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 30, 2017~~March 31, 2018



¨	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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “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 1, 2017~~May 7, 2018
Common stock, Class A, par value $0.01	~~28,007,366~~33,202,209
Common stock, Class B, par value $0.01	~~3,813,884~~4,817,394

WILLIAM LYON HOMES

INDEX



		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements as of ~~September 30, 2017,~~March 31, 2018, and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 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	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5951
Item 4.	Controls and Procedures	6052
PART II. OTHER INFORMATION		6153
Item 1.	Legal Proceedings	6153
Item 1A.	Risk Factors	6153
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6153
Item 3.	Defaults Upon Senior Securities	6153
Item 4.	Mine Safety Disclosures	6254
Item 5.	Other Information	6354
Item 6.	Exhibits	6455
SIGNATURES		6557
EXHIBIT INDEX		6658

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; ~~minority interest from our homebuilding joint ventures;~~ timing of project openings; leverage ratios and compliance with debt covenants; revenues and average selling prices of deliveries; sales price ranges for active and future communities; backlog conversion; 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; financial services and ancillary business performance and strategies; the anticipated benefits to be realized from the RSI acquisition; 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, the major risks and uncertainties, and assumptions that are made, that affect the Company's business and may cause actual results to differ materially from those estimated by the Company include, but are not limited to: the Company’s ability to successfully integrate RSI Communities’ homebuilding operations with its existing operations; any adverse ~~weather conditions and impact from natural disasters, such as~~effect on the ~~recent fire activity in Northern California;~~Company’s, or RSI Communities’, business operations following the acquisition; the availability of skilled subcontractors, labor and homebuilding materials and increased construction cycle times; the availability and timing of mortgage financing; adverse weather conditions; 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; changes in governmental laws and regulations and increased costs, fees and delays associated therewith; ~~potential changes~~government actions, policies, programs and regulations directed at or affecting the housing market (including the Tax Cuts and Jobs Act (the “Tax Cuts and Job Act”), the Dodd-Frank Act, tax benefits associated with purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies), the homebuilding industry, or construction activities; defects in manufactured products or other homebuilding materials; changes in existing tax laws or enacted corporate income tax rates, including pursuant to the Tax Cuts and ~~individual tax code at the federal, state and local level;~~Job Act; 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 capital markets; the timing of receipt of regulatory approvals and the opening of projects; the availability and cost of land for future development; restraints on foreign investment; terrorism or other hostilities involving the United ~~States and other geopolitical risks;~~States; building moratorium or “slow-growth” or “no-growth” initiatives that could be implemented in states in which the Company operates; changes in mortgage and other interest rates; conditions in the capital, credit and financial markets, including mortgage lending standards and the availability of mortgage financing; changes in generally accepted accounting principles or interpretations of those principles; changes in prices of homebuilding materials; competition for home sales from other sellers of new and resale homes; cancellations and the Company’s ability to convert its backlog into deliveries; the occurrence of events such as landslides, soil subsidence and earthquakes that are uninsurable, not economically insurable or not subject to effective indemnification agreements; increased outside broker costs; changes in governmental laws and ~~regulations and compliance therewith;~~regulations; 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, ~~2016,~~2017, 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, 2017		December 31, 2016		March 31, 2018		December 31, 2017
	(unaudited)		(as adjusted, refer to Note 1)		(unaudited)
ASSETS
Cash and cash equivalents — Note 1	$	43,604	$	42,612	$	50,473	$	182,710
Receivables	9,719		9,538		14,018		10,223
Escrow proceeds receivable	228		85		1,552		3,319
Real estate inventories — Note 5	1,855,658		1,771,998
Investment in unconsolidated joint ventures — Note 3	8,225		7,282
Real estate inventories — Note 6
Owned					2,051,817		1,699,850
Not owned					282,169		—
Investment in unconsolidated joint ventures — Note 4					5,406		7,867
Goodwill	66,902		66,902		118,877		66,902
Intangibles, net of accumulated amortization of $4,640 as of September 30, 2017 and December 31, 2016	6,700		6,700
Intangibles, net of accumulated amortization of $4,640 as of March 31, 2018 and December 31, 2017					6,700		6,700
Deferred income taxes	73,597		75,751		47,716		47,915
Lease right-of-use assets	15,074		13,129		14,757		14,454
Other assets, net	21,152		17,283		32,921		21,164
Total assets	$	2,100,859	$	2,011,280	$	2,626,406	$	2,061,104
LIABILITIES AND EQUITY
Accounts payable	$	84,116	$	74,282	$	88,853	$	58,799
Accrued expenses	93,140		92,919		99,378		111,491
Notes payable — Note 6:
Liabilities from inventories not owned — Note 13					282,169		—
Notes payable — Note 7:
Revolving credit facility	50,000		29,000		85,000		—
Seller financing	5,226		24,692		—		589
Construction notes payable					2,291		—
Joint venture notes payable	105,785		102,076		84,955		93,926
Subordinated amortizing notes due December 1, 2017— Note 6	1,619		7,225
5 ³/₄% Senior Notes due April 15, 2019 — Note 6	149,226		148,826
8¹/₂% Senior Notes due November 15, 2020 — Note 6	—		422,817
7% Senior Notes due August 15, 2022 — Note 6	346,556		346,014
5 ⁷/₈% Senior Notes due January 31, 2025 — Note 6	439,221		—
5 ³/₄% Senior Notes due April 15, 2019 — Note 7					—		149,362
7% Senior Notes due August 15, 2022 — Note 7					346,924		346,740
6% Senior Notes due September 1, 2023 — Note 7					343,274		—
5 ⁷/₈% Senior Notes due January 31, 2025 — Note 7					439,903		439,567
	1,274,889		1,247,851		1,772,747		1,200,474
Commitments and contingencies — Note 12
Commitments and contingencies — Note 13
Equity:
William Lyon Homes stockholders’ equity
Preferred stock, par value $0.01 per share; 10,000,000 shares authorized and no shares issued and outstanding at September 30, 2017 and December 31, 2016	—		—
Common stock, Class A, par value $0.01 per share; 150,000,000 shares authorized; 29,193,050 and 28,909,781 shares issued, 28,043,563 and 27,907,724 shares outstanding at September 30, 2017 and December 31, 2016, respectively	289		290
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, 2017 and December 31, 2016	38		38
Preferred stock, par value $0.01 per share; 10,000,000 shares authorized and no shares issued and outstanding at March 31, 2018 and December 31, 2017					—		—
Common stock, Class A, par value $0.01 per share; 150,000,000 shares authorized; 34,454,130 and 34,267,510 shares issued, 33,202,209 and 33,135,650 shares outstanding at March 31, 2018 and December 31, 2017, respectively					345		344
Common stock, Class B, par value $0.01 per share; 30,000,000 shares authorized; 4,817,394 shares issued and outstanding at March 31, 2018 and December 31, 2017					48		48
Additional paid-in capital	421,626		419,099		447,770		454,286
Retained earnings	314,031		277,659		334,122		325,794
Total William Lyon Homes stockholders’ equity	735,984		697,086		782,285		780,472
Noncontrolling interests — Note 2	89,986		66,343
Noncontrolling interests — Note 3					71,374		80,158
Total equity	825,970		763,429		853,659		860,630
Total liabilities and equity	$	2,100,859	$	2,011,280	$	2,626,406	$	2,061,104

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, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
Operating revenue
Home sales	$	490,304		$	342,628		$	1,171,791		$	928,982
Home sales — Note 1													$	372,385		$	258,854
Construction services — Note 1	35			86			94			3,810			983			—
	490,339			342,714			1,171,885			932,792			373,368			258,854
Operating costs
Cost of sales — homes	(401,700		)	(285,896		)	(973,212		)	(769,705		)	(307,308		)	(218,455		)
Construction services — Note 1	(35		)	(86		)	(41		)	(3,458		)	(983		)	—
Sales and marketing	(21,935		)	(18,246		)	(57,924		)	(51,351		)	(22,693		)	(14,705		)
General and administrative	(22,951		)	(17,360		)	(61,447		)	(51,879		)	(24,521		)	(18,946		)
Transaction expenses													(3,130		)	—
Other	(548		)	198			(1,548		)	(612		)	(298		)	(440		)
	(447,169		)	(321,390		)	(1,094,172		)	(877,005		)	(358,933		)	(252,546		)
Operating income	43,170			21,324			77,713			55,787			14,435			6,308
Equity in income of unconsolidated joint ventures	1,160			1,435			2,622			3,810			932			249
Other (loss) income, net	(365		)	2,050			(12		)	2,803
Other income, net													35			345
Income before extinguishment of debt	43,965			24,809			80,323			62,400			15,402			6,902
Loss on extinguishment of debt	—			—			(21,828		)	—			—			(21,828		)
Income before provision for income taxes	43,965			24,809			58,495			62,400
Provision for income taxes — Note 9	(13,905		)	(8,295		)	(17,480		)	(20,859		)
Net income	30,060			16,514			41,015			41,541
Income (loss) before (provision for) benefit from income taxes													15,402			(14,926		)
(Provision for) benefit from income taxes — Note 10													(2,814		)	5,630
Net income (loss)													12,588			(9,296		)
Less: Net income attributable to noncontrolling interests	(2,642		)	(3,445		)	(4,643		)	(4,897		)	(4,260		)	(704		)
Net income available to common stockholders	$	27,418		$	13,069		$	36,372		$	36,644
Income per common share:
Net income (loss) available to common stockholders													$	8,328		$	(10,000	)
Income (loss) per common share:
Basic	$	0.74		$	0.36		$	0.98		$	1.00		$	0.22		$	(0.27	)
Diluted	$	0.71		$	0.34		$	0.95		$	0.96		$	0.21		$	(0.27	)
Weighted average common shares outstanding:
Basic	37,059,483			36,801,464			37,007,144			36,746,727			37,931,256			36,908,320
Diluted	38,583,341			38,333,027			38,381,292			38,314,021			39,855,683			36,908,320

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, 2016	32,724		$	328		$	419,099		$	277,659	$	66,343		$	763,429
Balance - December 31, 2017																	39,085		$	392		$	454,286		$	325,794	$	80,158		$	860,630
Net income	—		—			—			36,372		4,643			41,015			—		—			—			8,328		4,260			12,588
Cash contributions from members of consolidated entities	—		—			—			—		58,829			58,829			—		—			—			—		4,062			4,062
Cash distributions to members of consolidated entities	—		—			—			—		(39,829		)	(39,829		)	—		—			—			—		(17,106		)	(17,106		)
Repurchases of common stock	(102	)	(1		)	(2,283		)	—		—			(2,284		)	(205	)	(2		)	(4,998		)	—		—			(5,000		)
Shares remitted to Company to satisfy employee tax obligations	(76	)	—			(1,450		)	—		—			(1,450		)	(186	)	(2		)	(4,694		)	—		—			(4,696		)
Stock based compensation expense	461		—			6,260			—		—			6,260			577		5			3,176			—		—			3,181
Balance - September 30, 2017	33,007		$	327		$	421,626		$	314,031	$	89,986		$	825,970
Balance - March 31, 2018																	39,271		$	393		$	447,770		$	334,122	$	71,374		$	853,659

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, 2017			Nine Months Ended September 30, 2016			Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
Operating activities
Net income	$	41,015		$	41,541
Adjustments to reconcile net income to net cash used in operating activities:
Net income (loss)							$	12,588		$	(9,296	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	1,426			1,506			2,056			449
Net change in deferred income taxes	2,154			(2		)	199			(195		)
Stock based compensation expense	6,260			4,087			3,181			1,676
Equity in earnings of unconsolidated joint ventures	(2,622		)	(3,810		)	(932		)	(249		)
Distributions from unconsolidated joint ventures	1,840			896			3,575			359
Loss on extinguishment of debt	21,828			—			—			21,828
Net changes in operating assets and liabilities:
Restricted cash	—			504
Receivables	(342		)	442			(2,226		)	382
Escrow proceeds receivable	(143		)	3,041			1,767			(1,612		)
Real estate inventories	(98,980		)	(146,678		)	79,895			(22,633		)
Other assets	(3,536		)	2,806			(1,275		)	(1,447		)
Accounts payable	9,834			1,040			20,739			(1,533		)
Accrued expenses	(1,724		)	11,649			(21,539		)	(29,110		)
Net cash used in operating activities	(22,990		)	(82,978		)
Net cash provided by (used in) operating activities							98,028			(41,381		)
Investing activities
Collection of related party note receivable	—			6,188
Cash paid for acquisitions, net of cash acquired							(475,221		)	—
Purchases of property and equipment	(2,416		)	(773		)	(2,442		)	(2		)
Net cash (used in) provided by investing activities	(2,416		)	5,415
Net cash used in investing activities							(477,663		)	(2		)
Financing activities
Proceeds from borrowings on notes payable	105,109			111,992			20,194			25,350
Principal payments on notes payable	(101,400		)	(91,250		)	(29,179		)	(20,780		)
Redemption premium of 8.5% Senior Notes	(19,645		)	—			—			(19,645		)
Principal payments of 8.5% Senior Notes	(425,000		)	—			—			(425,000		)
Principal payments on 5.75% Senior Notes							(150,000		)	—
Proceeds from issuance of 5.875% Senior Notes	446,468			—			—			446,468
Proceeds from issuance of 6% Senior Notes							350,000			—
Proceeds from borrowings on Revolver	275,000			198,000			110,000			105,000
Payments on Revolver	(254,000		)	(167,000		)	(25,000		)	(77,000		)
Principal payments on subordinated amortizing notes	(5,606		)	(5,096		)	—			(1,869		)
Payment of deferred loan costs	(9,794		)	(792		)	(5,877		)	(6,840		)
Shares remitted to, or withheld by the Company for employee tax withholding	(1,450		)	(918		)	(4,696		)	(1,380		)
Cash received for lease transaction							—			19,848
Payments to repurchase common stock	(2,284		)	—			(5,000		)	—
Excess income tax benefit from stock based awards	—			(238		)
Noncontrolling interest contributions	58,829			36,140			4,062			1,467
Noncontrolling interest distributions	(39,829		)	(12,768		)	(17,106		)	(7,340		)
Net cash provided by financing activities	26,398			68,070			247,398			38,279
Net decrease in cash and cash equivalents	992			(9,493		)	(132,237		)	(3,104		)
Cash and cash equivalents — beginning of period	42,612			50,203			182,710			42,612
Cash and cash equivalents — end of period	$	43,604		$	40,710		$	50,473		$	39,508
Supplemental disclosures:
Cash paid during the period for income taxes	$	17,079		$	6,914		$	104		$	9,800
Supplemental disclosures of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities	$	5,213		$	1,353		$	1,696		$	4,650
Issuance of note payable related to land acquisition	$	—		$	32,419
Accrued deferred loan costs	$	—		$	43		$	879		$	1,270
Inventory reclassified to Other assets upon adoption of ASC 606							$	5,365		$	—
Non-cash additions to Real estate inventories - not owned and Liabilities from inventories not owned							$	87,896		$	—

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, Washington (under the Polygon Northwest brand) ~~and~~, Oregon (under the Polygon Northwest brand). and Texas.

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 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 and revenues and expenses for the three ~~and nine~~ month periods ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017. 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, 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)3). 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, ~~2016,~~2017, which are included in our ~~2016~~2017 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 Revenue Recognition and Change in Accounting Principle below regarding the adoption of the new standard for ~~leases.~~revenue recognition.

Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers (“ASU 2014-09” or “ASC 606”). Refer to Change in Accounting Principle below for further details regarding the adoption.

Home Sales

Prior to January 1, 2018, under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 605, "Revenue Recognition" ("ASC 605"), revenue was recorded when a sale was consummated, the buyer’s initial and continuing investments were adequate, any receivables were not subject to future subordination, and the usual risks and rewards of ownership had transferred to the buyer. Effective January 1, 2018, upon adoption of ASC 606, revenue is recorded upon the close of escrow, at which point home sales are considered in the scope of a contract. Accordingly, the Company does not record homebuilding revenue for performance obligations that are unsatisfied or partially unsatisfied. No revenue was recorded in the 2018 period that did not result from current period performance.

Construction Services

The Company accounted for construction management agreements using the Percentage of Completion Method in accordance with ASC 605 (prior to January 1, 2018) and ASC 606 (subsequent to January 1, 2018). Under ASC 605 and ASC 606, 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.

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~~ months ended ~~September 30, 2017,~~March 31, 2018, the Company had one ~~and two~~ land parcel ~~sales, respectively,~~sale that resulted in a negligible loss for ~~both periods~~the period then ended. During the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2017, the Company had ~~two and five~~one land parcel ~~sales, respectively,~~sale to a third party that ~~resulted~~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~~three months ended ~~September 30, 2017~~March 31, 2018 and ~~2016,~~2017, are as follows (in thousands):



	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
Warranty liability, beginning of period	$	13,643		$	14,174
Warranty provision during period (1)	2,504			1,290
Warranty payments, net of insurance recoveries during period	(4,395		)	(2,829		)
Warranty charges related to construction services projects	7			80
Warranty liability, end of period	$	11,759		$	12,715

Nine
Months
Ended
September 30,
2017 Nine
Months
Ended
September 30,
2016
Warranty liability, beginning of period $ 14,174
$ 18,117
Warranty provision during period 7,695
7,086
Warranty payments during period (9,419 ) (10,579 )
Warranty charges related to construction services projects 120
128
Warranty liability, end of period $ 12,570
$ 14,752


(1)	In connection with the RSI Acquisition (see Note 2), the Company assumed warranty liability of $0.6 million for units closed prior to the RSI Acquisition date and for which has been included in this line item for purposes of this table.

Interest incurred under the Company’s debt obligations, as more fully discussed in Note 6,7, is capitalized to qualifying real estate projects under development. Interest activity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ are as follows (in thousands):

Three
Months
Ended
September 30,
2017 Three
Months
Ended
September 30,
2016 Nine
Months
Ended
September 30,
2017 Nine
Months
Ended
September 30,
2016
Interest incurred $ 18,112
$ 21,293
$ 56,359
$ 62,112
Less: Interest capitalized 18,112
21,293
56,359
62,112
Interest expense, net of amounts capitalized $ —
$ —
$ —
$ —
Cash paid for interest $ 28,374
$ 14,898
$ 55,532
$ 54,576

~~Construction Services~~

~~The Company accounts for construction management agreements using the~~ ~~Percentage of Completion Method~~ ~~in accordance with FASB ASC Topic 605~~ ~~Revenue Recognition~~ (“ASC 605”). Under ASC 605, the Company records revenues and expenses as a contracted project progresses, and based on the percentage of costs incurred to date compared to the total estimated costs of the contract.

~~The Company entered into construction management agreements to build, sell and market homes in certain communities. For such services, the Company will receive fees (generally~~ 3 to ~~5 percent~~ ~~of the sales price, as defined) and may, under certain circumstances, receive additional compensation if certain financial thresholds are achieved.~~



	Three Months Ended March 31, 2018		Three Months Ended March 31, 2017
Interest incurred	$	19,258	$	19,424
Less: Interest capitalized	19,258		19,424
Interest expense, net of amounts capitalized	$	—	$	—
Cash paid for interest	$	31,489	$	19,036

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, including letters of credit, 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.~~13.

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 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. 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.

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~~seven reporting segments, as discussed in Note 4,5, 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 (loss) per common share

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

Basic income (loss) per common share is computed by dividing income or loss available to common stockholders by the weighted average number of shares of common stock outstanding. For purposes of determining diluted income 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,~~2018, 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 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 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.

~~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 2016-15 will~~this guidance did not have a material impact on the Company's consolidated financial statements or notes to its consolidated financial statements.

Effective January 1, 2018, the Company adopted ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)" (“ASU 2016-18”). ASU 2016-18 requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending amounts on the statement of cash flows. 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.

Change in Accounting Principle

~~During the second quarter ended June 30, 2017, the Company adopted the provisions of Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)~~" ("ASU 2016-02"), which amends the existing standards for lease accounting, requiring lessees to recognize most leases on their balance 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~~ASC 606 with a ~~modified retrospective transition approach~~date of initial application of January 1, 2018. The Company applied ASC 606 using the cumulative effect method - i.e. by recognizing the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of equity at January 1, 2018. Therefore, the comparative information has not been adjusted and continues to be reported under ASC 605.

ASC 606 replaced the guidance for ~~leases existing at,~~costs incurred to sell real estate with new guidance codified under ASC 340-40, “Other Assets and Deferred Costs - Contracts with Customers”. The Company previously capitalized certain marketing costs related to model homes and sales offices within Real estate inventories in the balance sheet; however, effective January 1, 2018, the Company capitalized these costs within Other Assets. The method of amortization of these costs is the same under ASC 606 as per the previous guidance, resulting in no adjustment to the Company's retained earnings for the comparative period. However, under ASC 606, amortization is included in Sales and marketing expense, whereas amortization was previously recorded in Cost of sales - homes in the statement of operations.

The adoption of ASC 606 did not have an impact on the amount or ~~entered into after, the beginning~~timing of the ~~earliest comparative period presented~~Company's homebuilding revenues. As of and for the three months ended March 31, 2018, the adoption of ASC 606 did not have a material impact on the Company's balance sheet, net income, stockholders' equity or statement of cash flows.

