Table of Contents

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
(Mark One)
ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20132014
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
Commission File Number 001-31625
 
WILLIAM LYON HOMES
(Exact name of registrant as specified in its charter)
 
Delaware 33-0864902
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
4695 MacArthur Court, 8th Floor
Newport Beach, California
 92660
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (949) 833-3600
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  ý
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  ý
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  ý    NO  ¨.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  ý    No  ¨
Indicate by check mark 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.     ý
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  ý


Table of Contents

As of June 28, 2013,30, 2014, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $387$543.8 million based on the 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.

Table of Contents

Class of Common Stock   Outstanding at March 17, 201410, 2015
Common stock, Class A, par value $0.01   27,348,39427,625,405
Common stock, Class B, par value $0.01   3,813,8443,813,884
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ý    No  ¨
DOCUMENTS INCORPORATED BY REFERENCE
NonePortions 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.


Table of Contents

WILLIAM LYON HOMES
INDEX
 
  Page No.
PART I
   
Item 1.Business
3

   
Item 1A.Risk Factors16
15
   
Item 1B.Unresolved Staff Comments28
32
   
Item 2.Properties28
32
   
Item 3.Legal Proceedings28
32
   
Item 4.Mine Safety Disclosure28
32
 
PART II
   
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities29
33
   
Item 6.Selected Historical Consolidated Financial Data29
33
   
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations32
36
   
Item 7A.Quantitative and Qualitative Disclosures About Market Risk67
64
   
Item 8.Financial Statements and Supplementary Data67
65
   
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure67
65
   
Item 9A.Controls and Procedures68
66
   
Item 9B.Other Information68
67
 
PART III
   
Item 10.Directors, Executive Officers and Corporate Governance69
68
   
Item 11.Executive Compensation78
68
   
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters95
68
   
Item 13.Certain Relationships and Related Transactions, and Director Independence97
68
   
Item 14.Principal Accountant Fees and Services100
68
 
PART IV
   
Item 15.Exhibits and Financial Statement Schedules101
69
   
 Index to Financial Statements
F-1

 

i
Table of Contents

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 information included in oral statements or other written statements by the Company are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21 of the Securities Exchange Act of 1934, as amended. Statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, “hopes”, and similar expressions constitute forward-looking statements. Such statements may include, but are not limited to, information related to: anticipated operating results; home deliveries; financial resources 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 and expansion; community count; joint ventures in which we are 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. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, but are not limited to: 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 we operate,operate; worsening in markets for residential housing,housing; decline in real estate values resulting in further impairment of our 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 that could, under certain circumstances, have resulted in the limitation of our ability to offset prior years’ taxable income with net operating losses, changes in mortgage and other 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 and homebuilding materials,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 our debt instruments,instruments; whether we are able to refinance the outstanding balances of our debt obligations at their maturity,maturity; anticipated tax refunds,refunds; limitations on our ability to utilize our tax attributes,attributes; limitations on our ability to reverse any remaining portion of our valuation allowance with respect to our deferred tax assets,assets; terrorism or other hostilities involving the timing of receipt of regulatory approvals and the opening of projects,United States; the impact of construction defect, product liability and home warranty claims, including the adequacy of self-insurance accruals, and the applicability and sufficiency of our insurance coverage,coverage; and the availability and cost of land for future development. These and other risks and uncertainties are more fully described in Item 1A. “Risk Factors,” as well as those factors or conditions described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” in each case in our annual report on Form 10-K for the year ended December 31, 2012 and in subsequent filings with the SEC incorporated by reference"Risk Factors" in this prospectus.report. Our past performance, orand past or present economic conditions in our housing markets, are not indicative of future performance or conditions. Investors are urged not to place undue reliance on forward-looking statements. In addition, we 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 laws.


2
Table of Contents

PART I
 
Item 1.Business
Overview
William Lyon Homes, a Delaware Corporation,corporation, which we refer to herein as "Parent"Parent and, together with its subsidiaries, the "Company",Company, is one of the largest Western U.S. regional homebuilders, andhomebuilders. 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). SinceInland Empire, the foundingSan 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 Company’s predecessorit has sold in 1956,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 its joint ventures have sold over 76,000 homes.was selling homes out of 56 active selling communities.
The Company conductshas significant expertise in understanding the needs of its homebuilding operations through five reportablehomebuyers 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 segments (Southern California, Northern California, Arizona, Nevada,history in recognition of its achievements.
In 2014, the Company delivered 1,753 homes, with an average selling price of approximately $488,900, and Colorado)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. ForThe average selling price of homes in backlog as of December 31, 2014 was approximately $544,200, which was approximately 11% higher than the average selling price of homes closed for the year ended December 31, 2013, approximately 33%2014.
Through the recent strategic acquisition of the residential homebuilding business of Polygon Northwest, or the Polygon Acquisition, in 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 closingsquality. The Company believes that Polygon Northwest was the largest private homebuilder in the Pacific Northwest region at the time of the Companyacquisition, with #2 market positions in each of its core markets of Seattle and its joint ventures were derived from its California operations.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 year ended December 31, 2013period from August 12, 2014, the Company had revenues from home salesdate of $521.3 million and delivered 1,360 homes. Forclosing of 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, 2012Polygon Acquisition, through December 31, 2012, or2014, operating revenue and income before provision for income taxes from Polygon operations, which now operate as the 2012 Period, on a consolidated basis, which includes results from all five reportable operatingCompany's Washington and Oregon segments, 45% of home closings were derived from our California operations. In$132.3 million and $12.0 million, respectively. Following the 2012 Period,Polygon Acquisition, the Company had revenues from home sales of $261.3 millionnow operates in 11 core markets across six Western U.S. states, and delivered 950 homes.
The Company acquired Village Homes of Denver, Colorado, on December 7, 2012, which markedit believes that it has the beginning of the Colorado segment. Financial data included herein as of December 31, 2012,people, infrastructure 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.
The Company designs, constructs and sells a wide range of homes designedgeographic footprint in place to meet the specific needs of each of its markets, although it primarily emphasizes sales to the entry-level and first time move-up home buyer markets. As of December 31, 2013,enable the Company marketedto reach its homes through 32 sales locations. In 2013,goal of becoming the average sales price for consolidated homes delivered was $383,300. Base sales prices for actively selling projects in 2013, including affordable projects, ranged from $140,000 to $1,315,000.
The Company had total operating revenues of $572.5 million, $398.3 million, and $226.8 million for the years ended December 31, 2013, 2012, and 2011, respectively. Homes closed by the Company, including its joint ventures, were 1,360, 950, and 614 for the years ended December 31, 2013, 2012, and 2011, respectively. The Company’s dollar amount of backlog of homes sold but not closed as of December 31, 2013 was $199.5 million, a 73% increase compared to $115.4 million as of December 31, 2012, which was a 294% increase from the $29.3 million as of December 31, 2011. The cancellation rate of buyers who contracted to buy a home but did not close escrow was approximately 17% during the year ended December 31, 2013 and 14% during the year ended December 31, 2012.
During the year ended December 31, 2013, certain of the Company’s markets improved significantly in sales absorption rates and new home orders per average sales location.
In Southern California, net new home orders per average sales location increased 57% to 65.9 during the year ended December 31, 2013 from 41.8 for the same period in 2012. The cancellation rate in Southern California decreased to 9% during the year ended December 31, 2013 compared to 15% during the year ended December 31, 2012.
In Northern California, net new home orders per average sales location increased 9% to 68.0 during the year ended December 31, 2013 from 62.7 for the same period in 2012. In Northern California, the cancellation rate remained constant at 23% during the years ended December 31, 2013 and 2012.
In Arizona, net new home orders per average sales location decreased to 56.5 during the year ended December 31, 2013 from 138.3 for the same period in 2012. In Arizona, the cancellation rate increased to 19% during the year ended December 31, 2013 compared to 10% during the year ended December 31, 2012.
In Nevada, net new home orders per average sales location increased to 45.2 during the year ended December 31, 2013 from 44.7 during the same period in 2012. In Nevada, the cancellation rate increased to 20% during the year ended December 31, 2013 from 14% during the year ended December 31, 2012.
In Colorado, there were 115 net new home orders during the year ended December 31, 2013, compared to nine net new home orders during the period from December 7, 2012 through December 31, 2012. During the year ended December 31, 2013, Colorado averaged four sales locations, resulting in 28.8 net new homes orders per average sales

3
Table of Contents

location. 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 20% during the year ended December 31, 2013 and 10% during the period from December 7, 2012 through December 31, 2012.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 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.
The Company’s 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, Parentthe 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

3
Table of Contents

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 effect of the reverse stock split iswas retroactively applied to the Consolidated Balance Sheet as of December 31, 2012, 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. 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 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 havehad 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 five years to ten years, and the warrant will now expire on February 24, 2022. The change to the warrant had no corresponding impact on the financial statements.
Chapter 11 Reorganization
On December 19, 2011, 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 were jointly administered under the caption In 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 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 5,429,485 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 3,813,884 shares of Parent’s new Class B Common Stock, and a warrant to purchase 1,907,551 shares of Class B Common Stock;

4
Table of Contents

the issuance of 7,858,404 shares of Parent’s new Convertible Preferred Stock, and 1,571,681 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 381,091 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 in 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) 2,597,228 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) 1,491,132 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) 7,455,661 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 17, 2014,10, 2015, Luxor holds approximately 18.3%9% of the total voting power of Parent’s outstanding capital stock.

4
Table of Contents

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 benefit of William H. Lyon, acquired 3,813,884 shares of Class B Common Stock (100% of Parent’s outstanding Class B Common Stock) and a warrant to purchase an additional 1,907,550 shares of Class B Common Stock for aggregate cash consideration of $25 million. The Lyon Trust separately acquired 2,933 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 Lyon Trust. Lyon LLC’s Class B Common Stock holdings, assuming exercise in full of the warrant, and the Class A Common Stock holdings of the Lyon Trust and William H. Lyon collectively provide such holders with 50.8%approximately 50.5% of the total voting power of the Company’s outstanding capital stock as of March 17, 2014.10, 2015. Throughout the reorganization process, General William Lyon served as the Company’s Chief Executive Officer and chairman of its board of directors and William H. Lyon served as the 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 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.

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.

5
Table 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 Contentsa 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 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 and the year ended December 31, 2011 (in thousands):
 
 Successor (1)  Predecessor (1)
 Year Ended December 31, 
Period From
February 25,
through
December 31,
2012
  
Period From
January 1,
through
February 24,
2012
 
Year Ended
December 31,
 2013 2011
Southern California (2)$214,559
 $99,671
  $5,640
 $110,969
Northern California (3)47,930
 54,207
  4,250
 54,141
Arizona (4)110,397
 47,989
  4,316
 20,074
Nevada (5)78,148
 37,307
  2,481
 21,871
Colorado (6)70,276
 5,436
  —
 —
 $521,310
 $244,610
  $16,687
 $207,055
 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 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 yearyears ended December 31, 2014 and 2013, the period from January 1 through February 24, 2012, and the period from February 25 through December 31, 2012, and the year ended December 31, 2011, respectively.
(2)The Southern California Segment consists of operations in Orange, Los Angeles, and San Diego, counties. The offices are located in a leased office building at 4695 MacArthur Court, 8th Floor, Newport Beach, California 92660. The operating segment is led by a California Region President.
(3)The Northern California Segment consists of operations inRiverside, San Bernardino, Alameda, Contra Costa, and San Joaquin counties. The offices are located in a leased office buildingspace at 4695 MacArthur Court, 8th Floor, Newport Beach, California 92660; 4000 Executive Parkway, Suite 250, San Ramon, CA 94583.94583; and 1265 Corona Pointe Court, Suite 105, Corona, CA 92879. The operating segment is led by a division president and a California Region President.regional 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 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.
(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 is led by a division president.
(7)The Oregon Segment consists of 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 10,90114,103 lots and had options to purchase an additional 2,8463,439 lots as of December 31, 2013.2014. 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;

6
Table of Contents

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 sufficient to supply the vast majority of its projected future home closings for the next three years and a portion of future home closings for a multi-year period thereafter.
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. 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 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 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 emphasizes sales tocreates product for the entry-level, first time move-up, and second time move-up, and luxury 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 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

7
Table of Contents

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, 20132014 and only includes projects with lots owned as of December 31, 2013,2014, lots consolidated in accordance with certain accounting principles as of December 31, 20132014 or homes closed for the year ended December 31, 2013.2014. 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             

8
Table of Contents


Project (County or City)
Year of
First
Delivery
 
Estimated
Number of
Homes at
Completion
(1)
 Cumulative Homes Closed as of December 31, 2013 (2) 
Backlog at
December 31,
2013 (3) (4)
 
Lots Owned
as of
December 31,
2013 (5)
 Homes Closed for the Year Ended December 31, 2013 
Sales
Price
Range (6)
SOUTHERN CALIFORNIA             
Orange County:             
Irvine             
Agave2013 96
 15
 26
 81
 15
 $ 525,000 -  615,000
Lyon Branches (7)2013 48
 34
 13
 14
 34
 $ 1,035,000 -  1,200,000
Willow Bend2013 58
 33
 18
 25
 33
 $ 1,145,000 -  1,315,000
Lyon Whistler (7)2013 83
 6
 17
 77
 6
 $ 890,000 -  990,000
Orange             
Covenant Hills2015 14
 —
 —
 14
 —
 $ 2,500,000 -  2,650,000
Rancho Mission Viejo             
Lyon Cabanas2013 97
 16
 14
 81
 16
 $ 346,000 - 440,000
Lyon Villas2013 96
 13
 24
 83
 13
 $ 419,000 - 493,000
Los Angeles County:             
Hawthorne             
360 South Bay (8):             
The Flats2010 188
 145
 10
 43
 66
 $ 399,000 -  579,000
The Courts2010 118
 118
 —
 —
 6
 (11)
The Rows2012 94
 53
 7
 41
 41
 $ 528,000 -  715,000
The Lofts2013 9
 7
 1
 2
 7
 $440,000
The Gardens2013 12
 12
 —
 —
 12
 (11)
The Townes2013 96
 16
 10
 80
 16
 $ 585,000 -  695,000
The Terraces2014 93
 —
 6
 93
 —
 $ 700,000 -  830,000
Azusa             
Rosedale:             
Gardenia2011 81
 81
 —
 —
 33
 (11)
Sage Court2011 64
 64
 —
 —
 3
 (11)
San Diego County:             
Escondido             
Contempo2013 84
 23
 11
 61
 23
 $ 274,000 -  326,000
San Diego             
Atrium2014 80
 —
 12
 80
 —
 $ 355,000 -  450,000
Riverside County:             
Riverside             
SkyRidge2014 100
 —
 —
 100
 —
 $ 500,000 -  542,000
San Bernardino County:             
Yucaipa             
Cedar Glen2015 143
 —
 —
 143
 —
 $ 274,000 -  285,000
SOUTHERN CALIFORNIA TOTAL  1,654
 636
 169
 1,018
 324
  

Project (County or City)Year of
First
Delivery		 Estimated
Number of
Homes at
Completion
(1)		 Cumulative Homes Closed as of December 31, 2013 (2) Backlog at
December 31,
2013 (3) (4)		 Lots Owned
as of
December 31,
2013 (5)		 Homes Closed for the Year Ended December 31, 2013 
Sales
Price
Range (6)
NORTHERN CALIFORNIA
Alameda County             
Newark:             
Villages I2015 115
 —
 —
 115
 —
 $ 500,000 -  588,000
Villages II2015 138
 —
 —
 138
 —
 $ 580,000 -  640,000

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

9
Table of Contents

Villages III2015 106
 —
 —
 106
 —
 $ 635,000 -  670,000
Villages IV2015 111
 —
 —
 111
 —
 $ 680,000 -  720,000
Villages V2015 77
 —
 —
 77
 —
 $ 753,000 -  793,000
Contra Costa County:             
Pittsburgh             
Vista Del Mar:             
Villages II2013 52
 7
 16
 45
 7
 $ 354,000 -  398,000
Vineyard II2012 131
 67
 12
 35
 62
 $ 468,000 -  492,000
Brentwood             
Palmilla             
El Sol (7)2014 49
 —
 —
 49
 —
 $ 320,000 -  340,000
Cielo (7)2014 56
 —
 —
 56
   $ 365,000 -  435,000
Antioch             
Oak Crest2013 130
 3
 7
 127
 3
 $ 355,000 -  410,000
San Joaquin County:             
Lathrop             
The Ranch @ Mossdale Landing2010 168
 166
 2
 2
 55
 $ 308,000 -  353,000
Tracy             
Tracy School Site2015 56
 —
 —
 56
  .
 $ 425,000 -  510,000
NORTHERN CALIFORNIA TOTAL. . . . . . . . .  1,189
 243
 37
 917
 127
  
              
ARIZONA
Maricopa County:             
Queen Creek             
Hastings Farm             
Villas2012 337
 234
 20
 103
 182
 $ 166,000 -  206,000
Manor2012 141
 131
 4
 10
 99
 $ 239,000 -  293,000
Estates2012 153
 81
 16
 72
 75
 $ 293,000 -  360,000
Meridian             
Harvest2015 448
 —
 —
 448
 —
 $ 193,000 -  224,000
Homestead2015 562
 —
 —
 562
 —
 $ 229,000 -  279,000
Harmony2015 505
 —
 —
 505
 —
 $ 258,000 -  273,000
Horizons2015 425
 —
 —
 425
 —
 $ 304,000 -  334,000
Heritage2015 370
 —
 —
 370
 —
 $ 349,000 -  384,000

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             

10
Table of Contents

Project (County or City)Year of
First
Delivery		 Estimated
Number of
Homes at
Completion
(1)		 Cumulative Homes Closed as of December 31, 2013 (2) Backlog at
December 31,
2013 (3) (4)		 Lots Owned
as of
December 31,
2013 (5)		 Homes Closed for the Year Ended December 31, 2013 Sales
Price
Range (6)
Mesa             
Lehi Crossing             
Settlers Landing2012 235
 43
 12
 192
 39
 $ 219,000 -  262,000
Wagon Trail2013 244
 38
 7
 206
 38
 $ 234,000 -  292,000
Monument Ridge2013 248
 13
 4
 235
 13
 $ 256,000 -  333,000
Peoria             
Coldwater Ranch2009 23
 23
 —
 —
 2
 $ 145,000 -  210,000
Agua Fria2015 197
 —
 —
 197
 —
 $ 164,000 -  198,000
Surprise             
Rancho Mercado             
Cluster2016 402
 —
 —
 402
 —
 $ 164,000 -  176,000
45s2016 457
 —
 —
 457
 —
 $ 178,000 -  219,000
58s2016 239
 —
 —
 239
 —
 $ 216,000 -  284,000
63s2017 182
 —
 —
 182
 —
 $ 272,000 -  320,000
75s2017 190
 —
 —
 190
 —
 $ 359,000 -  407,000
Gilbert             
Lyon’s Gate2016 186
 —
 —
 186
 —
 $ 209,000 -  219,000
ARIZONA TOTAL . . . . . . . . . . . . . . . . . . . . . . .  5,939
 563
 63
 5,376
 448
  
              
NEVADA
Clark County:             
North Las Vegas             
Tierra Este2013 114
 2
 4
 112
 2
 $ 205,000 -  230,000
Rhapsody2014 63
 —
 6
 63
 —
 $ 218,000 -  245,000
Las Vegas             
Serenity Ridge2013 108
 36
 14
 72
 36
 $ 462,000 -  542,000
Tularosa at Mountain’s Edge .2011 140
 137
 2
 3
 77
 $ 227,000 -  269,000
Crossings2011 77
 77
 —
 —
 30
 (11)
West Park             
Villas2006 191
 189
 —
 2
 82
 $ 207,000 -  238,000
Courtyards2006 113
 113
 —
 —
 21
 (11)
Mesa Canyon2013 49
 10
 16
 39
 10
 $ 290,000 -  310,000
Lyon Estates2014 129
 —
 7
 129
 —
 $ 470,000 -  525,000
The Fields at Aliente2011 60
 60
 —
 —
 4
 (11)
Sterling Ridge Grand2014 137
 —
 7
 27
 —
 $ 698,000 -  754,000
Sterling Ridge Premier2014 62
 —
 13
 20
 —
 $819,000 -  890,000
Tuscan Cliffs2014 77
 —
 —
 77
 —
 $ 718,000 -  768,000






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

11
Table of Contents

Project (County or City)Year of
First
Delivery		 Estimated
Number of
Homes at
Completion
(1)		 Cumulative Homes Closed as of December 31, 2013 (2) Backlog at
December 31,
2013 (3) (4)		 Lots Owned
as of
December 31,
2013 (5)		 Homes Closed for the Year Ended December 31, 2013 Sales
Price
Range (6)
Nye County:             
Pahrump             
Mountain Falls             
Series I2011 211
 70
 3
 141
 29
 $ 140,000 -  169,000
Series II2014 218
 —
 —
 218
 —
 $ 216,000 -  299,000
Land (9)N/A —
 —
 —
 1,925
 —
 N/A
NEVADA TOTAL . . . . . . . . . . . . . . . . .  1,749
 694
 72
 2,828
 291
  
              
COLORADO
Arapahoe County             
Aurora Southshore             
Hometown2014 68
 —
 —
 68
 —
  
Generations2014 64
 —
 —
 64
 —
  
Harmony2014 52
 —
 —
 52
 —
  
Signature2014 37
 —
 —
 37
 —
  
Douglas County             
Castle Rock             
Watercolor at The Meadows2012 31
 31
 —
 —
 30
 (11)
Cliffside2014 49
 —
 6
 49
 —
  $ 426,000 -  505,000
Parker             
Idyllwilde2012 42
 38
 2
 4
 33
  $ 368,000 -  415,000
Grand County             
Granby             
Granby Ranch2012 54
 15
 1
 39
 14
  $ 417,000 -  511,000
Jefferson County             
Arvada             
Villages of Five Parks2012 49
 49
 —
 —
 44
 (11)
Candelas2014 66
 —
 18
 44
 —
  $ 365,000 -  416,000
Leydon Rock - Garden2014 56
 —
 —
 56
 —
  $ 334,000 -  360,000
Leydon Rock - Park2014 78
 —
 —
 78
 —
  $ 336,000 -  377,000
Larimer County             
Fort Collins             
Observatory Village2012 50
 50
 —
 —
 49
 (11)
Timnath Ranch - Sonnet2014 179
 —
 —
 179
 —
  $ 358,000 -  408,000
Timnath Ranch - Park2014 92
 —
 —
 92
 —
  $ 309,000 -  343,000
COLORADO TOTAL . .  967
 183
 27
 762
 170
  
              
 GRAND TOTALS. . . . . . .  11,498
 2,319
 368
 10,901
 1,360
  

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, 2013, 3082014, 454 represent homes completed or under construction.

12
Table of Contents

(5)Lots owned as of December 31, 20132014 include lots in backlog at December 31, 2013.2014.
(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, 2013. The Company consolidated the purchase price of the lots in accordance with certain accounting rules, and considers the lots owned at December 31, 2013.
(9)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, 2013.
(11)Project is completely sold out, therefore the sales price range is not applicable as of December 31, 2013.2014.
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 use of advertising and other promotional activities, including on-line and social media, 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 five 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
Table of Contents

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. 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 18% during 2014 and 17% during 2013 and 14% during 2012.2013. 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 70 homes as of December 31, 2013 and 19 homes as of December 31, 2012.
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

13
Table of Contents

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, 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 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 each subcontractor and design professional agreement provide the Company with an 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 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

14
Table of Contents

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 certain recent corporate transactions including the Company's initial public offering of equity securities and senior notes offerings.
As of March 21, 2014,12, 2015, California Lyon has outstanding its 5.75% Senior Notes due 2019, 8.5% Senior Notes due 2020, 7% Senior Notes due 2022, Subordinated Amortizing Notes due 2017, certain construction and land seller notes 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 28approximately 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, 2013,2014, the Company employed 339585 full-time and 11 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 will 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.

15
Table of Contents

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.


15
Table of Contents

Risks Related to Our Business
Adverse changes in general economic conditions or conditions in our industry could reduce the demand for homes and, as a result, could negatively impact the Company’s results of operations.
The homebuilding industry is cyclical and highly sensitive toaffected by changes in general economic, real estate and other business conditions suchthat could reduce the demand for new homes and, as a result, negatively impact the levelCompany's results of employment, consumer confidence, consumer income, availability of financingoperations, financial condition and interest rate levels. The national recession, credit market disruption, high unemployment levels, the absence of home price stability,cash flows.

Certain economic, real estate and the decreased availability of mortgage financing, among other factors,business conditions that have adversely impactedsignificant 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 operationscurrent 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 recent downturn. The negative impact may be national in scope but may also negatively and acutely affect some of the 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 Canada, as well as any restrictive economic policies in such overseas regions, may have an adverse impact on our financial condition overresults to the last several years. Althoughextent 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 fiscal 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. If market conditions deteriorate or do not improve as anticipated,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 resultsmarkets, following the steep rebound of operations and financial condition could be adversely impacted.
These changes may occur on a national scale or may acutely affect some of the regions or markets in which we operate more than others. An oversupply of alternatives to new homes, including foreclosed homes, homes held for sale by investors and speculators, other existing homes and rental properties, can also adversely impact our ability to sell new homes, depress new home prices in 2012 and reduce our margins on the sales of new homes. High levels of foreclosures not only contribute to additional inventory available for sale, but also reduce appraised values for new homes, potentially resulting in lower sales prices.
2013. We cannot predict the duration or ultimate magnitude of any economic downturn or reversal in the recoverycontinuation of the homebuilding industry or the extent or sustainability of acurrent recovery, particularly the sustainability of current improvements in the homebuilding market. Nornor can we provide assurance that should the recovery not continue, our response to a homebuilding downturn or the government’s attempts to address the troubles in the overall economy would be successful. The recent improvement in housing market conditions

16
Table of Contents

following a prolonged and severe housing downturn may not continue, and any slowing or reversal of the present housing recovery may materially and adversely affect our business and results of operations.
Our long-term growth depends upon our ability to acquire land at reasonable prices.
The Company’s business depends on its ability to obtain land for the development of its residential communities at reasonable prices and with terms that meet its 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 is limited because of these factors, or for any other reason, the number of homes that the Company builds and sells may 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.
Limitations on the availability and increases in the cost 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 and factors that increase the upfront or monthly

16
Table of Contents

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. If these trends continueAdditionally, 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 further restrict the availability of loans continueand/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 difficultimplemented 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 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 through reduced home sales revenue, gross margin and cash flow.mortgage financing.
EvenFurther, 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. MortgageAlthough long-term interest rates have, in recent years, been at historic lows, butcurrently 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 recent months.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.
Difficulty in obtaining sufficient capital could result in increased costsIf these trends continue and delays in completion of projects.
The homebuilding industry is capital-intensive and requires significant up-front expenditures to acquire land and begin development. We expect that we will seek additional capital from time to time from a variety of potential sources, including additional bank financings and/or securities offerings. 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 equitymortgage loans continue to be invested in a project by borrowers in connection with both new loansdifficult or costly to obtain, the ability and the extensionwillingness of prospective buyers to finance home purchases or to sell their existing loans. Land acquisition, development and construction activities mayhomes would 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 maywhich would adversely affect the Company’s sales and future results of operations through reduced home sales revenue, gross margin and cash flows.flow.
The Company’s business is geographically concentrated, and therefore, the Company’s sales, results of operations, financial condition and business would be negatively impacted by a decline in the general economy or the homebuilding industry in such regions.
The Company presently conducts all of its business in fivethe following geographic regions:areas within the Western U.S. region: Southern California, Northern California, Arizona, Nevada, Colorado, Washington and Colorado.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, particularly within California,or in any sector of employment on which the residents in such areas are substantially dependent, could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations, and a disproportionately greater impact on us than other homebuilders with more

17
Table of Contents

diversified operations. The Company generates a significant portion of its revenue and a significant amount of its profits from, and holds approximately one-halfFor example, much of the dollar value of its real estate inventoryemployment base in California. Duringthe 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. There canAccordingly, the Company's sales, results of operations, financial condition and business would be no assurance thatnegatively impacted by a decline in the profitability and financial position ofeconomy, the Company will not be further impacted ifjob sector or the challenging conditionshomebuilding industry in California continue or worsen.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, 2012, and 2011,2012, the Company experienced cancellation rates of 17%18%, 14%17%, and 18%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.

17
Table of Contents

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 has 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 could materially and adversely affect the Company’s business, prospects, liquidity, financial condition or results of operations.

18
Table of Contents

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.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 or financial condition.

Shortages in the availability of subcontract labor may delay construction schedules and increase our costs.
The Company’sCompany's business and results of operations are dependent on the availability and skill of subcontractors.
Substantiallysubcontractors, 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. WhileAs the Company has been ablehomebuilding market returns to obtainfull capacity, we have previously experienced and may again experience skilled labor shortages. The cost of labor may also be adversely 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 sufficient materialssupply or satisfactory performance by these unaffiliated third-party consultants and subcontractors, during times ofwhich could have a 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.adverse effect on our business.
The Company may not be able to compete effectively against competitors in the homebuilding industry.
The homebuilding industry is highly 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 long-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;

18
Table of Contents

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.

19
Table of Contents


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.


20
Table of Contents

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, prospects, liquidity, financial condition or results of operation. Further, such a loss could be negatively perceived in the capital markets.
Power and natural 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, changes 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

21
Table of Contents

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.
Construction defect, home warranty, soil subsidence and building-related and other 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

19
Table of Contents

Colorado Oregon 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

22
Table of Contents

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 or fluctuations in prices, 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 communities, 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. Increased costs of lumber, framing, concrete, steel and other building materials could cause increases in construction costs. 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

20
Table of Contents

competition restricts the ability to pass on any additional costs of materials or labor, thereby decreasing gross margins from home sales.
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 federal 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 general and on our business in particular.
Inflation could adversely affect the Company’s business, prospects, liquidity, financial condition or results of operations, particularly in a period of oversupply of 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, prospects, liquidity, financial condition or 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 and/or in support of obligations to build community improvements such as roads, sewers, water systems and other utilities, and to support similar development activities by certain of our unconsolidated joint ventures. As a result of the deterioration in market conditions during the recent downturn, surety providers became increasingly reluctant to issue new bonds and some providers were requesting credit enhancements (such as cash deposits or letters of credit) in order to maintain

23
Table of Contents

existing bonds or to issue new 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 or the cost or operational restrictions or conditions imposed by issuers to obtain them increases significantly, the Company may not be able to develop or may be significantly delayed in developing a community or communities and/or may incur significant additional expenses, and, as a result, the Company’s business, prospects, liquidity, financial condition or results of operation could be materially and adversely affected.
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 have participated 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

21
Table of Contents

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 with which we disagree, or fail to take actions that we desire, including actions regarding the sale of the underlying property, which could materially and adversely affect the Company’s business, prospects, liquidity, financial condition or results of operation.
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. These risks include, among others, that a partner in the JV 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 book value of our real estate assets.
The homebuilding industry is subject to significant variability and fluctuations in real estate values. As a result, 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. Any material write–downs of assets could have a material adverse effect on our business, prospects, liquidity, financial condition or results of operations.
On February 24, 2012, the Company adopted fresh start accounting under ASC 852, and recorded all real estate inventories at fair value. Subsequent to February 24, 2012 and throughout each quarter of 2012, 2013 and 2013,2014, there were no indicators of impairment, as sales prices and sales absorption rates have improved. For the yearyears 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 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.
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, 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 that 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, 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.

24
Table of Contents

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.

22
Table of Contents

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.

25
Table of Contents


Risks Related to Our Capital Structure

We have substantial outstanding indebtedness and may incur additional debt in the future.
The Company is
We are highly leveraged. At December 31, 2013,2014, the total outstanding principal amount of our debt was $469.4approximately $940.1 million. In addition, we have the ability to incur additional indebtedness under the $100 million credit facility we entered into in August 2013.our Revolving Credit Facility, subject to a borrowing base formula, and under our project-level financing facilities. As of December 31, 2013,2014, 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 Company had no outstanding borrowings under that facilityterms of the indentures governing the 2022 Notes, 2020 Notes, the 2019 Notes the Amortizing Notes, and $4.0 million in outstanding letters of credit issued thereunder. The Company’sthe 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:
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 Companywe 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 theour indebtedness, of the Company, the holders of that indebtedness could accelerate that indebtedness and exercise other rights and remedies against the Company;us;

if the Company haswe have a higher level of indebtedness than some of itsour competitors, it may put the Companyus at a competitive disadvantage and reduce the Company’sour 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.
The Company
We cannot be certain that cash flow from operations will be sufficient to allow the Companyus to pay principal and interest on our debt, support operations and meet other obligations. If the Company doeswe do not have the resources to meet these and other obligations, the Companywe may be required to refinance all or part of itsour outstanding debt, sell assets or borrow more money. The CompanyWe 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. Defaults under our debt agreements could have a material adverse effect on our business, prospects, liquidity, financial condition or results of operations.

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;

23
Table of Contents

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

26
Table of Contents

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 Company’s assets.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 these covenantsthe other agreements governing our indebtedness could result in aan event of default in respect ofunder 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 indebtedness. Ifdebt 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 occurs,under the relevantcredit agreement governing the Revolving Credit Facility would permit the lenders could electthereunder to declareterminate all commitments to extend further credit under the indebtedness, together with accrued interest and other fees,Revolving Credit Facility. Furthermore, if we were unable to be immediatelyrepay the amounts due and payable andunder our Revolving Credit Facility or other future secured credit facilities, those lenders could proceed against anythe collateral securinggranted 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 Class 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.

