SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________

FORM 10-Q

______________________________________

(Mark One)



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

For the quarterly period ended ~~September~~June 30, ~~2016~~2017



¨	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, 8^th Floor Newport Beach, California		92660
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (949) 833-3600

______________________________________

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, ~~or a~~ smaller reporting company, or an emerging growth company. See ~~definition~~the definitions of “large accelerated filer,” “accelerated filer,” ~~and~~ “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	¨	Accelerated filer	x

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨
		Emerging Growth Company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ý No ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class of Common Stock	Outstanding at ~~November~~August 4, ~~2016~~2017
Common stock, Class A, par value $0.01	~~27,885,880~~28,132,743
Common stock, Class B, par value $0.01	3,813,884

WILLIAM LYON HOMES

INDEX



		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements as of ~~September~~June 30, ~~2016,~~2017, and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statement of Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3134
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5759
Item 4.	Controls and Procedures	5860
PART II. OTHER INFORMATION		5961
Item 1.	Legal Proceedings	5961
Item 1A.	Risk Factors	5961
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5961
Item 3.	Defaults Upon Senior Securities	5961
Item 4.	Mine Safety Disclosures	5961
Item 5.	Other Information	6062
Item 6.	Exhibits	6163
SIGNATURES		6264
EXHIBIT INDEX		6365

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

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

Actual events and results may differ materially from those expressed or forecasted in the forward-looking statements due to a number of factors. While it is impossible to identify all such factors, ~~factors~~the major risks and uncertainties, and assumptions that ~~could~~are made, that affect the Company's business and may cause actual results to differ materially from those estimated by usthe Company include, but are not limited to: adverse weather conditions; the availability of skilled subcontractors, labor and homebuilding materials and increased construction cycle times; the availability and timing of mortgage financing; ~~adverse weather conditions, including but not limited to the continued drought in California and the Southwest;~~ the Company’s financial leverage and level of indebtedness and any inability to comply with financial and other covenants under its debt instruments; continued volatility and worsening in general economic conditions either internationally, nationally or in regions in which the Company operates; ~~conditions~~changes in governmental laws and regulations and increased costs, fees and delays associated therewith; potential changes to the ~~Company’s recently entered markets and recently acquired operations;~~tax code; worsening in markets for residential housing; the impact of construction defect, product liability and home warranty claims, including the adequacy of self-insurance accruals, and the applicability and sufficiency of the Company’s insurance coverage; defects in manufactured products or other homebuilding materials; decline in real estate values resulting in impairment of the Company’s real estate assets; volatility in the banking industry, credit and ~~credit markets; uncertainties in the~~ capital ~~and securities~~ markets; the timing of receipt of regulatory approvals and the opening of projects; the availability and cost of land for future development; terrorism or other hostilities involving the United States; ~~changes in governmental laws, regulations and decisions, and increased costs, fees and delays associated therewith;~~ building moratorium or “slow-growth” or “no-growth” initiatives that could be implemented in states in which the Company operates; changes in mortgage and other interest rates; ~~uncertainties regarding the U.S. presidential election;~~ conditions in the capital, credit and financial markets, including mortgage lending standards and the availability of mortgage financing; changes in generally accepted accounting principles or interpretations of those principles; changes in prices of homebuilding materials; competition for home sales from other sellers of new and resale homes; cancellations and the Company’s ability to convert its backlog into deliveries; the occurrence of events such as landslides, soil subsidence and earthquakes that are uninsurable, not economically insurable or not subject to effective indemnification agreements; ~~whether the Company is able to pay off or refinance the outstanding balances of its debt obligations at their maturity~~increased outside broker costs; changes in governmental laws and ~~comply with other restrictive debt covenants;~~regulations and compliance therewith; limitations on the Company’s ability to utilize its tax attributes; whether an ownership change occurred that could, under certain circumstances, have resulted in the limitation of the Company’s ability to offset prior years’ taxable income with net operating losses; and other factors, risks and uncertainties. These and other risks and uncertainties are more fully described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2015, Part II, Item 1A. "Risk Factors" in our Quarterly Report on Form 10-Q for the quarterly period ended June 30,~~ 2016, ~~and this quarterly report,~~ as well as those factors or conditions described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

EXPLANATORY NOTE

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

PART I. FINANCIAL INFORMATION



Item 1.	Financial Statements

WILLIAM LYON HOMES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except number of shares and par value per share)


	September 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
	(unaudited)				(unaudited)		(as adjusted, refer to Note 1)
ASSETS
Cash and cash equivalents — Note 1	$	40,710	$	50,203	$	32,573	$	42,612
Restricted cash — Note 1	—		504
Receivables	8,121		14,838		8,332		9,538
Escrow proceeds receivable	—		3,041		39		85
Real estate inventories — Note 5	1,856,034		1,675,106		1,863,092		1,771,998
Investment in joint ventures — Note 3	8,414		5,413
Investment in unconsolidated joint ventures — Note 3					8,206		7,282
Goodwill	66,902		66,902		66,902		66,902
Intangibles, net of accumulated amortization of $4,640 as of September 30, 2016 and December 31, 2015	6,700		6,700
Deferred income taxes, net	79,728		79,726
Intangibles, net of accumulated amortization of $4,640 as of June 30, 2017 and December 31, 2016					6,700		6,700
Deferred income taxes					75,280		75,751
Lease right-of-use assets					15,632		12,605
Other assets, net	17,321		21,017		18,865		17,283
Total assets	$	2,083,930	$	1,923,450	$	2,095,621	$	2,010,756
LIABILITIES AND EQUITY
Accounts payable	$	76,921	$	75,881	$	78,792	$	74,282
Accrued expenses	82,012		70,324		81,657		92,395
Notes payable — Note 6	259,342		175,181
Subordinated amortizing notes — Note 6	8,970		14,066
Notes payable — Note 6:
Joint venture notes payable					98,411		102,076
Seller financing					20,055		24,692
Revolving credit facility					65,000		29,000
Subordinated amortizing notes due December 1, 2017— Note 6					3,488		7,225
5 ³/₄% Senior Notes due April 15, 2019 — Note 6	148,691		148,295		149,089		148,826
8¹/₂% Senior Notes due November 15, 2020 — Note 6	422,852		422,896		—		422,817
7% Senior Notes due August 15, 2022 — Note 6	345,829		345,338		346,385		346,014
5 ⁷/₈% Senior Notes due January 31, 2025 — Note 6					438,893		—
	1,344,617		1,251,981		1,281,770		1,247,327
Commitments and contingencies — Note 12
Equity:
William Lyon Homes stockholders’ equity
Preferred stock, par value $0.01 per share, 10,000,000 shares authorized, no shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively	—		—
Common stock, Class A, par value $0.01 per share; 150,000,000 shares authorized; 28,902,681 and 28,363,879 shares issued, 27,885,880 and 27,657,435 outstanding at September 30, 2016 and December 31, 2015, respectively	289		284
Common stock, Class B, par value $0.01 per share; 30,000,000 shares authorized; 3,813,884 shares issued and outstanding at September 30, 2016 and December 31, 2015	38		38
Preferred stock, par value $0.01 per share; 10,000,000 shares authorized and no shares issued and outstanding at June 30, 2017 and December 31, 2016					—		—
Common stock, Class A, par value $0.01 per share; 150,000,000 shares authorized; 29,290,550 and 28,909,781 shares issued, 28,132,743 and 27,907,724 shares outstanding at June 30, 2017 and December 31, 2016, respectively					290		290
Common stock, Class B, par value $0.01 per share; 30,000,000 shares authorized; 3,813,884 shares issued and outstanding at June 30, 2017 and December 31, 2016					38		38
Additional paid-in capital	416,736		413,810		420,934		419,099
Retained earnings	254,607		217,963		286,613		277,659
Total William Lyon Homes stockholders’ equity	671,670		632,095		707,875		697,086
Noncontrolling interests — Note 2	67,643		39,374		105,976		66,343
Total equity	739,313		671,469		813,851		763,429
Total liabilities and equity	$	2,083,930	$	1,923,450	$	2,095,621	$	2,010,756

See accompanying notes to condensed consolidated financial statements

WILLIAM LYON HOMES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except number of shares and per share data)

(unaudited)



	Three Months Ended September 30, 2016			Three Months Ended September 30, 2015			Nine Months Ended September 30, 2016			Nine Months Ended September 30, 2015			Three Months Ended June 30, 2017			Three Months Ended June 30, 2016			Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Operating revenue
Home sales	$	342,628		$	244,311		$	928,982		$	681,766		$	422,633		$	325,059		$	681,487		$	586,354
Construction services — Note 1	86			4,896			3,810			19,304			59			594			59			3,724
	342,714			249,207			932,792			701,070			422,692			325,653			681,546			590,078
Operating costs
Cost of sales — homes	(285,896		)	(200,328		)	(769,705		)	(554,657		)	(353,057		)	(268,638		)	(571,512		)	(483,809		)
Construction services — Note 1	(86		)	(4,146		)	(3,458		)	(16,073		)	(6		)	(548		)	(6		)	(3,372		)
Sales and marketing	(18,246		)	(15,352		)	(51,351		)	(42,480		)	(21,284		)	(18,112		)	(35,989		)	(33,105		)
General and administrative	(17,360		)	(13,981		)	(51,879		)	(41,344		)	(19,550		)	(16,685		)	(38,496		)	(34,519		)
Amortization of intangible assets	—			(45		)	—			(710		)
Other	198			(592		)	(612		)	(1,549		)	(560		)	(487		)	(1,000		)	(810		)
	(321,390		)	(234,444		)	(877,005		)	(656,813		)	(394,457		)	(304,470		)	(647,003		)	(555,615		)
Operating income	21,324			14,763			55,787			44,257			28,235			21,183			34,543			34,463
Equity in income of unconsolidated joint ventures	1,435			1,018			3,810			1,781			1,213			1,194			1,462			2,375
Other income, net	2,050			1,452			2,803			2,875			8			228			353			753
Income before extinguishment of debt													29,456			22,605			36,358			37,591
Loss on extinguishment of debt													—			—			(21,828		)	—
Income before provision for income taxes	24,809			17,233			62,400			48,913			29,456			22,605			14,530			37,591
Provision for income taxes — Note 9	(8,295		)	(4,956		)	(20,859		)	(15,780		)	(9,205		)	(7,519		)	(3,575		)	(12,564		)
Net income	16,514			12,277			41,541			33,133			20,251			15,086			10,955			25,027
Less: Net income attributable to noncontrolling interests	(3,445		)	(195		)	(4,897		)	(2,092		)	(1,297		)	(525		)	(2,001		)	(1,452		)
Net income available to common stockholders	$	13,069		$	12,082		$	36,644		$	31,041		$	18,954		$	14,561		$	8,954		$	23,575
Income per common share:
Basic	$	0.36		$	0.33		$	1.00		$	0.85		$	0.51		$	0.40		$	0.24		$	0.64
Diluted	$	0.34		$	0.31		$	0.96		$	0.81		$	0.49		$	0.38		$	0.23		$	0.62
Weighted average common shares outstanding:
Basic	36,801,464			36,573,099			36,746,727			36,534,554			37,051,967			36,786,268			36,980,540			36,719,057
Diluted	38,333,027			38,507,267			38,314,021			38,400,236			38,298,624			38,356,722			38,231,201			38,302,047

See accompanying notes to condensed consolidated financial statements

WILLIAM LYON HOMES

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(in thousands)

(unaudited)


	William Lyon Homes Stockholders																William Lyon Homes Stockholders
	Common Stock					Additional Paid-In					Non- Controlling						Common Stock				Additional Paid-In					Non- Controlling
	Shares		Amount			Capital			Retained Earnings		Interests			Total			Shares		Amount		Capital			Retained Earnings		Interests			Total
Balance - December 31, 2015	32,178		$	322		$	413,810		$	217,963	$	39,374		$	671,469
Balance - December 31, 2016																	32,724		$	328	$	419,099		$	277,659	$	66,343		$	763,429
Net income	—		—			—			36,644		4,897			41,541			—		—		—			8,954		2,001			10,955
Cash contributions from members of consolidated entities	—		—			—			—		36,140			36,140			—		—		—			—		51,291			51,291
Cash distributions to members of consolidated entities	—		—			—			—		(12,768		)	(12,768		)	—		—		—			—		(13,659		)	(13,659		)
Shares remitted to Company to satisfy employee tax obligations	(75	)	(1		)	(917		)	—		—			(918		)	(74	)	—		(1,380		)	—		—			(1,380		)
Stock based compensation expense	613		6			4,081			—		—			4,087			455		—		3,215			—		—			3,215
Reversal of excess income tax benefit from stock based awards	—		—			(238		)	—		—			(238		)
Balance - September 30, 2016	32,716		$	327		$	416,736		$	254,607	$	67,643		$	739,313
Balance - June 30, 2017																	33,105		$	328	$	420,934		$	286,613	$	105,976		$	813,851

See accompanying notes to condensed consolidated financial statements

WILLIAM LYON HOMES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended September 30, 2016			Nine Months Ended September 30, 2015			Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Operating activities
Net income	$	41,541		$	33,133		$	10,955		$	25,027
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	1,506			1,936			891			1,005
Net change in deferred income taxes	(2		)	(1,448		)	471			(120		)
Stock based compensation expense	4,087			4,828			3,215			2,561
Equity in earnings of unconsolidated joint ventures	(3,810		)	(1,781		)	(1,462		)	(2,375		)
Distributions from unconsolidated joint ventures	896			696			702			617
Loss on extinguishment of debt							21,828			—
Net changes in operating assets and liabilities:
Restricted cash	504			—			—			504
Receivables	442			(2,322		)	1,042			1,817
Escrow proceeds receivable	3,041			(2,905		)	46			740
Real estate inventories	(146,678		)	(323,693		)	(92,306		)	(123,186		)
Other assets	2,806			(2,339		)	(2,939		)	1,870
Accounts payable	1,040			63,494			4,510			13,212
Accrued expenses	11,649			10,047			(13,765		)	3,423
Net cash used in operating activities	(82,978		)	(220,354		)	(66,812		)	(74,905		)
Investing activities
Investments in and advances to unconsolidated joint ventures	—			(1,000		)
Collection of related party note receivable	6,188			—			—			6,188
Purchases of property and equipment	(773		)	(1,288		)	(234		)	(619		)
Net cash provided by (used in) investing activities	5,415			(2,288		)
Net cash (used in) provided by investing activities							(234		)	5,569
Financing activities
Proceeds from borrowings on notes payable	111,992			84,926			49,478			82,869
Principal payments on notes payable	(91,250		)	(21,123		)	(53,143		)	(42,099		)
Proceeds from issuance of 7% senior notes	—			51,000
Redemption premium of 8.5% Senior Notes							(19,645		)	—
Principal payments of 8.5% Senior Notes							(425,000		)	—
Proceeds from issuance of 5.875% Senior Notes							446,468			—
Proceeds from borrowings on Revolver	198,000			194,000			190,000			120,000
Payments on Revolver	(167,000		)	(109,000		)	(154,000		)	(126,000		)
Principal payments on subordinated amortizing notes	(5,096		)	(4,999		)	(3,737		)	(3,374		)
Payment of deferred loan costs	(792		)	(1,755		)	(9,666		)	(214		)
Proceeds from stock options exercised	—			106
Shares remitted to, or withheld by the Company for employee tax withholding	(918		)	(1,826		)	(1,380		)	(844		)
Excess income tax benefit from stock based awards	(238		)	—			—			(178		)
Noncontrolling interest contributions	36,140			13,125			51,291			33,963
Noncontrolling interest distributions	(12,768		)	(8,204		)	(13,659		)	(5,226		)
Net cash provided by financing activities	68,070			196,250			57,007			58,897
Net decrease in cash and cash equivalents	(9,493		)	(26,392		)	(10,039		)	(10,439		)
Cash and cash equivalents — beginning of period	50,203			52,771			42,612			50,203
Cash and cash equivalents — end of period	$	40,710		$	26,379		$	32,573		$	39,764
Supplemental disclosures:
Cash paid during the period for income taxes	$	6,914		$	10,731		$	16,930		$	2,210
Supplemental disclosures of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities							$	5,058		$	613
Issuance of note payable related to land acquisition	$	32,419		$	9,500		$	—		$	29,439
Accrued deferred loan costs	$	43		$	—

See accompanying notes to condensed consolidated financial statements

WILLIAM LYON HOMES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1—Basis of Presentation and Significant Accounting Policies

Operations

William Lyon Homes, a Delaware corporation (“Parent” and together with its subsidiaries, the “Company”), is primarily engaged in designing, constructing, marketing and selling single-family detached and attached homes in California, Arizona, Nevada, Colorado, ~~(under the Village Homes brand),~~ Washington ~~and Oregon (each under~~(under the Polygon Northwest ~~Homes~~brand) and Oregon (under the Polygon Northwest brand).

Basis of Presentation

The preparation of the Company’s financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016 and revenues and expenses for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2016~~2017 and ~~2015.~~2016. Accordingly, actual results could differ from those estimates. The significant accounting policies using estimates include real estate inventories and cost of sales, impairment of real estate inventories, warranty reserves, loss contingencies, ~~sales and profit recognition,~~ accounting for variable interest entities, business combinations, and valuation of deferred tax assets. The current economic environment increases the uncertainty inherent in these estimates and assumptions.

The condensed consolidated financial statements include the accounts of the Company and all majority-owned and controlled subsidiaries and joint ventures, and certain joint ventures and other entities which have been determined to be variable interest entities ("VIEs") in which the Company is considered the primary beneficiary (see Note 2). The accounting policies of the joint ventures are substantially the same as those of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation.

The condensed consolidated financial statements were prepared from our books and records without audit and include all adjustments (consisting of only normal recurring accruals) necessary to present a fair statement of results for the interim periods presented. Readers of this quarterly report should refer to our audited consolidated financial statements as of and for the year ended December 31, ~~2015,~~2016, which are included in our ~~2015~~2016 Annual Report on Form 10-K, as certain disclosures that would substantially duplicate those contained in the audited financial statements have not been included in this report. Also, refer to the discussion under Change in Accounting Principle below regarding the adoption of the new standard for leases.

Real Estate Inventories

Real estate inventories are carried at cost net of impairment losses, if any. Real estate inventories consist primarily of land deposits, land and land under development, homes completed and under construction, and model homes. All direct and indirect land costs, offsite and onsite improvements and applicable interest and other carrying charges are capitalized to real estate projects during periods when the project is under development. Land, offsite costs and all other common costs are allocated to land parcels benefited based upon relative fair values before construction. Onsite construction costs and related carrying charges (principally interest and property taxes) are allocated to the individual homes within a phase based upon the relative sales value of the homes. The Company relieves its real estate inventories through cost of sales for the estimated cost of homes sold. Selling expenses and other marketing costs are expensed in the period incurred. From time to time the Company sells land to third parties. The Company does not consider these sales to be core to its homebuilding business, and any gain or loss recognized on these transactions is recorded in other non-operating income. During the ~~three and nine~~six months ended ~~September~~June 30, ~~2016~~2017, the Company ~~sold two and five parcels of~~had a land ~~respectively, resulting~~parcel sale to a third party that did not result in ~~a $2.7 million~~any gain ~~for both periods then ended.~~or loss.

A provision for warranty costs relating to the Company’s limited warranty plans is included in cost of sales and accrued expenses at the time the sale of a home is recorded. The Company generally reserves a percent of the sales price of its homes, or a set amount per home closed depending on the operating division, against the possibility of future charges relating to its warranty programs and similar potential claims. Factors that affect the Company’s warranty liability include the number of homes under warranty, historical and anticipated rates of warranty claims, and cost per claim. The Company continually assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. Changes in the Company’s warranty liability for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, are as follows (in thousands):


	Nine Months Ended September 30, 2016			Nine Months Ended September 30, 2015			Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Warranty liability, beginning of period	$	18,117		$	18,155		$	14,173		$	18,117
Warranty provision during period	7,086			4,570			3,954			3,288
Warranty payments during period	(10,579		)	(5,870		)	(6,006		)	(6,140		)
Warranty charges related to construction services projects	128			747			85			128
Warranty liability, end of period	$	14,752		$	17,602		$	12,206		$	15,393

Interest incurred under the Company’s debt obligations, as more fully discussed in Note 6, is capitalized to qualifying real estate projects under development. Interest activity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 are as follows (in thousands):


	Three Months Ended September 30, 2016		Three Months Ended September 30, 2015		Nine Months Ended September 30, 2016		Nine Months Ended September 30, 2015		Three Months Ended June 30, 2017		Three Months Ended June 30, 2016		Six Months Ended June 30, 2017		Six Months Ended June 30, 2016
Interest incurred	$	21,293	$	19,271	$	62,112	$	55,915	$	18,822	$	20,558	$	38,246	$	40,819
Less: Interest capitalized	21,293		19,271		62,112		55,915		18,822		20,558		38,246		40,819
Interest expense, net of amounts capitalized	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Cash paid for interest	$	14,898	$	12,565	$	54,576	$	47,590	$	8,122	$	24,767	$	27,158	$	39,678

Construction Services

The Company accounts for construction management agreements using the Percentage of Completion Method in accordance with ~~Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC")~~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.

Financial Instruments

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents, restricted cash, receivables, and deposits. The Company typically places its cash and cash equivalents in investment grade short-term instruments. Deposits, included in other assets, are due from municipalities or utility companies and are generally collected from such entities through fees assessed to other developers. The Company is an issuer of, or subject to, financial instruments with off-balance sheet risk in the normal course of business which exposes it to credit risks. These financial instruments include letters of credit and obligations in connection with assessment district bonds. These off-balance sheet financial instruments are described in more detail in Note 12.

Cash and Cash Equivalents

Short-term investments with a maturity of three months or less when purchased are considered cash equivalents. The Company’s cash and cash equivalents balance exceeds federally insurable limits as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015.~~2016. The Company monitors the cash balances in its operating accounts, however, these cash balances could be negatively impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. To date, the Company has experienced no loss or lack of access to cash in its operating accounts.

~~Restricted Cash~~

Restricted cash consists of deposits made by the Company to a bank account as collateral for the use of letters of credit to guarantee the Company’s financial obligations under certain other contractual arrangements in the normal course of business.

Deferred Loan Costs

Deferred loan costs represent debt issuance costs and are primarily amortized to interest incurred using the straight line method which approximates the effective interest method.

Goodwill

In accordance with the provisions of ASC 350, Intangibles, Goodwill and Other, goodwill amounts are not amortized, but rather are analyzed for impairment at the reporting segment level. Goodwill is analyzed on an annual basis, or when indicators of impairment exist. We have determined that we have six reporting segments, as discussed in Note 4, and we perform an annual goodwill impairment analysis during the fourth quarter of each fiscal year.

Intangibles

Recorded intangible assets primarily relate to brand names of acquired entities, construction management contracts, homes in backlog, and joint venture management fee contracts recorded in conjunction with FASB ASC Topic 852, Reorganizations ("ASC 852"), or FASB ASC Topic 805, Business Combinations ("ASC 805"). All intangible assets with the exception of those relating to brand names were valued based on expected cash flows related to home closings, and the asset is amortized on a per unit basis, as homes under the contracts close. Our brand name intangible assets are deemed to have an indefinite useful life.

Income per common share

The Company computes income per common share in accordance with FASB ASC Topic 260, Earnings per Share, which requires income per common share for each class of stock to be calculated using the two-class method. The two-class method is an allocation of income between the holders of common stock and a company’s participating security holders.

Basic income per common share is computed by dividing income or loss available to common stockholders by the weighted average number of shares of common stock outstanding. For purposes of determining diluted income per common share, basic income per common share is further adjusted to include the effect of potential dilutive common shares.

Income Taxes

Income taxes are accounted for under the provisions of Financial Accounting Standards Board ASC 740, Income Taxes, using an asset and liability approach. Deferred income taxes reflect the net effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating loss and tax credit carryforwards measured by applying currently enacted tax laws. A valuation allowance is provided to reduce net deferred tax assets to an amount that is more likely than not to be realized. ASC 740 prescribes a recognition threshold and a measurement criteria for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be considered “more-likely-than-not” to be sustained upon examination by taxing authorities. In addition, the Company has elected to recognize interest and penalties related to uncertain tax positions in the income tax provision.

Impact of Recent Accounting Pronouncements

Effective January 1, 2017, the Company adopted Accounting Standards Update ("ASU") No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), which simplified several aspects for the accounting for share-based payment transactions, including the income tax consequences and classification on the statement of cash flows. The Company did not have any previously unrecognized excess tax benefits. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements or notes to its consolidated financial statements.

In May 2014, the FASB issued ~~Accounting Standards Update ("ASU")~~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, 2017, and is to be applied either retrospectively or using the cumulative effect transition method, with early adoption not permitted.

The Company is currently evaluating the potential impact of ASU 2014-09 on its consolidated financial statements, but does not anticipate that the adoption will have a material impact on the amount or timing of its revenues. ASU 2014-09 may

impact the classification and timing of recognition of certain marketing costs and costs associated with obtaining a customer sales contract that the Company incurs in the course of its business. The Company has not ~~yet selected~~concluded its analysis of these costs, but does not anticipate that adoption of the ASU will result in a material change to the Company's financial statements or related disclosures. The Company has not finalized its implementation plan for ASU 2014-09, but expects to employ the cumulative effect transition ~~method,~~method.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. ASU 2016-15 is effective for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the potential impact the adoption of ASU ~~2014-09~~2016-15 will have on its consolidated financial ~~statements and related disclosures.~~

statements.

Change in Accounting Principle

~~In February 2015, FASB issued ASU No. 2015-02 "Consolidation (Topic 810): Amendments to~~During the ~~Consolidation Analysis~~"second quarter ended June 30, 2017, the Company adopted the provisions of Accounting Standards Update ("~~ASU 2015-02"~~ASU")~~. ASU 2015-02 amends the consolidation guidance for variable interest entities and voting interest~~

entities, among other items, by eliminating the consolidation model previously applied to limited partnerships, emphasizing the risk of loss when determining a controlling financial interest and reducing the frequency of the application of related-party guidance when determining a controlling financial interest. ASU 2015-02 is effective for public companies for interim and annual reporting periods beginning after December 15, 2015. The adoption of this ASU did not have a material impact on our consolidated financial statements.

~~In February 2016, the FASB issued ASU~~ No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), which amends the existing ~~accounting~~ standards for lease accounting, ~~including~~ requiring lessees to recognize most leases on their balance ~~sheets. ASU 2016-02~~sheets and disclose key information about leasing arrangements. The new standard establishes a right-of-use ("ROU") model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The Company adopted the new standard with a modified retrospective transition approach for ~~all~~ leases existing at, or entered into after, the ~~date~~beginning of initial application, with an option to use certain transition relief. ASU 2016-02 is effective for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the ~~potential impact the adoption of ASU 2016-02 will have on its consolidated financial statements.~~

~~In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~” ("ASU 2016-09”). ASU 2016-09 simplifies several aspects for the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual and interim periods in fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-09 will have a material effect on its consolidated financial statements.

~~Reclassifications~~

~~Certain balances on the financial statements and certain amounts~~earliest comparative period presented in the ~~notes have been reclassified~~financial statements. The adoption is accounted for as a change in ~~order~~accounting principle in conformity with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 250, “Accounting Changes and Error Corrections”.