Note 2—Acquisition of RSI Communities

On March 9, 2018, the Company completed its acquisition of RSI Communities, a Southern California- and Texas-based homebuilder, and three additional related real estate assets (the “RSI Acquisition”) pursuant to the Purchase and Sale Agreement (the “Purchase Agreement”) dated February 19, 2018 among William Lyon Homes, Inc., a California corporation and wholly-owned subsidiary of Parent ("California Lyon"), RSI Communities, L.L.C, RS Equity Management L.L.C., Class B Sellers of RSI Communities L.L.C., and RS Equity Management L.L.C. Pursuant to the Purchase Agreement, California Lyon acquired, for cash, all of the membership interests of the underlying limited liability companies and three additional related real estate assets (collectively referred to herein as "RSI Communities") and which conducts business as RSI Communities, L.L.C. (“RSI”), for an aggregate cash purchase price of $460.0 million, and an additional approximately $15.2 million at closing pursuant to initial working capital adjustments, a portion of which remains subject to final adjustment in accordance with the ~~financial statements.~~terms of the Purchase Agreement. Part of the acquired entities specific to the Southern California region now operate under the Company’s existing California segment. The ~~adoption is accounted for~~remaining acquired entities now operate as a ~~change~~new division of the Company under the RSI name in ~~accounting principle~~Texas, with core markets of Austin and San Antonio.

The Company financed the RSI Acquisition with a combination of proceeds from its issuance of $350 million in ~~conformity~~aggregate principal amount of 6.00% senior notes due 2023, cash on hand, and approximately $194.3 million of aggregate proceeds from a land banking arrangement with ~~Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 250, “Accounting Changes and Error Corrections~~”.respect to land parcels in various stages of development.

As a result of the ~~adoption,~~RSI Acquisition, the ~~most significant changes~~entities comprising the business of RSI Communities became wholly-owned direct or indirect subsidiaries of the Company, and its results are included in our condensed consolidated financial statements and related ~~to (1)~~disclosures from the ~~recognition~~date of ~~new ROU~~the RSI Acquisition. For the period from March 9, 2018 through March 31, 2018, home deliveries and operating revenue from RSI operations were 80 units and $22.7 million, respectively.

The RSI Acquisition was accounted for as a business combination in accordance with ASC 805. Under ASC 805, the Company recorded the acquired assets and ~~lease~~assumed liabilities onof RSI Communities at their estimated fair values, with the ~~balance sheet~~excess allocated to Goodwill, as shown below. Goodwill represents the value the Company expects to achieve through the operational synergies and the expansion of the Company into new markets. The Company estimates that the entire $52.0 million of goodwill resulting from the RSI Acquisition will be tax deductible. Goodwill will be allocated to the California and Texas operating segments (see Note 5). A reconciliation of the consideration transferred as of the acquisition date is as follows:



Net proceeds received from RSI inventory involved in land banking transactions	$	194,131
Issuance of 6.00% Senior Notes due September 1, 2023	190,437
Cash on hand	90,653
	475,221

As of March 31, 2018, the Company had not completed its final estimate of the fair value of the net assets of RSI Communities, due to the RSI Acquisition's close proximity to quarter end. As such, the estimates used as of March 31, 2018 are subject to change. The following table summarizes the preliminary amounts for ~~office, real estate and equipment operating leases; and (2) the derecognition of previous~~acquired assets and liabilities ~~for a sale-leaseback transaction that did not qualify for sale accounting under the previous standards.~~

~~The Company elected all~~recorded at their fair values as 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~~acquisition date (in thousands):

December 31,
2016 Lease adoption adjustments December 31,
2016
(as adjusted)
Lease right-of-use assets —
$ 13,129
$ 13,129
Total assets 1,998,151
13,129
2,011,280

Accrued expenses 79,790
13,129
92,919
Total liabilities and equity 1,998,151
13,129
2,011,280



Assets Acquired
	Real estate inventories	$	436,578
	Goodwill	51,975
	Other	6,532
	Total Assets	495,085

Liabilities Assumed
	Accounts payable	$	9,315
	Accrued expenses	8,244
	Notes payable	2,305
	Total liabilities	19,864
	Net assets acquired	$	475,221

The ~~Company's existing material leases~~Company determined the fair value of real estate inventories on a project level basis using a combination of discounted cash flow models, and market comparable land transactions, where available. These methods are significantly impacted by estimates relating to i) expected selling prices, ii) anticipated sales pace, iii) cost to complete estimates, iv) highest and best use of projects prior to acquisition, and v) comparable land values. These estimates were ~~all considered~~developed and used at the individual project level, and may vary significantly between projects.

Other assets, accounts payable, accrued expenses and notes payable were generally stated at historical value due to the short-term nature of these liabilities.

The Company recorded $3.1 million in acquisition related costs for the three months ended March 31, 2018, respectively, which are included in the Condensed Consolidated Statement of Operations in Transaction expenses. Such costs were expensed as incurred in accordance with ASC 805.

Supplemental Pro Forma Information

The following table presents unaudited pro forma amounts for the three months ended March 31, 2018 and March 31, 2017 as if the RSI Acquisition had been completed as of January 1, 2017 (amounts in thousands, except per share data):



	Three months ended March 31, 2018		Three months ended March 31, 2017
Operating revenues	$	401,600	258,854
Net income (loss) available to common stockholders	$	6,419	$	(10,767	)
Income (Loss) per share - basic	$	0.17	$	(0.29	)
Income (Loss) per share - diluted	$	0.16	$	(0.29	)

The unaudited pro forma operating ~~leases under~~results have been determined after adjusting the ~~new leasing standard~~unaudited operating results of RSI Communities to reflect the estimated purchase accounting and other acquisition adjustments including interest expense associated with the debt used to fund a portion of the acquisition. The unaudited pro forma results presented above do not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result ~~no adjustment~~of the RSI Acquisition, the costs to ~~previously reported lease expense was incurred~~combine the operations of the Company and RSI Communities or the costs necessary to achieve any of the foregoing cost savings, operating synergies or revenue enhancements. As such, the unaudited pro forma amounts are for ~~prior periods presented.~~

–~~Derecognized obligations~~comparative purposes only and may not necessarily reflect the results of ~~$19.8 million relating to cash received from a sale-leaseback transaction~~operations which would have resulted had the acquisition been completed at the beginning of the applicable period or indicative of the results that ~~was previously classified within Accrued expenses.~~will be attained in the future.

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

Note 2—3—Variable Interest Entities and Noncontrolling Interests

As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company was party to ~~twelve and eleven~~thirteen joint ventures 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 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

As of ~~September 30, 2017,~~March 31, 2018, the assets of the consolidated VIEs totaled ~~$243.7~~$202.3 million, of which ~~$8.8~~$6.9 million was cash and cash equivalents and ~~$250.6~~$224.8 million was owned real estate inventories. The liabilities of the consolidated VIEs totaled ~~$115.8~~$92.1 million, primarily comprised of notes payable, accounts payable and accrued liabilities.

As of December 31, ~~2016,~~2017, the assets of the consolidated VIEs totaled ~~$204.8~~$219.6 million, of which ~~$5.8~~$10.7 million was cash and cash equivalents and ~~$200.7~~$230.8 million was owned real estate inventories. The liabilities of the consolidated VIEs totaled ~~$107.3~~$99.4 million, primarily comprised of notes payable, accounts payable and accrued liabilities.

Note 3—4—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, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
Revenues	$	5,368		$	5,397		$	13,830		$	14,675		$	3,709		$	3,389
Cost of sales	(2,781		)	(2,521		)	(7,936		)	(7,043		)	(1,918		)	(2,110		)
Income of unconsolidated joint ventures	$	2,587		$	2,876		$	5,894		$	7,632		$	1,791		$	1,279

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~~ months ended ~~September 30,~~March 31, 2018, and 2017, ~~and 2016,~~ the Company recorded income of ~~$1.2~~$0.9 million and ~~$2.6 million, and $1.4 million and $3.8~~$0.2 million, respectively, from its unconsolidated joint ventures. This income was primarily attributable to our share of income related to mortgages that were generated and issued to qualifying home buyers during the periods.

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



			March 31, 2018		December 31, 2017
Assets
	Cash		$	6,996	$	12,802
	Loans held for sale		16,489		17,106
	Accounts receivable		698		2,791
	Other assets		102		128
		Total Assets	$	24,285	$	32,827

Liabilities and Equity
	Accounts payable		$	292	$	779
	Accrued expenses		892		1,532
	Credit lines payable		15,601		18,312
	Other liabilities		251		31
	Members equity		7,249		12,173
		Total Liabilities and Equity	$	24,285	$	32,827

September 30, 2017 December 31, 2016
Assets
Cash $ 12,051
$ 10,208
Loans held for sale 26,929
18,791
Accounts receivable 585
764
Other assets 156
56
Total Assets $ 39,721
$ 29,819

Liabilities and Equity
Accounts payable $ 362
$ 694
Accrued expenses 1,314
1,026
Credit lines payable 25,706
17,748
Other liabilities 24
17
Members equity 12,315
10,334
Total Liabilities and Equity $ 39,721
$ 29,819

Note 4—5—Segment Information

The Company operates one principal homebuilding business. In accordance with FASB ASC Topic 280, Segment Reporting ("ASC 280"), the Company has determined that each of its operating divisions is an operating segment. 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. In accordance with ASC 280, prior to the acquisition of RSI Communities (see Note 2), the Company's homebuilding operations had been grouped into six operating segments. During the three months ended March 31, 2018, the Company added one additional operating segment, Texas as a result of the RSI Acquisition. 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~~seven 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, Riverside and San Bernardino 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.

Texas, consisting of operations in the Austin, Texas and San Antonio, Texas metropolitan areas.

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, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
Operating revenue:
California ~~(1)~~	$	230,960		$	111,520		$	462,277		$	309,199		$	134,812		$	81,967
Arizona	39,607			28,758			118,695			85,399			32,039			26,716
Nevada	42,966			49,600			103,448			128,996			49,176			30,548
Colorado	24,811			35,316			77,149			85,885			40,063			21,330
Washington	71,788			42,247			185,523			112,512
Washington (1)													55,651			43,474
Oregon	80,207			75,273			224,793			210,801			46,853			54,819
Texas													14,774			—
Total operating revenue	$	490,339		$	342,714		$	1,171,885		$	932,792		$	373,368		$	258,854

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

	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016			Nine Months Ended September 30, 2017			Nine Months Ended September 30, 2016			Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
Income before provision for income taxes:
Income (loss) before (provision for) benefit from income taxes:
California	$	31,150		$	10,364		$	53,907		$	28,252		$	11,419		$	6,327
Arizona	3,388			2,542			11,102			7,537			2,487			2,298
Nevada	4,372			5,291			7,811			12,587			4,839			2,192
Colorado	969			2,342			2,519			3,643			3,164			296
Washington	6,164			2,899			10,249			6,767			4,511			314
Oregon	10,708			9,466			25,847			27,452			3,637			4,481
Texas													434			—
Corporate	(12,786		)	(8,095		)	(31,112		)	(23,838		)	(15,089		)	(9,006		)
Income before extinguishment of debt	$	43,965		$	24,809		$	80,323		$	62,400		$	15,402		$	6,902
Corporate - Loss on extinguishment of debt	$	—		$	—		$	(21,828	)	$	—		—			(21,828		)
Income before provision for income taxes	$	43,965		$	24,809		$	58,495		$	62,400
Income (loss) before (provision for) benefit from income taxes													$	15,402		$	(14,926	)


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Homebuilding assets:			(as adjusted, refer to Note 1)
California	$	704,313	$	716,955	$	934,977	$	631,649
Arizona	182,588		191,581		176,217		170,634
Nevada	218,060		189,248		212,268		211,202
Colorado	154,422		124,580		156,257		149,183
Washington	324,358		343,973		308,901		286,442
Oregon	302,332		238,766		329,779		288,981
Texas					314,153		—
Corporate (1)	214,786		206,177		193,854		323,013
Total homebuilding assets	$	2,100,859	$	2,011,280	$	2,626,406	$	2,061,104


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

Note 5—6—Real Estate Inventories

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


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Real estate inventories:
Land deposits	$	61,123	$	50,429	$	57,775	$	51,833
Land and land under development	888,091		1,069,001		992,290		904,410
Homes completed and under construction	804,338		545,310		905,752		646,198
Model homes	102,106		107,258		96,000		97,409
Total	$	1,855,658	$	1,771,998	$	2,051,817	$	1,699,850
Real estate inventories not owned (1):
Other land options contracts — land banking arrangement					$	282,169	$	—


(1)	Represents the consolidation of a land banking arrangement. Although the Company is not obligated to purchase the lots, based on certain factors, the Company has determined that it is economically compelled to purchase the lots in the land banking arrangement and thus, has consolidated the assets and liabilities associated with this land bank. Amounts are net of deposits.

Note 6—7—Senior Notes, Secured, and Unsecured Indebtedness

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


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Notes payable:
Revolving credit facility	$	50,000	$	29,000	$	85,000	$	—
Seller financing	5,226		24,692		—		589
Construction notes payable					2,291		—
Joint venture notes payable	105,785		102,076		84,955		93,926
Total notes payable	161,011		155,768		172,246		94,515

Subordinated amortizing notes	1,619		7,225

Senior notes:
5 ³/₄% Senior Notes due April 15, 2019	149,226		148,826		—		149,362
8 ¹/₂% Senior Notes due November 15, 2020	—		422,817
7% Senior Notes due August 15, 2022	346,556		346,014		346,924		346,740
6% Senior Notes due September 1, 2023					343,274		—
5 ⁷/₈% Senior Notes due January 31, 2025	439,221		—		439,903		439,567
Total senior notes	935,003		917,657		1,130,101		935,669

Total notes payable and senior notes	$	1,097,633	$	1,080,650	$	1,302,347	$	1,030,184

As of ~~September 30, 2017~~March 31, 2018, the maturities of the Notes payable, ~~Subordinated amortizing notes, 5~~ ³/₄%7% Senior Notes, 7%6% Senior Notes, and 5 ⁷/₈% Senior Notes are as follows (in thousands):


Year Ending December 31,
2017	5,335
2018	47,238
Remaining in 2018			$	21,352
2019	231,806		113,979
2020	28,251		—
2021	—		36,915
2022			350,000
Thereafter	800,000		800,000
	$	1,112,630	$	1,322,246

Maturities above exclude premium on the 7% Senior Notes of ~~$0.8~~$0.7 million and discount on the 5 ⁷/₈% Senior Notes of ~~$3.3~~$3.1 million, and deferred loan costs on the 5 ³/₄%7%, 7%6%, and 5 ⁷/₈% Senior Notes of ~~$12.5~~$17.5 million as of ~~September 30, 2017.~~March 31, 2018.

Notes Payable

Revolving 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 amended 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. Effective as of November 28, 2017, California Lyon increased the size of the commitment under its revolving credit facility by $25.0 million to an aggregate total of $170.0 million, through exercise of the facility’s accordion feature and entry into a new lender supplement as of such date.

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 remained at 65% from June 30, 2016 through and including December 30, 2016, decreased to 62.5% on the last day of the 2016 fiscal year, remained at 62.5% from December 31, 2016 through and including June 29, 2017, and 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 ana second 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~~remained at 62.5% through and including December 30, 2017, and ~~decrease~~decreased to 60% on the last day of the 2017 fiscal year and was scheduled to remain at 60% thereafter.

On March 9, 2018, California Lyon, Parent and the lenders party thereto entered into a third amendment to the Second Amended Facility, which temporarily increased the maximum leverage ratio, such that the leverage ratio remained at 60% through and including March 30, 2018, increased to 70% on March 31, 2018 through and including June 29, 2018, decreases to 65% on June 30, 2018 through and including December 30, 2018, and decreases to 60% on the last day of the 2018 fiscal year and will 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.

2018, 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 30, 2017.~~March 31, 2018.

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 30, 2017,~~March 31, 2018, the commitment fee on the unused portion of the Second Facility accrues at an annual rate of 0.50%. As of ~~September 30, 2017 and December~~March 31, ~~2016,~~2018, the Company had ~~$50.0 million and $29.0~~$85.0 million outstanding against the Second Amended Facility ~~respectively,~~ at an effective ~~rates~~rate of ~~6.25% and 4.75%~~4.88%, ~~respectively~~ as well as ~~letters~~a letter of credit for ~~$0.8 million and $8.0 million, respectively.~~

~~Seller Financing~~

~~At September 30,~~$11.0 million. As of December 31, 2017, the Company had ~~$5.2~~a letter of credit for $7.8 million ~~of notes payable~~but no outstanding ~~related to one land acquisition for which seller financing was provided. The note bears interest at a rate of 7% per annum, is secured by~~balance against the ~~underlying land, and matures in June 2018.~~ Second Amended Facility.

Seller Financing

During the ~~nine~~three months ended ~~September 30, 2017~~,March 31, 2018, the Company paid in full prior to maturity, along with all accrued interest to date, a note payable outstanding related to a land acquisition for which seller financing was provided. The note bore interest at a rate of 7% per annum and was secured by the underlying ~~land, and was paid upon maturity in August 2017. This note was entered into with a related party. Refer to Note 8 for more details regarding the related party transaction.~~land.

~~Joint Venture~~ Notes Payable

The Company and certain of its consolidated joint ventures have entered into 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 of the joint ventures notes payable are listed in the table below as of ~~September 30, 2017~~March 31, 2018 (in millions):


Issuance Date	Facility Size		Outstanding			Maturity	Current Rate			Facility Size		Outstanding			Maturity	Current Rate
July, 2017										$	66.2	$	36.9		February, 2021	4.81	%	(5)
March, 2016	$	33.4	$	16.7		September, 2018	4.24	%	(1)	33.4		1.2		(4)	September, 2018	4.76	%	(1)
January, 2016	35.0		31.8			February, 2019	4.48	%	(2)	35.0		29.0			February, 2019	5.13	%	(2)
November, 2015	42.5		19.3			May, 2018	5.25	%	(1)	42.5		16.0		(4)	May, 2018	5.75	%	(1)
July, 2015	15.0		3.6			July, 2018	4.75	%	(3)
November, 2014	7.0		3.7		(4)	November, 2017	4.75	%	(3)
November, 2014	15.0		—			November, 2017	4.75	%	(3)	7.0		1.4		(4)	May, 2018	5.25	%	(3)
March, 2014	26.0		2.4			April, 2018	4.24	%	(1)	26.0		0.5			April, 2018	4.87	%	(1)
July, 2017	46.2		28.3			August, 2020	4.46	%	(5)
	$	220.1	$	105.8						$	143.9	$	85.0

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

(5) Loan bears interest at the greatest of the prime rate, federal funds effective rate +1.0%, or LIBOR +1.0%.

In addition to the above, the Company had $2.3 million of construction notes payable outstanding related to projects that are wholly-owned by the Company.

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

~~Subordinated Amortizing Notes~~

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

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

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

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

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

Each TEU may be separated into its constituent purchase contract and amortizing note on any business day during the period beginning on, and including, the business day immediately succeeding the date of initial issuance of the Units to, but excluding, the third scheduled trading day immediately preceding the mandatory settlement date. Prior to separation, the purchase contracts and amortizing notes may only be purchased and transferred together as Units. The net proceeds received from the TEU issuance were allocated between the amortizing note and the purchase contract under the relative fair value method, with amounts allocated to the purchase contract classified as additional paid-in capital. As of September 30, 2017 and December 31, ~~2016, the amortizing notes had an unamortized carrying value of $1.6 million and $7.2 million, respectively.~~2018.

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”).

AsDuring the three months ended March 31, 2018, Parent, through California Lyon, used the net proceeds from the offering of ~~September 30, 2017,~~6.00% Senior Notes due 2023, as further described below, (i) together with cash generated from certain land banking arrangements, and cash on hand, to finance the outstanding principal amount of the 5.75% Notes was $150 million, excluding deferred loan costs of $0.8 million. The 5.75% Notes bear interest at a rate of 5.75% per annum, payable semiannually in arrears on April 15RSI Acquisition and ~~October 15,~~to pay related fees and ~~mature on April 15, 2019. The 5.75% Notes are unconditionally guaranteed on a joint~~expenses 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(ii) to repay all of California ~~Lyon’s and the guarantors’ existing and future unsecured senior debt, including California Lyon’s $450~~Lyon's $150 million in aggregate principal amount of ~~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~~such that the ~~guarantors’ future subordinated debt. The~~ 5.75% Notes were satisfied and ~~the guarantees are and will be effectively junior to California Lyon’s and the guarantors’ existing and future secured debt to the extent~~discharged as of ~~the value of the collateral securing such debt.~~March 31, 2018.

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 ~~nine~~three months ended ~~September 30,~~March 31, 2017, Parent, through California Lyon, used the net proceeds from its private placement with registration rights of 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, 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 of previously outstanding 8.5% Notes are retired and extinguished as of ~~September 30,~~December 31, 2017. The Company incurred certain costs related to the early extinguishment of debt of the 8.5% Notes during the ~~nine~~three months ended ~~September 30,~~March 31, 2017 in an amount of $21.8 million, which is included in the Consolidated Statement of Operations as Loss on extinguishment of 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 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 30, 2017~~March 31, 2018 the outstanding amount of the 7.00% Notes was $350 million, excluding unamortized premium of ~~$0.8~~$0.7 million and deferred loan costs of ~~$4.2~~$3.8 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~~$350 million in aggregate principal amount of ~~5.75%~~6.00% Senior Notes due ~~2019, as described above,~~2023 and $450 million in aggregate principal amount of 5.875% Senior Notes due ~~2020,~~2025, each as described below. The 7.00% Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The 7.00% Notes and the guarantees are and will be effectively junior to California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.

6% Senior Notes Due 2023

On March 9, 2018, California Lyon completed its private placement with registration rights of 6.00% Senior Notes due 2023 (the "6.00% Notes"), in an aggregate principal amount of $350 million. The 6.00% Notes were issued at 100% of their aggregate principal amount. Parent, through California Lyon, used the net proceeds from the 6.00% Notes offering to (i) together with cash generated from certain land banking arrangements, and cash on hand, to finance the RSI Acquisition and to pay related fees and expenses and (ii) to repay all of California Lyon's $150 million of the outstanding aggregate principal amount of the 5.75% Notes.