27
Table of Contents

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 17, 2014,10, 2015, entities controlled byaffiliated with William H. Lyon hold approximately 50.8%50.5% of the voting power of the Company,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 115,378ownership 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 approximately 8.64.4 million and 3.3 million shares of Class A Common Stock, representing 18.3approximately 9% and 7.1%7% of the total voting power of the Company’s outstanding capitalcommon stock, respectively. Further, stockholder entities affiliated with each of Luxor, Paulson and William H. Lyon, which collectively control approximately 76%64% of the total voting power of the Company’s outstanding capitalcommon stock as of March 17, 2014,10, 2015, have entered into a stockholder agreement with respect to the election of up to six seats, depending on ownership levels at the time, on our board of directors, whereby each such stockholder has agreed to vote in favor of the director nominees supported by each of the other stockholders. The Company is not party to such agreement.
William H. Lyon, Luxor and Paulson 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.
Future sales of our common 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 cause the market price for our Class A Common Stock to decline. We have 27,626,840had 27,625,405 shares of Class A Common Stock and 3,813,884 shares of Class B Common Stock outstanding excluding 576,643 sharesas of Class A Common Stock issuable upon the exercise of outstanding stock options andMarch 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.Stock and shares of unvested restricted stock and Class A Common Stock issuable upon exercise of outstanding stock 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 held by our directors and officers and other “affiliates”, as defined in Rule 144 of the Securities Act, or Rule 144, are freely tradabletradeable without restriction under the Securities Act. All outstandingStockholders holding 11,534,271 shares of our common stock as of March 10, 2015, which includes the Class A Common Stock that may be issued upon conversion of the outstanding Class B Common Stock on a one-to-one basis, have exercised their registration rights to include their shares of common 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 Securities and Exchange 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 sold pursuant to an effective registration statement, shares held by such affiliates may be sold under Rule 144 subject to the volume and manner of sale, and other, requirements thereunder. Any sale of a large number of shares of common stock by our existing stockholders could reduce the trading price of our common stock. 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 to holders of our Class B Common Stock upon the issuance of Class A Common Stock held byunderlying our directors, officers and other affiliates are restricted securities under the Securities Act, and may not be sold in the public market unless the sale is registered under the Securities Acttangible equity units or an exemption from registration is available, subject to the restrictions imposed by the lock-up agreements referenced below.potential future offerings. We may issue equity securities in the future for a number of reasons, including to finance our operations and business strategy, to adjust our ratio of debt to equity, to satisfy our obligations upon exercise of outstanding options or for other 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 have on the 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 debt instruments

24
Table of Contents

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.
The price of our Class A Common Stock is subject to volatility related or unrelated to our operations.
The market price of the Class A Common Stock may fluctuate substantially due to a variety of factors, including:
actual or anticipated variations in our quarterly operating results;
changes in market valuations of similar companies;

28
Table of Contents

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.
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 price of our Class A Common Stock to decline.
Any of these factors could have a material adverse effect on your investment in our Class A Common Stock and, as 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 Sarbanes-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. We are unableOur efforts to currently estimate these costscomply with any degreeevolving laws, regulations and standards result in increased administrative expenses and a diversion of certainty. We also expect that these new rulesmanagement’s time and regulations may make it difficult and expensive for us to obtain director and officer liability insurance, andattention from revenue-generating activities. In addition, if we are ablefail to obtainimplement or maintain the requirements with respect to our 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 insurance, we may be requiredas the SEC or NYSE. Any such action could harm our reputation and the confidence of investors and customers in our company and could materially adversely affect our business and cause the price of our Class A Common Stock to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage available to privately-held companies. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers.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 Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal controls over financial reporting, and, commencing with the year ended December 31, 2014, our auditors will beginhave begun attesting to and reporting on our internal controls as early as the year ended December 31, 2014, 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

25
Table of Contents

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 future discover areas of our internal controls that need improvement. We cannot be certain that we will be successful 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 ensure

29
Table of Contents

our internal controls remain effective. Additionally, the existence of any material weakness or significant deficiency would require management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate 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 market price of our capital stock.
Provisions in our corporate organizational documents may have the effect of delaying or preventing a change of control or changes in our management. Such provisions include, but are not limited 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 Chairman 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 staggered 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 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, 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 preferred 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 liquidating distributions or a preference on dividend payments or both that could limit our ability to make a dividend distribution to the holders of our common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control. As a result, we cannot predict or estimate the amount, timing or nature of our future offerings, and purchasers of our common

26
Table of Contents

stock in this offering bear the risk of our future offerings reducing 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.

30
Table of Contents

The trading market for our Class A Common Stock depends in part on the research 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 or publishes inaccurate or unfavorable research about our business, the price 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 trading volume to decline.
Non-U.S. holders may be subject to United States federal income tax on gain realized on the sale or disposition of shares of our Class A Common Stock.
The Company believes that it is a “United States real property holding corporation,” or USRPHC, 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 a sale or disposition of our Class A Common Stock, if (i) our Class A Common Stock is 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 A Common Stock with a fair market value of more than 5% of the total fair market value of such common stock throughout the shorter of the five-year period ending on the date of the sale 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 be 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 Chapter 11 Petitions, we adopted Debtor in Possession Accounting, in accordance with ASC 852 . Upon our emergence from the cases associated with the Chapter 11 Cases,Petitions, we adopted Fresh Start Accounting, in accordance with ASC 852, pursuant to which the midpoint of the range of our reorganization value was allocated to our assets in conformity with the procedures 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 comparable historical financial information may discourage investors from purchasing our securities. The lack of comparable historical financial information may discourage investors from purchasing our securities.
The Company may not be able to benefit from its tax 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 Tax Attributes. Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the 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. Implementation of the Plan upon our emergence from Chapter 11 bankruptcy proceedings triggered a change in ownership for purposes of Section 382 and our annual Section 382 limitation is $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 Code 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.




2731
Table of Contents


Item 1B.Unresolved Staff Comments
None.

Item 2.Properties
Headquarters
The Company’s corporate headquarters are located at 4695 MacArthur Court, 8th floor, Newport Beach, 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.

2832
Table of Contents

PART II
 
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Shares of the Company's Class A Common Stock have been listed on the New York Stock Exchange under the symbol "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 low sales prices per share of the Company's Class A Common Stock, as reported on the NYSE.
 2013 2014 2013
Calendar Quarter Ended High Low  High Low High Low 
March 31 31.77
 21.28
 N/A
 N/A
 
June 30 26.85
 22.50
  30.74
 25.40
 26.85
 22.50
 
September 30 25.70
 19.87
  31.40
 22.00
 25.70
 19.87
 
December 31 24.99
 18.81
  24.54
 17.71
 24.99
 18.81
 
As of March 17, 2014,10, 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 the Company's Class B Common Stock. The number of stockholders of record is based upon the actual number of stockholders registered at such date and does not include holders of shares in "street name" or persons, partnerships, associates, corporations or other entities identified in security position listings maintained by depositories.
Dividends
Our Class A Common Stock began trading on May 16, 2013, following our initial public offering. Since that time, the Company has not declared any cash dividends. The Company does not intend to declare cash dividends in the near future. Future cash dividends, if 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 Class A Common Stock that were repurchased from certain employees of the 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 purchaserepurchase any shares of its common stockequity securities during the yearthree month period ended December 31, 2013
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this Item is incorporated by reference under Item 12 of Part III of this report, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, is hereby incorporated by reference into this Item 5 of Part II of this report.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 2013,2014, we did not make any sales of unregistered securities during 2013.2014.

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, 20132014 and December 31, 20122013 and for yearthe 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 year ended December 31, 2011 has been derived from the Company’s audited consolidated financial statements and the related notes

33
Table of Contents

included elsewhere herein. The selected historical consolidated financial data as of December 31, 2012, 2011, 2010 and 20092010 and for the years ended December 31, 20102011 and 20092010 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, 20132014 and any reference to the “Predecessor” refers to the operations of the Company pre-emergence prior to February 25, 2012.

29
Table of Contents

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 at 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.
 

3034
Table of Contents

Successor (1) Predecessor (1)Successor (1) Predecessor (1)
  
Period From
February 25,
 
Period From
January 1,
          
Period From
February 25,
 
Period From
January 1,
    
Year Ended December 31, 
through
December 31,
 
through
February 24,
 
Year Ended
December 31,
Year Ended December 31, 
through
December 31,
 
through
February 24,
 
Year Ended
December 31,
2013 2012 2012 2011 2010 20092014 2013 2012 2012 2011 2010
(in thousands except number of shares and per share
data)
                      
Statement of Operations Data:                      
Revenues                      
Home sales$521,310
 $244,610
 $16,687
 $207,055
 $266,865
 $253,874
$857,025
 $521,310
 $244,610
 $16,687
 $207,055
 $266,865
Lots, land and other sales18,692
 104,325
 —
 —
 17,204
 21,220
1,926
 18,692
 104,325
 —
 —
 17,204
Construction services32,533
 23,825
 8,883
 19,768
 10,629
 34,149
37,728
 32,533
 23,825
 8,883
 19,768
 10,629
Total revenues572,535
 372,760
 25,570
 226,823
 294,698
 309,243
896,679
 572,535
 372,760
 25,570
 226,823
 294,698
Operating income (loss)55,857
 4,666
 (2,684) (148,015) (117,843) (161,301)76,425
 55,857
 4,666
 (2,684) (148,015) (117,843)
Income (loss) before reorganization items and (provision) benefit from income taxes53,765
 (4,325) (4,961) (171,706) (135,867) (122,861)78,323
 53,765
 (4,325) (4,961) (171,706) (135,867)
Reorganization items, net (2)(464) (2,525) 233,458
 (21,182) —
 —
—
 (464) (2,525) 233,458
 (21,182) —
Benefit (provision) for income taxes82,302
 (11) —
 (10) 412
 101,908
(Provision) benefit for income taxes(23,797) 82,302
 (11) —
 (10) 412
Net income (loss)135,603
 (6,861) 228,497
 (192,898) (135,455) (20,953)54,526
 135,603
 (6,861) 228,497
 (192,898) (135,455)
Net income (loss) available to common stockholders$127,604
 $(11,602) $228,383
 $(193,330) $(136,786) $(20,525)$44,625
 $127,604
 $(11,602) $228,383
 $(193,330) $(136,786)
Income (loss) per common share:                      
Basic$5.16
 $(0.93) $228,383
 $(193,330) $(136,786) $(20,525)$1.41
 $5.16
 $(0.93) $228,383
 $(193,330) $(136,786)
Diluted$4.95
 $(0.93) $228,383
 $(193,330) $(136,786) $(20,525)$1.34
 $4.95
 $(0.93) $228,383
 $(193,330) $(136,786)
Weighted average common shares outstanding:                      
Basic24,736,841
 12,489,435
 1,000
 1,000
 1,000
 1,000
31,753,110
 24,736,841
 12,489,435
 1,000
 1,000
 1,000
Diluted25,796,197
 12,489,435
 1,000
 1,000
 1,000
 1,000
33,236,343
 25,796,197
 12,489,435
 1,000
 1,000
 1,000
Operating Data (including consolidated joint ventures) (unaudited):                      
Number of net new home orders1,322
 956
 175
 669
 650
 869
1,677
 1,322
 956
 175
 669
 650
Number of homes closed1,360
 883
 67
 614
 760
 915
1,753
 1,360
 883
 67
 614
 760
Average sales price of homes closed$383
 $277
 $249
 $337
 $351
 $278
$489
 $383
 $277
 $249
 $337
 $351
Cancellation rates17% 15% 8% 18% 19% 21%18% 17% 15% 8% 18% 19%
Backlog at end of period, number of homes (3)368
 406
 246
 139
 84
 194
478
 368
 406
 246
 139
 84
Backlog at end of period, aggregate sales value (3)$199,523
 $115,449
 $63,434
 $29,329
 $30,077
 $56,472
$260,127
 $199,523
 $115,449
 $63,434
 $29,329
 $30,077
 

3135
Table of Contents

Successor (1) Predecessor (1)Successor (1) Predecessor (1)
December 31, December 31,December 31, December 31,
2013 2012 2011 2010 20092014 2013 2012 2011 2010
(in thousands)                  
Balance Sheet Data:                  
Cash and cash equivalents$171,672
 $71,075
 $20,061
 $71,286
 $117,587
$52,771
 $171,672
 $71,075
 $20,061
 $71,286
Real estate inventories—Owned671,790
 421,630
 398,534
 488,906
 523,336
1,404,639
 671,790
 421,630
 398,534
 488,906
Real estate inventories—Not owned12,960
 39,029
 47,408
 55,270
 55,270
—
 12,960
 39,029
 47,408
 55,270
Total assets1,010,411
 581,147
 496,951
 649,004
 860,099
1,674,427
 1,010,411
 581,147
 496,951
 649,004
Total debt469,355
 338,248
 563,492
 519,731
 590,290
940,101
 469,355
 338,248
 563,492
 519,731
Redeemable convertible preferred stock—
 71,246
 —
 —
 —
—
 —
 71,246
 —
 —
Total William Lyon Homes stockholders’ equity (deficit)428,179
 62,712
 (179,516) 13,814
 150,600
569,915
 428,179
 62,712
 (179,516) 13,814
Noncontrolling interests22,615
 9,407
 9,646
 11,563
 7,599
27,231
 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 yearyears 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 $(21.2) 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, 2013, 308 represent homes completed or under construction and 60 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.
ForOverview
The Company is one of the year ended largest Western U.S. regional homebuilders. Headquartered in Newport Beach, California, the Company is primarily engaged in the design, construction, marketing and sale of single-family detached and attached homes in California, Arizona, Nevada, Colorado, Washington and Oregon. The Company's core markets currently include Orange County, Los Angeles, San Diego, the 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 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 we have a significant land supply. As of December 31, 2013, or the 2013 period,2014, the Company had revenues froma 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 sales of $521.3 million, a 100% increase from $261.3 million for the year ended December 31, 2012, which includes the “Predecessor” entity from January 1, 2012 through February 24,prices in 2012 and 2013, representing a more tempered price appreciation in 2014 and what 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. The Company had net new home orders of 1,322 homes in the 2013 period, a 17% increase from 1,131 in the 2012 period, and the average sales price for homes closed increased 39% to $383,300 in the 2013 period from $275,100 in the 2012 period.

3236
Table of Contents

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 the Polygon Acquisition. At the end of 2014, the Company was selling out of 56 new-home communities, a 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 favorable 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, 2014, includes operations of the Washington and Oregon segments from August 12, 2014 (date of 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, and the year ended December 31, 2013.
ForAs a result of the year endedPolygon 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, 2012, which includes2013. Southern California and Northern California were combined with the “Predecessor” entity from January 1, 2012 through February 24, 2012,Inland Empire division to constitute the California reporting segment, and the “Successor” entity from February 25, 2012 through December 31, 2012, on a combined basisnewly acquired Washington and Oregon divisions were established as two new reporting segments. The results presented below reflect the Company had revenues from homes sales of $261.3 million, a 26% increase from $207.1 million for the year ended December 31, 2011, or the 2011 Period. The Company had net new home orders of 1,131 homes in the 2012 period, a 69% increase from 669 in the 2011 period,Company's current segment structure, and the average sales price for homes closed decreased 18% to $275,100 in the 2012 period from $337,200 in the 2011 period.
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 $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.
As of December 31, 2013, the Company’s authorized capital stock 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, 30,000,000 of which are designated as Class B Common Stock with a par value of $0.01 per share 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, 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 is retroactively applied to the Consolidated Balance Sheet as of December 31, 2012, the Consolidated Statements of Operations for the period from February 25, 2012 through December 31, 2012, and the Consolidated Statement of Equity, 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 thatprior periods have been granted but were unvested, and 3,813,884 shares of Class B Common Stock outstanding, excluding shares underlying a warrantrecast to purchase additional shares of Class B Common Stock. The warrant was amendedreflect this change. See Note 5 to extend the term from five years to ten years, and the warrant will now expire on February 24, 2022. The change to the warrant had no corresponding impact on the financial statements
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 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 Chapter 11 Petitions were jointly administered under the caption In 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 (share amounts below reflect a 1-for-8.25 reverse stock split discussed above):
the issuance of 5,429,485 shares of the Company'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

33
Table of Contents

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 3,813,884 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 1,907,551 shares of Class B Common Stock;
the issuance of 7,858,404 shares of Parent’s new Convertible Preferred Stock, $0.01 par value per share, or Convertible Preferred Stock, and 1,571,681 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 381,091 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 operations for the year ended December 31, 2011 and all subsequent periods through the date of emergence.
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 852 Reorganization, 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”.

34
Table of Contents

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.”further information.
Results of Operations
The U.S. housing market has continued its rebound from the cyclical lows reached during 2008 and 2009. 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. The Company's markets are exhibiting these positive characteristics through December 31, 2013.
In the year ended December 31, 2013,2014, the Company delivered 1,3601,753 homes, with an average selling price of approximately $383,300,$488,900, and recognized home sales revenues and total revenues of $521.3$857.0 million and $572.5$896.7 million, respectively. The Company has experiencedcontinued to build 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 Company’s disciplined operating strategy, has resulted in eighttwelve consecutive quarters of period over period growthyear-over-year improvement in netcertain key financial metrics, including new home orders home closings and dollar value of backlog. The improving market conditions and increase in pricing is reflected in ourits average sales price of homes in backlog of $542,200$544,200 at December 31, 20132014 which is 41%11% higher than the average sales price of homes closed for the year ended December 31, 20132014 of $383,300488,900.
As of December 31, 20132014, the Company is selling homes in 32 communities and had a consolidated backlog of 368478 sold but unclosed homes, with an associated sales value of $199.5260.1 million, representing a 9% decrease and 73%30% increase in both units and dollars, respectively, as compared to the backlog at December 31, 20122013. During the year ended December 31, 2013, the Company opened 21 new communities for sales. The Company believes 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 providing the best possible customer experience, positions the Company to capitalize on meaningful growth.
The Company benefits from a sizeable and well-located lot supply. As of December 31, 2013, the Company owned 10,901 lots, all of which are entitled, and had options to purchase an additional 2,846 lots. The Company’s lot supply reflects its balanced approach to land investment. The Company has a diverse mix of finished lots available for near-term homebuilding operations and longer-term strategic land positions to support future growth. The Company believes that its current inventory of owned and controlled lots is sufficient to supply the vast majority of its projected future home closings for the next three years and a portion of future home closings for a multi-year period thereafter. The Company’s meaningful supply of owned lots allows it to be selective in identifying new land acquisition opportunities, with a primary focus on optioning and acquiring land to drive closings, revenues and earnings growth in 2016 and beyond, and largely insulates it from the heavy pricing competition for near-term finished lots.
The book value of the Company's inventory was adjusted to fair value in February 2012 in conjunction with the restructuring and in accordance with fresh start accounting requirements. To facilitate the adoption of fresh start accounting, the Company engaged a third-party valuation firm to assist in a comprehensive assessment of the Company’s enterprise value and the allocation of value to its assets and liabilities. In the assessment, the Company generally utilized assumptions for future home sales paces and prices based upon then-prevailing market conditions in late 2011, which represented conditions near the trough of the U.S. housing downturn. 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 22.2% and 28.3%29.7%, respectively, for the year ended December 31, 2013, as compared to .16.6%
The Company completed the Polygon Acquisition on August 12, 2014, which marked the Company’s entry into the Washington and 25.9%, respectively,Oregon markets and the beginning of the related operating segments. There were no operations in its Washington and Oregon segments for the year ended December 31, 2012. The increase in gross margins is primarily related to an increase in average selling price of homes on a same store basis. For the year ended December 31, 2013,, therefore year over year comparisons are not meaningful (“N/M”) as indicated in the average selling price of homes on a same store basis, which represents projects that were open during comparable periods, was $328,100, compared to $287,600 for the year ended December 31, 2012.
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. There were no operations in ourthe Colorado divisionsegment for the period from January 1, 2012 through February 24, 2012,

37
Table of Contents

and the period from February 25, 2012 through December 7, 2012, therefore year over year comparisons are not meaningful (“N/M”) as indicated in the comparative tables below.
Comparisons of the Year Ended December 31, 2014 to December 31, 2013
 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.

3538
Table of Contents

  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,

39
Table of Contents

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.

40
Table of Contents

 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.

41
Table of Contents

 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.








42
Table of Contents

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.

43
Table of Contents

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 100% to $521.3 million during the year ended December 31, 2013 compared to $261.3 million during the year ended December 31, 2012. The increase is primarily due to an increase of 43% in homes closed to 1,360 homes during the 2013 period compared to 950 homes during the 2012 period, coupled 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. On a combined basis, the number of net new home orders for the year ended December 31, 2013 increased 17% to 1,322 homes from 1,131 homes for the year ended December 31, 2012.

44
Table of Contents

The average number of sales locations of the Company increased to 25 locations for the year ended December 31, 2013 compared to 18 for the year ended December 31, 2012. The Company’s number of new home orders per average sales location decreased 16% to 52.9 for the year ended December 31, 2013 as compared to 62.8 for the year ended December 31, 2012, which is at the one sale per week average rate we expect to 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 Increase (Decrease)    Successor  Predecessor Combined Increase (Decrease)    
  Period from  Period from        Period from  Period from      
Year Ended
December 31,		 
February 25 through
December 31,
  
January 1 through
February 24,
 
Year Ended
December 31,
    Year Ended
December 31,		 
February 25 through
December 31,
  
January 1 through
February 24,
 
Year Ended
December 31,
    
2013 2012  2012 2012 Amount %2013 2012  2012 2012 Amount %
Number of Net New Home Orders                        
Southern California461
 213
  38
 251
 210
 84 %
Northern California136
 165
  23
 188
 (52) (28)%
California597
 378
  61
 439
 158
 36 %
Arizona339
 322
  93
 415
 (76) (18)%339
 322
  93
 415
 (76) (18)%
Nevada271
 247
  21
 268
 3
 1 %271
 247
  21
 268
 3
 1 %
Colorado115
 9
  —
 9
 106
 N/M
115
 9
  —
 9
 106
 N/M
Total1,322
 956
  175
 1,131
 191
 17 %1,322
 956
  175
 1,131
 191
 17 %
Cancellation Rate17%      14% 3%  17%      14% 3%  
The 17% increase in the number of net new home orders is driven by the 84%36% improvement in Southern California, and full year activity from our Colorado division,segment, offset by a decrease in Northern California and Arizona. Orders in Northern California decreased due to a decrease in the number of average sales locations during the year, which decreased by 33% in the 2013 period when compared to the 2012 period. In Arizona, new home orders per sales location were exceptionally high during the 2012 period at 138.3, and have returned to a more normalized rate of 56.5 during the 2013 period, or approximately one sale per week. Cancellation rates during the 2013 period increased to 17% from 14% during the 2012 period.
 

36
Table of Contents

Successor    Successor    
Year Ended December 31, Increase (Decrease)    Year Ended December 31, Increase (Decrease)    
2013 2012 Amount %2013 2012 Amount %
Average Number of Sales Locations              
Southern California7
 6
 1
 17 %
Northern California2
 3
 (1) (33)%
California9
 9
 —
 —%
Arizona6
 3
 3
 100 %6
 3
 3
 100%
Nevada6
 6
 —
 — %6
 6
 —
 —%
Colorado4
 —
 4
 N/M
4
 —
 4
 N/M
Total25
 18
 7
 39 %
Total average25
��18
 7
 39%

The average number of sales locations for the Company increased to 25 locations for the year ended December 31, 2013 compared to 18 for the year ended December 31, 2012, including an average of four sales locations in our Colorado division. Southernsegment. The average number of sales locations in California increased by one sales location, and Northern California decreased by one sales locationremained consistent in the 2013 period compared to the 2012 period, while Arizona increased by three sales locations and Nevada remained consistent between periods. During the year ended December 2013, the 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 no amount is reflected in the table above as there were only operations from December 7, 2012 (date of acquisition) through December 31, 2012.
 

45
Table of Contents

 Successor     Successor    
 December 31, Increase (Decrease)     December 31, Increase (Decrease)    
 2013 2012 Amount % 2013 2012 Amount %
Backlog (units)                
Southern California 169
 32
 137
 428 %
Northern California 37
 28
 9
 32 %
California 206
 60
 146
 243 %
Arizona 63
 172
 (109) (63)% 63
 172
 (109) (63)%
Nevada 72
 92
 (20) (22)% 72
 92
 (20) (22)%
Colorado 27
 82
 (55) (67)% 27
 82
 (55) (67)%
Total 368
 406
 (38) (9)% 368
 406
 (38) (9)%
The Company’s backlog at December 31, 2013 decreased 9% from 406 units at December 31, 2012 to 368 units at December 31, 2013. The decrease was driven by a 43% increase in the number of homes delivered during the year, and an increase in new home orders of 17%.
 
 Successor     Successor    
 December 31, Increase (Decrease) December 31, Increase (Decrease)
 2013 2012 Amount % 2013 2012 Amount %
   (dollars in thousands)         (dollars in thousands)      
Backlog (dollars)                
Southern California $115,933
 $15,640
 $100,293
 641 %
Northern California 15,241
 8,948
 6,293
 70 %
California $131,174
 $24,588
 $106,586
 433 %
Arizona 17,676
 37,287
 (19,611) (53)% 17,676
 37,287
 (19,611) (53)%
Nevada 37,514
 20,487
 17,027
 83 % 37,514
 20,487
 17,027
 83 %
Colorado 13,159
 33,087
 (19,928) (60)% 13,159
 33,087
 (19,928) (60)%
Total $199,523
 $115,449
 $84,074
 73 % $199,523
 $115,449
 $84,074
 73 %
The dollar amount of backlog of homes sold but not closed as of December 31, 2013 was $199.5 million, up 73% from $115.4 million as of December 31, 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 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. The increase is driven by a higher concentration of units in our backlog in our Southern California region, which generally carry higher average selling prices than units in 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

37
Table of Contents

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 641%433% to $115.9$131.2 million as of December 31, 2013 from $15.6$24.6 million as of December 31, 2012, which is attributable to a 428%243% increase in the number of homes in backlog in Southern California to 169206 homes as of December 31, 2013 compared to 3260 homes as of December 31, 2012, driven by an 84%36% increase in net new home orders to 461597 for the year ended December 31, 2013 compared to 251378 homes for the year ended December 31, 2012, and a 40%55% increase in the average sales price of homes in backlog to $686,000$636,800 as of December 31, 2013 compared to $488,800$409,800 as of December 31, 2012. In Southern California, the cancellation rate decreased to 9% for the year ended December 31, 2013 from 15% for the year ended December 31, 2012.
In Northern California, the dollar amount of backlog increased 70% to $15.2 million as of December 31, 2013 from $8.9 million as of December 31, 2012, which is attributable to a 32% increase in the number of units in backlog to 37 as of December 31, 2013 from 28 as of December 31, 2012, along with a 29% increase in the average sales price of homes in backlog to $411,900 as of December 31, 2013 compared to $319,600 as of December 31, 2012, offset by a 28% decrease in net new home orders in Northern California to 136 homes for the year ended December 31, 2013 compared to 188 homes for the year ended December 31, 2012. In Northern California, the cancellation rate remained consistent at 23% for the years ended December 31, 2013 and 2012.
In Arizona, the dollar amount of backlog decreased 53% to $17.7 million as of December 31, 2013 from $37.3 million as of December 31, 2012, which is attributable to a 63% decrease in the number of units in backlog to 63 as of December 31, 2013 from 172 as of December 31, 2012, partially offset by a 29% increase in the average sales price of homes in backlog to $280,600 as of December 31, 2013 compared to $216,800 as of December 31, 2012. In Arizona, the cancellation rate increased to 19% for the year ended December 31, 2013 from 10% for the year ended December 31, 2012.
In Nevada, the dollar amount of backlog increased 83% to $37.5 million as of December 31, 2013 from $20.5 million as of December 31, 2012, which is attributable to an increase in the average selling price of homes in backlog to $521,000 as of December 31, 2013, up 133% from $222,700 as of December 31, 2012. This increase is partially offset by a 22% decrease in the number of units in backlog to 72 as of December 31, 2013 from 92 as of December 31, 2012. In Nevada, the cancellation rate increased to 20% for the year ended December 31, 2013 from 14% for the year ended December 31, 2012.
In Colorado, the dollar amount of backlog decreased 60% to $13.2 million as of December 31, 2013, from $33.1 million as of December 31, 2012. 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, 2013 was $487,400 up 21% from $403,500 at December 31, 2012.
 

46
Table of Contents

Successor  Predecessor Combined Increase (Decrease)    Successor  Predecessor Combined Increase (Decrease)    
  Period from  Period from        Period from  Period from      
Year Ended December 31, 
February 25 through
December 31,
  
January 1 through
February 24,
 
Year Ended
December 31,
    Year Ended December 31, 
February 25 through
December 31,
  
January 1 through
February 24,
 
Year Ended
December 31,
    
2013 2012  2012 2012 Amount %2013 2012  2012 2012 Amount %
Number of Homes Closed                        
Southern California324
 228
  13
 241
 83
 34 %
Northern California127
 170
  15
 185
 (58) (31)%
California451
 398
  28
 426
 25
 6%
Arizona448
 291
  27
 318
 130
 41 %448
 291
  27
 318
 130
 41%
Nevada291
 181
  12
 193
 98
 51 %291
 181
  12
 193
 98
 51%
Colorado170
 13
  —
 13
 157
 1,208 %170
 13
  —
 13
 157
 1,208%
Total1,360
 883
  67
 950
 410
 43 %1,360
 883
  67
 950
 410
 43%

During the year ended December 31, 2013, the number of homes closed increased 43% to 1,360 in the 2013 period from 950 in the 2012 period. There was a 51% increase in Nevada to 291 homes closed in the 2013 period compared to 193 homes closed in the 2012 period, a 41% increase in homes closed in Arizona to 448 in the 2013 period from 318 in the 2012 period, and a 34%6% increase in homes closed in Southern California to 324451 in the 2013 period compared to 241426 in the 2012 period. The number of homes closed in Northern California decreased during the 2013 period by 31% from the prior period. Colorado closed 157 more homes during the 2013 period than the 2012 period as a result of the inclusion of a full year of operations in the Company's results.
 

38
Table of Contents

Successor  Predecessor Combined Increase (Decrease)    Successor  Predecessor Combined Increase (Decrease)    
  Period from  Period from        Period from  Period from      
Year Ended December 31, 
February 25 through
December 31,
  
January 1 through
February 24,
 
Year Ended
December 31,
    Year Ended December 31, 
February 25 through
December 31,
  
January 1 through
February 24,
 
Year Ended
December 31,
    
2013 2012  2012 2012 Amount %2013 2012  2012 2012 Amount %
(dollars in thousands)(dollars in thousands)
Home Sales Revenue                        
Southern California$214,559
 $99,671
  $5,640
 $105,311
 $109,248
 104 %
Northern California47,930
 54,207
  4,250
 58,457
 (10,527) (18)%
California$262,489
 $153,878
  $9,890
 $163,768
 $98,721
 60%
Arizona110,397
 47,989
  4,316
 52,305
 58,092
 111 %110,397
 47,989
  4,316
 52,305
 58,092
 111%
Nevada78,148
 37,307
  2,481
 39,788
 38,360
 96 %78,148
 37,307
  2,481
 39,788
 38,360
 96%
Colorado70,276
 5,436
  —
 5,436
 64,840
 1,193 %70,276
 5,436
  —
 5,436
 64,840
 1,193%
Total$521,310
 $244,610
  $16,687
 $261,297
 $260,013
 100 %$521,310
 $244,610
  $16,687
 $261,297
 $260,013
 100%
The increase in homebuilding revenue of 100% to $521.3 million for the year ended December 31, 2013 from $261.3 million for the 2012 period is primarily attributable to a 43% increase in the number of homes closed to 1,360 during the 2013 period from 950 in the 2012 period, and 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. The increase in average home sale price resulted in a $147.1 million increase in revenue, coupled with a $112.9 million increase in revenue attributable to a 43% increase in the number of homes closed.
 
Successor  Predecessor Combined Increase (Decrease)Successor  Predecessor Combined Increase (Decrease)
  Period from  Period from        Period from  Period from      
Year Ended December 31 
February 25 through
December 31,
  
January 1 through
February 24,
 
Year Ended
December 31,
    Year Ended December 31 
February 25 through
December 31,
  
January 1 through
February 24,
 
Year Ended
December 31,
    
2013 2012  2012 2012 Amount %2013 2012  2012 2012 Amount %
Average Sales Price of Homes Closed                        
Southern California$662,200
 $437,200
  $433,800
 $437,000
 $225,200
 52 %
Northern California377,400
 318,900
  283,300
 316,000
 61,400
 19 %
California$582,000
 $386,600
  $353,200
 $384,400
 $197,600
 51 %
Arizona246,400
 164,900
  159,900
 164,500
 81,900
 50 %246,400
 164,900
  159,900
 164,500
 81,900
 50 %
Nevada268,500
 206,100
  206,800
 206,200
 62,300
 30 %268,500
 206,100
  206,800
 206,200
 62,300
 30 %
Colorado413,400
 418,200
  —
 418,200
 (4,800) (1)%413,400
 418,200
  —
 418,200
 (4,800) (1)%
Total$383,300
 $277,000
  $249,100
 $275,100
 $108,200
 39 %
Total average$383,300
 $277,000
  $249,100
 $275,100
 $108,200
 39 %


47
Table of Contents

The average sales price of homes closed for the 2013 period increased primarily due to increasing price points, as well as product mix of our actively selling projects to projects available to our "move up" buyers, particularly in California and Arizona. In the Southern California segment, the overall increase is primarily attributable to 67 closings in two communities that opened during 2013 with an average sales price of over $1.0 million. In the Arizona 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 was $328,100, a 14% increase over $287,600 in the 2012 period.
 

