SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________

FORM 10-Q

______________________________________

(Mark One)



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

For the quarterly period ended March 31, ~~2018~~2019



¨	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

______________________________________

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.01 par value	WLH	New York Stock Exchange

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



Class of Common Stock	Outstanding at May 7, ~~2018~~2019
Common stock, Class A, par value $0.01	~~33,202,209~~32,995,972
Common stock, Class B, par value $0.01	4,817,394

WILLIAM LYON HOMES

INDEX



		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements as of March 31, ~~2018,~~2019, and for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 (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	3435
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5152
Item 4.	Controls and Procedures	5253
PART II. OTHER INFORMATION		5354
Item 1.	Legal Proceedings	5354
Item 1A.	Risk Factors	5354
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5354
Item 3.	Defaults Upon Senior Securities	5354
Item 4.	Mine Safety Disclosures	5455
Item 5.	Other Information	5455
Item 6.	Exhibits	5556
SIGNATURES		57
EXHIBIT INDEX		58

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

Investors are cautioned that certain statements contained in this Quarterly Report on Form 10-Q, as well as some statements by the Company in periodic press releases and information included in oral statements or other written statements by the Company are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21 of the Securities Exchange Act of 1934, as amended. Statements which are predictive in nature, which depend upon or refer to future events or conditions, or which include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, “hopes”, and similar expressions constitute forward-looking statements. Such statements may include, but are not limited to, information related to: anticipated operating results; home deliveries and backlog conversion; financial resources and condition; cash needs and liquidity; timing of project openings; 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; 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: changes in mortgage and other interest rates; affordability pressures; the Company’s ability to successfully integrate RSI Communities’ homebuilding operations with its existing operations; ~~any adverse effect on the 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; increased costs as a result of government-imposed tariffs; increased supply in our markets; changes in governmental laws and regulations and increased costs, fees and delays associated therewith; 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 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; 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; 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 and timing 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; 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, ~~2017,~~2018, 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)


	March 31, 2018		December 31, 2017		March 31, 2019		December 31, 2018
	(unaudited)				(unaudited)
ASSETS
Cash and cash equivalents — Note 1	$	50,473	$	182,710	$	45,709	$	33,779
Receivables	14,018		10,223		15,417		13,502
Escrow proceeds receivable	1,552		3,319		2,659		—
Real estate inventories — Note 6
Owned	2,051,817		1,699,850		2,303,536		2,333,207
Not owned	282,169		—		294,085		315,576
Investment in unconsolidated joint ventures — Note 4	5,406		7,867		5,662		5,542
Goodwill	118,877		66,902		123,695		123,695
Intangibles, net of accumulated amortization of $4,640 as of March 31, 2018 and December 31, 2017	6,700		6,700
Intangibles, net of accumulated amortization of $4,640 as of March 31, 2019 and December 31, 2018					6,700		6,700
Deferred income taxes	47,716		47,915		46,900		47,241
Lease right-of-use assets	14,757		14,454		13,135		13,561
Other assets, net	32,921		21,164		37,515		36,971
Total assets	$	2,626,406	$	2,061,104	$	2,895,013	$	2,929,774
LIABILITIES AND EQUITY
Accounts payable	$	88,853	$	58,799	$	108,506	$	128,371
Accrued expenses	99,378		111,491		96,715		150,155
Liabilities from inventories not owned — Note 13	282,169		—		294,085		315,576
Notes payable — Note 7:
Revolving credit facility	85,000		—		110,000		45,000
Seller financing	—		589
Construction notes payable	2,291		—		1,204		1,231
Joint venture notes payable	84,955		93,926		144,027		151,788
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		347,639		347,456
6% Senior Notes due September 1, 2023 — Note 7	343,274		—		344,206		343,878
5 ⁷/₈% Senior Notes due January 31, 2025 — Note 7	439,903		439,567
5.875% Senior Notes due January 31, 2025 — Note 7					428,430		431,992
	1,772,747		1,200,474		1,874,812		1,915,447
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 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
Preferred stock, par value $0.01 per share; 10,000,000 shares authorized and no shares issued and outstanding at March 31, 2019 and December 31, 2018					—		—
Common stock, Class A, par value $0.01 per share; 150,000,000 shares authorized; 34,020,166 and 33,904,972 shares issued, 32,995,571 and 32,690,378 shares outstanding at March 31, 2019 and December 31, 2018, respectively					340		339
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, 2019 and December 31, 2018					48		48
Additional paid-in capital	447,770		454,286		445,953		445,545
Retained earnings	334,122		325,794		425,509		417,390
Total William Lyon Homes stockholders’ equity	782,285		780,472		871,850		863,322
Noncontrolling interests — Note 3	71,374		80,158		148,351		151,005
Total equity	853,659		860,630		1,020,201		1,014,327
Total liabilities and equity	$	2,626,406	$	2,061,104	$	2,895,013	$	2,929,774

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 March 31, 2018			Three Months Ended March 31, 2017			Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
Operating revenue
Home sales — Note 1	$	372,385		$	258,854		$	453,775		$	372,385
Construction services — Note 1	983			—			2,089			983
	373,368			258,854			455,864			373,368
Operating costs
Cost of sales — homes	(307,308		)	(218,455		)	(381,044		)	(307,308		)
Construction services — Note 1	(983		)	—			(1,969		)	(983		)
Sales and marketing	(22,693		)	(14,705		)	(25,277		)	(22,693		)
General and administrative	(24,521		)	(18,946		)	(29,126		)	(24,521		)
Transaction expenses	(3,130		)	—			—			(3,130		)
Other	(298		)	(440		)	(344		)	(298		)
	(358,933		)	(252,546		)	(437,760		)	(358,933		)
Operating income	14,435			6,308			18,104			14,435
Equity in income of unconsolidated joint ventures	932			249			912			932
Other income, net	35			345
Other income (loss), net							631			35
Income before extinguishment of debt	15,402			6,902			19,647			15,402
Loss on extinguishment of debt	—			(21,828		)
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		)
Gain on extinguishment of debt							383			—
Income before provision for income taxes							20,030			15,402
Provision for income taxes — Note 10							(4,896		)	(2,814		)
Net income							15,134			12,588
Less: Net income attributable to noncontrolling interests	(4,260		)	(704		)	(7,015		)	(4,260		)
Net income (loss) available to common stockholders	$	8,328		$	(10,000	)
Income (loss) per common share:
Net income available to common stockholders							$	8,119		$	8,328
Income per common share:
Basic	$	0.22		$	(0.27	)	$	0.22		$	0.22
Diluted	$	0.21		$	(0.27	)	$	0.21		$	0.21
Weighted average common shares outstanding:
Basic	37,931,256			36,908,320			37,610,766			37,931,256
Diluted	39,855,683			36,908,320			38,755,113			39,855,683

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, 2017	39,085		$	392		$	454,286		$	325,794	$	80,158		$	860,630		39,085		$	392		$	454,286		$	325,794	$	80,158		$	860,630
Net income	—		—			—			8,328		4,260			12,588			—		—			—			8,328		4,260			12,588
Cash contributions from members of consolidated entities	—		—			—			—		4,062			4,062			—		—			—			—		4,062			4,062
Cash distributions to members of consolidated entities	—		—			—			—		(17,106		)	(17,106		)	—		—			—			—		(17,106		)	(17,106		)
Repurchases of common stock	(205	)	(2		)	(4,998		)	—		—			(5,000		)	(205	)	(2		)	(4,998		)	—		—			(5,000		)
Shares remitted to Company to satisfy employee tax obligations	(186	)	(2		)	(4,694		)	—		—			(4,696		)	(186	)	(2		)	(4,694		)	—		—			(4,696		)
Stock based compensation expense	577		5			3,176			—		—			3,181			577		5			3,176			—		—			3,181
Balance - March 31, 2018	39,271		$	393		$	447,770		$	334,122	$	71,374		$	853,659		39,271		$	393		$	447,770		$	334,122	$	71,374		$	853,659

Balance - December 31, 2018																	38,722		387			445,545			417,390		151,005			1,014,327
Net income																	—		—			—			8,119		7,015			15,134
Cash contributions from members of consolidated entities																	—		—			—			—		1,389			1,389
Cash distributions to members of consolidated entities																	—		—			—			—		(11,058		)	(11,058		)
Shares remitted to Company to satisfy employee tax obligations																	(166	)	(1		)	(2,355		)	—		—			(2,356		)
Stock based compensation expense																	281		2			2,763			—		—			2,765
Balance - March 31, 2019																	38,837		$	388		$	445,953		$	425,509	$	148,351		$	1,020,201

See accompanying notes to condensed consolidated financial statements

WILLIAM LYON HOMES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017			Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
Operating activities
Net income (loss)	$	12,588		$	(9,296	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net income							$	15,134		$	12,588
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	2,056			449			745			2,056
Net change in deferred income taxes	199			(195		)	341			199
Stock based compensation expense	3,181			1,676			2,765			3,181
Equity in earnings of unconsolidated joint ventures	(932		)	(249		)
Equity in income of unconsolidated joint ventures							(912		)	(932		)
Distributions from unconsolidated joint ventures	3,575			359			951			3,575
Loss on extinguishment of debt	—			21,828
(Gain) loss on extinguishment of debt							(383		)	—
Net changes in operating assets and liabilities:
Receivables	(2,226		)	382			(2,074		)	(2,226		)
Escrow proceeds receivable	1,767			(1,612		)	(2,659		)	1,767
Real estate inventories	79,895			(22,633		)
Other assets	(1,275		)	(1,447		)
Real estate inventories - owned							30,894			79,895
Other assets, net							(2,958		)	(1,275		)
Accounts payable	20,739			(1,533		)	(19,865		)	20,739
Accrued expenses	(21,539		)	(29,110		)	(53,006		)	(21,539		)
Net cash provided by (used in) operating activities	98,028			(41,381		)
Net cash (used in) provided by operating activities							(31,027		)	98,028
Investing activities
Cash paid for acquisitions, net of cash acquired	(475,221		)	—			—			(475,221		)
Purchases of property and equipment	(2,442		)	(2		)
Net cash used in investing activities	(477,663		)	(2		)
Sales (purchases) of property and equipment							1,404			(2,442		)
Net cash provided by (used in) investing activities							1,404			(477,663		)
Financing activities
Proceeds from borrowings on notes payable	20,194			25,350			30,111			20,194
Principal payments on notes payable	(29,179		)	(20,780		)	(37,899		)	(29,179		)
Redemption premium of 8.5% Senior Notes	—			(19,645		)
Principal payments of 8.5% Senior Notes	—			(425,000		)
Principal payments on 5.75% Senior Notes	(150,000		)	—			—			(150,000		)
Proceeds from issuance of 5.875% Senior Notes	—			446,468
Principal payments on 5.875% Senior Notes							(3,591		)	—
Proceeds from issuance of 6% Senior Notes	350,000			—			—			350,000
Proceeds from borrowings on Revolver	110,000			105,000
Payments on Revolver	(25,000		)	(77,000		)
Principal payments on subordinated amortizing notes	—			(1,869		)
Proceeds from borrowings on revolver							190,000			110,000
Payments on revolver							(125,000		)	(25,000		)
Payment of deferred loan costs	(5,877		)	(6,840		)	(43		)	(5,877		)
Shares remitted to, or withheld by the Company for employee tax withholding	(4,696		)	(1,380		)	(2,356		)	(4,696		)
Cash received for lease transaction	—			19,848
Payments to repurchase common stock	(5,000		)	—			—			(5,000		)
Noncontrolling interest contributions	4,062			1,467
Noncontrolling interest distributions	(17,106		)	(7,340		)
Cash contributions from members of consolidated entities							1,389			4,062
Cash distributions to members of consolidated entities							(11,058		)	(17,106		)
Net cash provided by financing activities	247,398			38,279			41,553			247,398
Net decrease in cash and cash equivalents	(132,237		)	(3,104		)
Net increase (decrease) in cash and cash equivalents							11,930			(132,237		)
Cash and cash equivalents — beginning of period	182,710			42,612			33,779			182,710
Cash and cash equivalents — end of period	$	50,473		$	39,508		$	45,709		$	50,473
Supplemental disclosures:
Cash paid during the period for income taxes	$	104		$	9,800
Cash paid for taxes							$	—		$	104
Supplemental disclosures of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities	$	1,696		$	4,650		$	78		$	1,696
Accrued deferred loan costs	$	879		$	1,270		$	8		$	879
Inventory reclassified to Other assets upon adoption of ASC 606	$	5,365		$	—		$	—		$	5,365
Non-cash additions to Real estate inventories - not owned and Liabilities from inventories not owned	$	87,896		$	—		$	(21,491	)	$	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), 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 March 31, ~~2018~~2019 and December 31, ~~2017~~2018 and revenues and expenses for the three month periods ended March 31, ~~2018~~2019 and ~~2017.~~2018. 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 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, ~~2017,~~2018, which are included in our ~~2017~~2018 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 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~~Effective January 1, 2018, ~~under~~the Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") ~~605,~~606, "Revenue Recognition" ("ASC ~~605"~~606"),. Under ASC 606, revenue was recorded when a sale ~~was~~is consummated, the buyer’s initial and continuing investments ~~were~~is adequate, any receivables ~~were~~are not subject to future subordination, and the usual risks and rewards of ownership ~~had~~have transferred to the buyer. ~~Effective January 1, 2018, upon adoption of ASC 606, revenue~~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~~2019 period that did not result from current period performance.