As of March 31, 2018, the outstanding principal amount of the 6.00% Notes was $350 million, excluding deferred loan costs of $6.7 million. The 6.00% Notes bear interest at a rate of 6.00% per annum, payable semiannually in arrears on March 1 and September 1, and mature on September 1, 2023. The 6.00% Notes are unconditionally guaranteed on a joint and several unsecured basis by Parent and certain of its existing and future restricted subsidiaries. The 6.00% 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 $350 million in aggregate principal amount of 7.00% Senior Notes due 2022, as described above and $450 million in aggregate principal amount of 5.875% Senior Notes due 2025, as described below. The 6.00% Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The 6.00% Notes and the guarantees are and will be effectively junior to California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.

On or after September 1, 2020, California Lyon may redeem all or a portion of the 6.00% Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of the principal amount on the redemption date) set forth below plus accrued and unpaid interest, if any, to, but not including, the applicable redemption date, if redeemed during the 12-month period commencing on each of the dates as set forth below:



Year	Percentage
September 1, 2020	103.00	%
September 1, 2021	101.50	%
September 1, 2022	100.00	%

Prior to September 1, 2020, the 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, if any, to, but not including, the redemption date.

In addition, any time prior to September 1, 2020, California Lyon may, at its option on one or more occasions, redeem Notes (including any additional notes that may be issued in the future under the 2023 Notes Indenture) in an aggregate principal amount not to exceed 35% of the aggregate principal amount of the Notes (including any additional notes that may be issued in the future under the 2023 Notes Indenture) issued prior to such date at a redemption price (expressed as a percentage of principal amount) of 106.00%, plus accrued and unpaid interest, if any, to, but not including, the redemption date, with an amount equal to the net cash proceeds from one or more equity offerings.

5.875% Senior 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 ~~September 30, 2017.~~March 31, 2018. 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 ~~September 30, 2017,~~March 31, 2018, the outstanding principal amount of the 5.875% Notes was $450 million, excluding unamortized discount of ~~$3.3~~$3.1 million and deferred loan costs of ~~$7.5~~$7.0 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 and $350 million in aggregate principal amount of 6.00% Senior Notes due 2023, 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%~~7.00% Notes, the ~~7.00%~~6.00% Notes, and the 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 30, 2017.~~

March 31, 2018.

GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS

The following consolidating financial information includes:

(1) Consolidating balance sheets as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016;~~2017; consolidating statements of operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016;~~2017; and consolidating statements of cash flows for the ~~nine~~three month periods ended ~~September 30,~~March 31, 2018 and 2017, ~~and 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 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, and for the ~~nine~~three month periods ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~

~~The consolidating balance sheet as of December 31, 2016 was adjusted to reflect the adoption of ASU 2016-02 (see Note 1).~~2017.

CONDENSED CONSOLIDATING BALANCE SHEET

(Unaudited)

As of ~~September 30, 2017~~March 31, 2018

(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	$	—	$	34,727		$	(328	)	$	9,205		$	—		$	43,604	$	—	$	39,497		$	3,576		$	7,400		$	—		$	50,473
Receivables	—		4,048			1,760			3,911			—			9,719		—		7,410			3,356			3,252			—			14,018
Escrow proceeds receivable	—		228			—			—			—			228		—		373			1,179			—			—			1,552
Real estate inventories	—		900,390			697,824			257,444			—			1,855,658
Owned																	—		883,102			935,092			233,623			—			2,051,817
Not owned																	—		—			282,169			—			—			282,169
Investment in unconsolidated joint ventures	—		8,075			150			—			—			8,225		—		5,256			150			—			—			5,406
Goodwill	—		14,209			52,693			—			—			66,902		—		14,209			104,668			—			—			118,877
Intangibles, net	—		—			6,700			—			—			6,700		—		—			6,700			—			—			6,700
Deferred income taxes, net	—		73,597			—			—			—			73,597		—		47,716			—			—			—			47,716
Lease right-of-use assets	—		15,074			—			—			—			15,074		—		14,757			—			—			—			14,757
Other assets, net	—		18,762			1,896			494			—			21,152		—		21,772			10,682			467			—			32,921
Investments in subsidiaries	735,984		(18,249		)	(575,925		)	—			(141,810		)	—		782,285		(18,061		)	(837,268		)	—			73,044			—
Intercompany receivables	—		—			241,160			—			(241,160		)	—		—		—			285,102			—			(285,102		)	—
Total assets	$	735,984	$	1,050,861		$	425,930		$	271,054		$	(382,970	)	$	2,100,859	$	782,285	$	1,016,031		$	795,406		$	244,742		$	(212,058	)	$	2,626,406
LIABILITIES AND EQUITY
Accounts payable	$	—	$	48,450		$	25,061		$	10,605		$	—		$	84,116	$	—	$	66,356		$	14,756		$	7,741		$	—		$	88,853
Accrued expenses	—		88,318			4,719			103			—			93,140		—		81,565			17,699			114			—			99,378
Liabilities from inventories not owned																	—		—			282,169			—			—			282,169
Notes payable	—		55,226			—			105,785			—			161,011		—		85,000			2,291			84,955			—			172,246
Subordinated amortizing notes	—		1,619			—			—			—			1,619
5³/4% Senior Notes	—		149,226			—			—			—			149,226
7% Senior Notes	—		346,556			—			—			—			346,556		—		346,924			—			—			—			346,924
6% Senior Notes																	—		343,274			—			—			—			343,274
5 ⁷/₈% Senior Notes	—		439,221			—			—			—			439,221		—		439,903			—			—			—			439,903
Intercompany payables	—		158,338			—			82,822			(241,160		)	—		—		186,483			—			98,619			(285,102		)	—
Total liabilities	—		1,286,954			29,780			199,315			(241,160		)	1,274,889		—		1,549,505			316,915			191,429			(285,102		)	1,772,747
Equity
William Lyon Homes stockholders’ equity (deficit)	735,984		(236,091		)	396,150			(18,249		)	(141,810		)	735,984		782,285		(533,474		)	478,491			(18,061		)	73,044			782,285
Noncontrolling interests	—		(2		)	—			89,988			—			89,986		—		—			—			71,374			—			71,374
Total liabilities and equity	$	735,984	$	1,050,861		$	425,930		$	271,054		$	(382,970	)	$	2,100,859	$	782,285	$	1,016,031		$	795,406		$	244,742		$	(212,058	)	$	2,626,406

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, ~~2016~~

~~(as adjusted)~~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	$	—	$	36,204		$	272		$	6,136		$	—		$	42,612	$	—	$	171,434		$	156		$	11,120		$	—		$	182,710
Receivables	—		2,989			3,303			3,246			—			9,538		—		4,647			2,252			3,324			—			10,223
Escrow proceeds receivable	—		85			—			—			—			85		—		1,594			1,725			—			—			3,319
Real estate inventories	—		910,594			645,341			216,063			—			1,771,998		—		831,007			630,384			238,459			—			1,699,850
Investment in unconsolidated joint ventures	—		7,132			150			—			—			7,282		—		7,717			150			—			—			7,867
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	—		75,751			—			—			—			75,751		—		47,915			—			—			—			47,915
Lease right-of-use assets	—		13,129			—			—			—			13,129		—		14,454			—			—			—			14,454
Other assets, net	—		15,779			1,089			415			—			17,283		—		18,167			2,504			493			—			21,164
Investments in subsidiaries	697,086		(23,736		)	(573,650		)	—			(99,700		)	—		780,472		(16,544		)	(494,201		)	—			(269,727		)	—
Intercompany receivables	—		—			252,860			—			(252,860		)	—		—		—			269,831			—			(269,831		)	—
Total assets	$	697,086	$	1,052,136		$	388,758		$	225,860		$	(352,560	)	$	2,011,280	$	780,472	$	1,094,600		$	472,194		$	253,396		$	(539,558	)	$	2,061,104
LIABILITIES AND EQUITY
Accounts payable	$	—	$	52,380		$	16,416		$	5,486		$	—		$	74,282	$	—	$	40,075		$	13,007		$	5,717		$	—		$	58,799
Accrued expenses	—		88,185			4,636			98			—			92,919		—		108,407			2,988			96			—			111,491
Notes payable	—		50,713			2,979			102,076			—			155,768		—		589			—			93,926			—			94,515
Subordinated amortizing notes	—		7,225			—			—			—			7,225
5 ³/₄% Senior Notes	—		148,826			—			—			—			148,826		—		149,362			—			—			—			149,362
8 ¹/₂% Senior Notes	—		422,817			—			—			—			422,817
7% Senior Notes	—		346,014			—			—			—			346,014		—		346,740			—			—			—			346,740
5 ⁷/₈% Senior Notes																	—		439,567			—			—			—			439,567
Intercompany payables	—		177,267			—			75,593			(252,860		)	—		—		179,788			—			90,043			(269,831		)	—
Total liabilities	—		1,293,427			24,031			183,253			(252,860		)	1,247,851		—		1,264,528			15,995			189,782			(269,831		)	1,200,474
Equity
William Lyon Homes stockholders’ equity (deficit)	697,086		(241,291		)	364,727			(23,736		)	(99,700		)	697,086
William Lyon Homes stockholders’ equity																	780,472		(169,928		)	456,199			(16,544		)	(269,727		)	780,472
Noncontrolling interests	—		—			—			66,343			—			66,343		—		—			—			80,158			—			80,158
Total liabilities and equity	$	697,086	$	1,052,136		$	388,758		$	225,860		$	(352,560	)	$	2,011,280	$	780,472	$	1,094,600		$	472,194		$	253,396		$	(539,558	)	$	2,061,104

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(Unaudited)

Three Months Ended March 31, 2018

(in thousands)



	Unconsolidated
	Delaware Lyon		California Lyon			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated Company
Operating revenue
Sales	$	—	$	135,173		$	182,944		$	54,268		$	—		$	372,385
Construction services	—		983			—			—			—			983
Management fees	—		(1,750		)	—			—			1,750			—
	—		134,406			182,944			54,268			1,750			373,368
Operating costs
Cost of sales	—		(110,245		)	(150,502		)	(44,811		)	(1,750		)	(307,308		)
Construction services	—		(983		)	—			—			—			(983		)
Sales and marketing	—		(8,383		)	(10,783		)	(3,527		)	—			(22,693		)
General and administrative	—		(18,553		)	(5,966		)	(2		)	—			(24,521		)
Transaction expenses	—		(3,130		)	—			—			—			(3,130		)
Other	—		(353		)	46			9			—			(298		)
	—		(141,647		)	(167,205		)	(48,331		)	(1,750		)	(358,933		)
Income from subsidiaries	8,328		8,107			—			—			(16,435		)	—
Operating income	8,328		866			15,739			5,937			(16,435		)	14,435
Equity in income from unconsolidated joint ventures	—		675			257			—			—			932
Other income (expense), net	—		309			56			(330		)	—			35
Income (loss) before provision for income taxes	8,328		1,850			16,052			5,607			(16,435		)	15,402
Provision for income taxes	—		(2,814		)	—			—			—			(2,814		)
Net income (loss)	8,328		(964		)	16,052			5,607			(16,435		)	12,588
Less: Net income attributable to noncontrolling interests	—		—			—			(4,260		)	—			(4,260		)
Net income (loss) available to common stockholders	$	8,328	$	(964	)	$	16,052		$	1,347		$	(16,435	)	$	8,328

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(Unaudited)

Three Months Ended ~~September 30,~~March 31, 2017

~~(in thousands)~~

Unconsolidated

Delaware
Lyon

California
Lyon

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminating
Entries

Consolidated
Company
Operating revenue
Sales $ —
$ 211,317
$ 218,033
$ 60,954
$ —
$ 490,304
Construction services —
35
—
—
—
35
Management fees —
(1,899 ) —
—
1,899
—
—
209,453
218,033
60,954
1,899
490,339
Operating costs
Cost of sales —
(165,392 ) (181,184 ) (53,225 ) (1,899 ) (401,700 )
Construction services —
(35 ) —
—
—
(35 )
Sales and marketing —
(7,904 ) (11,521 ) (2,510 ) —
(21,935 )
General and administrative —
(19,171 ) (3,780 ) —
—
(22,951 )
Other —
(635 ) 86
1
—
(548 )
—
(193,137 ) (196,399 ) (55,734 ) (1,899 ) (447,169 )
Income from subsidiaries 27,418
6,162
—
—
(33,580 ) —
Operating income 27,418
22,478
21,634
5,220
(33,580 ) 43,170
Equity in income from unconsolidated joint ventures —
819
341
—
—
1,160
Other income (expense), net —
47
(4 ) (408 ) —
(365 )
Income before provision for income taxes 27,418
23,344
21,971
4,812
(33,580 ) 43,965
Provision for income taxes —
(13,905 ) —
—
—
(13,905 )
Net income 27,418
9,439
21,971
4,812
(33,580 ) 30,060
Less: Net income attributable to noncontrolling interests —
—
—
(2,642 ) —
(2,642 )
Net income available to common stockholders $ 27,418
$ 9,439
$ 21,971
$ 2,170
$ (33,580 ) $ 27,418

~~CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS~~

~~(Unaudited)~~

~~Three Months Ended September 30, 2016~~

~~(in thousands)~~

Unconsolidated

Delaware
Lyon

California
Lyon

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminating
Entries

Consolidated
Company
Operating revenue
Sales $ —
$ 105,962
$ 181,594
$ 55,072
$ —
$ 342,628
Construction services —
86
—
—
—
86
Management fees —
(1,541 ) —
—
1,541
—
—
104,507
181,594
55,072
1,541
342,714
Operating costs
Cost of sales —
(84,652 ) (151,306 ) (48,397 ) (1,541 ) (285,896 )
Construction services —
(86 ) —
—
—
(86 )
Sales and marketing —
(6,205 ) (9,774 ) (2,267 ) —
(18,246 )
General and administrative —
(14,268 ) (3,091 ) (1 ) —
(17,360 )
Other —
140
69
(11 ) —
198
—
(105,071 ) (164,102 ) (50,676 ) (1,541 ) (321,390 )
Income from subsidiaries 13,069
3,548
—
—
(16,617 ) —
Operating income (loss) 13,069
2,984
17,492
4,396
(16,617 ) 21,324
Equity in income from unconsolidated joint ventures —
1,140
295
—
—
1,435
Other income (expense), net —
2,550
(19 ) (481 ) —
2,050
Income (loss) before provision for income taxes 13,069
6,674
17,768
3,915
(16,617 ) 24,809
Provision for income taxes —
(8,295 ) —
—
—
(8,295 )
Net income (loss) 13,069
(1,621 ) 17,768
3,915
(16,617 ) 16,514
Less: Net income attributable to noncontrolling interests —
—
—
(3,445 ) —
(3,445 )
Net income (loss) available to common stockholders $ 13,069
$ (1,621 ) $ 17,768
$ 470
$ (16,617 ) $ 13,069

~~CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS~~

~~(Unaudited)~~

~~Nine Months Ended September 30, 2017~~

~~(in thousands)~~

Unconsolidated

Delaware
Lyon

California
Lyon

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminating
Entries

Consolidated
Company
Operating revenue
Sales $ —
$ 505,006
$ 535,828
$ 130,957
$ —
$ 1,171,791
Construction services —
94
—
—
—
94
Management fees —
(3,501 ) —
—
3,501
—
—
501,599
535,828
130,957
3,501
1,171,885
Operating costs
Cost of sales —
(408,420 ) (445,737 ) (115,554 ) (3,501 ) (973,212 )
Construction services —
(41 ) —
—
—
(41 )
Sales and marketing —
(21,479 ) (29,241 ) (7,204 ) —
(57,924 )
General and administrative —
(49,285 ) (12,161 ) (1 ) —
(61,447 )
Other —
(1,786 ) 232
6
—
(1,548 )
—
(481,011 ) (486,907 ) (122,753 ) (3,501 ) (1,094,172 )
Income from subsidiaries 36,372
13,328
—
—
(49,700 ) —
Operating income 36,372
33,916
48,921
8,204
(49,700 ) 77,713
Equity in income from unconsolidated joint ventures —
1,743
879
—
—
2,622
Other income (expense), net —
1,072
(10 ) (1,074 ) —
(12 )
Income before extinguishment of debt 36,372
36,731
49,790
7,130
(49,700 ) 80,323
Loss on extinguishment of debt —
(21,828 ) —
—
—
(21,828 )
Income (loss) before provision for income taxes 36,372
14,903
49,790
7,130
(49,700 ) 58,495
Provision for income taxes —
(17,480 ) —
—
—
(17,480 )
Net income (loss) 36,372
(2,577 ) 49,790
7,130
(49,700 ) 41,015
Less: Net income attributable to noncontrolling interests —
—
—
(4,643 ) —
(4,643 )
Net income (loss) available to common stockholders $ 36,372
$ (2,577 ) $ 49,790
$ 2,487
$ (49,700 ) $ 36,372

~~CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS~~

~~(Unaudited)~~

~~Nine Months Ended September 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		$	—		$	122,128		$	119,623		$	17,103		$	—		$	258,854
Construction services	—		3,810			—			—			—			3,810
Management fees	—		(2,587		)	—			—			2,587			—			—			(513		)	—			—			513			—
	—		345,682			494,597			89,926			2,587			932,792			—			121,615			119,623			17,103			513			258,854
Operating costs
Cost of sales	—		(276,481		)	(411,339		)	(79,298		)	(2,587		)	(769,705		)	—			(99,395		)	(103,461		)	(15,086		)	(513		)	(218,455		)
Construction services	—		(3,458		)	—			—			—			(3,458		)
Sales and marketing	—		(18,080		)	(26,731		)	(6,540		)	—			(51,351		)	—			(6,523		)	(6,931		)	(1,251		)	—			(14,705		)
General and administrative	—		(41,749		)	(10,129		)	(1		)	—			(51,879		)	—			(14,516		)	(4,429		)	(1		)	—			(18,946		)
Other	—		(587		)	(14		)	(11		)	—			(612		)	—			(531		)	91			—			—			(440		)
	—		(340,355		)	(448,213		)	(85,850		)	(2,587		)	(877,005		)	—			(120,965		)	(114,730		)	(16,338		)	(513		)	(252,546		)
Income from subsidiaries	36,644		7,472			—			—			(44,116		)	—
Operating income	36,644		12,799			46,384			4,076			(44,116		)	55,787
(Loss) income from subsidiaries																		(10,000		)	(239		)	—			—			10,239			—
Operating (loss) income																		(10,000		)	411			4,893			765			10,239			6,308
Equity in income from unconsolidated joint ventures	—		3,001			809			—			—			3,810			—			44			205			—			—			249
Other income (expense), net	—		3,873			(34		)	(1,036		)	—			2,803			—			645			—			(300		)	—			345
Income (loss) before provision for income taxes	36,644		19,673			47,159			3,040			(44,116		)	62,400
Provision for income taxes	—		(20,859		)	—			—			—			(20,859		)
Net income (loss)	36,644		(1,186		)	47,159			3,040			(44,116		)	41,541
(Loss) income before extinguishment of debt																		(10,000		)	1,100			5,098			465			10,239			6,902
Loss on extinguishment of debt																		—			(21,828		)	—			—			—			(21,828		)
(Loss) income before benefit from income taxes																		(10,000		)	(20,728		)	5,098			465			10,239			(14,926		)
Benefit from income taxes																		—			5,630			—			—			—			5,630
Net (loss) income																		(10,000		)	(15,098		)	5,098			465			10,239			(9,296		)
Less: Net income attributable to noncontrolling interests	—		—			—			(4,897		)	—			(4,897		)	—			—			—			(704		)	—			(704		)
Net income (loss) available to common stockholders	$	36,644	$	(1,186	)	$	47,159		$	(1,857	)	$	(44,116	)	$	36,644
Net (loss) income available to common stockholders																		$	(10,000	)	$	(15,098	)	$	5,098		$	(239	)	$	10,239		$	(10,000	)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(Unaudited)

