 5 by the Company’s directors, officers and 10% stockholders.

Code of Ethics and Business Conduct

The board of directors has adopted a Code of Business Conduct and Ethics, or the Code of Ethics, that is applicable to all directors, employees and officers of the Company. The Code of Ethics constitutes the Company’s “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act. The Company intends to disclose future amendments to certain provisions of the Code of Ethics, or waivers of such provisions applicable to the Company’s directors and executive officers, on the Company’s website at www.lyonhomes.com.

The Code of Ethics is available on the Company’s website at www.lyonhomes.com. In addition, printed copies of the Code of Ethics are available upon written request to Investor Relations, William Lyon Homes, 4490 Von Karman Avenue, Newport Beach, California 92660.

Item 11.Executive Compensation

Executive Summary

Key Compensation Decisions and Actions in 2012:

The Compensation Committee retained an independent compensation consultant to advise the Compensation Committee on executive compensation matters.

Base salaries remained the same for named executive officers in 2012.

The Company adopted an equity incentive plan and introduced long-term equity compensation as an element of its pay practices.

The Company entered into new employment agreements to retain key talent among its named executive officer group.

Compensation Discussion and Analysis

This Compensation Discussion and Analysis section discusses the material elements of the compensation programs and policies in place for the Company’s named executive officers, or NEOs, during 2012. For the fiscal year ended December 31, 2012, the Company had five NEOs, as follows:

General William Lyon, Chairman of the Board and Chief Executive Officer;

William H. Lyon, President and Chief Operating Officer;

Matthew R. Zaist, Executive Vice President;

Colin T. Severn, Vice President, Chief Financial Officer and Corporate Secretary; and

Brian W. Doyle, Senior Vice President and California Region President.

Compensation Philosophy and Objectives

The goals of the Company’s compensation program are to provide significant rewards for successful performance and to encourage retention of top executives who may have attractive opportunities at other companies, given the highly competitive homebuilding industry. At the same time, the Company tries to keep its selling, general and administrative, or SG&A, costs at competitive levels when compared with other major homebuilders.

Role of the Compensation Committee and Compensation Consultants

The Company’s executive compensation decisions are made by the Compensation Committee, which is composed entirely of independent non-employee members of the Company’s board of directors. The Compensation Committee receives recommendations from the Company’s senior executive management team regarding the compensation of the Company’s executives. The Compensation Committee also consults with outside independent compensation consultants as it deems appropriate. In March 2012, the Compensation Committee retained Christenson Advisors as its independent compensation consultant to advise the Compensation Committee with respect to various elements of our executive compensation pay structure for 2012 and going forward. In 2012, Mr. William H. Lyon and Mr. Zaist were involved in the compensation process by making recommendations to the Compensation Committee regarding compensation for the NEOs and other senior executives and by working with Christenson Advisors to give them the information necessary to enable them to complete their reports.

In general, the Compensation Committee strives to achieve an appropriate mix between equity incentive awards and cash payments in order to meet its compensation objectives. The objective of the Company’s non-cash and long-term incentive-based programs is to align the compensation of the NEOs with the interests of the Company’s stockholders. However, the Compensation Committee does not have rigid apportionment goals or policies for allocating compensation between long-term and short-term compensation or cash and non-cash compensation. The Company’s mix of compensation elements is designed to reward recent results and motivate long-term performance through a combination of cash and equity incentive awards. The differences in NEO compensation levels reflect to a significant degree the varying roles and responsibilities of each NEO.

During 2012, the Compensation Committee reviewed the Company’s compensation programs and practices in light of certain comparative data on long-term equity compensation, base salaries and bonuses compiled by its independent compensation consultant, Christenson Advisors, at the request of the Compensation Committee. Given the anticipation that the Company would become publicly traded, Christenson Advisors compiled information on the compensation practices of a public homebuilder peer group that included the following companies: Beazer Homes, DR Horton, Hovnanian Enterprises, KB Home, Lennar, MDC Holdings, Meritage Homes, Pulte Group, Ryland Group, Standard Pacific and Toll Brothers. In selecting the homebuilders most comparable to the Company to be included in the peer group, Christenson Advisors focused on companies’ size, location and development projects, as well as the background and experience of management. Christenson also provided the Compensation Committee with select compensation data for a number of private homebuilder companies, based on Christenson’s survey of such companies.

In setting the compensation levels of the Company’s executive officers for 2012, the Compensation Committee reviewed the peer group data compiled by Christenson Advisors and relied on Christenson Advisors’ peer group analyses of public and private homebuilders, utilizing this data to justify the Compensation Committee’s decisions regarding compensation levels for the Company’s executive officers for 2012. In arriving at its decisions, the Compensation Committee generally benchmarked its decisions against the bottom quartile of the public homebuilder peer group companies and the top quartile of the private homebuilder data in the analyses provided by Christenson Advisors. Benchmarking against peer group companies was one aspect of the process used to establish fiscal year 2012 compensation, as the Compensation Committee also relied on its experience and judgment as well as the Company’s recent performance and restructuring and the current economic environment to set overall compensation levels. The Compensation Committee also based its determinations for 2012 compensation levels on each individual NEO’s leadership qualities, operational performance, business responsibilities, career with our company, current compensation arrangements and long-term potential to enhance stockholder value. The Compensation Committee has been advised by Christenson Advisors that 2012 overall compensation for our NEOs fell within the targeted benchmark of the bottom quartile of the public homebuilder peer group companies and the top quartile of the private homebuilders surveyed by Christenson, adequately reflecting the Company’s relative market position and growth as it emerged from restructuring.

Elements of Compensation

Base Salary

The Company’s Compensation Committee generally reviews the base salary of the Company’s NEOs annually. Salary is the principal component of the compensation of General Lyon and Mr. Lyon, who together hold a significant equity stake in the Company and as a result have incentives generally aligned with the Company’s other stockholders. With respect to Messrs. Severn, Zaist and Doyle, the Company does not regard salary as the principal component of compensation, and also uses short-term annual bonuses and long-term equity incentives to reward performance and loyalty while keeping SG&A costs competitive. In 2012, the Compensation Committee balanced the goals of maintaining competitive salaries while also being mindful of the Company’s financial

position, determining that each NEO’s base salary as of the end of 2011 would continue unchanged throughout 2012. The table below shows the annual base salary for each NEO as of December 31, 2012.

Name

Annual Base Salary ($)

General William Lyon

1,000,000

Colin T. Severn

200,000

William H. Lyon

500,000

Matthew R. Zaist

350,000

Brian W. Doyle

275,000

2012 Annual Bonuses

The Compensation Committee, in its sole discretion, determined awards of annual bonuses for fiscal year 2012 based on Christenson Advisors’ peer group analyses, described above, as well as a number of subjective Company and individual performance factors, including but not limited to, the Company’s profitability and growth emerging from Chapter 11 restructuring and each NEO’s contribution to the Company and leadership and initiative in helping the Company emerge from the restructuring. Because 2012 served as a transitional year for the Company as it emerged from restructuring, the Compensation Committee determined it would be more appropriate to award 2012 annual bonuses on a number of subjective factors, rather than objective performance criteria. No one subjective factor was determinative or given any specific weight in the Compensation Committee’s decisions with respect to each NEO’s 2012 annual bonus award.

An NEO’s right to receive a bonus is conditioned on his being actively employed by the Company on the date of payment, except in the case of a termination of employment without cause or for good reason. Bonuses for a particular year will be paid out over two years, with 75% paid following the determination of the bonus, and 25% paid one year later, conditioned on continued employment to the date of payment, except in the case of a termination of employment without cause or for good reason. These provisions help ensure the loyalty and continued service of the Company’s NEOs.

In 2012, each NEO was eligible to receive a bonus pursuant to his individual employment agreement, in an amount to be determined at the discretion of the Compensation Committee. The Compensation Committee determined to award 2012 annual bonuses at target level for each eligible NEO, as set forth in his employment agreement, as shown in the table below based on the Company’s overall performance in 2012 as well as each NEO’s individual performance and contributions.

NAME

2012
BONUS ($)

General William Lyon

500,000

Colin T. Severn

120,000

William H. Lyon

250,000

Matthew R. Zaist

437,500

Brian W. Doyle

206,250

Long-Term Equity-Based Compensation

Pursuant to the Chapter 11 joint plan of reorganization, the Company was required to adopt the 2012 Equity Incentive Plan and grant up to 8% of the capital stock of the Company in the form of equity awards to eligible participants. The plan of reorganization required that the Company issue up to 4% of the capital stock of the Company to certain key executives, with 50% of such equity awards to be in the form of Class D service-based restricted shares and 50% in the form of service-based stock options to acquire Class D common shares, to be issued or awarded upon or as soon as practicable following the effective date of the plan of reorganization, which was February 25, 2012. The Compensation Committee, in consultation with Christenson Advisors, determined

the number of shares to be reserved for issuance under the 2012 Equity Incentive Plan as required in the plan of reorganization and also determined the allocation of the 4% of the Company’s capital stock among the NEOs including the number of restricted shares and stock options to be granted to each NEO, based on the officer’s position with the Company and the fair market value of our stock at the time of grant.

On October 1, 2012, the Company granted each of Messrs. Zaist, Severn and Doyle the following equity incentive awards under the 2012 Plan, pursuant to the plan of reorganization and in connection with the adoption of their new employment agreements, described in further detail below.

   Restricted Stock   5-Year Options   10-Year Options 

Matthew R. Zaist

   1,200,000     489,360     1,400,000  

Colin Severn

   200,000     73,360     234,000  

Brian Doyle

   550,000     201,740     642,000  

The ten-year options have a term of ten years. The five-year options have a term of five years and are subject to mandatory exercise upon the earlier of an initial public offering of the Company or the expiration of the five-year term, provided, that if the initial public offering occurs prior to the applicable vesting date of the options, such options will be exercised upon the applicable vesting date. The five-year options and ten-year options will be treated as incentive stock options to the maximum extent permitted by law.

Each of the restricted stock and option awards vests as follows: 50% of the restricted shares and 50% of the options vested on the date of grant (October 1, 2012), with the remaining 50% of the shares and options vesting in three equal installments on each of December 31, 2012, 2013 and 2014, subject to the executive’s continued employment through the applicable vesting date and accelerated vesting as set forth in the applicable award agreement.

The awards were partially vested on the date of grant to be consistent with the requirements of the plan of reorganization, which required the issuance of the equity awards to certain of the Company’s key executives upon or as soon as practicable following the effective date of the plan of reorganization, as well as to compensate the loyalty and hard work of the NEOs and management through the Company’s restructuring. The Compensation Committee also provided for additional vesting dates through 2014 to retain and incentivize the key executives of the Company and tie their interests to the long-term interests and goals of the Company and its stockholders.

Automobile Allowance

Each NEO is entitled to an annual automobile allowance of $4,800 ($400 per month), payable in accordance with the Company’s regular payroll schedule. In addition, each of Messrs. Zaist, Severn and Doyle is entitled to Company-paid gasoline for use of his personal vehicle.

Retirement Savings

The Company has established a 401(k) retirement savings plan for its employees, including the NEOs, who satisfy certain eligibility requirements. Under the 401(k) plan, eligible employees may elect to contribute pre-tax amounts, up to a statutorily prescribed limit, to the 401(k) plan. For 2012, the prescribed annual limit was $17,000, plus up to an additional $5,500 “catch-up” contribution available for eligible participants over age 50. The Company believes that providing a vehicle for tax-preferred retirement savings through the 401(k) plan adds to the overall desirability of its executive compensation package and further incents the Company’s employees, including the NEOs, in accordance with the Company’s compensation policies.

Employment Agreements and Severance Benefits

General William Lyon and William H. Lyon

Effective February 25, 2012, the Company and California Lyon entered into employment agreements with General William Lyon and William H. Lyon, pursuant to which General Lyon will continue to serve as the Chairman of the Board of Directors and Chief Executive Officer of the Company and California Lyon, and William H. Lyon will continue to serve as President and Chief Operating Officer of the Company and California Lyon. On March 6, 2013, the Company’s board of directors established the new role of Executive Chairman for General Lyon. General Lyon will no longer serve as Chief Executive Officer of the Company but will continue to serve as Chairman of the Board. The Company’s board of directors appointed William H. Lyon to serve as Chief Executive Officer of the Company.

The term of each employment agreement expires on December 31, 2014, subject to earlier termination as provided in the employment agreement. Under the employment agreements, General Lyon and William H. Lyon are entitled to annual salaries of $1 million and $500,000 per year, respectively.

Under these employment agreements, each executive has the right to earn a bonus of up to 50% of base salary during the 2012 fiscal year, as determined by the Compensation Committee. After 2012, bonuses will be payable under a senior executive bonus program to be established by the Company’s Compensation Committee. The payment of a portion of the bonuses will be deferred as provided in the employment agreements.

In the event of the termination of the executive’s employment by California Lyon without “cause” as defined in each employment agreement or the termination by the executive of his employment for “good reason” as defined in each employment agreement, the executive is entitled to receive (i) a payment equal to the greater of 18 months of salary or the amount of salary otherwise payable for the remainder of the scheduled term of employment; (ii) any deferred and unpaid bonuses; and (iii) the amount of bonus that the executive would have earned in the year of termination. In addition, the executive is entitled to receive reimbursement for certain health benefits coverage through the earlier of the end of the originally scheduled term of employment (but not less than 6 months after the date of termination) and the date when the executive becomes covered under another group health or disability plan.

Under the employment agreements, “good reason” will be deemed to have occurred, among other things, (i) if California Lyon breaches the employment agreement (including a material reduction in compensation, title, positions, responsibilities, authority or duties), (ii) if the Company or California Lyon ceases to acquire or develop land or materially changes its business, or invests or engages in new businesses that compete with Lyon Management Group, Inc. and/or Lyon Capital Ventures, LLC, (iii) upon the relocation (without the executive’s consent) of the executive’s or California Lyon’s principal place of business outside of Orange County, California; or (iv) upon the occurrence of a change of control, as defined in the employment agreement.

In the event of a termination of the executive’s employment due to death or disability, the executive (or his estate) will be entitled to receive (i) a payment equal to the amount of salary otherwise payable for the remainder of the scheduled term of employment; (ii) any deferred and unpaid bonuses; and (iii) continued health insurance coverage for a specified period of time following termination.

Matthew Zaist, Colin Severn and Brian Doyle

Effective July 1, 2011, California Lyon entered into executive employment agreements with Messrs. Zaist, Severn and Doyle (the “Old Employment Agreements”). The Old Employment Agreements were replaced by executive employment agreements entered into effective as of September 1, 2012, between California Lyon and each of Messrs. Zaist, Severn and Doyle (the “New Employment Agreements” and, together with the Old Employment Agreements, the “Employment Agreements”).

The term of Mr. Zaist’s New Employment Agreement will expire on August 31, 2015, subject to earlier termination as provided in the agreement. The term of each of Mr. Severn’s and Mr. Doyle’s New Employment

Agreements will be for an initial period expiring March 31, 2013, with automatic one-year renewal periods annually thereafter unless either California Lyon or the executive provides the other with written notice of nonrenewal at least 60 days prior to the expiration of the term. Pursuant to the New Employment Agreements, Messrs. Zaist, Severn and Doyle will continue to serve as the (1) Executive Vice President, (2) Vice President, Chief Financial Officer and Corporate Secretary, and (3) Senior Vice President and California Region President, respectively, of the Company and California Lyon. Effective as of March 6, 2013, the Company’s board of directors appointed Mr. Zaist to serve as the Company’s President and Chief Operating Officer. The description below summarizes the Employment Agreements, noting where the New Employment Agreements differ materially from the Old Employment Agreements.

Under the Employment Agreements, Messrs. Zaist, Severn and Doyle are entitled to annual base salaries of $350,000, $200,000 and $275,000, respectively. Each executive’s annual base salary is subject to increase (but not decrease) from time to time, in the sole discretion of the Compensation Committee.

Messrs. Zaist, Severn and Doyle each have the right to earn a cash bonus during the 2012 fiscal year with a target amount equal to 125%, 60% and 75% of base salary, respectively. Under his Old Employment Agreement, Mr. Zaist’s target bonus was equal to 70% of his base salary, but the Compensation Committee determined to increase his target bonus percentage to reflect his growing leadership role with the Company. After 2012, target bonus levels will be established by the Compensation Committee in its sole discretion, provided that for Mr. Zaist, the target cash bonus will not be less than 125% of his annual base salary. If awarded, the bonus would be paid in part in 2013 and in part in 2014, as provided for in the employment agreements.

In the event of a termination of the executive’s employment due to death or disability, by California Lyon for “cause” or by the executive without “good reason,” the executive (or his estate) will be entitled to receive no benefits other than accrued but unpaid base salary and vacation benefits through the date of termination.

Under the New Employment Agreements, in the event of the termination of the executive’s employment by California Lyon without “cause,” as defined in the employment agreements, or the termination by the executive of his employment for “good reason,” as defined below, the executive is entitled to receive (i) a payment equal to the product of (A) 1.5, in the case of Mr. Zaist, and 1.0, in the case of Messrs. Severn and Doyle, multiplied by (B) the sum of the executive’s annual salary plus target cash bonus at the time of his termination of employment; (ii) any deferred and unpaid bonuses; (iii) in the case of Mr. Zaist, accelerated vesting in full of all restricted stock awards and options granted under the 2012 Plan and, in the case of each of Messrs. Severn and Doyle, if such termination occurs on or within 12 months following a change in control as defined in the employment agreement (and the executive’s respective equity awards are not assumed by the successor corporation), accelerated vesting in full of all restricted stock awards and options granted at the time of execution of such executive’s employment agreement; (iv) reimbursement for certain health benefits coverage through the earlier of (A) the end of the six-month period (twelve-month period in the case of Mr. Zaist) beginning on the first day of the month following the month of the executive’s termination of employment and (B) the date when the executive becomes covered under another employer’s group health or disability plan; and (v) in the case of Mr. Zaist, a release of claims from California Lyon, the Company and their affiliates.

Each executive’s receipt of the foregoing severance benefits is conditioned on his execution of a general release in favor of California Lyon and his compliance with certain noncompetition and nonsolicitation obligations. The Employment Agreements also provide that the executives will be indemnified to the maximum extent permitted by applicable law.

Under the Employment Agreements, “good reason” generally includes (i) a material breach of the employment agreement by California Lyon (including a material reduction in authority, duties or base salary), (ii) a relocation of the executive’s or California Lyon’s principal place of business outside a specified area, or (iii) the occurrence of a “change in control”, as defined in the employment agreement. In addition, under Mr. Zaist’s New Employment Agreement, “good reason” also includes certain changes with respect to Mr. Zaist’s reporting relationship within the Company or in the senior management structure of the Company.

Tax and Accounting Considerations

Section 162(m) of the Internal Revenue Code

Generally, Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, disallows a tax deduction to any publicly held corporation for any individual remuneration in excess of $1.0 million paid in any taxable year to its chief executive officer and each of its other NEOs, other than its chief financial officer. However, remuneration in excess of $1.0 million may be deducted if, among other things, it qualifies as “performance-based compensation” within the meaning of the Code. Because the Company is not currently subject to Section 162(m), it currently is not a factor in the Company’s compensation decisions.

Section 280G of the Internal Revenue Code

Section 280G of the Code disallows a tax deduction with respect to excess parachute payments to certain executives of companies that undergo a change in control. In addition, Section 4999 of the Code imposes a 20% excise tax on the individual with respect to the excess parachute payment. Parachute payments are those amounts of compensation linked to or triggered by a change in control and may include, but are not limited to, bonus payments, severance payments, certain fringe benefits, and payments and acceleration of vesting from long-term incentive plans including stock options and other equity-based compensation. Excess parachute payments are parachute payments that exceed a threshold determined under Section 280G of the Code based on the executive’s prior compensation. In approving certain compensation arrangements for the NEOs in the future, the Compensation Committee may consider all elements of the cost to the Company of providing such compensation, including the potential impact of Section 280G of the Code. However, the Compensation Committee may, in its judgment, authorize compensation arrangements that could give rise to loss of deductibility under Section 280G of the Code and the imposition of excise taxes under Section 4999 of the Code when it believes that such arrangements are appropriate to attract and retain executive talent.

Section 409A of the Internal Revenue Code

Section 409A of the Code requires that “nonqualified deferred compensation” be deferred and paid under plans or arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, timing of payments and certain other matters. Failure to satisfy these requirements can expose employees and other service providers to accelerated income tax liabilities, penalty taxes and interest on their vested compensation under such plans. Accordingly, as a general matter, it is the Company’s intention to design and administer its compensation and benefits plans and arrangements for all of its employees and other service providers, including the NEOs, so that they are either exempt from, or satisfy the requirements of, Section 409A.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the board of directors of the Company that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

THE COMPENSATION COMMITTEE

Matthew R. Niemann, Chairman

Douglas K. Ammerman

Michael Barr

Gary H. Hunt

Lynn Carlson Schell

Summary Compensation Table

The following table sets forth certain information with respect to compensation for the 2012, 2011 and 2010 fiscal years earned by, awarded to or paid to the NEOs.

Name and Principal
Position

 Year  Salary
($)(1)		  Bonus
($)		  Stock
Awards
($)(2)		  Option
Awards
($)(2)		  Non-Equity
Incentive Plan
Compensation
($)		  Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)		  All Other
Compensation
($)		  Total
($)		 

General William Lyon

  2012    1,000,000    500,000    —      —      —      —      —      1,500,000  

    Chairman of the Board

  2011    1,000,000    —      —      —      —      —      —      1,000,000  

    and Chief Executive Officer (Principal Executive Officer)

  2010    1,000,000    —      —      —      —      —      —      1,000,000  

Colin T. Severn

  2012    200,000    120,000    210,000    196,014    —      —      —      726,014  

    Vice President, Chief

  2011    200,000    —      —      —      165,497    —      —      365,497  

    Financial Officer and Corporate Secretary (Principal Financial Officer)

  2010    200,000    —      —      —      137,330    —      —      337,330  

William H. Lyon

  2012    453,847(3)   250,000    —      —      —      —      —      703,847  

    Director, President and Chief Operating Officer

  2011    490,385    —      —      —      —      —      —      490,385  
  2010    486,538    —      —      —      —      —      —      486,538  

Matthew R. Zaist

  2012    350,000    437,500    1,260,000    1,192,966    —      —      —      3,240,466  

    Executive Vice President

  2011    330,769    —      —      —      324,620    —      —      655,389  
  2010    225,000    —      —      —      187,328    —      —      412,328  

Brian W. Doyle

  2012    275,000    206,250    577,500    537,971    —      —      11,767(4)   1,608,488  

    Senior Vice President

  2011    267,308    —      —      —      318,743    —      —      586,051  

    and California Region President

  2010    221,154    —      —      —      204,665    —      —      425,819  

(1)The annual base salary for each of our NEOs is disclosed in “—Elements of Compensation—Base Salary” above.
(2)The amounts shown represent the grant date fair value of restricted stock and option grants computed in accordance with FASB ASC Topic 718. Each restricted stock and option award granted in 2012 vests as follows: 50% of the shares and options vested on the date of grant, with the remaining 50% of the shares and options vesting in three equal installments on each of December 31, 2012, 2013 and 2014.
(3)Reflects Mr. Lyon’s annual base salary of $500,000 with $46,153 in forgone salary in 2012 resulting from unpaid vacation.
(4)Reflects Mr. Doyle’s annual automobile allowance of $4,800 and $6,967 of gasoline paid by the Company for Mr. Doyle’s personal vehicle.

Grants of Plan-Based Awards

The following table sets forth summary information regarding all grants of plan-based awards made to our NEOs for the year ended December 31, 2012:

       All other stock
awards: Number
of shares of  stock
(#)(1)		   All other option
awards: Number
of securities
underlying options
(#)(1)		   Exercise or base
price of option
awards ($/Sh)
(2)		   Grant date fair
value of stock
and option
awards ($)(3)		 

Name

  Grant Date         

Colin T. Severn

   10/01/2012     200,000         210,000  
   10/01/2012       307,360     1.05     196,014  

Matthew R. Zaist

   10/01/2012     1,200,000         1,260,000  
   10/01/2012       1,889,360     1.05     1,192,966  

Brian W. Doyle

   10/01/2012     550,000         577,500  
   10/01/2012       843,740     1.05     537,971  

(1)Each of the restricted stock and option awards granted on October 1, 2012, vests as follows: 50% of the shares and options vested on the date of grant, with the remaining 50% of the shares and options vesting in three equal installments on each of December 31, 2012, 2013 and 2014, subject to the executive’s continued employment through the applicable vesting date and accelerated vesting as set forth in the applicable award agreement.
(2)The Company’s board of directors determined the fair market value of the Class D common stock on the date of grant to be $1.05.
(3)The value of the restricted stock and option awards shown represents the grant date fair value as prescribed under FASB ASC Topic 718, based on the fair market value of the Class D common stock on the date of grant, which was determined by the Company’s board of directors to be $1.05. The restricted shares have a grant date fair value of $1.05 per share. The five-year options have a grant date fair value of $0.401 per share subject to the option. The ten-year options have a grant date fair value of $0.712 per share subject to the option.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth summary information regarding the outstanding equity awards held by our NEOs at December 31, 2012:

   Option Awards   Stock Awards 

Name

  Number of
securities
underlying
unexercised
options
exercisable
(#)		   Number of
securities
underlying
unexercised
options
unexercisable
(#)(1)		   Option
exercise price
($)		   Option
expiration
date		   Number of shares or
units of stock that
have not vested (#)
(1)		   Market value of
shares or units of
stock that have
not vested ($)(2)		 

Colin T. Severn

   48,906     24,454     1.05     10/01/2017     66,667     70,000  
   156,000     78,000     1.05     10/01/2022      

Matthew R. Zaist

   326,240     163,120     1.05     10/01/2017     400,000     420,000  
   933,333     466,667     1.05     10/01/2022      

Brian W. Doyle

   134,493     67,247     1.05     10/01/2017     183,334     192,501  
   428,000     214,000     1.05     10/01/2022      

(1)The table below shows on a grant-by-grant basis the vesting schedules relating to the restricted stock and option awards that are represented in the above table.

Name

Grant DateAward Type

Vesting Schedule

Colin T. Severn

10/01/2012Restricted Stock33,333 shares vest on 12/31/2013 and 33,334 shares vest on 12/31/2014
10/01/20125-year Options12,227 options vest on each of 12/31/2013 and 12/31/2014
10/01/201210-year Options39,000 options vest on each of 12/31/2013 and 12/31/2014

Matthew R. Zaist

10/01/2012Restricted Stock200,000 shares vest on each of 12/31/2013 and 12/31/2014
10/01/20125-year Options81,560 options vest on each of 12/31/2013 and 12/31/2014
10/01/201210-year Options233,333 options vest on 12/31/2013 and 233,334 options vest on 12/31/2014

Brian W. Doyle

10/01/2012Restricted Stock91,667 shares vest on each of 12/31/2013 and 12/31/2014
10/01/20125-year Options33,623 options vest on 12/31/2013 and 33,624 options vest on 12/31/2014
10/01/201210-year Options107,000 options vest on each of 12/31/2013 and 12/31/2014

(2)Represents the fair market value of the Company’s Class D common stock on December 31, 2012, of $1.05 per share, multiplied by the number of shares that have not vested.

Options Exercised and Stock Vested

The following table summarizes the option exercises and vesting of restricted stock awards for each of our NEOs for the year ended December 31, 2012. The vesting of stock awards does not indicate the sale of stock by an NEO.

   Option Awards   Stock Awards 

Name

  Number of
securities
acquired
on
exercise
(#)		   Value realized
on exercise ($)		   Number of shares
acquired on
vesting
(#)		   Value realized on
vesting ($)(1)		 

Colin T. Severn

   —       —       133,333     140,000  

Matthew R. Zaist

   —       —       800,000     840,000  

Brian W. Doyle

   —       —       366,666     384,999  

(1)Represents the fair market value of the Company’s Class D common stock on the date of vesting, which was $1.05 for awards vesting on both October 1, 2012, and on December 31, 2012, multiplied by the number of shares that vested on such date.

Pension Benefits

The NEOs did not participate in or have account balances in qualified or nonqualified defined benefit plans sponsored by the Company during the fiscal year ended December 31, 2012.

Nonqualified Deferred Compensation

The NEOs did not participate in or have account balances in nonqualified defined contribution plans or other nonqualified deferred compensation plans maintained by the Company during the fiscal year ended December 31, 2012.

Potential Payments Upon Termination or Change in Control

The following table summarizes the potential payments to our NEOs upon a “qualifying termination” of employment (a termination by us without cause or the executive’s resignation for good reason) or upon the executive’s termination of employment as a result of death or disability. As described above in “—Employment Agreements and Severance Benefits,” a resignation by the executive in connection with a “change of control” would be deemed a resignation for good reason. None of the NEOs is entitled to payments or benefits solely upon a change in control of the Company, without an accompanying termination of employment. In the event an NEO is terminated for cause, by the NEO for any reason other than good reason, or, in the case of Messrs. Severn, Zaist and Doyle, due to death or disability, such NEO is not entitled to any severance payments or benefits. The amounts shown assume that such termination was effective as of December 31, 2012, the last

business day of fiscal year 2012, and are only estimates of the amounts that would be paid to such NEOs. The actual amounts to be paid can be determined only at the time of such termination of employment.

Name, Type of Termination

  Cash
Severance
($)(1)		   Unpaid
Bonuses
($)(2)		   Equity
Acceleration
($)(3)		   Benefits
Continuation
($)(4)		   Total ($) 

General William Lyon

          

Qualifying Termination (no CIC)

   2,500,000     —       —       53,589     2,553,589  

Qualifying Termination + CIC

   2,500,000     —       —       53,589     2,553,589  

Death or Disability

   2,000,000     —       —       53,589     2,053,589  

Colin T. Severn

          

Qualifying Termination (no CIC)

   320,000     30,000     —       13,397     363,397  

Qualifying Termination + CIC

   320,000     30,000     70,000     13,397     433,397  

Death or Disability

   —       —       —       —       —    

William H. Lyon

          

Qualifying Termination (no CIC)

   1,250,000     —       —       36,259     1,286,259  

Qualifying Termination + CIC

   1,250,000     —       —       36,259     1,286,259  

Death or Disability

   1,000,000     —       —       36,259     1,036,259  

Matthew R. Zaist

          

Qualifying Termination (no CIC)

   1,181,250     61,250     420,000     18,898     1,681,398  

Qualifying Termination + CIC

   1,181,250     61,250     420,000     18,898     1,681,398  

Death or Disability

   —       —       —       —       —    

Brian W. Doyle

          

Qualifying Termination (no CIC)

   481,250     51,250     —       13,397     545,897  

Qualifying Termination + CIC

   481,250     51,250     192,501     13,397     738,398  

Death or Disability

   —       —       —       —       —    

(1)In the event of a “qualifying termination” of employment, represents an amount equal to: for each of General Lyon and Mr. Lyon, his base salary for twenty-four months, through the remainder of his scheduled term of employment, plus the bonus earned in 2012; for Mr. Zaist, 1.5 times the sum of his annual salary plus target cash bonus for 2012; for each of Messrs. Severn and Doyle, the sum of his annual salary plus target cash bonus for 2012. (Under the employment agreements for General Lyon and Mr. Lyon, severance amounts are calculated based on actual cash bonuses earned, while under the employment agreements for Messrs. Zaist, Severn and Doyle, severance amounts are calculated based on target cash bonus, which for 2012 was equal to the actual bonus awarded.) In the event of a termination of General Lyon’s or Mr. Lyon’s employment due to death or disability, represents an amount equal to his base salary for twenty-four months, through the remainder of his scheduled term of employment.
(2)Represents bonus amounts earned by the NEO that had not been paid prior to the date of termination.
(3)Represents the intrinsic value of the accelerated vesting of all unvested stock options and restricted stock awards granted on October 1, 2012, based on the fair market value of the Company’s Class D common stock on December 31, 2012, of $1.05 per share. Upon a termination of Mr. Zaist’s employment by the Company without cause or by him for good reason, whether or not following a change in control of the Company, Mr. Zaist is entitled to accelerated vesting in full of all outstanding restricted stock and stock option awards. Upon a termination of Mr. Severn’s or Mr. Doyle’s employment by the Company without cause or by him for good reason, in either case on or within twelve months following a change in control of the Company (and the executive’s respective equity awards are not assumed by the successor corporation), he is entitled to accelerated vesting in full of all stock options and restricted stock awards granted on October 1, 2012.
(4)Represents the value of the continuation of health benefits for the following number of months: twenty-four months for Messrs. Lyon and Lyon, twelve months for Mr. Zaist, and six months for Messrs. Severn and Doyle.

Director Compensation

Our non-employee directors receive an annual cash retainer of $50,000 per year, payable in equal quarterly installments in advance, as well as $50,000 in equity compensation (described below). Mr. Hunt, as the lead independent director, receives an additional $50,000 annual cash retainer (payable quarterly) and $25,000 in equity compensation. Our non-employee directors also receive a $1,500 fee for each board meeting attended in person and $1,000 for each meeting attended via teleconference. In addition, the chairperson of the Audit Committee of the board of directors receives a fee of $20,000 per year, payable $5,000 per calendar quarter, to serve in such capacity, the chairperson of the Compensation Committee of the board of directors receives a fee of $15,000 per year, payable $3,750 per calendar quarter, to serve in such capacity, the chairperson of the Nominating and Corporate Governance Committee of the board of directors receives a fee of $10,000 per year, payable $2,500 per calendar quarter, to serve in such capacity, and other committee members receive a fee of $5,000 per year, payable $1,250 per calendar quarter, per committee for service on committees of the board of directors.