As a result of the adoption, the most significant changes related to ~~conform~~(1) the recognition of new ROU assets and lease liabilities on the balance sheet for office, real estate and equipment operating leases; and (2) the derecognition of previous assets and liabilities for a sale-leaseback transaction that did not qualify for sale accounting under the previous standards.

The Company elected all of the standard's available practical expedients on adoption, including the package of practical expedients and use of hindsight expedient. Consequently, the Company:

–Recognized lease related liabilities within Accrued expenses of $15.6 million as of June 30, 2017, with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. The balance sheet as of December 31, 2016 was adjusted using the modified retrospective transition approach which resulted in the following adjusted balances (in thousands):



	December 31, 2016	Lease adoption adjustments		December 31, 2016
				(as adjusted)
Lease right-of-use assets	—	$	12,605	$	12,605
Total assets	1,998,151	12,605		2,010,756

Accrued expenses	79,790	12,605		92,395
Total liabilities and equity	1,998,151	12,605		2,010,756

The Company's existing material leases were all considered operating leases under the new leasing standard and as a result, no adjustment to ~~current year presentation.~~previously reported lease expense was incurred for prior periods presented.

–Derecognized obligations of $19.8 million relating to cash received from a sale-leaseback transaction that was previously classified within Accrued expenses.

Refer to Note 12 for more details regarding leases as of June 30, 2017 and its comparative period.

Note 2—Variable Interest Entities and Noncontrolling Interests

As of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Company was party to ~~eleven~~twelve and ~~eight~~eleven joint ventures ~~respectively,~~ for the purpose of land development and homebuilding activities which we have determined to be VIEs. The Company, as the managing member, has the power to direct the activities of the VIEs since it manages the daily operations and has exposure to the risks and rewards of the VIEs, based upon the allocation of income and loss per the respective joint venture agreements. Therefore, the Company is the primary beneficiary of the joint ventures, and the VIEs were consolidated as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015.~~2016.

As of ~~September~~June 30, ~~2016,~~2017, the assets of the consolidated VIEs totaled ~~$226.1~~$256.5 million, of which ~~$4.1~~$3.7 million was cash and cash equivalents and ~~$221.2~~$264.3 million was real estate inventories. The liabilities of the consolidated VIEs totaled ~~$129.3~~$104.5 million, primarily comprised of notes payable, accounts payable and accrued liabilities.

As of December 31, ~~2015,~~2016, the assets of the consolidated VIEs totaled ~~$155.0~~$204.8 million, of which ~~$2.8~~$5.8 million was cash and cash equivalents and ~~$148.6~~$200.7 million was real estate inventories. The liabilities of the consolidated VIEs totaled ~~$97.1~~$107.3 million, primarily comprised of notes payable, accounts payable and accrued liabilities.

Note 3—Investments in Unconsolidated Joint Ventures

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


	Three Months Ended September 30, 2016			Three Months Ended September 30, 2015			Nine Months Ended September 30, 2016			Nine Months Ended September 30, 2015			Three Months Ended June 30, 2017			Three Months Ended June 30, 2016			Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Revenues	$	5,397		$	3,100		$	14,675		$	6,634		$	5,073		$	5,311		$	8,462		$	9,278
Cost of sales	(2,521		)	(1,453		)	(7,043		)	(3,459		)	(3,045		)	(2,597		)	(5,155		)	(4,522		)
Income of unconsolidated joint ventures	$	2,876		$	1,647		$	7,632		$	3,175		$	2,028		$	2,714		$	3,307		$	4,756

Income from unconsolidated joint ventures reflected in the accompanying consolidated statements of operations represents our share of the income of our unconsolidated mortgage joint ventures, which is allocated based on the provisions of the underlying joint venture operating agreements less any additional impairments recorded against our investments in joint

ventures which we do not deem recoverable. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, and ~~2015,~~2016, the Company recorded income of ~~$1.4~~$1.2 million and ~~$3.8~~$1.5 million, and ~~$1.0~~$1.2 million and ~~$1.8~~$2.4 million, respectively, from its unconsolidated joint ventures. This income was primarily attributable to our share of income related to mortgages that were generated and issued to qualifying home buyers during the periods.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, and ~~2015,~~2016, all of our unconsolidated joint ventures were reviewed for impairment. Based on the impairment review, no investments in joint ventures were determined to be impaired.

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


			September 30, 2016		December 31, 2015				June 30, 2017		December 31, 2016
Assets	Assets						Assets
	Cash		$	12,156	$	6,340	Cash		$	12,306	$	10,208
	Loans held for sale		20,525		29,312		Loans held for sale		13,640		18,791
	Accounts receivable		1,081		309		Accounts receivable		894		764
	Other assets		44		390		Other assets		96		56
		Total Assets	$	33,806	$	36,351		Total Assets	$	26,936	$	29,819

Liabilities and Equity	Liabilities and Equity						Liabilities and Equity
	Accounts payable		$	499	$	651	Accounts payable		$	381	$	694
	Accrued expenses		981		774		Accrued expenses		1,046		1,026
	Credit lines payable		19,249		27,350		Credit lines payable		12,992		17,748
	Other liabilities		18		515		Other liabilities		24		17
	Members equity		13,059		7,061		Members equity		12,493		10,334
		Total Liabilities and Equity	$	33,806	$	36,351		Total Liabilities and Equity	$	26,936	$	29,819

Note 4—Segment Information

The Company operates one principal homebuilding business. In accordance with FASB ASC Topic 280, Segment Reporting ("ASC 280"), the Company has determined that each of its operating divisions is an operating segment. The

Company’s President and Chief Executive Officer has been identified as the chief operating decision maker. The Company’s chief operating decision maker directs the allocation of resources to operating segments based on the profitability and cash flows of each respective segment.

The Company’s homebuilding operations design, construct and sell a wide range of homes designed to meet the specific needs in each of its markets. As such, in accordance with the aggregation criteria defined by FASB ASC Topic 280, Segment Reporting (“ASC 280”), the Company’s homebuilding operating segments have been grouped into six reportable segments:

California, consisting of operating divisions in i) Southern California, consisting of operations in Orange, Los Angeles, Riverside and San Bernardino counties; and ii) Northern California, consisting of operations in Alameda, Contra Costa, San Joaquin, and Santa Clara counties.

Arizona, consisting of operations in the Phoenix, Arizona metropolitan area.

Nevada, consisting of operations in the Las Vegas, Nevada metropolitan area.

Colorado, consisting of operations in the Denver, Colorado metropolitan area.

Washington, consisting of operations in the Seattle, Washington metropolitan area.

Oregon, consisting of operations in the Portland, Oregon metropolitan area.

Corporate develops and implements strategic initiatives and supports the Company’s operating segments by centralizing key administrative functions such as finance and treasury, information technology, risk management and litigation and human resources.

Segment financial information relating to the Company’s operations was as follows (in thousands):


	Three Months Ended September 30, 2016			Three Months Ended September 30, 2015			Nine Months Ended September 30, 2016			Nine Months Ended September 30, 2015			Three Months Ended June 30, 2017			Three Months Ended June 30, 2016			Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Operating revenue:
California (1)	$	111,520		$	65,661		$	309,199		$	240,115		$	149,350		$	101,795		$	231,317		$	197,679
Arizona	28,758			21,088			85,399			38,782			52,372			35,594			79,088			56,641
Nevada	49,600			31,924			128,996			89,937			29,934			48,655			60,482			79,396
Colorado	35,316			23,864			85,885			69,457			31,008			24,176			52,338			50,569
Washington	42,247			46,905			112,512			124,371			70,261			37,364			113,735			70,265
Oregon	75,273			59,765			210,801			138,408			89,767			78,069			144,586			135,528
Total operating revenue	$	342,714		$	249,207		$	932,792		$	701,070		$	422,692		$	325,653		$	681,546		$	590,078

(1) Operating revenue in the California segment includes construction services revenue.	(1) Operating revenue in the California segment includes construction services revenue.												(1) Operating revenue in the California segment includes construction services revenue.

	Three Months Ended September 30, 2016			Three Months Ended September 30, 2015			Nine Months Ended September 30, 2016			Nine Months Ended September 30, 2015			Three Months Ended June 30, 2017			Three Months Ended June 30, 2016			Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Income before provision for income taxes:
California	$	10,364		$	5,679		$	28,252		$	26,756		$	16,430		$	7,965		$	22,757		$	17,888
Arizona	2,542			1,692			7,537			2,302			5,416			3,496			7,714			4,995
Nevada	5,291			2,611			12,587			8,660			1,247			4,738			3,439			7,296
Colorado	2,342			742			3,643			1,381			1,254			872			1,550			1,301
Washington	2,899			5,609			6,767			12,501			3,771			2,445			4,085			3,868
Oregon	9,466			6,698			27,452			14,809			10,658			11,028			15,139			17,986
Corporate	(8,095		)	(5,798		)	(23,838		)	(17,496		)	(9,320		)	(7,939		)	(18,326		)	(15,743		)
Income before extinguishment of debt													$	29,456		$	22,605		$	36,358		$	37,591
Corporate - Loss on extinguishment of debt													$	—		$	—		$	(21,828	)	$	—
Income before provision for income taxes	$	24,809		$	17,233		$	62,400		$	48,913		$	29,456		$	22,605		$	14,530		$	37,591


	September 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
Homebuilding assets:
California	$	756,603	$	721,066	$	759,841	$	716,955
Arizona	203,015		197,828		184,374		191,581
Nevada	200,652		183,019		206,281		189,248
Colorado	135,680		118,307		147,650		124,580
Washington	331,313		249,615		317,221		343,973
Oregon	258,729		228,183		274,353		238,766
Corporate (1)	197,938		225,432		205,901		205,653
Total homebuilding assets	$	2,083,930	$	1,923,450	$	2,095,621	$	2,010,756


(1)	Comprised primarily of cash and cash equivalents, deferred income taxes, receivables, and other assets.

Note 5—Real Estate Inventories

Real estate inventories consist of the following (in thousands):


	September 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
Real estate inventories:
Land deposits	$	55,612	$	61,514	$	60,856	$	50,429
Land and land under development	1,056,781		1,013,650		858,315		1,069,001
Homes completed and under construction	634,621		495,966		842,674		545,310
Model homes	109,020		103,976		101,247		107,258
Total	$	1,856,034	$	1,675,106	$	1,863,092	$	1,771,998

Note 6—Senior Notes, Secured, and Unsecured Indebtedness

Senior notes, secured, and unsecured indebtedness consist of the following (in thousands):


	September 30, 2016		December 31, 2015		June 30, 2017		December 31, 2016
Notes payable:
Construction notes payable	$	130,923	$	110,181
Joint venture notes payable					$	98,411	$	102,076
Seller financing	32,419		—		20,055		24,692
Revolving line of credit	96,000		65,000
Revolving credit facility					65,000		29,000
Total notes payable	259,342		175,181		183,466		155,768

Subordinated amortizing notes	8,970		14,066		3,488		7,225

Senior notes:
5 ³/₄% Senior Notes due April 15, 2019	148,691		148,295		149,089		148,826
8 ¹/₂% Senior Notes due November 15, 2020	422,852		422,896		—		422,817
7% Senior Notes due August 15, 2022	345,829		345,338		346,385		346,014
5 ⁷/₈% Senior Notes due January 31, 2025					438,893		—
Total senior notes	917,372		916,529		934,367		917,657

Total notes payable and senior notes	$	1,185,684	$	1,105,776	$	1,121,321	$	1,080,650

As of ~~September~~June 30, ~~2016~~2017, the maturities of the Notes payable, Subordinated amortizing notes, 5 ³/₄% Senior Notes, 87% Senior Notes, and 5 ¹⁷/₂₈% ~~Senior Notes, and 7%~~ Senior Notes are as follows (in thousands):


Year Ending December 31,
2016	$	—
2017	78,844		$	35,339
2018	59,814		59,752
2019	279,654		241,862
2020	425,000		—
2021			—
Thereafter	350,000		800,000
	$	1,193,312	$	1,136,953

Maturities above exclude premium on the 87% Senior Notes of $0.8 million, discount on the 5 ¹⁷/₂₈% ~~and 7%~~ Senior Notes ~~in an aggregate~~ of ~~$3.8~~$3.4 million, and deferred loan costs on the 5 ³/₄%, 87%, and 5 ¹⁷/₂₈% ~~and 7%~~ Senior Notes of ~~$11.4~~$13.0 million as of ~~September~~June 30, ~~2016.~~2017.

Notes Payable

~~Construction~~Joint Venture Notes Payable

The Company and certain of its consolidated joint ventures have entered into ~~construction~~ notes payable agreements. These loans will be repaid with proceeds from closings and are secured by the underlying projects. The issuance date, facility size, maturity date and interest rate are listed in the table below as of ~~September~~June 30, ~~2016~~2017 (in millions):


Issuance Date	Facility Size		Outstanding		Maturity	Current Rate			Facility Size		Outstanding			Maturity	Current Rate
March, 2016	$	33.4	$	15.8	September, 2018	3.53	%	(1)	$	33.4	$	21.6		September, 2018	4.14	%	(1)
January, 2016	35.0		18.8		February, 2019	3.78	%	(2)	35.0		26.9			February, 2019	4.48	%	(2)
November, 2015	42.5		19.5		November, 2017	4.50	%	(1)	42.5		18.2		(6)	November, 2017	5.25	%	(1)
August, 2015 (4)	14.2		0.7		August, 2017	4.50	%	(1)	14.2		—		(5)	August, 2017	4.50	%	(1)
August, 2015 (4)	37.5		7.0		August, 2017	4.50	%	(1)
July, 2015	22.5		14.8		July, 2018	4.00	%	(3)	15.0		11.3			July, 2018	4.75	%	(3)
April, 2015	18.5		13.9		October, 2017	4.00	%	(3)
November, 2014	24.0		13.1		November, 2017	4.00	%	(3)	15.0		4.1		(6)	November, 2017	4.75	%	(3)
November, 2014	22.0		12.7		November, 2017	4.00	%	(3)	15.0		6.5		(6)	November, 2017	4.75	%	(3)
March, 2014	26.0		14.6		April, 2018	3.53	%	(1)	26.0		9.8			April, 2018	4.22	%	(1)
	$	275.6	$	130.9					$	196.1	$	98.4

(1) Loan bears interest at the Company's option of either LIBOR +3.0% or the prime rate +1.0%.

(2) Loan bears interest at LIBOR +3.25%.

(3) Loan bears interest at the prime rate +0.5%.

(4) Loan relates to a project that is wholly-owned by the Company.

(5) The ~~construction~~balance on this borrowing was paid in full prior to the maturity date, along with all accrued interest to date.

(6) The Company anticipates paying the borrowings in full upon the maturity date from proceeds from homes closed in each respective project.

The joint venture notes payable contain certain financial maintenance covenants. The Company was in compliance with all such covenants as of ~~September~~June 30, ~~2016.~~2017.

Seller Financing

At ~~September~~June 30, ~~2016,~~2017, the Company had ~~$32.4~~$20.1 million of notes payable outstanding related to two land acquisitions for which seller financing was provided. The first note of approximately $3.0 million bears interest at a rate of 7% per annum, is secured by the underlying land, and matures in August 2017. This note was entered into with a related party. Refer to Note 8 for more details regarding the related party transaction. The second note of ~~$29.4~~$17.1 million bears interest at a rate of 7% per annum, is secured by the underlying land, and matures in June 2018.

Revolving ~~Line of~~ Credit Facility

On July 1, 2016, California Lyon and Parent entered into an amendment and restatement agreement pursuant to which its existing credit agreement providing for a revolving credit facility, as previously amended and restated on March 27, 2015 as described below, was further amended and restated in its entirety (as ~~so further~~ amended ~~and restated,~~from time to time, the "Second Amended Facility"). The Second Amended Facility amends and restates the Company’s previous $130.0 million revolving credit facility and provides for total lending commitments of $145.0 million. In addition, the Second Amended Facility has an uncommitted accordion feature under which the Company may increase the total principal amount up to a maximum aggregate of $200.0 million under certain circumstances, as well as a sublimit of $50.0 million for letters of credit. The Second Amended Facility, among other things, also amended the maturity date of the previous facility to July 1, 2019, provided that the Second Amended Facility will terminate on January 14, 2019 (the “Springing Termination Date”) if, on the Springing Termination Date, the aggregate outstanding principal amount of California Lyon’s 5.75% senior notes due 2019 is equal to or greater than the sum of (a) 50% of the Consolidated EBITDA (as defined in the Second Amended Facility) of California Lyon, Parent, certain of the Parent’s direct and indirect wholly owned subsidiaries (together with California Lyon and Parent, the “Loan Parties”) and their Restricted Subsidiaries (as defined in the Second Amended Facility) for the four-quarter period ending September 30, 2018, plus (b) the Liquidity (as defined in the Second Amended Facility) of the Loan Parties and their consolidated subsidiaries on the Springing Termination Date. Further, the Second Amended Facility amended the maximum leverage ratio covenant to extend the timing of the gradual step-downs. Specifically, pursuant to the Second Amended Facility, the maximum leverage

ratio ~~will remain~~remained at 65% from June 30, 2016 through and including December 30, 2016, ~~will decrease~~decreased to 62.5% on the last day

of the 2016 fiscal year, ~~remain~~remained at 62.5% from December 31, 2016 through and including June 29, 2017, and ~~will~~was scheduled to further decrease to 60% on the last day of the second quarter of 2017 and to remain at 60% thereafter. The Second Amended Facility did not revise any of our other financial covenants thereunder.

On June 16, 2017, California Lyon, Parent and the lenders party thereto entered into an amendment to the Second Amended Facility, which amended the maximum leverage ratio to further extend the timing of the gradual step-downs, such that the leverage ratio will remain at 62.5% through and including December 30, 2017, and decrease to 60% on the last day of the 2017 fiscal year and remain at 60% thereafter. The amendment did not revise any of our other financial covenants thereunder.

Prior to the entry into the Second Amended Facility as described above, on March 27, 2015, California Lyon and Parent entered into an amendment and restatement agreement which amended and restated the Company's previous $100 million revolving credit facility and provided for total lending commitments of $130.0 million, an uncommitted accordion feature under which the Company could increase the total principal amount up to a maximum aggregate of $200.0 million under certain circumstances (up from a maximum aggregate of $125.0 million under the previous facility), as well as a sublimit of $50.0 million for letters of credit, and extended the maturity date of the previous facility by one year to August 7, 2017.

The Second Amended Facility contains certain financial maintenance covenants, including (a) a minimum tangible net worth requirement of $451.0 million (which is subject to increase over time based on subsequent earnings and proceeds from equity offerings, as well as deferred tax assets to the extent included on the Company's financial statements), (b) a maximum leverage covenant that prohibits the leverage ratio (as defined therein) from exceeding 65%, which maximum leverage ratio ~~decreases~~decreased to 62.5% effective as of December 31, 2016 and ~~further decreases~~is scheduled to decrease to 60% effective as of ~~June 30,~~December 31, 2017, and (c) a covenant requiring us to maintain either (i) an interest coverage ratio (EBITDA to interest incurred, as defined therein) of at least 1.50 to 1.00 or (ii) liquidity (as defined therein) of an amount not less than the greater of our consolidated interest incurred during the trailing 12 months and $50.0 million. Our compliance with these financial covenants is measured by calculations and metrics that are specifically defined or described by the terms of the Second Amended Facility and can differ in certain respects from comparable GAAP or other commonly used terms. The Second Amended Facility contains customary events of default, subject to cure periods in certain circumstances, including: nonpayment of principal, interest and fees or other amounts; violation of covenants; inaccuracy of representations and warranties; cross default to certain other indebtedness; unpaid judgments; and certain bankruptcy and other insolvency events. The occurrence of any event of default could result in the termination of the commitments under the Second Amended Facility and permit the lenders to accelerate payment on outstanding borrowings under the Second Amended Facility and require cash collateralization of outstanding letters of credit. If a change in control (as defined in the Second Amended Facility) occurs, the lenders may terminate the commitments under the Second Amended Facility and require that the Company repay outstanding borrowings under the Second Amended Facility and cash collateralize outstanding letters of credit. Interest rates on borrowings generally will be based on either LIBOR or a base rate, plus the applicable spread.

In January 2017, the Company entered into an amendment which modifies the definition of Tangible Net Worth for purposes of calculating the Leverage Ratio covenant under the Second Amended Facility, so as to exclude any reduction in Tangible Net Worth (as defined therein) that occurs as a result of the costs related to payment of any call premium or any other costs associated with the refinancing transaction and the redemption of outstanding 8.5% Notes. The Company was in compliance with all covenants under the Second Amended Facility as of ~~September~~June 30, ~~2016.~~2017.

Borrowings under the Second Amended Facility, the availability of which is subject to a borrowing base formula, are required to be guaranteed by the Parent and certain of the Parent's wholly-owned subsidiaries, are secured by a pledge of all equity interests held by such guarantors, and may be used for general corporate purposes. Interest rates on borrowings generally will be based on either LIBOR or a base rate, plus the applicable spread. As of ~~September~~June 30, ~~2016,~~2017, the commitment fee on the unused portion of the Second Facility accrues at an annual rate of 0.50%. As of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Company had ~~$96.0~~$65.0 million and ~~$65.0~~$29.0 million outstanding against the Second Amended Facility, respectively, at effective rates of ~~4.37%~~4.38% and ~~3.32%~~4.75%, respectively as well as a letter of credit for ~~$8.6~~$8.0 million outstanding at both dates.

Subordinated Amortizing Notes

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

a prepaid stock purchase contract (a “purchase contract”); and

a senior subordinated amortizing note (an “amortizing note”).

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

March 1, 2015 installment payment, which was $1.8056 per amortizing note). Each installment will constitute a payment of interest and a partial repayment of principal. The amortizing notes rank equally in right of payment to all of the Company's existing and future senior indebtedness, other than borrowings under the Amended Facility and the Company's secured project level financing, which will be senior in right of payment to the obligations under the amortizing notes, in each case to the extent of the value of the assets securing such indebtedness.

Each TEU may be separated into its constituent purchase contract and amortizing note on any business day during the period beginning on, and including, the business day immediately succeeding the date of initial issuance of the Units to, but excluding, the third scheduled trading day immediately preceding the mandatory settlement date. Prior to separation, the purchase contracts and amortizing notes may only be purchased and transferred together as Units. The net proceeds received from the TEU issuance were allocated between the amortizing note and the purchase contract under the relative fair value method, with amounts allocated to the purchase contract classified as additional paid-in capital. As of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the amortizing notes had an unamortized carrying value of ~~$9.0~~$3.5 million and ~~$14.1~~$7.2 million, respectively.

Senior Notes

5 ³/₄% Senior Notes Due 2019

On March 31, 2014, California Lyon completed its private placement with registration rights of 5.75% Senior Notes due 2019 (the "5.75% Notes"), in an aggregate principal amount of $150 million. The 5.75% Notes were issued at 100% of their aggregate principal amount. In August 2014, we exchanged 100% of the initial 5.75% Notes for notes that are freely transferable and registered under the Securities Act of 1933, as amended (the “Securities Act”).

As of ~~September~~June 30, ~~2016,~~2017, the outstanding principal amount of the 5.75% Notes was $150 million, excluding deferred loan costs of ~~$1.3~~$0.9 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~~$450 million in aggregate principal amount of ~~8.5%~~5.875% Senior Notes due 2020 and $350 million in aggregate principal amount of 7.00% Notes due 2019, each as described below. The 5.75% Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The 5.75% Notes and the guarantees are and will be effectively junior to California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.

8 ¹/₂% Senior Notes Due 2020

On November 8, 2012, California Lyon completed its private placement with registration rights of 8.5% Senior Notes due 2020, (the "initial 8.5% notes"), in an aggregate principal amount of $325 million. The initial 8.5% Notes were issued at 100% of their aggregate principal amount. In July 2013, we exchanged 100% of the initial 8.5% Notes for notes that are freely transferable and registered under the Securities Act.

On October 24, 2013, California Lyon completed its private placement with registration rights of an additional $100.0 million in aggregate principal amount of its 8.5% Senior Notes due 2020 (the “additional 8.5% Notes”, and together with the initial 8.5% notes, the "8.5% Notes" ) at an issue price of 106.5% of their aggregate principal amount, plus accrued interest from and including May 15, 2013, resulting in net proceeds of approximately $104.7 million. In February 2014, we exchanged 100% of the additional 8.5% Notes for notes that are freely transferable and registered under the Securities Act.

During the six months ended June 30, 2017, Parent, through California Lyon, used the net proceeds from its private placement with registration rights of ~~September 30, 2016~~5.875% Senior Notes due 2025, as further described below, to purchase $395.6 million of the outstanding aggregate principal amount of the 8.5% Notes, ~~was~~pursuant to a cash tender offer and consent solicitation. Subsequently, the Company used the remaining proceeds, together with cash on hand, for the retirement of the remaining outstanding 8.5% Notes, such that the entire aggregate $425 million ~~excluding unamortized premium~~ of ~~$2.9 million and deferred loan costs of $5.1 million. The 8.5% Notes bear interest at a rate of~~ ~~8.5%~~ ~~per annum, payable semiannually in arrears on May 15 and November 15, and mature on~~ ~~November 15, 2020. The~~previously outstanding 8.5% Notes are ~~unconditionally guaranteed on a joint~~retired and ~~several unsecured basis by Parent and by~~extinguished as of June 30, 2017. The Company incurred certain costs related to the early extinguishment of ~~its existing and future restricted subsidiaries. The~~debt of the 8.5% Notes ~~and~~during the ~~related guarantees are California Lyon's and~~six months ended June 30, 2017 in an amount of $21.8 million, which is included in the ~~guarantors' unsecured senior obligations and rank equally in right~~Consolidated Statement of ~~payment with all~~Operations as Loss on extinguishment of California Lyon’s and the guarantors’ existing and future unsecured senior debt, including the 5.75% Notes, as described above, and the 7.00% Notes, as described below. The 8.5% Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The 8.5% Notes and the guarantees are and will be effectively junior to any of California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.

7% Senior Notes Due 2022

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

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

As of ~~September~~June 30, ~~2016~~2017 the outstanding amount of the 7.00% Notes was $350 million, excluding unamortized premium of ~~$0.9~~$0.8 million and deferred loan costs of ~~$5.0~~$4.4 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, as described above, and ~~$425~~$450 million in aggregate principal amount of ~~8.5%~~5.875% Senior Notes due 2020, ~~each~~ as described ~~above.~~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.

5.875% Senior ~~Note~~Notes Due 2025

On January 31, 2017, California Lyon completed its private placement with registration rights of 5.875% Senior Notes due 2025 (the "5.875% Notes"), in an aggregate principal amount of $450 million. The 5.875% Notes were issued at 99.215% of their aggregate principal amount. Parent, through California Lyon, used the net proceeds from the 5.875% Notes offering to purchase the outstanding aggregate principal amount of the 8.5% Notes such that the entire aggregate $425 million of previously outstanding 8.5% Notes are retired and extinguished as of June 30, 2017. In May 2017, the Company exchanged 100% of the 5.875% Notes for notes that are freely transferable and registered under the Securities Act.