Construction Services

The Company ~~accounted~~accounts 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).~~606. 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 months ended March 31, 2019, the Company did not have any land parcel sales. During the three months ended March 31, 2018, the Company had one land parcel sale, that resulted in a negligible loss for the period then ended. ~~During the three months ended March 31, 2017, the Company had one land parcel sale to a third party that did not result in any gain or loss.~~

A provision for warranty costs relating to the Company’s limited warranty plans is included in cost of sales and accrued expenses at the time the sale of a home is recorded. The Company generally reserves a percent of the sales price of its homes, or a set amount per home closed depending on the operating division, against the possibility of future charges relating to its warranty programs and similar potential claims. Factors that affect the Company’s warranty liability include the number of homes under warranty, historical and anticipated rates of warranty claims, and cost per claim. The Company continually assesses the adequacy of its recorded warranty liability and adjusts the amounts as necessary. Changes in the Company’s warranty liability for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, are as follows (in thousands):


	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017			Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
Warranty liability, beginning of period	$	13,643		$	14,174		$	13,000		$	13,643
Warranty provision during period (1)	2,504			1,290			2,416			2,504
Warranty payments, net of insurance recoveries during period	(4,395		)	(2,829		)	(3,815		)	(4,395		)
Warranty charges related to construction services projects	7			80			(17		)	7
Warranty liability, end of period	$	11,759		$	12,715		$	11,584		$	11,759


(1)	In connection with the RSI Acquisition (see Note 2), in 2018, 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 7, is capitalized to qualifying real estate projects under development. Interest activity for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 are as follows (in thousands):


	Three Months Ended March 31, 2018		Three Months Ended March 31, 2017		Three Months Ended March 31, 2019		Three Months Ended March 31, 2018
Interest incurred	$	19,258	$	19,424	$	24,081	$	19,258
Less: Interest capitalized	19,258		19,424		24,081		19,258
Interest expense, net of amounts capitalized	$	—	$	—	$	—	$	—
Cash paid for interest	$	31,489	$	19,036	$	40,858	$	31,489

Financial Instruments

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents, 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 off-balance sheet financial instruments are described in more detail in Note 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 March 31, ~~2018~~2019 and December 31, ~~2017.~~2018. 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 seven reporting segments, as discussed in Note 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, 2018, the Company adopted Accounting Standards Update ("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. 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.

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~~

The Company adopted ASC 606 with a 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 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 timing of the 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~~California 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~~as the ~~Purchase Agreement, California Lyon acquired, for cash, all~~sellers’ representative, and its acquisition of ~~the membership interests of the underlying limited liability companies and~~ three additional related real estate assets (the “Legacy Assets”) pursuant to each of the separate asset purchase agreements with each of RG Onion Creek, LLC, RSI Trails at Leander LLC and RSI Prado LLC (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~~$479.3 million, ~~and an additional~~which is inclusive of approximately $15.2 million of net asset related adjustments at closing ~~pursuant to initial working capital adjustments, a portion of which remains subject to final adjustment in accordance with~~(collectively, the ~~terms of the Purchase Agreement.~~"RSI Acquisition"). Part of the acquired entities specific to the Southern California region now operate under the Company’s existing California segment. The remaining acquired entities now operate as a new ~~division~~segment of the Company ~~under the RSI name~~ in 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 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 respect to land parcels in various stages of development.

As a result of the RSI Acquisition, the 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 disclosures from the date of 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 assumed liabilities of RSI Communities at their estimated fair values, with the excess allocated to Goodwill, as shown below. Goodwill represents the value the Company expects to achieve through the operational synergies and the expansion of the Company into new markets. The Company estimates that the entire ~~$52.0~~$56.8 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	$	194,131
Issuance of 6.00% Senior Notes due September 1, 2023	190,437		190,437
Cash on hand	90,653		94,760
	475,221		479,328

~~As of March 31, 2018, the~~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.~~during December 2018. The following table summarizes the ~~preliminary~~ amounts for acquired assets and liabilities recorded at their fair values as of the acquisition date (in thousands):


Assets Acquired	Assets Acquired			Assets Acquired
	Real estate inventories	$	436,578	Real estate inventories	$	434,628
	Goodwill	51,975		Goodwill	56,793
	Other	6,532		Other	7,771
	Total Assets	495,085		Total Assets	$	499,192

Liabilities Assumed	Liabilities Assumed			Liabilities Assumed
	Accounts payable	$	9,315	Accounts payable	$	9,315
	Accrued expenses	8,244		Accrued expenses	8,244
	Notes payable	2,305		Notes payable	2,305
	Total liabilities	19,864		Total liabilities	19,864
	Net assets acquired	$	475,221	Net assets acquired	$	479,328

The 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 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 no acquisition related costs for the three months ended March 31, 2019 and $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 )



	Three Months Ended March 31, 2018
Operating revenues	$	401,600
Net income available to common stockholders	$	6,419
Income per share - basic	$	0.17
Income per share - diluted	$	0.16

The unaudited pro forma operating results have been determined after adjusting the unaudited operating results of RSI Communities, excluding the Legacy Assets, but including acquisition costs, 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.~~adjustments. The unaudited pro forma results presented above do not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the ~~RSI Acquisition,~~acquired entity, the costs to combine the operations of the Company and ~~RSI Communities~~the acquired entity or the costs necessary to achieve any of the foregoing cost savings, operating synergies or revenue enhancements. As such, the unaudited pro forma amounts are for comparative purposes only and may not necessarily reflect the results of operations which would have resulted had the acquisition been completed at the beginning of the applicable period or indicative of the results that will be attained in the future.

Note 3—Variable Interest Entities and Noncontrolling Interests

As of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company was party to ~~thirteen~~twenty-four and twenty joint ventures, respectively, for the purpose of land development and homebuilding activities which we have determined to be VIEs. The Company, as the managing member, has the power to direct the activities of the VIEs since it manages the daily operations and has exposure to the risks and rewards of the VIEs, based upon the allocation of income and loss per the respective joint venture agreements. Therefore, the Company is the primary beneficiary of the joint ventures, and the VIEs were consolidated as of March 31, ~~2018~~2019 and December 31, ~~2017.~~2018.

As of March 31, ~~2018,~~2019, the assets of the consolidated VIEs totaled ~~$202.3~~$440.6 million, of which ~~$6.9~~$9.4 million was cash and cash equivalents and ~~$224.8~~$425.6 million was owned real estate inventories. The liabilities of the consolidated VIEs totaled ~~$92.1~~$210.5 million, primarily comprised of notes payable, accounts payable and accrued liabilities.

As of December 31, ~~2017,~~2018, the assets of the consolidated VIEs totaled ~~$219.6~~$434.8 million, of which ~~$10.7~~$9.0 million was cash and cash equivalents and ~~$230.8~~$422.7 million was owned real estate inventories. The liabilities of the consolidated VIEs totaled ~~$99.4~~$209.4 million, primarily comprised of notes payable, accounts payable and accrued liabilities.

Note 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 March 31, 2018			Three Months Ended March 31, 2017			Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
Revenues	$	3,709		$	3,389		$	4,197		$	3,709
Cost of sales	(1,918		)	(2,110		)	(2,342		)	(1,918		)
Income of unconsolidated joint ventures	$	1,791		$	1,279		$	1,855		$	1,791

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 both of the three months ended March 31, ~~2018,~~2019, and ~~2017,~~2018, the Company recorded income of $0.9 million, ~~and $0.2 million, respectively,~~ from its unconsolidated joint ventures. This income was primarily attributable to our share of income related to mortgages that were generated and issued to qualifying home buyers during the periods.

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				March 31, 2019		December 31, 2018
Assets	Assets						Assets
	Cash		$	6,996	$	12,802	Cash		$	6,958	$	8,093
	Loans held for sale		16,489		17,106		Loans held for sale		37,908		27,958
	Accounts receivable		698		2,791		Accounts receivable		982		884
	Other assets		102		128		Other assets		169		115
		Total Assets	$	24,285	$	32,827		Total Assets	$	46,017	$	37,050

Liabilities and Equity	Liabilities and Equity						Liabilities and Equity
	Accounts payable		$	292	$	779	Accounts payable		$	449	$	700
	Accrued expenses		892		1,532		Accrued expenses		1,221		1,988
	Credit lines payable		15,601		18,312		Credit lines payable		36,180		26,775
	Other liabilities		251		31		Other liabilities		508		49
	Members equity		7,249		12,173		Members equity		7,659		7,538
		Total Liabilities and Equity	$	24,285	$	32,827		Total Liabilities and Equity	$	46,017	$	37,050

Note 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 ASC 280, the Company’s homebuilding operating segments have been grouped into seven reportable segments:

California, consisting of operations in Orange, Los Angeles, San Diego, Alameda, Contra Costa, ~~San Joaquin,~~ 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 March 31, 2019			Three Months Ended March 31, 2018
Operating revenue:
California	$	186,118		$	134,812
Arizona	29,594			32,039
Nevada	37,705			49,176
Colorado	56,036			40,063
Washington (1)	43,940			55,651
Oregon	51,087			46,853
Texas	51,384			14,774
Total operating revenue	$	455,864		$	373,368

(1) Operating revenue in the Washington segment includes construction services revenue in the periods ended March 31, 2019 and 2018.


	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
Income before provision for income taxes:
California	$	16,105		$	11,419
Arizona	2,493			2,487
Nevada	4,192			4,839
Colorado	6,024			3,164
Washington	1,145			4,511
Oregon	2,070			3,637
Texas	1,181			434
Corporate	(13,563		)	(15,089		)
Income before gain on extinguishment of debt	$	19,647		$	15,402
Corporate - Gain on extinguishment of debt	383			—
Income before provision for income taxes	$	20,030		$	15,402

Three
Months
Ended
March 31,
2018 Three
Months
Ended
March 31,
2017
Operating revenue:
California $ 134,812
$ 81,967
Arizona 32,039
26,716
Nevada 49,176
30,548
Colorado 40,063
21,330
Washington (1)
55,651
43,474
Oregon 46,853
54,819
Texas 14,774
—
Total operating revenue $ 373,368
$ 258,854

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

Three
Months
Ended
March 31,
2018 Three
Months
Ended
March 31,
2017
Income (loss) before (provision for) benefit from income taxes:
California $ 11,419
$ 6,327
Arizona 2,487
2,298
Nevada 4,839
2,192
Colorado 3,164
296
Washington 4,511
314
Oregon 3,637
4,481
Texas 434
—
Corporate (15,089 ) (9,006 )
Income before extinguishment of debt $ 15,402
$ 6,902
Corporate - Loss on extinguishment of debt —
(21,828 )
Income (loss) before (provision for) benefit from income taxes $ 15,402
$ (14,926 )


	March 31, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Homebuilding assets:
Owned:
California	$	934,977	$	631,649	$	878,608	$	930,714
Arizona	176,217		170,634		171,124		168,507
Nevada	212,268		211,202		190,787		189,363
Colorado	156,257		149,183		138,148		149,450
Washington	308,901		286,442		306,596		308,270
Oregon	329,779		288,981		429,448		440,105
Texas	314,153		—		271,652		234,093
Corporate (1)	193,854		323,013		214,565		193,696
					$	2,600,928	$	2,614,198
Not Owned:
California					$	78,543	$	91,849
Arizona					114,858		114,858
Washington					21,657		21,657
Texas					79,027		87,212
Total homebuilding assets	$	2,626,406	$	2,061,104	$	2,895,013	$	2,929,774