With respect to non-employee directors’ compensation, on October 1, 2012, the Company granted 57,000 shares of restricted stock to each of its non-employee directors, which were fully vested on the date of grant and subject to certain restrictions. On the same date, the Company granted Mr. Hunt, the lead independent director, an additional grant of 28,500 shares of restricted stock, which were also fully vested on the date of grant. On December 5, 2012, the Company cancelled Mr. Redleaf’s grant of 57,000 shares of restricted stock and in lieu thereof granted him a cash award with the equivalent value of $59,850 in respect of Mr. Redleaf’s services as a non-employee director. In consideration for their efforts and service through the restructuring, Messrs. Hunt and Ammerman also received a one-time cash bonus of $50,000 each in 2012.

The following table sets forth information concerning the compensation of the directors during the fiscal year ended December 31, 2012.

Name

 Fees Earned
or Paid
in Cash
($)		  Stock
Awards
($)		  Option
Awards
($)		  Non-Equity
Incentive Plan
Compensation
($)		  Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings
($)		  All Other
Compensation
($)(1)		  Total
($)		 

Douglas K. Ammerman

  165,500    59,850    —      —      —      50,000    275,350  

Michael Barr(2)

  —      —      —      —      —      —      —    

Harold H. Greene(3)

  18,500    —      —      —      —      —      18,500  

Gary H. Hunt

  199,250    89,775    —      —      —      50,000    339,025  

Alex Meruelo(3)

  17,875    —      —      —      —      —      17,875  

Matthew R. Niemann(3)

  96,125    59,850    —      —      —      —      155,975  

Nathaniel Redleaf(3)(4)

  134,350    —      —      —      —      —      134,350  

Lynn Carlson Schell(3)

  85,750    59,850    —      —      —      —      145,600  

(1)Includes one-time cash bonus of $50,000 paid to Messrs. Ammerman and Hunt for their efforts and service through the restructuring.
(2)Mr. Barr was appointed to the Company’s board of directors on November 7, 2012 and waived director compensation for the 2012 calendar year. For 2013, Mr. Barr’s fees will be paid to a fund affiliated with Paulson.
(3)On February 25, 2012, in connection with the confirmation of the Company’s plan of reorganization, Messrs. Greene and Meruelo resigned from the Company’s board of directors and Messrs. Niemann and Redleaf and Ms. Carlson Schell were appointed to the Company’s board of directors.
(4)Mr. Redleaf’s fees are paid to an affiliate of Luxor Capital Group.

Under the Company’s Non-Qualified Retirement Plan for Outside Directors (the Non-Qualified Retirement Plan), each non-employee director is eligible to receive $2,000 per month beginning on the first day of the month following death, disability or retirement at age 72; or, in the case of a non-employee director who ceases

participation in the plan prior to death, disability or retirement at age 72 but has completed at least ten years of service as a director, eligibility for benefit payments pursuant to the plan begins on the first day of the month following the latter of (a) the day on which such person attains the age of 65, or (b) the day on which such person’s service terminates after completing at least ten years of service as a director. The monthly payments will continue for a number of months equal to the number of months the non-employee director served as a director and are payable to the director’s beneficiary in the event of the director’s death. If a retired non-employee director receiving payments under the plan resumes his status as a director or becomes an employee, the payments under the plan are suspended during the period of such service. The Non-Qualified Retirement Plan was terminated in May 2012 as to future deferrals. Each non-employee director eligible to receive benefits under the plan when terminated was “grandfathered” into the plan and such directors will continue to accrue and receive benefits in accordance with the provisions of the plan in effect at the time of its termination. Among our outside directors listed in the table above, only Mr. Greene is eligible to receive distributions under the Non-Qualified Retirement Plan.

Compensation Risk Management

In March 2013, management assessed our compensation design, policies and practices to determine whether any risks arising from our compensation design, policies and practices are reasonably likely to have a material adverse effect on us. The Compensation Committee reviewed and agreed with management’s conclusion that our compensation policies and practices do not create such risks. In doing so, the Compensation Committee considered various features of our compensation policies and practices that discourage excessive or unnecessary risk taking, including but not limited to the following:

effective balance in the design of our compensation programs, including: (i) cash and equity pay mix, (ii) short- and longer-term performance focus, (iii) corporate, business unit, and individual performance focus and measurement; and (iv) financial and non-financial performance measurement together with top management and board discretion to manage pay appropriately; and

stock ownership guidelines and independent Compensation Committee oversight of our compensation policies and practices.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth the number of shares of our capital stock beneficially owned as of March 11, 2013, by (i) each person known by us to be the beneficial owner of more than 5% of the outstanding shares of our capital stock, (ii) each of our named executive officers and directors and (iii) all officers and directors as a group. Unless otherwise indicated in the table, the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the stockholder’s name, subject to community property laws, where applicable. Unless otherwise noted below, the address of each stockholder below is c/o William Lyon Homes, 4490 Von Karman Avenue, Newport Beach, California 92660.

      CLASS A
COMMON
STOCK(1)		  CLASS B
COMMON
STOCK(1)		  CLASS C
COMMON
STOCK(1)		  CLASS D
COMMON
STOCK(1)		  CONVERTIBLE
PREFERRED
STOCK(1)		  PERCENT
OF TOTAL
VOTING
POWER(2)(3)		 

NAME

  TITLE  Number  Percent
of Class		  Number  Percent
of Class		  Number   Percent
of Class		  Number  Percent
of Class		  Number   Percent
of Class		  

Named Executive Officers and Directors:

                

William H. Lyon

  Director,
Chief Executive
Officer		   24,199(6)   *    47,201,842(4)   100%   —       —      529,411(9)   9.6%   —       —      36.1% 

Colin T. Severn

  Vice President,
Chief Financial
Officer and
Corporate
Secretary		   —      —      —      —      —       —      441,840(5)   7.7%   —       —      *  

General William Lyon

  Director,
Chairman of
Board &
Executive
Chairman		   —      —      —      —      —       —      —      —      —       —      —    

Matthew R. Zaist

  President &
Chief Operating
Officer		   —      —      —      —      —       —      2,411,389(7)   35.7%   —       —      *  

Brian W. Doyle

  Vice President
and Southern
California Region
President		   —      —      —      —      —       —      1,175,458(8)   19.4%   —       —      *  

Douglas K. Ammerman

  Director   —      —      —      —      —       —      130,529(9)   2.4%   —       —      *  

Michael Barr

  Director   —      —      —      —      —       —      —      —      —       —      *  

Gary H. Hunt

  Director   —      —      —      —      —       —      202,647(9)   3.7%   —       —      *  

Matthew R. Niemann

  Director   —      —      —      —      —       —      130,529(9)   2.4%   —       —      *  

Nathaniel Redleaf

  Director   —      —      —      —      —       —      — (10)   —      —       —      *  

Lynn Carlson Schell

  Director   —      —      —      —      —       —      130,529(9)   2.4%   —       —      *  

All executive officers and directors as a group (17 individuals)

     24,199    —      47,201,842(4)   100%   —       —      8,115,694(11)   93.6%   —       —      39.0% 

5% Stockholders(not listed above):

                

Luxor Capital Group LP(12)

     20,817,163    29.7%   —      —      15,355,810     95.9%   —      —      61,509,204     79.9%   37.1% 

      CLASS A
COMMON
STOCK(1)		  CLASS B
COMMON
STOCK(1)		   CLASS C
COMMON
STOCK(1)		   CLASS D
COMMON
STOCK(1)		   CONVERTIBLE
PREFERRED
STOCK(1)		  PERCENT
OF TOTAL
VOTING
POWER(2)(3)		 

NAME

  TITLE  Number   Percent
of Class		  Number   Percent
of Class		   Number   Percent
of Class		   Number   Percent
of Class		   Number   Percent
of Class		  

Colony Capital, LLC(13)

     10,000,000     14.3%   —       —       —       —       —       —       —       —      3.8% 

Paulson & Co. Inc.(14)

     15,238,095     21.7%   —       —       —       —       —       —       12,173,913     15.8%   10.4% 

*Denotes less than 1.0% of beneficial ownership.
(1)Beneficial ownership is determined in accordance with SEC rules, and includes any shares as to which the stockholder has sole or shared voting power or investment power, and also any shares which the stockholder has the right to acquire within 60 days of the date hereof, whether through the exercise or conversion of any stock option, convertible security, warrant or other right. The indication herein that shares are beneficially owned is not an admission on the part of the stockholder that he, she or it is a direct or indirect beneficial owner of those shares.
(2)Each share of Class A Common Stock, Class C Common Stock and Class D Common Stock are entitled to one vote per share. Each share of Class B Common Stock is entitled to two votes per share. Each share of Convertible Preferred Stock has the right to one vote for each share of Class C Common Stock into which such share could be converted. The current conversion ratio for Convertible Preferred Stock into Class C Common Stock is one to one.
(3)Calculation of total voting power includes the following (which represent the total number of shares of each class that are outstanding): (a) 70,121,378 shares of Class A Common Stock, (b) 31,464,548 shares of Class B Common Stock, (c) 16,020,338 shares of Class C Common Stock, (d) 5,501,432 shares of Class D Common Stock, (e) 77,005,744 shares of Convertible Preferred Stock and (f) 15,737,294 shares of Class B Common Stock issuable upon the exercise of a warrant held by Lyon Shareholder 2012, LLC, or Lyon LLC, or the Class B Warrant. The Class B Warrant is exercisable at any time prior to February 24, 2017.
(4)Represents 31,464,548 shares of Class B Common Stock and the Class B Warrant held by Lyon Shareholder 2012, LLC, or Lyon LLC. The members of Lyon LLC are the LYON SHAREHOLDER 2012 IRREVOCABLE TRUST NO. 1 established December 24, 2012, the LYON SHAREHOLDER 2012 IRREVOCABLE TRUST NO. 2 established December 24, 2012 and the WILLIAM HARWELL LYON SEPARATE PROPERTY TRUST established July 28, 2000, the Trustee of each of which is William Harwell Lyon (our Chief Executive Officer and Director). The manager of Lyon LLC is William Harwell Lyon. William Harwell Lyon may be deemed to have voting and investment power of the securities held by Lyon LLC. William Harwell Lyon disclaims beneficial ownership of such securities, except to the extent of his pecuniary interest therein. The address of Lyon LLC is 4490 Von Karman Avenue, Newport Beach, California 92660.
(5)Represents (i) 204,906 shares of Class D Common Stock subject to options exercisable within 60 days of March 11, 2013 and (ii) 236,934 restricted shares of Class D Common Stock.
(6)Represents 24,199 shares of Class A Common Stock held by The William Harwell Lyon Separate Property Trust established July 28, 2000. William Harwell Lyon (our Chief Executive Officer and Director) is Trustee of the trust and holds voting and dispositive power over these shares. William Harwell Lyon disclaims beneficial ownership over these shares except to the extent of his pecuniary interest therein. The address of The William Harwell Lyon Separate Property Trust is c/o William H. Lyon, PO Box 8858, Newport Beach, CA 92658-8858.
(7)Represents (i) 1,259,573 shares of Class D Common Stock subject to options exercisable within 60 days of March 11, 2013 and (ii) 1,151,816 restricted shares of Class D Common Stock.
(8)Represents (i) 562,493 shares of Class D Common Stock subject to options exercisable within 60 days of March 11, 2013 and (ii) 612,965 restricted shares of Class D Common Stock.
(9)Represents restricted shares of Class D Common Stock.
(10)On December 5, 2012, the Company cancelled Mr. Redleaf’s grant of 57,000 restricted shares of Class D Common Stock, and Mr. Redleaf no longer holds this Restricted Stock grant.
(11)Represents (i) 4,944,164 shares of Class D Common Stock and (ii) 3,171,530 shares of Class D Common Stock subject to options exercisable within 60 days of March 11, 2013.
(12)Luxor Capital Group, LP acts as the investment manager of proprietary private investment funds and separately managed accounts that own the shares, collectively referred to as the “Luxor Investors.” Luxor Management, LLC is the general partner of Luxor Capital Group, LP. Christian Leone is the managing member of Luxor Management, LLC. Luxor Capital Group, LP, Luxor Management, LLC and Christian Leone are deemed to have shared voting and dispositive power over the securities held by each of the Luxor Investors. The address of Luxor Capital Group, LP is 1114 Avenue of the Americas, 29th Floor, New York City, New York 10036.
(13)Represents shares held by ColFin WLH Land Acquisitions, LLC, a Delaware limited liability company, or “ColFin.” ColFin is indirectly managed and controlled by Colony Capital, LLC, a registered investment advisor. Thomas J. Barrack, Jr. is Chief Executive Officer and the sole managing member of Colony Capital, LLC, with sole voting and dispositive power over the securities held by ColFin. As a result, Mr. Barrack may be deemed to have indirect beneficial ownership of the shares held by ColFin through ultimate control over the entities that own or control ColFin, but the foregoing disclosure shall not be construed as an admission of such. The address of Colony Capital, LLC is 2450 Broadway, 6th Floor, Santa Monica, CA 90404.
(14)Paulson & Co. Inc. is an investment advisor registered under the Investment Advisors Act of 1940 that furnishes investment advice to and manages various onshore and offshore investment funds and separately managed accounts, or, collectively, the “Funds”. In its role as investment advisor and manager of the Funds, Paulson & Co. Inc. possesses voting and/or investment power over the ordinary shares owned by the Funds. As the President and sole Director of Paulson & Co. Inc., John Paulson may be deemed to have voting and/or investment power over such shares. The address for the Funds is c/o Paulson & Co. Inc., 1251 Avenue of the Americas, NY, NY 10020.

Equity Compensation Plan Information

The following table summarizes information about our equity securities that may be issued upon the exercise of options, warrants and rights under all our equity compensation plans, as of December 31, 2012:

Plan Category

  Number of
Securities
to be Issued
Upon
Exercise of
Outstanding
Options,
Warrants and
Rights
(a)		  Weighted-
Average
Exercise
Price of
Outstanding
Options,
Warrants
and Rights
(b)		  Number of
Securities
Remaining
Available
for Future
Issuance
Under Equity
Compensation
Plans
(Excluding
Securities
Reflected
in Column
(a))
(c)		 

Equity compensation plans approved by security holders

   20,494,596(1)  $1.83(2)   6,442,970(3) 

Equity compensation plans not approved by security holders

   —     $—      —    
  

 

 

  

 

 

  

 

 

 

Total

   20,494,596   $1.83    6,442,970  

(1)Represents an outstanding warrant to purchase 15,737,294 shares of the Company’s Class B common stock, and an aggregate of 4,757,302 outstanding options to purchase shares of Class D common stock of the Company, of which 1,115,302 represent “five-year” options and 3,642,000 represent “ten-year” options granted to certain officers of California Lyon.
(2)Represents the weighted average exercise price of an outstanding warrant to purchase 15,737,294 shares of the Company’s Class B common stock at $2.07 per share and 4,757,302 outstanding options to purchase shares of Class D common stock of the Company at $1.05 per share.
(3)Represents the number of securities remaining available for issuance under the Company’s 2012 Equity Incentive Plan.

Item 13.Certain Relationships and Related Transactions, and Director Independence

Policies and Procedures for Review, Approval or Ratification of Transactions with Related Persons

Our board of directors plans to adopt a written statement of policy for the evaluation of and the approval, disapproval and monitoring of transactions involving us and “related persons.” For purposes of this policy, “related persons” will include our executive officers, directors and director nominees or their immediate family members, or stockholders owning five percent or more of our voting securities.

Our related person transactions policy will require:

that any transaction in which a related person has a material direct or indirect interest and which exceeds $120,000, such transaction referred to as a “related person transaction,” and any material amendment or modification to a related person transaction, be evaluated and approved or ratified by our audit committee or by the disinterested members of the audit committee; and

that any employment relationship or transaction involving an executive officer and any related compensation solely resulting from that employment relationship or transaction must be approved by the compensation committee of our board of directors or recommended by the compensation committee to the board of directors for its approval.

In connection with the review and approval or ratification of a related person transaction:

management must disclose to the audit committee or the disinterested members of the audit committee, as applicable, the material terms of the related person transaction, including the approximate dollar value of the amount involved in the transaction, and all the material facts as to the related person’s direct or indirect interest in, or relationship to, the related person transaction;

management must advise the audit committee or the disinterested members of the audit committee, as applicable, the material terms of the related person transaction, including the approximate dollar value of the amount involved in the transaction, and all the material facts as to the related person’s direct or indirect interest in, or relationship to, the related person transaction;

management must advise the audit committee or the disinterested members of the audit committee, as applicable, as to whether the related person transaction will be required to be disclosed in our SEC filings. To the extent it is required to be disclosed, management must ensure that the related person transaction is disclosed in accordance with SEC rules; and

management must advise the audit committee or the disinterested members of the audit committee, as applicable, as to whether the related person transaction constitutes a “personal loan” for purposes of Section 402 of Sarbanes-Oxley.

In addition, the related person transaction policy will provide that the audit committee, in connection with any approval or ratification of a related person transaction involving a non-employee director or director nominee, should consider whether such transaction would compromise the director or director nominee’s status as an “independent,” “outside” or “non-employee” director, as applicable, under the rules and regulations of the SEC, the NYSE and the Internal Revenue Code of 1986, as amended.

Employment Agreements

We have entered into employment agreements with certain of our executive officers. For more information regarding these agreements, see Item 11 of this Annual Report, “Compensation Discussion and Analysis—Employment Agreements and Severance Benefits.”

Indemnification Agreements and Liability Insurance Policy

The company has entered into indemnification agreements with certain of our executive officers and each of our directors pursuant to which the company has agreed to indemnify such executive officers and directors against liability incurred by them by reason of their services as an executive officer or director to the fullest extent allowable under applicable law. We also provide liability insurance for each director and officer for certain losses arising from claims or charges made against them while acting in their capacities as our directors or officers.

Certain Relationships and Transactions

We describe below transactions and series of similar transactions that have occurred this year or during our last three fiscal years to which we were a party or will be a party in which:

the amounts involved exceeded or will exceed $120,000; and

a director, executive officer, holder of more than 5% of our voting securities or any member of their immediate family had or will have a direct or indirect material interest.

The following persons and entities that participated in the transactions listed in this section were related persons at or immediately following the time of the transaction.

General William Lyon.General Lyon is our Executive Chairman and Chairman of our board of directors.

William H. Lyon.Mr. Lyon is our Chief Executive Officer and a member of our board of directors.

Matthew R. Niemann. Mr. Niemann is a member of our board of directors.

Luxor Capital Group LP. Entities affiliated with Luxor Capital Group LP hold over 5% of our outstanding capital stock.

Colony Capital, LLC. Entities affiliated with Colony Capital, LLC hold over 5% of our outstanding Class A Common Stock.

Paulson & Co. Inc.An entity affiliated with Paulson & Co. Inc. holds over 5% of our outstanding Class A Common Stock and 5% of our Convertible Preferred Stock.

Payments Made to an Entity Where a Company Director is an Officer and Shareholder

Matthew R. Niemann, a member of our board of directors, serves as Managing Director and Head of Houlihan Lokey Howard & Zukin Financial Advisors, Inc.’s, or Houlihan, Real Estate Advisory Group and owns shares of Houlihan. Houlihan received payments from the Company in 2011 and 2012 for services performed on behalf of creditors during the recent Chapter 11 restructuring, and for services performed related to the Company’s Senior Notes offering and debt refinancing. The Company paid $1.2 million and $0.2 million to Houlihan during the years ended December 31, 2011 and 2012, respectively.

Transactions with Certain Beneficial Owners

On February 25, 2012, in connection with the consummation of the principal transactions contemplated by the Company’s Prepackaged Joint Plan of Reorganization, or the Plan, entities affiliated with Luxor Capital Group LP, or Luxor, acquired (i) 21,427,135 shares of Parent’s Class A Common Stock, in exchange for the old senior notes held, (ii) 15,445,838 shares of Parent’s Class C Common Stock for approximately $9.5 million in cash consideration and (iii) 61,509,204 shares of Parent’s Convertible Preferred Stock for approximately $47.4 million in cash. As of March 11, 2013, Luxor holds approximately 37.1% of the total voting power of Parent’s outstanding capital stock. See Note 2 of “Notes to Consolidated Financial Statements” for additional information. Nathaniel Redleaf, one of Parent’s directors, has served in an analyst capacity at Luxor Capital Group LP since 2006.

On June 28, 2012, California Lyon consummated the purchase of certain real property (comprising approximately 165 acres) in San Diego County, California; San Bernardino County, California; Maricopa County, Arizona; and Clark County, Nevada, representing seven separate residential for sale developments, comprising over 1,000 lots. The aggregate purchase price of the property was $21,500,000. The Company paid $11,000,000 cash, and issued 10,000,000 shares of Class A Common Stock of Parent, or approximately 18.3% of Parent’s then outstanding Class A Common Stock, to investment vehicles managed by affiliates of Colony Capital, LLC, or Colony, for consideration of the property. As of March 11, 2013, Colony holds approximately 3.8% of the total voting power of Parent’s outstanding capital stock.

California Lyon was a party to that certain Amended and Restated Senior Secured Term Loan Agreement, or the Amended Term Loan Agreement, dated February 25, 2012, with ColFin WLH Funding, LLC, as Administrative Agent and as a lender. ColFin WLH Funding, LLC is an affiliate of Colony. The principal amount outstanding under the Amended Term Loan Agreement was $235.0 million and bore interest at a rate of 10.25% per annum with interest payments were $24.1 million annually. California Lyon used a portion of the proceeds from the sale of its 8.5% Senior Notes due 2020 to pay in full the amounts outstanding under the Amended Term Loan Agreement.

On October 12, 2012, the Company entered into a Subscription Agreement, or the Subscription Agreement, between the Company and WLH Recovery Acquisition LLC, a Delaware limited liability company and investment vehicle managed by affiliates of Paulson & Co. Inc., or Paulson, pursuant to which, the Company issued to Paulson (i) 15,238,095 shares of the Company’s Class A Common Stock for $16,000,000 in cash and (ii) 12,173,913 shares of the Company’s Convertible Preferred Stock for $14,000,000 in cash, for an aggregate purchase price of $30,000,000. As of March 11, 2013, Paulson currently holds approximately 10.4% of the total voting power of Parent’s outstanding capital stock. Michael Barr, who was appointed as a member of our board of directors on November 7, 2012, to fill a newly created board seat in connection with the Subscription Agreement, is currently a partner of Paulson, which he joined in 2008.

Agreements with Entities Controlled by General William Lyon and William H. Lyon

For the years ended December 31, 2012, 2011, and 2010, the Company incurred reimbursable on-site labor costs of $303,000, $318,000, and $217,000, respectively, for providing customer service to real estate projects developed by entities controlled by General William Lyon and William H. Lyon, of which $7,000 and $24,000 was due to the Company at December 31, 2012 and 2011, respectively, all of which has been paid. The Company earned fees of $157,000, $130,000, and $24,000, respectively, for tax and accounting services performed for entities controlled by General William Lyon and William H. Lyon during the years ended December 31, 2012, 2011 and 2010. The Company does not expect to incur reimbursable on-site labor costs or to perform tax and accounting services for entities controlled by General William Lyon or William H. Lyon beyond 2012.

The Company earned fees of $232,000, $362,000, and $426,000 during the years ended December 31, 2012, 2011 and 2010, respectively, related to a Human Resources and Payroll Services contract between William Lyon Homes, Inc, and an entity controlled by General William Lyon and William H. Lyon. Effective April 1, 2011, the Company and this entity amended the Human Resources and Payroll Services contract to provide that the affiliate will now pay to the Company a base monthly fee of $21,335 and a variable monthly fee equal to $23 multiplied by the number of active employees employed by such entity (which will initially result in a variable monthly fee of approximately $8,000). The amended contract also provides that the Company will be reimbursed by such affiliate for a pro rata share of any bonuses paid to the Company’s Human Resources staff (other than any bonus paid to the Vice President of Human Resources). The Company believes that the compensation being paid to it for the services provided to the affiliate is at a market rate of compensation, and that as a result of the fees that are paid to the Company under this contract, the overall cost to the Company of its Human Resources department will be reduced. This contract expired on August 31, 2012 and was not renewed. Any future services provided to the affiliate will be on an as needed basis and will be paid for based on an hourly rate.

Rent Paid to a Trust of which William H. Lyon is the Sole Beneficiary

In each of the three years ended December 31, 2012, 2011 and 2010, the Company incurred charges of $0.8 million related to rent on the Company’s corporate office, which is owned by two trusts of which William H. Lyon is the sole beneficiary. For the year ended December 31, 2012, the Company has made rental payments totaling $0.8 million. The current lease expires in March 2013 and the Company has decided to relocate its corporate office upon expiration of the lease. The Company has entered into a lease for the new location with an unrelated third party.

Note Receivable from Sale of Aircraft

Presley CMR, Inc., a California corporation, or Presley CMR, and wholly owned subsidiary of California Lyon, entered into an Aircraft Purchase and Sale Agreement, or PSA, with an affiliate of General William Lyon to sell an aircraft owned by the Company. The PSA provides for an aggregate purchase price for the aircraft of $8.3 million (which value was the appraised fair market value of the aircraft), which consists of: (i) cash in the amount of $2.1 million which was paid at closing and (ii) a promissory note from the affiliate in the amount of $6.2 million, which is included in receivables in the accompanying consolidated balance sheet. The closing of this sale occurred on September 9, 2009. The note is secured by the aircraft. As part of the Company’s fresh start accounting, the note was adjusted to its fair value of $5.2 million. The discount on the fresh start adjustment is amortized over the remaining life of the note. The note requires semiannual interest payments to California Lyon of approximately $132,000. The note is due in September 2016.

Certain Family Relationships

William H. Lyon, one of the Company’s directors and the Chief Executive Officer of the Company, is the son of General William Lyon. General William Lyon is the Company’s Chairman of the board of directors and the Executive Chairman. Mr. Lyon’s compensation is disclosed in the Summary Compensation Table above.

Director Independence

Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, with us, our senior management and our independent registered public accounting firm, our board of directors has determined that all but two of our directors, General William Lyon and William H. Lyon, are independent directors under standards established by the SEC and the NYSE.

Item 14.Principal Accountant Fees and Services

The fees for professional services provided by KPMG, LLP and Windes & McClaughry in fiscal year 2012 and Windes & McClaughry in fiscal year 2011 were:

Type of Fees

  2012   2011 

Audit Fees

  $1,120,000    $278,000  

Tax Fees

   —       —    
  

 

 

   

 

 

 

Total Fees

  $1,120,000    $278,000  
  

 

 

   

 

 

 

In the above table, in accordance with the definitions of the SEC, “Audit Fees” include fees for the audit of the Company’s consolidated financial statements included in its Annual Report on Form 10-K, review of the unaudited financial statements included in its quarterly reports on Form 10-Q, comfort letters, consents, assistance with documents filed with the SEC, and accounting and reporting consultation in connection with the audit and/or quarterly reviews.

Pre-Approval Policies and Procedures: The Audit Committee has adopted a policy that requires advance approval of all audit, audit-related, tax services, and other services performed by the independent registered public accounting firm. The policy provides for pre-approval by the Audit Committee of specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to that year, the Audit Committee must approve the permitted service before the independent auditors are engaged to perform it. The Audit Committee has delegated to the Chair of the Audit Committee authority to approve permitted services provided that the Chair reports any decisions to the Committee at its next scheduled meeting.

The Audit Committee considered the compatibility of the provision of other services by its registered public accountants with the maintenance of their independence. The Audit Committee approved all audit and non-audit services provided by KPMG LLP in 2012 and by Windes & McClaughry in 2012 and 2011.

PART IV

Item 15.Exhibits and Financial Statement Schedules

(a)(1) Financial Statements

The following financial statements of the Company are included in a separate section of this Annual Report on Form 10-K commencing on the page numbers specified below:

Page

Financial Statements as of December 31, 2012 and 2011 and for the period from January 1, 2012 through February 24, 2012, the period from February 25, 2012 through December 31, 2012, and for the years ended December 31, 2011 and 2010

Consolidated Balance Sheets

F-4

Consolidated Statements of Operations

F-5

Consolidated Statements of Equity (Deficit)

F-6

Consolidated Statements of Cash Flows

F-7

Notes to Consolidated Financial Statements

F-9

(2) Financial Statement Schedules:

Financial Statement Schedules have been omitted because they are either not required or not applicable, or because the information required to be presented is included in the financial statements or the notes thereto included in this Annual Report.

(3) Listing of Exhibits:

EXHIBIT INDEX

Exhibit
Number

Description

  3.1Second Amended and Restated Certificate of Incorporation of William Lyon Homes (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the Commission on October 25, 2012).
  3.2Second Amended and Restated Bylaws of William Lyon Homes (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the Commission on October 25, 2012).
  3.3Certificate of Ownership and Merger (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on January 5, 2000).
  3.4Certificate of Ownership and Merger (incorporated by reference to the Company’s Annual Report on Form 10-K for the year-ended December 31, 2006).
  3.5

Articles of Incorporation of William Lyon Homes, Inc. (incorporated by reference to

William Lyon Homes, Inc.’s Form T-3 filed with the Commission on November 17, 2011).

  3.6

Bylaws of William Lyon Homes, Inc. (incorporated by reference to William Lyon Homes, Inc.’s

Form T-3 filed with the Commission on November 17, 2011).

  4.1Indenture, dated as of February 25, 2012, among William Lyon Homes, Inc., as Issuer, the Guarantors (as defined therein) and U.S. Bank National Association, as Note Trustee and Collateral Trustee (incorporated by reference to the Company’s Form T-3/A (Amendment No. 2) filed with the Commission on February 22, 2012).

Exhibit
Number

Description

  4.2Form of 12% Senior Subordinated Secured Note Due 2017 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
  4.3Supplemental Indenture dated as of November 8, 2012, by and between William Lyon Homes, Inc., William Lyon Homes, and certain of William Lyon Homes’ subsidiaries (as guarantors) and U.S. Bank National Association, as trustee (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on November 8, 2012).
  4.5Indenture (including form of 8.5% Senior Note due 2020), dated as of November 8, 2012, by and between William Lyon Homes, Inc., William Lyon Homes, certain of William Lyon Homes’ subsidiaries (as guarantors) and U.S. Bank National Association, as trustee (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on November 8, 2012).
10.1†Form of Indemnity Agreement, between William Lyon Homes, a Delaware corporation, and the directors and officers of William Lyon Homes (incorporated by reference to the Company’s Annual Report on Form 10-K for the year-ended December 31, 1999).
10.2Property Management Agreement between Corporate Enterprises, Inc., a California corporation (Owner) and William Lyon Homes, Inc., a California corporation (Manager) dated and effective November 5, 1999 (incorporated by reference to the Company’s Annual Report on Form 10-K for the year-ended December 31, 1999).
10.3Warranty Service Agreement between Corporate Enterprises, Inc., a California corporation and William Lyon Homes, Inc., a California corporation dated and effective November 5, 1999 (incorporated by reference to the Company’s Annual Report on Form 10-K for the year-ended December 31, 1999).
10.4Standard Industrial/Commercial Single-Tenant Lease—Net between William Lyon Homes, Inc. and a trust of which William H. Lyon is the sole beneficiary (incorporated by reference to the Company’s Annual Report on Form 10-K for the year-ended December 31, 2000).
10.5†The Presley Companies Non-Qualified Retirement Plan for Outside Directors (incorporated by reference to the Company’s Annual Report on Form 10-K for the year-ended December 31, 2002).
10.6Sixth Extension and Modification agreement dated December 30, 2011, by and between Circle G at the Church Farm North Joint Venture, LLC, an Arizona limited liability company, and U.S. Bank National Association, a national banking association (incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the Commission on August 10, 2012).
10.7Aircraft Purchase and Sale Agreement dated as of September 3, 2009, by and between Presley CMR, Inc., and Martin Aviation, Inc., or its designee (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on September 10, 2009).
10.8Secured Promissory Note dated September 9, 2009 from Martin Aviation, Inc., a California corporation payable to William Lyon Homes, Inc., a California corporation (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on September 10, 2009).
10.9Aircraft Mortgage and Security Agreement between Martin Aviation, Inc., a California corporation and William Lyon Homes, Inc., dated as of September 9, 2009 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on September 10, 2009).
10.10†Project Completion Bonus Plan (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on September 20, 2010).