As of June 30, 2017, the outstanding principal amount of the 5.875% Notes was $450 million, excluding unamortized discount of $3.4 million and deferred loan costs of $7.7 million. The 5.875% Notes bear interest at a rate of 5.875% per annum, payable semiannually in arrears on January 31 and July 31, and mature on January 31, 2025. The 5.875% Notes are unconditionally guaranteed on a joint and several unsecured basis by Parent and certain of its existing and future restricted subsidiaries. The 5.875% 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 $350 million in aggregate principal amount of 7.00% Senior Notes due 2022, each as described above. The 5.875% Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The 5.875% 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 January 31, 2020, California Lyon may redeem all or a portion of the 5.875% Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount), set forth below plus accrued and unpaid interest to the redemption date, if redeemed during the 12-month period commencing on each of the dates indicated below:



Year	Percentage
January 31, 2020	102.938	%
January 31, 2021	101.469	%
January 31, 2022	100.734	%
January 31, 2023 and thereafter	100.000	%

Prior to January 31, 2020, the 5.875% 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 January 31, 2020, California Lyon may, at its option on one or more occasions, redeem the 5.875% Notes in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the 5.875% Notes issued prior to such date at a redemption price (expressed as a percentage of principal amount) of 105.875%, plus accrued and unpaid interest to the redemption date, with an amount equal to the net cash proceeds from one or more equity offerings.

Senior Notes Covenant Compliance

The indentures governing the 5.75% Notes, the ~~8.5%~~7.00% Notes, and the ~~7.00%~~5.875% Notes contain covenants that limit the ability of Parent, California Lyon, and their restricted subsidiaries to, among other things: (i) incur or guarantee certain additional indebtedness; (ii) pay dividends, distributions, or repurchase equity or make payments in respect of subordinated indebtedness; (iii) make certain investments; (iv) sell assets; (v) incur liens; (vi) enter into agreements restricting the ability of the Company’s restricted subsidiaries to pay dividends or transfer assets; (vii) enter into transactions with affiliates; (viii) create unrestricted subsidiaries; and (viii) consolidate, merge or sell all or substantially all of its assets. These covenants are subject to a number of important exceptions and qualifications as described in the indentures. The Company was in compliance with all such covenants as of ~~September~~June 30, ~~2016.~~2017.

GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS

The following consolidating financial information includes:

(1) Consolidating balance sheets as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015;~~2016; consolidating statements of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015;~~2016; and consolidating statements of cash flows for the ~~nine~~six month periods ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, of (a) William Lyon Homes, as the parent, or “Delaware Lyon”, (b) William Lyon Homes, Inc., as the subsidiary issuer, or “California Lyon”, (c) the guarantor subsidiaries, (d) the non-guarantor subsidiaries and (e) William Lyon Homes, Inc. on a consolidated basis; and

(2) Elimination entries necessary to consolidate Delaware Lyon, with California Lyon and its guarantor and non-guarantor subsidiaries.

Delaware Lyon owns 100% of all of its guarantor subsidiaries and all guarantees are full and unconditional, joint and several. As a result, in accordance with Rule 3-10 (d) of Regulation S-X promulgated by the SEC, no separate financial statements are required for these subsidiaries as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, and for the ~~three and nine~~six month periods ended ~~September~~June 30, ~~2016~~2017 and ~~2015.~~2016.

The consolidating balance sheet as of December 31, 2016 was adjusted to reflect the adoption of ASU 2016-02 (see Note 1).

CONDENSED CONSOLIDATING BALANCE SHEET

(Unaudited)

As of ~~September~~June 30, ~~2016~~2017

(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	$	—	$	35,703		$	528		$	4,479		$	—		$	40,710	$	—	$	28,343		$	141		$	4,089		$	—		$	32,573
Restricted cash	—		—			—			—			—			—
Receivables	—		3,083			1,757			3,281			—			8,121		—		3,056			1,548			3,728			—			8,332
Escrow proceeds receivable	—		—			—			—			—			—		—		39			—			—			—			39
Real estate inventories	—		957,404			662,342			236,288			—			1,856,034		—		930,732			652,114			280,246			—			1,863,092
Investment in unconsolidated joint ventures	—		8,264			150			—			—			8,414		—		8,056			150			—			—			8,206
Goodwill	—		14,209			52,693			—			—			66,902		—		14,209			52,693			—			—			66,902
Intangibles, net	—		—			6,700			—			—			6,700		—		—			6,700			—			—			6,700
Deferred income taxes, net	—		79,728			—			—			—			79,728		—		75,280			—			—			—			75,280
Lease right-of-use assets																	—		15,632			—			—			—			15,632
Other assets, net	—		15,804			1,197			320			—			17,321		—		17,081			1,325			459			—			18,865
Investments in subsidiaries	671,670		(25,323		)	(608,347		)	—			(38,000		)	—		707,875		(9,869		)	(549,674		)	—			(148,332		)	—
Intercompany receivables	—		—			248,639			—			(248,639		)	—		—		—			237,544			—			(237,544		)	—
Total assets	$	671,670	$	1,088,872		$	365,659		$	244,368		$	(286,639	)	$	2,083,930	$	707,875	$	1,082,559		$	402,541		$	288,522		$	(385,876	)	$	2,095,621
LIABILITIES AND EQUITY
Accounts payable	$	—	$	54,287		$	16,343		$	6,291		$	—		$	76,921	$	—	$	51,765		$	20,583		$	6,444		$	—		$	78,792
Accrued expenses	—		75,808			6,098			106			—			82,012		—		77,296			4,256			105			—			81,657
Notes payable	—		133,126			2,979			123,237			—			259,342		—		82,076			2,979			98,411			—			183,466
Subordinated amortizing notes	—		8,970			—			—			—			8,970		—		3,488			—			—			—			3,488
5 ³/₄% Senior Notes	—		148,691			—			—			—			148,691		—		149,089			—			—			—			149,089
8¹/2% Senior Notes	—		422,852			—			—			—			422,852
7% Senior Notes	—		345,829			—			—			—			345,829		—		346,385			—			—			—			346,385
5 ⁷/₈% Senior Notes																	—		438,893			—			—			—			438,893
Intercompany payables	—		176,227			—			72,412			(248,639		)	—		—		150,089			—			87,455			(237,544		)	—
Total liabilities	—		1,365,790			25,420			202,046			(248,639		)	1,344,617		—		1,299,081			27,818			192,415			(237,544		)	1,281,770
Equity
William Lyon Homes stockholders’ equity (deficit)	671,670		(276,917		)	340,240			(25,323		)	(38,000		)	671,670		707,875		(216,522		)	374,723			(9,869		)	(148,332		)	707,875
Noncontrolling interests	—		(1		)	—			67,644			—			67,643		—		—			—			105,976			—			105,976
Total liabilities and equity	$	671,670	$	1,088,872		$	365,660		$	244,367		$	(286,639	)	$	2,083,930	$	707,875	$	1,082,559		$	402,541		$	288,522		$	(385,876	)	$	2,095,621

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, ~~2015~~2016

(as adjusted)

(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	$	—	$	44,332		$	2,723		$	3,148		$	—		$	50,203	$	—	$	36,204		$	272		$	6,136		$	—		$	42,612
Restricted cash	—		504			—			—			—			504
Receivables	—		8,986			937			4,915			—			14,838		—		2,989			3,303			3,246			—			9,538
Escrow proceeds receivable	—		2,020			1,021			—			—			3,041		—		85			—			—			—			85
Real estate inventories	—		922,990			589,762			162,354			—			1,675,106		—		910,594			645,341			216,063			—			1,771,998
Investment in unconsolidated joint ventures	—		5,263			150			—			—			5,413		—		7,132			150			—			—			7,282
Goodwill	—		14,209			52,693			—			—			66,902		—		14,209			52,693			—			—			66,902
Intangibles, net	—		—			6,700			—			—			6,700		—		—			6,700			—			—			6,700
Deferred income taxes, net	—		79,726			—			—			—			79,726		—		75,751			—			—			—			75,751
Lease right-of-use assets																	—		12,605			—			—			—			12,605
Other assets, net	—		18,980			1,738			299			—			21,017		—		15,779			1,089			415			—			17,283
Investments in subsidiaries	632,095		(34,522		)	(561,546		)	—			(36,027		)	—		697,086		(23,736		)	(573,650		)	—			(99,700		)	—
Intercompany receivables	—		—			239,248			—			(239,248		)	—		—		—			252,860			—			(252,860		)	—
Total assets	$	632,095	$	1,062,488		$	333,426		$	170,716		$	(275,275	)	$	1,923,450	$	697,086	$	1,051,612		$	388,758		$	225,860		$	(352,560	)	$	2,010,756
LIABILITIES AND EQUITY
Accounts payable	$	—	$	45,065		$	27,807		$	3,009		$	—		$	75,881	$	—	$	52,380		$	16,416		$	5,486		$	—		$	74,282
Accrued expenses	—		62,167			8,059			98			—			70,324		—		87,661			4,636			98			—			92,395
Notes payable	—		80,915			—			94,266			—			175,181		—		50,713			2,979			102,076			—			155,768
Subordinated amortizing notes	—		14,066			—			—			—			14,066		—		7,225			—			—			—			7,225
5 ³/₄% Senior Notes	—		148,295			—			—			—			148,295		—		148,826			—			—			—			148,826
8 ¹/₂% Senior Notes	—		422,896			—			—			—			422,896		—		422,817			—			—			—			422,817
7% Senior Notes	—		345,338			—			—			—			345,338		—		346,014			—			—			—			346,014
Intercompany payables	—		170,757			—			68,491			(239,248		)	—		—		177,267			—			75,593			(252,860		)	—
Total liabilities	—		1,289,499			35,866			165,864			(239,248		)	1,251,981		—		1,292,903			24,031			183,253			(252,860		)	1,247,327
Equity
William Lyon Homes stockholders’ equity (deficit)	632,095		(227,011		)	297,560			(34,522		)	(36,027		)	632,095		697,086		(241,291		)	364,727			(23,736		)	(99,700		)	697,086
Noncontrolling interests	—		—			—			39,374			—			39,374		—		—			—			66,343			—			66,343
Total liabilities and equity	$	632,095	$	1,062,488		$	333,426		$	170,716		$	(275,275	)	$	1,923,450	$	697,086	$	1,051,612		$	388,758		$	225,860		$	(352,560	)	$	2,010,756

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(Unaudited)

Three Months Ended ~~September~~June 30, ~~2016~~2017

(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 revenue
Sales	$	—	$	105,962		$	181,594		$	55,072		$	—		$	342,628		$	—	$	171,561		$	198,172		$	52,900		$	—		$	422,633
Construction services	—		86			—			—			—			86			—		59			—			—			—			59
Management fees	—		(1,541		)	—			—			1,541			—			—		(1,089		)	—			—			1,089			—
	—		104,507			181,594			55,072			1,541			342,714			—		170,531			198,172			52,900			1,089			422,692
Operating costs
Cost of sales	—		(84,652		)	(151,306		)	(48,397		)	(1,541		)	(285,896		)	—		(143,633		)	(161,092		)	(47,243		)	(1,089		)	(353,057		)
Construction services	—		(86		)	—			—			—			(86		)	—		(6		)	—			—			—			(6		)
Sales and marketing	—		(6,205		)	(9,774		)	(2,267		)	—			(18,246		)	—		(7,052		)	(10,789		)	(3,443		)	—			(21,284		)
General and administrative	—		(14,268		)	(3,091		)	(1		)	—			(17,360		)	—		(15,598		)	(3,952		)	—			—			(19,550		)
Other	—		140			69			(11		)	—			198			—		(620		)	55			5			—			(560		)
	—		(105,071		)	(164,102		)	(50,676		)	(1,541		)	(321,390		)	—		(166,909		)	(175,778		)	(50,681		)	(1,089		)	(394,457		)
Income from subsidiaries	13,069		3,548			—			—			(16,617		)	—			18,954		7,405			—			—			(26,359		)	—
Operating income	13,069		2,984			17,492			4,396			(16,617		)	21,324			18,954		11,027			22,394			2,219			(26,359		)	28,235
Equity in income from unconsolidated joint ventures	—		1,140			295			—			—			1,435			—		880			333			—			—			1,213
Other income (expense), net	—		2,550			(19		)	(481		)	—			2,050			—		380			(6		)	(366		)	—			8
Income before provision for income taxes	13,069		6,674			17,768			3,915			(16,617		)	24,809			18,954		12,287			22,721			1,853			(26,359		)	29,456
Provision for income taxes	—		(8,295		)	—			—			—			(8,295		)	—		(9,205		)	—			—			—			(9,205		)
Net income	13,069		(1,621		)	17,768			3,915			(16,617		)	16,514			18,954		3,082			22,721			1,853			(26,359		)	20,251
Less: Net income attributable to noncontrolling interests	—		—			—			(3,445		)	—			(3,445		)	—		—			—			(1,297		)	—			(1,297		)
Net income available to common stockholders	$	13,069	$	(1,621	)	$	17,768		$	470		$	(16,617	)	$	13,069		$	18,954	$	3,082		$	22,721		$	556		$	(26,359	)	$	18,954

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(Unaudited)

Three Months Ended ~~September 30, 2015~~

~~(in thousands)~~

Unconsolidated

Delaware
Lyon

California
Lyon

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminating
Entries

Consolidated
Company
Operating revenue
Sales $ —
$ 90,594
$ 149,122
$ 4,595
$ —
$ 244,311
Construction services —
4,896
—
—
—
4,896
Management fees —
(138 ) —
—
138
—
—
95,352
149,122
4,595
138
249,207
Operating costs
Cost of sales —
(71,488 ) (124,476 ) (4,226 ) (138 ) (200,328 )
Construction services —
(4,146 ) —
—
—
(4,146 )
Sales and marketing —
(6,312 ) (8,244 ) (796 ) —
(15,352 )
General and administrative —
(11,515 ) (2,466 ) —
—
(13,981 )
Amortization of intangible assets —
(45 ) —
—
—
(45 )
Other —
(889 ) 297
—
—
(592 )
—
(94,395 ) (134,889 ) (5,022 ) (138 ) (234,444 )
Income from subsidiaries 12,082
623
—
—
(12,705 ) —
Operating income (loss) 12,082
1,580
14,233
(427 ) (12,705 ) 14,763
Equity in income from unconsolidated joint ventures —
1,018
—
—
—
1,018
Other income (expense), net —
1,395
368
(311 ) —
1,452
Income (loss) before provision for income taxes 12,082
3,993
14,601
(738 ) (12,705 ) 17,233
Provision for income taxes —
(4,956 ) —
—
—
(4,956 )
Net income (loss) 12,082
(963 ) 14,601
(738 ) (12,705 ) 12,277
Less: Net income attributable to noncontrolling interests —
—
—
(195 ) —
(195 )
Net income (loss) available to common stockholders $ 12,082
$ (963 ) $ 14,601
$ (933 ) $ (12,705 ) $ 12,082

~~CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS~~

~~(Unaudited)~~

~~Nine Months Ended September~~June 30, 2016

(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 revenue
Sales	$	—	$	344,459		$	494,597		$	89,926		$	—		$	928,982		$	—	$	137,673		$	175,203		$	12,183		$	—		$	325,059
Construction services	—		3,810			—			—			—			3,810			—		594			—			—			—			594
Management fees	—		(2,587		)	—			—			2,587			—			—		(366		)	—			—			366			—
	—		345,682			494,597			89,926			2,587			932,792			—		137,901			175,203			12,183			366			325,653
Operating costs
Cost of sales	—		(276,481		)	(411,339		)	(79,298		)	(2,587		)	(769,705		)	—		(112,950		)	(144,473		)	(10,849		)	(366		)	(268,638		)
Construction services	—		(3,458		)	—			—			—			(3,458		)	—		(548		)	—			—			—			(548		)
Sales and marketing	—		(18,080		)	(26,731		)	(6,540		)	—			(51,351		)	—		(5,925		)	(9,332		)	(2,855		)	—			(18,112		)
General and administrative	—		(41,749		)	(10,129		)	(1		)	—			(51,879		)	—		(13,475		)	(3,210		)	—			—			(16,685		)
Other	—		(587		)	(14		)	(11		)	—			(612		)	—		(358		)	(129		)	—			—			(487		)
	—		(340,355		)	(448,213		)	(85,850		)	(2,587		)	(877,005		)	—		(133,256		)	(157,144		)	(13,704		)	(366		)	(304,470		)
Income from subsidiaries	36,644		7,472			—			—			(44,116		)	—			14,561		1,687			—			—			(16,248		)	—
Operating income (loss)	36,644		12,799			46,384			4,076			(44,116		)	55,787			14,561		6,332			18,059			(1,521		)	(16,248		)	21,183
Equity in income from unconsolidated joint ventures	—		3,001			809			—			—			3,810			—		859			335			—			—			1,194
Other income (expense), net	—		3,873			(34		)	(1,036		)	—			2,803			—		550			(6		)	(316		)	—			228
Income (loss) before provision for income taxes	36,644		19,673			47,159			3,040			(44,116		)	62,400			14,561		7,741			18,388			(1,837		)	(16,248		)	22,605
Provision for income taxes	—		(20,859		)	—			—			—			(20,859		)	—		(7,519		)	—			—			—			(7,519		)
Net income (loss)	36,644		(1,186		)	47,159			3,040			(44,116		)	41,541			14,561		222			18,388			(1,837		)	(16,248		)	15,086
Less: Net income attributable to noncontrolling interests	—		—			—			(4,897		)	—			(4,897		)	—		—			—			(525		)	—			(525		)
Net income (loss) available to common stockholders	$	36,644	$	(1,186	)	$	47,159		$	(1,857	)	$	(44,116	)	$	36,644		$	14,561	$	222		$	18,388		$	(2,362	)	$	(16,248	)	$	14,561

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(Unaudited)

~~Nine~~Six Months Ended ~~September~~June 30, ~~2015~~2017

(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 revenue
Sales	$	—	$	285,136		$	368,519		$	28,111		$	—		$	681,766		$	—	$	293,689		$	317,795		$	70,003		$	—		$	681,487
Construction services	—		19,304			—			—			—			19,304			—		59			—			—			—			59
Management fees	—		(844		)	—			—			844			—			—		(1,602		)	—			—			1,602			—
	—		303,596			368,519			28,111			844			701,070			—		292,146			317,795			70,003			1,602			681,546
Operating costs
Cost of sales	—		(220,846		)	(309,076		)	(23,891		)	(844		)	(554,657		)	—		(243,028		)	(264,553		)	(62,329		)	(1,602		)	(571,512		)
Construction services	—		(16,073		)	—			—			—			(16,073		)	—		(6		)	—			—			—			(6		)
Sales and marketing	—		(18,478		)	(21,544		)	(2,458		)	—			(42,480		)	—		(13,575		)	(17,720		)	(4,694		)	—			(35,989		)
General and administrative	—		(33,503		)	(7,841		)	—						(41,344		)	—		(30,114		)	(8,381		)	(1		)	—			(38,496		)
Amortization of intangible assets	—		(710		)	—			—			—			(710		)
Other	—		(2,671		)	1,122			—			—			(1,549		)	—		(1,151		)	146			5			—			(1,000		)
	—		(292,281		)	(337,339		)	(26,349		)	(844		)	(656,813		)	—		(287,874		)	(290,508		)	(67,019		)	(1,602		)	(647,003		)
Income from subsidiaries	31,041		(5,845		)	—			—			(25,196		)	—			8,954		7,166			—			—			(16,120		)	—
Operating income (loss)	31,041		5,470			31,180			1,762			(25,196		)	44,257
Operating income																		8,954		11,438			27,287			2,984			(16,120		)	34,543
Equity in income from unconsolidated joint ventures	—		1,781			—			—			—			1,781			—		924			538			—			—			1,462
Other income (expense), net	—		6,083			5,685			(8,893		)	—			2,875			—		1,025			(6		)	(666		)	—			353
Income before extinguishment of debt																		8,954		13,387			27,819			2,318			(16,120		)	36,358
Loss on extinguishment of debt																		—		(21,828		)	—			—			—			(21,828		)
Income (loss) before provision for income taxes	31,041		13,334			36,865			(7,131		)	(25,196		)	48,913			8,954		(8,441		)	27,819			2,318			(16,120		)	14,530
Provision for income taxes	—		(15,780		)	—			—			—			(15,780		)	—		(3,575		)	—			—			—			(3,575		)
Net income (loss)	31,041		(2,446		)	36,865			(7,131		)	(25,196		)	33,133			8,954		(12,016		)	27,819			2,318			(16,120		)	10,955
Less: Net income attributable to noncontrolling interests	—		—			—			(2,092		)	—			(2,092		)	—		—			—			(2,001		)	—			(2,001		)
Net income (loss) available to common stockholders	$	31,041	$	(2,446	)	$	36,865		$	(9,223	)	$	(25,196	)	$	31,041		$	8,954	$	(12,016	)	$	27,819		$	317		$	(16,120	)	$	8,954

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(Unaudited)

Six Months Ended June 30, 2016

(in thousands)



	Unconsolidated
	Delaware Lyon		California Lyon			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated Company
Operating revenue
Sales	$	—	$	238,497		$	313,003		$	34,854		$	—		$	586,354
Construction services	—		3,724			—			—			—			3,724
Management fees	—		(1,046		)	—			—			1,046			—
	—		241,175			313,003			34,854			1,046			590,078
Operating costs
Cost of sales	—		(191,829		)	(260,033		)	(30,901		)	(1,046		)	(483,809		)
Construction services	—		(3,372		)	—			—			—			(3,372		)
Sales and marketing	—		(11,875		)	(16,957		)	(4,273		)	—			(33,105		)
General and administrative	—		(27,481		)	(7,038		)	—			—			(34,519		)
Other	—		(727		)	(83		)	—			—			(810		)
	—		(235,284		)	(284,111		)	(35,174		)	(1,046		)	(555,615		)
Income from subsidiaries	23,575		3,924			—			—			(27,499		)	—
Operating income (loss)	23,575		9,815			28,892			(320		)	(27,499		)	34,463
Equity in income from unconsolidated joint ventures	—		1,861			514			—			—			2,375
Other income (expense), net	—		1,323			(15		)	(555		)	—			753
Income (loss) before provision for income taxes	23,575		12,999			29,391			(875		)	(27,499		)	37,591
Provision for income taxes	—		(12,564		)	—			—			—			(12,564		)
Net income (loss)	23,575		435			29,391			(875		)	(27,499		)	25,027
Less: Net income attributable to noncontrolling interests	—		—			—			(1,452		)	—			(1,452		)
Net income (loss) available to common stockholders	$	23,575	$	435		$	29,391		$	(2,327	)	$	(27,499	)	$	23,575

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(Unaudited)

~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2017

(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	$	(2,931	)	$	18,174		$	(35,182	)	$	(65,970	)	$	2,931		$	(82,978	)	$	(1,835	)	$	(31,965	)	$	26,508		$	(61,355	)	$	1,835		$	(66,812	)
Investing activities
Collection of related party note receivable	—			6,188			—			—			—			6,188
Purchases of property and equipment	—			(809		)	56			(20		)	—			(773		)	—			(173		)	10			(71		)	—			(234		)
Investments in subsidiaries	—			(1,727		)	46,801			—			(45,074		)	—			—			(6,537		)	(24,140		)	—			30,677			—
Net cash (used in) provided by investing activities	—			3,652			46,857			(20		)	(45,074		)	5,415			—			(6,710		)	(24,130		)	(71		)	30,677			(234		)
Financing activities
Proceeds from borrowings on notes payable	—			2,211			—			109,781			—			111,992			—			—			—			49,478			—			49,478
Principal payments on notes payable	—			(10,440		)	—			(80,810		)	—			(91,250		)	—			—			—			(53,143		)	—			(53,143		)
Redemption premium of 8.5% Senior Notes																			—			(19,645		)	—			—			—			(19,645		)
Principal payments of 8.5% Senior Notes																			—			(425,000		)	—			—			—			(425,000		)
Proceeds from issuance of 5.875% Senior Notes																			—			446,468			—			—			—			446,468
Proceeds from borrowings on Revolver	—			198,000			—			—			—			198,000			—			190,000			—			—			—			190,000
Payments on Revolver	—			(167,000		)	—			—			—			(167,000		)	—			(154,000		)	—			—			—			(154,000		)
Principal payments on subordinated amortizing notes	—			(5,096		)	—			—			—			(5,096		)	—			(3,737		)	—			—			—			(3,737		)
Payment of deferred loan costs	—			(792		)	—			—			—			(792		)	—			(9,666		)	—			—			—			(9,666		)
Purchase of common stock	—			(918		)	—			—			—			(918		)
Excess income tax benefit from stock based awards	—			(238		)	—			—			—			(238		)
Shares remitted to, or withheld by the Company for employee tax withholding																			—			(1,380		)	—			—			—			(1,380		)
Noncontrolling interest contributions	—			—			—			36,140			—			36,140			—			—			—			51,291			—			51,291
Noncontrolling interest distributions	—			—			—			(12,768		)	—			(12,768		)	—			—			—			(13,659		)	—			(13,659		)
Advances to affiliates	—			—			(4,479		)	11,056			(6,577		)	—			—			—			(17,823		)	13,550			4,273			—
Intercompany receivables/payables	2,931			(46,182		)	(9,391		)	3,922			48,720			—			1,835			7,774			15,314			11,862			(36,785		)	—
Net cash provided by (used in) financing activities	2,931			(30,455		)	(13,870		)	67,321			42,143			68,070			1,835			30,814			(2,509		)	59,379			(32,512		)	57,007
Net (decrease) increase in cash and cash equivalents	—			(8,629		)	(2,195		)	1,331			—			(9,493		)
Cash and cash equivalents at beginning of period	—			44,332			2,723			3,148			—			50,203
Cash and cash equivalents at end of period	$	—		$	35,703		$	528		$	4,479		$	—		$	40,710
Net (decrease) in cash and cash equivalents																			—			(7,861		)	(131		)	(2,047		)	—			(10,039		)
Cash and cash equivalents - beginning of period																			—			36,204			272			6,136			—			42,612
Cash and cash equivalents - end of period																			$	—		$	28,343		$	141		$	4,089		$	—		$	32,573

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(Unaudited)

~~Nine~~Six Months Ended ~~September~~June 30, ~~2015~~2016

(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	$	(3,108	)	$	(148,129	)	$	(19,212	)	$	(52,390	)	$	2,485		$	(220,354	)	$	(1,539	)	$	33,612		$	(22,138	)	$	(86,379	)	$	1,539		$	(74,905	)
Investing activities
Investments in and advances to unconsolidated joint ventures	—			(1,000		)	—			—			—			(1,000		)
Collection of related party note receivable																			—			6,188			—			—			—			6,188
Purchases of property and equipment	—			(1,375		)	65			22			—			(1,288		)	—			(647		)	44			(16		)	—			(619		)
Investments in subsidiaries	—			(6,572		)	27,885			—			(21,313		)	—			—			(4,244		)	30,672			—			(26,428		)	—
Net cash (used in) provided by investing activities	—			(8,947		)	27,950			22			(21,313		)	(2,288		)
Net cash provided by (used in) investing activities																			—			1,297			30,716			(16		)	(26,428		)	5,569
Financing activities
Proceeds from borrowings on notes payable	—			30,415			—			54,511			—			84,926			—			2,211			—			80,658			—			82,869
Principal payments on notes payable	—			(8,725		)	(162		)	(12,236		)	—			(21,123		)	—			(8,084		)	—			(34,015		)	—			(42,099		)
Proceeds from issuance of 7% notes	—			51,000			—			—			—			51,000
Proceeds from borrowings on Revolver	—			194,000			—			—			—			194,000			—			120,000			—			—			—			120,000
Payments on revolver	—			(109,000		)	—			—			—			(109,000		)	—			(126,000		)	—			—			—			(126,000		)
Principal payments on subordinated amortizing notes	—			(4,999		)	—			—			—			(4,999		)	—			(3,374		)	—			—			—			(3,374		)
Payment of deferred loan costs	—			(1,755		)	—			—			—			(1,755		)	—			(214		)	—			—			—			(214		)
Proceeds from exercise of stock options	—			106			—			—			—			106
Shares remitted to Company for employee tax witholding	—			(1,826		)	—			—			—			(1,826		)
Shares remitted to or withheld by Company for employee tax withholding																			—			(844		)	—			—			—			(844		)
Excess income tax benefit from stock based awards																			—			(178		)	—			—			—			(178		)
Noncontrolling interest contributions	—			—			—			13,125			—			13,125			—			—			—			33,963			—			33,963
Noncontrolling interest distributions	—			—			—			(8,204		)	—			(8,204		)	—			—			—			(5,226		)	—			(5,226		)
Advances to affiliates	—			—			(4,810		)	9,327			(4,517		)	—			—			—			(4,480		)	10,495			(6,015		)	—
Intercompany receivables/payables	3,108			(21,706		)	(3,412		)	(1,335		)	23,345			—			1,539			(28,035		)	(6,258		)	1,850			30,904			—
Net cash provided by (used in) financing activities	3,108			127,510			(8,384		)	55,188			18,828			196,250			1,539			(44,518		)	(10,738		)	87,725			24,889			58,897
Net increase in cash and cash equivalents	—			(29,566		)	354			2,820			—			(26,392		)
Cash and cash equivalents at beginning of period	—			48,462			573			3,736			—			52,771
Cash and cash equivalents at end of period	$	—		$	18,896		$	927		$	6,556		$	—		$	26,379
Net (decrease) increase in cash and cash equivalents																			—			(9,609		)	(2,160		)	1,330			—			(10,439		)
Cash and cash equivalents - beginning of period																			—			44,332			2,723			3,148			—			50,203
Cash and cash equivalents - end of period																			$	—		$	34,723		$	563		$	4,478		$	—		$	39,764

Note 7—Fair Value of Financial Instruments

In accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosure (“ASC 820”), the Company is required to disclose the estimated fair value of financial instruments. As of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Company used the following assumptions to estimate the fair value of each type of financial instrument for which it is practicable to estimate:

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

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


•	5³/₄% Senior Notes due April 15, 2019 —The 5³/4% Senior Notes are traded over the counter and their fair values were based upon quotes from industry sources.