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

Note 6—Real Estate Inventories

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


	March 31, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Real estate inventories:
Land deposits	$	57,775	$	51,833	$	143,736	$	147,327
Land and land under development	992,290		904,410		473,309		660,151
Finished lots					702,278		564,460
Homes completed and under construction	905,752		646,198		858,617		839,316
Model homes	96,000		97,409		125,596		121,953
Total	$	2,051,817	$	1,699,850	$	2,303,536	$	2,333,207
Real estate inventories not owned (1):
Other land options contracts — land banking arrangement	$	282,169	$	—	$	294,085	$	315,576


(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 7—Senior Notes, Secured, and Unsecured Indebtedness

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


	March 31, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Notes payable:
Revolving credit facility	$	85,000	$	—	$	110,000	$	45,000
Seller financing	—		589		—		—
Construction notes payable	2,291		—		1,204		1,231
Joint venture notes payable	84,955		93,926		144,027		151,788
Total notes payable	172,246		94,515		255,231		198,019

Senior notes:
5 ³/₄% Senior Notes due April 15, 2019	—		149,362
7% Senior Notes due August 15, 2022	346,924		346,740		347,639		347,456
6% Senior Notes due September 1, 2023	343,274		—		344,206		343,878
5 ⁷/₈% Senior Notes due January 31, 2025	439,903		439,567
5.875% Senior Notes due January 31, 2025					428,430		431,992
Total senior notes	1,130,101		935,669		1,120,275		1,123,326

Total notes payable and senior notes	$	1,302,347	$	1,030,184	$	1,375,506	$	1,321,345

As of March 31, ~~2018~~2019, the maturities of the Notes payable, 7% Senior Notes, 6% Senior Notes, and 5 ⁷/₈%5.875% Senior Notes are as follows (in thousands):


Year Ending December 31,
Remaining in 2018	$	21,352
2019	113,979
Remaining in 2019			$	15,217
2020	—		36,409
2021	36,915		203,605
2022	350,000		350,000
2023			350,000
Thereafter	800,000		436,886
	$	1,322,246	$	1,392,117

Maturities above exclude premium on the 7% Senior Notes of ~~$0.7~~$0.5 million and discount on the 5 ⁷/₈%5.875% Senior Notes of ~~$3.1~~$2.7 million, and deferred loan costs on the 7%, 6%, and 5 ⁷/₈%5.875% Senior Notes of ~~$17.5~~$14.5 million as of March 31, ~~2018.~~2019.

Notes Payable

Revolving Credit Facility

On ~~July 1, 2016,~~May 21, 2018, California Lyon and Parent entered into ~~an amendment and restatement agreement pursuant to which its existing~~a new credit agreement providing for aan unsecured revolving credit facility of up to $325.0 million (the “New Facility”) with the lenders party thereto, which New Facility replaces the Company’s previous $170.0 million revolving credit facility, as ~~previously amended and restated~~described below. The New Facility will mature on ~~March 27, 2015 as described below, was further amended and restated in its entirety (as amended from time~~May 21, 2021, unless terminated earlier pursuant to ~~time,~~ the ~~"Second Amended Facility").~~terms of the New Facility. The ~~Second Amended~~New 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~~contains an uncommitted accordion feature under which ~~the Company may increase the total~~its aggregate principal amount can be increased to up to ~~a maximum aggregate of $200.0~~$500.0 million under certain circumstances, as well as a sublimit of $50.0 million for letters of credit. Effective as of November ~~28, 2017,~~9, 2018, California Lyon increased the size of the commitment under its revolving credit facility by ~~$25.0~~$40.0 million to an aggregate total of ~~$170.0~~$365.0 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% fromOn 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,~~2018, California Lyon, Parent and the lenders party thereto entered into ~~a second~~an amendment to the ~~Second Amended~~New Facility, which amended the maximum leverage ratio to extend the timing of the gradual step-downs, such that the leverage ratio remained at ~~62.5%~~65% through and including December 30, ~~2017, and~~3018, decreased to ~~60% on the last day of the 2017 fiscal year and was scheduled to remain at 60% thereafter.~~

through and ~~will remain~~including December 30, 2019, and further decreases and remains at 60% on December 31, 2019 and thereafter. The amendment did not revise any of our other financial covenants thereunder.

Borrowings under the New 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 (such subsidiaries, the “Guarantors”), and may be used for general corporate purposes. As of March 31, 2019, the commitment fee on the unused portion of the New Facility accrues at an annual rate of 0.50%. As of March 31, 2019, the Company had $110.0 million outstanding against the New Facility at an effective rate of 6.6%, as well as a letter of credit for $7.2 million. As of December 31, 2018, the Company had $45.0 million outstanding against the New Facility at an effective rate of 7.5%, as well as a letter of credit for $8.6 million.

2018, through and including December 30, 2019, and further decreases to and remains at 60% thereafter, 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~~New Facility and can differ in certain respects from comparable GAAP or other commonly used terms. The ~~Second Amended~~New Facility also 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~~New Facility and permit the ~~lenders~~Lenders to accelerate payment on outstanding borrowings under the ~~Second Amended~~New Facility and require cash collateralization of outstanding letters of credit. If a change inof control (as defined in the ~~Second Amended~~New Facility) occurs, the ~~lenders~~Lenders may terminate the commitments under the ~~Second Amended~~New Facility and require that the ~~Company~~Borrower repay outstanding borrowings under the ~~Second Amended~~New Facility and cash collateralize outstanding letters of credit. Interest rates on borrowings generally will be based on either LIBOR or a base rate, plus the applicable spread. The Company was in compliance with all covenants under the New Facility as of March 31, 2019.

~~In January 2017, the Company~~On July 1, 2016, California Lyon and Parent had entered into an amendment and restatement agreement pursuant to which ~~modifies the definition of Tangible Net Worth~~its then existing credit agreement providing for ~~purposes of calculating the Leverage Ratio covenant under~~a revolving credit facility was amended and restated in its entirety (the "Second Amended Facility"). As described above, the Second Amended Facility sowas replaced by the New Facility on May 21, 2018. Previously, the Second Amended Facility had amended and restated the Company’s previous $130.0 million revolving credit facility and had provided for total lending commitments of $145.0 million, which had been scheduled to terminate on January 14, 2019 based on certain conditions, prior to the execution of the New Facility. In addition, the Second Amended Facility previously had an uncommitted accordion feature under which the Company could have increased the total principal amount up to a maximum aggregate of $200.0 million under certain circumstances, as ~~to exclude any reduction in Tangible Net Worth (as defined therein) that occurs~~well as a ~~result~~sublimit of $50.0 million for letters of credit. On November 28, 2017, California Lyon increased the size of the ~~costs related~~commitment under its Second Amended Facility by $25.0 million to ~~payment~~an aggregate total of ~~any call premium or any other costs associated with~~$170.0 million, through exercise of the ~~refinancing transaction~~facility’s accordion feature and entry into a new lender supplement as of such date.

Pursuant to the Second Amended Facility, the maximum leverage ratio was 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. On June 16, 2017, California Lyon, Parent and the ~~redemption~~lenders party thereto had entered into a second amendment to the Second Amended Facility, which amended the maximum leverage ratio to extend the timing of ~~outstanding 8.5% Notes.~~the gradual step-downs, such that the leverage ratio remained at 62.5% through and including December 30, 2017, and 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, and was scheduled to increase to 70% on March 31, 2018 through and including June 29, 2018.

The Second Amended Facility previously contained certain financial maintenance covenants. The Company was in compliance with all covenants under the Second Amended Facility asthrough its date of ~~March 31,~~termination and replacement with the New Facility on May 21, 2018.

Borrowings under the previous Second Amended Facility ~~the availability of which is subject to a borrowing base formula, are~~were required to be guaranteed by the Parent and certain of the Parent's wholly-owned subsidiaries, ~~are~~were secured by a pledge of all equity interests held by such guarantors, and may behave been used for general corporate purposes. Interest rates on borrowings generally ~~will be~~were based on either LIBOR or a base rate,

plus the applicable spread. AsThrough the date of ~~March 31, 2018,~~termination of the Second Amended Facility, the commitment fee on the unused portion of the Second Amended Facility ~~accrues~~accrued at an annual rate of 0.50%. As of ~~March~~December 31, 2018, the Company had ~~$85.0 million outstanding against~~terminated the Second Amended Facility ~~at an effective rate of 4.88%, as well as a letter of credit for $11.0 million. As of December 31, 2017,~~by entering into the ~~Company had a letter of credit for $7.8 million but no outstanding balance against the Second Amended~~New Facility.

Seller Financing

During the three months ended 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.

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 March 31, ~~2018~~2019 (in millions):

Issuance Date Facility Size Outstanding Maturity Current Rate
July, 2017 $ 66.2
$ 36.9
February, 2021 4.81 % (5)
March, 2016 33.4
1.2
(4) September, 2018 4.76 % (1)
January, 2016 35.0
29.0
February, 2019 5.13 % (2)
November, 2015 42.5
16.0
(4) May, 2018 5.75 % (1)
November, 2014 7.0
1.4
(4) May, 2018 5.25 % (3)
March, 2014 26.0
0.5
April, 2018 4.87 % (1)
$ 143.9
$ 85.0



Issuance Date	Facility Size	Outstanding		Maturity	Current Rate
March, 2019	18.9	$	0.4	November, 2020	5.38	%	(3)
May, 2018	128.0	86.7		May, 2021	5.49	%	(2)
May, 2018	13.3	11.1		June, 2020	5.38	%	(3)
July, 2017	66.2	31.7		February, 2021	5.56	%	(2)
January, 2016	35.0	14.0		August, 2019	5.75	%	(1)
	261.4	$	143.9

(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)~~(2) Loan bears interest at the greatest of the prime rate, federal funds effective rate +1.0%, or LIBOR +1.0%.

(3) Loan bears interest at LIBOR +2.90%.

In addition to the above, the Company had ~~$2.3~~$1.2 million of construction notes payable outstanding related to projects that are wholly-owned by the Company.

The notes payable contain certain financial maintenance covenants. The Company was in compliance with all such covenants as of March 31, ~~2018.~~2019.

Senior Notes

5 ³/₄%5.75% 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”).

During the three months ended March 31, 2018, Parent, through California Lyon, used the net proceeds from the offering of 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 RSI Acquisition and to pay related fees and expenses and (ii) to repay all of California Lyon's $150 million in aggregate principal amount of 5.75% Notes such that the 5.75% Notes were satisfied and discharged ~~as of~~prior to March 31, ~~2018.~~

8 ¹/₂~~% Senior Notes Due 2020~~

During the three months ended 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 December 31, 2017. The Company incurred certain costs related to the early extinguishment of debt of the 8.5% Notes during the three months ended 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.2019.

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 acquisition of Polygon ~~Acquisition,~~Northwest Homes, Escrow Issuer merged with and into California Lyon, and

California Lyon assumed the obligations of the Escrow Issuer under the initial 7.00% Notes and the related indenture by operation of law (the “Escrow Merger”). Following the Escrow Merger, California Lyon is the obligor under the initial 7.00% Notes. In January 2015, we exchanged 100% of the initial 7.00% Notes for notes that are freely transferable and registered under the Securities Act.

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

As of March 31, ~~2018~~2019, the outstanding amount of the 7.00% Notes was $350 million, excluding unamortized premium of ~~$0.7~~$0.5 million and deferred loan costs of ~~$3.8~~$2.9 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 $350 million in aggregate principal amount of 6.00% Senior Notes due 2023 and ~~$450~~$437 million in aggregate principal amount of 5.875% Senior Notes due 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. In September 2018, the Company exchanged 100% of the 6.00% Notes tendered in the exchange offer for notes that are freely transferable and registered under the Exchange Act.

As of March 31, ~~2018,~~2019, the outstanding principal amount of the 6.00% Notes was $350 million, excluding deferred loan costs of ~~$6.7~~$5.8 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~~$437 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 prior year 8.5% Notes such that the entire aggregate $425 million of previously outstanding 8.5% Notes ~~are~~were retired and extinguished as of ~~March~~December 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 March 31, ~~2018,~~2019, the outstanding principal amount of the 5.875% Notes was ~~$450~~$437 million, excluding unamortized discount of ~~$3.1~~$2.7 million and deferred loan costs of ~~$7.0~~$5.8 million. During the three months ended March 31, 2019, the Company retired approximately $4.0 million of the principal balance, resulting in $0.4 million of gain on debt extinguishment recognized through earnings. 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 $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.