39
Table of Contents

 Successor  Predecessor
 Year Ended December 31, 2013 
Period from
February 25 through
December 31,
2012
  
Period from
January 1 through
February 24,
2012
Homebuilding Gross Margin Percentage      
Southern California25.7% 16.1%  11.8%
Northern California25.7% 22.8%  14.6%
Arizona20.1% 13.2%  11.6%
Nevada23.6% 15.7%  12.0%
Colorado10.9% 14.9%  —
Total22.2% 16.9%  12.5%
Adjusted Homebuilding Gross Margin Percentage28.3% 26.2%  20.7%
Gross Margin
For homebuilding gross margins, the comparison of the Successor entity for the year ended December 31, 2013, and the periodSuccessor entity from February 25, 2012 through December 31, 2012, are as follows:
In Southern California, homebuilding gross marginsmargin increased 960530 basis points, to 25.7% during22.2% in the 2013 period compared to 16.1% duringfrom 16.9% in the 2012 period. The increase was attributablein gross margins is primarily due to a shift to higher margin projects, as well asproducts across the Company, particularly in our California segment, along with a same store average sales price increase of 27%, from $404,000 in the 2012 period to $512,300 in the 2013 period. Average sales price of homes closed in Southern California increased 51% during the 2013 period from $437,200 in the 2012 period to $662,200 for the year ended December 31, 2013.
In Northern California, homebuilding gross margins increased 290 basis points to 25.7% in the 2013 period from 22.8% in the 2012 period. On a same store basis, the average sales price of homes closed increased from $236,000 in the 2012 period to $377,700 in the 2013 period, or 60%. The average selling price of homes closed in Northern California increased by 18% in the 2013 period, from $318,900 in the 2012 period to $377,400 for the year ended December 31, 2013.
In Arizona, homebuilding gross margins increased 690 basis points to 20.1% for the year ended December 31, 2013, compared to 13.2% in the 2012 period. The increase was due to a 49%significant increase in the average sales price of homes closed in the 2013 period to $246,400, from $164,900 in the 2012 period.pricing at our existing locations. On a same store basis, the average sales price of homes closed increased to $238,500, or 25%, from $190,800 in$328,100 during the 2013 period compared to $287,600 during the 2012 period.
In Nevada, homebuilding gross These increase are offset by slightly lower margins increased 790 basis points, from 15.7% in the 2012 period to 23.6% in the 2013 period due to a shift to higher margin projects. The average sales price of homes closed increased to $268,500 in the 2013 period from $206,100, or an increase of 30%. On a same store basis, average selling price of homes closed increased by 9%, to $241,300 in the 2013 period from $222,300 in the 2012 period.
Inour Colorado homebuilding gross margins were 14.9% during the 2012 period, which represents the period fromsegment, as upon acquisition on December 7, 2012 through December 31, 2012. For the year ended December 31, 2013 homebuilding gross margin was 10.9% . Upon acquisition of the Colorado division in December 2012, the Company recorded inventory at fair value which created lower margins as compared to the other divisions.segments.
For homebuilding gross margins, 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, are as follows:
In Southern California, homebuilding gross marginsmargin increased 1,390970 basis points, to 22.2% in the 2013 period to 25.7% from 11.8%12.5% 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 27% to $477,300 in$333,500 during the 2013 period compared to $374,700 in the 2012 period.
In Northern California, homebuilding gross margins increased 1,110 basis points in the 2013 period to 25.7% from 14.6% in the 2012 period. On a same store basis, average sales price increased 33% to $285,800 in the 2013 period compared to $215,600 in the 2012 period.
In Arizona, homebuilding gross margins increased 850 basis points in the 2013 period to 20.1% from 11.6% in the 2012 period. Average sales price increased 54% to $246,400 in the 2013 period compared to $159,900 in the 2012 period.
In Nevada, homebuilding gross margins increased 790 basis points in the 2013 period to 23.6% from 15.7% in the 2012 period. On a same store basis, average sales price was fairly consistent at $241,300 in the 2013 period compared to $240,500 in the 2012 period.

40
Table of Contents

In Colorado, homebuilding margins were 10.9%$279,600 during the 2013 period, with no comparable amount in the 2012 period, which is significantly lower than the gross margins of the other divisions. Upon acquisition of the Colorado division in December 2012, the Company marked up inventory to fair value which created lower margins in subsequent periods.
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, adjusted homebuilding gross margin percentage, which excludes previously capitalized interest included in cost of sales, was 28.3% for the 2013 period compared to 26.2% for the 2012 period. The increase was primarily a result of the changes discussed for homebuilding gross margins described previously.
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, adjusted homebuilding gross margin percentage was 28.3% for the 2013 period compared to 20.7% for the 2012 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  PredecessorSuccessor  Predecessor
Year Ended December 31, 2013 
Period from
February 25 through
December 31,
2012
  
Period from
January 1 through
February 24,
2012
Year Ended December 31, 2013 
Period from
February 25 through
December 31,
2012
  
Period from
January 1 through
February 24,
2012
(dollars in thousands)(dollars in thousands)
Home sales revenue$521,310
 $244,610
  $16,687
$521,310
 $244,610
  $16,687
Cost of home sales405,496
 203,203
  14,598
405,496
 203,203
  14,598
Homebuilding gross margin115,814
 41,407
  2,089
115,814
 41,407
  2,089
Homebuilding gross margin percentage22.2% 16.9%   
Add: Interest in cost of sales31,853
 22,728
  1,360
31,853
 22,728
  1,360
Add: Purchase accounting adjustments6,915
 547
  —
Adjusted homebuilding gross margin$147,667
 $64,135
  $3,449
$154,582

$64,682
  $3,449
Adjusted homebuilding gross margin percentage28.3% 26.2%  20.7%29.7%
26.4%  20.7%

Lots, Land, and Other Sales Revenue
Lots, land and other sales decreased to $18.7 million in the 2013 period from $104.3 million in the 2012 period attributable 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 2013 period, compared 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, a sale in Mesa, Arizona for a sales price of $6.5 million in the third quarter of 2012, a sale in Elk Grove, California for a sales price of $2.8 million in the third quarter of 2012, and a sale in Peoria, Arizona for a sales price of $4.2 million in the fourth quarter of 2012. The 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 above 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

48
Table of Contents

December 31, 2012, and $8.9 million for the period from January 1, 2012 through February 24, 2012. The decrease is primarily due to a slight decrease in the number of construction services projects in the 2013 period, compared to the 2012 period.






41
Table of Contents

Sales and Marketing Expense
 
Successor  PredecessorSuccessor  Predecessor
Year Ended December 31, 2013 
Period from
February 25 through
December 31,
2012
  
Period from
January 1 through
February 24,
2012
Year Ended December 31, 2013 
Period from
February 25 through
December 31,
2012
  
Period from
January 1 through
February 24,
2012
(dollars in thousands)(dollars in thousands)
Sales and Marketing Expense            
Homebuilding            
Southern California$9,207
 $5,796
  $942
Northern California3,131
 2,732
  463
California$12,338
 $8,528
  $1,405
Arizona5,179
 2,805
  260
5,179
 2,805
  260
Nevada4,401
 2,291
  279
4,401
 2,291
  279
Colorado4,184
 304
  —
4,184
 304
  —
Total$26,102
 $13,928
  $1,944
$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, 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, reflecting the impact of higher housing revenues in the current period. This is primarily attributable to a decrease in commission expense as a percentage of homes sales revenue to 2.8% in the 2013 period compared to 3.7% 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, sales and marketing expense as a percentage of revenue decreased to 5.0% from 11.6% in the 2012 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  PredecessorSuccessor  Predecessor
Year Ended December 31, 2013 
Period from
February 25 through
December 31,
2012
  
Period from
January 1 through
February 24,
2012
Year Ended December 31, 2013 
Period from
February 25 through
December 31,
2012
  
Period from
January 1 through
February 24,
2012
     (in thousands)(dollars in thousands)
General and Administrative Expense            
Homebuilding            
Southern California$6,883
 $3,540
  $707
Northern California2,392
 1,098
  222
California$9,275
 $4,638
  $929
Arizona2,951
 2,102
  318
2,951
 2,102
  318
Nevada3,577
 2,114
  357
3,577
 2,114
  357
Colorado2,627
 235
  —
2,627
 235
  —
Corporate22,340
 17,006
  1,698
22,340
 17,006
  1,698
Total$40,770
 $26,095
  $3,302
$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, general and administrative expense as a percentage of homebuilding revenues, decreased to 7.8% from 10.7% in the 2012 period, reflecting the impact of higher housing revenues in the current period, partially offset by an increase in salaries and benefits in the 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, general and administrative expense as a percentage of homebuilding revenues decreased to 7.8% from 19.8% in the 2012 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.


4249
Table of Contents


Other Items
Combined other operating costs remained relatively consistent at $2.2 million for the year ended December 31, 2013, compared to $2.9 million for the Successor entity for the period from February 25, 2012 through December 31, 2012 and $0.2 million for the Predecessor entity from January 1, 2012 through February 24, 2012.
Interest activity 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 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 $0.5 million in reorganization costs compared to $2.5 million during the period from February 25, 2012 through December 31, 2012 for legal and professional fees. During the period from January 1, 2012 through February 24, 2012, the Company recorded reorganization items of $233.5 million which primarily consisted of a gain of approximately $298.8 million resulting 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.write-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.$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 hashad increased with reports of falling unemployment and historically low interest rates. We havehad 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;

50
Table of Contents

Taxable income was generated in 2012 and 2013, and based on our projections, we anticipate generating taxable income in 2014 and beyond;

43
Table of Contents

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, and the Company may incur a tax liability with respect to such income.

As of December 31, 2013, the Company had unused federal and state built-in losses of $67.6 million and $37.7 million, respectively. The 5 year testing period for built-in losses expires in 2017 and the unused built-in loss carryforwards begin to expire in 2033.
The remaining valuation allowance at December 31, 2013 relates to projected excess realized built-in-losses and state net operating losses which may expire unused. For the year ended December 31, 2012, due to uncertainties surrounding the realization of the cumulative federal and state deferred tax assets, the Company had a full valuation allowance against the deferred tax assets for the year in the amount of $200.0 million.
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 and $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 two joint ventures during the 2013 period.
Net Income (Loss) Attributable to William Lyon Homes
As a result of the preceding factors, net income (loss) 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 net 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 $2.7 million in the 2012 period. The decrease in 2013 is attributed to approximately five months of dividends, from January 2013 through the Company's IPOinitial 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:
 

4451
Table of Contents

 Successor Increase (Decrease) Successor Increase (Decrease)
December 31, December 31, 
 2013 2012 Amount % 2013 2012 Amount %
Lots Owned                
Southern California 1,018
 1,114
 (96) (9)%
Northern California 917
 259
 658
 254 %
California 1,935
 1,373
 562
 41 %
Arizona 5,376
 6,082
 (706) (12)% 5,376
 6,082
 (706) (12)%
Nevada 2,828
 2,884
 (56) (2)% 2,828
 2,884
 (56) (2)%
Colorado 762
 254
 508
 200 % 762
 254
 508
 200 %
Total 10,901
 10,593
 308
 3 % 10,901
 10,593
 308
 3 %
Lots Controlled(1)                
Southern California 1,200
 96
 1,104
 1,150 %
Northern California 653
 674
 (21) (3)%
California 1,853
 770
 1,083
 141 %
Arizona 210
 —
 210
 — % 210
 —
 210
 — %
Nevada 285
 —
 285
 — % 285
 —
 285
 — %
Colorado 498
 479
 19
 4 % 498
 479
 19
 4 %
Total 2,846
 1,249
 1,597
 128 % 2,846
 1,249
 1,597
 128 %
Total Lots Owned and Controlled 13,747
 11,842
 1,905
 16 % 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 16% to 13,747 lots owned and controlled at December 31, 2013 from 11,842 lots at December 31, 2012. The increase is primarily attributable to significant land acquisition to increase lot count in core markets in order to support continued growth. Most notably during the year ended December 31, 2013, the Company had a net increase of 658562 lots owned in the Northern California segment, and 508 lots owned in the Colorado segment.

Comparisons of the Year Ended December 31, 2012 to December 31, 2011
On a combined basis, which combines the predecessor and successor entities for the year ended December 31, 2012, revenues from homes sales increased 26% to $261.3 million during the year ended December 31, 2012 compared to $207.1 million during the year ended December 31, 2011. The increase is primarily due to an increase of 55% in homes closed to 950 homes during the 2012 period compared to 614 homes during the 2011 period, offset by a decrease in the average sales price of homes closed 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, 2012 increased 69% to 1,131 homes from 669 homes for the year ended December 31, 2011.
The average number of sales locations of the Company decreased to 18 locations for the year ended December 31, 2012 compared to 19 at December 31, 2011. The Company’s number of new home orders per average sales location increased 78% to 62.8 for the year ended December 31, 2012 as compared to 35.2 for the year ended December 31, 2011.


45
Table of Contents

 Successor Predecessor Combined Predecessor Increase (Decrease)    
 Period from Period from        
 
February 25 through
December 31,
 
January 1 through
February 24,
 
Year Ended
December 31,
    
 2012 2012 2012 2011 Amount %
Number of Net New Home Orders           
Southern California213
 38
 251
 211
 40
 19%
Northern California165
 23
 188
 147
 41
 28%
Arizona322
 93
 415
 202
 213
 105%
Nevada247
 21
 268
 109
 159
 146%
Colorado9
 —
 9
 —
 9
 N/M
Total956
 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 in the 2011 period to 415 in the 2012 period driven by the opening 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 an improvement in the housing market and overall homebuyer demand. In addition, we have opened new communities in well located areas with strong homebuyer demand. The increase in net new home orders positively impacts the number 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.
Cancellation rates during the 2012 period decreased to 14% from 18% during the 2011 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 California6
 7
 (1) (14)%
Northern California3
 4
 (1) (25)%
Arizona3
 2
 1
 50 %
Nevada6
 6
 —
 — %
Total18
 19
 (1) (5)%

The average number of sales locations for the Company decreased to 18 locations for the year ended December 31, 2012 compared to 19 at December 31, 2011. Southern California and Northern California each decreased by one sales location in the 2012 period compared to the 2011 period, while Arizona increased by one sales location and Nevada remained consistent in the 2012 period compared to the 2011 period. As of December 31, 2012, the Colorado division had five sales locations, however it is not included in the table above as there were only operations from December 7, 2012 (date of acquisition) through December 31, 2012.

46
Table of Contents

  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%
The Company’s backlog at December 31, 2012 increased 192% from 139 units at December 31, 2011 to 406 units at December 31, 2012. The increase is primarily attributable to an increase in net new home orders during the period 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 an increase in the number of homes closed to 950 during the year ended December 31, 2012 from 614 during the year ended December 31, 2011, and a 69% 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 all 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%
The dollar amount of backlog of homes sold but not closed as of December 31, 2012 was $115.4 million, up 294% from $29.3 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. 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% in the average sales price of homes in backlog to $284,400 as of December 31, 2012 compared to $211,000 as of December 31, 2011. The increase is driven by a higher price point of our actively selling projects in Arizona in three new communities that opened in 2012, as well as an average sales price of homes in backlog in Colorado of $403, 500 with no comparable amount in the year ended December 31, 2011. 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 Southern California, the dollar amount of backlog increased 92% to $15.6 million as of December 31, 2012 from $8.1 million as of December 31, 2011, which is attributable to a 45% increase in the number of homes in backlog in Southern California to 32 homes as of December 31, 2012 compared to 22 homes as of December 31, 2011, and a 19% increase in net new home orders to 251 for the year ended December 31, 2012 compared to 211 homes for the year ended December 31, 2011, and a 32% increase in the average sales price of homes in backlog to $488,800 as of December 31, 2012 compared to $370,400 as of December 31, 2011. 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, the dollar amount of backlog increased 26% to $8.9 million as of December 31, 2012 from $7.1 million as of December 31, 2011, which is attributable to a 12% increase in the number of units in backlog to 28 as of December 31, 2012 from 25 as of December 31, 2011, along with a 12% increase in the average sales price of homes in backlog to $319,600 as of December 31, 2012 compared to $285,000 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

47
Table of Contents

year ended December 31, 2011. 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, the dollar amount of backlog increased 262% to $37.3 million as of December 31, 2012 from $10.3 million as of December 31, 2011, which is attributable to a 129% increase in the number of units in backlog to 172 as of December 31, 2012 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.
In Colorado, the dollar amount of backlog was $33.1 million as of December 31, 2012, with no comparable amount as of December 31, 2011.
  Successor Predecessor Combined Predecessor Increase (Decrease)    
  Period from Period from        
  
February 25 through
December 31,
 
January 1 through
February 24,
 
Year Ended
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%

During the year ended December 31, 2012, the number of homes closed increased 55% to 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% increase in Arizona to 318 homes closed in the 2012 period compared to 135 homes closed in the 2011 period, a 31% increase in homes closed in Northern California to 185 in the 2012 period from 141 in the 2011 period, and a 68% increase in homes closed in Nevada to 193 in the 2012 period compared to 115 in the 2011 period. Colorado had 13 home closings during the 2012 period, with no comparable activity in the 2011 period.

48
Table of Contents

  Successor Predecessor Combined Predecessor Increase (Decrease)    
  Period from Period from        
  
February 25 through
December 31,
 
January 1 through
February 24,
 
Year Ended
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 %
The increase in homebuilding revenue of 26% to $261.3 million for the period ending 2012 from $207.1 million for the period ending 2011 is primarily attributable to a 55% increase in the number of homes closed to 950 during the 2012 period from 614 in the 2011 period, offset by an 18% decrease in the average sales price of homes closed to $275,100 during the 2012 period from $337,200 during the 2011 period. The decrease in average home sale price resulted in a $59.0 million decrease in revenue, offset by a $113.2 million increase in revenue attributable to a 55% increase in the number of homes closed.
  Successor Predecessor Combined Predecessor Increase (Decrease)
  Period from Period from        
  
February 25 through
December 31,
 
January 1 through
February 24,
 
Year Ended
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)%

The average sales price of homes closed for the 2012 period decreased primarily due to a lower price point of our actively selling projects to projects available to first time buyers or first time “move up” buyers. In the Southern California and Northern California segments, the overall average sales price decrease is primarily due to a change 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 projects that were released during 2012 with an average sales price of $326,900, which is below the prior period average of $337,200.

49
Table of Contents

  Successor Predecessor Predecessor
  
Period from
February 25 through
December 31,
2012
 
Period from
January 1 through
February 24,
2012
 
Year
Ended
December 31,
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 of the Successor entity from February 25, 2012 through December 31, 2012 and the Predecessor 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 division 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 margins remained relatively consistent due to a 13% decrease in the average sales price of homes closed of $433,800 in 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.

50
Table of Contents

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 2012 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 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
February 25 through
December 31,
2012
 
Period from
January 1 through
February 24,
2012
 
Year
Ended
December 31,
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%

Lots, Land, and Other Sales Revenue
Lots, land and other sales increased to $104.3 million in the 2012 period with no comparable amount in the 2011 period primarily attributable to the sale of a 27-acre parcel in Palo Alto and Mountain View, California for a sales price of $90.0 million in the second quarter of 2012, the sale of 58 lots in Mesa, Arizona for a sales price of $6.5 million in the third quarter of 2012, the sale of 40 lots in Elk Grove, California for a sales price of $2.8 million in the third quarter of 2012, and the sale of 84 lots in Peoria, Arizona for a sales price of $4.2 million in the fourth quarter of 2012. 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.
Construction Services Revenue
Construction services revenue, which was all recorded in Southern California and Northern California, was $23.8 million for the period from February 25, 2012 through 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. The increase is primarily due to an increase in the number of construction services projects in the 2012 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.






51
Table of Contents

Impairment Loss on Real Estate Assets
  Successor Predecessor Predecessor
  
Period from
February 25 through
December 31,
2012
 
Period from
January 1 through
February 24,
2012
 
Year
Ended
December 31,
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 an impairment loss on real estate assets of $128.3 million. The impairment loss related to land under development and homes completed and under construction 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.







52
Table of Contents

Sales and Marketing Expense
  Successor Predecessor Predecessor
  
Period from
February 25 through
December 31,
2012
 
Period from
January 1 through
February 24,
2012
 
Year
Ended
December 31,
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
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, sales and marketing expense as a percentage of homebuilding revenue decreased to 5.7% in the 2012 period compared to 8.1% in the 2011 period. This is primarily attributable to a decrease in advertising expense to $2.9 million 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 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 increased to 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
February 25 through
December 31,
2012
 
Period from
January 1 through
February 24,
2012
 
Year
Ended
December 31,
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
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, general and administrative expense as a percentage of homebuilding revenues, remained consistent at 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 million in stock based compensation expense recorded in the fourth quarter of 2012.
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, general and administrative expense as a percentage of homebuilding revenues increased to 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.

53
Table of Contents

Other Items
Combined other operating costs remained relatively consistent at $3.1 million in the 2012 period compared to $4.0 million in the 2011 period.
Equity in income of unconsolidated joint ventures was $0 in the 2012 period compared to income of $3.6 million during the 2011 period. The income during the 2011 period was primarily due to the sale of the Company’s interest in one of its unconsolidated joint ventures.
During the period from February 25, 2012 through December 31, 2012, and the period from January 1, 2012 through February 24, 2012, the Company incurred interest of $30.5 million, and $7.1 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 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
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.
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 consists of a gain of approximately $298.8 million which resulted 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. For the period from February 25, 2012 through December 31, 2012, net loss includes reorganization items of $2.5 million which consist of professional fees relating to the restructure. As a result of the foregoing factors, net (loss) income attributable to William Lyon Homes for the period from February 25, 2012 through December 31, 2012, and the period from January 1, 2012 through February 24, 2012, was a net loss of $8.9 million, and net income of $228.4 million, respectively, compared to net loss for the year ended December 31, 2011 of $193.3 million.





54
Table of Contents

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 %
(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% to 11,842 lots owned and controlled at December 31, 2012 from 10,464 lots at December 31, 2011. The increase is primarily due to certain lot acquisitions during the period, and the lots acquired through the purchase of Village Homes in December 2012, offset by the closing of 950 homes during the 2012 period.
Financial Condition and Liquidity
TheThroughout 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, 2013,2014, the Company delivered 1,3601,753 homes, with an average selling price of approximately $383,300,$488,900, and recognized home sales revenues and total revenues of $521.3$857.0 million and $572.5$896.7 million, respectively. The Company has experienced significant operating momentum since the beginning of 2012,2013, 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 seventwelve consecutive quarters year over year, of growthyear-over-year improvement in netcertain key financial metrics, including new home orders home closings and unitdollar value of backlog.
In the year ended December 31, 2013,2014, net new home orders increased 17%27% to 1,677 in the 2014 period from 1,322 in the 2013 period, from 1,131 in the 2012 period, while home closings increased 43%29% to 1,753 in the 2014 period from 1,360 in the 2013 period from 950 in the 2012 period. On a consolidated basis, the cancellation rate increased to 18% in the 2014 period compared to 17% in the 2013 period compared to 14% in the 2012 period. In addition, homebuildingHomebuilding gross margin percentage and adjusted homebuilding gross margin percentage increaseddecreased to 22.2%20.9% and 28.3%25.2%, respectively, for the year ended December 31, 2013,2014, as compared to 16.6%22.2% and 25.9%29.7%, respectively, for the year ended December 31, 2012. The increase in gross margins is primarily related to an increase in net sales prices during the period and an increase in absorption, which decreases certain project related costs. 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.2013.
As of December 31, 2013,2014, the Company is selling homes in 3256 communities and had a consolidated backlog of 368478 sold but unclosed homes, with an associated sales value of $199.5$260.1 million, representing a 9% decrease and a 73%30% increase in both units and dollars, respectively, as compared to the backlog at December 31, 2012.2013. The Company believes that the attractive fundamentals in its markets, its leading market share positions, its long-standing relationships with land developers, its

55
Table of Contents

significant land supply and its focus on providing the best possible customer experience positions the Company to capitalize on meaningful growth as the U.S. housing market continues to rebound.

On May 21, 2013, the Company completed its
52
Table of Contents

Since our initial public offering, (IPO) 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 a 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 anyof net proceeds, from the sale of shares by the selling stockholder.
Since its IPO, the Company has access to the capitalpublic equity and debt markets, which is a significant source of financing for liquidity while prudently managing leverageinvesting 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 balance sheet. In October 2013Polygon Acquisition as discussed below, the Company issued an additional $100.0has raised approximately $355.0 million in principal amount of 8 1/2% senior notes, as a "tack-on" to the the original issuance at price to par of 106.5% resultingdebt markets, which has provided capital for growth, investing in net proceeds of approximately $104.6 million. This transaction, coupled with the $100.0 million revolving credit facility entered into during August 2013 yields significant liquidity for the Company, while our debt to capital ratio is at 51% as of December 31, 2013.land and ongoing operations.
In addition, 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 year ended December 31, 2013,2014, before land acquisitions, the Company generated cash from operations of $80.3$186.6 million. Including cash consumed by land acquisitions of $254.8$347.2 million, the Company had cash used in operations of $174.5$160.2 million during the year ended December 31, 2013.2014. In addition, the Company has the option to use additional outside borrowing, form new joint ventures with partners that provide a substantial portion of the capital required for certain projects, and 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 Company 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.

53
Table of Contents

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 under 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 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.

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 April 15 and October 15, and mature on April 15, 2019. The 5.75% Notes are unconditionally guaranteed on a joint and several unsecured basis by Parent and certain of its existing and future restricted subsidiaries. The 5.75% Notes and the related guarantees are California Lyon’s and the guarantors’ unsecured senior obligations and rank equally in right of payment with all of California Lyon’s and the guarantors’ existing and future unsecured senior debt, including California Lyon’s $425 million in aggregate principal amount of 8.5% Senior Notes due 2020, as described below, and $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 guarantors’ future subordinated debt. The 5.75% Notes and the guarantees are and will be effectively junior to California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.
8.5% 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 $104.6$104.7 million

54
Table of Contents

including the premium on issuance.
As of December 31, 20132014 the outstanding principal amount of the New Notes was $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 indenture containsindentures governing the 5.75% Notes, the 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 Indenture also provides for eventsCompany was in compliance with all such covenants as of default which, if any of them occurs, would permit or require the principal of and accrued interest on such New Notes to be declared due and payable.December 31, 2014.

Revolving Lines of Credit
On August 7, 2013, California Lyon and Parentthe Company entered into a credit agreement providing for a revolving credit facility of up to $100 million, (the “Revolver”).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

56
Table of Contents

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 FacilityRevolver 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, 2013,2014, the Company had not drawn any amounts under this facility, but had issuedRevolver was undrawn, other than a letter of credit offor $4.0 million.

million, reducing the amount available under the Revolver.
Construction Notes Payable
In December 2013,
Certain of the CompanyCompany's consolidated joint ventures have entered into a construction notes payable agreement.agreements. These loans will be repaid with proceeds from closings and are secured by the underlying projects. The agreement hasissuance date, total availability under each facility outstanding, maturity date and interest rate are listed in the facilitytable below as of December 31, 2014 (in millions):


55
Table of Contents

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)$18.6 million, to be drawn for land development and construction of one of its joint venture projects. The facility consists of an $11.5 million revolving facility and a $7.1 million promissory note. The facility matures in January 2016 and Loan bears interest at the Company's option of either LIBOR +3.0% or the primateprime rate +1.0. At December 31, 2013 the interest rate on the facility was 4.25%, and the Company had $2.2 million outstanding.+1.0%.
In June 2013, the Company entered into a construction note payable agreement. The agreement has total availability under the facility of (2)$28.0 million, to be drawn for land development and construction on one of its joint venture projects. The loan matures in June 2016 and Loan bears interest at the prime rate +0.5%, with a rate floor of 4.0%, which was the interest rate as of December 31, 2013. As of December 31, 2013, the Company had borrowed $21.2 million under this facility. The loan will be repaid with proceeds from home closings of the project, is secured by the underlying project, and is guaranteed by the Company..
In September 2012, the Company entered into a construction note 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%, which was the interest rate as of December 31, 2013. At December 31, 2013 and December 31, 2012, the Company had borrowed $0.9 million and $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 39.7%59.8% and 65.0%39.7% as of December 31, 20132014 and 2012,2013, 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.
 

57
Table of Contents

 Successor
 December 31, December 31,
 2013 2012 2014 2013
 (dollars in thousands) (dollars in thousands)
Notes payable and Senior Notes $469,355
 $338,248
 $940,101
 $469,355
Redeemable convertible preferred stock —
 71,246
Total equity (deficit) 450,794
 72,119
Total equity 597,146
 450,794
Total capital $920,149
 $481,613
 $1,537,247
 $920,149
Ratio of debt to total capital 51.0% 70.2% 61.2% 51.0%
Notes payable and Senior Notes $469,355
 $338,248
 $940,101
 $469,355
Less: Cash and cash equivalents and restricted cash (172,526) (71,928) (53,275) (172,526)
Net debt 296,829
 266,320
 886,826
 296,829
Redeemable convertible preferred stock —
 71,246
Total equity (deficit) 450,794
 72,119
Total equity 597,146
 450,794
Total capital $747,623
 $409,685
 $1,483,972
 $747,623
Ratio of net debt to total capital 39.7% 65.0% 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 $13.0 million as of December 31, 2013, which is included in real estate inventories not owned and liabilities from inventories not owned in the accompanying

56
Table of Contents

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
 December 31,December 31, December 31,
 2013 20122014 2013
Total number of land banking projects 1
 1
—
 1
Total number of lots 610
 610
—
 610
Total purchase price $161,465
 $161,465
$—
 $161,465
Balance of lots still under option and not purchased:       
Number of lots 65
 199
—
 65
Purchase price $12,960
 $39,029
$—
 $12,960
Forfeited deposits if lots are not purchased $9,210
 $27,734
$—
 $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

58
Table of Contents

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, 2013 and 2012,, 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.

Cash Flows — Comparison of Year Ended December 31, 2014 to Year Ended December 31, 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.

57
Table of Contents

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, the comparison of cash flows is as follows:
Net cash (used in) provided by 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. The change was primarily a result of a net increase in real estate inventories-owned of $234.1 million compared to a decrease of $30.3 million in the 2012 period, primarily driven by $254.8 million of land acquisitions during the 2013 period. These uses of cash were partially offset by (i) 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 a net loss of $6.9 million in the 2012 period, and (ii) an increase in accrued expenses of $18.6 million in the 2013 period compared to an increase of $9.8 million in the 2012 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 a use of $33.5 million in the 2012 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 our Colorado division,segment, with no comparable amount in the 2013 period, and (ii) purchases of property, plant, and equipment of $3.8 million in the 2013 period compared to $0.3 million in the 2012 period.
Net cash provided by (used in) 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. 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, 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 $73.6 million in the 2013 period compared to $13.2 million in the 2012 period, (iii)principal payments on Senior Secured Term Loan of $235.0 million in the 2012 period with no comparable amount in the 2013 period, (iv) principal payments on Senior Subordinated Secured Notes of $75.9 million in the 2012 period with no comparable amount in the 2013 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 (vi) payment of deferred loan costs of $4.1 million in the 2013 period compared to $7.2 million in the 2012 period. These increases were partially offset by (i) proceeds from issuance of 8½% Senior Notes of $106.5 million in the 2013 period compared to $325.0 million in the 2012 period, and (ii) proceeds from issuance of convertible preferred stock of $14.0 million related to the issuance of 1,475,626 shares of the company’s convertible preferred stock to Paulson & Co in the 2012 period with no comparable amount in the 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, the comparison of cash flows is as follows:
Net cash used in operating activities increased to a use of $174.5 million in the 2013 period from a use of $17.3 million in the 2012 period. The change was primarily a result of (i) a net increase in real estate inventories-owned of $234.1

59
Table of Contents

million compared to an increase of $7.0 million in the 2012 period, primarily driven by $254.8 million of land acquisitions during the 2013 period, (ii) a decrease in accounts payable in the 2013 period of $1.6 million compared to 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 $0.9 million in the 2012 period. These increases in uses of cash were partially offset by (i) net reorganization items of $241.3 million in the 2012 period with

58
Table of Contents

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 net income of $228.5 million in the 2012 period, and (iiii) an increase in accrued expenses of $18.6 million in the 2013 period compared to a decrease of $3.9 million in the 2012 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 and (iii) proceeds from borrowings on notes payable of $73.6 million in the 2013 period with no comparable amount in the 2012 period. These increases were partially offset by (i) principal payments on notes payable of $65.0 million in the 2013 period compared to $0.6 million in the 2012 period (ii) proceeds from preferred stock of $50.0 million in the 2012 period with no comparable amount in the 2013 period, (iii) proceeds from reorganization of $31.0 million in the 2012 period with no comparable amount in the 2013 period, and (iv)payment of deferred loan costs of $4.1 million in the 2013 period compared to $2.5 million in the 2012 period
Based on the aforementioned, the Company believes they have sufficient cash and sources of financing for at least the next twelve months.