Exhibit
Number

Description

10.11Form of Second Lien Notes Registration Rights Agreement, dated as of February 25, 2012, by and among William Lyon Homes, Inc. and the Holders (as defined therein) (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.12Form of Class A Common Stock Registration Rights Agreement, dated as of February 25, 2012, by and among William Lyon Homes and the Holders (as defined therein) (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.13Class B Common Stock and Warrant Purchase Agreement, dated as of February 25, 2012, by and between William Lyon Homes and the Purchaser (as defined therein) (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.14Warrant to Purchase Shares of Class B Common Stock of William Lyon Homes, dated as of February 25, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.15Class B Common Stock Registration Rights Agreement, dated as of February 25, 2012, by and among William Lyon Homes and the Holders (as defined therein) (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.16Form of Convertible Preferred Stock and Class C Common Stock Registration Rights Agreement, dated as of February 25, 2012, by and among William Lyon Homes and the Holders party thereto (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.17†Employment Agreement, dated as of February 25, 2012, by and among William Lyon Homes, William Lyon Homes, Inc. and General William Lyon (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.18†Employment Agreement, dated as of February 25, 2012, by and among William Lyon Homes, William Lyon Homes, Inc. and William H. Lyon (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.19Amended and Restated loan agreement, dated April 23, 2010, between Bank of the West, a California Banking Corporation, Mountain Falls, LLC, a Nevada limited liability company, and Mountain Falls Golf Course, LLC, a Nevada limited liability company (incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the Commission on August 10, 2012).
10.20Purchase and Sale Agreement and Joint Escrow Instructions, dated June 28, 2012, by and among ColFin WLH Land Acquisitions, LLC, a Delaware limited liability company, William Lyon Homes, Inc., a California corporation, and William Lyon Homes, a Delaware corporation (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.21†2011 Key Employee Bonus Program (incorporated by reference to Exhibit B to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 8, 2011).
10.22†William Lyon Homes 2012 Equity Incentive Plan (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.23†William Lyon Homes 2012 Equity Incentive Plan form of Stock Option Agreement (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).

Exhibit
Number

Description

10.24†William Lyon Homes 2012 Equity Incentive Plan form of Restricted Stock Award Agreement (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.25†Form of Employment Agreement, dated September 1, 2012, by William Lyon Homes, Inc. and each of Matthew R. Zaist, Colin T. Severn, Brian W. Doyle, Tom Hickcox, Mary Connelly, Rick Robinson, Carl Morabito, Terry Connelly and Julie Collins (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.26Registration Rights Agreement, dated November 8, 2012, by and between William Lyon Homes, certain of William Lyon Homes’ subsidiaries, and Credit Suisse Securities, as representative to the Initial Purchasers (as defined therein) (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.27Class A Common Stock and Convertible Preferred Stock Subscription Agreement, dated October 12, 2012, by and between William Lyon Homes and WLH Recovery Acquisition LLC (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.28Amendment of and Joinder to Class A Common Stock Registration Rights Agreement, dated October 12, 2012, by and between WLH Recovery Acquisition LLC and William Lyon Homes (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.29Amendment of and Joinder to Class A Common Stock Registration Rights Agreement, dated October 12, 2012, by and between ColFin WLH Land Acquisitions, LLC and William Lyon Homes (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.30Amendment of and Joinder to Convertible Preferred Stock and Class C Common Stock Registration Rights Agreement, dated October 12, 2012, by and between WLH Recovery Acquisition LLC and William Lyon Homes (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.31Construction Loan Agreement dated as of September 20, 2012 by and between Lyon Branches, LLC, a Delaware limited liability company and California Bank & Trust, a California banking corporation (incorporated by reference to the Company’s Quarterly Report for the quarter-ended September 30, 2012).
10.32Construction Loan Agreement dated as of September 26, 2012 by and between William Lyon Homes, Inc., a California corporation and California Bank & Trust, a California banking corporation (incorporated by reference to the Company’s Quarterly Report for the quarter-ended September 30, 2012).
12.1Statement Regarding the Computation of Ratio of Earnings (Loss) to Fixed Charges and Preferred Stock Dividends for the Period from January 1, 2012 through February 24, 2012, the Period from February 25, 2012 through December 31, 2012, and for the Years Ended December 31, 2011, 2010, 2009 and 2008.
16.1Letter from Windes & McClaughry Accountancy Corporation, as to the change in certifying accountant, dated as of August 9, 2012 (incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the Commission on August 10, 2012).
21.1List of Subsidiaries of the Company.

Exhibit
Number

Description

25.1Statement of Eligibility and Qualification of U.S. Bank National Association on Form T-1 (incorporated by reference to William Lyon Homes, Inc.’s Form T-3 filed with the Commission on November 17, 2011).
31.1*Certification of Principal Executive Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
31.2*Certification of Principal Financial Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
32.1*Certification of Principal Executive Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350
32.2*Certification of Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350
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 Linkbase Document

†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.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Newport Beach, State of California, on the 15th day of March, 2013.

WILLIAM LYON HOMES,
a Delaware corporation

By:

/S/ WILLIAM H. LYON

William H. Lyon

Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons in the capacities and on the dates indicated:

Signature

Title

Date

/s/ William H. Lyon

William H. Lyon

Chief Executive Officer, Director (Principal Executive Officer)

March 15, 2013

/S/ COLIN T. SEVERN

Colin T. Severn

Vice President, Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer)

March 15, 2013

General William Lyon

Chairman of the Board

/s/ Douglas K. Ammerman

Douglas K. Ammerman

Director

March 15, 2013

/s/ Michael Barr

Michael Barr

Director

March 15, 2013

/s/ Gary H. Hunt

Gary H. Hunt

Director

March 15, 2013

/s/ Matthew R. Niemann

Matthew R. Niemann

Director

March 15, 2013

/s/ Nathaniel Redleaf

Nathaniel Redleaf

Director

March 15, 2013

/s/ Lynn Carlson Schell

Lynn Carlson Schell

Director

March 15, 2013

INDEX TO FINANCIAL STATEMENTS

Page

Financial Statements as of December 31, 2012 and 2011 and for the period from January 1, 2012 through February 24, 2012, the period from February 25, 2012 through December 31, 2012, and for the years ended December 31, 2011 and 2010

Consolidated Balance Sheets

F-4

Consolidated Statements of Operations

F-5

Consolidated Statements of Equity (Deficit)

F-6

Consolidated Statements of Cash Flows

F-7

Notes to Consolidated Financial Statements

F-9

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

William Lyon Homes:

We have audited the accompanying consolidated balance sheet of William Lyon Homes and subsidiaries (the Company) as of December 31, 2012 (Successor), and the related consolidated statements of operations, equity (deficit) and cash flows for the periods from January 1, 2012 through February 24, 2012 (Predecessor) and February 25, 2012 through December 31, 2012 (Successor). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of William Lyon Homes and subsidiaries as of December 31, 2012 (Successor) and the results of their operations and their cash flows for the periods from January 1, 2012 through February 24, 2012 (Predecessor) and February 25, 2012 through December 31, 2012 (Successor) in conformity with U.S. generally accepted accounting principles.

As discussed in notes 2 and 3 to the consolidated financial statements, the Company entered into a plan of reorganization and emerged from bankruptcy on February 24, 2012. As a result of the reorganization, the Company applied fresh start accounting and the consolidated financial information for periods after the reorganization date is presented on a different cost basis than that for the periods before the reorganization and, therefore, is not comparable.

/s/ KPMG LLP

Irvine, California

March 15, 2013

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

William Lyon Homes

We have audited the accompanying consolidated balance sheets of William Lyon Homes (the “Company”) as of December 31, 2011, and the related consolidated statements of operations, equity (deficit) and cash flows for each of the two years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of William Lyon Homes as of December 31, 2011, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

As more fully described in Note 2, the Company filed for protection under Chapter 11 of the Bankruptcy Code on December 19, 2011 and emerged from bankruptcy on February 24, 2012. Accordingly, the accompanying consolidated financial statements as of December 31, 2011 and for the year then ended, which includes the impact of the period from December 19, through December 31, 2011, have been prepared in accordance with Accounting Standards Codification Topic 852,Reorganizations.The Company applied debtor in possession reporting for the period described above resulting in a lack of comparability with the prior financial statements.

/s/ WINDES & MCCLAUGHRY

Irvine, California

January 21, 2013

WILLIAM LYON HOMES

CONSOLIDATED BALANCE SHEETS

(in thousands except number of shares and par value per share)

   Successor   Predecessor 
   December 31, 
   2012   2011 
ASSETS     

Cash and cash equivalents — Note 1

  $71,075    $20,061  

Restricted cash — Note 1

   853     852  

Receivables

   14,789     13,732  

Real estate inventories — Note 7

     

Owned

   421,630     398,534  

Not owned

   39,029     47,408  

Deferred loan costs, net

   7,036     8,810  

Goodwill — Note 8

   14,209     —   

Intangibles, net of accumulated amortization of $5,757 as of December 31, 2012 — Note 9

   4,620     —   

Other assets, net

   7,906     7,554  
  

 

 

   

 

 

 

Total assets

  $581,147    $496,951  
  

 

 

   

 

 

 
LIABILITIES AND EQUITY (DEFICIT)     

Liabilities not subject to compromise

     

Accounts payable

  $18,735    $1,436  

Accrued expenses

   41,770     2,082  

Liabilities from inventories not owned — Note 15

   39,029     47,408  

Notes payable — Note 10

   13,248     74,009  

Senior Secured Term Loan due January 31, 2015 — Note 10

   —       206,000  

8 1/2% Senior Notes due November 15, 2020 — Note 10

   325,000     —    
  

 

 

   

 

 

 
   437,782     330,935  
  

 

 

   

 

 

 

Liabilities subject to compromise

     

Accounts payable

   —      3,946  

Accrued expenses

   —      48,457  

7 5/8% Senior Notes due December 15, 2012 — Note 10

   —      66,704  

10 3/4% Senior Notes due April 1, 2013 — Note 10

   —      138,912  

7 1/2% Senior Notes due February 15, 2014 — Note 10

   —      77,867  
  

 

 

   

 

 

 
   —       335,886  
  

 

 

   

 

 

 

Commitments and contingencies — Note 19

     

Redeemable convertible preferred stock — Note 16:

     

Redeemable convertible preferred stock, par value $0.01 per share; 80,000,000 shares authorized; 77,005,744 shares issued and outstanding at December 31, 2012

   71,246     —   

Equity (deficit):

     

William Lyon Homes stockholders’ equity (deficit) — Note 17

     

Common stock (Predecessor), par value $0.01 per share; 3,000 shares authorized; 1,000 shares outstanding at December 31, 2011

   —      —   

Common stock, Class A, par value $0.01 per share; 340,000,000 shares authorized; 70,121,378 shares issued and outstanding at December 31, 2012

   701     —   

Common stock, Class B, par value $0.01 per share; 50,000,000 shares authorized; 31,464,548 shares issued and outstanding at December 31, 2012

   315     —   

Common stock, Class C, par value $0.01 per share; 120,000,000 shares authorized; 16,020,338 shares issued and outstanding at December 31, 2012

   160     —   

Common stock, Class D, par value $0.01 per share; 30,000,000 shares authorized; 2,499,293 shares outstanding at December 31, 2012

   25     —   

Additional paid-in capital

   73,113     48,867  

Accumulated deficit

   (11,602)    (228,383) 
  

 

 

   

 

 

 

Total William Lyon Homes stockholders’ equity (deficit)

   62,712     (179,516) 

Noncontrolling interest — Note 5

   9,407     9,646  
  

 

 

   

 

 

 

Total equity (deficit)

   72,119     (169,870) 
  

 

 

   

 

 

 

Total liabilities and equity (deficit)

  $581,147    $496,951  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

WILLIAM LYON HOMES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except number of shares and per share data)

   Successor   Predecessor 
   Period from
February 25
through
December  31,
2012		   Period from
January 1
through
February  24,
2012		  Year Ended
December 31,		 
     
     
     
     2011  2010 

Operating revenue

       

Home sales

  $244,610    $16,687   $207,055   $266,865  

Lots, land and other sales

   104,325     —      —      17,204  

Construction services — Note 1

   23,825     8,883    19,768    10,629  
  

 

 

   

 

 

  

 

 

  

 

 

 
   372,760     25,570    226,823    294,698  
  

 

 

   

 

 

  

 

 

  

 

 

 

Operating costs

       

Cost of sales — homes

   (203,203)    (14,598)   (184,489)   (225,751) 

Cost of sales — lots, land and other

   (94,786)    —      (4,234)   (20,426) 

Impairment loss on real estate assets — Note 7

   —       —      (128,314)   (111,860) 

Construction services — Note 1

   (21,416)    (8,223)   (18,164)   (7,805) 

Sales and marketing

   (13,928)    (1,944)   (16,848)   (19,746) 

General and administrative

   (26,095)    (3,302)   (22,411)   (25,129) 

Amortization of intangible assets — Note 9

   (5,757)    —      —      —    

Other

   (2,909)    (187)   (3,983)   (2,740) 
  

 

 

   

 

 

  

 

 

  

 

 

 
   (368,094)    (28,254)   (378,443)   (413,457) 
  

 

 

   

 

 

  

 

 

  

 

 

 

Equity in income of unconsolidated joint ventures

   —       —      3,605    916  
  

 

 

   

 

 

  

 

 

  

 

 

 

Operating income (loss)

   4,666     (2,684)   (148,015)   (117,843) 

(Loss) gain on extinguishment of debt — Note 10

   (1,392)    —      —      5,572  

Interest expense, net of amounts capitalized — Note 1

   (9,127)    (2,507)   (24,529)   (23,653) 

Other income, net

   1,528     230    838    57  
  

 

 

   

 

 

  

 

 

  

 

 

 

Loss before reorganization items and (provision) benefit from income taxes

   (4,325)    (4,961)   (171,706)   (135,867) 

Reorganization items, net — Note 4

   (2,525)    233,458    (21,182)   —    
  

 

 

   

 

 

  

 

 

  

 

 

 

(Loss) income before (provision) benefit from income taxes

   (6,850)    228,497    (192,888)   (135,867) 

(Provision) benefit from income taxes — Note 13

   (11)    —      (10)   412  
  

 

 

   

 

 

  

 

 

  

 

 

 

Net (loss) income

   (6,861)    228,497    (192,898)   (135,455) 

Less: Net income attributable to noncontrolling interest

   (1,998)    (114)   (432)   (1,331) 
  

 

 

   

 

 

  

 

 

  

 

 

 

Net (loss) income attributable to William Lyon Homes

   (8,859)    228,383    (193,330)   (136,786) 

Preferred stock dividends

   (2,743)    —      —      —    
  

 

 

   

 

 

  

 

 

  

 

 

 

Net (loss) income available to common stockholders

  $(11,602)   $228,383   $(193,330)  $(136,786) 
  

 

 

   

 

 

  

 

 

  

 

 

 

(Loss) income per common share, basic and diluted

  $(0.11)   $228,383   $(193,330)  $(136,786) 

Weighted average common shares outstanding, basic and diluted

   103,037,842     1,000    1,000    1,000  

See accompanying notes to consolidated financial statements

WILLIAM LYON HOMES

CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)

(in thousands)

   William Lyon Homes Stockholders  Non-
Controlling
Interest		  Total 
  Common Stock   Additional
Paid-In
Capital		  Retained
Earnings
(Accumulated
Deficit)		   
       
       
  Shares  Amount      

Balance — December 31, 2009 (Predecessor)

   1   $—     $48,867   $101,733   $7,599   $158,199  

Cash contributions to members of consolidated entities

   —      —       —      —      6,546    6,546  

Cash distributions to members of consolidated entities

   —      —       —      —      (3,913)   (3,913) 

Net (loss) income

   —      —       —      (136,786)   1,331    (135,455) 
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance — December 31, 2010 (Predecessor)

   1    —       48,867    (35,053)   11,563    25,377  

Cash contributions to members of consolidated entities

   —      —       —      —      6,605    6,605  

Cash distributions to members of consolidated entities

   —      —       —      —      (8,954)   (8,954) 

Net (loss) income

   —      —       —      (193,330)   432    (192,898) 
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance — December 31, 2011 (Predecessor)

   1    —       48,867    (228,383)   9,646    (169,870) 

Cash contributions to members of consolidated entities

   —      —       —      —      1,825    1,825  

Cash distributions to members of consolidated entities

   —      —       —      —      (1,897)   (1,897) 

Net (loss) income

   —      —       —      (7,201)   114    (7,087) 
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance — February 24, 2012 (Predecessor)

   1    —       48,867    (235,584)   9,688    (177,029) 

Cancellation of predecessor common stock

   (1)   —       —      —      —      —    

Plan of reorganization and fresh start valuation adjustments

   —      —       —      186,717    (1,588)   185,129  

Elimination of predecessor accumulated deficit

   —      —       (48,867)   48,867    —      —    
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance — February 24, 2012 (Predecessor)

   —      —       —      —      8,100    8,100  

Issuance of new common stock in connection with emergence from Chapter 11

   92,368    924     43,191    —      —      44,115  
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance — February 24, 2012 (Successor)

   92,368    924     43,191    —     8,100    52,215  

Net (loss) income

   —      —       —      (8,859)   1,998    (6,861) 

Cash contributions to members of consolidated entities

   —      —       —      —      15,313    15,313  

Cash distributions to members of consolidated entities

   —      —       —      —      (16,004)   (16,004) 

Issuance of common stock

   25,239    252     26,248    —      —      26,500  

Issuance of restricted stock

   2,499    25     (25)   —      —      —    

Stock based compensation

   —      —       3,699    —      —      3,699  

Preferred stock dividends

   —      —       —      (2,743)   —      (2,743) 
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance — December 31, 2012 (Successor)

   120,106   $1,201    $73,113   $(11,602)  $9,407   $72,119  
  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

See accompanying notes to consolidated financial statements

WILLIAM LYON HOMES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

   Successor   Predecessor 
  Period from
February 25
through
December  31,
2012		   Period from
January 1
through
February  24,
2012		  Year Ended
December 31,		 
     2011  2010 

Operating activities

       

Net (loss) income

  $(6,861)   $228,497   $(192,898)  $(135,455) 

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

       

Depreciation and amortization

   6,631     586    3,875    3,718  

Impairment loss on real estate assets

   —       —      128,314    111,860  

Stock based compensation expense

   3,699     —      —      —    

Equity in income of unconsolidated joint ventures

   —       —      (3,605)   (916) 

Loss on sale of fixed asset

   —       —      83    122  

Reorganization items:

       

Cancellation of debt

   —       (298,831)   —      —    

Plan implementation and fresh start adjustments

   —       49,302    —      —    

Write-off of deferred loan costs

   —       8,258    —      —    

Accrued professional fees

   —       —      1,000    —    

Loss (gain) on extinguishment of debt

   1,104     —      —      (5,572) 

Net changes in operating assets and liabilities:

       

Restricted cash

   (1)    —      (211)   3,711  

Receivables

   (2,924)    941    4,767    (2,205) 

Income tax refunds receivable

   —       —      —      107,401  

Real estate inventories — owned

   30,256     (7,047)   18,151    (66,317) 

Real estate inventories — not owned

   7,129     1,250    —      —    

Other assets

   605     206    (4,422)   15,898  

Accounts payable

   7,706     4,618    (1,522)   (4,142) 

Accrued expenses

   9,778     (3,851)   7,817    (3,984) 

Liabilities from real estate inventories not owned

   (7,129)    (1,250)   —      —    
  

 

 

   

 

 

  

 

 

  

 

 

 

Net cash provided by (used in) operating activities

   49,993     (17,321)   (38,651)   24,119  
  

 

 

   

 

 

  

 

 

  

 

 

 

Investing activities

       

Investment in and advances to unconsolidated joint ventures

   —       —      —      (194) 

Distributions from unconsolidated joint ventures

   —       —      1,435    4,183  

Cash paid for acquisitions, net

   (33,201)    —      —      —    

Purchases of property and equipment

   (312)    —      (128)   (64) 
  

 

 

   

 

 

  

 

 

  

 

 

 

Net cash (used in) provided by investing activities

   (33,513)    —      1,307    3,925  
  

 

 

   

 

 

  

 

 

  

 

 

 

WILLIAM LYON HOMES

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(in thousands)

   Successor   Predecessor 
  Period from
February 25
through
December  31,
2012		   Period from
January 1
through
February  24,
2012		  Year Ended
December 31,		 
     2011  2010 

Financing activities

       

Proceeds from borrowings on notes payable

   13,248     —       —       7,087  

Proceeds from issuance of 8 1/2% Senior Notes

   325,000     —       —       —     

Principal payments on notes payable

   (73,676)    (616)   (11,532)   (52,797) 

Principal payments on Senior Secured Term Loan

   (235,000)    —       —       —     

Principal payments on Senior Subordinated Secured Notes

   (75,916)    —       —       —     

Proceeds from reorganization

   —        30,971    —       —     

Proceeds from issuance of convertible preferred stock

   14,000     50,000    —       —     

Proceeds from issuance of common stock

   16,000     —       —       —     

Proceeds from debtor in possession financing

   —        5,000    —       —     

Principal payment of debtor in possession financing

   —        (5,000)   —       —     

Payment of deferred loan costs

   (7,181)    (2,491)   —       —     

Net cash paid for repurchase of Senior Notes

   —        —       —       (31,268) 

Payment of preferred stock dividends

   (1,721)    —       —       —     

Noncontrolling interest contributions

   15,313     1,825    6,605    6,546  

Noncontrolling interest distributions

   (16,004)    (1,897)   (8,954)   (3,913) 
  

 

 

   

 

 

  

 

 

  

 

 

 

Net cash (used in) provided by financing activities

   (25,937)    77,792    (13,881)   (74,345) 
  

 

 

   

 

 

  

 

 

  

 

 

 

Net (decrease) increase in cash and cash equivalents

   (9,457)    60,471    (51,225)   (46,301) 

Cash and cash equivalents — beginning of period

   80,532     20,061    71,286    117,587  
  

 

 

   

 

 

  

 

 

  

 

 

 

Cash and cash equivalents — end of period

  $71,075 ��  $80,532   $20,061   $71,286  
  

 

 

   

 

 

  

 

 

  

 

 

 

Supplemental disclosures:

       

Cash paid for professional fees relating to the reorganization

  $3,228    $7,813   $20,182   $—     
  

 

 

   

 

 

  

 

 

  

 

 

 

Supplemental disclosures of non-cash investing and financing activities:

       

Issuance of common stock related to land acquisition

  $10,500    $—      $—      $—     
  

 

 

   

 

 

  

 

 

  

 

 

 

Land contributed in lieu of cash for common stock

  $—       $4,029   $—      $—     
  

 

 

   

 

 

  

 

 

  

 

 

 

Distributions of real estate from unconsolidated joint ventures

  $—       $—      $800   $—     
  

 

 

   

 

 

  

 

 

  

 

 

 

Accretion of payable in kind dividends on convertible preferred stock

  $860    $—      $—      $—     
  

 

 

   

 

 

  

 

 

  

 

 

 

Preferred stock dividends, accrued

  $162    $—      $—      $—     
  

 

 

   

 

 

  

 

 

  

 

 

 

Net change in real estate inventories—not owned and liabilities from inventories not owned

  $—       $—      $7,862   $10,652  
  

 

 

   

 

 

  

 

 

  

 

 

 

Note payable issued in conjunction with land acquisition

  $—       $—      $
 		 
55,000		  
  		 $—     
  

 

 

   

 

 

  

 

 

  

 

 

 

See accompanying notes to consolidated financial statements

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Basis of Presentation and Significant Accounting Policies

Operations

William Lyon Homes, a Delaware corporation (“Parent” and together with its subsidiaries, the “Company”), are primarily engaged in designing, constructing and selling single family detached and attached homes in California, Arizona, Nevada and Colorado (under the Village Homes brand).

Basis of Presentation

We applied the accounting under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 852 (“ASC 852”), “Reorganizations,” as of February 24, 2012 (see Note 3). Therefore, our consolidated balance sheet as of December 31, 2012, which is referred to as that of the “Successor”, includes adjustments resulting from the reorganization and application of ASC 852 and is not comparable to our balance sheet as of December 31, 2011, which is referred to as that of the “Predecessor”. References to the “Successor” in the consolidated financial statements and the notes thereto refer to the Company after giving effect to the reorganization and application of ASC 852. References to the “Predecessor” refer to the Company prior to the reorganization and application of ASC 852.

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 December 31, 2012 and 2011 and revenues and expenses for the period from January 1, 2012 through February 24, 2012, period from February 25, 2012 through December 31, 2012, and years ended December 31, 2011 and 2010. 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, and fresh start accounting. The current economic environment increases the uncertainty inherent in these estimates and assumptions.

The 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 in which the Company is considered the primary beneficiary (see Note 5). 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.

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 accumulated 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. 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 approximately one to one and one quarter percent of the sales price of its homes against the possibility of future charges relating to its one-year limited warranty and similar potential claims. Factors that affect the Company’s warranty liability include the

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

number of homes under warranty, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. Changes in the Company’s warranty liability for the period from February 25, 2012 through December 31, 2012, period from January 1, 2012 through February 24, 2012, and the year ended December 31, 2011and 2010 are as follows (in thousands):

   Successor   Predecessor 
   Period from
February 25
through
December 31,
2012		   Period from
January 1
through
February 24,
2012		  Year Ended
December  31,		 
     2011  2010 

Warranty liability, beginning of period

  $14,000    $14,314   $16,341   $21,365  

Warranty provision during period

   2,731     187    2,380    2,574  

Warranty payments during period

   (3,216)    (845)   (4,699)   (8,277) 

Warranty charges related to pre-existing warranties during period

   802     199    292    679  

Fresh start adjustment

   —        145    —       —     
  

 

 

   

 

 

  

 

 

  

 

 

 

Warranty liability, end of period

  $14,317    $14,000   $14,314   $16,341  
  

 

 

   

 

 

  

 

 

  

 

 

 

Interest incurred under the Company’s debt obligations, as more fully discussed in Note 10, is capitalized to qualifying real estate projects under development. Any additional interest charges related to real estate projects not under development are expensed in the period incurred. Interest activity for the period from February 25, 2012 through December 31, 2012, period from January 1, 2012 through February 24, 2012, and the year ended December 31, 2011and 2010 are as follows (in thousands):

   Successor   Predecessor 
   Period from
February 25
through
December 31,
2012		   Period from
January 1
through
February 24,
2012		  Year Ended
December 31,		 
      2011  2010 

Interest incurred

  $30,526    $7,145   $61,464   $62,791  

Less: Interest capitalized

   (21,399)    (4,638)   (36,935)   (39,138) 
  

 

 

   

 

 

  

 

 

  

 

 

 

Interest expense, net of amounts capitalized

  $9,127    $2,507   $24,529   $23,653  
  

 

 

   

 

 

  

 

 

  

 

 

 

Cash paid for interest

  $26,560    $8,924   $48,018   $59,748  
  

 

 

   

 

 

  

 

 

  

 

 

 

Construction Services

The Company accounts for construction management agreements using thePercentage of Completion Method in accordance with FASB ASC Topic 605Revenue 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.

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Financial Instruments

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash investments, receivables, and deposits. The Company typically places its cash investments 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 19.

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 December 31, 2012 and 2011. The Company monitors the cash balances in its operating accounts and adjusts the cash balances as appropriate; 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.

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 cost and are primarily amortized to interest expense 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 five reporting segments, as discussed in Note 6, and we will perform an annual goodwill impairment analysis during the fourth quarter of each fiscal year, with the first annual testing carried out in the fourth quarter of fiscal year 2012.

Intangible Assets

Recorded intangible assets primarily relate to construction management contracts, homes in backlog, and joint venture management fee contracts recorded in conjunction with ASC 852. Such assets 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.

Income (loss) per common share

The Company computes income (loss) per common share in accordance with FASB ASC Topic 260,Earnings per Share, which requires income (loss) 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 (loss) between the holders of common stock and a company’s participating security holders.

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Basic income (loss) 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 (loss) per common share, basic income (loss) per common share is further adjusted to include the effect of potential dilutive common shares outstanding.

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. The Company has taken positions in certain taxing jurisdictions for which it is more likely than not that previously unrecognized tax benefits will be recognized. 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 2011, the FASB issued ASU 2011-04,Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.This ASU represents the converged guidance of the FASB and the IASB (the Boards) on fair value measurement and results in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” Our adoption of these new provisions of ASU 2011-04 on January 1, 2012 did not have an impact on our consolidated financial statements.

In 2012, the FASB issued ASU 2012-02,Intangibles – Goodwill and Other(Topic 350):Testing Indefinite-Lived Intangible Assets for Impairment. The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30. Previous guidance required an entity to test indefinite-lived intangible assets for impairment, on at least an annual basis, by comparing the fair value of the asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. An entity has the option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that the asset is impaired. For the year ended December 31, 2012, the Company did not elect to use qualitative assessment option permitted by this amendment; however, the Company anticipates using the qualitative assessment option in future periods.

Reclassifications

Certain balances on the financial statements and certain amounts presented in the notes have been reclassified in order to conform to current year presentation.

Note 2—Emergence from Chapter 11

On December 19, 2011, William Lyon Homes (the “Company”) and certain of its direct and indirect wholly-owned subsidiaries filed voluntary petitions, under chapter 11 of Title 11 of the United States Code, as

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

amended (the “Chapter 11 Petitions”), in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) to seek approval of the Prepackaged Joint Plan of Reorganization (the “Plan”) of the Company and certain of its subsidiaries. The Chapter 11 Petitions were jointly administered under the captionIn re William Lyon Homes, et al., Case No. 11-14019 (the “Chapter 11 Cases”). The sole purpose of the Chapter 11 Cases was to restructure the Company’s debt obligations and strengthen its balance sheet.

On February 10, 2012, the Bankruptcy Court confirmed the Plan. On February 24, 2012, the Company and its subsidiaries consummated the principal transactions contemplated by the Plan, including:

the issuance of 44,793,255 shares of the Company’s new Class A Common Stock, $0.01 par value per share (“Class A Common Stock”) and $75 million aggregate principal amount of 12% Senior Subordinated Secured Notes due 2017 (“Second Lien Notes”) issued by the Company’s wholly-owned subsidiary, William Lyon Homes, Inc. (“Borrower”) in exchange for the claims held by the holders of the formerly outstanding notes of Borrower;

the amendment of the Borrower’s loan agreement with ColFin WLH Funding, LLC and certain other lenders which resulted, among other things, in the increase in the principal amount outstanding under the loan agreement, the reduction in the interest rate payable under the loan agreement, and the elimination of any prepayment penalty under the loan agreement;

the issuance, in exchange for cash and land deposits of $25 million, of 31,464,548 shares of the Company’s new Class B Common Stock, $0.01 par value per share (“Class B Common Stock”) and warrants to purchase 15,737,294 shares of Class B Common Stock;

the issuance of 64,831,831 shares of Parent’s new Convertible Preferred Stock, $0.01 par value per share, or Convertible Preferred Stock, for $50.0 million in cash, and 12,966,366 shares of Parent’s new Class C Common Stock, $0.01 par value per share or Class C Common Stock, for $10.0 million in cash. The aggregate cash consideration of $60 million was apportioned between Common and Preferred in accordance with the Plan; and

the issuance of an additional 3,144,000 shares of Class C Common Stock to Luxor Capital Group LP as a transaction fee in consideration for providing the backstop commitment of the offering of shares of Class C Common Stock and Convertible Preferred Stock in connection with the Plan.

Note 3—Fresh Start Accounting and Effects of the Plan

As required by U.S. GAAP, effective as of February 24, 2012, we adopted fresh start accounting following the guidance of ASC 852. Fresh start accounting results in the Company becoming a new entity for financial reporting purposes. Accordingly, our consolidated financial statements for periods prior to February 25, 2012 are not comparable to consolidated financial statements presented on or after February 25, 2012. Fresh start accounting was required upon emergence from Chapter 11 because holders of voting shares immediately before confirmation of the Plan received less than 50% of the emerging entity and the reorganization value of our assets immediately before confirmation of our Plan was less than our post-petition liabilities and allowed claims. Fresh start accounting results in a new basis of accounting and reflects the allocation of our estimated fair value to underlying assets and liabilities. Our estimates of fair value are inherently subject to significant uncertainties and contingencies beyond our reasonable control. Accordingly, there can be no assurance that the estimates, assumptions, valuations, appraisals and financial projections will be realized, and actual results could vary materially. Moreover, the market value of our common stock may differ materially from the equity valuation for accounting purposes under ASC 852. In addition, the cancellation of debt income and the allocation of the attribute reduction for tax purposes is an estimate and will not be finalized until the 2012 tax return is filed. Any change resulting from this estimate could impact deferred taxes.

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Under ASC 852, the Successor Company must determine a value to be assigned to the equity of the emerging company as of the date of adoption of fresh-start accounting, which was February 24, 2012 for the Company, the date the Debtors emerged from Chapter 11. To facilitate the adoption of fresh start accounting, the Company engaged a third-party valuation firm to assist with assessing enterprise value, and the allocation of value to the assets and liabilities of the Company. To calculate enterprise value, the Company used a discounted cash flow analysis, considering a weighted average cost of capital of 16.5%, and utilized a Gordon Growth model with a 3.0% growth rate to calculate terminal value. The analysis resulted in an enterprise value of $485.0 million, which was used as the enterprise value for fresh start accounting. The Company’s total debt was valued at $384.5 million, which consists of the following:

$6.3 million related to a construction note payable with an outstanding principal amount of $6.5 million, which reflects an adjustment of $(0.2) million. The Company discounted the contractual interest and principal payments using a risk adjusted rate of 12.5%.

$56.3 million related to a construction note payable with an outstanding principal amount of $55.0 million, which reflects an adjustment of $1.3 million. The Company discounted the contractual interest and principal payments using a risk adjusted rate of 12.5%.