~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2018

(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	$	(2,526	)	$	2,452		$	4,366		$	(29,808	)	$	2,526		$	(22,990	)
Net cash provided by (used in) operating activities																			$	6,515		$	(60,555	)	$	146,012		$	12,571		$	(6,515	)	$	98,028
Investing activities
Cash paid for acquisitions, net of cash acquired																			—			—			(475,221		)	—			—			(475,221		)
Purchases of property and equipment	—			(1,781		)	(572		)	(63		)	—			(2,416		)	—			(1,063		)	(1,391		)	12			—			(2,442		)
Investments in subsidiaries	—			7,841			2,275			—			(10,116		)	—			—			9,624			343,067			—			(352,691		)	—
Net cash provided by (used in) investing activities	—			6,060			1,703			(63		)	(10,116		)	(2,416		)	—			8,561			(133,545		)	12			(352,691		)	(477,663		)
Financing activities
Proceeds from borrowings on notes payable	—			—			—			105,109			—			105,109			—			—			—			20,194			—			20,194
Principal payments on notes payable	—			—			—			(101,400		)	—			(101,400		)	—			—			(14		)	(29,165		)	—			(29,179		)
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
Principal payments on 5.75% Senior Notes																			—			(150,000		)	—			—			—			(150,000		)
Proceeds from issuance of 6.0% Senior Notes																			—			350,000			—			—			—			350,000
Proceeds from borrowings on Revolver	—			275,000			—			—			—			275,000			—			110,000			—			—			—			110,000
Payments on Revolver	—			(254,000		)	—			—			—			(254,000		)	—			(25,000		)	—			—			—			(25,000		)
Principal payments on subordinated amortizing notes	—			(5,606		)	—			—			—			(5,606		)
Payment of deferred loan costs	—			(9,794		)	—			—			—			(9,794		)	—			(5,877		)	—			—			—			(5,877		)
Shares remitted to, or withheld by the Company for employee tax withholding	—			(1,450		)	—			—			—			(1,450		)	—			(4,696		)	—			—			—			(4,696		)
Payments to repurchase common stock	—			(2,284		)	—			—			—			(2,284		)	—			(5,000		)	—			—			—			(5,000		)
Noncontrolling interest contributions	—			—			—			58,829			—			58,829			—			—			—			4,062			—			4,062
Noncontrolling interest distributions	—			—			—			(39,829		)	—			(39,829		)	—			—			—			(17,106		)	—			(17,106		)
Advances to affiliates	—			—			(18,367		)	3,000			15,367			—			—			—			6,240			(2,864		)	(3,376		)	—
Intercompany receivables/payables	2,526			(13,678		)	11,698			7,231			(7,777		)	—			(6,515		)	(349,370		)	(15,273		)	8,576			362,582			—
Net cash provided by (used in) financing activities	2,526			(9,989		)	(6,669		)	32,940			7,590			26,398
Net cash (used in) provided by financing activities																			(6,515		)	(79,943		)	(9,047		)	(16,303		)	359,206			247,398
Net (decrease) increase in cash and cash equivalents	—			(1,477		)	(600		)	3,069			—			992			—			(131,937		)	3,420			(3,720		)	—			(132,237		)
Cash and cash equivalents - beginning of period	—			36,204			272			6,136			—			42,612			—			171,434			156			11,120			—			182,710
Cash and cash equivalents - end of period	$	—		$	34,727		$	(328	)	$	9,205		$	—		$	43,604		$	—		$	39,497		$	3,576		$	7,400		$	—		$	50,473

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(Unaudited)

~~Nine~~Three Months Ended ~~September 30, 2016~~March 31, 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	)	$	(296	)	$	(52,448	)	$	18,589		$	(7,522	)	$	296		$	(41,381	)
Investing activities
Collection of related party note receivable	—			6,188			—			—			—			6,188
Purchases of property and equipment	—			(809		)	56			(20		)	—			(773		)	—			(2		)	—			—			—			(2		)
Investments in subsidiaries	—			(1,727		)	46,801			—			(45,074		)	—			—			(333		)	(18,452		)	—			18,785			—
Net cash provided by (used in) investing activities	—			3,652			46,857			(20		)	(45,074		)	5,415
Net cash (used in) provided by investing activities																			—			(335		)	(18,452		)	—			18,785			(2		)
Financing activities
Proceeds from borrowings on notes payable	—			2,211			—			109,781			—			111,992			—			—			—			25,350			—			25,350
Principal payments on notes payable	—			(10,440		)	—			(80,810		)	—			(91,250		)	—			—			—			(20,780		)	—			(20,780		)
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			—			105,000			—			—			—			105,000
Payments on revolver	—			(167,000		)	—			—			—			(167,000		)	—			(77,000		)	—			—			—			(77,000		)
Principal payments on subordinated amortizing notes	—			(5,096		)	—			—			—			(5,096		)	—			(1,869		)	—			—			—			(1,869		)
Payment of deferred loan costs	—			(792		)	—			—			—			(792		)	—			(6,840		)	—			—			—			(6,840		)
Shares remitted to or withheld by Company for employee tax withholding	—			(918		)	—			—			—			(918		)	—			(1,380		)	—			—			—			(1,380		)
Excess income tax benefit from stock based awards	—			(238		)	—			—			—			(238		)
Cash received for lease transaction																			—			19,848			—			—			—			19,848
Noncontrolling interest contributions	—			—			—			36,140			—			36,140			—			—			—			1,467			—			1,467
Noncontrolling interest distributions	—			—			—			(12,768		)	—			(12,768		)	—			—			—			(7,340		)	—			(7,340		)
Advances to affiliates	—			—			(4,479		)	11,056			(6,577		)	—			—			—			2,845			487			(3,332		)	—
Intercompany receivables/payables	2,931			(46,182		)	(9,391		)	3,922			48,720			—			296			11,942			(2,824		)	6,335			(15,749		)	—
Net cash provided by (used in) financing activities	2,931			(30,455		)	(13,870		)	67,321			42,143			68,070			296			51,524			21			5,519			(19,081		)	38,279
Net (decrease) increase in cash and cash equivalents	—			(8,629		)	(2,195		)	1,331			—			(9,493		)	—			(1,259		)	158			(2,003		)	—			(3,104		)
Cash and cash equivalents - beginning of period	—			44,332			2,723			3,148			—			50,203			—			36,204			272			6,136			—			42,612
Cash and cash equivalents - end of period	$	—		$	35,703		$	528		$	4,479		$	—		$	40,710		$	—		$	34,945		$	430		$	4,133		$	—		$	39,508

Note 7—8—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 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, 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~~of floating interest rate terms 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 8~~¹/2~~% Senior Notes are traded over the counter and their fair values were based upon quotes from industry sources.~~

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

6% Senior Notes due September 1, 2023 —The 6% 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, 2017				December 31, 2016				March 31, 2018				December 31, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial liabilities:
Notes payable	$	161,011	$	161,011	$	155,768	$	155,768	$	172,246	$	172,246	$	94,515	$	94,515
Subordinated amortizing notes	1,619		1,700		7,225		7,478
5 ³/₄% Senior Notes due 2019	149,226		151,875		148,826		151,125		—		—		149,362		151,500
8¹/2% Senior Notes due 2020	—		—		422,817		444,125
7% Senior Notes due 2022	346,556		362,250		346,014		363,125		346,924		359,625		346,740		362,250
6% Senior Notes due 2023									343,274		349,125		—		—
5 ⁷/₈% Senior Notes due 2025	439,221		462,375		—		—		439,903		436,500		439,567		459,000

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—9—Related Party Transactions

In ~~August 2016~~November 2017, the Company ~~acquired certain lots within~~entered into a ~~master planned community located in Aurora, Colorado, for~~Purchase and Sale Agreement (the “Oceanside PSA”) with an ~~overall purchase price of approximately $9.3 million, from an~~ entity (“Oceanside Seller”) managed by an affiliate of Paulson & Co., Inc. (“Paulson”), which provides for the purchase of certain

real property from the Seller located in Oceanside, California for a proposed residential homebuilding development (the “St. Cloud Transaction”). The PSA provides for an overall purchase price of $22.8 million, including an aggregate deposit amount of $1.2 million (the “Deposit”), which Deposit was paid and became non-refundable in December 2017. The balance of the purchase price was paid in connection with closing of the St. Cloud Transaction in March 2018. WLH Recovery Acquisition LLC, which is affiliated with, and managed by affiliates of, Paulson, previously held over 5% of Parent’s outstanding Class A common stock, ~~during the nine months ended~~which stock was sold in its entirety in September ~~30,~~ 2017. ~~A portion~~One of the ~~acquisition price~~current members of Parent’s board of directors currently serves as Portfolio Manager for the ~~lots was paid~~Paulson Real Estate Funds, which are affiliates of Paulson, and is a Partner in ~~the form of a seller note with a principal amount of approximately $3.0 million, which was paid upon maturity in August 2017.~~Paulson. The Company believes that the ~~transaction, including the terms of the seller note,~~St. Cloud Transaction was on terms no less favorable than it would have agreed to with unrelated third parties.

Note 9—10—Income Taxes

Since inception, the Company has operated solely within the United States. The Company’s effective income tax rate was ~~31.6%~~18.3% and ~~29.9%, and 33.4% and 33.4%~~(37.7)% for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 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 and the overall favorable impact of the Tax Cuts and Job Act ("Tax Act") for the three months March 31, 2018, and noncontrolling interests and the domestic ~~production~~ activities ~~deduction.~~deduction for the three months ended March 31, 2017.

Management assesses its deferred tax assets 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 30, 2017,~~March 31, 2018, the Company had no valuation allowance recorded.

At ~~September 30, 2017,~~March 31, 2018, the Company had no remaining federal net operating loss carryforwards and ~~$56.5~~$49.9 million of remaining state net operating loss carryforwards. State net operating loss carryforwards begin to expire in 2031. In addition, as of ~~September 30, 2017,~~March 31, 2018, the Company had unused federal and state built-in losses of ~~$52.1~~$48.5 million and ~~$7.3~~$7.5 million, respectively. The five year testing period for built-in losses ~~expires~~expired 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 30,~~March 31, 2018, which if not previously utilized are allowable as refundable credits under the Tax Cuts and Job Act through 2022.

In accordance with Securities & Exchange Commission Staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), based on the information available as of December 31, 2017, ~~which have an indefinite life.~~the Company recorded income tax expense of $23.1 million as a result of the Tax Act due to the reduction of the Company's deferred tax assets as a result of the lower tax rate. The Company has also recorded a provisional amount in relation to the treatment of AMT credits in its consolidated financial statements for the year ended December 31, 2017. The final impact of the Tax Act may differ from the provisional amount recorded at December 31, 2017, due to, among other things, changes in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of the Tax Act. There were no significant changes to any of the provisional balances recorded at December 31, 2017 as a result of the Tax Act during the first three months of 2018.

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 ~~2013 through 2016~~2012 and forward. The Company is subject to various state income tax examinations for calendar tax years ended ~~2009 through 2016~~2008 and forward. The Company is currently under examination by the Internal Revenue Service for the 2013 and 2014 tax years and a California examination is pending for the 2014 tax year.

Note ~~10—~~11—Income (Loss) Per Common Share

Basic and diluted income (loss) per common share for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016~~2017 were calculated as follows (in thousands, except number of shares and per share amounts):



	Three Months Ended March 31, 2018		Three Months Ended March 31, 2017
Basic weighted average number of common shares outstanding	37,931,256		36,908,320
Effect of dilutive securities:
Stock options, unvested common shares, and warrants	1,924,427		—
Diluted average shares outstanding	39,855,683		36,908,320
Net income (loss) available to common stockholders	$	8,328	$	(10,000	)
Basic income (loss) per common share	$	0.22	$	(0.27	)
Dilutive income (loss) per common share	$	0.21	$	(0.27	)
Antidilutive securities not included in the calculation of diluted income (loss) per common share (weighted average):
Stock options, unvested common shares, and warrants	—		825,038
Tangible equity units	—		463,635
Unvested stock options	—		240,000
Warrants	—		1,907,551

Diluted loss per share for the three months ended March 31, 2017 is the same as basic loss per share as there is a net loss in the period and inclusion of potentially issuable shares is anti-dilutive. Therefore, the weighted-average number of shares outstanding used in the computation of diluted loss per share does not include the effect of the above anti-dilutive shares.

Three
Months
Ended
September 30,
2017 Three
Months
Ended
September 30,
2016 Nine
Months
Ended
September 30,
2017 Nine
Months
Ended
September 30,
2016
Basic weighted average number of common shares outstanding 37,059,483
36,801,464
37,007,144
36,746,727
Effect of dilutive securities:
Stock options, unvested common shares, and warrants 1,523,858
636,633
1,374,148
672,364
Tangible equity units —
894,930
—
894,930
Diluted average shares outstanding 38,583,341
38,333,027
38,381,292
38,314,021
Net income available to common stockholders $ 27,418
$ 13,069
$ 36,372
$ 36,644
Basic income per common share $ 0.74
$ 0.36
$ 0.98
$ 1.00
Dilutive income per common share $ 0.71
$ 0.34
$ 0.95
$ 0.96
Antidilutive securities not included in the calculation of diluted income per common share (weighted average):
Unvested stock options 240,000
240,000
240,000
240,000
Warrants —
1,907,551
—
1,907,551

Note ~~11—~~12—Stock Based Compensation

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

During the three months ended ~~September 30, 2017,~~March 31, 2018, the Company granted ~~6,434~~237,281 shares of time-based restricted stock and ~~during the nine months ended September 30, 2017, the Company granted 259,677 shares of time-based restricted stock and 553,909~~426,075 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~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ of ~~$3.1~~$3.2 million and ~~$6.3 million, and $1.5 million and $4.1~~$1.7 million, respectively.

Performance-Based Restricted Stock Awards

With respect to the performance based restricted stock awards granted to certain employees during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018, 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 ~~2017~~2018 fiscal year. ~~For each of~~Of the aforementioned awards, ~~one-third~~373,432 of ~~the~~such Earned Shares ~~will~~ vest in three equal annual installments on March 1st of each of ~~2018,~~ 2019, 2020 and ~~2020,~~2021, subject to each grantee’s continued service through each vesting date. The remaining 52,643 of such Earned Shares vest in three equal annual installments on each anniversary of the grant date, subject to each grantee’s continued service through each vesting date. Based on the probability assessment as of ~~September 30, 2017,~~March 31, 2018, 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 $1.5 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 months ended ~~September 30, 2017, representing 6,434 shares of restricted stock, all shares are subject to a vesting schedule pursuant to which one-half of the shares will vest on July 27th of each of~~March 31, 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 nine months ended September 30, 2017, representing 259,677 shares of restricted stock, 172,857116,484 of such shares ~~are subject to a vesting schedule pursuant to which one-third of the shares will~~ vest in three equal annual installments on March 1st of each of ~~2018,~~ 2019, 2020 and ~~2020, 45,111~~2021, 4,767 of such shares ~~are subject to a vesting schedule pursuant to which one-half of the shares will~~ vest in two equal annual installments on March 1st of each of ~~2018 and~~ 2019 and ~~6,434~~2020, 26,321 of such shares ~~are subject to a vesting schedule pursuant to which one-half~~vest in three equal annual installments on each anniversary of the grant date, 31,464 of such shares ~~will~~ vest in two equal annual installments on ~~July~~

~~27th~~each anniversary of ~~each~~the grant date, and 36,317 of ~~2018 and 2019,~~such shares vest in one installment on the second anniversary of the grant date, in each case subject to each grantee’s continued service through each vesting date, and ~~35,275~~21,928 of such shares vest in four equal quarterly installments on each ofthree-month period beginning June ~~1, 2017, September 1, 2017, December 1, 2017 and March 1,~~1st of 2018, subject to each grantee’s continued service on the board through each vesting date.

Note ~~12—~~13—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 30, 2017,~~March 31, 2018, 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.

The Company had outstanding performance and surety bonds of ~~$209.6~~$239.0 million at ~~September 30, 2017,~~March 31, 2018, 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 30, 2017,~~March 31, 2018, the Company had ~~$181.0~~$453.8 million of project commitments relating to the construction of projects.

See Note 67 for additional information relating to the Company’s guarantee arrangements.

~~The~~In addition to the land bank agreement discussed below, the Company has entered into various purchase option agreements with third parties to acquire land. As of ~~September 30, 2017,~~March 31, 2018, the Company has made non-refundable deposits of ~~$61.1~~$92.1 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 ~~$455.4~~$996.4 million as of ~~September 30, 2017.~~March 31, 2018.

Land Banking Arrangements

The Company enters into purchase agreements with various land sellers. As a method of acquiring land in staged takedowns, thereby minimizing the use of funds from the Company’s available cash or other corporate financing sources and limiting the Company’s risk, the Company transfers the Company’s right in such purchase agreements to entities owned by third parties (“land banking arrangements”). These entities use equity contributions and/or incur debt to finance the acquisition and development of the land. The entities grant the Company an option to acquire lots in staged takedowns. In consideration for this option, the Company makes a non-refundable deposit of 15% to 25% of the total purchase price. The Company is under no obligation to purchase the balance of the lots, but would forfeit any existing deposits and could be subject to penalties if the lots were not purchased. The Company does not have legal title to these entities or their assets and has not guaranteed their liabilities. These land banking arrangements help the Company manage the financial and market risk associated with land holdings. As discussed above, with exception of the arrangement discussed below, these amounts are included in the total remaining purchase price mentioned above.

The Company participated in one land banking arrangement during the three months ended March 31, 2018, which was not a VIE in accordance with ASC 810, but which is consolidated in accordance with FASB ASC Topic 470, Debt (“ASC 470”). Under the provisions of ASC 470, the Company had determined it is economically compelled, based on certain factors, to purchase the land in the land banking arrangement. Therefore, the Company has recorded the remaining purchase price of

the land of $282.2 million as of March 31, 2018, which was included in Real estate inventories not owned and Liabilities from inventories not owned in the accompanying balance sheet.

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



	March 31, 2018
Total number of land banking projects	1
Total number of lots	3,053
Total purchase price	$	316,452
Balance of lots still under option and not purchased:
Number of lots	3,053
Purchase price	$	316,452
Forfeited deposits if lots are not purchased	$	34,283

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 ~~$15.9~~$14.8 million as of ~~September 30, 2017~~March 31, 2018 and ~~$13.1~~$14.5 million as of December 31, ~~2016.~~2017. 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 March 31, 2018			Three Months Ended March 31, 2017
Lease cost
Operating lease cost	$	2,009		$	959
Sublease income	(29		)	(29		)
Total lease cost	$	1,980		$	930

Other information
Cash paid for amounts included in the measurement of lease liabilities for operating leases:
Operating cash flows	$	1,767		$	873
Right-of-use assets obtained in exchange for new operating lease liabilities	$	1,696		$	4,650
Weighted-average discount rate	6.4		%	6.6		%

Three Months Ended September 30, 2017 Three Months Ended September 30, 2016 Nine
Months
Ended
September 30,
2017 Nine
Months
Ended
September 30,
2016
Lease cost
Operating lease cost $ 1,646
$ 1,006
$ 4,405
$ 2,874
Sublease income (29 ) (29 ) (87 ) (87 )
Total lease cost $ 1,617
$ 977
$ 4,318
$ 2,787

Other information
Cash paid for amounts included in the measurement of lease liabilities for operating leases:
Operating cash flows $ 1,621
$ 811
$ 3,879
$ 2,410
Right-of-use assets obtained in exchange for new operating lease liabilities $ 155
$ 740
$ 5,213
$ 1,353
Weighted-average discount rate 6.6 % 6.6 % 6.6 % 6.6 %

September 30, 2017 December 31, 2016
Weighted-average remaining lease term (in years) 3.79 5.16



	March 31, 2018	December 31, 2017
Weighted-average remaining lease term (in years)	3.34	3.58

The table below shows the future minimum payments under non-cancelable operating leases at ~~September 30, 2017~~March 31, 2018 (in thousands).


Year Ending December 31,
2017	$	1,703
2018	6,673
Remaining in 2018			$	6,093
2019	3,740		5,352
2020	2,556		4,031
2021	2,398		3,733
2022			2,476
Thereafter	1,782		1,992
Total	$	18,852	$	23,677

Note ~~13—~~14—Subsequent Events

No events have occurred subsequent to ~~September 30, 2017,~~March 31, 2018, 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, Washington and ~~Washington.~~Texas. The Company’s core markets include Orange County, Los Angeles, the Inland Empire, the San Francisco Bay Area, Phoenix, Las Vegas, Denver, Portland, Seattle, Austin and ~~Seattle.~~San Antonio. The Company has a distinguished legacy of more than 60 years of homebuilding operations, over which time it has sold in excess of ~~101,000~~103,000 homes. For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 (the ~~"2017~~"2018 period"), the Company had revenues from homes sales of ~~$1,171.8~~$372.4 million, a ~~26%~~44% increase from ~~$929.0~~$258.9 million for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 (the ~~"2016~~"2017 period"), which includes results from all seven reportable operating segments. The Company had net new home orders of ~~2,656~~1,106 homes in the 2018 period, a 28% increase from 865 in the 2017 period, ~~a 20% increase from 2,211 in the 2016 period,~~ while the average number of sales ~~price ("ASP") for homes closed~~locations increased 9%2% to ~~$537,300~~84 in the ~~2017~~2018 period from ~~$494,400~~82 in the ~~2016~~2017 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~~three months ended ~~September 30, 2017,~~March 31, 2018, the Company delivered ~~2,181~~740 homes, with an ASP of approximately ~~$537,300,~~$503,200, and recognized home sales revenue of ~~$1,171.8~~$372.4 million. The Company generated net income available to common shareholders of ~~$36.4~~$8.3 million for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, and income per share of ~~$0.98. 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.~~$0.22. The Company continues to see positive trends in orders, price appreciation in ~~certain~~many projects, and our average sales price of homes in backlog is approximately ~~$578,900~~$515,200 as of ~~September 30, 2017,~~March 31, 2018, which is 8%2% higher than the average sales price of homes closed for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 of ~~$537,300.~~$503,200.

On March 9, 2018, the Company completed its acquisition of the residential homebuilding operations of RSI Communities and its affiliates, such operations being referred herein as "RSI Communities", which marked the beginning of the Texas operating segment, in addition to expanding the Company's footprint in the California operating segment. Financial data herein as of March 31, 2018, and for the three months ended March 31, 2018 include operations for these operating segments for the period from March 9, 2018 through March 31, 2018.

As of ~~September 30, 2017,~~March 31, 2018, the ~~Company's average community count for~~Company was selling homes in 105 communities, including 29 communities added in conjunction with the ~~nine month period then ended was 85 locations.~~acquisition of RSI Communities. We had a consolidated backlog of ~~1,208~~1,460 homes sold but not closed, with an associated sales value of ~~$699.3~~$752.1 million, representing a ~~13%~~33% increase in units, and a ~~18%~~19% increase in dollar value, as compared to the backlog at ~~September 30, 2016.~~March 31, 2017.