•	8¹/2% Senior Notes due November 15, 2020 —The 8¹/2% Senior Notes are traded over the counter and their fair values were based upon quotes from industry sources.

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


•	5⁷/₈ Senior Notes due January 31, 2025 —The 5⁷/8% Senior Notes are traded over the counter and their fair values were based upon quotes from industry sources.

The following table excludes cash and cash equivalents, restricted cash, receivables and accounts payable, which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments. The estimated fair values of financial instruments are as follows (in thousands):


	September 30, 2016				December 31, 2015				June 30, 2017				December 31, 2016
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial liabilities:
Notes payable	$	259,342	$	259,342	$	175,181	$	175,181	$	183,466	$	183,466	$	155,768	$	155,768
Subordinated amortizing notes	$	8,970	$	8,432	$	14,066	$	12,122	3,488		3,793		7,225		7,478
5 ³/₄% Senior Notes due 2019	$	148,691	$	153,375	$	148,295	$	147,750	149,089		152,250		148,826		151,125
8¹/2% Senior Notes due 2020	$	422,852	$	445,188	$	422,896	$	449,438	—		—		422,817		444,125
7% Senior Notes due 2022	$	345,829	$	360,500	$	345,338	$	350,875	346,385		364,455		346,014		363,125
5 ⁷/₈% Senior Notes due 2025									438,893		463,500		—		—

ASC 820 establishes a framework for measuring fair value, expands disclosures regarding fair value measurements and defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires the Company to maximize the use of observable market inputs, minimize the use of unobservable market inputs and disclose in the form of an outlined hierarchy the details of such fair value measurements. The Company used Level 3 to measure the fair value of its Notes payable, and Level 2 to measure the fair value of its Senior notes and Subordinated amortizing notes. ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. The three levels of the hierarchy are as follows:

Level 1—quoted prices for identical assets or liabilities in active markets;

Level 2—quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

Level 3—valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Note 8—Related Party Transactions

On September 3, 2009, Presley CMR, Inc., a California corporation (“Presley CMR”) and a wholly owned subsidiary of California Lyon, entered into an Aircraft Purchase and Sale Agreement (“PSA”) with an affiliate of General William Lyon to sell an aircraft (the “Aircraft”). The PSA provided for an aggregate purchase price for the Aircraft of ~~$8.3 million, (which value was the appraised fair market value of the Aircraft), which consisted of: (i) cash in the amount of~~ ~~$2.1 million~~ ~~to be paid at closing and (ii) a promissory note from the affiliate in the amount of~~ ~~$6.2 million. The note was secured by the Aircraft and required semiannual interest payments to California Lyon of approximately $0.1 million. The note provided for a maturity date in~~ ~~September 2016. During the nine months ended September 30, 2016, the promissory note was paid in full by the borrower prior to the September 2016 maturity date, along with all accrued interest to date.~~

In August 2016 the Company acquired certain lots within a master planned community located in Aurora, Colorado, for an overall purchase price of approximately $9.3 million, from an entity managed by an affiliate of Paulson & Co., Inc. (“Paulson”). WLH Recovery Acquisition LLC, which is affiliated with, and managed by affiliates of, Paulson, holds over 5% of Parent’s outstanding Class A common stock. A portion of the acquisition price for the lots was paid in the form of a seller note with a principal amount of approximately $3.0 ~~million (see Note 6).~~million. The Company believes that the transaction, including the terms of the seller note, was on terms no less favorable than it would have agreed to with unrelated parties.

Note 9—Income Taxes

Since inception, the Company has operated solely within the United States. The Company’s effective income tax rate was ~~33.4%~~31.3% and ~~33.4%~~24.6%, and ~~28.8%~~33.3% and ~~32.3%~~33.4% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The significant drivers of the effective tax rate are the loss on extinguishment of debt resulting from the retirement of the 8.5% Notes (see Note 6), allocation of income to noncontrolling interests ~~change in the valuation allowance of deferred tax assets,~~ and the domestic production activities deduction.

Management assesses its deferred tax assets ~~quarterly~~ to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740. The Company is required to establish a valuation allowance for any portion of the asset that management concludes is more likely than not to be unrealizable. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company's assessment considers all evidence, both positive and negative, including the nature, frequency and severity of any current and cumulative losses, taxable income in carry back years, the scheduled reversal of deferred tax liabilities, tax planning strategies, and projected future taxable income in making this assessment. At ~~September~~June 30, ~~2016~~2017, the ~~Company’s~~Company had no ~~amounts recorded as a~~ valuation allowance ~~against its deferred tax assets.~~recorded.

At ~~September~~June 30, ~~2016,~~2017, the Company had no remaining federal net operating loss carryforwards and ~~$54.7~~$56.2 million of remaining state net operating loss carryforwards. State net operating loss carryforwards begin to expire in 2031. In addition, as of ~~September~~June 30, ~~2016,~~2017, the Company had unused federal and state built-in losses of ~~$53.2~~$52.1 million and $7.5 million, respectively. The five year testing period for built-in losses expires in 2017 and the unused built-in loss carryforwards begin to expire in 2032. The Company had AMT credit carryovers of $1.4 million at ~~September~~June 30, ~~2016,~~2017, which have an indefinite life.

FASB ASC Topic 740, Income Taxes (“ASC 740”), prescribes a recognition threshold and a measurement criterion for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be considered more likely than not to be sustained upon examination by taxing authorities. The Company records interest and penalties related to uncertain tax positions as a component of the provision for income taxes. The Company has no unrecognized tax benefits.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is subject to U.S. federal income tax examination for calendar tax years ended ~~2012~~2013 through ~~2015~~2016 and forward. The Company is subject to various state income tax examinations for calendar tax years ended ~~2008~~2009 through ~~2015~~2016 and forward.

Note 10—Income Per Common Share

Basic and diluted income per common share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 were calculated as follows (in thousands, except number of shares and per share amounts):


	Three Months Ended September 30, 2016		Three Months Ended September 30, 2015		Nine Months Ended September 30, 2016		Nine Months Ended September 30, 2015		Three Months Ended June 30, 2017		Three Months Ended June 30, 2016		Six Months Ended June 30, 2017		Six Months Ended June 30, 2016
Basic weighted average number of common shares outstanding	36,801,464		36,573,099		36,746,727		36,534,554		37,051,967		36,786,268		36,980,540		36,719,057
Effect of dilutive securities:
Stock options, unvested common shares, and warrants	636,633		1,465,119		672,364		1,396,633		1,246,657		675,524		1,250,661		688,060
Tangible equity units	894,930		469,049		894,930		469,049		—		894,930		—		894,930
Diluted average shares outstanding	38,333,027		38,507,267		38,314,021		38,400,236		38,298,624		38,356,722		38,231,201		38,302,047
Net income available to common stockholders	$	13,069	$	12,082	$	36,644	$	31,041	$	18,954	$	14,561	$	8,954	$	23,575
Basic income per common share	$	0.36	$	0.33	$	1.00	$	0.85	$	0.51	$	0.40	$	0.24	$	0.64
Dilutive income per common share	$	0.34	$	0.31	$	0.96	$	0.81	$	0.49	$	0.38	$	0.23	$	0.62
Antidilutive securities not included in the calculation of diluted income per common share (weighted average):
Tangible equity units									894,930		—		894,930		—
Unvested stock options	240,000		240,000		240,000		160,000		240,000		240,000		240,000		240,000
Warrants	1,907,551		—		1,907,551		—		—		1,907,551		—		1,907,551

Note 11—Stock Based Compensation

We account for share-based awards in accordance with ASC Topic 718, Compensation-Stock Compensation, which requires the fair value of stock-based compensation awards to be amortized as an expense over the vesting period. Stock-based compensation awards are valued at the fair value on the date of grant. Compensation expense for awards with performance based conditions is recognized over the vesting period once achievement of the performance condition is deemed probable.

During the three ~~and nine~~ months ended ~~September~~June 30, ~~2016~~,2017, the Company granted ~~31,571 and 291,368~~1,232 shares of time-based restricted stock ~~respectively. During~~and during the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, the Company granted ~~566,092~~253,243 shares of time-based restricted stock and 553,909 shares of performance based restricted stock. On the Consolidated Balance Sheets and Statement of Equity, the Company considers unvested shares of restricted stock to be issued, but not outstanding.

The Company recorded total stock based compensation expense during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016 of $1.5 million and ~~$4.1~~$3.2 million, and ~~$1.6~~$1.1 million and ~~$4.8~~$2.6 million, respectively.

Performance-Based Restricted Stock Awards

With respect to the performance based restricted stock awards granted to certain employees during the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017, the actual number of such shares of restricted stock that will be earned (the “Earned Shares”) is subject to the Company’s achievement of pre-established performance targets as of the end of the ~~2016~~2017 fiscal year. For each of the aforementioned awards, one-third of the Earned Shares will vest on March 1st of each of ~~2017,~~ 2018, 2019 and ~~2019,~~2020, subject to each grantee’s continued service through each vesting date. Based on the probability assessment as of ~~September~~June 30, ~~2016,~~2017, management determined that the currently available data was not sufficient to support that the achievement ~~of the minimum threshold for one~~ of the performance targets is probable, and as such, no compensation expense ~~of $0.3 million~~ has been recognized for these awards to date.

Time-Based Restricted Stock Awards

With respect to the restricted stock awards granted to certain employees and non-employee directors during the three ~~and~~ ~~nine~~months ended ~~September~~June 30, ~~2016~~,2017, representing ~~250,304~~1,232 shares of restricted stock, ~~163,269~~all shares are subject to a vesting schedule pursuant to which one-half of the shares will vest on March 1st of each of 2018 and 2019, in each case subject to each grantee’s continued service through each vesting date. With respect to the restricted stock awards granted to certain employees and non-employee directors during the six months ended June 30, 2017, representing 253,243 shares of restricted stock, 172,857 of such shares are subject to a vesting schedule pursuant to which one-third of the shares will vest on March 1st of each of ~~2017,~~ 2018, 2019 and ~~2019, 55,464~~2020, 45,111 of such shares are subject to a vesting schedule pursuant to which one-half of the shares will vest on March

1st of each of 2017 and 2018, 3,548 of such shares have a vesting schedule pursuant to which one-half of the shares will vest on August 9th of each of 2017 and 2018, 20,697 of such shares are subject to a vesting schedule pursuant to which 100% of the shares will vest on August 9, 2018 and ~~7,326 of such shares have a vesting schedule pursuant to which one-half of the shares will vest on September 6th of each of 2017 and 2018,~~2019, in each case subject to each grantee’s continued service through each vesting ~~date. With respect to the restricted stock awards granted to certain non-employee directors~~date, and 35,275 of ~~the Company during the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2016, representing 41,064~~such shares ~~of restricted stock, the awards~~ vest in equal quarterly installments on each of June 1, ~~2016,~~

2017, September 1, ~~2016,~~2017, December 1, ~~2016~~2017 and March 1, ~~2017,~~2018, subject to each grantee’s continued service on the board through each vesting date.

Note 12—Commitments and Contingencies

The Company’s commitments and contingent liabilities include the usual obligations incurred by real estate developers in the normal course of business. In the opinion of management, these matters will not have a material effect on the Company’s condensed consolidated financial position, results of operations or cash flows.

The Company is a defendant in various lawsuits related to its normal business activities. We believe that the accruals we have recorded for probable and reasonably estimable losses with respect to these proceedings are adequate and that, as of ~~September~~June 30, ~~2016,~~2017, it was not reasonably possible that an additional material loss had been incurred in an amount in excess of the estimated amounts already recognized on our condensed consolidated financial statements. We evaluate our accruals for litigation and regulatory proceedings, and as appropriate, adjust them to reflect (i) the facts and circumstances known to us at the time, including information regarding negotiations, settlements, rulings and other relevant events and developments; (ii) the advice and analyses of counsel; and (iii) the assumptions and judgment of management. Similar factors and considerations are used in establishing new accruals for proceedings as to which losses have become probable and reasonably estimable at the time an evaluation is made. The outcome of any of these proceedings, including the defense and other litigation-related costs and expenses we may incur, however, is inherently uncertain and could differ significantly from the estimate reflected in a related accrual, if made. Therefore, it is possible that the ultimate outcome of any proceeding, if in excess of a related accrual or if no accrual had been made, could be material to our consolidated financial statements.

We have non-cancelable operating leases primarily associated with our office facilities. Rent expense under cancelable and non-cancelable operating leases totaled $1.0 million and $2.9 million, and $1.1 million and $2.8 million, respectively, in the three and nine months ended September 30, 2016 and 2015, respectively, and is included in general and administrative expense in our consolidated statements of operations for the respective periods. The table below shows the future minimum payments under non-cancelable operating leases at September 30, 2016 (in thousands).

Year Ending December 31,
2016 $ 569
2017 2,516
2018 2,475
2019 2,226
2020 2,008
Thereafter 2,785
Total $ 12,579

As of September 30, 2016 and December 31, 2015, the Company had $0.0 million and $0.5 million, respectively, in deposits as collateral for outstanding surety bonds to guarantee the Company’s financial obligations under certain contractual arrangements in the normal course of business. The standby letters of credit were secured by cash as reflected as restricted cash on the accompanying consolidated balance sheet.

The Company ~~also~~ had outstanding performance and surety bonds of ~~$195.9~~$216.3 million at ~~September~~June 30, ~~2016,~~2017, related principally to its obligations for site improvements at various projects. The Company does not believe that draws upon these bonds, if any, will have a material effect on the Company’s financial position, results of operations or cash flows. As of ~~September~~June 30, ~~2016,~~2017, the Company had ~~$238.5~~$202.0 million of project commitments relating to the construction of projects.

See Note 6 for additional information relating to the Company’s guarantee arrangements.

The Company has entered into various purchase option agreements with third parties to acquire land. As of ~~September~~June 30, ~~2016,~~2017, the Company has made non-refundable deposits of ~~$55.6~~$60.9 million. The Company is under no obligation to purchase the land, but would forfeit remaining deposits if the land were not purchased. The total remaining purchase price under the option agreements is ~~$447.3~~$442.9 million as of ~~September~~June 30, 2017.

Lease Obligations

As described more fully in Note 1, as of April 1, 2017, the Company adopted the provisions of ASU 2016-02 and recognized lease obligations and associated ROU assets for its existing non-cancelable leases. Lease obligations, as included in Accrued expenses on the consolidated balance sheets, were $15.6 million as of June 30, 2017 and $12.6 million as of December 31, 2016. The Company has non-cancelable operating leases primarily associated with office facilities, real estate and office equipment, in addition to one related sublease for an office facility. The determination of which discount rate to use when measuring the lease obligation was deemed a significant judgment. Lease cost, as included in general and administrative expense in our consolidated statements of operations for the respective periods, and additional information regarding lease terms are as follows (dollars in thousands):



	Three Months Ended June 30, 2017			Three Months Ended June 30, 2016			Six Months Ended June 30, 2017			Six Months Ended June 30, 2016
Lease cost
Operating lease cost	$	1,718		$	908		$	2,713		$	1,869
Sublease income	(29		)	(29		)	(58		)	(58		)
Total lease cost	$	1,689		$	879		$	2,655		$	1,811

Other information
Cash paid for amounts included in the measurement of lease liabilities for operating leases:
Operating cash flows	$	1,371		$	799		$	2,258		$	1,599
Right-of-use assets obtained in exchange for new operating lease liabilities	$	410		$	9		$	5,058		$	613
Weighted-average discount rate	6.6		%	6.6		%	6.6		%	6.6		%



	June 30, 2017	December 31, 2016
Weighted-average remaining lease term (in years)	4.01	5.16

The table below shows the future minimum payments under non-cancelable operating leases at June 30, 2017 (in thousands).



Year Ending December 31,
2017	$	3,177
2018	6,118
2019	3,540
2020	2,530
2021	2,398
Thereafter	1,782
Total	$	19,545

Note 13—Subsequent Events

No events have occurred subsequent to ~~September~~June 30, ~~2016,~~2017, that would require recognition or disclosure in the Company’s financial statements.



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

WILLIAM LYON HOMES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The Company is one of the largest Western U.S. regional homebuilders. Headquartered in Newport Beach, California, the Company is primarily engaged in the design, construction, marketing and sale of single-family detached and attached homes in California, Arizona, Nevada, Colorado, Oregon, and Washington. The Company’s core markets include Orange County, Los Angeles, the Inland Empire, the San Francisco Bay Area, Phoenix, Las Vegas, Denver, Portland, and Seattle. The Company has a distinguished legacy of more than 60 years of homebuilding operations, over which time it has sold in excess of ~~97,000~~100,000 homes. For the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 (the ~~"2016~~"2017 period"), the Company had revenues from homes sales of ~~$929.0~~$681.5 million, a ~~36%~~16% increase from ~~$681.8~~$586.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2015~~2016 (the ~~"2015~~"2016 period"), which includes results from all reportable operating segments. The Company had net new home orders of ~~2,211~~1,882 homes in the ~~2016~~2017 period, a 7%21% increase from ~~2,059~~1,560 in the ~~2015~~2016 period, while the average sales price ("ASP") for homes closed increased 9%5% to ~~$494,400~~$512,400 in the ~~2016~~2017 period from ~~$453,000~~$486,200 in the ~~2015~~2016 period.

The following discussion of results of operations and financial condition contains forward-looking statements reflecting current expectations that involve risks and uncertainties. See the section titled, “CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS” included elsewhere in this Quarterly Report on Form 10-Q. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in such section.

Basis of Presentation

The accompanying condensed consolidated financial statements included herein have been prepared under U.S. Generally Accepted Accounting Principles ("U.S. GAAP"), and the rules and regulations of the Securities and Exchange Commission (the "SEC"), and are presented on a going concern basis, which assumes the Company will be able to operate in the ordinary course of its business and realize its assets and discharge its liabilities for the foreseeable future.

Results of Operations

In the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, the Company delivered ~~1,879~~1,330 homes, with an ASP of approximately ~~$494,400,~~$512,400, and recognized home sales revenue of ~~$929.0~~$681.5 million. The Company generated net income available to common shareholders of ~~$36.6~~$9.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, and ~~earnings~~income per share of ~~$0.96, on a diluted basis.~~$0.24. The Company's net income was largely reduced by loss from extinguishment of debt of $21.8 million from the refinance of Senior Notes during the period. The Company continues to see positive trends in orders, price appreciation ~~at most of its~~in certain projects, ~~over the course of the year,~~ and our average sales price of homes in backlog is approximately ~~$551,900~~$587,800 as of ~~September~~June 30, ~~2016,~~2017, which is ~~12%~~15% higher than the average sales price of homes closed for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 of ~~$494,400.~~$512,400.

As of ~~September~~June 30, ~~2016,~~2017, the ~~Company was selling homes in 76 communities, and our~~Company's average community count for the ~~nine~~six month period then ended was 7385 locations. We had a consolidated backlog of ~~1,071~~1,285 homes sold but not closed, with an associated sales value of ~~$591.0~~$755.3 million, representing a 4%18% increase in units, and a ~~10%~~31% increase in dollar value, as compared to the backlog at ~~September~~June 30, ~~2015.~~2016.

Homebuilding gross margin percentage and adjusted homebuilding gross margin percentage was ~~17.1%~~16.1% and ~~23.5%~~21.7%, respectively, for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, as compared to ~~18.6%~~17.5% and ~~25.1%~~24.3%, respectively, for the ~~nine~~six months ended ~~September~~June 30, ~~2015.~~2016.

Comparisons of the Three Months Ended ~~September~~June 30, ~~2016~~2017 to ~~September~~June 30, ~~2015~~2016

Revenues from homes sales increased ~~40%~~30% to ~~$342.6~~$422.6 million during the three months ended ~~September~~June 30, ~~2016,~~2017, compared to ~~$244.3~~$325.1 million during the three months ended ~~September~~June 30, ~~2015.~~2016. The increase in revenue is primarily due to the ~~opening~~25% increase in the number of ~~new communities across our reporting segments, which contributes~~homes closed during the 2017 period, in addition to a ~~higher number of deliveries, as well as an 18%~~4% increase in average sales price. The number of net new home orders for the three months ended ~~September~~June 30, ~~2016~~2017 increased 4%17% to ~~651~~1,017 homes from ~~628~~871 homes for the three months ended ~~September~~June 30, ~~2015.~~2016.


	Three Months Ended September 30,		Increase (Decrease)				Three Months Ended June 30,		Increase (Decrease)
	2016	2015	Amount		%		2017	2016	Amount		%
Number of Net New Home Orders
California	191	158	33		21	%	280	238	42		18	%
Arizona	117	119	(2	)	(2	)%	149	142	7		5	%
Nevada	66	77	(11	)	(14	)%	93	97	(4	)	(4	)%
Colorado	54	38	16		42	%	86	72	14		19	%
Washington	66	98	(32	)	(33	)%	164	88	76		86	%
Oregon	157	138	19		14	%	245	234	11		5	%
Total	651	628	23		4	%	1,017	871	146		17	%

The 4%17% increase in net new homes orders is driven by a 7%22% increase in average number of sales locations to 7888 average locations in ~~2016,~~2017, compared to 7372 in the ~~2015~~2016 period, which is driven by the opening of 11 new ~~communities in California, Arizona, Nevada and Oregon,~~communities. This was slightly offset by a ~~slight decline~~decrease in monthly absorption to ~~2.8~~3.9 sales per month from ~~2.9.~~4.0 in the prior year period.


	Three Months Ended September 30,				Increase (Decrease)		Three Months Ended June 30,				Increase (Decrease)
	2016		2015		%		2017		2016		%
Cancellation Rates
California	24	%	23	%	1	%	15	%	11	%	4	%
Arizona	16	%	16	%	—	%	6	%	6	%	—	%
Nevada	15	%	21	%	(6	)%	15	%	16	%	(1	)%
Colorado	16	%	28	%	(12	)%	10	%	12	%	(2	)%
Washington	21	%	24	%	(3	)%	17	%	14	%	3	%
Oregon	22	%	27	%	(5	)%	14	%	13	%	1	%
Overall	20	%	23	%	(3	)%	14	%	12	%	2	%

Cancellation rates during the ~~2016~~2017 period ~~decreased~~increased to ~~20%~~14% from ~~23%~~12% during the ~~2015~~2016 period. Cancellation rates typically are driven by personal factors affecting buyers and may not be indicative of any overarching trends affecting regions.


	Three Months Ended September 30,		Increase (Decrease)				Three Months Ended June 30,		Increase (Decrease)
	2016	2015	Amount		%		2017	2016	Amount	%
Average Number of Sales Locations
California	23	18	5		28	%	23	18	5	28	%
Arizona	9	8	1		13	%	8	8	—	—	%
Nevada	12	11	1		9	%	14	12	2	17	%
Colorado	10	14	(4	)	(29	)%	15	11	4	36	%
Washington	6	6	—		—	%	10	6	4	67	%
Oregon	18	16	2		13	%	18	17	1	6	%
Total	78	73	5		7	%	88	72	16	22	%

The average number of sales locations for the Company increased to 7888 locations for the three months ended ~~September~~June 30, ~~2016~~2017 compared to 7372 for the three months ended ~~September~~June 30, ~~2015,~~2016, driven by the opening of new communities in California, ~~Arizona, Nevada~~Colorado and ~~Oregon~~Washington during ~~2016, as the Company continues to convert its land supply into home sites.~~2017. During the period, the Company opened 511 communities, while closing out 8.12.


	Three Months Ended September 30,		Increase (Decrease)	Three Months Ended March 31,		Increase (Decrease)
	2016	2015	Increase (Decrease)	2017	2016	Increase (Decrease)
Quarterly Absorption Rates
California	8.3	8.8	(0.5)	12.2	13.2	(1.0)
Arizona	13.0	14.9	(1.9)	18.6	17.8	0.8
Nevada	5.5	7.0	(1.5)	6.6	8.1	(1.5)
Colorado	5.4	2.7	2.7	5.7	6.5	(0.8)
Washington	11.0	16.3	(5.3)	16.4	14.7	1.7
Oregon	8.7	8.6	0.1	13.6	13.8	(0.2)
Overall	8.3	8.6	(0.3)	11.6	12.1	(0.5)

The Company's consolidated quarterly absorption rate, representing the number of net new home orders divided by average sales locations for the period, decreased slightly for the three months ended ~~September~~June 30, ~~2016~~2017 to ~~8.3~~11.6 sales per project from ~~8.6~~12.1 in the 2015 period. Absorption rates declined in Washington from 11.0 for the three months ended September 30, 2016 compared to 16.3 for the three months ended September 30, 2015; however, Washington continues to represent the second highest absorption rate across all reporting segments during the 2016 period.