$2.9 million related to a seller note arrangement that matured on March 1, 2012, 6 days after the plan of reorganization was approved. The payment was made in full, therefore the value of the note was the amount paid.

•

The remaining debt that was renegotiated as part of the Company’s plan of reorganization, consists of a construction note payable of $9.0 million, the $235.0 million Senior Secured Term Loan and the $75.0 million Senior Subordinated Secured Notes due 2017. In accordance with ASC 820,Fair Value Measurements and Disclosures, fair value is defined 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”. As these debt amounts were negotiated as part of the reorganization by market participants, their carrying value at that date is representative of fair value.

The enterprise value of the Company was $485.0 million, which includes $384.5 million fair value of debt, as detailed above, and $100.5 million of equity value. The value of each type of equity security was determined using an option pricing model used in accordance with ASC 718,Valuation of Stock Compensation,and treated the redeemable convertible preferred stock, the common stock and the common stock warrants as separate securities. Based on the rights and preferences of each security, the Company valued each security based on a series of five events:

(i)liquidation preference of the redeemable convertible preferred stock,

(ii)timing of participation of Class A and B shares of common stock,

(iii)timing of participation of Class C shares of common stock,

(iv)conversion of preferred shares into common shares, and

(v)exercise of warrants

The Company used an option pricing model and the relative rights of the securities to allocate the $100.5 million among the redeemable convertible preferred stock, the common stock and the warrants. Each security was valued based on the relative rights and preferences and a three year term to liquidity event, volatility of 59% based on public company comparables, a risk free rate of .43% based on a three year treasury rate. In addition, the redeemable convertible preferred stock has a dividend yield of 6% and the common stock and warrants have a discount for lack of marketability of 38%. Based on these inputs and the assumptions, the redeemable

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

convertible preferred stock was valued at $56.4 million, the common stock was valued at $43.1 million and the warrants were valued at $1.0 million.

The estimated enterprise value and the equity value are highly dependent on the achievement of the future financial results contemplated in the projections that were set forth in the disclosure statement to the Plan. The estimates and assumptions made in the valuation are inherently subject to significant uncertainties. The primary assumptions for which there is a reasonable possibility of the occurrence of a variation that would have significantly affected the reorganization value include the assumptions regarding the number of homes sold and homes closed, average sales prices, operating expenses, the amount and timing of construction costs and the discount rate utilized.

Fresh-start accounting reflects the value of the Successor as determined in the confirmed Plan. Under fresh-start accounting, asset values are remeasured and allocated based on their respective fair values in conformity with the purchase method of accounting for business combinations in FASB ASC Topic 805, “Business Combinations” (“FASB ASC 805”). Liabilities existing as of February 24, 2012, the Effective Date, other than deferred taxes, were recorded at the present value of amounts expected to be paid using appropriate risk adjusted interest rates. Deferred taxes were determined in conformity with applicable accounting standards. Predecessor accumulated depreciation, accumulated amortization and retained deficit were eliminated.

In conjunction with the adoption of fresh start accounting, certain intangible assets including, the value of the Company’s homes in backlog, construction management contracts and joint venture management fee contracts were recorded at their estimated fair values as of February 24, 2012 in the amount of $9.5 million. The Company’s backlog was valued using the With/Without Method of the Income Approach to estimate the fair value of the backlog. This asset is amortized on a straight line basis, as homes that were in backlog as of February 24, 2012, are closed or the contract is cancelled.

The construction management contracts and joint venture management fee contracts were valued using the Multi-period Excess Earnings method of the Income Approach to estimate the fair value. Since these assets are valued based on expected cash flows related to home closings, the asset is amortized on a straight line basis, as homes under the contracts close.

The following fresh start consolidated balance sheet presents the implementation of the Plan and the adoption of fresh start accounting as of the Effective Date. Reorganization adjustments have been recorded within the consolidated balance sheet to reflect the effects of the Plan, including discharge of liabilities subject to compromise and the adoption of fresh start accounting in accordance with ASC 852.

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

CONSOLIDATED BALANCE SHEETS

(in thousands except number of shares and par value per share)

   February 24, 2012 
   Predecessor  Plan of
Reorganization
Adjustments		  Fresh Start
Accounting
Adjustments		  Successor 
ASSETS     

Cash and cash equivalents

  $12,787   $67,746(a)  $—     $80,533  

Restricted cash

   852    —      —      852  

Receivables

   12,790    —      (996)(m)   11,794  

Real estate inventories

     

Owned

   405,632    4,029(b)   (1,198)(n)   408,463  

Not owned

   46,158    —      —      46,158  

Property & equipment, net

   962    —      (421)(o)   541  

Deferred loan costs

   8,258    (5,767)(c)   —      2,491  

Goodwill

   —      —      14,209(p)   14,209  

Intangibles

   —      —      9,470(q)   9,470  

Other assets

   6,307    47(d)   —      6,354  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total assets

  $493,746   $66,055   $21,064   $580,865  
  

 

 

  

 

 

  

 

 

  

 

 

 
LIABILITIES AND EQUITY (DEFICIT)     

Liabilities not subject to compromise

     

Accounts payable

  $10,000   $—     $—     $10,000  

Accrued expenses

   31,391    —      221(r)   31,612  

Liabilities from inventories not owned

   46,158    —      —      46,158  

Notes payable

   78,394    (5,000)(f)   1,100(s)   74,494  

Senior Secured Term Loan due January 31, 2015

   206,000    29,000(g)   —      235,000  

Senior Subordinated Secured Notes due February 25, 2017

   —      75,000(h)   —      75,000  
  

 

 

  

 

 

  

 

 

  

 

 

 
   371,943    99,000    1,321    472,264  
  

 

 

  

 

 

  

 

 

  

 

 

 

Liabilities subject to compromise

     

Accrued expenses

   15,297    (15,297)(e)   —      —    

75/8% Senior Notes due December 15, 2012

   66,704    (66,704)(e)   —      —    

103/4% Senior Notes due April 1, 2013

   138,964    (138,964)(e)   —      —    

71/2% Senior Notes due February 15, 2014

   77,867    (77,867)(e)   —      —    
  

 

 

  

 

 

  

 

 

  

 

 

 
   298,832    (298,832)   —      —    
  

 

 

  

 

 

  

 

 

  

 

 

 

Redeemable convertible preferred stock

   —      56,386(i)   —      56,386  

Equity (deficit):

     

William Lyon Homes stockholders’ equity (deficit)

     

Common stock, Class A

   —      448(j)   —      448  

Common stock, Class B

   —      315(j)   —      315  

Common stock, Class C

   —      161(j)   —      161  

Additional paid-in capital

   48,867    (21,177)(k)   15,501(t)   43,191  

Accumulated deficit

   (235,584)   229,754(l)   5,830(u)   —    
  

 

 

  

 

 

  

 

 

  

 

 

 

Total William Lyon Homes stockholder’s equity (deficit)

   (186,717)   209,501    21,331    44,115  

Noncontrolling interest

   9,688    —      (1,588)(v)   8,100  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total equity (deficit)

   (177,029)   209,501    19,743    52,215  
  

 

 

  

 

 

  

 

 

  

 

 

 

Total liabilities and equity (deficit)

  $493,746   $66,055   $21,064   $580,865  
  

 

 

  

 

 

  

 

 

  

 

 

 

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Notes to Plan of Reorganization and Fresh Start Accounting Adjustments:

aReflects net cash received of $81.0 million from the issuance of new equity, reduced by the repayment of DIP financing of $5.2 million, payment of financing fees of $2.6 million and other reorganization related costs of $5.4 million.

bReflects contribution of land option deposit in lieu of cash for Class B Common Stock.

cReflects the write-off of the remaining deferred loan costs of the Old Notes net of capitalization of deferred loan costs related to the Amended Term Loan.

dReflects prepaid property taxes to obtain title insurance for the second lien notes. Deferred tax assets are not reflected on the balance sheet as they have been fully reserved.

eReflects the extinguishment of liabilities subject to compromise (“LSTC”) at emergence. LSTC was comprised of $283.5 million of Old Notes and $15.3 million of related accrued interest. The holders of the Old Notes received Class A common stock of the Successor entity.

fReflects repayment of amounts outstanding under the DIP Credit Agreement pursuant to the Plan.

gReflects the additional principal added to the Amended Term Loan, in accordance with the Plan.

hReflects the issuance of Senior Subordinated Secured Notes of $75.0 million, in accordance with the Plan.

iReflects the fair value of the Convertible Preferred Stock issued pursuant to the Plan. The fair value of the total residual equity interest of $100.5 million was determined based on the enterprise value of $485.0 million determined as of the date of the plan, less the $384.5 million fair value of Long-Term debt. Cash received for the convertible preferred was $50.0 million, however as discussed previously, the Company valued the redeemable convertible preferred stock at $56.4 million.

jReflects the issuance of 92.4 million total shares in new common stock at $0.01 par value and the extinguishment of 1,000 shares ($0.01 par) of Old Common Stock, in accordance with the plan (see Note 2 for allocation of shares).

kReflects the elimination of $48.9 million of additional paid-in capital (“APIC”) relating to Old Common Stock, offset by $27.7 million of net cash received from the issuance of the Class B and Class C shares of common stock.

lReflects the elimination of $235.6 million of accumulated deficit of the Predecessor company in addition to the net impact of Plan adjustments to assets, liabilities and stockholder’s equity.

mReflects adjustment of $1.0 million to notes receivable with a book value of $6.2 million to fair value of $5.2 million using the discounted cash flow approach. The Company discounted the future interest to be received at a discount rate of 10%, which is above the stated rate of the note.

nReflects adjustment of $1.2 million to real estate inventory using the discounted cash flow approach. The Company used project forecasts and an unlevered discount rate of 20% to arrive at fair value. Certain projects that are held for future development were valued on an “As-Is” Basis using market comparables.

oReflects adjustment of $0.4 million to property and equipment with a book value of $1.0 million to fair value of $ $0.6 million, based on the estimated sales value of the assets determined on an “As Is” Basis using market comparables.

pGoodwill represents the excess of enterprise value upon emergence over fair value of net tangible and identifiable intangible assets acquired.

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

qReflects identifiable intangible assets comprised of $4.6 million relating to construction management contracts, $4.0 million relating to homes in backlog, and $0.8 million relating to joint venture management fees. The value of the construction management contracts and the joint venture management fees was estimated using the discounted cash flows of each related project at a discount rate ranging from 17% to 19%. The value of the backlog contracts was determined using the With/Without method of the income approach and the expected closing date of the home in backlog and the contracted sales price of the home.

rReflects adjustments to warranty and construction defect litigation liabilities which were valued based on the estimated costs of warranty spending on homes previously closed plus an estimated margin of 9.4%, plus a reasonable margin required to transfer the liability or to fulfill the obligation.

sReflects adjustment of one note payable of $(0.2) million, with a book value of $6.5 million to a fair value of $6.3 million. The Company used a discounted cash flow on contracted interest and principal to be received and a risk adjusted discount rate of 12.5%. Also reflects adjustment of one note payable of $1.3 million, with a book value of $55.0 million to a fair value of $56.3 million. The Company used a discounted cash flow on contracted interest and principal to be received and a risk adjusted discount rate of 12.5%.

tReflects the adjustment to a combined common stock and warrants value of $44.1 million for the calculation of fair value under the provisions of fresh start accounting, based on the remaining residual equity interest of $100.5 million, as discussed in note (i) above, less the allocation to convertible preferred of $56.4 million, as also discussed in note (i).

uReflects the elimination of a balance in accumulated deficit of $5.8 million to reduce any accumulated deficit or retained earnings in conjunction with fresh start accounting, which requires the successor entity to begin with a zero balance in retained earnings.

vReflects adjustment of $1.6 million to minority interest in a consolidated entity with a book value of $9.7 million to fair value of $8.1 million. The Company used a discounted cash flow approach to the project and the estimated cash to be distributed to the minority member of the entity, using a discount rate of 17.8%.

Reconciliation of enterprise value to the reorganized value of the Company’s assets and determination of goodwill (in thousands):

Total enterprise value

  $485,000  

Add: liabilities (excluding debt and equity)

   87,765  

Add: noncontrolling interest

   8,100  
  

 

 

 

Reorganization value of assets

   580,865  

Fair value of assets (excluding goodwill)

   566,656  
  

 

 

 

Reorganization value in excess of fair value (goodwill)

  $14,209  
  

 

 

 

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 4—Reorganization Items

In accordance with authoritative accounting guidance issued by the FASB, separate disclosure is required for reorganization items, such as certain expenses, provisions for losses and other charges directly associated with or resulting from the reorganization and restructuring of the business, which have been realized or incurred during the Chapter 11 Cases. Reorganization items were comprised of the following (in thousands):

   Successor   Predecessor 
   Period from
February 25
through
December 31,
2012		   Period from
January 1
through
February 24,
2012		       
      Year Ended
December 31,		 
      2011  2010 

Cancellation of debt

  $—       $298,831   $—      $—    

Plan implementation and fresh start valuation adjustments

   —        (49,302)   —       —    

Professional fees

   (2,525)    (7,813)   (21,182)   —    

Write-off of Old Notes deferred loan costs

   —        (8,258)   —       —    
  

 

 

   

 

 

  

 

 

  

 

 

 

Total reorganization items, net

  $(2,525)   $233,458   $(21,182)  $—    
  

 

 

   

 

 

  

 

 

  

 

 

 

Note 5—Variable Interest Entities and Noncontrolling Interests

The Company accounts for variable interest entities in accordance with ASC 810,Consolidation (“ASC 810”). Under ASC 810, a variable interest entity (“VIE”) is created when: (a) the equity investment at risk in the entity is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by other parties, including the equity holders; (b) the entity’s equity holders as a group either (i) lack the direct or indirect ability to make decisions about the entity, (ii) are not obligated to absorb expected losses of the entity or (iii) do not have the right to receive expected residual returns of the entity; or (c) the entity’s equity holders have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of the equity holder with disproportionately few voting rights. If an entity is deemed to be a VIE pursuant to ASC 810, the enterprise that has both (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb the expected losses of the entity or right to receive benefits from the entity that could be potentially significant to the VIE is considered the primary beneficiary and must consolidate the VIE. In accordance with ASC 810, we perform ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE.

Joint Ventures

As of December 31, 2012 and 2011, the Company had two and one joint ventures, respectively, which were deemed to be VIEs under ASC 810 for which the Company is considered the primary beneficiary. The Company manages the joint ventures, by using its sales, development and operations teams and has significant control over these projects and therefore the power to direct the activities that most significantly impact the joint venture’s performance, in addition to being obligated to absorb expected losses or receive benefits from the joint venture, and therefore the Company is deemed to be the primary beneficiary of these VIEs.

These joint ventures are each engaged in homebuilding and land development activities. Certain of these joint ventures have not obtained construction financing from outside lenders, but are financing their activities through equity contributions from each of the joint venture partners. The Company has no rights, nor does the Company have any obligation with respect to the liabilities of the VIEs, and none of the Company’s assets serve

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

as collateral for the creditors of these VIEs. The assets of the joint ventures are the sole collateral for the liabilities of the joint ventures and as such, the creditors and equity investors of these joint ventures have no recourse to assets of the Company held outside of these joint ventures. Creditors of these VIEs have no recourse against the general credit of the Company. The liabilities of each VIE are restricted to the assets of each VIE. Additionally, the creditors of the Company have no access to the assets of the VIEs. Income allocations and cash distributions to the Company are based on predetermined formulas between the Company and their joint venture partners as specified in the applicable partnership or operating agreements. The Company generally receives, after partners’ priority returns and return of partners’ capital, approximately 50% of the profits and cash flows from the joint ventures.

During the year ended December 31, 2012,2014, the Company formed athree joint venture, Lyon Branches, LLC,ventures, and during the year ended December 31, 2013, the Company formed two joint ventures, for the purpose of land development and homebuilding activities. The Company, as the managing member, has the power to direct the activities of the VIEVIEs since it manages the daily operations and has exposure to the risks and rewards of the VIE,VIEs, as based on the division of income and loss per the joint venture agreement.agreements. Therefore, the Company is the primary beneficiary of the joint venture,ventures, and the VIE wasVIEs were consolidated as of December 31, 2012.

2014 and December 31, 2013.

As of December 31, 2012,2014, the assets of the consolidated VIEs totaled $24.7$88.1 million, of which $1.1$3.3 million was cash and $20.4 was real estate inventories. The liabilities of the consolidated VIEs totaled $6.4 million, primarily comprised of accounts payable and accrued liabilities. The Company recorded a $1.6 million valuation adjustment to the noncontrolling interest account on one VIE in accordance with the adoption of ASC 852.

As of December 31, 2011, the assets of the consolidated VIEs totaled $14.0 million, of which $2.1 million was cash and $8.7$81.3 million was real estate inventories. The liabilities of the consolidated VIEs totaled $1.3$45.0 million, primarily comprised of notes payable, accounts payable and accrued liabilities.

As of December 31, 2013, the assets of the consolidated VIEs totaled $66.4 million, of which $4.7 million was cash and $56.8 million was real estate inventories. The liabilities of the consolidated VIEs totaled $27.1 million, primarily comprised of notes payable, accounts payable and accrued liabilities.
Note 6—5—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.

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. The Company’s Executive Chairman, Chief Executive Officer and Chief Operating Officer have been identified as the chief operating decision makers. The Company’s chief operating decision makers direct the allocation of resources to operating segments based on the profitability and cash flows of each respective segment.


F-17
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


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. InAs a result of the Acquisition of Polygon Northwest Homes and the establishment of a distinct operating division to serve the Inland Empire market in Southern California during the year ended December 31, 2014, the Company reorganized its business into six reporting segments during the year ended December 31, 2014, from the existing five segments at December 31, 2013. Southern California and Northern California were aggregated with the Inland Empire division, and the newly acquired Washington and Oregon segments were established. 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 fivesix reportable segments:
California, consisting of operating divisions in i) Southern California, consisting of an operating division with operations in Orange, Los Angeles, San Bernardino and San Diego counties; ii) Northern California, consisting of an operating division with operations in Alameda, Contra Costa, Sacramento, San Joaquin, and Santa Clara Solanocounties; and Placer counties; iii) Inland Empire, consisting of operations in Riverside and San Bernardino counties.
Arizona, consisting of operations in the Phoenix, Arizona metropolitan area; area.
Nevada, consisting of operations in the Las Vegas, Nevada metropolitan area; and area.
Colorado, consisting of operations in the Denver, Colorado metropolitan area, Fort Collins and Granby, Colorado. Colorado does not meetmarkets.
Washington, consisting of operations in the quantitative requirements for segment reporting per ASC 280, however management believes that information aboutSeattle, Washington metropolitan area.
Oregon, consisting of operations in the segment is useful to readers of the financial statements.

WILLIAM LYON HOMESPortland, Oregon metropolitan area.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Corporate develops and implements strategic initiatives and supports the Company’s operating divisionssegments 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):

   Successor   Predecessor 
   Period from
February 25
through
December 31,
2012		   Period from
January 1
through
February 24,
2012		   Year Ended December 31, 
       2011   2010 

Operating revenue:

        

Southern California

  $116,619    $7,759    $130,737    $206,241  

Northern California

   154,684     11,014     54,141     56,095  

Arizona

   58,714     4,316     20,074     16,595  

Nevada

   37,307     2,481     21,871     15,767  

Colorado

   5,436     —       —       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenue

  $372,760    $25,570    $226,823    $294,698  
  

 

 

   

 

 

   

 

 

   

 

 

 

   Successor   Predecessor 
   Period from
February 25
through
December 31,
2012		   Period from
January 1
through
February 24,
2012		  Year Ended December 31, 
      2011  2010 

(Loss) income before (provision) benefit from income taxes:

      

Southern California

  $3,345    $(19,131)  $(26,406)  $(83,176) 

Northern California

   16,179     6,195    (6,307)   (41) 

Arizona

   2,073     9,928    (95,184)   (26,887) 

Nevada

   (1,146)    (1,738)   (30,500)   (21,449) 

Colorado

   130     —      —      —    

Corporate

   (27,431)    233,243    (34,491)   (4,314) 
  

 

 

   

 

 

  

 

 

  

 

 

 

(Loss) income before (provision)
benefit from income taxes

  $(6,850)   $228,497   $(192,888)  $(135,867) 
  

 

 

   

 

 

  

 

 

  

 

 

 

(Loss) income before (provision) benefit from income taxes includes the following pretax inventory impairment charges recorded

 Successor Predecessor
 Year Ended December 31, 2014 Year Ended December 31, 2013 
Period from
February 25
through
December 31,
2012
 
Period from
January 1
through
February 24,
2012
 
Operating revenue:       
California (1)
$536,908
 $295,022
 $271,303
 $18,773
Arizona59,195
 129,089
 58,714
 4,316
Nevada121,815
 78,148
 37,307
 2,481
Colorado46,460
 70,276
 5,436
 —
Washington65,886
 —
 —
 —
Oregon66,415
 —
 —
 —
Total operating revenue$896,679
 $572,535
 $372,760
 $25,570

(1) Operating revenue in the following segments (in thousands):

   Successor   Predecessor 
   Period from
February 25
through
December 31,
2012		   Period from
January 1
through
February 24,
2012		   Year Ended
December 31,
2011		   Year Ended
December 31,
2010		 

Southern California

  $—      $—      $17,962    $70,801  

Northern California

   —       —       2,074     3,103  

Arizona

   —       —       87,607     22,409  

Nevada

   —       —       20,671     15,547  

Colorado

   —       —       —       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total impairment loss on real estate assets

  $—      $—      $128,314    $111,860  
  

 

 

   

 

 

   

 

 

   

 

 

 

California segment includes construction services revenue.


F-18
Table of Contents
WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

   Successor   Predecessor 
   December 31, 
   2012   2011 

Homebuilding assets:

    

Southern California

  $195,688    $182,781  

Northern California

   31,293     105,298  

Arizona

   173,847     129,920  

Nevada

   51,141     42,183  

Colorado

   37,668     —    

Corporate (1)

   91,510     36,769  
  

 

 

   

 

 

 

Total homebuilding assets

  $581,147    $496,951  
  

 

 

   

 

 

 



 Successor Predecessor
 Year Ended December 31, 2014 Year Ended December 31, 2013 Period from
February 25
through
December 31,
2012		 Period from
January 1
through
February 24,
2012
 
Income (loss) before (provision) benefit for income taxes:       
California$84,379
 $50,052
 $19,524
 $(12,936)
Arizona6,112
 17,861
 2,073
 9,928
Nevada9,925
 9,180
 (1,146) (1,738)
Colorado(271) 736
 130
 —
Washington6,483
 —
 —
 —
Oregon5,498
 —
 —
 —
Corporate(33,803) (24,528) (27,431) 233,243
Income (loss) before (provision) benefit
from income taxes
$78,323
 $53,301
 $(6,850) $228,497

 Successor
 December 31,
 2014 2013
Total assets:   
California$572,900
 $419,668
Arizona179,529
 157,892
Nevada135,358
 85,695
Colorado131,085
 60,233
Washington281,456
 —
Oregon200,761
 —
Corporate (1)173,338
 286,923
Total assets$1,674,427
 $1,010,411
(1)Comprised primarily of cash and cash equivalents, receivables, deferred loan costs, deferred income taxes, and other assets.

Note 7—6—Real Estate Inventories

Real estate inventories consist of the following (in thousands):

   Successor   Predecessor 
   December 31, 
  2012   2011 

Real estate inventories owned:

    

Land deposits

  $31,855    $26,939  

Land and land under development

   318,327     267,348  

Homes completed and under construction

   50,847     90,824  

Model homes

   20,601     13,423  
  

 

 

   

 

 

 

Total

  $421,630    $398,534  
  

 

 

   

 

 

 

Real estate inventories not owned: (1)

    

Other land options contracts — land banking arrangement

  $39,029    $47,408  
  

 

 

   

 

 

 

 Successor
 December 31,
2014 2013
Real estate inventories owned:   
Land deposits$65,873
 $46,632
Land and land under development1,057,860
 458,437
Homes completed and under construction225,496
 144,736
Model homes55,410
 21,985
Total$1,404,639
 $671,790
Real estate inventories not owned: (1)   
Other land options contracts — land banking arrangement$—
 $12,960

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WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


(1)Represents the consolidation of a land banking arrangement which does not obligate the Company to purchase the lots, however, based on certain factors, the Company has determined it is economically compelled to purchase the lots in the land banking arrangement, which has been consolidated. Amounts are net of deposits.

The Company accounts for its real estate inventories under FASB ASC 360,Property, Plant, & Equipment(“ASC 360”).

ASC 360 which requires impairment losses to be recorded on real estate inventories when indicators of impairment are present and the undiscounted cash flows estimated to be generated by real estate inventories are less than the carrying amount of such assets. Indicators of impairment include a decrease in demand for housing due to softening market conditions, competitive pricing pressures, which reduce the average sales price of homes including an increase in sales incentives offered to buyers, slowing sales absorption rates, decreases in home values in the markets in which the Company operates, significant decreases in gross margins and a decrease in project cash flows for a particular project.

For land, construction in progress, completed inventory, including model homes, and inventories not owned, the Company estimates expected cash flows at the project level by maintaining current budgets using recent

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

historical information and current market assumptions. The Company updates project budgets and cash flows of each real estate project on a quarterly basis to determine whether the estimated remaining undiscounted future cash flows of the project are more or less than the carrying amount (net book value) of the asset. If the undiscounted cash flows are more than the net book value of the project, then there is no impairment. If the undiscounted cash flows are less than the net book value of the asset, then the asset is deemed to be impaired and is written-down to its fair value.

Fair value represents the amount at which an asset could be bought or sold in a current transaction between willing parties (i.e., other than a forced or liquidation sale). Management determines the estimated fair value of each project by determining the present value of estimated future cash flows at discount rates that are commensurate with the risk of each project and each domain, market or sub-market or may use recent appraisals if they more accurately reflect fair value. The estimation process involved in determining if assets have been impaired and in the determination of fair value is inherently uncertain because it requires estimates of future revenues and costs, as well as future events and conditions. Estimates of revenues and costs are supported by the Company’s budgeting process, and are based on recent sales in backlog, pricing required to get the desired pace of sales, pricing of competitive projects, incentives offered by competitors and current estimates of costs of development and construction or current appraisals.

The Company engaged a third-party valuation firm to assist with the analysis of the fair value of the entity, and respective assets and liabilities in connection with its reorganization. In conjunction with the valuation of all of the assets of the Company, the Company re-set value on certain land holdings in the early stages of development, based on: (i) “as-is” development stages of the property instead of a discounted cash flow approach, (ii) relative comparables on similar stage properties that had recently sold, on a per acre basis, and (iii) location of the property, among other factors. Since the valuation was completed near December 31, 2011, management used such valuation to evaluate the book value as of December 31, 2011.

Under the provisions of FASB ASC 360, the Company is required to make certain assumptions to estimate undiscounted future cash flows of a project, which include: (i) estimated sales prices, including sales incentives, (ii) anticipated sales absorption rates and sales volume, (iii) project costs incurred to date and the estimated future costs of the project based on the project budget, (iv) the carrying costs related to the time a project is actively selling until it closes the final unit in the project, and (v) alternative strategies including selling the land to a third-party or temporarily suspending development at the project. Each project has different assumptions and is based on management’s assessment of the current market conditions that exist in each project location. The Company’s assumptions include moderate absorption increases in certain projects beginning in 2013. In addition, the Company has assumed some moderate reduction in sales incentives in certain projects in certain markets beginning in 2013.

The assumptions and judgments used by the Company in the estimation process to determine the future undiscounted cash flows of a project and its fair value are inherently uncertain and require a substantial degree of judgment. The realization of the Company’s real estate inventories is dependent upon future uncertain events and market conditions. Due to the subjective nature of the estimates and assumptions used in determining the future cash flows of a project, actual results could differ materially from current estimates.

Management assesses land deposits for impairment when estimated land values are deemed to be less than the agreed upon contract price. The Company considers changes in market conditions, the timing of land purchases, the ability to renegotiate with land sellers, the terms of the land option contracts in question, the availability and best use of capital, and other factors. The Company records abandoned land deposits and related pre-acquisition costs in cost of sales-lots, land and other in the consolidated statements of operations in the period that it is abandoned.

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


As of February 24, 2012, the Company made fair value adjustments to inventory in accordance with fresh start accounting. During the year ended December 31, 2014, the year ended December 31, 2013, and the period from February 25, 2012 through December 31, 2012, the Company did not record any impairments.

Note 7—Goodwill
As of December 31, 2014 and 2013, the Company had Goodwill of $60.9 million and $14.2 million, respectively. $14.2 million at December 31, 2014 and 2013, respectively represents the excess of enterprise value upon emergence from bankruptcy over the fair value of net tangible and identifiable intangible assets as of February 24, 2012. During the year ended December 31, 2011,2014, the Company recorded impairment loss on real estate assets$46.7 million of $128.3 million. The impairment loss related to land under development and homes completed and under construction recorded during the year ended December 31, 2011, resulted from (i)Goodwill in certain projects, a decrease in home sales prices related to increased incentives and (ii) a decrease in sales absorption rates which increased the length of time of the project and increased period costs relatedrelation to the project. The impairment loss relatedacquisition of Polygon Northwest Homes (refer to land held for future development or sold incurred during the year ended December 31, 2011, resulted from the reduced value of the land in the project. The Company values land held for future development using, (i) projected cash flows with the strategy of selling the land, on a finished or unfinished basis, or building out the project, (ii) considering recent, legitimate offers received, (iii) prices for land in recent comparable sales transactions, and other factors. For three of the Company’s projects which are entitled land categorized as “land held for future development” in the table above, the Company engaged a third-party valuation firm to value the land of each project, on an as-is basis, using several factors including the existing land sale market and market comparables as a barometer for each project.

Note 8—Goodwill

Goodwill of $14.2 million at December 31, 2012 represents the excess of our enterprise value upon emergence over the fair value of our net tangible and identifiable intangible assets. The Company recordedgoodwill of $14.2 million as of February 24, 2012 in connection with fresh start accounting(refer to Notes 2 3, and 4 for further details relating to fresh start accounting and valuationthe acquisition of goodwill)Polygon Northwest Homes).

Goodwill by operating segment as of December 31, 20122014 and 20112013 is as follows (in thousands):

   Successor   Predecessor 
   December 31, 
   2012   2011 

Southern California

  $4,885    $—    

Northern California

   1,916     —    

Arizona

   5,951     —    

Nevada

   1,457     —    

Colorado

   —       —    
  

 

 

   

 

 

 

Total goodwill

  $14,209    $—    
  

 

 

   

 

 

 

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 December 31,
 2014 2013
California$6,801
 $6,801
Arizona5,951
 5,951
Nevada1,457
 1,457
Washington26,485
 —
Oregon20,193
 —
Total goodwill$60,887
 $14,209
Note 9—8—Intangibles

The carrying value and accumulated amortization of intangible assets at December 31, 2012,2014 and December 31, 2013, by major intangible asset category, is as follows (in thousands):

   Successor 
   December 31, 2012 
   Carrying
Value		   Accumulated
Amortization		  Net
Carrying
Amount		 

Construction management contracts

  $4,640    $(1,295)  $3,345  

Homes in backlog

   4,937     (4,169)   768  

Joint venture management fee contracts

   800     (293)   507  
  

 

 

   

 

 

  

 

 

 

Total intangibles

  $10,377    $(5,757)  $4,620  
  

 

 

   

 

 

  

 

 

 

 December 31, 2014 December 31, 2013
 Carrying Value Accumulated Amortization 
Net
Carrying
Amount
 
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Amount
Construction management contracts$4,640
 $(3,683) $957
 $4,640
 $(2,274) $2,366
Homes in backlog4,937
 (4,937) —
 4,937
 (4,937) —
Joint venture management fee contracts800
 (800) —
 800
 (400) 400
Brand Name - Polygon Northwest Homes$6,700
 $—
 $6,700
 $—
 $—
 $—
Total intangibles$17,077
 $(9,420) $7,657
 $10,377
 $(7,611) $2,766
During the year ended December 31, 2014, the Company recorded an indefinite lived intangible asset relating to the Polygon Northwest Homes brand name. See Note 2 for further information. The Company evaluates indefinite lived intangible assets at least annually, or more frequently if events or circumstances exist that may indicate that the asset is impaired or that its life is finite.
Amortization expense related to intangible assets for the year ended December 31, 2014, the year ended December 31, 2013, and the period from February 25, 2012 through December 31, 2012 was $5.8 million.$1.8 million, $1.9 million and $5.8 million, respectively. There was no amortization expense related to intangible assets for the period from January 1, 2012 through

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WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


February 24, 2012 or prior, since intangible assets of $9.5$9.5 million were recorded in conjunction with ASC 852fresh start accounting and intangible assets of $0.9$6.7 million and $0.9 million were recorded in conjunction with the purchase of Polygon Northwest Homes on August 12, 2014 and Village Homes on December 7, 2012.

Estimated2012, respectively.

The Company estimates that its future amortization expense related to intangible assets is as follows (in thousands):

   Total 
   Amortization 

2013

  $1,725  

2014

   1,244  

2015

   1,651  
  

 

 

 

Total

  $4,620  
  

 

 

 

will be $1.0 million, and that it will be recorded entirely during 2015. The weighted average remaining useful life of the Company's amortizing intangible assets as of December 31, 20122014 is 246 months.