Homebuilding gross margin percentage and adjusted homebuilding gross margin percentage was ~~16.9%~~17.5% and ~~22.5%~~22.7%, respectively, for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, as compared to ~~17.1%~~15.6% and ~~23.5%~~20.1%, respectively, for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017.

Comparisons of the Three Months Ended ~~September 30,~~March 31, 2018 to March 31, 2017 ~~to September 30, 2016~~

Revenues from homes sales increased ~~43%~~44% to ~~$490.3~~$372.4 million during the three months ended ~~September 30, 2017,~~March 31, 2018, compared to ~~$342.6~~$258.9 million during the three months ended ~~September 30, 2016.~~March 31, 2017. The increase in revenue is primarily due to the ~~26%~~48% increase in the number of homes closed during the 2017 ~~period, in addition to a 13% increase in average sales price.~~period. The number of net new home orders for the three months ended ~~September 30, 2017~~March 31, 2018 increased ~~19%~~28% to ~~774~~1,106 homes from ~~651~~865 homes for the three months ended ~~September 30, 2016.~~March 31, 2017.


	Three Months Ended September 30,		Increase (Decrease)				Three Months Ended March 31,		Increase (Decrease)
	2017	2016	Amount		%		2018	2017	Amount		%
Number of Net New Home Orders
California	238	191	47		25	%	283	265	18		7	%
Arizona	124	117	7		6	%	108	128	(20	)	(16	)%
Nevada	66	66	—		—	%	109	77	32		42	%
Colorado	82	54	28		52	%	144	61	83		136	%
Washington	116	66	50		76	%	179	152	27		18	%
Oregon	148	157	(9	)	(6	)%	209	182	27		15	%
Texas							74	—	74		N/M
Total	774	651	123		19	%	1,106	865	241		28	%

The ~~19%~~28% increase in net new homes orders is driven by an increase in monthly absorption to ~~3.0~~4.4 sales per month from ~~2.8~~3.5 in the prior year period, in addition to a ~~10%~~2% increase in average number of sales locations to 8684 average locations in ~~2017,~~2018, compared to 7882 in the ~~2016~~2017 period, which is driven by the 29 communities added in conjunction with the acquisition of RSI Communities and opening of 411 new ~~communities.~~communities in the legacy operating segments.


	Three Months Ended September 30,				Increase (Decrease)		Three Months Ended March 31,				Increase (Decrease)
	2017		2016		%		2018		2017		%
Cancellation Rates
California	21	%	24	%	(3	)%	8	%	15	%	(7	)%
Arizona	11	%	16	%	(5	)%	15	%	13	%	2	%
Nevada	19	%	15	%	4	%	19	%	11	%	8	%
Colorado	23	%	16	%	7	%	9	%	9	%	—	%
Washington	17	%	21	%	(4	)%	9	%	10	%	(1	)%
Oregon	19	%	22	%	(3	)%	5	%	13	%	(8	)%
Texas							9	%	N/A		N/M
Overall	19	%	20	%	(1	)%	10	%	12	%	(2	)%

Cancellation rates during the ~~2017~~2018 period decreased to ~~19%~~10% from ~~20%~~12% during the ~~2016~~2017 period. Cancellation rates typically are driven by personal factors affecting buyers and may not be indicative of any overarching trends affecting regions. The 7% increase in cancellation rates in Colorado was partially due to a manufactured product issue relating to fire rated I-joists, which was announced by the manufacturer at the beginning of the 2017 third quarter and impacted certain homes in backlog and/or under construction in our Colorado division, and for which we have implemented a remediation program.


	Three Months Ended September 30,		Increase (Decrease)				Three Months Ended March 31,		Increase (Decrease)
	2017	2016	Amount		%		2018	2017	Amount		%
Average Number of Sales Locations
California	23	23	—		—	%	22	24	(2	)	(8	)%
Arizona	7	9	(2	)	(22	)%	6	9	(3	)	(33	)%
Nevada	13	12	1		8	%	12	11	1		9	%
Colorado	16	10	6		60	%	15	11	4		36	%
Washington	11	6	5		83	%	9	7	2		29	%
Oregon	16	18	(2	)	(11	)%	15	20	(5	)	(25	)%
Texas							5	—	5		N/M
Total	86	78	8		10	%	84	82	2		2	%

The average number of sales locations for the Company increased to 8684 locations for the three months ended ~~September 30, 2017~~March 31, 2018 compared to 7882 for the three months ended ~~September 30, 2016,~~March 31, 2017, driven by the ~~opening~~29 communities added in conjunction with the acquisition of ~~new communities in Colorado and Washington during 2017.~~RSI Communities. During the period, the Company opened 411 communities, while closing out 7.12 in the legacy operating segments.


	Three Months Ended September 30, 2017		Increase (Decrease)	Three Months Ended March 31, 2018		Increase (Decrease)
	2017	2016	Increase (Decrease)	2018	2017	Increase (Decrease)
Quarterly Absorption Rates
California	10.3	8.3	2.0	12.9	11.0	1.9
Arizona	17.7	13.0	4.7	18.0	14.2	3.8
Nevada	5.1	5.5	(0.4)	9.1	7.0	2.1
Colorado	5.1	5.4	(0.3)	9.6	5.5	4.1
Washington	10.5	11.0	(0.5)	19.9	21.7	(1.8)
Oregon	9.3	8.7	0.6	13.9	9.1	4.8
Texas				14.8	—	14.8
Overall	9.0	8.3	0.7	13.2	10.5	2.7

The Company's consolidated quarterly absorption rate, representing the number of net new home orders divided by average sales locations for the period, increased for the three months ended ~~September 30, 2017~~March 31, 2018 to ~~9.0~~13.2 sales per project from ~~8.3~~10.5 in the 2016 period. The increase in absorption rates in California was due to the improvement in sales pace in the Inland Empire sub-market, while the stronger absorption in Arizona was due to strong demand from the needs based entry level buyer, compared to the prior2017 period.


	September 30,		Increase (Decrease)				March 31,		Increase (Decrease)
	2017	2016	Amount		%		2018	2017	Amount		%
Backlog (units)
California	370	327	43		13	%	388	368	20		5	%
Arizona	197	252	(55	)	(22	)%	164	238	(74	)	(31	)%
Nevada	120	124	(4	)	(3	)%	121	88	33		38	%
Colorado	164	112	52		46	%	223	98	125		128	%
Washington	192	57	135		237	%	176	134	42		31	%
Oregon	165	199	(34	)	(17	)%	177	173	4		2	%
Texas							211	—	211		N/M
Total	1,208	1,071	137		13	%	1,460	1,099	361		33	%

The Company’s backlog at ~~September 30, 2017~~March 31, 2018 increased ~~13%~~33% to ~~1,208~~1,460 units from ~~1,071~~1,099 units at ~~September 30, 2016~~March 31, 2017. The increase is primarily attributable to an increase in net new home orders to ~~774~~1,106 in the current period from ~~651~~865 in the prior year, slightly offset by a higher backlog conversion rate of ~~66%~~80% in current period compared to ~~62%~~68% in the prior period.


	September 30,				Increase (Decrease)					March 31,				Increase (Decrease)
	2017		2016		Amount			%		2018		2017		Amount			%
	(dollars in thousands)									(dollars in thousands)
Backlog (dollars)
California	$	294,861	$	260,082	$	34,779		13	%	$	282,484	$	296,406	$	(13,922	)	(5	)%
Arizona	60,467		71,609		(11,142		)	(16	)%	51,055		71,258		(20,203		)	(28	)%
Nevada	81,192		78,285		2,907			4	%	80,379		64,865		15,514			24	%
Colorado	69,085		59,451		9,634			16	%	90,312		51,679		38,633			75	%
Washington	119,299		36,518		82,781			227	%	115,375		80,619		34,756			43	%
Oregon	74,424		85,093		(10,669		)	(13	)%	76,433		69,413		7,020			10	%
Texas										56,093		—		56,093			N/M
Total	$	699,328	$	591,038	$	108,290		18	%	$	752,131	$	634,240	$	117,891		19	%

The dollar amount of backlog of homes sold but not closed as of ~~September 30, 2017~~March 31, 2018 was ~~$699.3~~$752.1 million, up ~~18%~~19% from ~~$591.0~~$634.2 million as of ~~September 30, 2016.~~March 31, 2017. The increase primarily reflects an increase in net new orders as described above, ~~coupled with a 5% increase~~slightly offset by an 11% decrease in the ~~ASP~~average sales price 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 13%~~decreased 5% to ~~$294.9~~$282.5 million as of ~~September 30, 2017~~March 31, 2018 from ~~$260.1~~$296.4 million as of ~~September 30, 2016, which is primarily attributable to~~March 31, 2017. The decrease was slightly offset by a ~~13%~~5% increase in units in backlog, ~~coupled with~~in addition to the increase in number of net new home orders for the 2017 period of ~~25%~~7% to ~~238~~283 homes from ~~191~~265 homes for the ~~2016~~2017 period.

In Arizona, the dollar amount of backlog decreased ~~16%~~28% to ~~$60.5~~$51.1 million as of ~~September 30, 2017~~March 31, 2018 from ~~$71.6~~$71.3 million as of ~~September 30, 2016,~~March 31, 2017, which is primarily attributable to a ~~22%~~31% decrease in the number of homes in backlog to ~~197~~164 at ~~September 30,~~March 31, 2018, from 238 at March 31, 2017 ~~from 252 at September 30, 2016~~ due to stronger backlog conversion and a ~~23%~~12% increase in deliveries. This was ~~largely~~partially offset by a 8%4% increase in the ASP of homes in backlog when compared with the prior period.

In Nevada, the dollar amount of backlog increased 4%24% to ~~$81.2~~$80.4 million as of ~~September 30, 2017~~March 31, 2018 from ~~$78.3~~$64.9 million as of ~~September 30, 2016,~~March 31, 2017, attributable to a 7%38% increase in units in backlog, to 121 as of March 31, 2018 from 88 as of March 31, 2017, slightly offset by a 10% decrease in average sales price of homes in backlog to ~~$676,600~~$664,300 as of ~~September 30, 2017,~~March 31, 2018, from ~~$631,300~~$737,100 as of ~~September 30, 2016, slightly offset by a 3% decrease in units in backlog, to 120 as of September 30, 2017 from 124 as of September 30, 2016.~~March 31, 2017.

In Colorado, the dollar amount of backlog increased ~~16%~~75% to ~~$69.1~~$90.3 million as of ~~September 30, 2017~~March 31, 2018 from ~~$59.5~~$51.7 million as of ~~September 30, 2016,~~March 31, 2017, which is attributable to a ~~46%~~128% increase in the number of units in backlog, to ~~164~~223 units as of ~~September 30, 2017,~~March 31, 2018, from ~~112~~98 units as of ~~September 30, 2016.~~March 31, 2017. This was slightly offset by a ~~21%~~23% decrease of the ASP of homes in backlog to ~~$421,300~~$405,000 as of ~~September 30, 2017~~March 31, 2018 from ~~$530,800~~$527,300 as of ~~September 30, 2016. Our~~March 31, 2017. Previously, our backlog conversion rate in Colorado ~~for the third quarter~~ was negatively impacted by a manufactured product issue relating to fire rated I-joists, which was announced by the manufacturer at the beginning of the 2017 third quarter and impacted certain homes in backlog and/or under construction, and for which we have implemented a remediation program.

In Washington, the dollar amount of backlog increased ~~227%~~43% to ~~$119.3~~$115.4 million as of ~~September 30, 2017~~March 31, 2018 from ~~$36.5~~$80.6 million as of ~~September 30, 2016,~~March 31, 2017, which is attributable to a ~~237%~~31% increase in the number of units in backlog, to ~~192~~176 units as of ~~September 30, 2017,~~March 31, 2018, from 57134 units as of ~~September 30, 2016, in~~March 31, 2017. In addition, tothere was a 76% increase in the number of net new home orders for the 2017 period compared to the 2016 period. This was slightly offset by a 3% decrease in the ASP of homes in backlog to $621,300 as of September 30, 2017 from $640,700 as of September 30, 2016.

In Oregon, the dollar amount of backlog decreased 13% to $74.4 million as of September 30, 2017 from $85.1 million as of September 30, 2016, which is primarily attributable to a 17% decrease in the number of units in backlog, to 165 units as of September 30, 2017, from 199 units as of September 30, 2016. This was slightly offset by a 5%9% increase in the ASP of homes in backlog to ~~$451,100~~$655,500 as of March 31, 2018 from $601,600 as of March 31, 2017.

In Oregon, the dollar amount of backlog increased 10% to $76.4 million as of March 31, 2018 from $69.4 million as of March 31, 2017, which is primarily attributable to a 8% increase in the ASP of homes in backlog to $431,800 in the 2018 period from $401,200 in the 2017 period ~~from $427,600~~and a 2% increase in the ~~2016 period.~~number of units in backlog, to 177 units as of March 31, 2018, from 173 units as of March 31, 2017.

In Texas, which is a new operating segment resulting from the acquisition of RSI Communities, the dollar amount of backlog was $56.1 million, with units in backlog of 211, for which there are no comparable amounts as of March 31, 2017.


	Three Months Ended September 30,		Increase (Decrease)				Three Months Ended March 31,		Increase (Decrease)
	2017	2016	Amount		%		2018	2017	Amount		%
Number of Homes Closed
California	300	169	131		78	%	210	121	89		74	%
Arizona	133	108	25		23	%	105	94	11		12	%
Nevada	74	85	(11	)	(13	)%	74	48	26		54	%
Colorado	44	70	(26	)	(37	)%	93	38	55		145	%
Washington	116	74	42		57	%	94	70	24		34	%
Oregon	184	167	17		10	%	104	128	(24	)	(19	)%
Texas							60	—	60		N/M
Total	851	673	178		26	%	740	499	241		48	%

During the three months ended ~~September 30, 2017,~~March 31, 2018, the number of homes closed increased ~~26%~~48% to ~~851~~740 from ~~673~~499 in the ~~2016~~2017 period. The increase was primarily attributable to an increase in homes closed in every operating segment except Oregon, which was due to Oregon's lower community count, in addition to the ~~California, Arizona, Washington and Oregon reporting segments, driven by a higher number~~new home deliveries resulting from the acquisition of ~~homes in backlog to begin the quarter when compared with the 2016 period. These increases were partially offset by decreases in the Nevada and Colorado reporting segments.~~RSI Communities.


	Three Months Ended September 30,				Increase (Decrease)					Three Months Ended March 31,				Increase (Decrease)
	2017		2016		Amount			%		2018		2017		Amount			%
	(dollars in thousands)									(dollars in thousands)
Home Sales Revenue
California	$	230,925	$	111,434	$	119,491		107	%	$	134,812	$	81,967	$	52,845		64	%
Arizona	39,607		28,758		10,849			38	%	32,039		26,716		5,323			20	%
Nevada	42,966		49,600		(6,634		)	(13	)%	49,176		30,548		18,628			61	%
Colorado	24,811		35,316		(10,505		)	(30	)%	40,063		21,330		18,733			88	%
Washington	71,788		42,247		29,541			70	%	54,668		43,474		11,194			26	%
Oregon	80,207		75,273		4,934			7	%	46,853		54,819		(7,966		)	(15	)%
Texas										14,774		—		14,774			N/M
Total	$	490,304	$	342,628	$	147,676		43	%	$	372,385	$	258,854	$	113,531		44	%

The ~~43%~~44% increase in homebuilding revenue is driven by the ~~26%~~48% increase in homes closed discussed above, ~~in addition to~~slightly offset by the ~~13% increase~~3% decrease in the average sales price of homes closed between the 2018 and 2017 periods, which is primarily driven by product and ~~2016 periods.~~geographical mix, and was impacted by the lower price point from the new Texas operating segment.


	Three Months Ended September 30,				Increase (Decrease)					Three Months Ended March 31,				Increase (Decrease)
	2017		2016		Amount			%		2018		2017		Amount			%
Average Sales Price of Homes Closed
California	$	769,800	$	659,400	$	110,400		17	%	$	642,000	$	677,400	$	(35,400	)	(5	)%
Arizona	297,800		266,300		31,500			12	%	305,100		284,200		20,900			7	%
Nevada	580,600		583,500		(2,900		)	—	%	664,500		636,400		28,100			4	%
Colorado	563,900		504,500		59,400			12	%	430,800		561,300		(130,500		)	(23	)%
Washington	618,900		570,900		48,000			8	%	581,600		621,100		(39,500		)	(6	)%
Oregon	435,900		450,700		(14,800		)	(3	)%	450,500		428,300		22,200			5	%
Texas										246,200		—		246,200			N/M
Company Average	$	576,200	$	509,100	$	67,100		13	%	$	503,200	$	518,700	$	(15,500	)	(3	)%

The average sales price of homes closed during the ~~2017~~2018 period ~~increased 13%~~decreased 3% primarily due to ~~an increase~~product and geographical mix, and was impacted by the lower price point from the new Texas operating segment.

Construction Services Revenue

Construction services revenue was $1.0 million for the three months ended March 31, 2018, which was attributable to one project in ~~the average sales price of homes closed, primarily driven by product mix, in all reporting segments except Nevada and Oregon.~~

Washington.

Gross Margin

Homebuilding gross margins increased to ~~18.1%~~17.5% for the three months ended ~~September 30, 2017~~March 31, 2018 from ~~16.6%~~15.6% in the ~~2016~~2017 period, primarily driven by product and geographic mix for home deliveries, as well as new projects with closings above the previous Company averages. In addition, the increase is partially due to the Company's adoption of ASC 606, which resulted in the reclass of the amortization of capitalized costs associated with model homes and sales offices to Sales and marketing expense, previously recorded in Cost of sales - homes, as described in more detail in the notes to the financial statements.

For the comparison of the three months ended ~~September 30, 2017~~March 31, 2018 and the three months ended ~~September 30, 2016,~~March 31, 2017, 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 ~~23.6%~~22.7% for the ~~2017~~2018 period compared to ~~22.2%~~20.1% for the ~~2016~~2017 period. The increase was primarily a result of the increase in homebuilding gross margins described above coupled with the increase in the impact of interest in cost of sales.

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~~RSI Acquisition, specifically recorded to the California and ~~Oregon~~Texas operating divisions. In the comparative presentation below, purchase accounting amounts related to previous acquisitions have been excluded from both periods. See table set forth below reconciling this non-GAAP measure to homebuilding gross margin.


	Three Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2018			2017
	(dollars in thousands)						(dollars in thousands)
Home sales revenue	$	490,304		$	342,628		$	372,385		$	258,854
Cost of home sales	401,700			285,896			307,308			218,455
Homebuilding gross margin	88,604			56,732			65,077			40,399
Homebuilding gross margin percentage	18.1		%	16.6		%	17.5		%	15.6		%
Add: Interest in cost of sales	22,923			13,543			18,804			11,608
Add: Purchase accounting adjustments	4,252			5,687			735			—
Adjusted homebuilding gross margin	$	115,779		$	75,962		$	84,616		$	52,007
Adjusted homebuilding gross margin percentage	23.6		%	22.2		%	22.7		%	20.1		%

Sales and Marketing, General and Administrative


	Three Months Ended September 30,				As a Percentage of Home Sales Revenue				Three Months Ended March 31,				As a Percentage of Home Sales Revenue
	2017		2016		2017		2016		2018		2017		2018		2017
	(dollars in thousands)								(dollars in thousands)
Sales and Marketing	$	21,935	$	18,246	4.5	%	5.3	%	$	22,693	$	14,705	6.1	%	5.7	%
General and Administrative	22,951		17,360		4.7	%	5.1	%	24,521		18,946		6.6	%	7.3	%
Total Sales and Marketing & General and Administrative	$	44,886	$	35,606	9.2	%	10.4	%	$	47,214	$	33,651	12.7	%	13.0	%

Sales and marketing expense as a percentage of home sales revenue ~~decreased~~increased to ~~4.5%~~6.1% in the 2018 period compared to 5.7% in the 2017 period, ~~compared~~primarily due to ~~5.3%~~the adoption of ASC 606, which resulted in the ~~2016 period~~reclass of the amortization of certain capitalized costs associated with model homes and sales offices to Sales and marketing expense, previously recorded in Cost of sales - homes, as ~~a result of higher homebuilding revenue and lower advertising costs due~~described in more detail in the notes to ~~more efficient advertising spending using social media and mobile applications to offset higher outside broker costs.~~the financial statements. General and administrative expense increased to $24.5 million in the 2018 period, from $18.9 million in the 2017 period due to an increased headcount, but as a percentage of home sales revenues, general and administrative expense decreased to ~~4.7%~~6.6% in the 2018 period compared to 7.3% in the 2017 ~~period compared~~period.

Transaction Expenses

Transaction expenses relate entirely to ~~5.1%~~one-time, non-recurring costs incurred in ~~the 2016 period. The decrease is driven by a lower relative cost structure due~~relation to the ~~higher revenue and positive operating leverage.~~acquisition of RSI Communities on March 9, 2018.

Equity in Income of Unconsolidated Joint Ventures

Equity in income of unconsolidated joint ventures ~~decreased slightly~~increased to ~~$1.2~~$0.9 million for the three months ended ~~September 30, 2017~~March 31, 2018 from ~~$1.4~~$0.2 million during the comparable ~~2016~~2017 period.