	September 30,		Increase (Decrease)				June 30,		Increase (Decrease)
	2016	2015	Amount		%		2017	2016	Amount		%
Backlog (units)
California	327	297	30		10	%	432	305	127		42	%
Arizona	252	238	14		6	%	206	243	(37	)	(15	)%
Nevada	124	109	15		14	%	128	143	(15	)	(10	)%
Colorado	112	134	(22	)	(16	)%	126	128	(2	)	(2	)%
Washington	57	90	(33	)	(37	)%	192	65	127		195	%
Oregon	199	164	35		21	%	201	209	(8	)	(4	)%
Total	1,071	1,032	39		4	%	1,285	1,093	192		18	%

The Company’s backlog at ~~September~~June 30, ~~2016~~2017 increased 4%18% to ~~1,071~~1,285 units from ~~1,032~~1,093 units at ~~September~~June 30, ~~2015~~2016. The increase is primarily attributable to an increase in net new home orders to ~~651~~1,017 in the current period from ~~628~~871 in the prior year, slightly offset by a higher backlog conversion rate of ~~62%~~76% in current period compared to ~~58%~~75% in the prior period.


	September 30,				Increase (Decrease)					June 30,				Increase (Decrease)
	2016		2015		Amount			%		2017		2016		Amount			%
	(dollars in thousands)									(dollars in thousands)
Backlog (dollars)
California	$	260,082	$	236,202	$	23,880		10	%	$	345,604	$	223,080	$	122,524		55	%
Arizona	71,609		59,737		11,872			20	%	63,435		66,816		(3,381		)	(5	)%
Nevada	78,285		70,601		7,684			11	%	84,348		82,993		1,355			2	%
Colorado	59,451		64,300		(4,849		)	(8	)%	59,266		66,122		(6,856		)	(10	)%
Washington	36,518		36,902		(384		)	(1	)%	115,018		42,851		72,167			168	%
Oregon	85,093		69,383		15,710			23	%	87,652		93,617		(5,965		)	(6	)%
Total	$	591,038	$	537,125	$	53,913		10	%	$	755,323	$	575,479	$	179,844		31	%

The dollar amount of backlog of homes sold but not closed as of ~~September~~June 30, ~~2016~~2017 was ~~$591.0~~$755.3 million,, up ~~10%~~31% from ~~$537.1~~$575.5 million as of ~~September~~June 30, ~~2015~~.2016. The increase primarily reflects an increase in net new orders as described above, coupled with a 6%12% increase in the ASP of homes in backlog when compared with the prior period. The increase in the dollar amount of backlog of homes sold but not closed as described above generally results in an increase in operating revenues in the subsequent period as compared to the previous period.

In California, the dollar amount of backlog increased ~~10%~~55% to ~~$260.1~~$345.6 million as of ~~September~~June 30, ~~2016~~2017 from ~~$236.2~~$223.1 million as of ~~September~~June 30, ~~2015~~2016, which is primarily attributable to a ~~10%~~42% increase in units in ~~backlog.~~backlog, coupled with a 9% increase in average

sales price of homes in backlog to $800,000 as of June 30, 2017, from $731,400 as of June 30, 2016. In addition, the number of net new home orders for the 2017 period increased 18% to 280 homes from 238 homes for the 2016 period.

In Arizona, the dollar amount of backlog ~~increased 20%~~decreased 5% to ~~$71.6~~$63.4 million as of ~~September~~June 30, ~~2016~~2017 from ~~$59.7~~$66.8 million as of ~~September~~June 30, ~~2015,~~2016, which is primarily attributable to a ~~6% increase~~15% decrease in the number of homes in backlog, to ~~252~~206 at ~~September~~June 30, 2017, from 243 at June 30, 2016. This was largely offset by a 12% increase in the ASP of homes in backlog when compared with the prior period. Further, the number of homes closed for the 2017 period increased 35% to 181 homes from 134 homes for the 2016 ~~from 238 at September 30, 2015.~~period.

In Nevada, the dollar amount of backlog increased ~~11%~~2% to ~~$78.3~~$84.3 million as of ~~September~~June 30, ~~2016~~2017 from ~~$70.6~~$83.0 million as of ~~September~~June 30, ~~2015,~~2016, attributable to a 14% increase ~~in units in backlog, to 124 as of September 30, 2016 from 109 as of September 30, 2015, partially offset by a 3% decrease~~ in average sales price of homes in backlog to ~~$631,300~~$659,000 as of ~~September~~June 30, 2017, from $580,400 as of June 30, 2016, ~~from $647,700~~largely offset by a 10% decrease in units in backlog, to 128 as of ~~September~~June 30, ~~2015.~~2017 from 143 as of June 30, 2016.

In Colorado, the dollar amount of backlog decreased 8%10% to ~~$59.5~~$59.3 million as of ~~September~~June 30, ~~2016~~2017 from ~~$64.3~~$66.1 million as of ~~September~~June 30, ~~2015,~~2016, which is attributable to a ~~16%~~9% decrease of the ASP of homes in backlog to $470,400 as of June 30, 2017 from $516,600 as of June 30, 2016 and a 2% decrease in the number of units in backlog, to ~~112~~126 units as of ~~September~~June 30, ~~2016,~~2017, from ~~134~~128 units as of ~~September~~June 30, ~~2015, partially offset~~2016. We expect our backlog conversion rate in Colorado for the 2017 third and fourth quarters to be negatively impacted as a result of a manufactured product issue relating to fire rated I-joists that were purchased from Weyerhaeuser, which was announced by ~~a 11% increase~~Weyerhaeuser at the beginning of the ~~ASP of~~2017 third quarter and impacts certain homes in backlog ~~to $530,800 as of September 30, 2016 from $479,900 as of September 30, 2015.~~and/or under construction in our Colorado division, and for which we are currently implementing a remediation program.

In Washington, the dollar amount of backlog ~~decreased 1%~~increased 168% to ~~$36.5~~$115.0 million as of ~~September~~June 30, ~~2016~~2017 from ~~$36.9~~$42.9 million as of ~~September~~June 30, ~~2015,~~2016, which is attributable to a ~~37%~~195% increase in the number of units in backlog, to 192 units as of June 30, 2017, from 65 units as of June 30, 2016, in addition to an 86% increase in the number of net new home orders for the 2017 period compared to the 2016 period. This was offset by a 9% decrease in the ASP of homes in backlog to $599,100 as of June 30, 2017 from $659,200 as of June 30, 2016.

In Oregon, the dollar amount of backlog decreased 6% to $87.7 million as of June 30, 2017 from $93.6 million as of June 30, 2016, which is primarily attributable to a 4% decrease in the number of units in backlog, to 57201 units as of ~~September~~June 30, ~~2016,~~2017, from 90209 units as of ~~September~~June 30, ~~2015. This~~2016, in addition to a 3% decrease ~~is mostly offset by a 56% increase~~ in the ASP of homes in backlog to ~~$640,700 as of September 30, 2016 from $410,000 as of September 30, 2015.~~

~~In Oregon, the dollar amount of backlog increased 23% to $85.1 million as of September 30, 2016 from $69.4 million as of September 30, 2015, which is primarily attributable to a 21% increase~~$436,100 in the ~~number of units in backlog, to 199 units as of September 30, 2016,~~2017 period from ~~164 units as of September 30, 2015, coupled with a 1% increase in the ASP of homes in backlog to $427,600~~$447,900 in the 2016 ~~period from $423,100 in the 2015~~ period.


	Three Months Ended September 30,		Increase (Decrease)				Three Months Ended June 30,		Increase (Decrease)
	2016	2015	Amount		%		2017	2016	Amount		%
Number of Homes Closed
California	169	122	47		39	%	216	147	69		47	%
Arizona	108	69	39		57	%	181	134	47		35	%
Nevada	85	63	22		35	%	53	73	(20	)	(27	)%
Colorado	70	50	20		40	%	58	47	11		23	%
Washington	74	117	(43	)	(37	)%	106	83	23		28	%
Oregon	167	143	24		17	%	217	179	38		21	%
Total	673	564	109		19	%	831	663	168		25	%

During the three months ended ~~September~~June 30, ~~2016,~~2017, the number of homes closed increased ~~19%~~25% to ~~673~~831 from ~~564~~663 in the ~~2015~~2016 period. The increase was primarily attributable to the California, Arizona, ~~Nevada,~~ Colorado, Washington and Oregon reporting segments, driven by a higher number of homes in backlog to begin the quarter when compared with the ~~2015~~2016 period. These increases were partially offset by a decrease in the ~~Washington~~Nevada reporting segment.

Three Months Ended September 30, Increase (Decrease)
2016 2015 Amount %
(dollars in thousands)
Home Sales Revenue
California $ 111,434
$ 63,265
$ 48,169
76 %
Arizona 28,758
18,588
10,170
55 %
Nevada 49,600
31,924
17,676
55 %
Colorado 35,316
23,864
11,452
48 %
Washington 42,247
46,905
(4,658 ) (10 )%
Oregon 75,273
59,765
15,508
26 %
Total $ 342,628
$ 244,311
$ 98,317
40 %



	Three Months Ended June 30,				Increase (Decrease)
	2017		2016		Amount			%
	(dollars in thousands)
Home Sales Revenue
California	$	149,291	$	101,201	$	48,090		48	%
Arizona	52,372		35,594		16,778			47	%
Nevada	29,934		48,655		(18,721		)	(38	)%
Colorado	31,008		24,176		6,832			28	%
Washington	70,261		37,364		32,897			88	%
Oregon	89,767		78,069		11,698			15	%
Total	$	422,633	$	325,059	$	97,574		30	%

The ~~40%~~30% increase in homebuilding revenue is driven by the ~~19%~~25% increase in homes closed discussed above, ~~coupled with a 18%~~in addition to the 4% increase in the average sales price of homes closed between the ~~2016~~2017 and ~~2015~~2016 periods.


	Three Months Ended September 30,				Increase (Decrease)					Three Months Ended June 30,				Increase (Decrease)
	2016		2015		Amount			%		2017		2016		Amount			%
Average Sales Price of Homes Closed
California	$	659,400	$	518,600	$	140,800		27	%	$	691,200	$	688,400	$	2,800		—	%
Arizona	266,300		269,400		(3,100		)	(1	)%	289,300		265,600		23,700			9	%
Nevada	583,500		506,700		76,800			15	%	564,800		666,500		(101,700		)	(15	)%
Colorado	504,500		477,300		27,200			6	%	534,600		514,400		20,200			4	%
Washington	570,900		400,900		170,000			42	%	662,800		450,200		212,600			47	%
Oregon	450,700		417,900		32,800			8	%	413,700		436,100		(22,400		)	(5	)%
Total	$	509,100	$	433,200	$	75,900		18	%
Company Average										$	508,600	$	490,300	$	18,300		4	%

The average sales price of homes closed during the ~~2016~~2017 period increased ~~18%~~4% due to an increase in the average sales price of homes closed, primarily driven by product mix, in all reporting segments except Arizona, which declined by a nominal amount. In addition to the product mix shift, the increase in ASP in Washington was also due to price appreciation in certain communities that were open in both the 2016Nevada and ~~2015 periods.~~Oregon.

Gross Margin

Homebuilding gross margins decreased to ~~16.6%~~16.5% for the three months ended ~~September~~June 30, ~~2016~~2017 from ~~18.0%~~17.4% in the ~~2015~~2016 period, primarily driven by product and geographic mix for home deliveries, as well as rising labor and land costs, as well as an increase in capitalized interest being amortized through cost of sales, which increased to 400 basis points compared to 340 basis points in the 2015 period, and which also included infrastructure charges included in cost of sales for two sold out projects in Northern California, which impacted gross margins for the period.costs.

For the comparison of the three months ended ~~September~~June 30, ~~2016~~2017 and the three months ended ~~September~~June 30, ~~2015,~~2016, 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 ~~22.2%~~22.1% for the ~~2016~~2017 period compared to ~~24.7%~~24.0% for the ~~2015~~2016 period. The decrease was primarily a result of the decrease in homebuilding gross margins described above coupled with a decrease in the impact of purchase ~~accounting.~~accounting adjustments.

Adjusted homebuilding gross margin is a non-GAAP financial measure. The Company believes this information is meaningful as it isolates the impact that interest and purchase accounting have on homebuilding gross margin and permits investors to make better comparisons with the Company's competitors, who also break out and adjust gross margins in a similar fashion. For comparative purposes purchase accounting is the net adjustment in basis related to the acquisition of our Colorado, Washington and Oregon operating divisions. See table set forth below reconciling this non-GAAP measure to homebuilding gross margin.



	Three Months Ended June 30,
	2017			2016
	(dollars in thousands)
Home sales revenue	$	422,633		$	325,059
Cost of home sales	353,057			268,638
Homebuilding gross margin	69,576			56,421
Homebuilding gross margin percentage	16.5		%	17.4		%
Add: Interest in cost of sales	20,689			14,020
Add: Purchase accounting adjustments	3,310			7,658
Adjusted homebuilding gross margin	$	93,575		$	78,099
Adjusted homebuilding gross margin percentage	22.1		%	24.0		%

Construction Services Revenue

Construction services revenue, which is only in the California reporting segment, was $0.1 million for the three months ended June 30, 2017 and $0.6 million for the three months ended June 30, 2016. The revenue was attributable to one project in Northern California, which has closed out. During the 2016 period, the Company finalized significant construction services projects.

Sales and Marketing, General and Administrative



	Three Months Ended June 30,				As a Percentage of Home Sales Revenue
	2017		2016		2017		2016
	(dollars in thousands)
Sales and Marketing	$	21,284	$	18,112	5.0	%	5.6	%
General and Administrative	19,550		16,685		4.6	%	5.1	%
Total Sales and Marketing & General and Administrative	$	40,834	$	34,797	9.7	%	10.7	%

Sales and marketing expense as a percentage of home sales revenue decreased to 5.0% in the 2017 period compared to 5.6% in the 2016 period as a result of lower advertising and upfront marketing costs. General and administrative expense as a percentage of home sales revenues decreased to 4.6% in the 2017 period compared to 5.1% in the 2016 period. The decrease is driven by increased revenues and improved operating leverage on our headcount.

Equity in Income of Unconsolidated Joint Ventures

Equity in income of unconsolidated joint ventures remained relatively consistent at $1.2 million for the three months ended June 30, 2017 and $1.2 million during the comparable 2016 period.

Other Items

Interest activity for the three months ended June 30, 2017 and June 30, 2016 is as follows (in thousands):



	Three Months Ended June 30,
	2017		2016
Interest incurred	$	18,822	$	20,558
Less: Interest capitalized	18,822		20,558
Interest expense, net of amounts capitalized	$	—	$	—
Cash paid for interest	$	8,122	$	24,767

The decrease in interest incurred for the three months ended June 30, 2017, compared to the interest incurred for the three months ended June 30, 2016, reflects the impact of the effective refinancing transaction on January 31, 2017, in which the

Company completed the sale to certain purchasers of $450.0 million in aggregate principal amount of 5.875% Senior Notes due 2025 and concurrent retirement of the remaining outstanding 8.5% Notes, such that the entire aggregate $425.0 million of previously outstanding 8.5% Notes are now retired and extinguished. The Company capitalized all of the interest it incurred during both periods presented due to its qualifying assets exceeding its outstanding debt.

Provision for Income Taxes

During the three months ended June 30, 2017, the Company recorded a provision for income taxes of $9.2 million, for an effective tax rate of 31.3%. During the three months ended June 30, 2016, the Company recorded a provision for income taxes of $7.5 million for an effective tax rate of 33.3%.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests increased to $1.3 million during the 2017 period, compared to $0.5 million during the 2016 period.

Net Income Available to Common Stockholders

As a result of the foregoing factors, net income available to common stockholders for the three months ended June 30, 2017 was $19.0 million, while net income available to common stockholders for the three months ended June 30, 2016 was $14.6 million.

Lots Owned and Controlled

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



	June 30,		Increase (Decrease)
	2017	2016	Amount		%
Lots Owned
California	1,653	1,652	1		—	%
Arizona	4,660	4,985	(325	)	(7	)%
Nevada	2,941	3,251	(310	)	(10	)%
Colorado	1,415	698	717		103	%
Washington	1,303	1,449	(146	)	(10	)%
Oregon	1,449	1,133	316		28	%
Total	13,421	13,168	253		2	%
Lots Controlled (1)
California	1,141	1,288	(147	)	(11	)%
Arizona	—	—	—		—	%
Nevada	420	55	365		664	%
Colorado	192	1,148	(956	)	(83	)%
Washington	973	1,093	(120	)	(11	)%
Oregon	2,386	2,083	303		15	%
Total	5,112	5,667	(555	)	(10	)%
Total Lots Owned and Controlled	18,533	18,835	(302	)	(2	)%


(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 decreased to 18,533 lots owned and controlled at June 30, 2017 from 18,835 lots at June 30, 2016.

Comparisons of the Six Months Ended June 30, 2017 to June 30, 2016

Revenues from homes sales increased 16% to $681.5 million during the six months ended June 30, 2017, compared to $586.4 million during the six months ended June 30, 2016. The increase in revenue is primarily due to the 10% increase in the number of homes closed during the 2017 period in addition to the 5% increase in average sales price of homes closed. The number of net new home orders for the six months ended June 30, 2017 increased 21% to 1,882 homes from 1,560 homes for the six months ended June 30, 2016.



	Six Months Ended June 30,		Increase (Decrease)
	2017	2016	Amount		%
Number of Net New Home Orders
California	545	400	145		36	%
Arizona	277	250	27		11	%
Nevada	170	163	7		4	%
Colorado	147	150	(3	)	(2	)%
Washington	316	172	144		84	%
Oregon	427	425	2		—	%
Total	1,882	1,560	322		21	%

The 21% increase in net new homes orders is driven by a 21% increase in average number of sales locations to 85 average locations in 2017, compared to 70 in the 2016 period, in addition to the opening of 24 new communities, with openings in all reporting segments except Arizona.



	Six Months Ended June 30,				Increase (Decrease)
	2017		2016		%
Cancellation Rates
California	15	%	15	%	—	%
Arizona	9	%	8	%	1	%
Nevada	14	%	18	%	(4	)%
Colorado	10	%	12	%	(2	)%
Washington	14	%	12	%	2	%
Oregon	14	%	12	%	2	%
Overall	13	%	13	%	—	%

Cancellation rates remained consistent at 13% during the 2017 and 2016 periods. Cancellation rates typically are driven by personal factors affecting buyers and may not be indicative of any overarching trends affecting regions.



	Six Months Ended June 30,		Increase (Decrease)
	2017	2016	Amount	%
Average Number of Sales Locations
California	24	18	6	33	%
Arizona	8	8	—	—	%
Nevada	12	12	—	—	%
Colorado	13	10	3	30	%
Washington	9	6	3	50	%
Oregon	19	16	3	19	%
Total	85	70	15	21	%

The average number of sales locations for the Company increased to 85 locations for the six months ended June 30, 2017 compared to 70 for the six months ended June 30, 2016, driven by the opening of new communities in California,

Nevada, Colorado, Washington and Oregon during 2017, as the Company continues to convert its land supply into home sites. During the period, the Company opened 24 communities, while closing out 20.



	Six Months Ended June 30,		Increase (Decrease)
	2017	2016	Increase (Decrease)
Quarterly Absorption Rates
California	11.4	11.1	0.3
Arizona	17.3	15.6	1.7
Nevada	7.1	6.8	0.3
Colorado	5.7	7.5	(1.8)
Washington	17.6	14.3	3.3
Oregon	11.2	13.3	(2.1)
Overall	11.1	11.1	0.0

The Company's consolidated quarterly absorption rate, representing number of net new home orders divided by average sales locations for the period, remained consistent at 11.1 sales per project for the six months ended June 30, 2017 and 2016.



	Six Months Ended June 30,		Increase (Decrease)
	2017	2016	Amount		%
Number of Homes Closed
California	337	289	48		17	%
Arizona	275	216	59		27	%
Nevada	101	135	(34	)	(25	)%
Colorado	96	100	(4	)	(4	)%
Washington	176	151	25		17	%
Oregon	345	315	30		10	%
Total	1,330	1,206	124		10	%

During the six months ended June 30, 2017, the number of homes closed increased 10% to 1,330 from 1,206 in the 2016 period. The increase was primarily attributable to the California, Arizona, Washington and Oregon reporting segments, driven by an increase in average number of sales locations by 21% to 85 average sales locations in the 2017 period compared to 70 average sales locations in the 2016 period. These increases were partially offset by decreases in the Nevada and Colorado reporting segments.



	Six Months Ended June 30,				Increase (Decrease)
	2017		2016		Amount			%
	(dollars in thousands)
Home Sales Revenue
California	$	231,258	$	193,955	$	37,303		19	%
Arizona	79,088		56,641		22,447			40	%
Nevada	60,482		79,396		(18,914		)	(24	)%
Colorado	52,338		50,569		1,769			3	%
Washington	113,735		70,265		43,470			62	%
Oregon	144,586		135,528		9,058			7	%
Total	$	681,487	$	586,354	$	95,133		16	%

The 16% increase in homebuilding revenue is driven by the 10% increase in homes closed discussed above, in addition to a 5% increase in the average sales price of homes closed between the 2017 and 2016 periods.



	Six Months Ended June 30,				Increase (Decrease)
	2017		2016		Amount			%
Average Sales Price of Homes Closed
California	$	686,200	$	671,100	$	15,100		2	%
Arizona	287,600		262,200		25,400			10	%
Nevada	598,800		588,100		10,700			2	%
Colorado	545,200		505,700		39,500			8	%
Washington	646,200		465,300		180,900			39	%
Oregon	419,100		430,200		(11,100		)	(3	)%
Company Average	$	512,400	$	486,200	$	26,200		5	%

The average sales price of homes closed during the 2017 period increased 5% due to an increase in the average sales price of homes closed, primarily driven by product mix, in all reporting segments except Oregon.

Gross Margin

Homebuilding gross margins decreased to 16.1% for the six months ended June 30, 2017 from 17.5% in the 2016 period, primarily driven by product and geographic mix for home deliveries, as well as rising labor and land costs.

For the comparison of the six months ended June 30, 2017 and the six months ended June 30, 2016, 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 21.7% for the 2017 period compared to 24.3% for the 2016 period. The decrease was primarily a result of the decrease in homebuilding gross margins described above coupled with a decrease in the impact of purchase accounting adjustments.


	Three Months Ended September 30,						Six Months Ended June 30,
	2016			2015			2017			2016
	(dollars in thousands)						(dollars in thousands)
Home sales revenue	$	342,628		$	244,311		$	681,487		$	586,354
Cost of home sales	285,896			200,328			571,512			483,809
Homebuilding gross margin	56,732			43,983			109,975			102,545
Homebuilding gross margin percentage	16.6		%	18.0		%	16.1		%	17.5		%
Add: Interest in cost of sales	13,543			8,373			32,297			25,767
Add: Purchase accounting adjustments	5,687			7,986			5,811			14,251
Adjusted homebuilding gross margin	$	75,962		$	60,342		$	148,083		$	142,563
Adjusted homebuilding gross margin percentage	22.2		%	24.7		%	21.7		%	24.3		%

Construction Services Revenue

Construction services revenue, which is only in the California reporting segment, was $0.1 million for the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2017 and ~~$4.9~~$3.7 million for the ~~three~~six months ended ~~September~~June 30, ~~2015.~~2016. The ~~decrease is primarily due to a decrease in~~ revenue was attributable to one project in Northern California, which has closed out. During the ~~fourth quarter of 2015 and continuing into~~ 2016 period, the Company finalized significant construction services projects.

Sales and Marketing, General and Administrative


	Three Months Ended September 30,				As a Percentage of Home Sales Revenue				Six Months Ended June 30,				As a Percentage of Home Sales Revenue
	2016		2015		2016		2015		2017		2016		2017		2016
	(dollars in thousands)								(dollars in thousands)
Sales and Marketing	$	18,246	$	15,352	5.3	%	6.3	%	$	35,989	$	33,105	5.3	%	5.6	%
General and Administrative	17,360		13,981		5.1	%	5.7	%	38,496		34,519		5.6	%	5.9	%
Total Sales and Marketing & General and Administrative	$	35,606	$	29,333	10.4	%	12.0	%	$	74,485	$	67,624	10.9	%	11.5	%

Sales and marketing expense as a percentage of home sales ~~revenue~~ decreased to 5.3% in the ~~2016~~2017 period compared to ~~6.3%~~5.6% in the ~~2015~~2016 period as a result of lower advertising and upfront marketing costs. General and administrative expense as a percentage of home sales revenues decreased to ~~5.1%~~5.6% in the ~~2016~~2017 period compared to ~~5.7%~~5.9% in the ~~2015~~2016 period. The decrease is driven by increased revenues and improved operating leverage onover our ~~increased~~ headcount.

Equity in Income of Unconsolidated Joint Ventures

Equity in income of unconsolidated joint ventures ~~increased~~decreased to ~~$1.4~~$1.5 million for the ~~three~~six months ended ~~September~~June 30, ~~2016~~2017 from ~~$1.0~~$2.4 million during the ~~2015 period. The increase reflects the expanding operations~~comparable 2016 period as a result of ~~the mortgage joint ventures in which the Company holds a non-consolidated equity interest.~~increased overhead costs incurred.

Other Items

Interest activity for the three months ended ~~September~~June 30, ~~2016~~2017 and ~~September~~June 30, ~~2015~~2016 is as follows (in thousands):


	Three Months Ended September 30,				Six Months Ended June 30,
	2016		2015		2017		2016
Interest incurred	$	21,293	$	19,271	$	38,246	$	40,819
Less: Interest capitalized	21,293		19,271		38,246		40,819
Interest expense, net of amounts capitalized	$	—	$	—	$	—	$	—
Cash paid for interest	$	14,898	$	12,565	$	27,158	$	39,678

The ~~increase~~decrease in interest incurred for the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2017, compared to the interest incurred for the ~~three~~six months ended ~~September~~June 30, ~~2015,~~2016, reflects ~~an increase~~the impact of the effective refinancing transaction on January 31, 2017, in which the ~~Company's overall debt, offset by a decrease~~Company completed the sale to certain purchasers of $450.0 million in ~~effective interest rates.~~aggregate principal amount of 5.875% Senior Notes due 2025 and concurrent retirement of the remaining outstanding 8.5% Notes, such that the entire aggregate $425.0 million of previously outstanding 8.5% Notes are now retired and extinguished. The Company capitalized all of the interest it incurred during both periods presented due to its qualifying assets exceeding its outstanding debt.

During the ~~three~~six months ended ~~September~~June 30, ~~2016~~2017, the Company ~~sold two parcels of~~had a land ~~resulting~~parcel sale to a third party that did not result in ~~a $2.7 million gain.~~any gain or loss.