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 10—9—Senior Notes, Secured, and SecuredSubordinated Indebtedness

Notes payable consist

The Company's senior notes, secured, and subordinated indebtedness consists of the following (in thousands):

   Successor   Predecessor 
   December 31, 
   2012   2011 

Notes payable:

    

Notes payable

  $13,248    $74,009  
  

 

 

   

 

 

 

Senior Notes:

    

8  1/2% Senior Notes due November 15, 2020

   325,000     —    

Senior Secured Term Loan due Janaury 31, 2015

   —       206,000  

7  5/8% Senior Notes due December 15, 2012

   —       66,704  

10  3/4% Senior Notes due April 1, 2013

   —       138,912  

7  1/2% Senior Notes due February 15, 2014

   —       77,867  
  

 

 

   

 

 

 

Total Senior Notes

   325,000     489,483  
  

 

 

   

 

 

 

Total notes payable and Senior Notes

  $338,248    $563,492  
  

 

 

   

 

 

 

 December 31,
 2014 2013
Notes payable   
Construction notes payable$38,688
 $24,198
Seller financing547
 13,862
Total notes payable$39,235
 $38,060
    
Senior unsecured facility—
 —
    
Subordinated amortizing notes20,717
 —
    
Senior notes   
5 3/4% Senior Notes due April 15, 2019
150,000
 —
8  1/2% Senior notes due November 15, 2020
430,149
 431,295
7% Senior Notes due August 15, 2022300,000
 —
    
Total Debt$940,101
 $469,355
The maturities of the Company's Notes Payablepayable, Senior unsecured credit facility, Subordinated amortizing notes, 5 3/4% Senior Notes, 8 1/2% Senior Notes, and 8 ½7% Senior Notes are as follows as of December 31, 20122014 (in thousands):

Year Ended December 31,

    

2013

  $—    

2014

   —    

2015

   13,248  

2016

   —    

2017

   —    

Thereafter

   325,000  
  

 

 

 
  $338,248  
  

 

 

 

Year Ended December 31, 
2015$547
201615,716
201743,689
2018—
2019150,000
Thereafter725,000
 $934,952
Maturities above exclude premium of $5,149 as of December 31, 2014.

Notes Payable
Revolving Lines of Credit
On August 7, 2013, William Lyon Homes, Inc. ("California Lyon"), and Parent entered into a credit agreement providing for a revolving credit facility of up to $100 million (the “Revolver”). The Revolver will mature on August 5, 2016, unless

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WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


terminated earlier pursuant to the terms of the Revolver. The Revolver contains an uncommitted accordion feature under which its aggregate principal amount can be increased to up to $125 million under certain circumstances, as well as a sublimit of $50 million for letters of credit. The Revolver 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 total amount available under the Revolver is subject to a borrowing base calculation. On July 3, 2014, California Lyon and the lender parties thereto entered into an amendment to the Revolver, which incorporated a minimum borrowing base availability of $50.0 million and increased the maximum leverage ratio from 60% to 75% for the first four quarters following the Acquisition, among other changes.
The Revolver contains customary events of default, subject to cure periods in certain circumstances, that would result in the termination of the commitment and permit the lenders to accelerate payment on outstanding borrowings and require cash collateralization of letters of credit, 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. If a change in control of the Company occurs, the lenders may terminate the commitment and require that California Lyon repay outstanding borrowings under the Revolver and cash collateralize 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 Facility currently accrues at an annual rate of 0.50%.
Borrowings under the Revolver, the availability of which is subject to a borrowing base formula, are required to be guaranteed by Parent and certain of Parent’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 December 31, 2014, the Revolver was undrawn, other than a letter of credit for $4.0 million, which reduces the amount available under the Revolver.
Construction Notes Payable
Certain of the Company's 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, total availability under each facility outstanding, maturity date and interest rate are listed in the table below as of December 31, 2014 (in millions):

Issuance Date Facility Size Outstanding Maturity Current Rate 
November, 2014 $24.0
 $11.9
 November, 2017 3.75%(3)
November, 2014 22.0
 11.1
 November, 2017 3.75%(3)
March, 2014 26.0
 4.3
 October, 2016 3.15%(1)
December, 2013 18.6
 11.4
 January, 2016 4.25%(1)
June, 2013 28.0
 —
 June, 2016 4.00%(2)
  $72.6
 $38.7
     
8.5%(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 the prime rate +0.5%, with a rate floor of 4.0%.
(3) Loan bears interest at the prime rate +0.5%
Seller Financing
At December 31, 2014, the Company had $0.5 million of notes payable outstanding related to two land acquisitions for which seller financing was provided. The first note had a balance of $0.4 million as of December 31, 2014, bears interest at 7% per annum, is secured by the underlying land, and matures in May 2015. The second land acquisition note bears interest at 4% per annum, has a balance of $0.1 million as of December 31, 2014 and matures in January 2015.

Senior Unsecured Facility
On August 12, 2014, the Company entered into a senior unsecured loan facility (the “Senior Unsecured Facility”), pursuant to which the Company borrowed $120 million in order to pay a portion of the purchase price for the Acquisition (the “Senior Unsecured Loan”). The Senior Unsecured Loan bore interest at an annual rate equal to a Eurodollar rate (subject to a minimum “floor” of 1.00%), plus an initial margin, which margin will increase by 0.50% every three months after August 12, 2014. The Senior Unsecured Facility was initially to mature on the one-year anniversary of August 12, 2014. The Company

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WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


repaid the borrowings on this facility during December 2014, at which time all obligations of the Company under the facility had been paid in full and the facility remained of no further force and effect.

Subordinated Amortizing Notes
On November 21, 2014, in order to pay down amounts borrowed under the Senior Unsecured Facility entered into in conjunction with the acquisition of Polygon, 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”).

Each amortizing note will have an initial principal amount of $18.01, bear interest at the annual rate of 5.50% and have 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 will be $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 revolving credit 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 December 31, 2014, the amortizing notes had an unamortized carrying value of $20.7 million.

5 3/4% Senior Notes Due 2020

2019

On November 8, 2012, WilliamMarch 31, 2014, California Lyon Homes, Inc., a California corporation and wholly-owned subsidiary of the Company (“California Lyon”) completed its offeringprivate placement with registration rights of 8.5%5.75% Senior Notes due 2020, or the New Notes,2019 (the "5.75% Notes"), in an aggregate principal amount of $325$150 million. The New5.75% Notes were issued at 100% of their aggregate principal amount. The Company used the net proceeds from the sale of the New Notes, together with cash on hand, to refinance the Company’s (i) $235 million 10.25% Senior Secured Term Loan due 2015 (“Amended Term Loan”), (ii) approximately $76 million in aggregate principal amount of 12% Senior Subordinated Secured Notes due 2017 (“Old Notes”), (iii) approximately $11 million in principal amount of project related debt, and (iv) to pay accrued and unpaid interest thereon.

As of December 31, 2012,2014, the outstanding principal amount of the New5.75% Notes is $325was $150.0 million. The New5.75% Notes bear interest at an annuala rate of 8.5%5.75% per annum, and is payable semiannually in arrears on MayApril 15 and NovemberOctober 15, commencing on May 15, 2013, and mature on NovemberApril 15, 2020.2019. The New5.75% Notes are senior unsecured obligations of California Lyon and are unconditionally guaranteed on a senior subordinated securedjoint and several unsecured basis by Parent and by certain of Parent’s existing and future restricted subsidiaries. The New5.75% Notes and the related guarantees are California Lyon’s and the guarantors’ unsecured senior obligations and rank senior toequally 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 $300 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 New

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5.75% 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.

On or after NovemberApril 15, 2016, California Lyon may redeem all or a portion of the New5.75% Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of the principal amount) set forth below plus accrued and unpaid interest to the applicable redemption date, if redeemed during the 12-month period beginning on November 15each of the yearsdates indicated below:

Year

  Percentage 

2016

   104.250% 

2017

   102.125% 

2018 and thereafter

   100.000% 


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WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


YearPercentage
April 15, 2016104.313%
October 15, 2016102.875%
April 15, 2017101.438%
April 15, 2018 and thereafter100.000%
Prior to NovemberApril 15, 2016, the New5.75% Notes may be redeemed in whole or in part at a redemption price equal to 100% of the principal amount plus a “make-whole” premium, and accrued and unpaid interest to, the redemption date.

In addition, any time prior to April 15, 2016, California Lyon may, at its option on one or more occasions, redeem the 5.75% Notes in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the 5.75% Notes issued prior to such date at a redemption price (expressed as a percentage of principal amount) of 105.75%, plus accrued and unpaid interest to the redemption date, with an amount equal to the net cash proceeds from one or more equity offerings by Parent.

8 1/2% Senior Notes Due 2020
On November 8, 2012, William Lyon Homes, Inc., a California corporation and wholly-owned subsidiary of the Company (“California Lyon”) completed its offering of 8.5% Senior Notes due 2020, or the New Notes, in an aggregate principal amount of $325 million. The New Notes were issued at 100% of their aggregate principal amount. The Company used the net proceeds from the sale of the New Notes, together with cash on hand, to refinance the Company’s (i) $235 million10.25% Senior Secured Term Loan due 2015 (“Amended Term Loan”), (ii) approximately $76 million in aggregate principal amount of 12% Senior Subordinated Secured Notes due 2017 (“Old Notes”), (iii) approximately $11 million in principal amount of project related debt, and (iv) to pay accrued and unpaid interest thereon.
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 Notes”) at an issue price of 106.5% of their aggregate principal amount, plus accrued interest from and including May 15, 2013, in a private placement, resulting in net proceeds of approximately $104.7 million.
As of December 31, 2014 and December 31, 2013, the outstanding principal amount of the New Notes and Additional Notes was $425 million (together, hereinafter the "New Notes"). The New Notes bear interest at an annual rate of 8.5% per annum, payable semiannually in arrears on May 15 and November 15, commencing on May 15, 2013, and mature on November 15, 2020. The New Notes are unconditionally guaranteed on a joint and several unsecured basis by Parent and certain of its existing and future restricted subsidiaries. The New 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 5.75% Notes, as described above, and 7.00% Notes, as described below. The New Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The New Notes and the guarantees are and will be effectively junior to any of California Lyon’s and the guarantors’ existing and future secured debt.
On or after November 15, 2016, California Lyon may redeem all or a portion of the New Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of the principal amount) set forth below plus accrued and unpaid interest to the applicable redemption date, if redeemed during the 12-month period beginning on November 15 of the years indicated below:
YearPercentage
2016104.250%
2017102.125%
2018 and thereafter100.000%
Prior to November 15, 2016 the New Notes may be redeemed in whole or in part at a redemption price equal to 100% of the principal amount plus a “make-whole” premium, and accrued and unpaid interest to, the redemption date.
In addition, any time prior to November 15, 2015, California Lyon may, at its option on one or more occasions, redeem New Notes in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the New Notes issued prior to such date at a redemption price (expressed as a percentage of principal amount) of 108.5%, plus accrued and unpaid interest to the redemption date, with an amount equal to the net cash proceeds from one or more equity offerings.


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WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



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 “7.00% Notes”), in an aggregate principal amount of $300 million. The 2022 Notes were issued at 100% of their aggregate principal amount. On August 12, 2014, in connection with the consummation of the Acquisition, Escrow Issuer merged with and into California Lyon, and California Lyon assumed the obligations of the Escrow Issuer under the 2022 Notes and the related indenture by operation of law (the “Escrow Merger”). Following the Escrow Merger, California Lyon is the obligor under the 2022 Notes.
As of December 31, 2014, the outstanding amount of the notes was $300 million. The 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, 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.
On or after August 15, 2017, California Lyon may redeem all or a portion of the 7.00% Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of the principal amount) set forth below plus accrued and unpaid interest to the applicable redemption date, if redeemed during the period beginning on each of the dates indicated below:
YearPercentage
August 15, 2017103.500%
August 15, 2018101.750%
August 15, 2019 and thereafter100.000%
Prior to August 15, 2017, the 7.00% Notes may be redeemed in whole or in part at a redemption price equal to 100% of the principal amount plus a “make-whole” premium, and accrued and unpaid interest to, the redemption date.
In addition, any time prior to August 15, 2017, California Lyon may, at its option on one or more occasions, redeem the 7.00% Notes in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the 7.00% Notes issued prior to such date at a redemption price (expressed as a percentage of principal amount) of 107.00%, plus accrued and unpaid interest to the redemption date, with an amount equal to the net cash proceeds from one or more equity offerings by Parent.

Senior Note Covenant Compliance
The indentures governing the New5.75% Notes, (the “Indenture”) containsthe 8.5% Notes, and the 7.00% Notes contain covenants that limit the ability of the CompanyParent, California Lyon, and itstheir restricted subsidiaries to, among other things: (i) incur or guarantee certain additional indebtedness; (ii) pay dividends, or make other distributions, or repurchase stock;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 the Company’s and California Lyon’sits assets. These covenants are subject to a number of important exceptions and qualifications as described in the Indenture.indentures. The Company iswas in compliance with all such covenants as of December 31, 2012.

Amended Senior Secured Term Loan

Prior to completing its offering2014.



F-25
Table of the New Notes, California Lyon was a party to that certain Amended and Restated Senior Secured Term Loan Agreement (the “Amended Term Loan Agreement”), dated February 25, 2012. The Senior Secured Term Loan was renegotiated into the terms below in conjunction with the Plan of Reorganization as discussed in Notes 2, 3, and 4.

The Amended Term Loan Agreement provided for a first lien secured term loan of $235.0 million, secured by substantially all of the assets of California Lyon, Parent (excluding stock in California Lyon) and certain wholly-owned subsidiaries of Parent. The Amended Term Loan was guaranteed by Parent and certain wholly-owned subsidiaries of Parent.

The Amended Term Loan bore interest at a rate of 10.25% per annum. Prior to its repayment in conjunction with the New Notes offering, the Amended Term Loan was scheduled to mature on January 31, 2015. In addition, there was no pre-payment penalty associated with the Amended Term Loan.

Contents

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company recognized a loss of $1.9 million upon the early extinguishment of the Amended Term Loan related to unamortized debt issuance costs. The loss is included in (loss) gain on extinguishment of debt in the consolidated statement of operations for the period from February 25, 2012 through December 31, 2012.

Senior Secured Term Loan

Prior to the Plan of Reorganization, as discussed in Notes 2, 3, and 4, California Lyon was a party to a certain Senior Secured Term Loan Agreement (the “Term Loan Agreement”), dated October 20, 2009. As of December 31, 2011, the Term Loan outstanding balance was $206.0 million.

The Term Loan had interest at a rate of 14.0% and was scheduled to mature on October 20, 2014. However, California Lyon had also agreed that, upon any repayment of any portion of the principal amount under the Term Loan (whether or not at maturity), California Lyon would also pay an exit fee equal to the difference (if positive) between (x) the interest that would have been accrued and been then payable on the repaid portion if the interest rate under the Term Loan Agreement were 15.625% and (y) the internal rate of return realized by the Lenders on such repaid portion, taking into account all cash amounts actually received by the Lenders with respect thereto, including the loan fee and interest payments, other than any make whole payments described below.

Upon any prepayment of any portion of the Term Loan prior to its scheduled maturity (other than any prepayment required in connection with a payment of all or any portion of the outstanding principal balance of any of the indentures governing the Term Loan), the Term Loan Agreement provided that California Lyon make a “make whole payment” equal to an amount, if positive, of the present value of all future payments of interest which would become due with respect to such prepaid amount from the date of prepayment thereof through and including the maturity date, discounted at a rate of 14%.

The Company was in technical default of the term loan as of December 31, 2011, due to (a) expiration of the tangible net worth covenant waiver on October 27, 2011 and (b) a cross default under the senior notes indentures. The term loan was restructured into the Amended Term Loan as described above.

Senior Subordinated Secured Notes

Prior to completing its offering of New Notes as discussed above, pursuant to the terms of the Plan, on February 25, 2012, California Lyon issued $75.0 million principal amount of 12% Senior Subordinated Secured Notes, or the Old Notes, due February 25, 2017, in exchange for the claims held by the holders of the formerly outstanding Senior Notes of California Lyon. California Lyon received no net proceeds from this issuance.

Cash interest of 8% on the outstanding principal amount of the Old Notes was due in semi-annual installments in arrears on June 15 and December 15 of each year. The remaining interest of 4% on the outstanding principal amount of the Old Notes was payable in kind semi-annually in arrears by increasing the principal amount of the Old Notes.

The Old Notes were redeemable at the option of California Lyon at any time, in whole or in part, at a redemption price equal to 100% of the principal amount redeemed, plus accrued and unpaid interest, if any.

As described above, California Lyon used a portion of the proceeds from the sale of the New Notes to refinance the Old Notes. The Old Notes were paid off as of December 31, 2012. The Company recognized a loss of $0.3 million upon the early extinguishment of the Old Notes related to an early tender premium. The loss is included in (loss) gain on extinguishment of debt in the consolidated statement of operations for the period from February 25, 2012 through December 31, 2012.

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Senior Notes

On December 31, 2011, the Senior Notes had the following principal amounts outstanding (in thousands):

   December 31,
2011		 

7  5/8% Senior Notes due December 15, 2012

  $66,704  

10  3/4% Senior Notes due April 1, 2013

   138,912  

7  1/2% Senior Notes due February 15, 2014

   77,867  
  

 

 

 
  $283,483  
  

 

 

 

7 5/8% Senior Notes

On November 22, 2004, California Lyon issued $150.0 million principal amount of the 7 5/8% Senior Notes. Of the initial $150.0 million, $66.7 million in aggregate principal amount remained outstanding as of December 31, 2011.

10 3/4% Senior Notes

On March 17, 2003, California Lyon issued $250.0 million of the 10 3/4% Senior Notes at a price of 98.493% to the public, resulting in net proceeds to the Company of approximately $246.2 million. The redemption price reflected a discount to yield 11% under the effective interest method, and the notes have been reflected net of the unamortized discount in the consolidated balance sheet. Of the initial $250.0 million, $138.9 million aggregate principal amount remained outstanding as of December 31, 2011.

10 3/4% Senior Notes Indenture Interest Payment Default

On October 31, 2011, California Lyon did not make the scheduled interest payment on the 10 3/4% Senior Notes within the 30-day grace period specified in the 103/4% Senior Notes Indenture, resulting in an event of default under the 10 3/4% Senior Notes Indenture, and a cross-default under the Term Loan Agreement. In the event that Holders of the 10 3/4% Senior Notes exercised their right to accelerate the 10 3/4% Senior Notes, a cross-default under the other prepetition indentures would have resulted. Since the Company was in negotiations with certain holders of the Senior Notes to reorganize and restructure the debt of the Company, the holders did not exercise their right to accelerate the 10 3/4% Senior Notes.

7 1/2% Senior Notes

On February 6, 2004, California Lyon issued $150.0 million principal amount of the 7 1/2% Senior Notes, resulting in net proceeds to the Company of approximately $147.6 million. Of the initial $150.0 million, $77.9 million aggregate principal amount remained outstanding as of December 31, 2011.

During the year ended December 31, 2010, the Company redeemed, in privately negotiated transactions, $37.3 million principal amount of its outstanding Senior Notes at a cost of $31.3 million, plus accrued interest. The net gain resulting from the redemptions, after giving effect to amortization of related deferred loan costs, was $5.6 million, and is included in (loss) gain on extinguishment of debt in the consolidated statement of operations for the year ended December 31, 2010.

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Notes Payable

Construction Notes Payable

In September 2012, the Company entered into two construction notes payable agreements. The first agreement has total availability under the facility of $19.0 million, to be drawn for land development and construction on one of its wholly-owned projects. The loan matures in September 2015 and bears interest at the Prime Rate + 1.0%, with a rate floor of 5.0%, which was the effective interest rate as of December 31, 2012. As of December 31, 2012, the Company had borrowed $7.8 million under this facility. The loan will be repaid with proceeds from home closings of the project and is secured by the underlying project. The second agreement has total availability under the facility of $17.0 million, to be drawn for land development and construction on one of its joint venture projects, which is consolidated in accordance with ASC 810 (See Note 5 for further discussion). The loan matures in March 2015 and bears interest at Prime + 1%, with a rate floor of 5.0%, which was the effective interest rate as of December 31, 2012. As of December 31, 2012, the Company had borrowed $5.4 million under this facility. The loan will be repaid with proceeds from home closings of the project and is secured by the underlying project.

At December 31, 2011, the Company had two construction notes payable totaling $16.0 million. One of the notes totaling $9.0 million matured in January 2012, with interest at rates based on either LIBOR or prime with an interest rate floor of 6.5%. However, in conjunction with the Plan, the construction note payable was renegotiated to mature January 2013 with an option to extend for one year to December 2013. Interest on the note was paid monthly at a rate based on LIBOR or prime, with a floor of 5.5%, and the principal was repaid ratably in quarterly installments, beginning March 31, 2012 and continuing through maturity. In November 2012, the construction note was paid in full with proceeds from the New Notes.

The other construction note had a remaining balance at December 31, 2011 of $7.0 million, and was not renegotiated in conjunction with the Plan. The note had a maturity date in May 2015 and required monthly interest payments at a fixed rate of 10.0%, with quarterly principal payments of $500,000. In November 2012, the construction note was paid in full with proceeds from the New Notes. The Company recognized a loss of $0.2 million upon the early extinguishment of the note related to the unamortized debt discount. The loss is included in (loss) gain on extinguishment of debt in the consolidated statement of operations for the period from February 25, 2012 through December 31, 2012.

Land Acquisition Note Payable

In October 2011, the Company secured an acquisition note payable in conjunction with the acquisition of a parcel of land in Northern California. The acquisition price of the land was $56.0 million, and the loan was for $55.0 million. The note was scheduled to mature in October 2012, and carried an interest rate of 1.5% per month, which was paid monthly on the loan. As part of the Company’s adoption of ASC 852, the loan was valued at $56.3 million as of February 24, 2012, the confirmation date of the plan. In May 2012, the Company sold the parcel of land and repaid the note in full recognizing a gain on extinguishment of debt of $1.0 million, net of amortization expense of $0.3 million. The gain is included in (loss) gain on extinguishment of debt in the consolidated statement of operations for the period from February 25, 2012 through December 31, 2012.

Seller Financing

At December 31, 2011, the Company had $3.0 million of notes payable outstanding related to a land acquisition for which seller financing was provided. The note bore interest at 7% and matured in March 2012. In March 2012, the seller note was paid in full.

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS

The following consolidating financial information includes:

(1) Consolidating balance sheets as of December 31, 20122014 and 2011;2013; consolidating statements of operations and cash flows for the years ended December 31, 2014 and 2013, the period from February 25, 2012 through December 31, 2012, and the period from January 1, 2012 through February 24, 2012, and the years ended December 31, 2011 and 2010; and consolidating statements of cash flows for the period from February 25, 2012 through December 31, 2012, the period from January 1, 2012 through February 24, 2012, and the years ended December 31, 2011 and 2010, 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 William Lyon Homes, Inc. and its guarantor and non-guarantor subsidiaries.

William Lyon Homes 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 December 31, 20122014 and 2011,2013, and for the years ended December 31, 2014 and 2013, the period from February 25, 2012 through December 31, 2012, and the period from January 1, 2012 through February 24, 2012, and the years ended December 31, 2011 and 2010.

2012.


F-26
Table of Contents
WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



CONSOLIDATING BALANCE SHEET

December 31, 20122014 (Successor)

(in thousands)

   Unconsolidated        
   Delaware
Lyon		   California
Lyon		  Guarantor
Subsidiaries		   Non-Guarantor
Subsidiaries		   Eliminating
Entries		  Consolidated
Company		 

ASSETS

          

Cash and cash equivalents

  $—      $69,376   $65    $1,634    $—     $71,075  

Restricted cash

   —       853    —       —       —      853  

Receivables

   —       11,278    296     3,215     —      14,789  

Real estate inventories

          

Owned

   —       398,952    13     22,665     —      421,630  

Not owned

   —       39,029    —       —       —      39,029  

Deferred loan costs

   —       7,036    —       —       —      7,036  

Goodwill

   —       14,209    —       —       —      14,209  

Intangibles

   —       4,620    —       —       —      4,620  

Other assets

   —       7,437    146     323     —      7,906  

Investments in subsidiaries

   62,712     22,148    —       —       (84,860)   —    

Intercompany receivables

   —       —      207,239     18,935     (226,174)   —    
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

Total assets

  $62,712    $574,938   $207,759    $46,772    $(311,034)  $581,147  
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

LIABILITIES AND EQUITY (DEFICIT)

          

Accounts payable

  $—      $17,998   $39    $698    $—     $18,735  

Accrued expenses

   —       41,505    213     52     —      41,770  

Liabilities from inventories not owned

   —       39,029    —       —       —      39,029  

Notes payable

   —       7,809    —       5,439     —      13,248  

8 1/2% Senior Notes

   —       325,000    —       —       —      325,000  

Intercompany payables

   —       217,146    —       9,028     (226,174)   —    
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

Total liabilities

   —       648,487    252     15,217     (226,174)   437,782  
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

Redeemable convertible preferred stock

   —       71,246    —       —       —      71,246  

Equity (deficit)

          

William Lyon Homes stockholders’ equity (deficit)

   62,712     (144,795)   207,507     22,148     (84,860)   62,712  

Noncontrolling interest

   —       —      —       9,407     —      9,407  
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

Total liabilities and equity (deficit)

  $62,712    $574,938   $207,759    $46,772    $(311,034)  $581,147  
  

 

 

   

 

 

  

 

 

   

 

 

   

 

 

  

 

 

 

 Unconsolidated    
 
Delaware
Lyon
 
California
Lyon
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Company
ASSETS           
Cash and cash equivalents$—
 $48,462
 $573
 $3,736
 $—
 $52,771
Restricted cash—
 504
 —
 —
 —
 504
Receivables—
 16,783
 878
 3,589
 —
 21,250
Escrow proceeds receivable—
 613
 2,302
 —
 —
 2,915
Real estate inventories           
Owned—
 755,748
 554,170
 94,721
 —
 1,404,639
Deferred loan costs—
 15,988
 —
 —
 —
 15,988
Goodwill—
 14,209
 46,678
 —
 —
 60,887
Intangibles—
 957
 6,700
 —
 —
 7,657
Deferred income taxes, net—
 88,039
 —
 —
 —
 88,039
Other assets—
 17,243
 2,176
 358
 —
 19,777
Investments in subsidiaries569,915
 (35,961) (574,129) —
 40,175
 —
Intercompany receivables—
 —
 232,895
 —
 (232,895) —
Total assets$569,915

$922,585

$272,243

$102,404

$(192,720) $1,674,427
LIABILITIES AND EQUITY           
Accounts payable$—
 $28,792
 $19,023
 $3,999
 $—
 $51,814
Accrued expenses—
 76,664
 8,610
 92
 —
 85,366
Notes payable—
 384
 162
 38,689
 —
 39,235
Subordinated Notes—
 20,717
 —
 —
   20,717
5 3/4% Senior Notes
—
 150,000
 —
 —
   150,000
8 1/2% Senior Notes
—
 430,149
 —
 —
 —
 430,149
7% Senior Notes—
 300,000
 —
 —
   300,000
Intercompany payables—
 164,541
 —
 68,354
 (232,895) —
Total liabilities—

1,171,247

27,795

111,134

(232,895) 1,077,281
Equity           
William Lyon Homes stockholders’ equity569,915
 (248,662) 244,448
 (35,961) 40,175
 569,915
Noncontrolling interests—
 —
 —
 27,231
 —
 27,231
Total liabilities and equity$569,915
 $922,585
 $272,243
 $102,404
 $(192,720) $1,674,427










F-27
Table of Contents
WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



CONSOLIDATING BALANCE SHEET

(DEBTOR-IN-POSSESSION)

December 31, 2011 (Predecessor)

2013 (Successor)

(in thousands)

   Unconsolidated       
   Delaware
Lyon		  California
Lyon		  Guarantor
Subsidiaries		   Non-Guarantor
Subsidiaries		  Eliminating
Entries		  Consolidated
Company		 

ASSETS

        

Cash and cash equivalents

  $—     $14,333   $47    $5,681   $—     $20,061  

Restricted cash

   —      852    —       —      —      852  

Receivables

   —      9,897    310     3,525    —      13,732  

Real estate inventories

        

Owned

   —      278,939    —       119,595    —      398,534  

Not owned

   —      47,408    —       —      —      47,408  

Deferred loan costs, net

   —      8,810    —       —      —      8,810  

Other assets, net

   —      6,671    159     724    —      7,554  

Investments in subsidiaries

   (179,516)   (85,714)   —       —      265,230    —    

Intercompany receivables

   —      —      203,517     12    (203,529)   —    
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Total assets

  $(179,516)  $281,196   $204,033    $129,537   $61,701   $496,951  
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

LIABILITIES AND (DEFICIT) EQUITY

        

Liabilities not subject to compromise

        

Accounts payable

  $—     $1,436   $—      $—     $—     $1,436  

Accrued expenses

   —      2,082    —       —      —      2,082  

Liabilities from inventories not owned

   —      47,408    —       —      —      47,408  

Notes payable

   —      3,010    —       70,999    —      74,009  

Senior Secured Term Loan

   —      206,000    —       —      —      206,000  

Intercompany payables

   —      71,459    —       132,070    (203,529)   —    
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 
   —      331,395    —       203,069    (203,529)   330,935  

Liabilities subject to compromise

        

Accounts payable

   —      2,560    38     1,348    —      3,946  

Accrued expenses

   —      47,051    218     1,188    —      48,457  

7 5/8% Senior Notes

   —      66,704    —       —      —      66,704  

10 3/4% Senior Notes

   —      138,912    —       —      —      138,912  

7 1/2% Senior Notes

   —      77,867    —       —      —      77,867  
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 
   —      333,094    256     2,536    —      335,886  
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Total liabilities

   —      664,489    256     205,605    (203,529)   666,821  
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

(Deficit) equity

        

William Lyon Homes stockholders’ (deficit) equity

   (179,516)   (383,293)   203,777     (85,714)   265,230    (179,516) 

Noncontrolling interest

   —      —      —       9,646    —      9,646  
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

Total liabilities and (deficit) equity

  $(179,516)  $281,196   $204,033    $129,537   $61,701   $496,951  
  

 

 

  

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

 Unconsolidated    
 
Delaware
Lyon
 
California
Lyon
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Company
ASSETS           
Cash and cash equivalents$—
 $166,516
 $28
 $5,128
 $—
 $171,672
Restricted cash—
 854
 —
 —
 —
 854
Receivables—
 11,429
 5
 5,025
 —
 16,459
Escrow proceeds receivable—
 4,313
 67
 —
 —
 4,380
Real estate inventories           
Owned—
 608,965
 3,761
 59,064
 —
 671,790
Not owned—
 12,960
 —
 —
 —
 12,960
Deferred loan costs—
 9,575
 —
 —
 —
 9,575
Goodwill—
 14,209
 —
 —
 —
 14,209
Intangibles—
 2,766
 —
 —
 —
 2,766
Deferred income taxes, net—
 95,580
 —
 —
 —
 95,580
Other assets—
 9,100
 723
 343
 —
 10,166
Investments in subsidiaries428,179
 9,975
 —
 —
 (438,154) —
Intercompany receivables—
 —
 225,056
 (15) (225,041) —
Total assets$428,179
 $946,242
 $229,640
 $69,545
 $(663,195) $1,010,411
LIABILITIES AND EQUITY           
Accounts payable$—
 $12,489
 $1,959
 $2,651
 $—
 $17,099
Accrued expenses—
 59,375
 744
 84
 —
 60,203
Liabilities from inventories not owned—
 12,960
 —
 —
 —
 12,960
Notes payable—
 12,281
 1,762
 24,017
 —
 38,060
8 1/2% Senior Notes
—
 431,295
 —
 —
 —
 431,295
Intercompany payables—
 214,837
 —
 10,204
 (225,041) —
Total liabilities—
 743,237
 4,465
 36,956
 (225,041) 559,617
Equity           
William Lyon Homes stockholders’ equity428,179
 203,004
 225,175
 9,975
 (438,154) 428,179
Noncontrolling interests—
 —
 —
 22,615
 —
 22,615
Total liabilities and equity$428,179
 $946,241
 $229,640
 $69,546
 $(663,195) $1,010,411











F-28
Table of Contents
WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



CONSOLIDATING STATEMENT OF OPERATIONS

Year Ended December 31, 2014 (Successor)
(in thousands)
 Unconsolidated    
 
Delaware
Lyon
 
California
Lyon
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Company
Operating revenue           
Sales$—
 $524,990
 $236,245
 $97,716
 $—
 $858,951
Construction services—
 37,728
 —
 —
 —
 37,728
Management fees—
 (2,926) —
 —
 2,926
 —
 —
 559,792
 236,245
 97,716
 2,926
 896,679
Operating costs           
Cost of sales—
 (400,712) (196,773) (78,649) (2,926) (679,060)
Construction services—
 (30,700) —
 —
 —
 (30,700)
Sales and marketing—
 (27,418) (14,186) (4,299) —
 (45,903)
General and administrative—
 (47,353) (7,271) (2) —
 (54,626)
Transaction expenses—
 (5,832) —
 —
 —
 (5,832)
Amortization of intangible assets—
 (1,814) —
 —
 —
 (1,814)
Other—
 (3,685) 1,380
 (14) —
 (2,319)
 —
 (517,514) (216,850) (82,964) (2,926) (820,254)
Income from subsidiaries44,625
 11,575
 —
 —
 (56,200) —
Operating income44,625
 53,853
 19,395
 14,752
 (56,200) 76,425
Other income (expense), net—
 2,883
 (23) (962) —
 1,898
Income before provision for income taxes44,625
 56,736
 19,372
 13,790
 (56,200) 78,323
Provision for income taxes—
 (23,797) —
 —
 —
 (23,797)
Net income44,625
 32,939
 19,372
 13,790
 (56,200) 54,526
Less: Net income attributable to noncontrolling interests—
 —
 —
 (9,901) —
 (9,901)
Net income available to common stockholders$44,625
 $32,939
 $19,372
 $3,889
 $(56,200) $44,625