Other Items

Interest activity for the three months ended ~~September 30,~~March 31, 2018 and March 31, 2017 ~~and September 30, 2016~~ is as follows (in thousands):


	Three Months Ended September 30,				Three Months Ended March 31,
	2017		2016		2018		2017
Interest incurred	$	18,112	$	21,293	$	19,258	$	19,424
Less: Interest capitalized	18,112		21,293		19,258		19,424
Interest expense, net of amounts capitalized	$	—	$	—	$	—	$	—
Cash paid for interest	$	28,374	$	14,898	$	31,489	$	19,036

The ~~decrease~~increase in cash paid for interest ~~incurred~~ for the three months ended ~~September 30, 2017,~~March 31, 2018 compared to ~~the interest incurred for~~ the three months ended ~~September 30, 2016, reflects the impact of the effective refinancing transaction on January~~March 31, 2017 ~~in which~~was due to timing of payments on interest for the ~~Company completed the sale to certain purchasers of $450.0 million in aggregate principal amount of 5.875%~~Company's 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.~~Notes. The Company capitalized all of the interest it incurred during both periods presented due to its qualifying assets exceeding its outstanding debt.

During the three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ the Company sold one land parcel that resulted in a negligible loss and ~~two~~one land ~~parcels~~parcel that resulted that did not result in ~~a $2.7 million~~any gain or loss, respectively.

Provision for (Benefit from) Income Taxes

During the three months ended ~~September 30, 2017,~~March 31, 2018, the Company recorded a provision for income taxes of ~~$13.9~~$2.8 million, for an effective tax rate of ~~31.6%~~18.3%. During the three months ended ~~September 30, 2016,~~March 31, 2017, the Company recorded a ~~provision for~~benefit from income taxes of ~~$8.3~~$5.6 million for an effective tax rate of ~~33.4%~~(37.7)%.

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests ~~decreased~~increased to ~~$2.6~~$4.3 million during the 2018 period, compared to $0.7 million during the 2017 ~~period, compared to $3.4 million during the 2016~~ period.

Net Income (Loss) Available to Common Stockholders

As a result of the foregoing factors, net income available to common stockholders for the three months ended ~~September 30,~~March 31, 2018 was $8.3 million, compared to net loss attributable to common stockholders for the three months ended March 31, 2017 ~~and 2016~~ was ~~$27.4 million and $13.1 million, respectively.~~$10.0 million.

Lots Owned and Controlled

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


	September 30,		Increase (Decrease)				March 31,		Increase (Decrease)
	2017	2016	Amount		%		2018	2017	Amount		%
Lots Owned
California	1,616	1,625	(9	)	(1	)%	3,634	1,492	2,142		144	%
Arizona	4,541	4,877	(336	)	(7	)%	4,116	4,838	(722	)	(15	)%
Nevada	2,871	3,131	(260	)	(8	)%	2,910	2,985	(75	)	(3	)%
Colorado	1,376	1,544	(168	)	(11	)%	1,266	1,442	(176	)	(12	)%
Washington	1,363	1,387	(24	)	(2	)%	1,377	1,225	152		12	%
Oregon	1,806	1,303	503		39	%	2,226	1,422	804		57	%
Texas							3,345	—	3,345		N/M
Total	13,573	13,867	(294	)	(2	)%	18,874	13,404	5,470		41	%
Lots Controlled (1)
California	915	1,069	(154	)	(14	)%	1,985	1,084	901		83	%
Arizona	157	—	157		—	%	651	—	651		N/M
Nevada	410	51	359		704	%	12	38	(26	)	(68	)%
Colorado	292	232	60		26	%	822	77	745		968	%
Washington	797	1,081	(284	)	(26	)%	793	1,108	(315	)	(28	)%
Oregon	1,800	1,849	(49	)	(3	)%	1,910	1,929	(19	)	(1	)%
Texas							3,763	—	3,763		N/M
Total	4,371	4,282	89		2	%	9,936	4,236	5,700		135	%
Total Lots Owned and Controlled	17,944	18,149	(205	)	(1	)%	28,810	17,640	11,170		63	%


(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~~increased to ~~17,944~~28,810 lots owned and controlled at ~~September 30, 2017~~March 31, 2018 from ~~18,149~~17,640 lots at ~~September 30, 2016.~~

~~Comparisons of the Nine Months Ended September 30,~~March 31, 2017, ~~to September 30, 2016~~

Revenues from homes sales increased 26% to $1,171.8 million during the nine months ended September 30, 2017, compared to $929.0 million during the nine months ended September 30, 2016. The increase in revenue is primarily due to the ~~16% increase~~acquisition of RSI Communities. Certain lots included in the number of homes closed during the 2017 period in addition to the 9% increase in average sales price of homes closed. The number of net new home orders for the nine months ended September 30, 2017 increased 20% to 2,656 homes from 2,211 homes for the nine months ended September 30, 2016.

Nine Months Ended September 30, Increase (Decrease)
2017 2016 Amount %
Number of Net New Home Orders
California 783
591
192
32 %
Arizona 401
367
34
9 %
Nevada 236
229
7
3 %
Colorado 229
204
25
12 %
Washington 432
238
194
82 %
Oregon 575
582
(7 ) (1 )%
Total 2,656
2,211
445
20 %

The 20% increase in net new homes orders is driven by a 16% increase in average number of sales locations to 85 average locations in 2017, compared to 73 in the 2016 period due to the opening of 28 new communities, with openings in all reporting segments except Arizona, in addition to an increase in quarterly absorption to 10.4 sales per project from 10.1 in the prior year period.

Nine Months Ended September 30, Increase (Decrease)
2017 2016 %
Cancellation Rates
California 17 % 18 % (1 )%
Arizona 10 % 10 % — %
Nevada 15 % 17 % (2 )%
Colorado 15 % 13 % 2 %
Washington 15 % 15 % — %
Oregon 15 % 15 % — %
Overall 15 % 15 % — %

Cancellation rates remained consistent at 15% 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.

Nine Months Ended September 30, Increase (Decrease)
2017 2016 Amount %
Average Number of Sales Locations
California 23
20
3
15 %
Arizona 8
8
—
— %
Nevada 13
12
1
8 %
Colorado 14
10
4
40 %
Washington 9
6
3
50 %
Oregon 18
17
1
6 %
Total 85
73
12
16 %

The average number of sales locations for the Company increased to 85 locations for the nine months ended September 30, 2017 compared to 73 for the nine months ended September 30, 2016, driven by the opening of new communitieslots owned 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 28 communities, while closing out 27.~~

Nine Months Ended September 30, Increase (Decrease)
2017 2016
Quarterly Absorption Rates
California 11.3 9.9 1.4
Arizona 16.7 15.3 1.4
Nevada 6.1 6.4 (0.3)
Colorado 5.5 6.8 (1.3)
Washington 16.0 13.2 2.8
Oregon 10.6 11.4 (0.8)
Overall 10.4 10.1 0.3

The Company's consolidated quarterly absorption rate, representing the number of net new home orders divided by average sales locations for the period, increased to 10.4 sales per project for the nine months ended September 30, 2017 compared to 10.1 sales per project in the 2016 period. The increase in absorption rates in California was due to the improvement in sales pace in the Inland Empire sub-market, while the strengthening of absorption in Arizona was due to strong demand from the needs based entry level buyer, compared to the prior period.

Nine Months Ended September 30, Increase (Decrease)
2017 2016 Amount %
Number of Homes Closed
California 637
458
179
39 %
Arizona 408
324
84
26 %
Nevada 175
220
(45 ) (20 )%
Colorado 140
170
(30 ) (18 )%
Washington 292
225
67
30 %
Oregon 529
482
47
10 %
Total 2,181
1,879
302
16 %

During the nine months ended September 30, 2017, the number of homes closed increased 16% to 2,181 from 1,879 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 16% to 85 average sales locations in the 2017 period compared to 73 average sales locations in the 2016 period. These increases were partially offset by decreases in the Nevada and Colorado reporting segments.

Nine Months Ended September 30, Increase (Decrease)
2017 2016 Amount %
(dollars in thousands)
Home Sales Revenue
California $ 462,183
$ 305,389
$ 156,794
51 %
Arizona 118,695
85,399
33,296
39 %
Nevada 103,448
128,996
(25,548 ) (20 )%
Colorado 77,149
85,885
(8,736 ) (10 )%
Washington 185,523
112,512
73,011
65 %
Oregon 224,793
210,801
13,992
7 %
Total $ 1,171,791
$ 928,982
$ 242,809
26 %

The 26% increase in homebuilding revenue is driven by the 16% increase in homes closed discussed above, in addition to a 9% increase in the average sales price of homes closed between the 2017 and 2016 periods.

Nine Months Ended September 30, Increase (Decrease)
2017 2016 Amount %
Average Sales Price of Homes Closed
California $ 725,600
$ 666,800
$ 58,800
9 %
Arizona 290,900
263,600
27,300
10 %
Nevada 591,100
586,300
4,800
1 %
Colorado 551,100
505,200
45,900
9 %
Washington 635,400
500,100
135,300
27 %
Oregon 424,900
437,300
(12,400 ) (3 )%
Company Average $ 537,300
$ 494,400
$ 42,900
9 %

The average sales price of homes closed during the 2017 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 Oregon.

~~Gross Margin~~

~~Homebuilding gross margin remained relatively consistent at 16.9% for the nine months ended September 30, 2017 compared to 17.1% in the 2016 period.~~

For the comparison of the nine months ended September 30, 2017 and the nine months ended September 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 22.5% for the 2017 period compared to 23.5% for the 2016 period. The decrease was primarily a result of the decrease in homebuilding gross margins described above coupledTexas are associated with a ~~decrease~~land banking transaction that is consolidated on the Company’s accompanying balance sheet in ~~the impact of purchase accounting adjustments, which was partially offset by an increase in the impact of interest in cost of sales.~~

~~Adjusted homebuilding gross margin is a non-GAAP financial measure. The Company believes this information is meaningful~~accordance with ASC 470, 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.further discussed below.

Nine Months Ended September 30,
2017 2016
(dollars in thousands)
Home sales revenue $ 1,171,791
$ 928,982
Cost of home sales 973,212
769,705
Homebuilding gross margin 198,579
159,277
Homebuilding gross margin percentage 16.9 % 17.1 %
Add: Interest in cost of sales 55,220
39,310
Add: Purchase accounting adjustments 10,063
19,938
Adjusted homebuilding gross margin $ 263,862
$ 218,525
Adjusted homebuilding gross margin percentage 22.5 % 23.5 %

~~Sales and Marketing, General and Administrative~~

Nine Months Ended September 30, As a Percentage of Home Sales Revenue
2017 2016 2017 2016
(dollars in thousands)
Sales and Marketing $ 57,924
$ 51,351
4.9 % 5.5 %
General and Administrative 61,447
51,879
5.2 % 5.6 %
Total Sales and Marketing & General and Administrative $ 119,371
$ 103,230
10.1 % 11.1 %

Sales and marketing expense as a percentage of home sales decreased to 4.9% in the 2017 period compared to 5.5% in the 2016 period as a result of higher homebuilding revenue as well as lower advertising costs. General and administrative expense as a percentage of home sales revenues decreased to 5.2% in the 2017 period compared to 5.6% in the 2016 period. The decrease is driven by a lower relative cost structure due to the higher revenue and positive operating leverage.

~~Equity in Income of Unconsolidated Joint Ventures~~

Equity in income of unconsolidated joint ventures decreased to $2.6 million for the nine months ended September 30, 2017 from $3.8 million during the comparable 2016 period as a result of increased overhead costs incurred.

~~Other Items~~

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

Nine Months Ended September 30,
2017 2016
Interest incurred $ 56,359
$ 62,112
Less: Interest capitalized 56,359
62,112
Interest expense, net of amounts capitalized $ —
$ —
Cash paid for interest $ 55,532
$ 54,576

The decrease in interest incurred for the nine months ended September 30, 2017, compared to the interest incurred for the nine months ended September 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.

During the nine months ended September 30, 2017 and 2016, the Company sold two land parcels that resulted in a negligible loss and five land parcels that resulted in a $2.7 million gain, respectively.

~~Provision for Income Taxes~~

During the nine months ended September 30, 2017, the Company recorded a a provision for income taxes of $17.5 million, for an effective tax rate of 29.9%. 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 decrease in the current year tax rate is driven by the loss on debt extinguishment recorded in relation to the retirement of the 8.5% Notes.

~~Net Income Attributable to Noncontrolling Interests~~

~~Net income attributable to noncontrolling interests decreased to $4.6 million during the 2017 period, compared to $4.9 million during the 2016 period.~~

~~Net Income 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 available to common stockholders for the nine months ended September 30, 2017 was $36.4 million, while net income available to common stockholders for the nine months ended September 30, 2016 was $36.6 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 a healthy domestic economy and positive demographic trends, including employment and population growth. The Company has experienced a strong selling season, ~~in its first half of the year,~~ with orders up ~~20%~~28%, demonstrating strong growth over ~~2016,~~2017, against a backdrop of tight labor markets, fluctuating cycle times, weather challenges, and geo-political changes. Although the economy overall has seen an increase in interest rates, homebuyer demand remains strong against limited supply in all of our markets. As a result, the Company's absorption rates for the three months ~~and nine months~~ ended ~~September 30, 2017~~March 31, 2018 increased when compared to the ~~2016~~2017 period.

The Company benefits from a sizable and well-located lot supply, and as of ~~September 30, 2017,~~March 31, 2018, the Company owned ~~13,573~~18,874 lots, all of which are entitled, and had options to purchase an additional ~~4,371~~9,936 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~~Consistent with the entire homebuilding industry, during 2017 and into 2018, the Company experienced increased cycle times and cost increases in a number of its operating segments ~~in the start of 2017, and~~due to weather delays and availability of qualified ~~trades with the associated delays and cost increases are challenges faced by the Company and the entire homebuilding industry during 2016 and into 2017.~~trades. 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 RSI Communities during 2018 and 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~~three months ended ~~September 30, 2017,~~March 31, 2018, the Company delivered ~~2,181~~740 homes, and recognized home sales revenue of ~~$1,171.8~~$372.4 million. During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, the Company ~~used~~generated cash infrom operations of ~~$23.0~~$98.0 million, which included investment in land acquisitions of ~~$329.6~~$180.4 million, for net cash generated by operations of ~~$306.6~~$278.4 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~~Acquisition of RSI Communities

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,~~March 9, 2018, the Company ~~completed its public offering and sale~~acquired the residential homebuilding operations of ~~1,000,000 6.50% tangible equity units (“TEUs”, or "Units"), sold~~RSI Communities for ~~a stated amount~~an aggregate cash purchase price of ~~$100 per Unit, featuring a 17.5% conversion premium. On December 3, 2014, the Company sold~~$460.0 million, plus an additional ~~150,000 TEUs~~approximately $15.2 million at closing pursuant to ~~an over-allotment option granted~~initial working capital adjustments (the “RSI Acquisition”), a portion of which remains subject to final adjustment pursuant to the ~~underwriters. Each TEU is~~terms of the Purchase Agreement. The Company financed the RSI Acquisition with a ~~unit composed~~combination 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 sharesproceeds from its issuance of Class A Common Stock and not less than 4.4465 shares of Class A Common Stock on the mandatory settlement date, subject to adjustment, based upon the applicable settlement rate and applicable market value of Class A Common Stock.

~~Each amortizing note had an initial~~$350 million in aggregate principal amount of ~~$18.01, bears interest at the annual rate~~6.00% senior notes due 2023 and cash on hand including approximately $194.3 million of ~~5.50%~~aggregate proceeds from a land banking arrangement with respect to land parcels located in California and ~~has a final installment payment date~~Texas, each of December 1, 2017. On each March 1, June 1, September 1 and December 1, commencing on March 1, 2015, William Lyon Homes will pay equal quarterly installments of $1.6250 on each amortizing note (except for the March 1, 2015 installment payment, which was $1.8056 per amortizing note). Each installment will constitute a payment of interest and a partial repayment of principal. The amortizing notes rank equally in right of payment to all of the Company's existing and future senior indebtedness, other than borrowings under the Amended Facility and the Company's secured project level financing, which will be senior in right of payment to the obligations under the amortizing notes, in each case to the extent of the value of the assets securing such indebtedness.

~~Each TEU may be separated into its constituent purchase contract and amortizing note on any business day during the period beginning on,~~is entitled but undeveloped, and including parcels acquired in 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 30, 2017 and December 31, 2016, the amortizing notes had an unamortized carrying value of $1.6 million and $7.2 million, respectively.RSI Acquisition.

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~~private placement with registration rights of 5.75% Senior Notes due 2019 (the "5.75% Notes"), in an aggregate principal amount of $150 million. The 5.75% Notes were issued at 100% of their aggregate principal amount.

~~As of September 30, 2017, the outstanding principal amount~~ In August 2014, we exchanged 100% of the initial 5.75% Notes ~~was $150.0 million, excluding deferred loan costs~~for notes that are freely transferable and registered under the Securities Act of ~~$0.8 million. The 5.75%~~1933, as amended (the “Securities Act”).

During the three months ended March 31, 2018, Parent, through California Lyon, used the net proceeds from the offering of 6.00% Senior Notes ~~bear interest at a rate of 5.75% per annum, payable semiannually in arrears~~due 2023, as further described below, (i) together with cash generated from certain land banking

arrangements, and cash on ~~April 15~~hand, to finance the RSI Acquisition and ~~October 15,~~to pay related fees and ~~mature on April 15, 2019. The 5.75% Notes are unconditionally guaranteed on a joint~~expenses 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(ii) to repay all of California ~~Lyon’s and the guarantors’ existing and future unsecured senior debt, including California Lyon’s $350~~Lyon's $150 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~~such that the ~~guarantors’ future subordinated debt. The~~ 5.75% Notes were satisfied and ~~the guarantees are and will be effectively junior to California Lyon’s and the guarantors’ existing and future secured debt to the extent~~discharged as of ~~the value of the collateral securing such debt.~~March 31, 2018.

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 ~~nine~~three months ended ~~September 30,~~March 31, 2017, Parent, through California Lyon, used the net proceeds from its private placement with registration rights of 5.875% Senior Notes due 2025, as further described below, to purchase $395.6 million of the outstanding aggregate principal amount of ~~the~~its 8.5% Notes, 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 of previously outstanding 8.5% Notes are retired and extinguished as of ~~September 30,~~December 31, 2017. The Company incurred certain costs related to the early extinguishment of debt of the 8.5% Notes during the ~~nine~~three months ended ~~September 30,~~March 31, 2017 in an amount of $21.8 million, which is included in the Consolidated Statement of Operations as Loss on extinguishment of debt.

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.

As of ~~September 30, 2017,~~March 31, 2018 the outstanding ~~principal~~ amount of the 7.00% Notes was $350 million, excluding unamortized premium of ~~$0.8~~$0.7 million and deferred loan costs of ~~$4.2~~$3.8 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~~$350 million in aggregate principal amount of ~~5.75%~~6.00% Senior Notes due ~~2019, as described above,~~2023 and $450 million in aggregate principal amount of 5.875% Senior Notes due ~~2020,~~2025, each as described below. The 7.00% Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The 7.00% Notes and the guarantees are and will be effectively junior to California Lyon’s and the guarantors’ existing and future secured debt to the extent of the value of the collateral securing such debt.

6% Senior Notes Due 2023

amount of 5.875% Senior Notes due 2025, as described below. The 6.00% Notes rank senior in right of payment to all of California Lyon’s and the guarantors’ future subordinated debt. The 6.00% 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 ⁷/₈% Senior Notes Due 2025

Senior Notes Covenant Compliance

The indentures governing the ~~5.75%~~7.00% Notes, the ~~7.00%~~6.00% Notes, and the 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 30, 2017.~~

March 31, 2018.

Revolving 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 amended 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. Effective as of November 28, 2017, California Lyon increased the size of the commitment under its revolving credit facility by $25.0 million to an aggregate total of $170.0 million, through exercise of the facility’s accordion feature and entry into a new lender supplement as of such date.

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 remained at 65% from June 30, 2016 through and including December 30, 2016, decreased to 62.5% on the last day of the 2016 fiscal year, remained at 62.5% from December 31, 2016 through and including June 29, 2017, and 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.

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 decreased to 62.5%~~70% effective as of ~~December~~March 31, ~~2016~~2018 and is scheduled to decrease to 65% on June 30, 2018, and is scheduled to further decrease to 60% effective as of December 31, ~~2017,~~2018, 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 Company was in compliance with all covenants under the Second Amended Facility as of March 31, 2018. The following table summarizes these covenants pursuant to the Second Amended Facility, and our compliance with such covenants as of March 31, 2018:



	Covenant Requirements at			Actual at
Financial Covenant	March 31, 2018			March 31, 2018
Minimum Tangible Net Worth	$	535.3	million	$	741.9	million
Maximum Leverage Ratio	70.0		%	63.0		%
Interest Coverage Ratio; or (1)	1.50x			3.6x
Minimum Liquidity (1)	$	73.6	million	$	124.5	million

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

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 30, 2017. The following table summarizes these covenants pursuant to the Second Amended Facility, and our compliance with such covenants as of September 30, 2017:

Covenant Requirements at Actual at
Financial Covenant September 30, 2017 September 30, 2017
Minimum Tangible Net Worth $ 549.9 million $ 766.1 million
Maximum Leverage Ratio 62.5 % 58.1 %
Interest Coverage Ratio; or (1)
1.5x
2.73x
Minimum Liquidity (1) $ 77.4 million $ 137.9 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~~three months ended ~~September 30, 2017,~~March 31, 2018, the Company paid approximately ~~$329.6~~$180.4 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.

Seller Financing

At September 30, 2017, the Company had $5.2 million of notes payable outstanding related to one land acquisition for which seller financing was provided. The note bears interest at a rate of 7% per annum, is secured by the underlying land, and matures in June 2018. During the ~~nine~~three months ended ~~September 30, 2017~~,March 31, 2018, the Company paid in full prior to maturity, along with all accrued interest to date, a note payable outstanding related to a land acquisition for which seller financing was provided. The note bore interest at a rate of 7% per annum and was secured by the underlying ~~land, and was paid upon maturity in August 2017. This note was entered into with a related party, which is described in more detail in the financial statements.~~land.