Provision for Income Taxes

During the ~~three~~six months ended ~~September~~June 30, 2017, the Company recorded a a provision for income taxes of $3.6 million, for an effective tax rate of 24.6%. During the six months ended June 30, 2016, the Company recorded a provision for income taxes of ~~$8.3~~$12.6 million for an effective tax rate of 33.4%. The ~~significant drivers~~decrease in the current year tax rate is driven by the loss on debt extinguishment recorded in relation to the retirement of the effective rate are the allocation of income to noncontrolling interests, change in the valuation allowance of deferred tax assets, and domestic production activities deduction. During the three months ended September 30, 2015, the Company recorded a provision for income taxes of $5.0 million for an effective tax rate of 28.8%.

8.5% Notes.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests increased to ~~$3.4~~$2.0 million during the 2017 period, compared to $1.5 million during the 2016 ~~period from $0.2 million during the 2015 period, reflecting the stage in the project development cycle of a number of our recently entered into joint venture projects and an increase in deliveries.~~period.

Net Income ~~Attributable~~Available to Common Stockholders

As a result of the foregoing factors, as well as the $14.1 million loss on debt extinguishment, net of tax, net income ~~attributable~~available to common stockholders for the ~~three~~six months ended ~~September~~June 30, ~~2016, and 2015~~2017 was ~~$13.1~~$9.0 million, ~~and $12.1 million, respectively.~~

~~Lots Owned and Controlled~~

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

September 30, Increase (Decrease)
2016 2015 Amount %
Lots Owned
California 1,625
2,315
(690 ) (30 )%
Arizona 4,877
5,289
(412 ) (8 )%
Nevada 3,131
2,864
267
9 %
Colorado 1,544
864
680
79 %
Washington 1,387
1,180
207
18 %
Oregon 1,303
1,399
(96 ) (7 )%
Total 13,867
13,911
(44 ) — %
Lots Controlled (1)
California 1,069
419
650
155 %
Arizona —
—
—
— %
Nevada 51
657
(606 ) (92 )%
Colorado 232
148
84
57 %
Washington 1,081
937
144
15 %
Oregon 1,849
1,601
248
15 %
Total 4,282
3,762
520
14 %
Total Lots Owned and Controlled 18,149
17,673
476
3 %


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

~~Total lots owned and controlled has increased to 18,149 lots owned and controlled at September 30, 2016 from 17,673 lots at September 30, 2015.~~

~~Comparisons of the Nine Months Ended September 30, 2016 to September 30, 2015~~

Revenues from homes sales increased 36% to $929.0 million during the nine months ended September 30, 2016, compared to $681.8 million during the nine months ended September 30, 2015. The increase is primarily due to the opening of new communities across our reporting segments. The number of net new home orders for the nine months ended September 30, 2016 increased 7% to 2,211 homes from 2,059 homes for the nine months ended September 30, 2015.

Nine Months Ended September 30, Increase (Decrease)
2016 2015 Amount %
Number of Net New Home Orders
California 591
547
44
8 %
Arizona 367
323
44
14 %
Nevada 229
193
36
19 %
Colorado 204
200
4
2 %
Washington 238
329
(91 ) (28 )%
Oregon 582
467
115
25 %
Total 2,211
2,059
152
7 %

The 7% increase in net new homes orders is driven by a 12% increase in average number of sales locations to 73 average locations in 2016, compared to 65 in the 2015 period, driven by an increase in the average number of communities in all reporting segments with the exception of Colorado and Washington.

Nine Months Ended September 30, Increase (Decrease)
2016 2015 %
Cancellation Rates
California 18 % 20 % (2 )%
Arizona 10 % 14 % (4 )%
Nevada 17 % 21 % (4 )%
Colorado 13 % 16 % (3 )%
Washington 15 % 20 % (5 )%
Oregon 15 % 21 % (6 )%
Overall 15 % 19 % (4 )%

Cancellation rates during the 2016 period decreased to 15% from 19% during the 2015 period. Cancellation rates typically are driven by personal factors affecting buyers and may not be indicative of any overarching trends affecting regions.

Nine Months Ended September 30, Increase (Decrease)
2016 2015 Amount %
Average Number of Sales Locations
California 20
17
3
18 %
Arizona 8
7
1
14 %
Nevada 12
10
2
20 %
Colorado 10
13
(3 ) (23 )%
Washington 6
6
—
— %
Oregon 17
12
5
42 %
Total 73
65
8
12 %

The average number of sales locations for the Company increased to 73 locations for the nine months ended September 30, 2016 compared to 65 for the nine months ended September 30, 2015, driven by an increase in community count in all reporting segments except Colorado and Washington during 2016, as the Company continues to convert its land supply

~~into home sites.~~

Nine Months Ended September 30, Increase (Decrease)
2016 2015
Average Quarterly Absorption Rates
California 9.9 10.7 (0.8)
Arizona 15.3 15.4 (0.1)
Nevada 6.4 6.4 0
Colorado 6.8 5.1 1.7
Washington 13.2 18.3 (5.1)
Oregon 11.4 13.0 (1.6)
Overall 10.1 10.6 (0.5)

The Company's consolidated average quarterly absorption rate, representing number of net new home orders divided by average sales locations by period for the first three quarters of 2016, decreased slightly for the nine months ended September 30, 2016 to 10.1 sales per project from 10.6 in the 2015 period. Average quarterly absorption rates declined in Washington from 13.2 for the nine months ended September 30, 2016 compared to 18.3 for the nine months ended September 30, 2015; however, Washington continues to represent the second highest absorption rate across all reporting segments during the 2016 period.

Nine Months Ended September 30, Increase (Decrease)
2016 2015 Amount %
Number of Homes Closed
California 458
408
50
12 %
Arizona 324
132
192
145 %
Nevada 220
157
63
40 %
Colorado 170
150
20
13 %
Washington 225
301
(76 ) (25 )%
Oregon 482
357
125
35 %
Total 1,879
1,505
374
25 %

During the nine months ended September 30, 2016, the number of homes closed increased 25% to 1,879 from 1,505 in the 2015 period. The increase was primarily attributable to the California, Arizona, Nevada, Colorado and Oregon reporting segments, driven by a higher number of homes in backlog to begin the year when compared with the 2015 period, coupled with a 12% increase in average sales locations from the 2015 period. These increases were partially offset by a decrease in the Washington reporting segment.

Nine Months Ended September 30, Increase (Decrease)
2016 2015 Amount %
(dollars in thousands)
Home Sales Revenue
California $ 305,389
$ 223,311
$ 82,078
37 %
Arizona 85,399
36,282
49,117
135 %
Nevada 128,996
89,937
39,059
43 %
Colorado 85,885
69,457
16,428
24 %
Washington 112,512
124,371
(11,859 ) (10 )%
Oregon 210,801
138,408
72,393
52 %
Total $ 928,982
$ 681,766
$ 247,216
36 %

The 36% increase in homebuilding revenue is driven by the 25% increase in homes closed discussed above, coupled with a 9% increase in the average sales price of homes closed between the 2016 and 2015 periods.

Nine Months Ended September 30, Increase (Decrease)
2016 2015 Amount %
Average Sales Price of Homes Closed
California $ 666,800
$ 547,300
$ 119,500
22 %
Arizona 263,600
274,900
(11,300 ) (4 )%
Nevada 586,300
572,800
13,500
2 %
Colorado 505,200
463,000
42,200
9 %
Washington 500,100
413,200
86,900
21 %
Oregon 437,300
387,700
49,600
13 %
Total $ 494,400
$ 453,000
$ 41,400
9 %

The average sales price of homes closed during the 2016 period increased 9% due to an increase in the average sales price of homes closed, primarily driven by product mix, in all reporting segments except Arizona, which experienced nominal decreases. In addition to the product mix shift, the increase in ASP in Washington was also due to price appreciation in certain communities that were open in both the 2016 and 2015 periods.

~~Gross Margin~~

Homebuilding gross margins decreased to 17.1% for the nine months ended September 30, 2016 from 18.6% in the 2015 period, primarily driven by rising labor and land costs, as well as an increase in capitalized interest being amortized through cost of sales, which increased to 420 basis points compared to 350 basis points in the 2015 period, and which included infrastructure charges included in cost of sales for two sold out projects in Northern California, which impacted gross margins for the period.

For the comparison of the nine months ended September 30, 2016 and the nine months ended September 30, 2015, adjusted homebuilding gross margin percentage, which excludes previously capitalized interest included in cost of sales as well as the effect of adjustments recorded in relation to purchase accounting, was 23.5% for the 2016 period compared to 25.1% for the 2015 period. The decrease was primarily a result of the decrease in homebuilding gross margins described above.

Nine Months Ended September 30,
2016 2015
(dollars in thousands)
Home sales revenue $ 928,982
$ 681,766
Cost of home sales 769,705
554,657
Homebuilding gross margin 159,277
127,109
Homebuilding gross margin percentage 17.1 % 18.6 %
Add: Interest in cost of sales 39,310
23,750
Add: Purchase accounting adjustments 19,938
20,441
Adjusted homebuilding gross margin $ 218,525
$ 171,300
Adjusted homebuilding gross margin percentage 23.5 % 25.1 %

~~Construction Services Revenue~~

Construction services revenue, which is only in the California reporting segment, was $3.8 million for the nine months ended September 30, 2016, and $19.3 million for the nine months ended September 30, 2015. The decrease is primarily due to a decrease in revenue attributable to one project in Northern California, which has closed out. During the fourth quarter of 2015 and continuing into 2016, the Company finalized significant construction services projects.

~~Sales and Marketing, General and Administrative~~

Nine Months Ended September 30, As a Percentage of Home Sales Revenue
2016 2015 2016 2015
(dollars in thousands)
Sales and Marketing $ 51,351
$ 42,480
5.5 % 6.2 %
General and Administrative 51,879
41,344
5.6 % 6.1 %
Total Sales and Marketing & General and Administrative $ 103,230
$ 83,824
11.1 % 12.3 %

Sales and marketing expense as a percentage of home sales revenue decreased to 5.5% in the 2016 period compared to 6.2% in the 2015 period as result of lower advertising and upfront marketing costs. General and administrative expense as a percentage of home sales revenues decreased to 5.6% in the 2016 period compared to 6.1% in the 2015 period. The decrease is driven by increased revenues and improved operating leverage on our increased headcount.

~~Equity in Income of Unconsolidated Joint Ventures~~

Equity in income of unconsolidated joint ventures increased to $3.8 million for the nine months ended September 30, 2016 from $1.8 million during the 2015 period. The increase reflects the expanding operations of the mortgage joint ventures in which the Company holds a non-consolidated equity interest.

~~Other Items~~

~~Interest activity for the nine months ended September 30, 2016 and September 30, 2015 is as follows (in thousands):~~

Nine Months Ended September 30,
2016 2015
Interest incurred $ 62,112
$ 55,915
Less: Interest capitalized 62,112
55,915
Interest expense, net of amounts capitalized $ —
$ —
Cash paid for interest $ 54,576
$ 47,590

The increase in interest incurred for the nine months ended September 30, 2016, compared to the interest incurred for the nine months ended September 30, 2015, reflects an increase in the Company's overall debt, offset by a decrease in effective interest rates. The Company capitalized all of the interest it incurred during both periods presented due to its qualifying assets exceeding its outstanding debt.

~~During the nine months ended September 30, 2016 the Company sold five parcels of land resulting in a $2.7 million gain.~~

~~Provision for Income Taxes~~

During the nine months ended September 30, 2016, the Company recorded a provision for income taxes of $20.9 million, for an effective tax rate of 33.4%. The significant drivers of the effective rate are the allocation of income to noncontrolling interests, change in the valuation allowance of deferred tax assets, and domestic production activities deduction. During the nine months ended September 30, 2015, the Company recorded a provision for income taxes of $15.8 million for an effective tax rate of 32.3%.

~~Net Income Attributable to Noncontrolling Interests~~

Net income attributable to noncontrolling interests increased to $4.9 million during the 2016 period from $2.1 million during the 2015 period, reflecting the stage in the project development cycle of a number of our recently entered into joint venture projects and an increase in deliveries.

~~Net Income Attributable to Common Stockholders~~

~~As a result of the foregoing factors,~~while net income ~~attributable~~available to common stockholders for the ~~nine~~six months ended ~~September~~June 30, 2016 ~~and 2015~~ was ~~$36.6 million, and $31.0 million, respectively.~~

$23.6 million.

Financial Condition and Liquidity

The U.S. housing market has continued to improve from the cyclical low points of the early years of the last real estate cycle. Strong housing markets have been associated with ~~great affordability,~~ a healthy domestic economy and positive demographic trends, including employment and population growth. ~~While~~The Company has experienced a strong selling season in its first half of the ~~homebuilding industry encountered some challenges during 2015 and continuing in~~year, with orders up 21%, demonstrating strong growth over 2016, ~~including constrained subcontractor and~~against a backdrop of tight labor ~~availability, increased~~markets, fluctuating cycle times, ~~volatility in global and financial markets, and~~ weather challenges, ~~during the first nine months of 2016 the Company has continued to show year-over-year improvement in deliveries, revenues, orders,~~ and ~~pre-tax income.~~geo-political changes.

The Company benefits from a sizable and well-located lot supply, and as of ~~September~~June 30, ~~2016,~~2017, the Company owned ~~13,867~~13,421 lots, all of which are entitled, and had options to purchase an additional ~~4,282~~5,112 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 several years. The Company has continued to experience increased cycle times in a number of its operating segments in the start of ~~2016,~~2017, and ~~the~~weather delays, availability of qualified trades with the associated delays and cost increases are challenges faced by the Company and the entire homebuilding industry during ~~2015~~2016 and into ~~2016.~~2017. The Company continues to implement new strategies to temper the impact of these challenges in an effort to manage cycle times and deliveries.

Since our initial public offering, which raised approximately $163.7 million of net proceeds, the Company has access to the public equity and debt markets, which it has utilized as a significant source of financing for investing in land in our existing markets or financing expansion into new markets, such as the Company’s acquisition of Polygon Northwest Homes during 2014.

The Company provides for its ongoing cash requirements with the proceeds from capital markets transactions, as well as from internally generated funds from the sales of homes and/or land sales. During the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, the Company delivered ~~1,879~~1,330 homes, and recognized home sales revenue of ~~$929.0~~$681.5 million. During the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, the Company used cash in operations of ~~$83.0~~$66.8 million, which included investment in land acquisitions of ~~$247.1~~$185.8 million, for net cash generated by operations of ~~$164.1 million.~~$119.0 million, net of investment in land acquisitions. In addition, the Company has the option to use additional outside borrowing, form new joint ventures with partners that could provide a substantial portion of the capital required for certain projects, buy land via lot options or land banking arrangements, and engage in future transactions in the public equity and debt markets. The Company has financed, and may in the future finance, certain projects and land acquisitions with construction loans secured by real estate inventories, seller-provided financing, land banking transactions, and capital markets transactions. The Company may also draw on its revolving line of credit to fund land acquisitions, as discussed below. We believe we are well-positioned with a strong balance sheet and sufficient liquidity for supporting our ongoing operations and growth initiatives.

Tangible Equity Units

a prepaid stock purchase contract (a “purchase contract”); and

a senior subordinated amortizing note (an “amortizing note”).

Each amortizing note had an initial principal amount of $18.01, bears interest at the annual rate of 5.50% and has a final installment payment date of December 1, 2017. On each March 1, June 1, September 1 and December 1, commencing on March 1, 2015, William Lyon Homes will pay equal quarterly installments of $1.6250 on each amortizing note (except for the March 1, 2015 installment payment, which was $1.8056 per amortizing note). Each installment will constitute a payment of interest and a partial repayment of principal. The amortizing notes rank equally in right of payment to all of the Company's existing and future senior indebtedness, other than borrowings under the Amended Facility and the Company's secured project level financing, which will be senior in right of payment to the obligations under the amortizing notes, in each case to the extent of the value of the assets securing such indebtedness.

The Company used the net proceeds from the offering of the TEUs to pay down approximately $111.2 million of outstanding debt under a senior unsecured bridge loan facility used to finance the Company's acquisition of Polygon Northwest Homes during 2014.

5 ³/₄% Senior Notes Due 2019

On March 31, 2014, California Lyon completed its offering of 5.75% Senior Notes due 2019 (the "5.75% Notes"), in an aggregate principal amount of $150 million. The 5.75% Notes were issued at 100% of their aggregate principal amount.

As of ~~September~~June 30, ~~2016,~~2017, the outstanding principal amount of the 5.75% Notes was $150.0 million, excluding deferred loan costs of ~~$1.3~~$0.9 million. The 5.75% Notes bear interest at a rate of 5.75% per annum, payable semiannually in arrears on April 15 and October 15, and mature on April 15, 2019. The 5.75% Notes are unconditionally guaranteed on a joint and several unsecured basis by Parent and certain of its existing and future restricted subsidiaries. The 5.75% Notes and the related guarantees are California Lyon’s and the guarantors’ unsecured senior obligations and rank equally in right of payment with all of California Lyon’s and the guarantors’ existing and future unsecured senior debt, including California Lyon’s ~~$425 million in aggregate principal amount of 8.5% Senior Notes due 2020 and~~ $350 million in aggregate principal amount of 7.00% Notes and $450 million in aggregate principal amount of 5.875% Senior Notes due 2020, each as described below. The 5.75% Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The 5.75% Notes and the guarantees are and will be effectively junior to California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.

8 ¹/₂% Senior Notes Due 2020

On November 8, 2012, California Lyon completed its offering of 8.5% Senior Notes due 2020, (the "initial 8.5% Notes"), in an aggregate principal amount of $325 million. The initial 8.5% Notes were issued at 100% of their aggregate principal amount.

On October 24, 2013, California Lyon completed the sale to certain purchasers of an additional $100.0 million in aggregate principal amount of its 8.5% Senior Notes due 2020 (the “additional 8.5% Notes”, and together with the initial 8.5% notes, the "8.5% Notes" ) at an issue price of 106.5% of their aggregate principal amount, plus accrued interest from and including May 15, 2013, resulting in net proceeds of approximately $104.7 million.

During the six months ended June 30, 2017, Parent, through California Lyon, used the net proceeds from its private placement with registration rights of ~~September 30, 2016~~5.875% Senior Notes due 2025, as further described below, to purchase $395.6 million of the outstanding aggregate principal amount of the 8.5% Notes, ~~was~~pursuant to a cash tender offer and consent solicitation. Subsequently, the Company used the remaining proceeds, together with cash on hand, for the retirement of the remaining outstanding 8.5% Notes, such that the entire aggregate $425 million ~~excluding unamortized premium~~ of ~~$2.9 million and deferred loan costs of $5.1 million. The 8.5% Notes bear interest at a rate of~~ ~~8.5%~~ ~~per annum, payable semiannually in arrears on May 15 and November 15, and mature on~~ ~~November 15, 2020. The~~previously outstanding 8.5% Notes are ~~unconditionally guaranteed on a joint~~retired and ~~several unsecured basis by Parent and by~~extinguished as of June 30, 2017. The Company incurred certain costs related to the early extinguishment of ~~its existing and future restricted subsidiaries. The~~debt of the 8.5% Notes ~~and~~during the ~~related guarantees are California Lyon's and~~six months ended June 30, 2017 in an amount of $21.8 million, which is included in the ~~guarantors' unsecured senior obligations~~Consolidated Statement of Operations as Loss on extinguishment of debt.

and rank equally in right of payment with all of California Lyon’s and the guarantors’ existing and future unsecured senior debt, including, the 5.75% Notes, as described above, and the 7.00% Notes, as described below. The 8.5% Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The 8.5% Notes and the guarantees are and will be effectively junior to any of California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.

~~7.00%~~7 % Senior Notes due 2022

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

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

As of ~~September~~June 30, ~~2016,~~2017, the outstanding principal amount of the 7.00% Notes was $350 million, excluding unamortized premium of ~~$0.9~~$0.8 million and deferred loan costs of ~~$5.0~~$4.4 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, as described above, and ~~$425~~$450 million in aggregate principal amount of ~~8.5%~~5.875% Senior Notes due 2020, ~~each~~ as described ~~above.~~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.

5.875% Senior Notes Due 2025

Senior Notes Covenant Compliance

The indentures governing the 5.75% Notes, the ~~8.5%~~7.00% Notes, and the ~~7.00%~~5.875% Notes contain covenants that limit the ability of Parent, California Lyon, and their restricted subsidiaries to, among other things: (i) incur or guarantee certain additional indebtedness; (ii) pay dividends, distributions, or repurchase equity or make payments in respect of subordinated indebtedness; (iii) make certain investments; (iv) sell assets; (v) incur liens; (vi) enter into agreements restricting the ability of the Company’s restricted subsidiaries to pay dividends or transfer assets; (vii) enter into transactions with affiliates; (viii) create unrestricted subsidiaries; and (viii) consolidate, merge or sell all or substantially all of its assets. These covenants are subject to a number of important exceptions and qualifications as described in the Indenture. The Company was in compliance with all such covenants as of ~~September~~June 30, ~~2016.~~2017.

Revolving ~~Lines of~~ Credit Facility

On July 1, 2016, California Lyon and Parent entered into an amendment and restatement agreement, pursuant to which its existing credit agreement providing for a revolving credit facility, as previously amended and restated on March 27, 2015 as described below, was further amended and restated in its entirety (as ~~so further~~ amended ~~and restated,~~from time to time, the “Second Amended Facility”). The Second Amended Facility amends and restates the Company’s previous $130.0 million revolving credit facility and provides for total lending commitments of $145.0 million. In addition, the Second Amended Facility has an uncommitted accordion feature under which the Company may increase the total principal amount up to a maximum aggregate of $200.0 million under certain circumstances, as well as a sublimit of $50.0 million for letters of credit. The Second Amended Facility, among other things, also amended the maturity date of the previous facility to July 1, 2019, provided that the Second Amended Facility will terminate on January 14, 2019 (the “Springing Termination Date”) if, on the Springing Termination Date, the aggregate outstanding principal amount of California Lyon’s 5.75% senior notes due 2019 is equal to or greater than the sum of

(a) 50% of the Consolidated EBITDA (as defined in the Second Amended Facility) of California Lyon, Parent, certain of the Parent’s direct and indirect wholly owned subsidiaries (together with California Lyon and Parent, the “Loan Parties”) and their Restricted Subsidiaries (as defined in the Second Amended Facility) for the four-quarter period ending September 30, 2018, plus (b) the Liquidity (as defined in the Second Amended Facility) of the Loan Parties and their consolidated subsidiaries on the Springing Termination Date. Further, the Second Amended Facility amended the maximum leverage ratio covenant to extend the timing of the gradual step-downs. Specifically, pursuant to the Second Amended Facility, the maximum leverage ratio ~~will remain~~remained at 65% from June 30, 2016 through and including December 30, 2016, ~~will decrease~~decreased to 62.5% on the last day of the 2016 fiscal year, ~~remain~~remained at 62.5% from December 31, 2016 through and including June 29, 2017, and ~~will~~was scheduled to further decrease to 60% on the last day of the second quarter of 2017 and to remain at 60% thereafter. The Second Amended Facility did not revise any of our other financial covenants thereunder.

Borrowings under the Second Amended Facility, the availability of which is subject to a borrowing base formula, are required to be guaranteed by the Parent and certain of the Parent's wholly-owned subsidiaries, are secured by a pledge of all equity interests held by such guarantors, and may be used for general corporate purposes. Interest rates on borrowings generally will be based on either LIBOR or a base rate, plus the applicable spread. As of ~~September~~June 30, ~~2016,~~2017, the commitment fee on the unused portion of the Second Facility accrues at an annual rate of 0.50%. As of ~~September~~June 30, 2017 and December 31, 2016, the Company had ~~$96.0~~$65.0 million and ~~$65.0~~$29.0 million outstanding against the Second Amended Facility, respectively, at effective rates of ~~4.37%~~4.38% and ~~3.32%~~4.75%, respectively as well as a letter of credit for ~~$8.6~~$8.0 million outstanding at both dates.

In connection with the issuance of the Company’s 5.875% Notes to pay off in full the previously outstanding 8.5% Notes in January 2017, the Company entered into an amendment to the Second Amended Facility effective as of January 2017. The amendment modifies the definition of Tangible Net Worth (as defined therein) for purposes of calculating the Leverage Ratio covenant under the Second Amended Facility, so as to exclude any reduction in Tangible Net Worth that occurs as a result of

the costs related to payment of any call premium or any other costs associated with the refinancing transaction and the redemption of outstanding 8.5% Notes.

The Company was in compliance with all covenants under the Second Amended Facility as of ~~September~~June 30, ~~2016.~~2017. The following table summarizes these covenants pursuant to the Second Amended Facility, and our compliance with such covenants as of ~~September~~June 30, ~~2016:~~2017:


	Covenant Requirements at			Actual at			Covenant Requirements at			Actual at
Financial Covenant	September 30, 2016			September 30, 2016			June 30, 2017			June 30, 2017
Minimum Tangible Net Worth	$	524.7	million	$	664.5	million	$	537.4	million	$	754.1	million
Maximum Leverage Ratio	65.0%			63.5%			62.5		%	59.3		%
Interest Coverage Ratio; or (1)	1.50x			2.27x			1.5			2.20
Minimum Liquidity (1)	$	82.4	million	$	81.1	million	$	80.6	million	$	104.5	million

(1) We are required to meet either the Interest Coverage Ratio or Minimum Liquidity, but not both.

Although the Company does not believe it is likely to breach any of the covenants listed above, including the maximum leverage ratio covenant, based on its current expectations and assumptions, there are certain steps that the Company could take to decrease the likelihood of any breach in the event it was determined that a breach was reasonably likely. The Company remains focused on continuing to drive top line revenue growth which it believes will improve cash flow and generate earnings. In addition, there are certain discretionary levers that the Company has the ability to utilize to the extent it is determined that near-term steps are needed to manage to covenant requirements. For example, land acquisition and development is a strategic investment by the Company to support our future growth plans. While the Company intends to continue to acquire land that it believes is accretive to the Company, the Company's currently owned and controlled land position enables it to be selective and nimble in its future acquisition strategy. The Company also has the option to form new joint ventures with partners that could provide a substantial portion of the capital required for certain projects, purchase land through lot options or land banking

arrangements, as well as utilizing such financing structures as a means to generate incremental cash flow, or adjust the timing of housing starts. In addition, during the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, the Company paid approximately ~~$247.1~~$185.8 million for land and land developments. Such spending related to land owned is a discretionary component that the Company can temper as needed to reduce cash outflow, and it believes it can do so without a significant impact on near-term operating results.

The Second Amended Facility contains customary events of default, subject to cure periods in certain circumstances, including: nonpayment of principal, interest and fees or other amounts; violation of covenants, including those financial covenants identified above; inaccuracy of representations and warranties; cross default to certain other indebtedness; unpaid judgments; and certain bankruptcy and other insolvency events.

The occurrence of any event of default could result in the termination of the commitments under the Second Amended Facility and permit the lenders to accelerate payment on outstanding borrowings under the Second Amended Facility and require cash collateralization of outstanding letters of credit, if we are unable to amend the Second Amended Facility, secure a waiver of the default from the lenders or otherwise cure the default. Further, acceleration of the Second Amended Facility borrowings may result in the acceleration of other debt to which a cross-acceleration or cross-default provision applies, including but not limited to our senior notes as described above to the extent the acceleration is above certain threshold amounts, and the triggering default is not cured or waived or any acceleration rescinded, as well as certain notes payable.