Cash Flows — Comparison of Year Ended December 31, 2012 to Year Ended December 31, 2011
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, the comparison of cash flows is as follows:
Net cash provided by (used in) operating activities increased to 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 decrease in real estate inventories-owned of $30.3 million in the 2012 period compared to a net decrease of $18.2 million in the 2011 period, primarily driven by the increase in homes closed in the 2012 period as 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) an increase in receivables of $2.9 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.
Net cash (used in) provided by investing activities decreased 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 of $33.2 million related to the acquisition of a homebuilder in Colorado, known as Village Homes, with no comparable amount in the 2011 period, and (ii) distributions of income from unconsolidated joint ventures of $1.4 million in the 2011 period with no distributions of income from unconsolidated joint ventures in the 2012 period.
Net cash (used in) provided by financing activities increased to a use of $25.9 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) principal payments on notes payable of $73.7 million in the 2012 period from $11.5 million in the 2011 period, (ii) principal payments on Senior Secured Term Loan of $235.0 million in the 2012 period with no comparable amount in the 2011 period, (iii) principal payments on Senior Subordinated Secured Notes of $75.9 million in the 2012 period with no comparable amount in the 2011 period, and (iv) payment of deferred loan costs of $7.2 million in the 2012 period with no comparable amount in the 2011 period, 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) proceeds from issuance of 8½% Senior Notes of $325.0 million with no comparable amount in the 2011 period, (vii) proceeds from issuance of convertible preferred stock of $14.0 million related to the issuance of 12,173,913 shares of the company’s convertible preferred stock to Paulson & Co in the 2012

60
Table of Contents

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 2011 period.
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, the comparison of cash flows is as follows:
Net cash used in operating activities decreased to 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) equity in income of unconsolidated joint ventures of $3.6 million in the 2011 period due to the final cash distribution and related allocation of income from unconsolidated joint ventures with no comparable amount in the 2012 period, (ii) a decrease in other assets of $0.2 million in the 2012 period 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 compared to a decrease of $1.5 million in the 2011 period attributed to the timing of payments to subcontractors, and (iv) consolidated net income of $228.5 million in the 2012 period compared to consolidated net loss of $192.9 million in the 2011 period, offset by (v) impairment loss on real estate assets of $128.3 million in the 2011 period with no comparable amount in the 2012 period, (vi) net reorganization items of $241.3 million in the 2012 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 source of $1.3 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 2011 period with no distributions of income from unconsolidated joint ventures in the 2012 period.
Net cash provided by (used in) financing activities increased to a source of $77.8 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) proceeds from preferred stock of $50.0 million in the 2012 period with no comparable amount in the 2011 period, (ii) proceeds from reorganization of $31.0 million in the 2012 period with no comparable amount in the 2011 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.

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, 20132014 (in thousands):
 

61
Table of Contents

 Payments due by period Payments due by period
 Total(1) 
Less than
1 year
(2014)
 
1-3 years
(2015-2016)
 
3-5 years
(2017-2018)
 
More than
5 years
 Total(1) 
Less than
1 year
(2015)
 
1-3 years
(2016-2018)
 
3-5 years
(2018-2019)
 
More than
5 years
Notes Payable $38,060
 $1,762
 $36,298
 $—
 $—
 $39,235
 $547
 $38,688
 $—
 $—
Notes Payable interest 3,589
 1,842
 1,747
 —
 —
 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 425,000
 —
 —
 —
 425,000
 875,000
 —
 —
 —
 875,000
Senior Notes interest 251,370
 36,125
 72,250
 72,250
 70,745
 425,453
 16,437
 131,500
 131,500
 146,016
Operating leases 8,658
 1,951
 2,119
 1,757
 2,831
 10,679
 2,185
 3,516
 2,854
 2,124
Surety bonds 69,947
 57,272
 12,670
 5
 —
 98,970
 78,334
 20,621
 15
 —
Purchase obligations: 
         
        
Land purchases and option commitments(2) 289,771
 206,149
 83,622
 —
 —
 448,985
 251,814
 192,190
 4,981
 —
Project commitments(3) 102,648
 22,634
 80,014
 —
 —
 106,957
 74,870
 32,087
 —
 —
Total $1,189,043
 $327,735
 $288,720
 $74,012
 $498,576
 $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, 20132014 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.

59
Table of Contents

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.

62
Table of Contents

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

60
Table of Contents

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

63
Table of Contents

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. 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, 2012, which would yield discount rates of 21% to 29% for 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 was 8.75% based on the Company’s capital structure at the time of the analysis. During the year ended December 31, 2013,2014, no indicators of impairment were noted by the 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:

61
Table of Contents

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

64
Table of Contents

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-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 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:
 Successor Predecessor
 Year Ended
December 31,		 
Period from
February 25 through
December 31,
2012
 
Period from
January 1 through
February 24,
2012
 
Year Ended
December 31,
 2013 2011
   (dollars in thousands)
Inventory impairments related to:       
Land under development and homes completed and under construction$—
 $—
 $—
 $34,835
Land held for future development or sold—
 —
 —
 93,479
Total inventory impairments$—
 $—
 $—
 $128,314
Number of projects impaired during the year—
 —
 —
 16
Number of projects assessed for impairment during the year—
 —
 —
 42
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.
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.Company.
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 consolidated statements of operations. The impairment charges recorded during the 2011 period noted above stemmed from lower home prices which were driven by increased incentives and discounts resulting from weakened demand experienced during 2007 through 2011.
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.”

65
Table of Contents

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

62
Table of Contents

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, 20132014 and 2012,2013, the Company had three6 and two3 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, 20132014 and December 31, 2012,2013, 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

63
Table of Contents

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, 2013,2014, the Company maintained a valuation allowance of $4.0$1.6 million

66
Table of Contents

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 Item 13 of Part III of this Annual Report, “Certain Relationships and Related Party Transactions, and Director Independence” and Note 1211 of “Notes to Consolidated Financial Statements” for the year ended December 31, 20132014 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, 20132014 of $24.2$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, 20132014 was 3.25%. IfBased 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 were towould increase the amount of interest expense incurred by 10%, there would be no impact on the Company’s consolidated financial statements because the outstanding debt has an interest rate floor of 4.0% to 5.0%.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, 20132014 (dollars in thousands):
 
Year ended December 31,     
Fair Value  at
December 31,
2013
Year ended December 31,     
Fair Value  at
December 31,
2014
2014 2015 2016 2017 2018 Thereafter Total 2015 2016 2017 2018 2019 Thereafter Total 
Fixed rate debt$1,761
 $12,101
 $—
 $—
 $—
 $431,295
 $445,157
 $480,739
$547
 $—
 $20,717
 $—
 $150,000
 $725,000
 $896,264
 $933,674
Interest rate3.0% 7.0% —
 —
 —
 8.5% —
 —
4.0% 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, 2013.2014. The Company does not enter into or hold derivatives for trading or speculative purposes.


64
Table of Contents

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.


6765
Table of Contents

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, 2013.2014.

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, 20132014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



66
Table of Contents


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.

6867
Table of Contents

PART III
 
Item 10.Directors, Executive Officers and Corporate Governance
Executive Officers and Directors
Our board of directors currently consists of eight members. Each directorThe information required by this item will hold office untilbe set forth in the Company’s nextProxy Statement for our 2015 Annual Meeting of Stockholders, to be filed by the Company with the U.S. Securities and until his successorExchange 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 duly elected and qualified. incorporated herein by reference.


Item 11.Executive Compensation

The executive officersinformation 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.

68
Table of Contents

PART IV
Item 15.Exhibits and Financial Statement Schedules

(a)(1) Financial Statements
The following financial statements of the Company are chosen annuallyincluded 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).

69
Table of Contents

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).

70
Table of Contents

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).

71
Table of Contents

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
Table of Contents

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
Table of Contents

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
Table of Contents

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 boardundersigned, thereunto duly authorized, in the City of directors and each holds office until his or her successor is chosen and qualified or until his or her death, resignation or removal. Officers serve atNewport Beach, State of California, on the discretion12th 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 boardSecurities Exchange Act of directors, subject to rights, if any, under contracts of employment. There are no family relationships between any director or executive officer1934, this Report has been signed by the following persons in the capacities and any other director or executive officer ofon the Company, except for General William Lyon and William H. Lyon, who are father and son.dates indicated:

NameSignature  AgeTitle PositionDate
General William Lyon 91
/s/ William H. Lyon
William H. Lyon
  Chairman of the Board of Directors andChief Executive Chairman
William H. LyonOfficer, Director (Principal Executive Officer) 40March 12, 2015
 Director, Chief Executive Officer
Matthew R. Zaist39President and Chief Operating Officer
/s/ Colin T. Severn
43
Colin T. Severn
  Vice President, and Chief Financial Officer
Richard S. Robinson (Principal Financial and Accounting Officer) 67March 12, 2015
 Senior Vice President Finance and Acquisition
/s/ General William Lyon
General William Lyon
Executive Chairman, DirectorMarch 12, 2015
/s/ Douglas K. Ammerman (a, b, c, d)
62
Douglas K. Ammerman
  DirectorMarch 12, 2015
Michael Barr 43
/s/ Michael Barr
Michael Barr
  DirectorMarch 12, 2015
/s/ Gary H. Hunt (a, b, c)
65Director
Matthew R. Niemann (a, b, c, d)49Director
Nathaniel Redleaf (c, d)29Director
Lynn Carlson Schell (a, b, c, d)53Director
(a)Member of the Audit Committee
(b)Member of the Compensation Committee
(c)Member of the Nominating and Corporate Governance Committee
(d)Member of the Corporate Finance Committee
Directors
The following is a biographical summary of the experience of our directors:
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.

69
Table of Contents

William H. Lyon, 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. Mr. Ammerman is also a member of the Board of Directors of Remy International, Inc. (a company listed on the NASDAQ Stock Market), Stantec Inc. (a company listed on the New York Stock Exchange) and El Pollo Loco, for each of which he also serves as Chairman of the Audit Committee. In addition, during the past five years Mr. Ammerman had 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 holds a B.A. in Accounting from California State University, Fullerton, and a master’s degree in Business Taxation from University of Southern California.
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 investment of affiliates of Paulson in the Company. Mr. Barr currently serves as 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, 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

70
Table of Contents

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 Chairman of CT Realty. He formerly was a member and lead independent director of Grubb & Ellis Corporation and for sixteen months served as interim President and CEO.
Matthew R. Niemann was 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’s Financial Restructuring business, and first joined the firm in 1999. Before rejoining Houlihan 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 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. 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 as an analyst at Luxor Capital Group, LP, which serves as the investment manager to a number of private investment funds. In his role at the firm, Mr. Redleaf 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.
Executive Officers
The following is a biographical summary of the experience of our executive officers:
General William Lyon's and William H. Lyon's biographies are set forth under the heading "Directors" above.

71
Table of Contents

Matthew R. Zaist, 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 and Chief Financial Officer , joined the Company in December 2003, and served in the role of Financial Controller until April 3, 2009. From 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 continued to serve as the Company's Corporate Secretary until November 2013. 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 16 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 and Acquisition, 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 he was hired in June 1979. His experience in residential real estate development and homebuilding finance totals more than 30 years.
Board of Directors
Our board of directors consists of eight directors, seven of whom were appointed pursuant to the Plan and one of whom was initially appointed to fill a newly created board seat in connection with the Paulson Subscription Agreement, and each of whom were subsequently duly elected by the stockholders of the Company at the 2013 annual meeting held on April 29, 2013. The current directors will hold office until the annual meeting of stockholders to be held in 2014 and until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal. On May 15, 2013, certain funds and accounts managed by Luxor Capital Group, LP, or the Luxor Investor, WLH Recovery Acquisition LLC, or the Paulson Investor, and Lyon Shareholder 2012, LLC, or the Lyon Investor, entered into a stockholders agreement pursuant to which the Luxor Investor, Paulson Investor and Lyon Investor agreed to vote their voting shares at any annual or special meeting of the Company’s stockholders to elect one (1) person proposed by the Paulson Investor, three (3) people proposed by the Luxor Investor, and two (2) people proposed by the Lyon Investor, to serve on our board of directors, in each case subject to certain sunset provisions based on then current ownership levels of such investors and subject to other terms and conditions as set forth in the agreement. We refer to such agreement herein as the “Stockholders Agreement,” and we are not party to the Stockholders Agreement. As of March 17, 2014, the Luxor Investor, Paulson Investor and Lyon Investor collectively control approximately 76% of the total voting power of the Company’s outstanding capital stock, assuming exercise in full of the outstanding warrant to purchase additional shares of Class B Common Stock held by the Lyon Investor, and the Stockholders Agreement applies to the election of up to five (5) seats on our board of directors, based on the ownership levels as of such date. Other than as provided for in the Plan, the Paulson Subscription Agreement or the Stockholders 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.

72
Table of Contents

Pursuant to our Third Amended and Restated Certificate of Incorporation, or the Certificate of Incorporation, and our Amended and Restated Bylaws, or the bylaws, the total number of directors constituting our board of directors shall be fixed exclusively by the board of directors. Until the date on which shares of our Class B Common Stock are no longer outstanding, or the Triggering Date, all directors will be elected, appointed and removed by all common stockholders voting as a single class, with each share of Class A Common Stock having one vote and each share of Class B Common Stock having five votes. Until the Triggering Date, each of the members of our board of directors will be elected at an annual meeting of the stockholders and hold office until the next annual meeting of the stockholders, and until his or her successor is duly elected and qualified, or until his or her earlier death, resignation, removal or disqualification.
The Certificate of Incorporation provides further that on the Triggering Date, our board of directors will be divided into three classes to be comprised of the directors in office, as determined by the directors in office, with each class serving for a staggered three-year term. From the Triggering Date, Class I directors will serve an initial one-year term expiring at the first annual meeting of stockholders following the Triggering Date. Class II directors will serve an initial two-year term expiring at the second annual meeting of stockholders following the Triggering Date. Class III directors will serve an initial three-year term expiring at the third annual meeting of stockholders following the Triggering Date. Upon the expiration of the initial term of each class of directors, the directors in that class will be eligible to be elected for a new three-year term. Our directors will hold office until their successors have been elected and qualified or until their earlier death, resignation, disqualification or removal. After our board of directors is classified as described in the foregoing, no director may be removed except for cause and only with the affirmative vote of at least 66 2/3% in voting power of all the then-outstanding shares of stock of the Company entitled to vote thereon, voting together as a single class.
Subject to the special rights of any series of preferred stock to elect directors, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and not by stockholders, and the directors so chosen will hold office until the next annual or special meeting of stockholders 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 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, (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 15 meetings during fiscal year 2013. During fiscal year 2013, 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. In February 2014, the board of directors adopted a policy that all directors attend the annual meeting of stockholders, either in person or telephonically, absent unusual circumstances, commencing with the 2014 annual stockholder meeting.
Committees of the Board of Directors
We currently have four standing committees: an audit committee, a compensation committee, a nominating and corporate governance committee and a corporate finance committee. The charters of all four of our standing board committees are available on our website, www.lyonhomes.com, under the Company-Governance section. The inclusion of our website address herein does not include or incorporate by reference the information on our website into this Annual Report on Form 10-K.

73
Table of Contents

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. Except for Mr. Ammerman, none of the Audit Committee members serves on the Audit Committee of more than three public companies. The board of directors has determined that Mr. Ammerman’s simultaneous service on the audit committee of more than three public companies does not impair his ability to effectively serve on the Audit Committee. The Audit Committee met six times in 2013.
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.
Audit Committee Report
Our Audit Committee issued the following report for inclusion in this Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
1. The Audit Committee has reviewed and discussed the audited consolidated financial statements for the year ended December 31, 2013 with management of William Lyon Homes and with William Lyon Homes’ independent registered public accounting firm, KPMG LLP.
2. The Audit Committee has discussed with KPMG LLP those matters required by Statement on Auditing Standards 16, “Communications with Audit Committees,” as adopted by the Public Company Accounting Oversight Board (the “PCAOB”).

74
Table of Contents

3. The Audit Committee has received and reviewed the written disclosures and the letter from KPMG LLP required by the PCAOB regarding KPMG LLP’s communications with the Audit Committee concerning the accountant’s independence, and has discussed with KPMG LLP its independence from William Lyon Homes and its management.
    4. Based on the review and discussions referenced to in paragraphs 1 through 3 above, the Audit Committee recommended to our Board of Directors that the audited consolidated financial statements for the year ended December 31, 2013 be included in the Annual Report on Form 10-K for that year for filing with the SEC.

THE AUDIT COMMITTEE
Douglas K Ammerman, Chairman
Matthew R. Niemann
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
Compensation Committee
The Company has a standing Compensation Committee, which is chaired by Matthew R. Niemann and consists of Messrs. Hunt, Ammerman and Niemann and Ms. Schell. Our board of directors has determined that each of these directors is independent under NYSE rules. The Compensation Committee met four times in 2013.
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.
In March 2012, the Compensation Committee retained Christenson Advisors, or Christenson, as its compensation consultant to advise the Compensation Committee with respect to various elements of the Company’s executive compensation pay structure for 2012 and into 2013. In November 2013, the Compensation Committee retained Mercer (US) Inc., or Mercer, as its independent compensation consultant to advise on executive and director compensation matters for the remainder of 2013 and into 2014. The Compensation Committee has reviewed the independence of Christenson’s and Mercer’s advisory role relative to the six consultant independence factors adopted by the SEC to guide listed companies in determining the independence of their compensation consultants, legal counsel and other advisers. Following its review, the Compensation Committee has determined that no conflict of interest arose from the work performed by Christenson or Mercer during the year ended December 31, 2013 or thereafter (in the case of Mercer).
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, 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 met three times in 2013.
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;

75
Table of Contents

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 the Certificate of Incorporation, our bylaws and charters of our committees; and
retain, in its sole discretion, its own separate advisors.
Corporate Finance Committee
The Company has a standing Corporate Finance Committee, which is co-chaired by Mr. Niemann and Ms. Schell, and consists of Messrs. Ammerman, Niemann and Redleaf (effective as of February 2014) and Ms. Schell, in order to consider and make recommendations to the board of directors regarding issues impacting the financial structure and strategic direction of the Company, including, but not limited to, stock and debt issuance and repurchase policies, stock splits and other proposed changes to the Company’s capital structure, mergers, acquisitions and divestiture activities, and strategic partnerships and investments. The charter of the Corporate Finance Committee provides that each member of the Corporate Finance Committee must be a non-employee director and must be independent, as defined under applicable law and stock exchange rules.
Pursuant to its charter, the primary responsibilities of our Corporate Finance Committee are, among other things, as follows:
serve as the designated subcommittee of the board of directors for the pricing of debt and equity offerings, including this offering, as directed by the board of directors;
review and make recommendations to the board of directors regarding changes in the Company’s capital structure, including, but not limited to (i) programs to issue or repurchase the Company’s stock, (ii) issues relating to the redemption and/or issuance of any preferred stock of the Company and (iii) stock splits;
review and make recommendations to the board of directors regarding significant stockholder transfers for which the approval of the board of directors is requested or required;
review and make recommendations on financing for mergers, acquisitions and other major financial transactions requiring the approval of the board of directors; and
evaluate any bona fide proposal from a party (other than the Company) that could reasonably be expected to result in a major acquisition, disposition, divestiture, sale, merger or similar major transaction of the Company for recommendation to the full board of directors.
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.

76
Table of Contents

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.
Compensation Committee Interlocks and Insider Participation
The individuals who served as members of the Compensation Committee during fiscal year 2013 are Douglas K. Ammerman, Michael Barr, Gary H. Hunt, Matthew R. Niemann and Lynn Carlson Schell. During their service on the Compensation Committee none of the members had any relationship requiring disclosure under Item 404 of Regulation S-K, and 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, 4695 MacArthur Court, 8th Floor, Newport Beach, California 92660, Attention: Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers, directors and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC and the NYSE. Executive officers, directors and greater than ten-percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
Based solely on our review of the copies of such forms furnished to us and the written representations from certain of the reporting persons that no other reports were required, we believe that during the fiscal year ended December 31, 2013, all

77
Table of Contents

executive officers, directors and greater than ten-percent beneficial owners complied with the reporting requirements of Section 16(a).
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, 4695 MacArthur Court, 8th Floor, Newport Beach, California 92660. The inclusion of our website address herein does not include or incorporate by reference the information on our website into this Annual Report on Form 10-K.

Item 11.Executive Compensation
Compensation Discussion and Analysis
Executive Summary
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, who for 2013 were:

General William Lyon, Chairman of the Board and Executive Chairman;
William H. Lyon, Director and Chief Executive Officer;
Matthew R. Zaist, President and Chief Operating Officer;
Colin T. Severn, Vice President and Chief Financial Officer;
Brian W. Doyle, Senior Vice President and California Region President; and
Richard S. Robinson, Senior Vice President of Finance and Acquisition

As previously disclosed, effective March 6, 2013: the Company’s Board of Directors, or the board, approved (i) a newly established role of Executive Chairman for General William Lyon, (ii) the appointment of William H. Lyon, the Company’s then President and Chief Operating Officer, to the role of Chief Executive Officer and (iii) the appointment of Matthew R. Zaist, the Company’s then Executive Vice President, to the role of President and Chief Operating Officer.

Selected 2013 Business Highlights and Pay for Performance

Our executive compensation programs emphasize pay-for-performance and alignment of executive pay with stockholder interests. As illustrated by the financial and operating results below, 2013 represented a hallmark year for the Company (all results are with comparison to full year 2012).

Initial Public Offering. The Company successfully completed its $250 million initial public offering in May 2013, generating net proceeds to the Company of $163.7 million. In connection with its IPO, the Company effected a “Common Stock Recapitalization” which consisted of the conversion of all of our previously outstanding shares of Class D Common Stock, including shares underlying outstanding equity awards, into shares of Class A Common Stock on a one-for-one basis, and a 1-for-8.25 reverse stock split. All share amounts and class references presented in this “Executive Compensation” section give effect to the Common Stock Recapitalization, and thus are on a post-split and post-conversion basis.

Strong Financial Performance. Our strong performance in 2013 resulted in Adjusted EBITDA of $88.9 million, an increase of 184% over the prior year, and net income available to common stockholders of $127.6 million, or $4.95 per diluted share. Excluding the $95.6 million deferred tax asset valuation allowance reversal which occurred during the fourth quarter of 2013, net income was $32.0 million and diluted earnings per share was $1.24.

Other key indicators of our successful 2013 fiscal year included, among other things:


78
Table of Contents

◦Operating income of $55.9 million, up more than 28 times
◦Consolidated operating revenue of $572.5 million, up 44%
◦Home sales revenue of $521.3 million, up 100%
◦Homebuilding gross margin of $115.8 million, up 166%
◦New home deliveries of 1,360 homes, up 43%

In addition to the strong financial and operational performance we achieved in 2013, during the year we strengthened our balance sheet and enhanced our financial flexibility with several successful capital markets transactions including our May IPO and a $100 million tack-on bond offering in October, collectively generating $263.7 million of net proceeds for the Company which we used for general corporate purposes, including substantial investment in land and land development, enabling us to lay the foundation for our growth plans.

Pay for Performance. In 2013, we adopted incentive compensation programs with clearly defined performance objectives, reflecting our commitment to a pay for performance philosophy. Based on the strong financial performance noted above, we exceeded our maximum goals for 2013 Adjusted EBITDA and return on equity, or ROE, the two pre-established financial measures under our annual cash incentive award program and equity incentive award program, respectively, which contributed to achievement of Adjusted EBITDA at 148% of target for purposes of the annual cash incentive award program and achievement of ROE at 178% of target (707% of target if you include the $95.6 million deferred tax asset valuation allowance reversal) for purposes of the equity incentive award program, resulting in the payment of cash bonus amounts at 150% of target levels and shares earned under the equity incentive program at 150% of target shares.
Other Compensation and Governance Highlights
•We maintain robust stock ownership guidelines, requiring our named executive officers to hold 100% of their shares until they attain certain pre-established multiples of base salary which are 4x (for our CEO and COO) and 2x (for all other NEOs) base salary.
•All of our employees and board members are prohibited from engaging in short sales, purchasing or pledging shares on margin (other than for “cashless exercise” of stock options) and, absent highly unusual circumstances, are prohibited from entering into any hedging or similar transactions with respect to securities.
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, and to align executive pay with the interests of the Company's stockholders. 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. In 2012 and early 2013, 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.

79
Table of Contents

During the first quarter of 2013, 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 generally 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 2013, 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 inform the Compensation Committee’s decisions regarding compensation levels for the Company’s executive officers for 2013. 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 2013 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 2013 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 was advised by Christenson Advisors that 2013 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.
In November 2013, the Compensation Committee retained Mercer (US) Inc. as its independent compensation consultant to advise on executive and director compensation matters for 2014.
Elements of Compensation for 2013
Base Salary
The Company’s Compensation Committee generally reviews the base salary of the Company’s NEOs annually. For 2013, with respect to all NEOs other than General Lyon, for whom salary was the principal component of compensation, the Company does not regard salary as the principal component of compensation, and also uses short-term annual incentive bonuses and long-term equity incentives to reward performance and loyalty while keeping SG&A costs competitive.
Effective March 11, 2013, the base salaries of Messrs. William H. Lyon, Severn, Zaist, Doyle and Robinson were increased as reflected below, based in part on the Compensation Committee’s desire to benchmark 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 in early 2013, as well as the Compensation Committee’s determination that such increases were warranted based on the Company’s and the executives’ performances during 2012, and to reflect the change in roles for Messrs. William H. Lyon and Zaist. The table below shows each NEO’s annual base salary for each of the 2012 and 2013 fiscal years.
NameFY 2012 Base Salary ($)FY 2013 Base Salary ($)
General William Lyon1,000,000
1,000,000
William H. Lyon500,000
600,000
Matthew R. Zaist350,000
500,000
Colin T. Severn200,000
250,000
Brian W. Doyle275,000
300,000
Richard S. Robinson200,000
225,000
2013 Annual Bonuses
For fiscal year 2013, General William Lyon was eligible to earn a cash bonus of up to 100% of his base salary, to be determined based upon the recommendation of the Compensation Committee, in its discretion.
Pursuant to the annual incentive cash bonus program for 2013 adopted by the board, certain of the NEOs were eligible to earn a cash bonus up to 150% of his target bonus opportunity based on the Company’s achievement of a pre-established

80
Table of Contents

consolidated EBITDA target (in the case of Messrs. William H. Lyon, Zaist, Severn and Robinson) and, in the case of Mr. Doyle, a blend of consolidated EBITDA (weighted 30%) and regional EBITDA (weighted 70%), in each case with such adjustments as may be approved by the Compensation Committee, including positive and negative discretion, as applicable. Bonus payouts as a percentage of target cash bonus opportunity for NEOs are set forth below:

 ThresholdTargetMaximum
Percent of EBITDA Target Achieved75%100%125%
Bonus Payout (as a % of Target Bonus Opportunity50%100%150%
Achievement of performance criteria in between the threshold, target and maximum levels above would result in payouts calculated on a linear, 2:1 increase or decrease (e.g., if 87.5% of the target is achieved, the NEO’s payout will be 75% of his target bonus opportunity, or if 110% of the target is achieved, the NEO’s payout will be 120% of his target bonus opportunity). Target bonus opportunities were 100% of base salary for each of Messrs. William H. Lyon, Zaist and Doyle, 70% of base salary for Mr. Severn and 67% of base salary for Mr. Robinson.
As permitted under the terms of the 2013 annual incentive cash bonus program, consolidated EBITDA, meaning net income (loss) attributable to the Company, was adjusted for benefit from income taxes, interest expense (incurred and capitalized), amortization of capitalized interest included in cost of sales, stock based compensation, loss on sale of fixed asset and depreciation and amortization. The 2013 consolidated Adjusted EBITDA target was set at a level that was 192% greater than actual results of such metric for the 2012 fiscal year. On a regional level, the target for California was set at a level that was also significantly higher than what was actually achieved in 2012.
The table below shows the Adjusted EBITDA goal established and our actual performance for 2013:

Target Adjusted EBITDAActual Adjusted EBITDAPercent of Target
$60.1 million$88.9 million148%
Based on the achievement of Company and regional levels of Adjusted EBITDA performance at above 125% of target levels, and the Compensation Committee’s determination not to exercise negative discretion to reduce any individual performance award, the Compensation Committee approved payouts under the 2013 annual incentive cash bonus program at 150% of target bonus for all eligible NEOs, including Messrs. William H. Lyon, Zaist, Severn, Doyle and Robinson. The Compensation Committee determined to award a 2013 cash bonus to General Lyon at the maximum amount of $1,000,000 based on the Company’s performance during the 2013 fiscal year in comparison to its business plan, the experience and tenure of General Lyon, General Lyon’s key contacts and relationships in the industry enhancing business growth and opportunities for the Company, General Lyon’s continuing mentorship role for key Company executives, General Lyon’s employment agreement, and General Lyon’s responsibilities, contributions and overall compensation. Set forth below are the 2013 cash bonus payouts for each NEO:
Name2013 Cash Bonus ($)
General William Lyon1,000,000
William H. Lyon900,000
Matthew R. Zaist750,000
Colin T. Severn262,500
Brian W. Doyle450,000
Richard S. Robinson225,000
One-Time Prop 30 Cash Awards
On February 27, 2013, the Compensation Committee determined to award to certain Company executives who reside in California, including Messrs. Zaist, Severn, Doyle and Robinson, an additional cash payments intended to offset the impact of higher income tax rates retroactively imposed on such executives as a result of the passage of the State of California’s Proposition 30 in November 2012, or Prop 30. In connection with certain restricted stock awards granted to these executives in October 2012, the executives took action anticipating the tax impact at the time, but Prop 30 had the effect of imposing additional taxes subsequent to such action and taxable events. The additional payments were one-time in nature and meant to

81
Table of Contents

cover such additional taxes owed by the executive due to Prop 30. The aggregate amount of these cash awards were as follows: Mr. Zaist ($61,971); Mr. Severn ($6,865); Mr. Doyle ($19,151); and Mr. Robinson ($5,148).
Long-Term Equity-Based Compensation
On February 27, 2013, the board of directors adopted the 2013 long-term equity incentive program, or the 2013 LTIP. Under the 2013 LTIP, an aggregate of 173,793 shares of performance-based restricted shares of the Company’s Class A Common Stock (giving effect to the Common Stock Recapitalization) were awarded to Messrs. William H. Lyon, Zaist, Severn, Doyle and Robinson with a grant date of March 1, 2013, representing the maximum number of shares of performance-based restricted stock that may be earned under the 2013 LTIP, subject to forfeiture based on service and performance conditions. The number of shares reflected below represents the target number of shares that may be earned, or Target Shares, based on the Company’s achievement of a pre-established ROE performance target as of the end of the 2013 fiscal year, with such adjustments as may be approved by the Compensation Committee. ROE is calculated as the percentage equivalent of the fraction resulting from dividing the Company’s net income available to common stockholders during the 2013 performance period by the Company’s total stockholders’ equity, including redeemable preferred convertible stock, at December 12, 2012, each calculated in accordance with generally accepted accounting principles.
One-third of the earned shares will vest on each of the first, second and third anniversaries of the grant date, subject to each officer’s continued service through each such vesting date. The performance-based restricted stock opportunities for certain of our NEOs are set forth below:

 ThresholdTargetMaximum
Percent of ROE Target Achieved for 2013 Fiscal Year75%100%125%
Target Shares Earned50%100%150%
Achievement of the ROE target in between the threshold, target and maximum levels above would result in Target Shares earned calculated on a linear, 2:1 increase or decrease (e.g., if 87.5% of the target is achieved, the NEO’s payout will be 75% of his Target Shares, or if 110% of the target is achieved, the NEO’s payout will be 120% of his Target Shares).

NameTarget Shares of Performance-Based Restricted Stock (giving effect to the Common Stock Recapitalization)
William H. Lyon42,781
Matthew R. Zaist35,651
Colin Severn8,913
Brian Doyle21,391
Richard S. Robinson7,131
Target ROE for 2013 was 13.49%. In February 2014, the Compensation Committee determined that the Company achieved ROE of 23.9%, or 178% of target (707% of target if you include the $95.6 million deferred tax asset valuation allowance reversal), resulting in each NEO listed above earning 150% of his Target Shares.
In addition, in November 2013, the Compensation Committee approved an amendment to the existing five-year stock options granted to certain executives, including certain NEOs, in October 2012, to extend the mandatory exercise period of such options. The existing award agreements for the five-year options had been subject to mandatory exercise upon the earlier of the expiration of the lock-up period following an initial public offering of the Company or the expiration of the five-year term, provided, that if the initial public offering occurred prior to the applicable vesting date of the options, such options would be exercised upon the applicable vesting date. The amendment to the five-year option agreements modified the awards such that the mandatory exercise period was extended to the first open trading window under the Company’s Insider Trading Policy, which had been adopted in connection with the Company’s May 2013 IPO, during the first quarter of 2014, and for the subsequent fiscal year for any unvested tranches as of such date, such that any mandatory exercise of the five-year options would occur only during an open trading window.
Perquisites and Other Personal Benefits
Company provides certain of our management team and more senior executives, including our NEOs, with certain perquisites and other personal benefits that the Company believes are reasonable and consistent with the overall compensation program to better enable the Company to attract and retain employees for key positions. These perquisites include an annual automobile allowance of $4,800 ($400 per month), payable in accordance with the Company’s regular payroll schedule, and reimbursement for gasoline for use of one personal vehicle. Our NEOs are also eligible to participate in an executive supplemental health insurance plan.