~~Joint Venture~~ Notes Payable

The Company and certain of its consolidated joint ventures have entered into notes payable agreements. The issuance date, facility size, maturity date and interest rate of the joint ventures notes payable are listed in the table below as of ~~September 30, 2017~~March 31, 2018 (in millions):


Issuance Date	Facility Size		Outstanding			Maturity	Current Rate			Facility Size		Outstanding			Maturity	Current Rate
July, 2017										$	66.2	$	36.9		February, 2021	4.81	%	(5)
March, 2016	$	33.4	$	16.7		September, 2018	4.24	%	(1)	33.4		1.2		(4)	September, 2018	4.76	%	(1)
January, 2016	35.0		31.8			February, 2019	4.48	%	(2)	35.0		29.0			February, 2019	5.13	%	(2)
November, 2015	42.5		19.3			May, 2018	5.25	%	(1)	42.5		16.0		(4)	May, 2018	5.75	%	(1)
July, 2015	15.0		3.6			July, 2018	4.75	%	(3)
November, 2014	7.0		3.7		(4)	November, 2017	4.75	%	(3)
November, 2014	15.0		—			November, 2017	4.75	%	(3)	7.0		1.4		(4)	May, 2018	5.25	%	(3)
March, 2014	26.0		2.4			April, 2018	4.24	%	(1)	26.0		0.5			April, 2018	4.87	%	(1)
July, 2017	46.2		28.3			August, 2020	4.46	%	(5)
	$	220.1	$	105.8						$	143.9	$	85.0

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

(5) Loan bears interest at the greatest of the prime rate, federal funds effective rate +1.0%, or LIBOR +1.0%.

In addition to the above, the Company had $2.3 million of construction notes payable outstanding related to projects that are wholly-owned by the Company.

The ~~joint venture~~ notes payable contain certain financial maintenance covenants. The Company was in compliance with all such covenants as of ~~September 30, 2017.~~March 31, 2018.

Net Debt to Total Capital

The Company’s ratio of net debt to total capital (net of cash) was ~~56.1%~~59.5% and ~~57.6%~~49.6% as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. The ratio of net debt to 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, by net book capital (notes payable and Senior Notes, net of cash and cash equivalents, 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.



	March 31, 2018			December 31, 2017
	(dollars in thousands)
Notes payable and Senior Notes	$	1,302,347		$	1,030,184
Total equity	853,659			860,630
Total capital	$	2,156,006		$	1,890,814
Ratio of debt to total capital	60.4		%	54.5		%
Notes payable and Senior Notes	$	1,302,347		$	1,030,184
Less: Cash and cash equivalents	(50,473		)	(182,710		)
Net debt	1,251,874			847,474
Total equity	853,659			860,630
Total capital (net of cash)	$	2,105,533		$	1,708,104
Ratio of net debt to total capital (net of cash)	59.5		%	49.6		%

Land Banking Arrangements

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

The Company participated in one land banking arrangement during the three months ended March 31, 2018 that was not a variable interest entity in accordance with FASB ASC Topic 810, Consolidation (“ASC 810”), but was consolidated in accordance with FASB ASC Topic 470, Debt (“ASC 470”). Under the provisions of ASC 470, the Company had determined it is economically compelled, based on certain factors, to purchase the land in the land banking arrangement. Therefore, the Company has recorded the remaining purchase price of the land of $282.2 million as of March 31, 2018, which was included in Real estate inventories not owned and Liabilities from inventories not owned in the accompanying balance sheet.

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

September 30, 2017 December 31, 2016
(dollars in thousands)
Notes payable and Senior Notes $ 1,097,633
$ 1,080,650
Total equity 825,970
763,429
Total capital $ 1,923,603
$ 1,844,079
Ratio of debt to total capital 57.1 % 58.6 %
Notes payable and Senior Notes $ 1,097,633
$ 1,080,650
Less: Cash and cash equivalents (43,604 ) (42,612 )
Net debt 1,054,029
1,038,038
Total equity 825,970
763,429
Total capital (net of cash) $ 1,879,999
$ 1,801,467
Ratio of net debt to total capital (net of cash) 56.1 % 57.6 %



	March 31, 2018
Total number of land banking projects	1
Total number of lots	3,053
Total purchase price	$	316,452
Balance of lots still under option and not purchased:
Number of lots	3,053
Purchase price	$	316,452
Forfeited deposits if lots are not purchased	$	34,283

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.

~~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~~Three Months Ended ~~September 30, 2017~~March 31, 2018 to the ~~Nine~~Three Months Ended ~~September 30, 2016~~March 31, 2017

For the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ the comparison of cash flows is as follows:

Net cash provided by operating activities was $98.0 million in the 2018 period compared to net cash used in operating activities ~~decreased to $23.0~~of $41.4 million in the 2017 ~~period from $83.0 million in the 2016~~ period. The change was primarily a result of (i) a net ~~decrease in spending on~~cash proceeds of $79.9 million from real estate ~~inventories-owned~~inventory sales and purchases, including $194.1 million of ~~$99.0 million~~net cash proceeds from a land banking arrangement, for which there is no comparable amount in the 2017 period ~~compared to spending of $146.7 million in the 2016 period,~~and (ii) ~~a decrease in accrued expenses of $1.7 million in the 2017 period compared to~~ an increase of $11.6 million in the 2016 period, and (iii) equity in income of unconsolidated joint ventures of $2.6 million in the 2017 period compared to $3.8 million in the 2016 period, offset by (iv) a net increase in accounts payable of ~~$9.8~~$20.7 million in the ~~2017~~2018 period compared to ~~$1.0~~a decrease of $1.5 million in the ~~2016~~2017 period.

Net cash used in investing activities was ~~$2.4~~$477.7 million in the ~~2017~~2018 period ~~compared~~primarily due to ~~net~~the cash ~~provided by investing activities~~paid for the RSI acquisition of ~~$5.4~~$475.2 million in the ~~2016~~2018 period, ~~primarily driven by collections of related party notes of $6.2 million in the 2016 period with~~for which there is no comparable amount in the 2017 period.

Net cash provided by financing activities ~~decreased~~increased to ~~$26.4~~$247.4 million in the ~~2017~~2018 period from ~~$68.1~~$38.3 million in the ~~2016~~2017 period. The change was primarily the result of (i) ~~principal payments for~~proceeds of $350.0 million from the ~~8.5%~~issuance of the 6% Senior Notes ~~for $425.0 million~~ in the ~~2017~~2018 period, ~~in addition to its redemption premium for $19.6 million,~~ for which there is no comparable amount in the ~~2016~~2017 period, (ii) ~~net borrowings~~principal payments of ~~notes payable~~the 8.5% Senior Notes of ~~$3.7~~$425.0 million in the 2017 period ~~versus~~for which there is no comparable amount in the 2018 period, and (iii) net proceeds from borrowings of ~~$20.7 million in the 2016 period, (iii) net borrowings of $21.0~~$85.0 million against the revolving line of credit in the ~~2017~~2018 period, versus net borrowings of ~~$31.0 million in the 2016 period, (iv) net noncontrolling interest contributions of $19.0~~$28.0 million in the 2017 period, ~~versus net contributions of $23.4 million in~~

~~the 2016 period and (v) payment of deferred loan costs of $9.8 million in the 2017 period compared to $0.8 million in the 2016 period,~~partially offset by ~~(vi)~~(iv) proceeds from ~~the~~ issuance of the 5.875% Senior Notes ~~for~~of $446.5 million in the 2017 period for which there is no comparable amount in the ~~2016~~2018 period, and (v) net noncontrolling interest distributions of $13.0 million in the 2018 period versus net distributions of $5.9 million in the 2017 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 unconsolidated entities. These arrangements are more fully described above and in Notes 23 and 1213 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 1213 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 30, 2017. The section for "Active Projects"~~March 31, 2018, which includes ~~only projects with~~ lots owned as of ~~September 30, 2017,~~March 31, 2018, lots consolidated in accordance with certain accounting principles as of ~~September 30, 2017, in each case, with an estimated year of first delivery of 2017 or earlier, or~~March 31, 2018, homes either closed or in backlog as of or for the period ended ~~September 30, 2017. The section for "Future Owned and Controlled" includes projects with lots owned as of September 30, 2017 but with an estimated year of first delivery of~~March 31, 2018, ~~or later,~~ parcels of undeveloped land held for future sale, and lots controlled as of ~~September 30, 2017, in each case aggregated by county.~~March 31, 2018. 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 September 30, 2017
(2) Backlog
at
September 30, 2017
(3) (4) Lots
Owned
as of
September 30, 2017
(5) Homes
Closed
for the
Period
Ended
September 30, 2017 Estimated Sales Price Range
(6)
CALIFORNIA
Orange County:
Anaheim
      Avelina 2017 38
37
1
1
37
(8)
Buena Park
The Covey (7) 2016 67
56
11
11
32
(8)
Cypress
Mackay Place (7) 2016 47
47
—
—
13
(8)
Dana Point
Grand Monarch 2015 37
15
1
22
2
$ 2,604,000 - 2,904,000
Ladera Ranch
Artisan 2015 14
7
2
7
1
$ 2,550,000 - 3,025,000
Irvine
The Vine 2016 106
74
16
32
43
$ 546,000 - 645,000
Calistoga 2016 60
47
8
13
32
$1,230,000 - $1,475,000

Celadon (7) 2017 79
14
20
65
14
$720,000 - 805,000
Rancho Mission Viejo
Aurora (7) 2016 94
94
—
—
37
(8)
Vireo (7) 2015 90
79
4
11
19
$ 595,000 - 655,000
Briosa (7) 2016 50
7
11
43
6
$ 945,000 - 1,050,000
Rancho Santa Margarita
Dahlia Court 2016 36
28
7
8
28
$ 515,000 - 625,000
Los Angeles County:
Glendora
La Colina Estates 2015 121
23
8
98
4
$ 1,274,000 - 1,654,000
Lakewood
Canvas 2015 72
72
—
—
1
(8)
Claremont
Meadow Park 2017 95
5
4
90
5
$ 460,000 - 585,000
Riverside County:
Riverside
SkyRidge 2014 90
42
22
48
20
$ 510,000 - 560,000
TurnLeaf
Crossings 2014 42
33
5
9
14
$ 498,000 - 528,000
Coventry 2015 42
27
9
15
14
$ 538,000 - 565,000
Cameos 2018 216
—
7
216
—
$ 510,000 - 580,000
Eastvale
Nexus 2015 220
155
18
65
60
$ 353,000 - 402,000
San Bernardino County:
Upland
The Orchards (7)
Citrus Court 2015 77
72
5
5
27
(8)
Citrus Pointe 2015 132
74
16
58
30
$ 362,000 - 392,000
Yucaipa
Cedar Glen 2015 143
143
—
—
10
(8)
Chino
Laurel Lane 2017 70
—
32
70
—
$ 526,000 - 595,000
Alameda County
Livermore
Wayland 2018 54
—
9
54
—
$ 830,000 - 1,015,000
Newark
The Cove 2016 108
35
52
73
27
$ 716,000 - 821,000
The Strand 2016 157
43
27
114
35
$ 772,000 - 887,000
The Banks 2016 120
50
45
70
46
$ 870,000 - 955,000
The Tides 2016 75
41
18
34
37
$ 944,000 - 974,000
The Isles 2016 82
42
12
40
39
$ 1,048,000 - 1,128,000
Contra Costa County:
Pittsburg
Vista Del Mar
Victory II 2014 104
104
—
—
4
(8)
CALIFORNIA TOTAL 2,738

1,466

370

1,272

637

~~Active Projects (County or City)~~

~~Estimated~~
~~Year of~~
~~First~~
~~Delivery~~

~~Estimated~~
~~Number of~~
~~Homes at~~
~~Completion~~
~~(1)~~

~~Cumulative~~
~~Homes~~
~~Closed as~~
~~of September 30, 2017~~
~~(2)~~

~~Backlog~~
at
~~September 30, 2017~~
~~(3) (4)~~

~~Lots~~
~~Owned~~
~~as of~~
~~September 30, 2017~~
~~(5)~~

~~Homes~~
~~Closed~~
~~for the~~
~~Period~~
~~Ended~~
~~September 30, 2017~~

~~Estimated Sales Price Range~~
~~(6)~~

~~ARIZONA~~

Maricopa County:
Queen Creek
Meridian
Harvest 2015 448
223
35
225
89
$ 209,990 - 259,990
Homestead 2015 313
98
40
215
42
$ 252,990 - 341,990
Harmony 2015 259
53
26
206
24
$ 281,990 - 304,990
Horizons 2016 161
30
19
131
21
$ 316,990 - 399,990
Mesa
Lehi Crossing
Settlers Landing 2012 235
235
—
—
34
(8)
Wagon Trail 2013 244
231
11
13
79
$ 259,990 - 341,990
Monument Ridge 2013 248
141
35
107
54
$ 301,990 - 423,990
Albany Village 2016 228
51
31
177
43
$ 196,990 - 260,990
Peoria
Rio Vista 2015 197
197
—
—
22
(8)
ARIZONA TOTAL 2,333
1,259
197
1,074
408

NEVADA
Clark County:
Las Vegas
Lyon Estates 2014 81
80
1
1
7
(8)
Tuscan Cliffs 2015 76
31
1
45
4
$ 645,000 - 826,000
Brookshire
Estates 2015 35
32
1
3
5
$ 595,000 - 643,000
Heights 2015 98
74
18
24
36
$ 373,000 - 425,000
Las Vegas - Summerlin
Sterling Ridge
Grand 2014 137
97
13
40
15
$ 920,000 - 1,003,000
Premier 2014 62
62
—
—
2
$ 1,244,000 - 1,357,000
Allegra 2016 88
41
13
47
11
$ 519,000 - 556,000
Silver Ridge 2016 83
23
10
35
11
$ 1,292,500 - 1,500,500
Affinity
Moda (7) 2017 192
4
15
188
4
$247,000 - 316,000
Evoke 2017 117
4
15
113
4
$336,000 - 423,000
Savu (7) 2017 96
—
8
96
—
$410,000 - 489,000
Revo (7) 2017 80
—
3
80
—
$445,000 - 485,000
Henderson
Lago Vista 2016 52
11
7
41
8
$ 790,000 - 878,000
The Peaks 2016 88
6
7
82
6
$ 490,000 - 514,000
Nye County:
Pahrump
Mountain Falls
Series I 2011 242
238
3
4
49
$ 181,500 - 214,150
Series II 2014 187
48
5
139
13
$ 237,500 - 326,500
NEVADA TOTAL 1,714
751
120
938
175

COLORADO
Arapahoe County
Aurora
Southshore
Generations 2014 15
15
—
—
1
(8)

Signature 2015 7
7
—
—
1
(8)
The 40's Collection 2016 30
7
—
23
5
$ 423,000 - 497,000
Artistry 2016 61
38
7
23
21
$ 437,000 - 495,000
Signature II 2017 30
5
4
25
5
$482,000 - 533,000
The 42's Collection 2017 79
—
4
79
—
$ 348,000 - 388,000
Centennial
Greenfield: Artistry 2016 35
24
8
11
15
$ 454,000 - 523,000
Douglas County
Castle Rock
Cliffside: Portrait 2014 49
49
—
—
5
(8)
Jefferson County
Arvada
Candelas
Generations 2015 50
45
1
5
11
$ 425,000 - 497,000
Tapestry 2015 26
16
3
10
8
$ 460,000 - 530,000
The 40's Collection 2017 40
—
2
40
—
$ 413,000 - 466,000
The 50's Collection 2017 85
—
4
85
—
$ 450,000 - 510,000
Leydon Rock
Garden 2014 60
48
7
12
13
$ 422,000 - 462,000
Park 2015 74
71
1
3
9
$ 410,000 - 458,000
Larimer County
Timnath
West Village at Timnath Ranch North
Park 2014 92
87
2
5
23
$ 380,000 - 435,000
Sonnet 2014 55
52
—
3
5
$ 398,000 - 470,000
The 40's Collection 2017 55
2
2
53
2
$ 410,000 - 490,000
The 50's Collection 2017 69
—
1
69
—
$ 381,000 - 447,000
Loveland
Lakes at Centerra 2015 194
49
15
39
14
$ 397,000 - 440,000
Denver County
Denver
Avion at Denver Connection
Summit 2017 93
—
17
93
—
$ 342,000 - 382,000
Horizon 2017 191
—
22
191
—
$ 285,000 - 339,000
Alpine 2017 101
—
11
101
—
$ 276,000 - 306,000
Westerly 2017 309
—
39
309
—
$ 250,000 - 278,000
Boulder County
Erie
Flatiron Meadows 2017 98
2
14
34
2
$462,000 - 564,000
COLORADO TOTAL 1,898

517

164

1,213

140

Highcroft at Sammamish 2016 121
92
18
29
55
$ 849,990 - 1,329,990
Peasley Canyon 2016 153
98
26
43
63
$ 389,990 - 497,990
Ridgeview Townhomes 2016 40
40
—
—
34
(8)
High Point Block 34 2017 54
21
25
33
21
$ 497,990 - 739,990
Westridge SF South 2017 72
—
—
21
—
$ 899,990 - 1,284,290
Upton at Crossroads Village (7) 2017 176
—
23
176
—
$ 574,990 - 884,990
The Cottages at North Bend 2017 37
5
18
32
5
$ 489,990 - 739,990
Snohomish County:
Silverlake Center 2015 100
100
—
—
1
(8)
Riverfront 2016 425
82
56
343
76
$ 284,990 - 549,990
Pierce County:
Ovation at Oak Tree (7) 2017 814
—
12
255
—
$ 324,990 - 459,990
WASHINGTON TOTAL 2,081

488

192

971

292

OREGON (9)
Clackamas County:
Villebois Zion III - Townhomes 2014 40
36
—
4
—
$ 269,990 - 309,990
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
67
21
26
30
$ 344,990 - 429,990
Grande Pointe at Villebois Alley 2016 40
33
5
7
22
$ 459,990 - 483,990
Grande Pointe at Villebois FL 2016 60
28
10
32
16
$ 529,990 - 599,990
Villebois Lund Cottages 2015 67
67
—
—
31
(8)
Villebois Lund Townhomes 2015 42
42
—
—
14
(8)
Villebois Lund Alley 2016 96
39
4
57
28
$ 349,990 - 464,990
Villebois Village Parcel 80 2016 50
36
12
14
36
$ 259,990 - 309,990
Villebois Village Parcel 83 2016 31
31
—
—
13
(8)
Washington County:
Sequoia Village - Cornelius Pass 2016 157
133
23
24
70
$ 249,990 - 339,990
Twin Creeks 2014 94
94
—
—
2
(8)
Bethany West - Alley 2015 94
87
—
7
1
$ 429,990 - 489,990
Bethany West - Cottage 2015 61
60
—
1
—
$ 389,990 - 429,990
Bethany West - Traditional 2015 82
78
3
4
1
$ 569,990 - 649,990
Bethany West - Townhomes 2017 40
5
14
35
5
$ 569,990 - 664,990
Bethany West - Weisenfluh 2016 36
36
—
—
5
(8)
Bethany Round 2 - Alley 2016 25
22
3
3
22
(8)
Bethany Round 2 - Cottage 2016 13
13
—
—
13
(8)
Bethany Round 2 - Traditional 2016 24
16
4
8
16
$ 569,990 - 609,990
Bull Mountain 1 NW River Terrace - Alley 2017 35
20
9
15
20
$ 399,990 - 429,990
Bull Mountain 1 NW River Terrace - Med/Std/Lrg 2016 116
53
23
53
53
$ 464,990 - 594,990
Bull Mountain 1 NW River Terrace - Townhomes 2017 64
18
17
46
18
$ 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
31
—
—
19
(8)
Bull Mountain 2 W River Terrace - Townhomes 2016 46
43
3
3
43
(8)
Bull Mountain 7 Dickson 2016 82
37
14
45
22
$ 549,990 - 779,990
Sunset Ridge 2015 104
104
—
—
3
(8)
OREGON TOTAL 1,780

1,358

165

412

529

Future Owned and Controlled (by County) Lots Owned or Controlled as of September 30, 2017 (10)
CALIFORNIA
Orange County 491

San Diego County 63

Alameda County 409

Contra Costa County 296

ARIZONA
Maricopa County (11) 3,624

NEVADA
Nye County (11) 1,925

Clark County 418

COLORADO
Arapahoe County 139

Boulder County 186

Larimer County 106

Grand County 24

WASHINGTON
King County 556

Pierce County 559

Snohomish County 74

OREGON
Clackamas County 305

Washington County 2,889

TOTAL FUTURE 12,064

GRAND TOTALS 12,544
5,839
1,208
17,944
2,181



	Estimated Number of Homes at Completion (1)	Cumulative Homes Closed as of March 31, 2018 (2)	Backlog at March 31, 2018 (3) (4)	Lots Owned or Controlled as of March 31, 2018 (5)	Homes Closed for the Period Ended March 31, 2018	Estimated Sales Price Range (6)
California	6,899	1,280	388	5,619	210	$ 373,000 - 2,991,000
Arizona	4,766	1,063	164	4,767	105	$ 168,990 - 451,990
Nevada	2,458	785	121	2,922	74	$ 80,000 - 1,524,500
Colorado	2,746	658	223	2,088	93	$ 267,000 - 576,000
Washington	2,783	613	176	2,170	94	$ 284,990 - 1,329,990
Oregon	5,135	999	177	4,136	104	$ 194,990 - 779,990
Texas	6,986	60	211	7,108	60	$ 183,990 - 451,990
GRAND TOTALS	31,773	5,458	1,460	28,810	740

(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. Further, certain projects may include lots that the Company controls, and that are also reflected in ~~"Future~~"Lots Owned ~~and Controlled"~~or Controlled as of March 31, 2018".