Senior Notes Covenant Compliance

The indentures governing the 7.00% Notes, the 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 March 31, ~~2018.~~

2019.

GUARANTOR AND NON-GUARANTOR FINANCIAL STATEMENTS

The following consolidating financial information includes:

(1) Consolidating balance sheets as of March 31, ~~2018~~2019 and December 31, ~~2017;~~2018; consolidating statements of operations for the three and three months ended March 31, ~~2018~~2019 and ~~2017;~~2018; and consolidating statements of cash flows for the three month periods ended March 31, ~~2018~~2019 and ~~2017,~~2018, of (a) William Lyon Homes, as the parent, or “Delaware Lyon”, (b) William Lyon Homes, Inc., as the subsidiary issuer, or “California Lyon”, (c) the guarantor subsidiaries, (d) the non-guarantor subsidiaries and (e) William Lyon Homes, Inc. on a consolidated basis; and

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

Delaware Lyon owns 100% of all of its guarantor subsidiaries and all guarantees are full and unconditional, joint and several. As a result, in accordance with Rule 3-10 (d) of Regulation S-X promulgated by the SEC, no separate financial statements are required for these subsidiaries as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, and for the three and three month periods ended March 31, ~~2018~~2019 and ~~2017.~~2018.

CONDENSED CONSOLIDATING BALANCE SHEET

(Unaudited)

As of March 31, ~~2018~~2019

(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	$	—	$	39,497		$	3,576		$	7,400		$	—		$	50,473	$	—	$	33,942		$	1,915		$	9,852		$	—		$	45,709
Receivables	—		7,410			3,356			3,252			—			14,018		—		5,109			5,304			5,004			—			15,417
Escrow proceeds receivable	—		373			1,179			—			—			1,552		—		2,659			—			—			—			2,659
Real estate inventories
Owned	—		883,102			935,092			233,623			—			2,051,817		—		725,596			1,140,340			437,600			—			2,303,536
Not owned	—		—			282,169			—			—			282,169		—		114,858			179,227			—			—			294,085
Investment in unconsolidated joint ventures	—		5,256			150			—			—			5,406		—		5,512			150			—			—			5,662
Goodwill	—		14,209			104,668			—			—			118,877		—		14,209			109,486			—			—			123,695
Intangibles, net	—		—			6,700			—			—			6,700		—		—			6,700			—			—			6,700
Deferred income taxes, net	—		47,716			—			—			—			47,716		—		46,900			—			—			—			46,900
Lease right-of-use assets	—		14,757			—			—			—			14,757		—		13,135			—			—			—			13,135
Other assets, net	—		21,772			10,682			467			—			32,921		—		27,299			8,952			1,264			—			37,515
Investments in subsidiaries	782,285		(18,061		)	(837,268		)	—			73,044			—		871,850		23,425			(943,873		)	—			48,598			—
Intercompany receivables	—		—			285,102			—			(285,102		)	—		—		—			294,625			(160		)	(294,465		)	—
Total assets	$	782,285	$	1,016,031		$	795,406		$	244,742		$	(212,058	)	$	2,626,406	$	871,850	$	1,012,644		$	802,826		$	453,560		$	(245,867	)	$	2,895,013
LIABILITIES AND EQUITY
Accounts payable	$	—	$	66,356		$	14,756		$	7,741		$	—		$	88,853	$	—	$	63,991		$	30,492		$	14,023		$	—		$	108,506
Accrued expenses	—		81,565			17,699			114			—			99,378		—		84,459			12,156			100			—			96,715
Liabilities from inventories not owned	—		—			282,169			—			—			282,169		—		114,860			179,225			—			—			294,085
Notes payable	—		85,000			2,291			84,955			—			172,246		—		110,001			1,204			144,026			—			255,231
7% Senior Notes	—		346,924			—			—			—			346,924		—		347,639			—			—			—			347,639
6% Senior Notes	—		343,274			—			—			—			343,274		—		344,206			—			—			—			344,206
5 ⁷/₈% Senior Notes	—		439,903			—			—			—			439,903
5.875% Senior Notes																	—		428,430			—			—			—			428,430
Intercompany payables	—		186,483			—			98,619			(285,102		)	—		—		170,830			—			123,635			(294,465		)	—
Total liabilities	—		1,549,505			316,915			191,429			(285,102		)	1,772,747		—		1,664,416			223,077			281,784			(294,465		)	1,874,812
Equity
William Lyon Homes stockholders’ equity (deficit)	782,285		(533,474		)	478,491			(18,061		)	73,044			782,285
William Lyon Homes stockholders’ equity																	871,850		(651,772		)	579,749			23,425			48,598			871,850
Noncontrolling interests	—		—			—			71,374			—			71,374		—		—			—			148,351			—			148,351
Total liabilities and equity	$	782,285	$	1,016,031		$	795,406		$	244,742		$	(212,058	)	$	2,626,406	$	871,850	$	1,012,644		$	802,826		$	453,560		$	(245,867	)	$	2,895,013

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, ~~2017~~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	$	—	$	171,434		$	156		$	11,120		$	—		$	182,710	$	—	$	21,450		$	2,888		$	9,441	$	—		$	33,779
Receivables	—		4,647			2,252			3,324			—			10,223		—		6,054			4,151			3,297		—			13,502
Escrow proceeds receivable	—		1,594			1,725			—			—			3,319															—
Real estate inventories	—		831,007			630,384			238,459			—			1,699,850
Owned																	—		745,750			1,152,786			434,671		—			2,333,207
Not owned																	—		114,859			200,717			—		—			315,576
Investment in unconsolidated joint ventures	—		7,717			150			—			—			7,867		—		5,392			150			—		—			5,542
Goodwill	—		14,209			52,693			—			—			66,902		—		14,209			109,486			—		—			123,695
Intangibles, net	—		—			6,700			—			—			6,700		—		—			6,700			—		—			6,700
Deferred income taxes, net	—		47,915			—			—			—			47,915		—		47,241			—			—		—			47,241
Lease right-of-use assets	—		14,454			—			—			—			14,454		—		13,561			—			—		—			13,561
Other assets, net	—		18,167			2,504			493			—			21,164		—		26,797			9,688			486		—			36,971
Investments in subsidiaries	780,472		(16,544		)	(494,201		)	—			(269,727		)	—		863,322		16,059			(961,950		)	—		82,569			—
Intercompany receivables	—		—			269,831			—			(269,831		)	—		—		—			285,675			—		(285,675		)	—
Total assets	$	780,472	$	1,094,600		$	472,194		$	253,396		$	(539,558	)	$	2,061,104	$	863,322	$	1,011,372		$	810,291		$	447,895	$	(203,106	)	$	2,929,774
LIABILITIES AND EQUITY
Accounts payable	$	—	$	40,075		$	13,007		$	5,717		$	—		$	58,799	$	—	$	78,462		$	34,546		$	15,363	$	—		$	128,371
Accrued expenses	—		108,407			2,988			96			—			111,491		—		123,088			26,967			100		—			150,155
Liabilities from inventories not owned																	—		114,859			200,717			—		—			315,576
Notes payable	—		589			—			93,926			—			94,515		—		45,000			1,231			151,788		—			198,019
5 ³/₄% Senior Notes	—		149,362			—			—			—			149,362
7% Senior Notes	—		346,740			—			—			—			346,740		—		347,456			—			—		—			347,456
5 ⁷/₈% Senior Notes	—		439,567			—			—			—			439,567
6% Senior Notes																	—		343,878			—			—		—			343,878
5.875% Senior Notes																	—		431,992			—			—		—			431,992
Intercompany payables	—		179,788			—			90,043			(269,831		)	—		—		172,095			—			113,580		(285,675		)	—
Total liabilities	—		1,264,528			15,995			189,782			(269,831		)	1,200,474		—		1,656,830			263,461			280,831		(285,675		)	1,915,447
Equity
William Lyon Homes stockholders’ equity	780,472		(169,928		)	456,199			(16,544		)	(269,727		)	780,472		863,322		(645,458		)	546,830			16,059		82,569			863,322
Noncontrolling interests	—		—			—			80,158			—			80,158		—		—			—			151,005		—			151,005
Total liabilities and equity	$	780,472	$	1,094,600		$	472,194		$	253,396		$	(539,558	)	$	2,061,104	$	863,322	$	1,011,372		$	810,291		$	447,895	$	(203,106	)	$	2,929,774

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(Unaudited)

Three Months Ended March 31, ~~2018~~2019

(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	$	—	$	135,173		$	182,944		$	54,268		$	—		$	372,385		$	—	$	148,932		$	243,356		$	61,487		$	—		$	453,775
Construction services	—		983			—			—			—			983			—		—			2,089			—			—			2,089
Management fees	—		(1,750		)	—			—			1,750			—			—		(1,857		)	—			—			1,857			—
	—		134,406			182,944			54,268			1,750			373,368			—		147,075			245,445			61,487			1,857			455,864
Operating costs
Cost of sales	—		(110,245		)	(150,502		)	(44,811		)	(1,750		)	(307,308		)	—		(123,138		)	(207,594		)	(48,455		)	(1,857		)	(381,044		)
Construction services	—		(983		)	—			—			—			(983		)	—		—			(1,969		)	—			—			(1,969		)
Sales and marketing	—		(8,383		)	(10,783		)	(3,527		)	—			(22,693		)	—		(8,426		)	(14,736		)	(2,115		)	—			(25,277		)
General and administrative	—		(18,553		)	(5,966		)	(2		)	—			(24,521		)	—		(20,169		)	(8,957		)	—			—			(29,126		)
Transaction expenses	—		(3,130		)	—			—			—			(3,130		)
Other	—		(353		)	46			9			—			(298		)	—		(387		)	—			43			—			(344		)
	—		(141,647		)	(167,205		)	(48,331		)	(1,750		)	(358,933		)	—		(152,120		)	(233,256		)	(50,527		)	(1,857		)	(437,760		)
Income from subsidiaries	8,328		8,107			—			—			(16,435		)	—			8,119		6,926			—			—			(15,045		)	—
Operating income	8,328		866			15,739			5,937			(16,435		)	14,435			8,119		1,881			12,189			10,960			(15,045		)	18,104
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
Equity in income of unconsolidated joint ventures																		—		711			201			—			—			912
Other income (loss), net																		—		929			81			(379		)	—			631
Income before extinguishment of debt																		8,119		3,521			12,471			10,581			(15,045		)	19,647
Gain on extinguishment of debt																		—		383			—			—			—			383
Income before provision for income taxes																		8,119		3,904			12,471			10,581			(15,045		)	20,030
Provision for income taxes	—		(2,814		)	—			—			—			(2,814		)	—		(4,896		)	—			—			—			(4,896		)
Net income (loss)	8,328		(964		)	16,052			5,607			(16,435		)	12,588
Net income																		8,119		(992		)	12,471			10,581			(15,045		)	15,134
Less: Net income attributable to noncontrolling interests	—		—			—			(4,260		)	—			(4,260		)	—		—			—			(7,015		)	—			(7,015		)
Net income (loss) available to common stockholders	$	8,328	$	(964	)	$	16,052		$	1,347		$	(16,435	)	$	8,328
Net income available to common stockholders																		$	8,119	$	(992	)	$	12,471		$	3,566		$	(15,045	)	$	8,119

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(Unaudited)