82
Table of Contents

In addition, 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 2013, the prescribed annual limit was $17,500, 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. For 2013, the Company approved payment of matching contributions to each eligible participant’s plan account in an amount equal to 50% of each participant’s deferrals for 2013, up to a maximum of 3% of the participant’s eligible compensation during 2013.
Stock Ownership, Holding and Anti-Pledging Policies
On February 27, 2013, the Company’s board of directors adopted the stock ownership threshold levels set forth in the table below:

PositionMinimum Level of Stock Value Required to be Held
Chief Executive Officer and Chief Operating Officer4x Base Salary
Other NEOs2x Base Salary
Under the terms of the Company’s stock ownership guidelines, executive officers must hold 100% of all shares received from the vesting, delivery or exercise of equity awards granted under the Company’s equity award plans (net of shares used to pay the exercise price of options or purchase price of other awards, all applicable withholding taxes and all applicable transaction costs) until the executive officer’s qualifying holdings meet or exceed the applicable salary multiple. In addition, absent a waiver by the Company or undue hardship, executive officers may not dispose of share holdings (by sale or otherwise) if the disposition would result in qualifying holdings falling below the applicable salary multiple. “Qualifying holdings” generally refer to shares of Class A Common Stock (i) held by the executive officer or certain trusts or entities controlled by the executive officer, (ii) held by a 401(k) or other qualified pension or profit-sharing plan for the executive officer’s benefit and (iii) underlying vested restricted stock units. All of our NEOs are in compliance with the stock ownership guidelines.
In addition, the Company has also implemented a prohibition applicable to all of our directors and employees, including our executive officers, from engaging in short sales, purchasing or pledging shares on margin (other than for “cashless exercise” of stock options) and, absent highly unusual circumstances, all such employees and directors are prohibited from entering into any hedging or similar transactions with respect to securities. 

Delegation of Authority to Grant Equity Awards
In February 2013, the Compensation Committee established a subcommittee comprised of our Chief Executive Officer in his capacity as a member of the board, as sole member, with limited authority to grant a certain number of restricted stock awards to employees of the Company who are not participants in the 2013 LTIP, and subject to certain other limitations and conditions. In accordance with this delegated authority, for fiscal year 2013, the subcommittee granted a total of 35,286 shares of restricted stock.
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. On the same date, 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 base salaries of $1 million and $500,000 per year, respectively. Effective as of March 11, 2013, the board of directors increased Mr. William H. Lyon’s annual base salary to $600,000 per year.

83
Table of Contents

Under these employment agreements, commencing with fiscal year 2013, bonuses will be payable under the Company’s bonus program for senior executives, in the sole discretion of the Company’s Compensation Committee. The payment of a portion of the bonuses may be deferred as provided in the terms of the bonus program.
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, Brian Doyle and Richard Robinson
On October 10, 2012, our board approved, effective as of September 1, 2012, an employment agreement between California Lyon and Mr. Zaist and employment agreements between California Lyon and each of Messrs. Severn, Doyle and Robinson, or the 2012 Employment Agreements. For Mr. Zaist, the 2012 Employment Agreement was amended effective as of March 6, 2013 to reflect his change in position to President and Chief Operating Officer, base salary increase and that his annual cash bonus target would be no less than 100% of his annual base salary (as compared to no less than 125% of base salary as provided in the 2012 Employment Agreement). For Messrs. Severn, Doyle and Robinson, the 2012 Employment Agreement was replaced and superseded by a new form of employment agreement effective as of April 1, 2013, which reflected increases to base salary, as applicable, replaced certain incentive award provisions with references to the Compensation Committee’s establishment of any such programs, and certain other nonmaterial changes. The new agreements, or amended agreements, as applicable, for each of Messrs. Zaist, Severn, Doyle and Robinson are individually referred to as an “Employment Agreement” and collectively referred to as the “Employment Agreements.”
The term of Mr. Zaist’s Employment Agreement will expire on August 31, 2015, subject to earlier termination as provided in the agreement. The term of the Employment Agreements for each of Messrs. Severn, Doyle and Robinson are for an initial period expiring March 31, 2014, with automatic one-year renewal periods annually thereafter unless either party provides the other with written notice of nonrenewal at least 60 days prior to the expiration of the term.
Under the Employment Agreements, Messrs. Zaist, Severn, Doyle and Robinson are entitled to annual base salaries of $500,000, $250,000, $300,000 and $225,000, 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, Doyle and Robinson each had the right to earn a cash bonus during the 2013 fiscal year with a target amount equal to 100%, 70%, 100% and 67% of base salary, respectively, payable in part in 2014 and 2015, as provided for in the employment agreements and the terms of the 2013 annual cash incentive program. Future target bonus levels will be established by the Compensation Committee in its sole discretion and, in the case of Mr. Zaist, will not be less than 100% of Mr. Zaist’s annual base salary.
In the event of a termination of the executive’s employment due to death or disability, by the Company 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 Employment Agreements, in the event of the termination of the executive’s employment by the Company without “cause,” as defined in the employment agreements, or the termination by the executive of his employment for “good

84
Table of Contents

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, Doyle and Robinson, 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 Messrs. Zaist and Robinson, 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 under the 2012 Plan; (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 the Company, 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 the Company 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 the Company (including a material reduction in authority, duties or base salary), (ii) a relocation of the executive’s or the Company’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 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 was not subject to Section 162(m) of the Code in 2013, it was not a factor in the Company’s 2013 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 of the Code.
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

85
Table of Contents

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, 2013 and the Proxy Statement for the 2014 annual meeting of stockholders.
THE COMPENSATION COMMITTEE
Matthew R. Niemann, Chairman
Douglas K. Ammerman
Gary H. Hunt
Lynn Carlson SchellPART IV
Item 15.Exhibits and Financial Statement Schedules

Summary Compensation Table(a)(1) Financial Statements
The following table sets forth certain information with respect to compensation forfinancial statements of the 2013, 2012 and 2011 fiscal years earned by, awarded to or paid toCompany are included in a separate section of this Annual Report on Form 10-K commencing on the NEOs.page numbers specified below:
 
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 2013 1,000,000
 1,000,000
 —
 —
 —
 —
 27,902
(7)2,027,902
Chairman of the Board 2012 1,000,000
  500,000
 —
 —
 —
 —
 —
  1,500,000
and Executive Chairman 2011 1,000,000
  —
 —
 —
 —
 —
 —
  1,000,000
William H. Lyon 2013 576,923
(5)—
 600,000
 —
 900,000
 —
 29,726
(7)2,106,649
Director and Chief Executive Officer 2012 453,847
 250,000
 —
 —
 —
 —
 —
  703,847
  2011 490,385
  —
 —
 —
 —
 —
 —
  490,385
Matthew R. Zaist 2013 465,384
(5)38,682
(6)500,000
 101
 750,000
 —
 38,724
(7)1,792,891
President and Chief Operating Officer 2012 350,000
  437,500
 1,260,000
 1,192,966
 —
 —
 —
  3,240,466
 2011 330,769
  —
 —
 —
 324,620
 —
 —
  655,389
Colin T. Severn 2013 238,461
(5)4,347
(6)125,000
 15
 262,500
 —
 24,304
(7)654,627
Vice President and Chief 2012 200,000
  120,000
 210,000
 196,014
 —
 —
 —
  726,014
Financial Officer (Principal Financial Officer) 2011 200,000
  —
 —
 —
 165,497
 —
 —
  365,497
Brian W. Doyle 2013 294,231
(5)11,954
(6)300,000
 42
 450,000
 —
 26,798
(7)1,083,025
Senior Vice President 2012 275,000
  206,250
 577,500
 537,971
 —
 —
 11,767
(4)1,608,488
and California Region President 2011 267,308
  —
 —
 —
 318,743
 —
 —
  586,051
Richard S. Robinson 2013 219,230
(5)3,260
(6)100,000
 11
 225,000
 —
 20,372
(7)567,862
Senior Vice President                  
Finance and Acquisition                  
(1)The amounts shown represent base salaries paid to each named executive officer during 2013. EffectivePage
Financial Statements as of March 11,December 31, 2014 and 2013 (Successor), and for the base salaries for Messrs. Severn, William H. Lyon, Zaistyears ended December 31, 2014 and Doyle were increased as described above in “-Compensation Discussion2013 (Successor), the period from February 25, 2012 through December 31, 2012 (Successor), and Analysis-Elementsthe period from January 1, 2012 through February 24, 2012 (Predecessor).
Report of Compensation-Base Salary” and “-Employment Agreements and Severance Benefits.”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



(2)
Exhibit
Number
For 2013, represents the grant date fair valueDescription
2.1
Purchase and Sale Agreement, dated as of performance-based restricted stock awards subjectJune 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 achievementCompany's Current Report on Form 8-K filed on June 23, 2014).
3.1
Third Amended and Restated Certificate of pre-established ROE targets for 2013. The grant date fair valueIncorporation of these awards is basedWilliam Lyon Homes (incorporated by reference to William Lyon Homes’s Current Report on Form 8-K filed with the fair market valueCommission on May 28, 2013).
3.2
Amended and Restated Bylaws of our Class A Common StockWilliam Lyon Homes (incorporated by reference to William Lyon Homes’s Current Report on Form 8-K filed with the dateCommission on May 28, 2013).
4.1
Indenture (including form of grant, which was determined8.5% 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 Company’s board of directorsCommission on November 8, 2012).
4.2
Officers' certificate, dated October 24, 2013, delivered pursuant to be $14.03 (on a post-split basisthe Indenture, and post-conversion basis), multiplied bysetting forth the target number of shares granted. One-thirdterms of the earned shares vest on eachnotes (incorporated by reference to Exhibit 4.1 of the first, second and third anniversaries of the grant date, subject to each officer’s continued service through each such vesting date. The fair value of these performance-based restricted stock awards assuming achievement of the ROE goals at the maximum level is as follows:Company's Current Report on Form 8-K filed on October 25, 2013).


8669
Table of Contents

Fair Value Performance-Based Stock Awards Assuming Maximum Performance ($)
General William Lyon0
William H. Lyon$900,000
Matthew R. Zaist$750,000
Colin T. Severn$187,500
Brian W. Doyle$450,000
Richard S. Robinson$150,000

(3)
Exhibit
Number
In November 2013,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 Compensation Committee extendedCompany'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 mandatory exercise periodsguarantors from time to time party thereto and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 of the five-year stock options granted in October 2012. Amounts in the table for 2013 reflect the incremental fair value resulting from this modification. For additional information see “-Compensation Discussion and Analysis-Elements of Compensation-Long-Term Equity-Based Compensation.”
Company's Form 8-K filed August 13, 2014).
(4)
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 amounts shownPresley Companies Non-Qualified Retirement Plan for 2013 represent performance-based cash incentive payments pursuantOutside Directors (incorporated by reference to William Lyon Homes’s Annual Report on Form 10-K for the Company’s 2013 incentive program. Payments of annual cash incentive awards were conditioned on the Company’s achievement of pre-established consolidated and regional level Adjusted EBITDA targets, as applicable. Based on the Company’s achievement of the Adjusted EBITDA targets at above the maximum level, each named executive officer received a cash incentive award equal to 150% of their target opportunity for 2013.
year-ended December 31, 2002).
(5)Effective March 11, 2013, the annual base salaries of Messrs. William H. Lyon, Zaist, Severn, Doyle and Robinson were increased to $600,000 from $450,000, to $500,000 from $350,000, to $250,000 from $200,000, to $300,000 from $275,000, and to $225,000 from $200,000, respectively. The amounts shown reflect the amount of salary actually paid in 2013.
(6)10.3Reflects one-time cash awards intended
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 offsetWilliam Lyon Homes’s Current Report on Form 8-K filed with the impact of higher income tax rates retroactively imposedCommission on such executives as a result of the passage of Prop 30. Additionally, the Company provided a gross-up payment to reimburse the executives for the additional taxable income resulting from these awards, which amounts are included in the All Other Compensation column and disclosed in footnote 7 below.
September 10, 2009).
(7)Reflects
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 following personal benefits and 401(k) Company matching contributions:Commission on September 10, 2009).
 Automobile AllowanceGasoline Reimbursement on Personal VehicleExec-U-Care Health Care Reimbursement ProgramTax Gross up of Prop. 30 Bonus PaymentCompany 401(k) Matching Contributions
General William Lyon$4,800$0$23,102$0$0
William H. Lyon$4,800$1,063$16,213$0$7,650
Matthew R. Zaist$4,800$2,985$0$23,289$7,650
Colin T. Severn$4,800$3,831$7,706$2,518$5,449
Brian W. Doyle$4,800$6,751$400$7,197$7,650
Rick Robinson$4,800$2,640$3,394$1,888$7,650


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, 2013. In connection with our initial public offering in May 2013, we effected a 1-for-8.25 reverse stock split with respect to each share of our Class A Common Stock and Class B Common Stock, and all of our previously outstanding shares of Class D Common Stock, including shares underlying outstanding equity awards, Class C Common Stock and Convertible Preferred Stock were converted into shares of Class A Common Stock on a one-for-one basis and as automatically adjusted for the reverse stock split. We refer to such reverse stock split and share conversion herein as the Common Stock Recapitalization, and all share amounts and class references herein, including the table below, give effect to the Common Stock Recapitalization, and thus are on a post-split and post-conversion basis.

8770
Table of Contents

  Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1)Estimated Future Payouts Under Equity Incentive Plan Awards (2)All other option awards: Number of securities underlying options (#)
Exercise or base
price of option
awards ($/Sh)

Grant date fair
value of stock
and option
awards ($)
NameGrant DateThresholdTargetMaximumThresholdTargetMaximum
General William Lyon—
—
—
—
—
—
—
  —
           
William H. Lyon—
300,000
600,000
900,000
      
 3/1/2013
   21,391
42,781
64,172
  $600,000(5)
Matthew R. Zaist—
250,000
500,000
750,000
      
 3/1/2013
   17,826
35,651
53,476
  $500,000(5)
 11/5/2013
      59,317(3)8.6625(4)    $101(6)
           
Colin T. Severn—
87,500
175,000
262,500
      
 3/1/2013
   4,457
8,913
13,369
  $125,000(5)
 11/5/2013
      8,893(3)8.6625(4)    $15(6)
           
Brian W. Doyle—
150,000
300,000
450,000
      
 3/1/2013
   10,696
21,391
32,086
  $300,000(5)
 11/5/2013
      24,454(3)8.6625(4)    $42(6)
           
Richard S. Robinson—
75,000
150,000
225,000
      
 3/1/2013
   3,565
7,131
10,696
  $100,000(5)
 11/5/2013
      6,670(3)8.6625(4)$11(6)
(1)Represents threshold, target and maximum payouts under the 2013 annual cash incentive program. The NEOs were eligible to earn cash bonuses for 2013 based on the Company’s achievement of a pre-established consolidated EBITDA targets (in the case of Messrs. William H. Lyon, Zaist, Severn and Robinson) and a blend of consolidated EBITDA and regional EBITDA (in the case of Mr. Doyle), in each case with such adjustments as approved by the Compensation Committee, including positive and negative discretion, as applicable. Threshold amounts were set at 50% of each NEO’s target bonus opportunity and maximum amounts were set at 150% of each NEO’s target bonus opportunity. For a description of the 2013 annual incentive program, see “-Compensation Discussion and Analysis-Elements of Compensation-2013 Annual Bonuses.”

(2)Represents threshold, target and maximum shares that could be earned under the 2013 LTIP based on the Company’s achievement of pre-established ROE performance targets for fiscal 2013. One-third of the earned shares vest on each of the first, second and third anniversaries of the grant date, subject to each officer’s continued service through each such vesting date.

(3)Reflects the five-year options that were granted on October 1, 2012 and modified on November 5, 2013 to extend their mandatory exercise period. For additional information see “-Compensation Discussion and Analysis-Elements of Compensation-Long-Term Equity-Based Compensation.”

(4)The Company’s board of directors determined the fair market value of the Class A Common Stock on the date of grant to be $8.6625 (giving effect to the Common Stock Recapitalization).

(5)The value of the restricted stock awards shown represents the grant date fair value as prescribed under FASB ASC Topic 718, based on the fair market value of the Class A Common Stock on the date of grant, which was determined by the Company’s board of directors to be $14.025 (giving effect to the Common Stock Recapitalization) multiplied by the target number of shares granted.

(6)Amounts represent the incremental fair value attributed to the extension of the exercise period of the options.

Outstanding Equity Awards at Fiscal Year-End

88
Table of Contents

The following table sets forth summary information regarding the outstanding equity awards held by our NEOs, as applicable, at December 31, 2013. Amounts shown in the table below give effect to the Common Stock Recapitalization.

 Option AwardsStock 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)
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Rights That
Have Not
Vested
(#)(1)
Equity Incentive
Plan Awards:
Market or Payout
Value of
Unearned Shares,
Units or Rights
That Have Not
Vested
($)(2)
William H. Lyon—
—
—
—
—
—
64,172
1,420,768
Matthew R. Zaist49,434
9,883
8.66
9/30/201714,351
317,731
53,476
1,183,959
 141,425
28,272
8.66
9/30/2022—
—
—
—
Colin T. Severn7,411
1,482
8.66
9/30/20172,557
56,612
13,369
295,990
 23,636
4,726
8.66
9/30/2022—
—
—
—
Brian W. Doyle20,379
4,075
8.66
9/30/20177,033
155,711
32,086
710,384
 64,854
12,965
8.66
9/30/2022—
—
—
—
Richard S. Robinson5,558
1,112
8.66
9/30/20171,918
42,465
10,696
236,809
 17,678
3,535
8.66
9/30/2022—
—
—
—
(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.
(2)
Represents the closing stock price of the Company’s Class A Common Stock on the New York Stock Exchange on December 31, 2013, of $22.14 per share, multiplied by the number of shares, or unearned shares, as applicable, that have not vested.
The following table provides the vesting schedule with respect to each of the awards set forth in the table above.

89
Table of Contents

NameExhibit
Number
Grant Date
Award Type
Vesting Schedule
William H. Lyon03/01/2013Performance-Based Restricted StockIn February 2014, the Compensation Committee determined that 64,172 shares were earned. 21,391 shares vest on each of 3/1/2014 and 3/1/2015 and 21,390 shares vest 3/1/2016
Matthew R. Zaist10/01/2012Restricted Stock14,351 shares vest on 12/31/2014Description
 03/01/2013Performance-Based Restricted Stock
10.5In February 2014,
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 Compensation Committee determined that 53,476 shares were earned. 17,826 shares vestCommission on 3/1/2014 and 17,825 shares vest on each of 3/1/2015 and 3/1/2016September 10, 2009).
 10/01/20125-year Options9,883 options vest on 12/31/2014
10.610/01/2012
10-year Options28,272 options vest on 12/31/2014
Colin T. Severn10/01/2012Restricted Stock2,557 shares vest on 12/31/2014
 03/01/2013Performance-Based Restricted StockIn February 2014, the Compensation Committee determined that 13,369 shares were earned. 4,457 shares vest on 3/1/2014 and 4,456 shares vest on each of 3/1/2015 and 3/1/2016
10/01/20125-year Options1,482 options vest on 12/31/2014
10/01/201210-year Options4,726 options vest on 12/31/2014
Brian W. Doyle10/01/2012Restricted Stock7,036 shares vest on 12/31/14
03/01/2013Performance-Based Restricted StockIn February 2014, the Compensation Committee determined that 32,086 shares were earned. 10,696 shares vest on 03/01/2014 and 10,695 shares vest on each of 03/01/2015 and 03/01/2016
10/01/20125-year Options4,075 options vest on 12/31/2014
10/01/201210-year Options12,965 options vest on 12/31/2014
Richard S. Robinson10/01/2012Restricted Stock1,918 shares vest on 12/31/2014
03/01/2013Performance-Based Restricted StockIn February 2014, the Compensation Committee determined that 10,696 shares were earned. 3,566 shares vest on 3/1/2014 and 3,565 shares vest on each of 3/1/2015 and 3/1/2016
10/01/20125-year Options1,112 options vest on 12/31/2014
10/01/201210-year Options3,535 options vest on 12/31/2014

Options Exercised and Stock Vested
The following table summarizes the option exercises and vesting of restricted stock awards for our NEOs, as applicable, for the year ended December 31, 2013. 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)
Matthew R. Zaist —
 —
 14,359 (2)
 317,908
Colin T. Severn     2,559
 56,656
Brian W. Doyle     7,037
 155,799
Richard S. Robinson —
 —
 1,919
 42,487
(1)Represents the closing stock price of the Company’s Class A Common Stock on the New York Stock Exchange on December 31, 2013, of $22.14 per share, multiplied by the number of shares that vested on such date.

90
Table of Contents

(2)    Represents securities held by a limited liability company of which the reporting person and his spouse are the managers, and in which the reporting person’s trust holds a controlling interest

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, 2013.
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, 2013.
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. 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, 2013, the last business day of fiscal year 2013, 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.

91
Table of Contents

Name, Type of Termination
 
Cash
Severance
($)(1) 
 
Unpaid
Bonuses
($)(2) 
 
Equity
Acceleration
($)(3) 
 
Benefits
Continuation
($)(4) 
 
Total
($) 
 
General William Lyon     
Qualifying Termination (no CIC)  2,000,000125,000-  17,7932,142,793
Qualifying Termination + CIC2,000,000125,000-  17,7932,142,793
Death or Disability1,000,000125,000-  17,7931,032,793
      
William H. Lyon     
Qualifying Termination (no CIC)1,500,00062,500947,17125,7172,535,388
Qualifying Termination + CIC1,500,00062,500947,17125,7172,535,388
Death or Disability600,00062,500 -  25,717688,217
      
Matthew R. Zaist     
Qualifying Termination (no CIC)1,500,000109,3752,015,92417,7933,643,092
Qualifying Termination + CIC1,500,000109,3752,015,92417,7933,643,092
Death or Disability- 109,375 -  -  109,375
      
Colin T. Severn     
Qualifying Termination (no CIC)425,00030,000-  12,858467,858
Qualifying Termination + CIC425,00030,000 436,27012,858904,128
Death or Disability- 30,000 -  -  30,000
      
Brian W. Doyle     
Qualifying Termination (no CIC)600,00051,563-  12,858664,421
Qualifying Termination + CIC600,00051,5631,185,75212,8581,850,173
Death or Disability- 51,563 -  -  51,563 
      
Richard S. Robinson     
Qualifying Termination (no CIC)375,00025,000-  4,270404,270
Qualifying Termination + CIC375,00025,000341,9044,270746,174
Death or Disability- 25,000  -  -  25,000
(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 eighteen months, plus the bonus earned in 2013; for Mr. Zaist, 1.5 times the sum of his annual salary plus target cash bonus for 2013; for each of Messrs. Severn, Doyle and Robinson, the sum of his annual salary plus target cash bonus for 2013. (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, Doyle and Robinson, severance amounts are calculated based on target cash bonus.) 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 twelve 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, based onthe closing stock price of the Company’s Class A Common Stock on the New York Stock Exchange on December 31, 2013, of $22.14 per share. Upon a termination of Mr. William H. Lyon’s employment by the Company without cause or by him for good reason, whether or not following a change of control of the Company, he is entitled to accelerated vesting in full of all outstanding shares of restricted stock, with such shares to be the target number of shares if such termination occurs prior to the Compensation Committee’s determination of the Company’s achievement of its performance target for the period. Upon a termination of Mr. Zaist’s or Mr. Robinson’s employment by the Company without cause or by him for good reason, whether or not following a change in control of the Company, he is entitled to accelerated vesting in full of all outstanding restricted stock and stock option awards granted. 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

92
Table of Contents

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.
(4)Represents the value of the continuation of health benefits for the following number of months: twelve months for Messrs. Lyon, Lyon and Zaist, and six months for Messrs. Severn, Doyle and Robinson.

Director Compensation
Director Compensation Program. Our Executive Chairman and our Chief Executive Officer do not receive additional compensation for their service as directors. The Compensation Committee is responsible for the periodic review of fees and benefits paid to non-employee directors and for submitting any recommended changes to the board of directors. Our non-employee directors receive an annual cash retainer, payable in equal quarterly installments, as well as an equity award retainer, consisting of restricted shares of our Class A Common Stock vesting in equal quarterly installments following the grant date. The equity portion of the annual retainer for Messrs. Barr and Redleaf is paid in cash. The amount of the annual cash retainer for 2013 was $50,000 per year, and the amount of the annual cash retainer approved for 2014 is $50,000 per year. The grant date fair value of the annual equity retainer for 2013 was $75,000, and the grant date fair value of the annual equity retainer approved for 2014 is $90,000. Mr. Hunt, as the lead independent director, receives an additional annual cash retainer and annual equity award retainer, on the same payment and vesting schedule as the other retainers. In 2013, the amount of this additional cash and equity retainer were $50,000 and $25,000, respectively, and the amounts of such additional cash and equity retainers approved for 2014 are $50,000 and $25,000, respectively. For 2013, our non-employee directors also received a $1,500 fee for each board and committee meeting attended in person and $1,000 for each meeting attended via teleconference. In 2014, upon recommendation of the Compensation Committee, the board eliminated the per meeting fees as an element of non-employee director compensation. In addition, for 2013, the chairperson of the Audit Committee 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 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 receives a fee of $10,000 per year, payable $2,500 per calendar quarter, to serve in such capacity, and other members of such committees receive a fee of $5,000 per year, payable $1,250 per calendar quarter, per committee for service on such committees, and such amounts remain unchanged as approved for 2014. Members of the Corporate Finance Committee receive an annual equity award retainer, consisting of restricted shares of our Class A Common Stock vesting in equal quarterly installments following the grant date. The grant date fair value of the annual equity award to members of the Corporate Finance Committee was $25,000 for 2013, and for 2014 was reduced to $15,000.
For 2013, the board of directors permitted each non-employee director, other than Messrs. Barr and Redleaf, to elect to receive his or her annual cash retainer in the form of restricted stock pursuant to each director’s election. Messrs. Hunt, Ammerman and Niemann and Ms. Carlson Schell each elected to receive their entire annual retainer, including the cash portion, in restricted shares. Messrs. Barr and Redleaf received their entire 2013 annual retainer in cash. For 2014, the board of directors permitted each non-employee director, other than Messrs. Barr and Redleaf, to elect to receive his or her annual cash fees, including the annual retainer and fees for committee service, in the form of restricted stock pursuant to each director’s election, so long as the election was for all of such cash fees. Messrs. Ammerman and Niemann and Ms. Carlson Schell each elected to receive their entire cash fees in restricted shares, and Mr. Hunt elected to receive his cash fees in cash. In connection with the compensation programs and elections described above, on March 1, 2013, the Company granted 8,913 restricted shares of our Class A Common Stock to each of Messrs. Hunt, Ammerman and Niemann and Ms. Carlson Schell, which represents for each director a $75,000 value with respect to the equity award retainer and $50,000 value for the annual cash retainer. On the same date, the Company granted Mr. Hunt, the lead independent director, an additional 5,348 shares, which represents the value of his additional $50,000 cash retainer and $25,000 in equity compensation as lead independent director. Each of the restricted stock awards granted to the non-employee directors vested on a quarterly basis and vested in full on March 1, 2014. Each member of the Corporate Finance Committee was granted a restricted stock award on April 4, 2013, with a $25,000 value, which vested on a quarterly basis and vested in full on March 1, 2014.
For 2014, and in connection with the compensation programs and elections described above, the Company granted the following restricted shares of our Class A Common Stock to each of our non-employee directors, other than Messrs. Barr and Redleaf: 6,383 shares to Mr. Ammerman, 6,211 shares to Mr. Niemann, 3,968 shares to Mr. Hunt, and 5,866 shares to Ms. Carlson Schell, which represents the entire annual fee amount for all board and committee service for Messrs. Ammerman and Niemann and Ms. Carlson Schell and the annual equity retainers for board and lead independent director service for Mr. Hunt, and in each case vesting in equal quarterly installments and to vest in full on March 1, 2015.
Director Stock Ownership Guidelines. The board of directors has adopted stock ownership guidelines for our non-employee directors, requiring such directors to hold stock with a value equal to two times the director’s annual retainer value

93
Table of Contents

(both cash and equity award retainers). Under the terms of the Company’s stock ownership guidelines, directors must hold 100% of all shares received from the vesting, delivery or exercise of equity awards granted under the Company’s equity award plans (net of shares used to pay the exercise price of options or purchase price of other awards, all applicable withholding taxes and all applicable transaction costs) until the directors’ qualifying holdings meet or exceed the applicable retainer multiple. In addition, absent a waiver by the Company or undue hardship, directors may not dispose of share holdings (by sale or otherwise) if the disposition would result in qualifying holdings falling below the applicable retainer multiple. “Qualifying holdings” generally refer to shares of Class A Common Stock (i) held by the director or certain trusts or entities controlled by the director, (ii) held by a 401(k) or other qualified pension or profit-sharing plan for the director’s benefit and (iii) underlying vested restricted stock units. Each of our non-employee directors is in compliance with the Company’s stock ownership guidelines.
2013 Director Compensation. The following table sets forth information concerning the compensation of the directors during the fiscal year ended December 31, 2013.
Name
Fees Earned
or Paid
in Cash
($)
 
Stock
Awards
($)(1)(2)
 
Option
Awards
($)
 
Non-Equity
Incentive Plan
Compensation
($)
 
Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings
($)
 
All Other
Compensation
($)(1)
 
Total
($)
Douglas K. Ammerman67,500
 150,000
 —
 —
 —
 —
 217,500
Michael Barr(3)113,000
 —
 —
 —
 —
 —
 113,000
Gary H. Hunt68,500
 200,000
 —
 —
 —
 —
 268,500
Matthew R. Niemann61,500
 150,000
 —
 —
 —
 —
 211,500
Nathaniel Redleaf(4)121,500
 —
 —
 —
 —
 —
 121,500
Lynn Carlson Schell51,500
 150,000
 —
 —
 —
 —
 201,500
(1)Represents: (i) a grant of restricted stock with a value of $125,000 per award for Messrs. Ammerman and Niemann and Ms. Carlson Schell, and with an award value of $200,000 for Mr. Hunt, representing the aggregate amount of the annual cash retainer and equity retainer for such individuals in accordance with the election described above, and including additional retainer amounts for Mr. Hunt for his service as lead independent director; and (ii) with respect to Messrs. Ammerman and Niemann and Ms. Carlson Schell, a grant of restricted stock related to their service on the Corporate Finance Committee, with a value of $25,000 per award for each such non-employee director. The number of shares underlying each such award was determined using the fair market value per shareForm of Class A Common Stock Registration Rights Agreement, dated as of February 25, 2012, by and among William Lyon Homes and the date of grant, which date was March 1, 2013 for the grants referenced in clause (i) of this footnote, and which date was April 4, 2013 for the grants referenced in clause (ii) of this footnote, in each case of $14.025 as determinedHolders (as defined therein) (incorporated by the board of directors and giving effectreference to the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
10.7
Class B Common Stock Recapitalization. Eachand Warrant Purchase Agreement, dated as of February 25, 2012, by and between William Lyon Homes and the restricted stock awards granted to our non-employee directors in 2013 vest in equal quarterly installments on each of June 1, September 1 and December 1, 2013 and March 1, 2014, in each case subjectPurchaser (as defined therein) (incorporated by reference to the individual non-employee director’s continued serviceCompany’s Current Report on Form 8-K filed with the board through such date.
Commission on March 6, 2012).
(2)None of the non-employee directors held any vested or unvested stock options as of the end of our 2013 fiscal year. The number of shares of unvested restricted stock held by each of our non-employee directors, as applicable, as of the end of our 2013 fiscal year is as follows: Mr. Ammerman - 2,674 shares; Mr. Hunt - 3,566 shares; Mr. Niemann - 2,674 shares; Ms. Carlson Schell - 2,674 shares.
(3)10.8Mr. Barr’s fees are paid
Warrant to a fund affiliated with Paulson.
(4)Mr. Redleaf’s fees are paid to a fund affiliated with Luxor.
Compensation Risk Assessment
In 2014, at the request of the Compensation Committee, Mercer conducted an evaluation of the Company’s compensation program risk profile in collaboration with Company management, including an assessment of all Company compensation plans, with a particular focus on plans in which senior executives participate, using Mercer’s qualitative evaluation criteria based on best practices for compensation design and risk management. The Compensation Committee and management reviewed and agreed with Mercer’s conclusion that the Company’s compensation policies and practices do not present risks that are reasonably likely to have a material adverse effect on the Company.




94
Table of Contents



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 17, 2014, by (i) each person known by us to be the beneficial owner of more than 5% of any class of our outstanding voting securities, (ii) each of our directors, (iii) each of our named executive officers for the year ended December 31, 2013, and (iv) all of our directors and executive officers as of March 17, 2014, 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, 4695 MacArthur Court, 8th Floor, Newport Beach, California 92660.
    