(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 30, 2017, 1,089~~March 31, 2018, 1,034 represent homes that are completed or under construction.

(5)

Lots owned or controlled as of ~~September 30, 2017~~March 31, 2018 include lots in backlog at ~~September 30, 2017.~~March 31, 2018 and projects with lots owned as of March 31, 2018 that are expected to open for sale and have an estimated year of first delivery of 2019 or later, as well as lots controlled as of March 31, 2018, 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 2018. 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.

(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 30, 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 30, 2017.

~~(10)~~

Includes projects with lots owned as of September 30, 2017 that are expected to open for sale and have an estimated year of first delivery of 2018 or later, as well as lots controlled as of September 30, 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 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)~~	~~Includes parcels of undeveloped land held for future sale. It is unknown when and if the Company plans to develop homes on this land.~~

Income Taxes

See Note 910 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, ~~2016,~~2017, the Company’s most critical accounting policies are real estate inventories and cost of sales; impairment of real estate inventories; ~~sales and profit recognition;~~ variable interest entities; and business ~~combinations; and income taxes.~~combinations. Management believes that there have been no significant changes to these policies during the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, 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, ~~2016.~~2017.



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 30, 2017~~March 31, 2018 of ~~$155.8~~$170.0 million where the interest rate is variable based upon certain bank reference or prime rates. The average prime rate during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 ranged between ~~3.75%~~4.50% and ~~4.25%~~4.75%. Based upon the amount of variable rate debt held by the Company, and holding the variable rate debt balance constant, each 1% increase in interest rates would increase the amount of interest expense incurred by the Company by approximately ~~$1.6~~$1.7 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 30, 2017~~March 31, 2018 (dollars in thousands):


	Years ending December 31,												Thereafter		Total		Fair Value at September 30, 2017		Years ending December 31,											Thereafter		Total		Fair Value at March 31, 2018
	2017		2018			2019			2020		2021		Thereafter		Total		Fair Value at September 30, 2017		2018		2019		2020		2021		2022			Thereafter		Total		Fair Value at March 31, 2018
Fixed rate debt	$	1,619	$	5,226		$	150,000		$	—	$	—	$	800,000	$	956,845	$	983,426	$	2,291	$	—	$	—	$	—	$	350,000		$	800,000	$	1,152,291	$	1,147,541
Interest rate	5.5%		7.0		%	5.75		%	—		—		5.875 - 7.0%		—		—		—		—		—		—		7.0		%	5.875 - 6.0%

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~~three months ended ~~September 30, 2017~~March 31, 2018. 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 30, 2017,~~March 31, 2018, 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 30, 2017,~~March 31, 2018, 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 30, 2017,~~March 31, 2018, 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 matters 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, ~~2016,~~2017, as our business, financial condition and results of operations could be adversely affected by any of the risks and uncertainties described therein. There have been no material changes to the risk factors we previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. Some statements in this Quarterly Report on Form 10-Q, including statements in the 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 the number of shares of our Class A Common Stock that were repurchased during the three month period ended ~~September 30, 2017.~~March 31, 2018.

Month Ended
Total Number of Shares Purchased ^{(1) (2)}
Average Price Paid Per Share
Total Number of Shares Purchased from Certain Employees ⁽¹⁾

Total Number of Shares Purchased under the Stock Repurchase Program ⁽²⁾
Approximate Dollar Value of Shares that may yet be Repurchased under the Stock Repurchase Program
July 31, 2017 —
N/A
—
—
$ 50,000,000
August 31, 2017 835
$ 23.01
835
—
50,000,000
September 30, 2017 103,099
$ 23.34
1,069
102,030
47,718,121
Total 103,934
1,904
102,030



Month Ended	Total Number of Shares Purchased ^{(1) (2)}	Average Price Paid Per Share		Total Number of Shares Purchased from Certain Employees ⁽¹⁾	Total Number of Shares Purchased under the Stock Repurchase Program ⁽²⁾	Approximate Dollar Value of Shares that may yet be Repurchased under the Stock Repurchase Program
January 31, 2018	—	N/A		—	—	$	46,890,294
February 28, 2018	205,212	$	24.35	—	205,212	41,894,418
March 31, 2018	185,606	$	26.74	185,606	—	41,894,418
Total	390,818			185,606	205,212

⁽¹⁾ The Company repurchased ~~1,904~~185,606 shares from certain employees to facilitate income tax withholding payments pertaining to stock-based compensation awards that vested during the three month period ended ~~September 30, 2017.~~March 31, 2018. Such shares were not repurchased pursuant to a publicly announced plan or program.

⁽²⁾ As announced on February 22, 2017, the Board of Directors of the Company has approved a stock repurchase program, authorizing the repurchase of up to an aggregate of $50 million of the Company's 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. The stock repurchase program does not obligate the Company to repurchase any particular amount of common stock, and it could be modified, suspended or discontinued at any time.



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

2.1	Purchase and Sale Agreement, dated as of February 19, 2018, by and among William Lyon Homes, Inc., RSI Communities LLC, RS Equity Management LLC, the Class B Sellers of RSI Communities LLC, and RS Equity Management LLC, as the sellers’ representative (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K filed February 23, 2018).

2.2	Asset Purchase Agreement, dated as of February 19, 2018, by and between William Lyon Homes, Inc. and RG Onion Creek LLC (incorporated by reference to Exhibit 2.2 of the Company’s Form 8-K filed February 23, 2018).

2.3	Asset Purchase Agreement, dated as of February 19, 2018, by and between William Lyon Homes, Inc. and RSI Trails at Leander LLC (incorporated by reference to Exhibit 2.3 of the Company’s Form 8-K filed February 23, 2018).

2.4	Asset Purchase Agreement, dated as of February 19, 2018, by and between William Lyon Homes, Inc. and RSI Prado LLC (incorporated by reference to Exhibit 2.4 of the Company’s Form 8-K filed February 23, 2018).

4.1	Indenture, dated March 9, 2018, among California Lyon, the Guarantors and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed March 15, 2018).

4.2	Form of 6.00% Senior Notes due 2023 (included in Exhibit 4.1).

4.3+	Third Supplemental Indenture, dated as of March 19, 2018, among William Lyon Homes, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, relating to the 7.00% Senior Notes due 2022.

4.4+	First Supplemental Indenture, dated as of March 19, 2018, among William Lyon Homes, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, relating to the 6.00% Senior Notes due 2023.

4.5+	First Supplemental Indenture, dated as of March 19, 2018, among William Lyon Homes, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, relating to the 5.875% Senior Notes due 2025.

10.1	Amendment No. 3, dated March 9, 2018, to the Second Amended and Restated Credit Agreement, dated July 1, 2016, among William Lyon Homes, Inc., as Borrower, William Lyon Homes, as Parent, the subsidiary guarantors party thereto, the lenders 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 March 15, 2018).

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 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 3, 2017~~May 10, 2018	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

2.1	Purchase and Sale Agreement, dated as of February 19, 2018, by and among William Lyon Homes, Inc., RSI Communities LLC, RS Equity Management LLC, the Class B Sellers of RSI Communities LLC, and RS Equity Management LLC, as the sellers’ representative (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K filed February 23, 2018).

2.2	Asset Purchase Agreement, dated as of February 19, 2018, by and between William Lyon Homes, Inc. and RG Onion Creek LLC (incorporated by reference to Exhibit 2.2 of the Company’s Form 8-K filed February 23, 2018).

2.3	Asset Purchase Agreement, dated as of February 19, 2018, by and between William Lyon Homes, Inc. and RSI Trails at Leander LLC (incorporated by reference to Exhibit 2.3 of the Company’s Form 8-K filed February 23, 2018).

2.4	Asset Purchase Agreement, dated as of February 19, 2018, by and between William Lyon Homes, Inc. and RSI Prado LLC (incorporated by reference to Exhibit 2.4 of the Company’s Form 8-K filed February 23, 2018).

4.1	Indenture, dated March 9, 2018, among California Lyon, the Guarantors and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed March 15, 2018).

4.2	Form of 6.00% Senior Notes due 2023 (included in Exhibit 4.1).

4.3+	Third Supplemental Indenture, dated as of March 19, 2018, among William Lyon Homes, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, relating to the 7.00% Senior Notes due 2022.

4.4+	First Supplemental Indenture, dated as of March 19, 2018, among William Lyon Homes, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, relating to the 6.00% Senior Notes due 2023.

4.5+	First Supplemental Indenture, dated as of March 19, 2018, among William Lyon Homes, Inc., the subsidiary guarantors named therein and U.S. Bank National Association, relating to the 5.875% Senior Notes due 2025.

10.1	Amendment No. 3, dated March 9, 2018, to the Second Amended and Restated Credit Agreement, dated July 1, 2016, among William Lyon Homes, Inc., as Borrower, William Lyon Homes, as Parent, the subsidiary guarantors party thereto, the lenders 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 March 15, 2018).

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 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.

6659



	December 31, 2016	Lease adoption adjustments		December 31, 2016
				(as adjusted)
Lease right-of-use assets	—	$	13,129	$	13,129
Total assets	1,998,151	13,129		2,011,280

Accrued expenses	79,790	13,129		92,919
Total liabilities and equity	1,998,151	13,129		2,011,280



	Nine Months Ended September 30,		Increase (Decrease)
	2017	2016	Amount		%
Number of Net New Home Orders
California	783	591	192		32	%
Arizona	401	367	34		9	%
Nevada	236	229	7		3	%
Colorado	229	204	25		12	%
Washington	432	238	194		82	%
Oregon	575	582	(7	)	(1	)%
Total	2,656	2,211	445		20	%



Active Projects (County or City)	Estimated Year of First Delivery	Estimated Number of Homes at Completion (1)	Cumulative Homes Closed as of September 30, 2017 (2)	Backlog at September 30, 2017 (3) (4)	Lots Owned as of September 30, 2017 (5)	Homes Closed for the Period Ended September 30, 2017	Estimated Sales Price Range (6)
CALIFORNIA
Orange County:
Anaheim
Avelina	2017	38	37	1	1	37	(8)
Buena Park
The Covey (7)	2016	67	56	11	11	32	(8)
Cypress
Mackay Place (7)	2016	47	47	—	—	13	(8)
Dana Point
Grand Monarch	2015	37	15	1	22	2	$ 2,604,000 - 2,904,000
Ladera Ranch
Artisan	2015	14	7	2	7	1	$ 2,550,000 - 3,025,000
Irvine
The Vine	2016	106	74	16	32	43	$ 546,000 - 645,000
Calistoga	2016	60	47	8	13	32	$1,230,000 - $1,475,000



Celadon (7)	2017	79	14	20	65	14	$720,000 - 805,000
Rancho Mission Viejo
Aurora (7)	2016	94	94	—	—	37	(8)
Vireo (7)	2015	90	79	4	11	19	$ 595,000 - 655,000
Briosa (7)	2016	50	7	11	43	6	$ 945,000 - 1,050,000
Rancho Santa Margarita
Dahlia Court	2016	36	28	7	8	28	$ 515,000 - 625,000
Los Angeles County:
Glendora
La Colina Estates	2015	121	23	8	98	4	$ 1,274,000 - 1,654,000
Lakewood
Canvas	2015	72	72	—	—	1	(8)
Claremont
Meadow Park	2017	95	5	4	90	5	$ 460,000 - 585,000
Riverside County:
Riverside
SkyRidge	2014	90	42	22	48	20	$ 510,000 - 560,000
TurnLeaf
Crossings	2014	42	33	5	9	14	$ 498,000 - 528,000
Coventry	2015	42	27	9	15	14	$ 538,000 - 565,000
Cameos	2018	216	—	7	216	—	$ 510,000 - 580,000
Eastvale
Nexus	2015	220	155	18	65	60	$ 353,000 - 402,000
San Bernardino County:
Upland
The Orchards (7)
Citrus Court	2015	77	72	5	5	27	(8)
Citrus Pointe	2015	132	74	16	58	30	$ 362,000 - 392,000
Yucaipa
Cedar Glen	2015	143	143	—	—	10	(8)
Chino
Laurel Lane	2017	70	—	32	70	—	$ 526,000 - 595,000
Alameda County
Livermore
Wayland	2018	54	—	9	54	—	$ 830,000 - 1,015,000
Newark
The Cove	2016	108	35	52	73	27	$ 716,000 - 821,000
The Strand	2016	157	43	27	114	35	$ 772,000 - 887,000
The Banks	2016	120	50	45	70	46	$ 870,000 - 955,000
The Tides	2016	75	41	18	34	37	$ 944,000 - 974,000
The Isles	2016	82	42	12	40	39	$ 1,048,000 - 1,128,000
Contra Costa County:
Pittsburg
Vista Del Mar
Victory II	2014	104	104	—	—	4	(8)
CALIFORNIA TOTAL		2,738	1,466	370	1,272	637



Maricopa County:
Queen Creek
Meridian
Harvest	2015	448	223	35	225	89	$ 209,990 - 259,990
Homestead	2015	313	98	40	215	42	$ 252,990 - 341,990
Harmony	2015	259	53	26	206	24	$ 281,990 - 304,990
Horizons	2016	161	30	19	131	21	$ 316,990 - 399,990
Mesa
Lehi Crossing
Settlers Landing	2012	235	235	—	—	34	(8)
Wagon Trail	2013	244	231	11	13	79	$ 259,990 - 341,990
Monument Ridge	2013	248	141	35	107	54	$ 301,990 - 423,990
Albany Village	2016	228	51	31	177	43	$ 196,990 - 260,990
Peoria
Rio Vista	2015	197	197	—	—	22	(8)
ARIZONA TOTAL		2,333	1,259	197	1,074	408


NEVADA
Clark County:
Las Vegas
Lyon Estates	2014	81	80	1	1	7	(8)
Tuscan Cliffs	2015	76	31	1	45	4	$ 645,000 - 826,000
Brookshire
Estates	2015	35	32	1	3	5	$ 595,000 - 643,000
Heights	2015	98	74	18	24	36	$ 373,000 - 425,000
Las Vegas - Summerlin
Sterling Ridge
Grand	2014	137	97	13	40	15	$ 920,000 - 1,003,000
Premier	2014	62	62	—	—	2	$ 1,244,000 - 1,357,000
Allegra	2016	88	41	13	47	11	$ 519,000 - 556,000
Silver Ridge	2016	83	23	10	35	11	$ 1,292,500 - 1,500,500
Affinity
Moda (7)	2017	192	4	15	188	4	$247,000 - 316,000
Evoke	2017	117	4	15	113	4	$336,000 - 423,000
Savu (7)	2017	96	—	8	96	—	$410,000 - 489,000
Revo (7)	2017	80	—	3	80	—	$445,000 - 485,000
Henderson
Lago Vista	2016	52	11	7	41	8	$ 790,000 - 878,000
The Peaks	2016	88	6	7	82	6	$ 490,000 - 514,000
Nye County:
Pahrump
Mountain Falls
Series I	2011	242	238	3	4	49	$ 181,500 - 214,150
Series II	2014	187	48	5	139	13	$ 237,500 - 326,500
NEVADA TOTAL		1,714	751	120	938	175


COLORADO
Arapahoe County
Aurora
Southshore
Generations	2014	15	15	—	—	1	(8)



Signature	2015	7	7	—	—	1	(8)
The 40's Collection	2016	30	7	—	23	5	$ 423,000 - 497,000
Artistry	2016	61	38	7	23	21	$ 437,000 - 495,000
Signature II	2017	30	5	4	25	5	$482,000 - 533,000
The 42's Collection	2017	79	—	4	79	—	$ 348,000 - 388,000
Centennial
Greenfield: Artistry	2016	35	24	8	11	15	$ 454,000 - 523,000
Douglas County
Castle Rock
Cliffside: Portrait	2014	49	49	—	—	5	(8)
Jefferson County
Arvada
Candelas
Generations	2015	50	45	1	5	11	$ 425,000 - 497,000
Tapestry	2015	26	16	3	10	8	$ 460,000 - 530,000
The 40's Collection	2017	40	—	2	40	—	$ 413,000 - 466,000
The 50's Collection	2017	85	—	4	85	—	$ 450,000 - 510,000
Leydon Rock
Garden	2014	60	48	7	12	13	$ 422,000 - 462,000
Park	2015	74	71	1	3	9	$ 410,000 - 458,000
Larimer County
Timnath
West Village at Timnath Ranch North
Park	2014	92	87	2	5	23	$ 380,000 - 435,000
Sonnet	2014	55	52	—	3	5	$ 398,000 - 470,000
The 40's Collection	2017	55	2	2	53	2	$ 410,000 - 490,000
The 50's Collection	2017	69	—	1	69	—	$ 381,000 - 447,000
Loveland
Lakes at Centerra	2015	194	49	15	39	14	$ 397,000 - 440,000
Denver County
Denver
Avion at Denver Connection
Summit	2017	93	—	17	93	—	$ 342,000 - 382,000
Horizon	2017	191	—	22	191	—	$ 285,000 - 339,000
Alpine	2017	101	—	11	101	—	$ 276,000 - 306,000
Westerly	2017	309	—	39	309	—	$ 250,000 - 278,000
Boulder County
Erie
Flatiron Meadows	2017	98	2	14	34	2	$462,000 - 564,000
COLORADO TOTAL		1,898	517	164	1,213	140



Highcroft at Sammamish	2016	121	92	18	29	55	$ 849,990 - 1,329,990
Peasley Canyon	2016	153	98	26	43	63	$ 389,990 - 497,990
Ridgeview Townhomes	2016	40	40	—	—	34	(8)
High Point Block 34	2017	54	21	25	33	21	$ 497,990 - 739,990
Westridge SF South	2017	72	—	—	21	—	$ 899,990 - 1,284,290
Upton at Crossroads Village (7)	2017	176	—	23	176	—	$ 574,990 - 884,990
The Cottages at North Bend	2017	37	5	18	32	5	$ 489,990 - 739,990
Snohomish County:
Silverlake Center	2015	100	100	—	—	1	(8)
Riverfront	2016	425	82	56	343	76	$ 284,990 - 549,990
Pierce County:
Ovation at Oak Tree (7)	2017	814	—	12	255	—	$ 324,990 - 459,990
WASHINGTON TOTAL		2,081	488	192	971	292

OREGON (9)
Clackamas County:
Villebois Zion III - Townhomes	2014	40	36	—	4	—	$ 269,990 - 309,990
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	67	21	26	30	$ 344,990 - 429,990
Grande Pointe at Villebois Alley	2016	40	33	5	7	22	$ 459,990 - 483,990
Grande Pointe at Villebois FL	2016	60	28	10	32	16	$ 529,990 - 599,990
Villebois Lund Cottages	2015	67	67	—	—	31	(8)
Villebois Lund Townhomes	2015	42	42	—	—	14	(8)
Villebois Lund Alley	2016	96	39	4	57	28	$ 349,990 - 464,990
Villebois Village Parcel 80	2016	50	36	12	14	36	$ 259,990 - 309,990
Villebois Village Parcel 83	2016	31	31	—	—	13	(8)
Washington County:
Sequoia Village - Cornelius Pass	2016	157	133	23	24	70	$ 249,990 - 339,990
Twin Creeks	2014	94	94	—	—	2	(8)
Bethany West - Alley	2015	94	87	—	7	1	$ 429,990 - 489,990
Bethany West - Cottage	2015	61	60	—	1	—	$ 389,990 - 429,990
Bethany West - Traditional	2015	82	78	3	4	1	$ 569,990 - 649,990
Bethany West - Townhomes	2017	40	5	14	35	5	$ 569,990 - 664,990
Bethany West - Weisenfluh	2016	36	36	—	—	5	(8)
Bethany Round 2 - Alley	2016	25	22	3	3	22	(8)
Bethany Round 2 - Cottage	2016	13	13	—	—	13	(8)
Bethany Round 2 - Traditional	2016	24	16	4	8	16	$ 569,990 - 609,990
Bull Mountain 1 NW River Terrace - Alley	2017	35	20	9	15	20	$ 399,990 - 429,990
Bull Mountain 1 NW River Terrace - Med/Std/Lrg	2016	116	53	23	53	53	$ 464,990 - 594,990
Bull Mountain 1 NW River Terrace - Townhomes	2017	64	18	17	46	18	$ 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	31	—	—	19	(8)
Bull Mountain 2 W River Terrace - Townhomes	2016	46	43	3	3	43	(8)
Bull Mountain 7 Dickson	2016	82	37	14	45	22	$ 549,990 - 779,990
Sunset Ridge	2015	104	104	—	—	3	(8)
OREGON TOTAL		1,780	1,358	165	412	529

Future Owned and Controlled (by County)					Lots Owned or Controlled as of September 30, 2017 (10)
CALIFORNIA
Orange County					491
San Diego County					63
Alameda County					409
Contra Costa County					296
ARIZONA
Maricopa County (11)					3,624
NEVADA
Nye County (11)					1,925
Clark County					418
COLORADO
Arapahoe County					139
Boulder County					186
Larimer County					106
Grand County					24
WASHINGTON
King County					556
Pierce County					559
Snohomish County					74
OREGON
Clackamas County					305
Washington County					2,889
TOTAL FUTURE					12,064

GRAND TOTALS		12,544	5,839	1,208	17,944	2,181