Three Months Ended March 31, ~~2017~~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 revenue
Sales	$	—		$	122,128		$	119,623		$	17,103		$	—		$	258,854		$	—	$	135,173		$	182,944		$	54,268		$	—		$	372,385
Construction services																			—		983			—			—			—			983
Management fees	—			(513		)	—			—			513			—			—		(1,750		)	—			—			1,750			—
	—			121,615			119,623			17,103			513			258,854			—		134,406			182,944			54,268			1,750			373,368
Operating costs
Cost of sales	—			(99,395		)	(103,461		)	(15,086		)	(513		)	(218,455		)	—		(110,245		)	(150,502		)	(44,811		)	(1,750		)	(307,308		)
Construction services																			—		(983		)	—			—			—			(983		)
Sales and marketing	—			(6,523		)	(6,931		)	(1,251		)	—			(14,705		)	—		(8,383		)	(10,783		)	(3,527		)	—			(22,693		)
General and administrative	—			(14,516		)	(4,429		)	(1		)	—			(18,946		)	—		(18,553		)	(5,966		)	(2		)	—			(24,521		)
Transaction expenses																			—		(3,130		)	—			—			—			(3,130		)
Other	—			(531		)	91			—			—			(440		)	—		(353		)	46			9			—			(298		)
	—			(120,965		)	(114,730		)	(16,338		)	(513		)	(252,546		)	—		(141,647		)	(167,205		)	(48,331		)	(1,750		)	(358,933		)
(Loss) income from subsidiaries	(10,000		)	(239		)	—			—			10,239			—
Operating (loss) income	(10,000		)	411			4,893			765			10,239			6,308
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	—			44			205			—			—			249			—		675			257			—			—			932
Other income (expense), net	—			645			—			(300		)	—			345			—		309			56			(330		)	—			35
(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		)
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	—			—			—			(704		)	—			(704		)	—		—			—			(4,260		)	—			(4,260		)
Net (loss) income available to common stockholders	$	(10,000	)	$	(15,098	)	$	5,098		$	(239	)	$	10,239		$	(10,000	)
Net income (loss) attributable to William Lyon Homes																			8,328		(964		)	16,052			1,347			(16,435		)	8,328

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(Unaudited)

Three Months Ended March 31, 2019

(in thousands)



	Unconsolidated
	Delaware Lyon			California Lyon			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated Company
Operating activities
Net cash provided by (used in) operating activities	$	(409	)	$	(37,671	)	$	4,229		$	3,826		$	(1,002	)	$	(31,027	)
Investing activities
Sales (purchases) of property and equipment	—			—			1,404			—			—			1,404
Investments in subsidiaries	—			(1,851		)	(18,077		)	—			19,928			—
Net cash (used in) provided by investing activities	—			(1,851		)	(16,673		)	—			19,928			1,404
Financing activities
Proceeds from borrowings on notes payable	—			—			—			30,111			—			30,111
Principal payments on notes payable	—			—			(27		)	(37,872		)	—			(37,899		)
Principal payments on 5.875% Senior Notes	—			(3,591		)	—			—			—			(3,591		)
Proceeds from borrowings on Revolver	—			190,000			—			—			—			190,000
Payments on Revolver	—			(125,000		)	—			—			—			(125,000		)
Payment of deferred loan costs	—			(43		)	—			—			—			(43		)
Shares remitted to, or withheld by the Company for employee tax withholding	—			(2,356		)	—			—			—			(2,356		)
Noncontrolling interest contributions	—			—			—			1,389			—			1,389
Noncontrolling interest distributions	—			—			—			(11,058		)	—			(11,058		)
Advances to affiliates	—			—			20,448			3,800			(24,248		)	—
Intercompany receivables/payables	409			(6,996		)	(8,950		)	10,215			5,322			—
Net cash (used in) provided by financing activities	409			52,014			11,471			(3,415		)	(18,926		)	41,553
Net (decrease) increase in cash and cash equivalents	—			12,492			(973		)	411			—			11,930
Cash and cash equivalents - beginning of period	—			21,450			2,888			9,441			—			33,779
Cash and cash equivalents - end of period	$	—		$	33,942		$	1,915		$	9,852		$	—		$	45,709

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(Unaudited)

Three Months Ended March 31, 2018

(in thousands)



	Unconsolidated
	Delaware Lyon			California Lyon			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated Company
Operating activities
Net cash provided by (used in) operating activities	$	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	—			(1,063		)	(1,391		)	12			—			(2,442		)
Investments in subsidiaries	—			9,624			343,067			—			(352,691		)	—
Net cash provided by (used in) investing activities	—			8,561			(133,545		)	12			(352,691		)	(477,663		)
Financing activities
Proceeds from borrowings on notes payable	—			—			—			20,194			—			20,194
Principal payments on notes payable	—			—			(14		)	(29,165		)	—			(29,179		)
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	—			110,000			—			—			—			110,000
Payments on Revolver	—			(25,000		)	—			—			—			(25,000		)
Payment of deferred loan costs	—			(5,877		)	—			—			—			(5,877		)
Shares remitted to, or withheld by the Company for employee tax withholding	—			(4,696		)	—			—			—			(4,696		)
Payments to repurchase common stock	—			(5,000		)	—			—			—			(5,000		)
Noncontrolling interest contributions	—			—			—			4,062			—			4,062
Noncontrolling interest distributions	—			—			—			(17,106		)	—			(17,106		)
Advances to affiliates	—			—			6,240			(2,864		)	(3,376		)	—
Intercompany receivables/payables	(6,515		)	(349,370		)	(15,273		)	8,576			362,582			—
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	—			(131,937		)	3,420			(3,720		)	—			(132,237		)
Cash and cash equivalents - beginning of period	—			171,434			156			11,120			—			182,710
Cash and cash equivalents - end of period	$	—		$	39,497		$	3,576		$	7,400		$	—		$	50,473

~~CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS~~

~~(Unaudited)~~

~~Three Months Ended March 31, 2017~~

~~(in thousands)~~

Unconsolidated

Delaware
Lyon

California
Lyon

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Eliminating
Entries

Consolidated
Company
Operating activities
Net cash (used in) provided by operating activities $ (296 ) $ (52,448 ) $ 18,589
$ (7,522 ) $ 296
$ (41,381 )
Investing activities
Purchases of property and equipment —
(2 ) —
—
—
(2 )
Investments in subsidiaries —
(333 ) (18,452 ) —
18,785
—
Net cash (used in) provided by investing activities —
(335 ) (18,452 ) —
18,785
(2 )
Financing activities
Proceeds from borrowings on notes payable —
—
—
25,350
—
25,350
Principal payments on notes payable —
—
—
(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 —
105,000
—
—
—
105,000
Payments on revolver —
(77,000 ) —
—
—
(77,000 )
Principal payments on subordinated amortizing notes —
(1,869 ) —
—
—
(1,869 )
Payment of deferred loan costs —
(6,840 ) —
—
—
(6,840 )
Shares remitted to or withheld by Company for employee tax withholding —
(1,380 ) —
—
—
(1,380 )
Cash received for lease transaction —
19,848
—
—
—
19,848
Noncontrolling interest contributions —
—
—
1,467
—
1,467
Noncontrolling interest distributions —
—
—
(7,340 ) —
(7,340 )
Advances to affiliates —
—
2,845
487
(3,332 ) —
Intercompany receivables/payables 296
11,942
(2,824 ) 6,335
(15,749 ) —
Net cash provided by (used in) financing activities 296
51,524
21
5,519
(19,081 ) 38,279
Net (decrease) increase in cash and cash equivalents —
(1,259 ) 158
(2,003 ) —
(3,104 )
Cash and cash equivalents - beginning of period —
36,204
272
6,136
—
42,612
Cash and cash equivalents - end of period $ —
$ 34,945
$ 430
$ 4,133
$ —
$ 39,508

Note 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 March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, 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 of floating interest rate terms and/or the outstanding balance is expected to be repaid within one year.


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

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 5~~⁷/8% 5.875% Senior Notes due January 31, 2025 —The 5.875% 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, receivables and accounts payable, which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments. The estimated fair values of financial instruments are as follows (in thousands):


	March 31, 2018				December 31, 2017				March 31, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial liabilities:
Notes payable	$	172,246	$	172,246	$	94,515	$	94,515	$	255,231	$	255,231	$	198,019	$	198,019
5 ³/₄% Senior Notes due 2019	—		—		149,362		151,500
7% Senior Notes due 2022	346,924		359,625		346,740		362,250		347,639		351,330		347,456		350,000
6% Senior Notes due 2023	343,274		349,125		—		—		344,206		337,750		343,878		315,000
5 ⁷/₈% Senior Notes due 2025	439,903		436,500		439,567		459,000
5.875% Senior Notes due 2025									428,430		411,241		431,992		378,611

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. 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 9—Related Party Transactions

InOn March 9, 2018, California Lyon completed its private placement with registration rights of the 6.00% Notes in an aggregate principal amount of $350 million (see Note 7), for which Credit Suisse Securities (USA) LLC (“Credit Suisse”) served as an initial purchaser and joint book-running manager, along with several other banks, and received customary underwriting fees as a member of the underwriting syndicate. On November ~~2017,~~5, 2018, Eric A. Anderson commenced his service as a member of the ~~Company entered into~~Company's Board of Directors. Mr. Anderson had previously held the position of Vice Chairman, Investment Banking of Credit Suisse until November 3, 2018, at which point, Mr. Anderson was appointed as a ~~Purchase and Sale Agreement (the “Oceanside PSA”) with~~Senior Advisor to Credit Suisse, a non-employee role pursuant to which he provides certain consultant services to Credit Suisse as an ~~entity (“Oceanside Seller”) managed by an affiliate of Paulson & Co., Inc. (“Paulson”), which provides for the purchase of certain~~

~~real property from~~independent contractor. As of and following the ~~Seller located in Oceanside, California~~November 3, 2018 transition date, Mr. Anderson did not and will not receive any fees or compensation of any kind 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 paidany transactional relationships between Credit Suisse 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, which stock was sold in its entirety in September 2017. One of the current members of Parent’s board of directors currently serves as Portfolio Manager for the Paulson Real Estate Funds, which are affiliates of Paulson, and is a Partner in Paulson. The Company believes that the St. Cloud Transaction was on terms no less favorable than it would have agreed to with unrelated third parties.Company.

Note 10—Income Taxes

Since inception, the Company has operated solely within the United States. The Company’s effective income tax rate was ~~18.3%~~24.4% and ~~(37.7)%~~18.3% for the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. The significant drivers of the effective tax rate are 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,~~2019 and ~~noncontrolling interests and the domestic activities deduction for the three months ended~~ March 31, ~~2017.~~2018.

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 March 31, ~~2018,~~2019, the Company had no valuation allowance recorded.

At March 31, ~~2018,~~2019, the Company had no remaining federal net operating loss carryforwards and ~~$49.9~~$46.4 million of remaining state net operating loss carryforwards. State net operating loss carryforwards begin to expire in 2031. In addition, as of March 31, ~~2018,~~2019, the Company had unused federal and state built-in losses of ~~$48.5~~$44.9 million and $7.5 million, respectively. The five year testing period for built-in losses 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 March 31, ~~2018,~~2019, 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, 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 ~~2012~~2013 and forward. The Company is subject to various state income tax examinations for calendar tax years ended 2008 and forward. The Company is currently under examination by the Internal Revenue Service for the 2013 and 2014 tax years and aunder examination by California ~~examination is pending~~ for the 2014 tax year.

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

Basic and diluted income ~~(loss)~~ per common share for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 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 March 31, 2019		Three Months Ended March 31, 2018
Basic weighted average number of common shares outstanding	37,610,766		37,931,256
Effect of dilutive securities:
Stock options, unvested common shares, and warrants	1,144,347		1,924,427
Diluted average shares outstanding	38,755,113		39,855,683
Net income available to common stockholders	$	8,119	$	8,328
Basic income per common share	$	0.22	$	0.22
Dilutive income per common share	$	0.21	$	0.21
Antidilutive securities not included in the calculation of diluted income per common share (weighted average):
Unvested stock options	—		—

Note 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 March 31, ~~2018,~~2019, the Company granted ~~237,281~~550,829 shares of time-based restricted stock, and ~~426,075 shares~~490,227 of performance ~~based restricted stock.~~stock units, including one award tied to a market performance condition. On the Consolidated Balance Sheets and Statement of Equity, the Company considers unvested shares of restricted stock to be issued, but not outstanding.

The Company recorded total stock based compensation expense during the three months ended March 31, 2019 and 2018 ~~and 2017~~ of ~~$3.2~~$2.8 million and ~~$1.7~~$3.2 million, respectively.