F-29
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


CONSOLIDATING STATEMENT OF OPERATIONS
Year Ended December 31, 2013 (Successor)
(in thousands)
 Unconsolidated    
 
Delaware
Lyon
 
California
Lyon
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Company
Operating revenue           
Sales$—
 $310,919
 $180,673
 $48,410
 $—
 $540,002
Construction services—
 32,533
 —
 —
 —
 32,533
Management fees—
 1,351
 —
 —
 (1,351) —
 —
 344,803
 180,673
 48,410
 (1,351) 572,535
Operating costs           
Cost of sales—
 (236,165) (150,450) (34,924) 1,351
 (420,188)
Construction services—
 (25,598) —
 —
 —
 (25,598)
Sales and marketing—
 (15,615) (8,908) (1,579) —
 (26,102)
General and administrative—
 (37,031) (3,720) (19) —
 (40,770)
Amortization of intangible assets—
 (1,854) —
 —
 —
 (1,854)
Other—
 (2,163) (3) —
 —
 (2,166)
 —
 (318,426) (163,081) (36,522) 1,351
 (516,678)
Income from subsidiaries129,132
 21,889
 —
 —
 (151,021) —
Operating income129,132
 48,266
 17,592
 11,888
 (151,021) 55,857
Interest expense, net of amounts capitalized—
 (2,476) (126) —
 —
 (2,602)
Other income (expense), net—
 1,745
 (147) (1,088) —
 510
Income before reorganization items and benefit (provision) for income taxes129,132
 47,535
 17,319
 10,800
 (151,021) 53,765
Reorganization items, net—
 (464) —
 —
 —
 (464)
Income before benefit (provision) for income taxes129,132
 47,071
 17,319
 10,800
 (151,021) 53,301
Benefit (provision) for income taxes—
 82,315
 (13) —
 —
 82,302
Net income129,132
 129,386
 17,306
 10,800
 (151,021) 135,603
Less: Net income attributable to noncontrolling interests—
 —
 —
 (6,471) —
 (6,471)
Net income attributable to William Lyon Homes129,132
 129,386
 17,306
 4,329
 (151,021) 129,132
Preferred stock dividends(1,528) —
 —
 —
 —
 (1,528)
Net income available to common stockholders$127,604
 $129,386
 $17,306
 $4,329
 $(151,021) $127,604









F-30
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


CONSOLIDATING STATEMENT OF OPERATIONS
Period from February 25, 2012 through

December 31, 2012 (Successor)

(in thousands)

 Unconsolidated    
 
Delaware
Lyon
 
California
Lyon
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Company
Operating revenue           
Sales$—
 $198,108
 $47,989
 $102,838
 $—
 $348,935
Construction services—
 23,825
 —
 —
 —
 23,825
Management fees—
 534
 —
 —
 (534) —
 —
 222,467
 47,989
 102,838
 (534) 372,760
Operating costs           
Cost of sales—
 (163,083) (41,516) (93,924) 534
 (297,989)
Construction services—
 (21,416) —
 —
 —
 (21,416)
Sales and marketing—
 (10,705) (2,617) (606) —
 (13,928)
General and administrative—
 (25,872) (221) (2) —
 (26,095)
Amortization of intangible assets—
 (5,757) —
 —
 —
 (5,757)
Other—
 (3,027) (2) 120
 —
 (2,909)
 —
 (229,860) (44,356) (94,412) 534
 (368,094)
(Loss) income from subsidiaries(8,859) 11,681
 —
 —
 (2,822) —
Operating (loss) income(8,859) 4,288
 3,633
 8,426
 (2,822) 4,666
Loss on extinguishment of debt—
 (1,392) —
 —
 —
 (1,392)
Interest expense, net of amounts capitalized—
 (9,227) —
 100
 —
 (9,127)
Other income (expense), net—
 618
 (61) 971
 —
 1,528
(Loss) income before reorganization items and provision for income taxes(8,859) (5,713) 3,572
 9,497
 (2,822) (4,325)
Reorganization items, net—
 (3,073) 1
 547
 —
 (2,525)
(Loss) income before provision for income taxes(8,859) (8,786) 3,573
 10,044
 (2,822) (6,850)
Provision for income taxes—
 (11) —
 —
 —
 (11)
Net (loss) income(8,859) (8,797) 3,573
 10,044
 (2,822) (6,861)
Less: Net income attributable to noncontrolling interest—
 —
 —
 (1,998) —
 (1,998)
Net (loss) income attributable to William Lyon Homes(8,859) (8,797) 3,573
 8,046
 (2,822) (8,859)
Preferred stock dividends(2,743) —
 —
 —
 —
 (2,743)
Net (loss) income available to common stockholders$(11,602) $(8,797) $3,573
 $8,046
 $(2,822) $(11,602)



F-31
Table of Contents
WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



CONSOLIDATING STATEMENT OF OPERATIONS

Period from January 1, 2012 through

February 24, 2012 (Predecessor)

(in thousands)

 Unconsolidated    
 
Delaware
Lyon
 
California
Lyon
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Company
Operating revenue           
Home sales$—
 $10,024
 $4,316
 $2,347
 $—
 $16,687
Construction services—
 8,883
 —
 —
 —
 8,883
Management fees—
 110
 —
 —
 (110) —
 —
 19,017
 4,316
 2,347
 (110) 25,570
Operating costs           
Cost of sales — homes—
 (8,819) (3,820) (2,069) 110
 (14,598)
Construction services—
 (8,223) —
 —
 —
 (8,223)
Sales and marketing—
 (1,496) (260) (188) —
 (1,944)
General and administrative—
 (3,246) (56) —
 —
 (3,302)
Other—
 (16) —
 (171) —
 (187)
 —
 (21,800) (4,136) (2,428) 110
 (28,254)
Income from subsidiaries228,383
 11,536
 —
 —
 (239,919) —
Operating income (loss)228,383
 8,753
 180
 (81) (239,919) (2,684)
Interest expense, net of amounts capitalized—
 (2,407) —
 (100) —
 (2,507)
Other income (expense), net—
 266
 (25) (11) —
 230
Income (loss) before reorganization items and provision for income taxes228,383
 6,612
 155
 (192) (239,919) (4,961)
Reorganization items—
 221,796
 (1) 11,663
 —
 233,458
Income before provision for income taxes228,383
 228,408
 154
 11,471
 (239,919) 228,497
Provision for income taxes—
 —
 —
 —
 —
 —
Net income228,383
 228,408
 154
 11,471
 (239,919) 228,497
Less: Net income attributable to noncontrolling interest—
 —
 —
 (114) —
 (114)
Net income attributable to William Lyon Homes$228,383
 $228,408
 $154
 $11,357
 $(239,919) $228,383






F-32
Table of Contents
WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



CONSOLIDATING STATEMENT OF OPERATIONS

(DEBTOR-IN-POSSESSION)

CASH FLOWS

Year Ended December 31, 2011 (Predecessor)

2014 (Successor)

(in thousands)

   Unconsolidated       
   Delaware
Lyon		  California
Lyon		  Guarantor
Subsidiaries		  Non-Guarantor
Subsidiaries		  Eliminating
Entries		  Consolidated
Company		 

Operating revenue

       

Home sales

  $—     $176,992   $19,954   $10,109   $—     $207,055  

Construction services

   —      19,768    —      —      —      19,768  

Management fees

   —      468    —      —      (468)   —    
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   —      197,228    19,954    10,109    (468)   226,823  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating costs

       

Cost of sales

   —      (162,148)   (18,225)   (8,818)   468    (188,723) 

Impairment loss on real estate assets

   —      (70,742)   —      (57,572)   —      (128,314) 

Construction services

   —      (18,164)   —      —      —      (18,164) 

Sales and marketing

   —      (14,528)   (1,318)   (1,002)   —      (16,848) 

General and administrative

   —      (22,070)   (340)   (1)   —      (22,411) 

Other

   —      (2,979)   —      (1,004)   —      (3,983) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   —      (290,631)   (19,883)   (68,397)   468    (378,443) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Equity in income of unconsolidated joint ventures

   —      3,605    —      —      —      3,605  

Loss from subsidiaries

   (193,330)   (59,588)   —      —      252,918    —    
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating (loss) income

   (193,330)   (149,386)   71    (58,288)   252,918    (148,015) 

Interest expense, net of amounts capitalized

   —      (23,639)   —      (890)   —      (24,529) 

Other income (expense), net

   —      1,018    (131)   (49)   —      838  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Loss before reorganization items and provision for income taxes

   (193,330)   (172,007)   (60)   (59,227)   252,918    (171,706) 

Reorganization items

   —      (21,182)   —      —      —      (21,182) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Loss before provision for income taxes

   (193,330)   (193,189)   (60)   (59,227)   252,918    (192,888) 

Provision for income taxes

   —      (10)   —      —      —      (10) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net loss

   (193,330)   (193,199)   (60)   (59,227)   252,918    (192,898) 

Less: Net income attributable to noncontrolling interest

   —      —      —      (432)   —      (432) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net loss attributable to William Lyon Homes

  $(193,330)  $(193,199)  $(60)  $(59,659)  $252,918   $(193,330) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 


 Unconsolidated    
 
Delaware
Lyon
 
California
Lyon
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Company
Operating activities           
Net cash (used in) provided by operating activities$(97,110) $369,750
 $(510,806) $(19,104) $97,110
 $(160,160)
Investing activities           
Investment in joint ventures—
 —
 (500) —
 —
 (500)
Distributions from unconsolidated joint ventures—
 —
 353
 —
 —
 353
Cash paid for acquisitions, net—
 (439,040) (53,378) —
 —
 (492,418)
Purchases of property and equipment—
 (1,826) (267) 15
 —
 (2,078)
Investments in subsidiaries—
 57,515
 574,125
 —
 (631,640) —
Net cash (used in) provided by investing activities—

(383,351)
520,333

15

(631,640) (494,643)
Financing activities           
Proceeds from borrowings on notes payable—
 —
 —
 95,227
 —
 95,227
Principal payments on notes payable—
 (11,898) (4,012) (80,555) —
 (96,465)
Proceeds from issuance of 5 3/4% Senior Notes
—
 150,000
 —
 —
 —
 150,000
Proceeds from issurance of 7 % Senior Notes—
 300,000
 —
 —
 —
 300,000
Proceeds from issuance of bridge loan—
 120,000
 —
 —
 —
 120,000
Payments on bridge loan—
 (120,000) —
 —
 —
 (120,000)
Proceeds from borrowings on Revolver—
 20,000
 —
 —
 —
 20,000
Payments on Revolver—
 (20,000) —
 —
 —
 (20,000)
Issuance of TEUs - Purchase Contracts, net of offering costs—
 94,284
 —
 —
 —
 94,284
Offering costs related to issuance of TEUs—
 (3,830) —
 —
 —
 (3,830)
Issuance of TEUs - Subordinated amortizing notes—
 20,717
 —
 —
 —
 20,717
Proceeds from stock options exercised—
 285
 —
 —
 —
 285
Offering costs related to issuance of common stock—
 (105) —
 —
 —
 (105)
Purchase of common stock—
 (1,774) —
 —
 —
 (1,774)
Excess income tax benefit from stock based awards—
 1,866
 —
 —
 —
 1,866
Payments of deferred loan costs  (19,018)   —
 —
 (19,018)
Noncontrolling interest contributions—
 —
 —
 22,041
 —
 22,041
Noncontrolling interest distributions—
 —
 —
 (27,326) —
 (27,326)
Advances to affiliates—
 —
 (99) (49,825) 49,924
 —
Intercompany receivables/payables97,110
 (634,980) (4,871) 58,135
 484,606
 —
Net cash provided (used in) by financing activities97,110
 (104,453) (8,982) 17,697
 534,530
 535,902
Net increase (decrease) in cash and cash equivalents—
 (118,054) 545
 (1,392) —
 (118,901)
Cash and cash equivalents at beginning of period—
 166,516
 28
 5,128
 —
 171,672
Cash and cash equivalents at end of period$—
 $48,462
 $573
 $3,736
 $—
 $52,771







F-33
Table of Contents
WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)





CONSOLIDATING STATEMENT OF OPERATIONS

CASH FLOWS

Year Ended December 31, 2010 (Predecessor)

2013 (Successor)

(in thousands)

   Unconsolidated       
   Delaware
Lyon		  California
Lyon		  Guarantor
Subsidiaries		  Non-Guarantor
Subsidiaries		  Eliminating
Entries		  Consolidated
Company		 

Operating revenue

       

Sales

  $—     $263,864   $16,595   $3,610   $—     $284,069  

Construction services

   —      10,629    —      —      —      10,629  

Management fees

   —      165    —      —      (165)   —    
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   —      274,658    16,595    3,610    (165)   294,698  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating costs

        —    

Cost of sales

   —      (228,542)   (16,167)   (1,633)   165    (246,177) 

Impairment loss on real estate assets

   —      (111,860)   —      —      —      (111,860) 

Construction services

   —      (7,805)   —      —      —      (7,805) 

Sales and marketing

   —      (17,953)   (1,208)   (585)   —      (19,746) 

General and administrative

   —      (24,795)   (313)   (21)   —      (25,129) 

Other

   —      (2,740)   —      —      —      (2,740) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   —      (393,695)   (17,688)   (2,239)   165    (413,457) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Equity in income of unconsolidated joint ventures

   —      916    —      —      —      916  

(Loss) income from subsidiaries

   (136,786)   (1,053)   12    —      137,827    —    
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating (loss) income

   (136,786)   (119,174)   (1,081)   1,371    137,827    (117,843) 

Gain on extinguishment of debt

   —      5,572    —      —      —      5,572  

Interest expense, net of amounts capitalized

   —      (23,653)   —      —      —      (23,653) 

Other income (expense), net

   —      280    (235)   12    —      57  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(Loss) income before benefit from income taxes

   (136,786)   (136,975)   (1,316)   1,383    137,827    (135,867) 

Benefit from income taxes

   —      412    —      —      —      412  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net (loss) income

   (136,786)   (136,563)   (1,316)   1,383    137,827    (135,455) 

Less: Net income attributable to noncontrolling interest

   —      —      —      (1,331)   —      (1,331) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net (loss) income attributable to William Lyon Homes

  $(136,786)  $(136,563)  $(1,316)  $52   $137,827   $(136,786) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 


 Unconsolidated    
 
Delaware
Lyon
 
California
Lyon
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Company
Operating activities           
Net cash (used in) provided by operating activities$—
 $(164,848) $15,759
 $(25,445) $—
 $(174,534)
Investing activities           
Purchases of property and equipment—
 (3,651) (104) 1
 —
 (3,754)
Investments in subsidiaries—
 35,574
 —
 —
 (35,574) —
Net cash provided by (used in) investing activities—
 31,923
 (104) 1
 (35,574) (3,754)
Financing activities           
Proceeds from borrowings on notes payable—
 18,969
 1,762
 52,879
 —
 73,610
Principal payments on notes payable—
 (30,735) —
 (34,302) —
 (65,037)
Proceeds from issurance of 8 1/2% Senior Notes—
 106,500
 —
 —
 —
 106,500
Proceeds from issuance of common stock—
 179,438
 —
 —
 —
 179,438
Offering costs related to issuance of common stock—
 (15,753) —
 —
 —
 (15,753)
Payment of deferred loan costs—
 (4,060) —
 —
 —
 (4,060)
Payment of preferred stock dividends—
 (2,550) —
 —
 —
 (2,550)
Noncontrolling interest contributions—
 —
 —
 37,184
 —
 37,184
Noncontrolling interest distributions—
 —
 —
 (30,447) —
 (30,447)
Advances to affiliates—
 —
 362
 (17,914) 17,552
 —
Intercompany receivables/payables—
 (21,744) (17,816) 21,538
 18,022
 —
Net cash provided (used in) by financing activities—
 230,065
 (15,692) 28,938
 35,574
 278,885
Net increase (decrease) in cash and cash equivalents—
 97,140
 (37) 3,494
 —
 100,597
Cash and cash equivalents at beginning of period—
 69,376
 65
 1,634
 —
 71,075
Cash and cash equivalents at end of period$—
 $166,516
 $28
 $5,128
 $—
 $171,672












F-34
Table of Contents
WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)





CONSOLIDATING STATEMENT OF CASH FLOWS

Period from February 25, 2012 through

December 31, 2012 (Successor)

(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

 $—     $(72,014)  $3,579   $118,428   $—     $49,993  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Investing activities

      

Cash paid for acquisitions, net

  —      (33,201)   —      —      —      (33,201) 

Purchases of property and equipment

  —      (271)   (20)   (21)   —      (312) 

Investments in subsidiaries

  —      (84,828)   —      —      84,828    —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash used in investing activities

  —      (118,300)   (20)   (21)   84,828    (33,513) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Financing activities

      

Proceeds from borrowings on notes payable

  —      7,809    —      5,439    —      13,248  

Proceeds from issurance of 8 1/2% Senior Notes

  —      325,000    —      —      —      325,000  

Principal payments on notes payable

  —      (3,994)   —      (69,682)   —      (73,676) 

Principal payments on Senior Secured Term Loan

  —      (235,000)   —      —      —      (235,000) 

Principal payments on Senior Subordinated Secured Notes

  —      (75,916)   —      —      —      (75,916) 

Proceeds from issuance of convertible preferred stock

  —      14,000    —      —      —      14,000  

Proceeds from issuance of common stock

  —      16,000    —      —      —      16,000  

Payment of deferred loan costs

  —      (7,181)   —      —      —      (7,181) 

Payment of preferred stock dividends

  —      (1,721)   —      —      —      (1,721) 

Noncontrolling interest contributions

  —      —      —      15,313    —      15,313  

Noncontrolling interest distributions

  —      —      —      (16,004)   —      (16,004) 

Advances to affiliates

  —      —      3    78,817    (78,820)   —    

Intercompany receivables/payables

  —      144,535    (3,549)   (134,978)   (6,008)   —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash provided (used in) by financing activities

  —      183,532    (3,546)   (121,095)   (84,828)   (25,937) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net (decrease) increase in cash and cash equivalents

  —      (6,782)   13    (2,688)   —      (9,457) 

Cash and cash equivalents at beginning of period

  —      76,158    52    4,322    —      80,532  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents at end of period

 $—     $69,376   $65   $1,634   $—     $71,075  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 Unconsolidated    
 
Delaware
Lyon
 
California
Lyon
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Company
Operating activities           
Net cash (used in) provided by operating activities$—
 $(72,014) $3,579
 $118,428
 $—
 $49,993
Investing activities           
Cash paid for acquisitions, net—
 (33,201) —
 —
 —
 (33,201)
Purchases of property and equipment—
 (271) (20) (21) —
 (312)
Investments in subsidiaries—
 (84,828) —
 —
 84,828
 —
Net cash used in investing activities—
 (118,300) (20) (21) 84,828
 (33,513)
Financing activities           
Proceeds from borrowings on notes payable—
 7,809
 —
 5,439
 —
 13,248
Principal payments on notes payable—
 (3,994) —
 (69,682) —
 (73,676)
Proceeds from issurance of 8 1/2% Senior Notes—
 325,000
 —
 —
 —
 325,000
Principal payments on Senior Secured Term Loan—
 (235,000) —
 —
 —
 (235,000)
Principal payments on Senior Subordinated Secured Notes—
 (75,916) —
 —
 —
 (75,916)
Proceeds from issuance of convertible preferred stock—
 14,000
 —
 —
 —
 14,000
Proceeds from issuance of common stock—
 16,000
 —
 —
 —
 16,000
Payment of deferred loan costs—
 (7,181) —
 —
 —
 (7,181)
Payment of preferred stock dividends—
 (1,721) —
 —
 —
 (1,721)
Noncontrolling interest contributions—
 —
 —
 15,313
 —
 15,313
Noncontrolling interest distributions—
 —
 —
 (16,004) —
 (16,004)
Advances to affiliates—
 —
 3
 78,817
 (78,820) —
Intercompany receivables/payables—
 144,535
 (3,549) (134,978) (6,008) —
Net cash provided (used in) by financing activities—
 183,532
 (3,546) (121,095) (84,828) (25,937)
Net increase (decrease) in cash and cash equivalents—
 (6,782) 13
 (2,688) —
 (9,457)
Cash and cash equivalents at beginning of period—
 76,158
 52
 4,322
 —
 80,532
Cash and cash equivalents at end of period$—
 $69,376
 $65
 $1,634
 $—
 $71,075


F-35
Table of Contents
WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



CONSOLIDATING STATEMENT OF CASH FLOWS

Period from January 1, 2012 through

February 24, 2012 (Predecessor)

(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$—
 $(13,638) $181
 $(3,864) $—
 $(17,321)
Investing activities           
Purchases of property and equipment—
 (419) (3) 422
 —
 —
Investments in subsidiaries—
 183
 —
 —
 (183) —
Net cash (used in) provided by investing activities—
 (236) (3) 422
 (183) —
Financing activities           
Principal payments on notes payable—
 (116) —
 (500) —
 (616)
Proceeds from reorganization—
 30,971
 —
 —
 —
 30,971
Proceeds from issuance of convertible preferred stock—
 50,000
 —
 —
 —
 50,000
Proceeds from debtor in possession financing—
 5,000
 —
 —
 —
 5,000
Principal payment of debtor in possession financing—
 (5,000) —
 —
 —
 (5,000)
Payment of deferred loan costs—
 (2,491) —
 —
 —
 (2,491)
Noncontrolling interest contributions—
 —
 —
 1,825
 —
 1,825
Noncontrolling interest distributions—
 —
 —
 (1,897) —
 (1,897)
Advances to affiliates—
 —
 —
 (4) 4
 —
Intercompany receivables/payables—
 (2,665) (173) 2,659
 179
 —
Net cash provided by (used in) financing activities—
 75,699
 (173) 2,083
 183
 77,792
Net increase (decrease) in cash and cash equivalents—
 61,825
 5
 (1,359) —
 60,471
Cash and cash equivalents at beginning of period—
 14,333
 47
 5,681
 —
 20,061
Cash and cash equivalents at end of period$—
 $76,158
 $52
 $4,322
 $—
 $80,532






F-36
Table of Contents
WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

CONSOLIDATING STATEMENT OF CASH FLOWS

(DEBTOR-IN-POSSESSION)

Year Ended December, 2011 (Predecessor)

(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

 $—     $127,757   $87   $(166,495)  $—     $(38,651) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Investing activities

      

Distributions from unconsolidated joint ventures

  —      1,435    —      —      —      1,435  

Purchases of property and equipment

  —      725    (131)   (722)   —      (128) 

Investments in subsidiaries

  —      29,412    —      —      (29,412)   —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash provided by (used in) investing activities

  —      31,572    (131)   (722)   (29,412)   1,307  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Financing activities

      

Principal payments on notes payable

  —      (82,531)   —      70,999    —      (11,532) 

Noncontrolling interest contributions

  —      —      —      6,605    —      6,605  

Noncontrolling interest distributions

  —      —      —      (8,954)   —      (8,954) 

Advances to affiliates

  —      —      (3)   (29,341)   29,344    —    

Intercompany receivables/payables

  —      (131,964)   (37)   131,933    68    —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash (used in) provided by financing activities

  —      (214,495)   (40)   171,242    29,412    (13,881) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net (decrease) increase in cash and cash equivalents

  —      (55,166)   (84)   4,025    —      (51,225) 

Cash and cash equivalents at beginning of period

  —      69,499    131    1,656    —      71,286  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents at end of period

 $—     $14,333   $47   $5,681   $—     $20,061  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

CONSOLIDATING STATEMENT OF CASH FLOWS

Year Ended December 30, 2010 (Predecessor)

(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

 $—     $27,863   $(1,245)  $(2,499)  $—     $24,119  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Investing activities

      

Investment in and advances to unconsolidated joint ventures

  —     (194)   —     —     —     (194) 

Distributions from unconsolidated joint venture

  —     4,183    —     —     —     4,183  

Purchases of property and equipment

  —     101    (165)   —     —     (64) 

Investments in subsidiaries

  —     (361)   12    —     349    —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash provided by (used in) investing activities

  —      3,729    (153)   —      349    3,925  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Financing activities

      

Proceeds from borrowings on notes payable

  —     7,087    —     —     —     7,087  

Principal payments on notes payable

  —     (52,797)   —     —     —     (52,797) 

Net cash paid for repurchase of Senior Notes

  —     (31,268)   —     —     —     (31,268) 

Noncontrolling interest contributions

  —     —     —     6,546    —     6,546  

Noncontrolling interest distributions

  —      —      —      (3,913)   —      (3,913) 

Advances to affiliates

  —     —     (19)   (744)   763    —    

Intercompany receivables/payables

  —     (362)   1,437    37    (1,112)   —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash (used in) provided by financing activities

  —      (77,340)   1,418    1,926    (349)   (74,345) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net (decrease) increase in cash and cash equivalents

  —      (45,748)   20    (573)   —      (46,301) 

Cash and cash equivalents at beginning of period

  —     115,247    111    2,229    —     117,587  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents at end of period

 $—     $69,499   $131   $1,656   $—     $71,286  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



Note 11—10—Fair Value of Financial Instruments

In accordance with FASB ASC Topic 820Fair Value Measurements and Disclosure, (“ASC 820”) the Company is required to disclose the estimated fair value of financial instruments. As of December 31, 20122014 and 2011,2013, 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 the loans were entered into during the final quarter of the yearmarket rates are unchanged and/or the outstanding balance at year end is expected to be repaid within one year;

year.


Subordinated Amortizing Notes—The carrying amount is a reasonable estimate of fair value of the Subordinated Amortizing Notes as the notes were issued near year end and rates have not changed significantly since issuance.

•

85  13/24% Senior Notes—The 85  13/24% Senior Notes are traded over the counter and their fair values werevalue was based upon quotes from industry sources;published quotes;


•
8  1/2% Senior Notes—The 8  1/2% Senior Notes are traded over the counter and their fair value was based upon published quotes;

7% Senior Secured Term Loan—Notes—The face amount of the term loan as of December 31, 2011 is $206.0 million. However, the renegotiated principal amount of the loan in accordance with the joint plan of reorganization is $235.0 million. Since the joint plan of reorganization was filed on December 19, 2011, the renegotiated amount of the term loan is a reasonable fair value as of December 31, 2011; and

Old7% Senior Notes Payable—The Senior Notes wereare traded over the counter and their fair values werevalue was based upon quotes from industry sources, as of December 31, 2011.

published quotes;


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):

  Successor     Predecessor 
  December 31, 2012     December 31, 2011 
  Carrying  Fair     Carrying  Fair 
 Amount  Value     Amount  Value 

Financial liabilities:

      

Notes payable

 $13,248   $13,248     $74,009   $74,009  

8 1/2% Senior Notes due 2020

 $325,000   $338,000     $—      $—     

Senior Secured Term Loan due 2015

 $—      $—        $206,000   $235,000  

7 5/8% Senior Notes due 2012

 $—      $—        $66,704   $20,469  

10 3/4% Senior Notes due 2013

 $—      $—        $138,912   $40,614  

7 1/2% Senior Notes due 2014

 $—      $—        $77,867   $21,742  

 December 31, 2014 December 31, 2013
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Financial liabilities:       
Notes payable$39,235
 $39,235
 $38,060
 $38,060
Subordinated amortizing notes20,717
 20,717
 —
 —
5 3/4% Senior Notes due 2019
150,000
 149,250
 —
 —
8 1/2% Senior Notes due 2020
430,149
 462,410
 431,295
 466,877
7% Senior Notes due 2022300,000
 300,750
 —
 —
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 Senior Secured Term Loan,Subordinated amortizing notes, and Level 2 to measure the fair value of its 81/2Senior Notes and Old Senior Notes Payable.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

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Level 3—valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.




F-37
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


The following table represents a reconciliation of the beginning and ending balance for the Company’s Level 3 fair value measurements:

      Senior 
   Notes  Secured 
   Payable  Term Loan 
   (in thousands) 

Fair Value at December 31, 2011 (Predecessor)

  $74,009   $235,000  

Change in balance related to plan of reorganization (1)

   —       —     

Repayments of principal (2)

   (74,009)   (235,000) 

Borrowings of principal (3)

   13,248    —     

Increase in value during the period

   —       —     
  

 

 

  

 

 

 

Fair Value at December 31, 2012 (Successor)

  $13,248   $—     
  

 

 

  

 

 

 

 
Notes
Payable
 Subordinated Amortizing Notes
 (in thousands)
Fair Value at December 31, 2012$13,248
 $—
Repayments of principal (1)(65,037) —
Borrowings of principal (2)89,849
 —
Fair Value at December 31, 201338,060
 —
Repayments of principal (1)(96,464) —
Borrowings of principal (2)97,639
 20,717
Fair Value at December 31, 2014$39,235
 $20,717

(1)Change is representative of payoff of the loan for the value reported at December 31, 2011, and not the face amount of the notes that were eliminated in accordance with the joint plan of reorganization.
(2)(1)Represents the actual amount of principal repaid
(3)
(2)Represents the actual amount of principal borrowed

Non-financial Instruments

The Company adopted FASB ASC Topic 820 in 2008, however, disclosure of certain non-financial portions of the statement were deferred until the 2009 reporting period. These non-financial homebuilding assets are those assets for which the Company recorded valuation adjustments during 2011 on a nonrecurring basis. See

Note 7, “Real Estate Inventories” for further discussion of the valuation of real estate inventories.

The following table summarizes the fair-value measurements of its non-financial assets for11—Related Party Transactions

For the year ended December 31, 2011:

   Fair Value
Hierarchy		   Fair Value at
Measurement
Date(1)		   Impairment
Charges
for the Year Ended
December 31,
2011(1)		 
   (in thousands) 

Land under development and homes completed and under construction(2)

   Level 3    $94,751    $34,835  

Inventory held for future development(3)

   Level 3    $74,146    $93,479  

(1)Amounts represent the aggregate fair values for communities where the Company recognized noncash inventory impairment charges during the year ended December 31, 2011.
(2)In accordance with FASB ASC 360-10-35, inventory under this caption with a carrying value of $129.6 million was written down to its fair value of $94.8 million, resulting in total impairments of $34.8 million for the year ended December 31, 2011.
(3)In accordance with FASB ASC 360-10-35, inventory under this caption with a carrying value of $167.6 million was written down to its fair value of $74.1 million, resulting in total impairments of $93.5 million for the year ended December 31, 2011.

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair values determined to be Level 3 include the use of internal assumptions, estimates and financial forecasts. Valuations of these items are therefore sensitive to the assumptions used. Fair values represent the Company’s best estimates as of the measurement date, based on conditions existing and information available at the date of issuance of the consolidated financial statements. Subsequent changes in conditions or information available may change assumptions and estimates, as outlined in more detail within “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Fair values determined using Level 3 inputs, were primarily based on the estimated future cash flows discounted for inherent risk associated with each asset. These discounted cash flows are impacted by: the risk-free rate of return; expected risk premium based on estimated land development; construction and delivery timelines; market risk from potential future price erosion; cost uncertainty due to development or construction cost increases; and other risks specific to the asset or conditions in the market in which the asset is located at the time the assessment is made.

In addition, for the year ended2014, December 31, 2011, the Company engaged a third-party valuation advisor to assess values of market comparables on land held for future development. These factors are specific to each community and may vary among communities.

Note 12—Related Party Transactions

For2013, the period from January 1, 2012 through February 24, 2012, and the period from February 25, 2012 through December 31, 2012, the Company incurred reimbursable on-site labor costs of $27,000$19,000, $15,000, $27,000, and $276,000, respectively, and for the year ended December 31, 2011 and 2010, the Company incurred reimbursable on-site labor costs of $318,000 and $217,000,$276,000, respectively, for providing customer service to real estate projects developed by entities controlled by William Lyon and William H. Lyon. At December 31, 20122014 and December 31, 2011, $7,0002013, $3,000 and $24,000,$13,000, respectively, was due to the Company for reimbursable on-site labor costs, all of which was paid.

paid subsequent to year end.