In addition, if a change in control (as defined in the Second Amended Facility) occurs, the lenders may terminate the commitments under the Second Amended Facility and require that the Company repay outstanding borrowings under the Second Amended Facility and cash collateralize outstanding letters of credit.

The Company believes it has access to alternate sources of funding to pay off resulting obligations or replace funding under the Second Amended Facility should there be a likelihood of, or anticipated, breach of any covenants, including cash generated from operations and opportunistic land sales. In addition, the Company has capacity under the restrictive covenants of its senior notes indentures to incur additional indebtedness which it can do through access to the debt capital markets, and the Company believes it can also raise equity in the capital markets.

~~Construction~~Joint Venture Notes Payable

The Company and certain of its consolidated joint ventures have entered into ~~construction~~ notes payable agreements. The issuance date, facility size, maturity date and interest rate are listed in the table below as of ~~September~~June 30, ~~2016~~2017 (in millions):


Issuance Date	Facility Size		Outstanding		Maturity	Current Rate			Facility Size		Outstanding			Maturity	Current Rate
March, 2016	$	33.4	$	15.8	September, 2018	3.53	%	(1)	$	33.4	$	21.6		September, 2018	4.14	%	(1)
January, 2016	35.0		18.8		February, 2019	3.78	%	(2)	35.0		26.9			February, 2019	4.48	%	(2)
November, 2015	42.5		19.5		November, 2017	4.50	%	(1)	42.5		18.2		(6)	November, 2017	5.25	%	(1)
August, 2015 (4)	14.2		0.7		August, 2017	4.50	%	(1)	14.2		—		(5)	August, 2017	4.50	%	(1)
August, 2015 (4)	37.5		7.0		August, 2017	4.50	%	(1)
July, 2015	22.5		14.8		July, 2018	4.00	%	(3)	15.0		11.3			July, 2018	4.75	%	(3)
April, 2015	18.5		13.9		October, 2017	4.00	%	(3)
November, 2014	24.0		13.1		November, 2017	4.00	%	(3)	15.0		4.1		(6)	November, 2017	4.75	%	(3)
November, 2014	22.0		12.7		November, 2017	4.00	%	(3)	15.0		6.5		(6)	November, 2017	4.75	%	(3)
March, 2014	26.0		14.6		April, 2018	3.53	%	(1)	26.0		9.8			April, 2018	4.22	%	(1)
	$	275.6	$	130.9					$	196.1	$	98.4

(1) Loan bears interest at the Company's option of either LIBOR +3.0% or the prime rate +1.0%.

(2) Loan bears interest at LIBOR +3.25%.

(3) Loan bears interest at the prime rate +0.5%.

(4) Loan relates to a project that is wholly-owned by the Company.

(5) The ~~construction~~balance on this borrowing was paid in full prior to the maturity date, along with all accrued interest to date.

(6) The Company anticipates paying the borrowings in full upon the maturity date from proceeds from homes closed in each respective project.

The joint venture notes payable contain certain financial maintenance covenants. The Company was in compliance with all such covenants as of ~~September~~June 30, ~~2016.~~

2017.

Seller Financing

At ~~September~~June 30, ~~2016,~~2017, the Company had ~~$32.4~~$20.1 million of notes payable outstanding related to two land acquisitions for which seller financing was provided. The first note of approximately $3.0 million bears interest at a rate of 7% per annum, is secured by the underlying land, and matures in August 2017. This note was entered into with a related party, which is described in more detail in the financial statements. The second note of ~~$29.4~~$17.1 million bears interest at a rate of 7% per annum, is secured by the underlying land, and matures in June 2018.

Net Debt to Total Capital

The Company’s ratio of net debt to ~~net book~~total capital (net of cash) was ~~60.8%~~57.2% and ~~61.1%~~57.6% as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively. The ratio of net debt to ~~net book~~total capital (net of cash) is a non-GAAP financial measure, which is calculated by dividing notes payable and Senior Notes, net of cash and cash equivalents, ~~and restricted cash,~~ by net book capital (notes payable and Senior Notes, net of cash and cash equivalents, ~~and restricted cash,~~ plus total equity). The Company believes this calculation is a relevant and useful financial measure to investors in understanding the leverage employed in its operations, and may be helpful in comparing the Company with other companies in the homebuilding industry to the extent they provide similar information. See table set forth below reconciling this non-GAAP measure to the ratio of debt to total capital.


	Successor
	September 30, 2016			December 31, 2015			June 30, 2017			December 31, 2016
	(dollars in thousands)						(dollars in thousands)
Notes payable and Senior Notes	$	1,185,684		$	1,105,776		$	1,121,321		$	1,080,650
Total equity	739,313			671,469			813,851			763,429
Total capital	$	1,924,997		$	1,777,245		$	1,935,172		$	1,844,079
Ratio of debt to total capital	61.6		%	62.2		%	57.9		%	58.6		%
Notes payable and Senior Notes	$	1,185,684		$	1,105,776		$	1,121,321		$	1,080,650
Less: Cash and cash equivalents and restricted cash	(40,710		)	(50,707		)
Less: Cash and cash equivalents							(32,573		)	(42,612		)
Net debt	1,144,974			1,055,069			1,088,748			1,038,038
Total equity	739,313			671,469			813,851			763,429
Total capital	$	1,884,287		$	1,726,538
Ratio of net debt to total capital	60.8		%	61.1		%
Total capital (net of cash)							$	1,902,599		$	1,801,467
Ratio of net debt to total capital (net of cash)							57.2		%	57.6		%

Joint Venture Financing

The Company and certain of its subsidiaries are general partners or members in joint ventures involved in the development and sale of residential projects. As described more fully in Critical Accounting Policies—Variable Interest Entities, certain joint ventures have been determined to be variable interest entities in which the Company is considered the primary beneficiary. Accordingly, the assets, liabilities and operations of these joint ventures have been consolidated with the Company’s financial statements for the periods presented. The financial statements of joint ventures in which the Company is not considered the primary beneficiary are not consolidated with the Company’s financial statements. The Company’s investments in unconsolidated joint ventures are accounted for using the equity method because the Company has a 50% or less voting or economic interest (and thus such joint ventures are not controlled by the Company). Based upon current estimates, substantially all future development and construction costs incurred by the joint ventures will be funded by the venture partners or from the proceeds of construction financing obtained by the joint ventures.

~~During the nine months ended September 30, 2015, the Company acquired a non-controlling interest in an unconsolidated mortgage joint venture.~~

Assessment District Bonds

In some jurisdictions in which the Company develops and constructs property, assessment district bonds are issued by municipalities to finance major infrastructure improvements and fees. Such financing has been an important part of financing master-planned communities due to the long-term nature of the financing, favorable interest rates when compared to the Company’s other sources of funds and the fact that the bonds are sold, administered and collected by the relevant government entity. As a landowner benefited by the improvements, the Company is responsible for the assessments on its land. When the Company’s homes or other properties are sold, the assessments are either prepaid or the buyers assume the responsibility for the related assessments.

Cash Flows—Comparison of the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2017 to the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2015~~2016

For the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, the comparison of cash flows is as follows:

Net cash used in operating activities decreased to ~~$83.0~~$66.8 million in the ~~2016~~2017 period from ~~$220.4~~$74.9 million in the ~~2015~~2016 period. The change was primarily a result of (i) a net decrease in spending on real estate inventories-owned of ~~$146.7~~$92.3 million in the 2017 period compared to spending of $123.2 million in the 2016 period, ~~compared to spending~~(ii) equity in income of ~~$323.7~~unconsolidated joint ventures of $1.5 million in the ~~2015~~2017 period ~~(ii)~~compared to $2.4 million in the 2016 period, and (iii) a decrease in net income to $11.0 million compared to net income of ~~$3.0~~$25.0 million in ~~escrow proceeds receivable~~the 2016 period, offset by (iv) a decrease in accrued expenses of $13.8 million in the ~~2016~~2017 period compared to an increase of ~~$2.9~~$3.4 million in the ~~2015~~2016 period.

Net cash used in investing activities was $0.2 million in the 2017 period ~~due~~compared to ~~the timing~~net cash provided by investing activities of ~~homes closed, (iii) net income of $41.5~~$5.6 million in the 2016 period, compared to $33.1 million in the 2015 period, (iv) an increase in accounts payable of $1.0 million in the 2016 period compared to an increase of $63.5 million in the 2015 period due to timing of payments, (vi) an increase in accrued expenses of $11.6 million in the 2016 period compared to an increase of $10.0 million in the 2015 period, and (vii) equity of income in unconsolidated joint ventures of $3.8 million in the 2016 period compared to $1.8 million in the 2015 period.

~~Net cash provided by investing activities was $5.4 million in the 2016 period compared net cash used of $2.3 million in the 2015 period,~~ primarily driven by ~~(i)~~ collections of related party notes of $6.2 million in the 2016 period with no comparable amount in the 2015 period, (ii) net cash paid to unconsolidated joint ventures of $1.0 million in the 2015 period, with no comparable amount in the 2016 period and (iii) purchases of property and equipment of $0.8 million in the 2016 period, compared to $1.3 million in the 20152017 period.

Net cash provided by financing activities decreased to ~~$68.1~~$57.0 million in the ~~2016~~2017 period from ~~$196.3~~$58.9 million in the ~~2015~~2016 period. The change was primarily the result of (i) principal payments for the 8.5% Senior Notes for $425.0 million in the 2017 period, in addition to its redemption premium for $19.6 million, for which there is no comparable amount in the 2016 period, (ii) payment of deferred loan costs of $9.7 million in the 2017 period compared to $0.2 million in the 2016 period, and (iii) net ~~borrowing~~payments of ~~$31.0~~notes payable of $3.7 million in the 2017 period, versus net borrowings of $40.8 million in the 2016 period, offset by (iv) proceeds from the issuance of the 5.875% Senior Notes for $446.5 million in the 2017 period for which there is no comparable amount in the 2016 period, (v) net borrowings of $36.0 million against the revolving line of credit in the ~~2016~~2017 period versus net ~~borrowing~~payments of ~~$85.0~~$6.0 million in the ~~2015~~2016 period, ~~offset by (ii)~~and (vi) net noncontrolling interest contributions of ~~$23.4~~$37.6 million in the ~~2016~~2017 period versus net contributions of ~~$4.9~~$28.7 million in the ~~2015 period and (iii) net borrowings of notes payable of $20.7 million in the~~ 2016 ~~period, versus net borrowings of $63.8 million in the 2015~~ period.

Based on capital market access and expected sales volume, the Company believes it has sufficient cash and sources of financing for at least the next twelve months.

Contractual Obligations and Off-Balance Sheet Arrangements

The Company enters into certain off-balance sheet arrangements including joint venture financing, option agreements, land banking arrangements and variable interests in consolidated and unconsolidated entities. These arrangements are more fully described above and in Notes 2 and 12 of “Notes to Condensed Consolidated Financial Statements.” In addition, the Company is party to certain contractual obligations, including land purchases and project commitments, which are detailed in Note 12 of “Notes to Condensed Consolidated Financial Statements.”

Inflation

The Company’s revenues and profitability may be affected by increased inflation rates and other general economic conditions. In periods of high inflation, demand for the Company’s homes may be reduced by increases in mortgage interest rates. Further, the Company’s profits will be affected by increases in the costs of land, construction, labor and administrative expenses. The Company’s ability to raise prices at such times will depend upon demand and other competitive factors.

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 ~~September~~June 30, ~~2016.~~2017. The section for "Active Projects" includes only projects with lots owned as of ~~September~~June 30, ~~2016,~~2017, lots consolidated in accordance with certain accounting principles as of ~~September~~June 30, ~~2016~~2017, or homes either closed or in backlog as of or for the period ended ~~September~~June 30, ~~2016,~~2017, and in each case, with an estimated year of first delivery of ~~2016~~2017 or ~~earlier, or orders in 2016.~~earlier. The section for "Future Owned and Controlled" includes projects with lots owned as of ~~September~~June 30, ~~2016~~2017 but with an estimated year of first delivery of ~~2017~~2018 or later, parcels of undeveloped land held for future sale, and lots controlled as of ~~September~~June 30, ~~2016,~~2017, in each case aggregated by county. The following table includes certain information that is forward-looking or predictive in nature and is based on expectations and projections about future events. Such information is subject to a number of risks and uncertainties, and actual results may differ materially from those expressed or forecast in the table below. In addition, we undertake no obligation to update or revise the information in the table below to reflect changed assumptions, the occurrence of anticipated or unanticipated events or changes to projections over time. See "CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS" included in this Quarterly Report on Form 10-Q.



Active Projects (County or City)	Estimated Year of First Delivery	Estimated Number of Homes at Completion (1)	Cumulative Homes Closed as of June 30, 2017 (2)	Backlog at June 30, 2017 (3) (4)	Lots Owned as of June 30, 2017 (5)	Homes Closed for the Period Ended June 30, 2017	Estimated Sales Price Range (6)
CALIFORNIA
Orange County:
Anaheim
Avelina	2017	38	29	8	9	29	$550,000 - 625,000
Buena Park
The Covey (7)	2016	67	37	21	30	13	$ 810,000 - 880,000
Cypress
Mackay Place (7)	2016	47	44	3	3	10	(8)
Dana Point
Grand Monarch	2015	37	14	2	23	1	$ 2,604,000 - 2,904,000
Ladera Ranch
Artisan	2015	14	6	3	8	—	$ 2,550,000 - 3,025,000
Irvine
The Vine	2016	106	53	17	37	22	$ 518,000 - 655,000
Calistoga	2016	60	24	20	36	9	$1,230,000 - $1,475,000
Celadon (7)	2017	79	—	18	79	—	$710,000 - 800,000
Rancho Mission Viejo
Aurora (7)	2016	94	76	18	18	19	$ 480,000 - 590,000
Vireo (7)	2015	90	75	7	15	15	$ 595,000 - 660,000
Briosa (7)	2016	50	4	7	46	3	$ 945,000 - 1,045,000
Rancho Santa Margarita
Dahlia Court	2016	36	27	7	9	27	$ 515,000 - 630,000
Los Angeles County:
Glendora
La Colina Estates	2015	121	22	7	99	3	$ 1,274,000 - 1,654,000
Lakewood
Canvas	2015	72	72	—	—	1	(8)
Claremont
Meadow Park	2017	95	5	2	90	5	$460,000 - 575,000

Active Projects (County or City) Estimated
Year of
First
Delivery
Estimated
Number of
Homes at
Completion
(1)
Cumulative
Homes
Closed as
of September 30,
2016
(2) Backlog
at
September 30,
2016
(3) (4) Lots
Owned
as of
September 30,
2016
(5) Homes
Closed
for the
Period
Ended
September 30,
2016 Estimated Sales Price Range
(6)
CALIFORNIA
Orange County:
Anaheim
      Avelina 2017 38
—
5
38
—
$540,000 - 575,000
Buena Park
The Covey (7) 2016 67
14
13
53
14
$ 790,000 - 840,000
Cypress
Mackay Place (7) 2016 47
12
18
35
12
$ 838,000 - 896,000
Dana Point
Grand Monarch 2015 37
12
4
25
6
$ 2,604,000 - 2,904,000
Ladera Ranch
Artisan 2015 14
4
2
10
1
$ 2,550,000 - 3,025,000
Irvine
The Vine 2016 106
16
12
38
16
$ 485,000 - 620,000
Calistoga 2016 60
—
19
60
—
$985,000 - $1,325,000
Rancho Mission Viejo
Aurora (7) 2016 94
43
13
51
43
$ 454,000 - 589,000
Vireo (7) 2015 90
42
10
48
32
$ 575,000 - 635,000
Briosa (7) 2016 50
—
1
50
—
$ 935,000 - 1,055,000
Rancho Santa Margarita
Dahlia Court 2016 36
—
1
36
—
$ 499,000 - 619,000
Los Angeles County:
Glendora
La Colina Estates 2015 121
16
2
105
10
$ 1,274,000 - 1,654,000
Lakewood
Canvas 2015 72
69
3
3
33
$ 443,000 - 487,000
Riverside County:
Riverside
SkyRidge 2014 90
22
—
68
4
$ 500,000 - 543,000
TurnLeaf
Crossings 2014 139
16
1
123
6
$ 495,000 - 549,000
Coventry 2015 161
7
7
154
1
$ 535,000 - 560,000
Eastvale
Nexus 2015 220
76
10
144
66
$ 338,000 - 362,000
San Bernardino County:
Upland
The Orchards (7)
Citrus Court 2015 77
32
12
45
20
$ 324,000 - 394,000
Citrus Pointe 2015 132
30
10
102
21
$ 339,000 - 404,000
Yucaipa
Cedar Glen 2015 143
106
21
37
36
$ 306,000 - 322,000
Alameda County
Dublin
Terrace Ridge 2015 36
34
2
2
19
$ 1,110,000 - 1,170,000
Newark
The Cove 2016 108
—
23
9
—
$ 616,000 - 741,000
The Strand 2016 157
—
10
16
—
$ 671,000 - 791,000
The Banks 2016 120
—
34
24
—
$ 805,000 - 865,000



Riverside County:
Riverside
SkyRidge	2014	90	35	14	55	13	$ 500,000 - 560,000
TurnLeaf
Crossings	2014	42	28	11	14	9	$ 495,000 - 528,000
Coventry	2015	42	17	13	25	4	$ 535,000 - 565,000
Eastvale
Nexus	2015	220	123	33	97	28	$ 346,000 - 395,000
San Bernardino County:
Upland
The Orchards (7)
Citrus Court	2015	77	58	13	19	13	$ 332,000 - 394,000
Citrus Pointe	2015	132	55	17	77	11	$ 357,000 - 412,000
Yucaipa
Cedar Glen	2015	143	143	—	—	10	(8)
Chino
Laurel Lane	2017	70	—	6	70	—	$526,000 - 587,000
Alameda County
Newark
The Cove	2016	108	18	54	36	10	$ 706,000 - 811,000
The Strand	2016	157	24	37	42	16	$ 767,000 - 882,000
The Banks	2016	120	28	44	52	24	$ 865,000 - 950,000
The Tides	2016	75	20	30	32	16	$ 929,000 - 959,000
The Isles	2016	82	25	20	18	22	$ 1,028,000 - 1,108,000
Contra Costa County:
Pittsburgh
Vista Del Mar
Victory II	2014	104	104	—	—	4	(8)
CALIFORNIA TOTAL		2,468	1,166	432	1,039	337



Active Projects (County or City)	Estimated Year of First Delivery	Estimated Number of Homes at Completion (1)	Cumulative Homes Closed as of June 30, 2017 (2)	Backlog at June 30, 2017 (3) (4)	Lots Owned as of June 30, 2017 (5)	Homes Closed for the Period Ended June 30, 2017	Estimated Sales Price Range (6)
ARIZONA
Maricopa County:
Queen Creek
Meridian
Harvest	2015	448	192	41	256	58	$ 207,990 - 257,990
Homestead	2015	313	85	21	228	29	$ 245,990 - 333,990
Harmony	2015	259	48	17	211	19	$ 275,990 - 298,990
Horizons	2016	161	22	19	139	13	$ 310,990 - 391,990
Mesa
Lehi Crossing
Settlers Landing	2012	235	231	4	4	30	(8)
Wagon Trail	2013	244	202	36	42	50	$ 259,990 - 341,990
Monument Ridge	2013	248	121	41	127	34	$ 296,990 - 414,990
Albany Village	2016	228	31	24	197	23	$ 193,990 - 256,990
Peoria
Rio Vista	2015	197	194	3	3	19	(8)
ARIZONA TOTAL		2,333	1,126	206	1,207	275

The Tides 2016 76
—
20
23
—
$ 864,000 - 894,000
The Isles 2016 81
—
23
21
—
$ 937,000 - 1,007,000
Contra Costa County:
Pittsburgh
Vista Del Mar
Victory II 2014 104
89
14
15
27
$ 583,000 - 652,000
Victory III 2016 11
11
—
—
11
(8)
Brentwood
Palmilla (7)
Cielo 2014 56
56
—
—
8
(8)
Antioch
Oak Crest 2013 130
130
—
—
11
(8)
San Joaquin County:
Tracy
Maplewood 2014 59
58
—
1
9
$ 450,000 - 532,000
Santa Clara County:
Morgan Hill
Brighton Oaks 2015 110
72
37
38
25
$ 550,000 - 680,000
Mountain View
Guild 33 2015 33
33
—
—
27
(8)
CALIFORNIA TOTAL 2,875

1,000

327

1,374

458





NEVADA
Clark County:
Las Vegas
Lyon Estates	2014	81	80		—	1	7	$ 408,000 - 532,000
Tuscan Cliffs	2015	76	29		3	47	2	$ 645,000 - 826,000
Brookshire
Estates	2015	35	31		1	4	4	$ 595,000 - 643,000
Heights	2015	98	60		21	38	22	$ 370,000 - 422,000
Las Vegas - Summerlin
Sterling Ridge
Grand	2014	137	90		14	47	8	$ 905,000 - 988,000
Premier	2014	62	62		—	—	2	(8)
Allegra	2016	88	36		14	52	6	$ 514,000 - 551,000
Silver Ridge	2016	83	17		13	37	5	$ 1,282,500 - 1,490,500
Affinity
Moda (7)	2017	192	—		10	192	—	$242,000 - 311,500
Evoke	2017	117	—	��	10	117	—	$334,000 - 432,000
Savu (7)	2017	96	—		7	96	—	$406,000 - 483,000
Revo (7)	2017	80	—		2	80	—	$445,000 - 485,000
Henderson
Lago Vista	2016	52	9		6	43	6	$ 790,000 - 878,000
The Peaks	2016	88	4		5	84	4	$ 485,000 - 509,000
Nye County:
Pahrump
Mountain Falls
Series I	2011	242	218		17	24	29	$ 176,500 - 209,150
Series II	2014	187	41		5	146	6	$ 232,500 - 321,500
NEVADA TOTAL		1,714	677		128	1,008	101


COLORADO
Arapahoe County
Aurora
Southshore
Generations	2014	15	15		—	—	1	(8)
Signature	2015	7	7		—	—	1	(8)
The 40's Collection	2016	30	3		—	27	1	$ 423,000 - 497,000
Artistry	2016	61	35		9	26	18	$ 437,000 - 495,000
Signature II	2017	30	2		4	28	2	$488,000 - 533,000
Centennial
Greenfield	2016	35	17		16	18	8	$ 454,000 - 523,000
Douglas County
Castle Rock
Cliffside	2014	49	48		—	1	4	$ 518,000 - 596,000
Jefferson County
Arvada
Candelas
Generations	2015	50	42		1	8	8	$ 421,000 - 497,000
Tapestry	2015	26	14		2	12	6	$ 460,000 - 530,000
The 40's Collection	2017	40	—		2	40	—	$ 413,000 - 466,000
The 50's Collection	2017	85	—		1	85	—	$ 450,000 - 510,000
Leydon Rock

Tierra Este 2013 114
109
5
5
47
$ 219,000 - 239,000
Las Vegas
Serenity Ridge 2013 108
108
—
—
11
(8)
Lyon Estates 2014 89
58
17
31
28
$ 408,000 - 538,000
Tuscan Cliffs 2015 76
22
6
54
10
$ 650,000 - 786,000
Brookshire
Estates 2015 35
22
5
13
19
$ 595,000 - 631,000
Heights 2015 98
27
12
71
15
$ 369,000 - 391,000
Las Vegas - Summerlin
Sterling Ridge
Grand 2014 137
75
6
62
20
$ 875,000 - 920,000
Premier 2014 62
58
2
4
9
$ 1,244,000 - 1,312,000
Allegra 2016 88
18
10
70
18
$ 499,000 - 532,000
Silver Ridge 2016 83
5
13
27
5
$ 1,294,000 - 1,362,000
Henderson
Lago Vista 2016 52
1
5
51
1
$ 765,000 - 828,000
The Peaks 2016 88
—
4
88
—
$ 475,000 - 495,000
Nye County:
Pahrump
Mountain Falls
Series I 2011 242
157
30
85
28
$ 159,000 - 188,000
Series II 2014 187
27
9
160
9
$ 221,000 - 304,000
NEVADA TOTAL 1,459
687
124
721
220

COLORADO
Arapahoe County
Aurora Southshore
Hometown 2014 68
63
5
5
22
$ 359,000 - 390,000
Generations 2014 15
13
—
2
2
$ 401,000 - 494,000
Harmony 2015 10
10
—
—
4
(8)
Signature I 2015 7
5
2
2
4
$ 538,000 - 591,000
Filing 5 2016 30
2
—
28
2
$ 423,000 - 497,000
Artistry 2016 61
12
21
49
12
$ 426,000 - 487,000
Centennial
Greenfield 2016 35
—
13
35
—
$ 455,000 - 510,000
Douglas County
Castle Rock
Cliffside 2014 49
38
5
11
11
$ 518,000 - 596,000
Grand County
Granby
Granby Ranch 2012 44
19
—
25
1
(12)
Jefferson County
Arvada
Candelas Sundance 2014 66
66
—
—
6
(8)
Candelas II
Generations 2015 91
26
9
65
23
$ 413,000 - 489,000
Tapestry 2015 110
3
8
107
3
$ 451,000 - 532,000
Leydon Rock
Garden 2014 56
28
7
28
11
$ 411,000 - 451,000
Park 2015 78
54
6
24
17
$ 394,000 - 457,000
Larimer County
Fort Collins
Timnath Ranch



Garden	2014	60	41	10	19	6	$ 422,000 - 462,000
Park	2015	74	68	1	6	6	$ 407,000 - 462,000
Larimer County
Timnath
West Village at Timnath Ranch North
Park	2014	92	81	8	11	17	$ 380,000 - 430,000
Sonnet	2014	55	51	1	4	4	$ 398,000 - 470,000
The 40's Collection	2017	69	—	—	69	—	$ 380,500 - 446,500
The 50's Collection	2017	55	—	4	55	—	$ 410,000 - 490,000
Loveland
Lakes at Centerra	2015	88	49	20	39	14	$ 395,000 - 435,000
Denver County
Denver
Avion at Denver Connection
Summit	2017	93	—	7	93	—	$ 330,000 - 370,000
Horizon	2017	191	—	10	191	—	$ 282,000 - 336,000
Alpine	2017	101	—	2	101	—	$ 273,000 - 303,000
Westerly	2017	309	—	21	309	—	$ 246,000 - 276,000
Boulder County
Erie
Flatiron Meadows	2017	98	—	7	30	—	$462,000 - 564,000
COLORADO TOTAL		1,713	473	126	1,172	96

Sonnet 2014 55
42
5
13
12
$ 397,000 - 469,000
Park 2014 92
51
18
41
24
$ 367,000 - 395,000
Loveland
Lakes at Centerra 2015 200
27
13
39
16
$ 363,000 - 403,000
COLORADO TOTAL 1,067