~~Performance-Based Restricted~~Performance Stock ~~Awards~~Units

With respect to the performance ~~based restricted~~ stock ~~awards~~units granted to certain employees during the three months ended March 31, ~~2018~~,2019, the actual number of such ~~shares of restricted~~ stock units 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 ~~2018~~2019 fiscal ~~year. Of~~year, with each unit constituting the opportunity to earn up to two shares of Company common stock. The aforementioned awards ~~373,432 of such Earned Shares~~represent 400,460 stock units that vest in three equal annual installments on March 1st of each of ~~2019,~~ 2020, 2021 and ~~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,~~2022, subject to each grantee’s continued service through each vesting date. Based on the probability assessment as of March 31, ~~2018,~~2019, management determined that the currently available data was not sufficient to support that the achievement of the preliminary performance targets is probable, and as such, no compensation expense has been recognized for these awards to date. The Company's Compensation Committee has elected to wait until the second quarter to set the final metric for the performance-based stock units target.

Performance Stock Units with Market Condition

With respect to the performance based stock units with market condition granted to a certain employee during the three months ended March 31, 2019, the actual number of stock units that will be earned is subject to the Company’s achievement of a pre-established market performance target as of the end of the vesting periods, with each unit constituting the opportunity to earn up to two shares of Company common stock. The aforementioned award represents 89,767 stock units that vest in two annual installments at the end of each performance period, subject to grantee’s continued service through each vesting 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 March 31, ~~2018, 116,484 of such shares vest in three equal annual installments on March 1st of each of~~ 2019, ~~2020 and 2021, 4,767 of such shares vest in two equal annual installments on March 1st of each of 2019 and 2020, 26,321~~285,030 of such shares vest in three equal annual installments on each anniversary of the grant date, ~~31,464~~134,650 of such shares vest in one installment on January 2, 2022, and 84,156 of such shares vest in two equal annual installments on each anniversary of the grant date, ~~and 36,317 of such shares vest in one installment on the second anniversary of the grant date, in each case~~ subject to ~~each~~the grantee’s continued service through each vesting ~~date, and 21,928~~date. With respect to the restricted stock awards granted to certain non-employee directors during the three months ended March 31, 2019, 46,993 of such shares vest in four equal quarterly installments on each three-month period beginning June 1st of ~~2018,~~2019, subject to each grantee’s continued service on the board through each vesting date.

Note 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 March 31, ~~2018,~~2019, 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.

On March 31, 2019, there was a fire in Wilsonville, Oregon in which we incurred damage to certain buildings in our Villebois community. We do not have an estimate yet as to the dollar amount of the damages. As of March 31, 2019, the Company has not recorded any amounts related to the damages incurred in its Consolidated Financial Statements, however the Company expects any and all damages to be paid by insurance less any associated deductibles.

The Company had outstanding performance and surety bonds of ~~$239.0~~$341.4 million at March 31, ~~2018,~~2019, related principally to its obligations for site improvements at various projects. The Company does not believe that draws upon these bonds, if any, will have a material effect on the Company’s financial position, results of operations or cash flows. As of March 31, ~~2018,~~2019, the Company had ~~$453.8~~$291.3 million of project commitments relating to the construction of projects.

See Note 7 for additional information relating to the Company’s guarantee arrangements.

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 March 31, ~~2018,~~2019, the Company has made non-refundable deposits of ~~$92.1~~$143.7 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 ~~$996.4~~$744.2 million as of March 31, ~~2018.~~2019.

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 consolidated land banking arrangements is as follows as of the period presented (dollars in thousands):


	March 31, 2018		March 31, 2019
Total number of land banking projects	1
Total number of land banking arrangements consolidated			3
Total number of lots	3,053		5,184
Total purchase price	$	316,452	$	452,967
Balance of lots still under option and not purchased:
Number of lots	3,053		4,002
Purchase price	$	316,452	$	294,085
Forfeited deposits if lots are not purchased	$	34,283	$	76,812

Lease Obligations

Lease obligations, as included in Accrued expenses on the consolidated balance sheets, were ~~$14.8~~$14.2 million as of March 31, ~~2018~~2019 and ~~$14.5~~$14.6 million as of December 31, ~~2017.~~2018. 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			Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
Lease cost
Operating lease cost	$	2,009		$	959		$	1,444		$	2,009
Sublease income	(29		)	(29		)	—			(29		)
Total lease cost	$	1,980		$	930		$	1,444		$	1,980

Other information
Cash paid for amounts included in the measurement of lease liabilities for operating leases:
Operating cash flows	$	1,767		$	873		$	1,223		$	1,767
Right-of-use assets obtained in exchange for new operating lease liabilities	$	1,696		$	4,650		$	78		$	1,696
Weighted-average discount rate	6.4		%	6.6		%	7.3		%	6.4		%

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



	March 31, 2019	December 31, 2018
Weighted-average remaining lease term (in years)	4.61	4.23

The table below shows the future minimum payments under non-cancelable operating leases at March 31, ~~2018~~2019 (in thousands).


Year Ending December 31,
Remaining in 2018	$	6,093
2019	5,352
Remaining in 2019			$	5,003
2020	4,031		5,126
2021	3,733		4,879
2022	2,476		3,553
2023			2,423
Thereafter	1,992		1,987
Total	$	23,677	$	22,971

Note 14—Subsequent Events

No events have occurred subsequent to March 31, ~~2018,~~2019, 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 Texas. The Company’s core markets include Orange County, Los Angeles, San Diego, Riverside, San Bernardino, the ~~Inland Empire, the~~South and East Bay Areas of San Francisco, ~~Bay Area,~~ Phoenix, Las Vegas, Denver, Fort Collins, Portland, Seattle, Houston, Austin and 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 ~~103,000~~108,000 homes. The Company markets and sells its homes under the William Lyon Homes brand in all of its markets except for Washington and Oregon, where the Company operates under the Polygon Northwest brand. For the three months ended March 31, ~~2018~~2019 (the ~~"2018~~"2019 period"), the Company had revenues from homes sales of ~~$372.4~~$453.8 million, a ~~44%~~22% increase from ~~$258.9~~$372.4 million for the three months ended March 31, ~~2017~~2018 (the ~~"2017~~"2018 period"), which includes results from all seven reportable operating segments. The Company had net new home orders of ~~1,106~~1,103 homes in the ~~2018~~2019 period, a ~~28% increase~~decrease from ~~865~~1,106 in the ~~2017~~2018 period, while the average number of sales locations increased 2%40% to 118 in the 2019 period from 84 in the 2018 ~~period from 82 in the 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.

Overview

While the long-term fundamentals remain positive in the broader economy as well as our local markets, the cost of home ownership has increased with the significant price appreciation in several of our markets over the last few years. However, in conjunction with a relatively limited supply of new homes in all of our markets, we believe that homebuyer demand in the long term remains strong against our consistent homebuyer traffic levels.

Results of Operations

In the three months ended March 31, ~~2018,~~2019, the Company delivered ~~740~~949 homes, ~~with an ASP of approximately $503,200,~~up 28%, and recognized home sales revenue of ~~$372.4 million.~~$453.8 million, up 22%, from the 2018 period, respectively. The Company generated net income available to common shareholders of ~~$8.3~~$8.1 million for the three months ended March 31, ~~2018,~~2019, and income per share of $0.22. The ~~Company continues to see positive trends in orders,~~Company's average sales price ~~appreciation in many projects,~~("ASP") of homes closed is $478,200, and our average sales price of homes in backlog is approximately ~~$515,200~~$441,200 as of March 31, ~~2018,~~2019, both of which ~~is 2% higher than~~are indicative of the ~~average sales price of homes closed for~~Company's strategy to lower ASP through product segmentation, focusing on the ~~three months ended March 31, 2018 of $503,200.~~entry level and first time move-up buyer.

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 (date of acquisition) through March 31, ~~2018.~~2018, respectively.

As of March 31, ~~2018,~~2019, the Company was selling homes in ~~105 communities, including 29 communities added in conjunction with the acquisition of RSI Communities.~~122 communities. We had a consolidated backlog of ~~1,460~~1,195 homes sold but not closed, with an associated sales value of ~~$752.1 million, representing a 33% increase in units, and a 19% increase in dollar value, as compared to the backlog at March 31, 2017.~~$527.2 million.

Homebuilding gross margin percentage and adjusted homebuilding gross margin percentage was 16.0% and 20.5%, respectively, for the three months ended March 31, 2019, as compared to 17.5% and 22.7%, respectively, for the three months ended March 31, ~~2018, as compared to 15.6% and 20.1%, respectively, for the three months ended March 31, 2017.~~2018.

Comparisons of the Three Months Ended March 31, ~~2018~~2019 to March 31, ~~2017~~2018

Revenues from homes sales increased ~~44%~~22% to $453.8 million during the three months ended March 31, 2019, compared to $372.4 million during the three months ended March 31, ~~2018, compared to $258.9 million during the three months ended March 31, 2017.~~2018. The increase in revenue is primarily due to the ~~48%~~28% increase in the number of homes closed during the ~~2017~~2018 period. The number of net new home orders for the three months ended March 31, ~~2018 increased 28% to~~2019 was 1,103 homes, in-line with 1,106 ~~homes from 865~~ homes for the three months ended March 31, ~~2017.~~

2018.


	Three Months Ended March 31,		Increase (Decrease)				Three Months Ended March 31,		Increase (Decrease)
	2018	2017	Amount		%		2019	2018	Amount		%
Number of Net New Home Orders
California	283	265	18		7	%	290	283	7		2	%
Arizona	108	128	(20	)	(16	)%	112	108	4		4	%
Nevada	109	77	32		42	%	59	109	(50	)	(46	)%
Colorado	144	61	83		136	%	172	144	28		19	%
Washington	179	152	27		18	%	94	179	(85	)	(47	)%
Oregon	209	182	27		15	%	112	209	(97	)	(46	)%
Texas	74	—	74		N/M		264	74	190		257	%
Total	1,106	865	241		28	%	1,103	1,106	(3	)	—	%

~~The 28% increase~~Our orders activity for the quarter was in ~~net new homes orders is driven by an increase in monthly absorption to 4.4 sales per month from 3.5 in the~~line with prior year ~~period,~~on a consolidated basis, based on lower absorption in ~~addition to a 2% increase~~certain of our markets, and higher average sales locations. 2018 sales rates were significantly higher than 2017, and so during the first quarter of 2019, we have seen absorption more in ~~average number of sales locations to 84 average locations in 2018, compared to 82 in the~~line with 2017 ~~period, which is driven by the 29 communities added in conjunction with the acquisition of RSI Communities and opening of 11 new communities in the legacy operating segments.~~levels.


	Three Months Ended March 31,				Increase (Decrease)		Three Months Ended March 31,				Increase (Decrease)
	2018		2017		%		2019		2018		%
Cancellation Rates
California	8	%	15	%	(7	)%	20	%	8	%	12	%
Arizona	15	%	13	%	2	%	12	%	15	%	(3	)%
Nevada	19	%	11	%	8	%	23	%	19	%	4	%
Colorado	9	%	9	%	—	%	9	%	9	%	—	%
Washington	9	%	10	%	(1	)%	5	%	9	%	(4	)%
Oregon	5	%	13	%	(8	)%	23	%	5	%	18	%
Texas	9	%	N/A		N/M		14	%	9	%	5	%
Overall	10	%	12	%	(2	)%	16	%	10	%	6	%

Cancellation rates during the ~~2018~~2019 period ~~decreased~~increased to ~~10%~~16% from ~~12%~~10% during the ~~2017~~2018 period. Cancellation rates typically are driven by personal factors affecting buyers and may not be indicative of any overarching ~~trends affecting regions.~~trends. However, in California and Oregon, cancellation rates increased due to affordability concerns in the Bay Area of Northern California, and in Portland; two markets with significant price appreciation in 2017 and 2018.