In October 2013, the Company acquired certain finished and unfinished lots at a master planned community located in Aurora, Colorado, for a cash purchase price of approximately $20.0 million, from an entity managed by an affiliate of Paulson and Co. Inc. ("Paulson"). The Company participated in a competitive bidding process for the lots and the Company believes that the acquisition was on terms no less favorable than it would have agreed to with unrelated parties.
Effective April 1, 2011 upon approval by the Company’s board of directors at that time, the Company and an entity controlled by General William Lyon and William H. Lyon entered into a Human Resources and Payroll Services contract to provide that the affiliate will pay the Company a base monthly fee of $21,335$21,335 and a variable monthly fee equal to $23$23 multiplied by the number of active employees employed by such entity (which will initially resultresulted in a variable monthly fee of approximately $8,000)$8,000). The amended contract also provides that the Company will be reimbursed by such affiliate for a pro rata share of any bonuses paid to the Company’s Human Resources staff (other than any bonus paid to the Vice President of Human Resources). The Company believes that the compensation being paid to it for the services provided to the affiliate is at a market rate of compensation, and that as a result of the fees that are paid to the Company under this contract, the overall cost to the Company of its Human Resources department will be reduced. The Company earned fees of $52,000$52,000 and $180,000,$180,000, during the period from January 1, 2012 through February 24, 2012, and the period from February 25, 2012 through December 31, 2012, respectively, and fees of $362,000 and $426,000 during the year ended December 31, 2011 and 2010, respectively, related to this agreement. This contract expired on August 31, 2012 and was not renewed. Any future services provided to the affiliate will be on an as needed basis and will be paid for based on an hourly rate.

On September 3, 2009, Presley CMR, Inc., a California corporation (“Presley CMR”) and 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 PSA provided for an aggregate purchase price for the Aircraft of $8.3$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$2.1 million to be paid at closing and (ii) a promissory note from the affiliate in the amount of $6.2 million.$6.2 million. The note is secured by the Aircraft. As part of the Company’s fresh start accounting, the note was adjusted to its fair value of $5.2 million.$5.2 million. The discount on the fresh start adjustment is amortized over the

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

remaining life of the note. The note requires semiannual interest payments to California Lyon of approximately $132,000.$132,000. The note is due in September 2016.

2016. As of December 31, 2014 and 2013, the amortized balance of the note was $5.8 million and $5.6 million, respectively.


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WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


For the year ended December 31, 2013, period from January 1, 2012 through February 24, 2012, and the period from February 25, 2012 through December 31, 2012, the Company incurred charges of $118,000$197,000, $118,000 and $668,000, respectively, and for the year ended December 31, 2011 and 2010, the Company incurred charges of $786,000 and $786,000,$668,000, respectively, related to rent on its corporate office, from a trust of which William H. Lyon is the sole beneficiary. The current lease expiresexpired in March 2013 and the Company has decided to relocaterelocated its corporate office upon expiration of the lease. The Company has entered into a lease for the new location with an unrelated third party.

Note 13—12—Income Taxes

On December 19, 2011,

Since inception, the Parent and certain of its subsidiaries filed voluntary petitions under Chapter 11 of Title 11 ofCompany has operated solely within the United States Code in the U.S. Bankruptcy Court for the District of Delaware. On February 25, 2012, the group of companies emerged from the Chapter 11 bankruptcy proceedings.

States.


The following summarizes the (provision) benefit from income taxes (in thousands):

   Successor   Predecessor 
   Period from
February 25
through
December 31,
2012		   Period from
January 1
through
February 24,
2012		   Year Ended
December 31,		 
       2011  2010 

Current

       

Interest on uncertain tax provisions

  $—      $—      $—     $75  

Federal

   —       —       —      347  

State

   (11)    —       (10)   (10) 
  

 

 

   

 

 

   

 

 

  

 

 

 
  $(11)   $—      $(10)  $412  
  

 

 

   

 

 

   

 

 

  

 

 

 

 Successor Predecessor
 Year Ended December 31, Year Ended December 31, 
Period from
February 25
through
December 31,
2012
 
Period from
January 1
through
February 24,
2012
 2014 2013 
Current       
Federal$(13,284) $(12,156) $—
 $—
State(2,691) (1,132) (11) —
Deferred       
Federal(4,748) 74,000
 —
 —
State(3,074) 21,590
 —
 —
 $(23,797) $82,302
 $(11) $—
Income taxes differ from the amounts computed by applying the applicable federal statutory rates due to the following (in thousands):

   Successor      Predecessor 
   Period from
February 25
through
December 31,
2012		      Period from
January 1
through
February 24,
2012		  Year Ended
December 31,		 
         2011  2010 

Benefit (provision) for federal income taxes at the statuatory rate

  $3,098      $(79,935)  $67,662   $48,019  

Provision for state income taxes, net of federal income tax benefits

   (7)      —    (6)   (6) 

Valuation allowance

   (2,195)      (14,991)   (66,265)   (47,949) 

Nondeductible items-reorganization costs

   (709)      94,925    (1,379)   —  

Nondeductible items-other

   (194)      (3)   (22)   —  

Other

   (4)      4    —    348  
  

 

 

     

 

 

  

 

 

  

 

 

 
  $(11)     $—   $(10)  $412  
  

 

 

     

 

 

  

 

 

  

 

 

 

   Successor Predecessor
 Year Ended December 31, Year Ended December 31, 
Period from
February 25
through
December 31,
2012
 
Period from
January 1
through
February 24,
2012
 2014 2013 
(Provision) benefit for federal income taxes at the statutory rate$(27,413) $(18,656) $3,098
 $(79,935)
Increases/(decreases) in tax resulting from:       
Provision for state income taxes, net of federal income tax benefits(3,784) 13,297
 (7) —
Change in valuation allowance1,629
 153,526
 (2,195) (14,991)
Nondeductible items-reorganization costs—
 —
 (709) 94,925
Nondeductible items-other2,127
 513
 (194) (3)
Non-controlling interests3,465
 2,265
 —
 —
Cancellation of indebtedness attribute reduction(4) (70,993) —
 —
Other, net (1)
183
 2,350
 (4) 4
 $(23,797) $82,302
 $(11) $—
WILLIAM LYON HOMES(1)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Consists primarily of amounts relating to recognized built-in losses that will expire unused due to limitations under IRC §382 and return to provision true-ups.        


Temporary differences giving rise to deferred income taxes consist of the following (in thousands):

   December 31, 
   2012  2011 

Deferred tax assets

   

Impairment and other reserves

  $73,947   $102,216  

Compensation deductible for tax purposes when paid

  ��987    970  

State income tax provisions deductible when paid for federal tax purposes

   4    3  

Effect of book/tax differences for joint ventures

   1,002    1,563  

Effect of book/tax differences for capitalized interest/general and administrative

   —   891  

Other

   318    318  

AMT credit carryover

   2,698    2,698  

Unused recognized built-in loss

   16,349    — 

Net operating loss

   113,314    99,586  

Valuation allowance

   (200,048)   (202,322) 
  

 

 

  

 

 

 
   8,571    5,923  

Deferred tax liabilities

   

Effect of book/tax differences for joint ventures

   (5,597)   (5,923) 

Effect of book/tax differences for capitalized interest/general and administrative

   (2,974)   — 
  

 

 

  

 

 

 
   (8,571)   (5,923) 
  

 

 

  

 

 

 
  $—  $— 
  

 

 

  

 

 

 

At


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WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


 December 31,
 2014 2013
Deferred tax assets   
Impairment and other reserves$65,063
 $79,454
Compensation deductible for tax purposes when paid9,130
 4,588
Goodwill and other intangibles2,582
 2,176
AMT credit carryover1,384
 1,384
Unused recognized built-in loss27,645
 25,914
Net operating loss1,776
 3,545
Valuation allowance(1,626) (3,959)
Other1,556
 1,126
 107,510
 114,228
Deferred tax liabilities   
Effect of book/tax differences for joint ventures(2,974) (6,077)
Effect of book/tax differences for capitalized interest/general and administrative(13,203) (9,260)
Fixed assets and intangibles(2,104) (2,518)
Other(1,190) (793)
 (19,471) (18,648)
Total deferred tax assets, net$88,039
 $95,580
The Company’s effective income tax rate was 30.4%, and (154.5)% for the twelve months ended December 31, 2012, the Company had gross federal2014 and state net operating loss carryforwards totaling approximately $243.8 million and $508.3 million,2013, respectively. Federal net operating loss carryforwards begin to expire in 2028 and state net operating loss carryforwards begin to expire in 2013. In addition, as of December 31, 2012, the Company had unused federal and state built-in losses of $42.1 million and $27.9 million, respectively, which expire in 2017.

In connection with the Company’s emergence from the Chapter 11 bankruptcy proceedings, the Company experienced an “ownership change” as defined in Section 382The significant drivers of the Internal Revenue Code, or the IRC, aseffective tax rate are allocation of February 25, 2012. Section 382income to noncontrolling interests, related party loss recapture, domestic production activities deduction, state income taxes, and release of the IRC contains rules that limit the ability of a company that undergoes an “ownership change” to utilizevaluation allowance.

Management assesses its net operating loss carryforwards and certain built-in losses or deductions recognized during the five-year period after the ownership change. The Company is able to retain a portion of its U.S. federal and state net operating loss and tax credit carryforwards, or the “Tax Attributes”, in connection with the ownership change. However the IRC, Sections 382 and 383 provide an annual limitation with respect to the ability of a corporation to utilize its Tax Attributes against future U.S. taxable income in the event of a change in ownership. In the Company’s situation, the limitation under the IRC will generally be based on the value of the equity (for purposes of the applicable tax rules) on or immediately following the time of emergence. As a result, the Company’s future U.S. taxable income may not be fully offset by the Tax Attributes if such income exceeds the Company’s annual limitation, and the Company may incur a tax liability with respect to such income. In addition, subsequent changes in ownership for purposes of the IRC could further diminish the Company’s ability to utilize Tax Attributes.

In assessing the benefits of the deferred tax assets management considersto determine whether itall or any portion of the asset is more likely than not that someunrealizable under ASC 740. The Company is required to establish a valuation allowance for any portion or all of the deferred tax assets willasset that management concludes is more likely than not to be realized.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. Managementdeductible.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

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income in making this assessment. AsAt December 31, 2014 the Company’s valuation allowance was $1.6 million due to projected excess realized built-in-losses which may expire unused. During the year ended December 31, 2013, the Company recognized a $95.6 million income tax benefit that resulted from the reversal of all but $4.0 million of our deferred tax asset valuation allowance. The Company concluded this reversal was appropriate after determining that it was more likely than not that we would be able to realize the full amount of this income tax benefit as management believes the Company will generate sufficient taxable income to realize these deferred tax assets.

The Company's analysis demonstrated that even under the stress tested forecasts of future results which considered the potential impact of the negative evidence noted above, the Company would continue to generate sufficient taxable income in future periods to realize the majority of its deferred tax assets. This fact, coupled with other positive evidence described above, significantly outweighed the negative evidence and based on this analysis management concluded, in accordance with ASC 740, that it was more likely than not that the majority of its deferred tax assets as of December 31, 2012, due2013 would be realized.    At December 31, 2014, the Company had no remaining federal net operating loss carryforwards and $38.1 million remaining state net operating loss carryforwards. State net operating loss carryforwards begin to uncertainties surroundingexpire in 2015. In addition, as of December 31, 2014, the realization of the cumulativeCompany had unused federal and state deferred tax assets,built-in losses of $74.5 million and $40.1 million, respectively. The 5 year testing period for built-in losses expires in 2017 and the unused built-in loss carryforwards begin to expire at the end of 2032. The Company has a full valuation allowance against the deferred tax assets. The valuation allowance for the years endedhad AMT credit carryovers of $1.4 million at December 31, 2012, 2011 and 2010 was $200.0 million, $202.3 million and $125.8 million, respectively.

Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—2014, which had an interpretation of FASB Statement No. 109” (“FIN 48”) which is now codified as FASB ASC 740, Income Taxes. FASB indefinite life.

ASC 740 prescribes a recognition threshold and a measurement criteriacriterion 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 has taken positions in certain taxing jurisdictions for which it is more likely than not that previously unrecognized tax benefits will be recognized. The Company records interest

F-40
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WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


and penalties related to uncertain tax positions as a component of the provision for income taxes. At January 1, 2008, and for the years endedAs of December 31, 2008 through December 31, 2012,2014 and 2013, the Company hashad no unrecognized tax benefits.

In compliance with the Company’s election to recognize interest income (expense) and penalties related tosignificant uncertain tax positions in the income tax provision, $75,000 of interest income related to the income tax refund receivable, recorded under the provisions of FASB ASC 740, is included in the benefit from income taxes for the twelve months ended December 31, 2010.

positions.

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 ending 2009ended 2011 through 2012.2013 and forward. The Company is subject to various state income tax examinations for calendar tax years ending 2008ended 2010 through 2012.

Note 14—Business Combination

2013 and forward. The Company acquired 100% of various entities which operate under the Village Homes brand (“Village Homes”)does not have any tax examinations currently in the Denver metropolitan area, Fort Collins,progress.


Note 13—Income (Loss) Per Common Share
Basic and Granby, Colorado markets on December 7, 2012. The purchase price was $33.2 million in cash and the acquisition has been accounted for as a business combination in accordance with FASB ASC Topic 805,Business Combinations. Village Homes immediately began operating as a division of the Company, as its Colorado segment. The Village Homes brand was established in 1984 and has been a leading developer and builder of move-up homes, selling more than 10,000 homes in the Denver area over the past 25 years. The acquisition of Village Homes allowed the Company to expand into the Denver market, one of the largest and fastest growing housing markets in the United States, adding a fifth region while diversifying the Company’s existing portfolio. The acquisition eliminated lead-time and start-up costs of expanding into a new market, and provided a platform that can grow significantly without the need for additional general and administrative expenses.

The assets and liabilities acquired through the purchase of Village Homes were as follows (in thousands):

Real estate inventories owned

  $32,923  

Other assets, net

   1,463  

Intangibles

   907  

Receivables

   70  

Accounts payable

   (1,029) 

Accrued expenses

   (1,133) 
  

 

 

 

Cash paid for acquisitions, net

  $33,201  
  

 

 

 

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In connection with the acquisition of Village Homes, the Company incurred acquisition related expenses of $0.2 million which are included in general and administrative expense in the consolidated statement of operationsdiluted income (loss) per common share for the period from February 25, 2012 throughyear ended December 31, 2012.

Since acquisition, Village Homes contributed $5.4 million in home sales revenue and $0.01 million in net income which is included in2014, the consolidated statement of operations for the period from February 25, 2012 throughyear ended December 31, 2012.

For2013, the period from February 25, 2012 through December 31, 2012, period from January 1, 2012 through February 24, 2012, and the year ended December 31, 2011, the below unaudited pro forma information has been prepared to give effect to the Village Homes acquisition as if it occurred on January 1, 2011 (in thousands except number of shares and per share data):

   (unaudited) 
   Successor      Predecessor 
   Period from
February 25
through
December 31,
2012		  

 

  Period from
January 1
through
February 24,
2012		   Year Ended
December 31,
2011		 

Revenue

  $405,635      $28,521    $261,933  

Net (loss) income available to common stockholders

  $(9,617)     $228,074    $(189,457) 

(Loss) income per common share, basic and diluted

  $(0.09)     $228,074    $(189,457) 

Weighted average common shares outstanding, basic and diluted

   103,037,842       1,000     1,000  

The pro forma results are not necessarily indicative of the operating results that would have been obtained had the acquisitions occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 15—(Loss) Income Per Common Share

Basic and diluted (loss) income per common share for the period from February 25, 2012 through December 31, 2012, the period from January 1, 2012 through February 24, 2012 and the year ended December 31, 2011 and 2010 were calculated as follows (in thousands, except number of shares and per share amounts):

   Successor      Predecessor 
   Period from
February 25
through
December 31,
2012		      Period from
January 1
through
February 24,
2012		   Year Ended
December 31,		 
        2011  2010 

Basic weighted average number of shares outstanding

   103,037,842       1,000     1,000    1,000  

Effect of dilutive securities:

         

Preferred shares, stock options, and warrants (1)

   —         N/A     N/A    N/A  
  

 

 

     

 

 

   

 

 

  

 

 

 

Diluted average shares outstanding

   103,037,842       1,000     1,000    1,000  

Net (loss) income available to common stockholders

  $(11,602)     $228,383    $(193,330)  $(136,786) 
  

 

 

     

 

 

   

 

 

  

 

 

 

Basic (loss) income per common share

  $(0.11)     $228,383    $(193,330)  $(136,786) 

Dilutive (loss) income per common share

  $(0.11)     $228,383    $(193,330)  $(136,786) 

Antidilutive securities not included in the calculation of diluted (loss) income per common share (weighted average):

         

Preferred shares

   68,002,529       N/A     N/A    N/A  

Vested stock options

   3,171,535       N/A     N/A    N/A  

Unvested stock options

   1,585,767       N/A     N/A    N/A  

Warrants

   15,737,294       N/A     N/A    N/A  

 Successor  Predecessor
 Year Ended December 31, 2014 Year Ended December 31, 2013 
Period from
February 25
through
December 31,
2012
  
Period from
January 1
through
February 24,
2012
 
Basic weighted average number of shares outstanding31,753,110
 24,736,841
 12,489,435
  1,000
Effect of dilutive securities:        
Preferred shares, stock options, and warrants (1)1,424,272
 1,059,356
 —
  —
Tangible Equity Units58,961
 —
 —
  —
Diluted average shares outstanding33,236,343
 25,796,197
 12,489,435
  1,000
Net income (loss) available to common stockholders$44,625
 $127,604
 $(11,602)  $228,383
Basic income (loss) per common share$1.41
 $5.16
 $(0.93)  $228,383
Dilutive income (loss) per common share$1.34
 $4.95
 $(0.93)  $228,383
Potentially antidilutive securities not included in the calculation of diluted loss per common share (weighted average):        
Preferred sharesN/A
 N/A
 8,242,731
  N/A
Vested stock optionsN/A
 N/A
 384,428
  N/A
Unvested stock optionsN/A
 N/A
 192,214
  N/A
WarrantsN/A
 N/A
 1,907,551
  N/A
(1)For periods with a net loss, all potentially dilutive shares related to the preferred shares, options to acquire common stock, and warrants were excluded from the diluted loss per common share calculations because the effect of their inclusion would be antidilutive, or would decrease the reported loss per common share.

Note 16—Redeemable Convertible Preferred Stock

As of December 31, 2012, there were 77,005,744 shares of Convertible Preferred Stock, $0.01 par value per share, or the Convertible Preferred Stock, outstanding, of which 64,831,831 shares were issued in accordance with our plan of reorganization, in exchange for aggregate cash consideration of $50.0 million. In conjunction with the application of fresh start accounting, the fair value of the Convertible Preferred Stock was $56.4 million upon emergence.

On October 12, 2012, the Company entered into a Subscription Agreement between the Company and WLH Recovery Acquisition LLC, a Delaware limited liability company and investment vehicle managed by affiliates of Paulson & Co. Inc. (“Paulson”), pursuant to which, the Company issued to Paulson (i) 15,238,095 shares of Class A 14—Equity

Common Stock for $16.0 million in cash and (ii) 12,173,913 shares of the Company’s Convertible Preferred Stock, for $14.0 million in cash, for an aggregate purchase price of $30.0 million.

Our Second Amended and Restated Certificate of Incorporation (the “Charter”) authorizes the issuance of up to 80,000,000 shares of redeemable convertible preferred stock, in one or more series and with such rights, preferences, privileges and restrictions, including voting rights, redemption provisions (including sinking fund

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

provisions), dividend rights, dividend rates, liquidation rates, liquidation preferences and conversion rights, as our board of directors may determine without further action by the holders of common stock.

Holders of our Convertible Preferred Stock are entitled to receive cumulative dividends at a rate of 6% per annum consisting of (i) cash dividends at the rate of 4% paid quarterly in arrears, and (ii) accreting dividends accruing at the rate of 2% per annum (the “Convertible Preferred Dividends”). During the period from February 25, 2012 through December 31, 2012, the company recorded preferred stock dividends of $2.7 million. During the period from February 25, 2012 through December 31, 2012, $1.7 million was paid in cash and $0.9 million of accreting dividends are included in Convertible Preferred Stock as of December 31, 2012.

In the event that the Corporation declares or pays any dividends upon any Common Stock (whether payable in cash, securities, other property or otherwise), the Corporation shall also declare and pay to the holders of the Convertible Preferred Stock at the same time that it declares and pays such dividends to the holders of such Common Stock the dividends declared and paid with respect to such Common Stock as if all of the outstanding Convertible Preferred Stock had been converted into such Common Stock immediately prior to the record date for such dividend, or if no record date is fixed, the date as of which the record holders of such Common Stock entitled to such dividends are to be determined.

Upon the occurrence of the Conversion Date (as defined in the Charter), each share of Convertible Preferred Stock will automatically convert into such number of fully paid and non-assessable shares of Class A Common Stock as is determined by dividing the Convertible Preferred Original Issue Price (as defined in the Charter) by the then applicable Convertible Preferred Conversion Price (as defined in the Charter). In connection with any such conversion, the Company will also pay (i) any accrued but unpaid Convertible Preferred Dividends on any shares of Convertible Preferred Stock being converted (including, without limitation, any accreting dividends not previously paid), which amounts will be paid in cash out of funds legally available therefore if such payment would not violate any covenants imposed by agreements entered into in good faith governing the indebtedness of the Company and its subsidiaries, or, to the extent not so permitted or so available, in shares of Class A Common Stock, based on the fair market value of such common stock at such time, and (ii) in cash, the value of any fractional share of Class A Common Stock otherwise issuable to any such Convertible Preferred Stockholder.

To the extent not previously converted to common stock, the Company will redeem all the outstanding shares of Convertible Preferred Stock on the fifteenth anniversary of the date of first issuance at a price per share payable in cash and equal to the Convertible Preferred Original Issue Price plus accrued and unpaid Convertible Preferred Dividends in respect thereof.

The Company initially recorded the redeemable convertible preferred stock at its fair value based on the option pricing model stated above in Note 3. Since the initial measurement and recording of the redeemable convertible preferred stock is greater than its redemption value, the Company would assess the probability of redemption at each reporting date. As of December 31, 2012, the preferred stock is not currently redeemable and ultimate redemption is not currently probable, since the redemption would only occur if the preferred stock is still outstanding in 15 years. In addition, the preferred stock will likely convert to common shares prior to that date. At such time that redemption was deemed probable, the Company would adjust the carrying value to its redemption value with the offsetting adjustment to additional paid in capital. Further, upon a conversion of the preferred into common shares, the carrying value of the preferred stock would be reclassified to common stock and additional paid in capital on that date. The redemption value of the redeemable convertible preferred stock as of December 31, 2012 was $64.0 million, excluding the accreted dividends of $0.9 million.

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 17—Equity

Common Stock

As of December 31, 2012, we had 120,105,557 shares of common stock outstanding. In conjunction with the Plan as discussed in Notes 2, 3 and 4, the Company issued the following shares of common stock: (i) 44,793,255 shares of Class A, $0.01 par value per share, in exchange for old senior notes claims, as described above, (ii) 31,464,548 shares of Class B, $0.01 par value per share, in exchange for aggregate consideration of $25 million, and a warrant to purchase 15,737,294 shares of Class B Common Stock, at $2.07 per share, (iii) 12,966,366 shares of Class C, $0.01 par value per share, in exchange for cash consideration of $10.0 million, and (iv) the issuance of an additional 3,144,000 shares of Class C Common Stock to Luxor Capital Group LP as a transaction fee in consideration for providing the backstop commitment of the offering of Class C shares and shares of Convertible Preferred Stock in connection with the Plan. In December 2012, an affiliate of Luxor Capital Group LP elected to convert 90,028 shares of its Class C Common Stock into 90,028 shares of Class A Common Stock.

On June 28, 2012, the Company consummated the purchase of certain real property (comprising of approximately 165 acres) in San Diego County, California; San Bernardino County, California; Maricopa County, Arizona; and Clark County, Nevada, representing seven separate residential for sale developments, comprising of over 1,000 lots. The aggregate purchase price of the property was $21.5 million. The Company paid $11.0 million cash, and issued 10,000,000 shares of Class A Common Stock, to investment vehicles managed by affiliates of Colony Capital, LLC as consideration for the property.

On October 1, 2012, the Company approved the grant of an aggregate of 3,120,000 restricted shares of Class D common stock of the Company, and an aggregate of 4,757,302 options to purchase shares of Class D common stock of the Company, of which 1,115,302 represent “five-year” options and 3,642,000 represent “ten-year” options to certain officers of California Lyon. In addition, the Company granted 256,500 shares of Restricted Stock to its non-employee directors, which were fully vested on the date of grant.

On October 12, 2012, the Company entered into a Subscription Agreement between the Company and WLH Recovery Acquisition LLC, a Delaware limited liability company and investment vehicle managed by affiliates of Paulson & Co. Inc. (“Paulson”), pursuant to which, the Company issued to Paulson (i) 15,238,095 shares of Class A Common Stock, for $16.0 million in cash and (ii) 12,173,913 shares of the Company’s Convertible Preferred Stock, for $14.0 million in cash, for an aggregate purchase price of $30.0 million.

Upon the occurrence of the Conversion Date, each share of Class C Common Stock will automatically convert into one share of Class A Common Stock, and each share of Class B Common Stock will automatically convert into one share of Class A Common Stock, if a majority of the shares of Class B Common Stock then outstanding vote in favor of such conversion. If, at any time (whether before, on or after the Conversion Date),

any share of Class B Common Stock is not owned, beneficially or of record, by either General William Lyon or William H. Lyon, their sibling, spouses and lineal descendants, any entities wholly owned by one or more of the foregoing persons, or any trusts or other estate planning vehicles for the benefit of any of the foregoing, then such share of Class B Common Stock will automatically convert into one share of Class A Common Stock.

All of our outstanding shares of common stock have been validly issued and fully paid and are non-assessable. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of preferred stock.stock, of which there are no shares issued or outstanding as of December 31, 2014 or 2013. Holders of our common stock have no preference, exchange, sinking fund, redemption or appraisal rights and have no preemptive rights to subscribe for any of our securities.

Withsecurities, with the exception of the dividends to be paid out to holders of our Convertible PreferredClass B Common Stock, thewhich do have certain preemptive rights.


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WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


The Company does not intend to declare or pay cash dividends in the foreseeable future. Any determination to pay

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

dividends to holders of our common stock will be at the discretion of our board of directors. The payment of cash dividends is restricted under the terms of certain of the agreements governing our Amended and Restated Senior Secured Term Loan Agreement andoutstanding indebtedness, including the indentureindentures governing the Notes.

our senior notes.

In conjunction with the adoption of fresh start accounting, the Company allocated the fair market value of the$43.1 million to common stock of $43.1 million as of February 24, 2012.

Warrants
Warrants

The holders of Class B Common Stockcommon stock hold warrants to purchase 15,737,2941,907,551 shares of Class B Common Stockcommon stock at an exercise price of $2.07$17.08 per share. The expiration date of the Class B Warrants is February 24, 2017.2022. The Warrants were assigned a value of $1.0$1.0 million in conjunction with the adoption of fresh start accounting and are recorded in additional paid-in capital.

Tangible Equity Units
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, subject to adjustment, based upon the applicable settlement rate and applicable market value of Class A common stock as defined in the purchase contract. The net proceeds from the issuance of the of the TEUs were allocated between the purchase contract and amortizing note based on their relative fair values. As a result, $90.7 million was allocated to additional paid-in capital in connection with the issuance of the TEUs.
As of December 31, 2014, the Company has reserved the maximum number of shares issuable under the TEU purchase agreement from it's authorized but unissued shares of Class A common stock. The TEUs also contain a fundamental change provision, whereby holders can elect early settlement in shares or cash at an early settlement rate if the Company undergoes a fundamental change as defined in the TEU agreement.

Note 18—15—Stock Based Compensation

In 2012, the Company adopted the William Lyon Homes 2012 Equity Incentive Plan (the “Plan”). The Plan was approved by the Board of Directors and the Company’s stockholders, and is administered by the Compensation Committee of the Board. The provisions of the Plan allow for a variety of stock-based compensation awards, including stock options, stock appreciation rights, or SARs, restricted stock awards, restricted stock unit awards, deferred stock awards, deferred stock unit awards, dividend equivalent awards, stock payment awards and performance awards and other stock-based awards, to certain executives, directors, and non-executives of California Lyon. The Company believes that such awards provide a means of compensation to attract and retain qualified employees and better align the interests of our employees with those of our stockholders. Option awards are granted with an exercise price equal to the market price at the date of grant.

Under the plan, 13,699,5653,636,363 shares of the Company’s Class DA common stock have been reserved for issuance. In 2014, 2013 and 2012, the Company granted an aggregate of 2,499,293392,126 restricted shares, 370,959 restricted shares and 302,944 restricted shares, respectively, of Class DA common stock of the Company, and in 2012 the Company granted an aggregate of 4,757,302576,651 stock options to purchase shares of Class DA common stock of the Company, of which 1,115,302135,197 represent “five-year” options and 3,642,000441,454 represent “ten-year” options.

The five-year options arewere originally subject to mandatory exercise upon the earlier of an initial public offering (“IPO”) of the Company, or five years, provided, that ifyears. The five-year options were modified during 2013 to extend the IPO occurs priormandatory exercise period to the applicable vesting datefirst open trading window under the Company’s Insider Trading Policy immediately following the release of earnings results for the fiscal year ending December 31, 2013 (and for the subsequent fiscal year for any unvested tranches as of such date). The resulting incremental compensation cost recognized as a result of the options, such options will be exercised upon the applicable vesting date. modification was negligible.
The five-year options and ten-year options will be incentive stock options to the maximum extent permitted by law. Each of the restricted stock and option awards granted in October 2012 vests as follows: 50% of the shares and options vested on October 1, 2012, the date of grant, with the remaining 50% of the shares and options vesting in three equal installments on each of December 31, 2012, 2013 and 2014, subject to the recipient’s continued employment through the applicable vesting date and accelerated vesting as set forth in the applicable award agreement. In addition, the Company granted 256,50031,091 shares of

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WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Restricted Stock in 2012 to its non-employee directors, which were fully vested on the date of grant.

During 2013 and 2014, with respect to all but one of the performance based restricted stock awards granted, the performance based restricted stock awards vests as follows: one-third of the shares of performance based restricted stock will vest on March 1 of each of the first, second, and third years following the grant date, subject to the Company’s achievement of a pre-established performance target as of the end of the given fiscal year. The remaining grant did not contain a pre-established performance target, but the earned shares for such award will be determined by the exercise of the discretion of the Compensation Committee of Parent’s Board of Directors following the end of the 2014 fiscal year, which were determined to be at the target level. During 2014, the Company achieved 97% of its performance targets, and all performance targets were met at maximum during 2013. In addition, the Company granted time-based restricted stock awards during 2013 to 2014 to certain of its employees and to its non-employee directors, with the employee grants vesting in equal 50% annual installments over a two-year period from the grant date, other than two grants which vest in full on the second anniversary of the grant date, and with the director grants vesting in equal quarterly installments on June 1, September 1, December 1 and March 1 following the grant date, in each case subject to the individual's continued service to the Company through the applicable vesting date.

The Company uses the fair value method of accounting for stock options granted to employees which requires us to measure the cost of employee services received in exchange for the stock options, based on the grant date fair value of the award. The fair value of the awards is estimated using the Black-Scholes option-pricing model. The resulting cost is recognized on a straight line basis over the period during which an employee is required to provide service in exchange for the award, usually the vesting period.

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The fair value of each employee option awarded was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions.

   Period from
February 25, 2012
through December 31,
   2012  2011  2010

Expected dividend yield

   0%  N/A  N/A

Risk-free interest rate

   0.55%  N/A  N/A

Expected volatility

   79%  N/A  N/A

Expected life (in years)

   4.73   N/A  N/A

Year Ended December 31, 2014Year Ended December 31, 2013
Period from
February 25, 2012
through December 31, 2012
Expected dividend yieldN/AN/A—%
Risk-free interest rateN/AN/A0.55%
Expected volatilityN/AN/A79%
Expected life (in years)N/AN/A4.73
The Black-Scholes option-pricing model requires inputs such as the expected divident yield, risk-free interest rate, expected term and expected volatility. Further, the forfeiture rate also affects the amount of aggregate compensation. These inputs are subjective and generally require significant judgment.

The risk-free interest rate that we use is based on the United States Treasury yield in effect at the time of grant for zero coupon United States Treasury notes with maturities approximating each grant’s expected life. Given our limited history with employee grants, we use the “simplified” method in estimating the expected term for our employee grants. The “simplified” method is calculated as the average of the time-to-vesting and the contractual life of the options. Our expected volatility iswas not derived from the historical volatilities of several unrelated public companies within the homebuilding industry, because we havehad no trading history on our common stock.stock at the time the grants were valued. When making the selections of our peer companies within the homebuilding industry to be used in the volatility calculation, we also considered the stage of development, size and financial leverage of potential comparable companies. We estimate our forfeiture rate based on an analysis of our actual forfeitures, of which we had none, and will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior and other factors.