CLASS A
COMMON
STOCK(1)
 
CLASS B
COMMON
STOCK(1)
 
PERCENT
OF TOTAL
VOTING
POWER(2)(3)
NAME TITLE Number 
Percent
of Class(2)
 Number  
Percent
of Class
 
Named Executive Officers and Directors:             
General William Lyon 
Chairman of
the Board &
Executive
Chairman
 16,165(4)
 *
 —
  —
 *
William H. Lyon 
Director,
Chief Executive
Officer
 115,378(5)
 *
 5,721,434(6)
  100% 50.8%
Matthew R. Zaist 
President &
Chief Operating
Officer
 362,365(7)
 1.2% —
   —
 *
Colin T. Severn 
Vice President &
Chief Financial
Officer
 73,822(8)
 *
 —
   —
 *
Brian W. Doyle 
Senior Vice President
& California Region
President
 170,814(9)
 *
 —
  —
 *
Richard S. Robinson 
Senior Vice President
Finance and Acquisition
 50,653(10)
 *
 —
   —
 *
Douglas K. Ammerman Director 23,988(11)
 *
 —
   —
 *
Michael Barr Director —
 —
 —
   —
 —
Gary H. Hunt Director 25,592(12)
 *
 —
   —
 *
Matthew R. Niemann Director 23,816(13)
 *
 —
   —
 *
Nathaniel Redleaf Director —
 —
 —
   —
 —
Lynn Carlson Schell Director 23,471(14)
 *
 —
   —
 *
All directors and executive officers as a group (11 individuals)   692,210(15)
 2.5% 5,721,434
  100% 1.5%
5% Stockholders (not listed above):
             
Luxor Capital Group LP(16)   8,594,788
 30.7% —
   —
 18.3%
Paulson & Co. Inc.(17)   3,322,666
 11.9% —
  —
 7.1%
Goldman Sachs Asset Management(18)   1,397,449
 5.0% —
  —
 3.0%
*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 March 17, 2014, 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)Based on (i) 27,952,228 shares of Class A Common Stock outstanding as of March 17, 2014, including an aggregate of 603,834 unvested shares of restricted stock, (ii) 3,813,884Purchase Shares of Class B Common Stock outstandingof 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 17, 2014, and (c) 1,907,550 shares of 6, 2012).
10.9
Class B Common Stock issuable uponRegistration Rights Agreement, dated as of February 25, 2012, by and among William Lyon Homes and the exercise of a warrant heldHolders (as defined therein) (incorporated by Lyon Shareholder 2012, LLC, or Lyon LLC, orreference to the Class B Warrant. The Class B Warrant is exercisable at any time prior to February 24, 2022. Shares of common stock whichCompany’s Current Report on Form 8-K filed with the stockholder has the right to acquire within 60 days ofCommission on March 17, 2014 are deemed to be outstanding and

95
Table of Contents

beneficially owned by the person holding such rights for the purpose of computing the percentage of ownership of such person but are not treated as outstanding for the purposes of computing the percentage of any other person.
6, 2012).
(3)Each share
10.10
Form of Convertible Preferred Stock and Class AC Common Stock is entitledRegistration Rights Agreement, dated as of February 25, 2012, by and among William Lyon Homes and the Holders party thereto (incorporated by reference to one vote per share. Each share of Class B Common Stock is entitled to five votes per share.
the Company’s Current Report on Form 8-K filed with the Commission on March 6, 2012).
(4)Includes 16,165 shares of unvested restricted stock.
(5)10.11†Includes (i) 100,976 shares
Employment Agreement, dated as of unvested restricted stock, (ii) 11,469 sharesFebruary 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 Class A Common Stock heldFebruary 25, 2012, by and among William Lyon Homes, William Lyon Homes, Inc. and William H. Lyon and (iii) 2,933 shares of Class A Common Stock held(incorporated by The William Harwell Lyon Separate Property Trust established July 28, 2000. William H. Lyon (our Chief Executive Officer and Director) is Trustee of the trust and holds voting and dispositive power over these shares. William H. Lyon disclaims beneficial ownership over these shares exceptreference 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.
(6)Represents (i) 3,813,884 shares of Class B Common Stock held by Lyon LLC and (ii) the Class B Warrant held by Lyon LLC. The Class B Common Stock is convertible into Class A Common Stock at any time at the election of the holder, as well as under certain other circumstances as described in this AnnualCompany’s Current Report on Form 10-K. The Class B Warrant is immediately exercisable and expires8-K filed with the Commission on February 24, 2022. The members ofMarch 6, 2012).
10.13†
William Lyon LLC are the LYON SHAREHOLDERHomes 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 H. Lyon (our Chief Executive Officer and Director). The manager of Lyon LLC is William H. Lyon. William H. Lyon may be deemed to have voting and investment power of the securities heldEquity Incentive Plan (incorporated by Lyon LLC. William H. Lyon disclaims beneficial ownership of such securities, exceptreference to the extentCompany’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 his pecuniary interest therein. The address of Lyon LLC is 4695 MacArthur Court, 8th Floor, Newport Beach, California 92660. PursuantStock Option Agreement (incorporated by reference to the Stockholders Agreement described elsewhere in this Annual ReportCompany’s Registration Statement on Form 10-K, Lyon LLC has agreed to vote its shares in favor of a certain number of director nominees supported by Luxor and Paulson.
S-1/A filed with the Commission on December 6, 2012).
(7)Includes, in part, (i) 108,916 shares of unvested restricted stock and (ii) 141,425 shares of Class A Common Stock subject to options exercisable within 60 days of March 17, 2014. Of the shares included in this table, (i) 81,914 shares of Class A Common Stock, (ii) 50,001 shares of unvested restricted stock, and (iii) 139,769 shares of Class A Common Stock subject to options exercisable within 60 days of March 17, 2014 are held by a limited liability company of which Mr. Zaist and his spouse are the managers, and in which Mr. Zaist's trust holds a controlling interest.
(8)10.15†Includes, in part, (i) 20,933 shares
William Lyon Homes 2012 Equity Incentive Plan form of unvested restricted stock and (ii) 23,638 shares of Class Restricted Stock Award Agreement (incorporated by reference to the Company’s Registration Statement on Form S-1/A Common Stock subject to options exercisable within 60 days of March 17, 2014.
filed with the Commission on December 6, 2012).
(9)Includes, in part, (i) 51,054 shares of unvested restricted stock and (ii) 64,854 shares of Class A Common Stock subject to options exercisable within 60 days of March 17, 2014.
(10)10.16†Includes, in part, (i) 17,130 shares
Form of unvested restricted stock and (ii) 17,678 shares of Class Employment Agreement, dated September 1, 2012 (incorporated by reference to the Company’s Registration Statement on Form S-1/A Common Stock subject to options exercisable within 60 days of March 17, 2014.
filed with the Commission on December 6, 2012).
(11)Includes, in part, 6,383 shares of unvested restricted stock.
(12)10.17Includes, in part, (i) 14,261 shares of
Class A Common Stock and (ii) 3,968 shares of unvested restricted stock, in each case heldConvertible Preferred Stock Subscription Agreement, dated October 12, 2012, by a solo defined benefit plan of which Mr. Hunt is the sole beneficiary.
(13)Includes, in part, 6,211 shares of unvested restricted stock.
(14)Includes, in part, 5,866 shares of unvested restricted stock.
(15)Includes, in part, (i) 294,146 shares of unvested restricted stock and (ii) 182,741 shares of Class A Common Stock subject to options exercisable within 60 days of March 17, 2014.
(16)Luxor Capital Group LP, which we refer to herein as "Luxor," acts as the investment manager of private investment funds that own the shares, collectively referred to as the “Luxor Investors.” Luxor Management, LLC is the general partner of Luxor. Christian Leone is the managing member of Luxor Management, LLC. Luxor, Luxor Management, LLCbetween William Lyon Homes 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 is 1114 Avenue of the Americas, 29th Floor, New York City, New York 10036. Pursuant to the Stockholders Agreement described elsewhere in this Annual Report on Form 10-K, the Luxor Investors have agreed to vote their shares in favor of a certain number of director nominees supported by Lyon LLC and Paulson.
(17)Paulson & Co. Inc., which we refer to herein as "Paulson," 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”. The shares included in this table are held by WLH Recovery Acquisition LLC a Delaware limited liability company, or Acquisition LLC, and Acquisition LLC is one of the funds. In its role as investment advisor and manager of the Funds, Paulson possesses voting and/or investment power over the ordinary shares owned(incorporated 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. Pursuantreference to the Stockholders Agreement described elsewhere in this Annual ReportCompany’s Registration Statement on Form 10-K, Acquisition LLC has agreed to vote its shares in favor of a certain number of director nominees supported by Lyon LLC and Luxor.
(18)Based on a Schedule 13GS-1/A filed with the SECCommission on February 13, 2014, Goldman Sachs Asset Management, L.P. and GS Investment Strategies, LLC, or collectively, Goldman Sachs Asset Management, have shared voting power over 1,340,368 shares and shared dispositive power over 1,397,449 shares of our Class A Common Stock. The address of Goldman Sachs Asset Management is 200 West Street, New York, NY 10282.December 6, 2012).
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, 2013. The non-compensatory warrant to purchase 1,907,550 shares of the Company’s Class B Common Stock issued in connection with the Plan is not included in the table below. For a description of the non-compensatory warrant, please see “Certain Relationships and Transactions-Amendment to Warrant.” All of the information in the table below gives effect to the Common Stock Recapitalization described elsewhere in this Form 10-K.

9671
Table of Contents

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 576,651
 (1) $8.6625
(2) 2,390,366
(3)
Equity compensation plans not approved by security holders —
    $—
   —
  
Total 576,651
    $8.6625
   2,390,366
  
(1)
Exhibit
Number
Represents outstanding optionsDescription
10.18
Amendment of and Joinder to purchase sharesClass 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 A common stockB 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.
Company’s Form S-8 Registration Statement filed August 12, 2013 (File No. 333-190571)).
(2)Represents the exercise price
10.28†
William Lyon Homes 2012 Equity Incentive Plan Form of eachRestricted Stock Award Agreement (performance-based) (incorporated by reference to Exhibit 10.42 of the 576,651 outstanding optionsCompany'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 purchase shares of Class A common stockExhibit 10.43 of the Company.
Company's Form S-4 Registration Statement filed December 27, 2013 (file no. 333-193112)).
(3)Represents the number of securities remaining available for issuance under the 2012 Plan.


Item 13.10.30†Certain Relationships and Related Transactions, and Director Independence
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)).

Policies and Procedures for Review, Approval or Ratification of Transactions with Related Persons
Our board of directors has adopted a written statement of policy for the evaluation of and the approval, disapproval and monitoring of transactions involving us and a “related party.” For purposes of this policy, a “related party” includes 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 party transactions policy requires:
that any transaction in which a related party has a material direct or indirect interest and which exceeds $120,000, such transaction referred to as a “related party 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 party transaction:
management must disclose to the Audit Committee or the disinterested members of the Audit Committee, as applicable, the material terms of the related party 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 party 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 party 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 party transaction constitutes a “personal loan” for purposes of Section 402 of Sarbanes-Oxley.
Employment Agreements
We have entered into employment agreements with certain of our executive officers. For more information regarding these agreements, see “Executive Compensation-Employment Agreements and Severance Benefits.”

9772
Table of Contents

Indemnification Agreements and Liability Insurance Policy
We have 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 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. Through his management of Lyon Shareholder 2012, LLC, Mr. Lyon holds 100% of our Class B Common Stock.
Luxor Capital Group, LP. Entities affiliated with Luxor hold over 5% of our outstanding Class A Common Stock, after giving effect to the Common Stock Recapitalization described elsewhere in this prospectus.
Paulson & Co. Inc. WLH Recovery Acquisition LLC, a Delaware limited liability company and entity affiliated with, and managed by affiliates of, Paulson, holds over 5% of our outstanding Class A Common Stock, after giving effect to the Common Stock Recapitalization described elsewhere in this prospectus. Michael Barr currently serves as Portfolio Manager for the Paulson Real Estate Funds, which are affiliates of Paulson, and serves as a member of our board of directors.
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 the 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.
Amendment to Warrant
In connection with the Plan, the Company issued a warrant, or the Class B Warrant, to an entity controlled by William H. Lyon, one of the Company’s directors and the Chief Executive Officer of the Company. Pursuant to the Class B Warrant, the entity controlled by Mr. Lyon may purchase up to 1,907,550 shares of our Class B Common Stock at $17.08 per share (after giving effect to the Common Stock Recapitalization). The original term of the Class B Warrant was five years, and it would expire on February 24, 2017. In connection with the adoption of the Certificate of Incorporation, the Class B Warrant has been amended to extend the term to 10 years, and the Class B Warrant will now expire on February 24, 2022.
Land Acquisition Transaction
In October 2013, California Lyon 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. WLH Recovery Acquisition LLC, which is affiliated with, and managed by affiliates of, Paulson, holds over 5% of our outstanding Class A Common Stock. California Lyon participated in a competitive bidding process for the lots and we believe that the acquisition was on terms no less favorable than it would have agreed to with unrelated parties. The transaction was
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

9873
Table of Contents

approved by the audit committee of our board of directors and by our full board of directors, with the exception of Mr. Barr, who recused himself from the vote because of his affiliation with Paulson. Mr. Barr currently serves as Portfolio Manager for the Paulson Real Estate Funds, which are affiliates of Paulson, where he is responsible for all aspects of the real estate private equity business. Mr. Barr is also a partner in Paulson, which he joined in 2008.
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. William H. Lyon’s compensation is disclosed in the section entitled “Executive Compensation-Summary Compensation Table” above.
Director Independence
Under the listing requirements and rules of The New York Stock Exchange, or the NYSE, independent directors must comprise a majority of a listed company’s board of directors. In addition, NYSE rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act and compensation committee members must satisfy heightened independence criteria set forth in NYSE rules. Under NYSE rules, a director will only qualify as an “independent director” if the company’s board of directors affirmatively determines that the director has no material relationship with the company, either directly or indirectly, that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Our board of directors has undertaken a review of its composition, the composition of its committees and the independence of each director. Based upon information requested from and provided by each of our directors 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 three of our directors, General Lyon, William H. Lyon and Michael Barr, are independent directors under the standards established by the SEC and the NYSE. In making this determination, our board of directors considered the current and prior relationships that each non-employee director has with us and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the following:
•As described above, Mr. Niemann is a Managing Director and shareholder of Houlihan Lokey, or Houlihan. As previously disclosed, Houlihan provided certain professional or advisory services to us in 2011 and 2012. Such services were one-time in nature, and the payments received for such services did not exceed the greater of $1 million or 2% of Houlihan’s consolidated gross revenues for such years. Houlihan does not currently provide any professional or advisory services to us, and did not provide any professional or advisory services to us in 2013 other than participating as a non-lead bank in the underwriting syndicate of our initial public offering in May 2013. The aggregate amount of the underwriting proceeds received by Houlihan in connection with the offering did not exceed the greater of $1 million or 2% of Houlihan’s consolidated gross revenues for 2013. Further, Mr. Niemann did not have a direct or indirect interest in the transaction. Accordingly, the board of directors determined that Mr. Niemann does not have a material relationship with us and that Mr. Niemann is an independent director under the standards established by the SEC and the NYSE.
•Mr. Ammerman currently serves on the audit committee of more than three publicly traded companies, including William Lyon Homes (NYSE), Fidelity National Financial (NYSE), Remy International, Inc. (NASDAQ Stock Market) and Stantec Inc. (NYSE). The board of directors has determined that Mr. Ammerman’s simultaneous service on the audit committees of more than three public companies does not impair his ability to serve effectively as a member of our Audit Committee.





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.

9974
Table of Contents

Item 14.Principal Accountant Fees and Services
The fees for professional services provided by KPMG, LLP,SIGNATURES
Pursuant to the requirements of Section 13 or KPMG, in fiscal years 2013 and 2012 were:
Type of Fees 2013 2012
Audit Fees $1,133,975
(1)$798,000
Audit Related Fees —
 —
Tax Fees —
 —
All Other Fees —
 —
Total Fees $1,133,975
 $798,000
(1) Includes $76,075 for services actually performed in 2012, but billed in 2013.
In the above table, in accordance with the definitions15(d) of the SEC, “Audit Fees” include fees forSecurities Exchange Act of 1934, the audit of the Company’s consolidated financial statements included in itsRegistrant has duly caused this Annual Report on Form 10-K reviewto 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 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 CommitteeSecurities Exchange Act of 1934, this Report has adopted a policy that requires advance approval of all audit, audit-related, tax services, and other services performedbeen signed by the independent registered public accounting firm. The policy provides for pre-approval byfollowing persons in the Audit Committee of specifically defined auditcapacities and non-audit services. Unlesson 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.dates indicated:
The Audit Committee considered the compatibility of the provision of other services by its registered public accountant with the maintenance of their independence. The Audit Committee approved all audit and non-audit services provided by KPMG in 2013 and 2012.

100
Table of Contents
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

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 and 2012,(Successor), and for the yearyears 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 the period from February 25, 2012 through December 31, 2012, and for the year ended December 31, 2011(Predecessor). 
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance SheetsF-4
F-3
Consolidated Statements of OperationsF-5
F-4
Consolidated Statements of Equity (Deficit)F-6
F-5
Consolidated Statements of Cash Flows
F-7
Notes to Consolidated Financial StatementsF-9
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
 Supplemental Indenture dated as of November 8, 2012, by and between William Lyon Homes, Inc., William Lyon Homes, and 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
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).
   
4.3
First Supplemental Indenture, dated as of August 15, 2013, among William Lyon Homes, Inc., NVH Development, LLC, NVH Parent, LLC, NVH INV, LLC, NVH WIP LLLP and NVHDEV-GP, Inc., and U.S. Bank National Bank Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2013).

101

Exhibit
Number
Description
4.44.2
 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).

69

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
 Property 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 William Lyon Homes’s Annual Report on Form 10-K for the year-ended December 31, 1999).
10.3
Warranty 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 William Lyon Homes’s Annual Report on Form 10-K for the year-ended December 31, 1999).
10.4
Standard 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 William Lyon Homes’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 William 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 William Lyon Homes’s Registration Statement filed August 10, 2012 (File No. 333-183249)).
10.710.3
 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).
   
10.810.4
 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 William Lyon Homes’s Current Report on Form 8-K filed with the Commission on September 10, 2009).

70

Exhibit
Number
Description
   
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 William 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 William Lyon Homes’s Current Report on Form 8-K filed with the Commission on September 20, 2010).
10.11
Form 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).
10.1210.6
 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).
   

102

Exhibit
Number
Description
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).
   
10.17†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).
10.20
Purchase 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†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).
   
10.23†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 (incorporated by reference to the Company’s Registration Statement on Form S-1/A filed with the Commission on December 6, 2012).
   

103

Exhibit
Number
Description
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).
10.2710.17
 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).
   

71

10.28
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).
   
10.29
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).
10.3010.19
 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).
   
10.31
Construction 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).
10.32
Construction 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).
10.33
Construction 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 William Lyon Homes’s Quarterly Report for the quarter-ended September 30, 2012).
10.34†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)).
   
10.35†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)).
   
10.36†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)).
   
10.3710.23
 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).
   
10.3810.24
 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).
   

104

Exhibit
Number
Description
10.39†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)).
   
10.4010.26
 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).
   
10.41†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)).
   
10.42†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)).
   
10.43†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)).
   
10.44†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

10.45†
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 YearYears 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, and 2009.
16.1
Letter from Windes, Inc. (formerly Windes & Mclaughry Accountancy Corporation), as to the change in certifying accountant, dated as of August 9, 2012 (incorporated by reference to Exhibit 16.1 of the Company's Registration Statement on Form S-1 filed August 10, 2012).2010.
   
21.1+
 List of Subsidiaries of the Company.
   
23.1+
Consent of Windes, Inc. Independent Registered Public Accounting Firm.
23.2+
 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
   

105

Exhibit
Number
Description
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

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.

10674

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 21st12th day of March, 2014.2015.
 
 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:
 
Signature  Title Date
   
/s/ William H. Lyon
William H. Lyon
  Chief Executive Officer, Director (Principal Executive Officer) March 21, 201412, 2015
   
/s/ Colin T. Severn
Colin T. Severn
  Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) March 21, 201412, 2015
   
/s/ General William Lyon 
General William Lyon
  Executive Chairman, Director March 21, 201412, 2015
   
/s/ Douglas K. Ammerman
Douglas K. Ammerman
  Director March 21, 201412, 2015
   
/s/ Michael Barr
Michael Barr
  Director March 21, 201412, 2015
   
/s/ Gary H. Hunt
Gary H. Hunt
  Director March 21, 201412, 2015
   
/s/ Matthew R. Niemann
Matthew R. Niemann
  Director March 21, 201412, 2015
   
/s/ Nathaniel Redleaf
Nathaniel Redleaf
  Director March 21, 201412, 2015
   
/s/ Lynn Carlson Schell
Lynn Carlson Schell
  Director March 21, 201412, 2015

10775

INDEX TO FINANCIAL STATEMENTS
 
 Page
Financial Statements as of December 31, 2014 and 2013 and 2012,(Successor), and for the yearyears 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 the period from February 25, 2012 through December 31, 2012, and for the year ended December 31, 2011(Predecessor). 
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance SheetsF-4
F-3
Consolidated Statements of OperationsF-5
F-4
Consolidated Statements of Equity (Deficit)F-6F-5
Consolidated Statements of Cash Flows
F-7
Notes to Consolidated Financial StatementsF-9
F-10

F-1

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, 20132014 and 20122013 (Successor), and the related consolidated statements of operations, equity (deficit) and cash flows for each of the yearyears 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, 20132014 and 20122013 (Successor) and the results of their operations and their cash flows for each of the yearyears 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.

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 21, 2014

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
William Lyon Homes

We also have audited, the accompanying consolidated statements of operations, equity (deficit) and cash flows of William Lyon Homes (the "Company") for the year 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 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. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of, William Lyon Homes’ internal control over financial reporting as a basis for designing audit procedures that are appropriateof December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the circumstances, but not forCommittee of Sponsoring Organizations of the purpose of expressingTreadway Commission, and our report dated March 12, 2015 expressed an unqualified opinion on the effectiveness of the Company'sCompany’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 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 consolidated results of operations and cash flows of William Lyon Homes for the year ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

As more fully described in Notes 2 and 3, 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 for the year ended December 31, 2011, 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, Inc.KPMG LLP
Irvine, California
January 21, 2013March 12, 2015


F-3F-2

WILLIAM LYON HOMES
CONSOLIDATED BALANCE SHEETS
(in thousands except number of shares and par value per share)
    
 December 31,
 2013 2012
ASSETS   
Cash and cash equivalents — Note 1$171,672
 $71,075
Restricted cash — Note 1854
 853
Receivables20,839
 14,789
Real estate inventories — Note 7   
Owned671,790
 421,630
Not owned12,960
 39,029
Deferred loan costs, net9,575
 7,036
Goodwill — Note 814,209
 14,209
Intangibles, net of accumulated amortization of $7,611 and $5,757 and as of December 31, 2013 and 2012, respectively — Note 92,766
 4,620
Deferred income taxes, net valuation allowance of $3,959 and $200,048 at December 31, 2013 and 2012 respectively - Note 1395,580
 —
Other assets, net10,166
 7,906
Total assets$1,010,411
 $581,147
LIABILITIES AND EQUITY   
Accounts payable$17,099
 $18,735
Accrued expenses60,203
 41,770
Liabilities from inventories not owned — Note 1512,960
 39,029
Notes payable — Note 1038,060
 13,248
8 1/2% Senior notes due November 15, 2020 — Note 10431,295
 325,000
 559,617
 437,782
Commitments and contingencies — Note 19

 

Redeemable convertible preferred stock — Note 16:   
Redeemable convertible preferred stock, par value $0.01 per share; zero and 9,969,970 shares authorized; zero and 9,334,030 shares issued and outstanding at December 31, 2013 and 2012, respectively—
 71,246
Equity:   
William Lyon Homes stockholders’ equity — Note 17   
Preferred stock, par value $0.01 per share; 10,000,000 and no shares issued and outstanding at December 31, 2013 and 2012, respectively—
 —
Common stock, Class A, par value $0.01 per share; 150,000,000 and 41,212,121 shares authorized; 27,622,283 and 8,499,558 shares issued, 27,216,813 and 8,499,558 shares outstanding at December 31, 2013 and 2012, respectively276
 85
Common stock, Class B, par value $0.01 per share; 30,000,000 and 6,060,606 shares authorized; 3,813,884 shares issued and outstanding at December 31, 2013 and 2012, respectively38
 38
Common stock, Class C, par value $0.01 per share; zero and 14,545,455 shares authorized; zero and 1,941,859 shares issued and outstanding at December 31, 2013 and 2012, respectively—
 20
Common stock, Class D, par value $0.01 per share; zero and 3,636,364 shares authorized; zero and 302,945 shares outstanding at December 31, 2013 and 2012, respectively—
 3
Additional paid-in capital311,863
 74,168
Retained earnings/(accumulated deficit)116,002
 (11,602)
Total William Lyon Homes stockholders’ equity428,179
 62,712
Noncontrolling interests — Note 522,615
 9,407
Total equity450,794
 72,119
Total liabilities and equity$1,010,411
 $581,147
    
 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-4F-3

WILLIAM LYON HOMES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except number of shares and per share data)
 
Successor  PredecessorSuccessor  Predecessor
Year Ended
December 31,		 
Period from
February 25
through
December  31,
2012
  
Period from
January 1
through
February  24,
2012
  Year Ended
December 31,		 
Period from
February 25
through
December  31,
2012
  
Period from
January 1
through
February  24,
2012
2013 20112014 2013 
Operating revenue          
Home sales$521,310
 $244,610
$16,687
 $207,055
$857,025
 $521,310
 $244,610
$16,687
Lots, land and other sales18,692
 104,325
—
 —
1,926
 18,692
 104,325
—
Construction services — Note 132,533
 23,825
  8,883
 19,768
37,728
 32,533
 23,825
  8,883
572,535
 372,760
  25,570
 226,823
896,679
 572,535
 372,760
  25,570
Operating costs                
Cost of sales — homes(405,496) (203,203)  (14,598) (184,489)(677,531) (405,496) (203,203)  (14,598)
Cost of sales — lots, land and other(14,692) (94,786)  —
 (4,234)(1,529) (14,692) (94,786)  —
Impairment loss on real estate assets — Note 7—
 —
  —
 (128,314)
Construction services — Note 1(25,598) (21,416)  (8,223) (18,164)(30,700) (25,598) (21,416)  (8,223)
Sales and marketing(26,102) (13,928)  (1,944) (16,848)(45,903) (26,102) (13,928)  (1,944)
General and administrative(40,770) (26,095)  (3,302) (22,411)(54,626) (40,770) (26,095)  (3,302)
Amortization of intangible assets — Note 9(1,854) (5,757)  —
 —
Transaction expenses(5,832) —
 —
  —
Amortization of intangible assets — Note 8(1,814) (1,854) (5,757)  —
Other(2,166) (2,909)  (187) (3,983)(2,319) (2,166) (2,909)  (187)
(516,678) (368,094)  (28,254) (378,443)(820,254) (516,678) (368,094)  (28,254)
Equity in income of unconsolidated joint ventures—
 —
  —
 3,605
Operating income (loss)55,857
 4,666
  (2,684) (148,015)76,425
 55,857
 4,666
  (2,684)
Loss on extinguishment of debt — Note 10—
 (1,392)  —
 —
Loss on extinguishment of debt — Note 9—
 —
 (1,392)  —
Interest expense, net of amounts capitalized — Note 1(2,602) (9,127)  (2,507) (24,529)—
 (2,602) (9,127)  (2,507)
Other income, net510
 1,528
  230
 838
1,898
 510
 1,528
  230
Income (loss) before reorganization items and benefit (provision) from income taxes53,765
 (4,325)  (4,961) (171,706)
Reorganization items, net — Note 4(464) (2,525)  233,458
 (21,182)
Income (loss) before benefit (provision) for income taxes53,301
 (6,850)  228,497
 (192,888)
Benefit (provision) for income taxes — Note 1382,302
 (11)  —
 (10)
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)135,603
 (6,861)  228,497
 (192,898)54,526
 135,603
 (6,861)  228,497
Less: Net income attributable to noncontrolling interests(6,471) (1,998)  (114) (432)(9,901) (6,471) (1,998)  (114)
Net income (loss) attributable to William Lyon Homes129,132
 (8,859)  228,383
 (193,330)44,625
 129,132
 (8,859)  228,383
Preferred stock dividends(1,528) (2,743)  —
 —
—
 (1,528) (2,743)  —
Net income (loss) available to common stockholders$127,604
 $(11,602)  $228,383
 $(193,330)$44,625
 $127,604
 $(11,602)  $228,383
Income (loss) per common share:                
Basic$5.16
 $(0.93)  $228,383
 $(193,330)$1.41
 $5.16
 $(0.93)  $228,383
Diluted$4.95
 $(0.93)  $228,383
 $(193,330)$1.34
 $4.95
 $(0.93)  $228,383
Weighted average common shares outstanding:                
Basic24,736,841
 12,489,435
  1,000
 1,000
31,753,110
 24,736,841
 12,489,435
  1,000
Diluted25,796,197
 12,489,435
  1,000
 1,000
33,236,343
 25,796,197
 12,489,435
  1,000
See accompanying notes to consolidated financial statements


F-5F-4

WILLIAM LYON HOMES
CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
(in thousands)
 
William Lyon Homes Stockholders 
Non-
Controlling
Interest
 TotalWilliam Lyon Homes Stockholders 
Non-
Controlling
Interest
 Total
Common Stock 
Additional
Paid-In
Capital
 
Retained
Earnings
(Accumulated
Deficit)
 Common Stock 
Additional
Paid-In
Capital
 
Retained
Earnings
(Accumulated
Deficit)
 
Shares Amount 
Non-
Controlling
Interest
Shares Amount 
Non-
Controlling
Interest
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)1
 $—
 $48,867
 $(228,383) $9,646
 $(169,870)
Cash contributions to members of consolidated entities—  
 —  
 —  
 —
 1,825
 1,825
Cash contributions from members of consolidated entities—  
 —  
 —  
 —
 1,825
 1,825
Cash distributions to members of consolidated entities—
 —
 —
 —
 (1,897) (1,897)—
 —
 —
 —
 (1,897) (1,897)
Net (loss) income—
 —
 —
 (7,201) 114
 (7,087)—
 —
 —
 (7,201) 114
 (7,087)
Balance — February 24, 2012 (Predecessor)1
 —
 48,867
 (235,584) 9,688
 (177,029)1
 —
 48,867
 (235,584) 9,688
 (177,029)
Cancellation of predecessor common stock(1) —
 —
 —
 —
 —
(1) —
 —
 —
 —
 —
Plan of reorganization and fresh start valuation adjustments—
 —
 —
 186,717
 (1,588) 185,129
—
 —
 —
 186,717
 (1,588) 185,129
Elimination of predecessor accumulated deficit—
 —
 (48,867) 48,867
 —
 —
—
 —
 (48,867) 48,867
 —
 —
Balance — February 24, 2012 (Predecessor)—
 —
 —
 —
 8,100
 8,100
—
 —
 —
 —
 8,100
 8,100
Issuance of new common stock in connection with emergence from Chapter 1111,196
 112
 44,003
 —
 —
 44,115
11,196
 112
 44,003
 —
 —
 44,115
Balance — February 24, 2012 (Successor)11,196
 112
 44,003
 —
 8,100
 52,215
11,196
 112
 44,003
 —
 8,100
 52,215
Net (loss) income—
 —
 —
 (8,859) 1,998
 (6,861)—
 —
 —
 (8,859) 1,998
 (6,861)
Cash contributions to members of consolidated entities—
 —
 —  
 —
 15,313
 15,313
Cash contributions from members of consolidated entities—
 —
 —  
 —
 15,313
 15,313
Cash distributions to members of consolidated entities—
 —
 —
 —
 (16,004) (16,004)—
 —
 —
 —
 (16,004) (16,004)
Issuance of common stock3,059
 31
 26,469
 —
 —
 26,500
3,059
 31
 26,469
 —
 —
 26,500
Issuance of restricted stock303
 3
 (3) —
 —
 —
303
 3
 (3) —
 —
 —
Stock based compensation—
 —
 3,699
 —
 —
 3,699
—
 —
 3,699
 —
 —
 3,699
Preferred stock dividends—
 —
 —
 (2,743) —
 (2,743)—
 —
 —
 (2,743) —
 (2,743)
Balance — December 31, 2012 (Successor)14,558
 $146
 $74,168
 $(11,602) $9,407
 $72,119
14,558
 146
 74,168
 (11,602) 9,407
 72,119
Net (loss) income—
 —
 —
 129,132
 6,471
 135,603
Cash contributions to members of consolidated entities—
 —
 —
 —
 37,184
 37,184
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)—
 —
 —
 —
 (30,447) (30,447)
Conversion of redeemable preferred stock to Class A common stock9,334
 93
 70,293
 —
 —
 70,386
9,334
 93
 70,293
 —
 —
 70,386
Issuance of common stock, net of offering costs7,178
 72
 163,612
 —
 —
 163,684
7,178
 72
 163,612
 —
 —
 163,684
Issuance of restricted stock366
 3
 (3) —
 —
 —
366
 3
 (3) —
 —
 —
Stock based compensation—
 —
 3,793
 —
 —
 3,793
—
 —
 3,793
 —
 —
 3,793
Preferred stock dividends—
 —
 —
 (1,528) —
 (1,528)—
 —
 —
 (1,528) —
 (1,528)
Balance — December 31, 2013 (Successor)31,436
 $314
 $311,863
 $116,002
 $22,615
 $450,794
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

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 PredecessorSuccessor  Predecessor
Year Ended
December 31,		 
Period from
February 25
through
December  31,
2012
 
Period from
January 1
through
February  24,
2012
 
Year Ended
December 31,
Year Ended
December 31,		 
Period from
February 25
through
December  31,
2012
  