	Three Months Ended March 31,		Increase (Decrease)				Three Months Ended March 31,		Increase (Decrease)
	2018	2017	Amount		%		2019	2018	Amount		%
Average Number of Sales Locations
California	22	24	(2	)	(8	)%	35	22	13		59	%
Arizona	6	9	(3	)	(33	)%	9	6	3		50	%
Nevada	12	11	1		9	%	13	12	1		8	%
Colorado	15	11	4		36	%	11	15	(4	)	(27	)%
Washington	9	7	2		29	%	10	9	1		11	%
Oregon	15	20	(5	)	(25	)%	16	15	1		7	%
Texas	5	—	5		N/M		24	5	19		380	%
Total	84	82	2		2	%	118	84	34		40	%

The average number of sales locations for the Company increased to 84118 locations for the three months ended March 31, ~~2018~~2019 compared to 8284 for the three months ended March 31, ~~2017,~~2018, driven by the 2941 communities added in conjunction with a full quarter of operations in Texas and California, resulting from the prior year acquisition of RSI Communities. ~~During the period, the Company opened 11 communities, while closing out 12 in the legacy operating segments.~~


	Three Months Ended March 31, 2018		Increase (Decrease)	Three Months Ended March 31, 2019		Increase (Decrease)
	2018	2017	Increase (Decrease)	2019	2018	Increase (Decrease)
Quarterly Absorption Rates
California	12.9	11.0	1.9	8.3	12.9	(4.6)
Arizona	18.0	14.2	3.8	12.4	18.0	(5.6)
Nevada	9.1	7.0	2.1	4.5	9.1	(4.6)
Colorado	9.6	5.5	4.1	15.6	9.6	6.0
Washington	19.9	21.7	(1.8)	9.4	19.9	(10.5)
Oregon	13.9	9.1	4.8	7.0	13.9	(6.9)
Texas	14.8	—	14.8	11.0	14.8	(3.8)
Overall	13.2	10.5	2.7	9.3	13.2	(3.9)

The Company's consolidated quarterly absorption rate, representing the number of net new home orders divided by average sales locations for the period, ~~increased~~decreased for the three months ended March 31, ~~2018~~2019 to ~~13.2~~9.3 sales per project from ~~10.5~~13.2 in the 2018 period driven primarily by lower absorption in certain of our markets, and higher average sales locations. As previously mentioned, 2018 sales rates were significantly higher than 2017, ~~period.~~and so during the first quarter of 2019, we have seen absorption more in line with 2017 levels.


	March 31,		Increase (Decrease)				March 31,		Increase (Decrease)
	2018	2017	Amount		%		2019	2018	Amount		%
Backlog (units)
California	388	368	20		5	%	261	388	(127	)	(33	)%
Arizona	164	238	(74	)	(31	)%	181	164	17		10	%
Nevada	121	88	33		38	%	82	121	(39	)	(32	)%
Colorado	223	98	125		128	%	180	223	(43	)	(19	)%
Washington	176	134	42		31	%	63	176	(113	)	(64	)%
Oregon	177	173	4		2	%	120	177	(57	)	(32	)%
Texas	211	—	211		N/M		308	211	97		46	%
Total	1,460	1,099	361		33	%	1,195	1,460	(265	)	(18	)%

The Company’s backlog at March 31, ~~2018~~2019 ~~increased~~decreased ~~33%~~18% to ~~1,460~~1,195 units from ~~1,099~~1,460 units at March 31, ~~2017~~2018. The ~~increase~~decrease is primarily attributable to an increase in ~~net new home orders to 1,106 in the current period~~closings from ~~865 in~~ the prior year ~~slightly offset by~~coupled with a ~~higher~~91% backlog conversion rate ~~of 80% in current period compared to 68% in~~during the ~~prior period.~~three months ended March 31, 2019.


	March 31,				Increase (Decrease)					March 31,				Increase (Decrease)
	2018		2017		Amount			%		2019		2018		Amount			%
	(dollars in thousands)									(dollars in thousands)
Backlog (dollars)
California	$	282,484	$	296,406	$	(13,922	)	(5	)%	$	165,965	$	282,484	$	(116,519	)	(41	)%
Arizona	51,055		71,258		(20,203		)	(28	)%	63,640		51,055		12,585			25	%
Nevada	80,379		64,865		15,514			24	%	42,467		80,379		(37,912		)	(47	)%
Colorado	90,312		51,679		38,633			75	%	79,875		90,312		(10,437		)	(12	)%
Washington	115,375		80,619		34,756			43	%	45,968		115,375		(69,407		)	(60	)%
Oregon	76,433		69,413		7,020			10	%	48,524		76,433		(27,909		)	(37	)%
Texas	56,093		—		56,093			N/M		80,752		56,093		24,659			44	%
Total	$	752,131	$	634,240	$	117,891		19	%	$	527,191	$	752,131	$	(224,940	)	(30	)%

The dollar amount of backlog of homes sold but not closed as of March 31, ~~2018~~2019 was ~~$752.1~~$527.2 million, ~~up 19%~~down 30% from ~~$634.2~~$752.1 million as of March 31, ~~2017.~~2018. The ~~increase~~decrease primarily reflects ~~an increase~~a decrease in net new orders as described above, ~~slightly offset by an 11%~~and a 14% decrease in the average sales price of homes in backlog when compared with the prior period. ~~The increase~~However, the Company is selling more spec units 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~~first quarter compared to the previous ~~period.~~

year.

In California, the dollar amount of backlog decreased 5% to ~~$282.5~~$166.0 million as of March 31, ~~2018~~2019 from ~~$296.4~~$282.5 million as of March 31, ~~2017. The~~2018. This was primarily due to the 33% decrease ~~was slightly offset by a 5% increase~~ in units in backlog, coupled with the decrease in ~~addition to the increase~~ASP of homes in ~~number of net new home orders~~backlog for the ~~2017~~2018 period of 7%13% to ~~283 homes~~$635,900 from ~~265 homes~~$728,100 for the ~~2017~~2018 period.

In Arizona, the dollar amount of backlog ~~decreased 28%~~increased 25% to $63.6 million as of March 31, 2019 from $51.1 million as of March 31, 2018, ~~from $71.3 million as of March 31, 2017,~~ which is primarily attributable to a ~~31% decrease~~10% increase in the number of ~~homes~~units in backlog to 181 at March 31, 2019, from 164 at March 31, 2018 ~~from 238 at March 31, 2017~~ due to ~~stronger backlog conversion~~a 4% increase in new home orders, and a ~~12% increase in deliveries. This was partially offset by a 4%~~13% increase in the ASP of homes in backlog when compared with the prior period.

In Nevada, the dollar amount of backlog ~~increased 24%~~decreased 47% to $42.5 million as of March 31, 2019 from $80.4 million as of March 31, 2018, ~~from $64.9 million as of March 31, 2017,~~primarily attributable to a ~~38% increase~~32% decrease in units in backlog to 82 as of March 31, 2019, from 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 $664,300 as of March 31, 2018, from $737,100 as of March 31, 2017.~~2018.

In Colorado, the dollar amount of backlog ~~increased 75%~~decreased 12% to $79.9 million as of March 31, 2019 from $90.3 million as of March 31, 2018, which is attributable to a 19% decrease in the number of units in backlog, to 180 units as of March 31, 2019, from ~~$51.7~~223 units as of March 31, 2018, partially offset by a 10% increase of the ASP of homes in backlog to $443,800 as of March 31, 2019 from $405,000 as of March 31, 2018.

In Washington, the dollar amount of backlog decreased 60% to $46.0 million as of March 31, ~~2017,~~2019 from $115.4 million as of March 31, 2018, which is attributable to a ~~128%~~64% decrease in the number of units in backlog, to 63 units as of March 31, 2019, from 176 units as of March 31, 2018, partially offset by a 11% increase in the ASP of homes in backlog to $729,700 as of March 31, 2019 from $655,500 as of March 31, 2018.

In Oregon, the dollar amount of backlog decreased 37% to $48.5 million as of March 31, 2019 from $76.4 million as of March 31, 2018, which is primarily attributable to a 32% decrease in the number of units in backlog, to 120 units as of March 31, 2019, from 177 units as of March 31, 2018, and a 6% decrease in the ASP of homes in backlog to $404,400 in the 2019 period from $431,800 in the 2018 period.

In Texas, the dollar amount of backlog increased 44% to $80.8 million as of March 31, 2019 from $56.1 million as of March 31, 2018, which is primarily attributable to a 46% increase in the number of units in backlog, to ~~223~~308 units as of March 31, 2019, from 211 units as of March 31, 2018, ~~from 98 units as of March 31, 2017. This was slightly~~partially offset by a ~~23%~~1% decrease of the ASP of homes in backlog to $405,000 as of March 31, 2018 from $527,300 as of March 31, 2017. Previously, our backlog conversion rate in Colorado 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 43% to $115.4 million as of March 31, 2018 from $80.6 million as of March 31, 2017, which is attributable to a 31% increase in the number of units in backlog, to 176 units as of March 31, 2018, from 134 units as of March 31, 2017. In addition, there was a 9% increase in the ASP of homes in backlog ~~to $655,500 as of March 31, 2018 from $601,600 as of March 31, 2017.~~when compared with the prior period.

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 and a 2% increase in the 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 March 31,		Increase (Decrease)				Three Months Ended March 31,		Increase (Decrease)
	2018	2017	Amount		%		2019	2018	Amount		%
Number of Homes Closed
California	210	121	89		74	%	281	210	71		34	%
Arizona	105	94	11		12	%	89	105	(16	)	(15	)%
Nevada	74	48	26		54	%	71	74	(3	)	(4	)%
Colorado	93	38	55		145	%	126	93	33		35	%
Washington	94	70	24		34	%	72	94	(22	)	(23	)%
Oregon	104	128	(24	)	(19	)%	120	104	16		15	%
Texas	60	—	60		N/M		190	60	130		217	%
Total	740	499	241		48	%	949	740	209		28	%

During the three months ended March 31, ~~2018,~~2019, the number of homes closed increased ~~48%~~28% to ~~740~~949 from ~~499~~740 in the ~~2017~~2018 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 and Colorado, bolstered by a full quarter of new home deliveries ~~resulting~~ from the projects added through the acquisition of RSI ~~Communities.~~

Communities, which were slightly offset by the decreases in homes closed in Arizona, Nevada, and Washington.


	Three Months Ended March 31,				Increase (Decrease)					Three Months Ended March 31,				Increase (Decrease)
	2018		2017		Amount			%		2019		2018		Amount			%
	(dollars in thousands)									(dollars in thousands)
Home Sales Revenue
California	$	134,812	$	81,967	$	52,845		64	%	$	186,118	$	134,812	$	51,306		38	%
Arizona	32,039		26,716		5,323			20	%	29,594		32,039		(2,445		)	(8	)%
Nevada	49,176		30,548		18,628			61	%	37,705		49,176		(11,471		)	(23	)%
Colorado	40,063		21,330		18,733			88	%	56,036		40,063		15,973			40	%
Washington	54,668		43,474		11,194			26	%	41,851		54,668		(12,817		)	(23	)%
Oregon	46,853		54,819		(7,966		)	(15	)%	51,087		46,853		4,234			9	%
Texas	14,774		—		14,774			N/M		51,384		14,774		36,610			248	%
Total	$	372,385	$	258,854	$	113,531		44	%	$	453,775	$	372,385	$	81,390		22	%

The ~~44%~~22% increase in homebuilding revenue is driven by the ~~48%~~28% increase in homes closed discussed above, slightly offset by the 3%5% decrease in the average sales price of homes closed between the ~~2018~~2019 and ~~2017~~2018 periods, which is primarily driven by product and geographical mix and was impacted by the lower price point from the ~~new~~ Texas operating ~~segment.~~segment, which is below the Company average.


	Three Months Ended March 31,				Increase (Decrease)					Three Months Ended March 31,				Increase (Decrease)
	2018		2017		Amount			%		2019		2018		Amount			%
Average Sales Price of Homes Closed
California	$	642,000	$	677,400	$	(35,400	)	(5	)%	$	662,300	$	642,000	$	20,300		3	%
Arizona	305,100		284,200		20,900			7	%	332,500		305,100		27,400			9	%
Nevada	664,500		636,400		28,100			4	%	531,100		664,500		(133,400		)	(20	)%
Colorado	430,800		561,300		(130,500		)	(23	)%	444,700		430,800		13,900			3	%
Washington	581,600		621,100		(39,500		)	(6	)%	581,300		581,600		(300		)	—	%
Oregon	450,500		428,300		22,200			5	%	425,700		450,500		(24,800		)	(6	)%
Texas	246,200		—		246,200			N/M		270,400		246,200		24,200			10	%
Company Average	$	503,200	$	518,700	$	(15,500	)	(3	)%	$	478,200	$	503,200	$	(25,000	)	(5	)%

The average sales price of homes closed during the ~~2018~~2019 period decreased 3%5% primarily due to 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~~$2.1 million for the three months ended March 31, ~~2018,~~2019, which was attributable to one project in Washington.