As of December 31, 2014, the Company has 2,096,624 shares available for grant under the Plan.
Summary of Stock Option Activity

Stock option activity under the Plan atfor the years ended December 31, 20122014, December 31, 2013 and changes during the period from February 25, 2012 through December 31, 2012 werewas as follows (there is no activity in prior periods as the options were granted in the fourth quarter of 2012):

   Period from February 25, 2012 through
December 31, 2012		 
   Options   Weighted
Average
Exercise
Price		   Weighted
Average
Remaining
Contractual
Life (in years)		   Aggregate
Intrinsic
Value		 

Options outstanding at beginning of year

   —        N/A     N/A     N/A  

Granted (1)

   4,757,302    $1.05     4.48    $ —    

Exercised

   —        N/A     N/A     N/A  

Cancelled

   —        N/A     N/A     N/A  

Options outstanding at end of year

   4,757,302    $1.05     4.48    $—    

Options vested and expected to vest

   4,757,302    $1.05     4.48    $—    

Options exercisable at end of year (2)

   3,171,535    $1.05     4.48    $—    

Price range of options exercised

   N/A        

Price range of options outstanding

  $1.05        

Total shares available for future grants at end of year

   6,442,970        


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WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



 Year Ended December 31, 2014 Year Ended December 31, 2013 
Period from February 25, 2012 through
December 31, 2012
 Options Weighted Average Exercise Price Options Weighted
Average
Exercise
Price		 Options 
Weighted
Average
Exercise
Price
Options outstanding at beginning of year576,651
 $8.66
 576,651
 $8.66
 —
 N/A
Granted (1)—
 N/A
 —
 N/A
 576,651
 $8.66
Exercised(157,413) 8.66
 —
 N/A
 —
 N/A
Canceled—
 N/A
 —
 N/A
 —
 N/A
Options outstanding at end of year419,238
 $8.66
 576,651
 $8.66
 576,651
 $8.66
Options vested and expected to vest419,238
 $8.66
 576,651
 $8.66
 576,651
 $8.66
Options exercisable at end of year (2)419,238
 $8.66
 480,571
 $8.66
 384,441
 $8.66
Price range of options exercised$8.66
   N/A
   N/A
  
Price range of options outstanding$8.66
   $8.66
   $8.66
  
(1)
The weighted average grant date fair value of the stock options was $0.64.$5.28
(2)
The fair value of shares vested during the years ended December 31, 2014 and 2013, and the period from February 25, 2012 through December 31, 2012 was $2.0 million.$1.2 million, $1.4 million and $2.0 million, respectively.

The following table summarizes information associated withabout stock options granted to executives, directors, and non-executives that are vestedoutstanding and expected to vest in future reporting periods:

   Period from February 25, 2012 through
December 31, 2012		 
   Number of
Shares		   Weighted
Average
Exercise
Price		   Weighted
Average
Remaining
Contractual
Life (in years)		   Aggregate
Intrinsic
Value		 

Executives

   4,467,892    $1.05      

Directors

   —        N/A      

Non-Executives

   289,410    $1.05      
  

 

 

       

Total

   4,757,302    $1.05     4.48    $ —    

exercisable at December 31, 2014:

Outstanding and exercisable
Exercise Price Number of Shares Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value
$8.66
 419,238
 2.20 $4,867,353

The following table summarizes information associated with stock options granted to executives, directors, and non-executives that are exercisable at December 31, 2012:

   Period from February 25, 2012 through
December 31, 2012		 
   Number of
Shares		   Weighted
Average
Exercise
Price		   Weighted
Average
Remaining
Contractual
Life (in years)		   Aggregate
Intrinsic
Value		 

Executives

   2,978,595    $1.05      

Directors

   —        N/A      

Non-Executives

   192,940    $1.05      
  

 

 

       

Total

   3,171,535    $1.05     4.48    $ —    

2014 and December 31, 2013:

 As of December 31, 2014 As of December 31, 2013
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life (in years)
 
Aggregate
Intrinsic
Value
 Number of
Shares		 Weighted
Average
Exercise
Price		 Weighted
Average
Remaining
Contractual
Life (in years)		 Aggregate
Intrinsic
Value
Executives397,430
 $8.66
   

 450,637
 $8.66
    
Directors—
 N/A
   

 —
 N/A
    
Non-Executives21,808
 $8.66
   

 29,934
 $8.66
    
Total419,238
 $8.66
 2.2 $4,867,353
 480,571
 $8.66
 3.2 $7,773,255
Summary of Nonvested (Restricted)Restricted Shares Activity

During the years ended December 31, 2014, December 31, 2013 and the period from February 25, 2012, through December 31, 2012, the Company had the following activity relating to grants of restricted common stock: 

   Period from February 25, 2012
through December 31, 2012		 
   Number of
Shares		   Weighted
Average Grant
Date Fair Value		 

Non-vested shares at beginning of year

   —        N/A  

Granted

   2,499,293    $1.05  

Vested

   1,592,965    $1.05  

Cancelled

   —       $1.05  

Non-vested shares at end of year

   906,328    $1.05  


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WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


 Year Ended December 31, 2014 Year Ended December 31, 2013 
Period from February 25, 2012
through December 31, 2012
 Number of Shares Weighted Average Grant Date Fair Value Number of
Shares		 Weighted
Average Grant
Date Fair Value		 
Number of
Shares
 
Weighted
Average Grant
Date Fair Value
Non-vested shares at beginning of year99,661
 $11.49
 109,850
 $8.66
 —
 N/A
Granted79,575
 27.70
 79,509
 14.56
 302,944
 $8.66
Vested(99,901) 13.81
 (89,698) 10.74
 (193,094) 8.66
Canceled—
 N/A
 —
 N/A
 —
 N/A
Non-vested shares at end of year79,335
 $24.84
 99,661
 $11.49
 109,850
 $8.66


During the year ended December 31, 2014 the Company had the following activity relating to grants of performance based restricted common stock: 
 Year Ended December 31, 2014 Year Ended December 31, 2013
 Number of
Shares		 Weighted
Average Grant
Date Fair Value		 Number of
Shares		 Weighted
Average Grant
Date Fair Value
Non-vested shares at beginning of year291,450
 $14.03
 —
 $—
Granted312,551
 29.94
 291,450
 14.03
Vested(97,155) 14.03
 —
 —
Canceled—
 N/A
 —
 —
Non-vested shares at end of year506,846
 $23.84
 $291,450
 $14.03
In conjunction with the issuance of the equity grants in Octoberfor the year ended December 31, 2014, December 31, 2013 and the period from February 25 through December 31, 2012, the Company recorded stock based compensation expense of $3.7$6.1 million, $3.8 million and $3.7 million , respectively, which is included in general and administrative expense in the consolidated statement of operations for the period from February 25, 2012 through December 31, 2012, and expects to record approximately $1.0 million per year thereafter. There was no stock based compensation expense recognized in the years ended December 31, 2011 and 2010.operations. As of December 31, 2012, $2.02014, $1.9 million of total unrecognized

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

stock based compensation expense is expected to be recognized as an expense by the Company in the future over a weighted average period of two years.1.0 year. The total value of restricted stock awards which fully vested during the years ended December 31, 2014, December 31, 2013, and the period from February 25, 2012 through December 31, 2012 was $1.7 million. There is no recognized tax benefit for the period from February 25, 2012 through December 31, 2012, period from January 1, 2012 through February 25, 2012$3.8 million, $1.6 million and$1.7 million, respectively. For the year ended December 31, 2011,2014 and 2010.

2013, the Company recognized an income tax benefit of $2.6 million and $0.7 million related to stock based compensation, respectively.

Note 19—16—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 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 December 31, 2012,2014, 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 consolidated financial statements. We evaluate our accruals for litigation and regulatory proceedings, at least quarterly 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. Based on our experience, we believe that the amounts that may be claimed or alleged against us in these proceedings are not a meaningful indicator of our potential liability. 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.


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WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


We have non-cancelable operating leases primarily associated with our office facilities. Rent expense under cancelable and non-cancelable operating leases totaled $2.6$3.1 million, $0.7$1.9 million, $4.4$2.6 million, and $4.4$0.7 million in for the year ended December 31, 2014, December 31, 2013, the period from February 25, 2012 through December 31, 2012, and the period from January 1, 2012 through February 24, 2012, and the years ended December 31, 2011 and 2010, 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 December 31, 20122014 (in thousands).

Year Ended December 31

    

2013

  $1,349  

2014

   1,260  

2015

   618  

2016

   556  

2017

   580  

Thereafter

   2,654  
  

 

 

 

Total

  $7,017  
  

 

 

 

Year Ending December 31 
2015$2,185
20161,871
20171,645
20181,619
20191,235
Thereafter2,124
Total$10,679
In some jurisdictions in which the Company develops and constructs property, assessment district bonds are issued by municipalities to finance major infrastructure improvements. As a land owner benefited by these improvements, the Company is responsible for the assessments on its land. When properties are sold, the

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

assessments are either prepaid or the buyers assume the responsibility for the related assessments. Assessment district bonds issued after May 21, 1992 are accounted for under the provisions of EITF 91-10, “Accounting for Special Assessment and Tax Increment Financing Entities” issued by the Emerging Issues Task Force of the Financial Accounting Standards Board on May 21, 1992, now codified as FASB ASC Topic 970-470,Real Estate—Debt, and recorded as liabilities in the Company’s consolidated balance sheet, if the amounts are fixed and determinable.

As of December 31, 2012,2014 and 2013, the Company is not obligated under any assessment district bonds.

As of December 31, 2014, the Company had $0.9$0.5 million in deposits as collateral for outstanding irrevocable standby letters of credit 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 beneficiary may draw upon these letters of credit in the event of a contractual default by the Company relating to each respective obligation. These letters of credit generally have a stated term of 12 monthsone year and have varying maturities throughout 2013,2015, at which time the Company may be required to renew to coincide with the term of the respective arrangement.

The Company also had outstanding performance and surety bonds of $64.4$99.0 million at December 31, 20122014 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 December 31, 2012,2014, the Company had $60.9$107.0 million of project commitments relating to the construction of projects.

The Company has provided unsecured environmental indemnities to certain lenders, joint venture partners and land sellers. In each case, the Company has performed due diligence on the potential environmental risks including obtaining an independent environmental review from outside environmental consultants. These indemnities obligate the Company to reimburse the guaranteed parties for damages related to environmental matters. There is no term or damage limitation on these indemnities; however, if an environmental matter arises, the Company could have recourse against other previous owners.

See Note 109 for additional information relating to the Company’s guarantee arrangements.

In addition to the land bankbanking agreements discussed below, the Company has entered into various purchase option agreements with third parties to acquire land. As of December 31, 2012,2014, the Company has made non-refundable deposits of $3.8$65.5 million. The Company is under no obligation to purchase the land, but would forfeit remaining deposits if the land were not purchased. The total purchase price under the purchase option agreements is $97.1$449.0 million as of December 31, 2012.

2014.


Land Banking Arrangements

The Company enters into purchase agreements with various land sellers. As a method of acquiring land in staged takedowns, thereby minimizing the use of funds from the Company’s available cash or other corporate financing sources and limiting the Company’s risk, the Company employs a method from time to time in the ordinary course of business whereby it transfers the Company’s right in such purchase agreements to entities owned by third parties (“land banking arrangements”).

F-46
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


These entities use equity contributions and/or incur debt to finance the acquisition and development of the land. The entities grant the Company an option to acquire lots in staged takedowns. In consideration for this option, the Company makes a non-refundable deposit of 15% to 25% of the total purchase price. The Company is under no obligation to purchase the balance of the lots, but would forfeit existing deposits and could be subject to penalties if the lots were not purchased. The Company does not have legal title to these entities or their assets and has not guaranteed their liabilities. These land banking arrangements help the Company manage the financial and market risk

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

associated with land holdings. ASC 810 requires the consolidationAs discussed above, with exception of the assets, liabilities and operations ofarrangement discussed below, these amounts are included in the Company’s land banking arrangements that are VIEs, of which none existed at December 31, 2012.

total remaining purchase price listed above.

The Company participatesparticipated in one land banking arrangement, which is not a VIE in accordance with ASC 810, but which is consolidated in accordance with FASB ASC Topic 470,Debt(“ (“ASC 470”). The remaining lots under the above land banking agreement were purchased by the Company during April 2014. No further obligations remain under the agreement. Under the provisions of ASC 470, the Company hashad determined it iswas economically compelled, based on certain factors, to purchase the land in the land banking arrangement. The Company hashad recorded the remaining purchase price of the land of $39.0$13.0 million which is included in real estate inventories not owned and liabilities from inventories not owned in the accompanying consolidated balance sheetsheets as of December 31, 2012,2013, and representsrepresented the remaining net cash to be paid on the remaining land takedowns.

In 2012, the Company made additional deposits of $2.5 million. In conjunction with the deposits, the Company reduced real estate inventories not owned and liabilities from inventories not owned in the amount of $2.5 million.

Summary information with respect to the Company’s land banking arrangements is as follows as of the periods presented (dollars in thousands):

   Successor  

 

  Predecessor 
   December 31, 
   2012  

 

  2011 

Total number of land banking projects

   1       1  
  

 

 

  

 

  

 

 

 

Total number of lots (1)

   610       625  
  

 

 

  

 

  

 

 

 

Total purchase price

  $161,465      $161,465  
  

 

 

  

 

  

 

 

 

Balance of lots still under option and not purchased:

      

Number of lots

   199       225  
  

 

 

  

 

  

 

 

 

Purchase price

  $39,029      $47,408  
  

 

 

  

 

  

 

 

 

Forfeited deposits if lots are not purchased

  $27,734      $25,234  
  

 

 

  

 

  

 

 

 

(1)Total number of lots in the land banking project was reduced by 15 as of December 31, 2012 as compared to December 31, 2011 because of a change in product mix in future projects.

 December 31, December 31,
 2014 2013
Total number of land banking projects—
 1
Total number of lots—
 610
Total purchase price$—
 $161,465
Balance of lots still under option and not purchased:   
Number of lots—
 65
Purchase price$—
 $12,960
Forfeited deposits if lots are not purchased$—
 $9,210

Note 20—17—Subsequent Events

No events have occurred subsequent to December 31, 2012,2014, that have required recognition or disclosure in the Company’s financial statements.

WILLIAM LYON HOMES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Note 21—18— Unaudited Summarized Quarterly Financial Information

Summarized unaudited quarterly financial information for the years ended December 31, 20122014 and 20112013 is as follows (in thousands except per share data):

   Predecessor      Successor 
  Period from
January 1
through
February  24,
2012		    Period from
February 25
through
March  31,
2012		          
      Three Months Ended 
       June 30,  September 30,  December 31, 
      2012  2012  2012 

Sales

  $16,687      $15,109   $145,051   $85,942   $102,833  

Cost of sales

   (14,598)      (13,063)   (131,272)   (70,795)   (82,859) 
  

 

 

     

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

   2,089       2,046    13,779    15,147    19,974  

Other income, costs and expenses, net

   226,408       (7,028)   (14,836)   (14,681)   (21,262) 
  

 

 

     

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

   228,497       (4,982)   (1,057)   466    (1,288) 
  

 

 

     

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss) available to common stockholders

  $228,383      $(5,351)  $(2,550)  $(1,507)  $(2,194) 
  

 

 

     

 

 

  

 

 

  

 

 

  

 

 

 

Income (loss) per common share, basic and diluted

  $228,383      $(0.06)  $(0.03)  $(0.01)  $(0.02) 

   Predecessor 
   Three Months Ended 
   March 31,  June 30,  September 30,  December 31, 
   2011  2011  2011  2011 

Sales

  $36,574   $57,795   $53,703   $58,983  

Cost of sales

   (31,885)   (51,121)   (46,645)   (59,072) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit (loss)

   4,689    6,674    7,058    (89) 

Other income, costs and expenses, net

   (15,866)   (17,759)   (46,758)   (130,837) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net loss

   (11,177)   (11,095)   (39,700)   (130,926) 

Net loss attributable to William Lyon Homes

  $(11,225)  $(11,171)  $(39,634)  $(131,300) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Loss per common share, basic and diluted

  $(11,225)  $(11,171)  $(39,634)  $(131,300) 


F-47
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


 Three Months Ended
 March 31,
2014		 June 30,
2014		 September 30,
2014		 December 31,
2014
Home, lots, land, and other sales$140,299
 $169,868
 $196,305
 $352,479
Cost of homes, lots, land and other sales(106,212) (129,626) (157,774) (285,448)
Gross profit34,087
 40,242
 38,531
 67,031
Other income, costs and expenses, net(22,745) (25,490) (30,909) (46,221)
Net income11,342
 14,752
 7,622
 20,810
Net income available to common stockholders$8,697
 $12,285
 $5,638
 $18,005
Income per common share:       
     Basic$0.28
 $0.39
 $0.18
 $0.54
     Diluted$0.27
 $0.38
 $0.17
 $0.52


 Three Months Ended
 March 31,
2013		 June 30,
2013		 September 30,
2013		 December 31,
2013
Home, lots, land, and other sales$76,434
 $123,896
 $141,352
 $198,320
Cost of homes, lots, land and other sales(63,328) (99,485) (107,957) (149,418)
Gross profit13,106
 24,411
 33,395
 48,902
Other income, costs and expenses, net(15,579) (15,331) (22,715) 69,414
Net (loss) income(2,473) 9,080
 10,680
 118,316
Net (loss) income available to common stockholders$(3,522) $6,850
 $7,562
 $116,714
(Loss) income per common share:       
     Basic$(0.25) $0.31
 $0.24
 $3.77
     Diluted$(0.25) $0.29
 $0.24
 $3.64





F-48
Table of Contents

EXHIBIT INDEX

The following is a list of exhibits filed as part of this Annual Report on Form 10-K.


Exhibit
Number

 

Description

 3.1 Second
2.1
Purchase and Sale Agreement, dated as of June 22, 2014, by and among PNW Home Builders, L.L.C., PNW Home Builders North, L.L.C., PNW Home Builders South, L.L.C., Crescent Ventures, L.L.C. and William Lyon Homes, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on June 23, 2014).
3.1
Third Amended and Restated Certificate of Incorporation of William Lyon Homes (incorporated by reference to the Company’s QuarterlyWilliam Lyon Homes’s Current Report on Form 10-Q8-K filed with the Commission on October 25, 2012)May 28, 2013).
  3.2 Second
3.2
Amended and Restated Bylaws of William Lyon Homes (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the Commission on October 25, 2012).
  3.3Certificate of Ownership and Merger (incorporated by reference to the Company’sWilliam Lyon Homes’s Current Report on Form 8-K filed with the Commission on January 5, 2000)May 28, 2013).
  3.4 Certificate of Ownership and Merger (incorporated by reference to the Company’s Annual Report on Form 10-K for the year-ended December 31, 2006).
  3.5

Articles of Incorporation of William Lyon Homes, Inc. (incorporated by reference to

William Lyon Homes, Inc.’s Form T-3 filed with the Commission on November 17, 2011).

  3.6

Bylaws of William Lyon Homes, Inc. (incorporated by reference to William Lyon Homes, Inc.’s

Form T-3 filed with the Commission on November 17, 2011).

4.1Indenture, dated as of February 25, 2012, among William Lyon Homes, Inc., as Issuer, the Guarantors (as defined therein) and U.S. Bank National Association, as Note Trustee and Collateral Trustee (incorporated by reference to the Company’s Form T-3/A (Amendment No. 2) filed with the Commission on February 22, 2012).
  4.2Form of 12% Senior Subordinated Secured Note Due 2017 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
  4.3Supplemental Indenture dated as of November 8, 2012, by and between William Lyon Homes, Inc., William Lyon Homes, and certain of William Lyon Homes’ subsidiaries (as guarantors) and U.S. Bank National Association, as trustee (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on November 8, 2012).
  4.5
 Indenture (including form of 8.5% Senior Note due 2020), dated as of November 8, 2012, by and between William Lyon Homes, Inc., William Lyon Homes, certain of William Lyon Homes’Homes’s subsidiaries (as guarantors) and U.S. Bank National Association, as trustee (incorporated by reference to the Company’sWilliam Lyon Homes’s Current Report on Form 8-K filed with the Commission on November 8, 2012).
4.2
Officers' certificate, dated October 24, 2013, delivered pursuant to the Indenture, and setting forth the terms of the notes (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed on October 25, 2013).
4.3
Indenture (including form of 5.75% Senior Notes due 2019), dated March 31, 2014, among William Lyon Homes, Inc., William Lyon Homes, certain of William Lyon Homes' subsidiaries (as guarantors) and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on April 1, 2014).
4.4
Indenture (including form of 7.00% Senior Notes due 2022), dated August 11, 2014, among WLH PNW Finance Corp., the guarantors from time to time party thereto and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Company's Form 8-K filed August 13, 2014).
4.5
Second Supplemental Indenture, dated as of August 12, 2014, among William Lyon Homes, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, relating to the 8.5% Senior Notes due 2020 (incorporated by reference to Exhibit 4.3 of the Company's Form 8-K filed August 13, 2014).
4.6
First Supplemental Indenture, dated as of August 12, 2014, among William Lyon Homes, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, relating to the 5.75% Senior Notes due 2019 (incorporated by reference to Exhibit 4.4 of the Company's Form 8-K filed August 13, 2014).
4.7
First Supplemental Indenture, dated as of August 12, 2014, among William Lyon Homes, Inc., William Lyon Homes, the subsidiary guarantors named therein and U.S. Bank National Association, relating to the 7.00% Senior Notes due 2022 (incorporated by reference to Exhibit 4.5 of the Company's Form 8-K filed August 13, 2014).
4.8
Second Supplemental Indenture, dated as of August 12, 2014, among William Lyon Homes, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, relating to the 7.00% Senior Notes due 2022 (incorporated by reference to Exhibit 4.6 of the Company's Form 8-K filed August 13, 2014).

Table of Contents

10.1†
Exhibit
Number
Description
4.9
Indenture, dated November 21, 2014, between William Lyon Homes and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to William Lyon Homes’ Current Report on Form 8-K filed with the SEC on November 21, 2014).
4.10
First Supplemental Indenture (including form of 5.50% Senior Subordinated Amortizing Notes due December 1, 2017), dated November 21, 2014, between William Lyon Homes and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to William Lyon Homes’ Current Report on Form 8-K filed with the SEC on November 21, 2014).
4.11
Purchase Contract Agreement (including form of unit and form of prepaid stock purchase contract), dated November 21, 2014, among William Lyon Homes, U.S. Bank National Association, as trustee, and U.S. Bank National Association, as purchase contract agent and as attorney-in-fact for the holders from time to time as provided therein (incorporated by reference to Exhibit 4.3 to William Lyon Homes’ Current Report on Form 8-K filed with the SEC on November 21, 2014).
10.1
 Form of Indemnity Agreement, between William Lyon Homes, a Delaware corporation, and the directors and officers of William Lyon Homes (incorporated by reference to the Company’sWilliam Lyon Homes’s Annual Report on Form 10-K for the year-ended December 31, 1999).
10.2Property Management Agreement between Corporate Enterprises, Inc., a California corporation (Owner) and William Lyon Homes, Inc., a California corporation (Manager) dated and effective November 5, 1999 (incorporated by reference to the Company’s Annual Report on Form 10-K for the year-ended December 31, 1999).
10.3Warranty Service Agreement between Corporate Enterprises, Inc., a California corporation and William Lyon Homes, Inc., a California corporation dated and effective November 5, 1999 (incorporated by reference to the Company’s Annual Report on Form 10-K for the year-ended December 31, 1999).
10.4Standard Industrial/Commercial Single-Tenant Lease—Net between William Lyon Homes, Inc. and a trust of which William H. Lyon is the sole beneficiary (incorporated by reference to the Company’s Annual Report on Form 10-K for the year-ended December 31, 2000).

Exhibit
Number

Description

10.5† The Presley Companies Non-Qualified Retirement Plan for Outside Directors (incorporated by reference to the Company’sWilliam Lyon Homes’s Annual Report on Form 10-K for the year-ended December 31, 2002).
10.6 Sixth Extension and Modification agreement dated December 30, 2011, by and between Circle G at the Church Farm North Joint Venture, LLC, an Arizona limited liability company, and U.S. Bank National Association, a national banking association (incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the Commission on August 10, 2012).
10.3
10.7
 Aircraft Purchase and Sale Agreement dated as of September 3, 2009, by and between Presley CMR, Inc., and Martin Aviation, Inc., or its designee (incorporated by reference to the Company’sWilliam Lyon Homes’s Current Report on Form 8-K filed with the Commission on September 10, 2009).
10.810.4
 Secured Promissory Note dated September 9, 2009 from Martin Aviation, Inc., a California corporation payable to William Lyon Homes, Inc., a California corporation (incorporated by reference to the Company’sWilliam Lyon Homes’s Current Report on Form 8-K filed with the Commission on September 10, 2009).
10.910.5
 Aircraft Mortgage and Security Agreement between Martin Aviation, Inc., a California corporation and William Lyon Homes, Inc., dated as of September 9, 2009 (incorporated by reference to the Company’sWilliam Lyon Homes’s Current Report on Form 8-K filed with the Commission on September 10, 2009).
10.10† Project Completion Bonus Plan (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on September 20, 2010).
10.6
10.11Form of Second Lien Notes Registration Rights Agreement, dated as of February 25, 2012, by and among William Lyon Homes, Inc. and the Holders (as defined therein) (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.12
 Form of Class A Common Stock Registration Rights Agreement, dated as of February 25, 2012, by and among William Lyon Homes and the Holders (as defined therein) (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.1310.7
 Class B Common Stock and Warrant Purchase Agreement, dated as of February 25, 2012, by and between William Lyon Homes and the Purchaser (as defined therein) (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.1410.8
 Warrant to Purchase Shares of Class B Common Stock of William Lyon Homes, dated as of February 25, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.1510.9
 Class B Common Stock Registration Rights Agreement, dated as of February 25, 2012, by and among William Lyon Homes and the Holders (as defined therein) (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.1610.10
 Form of Convertible Preferred Stock and Class C Common Stock Registration Rights Agreement, dated as of February 25, 2012, by and among William Lyon Homes and the Holders party thereto (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).

Table of Contents

10.17†
Exhibit
Number
Description
10.11†
 Employment Agreement, dated as of February 25, 2012, by and among William Lyon Homes, William Lyon Homes, Inc. and General William Lyon (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.18†10.12†
 Employment Agreement, dated as of February 25, 2012, by and among William Lyon Homes, William Lyon Homes, Inc. and William H. Lyon (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.19 Amended and Restated loan agreement, dated April 23, 2010, between Bank of the West, a California Banking Corporation, Mountain Falls, LLC, a Nevada limited liability company, and Mountain Falls Golf Course, LLC, a Nevada limited liability company (incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the Commission on August 10, 2012).

Exhibit
Number

10.13†

Description

10.20Purchase and Sale Agreement and Joint Escrow Instructions, dated June 28, 2012, by and among ColFin WLH Land Acquisitions, LLC, a Delaware limited liability company, William Lyon Homes, Inc., a California corporation, and William Lyon Homes, a Delaware corporation (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.21†2011 Key Employee Bonus Program (incorporated by reference to Exhibit B to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 8, 2011).
10.22†
 William Lyon Homes 2012 Equity Incentive Plan (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.23†10.14†
 William Lyon Homes 2012 Equity Incentive Plan form of Stock Option Agreement (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.24†10.15†
 William Lyon Homes 2012 Equity Incentive Plan form of Restricted Stock Award Agreement (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.25†10.16†
 Form of Employment Agreement, dated September 1, 2012 by William Lyon Homes, Inc. and each of Matthew R. Zaist, Colin T. Severn, Brian W. Doyle, Tom Hickcox, Mary Connelly, Rick Robinson, Carl Morabito, Terry Connelly and Julie Collins (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.26 Registration Rights Agreement, dated November 8, 2012, by and between William Lyon Homes, certain of William Lyon Homes’ subsidiaries, and Credit Suisse Securities, as representative to the Initial Purchasers (as defined therein) (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.17
10.27
 Class A Common Stock and Convertible Preferred Stock Subscription Agreement, dated October 12, 2012, by and between William Lyon Homes and WLH Recovery Acquisition LLC (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.2810.18
 Amendment of and Joinder to Class A Common Stock Registration Rights Agreement, dated October 12, 2012, by and between WLH Recovery Acquisition LLC and William Lyon Homes (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.29 Amendment of and Joinder to Class A Common Stock Registration Rights Agreement, dated October 12, 2012, by and between ColFin WLH Land Acquisitions, LLC and William Lyon Homes (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.19
10.30
 Amendment of and Joinder to Convertible Preferred Stock and Class C Common Stock Registration Rights Agreement, dated October 12, 2012, by and between WLH Recovery Acquisition LLC and William Lyon Homes (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
10.31 Construction Loan
10.20†
William Lyon Homes 2012 Equity Incentive Plan Form of Restricted Stock Award Agreement dated as of September 20, 2012 by and between Lyon Branches, LLC, a Delaware limited liability company and California Bank & Trust, a California banking corporation(performance-based) (incorporated by reference to the Company’s Quarterly Report for the quarter-ended September 30, 2012)William Lyon Homes’s Form S-1 Registration Statement filed April 9, 2013 (File No. 333-187819)).

Exhibit
Number

 

Description

10.21†
10.32
 Construction LoanRevised Form of Employment Agreement, dated as of September 26, 2012April 1, 2013 (incorporated by reference to William Lyon Homes’s Form S-1 Registration Statement filed April 9, 2013 (File No. 333-187819)).
10.22†
Amendment to Employment Agreement, dated March 6, 2013, by and between William Lyon Homes, Inc., a California corporation and California Bank & Trust, a California banking corporationMatthew R. Zaist (incorporated by reference to William Lyon Homes’s Form S-1 Registration Statement filed April 9, 2013 (File No. 333-187819)).
10.23
Amendment No. 1 to Warrant to Purchase Shares of Class B Common Stock (incorporated by reference to William Lyon Homes’s Current Report on Form 8-K filed with the Commission on May 28, 2013).
10.24
Form of indemnification agreement (incorporated by reference to William Lyon Homes’s Current Report on Form 8-K filed with the Commission on May 28, 2013).

Table of Contents

Exhibit
Number
Description
10.25†
Amendment No. 1 to the William Lyon Homes 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.23(a) to the Company’s Form S-1 Registration Statement filed May 6, 2013 (File No. 333-187819)).
10.26
Credit Agreement among William Lyon Homes, Inc., as Borrower, William Lyon Homes, as Parent, The Lenders from time to time party thereto, and Credit Suisse AG, as Administrative Agent, dated as of August 7, 2013 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter-endedperiod ended September 30, 2012)2013).
12.110.27†
Amendment No. 2 to the William Lyon Homes 2012 Equity Incentive Plan (incorporated by reference to Exhibit 99.3 of the Company’s Form S-8 Registration Statement filed August 12, 2013 (File No. 333-190571))
10.28†
William Lyon Homes 2012 Equity Incentive Plan Form of Restricted Stock Award Agreement (performance-based) (incorporated by reference to Exhibit 10.42 of the Company's Form S-4 Registration Statement filed December 27, 2013 (file no. 333-193112)).
10.29†
William Lyon Homes 2012 Equity Incentive Plan Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.43 of the Company's Form S-4 Registration Statement filed December 27, 2013 (file no. 333-193112)).
10.30†
William Lyon Homes 2012 Equity Incentive Plan Form of Stock Option Agreement (incorporated by reference to Exhibit 10.44 of the Company's Form S-4 Registration Statement filed December 27, 2013 (file no. 333-193112)).
10.31†
William Lyon Homes 2012 Equity Incentive Plan Form of Amendment No. 1 to Stock Option Agreement (Five-Year Options) (incorporated by reference to Exhibit 10.45 of the Company's Form S-4 Registration Statement filed December 27, 2013 (file no. 333-193112)).
10.32
Bridge Loan Agreement, dated as of August 12, 2014, among William Lyon Homes, Inc., as Borrower, William Lyon Homes, as Parent, the Lenders from time to time party thereto, and J.P. Morgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed August 13, 2014).
10.33
Amendment No. 1 to Credit Agreement among William Lyon Homes, Inc., as Borrower, William Lyon Homes, as Parent, The Lenders from time to time party thereto, and Credit Suisse AG, as Administrative Agent, dated as of August 7, 2013 (incorporated by reference to Exhibit 10.2 of the Company's Form 10-Q filed on November 12, 2014).
10.34†
Amendment No. 1 to Employment Agreement, dated as of February 25, 2012, by and among William Lyon Homes, William Lyon Homes, Inc. and General William Lyon (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed December 31, 2014).
10.35†
Amendment No. 1 to Employment Agreement, dated as of February 25, 2012, by and among William Lyon Homes, William Lyon Homes, Inc. and William H. Lyon (incorporated by reference to Exhibit 10.2 of the Company's Form 8-K filed December 31, 2014).
12.1+
 Statement Regarding the Computation of Ratio of Earnings (Loss) to Fixed Charges and Preferred Stock Dividends for the Years Ended December 31, 2014 and 2013, the Period from January 1, 2012 through February 24, 2012, the Period from February 25, 2012 through December 31, 2012, and for the Years Ended December 31, 2011 2010, 2009 and 2008.2010.
16.1 Letter from Windes & McClaughry Accountancy Corporation, as to the change in certifying accountant, dated as of August 9, 2012 (incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the Commission on August 10, 2012).
21.1+
21.1
 List of Subsidiaries of the Company.
25.1 Statement of Eligibility and Qualification of U.S. Bank National Association on Form T-1 (incorporated by reference to William Lyon Homes, Inc.’s Form T-3 filed with the Commission on November 17, 2011).

Table of Contents

Exhibit
Number
Description
23.1+
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
31.1*
 Certification of Principal Executive Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
31.2*
 Certification of Principal Financial Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
32.1*
 Certification of Principal Executive Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350
32.2*
 Certification of Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350
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 Linkbase 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.