Period from
January 1
through
February  24,
2012
2013 20112014 2013 
Operating activities               
Net income (loss)$135,603
 $(6,861) $228,497
 $(192,898)$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 amortization3,795
 6,631
 586
 3,875
2,874
 3,795
 6,631
  586
Impairment loss on real estate assets—
 —
 —
 128,314
Stock based compensation expense3,793
 3,699
 —
 —
6,114
 3,793
 3,699
  —
Equity in income of unconsolidated joint ventures—
 —
 —
 (3,605)(555) —
 —
  —
Loss on sale of fixed asset4
 —
 —
 83
—
 4
 —
  —
Reorganization items:               
Cancellation of debt—
 —
 (298,831) —
—
 —
 —
  (298,831)
Plan implementation and fresh start adjustments—
 —
 49,302
 —
—
 —
 —
  49,302
Write-off of deferred loan costs—
 —
 8,258
 —
—
 —
 —
  8,258
Accrued professional fees—
 —
 —
 1,000
Loss on extinguishment of debt—
 1,104
 —
 —
—
 —
 1,104
  —
Deferred income tax benefit(95,580)      
Net changes in operating assets and liabilities:       
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 cash(1) (1) —
 (211)350
 (1) (1)  —
Receivables(6,050) (2,924) 941
 4,767
(4,554) (6,050) (2,924)  941
Escrow proceeds receivable1,465
 —
 —
  —
Real estate inventories — owned(234,127) 30,256
 (7,047) 18,151
(277,997) (234,127) 30,256
  (7,047)
Real estate inventories — not owned26,069
 7,129
 1,250
 —
12,960
 26,069
 7,129
  1,250
Other assets1,069
 605
 206
 (4,422)(5,588) 1,069
 605
  206
Accounts payable(1,636) 7,706
 4,618
 (1,522)34,103
 (1,636) 7,706
  4,618
Accrued expenses18,596
 9,778
 (3,851) 7,817
21,290
 18,596
 9,778
  (3,851)
Liabilities from real estate inventories not owned(26,069) (7,129) (1,250) —
(12,960) (26,069) (7,129)  (1,250)
Net cash (used in) provided by operating activities(174,534) 49,993
 (17,321) (38,651)(160,160) (174,534) 49,993
  (17,321)
Investing activities               
Investment in and advances to unconsolidated joint ventures(500) —
 —
  —
Distributions from unconsolidated joint ventures—
 —
 —
 1,435
353
 —
 —
  —
Cash paid for acquisitions, net—
 (33,201) —
 —
(492,418) —
 (33,201)  —
Purchases of property and equipment(3,754) (312) —
 (128)(2,078) (3,754) (312)  —
Net cash (used in) provided by investing activities(3,754) (33,513) —
 1,307
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 PredecessorSuccessor  Predecessor
Year Ended
December 31,		 
Period from
February 25
through
December  31,
2012
 
Period from
January 1
through
February  24,
2012
 
Year Ended
December 31,
Year Ended
December 31,		 
Period from
February 25
through
December  31,
2012
  
Period from
January 1
through
February  24,
2012
2013 20112014 2013 
Financing activities               
Proceeds from borrowings on notes payable73,610
 13,248
 —
 —
95,227
 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 Notes106,500
 325,000
 —
 —
—
 106,500
 325,000
  —
Principal payments on notes payable(65,037) (73,676) (616) (11,532)
Principal payments on Senior Secured Term Loan—
 (235,000) —
 —
—
 —
 (235,000)  —
Principal payments on Senior Subordinated Secured Notes—
 (75,916) —
 —
—
 —
 (75,916)  —
Proceeds from reorganization—
 —
 30,971
 —
—
 —
 —
  30,971
Proceeds from issuance of convertible preferred stock—
 14,000
 50,000
 —
—
 —
 14,000
  50,000
Proceeds from stock options exercised285
 —
 —
  —
Proceeds from issuance of common stock179,438
 16,000
 —
 —
—
 179,438
 16,000
  —
Offering costs related to issuance of common stock(15,753) —
 —
 —
(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
 —
—
 —
 —
  5,000
Principal payment of debtor in possession financing—
 —
 (5,000) —
—
 —
 —
  (5,000)
Payment of deferred loan costs(4,060) (7,181) (2,491) —
(19,018) (4,060) (7,181)  (2,491)
Payment of preferred stock dividends(2,550) (1,721) —
 —
—
 (2,550) (1,721)  —
Noncontrolling interest contributions37,184
 15,313
 1,825
 6,605
22,041
 37,184
 15,313
  1,825
Noncontrolling interest distributions(30,447) (16,004) (1,897) (8,954)(27,326) (30,447) (16,004)  (1,897)
Net cash provided by (used in) financing activities278,885
 (25,937) 77,792
 (13,881)535,902
 278,885
 (25,937)  77,792
Net increase (decrease) in cash and cash equivalents100,597
 (9,457) 60,471
 (51,225)
Net (decrease) increase in cash and cash equivalents(118,901) 100,597
 (9,457)  60,471
Cash and cash equivalents — beginning of period71,075
 80,532
 20,061
 71,286
171,672
 71,075
 80,532
  20,061
Cash and cash equivalents — end of period$171,672
 $71,075
 $80,532
 $20,061
$52,771
 $171,672
 $71,075
  $80,532
Supplemental disclosures:               
Cash paid for taxes$9,300
 $—
 $—
 $—
$25,392
 $9,300
 $—
  $—
Cash paid for professional fees relating to the reorganization$464
 $3,228
 $7,813
 $20,182
$—
 $464
 $3,228
  $7,813
Supplemental disclosures of non-cash investing and financing activities:               
Conversion of convertible preferred stock to common stock$70,386
 $—
 $—
 $—
$—
 $70,386
 $—
  $—
Issuance of common stock related to land acquisition$—
 $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
Notes payable issued in conjunction with land acquisitions$16,238
 $—
 $—
 $55,000

F-8
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-8F-9

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), 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 iswas retroactively applied to the Consolidated Balance Sheet as of December 31, 2012, 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.
BasisEmergence from Chapter 11 and Fresh Start Accounting
On December 19, 2011, Parent and certain of Presentationits 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.
We appliedAs required by U.S. GAAP, effective as of February 24, 2012, we adopted fresh start accounting following the accounting underguidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 852 (“ASC 852”), “Reorganizations,” as of“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 24,25, 2012 (see Note 3).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, 20132014 and 20122013 and revenues and expenses for the yearyears 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, and year ended December 31, 2011.2012. 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 fresh startthe 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
Table of Contents
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 5)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

F-9
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


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 1 year limited 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 and the year ended December 31, 2011 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
 Year Ended December 31, 2011
 
 Warranty liability, beginning of period$14,317
 $14,000
 $14,314
 $16,341
 Warranty provision during period5,154
 2,731
 187
 2,380
 Warranty payments during period(5,676) (3,216) (845) (4,699)
 Warranty charges related to pre-existing warranties during period487
 146
 85
 110
 Warranty charges related to construction services projects653
 656
 114
 182
 Fresh start adjustment—
 —
 145
 —
      Warranty liability, end of period$14,935
 $14,317
 $14,000
 $14,314
  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 10,9, 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 and the year ended December 31, 2011 are as follows (in thousands):
 
Successor Predecessor  Successor Predecessor
Year Ended December 31, 2013 
Period from
February 25
through
December 31,
2012
 
Period from
January 1
through
February 24,
2012
 Year Ended December 31, 2011Year 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$31,875
 $30,526
 $7,145
 $61,464
$65,560
 $31,875
 $30,526
 $7,145
Less: Interest capitalized(29,273) (21,399) (4,638) (36,935)(65,560) (29,273) (21,399) (4,638)
Interest expense, net of amounts capitalized$2,602
 $9,127
 $2,507
 $24,529
$—
 $2,602
 $9,127
 $2,507
Cash paid for interest$29,769
 $26,560
 $8,924
 $48,018
$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.

F-10
Table For the years ended December 31, 2014 and 2013, the Company recorded additional compensation of Contents$3.9 million and $4.2 million, respectively. The Company did not record any addional compensation during 2012.
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, 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

F-12
Table of Contents
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 19.16.
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, 20132014 and 2012.2013. The Company monitors the cash balances in its operating accounts and adjusts the cash balances as appropriate;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 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 analyzedis tested for impairment at the reporting segment level. Goodwill is analyzed on an annual basis, or when indicatorsmore 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 impairment exist. We havegoodwill exceeds the fair value. The Company has determined that we have fivesix reporting segments, as discussed in Note 6,7, and we 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 852. SuchTopic 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

F-11
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


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”“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 2012,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 2012-2,2015-02, Intangibles – GoodwillAmendments to the Consolidation Analysis, which improves targeted areas of the consolidation guidance and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.reduces the number of consolidation models. 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 hasASU 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 option not to calculate annuallyeffect 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, 2013 the Company elected to use the qualitative assessment option permitted by this amendment.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—Emergence from Chapter 11Acquisition of Polygon Northwest Homes

On December 19, 2011,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, (the “Company”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 certainwhich conducts business as Polygon Northwest Company (“Polygon”), for an aggregate cash purchase price of its direct and indirect wholly-owned subsidiaries filed voluntary petitions, under chapter 11$520.0 million, an additional approximately $28.0 million at closing pursuant to initial working capital adjustments, plus an additional $4.3 million of Title 11consideration in accordance with the terms of the United States Code,Purchase Agreement (the “Acquisition”). The acquired entities now operate 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”)two new segments 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 purposePolygon name, one in Washington, with a core market of Seattle, and the Chapter 11 Cases was to restructure the Company’s debt obligations and strengthen its balance sheet.other in Oregon, with a core market of Portland.
On February 10, 2012,The Company financed the Bankruptcy Court confirmed the Plan. On February 24, 2012, the Company andAcquisition with a combination of proceeds from its subsidiaries consummated the principal transactions contemplated by the Plan, including (share amounts below reflect a 1-for-8.25 reverse stock split discussed above):
the issuance of 5,429,485 shares of the Company’s new Class A Common Stock, $0.01 par value per share (“Class A Common Stock”) and $75$300 million in aggregate principal amount of 12% Senior Subordinated Secured Notes7.00% senior notes due 2017 (“Second Lien Notes”) issued by the Company’s wholly-owned subsidiary, William Lyon Homes, Inc. (“Borrower”)2022, cash on hand including approximately $100 million of aggregate proceeds from several separate land banking arrangements with respect to land parcels located 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, LLCCalifornia, Washington 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 3,813,884 shares of the Company’s new Class B Common Stock, $0.01 par value per share (“Class B Common Stock”) and warrants to purchase 1,907,551 shares of Class B Common Stock;
the issuance of 7,858,404 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 1,571,680 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 381,091 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

F-12
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


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.
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 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.

F-13
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


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 canceled.
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.

Oregon,

F-14
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


CONSOLIDATED BALANCE SHEETSand 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 thousands except numberour 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 sharesPolygon 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 par value per share)
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:
 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 cash852
 —
   —
  852
Receivables12,790
 —
   (996)(m)  11,794
Real estate inventories         
Owned405,632
 4,029
(b)  (1,198)(n)  408,463
Not owned46,158
 —
   —
  46,158
Property & equipment, net962
 —
   (421)(o)  541
Deferred loan costs8,258
 (5,767)(c)  —
  2,491
Goodwill—
 —
   14,209
(p)  14,209
Intangibles—
 —
   9,470
(q)  9,470
Other assets6,307
 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 expenses31,391
 —
   221
(r)  31,612
Liabilities from inventories not owned46,158
 —
   —
   46,158
Notes payable78,394
 (5,000)(f)  1,100
(s)  74,494
Senior Secured Term Loan due January 31, 2015206,000
 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 expenses15,297
 (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 capital48,867
 (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 interest9,688
 —
   (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
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)


Notesinterest 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 Plan of Reorganization and Fresh Start Accounting Adjustments:

a.
Reflects 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.
b.Reflects contribution of land option deposit in lieu of cash for Class B Common Stock.
c.Reflects 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.
d.Reflects 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.
e.
Reflects 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.
f.Reflects repayment of amounts outstanding under the DIP Credit Agreement pursuant to the Plan.
g.Reflects the additional principal added to the Amended Term Loan, in accordance with the Plan.
h.
Reflects the issuance of Senior Subordinated Secured Notes of $75.0 million, in accordance with the Plan.
i.
Reflects 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.
j.
Reflects 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).
k.
Reflects 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.
l.
Reflects 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.
m.
Reflects 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.
n.
Reflects 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.
o.
Reflects 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.
p.Goodwill represents the excess of enterprise value upon emergence over fair value of net tangible and identifiable intangible assets acquired.
q.
Reflects 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.
r.
Reflects 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.
s.
Reflects 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%.
t.
Reflects 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).
u.
Reflects 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.

F-16
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


v.
Reflects 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 enterprisebe at historical value due to the reorganized valueshort-term nature of these liabilities.
The Company recorded $5.8 million in acquisition related costs for the Company’s assetsyear 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 determination2013 as if the Acquisition had been completed as of goodwill (in thousands)January 1, 2013 (amounts in thousands, except per share data):
Total enterprise value$485,000
Add: liabilities (excluding debt and equity)87,765
Add: noncontrolling interest8,100
Reorganization value of assets580,865
Fair value of assets (excluding goodwill)566,656
Reorganization value in excess of fair value (goodwill)$14,209
  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 4—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 PredecessorSuccessor Predecessor
Year Ended December 31, 2013 
Period from
February 25
through
December 31,
2012
 
Period from
January 1
through
February 24,
2012
 Year Ended December 31, 2011Year 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
 $—
$—
 $—
 $—
 $298,831
Plan implementation and fresh start valuation adjustments—
 —
 (49,302) —
—
 —
 —
 (49,302)
Professional fees(464) (2,525) (7,813) (21,182)—
 (464) (2,525) (7,813)
Write-off of Old Notes deferred loan costs—
 —
 (8,258) —
Write-off of old notes deferred loan costs—
 —
 —
 (8,258)
Total reorganization items, net$(464) $(2,525) $233,458
 $(21,182)$—
 $(464) $(2,525) $233,458


F-16
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Note 5—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, 20132014 and 2012,2013, the Company had threesix and twothree 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

F-17
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


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 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, 2014, the Company formed three joint ventures, and during the year ended December 31, 2013, the Company formed two joint ventures, Lyon Whistler, LLC and Brentwood Palmilla Owner, LLC, and during the year ended December 31, 2012, the Company formed a joint venture, Lyon Branches, LLC, for the purpose of land development and homebuilding activities. The Company, as the managing member, has the power to direct the activities of the VIEs since it manages the daily operations and has exposure to the risks and rewards of the VIEs, as based on the division of income and loss per the joint venture agreements. Therefore, the Company is the primary beneficiary of the joint ventures, and the VIEs were consolidated as of December 31, 20132014 and December 31, 2012.2013.
As of December 31, 2014, the assets of the consolidated VIEs totaled $88.1 million, of which $3.3 million was cash and $81.3 million was real estate inventories. The liabilities of the consolidated VIEs totaled $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.
As of December 31, 2012, the assets of the consolidated VIEs totaled $24.7 million, of which $1.1 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.
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 markets.

Washington, consisting of operations in the Seattle, Washington metropolitan area.
Oregon, consisting of operations in the Portland, Oregon metropolitan area.
Corporate develops and implements strategic initiatives and supports the Company’s operating 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
 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 California segment includes construction services revenue.
 

F-18
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


 Successor Predecessor
 Year Ended December 31, 2013 
Period from
February 25
through
December 31,
2012
 
Period from
January 1
through
February 24,
2012
 Year Ended December 31, 2011
 
Operating revenue:       
Southern California$216,731
 $116,619
 $7,759
 $130,737
Northern California78,291
 154,684
 11,014
 54,141
Arizona129,089
 58,714
 4,316
 20,074
Nevada78,148
 37,307
 2,481
 21,871
Colorado70,276
 5,436
 —
 —
Total operating revenue$572,535
 $372,760
 $25,570
 $226,823
 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 Predecessor
 Year Ended December 31, 2013 Period from
February 25
through
December 31,
2012		 Period from
January 1
through
February 24,
2012		 Year Ended December 31, 2011
 
Income (loss) before benefit (provision) for income taxes:       
Southern California$37,190
 $3,345
 $(19,131) $(26,406)
Northern California12,862
 16,179
 6,195
 (6,307)
Arizona17,861
 2,073
 9,928
 (95,184)
Nevada9,180
 (1,146) (1,738) (30,500)
Colorado736
 130
 —
 —
Corporate(24,528) (27,431) 233,243
 (34,491)
Income (loss) before benefit (provision)
from income taxes
$53,301
 $(6,850) $228,497
 $(192,888)
Income (loss) before benefit (provision) from income taxes includes the following pretax inventory impairment charges recorded in the following segments (in thousands):
 Successor Predecessor
 Year Ended December 31, 2013 Period from
February 25
through
December 31,
2012		 Period from
January 1
through
February 24,
2012		 Year Ended December 31, 2011
Southern California$—
 $—
 $—
 $17,962
Northern California—
 —
 —
 2,074
Arizona—
 —
 —
 87,607
Nevada—
 —
 —
 20,671
Colorado—
 —
 —
 —
Total impairment loss on real estate assets$—
 $—
 $—
 $128,314

F-19
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


SuccessorSuccessor
December 31,December 31,
2013 20122014 2013
Homebuilding assets:   
Southern California$275,975
 $195,688
Northern California143,693
 31,293
Total assets:   
California$572,900
 $419,668
Arizona157,892
 173,847
179,529
 157,892
Nevada85,695
 51,141
135,358
 85,695
Colorado60,233
 37,668
131,085
 60,233
Washington281,456
 —
Oregon200,761
 —
Corporate (1)286,923
 91,510
173,338
 286,923
Total homebuilding assets$1,010,411
 $581,147
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):
 
SuccessorSuccessor
December 31,December 31,
2013 20122014 2013
Real estate inventories owned:      
Land deposits$46,632
 $31,855
$65,873
 $46,632
Land and land under development458,437
 318,327
1,057,860
 458,437
Homes completed and under construction144,736
 50,847
225,496
 144,736
Model homes21,985
 20,601
55,410
 21,985
Total$671,790
 $421,630
$1,404,639
 $671,790
Real estate inventories not owned: (1)      
Other land options contracts — land banking arrangement$12,960
 $39,029
$—
 $12,960
 

F-19
Table of Contents
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 360which 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

F-20
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


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.
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 included moderate absorption increases in certain projects beginning in 2013. In addition, the Company had 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.
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.
During the year endedNote 7—Goodwill
As of December 31, 2011,2014 and 2013, the Company recorded impairment loss on real estate assetshad Goodwill of $128.3 million. The impairment loss related to land under development$60.9 million 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 impairment loss related 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, respectively. $14.2 million at December 31, 2014 and 2013, and 2012respectively represents the excess of enterprise value upon emergence from bankruptcy over the fair value of net tangible and identifiable intangible assets. The Company recorded goodwill of $14.2 millionassets as of February 24, 20122012. During the year ended December 31, 2014, the Company recorded $46.7 million of Goodwill in connection with fresh start accountingrelation to the acquisition of Polygon Northwest Homes (refer to NotesNote 2 3, and 4 for further details relating to fresh start accounting and valuationthe acquisition of goodwill)Polygon Northwest Homes).

F-21
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Goodwill by operating segment as of December 31, 20132014 and 20122013 is as follows (in thousands):
 
December 31,December 31,
2013 20122014 2013
Southern California$4,885
 $4,885
Northern California1,916
 1,916
California$6,801
 $6,801
Arizona5,951
 5,951
5,951
 5,951
Nevada1,457
 1,457
1,457
 1,457
Colorado—
 —
Washington26,485
 —
Oregon20,193
 —
Total goodwill$14,209
 $14,209
$60,887
 $14,209
Note 9—8—Intangibles
The carrying value and accumulated amortization of intangible assets at December 31, 20132014 and December 31, 2012,2013, by major intangible asset category, is as follows (in thousands):
 
December 31, 2013 December 31, 2012December 31, 2014 December 31, 2013
Carrying Value Accumulated Amortization 
Net
Carrying
Amount
 
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Amount
Carrying Value Accumulated Amortization 
Net
Carrying
Amount
 
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Amount
Construction management contracts$4,640
 $(2,274) $2,366
 $4,640
 $(1,295) $3,345
$4,640
 $(3,683) $957
 $4,640
 $(2,274) $2,366
Homes in backlog4,937
 (4,937) —
 4,937
 (4,169) 768
4,937
 (4,937) —
 4,937
 (4,937) —
Joint venture management fee contracts800
 (400) 400
 800
 (293) 507
800
 (800) —
 800
 (400) 400
Brand Name - Polygon Northwest Homes$6,700
 $—
 $6,700
 $—
 $—
 $—
Total intangibles$10,377
 $(7,611) $2,766
 $10,377
 $(5,757) $4,620
$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 $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 February 24, 2012 or prior, since intangible assets of $9.5 million were recorded in conjunction with ASC 852 and intangible assets of $0.9 million were recorded in conjunction with the purchase of Village Homes on December 7, 2012.
Estimated future amortization expense related to intangible assets is as follows (in thousands):
 Total
 Amortization
20141,380
20151,386
Total$2,766
The weighted average remaining useful life of intangible assets as of December 31, 2013 is 18 months.







F-22
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Note 10—Senior Notes and Secured Indebtedness
Senior notes and Notes payable consist of the following (in thousands):
 December 31,
 2013 2012
Notes payable   
Construction notes payable$24,198
 $13,248
Seller financing13,862
 —
Total notes payable$38,060
 $13,248
Senior notes   
8  1/2% Senior notes due November 15, 2020
$431,295
 $325,000
Total Senior notes and Notes payable$469,355
 $338,248
The maturities of the 8 ½% Senior notes and Notes payable are as follows as of December 31, 2013 (in thousands):
Year Ended December 31, 
2014$1,761
201512,965
201623,334
2017—
2018—
Thereafter425,000
 $463,060

Maturities above exclude premium of $6,295 as of December 31, 2013.

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, 2013 and December 31, 2012, the outstanding principal amount of the New Notes and Additional Notes was $425 million and $325.0 million. The New Notes bear interest at an annual rate of 8.5% per annum and 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 secured basis by Parent and by certain of Parent’s existing and future restricted subsidiaries. The New Notes and the guarantees rank senior to all of California Lyon’s and the guarantors’ existing and future unsecured senior debt and 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

F-23F-20
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


accruedFebruary 24, 2012 or prior, since intangible assets of $9.5 million were recorded in conjunction with fresh start accounting and unpaid interestintangible assets of $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, respectively.
The Company estimates that its future amortization expense related to the applicable redemption date, if redeemedintangible assets will be $1.0 million, and that it will be recorded entirely during the 12-month period beginning on November 152015. The weighted average remaining useful life of the years indicated below:Company's amortizing intangible assets as of December 31, 2014 is 6 months.
Note 9—Senior Notes, Secured, and Subordinated Indebtedness
The Company's senior notes, secured, and subordinated indebtedness consists of the following (in thousands):
 
YearPercentage
2016104.250%
2017102.125%
2018 and thereafter100.000%
 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
Prior to November 15, 2016 the New Notes may be redeemed in whole or in part at a redemption price equal to 100%The maturities of the principal amount plus a “make-whole” premium,Company's Notes payable, Senior unsecured credit facility, Subordinated amortizing notes, 5 3/4% Senior Notes, 8 1/2% Senior Notes, 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 New7% Senior 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 (expressedare 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.
The indenture governing the New Notes (the “Indenture”) contains covenants that limit the ability of the Company and its restricted subsidiaries to, among other things: (i) incur or guarantee certain additional indebtedness; (ii) pay dividends or make other distributions or repurchase stock; (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’s assets. These covenants are subject to a number of important exceptions and qualifications as described in the Indenture. The Company is in compliance with all such covenantsfollows as of December 31, 2013.2014 (in thousands):
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 LyonLyon"), 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

F-21
Table of Contents
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 the CompanyParent and certain of the Company’sParent’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, 2013,2014, the Company had not drawn any amounts under this facility, but had issuedRevolver was undrawn, other than a letter of credit for $4.0 million, reducingwhich reduces the amount available under the facility.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
     
(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

F-22
Table of Contents
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 2019
On March 5,31, 2014, California Lyon completed its private placement with registration rights of 5.75% Senior Notes due 2019 (the "5.75% Notes"), in an aggregate principal amount of $150 million. The 5.75% Notes were issued at 100% of their aggregate principal amount.
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 April 15 and October 15, and mature on April 15, 2019. The 5.75% Notes are unconditionally guaranteed on a joint and several unsecured basis by Parent and by certain of Parent’s existing and future restricted subsidiaries. The 5.75% Notes and the related guarantees are California Lyon’s and the guarantors’ unsecured senior obligations and rank equally in right of payment with all of California Lyon’s and the guarantors’ existing and future unsecured senior debt, including California Lyon’s $425 million in aggregate principal amount of 8.5% Senior Notes due 2020, and $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 5.75% Notes and the guarantees are and will be effectively junior to California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.
On or after April 15, 2016, California Lyon may redeem all or a portion of the 5.75% 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 period beginning on each of the dates indicated below:

F-23
Table of Contents
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 April 15, 2016, the 5.75% 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 entered intocompleted 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 Revolving Lineprivate placement, resulting in net proceeds of Credit Loan Agreement (the “CB&T Loan Agreement”), with California Bank & Trust (“CB&T”), providing for a revolving lineapproximately $104.7 million.
As of creditDecember 31, 2014 and December 31, 2013, the outstanding principal amount of $30.0the New Notes and Additional Notes was $425 million (the “CB&T Loan”(together, hereinafter the "New Notes"). The CB&T Loan, as amended, provides California Lyon with funds for the developmentNew Notes bear interest at an annual rate of residential lots, the construction8.5% 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 residential home projects withinrestricted subsidiaries. The New Notes and the statesrelated guarantees are California Lyon's and the guarantors' unsecured senior obligations and rank equally in right of payment with all of California Arizona, NevadaLyon's and Colorado, the issuanceguarantors' 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 letterspayment to all of credit forCalifornia Lyon’s and the paymentguarantors’ future subordinated debt. The New Notes and the guarantees are and will be effectively junior to any of costs incurredCalifornia Lyon’s and the guarantors’ existing and future secured debt.
On or associated with those projects and other general corporate purposes. In connection with the executionafter November 15, 2016, California Lyon may redeem all or a portion of the CB&T Loan Agreement,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 promissory note (the “CB&T Promissory Note”)redemption price (expressed as a percentage of principal amount) of 108.5%, plus accrued and together with the CB&T Loan Agreement and any ancillary documents and agreements executed pursuantunpaid interest to the CB&T Loan Agreement, (the “CB&T Loan Documents”), in favor of CB&T. California Lyon’sredemption date, with an amount equal to the net cash proceeds from one or more equity offerings.

F-24
Table of Contents
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 CB&T Loan2022 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 5.75% Notes, the 8.5% Notes, and the 7.00% Notes contain covenants that limit the ability of Parent, California Lyon, and their restricted subsidiaries to, among other things, a first lien on and security interestthings: (i) incur or guarantee certain additional indebtedness; (ii) pay dividends, distributions, or repurchase equity or make payments in allrespect of subordinated indebtedness; (iii) make certain investments; (iv) sell assets; (v) incur liens; (vi) enter into agreements restricting the real and personal property comprising each qualified project that is secured by the CB&T Loan. Borrowings under the CB&T Loan Agreement bore interest, payable monthly, at California Lyon’s option of either (i) a fixed rate at LIBOR plus 3.00% per annum or (ii) a variable rate at the Prime Rate, as adjusted by CB&T in accordance with the CB&T Loan Agreement, plus 1.00% per annum. The floor interest rate for borrowings under the CB&T Loan Agreement range from 4.25% to 5.00%, depending on California Lyon’s total debt to tangible net worth ratio. Beginning on March 5, 2015, the maximum amount available under the CB&T Loan would have been reduced by $7.5 million every 90 days until the CB&T Loan matures. The CB&T Loan was scheduled to mature on March 5, 2016.
In March 2013, oneability of the outstanding construction loans payableCompany’s restricted subsidiaries to pay dividends or transfer assets; (vii) enter into transactions with affiliates; (viii) create unrestricted subsidiaries; and its underlying collateral was rolled into the CB&T Loan. In July 2013, the Company repaid(viii) consolidate, merge or sell all or substantially all of its assets. These covenants are subject to a number of important exceptions and qualifications as described in the outstanding balance of the CB&T loan. On October 30, 2013, theindentures. The Company terminated the CB&T Loan.

Construction Notes Payable
In December 2013, the Company entered into a construction notes payable agreement. The agreement has total availability under the facility of $18.6 million, to be drawn for land development and construction of its joint venture projects. The facility consists of an $11.5 million revolving facility and a $7.1 million promissory note. The facility matureswas in January 2016 and bears interest at the Company's option of either LIBOR +3.0% or the prime rate +1.0%. At December 31, 2013 the interest rate on the facility was 4.25%, and the Company had $2.1 million outstanding.
In June 2013, the Company entered into a construction note payable agreement. The agreement has total availability under the facility of $28.0 million, to be drawn for land development and construction on one of its joint venture projects. The loan matures in June 2016 and bears interest at the prime rate +0.5%,compliance with a rate floor of 4.0%, which was the interest rateall such covenants as of December 31, 2013. As of December 31, 2013, the Company had borrowed $21.2 million under this facility. The loan will be repaid with proceeds from home closings of the project, is secured by the underlying project, and is guaranteed by the Company.
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 had an original maturity date in September 2015 and bore interest at the prime rate +1.0%, with a rate floor of 5.0%. In March 2013, this loan and the underlying collateral was rolled into the CB&T Loan Agreement, defined and discussed above. As of December 31, 2012, the Company had borrowed $7.8 million under this facility.
The second September 2012 construction note 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 bears interest at prime rate +1%, with a rate floor of 5.0%, which was the interest rate as of December 31, 2013. At December 31, 2013 and December 31, 2012, the Company had borrowed $0.9 million and $5.4 million under this facility.
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, 2013, the Company had $13.9 million of notes payable outstanding relating to two land acquisitions for which seller financing was provided. The first note had a balance of $1.8 million as of December 31, 2013, bears interest at 3% per annum, is secured by the underlying land, and matures in March 2014. The second note had a balance of $12.1 million as of December 31, 2013, bears interest at 7% per annum, is secured by the underlying land, and matures in May 2015.

 

F-25
Table of Contents
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, 20132014 and 2012;2013; consolidating statements of operations and cash flows 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, and the year ended December 31, 2011; and consolidating statements of cash flows for 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, 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, 20132014 and 2012,2013, and 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, and the year ended December 31, 2011.2012.