459

112

474

170



Active Projects (County or City)	Estimated Year of First Delivery	Estimated Number of Homes at Completion (1)	Cumulative Homes Closed as of June 30, 2017 (2)	Backlog at June 30, 2017 (3) (4)	Lots Owned as of June 30, 2017 (5)	Homes Closed for the Period Ended June 30, 2017	Estimated Sales Price Range (6)
WASHINGTON (9)
King County:
Bryant Heights SF	2015	14	14	—	—	2	(8)
Bryant Heights NC	2017	36	—	4	36	—	$614,990 - 869,990
Bryant Heights MF	2016	39	27	9	12	26	$790,990 - 939,990
Highcroft at Sammamish	2016	121	71	24	50	34	$849,990 - 1,209,990
Peasley Canyon	2016	153	74	31	55	39	$389,990 - 489,990
Ridgeview Townhomes	2016	40	36	4	4	30	(8)
High Point Block 34	2017	54	2	33	52	2	$497,990 - 734,990
Upton at Crossroads Village (7)	2017	176	—	13	176	—	$574,990 - 854,990
The Cottages at North Bend	2017	37	—	11	37	—	$489,990 - 749,990
Snohomish County:
Silverlake Center	2015	100	100	—	—	1	(8)
Riverfront	2016	425	48	63	377	42	$ 284,990 - 529,990
Pierce County:
Ovation - Oak Tree (7)	2017	814	—	—	130	—	$ 321,500 - 446,500
WASHINGTON TOTAL		2,009	372	192	929	176

OREGON (9)
Clackamas County:
Villebois Zion III - Townhomes	2014	40	36	—	4	—	$269,990 - 309,990

Active Projects (County or City) Estimated
Year of
First
Delivery Estimated
Number of
Homes at
Completion
(1) Cumulative
Homes
Closed as
of September 30,
2016
(2) Backlog
at
September 30,
2016
(3) (4) Lots
Owned
as of
September 30,
2016
(5) Homes
Closed
for the
Period
Ended
September 30,
2016 Estimated Sales Price Range
(6)
WASHINGTON (9)
King County:
The Brownstones at Issaquah Highlands 2014 176
173
3
3
59
$ 569,990 - 659,990
The Towns at Mill Creek Meadows 2014 122
122
—
—
5
(8)
Bryant Heights SF 2015 14
12
—
2
9
$ 1,250,000 - 1,390,000
Bryant Heights MF 2016 39
—
—
39
—
$790,990 - 914,990
Highcroft at Sammamish 2016 121
14
20
85
14
$ 879,990 - 1,049,990
Peasley Canyon 2016 153
15
14
52
15
$ 404,490 - 464,900
Ridgeview Townhomes 2016 40
—
6
40
—
$ 399,990 - 539,990
Snohomish County:
The Reserve at North Creek 2014 221
221
—
—
6
(8)
Silverlake Center 2015 100
96
4
4
51
$ 269,990 - 329,990
Riverfront 2016 425
—
8
425
—
$ 249,990 - 499,990
Pierce County:
Spanaway 230 2015 115
113
2
2
66
$ 269,990 - 294,990
WASHINGTON TOTAL 1,526

766

57

652

225

OREGON (9)
Clackamas County:
Calais at Villebois - Rumpf Alley 2015 58
58
—
—
15
(8)
Calais at Villebois - Rumpf Traditional 2015 26
26
—
—
11
(8)
Villebois 2014 183
160
8
23
21
$ 284,990 - 469,990
Villebois Zion III - Alley 2015 51
32
—
19
16
$ 329,990 - 399,990
Villebois Lund Cottages 2015 67
36
—
31
16
$ 299,990 - 304,990
Villebois Lund Townhomes 2015 42
26
2
16
22
$ 259,990 - 279,990
Villebois Lund Alley 2016 96
11
—
85
9
$ 324,990 - 369,990
Grande Pointe at Villebois 2016 100
15
5
85
15
$ 449,990 - 589,990
Villebois V 2016 93
12
20
81
12
$ 339,990 - 409,990
Villebois Village Center 75 & 83 & 80 2016 99
—
22
99
—
$ 259,990 - 299,990
Washington County:
Baseline Woods 2014 130
130
—
—
17
(8)
Baseline Woods II 2015 102
102
—
—
54
(8)
Sequoia Village 2016 157
10
49
147
10
$ 249,990 - 289,990
Murray & Weir 2014 81
81
—
—
9
(8)
Twin Creeks 2014 94
91
2
3
37
$ 479,990 - 614,990
Bethany West - Alley 2015 94
70
13
9
40
$ 379,990 - 459,990



Villebois Zion III - Cottage	2014	46	37	—	9	—	$299,990 - 429,990
Villebois Zion III - Alley	2015	51	32	—	19	—	$ 339,990 - 414,990
Villebois V Fasano	2016	93	46	21	47	9	$344,990 - 429,990
Grande Pointe at Villebois Alley	2016	40	23	10	17	12	$459,990 - 483,990
Grande Pointe at Villebois FL	2016	60	23	7	37	11	$529,990 - 599,990
Villebois Lund Cottages	2015	67	61	4	6	25	$ 339,990 - 344,990
Villebois Lund Townhomes	2015	42	38	4	4	10	(8)
Villebois Lund Alley	2016	96	33	5	63	22	$ 349,990 - 464,990
Villebois Village Parcel 80	2016	50	24	20	26	24	$ 259,990 - 309,990
Villebois Village Parcel 83	2016	31	31	—	—	13	(8)
Washington County:
Sequoia Village - Cornelius Pass	2016	157	112	33	45	49	$ 249,990 - 339,990
Twin Creeks	2014	94	94	—	—	2	(8)
Bethany West - Alley	2015	94	87	—	2	1	$ 429,990 - 489,990
Bethany West - Cottage	2015	61	60	—	1	—	$ 389,990 - 429,990
Bethany West - Traditional	2015	82	77	3	5	—	$ 569,990 - 649,990
Bethany West - Townhomes	2017	40	—	12	40	—	$569,990 - 664,990
Bethany West - Weisenfluh	2016	36	36	—	—	5	(8)
Bethany Round 2 - Alley	2016	25	13	6	12	13	$429,990 - 489,990
Bethany Round 2 - Cottage	2016	13	11	2	2	11	(8)
Bethany Round 2 - Traditional	2016	24	9	9	15	9	$569,990 - 609,990
Bull Mountain 1 NW River Terrace - Alley	2017	35	3	7	32	3	$399,990 - 429,990
Bull Mountain 1 NW River Terrace - Med/Std/Lrg	2016	116	25	22	39	25	$464,990 - 594,990
Bull Mountain 1 NW River Terrace - Townhomes	2017	64	2	18	44	2	$269,990 - 294,990
Bull Mountain 2 W River Terrace - Alley	2016	60	60	—	—	26	(8)
Bull Mountain 2 W River Terrace - Med/Std	2016	31	29	2	2	17	$ 474,990 - 614,990
Bull Mountain 2 W River Terrace - Townhomes	2016	46	37	5	9	37	$274,990 - 319,990
Bull Mountain 7 Dickson	2016	82	31	11	51	16	$ 549,990 - 779,990
Sunset Ridge	2015	104	104	—	—	3	(8)
OREGON TOTAL		1,780	1,174	201	531	345

Future Owned and Controlled (by County)					Lots Owned or Controlled as of June 30, 2017 (10)
CALIFORNIA
Orange County					475
San Diego County					63
Riverside County					216
Alameda County					705
Contra Costa County					296

Bethany West - Cottage 2015 61
45
12
9
29
$ 349,990 - 389,990
Bethany West - Traditional 2015 82
64
10
5
19
$ 569,990 - 664,990
Bethany West - Weisenfluh 2016 36
23
5
13
23
$ 569,990 - 659,990
BM2 West River Terrace - Alley 2016 60
5
19
36
5
$ 364,990 - 409,990
BM2 West River Terrace - Med/Std 2016 31
1
14
22
1
$ 464,990 -564,990
Bull Mountain Dickson 2016 82
3
13
79
3
$ 549,990 - 649,990
Orenco Woods 2015 71
71
—
—
28
(8)
Sunset Ridge 2015 104
89
5
15
70
$ 349,990 - 499,990
OREGON TOTAL 2,000

1,161

199

777

482

Future Owned and Controlled (by County) Lots Owned or Controlled as of September 30, 2016 (10)
CALIFORNIA
Orange County 264

Los Angeles County 95

San Bernardino County 70

Alameda County 541

Contra Costa County 296

Sonoma County 54

ARIZONA
Maricopa County (11) 2,487

NEVADA
Nye County (11) 1,925

Clark County 536

COLORADO
Larimer County 258

Boulder County 98

Arapahoe County 248

Denver County 698

WASHINGTON
King County 928

Pierce County 814

Snohomish County 74

OREGON
Clackamas County 249

Washington County 2,126

TOTAL FUTURE 11,761

GRAND TOTALS 12,172
4,928
1,071
18,149
1,879



ARIZONA
Maricopa County (11)				3,453
NEVADA
Nye County (11)				1,925
Clark County				428
COLORADO
Arapahoe County				218
Boulder County				192
Grand County				25
WASHINGTON
King County				589
Pierce County				684
Snohomish County				74
OREGON
Clackamas County				305
Washington County				2,999
TOTAL FUTURE				12,647

GRAND TOTALS	12,017	4,988	1,285	18,533	1,330

(1)

The estimated number of homes to be built at completion is approximate and includes home sites in our backlog. Such estimated amounts are subject to change based on, among other things, future site planning, as well as zoning and permit changes, and there can be no assurance that the Company will build these homes. ~~Includes~~Further, certain projects may include lots ~~owned, controlled or previously closed as of periods presented.~~that the Company controls, and that are also reflected in "Future Owned and Controlled".


(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 ~~September~~June 30, ~~2016, 928~~2017, 1,201 represent homes that are completed or under construction.


(5)	Lots owned as of ~~September~~June 30, ~~2016~~2017 include lots in backlog at ~~September~~June 30, ~~2016.~~2017.

(6)

Estimated sales price range reflects the most recent pricing updates of the base price only and excludes any lot premium, buyer incentive and buyer selected options, which vary from project to project. Sales prices reflect current pricing estimates and might not be indicative of past or future pricing. Further, any potential benefit to be gained from an increase in sales price ranges as compared to previously estimated amounts may be offset by increases in costs, profit participation, and other factors.


(7)	Project is a joint venture and is consolidated as a VIE in accordance with ASC 810, Consolidation.


(8)	Project is completely sold out, therefore the sales price range is not applicable as of ~~September~~June 30, ~~2016.~~2017.


(9)	The Company's Washington and Oregon segments were acquired on August 12, 2014 as part of the Polygon Acquisition. Estimated number of homes at completion is the number of homes to be built post-acquisition. Homes closed are from acquisition date through ~~September~~June 30, ~~2016.~~2017.

(10)

Includes projects with lots owned as of ~~September~~June 30, ~~2016 but with~~2017 that are expected to open for sale and have an estimated year of first delivery of ~~2017~~2018 or later, as well as lots controlled as of ~~September~~June 30, ~~2016,~~2017, and parcels of undeveloped land held for future sale. Certain lots controlled are under land banking arrangements which may become owned and produce deliveries during ~~2016.~~2017. Actual homes at completion may change prior to the marketing and sales of homes in these projects and the sales price ranges for these projects are to be determined and will be based on current market conditions and other factors upon the commencement of active selling. There can be no assurance that the Company will acquire any of the controlled lots reflected in these amounts.


(11)	Represents a parcel of undeveloped land held for future sale. It is unknown when the Company plans to develop homes on this land.

Income Taxes

See Note 9 of “Notes to Condensed Consolidated Financial Statements” for a description of the Company’s income taxes.

Critical Accounting Policies

The Company’s financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and costs and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those which impact its most critical accounting policies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015~~,2016, the Company’s most critical accounting policies are ~~debtor in possession accounting; fresh start accounting;~~ real estate inventories and cost of sales; impairment of real estate inventories; sales and profit recognition; variable interest entities; business combinations; and income taxes. Management believes that there have been no significant changes to these policies during the ~~nine~~six months ended ~~September~~June 30, ~~2016~~,2017, as compared to those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Annual Report on Form 10-K for the year ended December 31, ~~2015~~. Although no significant changes have been made to the policy, the impairment of real estate inventories policy has been included below as to expand the definition of the Company's calculation of sales absorption rates.

~~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 (calculated as net new homes orders divided by average sales locations for a given period), a decrease in home values in the markets in which the Company operates, significant decreases in gross margins and a decrease in project cash flows for a particular project.

For land and land under development, homes completed and under construction and model homes, the Company estimates expected cash flows at the project level by maintaining current budgets using recent historical information and current market assumptions. The Company updates project budgets and cash flows of each real estate project on a quarterly basis to determine whether the estimated remaining undiscounted future cash flows of the project are more or less than the carrying amount (net book value) of the asset. If the undiscounted cash flows are more than the net book value of the project, then there is no impairment. If the undiscounted cash flows are less than the net book value of the asset, then the asset is deemed to be impaired and is written-down to its fair value. Fair value represents the amount at which an asset could be bought

or sold in a current transaction between willing parties (i.e., other than a forced or liquidation sale). Management determines the estimated fair value of each project by determining the present value of estimated future cash flows at discount rates that are commensurate with the risk of each project. The estimation process involved in determining if assets have been impaired and in the determination of fair value is inherently uncertain because it requires estimates of future revenues and costs, current market yields as well as future events and conditions. As described more fully above in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 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. During the period ended September 30, 2016, 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:

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

~~forecasted operating profit for homes in backlog;~~

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

~~increased levels of home foreclosures;~~

~~the current sales pace for active subdivisions;~~

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

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

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

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

Management assesses land deposits for impairment when estimated land values are deemed to be less than the agreed upon contract price. The Company considers changes in market conditions, the timing of land purchases, the ability to renegotiate with land sellers the terms of the land option contract in question, the availability and best use of capital, and other

factors. If land values are determined to be less than the contract price, the future project will not be purchased. The Company records abandoned land deposits and related pre-acquisition costs to cost of sales-land in the consolidated statement of operations in the period that it is abandoned.

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 years ended December 31, 2015, 2014 and 2013, there were no impairment charges recorded. During the period ended September 30, 2016, no indicators of impairment were noted by the Company.

2016.



Item 3.	Quantitative and Qualitative Disclosures About Market Risk

The Company’s exposure to market risk for changes in interest rates relates to the Company’s floating rate debt with a total outstanding balance at ~~September~~June 30, ~~2016~~2017 of $~~226.9~~163.4 million where the interest rate is variable based upon certain bank reference or prime rates. The average prime rate during the ~~three~~six months ended ~~September~~June 30, ~~2016~~2017 ~~was 3.50%~~ranged between 3.75% and 4.25%. Based upon the amount of variable rate debt held by the Company, and holding the variable rate debt balance constant, each 1% increase in interest rates would increase the amount of interest expense incurred by the Company by approximately ~~$2.3~~$1.6 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 ~~September~~June 30, ~~2016~~2017 (dollars in thousands):


	Years ending December 31,														Thereafter			Total		Fair Value at September 30, 2016		Years ending December 31,												Thereafter		Total		Fair Value at June 30, 2017
	2016			2017		2018			2019			2020			Thereafter			Total		Fair Value at September 30, 2016		2017		2018			2019			2020		2021		Thereafter		Total		Fair Value at June 30, 2017
Fixed rate debt	$	—		$	11,950	$	29,439		$	150,000		$	425,000		$	350,000		$	966,389	$	999,914	$	6,468	$	17,075		$	150,000		$	—	$	—	$	800,000	$	973,543	$	1,000,264
Interest rate	—		%	5.0 - 7.0%		7.0		%	5.75		%	8.50		%	7.0		%	—		—		5.5 - 7.0%		7.0		%	5.75		%	—		—		5.875 - 7.0%		—		—

The Company does not utilize swaps, forward or option contracts on interest rates, foreign currencies or commodities, or other types of derivative financial instruments as of or during the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017. The Company does not enter into or hold derivatives for trading or speculative purposes.



Item 4.	Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined under Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and, in reaching a reasonable level of assurance, our management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures.

Evaluation of Disclosure Controls and Procedures. We carried out an evaluation as of ~~September~~June 30, ~~2016,~~2017, under the supervision and with the participation of our management, including our President and Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon their evaluation and subject to the foregoing, our President and Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September~~June 30, ~~2016,~~2017, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting. Our management determined that as of ~~September~~June 30, ~~2016,~~2017, there were no changes in our internal control over financial reporting that occurred during the fiscal quarter then ended that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

WILLIAM LYON HOMES

PART II. OTHER INFORMATION



Item 1.	Legal Proceedings

The Company is involved in various legal proceedings, most of which relate to routine litigation and some of which are covered by insurance. These matter are subject to many uncertainties and the outcomes of these matters are not within our control and may not be known for prolonged periods of time. Nevertheless, in the opinion of the Company’s management, the Company does not have any currently pending litigation of which the outcome will have a material adverse effect on the Company’s operations or financial position.



Item 1A.	Risk Factors

You should carefully consider the risks described in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, ~~2015 and in Part II, Item 1A, Risk Factors, of our Quarterly Report on Form 10-Q for the quarterly period ended June 30,~~ 2016, as our business, financial condition and results of operations could be adversely affected by any of the risks and uncertainties described therein. There have been no material changes to the risk factors we previously disclosed in ~~such reports.~~our Annual Report on Form 10-K for the year ended December 31, 2016. Some statements in this Quarterly Report on Form 10-Q, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section titled, “CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS” included elsewhere in this Quarterly Report on Form 10-Q.



Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

~~The table below summarizes~~On February 17, 2017, the ~~number~~Board of ~~shares of our Class A Common Stock that were repurchased from certain employees~~Directors of the Company ~~during~~approved a stock repurchase program, authorizing the ~~three month period ended September~~repurchase of up to an aggregate of $50 million of its Class A common stock. The program allows the Company to repurchase shares of Class A common stock from time to time for cash in the open market or privately negotiated transactions or other transactions, as market and business conditions warrant and subject to applicable legal requirements. As of June 30, ~~2016. Such~~2017, no shares ~~were~~have been repurchased under this program. The stock repurchase program does not ~~repurchased pursuant~~obligate the Company to ~~a publicly announced plan~~repurchase any particular amount of common stock, and it could be modified, suspended 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 September 30, 2016.~~discontinued at any time.

Month Ended Total Number of Shares Purchased Average Price Per Share
July 31, 2016 —
N/A
August 31, 2016 4,601
$ 15.89
September 30, 2016 —
N/A
Total 4,601

~~Except as set forth above, the~~The Company did not repurchase any of its equity securities during the three month period ended ~~September~~June 30, ~~2016.~~2017.



Item 3.	Defaults Upon Senior Securities

None.



Item 4.	Mine Safety Disclosure

Not applicable.



Item 5.	Other Information

Not applicable.



Item 6.	Exhibits

Exhibit Index



Exhibit No.	Description

~~10.1~~ 10.1+	Amendment No. 2 dated as of June 16, 2017 to the Second Amended and ~~Restatement~~Restated Credit Agreement dated as of July 1, 2016, among William Lyon Homes, Inc., a California corporation, as Borrower, William Lyon Homes, a Delaware corporation, as Parent, ~~each subsidiary of the Borrower party thereto,~~ the lenders ~~listed on Schedule 1~~from time to time party thereto, and Credit Suisse AG, as administrative ~~agent (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed July 7, 2016)~~agent.

10.2	William Lyon Homes Amended and Restated 2012 Equity Incentive Plan (incorporated by reference to Appendix A of the Registrant’s Definitive Proxy Statement filed with the Commission on April 12, 2017).

31.1+	Certification of Chief Executive Officer Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

31.2+	Certification of Chief Financial Officer Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

32.1*	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

32.2*	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

101.INS**	XBRL Instance Document.

101.SCH**	XBRL Taxonomy Extension Schema Document.

101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB**	XBRL Taxonomy Extension Label Linkbase Document.

101.PRE**	XBRL Taxonomy Extension Presentation ~~Linkbased~~Linkbase Document.



+	Filed herewith

*	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.

WILLIAM LYON HOMES

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	WILLIAM LYON HOMES,
	a Delaware corporation

Date: ~~November 7, 2016~~August 8, 2017	By:	/S/ COLIN T. SEVERN
		Colin T. Severn
		Senior Vice President, Chief Financial Officer (Principal Accounting Officer and Duly Authorized Signatory)

Exhibit Index



Exhibit No.	Description

~~10.1~~ 10.1+	Amendment No. 2 dated as of June 16, 2017 to the Second Amended and ~~Restatement~~Restated Credit Agreement dated as of July 1, 2016, among William Lyon Homes, Inc., a California corporation, as Borrower, William Lyon Homes, a Delaware corporation, as Parent, ~~each subsidiary of the Borrower party thereto,~~ the lenders ~~listed on Schedule 1~~from time to time party thereto, and Credit Suisse AG, as administrative ~~agent (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed July 7, 2016)~~ agent.

10.2	William Lyon Homes Amended and Restated 2012 Equity Incentive Plan (incorporated by reference to Appendix A of the Registrant’s Definitive Proxy Statement filed with the Commission on April 12, 2017).

31.1+	Certification of Chief Executive Officer Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

31.2+	Certification of Chief Financial Officer Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

32.1*	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

32.2*	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

101.INS**	XBRL Instance Document.

101.SCH**	XBRL Taxonomy Extension Schema Document.

101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB**	XBRL Taxonomy Extension Label Linkbase Document.

101.PRE**	XBRL Taxonomy Extension Presentation ~~Linkbased~~Linkbase Document.



+	Filed herewith

*	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.

6365



	Nine Months Ended September 30,		Increase (Decrease)
	2016	2015	Amount		%
Number of Net New Home Orders
California	591	547	44		8	%
Arizona	367	323	44		14	%
Nevada	229	193	36		19	%
Colorado	204	200	4		2	%
Washington	238	329	(91	)	(28	)%
Oregon	582	467	115		25	%
Total	2,211	2,059	152		7	%



The Tides	2016	76	—	20	23	—	$ 864,000 - 894,000
The Isles	2016	81	—	23	21	—	$ 937,000 - 1,007,000
Contra Costa County:
Pittsburgh
Vista Del Mar
Victory II	2014	104	89	14	15	27	$ 583,000 - 652,000
Victory III	2016	11	11	—	—	11	(8)
Brentwood
Palmilla (7)
Cielo	2014	56	56	—	—	8	(8)
Antioch
Oak Crest	2013	130	130	—	—	11	(8)
San Joaquin County:
Tracy
Maplewood	2014	59	58	—	1	9	$ 450,000 - 532,000
Santa Clara County:
Morgan Hill
Brighton Oaks	2015	110	72	37	38	25	$ 550,000 - 680,000
Mountain View
Guild 33	2015	33	33	—	—	27	(8)
CALIFORNIA TOTAL		2,875	1,000	327	1,374	458



Tierra Este	2013	114	109	5	5	47	$ 219,000 - 239,000
Las Vegas
Serenity Ridge	2013	108	108	—	—	11	(8)
Lyon Estates	2014	89	58	17	31	28	$ 408,000 - 538,000
Tuscan Cliffs	2015	76	22	6	54	10	$ 650,000 - 786,000
Brookshire
Estates	2015	35	22	5	13	19	$ 595,000 - 631,000
Heights	2015	98	27	12	71	15	$ 369,000 - 391,000
Las Vegas - Summerlin
Sterling Ridge
Grand	2014	137	75	6	62	20	$ 875,000 - 920,000
Premier	2014	62	58	2	4	9	$ 1,244,000 - 1,312,000
Allegra	2016	88	18	10	70	18	$ 499,000 - 532,000
Silver Ridge	2016	83	5	13	27	5	$ 1,294,000 - 1,362,000
Henderson
Lago Vista	2016	52	1	5	51	1	$ 765,000 - 828,000
The Peaks	2016	88	—	4	88	—	$ 475,000 - 495,000
Nye County:
Pahrump
Mountain Falls
Series I	2011	242	157	30	85	28	$ 159,000 - 188,000
Series II	2014	187	27	9	160	9	$ 221,000 - 304,000
NEVADA TOTAL		1,459	687	124	721	220


COLORADO
Arapahoe County
Aurora Southshore
Hometown	2014	68	63	5	5	22	$ 359,000 - 390,000
Generations	2014	15	13	—	2	2	$ 401,000 - 494,000
Harmony	2015	10	10	—	—	4	(8)
Signature I	2015	7	5	2	2	4	$ 538,000 - 591,000
Filing 5	2016	30	2	—	28	2	$ 423,000 - 497,000
Artistry	2016	61	12	21	49	12	$ 426,000 - 487,000
Centennial
Greenfield	2016	35	—	13	35	—	$ 455,000 - 510,000
Douglas County
Castle Rock
Cliffside	2014	49	38	5	11	11	$ 518,000 - 596,000
Grand County
Granby
Granby Ranch	2012	44	19	—	25	1	(12)
Jefferson County
Arvada
Candelas Sundance	2014	66	66	—	—	6	(8)
Candelas II
Generations	2015	91	26	9	65	23	$ 413,000 - 489,000
Tapestry	2015	110	3	8	107	3	$ 451,000 - 532,000
Leydon Rock
Garden	2014	56	28	7	28	11	$ 411,000 - 451,000
Park	2015	78	54	6	24	17	$ 394,000 - 457,000
Larimer County
Fort Collins
Timnath Ranch



Sonnet	2014	55	42	5	13	12	$ 397,000 - 469,000
Park	2014	92	51	18	41	24	$ 367,000 - 395,000
Loveland
Lakes at Centerra	2015	200	27	13	39	16	$ 363,000 - 403,000
COLORADO TOTAL		1,067	459	112	474	170



Bethany West - Cottage	2015	61	45	12	9	29	$ 349,990 - 389,990
Bethany West - Traditional	2015	82	64	10	5	19	$ 569,990 - 664,990
Bethany West - Weisenfluh	2016	36	23	5	13	23	$ 569,990 - 659,990
BM2 West River Terrace - Alley	2016	60	5	19	36	5	$ 364,990 - 409,990
BM2 West River Terrace - Med/Std	2016	31	1	14	22	1	$ 464,990 -564,990
Bull Mountain Dickson	2016	82	3	13	79	3	$ 549,990 - 649,990
Orenco Woods	2015	71	71	—	—	28	(8)
Sunset Ridge	2015	104	89	5	15	70	$ 349,990 - 499,990
OREGON TOTAL		2,000	1,161	199	777	482

Future Owned and Controlled (by County)					Lots Owned or Controlled as of September 30, 2016 (10)
CALIFORNIA
Orange County					264
Los Angeles County					95
San Bernardino County					70
Alameda County					541
Contra Costa County					296
Sonoma County					54
ARIZONA
Maricopa County (11)					2,487
NEVADA
Nye County (11)					1,925
Clark County					536
COLORADO
Larimer County					258
Boulder County					98
Arapahoe County					248
Denver County					698
WASHINGTON
King County					928
Pierce County					814
Snohomish County					74
OREGON
Clackamas County					249
Washington County					2,126
TOTAL FUTURE					11,761

GRAND TOTALS		12,172	4,928	1,071	18,149	1,879



Month Ended	Total Number of Shares Purchased	Average Price Per Share
July 31, 2016	—	N/A
August 31, 2016	4,601	$	15.89
September 30, 2016	—	N/A
Total	4,601