F-26
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


CONSOLIDATING BALANCE SHEET
December 31, 20132014 (Successor)
(in thousands)
 
 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—
 15,742
 72
 5,025
 —
 20,839
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



 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
December 31, 20122013 (Successor)
(in thousands)
 
Unconsolidated    Unconsolidated    
Delaware
Lyon
 
California
Lyon
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Company
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
$—
 $166,516
 $28
 $5,128
 $—
 $171,672
Restricted cash—
 853
 —
 —
 —
 853
—
 854
 —
 —
 —
 854
Receivables—
 11,278
 296
 3,215
 —
 14,789
—
 11,429
 5
 5,025
 —
 16,459
Escrow proceeds receivable—
 4,313
 67
 —
 —
 4,380
Real estate inventories          

           
Owned—
 398,952
 13
 22,665
 —
 421,630
—
 608,965
 3,761
 59,064
 —
 671,790
Not owned—
 39,029
 —
 —
 —
 39,029
—
 12,960
 —
 —
 —
 12,960
Deferred loan costs—
 7,036
 —
 —
 —
 7,036
—
 9,575
 —
 —
 —
 9,575
Goodwill—
 14,209
 —
 —
 —
 14,209
—
 14,209
 —
 —
 —
 14,209
Intangibles—
 4,620
 —
 —
 —
 4,620
—
 2,766
 —
 —
 —
 2,766
Deferred income taxes, net—
 95,580
 —
 —
 —
 95,580
Other assets—
 7,437
 146
 323
 —
 7,906
—
 9,100
 723
 343
 —
 10,166
Investments in subsidiaries62,712
 22,148
 —
 —
 (84,860) —
428,179
 9,975
 —
 —
 (438,154) —
Intercompany receivables—
 —
 207,239
 18,935
 (226,174) —
—
 —
 225,056
 (15) (225,041) —
Total assets$62,712
 $574,938
 $207,759
 $46,772
 $(311,034) $581,147
$428,179
 $946,242
 $229,640
 $69,545
 $(663,195) $1,010,411
LIABILITIES AND EQUITY                      
Accounts payable$—
 $17,998
 $39
 $698
 $—
 $18,735
$—
 $12,489
 $1,959
 $2,651
 $—
 $17,099
Accrued expenses—
 41,505
 213
 52
 —
 41,770
—
 59,375
 744
 84
 —
 60,203
Liabilities from inventories not owned—
 39,029
 —
 —
 —
 39,029
—
 12,960
 —
 —
 —
 12,960
Notes payable—
 7,809
 —
 5,439
 —
 13,248
—
 12,281
 1,762
 24,017
 —
 38,060
8 1/2% Senior Notes
—
 325,000
 —
 —
 —
 325,000
—
 431,295
 —
 —
 —
 431,295
Intercompany payables—
 217,146
 —
 9,028
 (226,174) —
—
 214,837
 —
 10,204
 (225,041) —
Total liabilities—
 648,487
 252
 15,217
 (226,174) 437,782
—
 743,237
 4,465
 36,956
 (225,041) 559,617
Redeemable convertible preferred stock—
 71,246
 —
 —
 —
 71,246
Equity                      
William Lyon Homes stockholders’ equity (deficit)62,712
 (144,795) 207,507
 22,148
 (84,860) 62,712
William Lyon Homes stockholders’ equity428,179
 203,004
 225,175
 9,975
 (438,154) 428,179
Noncontrolling interests—
 —
 —
 9,407
 —
 9,407
—
 —
 —
 22,615
 —
 22,615
Total liabilities and equity$62,712
 $574,938
 $207,759
 $46,772
 $(311,034) $581,147
$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-28F-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-29F-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-30F-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-31
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


CONSOLIDATING STATEMENT OF OPERATIONS
(DEBTOR-IN-POSSESSION)
Year Ended December 31, 2011 (Predecessor)
(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)
 


 

F-32
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended December 31, 20132014 (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$—
 $(164,848) $15,759
 $(25,445) $—
 $(174,534)
Investing activities           
Purchases of property and equipment—
 (3,651) (104) 1
 —
 (3,754)
Investments in subsidiaries—
 35,574
 —
 —
 (35,574) —
Net cash provided by (used in) investing activities—
 31,923
 (104) 1
 (35,574) (3,754)
Financing activities           
Proceeds from borrowings on notes payable—
 18,969
 1,762
 52,879
 —
 73,610
Proceeds from issurance of 8 1/2% Senior Notes—
 106,500
 —
 —
 —
 106,500
Principal payments on notes payable—
 (30,735) —
 (34,302) —
 (65,037)
Proceeds from issuance of common stock—
 163,685
 —
 —
 —
 163,685
Payment of deferred loan costs—
 (4,060) —
 —
 —
 (4,060)
Payment of preferred stock dividends—
 (2,550) —
 —
 —
 (2,550)
Noncontrolling interest contributions—
 —
 —
 37,184
 —
 37,184
Noncontrolling interest distributions—
 —
 —
 (30,447) —
 (30,447)
Advances to affiliates—
 —
 362
 (17,914) 17,552
 —
Intercompany receivables/payables—
 (21,744) (17,816) 21,538
 18,022
 —
Net cash provided (used in) by financing activities—
 230,065
 (15,692) 28,938
 35,574
 278,885
Net (decrease) increase in cash and cash equivalents—
 97,140
 (37) 3,494
 —
 100,597
Cash and cash equivalents at beginning of period—
 69,376
 65
 1,634
 —
 71,075
Cash and cash equivalents at end of period$—
 $166,516
 $28
 $5,128
 $—
 $171,672









 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 CASH FLOWS
Year Ended December 31, 2013 (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$—
 $(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    Unconsolidated    
Delaware
Lyon
 
California
Lyon
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
Company
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
$—
 $(72,014) $3,579
 $118,428
 $—
 $49,993
Investing activities                      
Cash paid for acquisitions, net—
 (33,201) —
 —
 —
 (33,201)—
 (33,201) —
 —
 —
 (33,201)
Purchases of property and equipment—
 (271) (20) (21) —
 (312)—
 (271) (20) (21) —
 (312)
Investments in subsidiaries—
 (84,828) —
 —
 84,828
 —
—
 (84,828) —
 —
 84,828
 —
Net cash used in investing activities—
 (118,300) (20) (21) 84,828
 (33,513)—
 (118,300) (20) (21) 84,828
 (33,513)
Financing activities                      
Proceeds from borrowings on notes payable—
 7,809
 —
 5,439
 —
 13,248
—
 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
—
 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)—
 (235,000) —
 —
 —
 (235,000)
Principal payments on Senior Subordinated Secured Notes—
 (75,916) —
 —
 —
 (75,916)—
 (75,916) —
 —
 —
 (75,916)
Proceeds from issuance of convertible preferred stock—
 14,000
 —
 —
 —
 14,000
—
 14,000
 —
 —
 —
 14,000
Proceeds from issuance of common stock—
 16,000
 —
 —
 —
 16,000
—
 16,000
 —
 —
 —
 16,000
Payment of deferred loan costs—
 (7,181) —
 —
 —
 (7,181)—
 (7,181) —
 —
 —
 (7,181)
Payment of preferred stock dividends—
 (1,721) —
 —
 —
 (1,721)—
 (1,721) —
 —
 —
 (1,721)
Noncontrolling interest contributions—
 —
 —
 15,313
 —
 15,313
—
 —
 —
 15,313
 —
 15,313
Noncontrolling interest distributions—
 —
 —
 (16,004) —
 (16,004)—
 —
 —
 (16,004) —
 (16,004)
Advances to affiliates—
 —
 3
 78,817
 (78,820) —
—
 —
 3
 78,817
 (78,820) —
Intercompany receivables/payables—
 144,535
 (3,549) (134,978) (6,008) —
—
 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)—
 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)
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
—
 76,158
 52
 4,322
 —
 80,532
Cash and cash equivalents at end of period$—
 $69,376
 $65
 $1,634
 $—
 $71,075
$—
 $69,376
 $65
 $1,634
 $—
 $71,075

 

F-34F-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-35
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

 


F-36
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Note 11—10—Fair Value of Financial Instruments
In accordance with FASB ASC Topic 820 Fair Value Measurements and Disclosure, (“ASC 820”) the Company is required to disclose the estimated fair value of financial instruments. As of December 31, 20132014 and 2012,2013, the Company used the following assumptions to estimate the fair value of each type of financial instrument for which it is practicable to estimate:

•
8  1/2% Senior Notes—The 8  1/2% Senior Notes are traded over the counter and their fair values were based upon quotes from industry sources;
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.

•
5  3/4% Senior Notes—The 5  3/4% Senior Notes are traded over the counter and their fair value was based upon 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 Notes—The 7% Senior Notes are traded over the counter and their fair value was based upon 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, 2013 December 31, 2012December 31, 2014 December 31, 2013
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
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
$431,295
 $466,877
 $325,000
 $338,000
430,149
 462,410
 431,295
 466,877
Notes payable$38,060
 $38,060
 $13,248
 $13,248
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 Subordinated amortizing notes, and Level 2 to measure the fair value of its 8 1/2% Senior Notes. ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. The three levels of the hierarchy are as follows:

Level 1—quoted prices for identical assets or liabilities in active markets;
Level 2—quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and 
Level 3—valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.









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:
 
Notes
Payable
 
Senior
Secured
Term Loan
Notes
Payable
 Subordinated Amortizing Notes
(in thousands)(in thousands)
Fair Value at December 31, 2011 (Predecessor)$74,009
 $235,000
Fair Value at December 31, 2012$13,248
 $—
Repayments of principal (1)(74,009) (235,000)(65,037) —
Borrowings of principal (2)13,248
 —
89,849
 —
Fair Value at December 31, 2012 (Successor)$13,248
 $—
Fair Value at December 31, 201338,060
 —
Repayments of principal (1)(65,037) —
(96,464) —
Borrowings of principal (2)89,849
 —
97,639
 20,717
Fair Value at December 31, 2013 (Successor)$38,060
 $—
Fair Value at December 31, 2014$39,235
 $20,717
 

(1)Represents the actual amount of principal repaid
(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 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.
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

F-38
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


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 ended 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—11—Related Party Transactions
For the year 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 year ended December 31, 2011, the Company incurred reimbursable on-site labor costs of $19,000, $15,000, $27,000, and $276,000, and $318,000, respectively, for providing customer service to real estate projects developed by entities controlled by William Lyon and William H. Lyon. At December 31, 20132014 and December 31, 2012,2013, $3,000 and $13,000, and $7,000, 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 and a variable monthly fee equal to $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). 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 and $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 during the year ended December 31, 2011, 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 million, (which value was the appraised fair market value of the Aircraft), which consisted of: (i) cash in the amount of $2.1 million to be paid at closing and (ii) a promissory note from the affiliate in the amount of $6.2 million. The note 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. As of December 31, 2014 and 2013, the amortized balance of the note was $5.8 million and $5.6 million, respectively.

F-38
Table of Contents
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, and the year ended December 31, 2011 the Company incurred charges of $197,000, $118,000 and $668,000, and $786,000, respectively, related to rent on its corporate office, from a trust of which William H. Lyon is the sole beneficiary. The lease expired in March 2013 and the Company relocated 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
Since inception, the Company has operated solely within the United States.

The following summarizes the (provision) benefit (provision) from income taxes (in thousands):


F-39
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Successor PredecessorSuccessor Predecessor
Year Ended December 31, 
Period from
February 25
through
December 31,
2012
 
Period from
January 1
through
February 24,
2012
 
Year Ended
December 31,
Year Ended December 31, Year Ended December 31, 
Period from
February 25
through
December 31,
2012
 
Period from
January 1
through
February 24,
2012
2013 20112014 2013 
Current              
Federal$(12,156) $—
 $—
 $—
$(13,284) $(12,156) $—
 $—
State(1,132) (11) —
 (10)(2,691) (1,132) (11) —
Deferred              
Federal74,000
 —
 —
 —
(4,748) 74,000
 —
 —
State21,590
 —
 —
 —
(3,074) 21,590
 —
 —
$82,302
 $(11) $—
 $(10)$(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  Successor Predecessor
Year Ended December 31, 
Period from
February 25
through
December 31,
2012
 
Period from
January 1
through
February 24,
2012
 
Year Ended
December 31,
Year Ended December 31, Year Ended December 31, 
Period from
February 25
through
December 31,
2012
 
Period from
January 1
through
February 24,
2012
2013 20112014 2013 
(Provision) benefit for federal income taxes at the statutory rate$(18,656) $3,098
 $(79,935) $67,662
$(27,413) $(18,656) $3,098
 $(79,935)
Increases/(decreases) in tax resulting from:              
Provision for state income taxes, net of federal income tax benefits13,297
 (7) —
 (6)(3,784) 13,297
 (7) —
Change in valuation allowance153,526
 (2,195) (14,991) (66,265)1,629
 153,526
 (2,195) (14,991)
Nondeductible items-reorganization costs—
 (709) 94,925
 (1,379)—
 —
 (709) 94,925
Nondeductible items-other2,778
 (194) (3) (22)2,127
 513
 (194) (3)
Non-controlling interests3,465
 2,265
 —
 —
Cancellation of indebtedness attribute reduction(70,993) —
 —
 —
(4) (70,993) —
 —
Other, net (1)
2,350
 (4) 4
 —
183
 2,350
 (4) 4
$82,302
 $(11) $—
 $(10)$(23,797) $82,302
 $(11) $—
 
(1) Consists primarily of amounts relating to the acquisition of the Company's Colorado segment,recognized built-in losses that will expire unused due to limitations under IRC §382 and the write-off of certain historical deferred amounts.return to provision true-ups.        

Temporary differences giving rise to deferred income taxes consist of the following (in thousands):
 

F-40F-39
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


December 31,December 31,
2013 20122014 2013
Deferred tax assets      
Impairment and other reserves$79,454
 $73,947
$65,063
 $79,454
Compensation deductible for tax purposes when paid5,430
 987
9,130
 4,588
State income tax provisions deductible when paid for federal tax purposes309
 4
Effect of book/tax differences for joint ventures—
 1,002
Effect of book/tax differences for capitalized interest/general and administrative308
 —
Goodwill and other intangibles2,176
 —
2,582
 2,176
AMT credit carryover1,384
 2,698
1,384
 1,384
Unused recognized built-in loss25,914
 16,349
27,645
 25,914
Net operating loss3,545
 113,314
1,776
 3,545
Valuation allowance(3,959) (200,048)(1,626) (3,959)
Other817
 318
1,556
 1,126
115,378
 8,571
107,510
 114,228
Deferred tax liabilities      
Effect of book/tax differences for joint ventures(6,077) (5,597)(2,974) (6,077)
Effect of book/tax differences for capitalized interest/general and administrative(9,568) (2,974)(13,203) (9,260)
Compensation deductible for tax purposes when paid(842) —
Fixed assets and intangibles(2,518) —
(2,104) (2,518)
Other(793) —
(1,190) (793)
(19,798) (8,571)(19,471) (18,648)
Total deferred tax assets, net$95,580
 $—
$88,039
 $95,580
The Company’s effective income tax rate was 30.4%, and (154.5)% for the twelve months ended December 31, 2014 and 2013, respectively. The significant drivers of the effective tax rate are allocation of income to noncontrolling interests, related party loss recapture, domestic production activities deduction, state income taxes, and release of valuation allowance.
Management assesses its deferred tax assets quarterly to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740. The Company is required to establish a valuation allowance for any portion of the asset that management concludes is more likely than not to be unrealizable. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Thedeductible.The Company's assessment considers all evidence, both positive and negative, including the nature, frequency and severity of ourany current and cumulative losses, taxable income in carry back years, the scheduled reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income in making this assessment. At 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, 2013 would be realized.    

The remaining valuation allowance at December 31, 2013 relates to projected excess realized built-in-losses and state net operating losses which may expire unused. For the year ended December 31, 2012, due to uncertainties surrounding the realization of the cumulative federal and state deferred tax assets, the Company had a full valuation allowance against the deferred tax assets for the year in the amount of $200.0 million (of which $80.7 million were reduced due to attribution reduction which was required as a result of the 2012 cancellation of indebtedness event).
At December 31, 2013,2014, the Company had no remaining federal net operating loss carryforwards and $78.0$38.1 million remaining state net operating loss carryforwards. State net operating loss carryforwards begin to expire in 2014.2015. In addition, as of December 31, 2013,2014, the Company had unused federal and state built-in losses of $67.6$74.5 million and $37.7$40.1 million,,

F-41
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


respectively. The 5 year testing period for built-in losses expires in 2017 and the unused built-in loss carryforwards begin to expire in 2033.at the end of 2032. The Company had AMT credit carryovers of $1.4 million at December 31, 2013,2014, which had an indefinite life.
The Company’s effective income tax rate was (154.5)%, 0.01%, and 0.0% 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, respectively. The primary driver of the Company’s effective tax rate was the release of the majority of the valuation allowance against its deferred tax assets. Other factors impacting the effective rate included the Company’s positive operating results, the estimated domestic productions activities deduction, the reduction of tax attributes described below related to the emergence from bankruptcy, and adjustments related to the filing of the 2012 Federal tax return.
In connection with the Company’s emergence from the Chapter 11 bankruptcy proceedings, the Company experienced an “ownership change” as defined in Section 382 of the Internal Revenue Code, or the IRC, as of February 25, 2012. Section 382 of the IRC contains rules that limit the ability of a company that undergoes an “ownership change” to utilize 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, built in losses 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 is 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 of $3.6 million during the 20 year carryforward period allowed under tax law, 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 addition to the impact on Tax Attributes listed above, the Company is also subject to Tax Attribute reduction pursuant to various provisions contained in IRC Section 108(e) related to the Company’s issuance of 5,429,485 shares of Parent’s new Class A Common Stock, $0.01 par value per share, and a $75 million principal amount 12% Senior Subordinated Secured Note due 2017, issued by California Lyon in conjunction with the Company’s restructure, in exchange for the claims held by the holders of the formerly outstanding notes of California Lyon. These transactions resulted in Cancellation of Debt (COD) income for income tax purposes of approximately $203 million. IRC Section 108(a)(1)(A) provides that COD income is excluded from gross income when the discharge occurs in a Title 11 case under the jurisdiction of the bankruptcy court. However, pursuant to IRC Section 108(b)(1), if COD income is excluded due to the application of the bankruptcy exception, the amount of excluded COD income must generally be applied to reduce certain tax attributes of the debtor. In general, such attributes would normally be reduced in the following order: (1) net operating losses (current and carryforward); (2) general business tax credits; (3) minimum tax credits; (4) capital loss carryovers; (5) tax basis of the taxpayer’s assets; (6) passive activity losses and credit carryovers; and (7) foreign tax credit carryovers. This Tax Attribute reduction occurred on January 1, 2013, and resulted in a $69.2 million reduction to the value of our net operating losses with an offsetting reduction to our deferred tax asset valuation allowance.
Under a provision of the federal tax code which was clarified in July 2013 by a final treasury regulation, the Company employed a tax strategy in its 2012 federal tax return to utilize its federal NOLs by electing to accelerate the recognition of a deferred gain, resulting in positive taxable income and a tax liability for the 2012 tax year. This additional liability and tax provision of approximately $1.2 million was recognized with the filing of the 2012 income tax returns in 2013.

Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109” (“FIN 48”) which is now codified as FASB ASC Topic 740, Income Taxes (“ASC 740”). ASC 740 prescribes a recognition threshold and a measurement criterion for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be considered more likely than not to be sustained upon examination by taxing authorities. The Company records interest

F-40
Table of Contents
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. TheAs of December 31, 2014 and 2013, the Company hashad no unrecognizedsignificant uncertain tax benefits.

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 2010ended 2011 through 2013.2013 and forward. The Company is subject to various state income tax examinations for calendar tax years ending 2009ended 2010 through 2013.2013 and forward. The Company does not have any tax examinations currently in progress.


F-42
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Note 14—Business Combination
The Company acquired 100% of various entities which operate under the Village Homes brand (“Village Homes”) in the Denver metropolitan area, Fort Collins, 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, net1,463
Intangibles907
Receivables70
Accounts payable(1,029)
Accrued expenses(1,133)
Cash paid for acquisitions, net$33,201
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 operations for the period from February 25, 2012 through December 31, 2012.
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, 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)
    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
 $(189,457)
(Loss) income per common share, basic and diluted$(0.77)  $228,074
 $(189,457)
Weighted average common shares outstanding, basic and diluted12,489,435
  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.
Note 15—13—Income (Loss) Per Common Share
Basic and diluted income (loss) income per common share 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 and the year ended December 31, 2011 were calculated as follows (in thousands, except number of shares and per share amounts):
 

F-43

Successor  PredecessorSuccessor  Predecessor
Year Ended December 31, 2013 
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, 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 outstanding24,736,841
 12,489,435
  1,000
 1,000
31,753,110
 24,736,841
 12,489,435
  1,000
Effect of dilutive securities:                
Preferred shares, stock options, and warrants (1)1,059,356
 —
  N/A
 N/A
1,424,272
 1,059,356
 —
  —
Tangible Equity Units58,961
 —
 —
  —
Diluted average shares outstanding25,796,197
 12,489,435
  1,000
 1,000
33,236,343
 25,796,197
 12,489,435
  1,000
Net income (loss) available to common stockholders$127,604
 $(11,602)  $228,383
 $(193,330)$44,625
 $127,604
 $(11,602)  $228,383
Basic income (loss) per common share$5.16
 $(0.93)  $228,383
 $(193,330)$1.41
 $5.16
 $(0.93)  $228,383
Dilutive income (loss) per common share$4.95
 $(0.93)  $228,383
 $(193,330)$1.34
 $4.95
 $(0.93)  $228,383
Antidilutive securities not included in the calculation of diluted loss per common share (weighted average):        
Potentially antidilutive securities not included in the calculation of diluted loss per common share (weighted average):        
Preferred sharesN/A
 8,242,731
  N/A
 N/A
N/A
 N/A
 8,242,731
  N/A
Vested stock optionsN/A
 384,428
  N/A
 N/A
N/A
 N/A
 384,428
  N/A
Unvested stock optionsN/A
 192,214
  N/A
 N/A
N/A
 N/A
 192,214
  N/A
WarrantsN/A
 1,907,551
  N/A
 N/A
N/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
On May 21, 2013, the Company completed its initial public offering of shares of Class A Common Stock. In connection with the initial public offering, the Company 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. As a result, on May 21, 2013 all outstanding shares of Convertible Preferred stock were converted to Class A Common Stock. The Company had no outstanding shares of Convertible Preferred Stock at December 31, 2013 .
As of December 31, 2012, there were 9,334,030 shares of Convertible Preferred Stock, $0.01 par value per share, or the Convertible Preferred Stock, outstanding, of which 7,858,404 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) 1,847,042 shares of Class A Common Stock, for $16.0 million in cash and (ii) 1,475,626 shares of the Company’s Convertible Preferred Stock, for $14.0 million in cash, for an aggregate purchase price of $30.0 million.
Holders of our Convertible Preferred Stock were 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 year ended December 31, 2013 and the period from February 25, 2012 through December 31, 2012, the company recorded preferred stock dividends of $1.5 million and $2.7 million, respectively. During the year ended December 31, 2013 and the period from February 25, 2012 through December 31, 2012, $2.6 million and $1.7 million were paid in cash, respectively. As of December 31, 2012 $0.9 million of accreting dividends were included in Convertible Preferred Stock.

F-44
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Note 17—14—Equity
Common Stock
As of December 31, 2013, the Company had 31,436,167 share of common stock outstanding. 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.
The Company’s authorized capital stock 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, 30,000,000 of which are designated as Class B Common Stock with a par value of $0.01 per share 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, 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 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 is retroactively applied to the Condensed Consolidated Balance Sheet as of December 31, 2012, the Condensed Consolidated Statements of Operations for the period from February 25, 2012 through December 31, 2012, and the Condensed Consolidated Statement of Equity, presented herein. Upon completion of the initial public offering, the Company 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.
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, 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.securities, with the exception of holders of our Class B Common Stock, which do have certain preemptive rights.

F-41
Table of Contents
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 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 common stock of $43.1 million to common stock as of February 24, 2012.
Warrants
The holders of Class B Common Stockcommon stock hold warrants to purchase 1,907,551 shares of Class B Common Stockcommon stock at an exercise price of $2.0717.08 per share. The expiration date of the Class B Warrants is February 24, 20172022. The Warrants were assigned a value of $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.

F-45
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Under the plan, 3,636,363 shares of the Company’s Class A common stock have been reserved for issuance. In 2014, 2013 and 2012, the Company granted an aggregate of 392,126 restricted shares, 370,959 restricted shares and 302,944 respectively, restricted shares, respectively, of Class A common stock of the Company, and in 2012 the Company granted an aggregate of 576,651 stock options to purchase shares of Class A common stock of the Company, of which 135,197 represent “five-year” options and 441,454 represent “ten-year” options.
The five-year options were originally subject to mandatory exercise upon the earlier of an initial public offering (“IPO”) of the Company, or five years. The five-year options were modified during 2013 to extend the mandatory exercise period to the first 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 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 31,091 shares of

F-42
Table of Contents
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. EachDuring 2013 and 2014, with respect to all but one of the performaceperformance 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 anniversaries ofyears following the grant date, subject to the Company'sCompany’s achievement of a pre-established return on equityperformance target as of the end of the 2013given 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 each of the officer's continued service through each vesting date. Allall 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.
 
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.
 
 Year Ended December 31, 2014Year Ended December 31, 2013 
Period from
February 25, 2012
through December 31, 2012
Year Ended December 31, 2011
   
Expected dividend yieldN/A —%N/A N/A—%
Risk-free interest rateN/A 0.55%N/A N/A0.55%
Expected volatilityN/A 79%N/A N/A79%
Expected life (in years)N/A 4.73
N/A		 N/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.


F-46
TableAs of ContentsDecember 31, 2014, the Company has 2,096,624 shares available for grant under the Plan.
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Summary of Stock Option Activity
Stock option activity under the Plan for the yearyears ended December 31, 2014, December 31, 2013 and 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):
 

F-43
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Year Ended December 31, 2013 
Period from February 25, 2012 through
December 31, 2012
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 Weighted
Average
Exercise
Price		 Options 
Weighted
Average
Exercise
Price
Options outstanding at beginning of year576,651
 $8.66
 —
 N/A
576,651
 $8.66
 576,651
 $8.66
 —
 N/A
Granted (1)—
 N/A
 576,651
 $8.66
—
 N/A
 —
 N/A
 576,651
 $8.66
Exercised—
 N/A
 —
 N/A
(157,413) 8.66
 —
 N/A
 —
 N/A
Cancelled—
 N/A
 —
 N/A
Canceled—
 N/A
 —
 N/A
 —
 N/A
Options outstanding at end of year576,651
 $8.66
 576,651
 $8.66
419,238
 $8.66
 576,651
 $8.66
 576,651
 $8.66
Options vested and expected to vest576,651
 $8.66
 576,651
 $8.66
419,238
 $8.66
 576,651
 $8.66
 576,651
 $8.66
Options exercisable at end of year (2)480,571
 $8.66
 384,441
 $8.66
419,238
 $8.66
 480,571
 $8.66
 384,441
 $8.66
Price range of options exercisedN/A
   N/A
  $8.66
   N/A
   N/A
  
Price range of options outstanding$8.66
   $8.66
  $8.66
   $8.66
   $8.66
  
Total shares available for future grants at end of year780,966
   780,966
  
 
(1)
The weighted average grant date fair value of the stock options was $5.28
(2)
The fair value of shares vested during the yearyears ended December 31, 2014 and 2013, and the period from February 25, 2012 through December 31, 2012 was $1.2 million, $1.4 million and $2.0 million, respectively.
The following table summarizes information about stock options granted to executives, directors, and non-executives that are outstanding and exercisable at December 31, 2013:2014:
Outstanding Exercisable
Outstanding and exercisableOutstanding and exercisable
Exercise PriceExercise Price Number of Shares Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Number of Shares Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic ValueExercise Price Number of Shares Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value
$8.66
 576,651
 3.20 $7,773,255
 480,571
 3.20 $6,478,097
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 vested and expected to vest in future reporting periods:
 As of December 31, 2013
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life (in years)
 
Aggregate
Intrinsic
Value
Executives541,569
 $8.66
    
Directors—
 N/A
    
Non-Executives35,082
 $8.66
    
Total576,651
 $8.66
 3.20 $7,773,255

The following table summarizes information associated with stock options granted to executives, directors, and non-executives that are exercisable at December 31, 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 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: 

F-47F-44
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


 As of December 31, 2013
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life (in years)
 
Aggregate
Intrinsic
Value
Executives450,637
 $8.66
   

Directors—
 N/A
   

Non-Executives29,934
 $8.66
   

Total480,571
 $8.66
 3.2 $6,478,097
Summary of Nonvested (Restricted) Shares Activity

During the years ended December 31, 2013 and 2012, the Company had the following activity relating to grants of restricted common stock: 
Year Ended December 31, 2013 
Period from February 25, 2012
through December 31, 2012
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 Number of
Shares		 Weighted
Average Grant
Date Fair Value		 
Number of
Shares
 
Weighted
Average Grant
Date Fair Value
Non-vested shares at beginning of year109,850
 $8.66
 —
 N/A
99,661
 $11.49
 109,850
 $8.66
 —
 N/A
Granted79,509
 14.56
 302,944
 $8.66
79,575
 27.70
 79,509
 14.56
 302,944
 $8.66
Vested(89,698) 10.74
 (193,094) 8.66
(99,901) 13.81
 (89,698) 10.74
 (193,094) 8.66
Canceled—
 —
 —
 N/A
—
 N/A
 —
 N/A
 —
 N/A
Non-vested shares at end of year99,661
 $11.49
 109,850
 $8.66
79,335
 $24.84
 99,661
 $11.49
 109,850
 $8.66


During the year ended December 31, 20132014 the Company had the following activity relating to grants of performance based restricted common stock: 
Year Ended December 31, 2013Year 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		 Number of
Shares		 Weighted
Average Grant
Date Fair Value
Non-vested shares at beginning of year—
 $—
291,450
 $14.03
 —
 $—
Granted291,450
 14.03
312,551
 29.94
 291,450
 14.03
Vested—
 —
(97,155) 14.03
 —
 —
Canceled—
 —
—
 N/A
 —
 —
Non-vested shares at end of year291,450
 $14.03
506,846
 $23.84
 $291,450
 $14.03
In conjunction with the issuance of the equity grants in for 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 $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. There was no stock based compensation expense recognized in the year ended December 31, 2011. As of December 31, 2013, $3.52014, $1.9 million of total unrecognized stock based compensation expense is expected to be recognized as an expense by the Company in the future over a weighted average period of 1.1 years.1.0 year. The total value of restricted stock awards which fully vested during the yearyears ended December 31, 2014, December 31, 2013, and the period from February 25, 2012 through December 31, 2012 was $3.8 million, $1.6 million and $1.7 million, respectively. For the year ended December 31, 2014 and 2013, the Company recognized an income tax benefit of $2.6 million and $0.7 million related to stock based compensation.compensation, respectively.



F-48
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


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, 2013,2014, 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.

F-45
Table of Contents
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 $3.1 million, $1.9 million, $2.6 million, $0.7 million, and $4.40.7 million 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 year ended December 31, 2011, 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, 20132014 (in thousands).
 
Year Ending December 31  
2014$1,951
20151,221
$2,185
2016898
1,871
2017882
1,645
2018875
1,619
20191,235
Thereafter2,831
2,124
Total$8,658
$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 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, 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 one year and have varying maturities throughout 2014,2015, 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 $69.9$99.0 million at December 31, 20132014 related principally to its obligations for site improvements at various projects. The Company does not believe that draws upon these

F-49
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


bonds, if any, will have a material effect on the Company’s financial position, results of operations or cash flows. As of December 31, 2013,2014, the Company had $102.6$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, 2013,2014, the Company has made non-refundable deposits of $36.4$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 $289.7$449.0 million as of December 31, 2013.2014.

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 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 $13.0 million which is included in real estate inventories not owned and liabilities from inventories not owned in the accompanying consolidated balance sheets as of December 31, 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
December 31,December 31, December 31,
2013 20122014 2013
Total number of land banking projects1
 1
—
 1
Total number of lots610
 610
—
 610
Total purchase price$161,465
 $161,465
$—
 $161,465
Balance of lots still under option and not purchased:      
Number of lots65
 199
—
 65
Purchase price$12,960
 $39,029
$—
 $12,960
Forfeited deposits if lots are not purchased$9,210
 $27,734
$—
 $9,210
 

Note 17—Subsequent Events
No events have occurred subsequent to December 31, 2014, that have required recognition or disclosure in the Company’s financial statements.

Note 18— Unaudited Summarized Quarterly Financial Information
Summarized unaudited quarterly financial information for the years ended December 31, 2014 and 2013 is as follows (in thousands except per share data):

F-50F-47
Table of Contents
WILLIAM LYON HOMES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Note 20—Subsequent Events
No events have occurred subsequent to December 31, 2013, that have required recognition or disclosure in the Company’s financial statements.
 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

Note 21— Unaudited Summarized Quarterly Financial Information
Summarized unaudited quarterly financial information for the years ended December 31, 2013 and 2012 is as follows (in thousands except per share data):
SuccessorThree Months Ended
Three Months EndedMarch 31,
2013		 June 30,
2013		 September 30,
2013		 December 31,
2013
March 31,
2013		 June 30,
2013		 September 30,
2013		 December 31,
2013
Sales$76,434
 $123,896
 $141,352
 $198,320
Cost of sales(63,328) (99,485) (107,957) (149,418)
Home, lots, land, and other sales$76,434
 $123,896
 $141,352
 $198,320
Cost of homes, lots, land and other sales(63,328) (99,485) (107,957) (149,418)
Gross profit13,106
 24,411
 33,395
 48,902
13,106
 24,411
 33,395
 48,902
Other income, costs and expenses, net(15,579) (15,331) (22,715) 69,414
(15,579) (15,331) (22,715) 69,414
Net (loss) income(2,473) 9,080
 10,680
 118,316
(2,473) 9,080
 10,680
 118,316
Net (loss) income available to common stockholders$(3,522) $6,850
 $7,562
 $116,724
$(3,522) $6,850
 $7,562
 $116,714
(Loss) income per common share:              
Basic$(0.25) $0.31
 $0.24
 $3.77
$(0.25) $0.31
 $0.24
 $3.77
Diluted$(0.25) $0.29
 $0.24
 $3.64
$(0.25) $0.29
 $0.24
 $3.64


 
 Predecessor Successor
Period from
January 1
through
February  24,
2012
 
Period from
February 25
through
March  31,
2012
      
Three Months Ended
 
June 30,
2012
 
September 30,
2012
 
December 31,
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 profit2,089
 2,046
 13,779
 15,147
 19,974
Other income, costs and expenses, net226,408
 (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
 $(0.50) $(0.23) $(0.12) $(0.15)

 


F-51F-48

EXHIBIT INDEX
The following is a list of exhibits filed as part of this Annual Report on Form 10-K.

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
 Supplemental Indenture dated as of November 8, 2012, by and between William Lyon Homes, Inc., William Lyon Homes, and 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
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).
   
4.3
First Supplemental Indenture, dated as of August 15, 2013, among William Lyon Homes, Inc., NVH Development, LLC, NVH Parent, LLC, NVH INV, LLC, NVH WIP LLLP and NVHDEV-GP, Inc., and U.S. Bank National Bank Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2013).
4.44.2
 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).


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 William Lyon Homes’s Annual Report on Form 10-K for the year-ended December 31, 1999).
   
10.2
 Property 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 William Lyon Homes’s Annual Report on Form 10-K for the year-ended December 31, 1999).
10.3
Warranty 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 William Lyon Homes’s Annual Report on Form 10-K for the year-ended December 31, 1999).
10.4
Standard 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 William Lyon Homes’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 William 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 William Lyon Homes’s Registration Statement filed August 10, 2012 (File No. 333-183249)).


Exhibit
Number
Description
10.710.3
 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).
   
10.810.4
 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 William 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 William 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 William Lyon Homes’s Current Report on Form 8-K filed with the Commission on September 20, 2010).
10.11
Form 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).
10.1210.6
 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).
   
10.1310.7
 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).
   


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
Description
10.20
Purchase 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†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).
   
10.23†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 (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).
10.2710.17
 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).
   
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).
10.3010.19
 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).
   
10.31
Construction 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).
10.32
Construction 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).


Exhibit
Number
Description
10.33
Construction 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 William Lyon Homes’s Quarterly Report for the quarter-ended September 30, 2012).
10.34†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)).
   
10.35†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)).
   
10.36†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)).
   
10.3710.23
 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).
   
10.3810.24
 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).
   


10.39†
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)).
   
10.4010.26
 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).
   
10.41†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))
   
10.42†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)).
   
10.43†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)).
   
10.44†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)).
   
10.45†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 YearYears 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, and 2009.2010.
21.1+
List of Subsidiaries of the Company.


Exhibit
Number
 Description
16.1
Letter from Windes, Inc. (formerly Windes & Mclaughry Accountancy Corporation), as to the change in certifying accountant, dated as of August 9, 2012 (incorporated by reference to Exhibit 16.1 of the Company's Registration Statement on Form S-1 filed August 10, 2012).
21.1+
List of Subsidiaries of the Company.
23.1+
Consent of Windes, Inc. Independent Registered Public Accounting Firm.
23.2+
 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.