Gross Margin

Homebuilding gross margins ~~increased~~decreased to ~~17.5%~~16.0% for the three months ended March 31, ~~2018~~2019 from ~~15.6%~~17.5% in the ~~2017~~2018 period, primarily driven by an increase in sales incentives, coupled with 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.deliveries.

For the comparison of the three months ended March 31, ~~2018~~2019 and the three months ended March 31, ~~2017,~~2018, 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 20.5% for the 2019 period compared to 22.7% for the 2018 ~~period compared to 20.1% for the 2017~~ period. The ~~increase~~decrease was primarily a result of the ~~increase~~decrease in homebuilding gross margins described above coupled with the ~~increase~~decrease in ~~the impact of interest in cost of sales.~~

purchase accounting adjustments.

Adjusted homebuilding gross margin is a non-GAAP financial measure. The Company believes this information is meaningful as it isolates the impact that interest and purchase accounting have on homebuilding gross margin and permits investors to make better comparisons with the Company's competitors, who also break out and adjust gross margins in a similar fashion. For comparative purposes, purchase accounting is the net adjustment in basis related to the RSI Acquisition, specifically recorded to the California and Texas operating divisions. In the comparative presentation below, purchase accounting amounts related to previous acquisitions have been ~~excluded from both periods.~~included in the prior period. See table set forth below reconciling this non-GAAP measure to homebuilding gross margin.


	Three Months Ended March 31,						Three Months Ended March 31,
	2018			2017			2019			2018
	(dollars in thousands)						(dollars in thousands)
Home sales revenue	$	372,385		$	258,854		$	453,775		$	372,385
Cost of home sales	307,308			218,455			381,044			307,308
Homebuilding gross margin	65,077			40,399			72,731			65,077
Homebuilding gross margin percentage	17.5		%	15.6		%	16.0		%	17.5		%
Add: Interest in cost of sales	18,804			11,608			20,415			18,804
Add: Purchase accounting adjustments	735			—			—			735
Adjusted homebuilding gross margin	$	84,616		$	52,007		$	93,146		$	84,616
Adjusted homebuilding gross margin percentage	22.7		%	20.1		%	20.5		%	22.7		%

Sales and Marketing, General and Administrative


	Three Months Ended March 31,				As a Percentage of Home Sales Revenue				Three Months Ended March 31,				As a Percentage of Home Sales Revenue
	2018		2017		2018		2017		2019		2018		2019		2018
	(dollars in thousands)								(dollars in thousands)
Sales and Marketing	$	22,693	$	14,705	6.1	%	5.7	%	$	25,277	$	22,693	5.6	%	6.1	%
General and Administrative	24,521		18,946		6.6	%	7.3	%	29,126		24,521		6.4	%	6.6	%
Total Sales and Marketing & General and Administrative	$	47,214	$	33,651	12.7	%	13.0	%	$	54,403	$	47,214	12.0	%	12.7	%

Sales and marketing expense as a percentage of home sales revenue ~~increased~~decreased to 5.6% in the 2019 period compared to 6.1% in the 2018 period, ~~compared to 5.7% in the 2017 period,~~ primarily due to a decrease in advertising and model operations expense during the adoption of ASC 606, which resulted in the 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 described in more detail in the notes to the financial statements.current quarter. General and administrative expense ~~increased~~decreased to ~~$24.5 million~~6.4% in the ~~2018~~2019 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~~compared to 6.6% in the 2018 period ~~compared to 7.3%~~as a result of efficiencies gained from operating scale, partially offset by continued investment in ~~the 2017 period.~~our growing operating business, incremental information technology investment and further investment in building out our financial services group.

~~Transaction Expenses~~

~~Transaction expenses relate entirely to one-time, non-recurring costs incurred in relation to the acquisition of RSI Communities on March 9, 2018.~~

Equity in Income of Unconsolidated Joint Ventures

Equity in income of unconsolidated joint ventures ~~increased to~~remained consistent at $0.9 million for the three months ended March 31, ~~2018 from $0.2 million during the comparable 2017 period.~~2019 and 2018.

Other Items

Interest activity for the three months ended March 31, ~~2018~~2019 and March 31, ~~2017~~2018 is as follows (in thousands):


	Three Months Ended March 31,				Three Months Ended March 31,
	2018		2017		2019		2018
Interest incurred	$	19,258	$	19,424	$	24,081	$	19,258
Less: Interest capitalized	19,258		19,424		24,081		19,258
Interest expense, net of amounts capitalized	$	—	$	—	$	—	$	—
Cash paid for interest	$	31,489	$	19,036	$	40,858	31,489

The increase in incurred interest for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 was due to an increase in the Company's borrowings in the 2019 period. In addition, the increase in cash paid for interest for the ~~three months ended March 31, 2018~~2019 period compared to the ~~three months ended March 31, 2017~~2018 period was due to timing of payments on interest for the Company's Senior Notes. The Company capitalized all of the interest it incurred during both periods presented due to its qualifying assets exceeding its outstanding debt.

Provision for Income Taxes

During the three months ended March 31, ~~2018 and 2017,~~2019, the Company ~~sold one land parcel that resulted in~~recorded a ~~negligible loss and one land parcel that resulted that did not result in any gain or loss, respectively.~~

~~Provision~~provision for ~~(Benefit from) Income Taxes~~

income taxes of $4.9 million, for an effective tax rate of 24.4%. During the three months ended March 31, 2018, the Company recorded a provision for income taxes of $2.8 million for an effective tax rate of 18.3%. ~~During the three months ended March 31, 2017, the Company recorded a benefit from income taxes of $5.6 million for an effective tax rate of (37.7)%.~~

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests increased to $7.0 million during the 2019 period, compared to $4.3 million during the 2018 period ~~compared~~due to ~~$0.7 million during~~ the ~~2017 period.~~increase in active projects the Company participates in through the joint ventures.

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 March 31, ~~2018~~2019 was ~~$8.3~~$8.1 million, compared to net ~~loss attributable~~income available to common stockholders for the three months ended March 31, ~~2017~~2018 was ~~$10.0~~$8.3 million.

Lots Owned and Controlled

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


	March 31,		Increase (Decrease)				March 31,		Increase (Decrease)
	2018	2017	Amount		%		2019	2018	Amount		%
Lots Owned
California	3,634	1,492	2,142		144	%	3,269	3,634	(365	)	(10	)%
Arizona	4,116	4,838	(722	)	(15	)%	3,564	4,116	(552	)	(13	)%
Nevada	2,910	2,985	(75	)	(3	)%	2,555	2,910	(355	)	(12	)%
Colorado	1,266	1,442	(176	)	(12	)%	750	1,266	(516	)	(41	)%
Washington	1,377	1,225	152		12	%	1,423	1,377	46		3	%
Oregon	2,226	1,422	804		57	%	2,592	2,226	366		16	%
Texas	3,345	—	3,345		N/M		3,665	3,345	320		10	%
Total	18,874	13,404	5,470		41	%	17,818	18,874	(1,056	)	(6	)%
Lots Controlled (1)
California	1,985	1,084	901		83	%	1,292	1,985	(693	)	(35	)%
Arizona	651	—	651		N/M		660	651	9		1	%
Nevada	12	38	(26	)	(68	)%	101	12	89		742	%
Colorado	822	77	745		968	%	2,333	822	1,511		184	%
Washington	793	1,108	(315	)	(28	)%	758	793	(35	)	(4	)%
Oregon	1,910	1,929	(19	)	(1	)%	1,652	1,910	(258	)	(14	)%
Texas	3,763	—	3,763		N/M		4,228	3,763	465		12	%
Total	9,936	4,236	5,700		135	%	11,024	9,936	1,088		11	%
Total Lots Owned and Controlled	28,810	17,640	11,170		63	%	28,842	28,810	32		—	%


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

Total lots owned and controlled has increased to ~~28,810~~28,842 lots owned and controlled at March 31, ~~2018~~2019 from ~~17,640~~28,810 lots at March 31, ~~2017, primarily due to the acquisition of RSI Communities.~~2018. Certain lots included in lots owned in California and Texas are associated with a land banking transaction that is consolidated on the Company’s accompanying balance sheet in accordance with ASC 470, as further discussed below.

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~~During the back half of 2018, with consumer concerns around affordability and rising interest rates, the Company experienced slower absorption rates than the first half of the year. Beginning in December 2018 and through 2019, consumer demand and absorption has ~~experienced a strong selling season, with orders up 28%, demonstrating strong growth over 2017,~~improved, 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~~lower interest ~~rates,~~rates. We believe that homebuyer demand in the long term remains strong against our consistent homebuyer traffic levels and relatively limited supply in all of our markets. ~~As a result, the Company's absorption rates for the three months ended March 31, 2018 increased when compared to the 2017 period.~~

The Company benefits from a sizable and well-located lot supply, and as of March 31, ~~2018,~~2019, the Company owned ~~18,874~~17,818 lots, all of which are entitled, and had options to purchase an additional ~~9,936~~11,024 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. Consistent with the entire homebuilding industry, during ~~2017~~2018 and into ~~2018,~~2019, the Company experienced increased cycle times and cost increases in a number of its operating segments due to weather delays and availability of qualified 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 enjoyed 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 three months ended March 31, ~~2018,~~2019, the Company delivered ~~740~~949 homes, and recognized home sales revenue of ~~$372.4~~$453.8 million. During the three months ended March 31, ~~2018,~~2019, the Company ~~generated~~used cash ~~from~~in operations of ~~$98.0~~$31.0 million, which included investment in land acquisitions of ~~$180.4~~$70.8 million, for net cash generated by operations of ~~$278.4~~$39.8 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.

Acquisition of RSI Communities

On March 9, 2018, the Company acquired the residential homebuilding operations of RSI Communities for an aggregate cash purchase price of ~~$460.0~~$479.3 million, ~~plus an additional~~which is inclusive of approximately $15.2 million of net asset related adjustments at ~~closing pursuant to initial working capital adjustments (the “RSI Acquisition”), a portion of which remains subject to final adjustment pursuant to the terms of the Purchase Agreement.~~closing. The Company financed the RSI Acquisition with a combination of proceeds from its issuance of $350 million in aggregate principal amount of 6.00% senior notes due 2023 and cash on hand including approximately $194.3 million of aggregate proceeds from a land banking arrangement with respect to land parcels located in California and Texas, ~~each of which is entitled but undeveloped, and~~ including parcels acquired in the RSI Acquisition.

5 ³/₄%5.75% Senior Notes Due 2019

During the three months ended March 31, 2018, ~~Parent, through California Lyon,~~the Company used the net proceeds from the offering of 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 RSI Acquisition and to pay related fees and expenses and (ii) to repay all of California Lyon's $150

million in aggregate principal amount of 5.75% Notes such that the 5.75% Notes were satisfied and discharged ~~as of March~~prior to December 31, 2018.

8 ¹/₂~~% Senior Notes Due 2020~~

During the three months ended 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 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 December 31, 2017. The Company incurred certain costs related to the early extinguishment of debt of the 8.5% Notes during the three months ended 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 acquisition of Polygon ~~Acquisition,~~Northwest Homes, 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.

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%5.875% Senior Notes Due 2025

million of previously outstanding 8.5% Notes ~~are~~were retired and extinguished as of ~~March~~December 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.

Senior Notes Covenant Compliance

The indentures governing the 7.00% Notes, the 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 March 31, ~~2018.~~2019.

Revolving Credit Facility

On ~~July 1, 2016,~~May 21, 2018, California Lyon and Parent entered into ~~an amendment and restatement agreement, pursuant to which its existing~~a new credit agreement providing for aan unsecured revolving credit facility of up to $325.0 million (the “New Facility”) with the lenders party thereto, which New Facility replaces the Company’s previous $170.0 million revolving credit facility, as ~~previously amended and restated~~described below. The New Facility will mature on ~~March 27, 2015 as described below, was further amended and restated in its entirety (as amended from time~~May 21, 2021, unless terminated earlier pursuant to ~~time,~~ the ~~“Second Amended Facility”).~~terms of the New Facility. The ~~Second Amended~~New 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~~contains an uncommitted accordion feature under which ~~the Company may increase the total~~its aggregate principal amount can be increased to up to ~~a maximum aggregate of $200.0~~$500.0 million under certain circumstances, as well as a sublimit of $50.0 million for letters of credit. Effective as of November ~~28, 2017,~~9, 2018, California Lyon increased the size of the commitment under its revolving credit facility by ~~$25.0~~$40.0 million to an aggregate total of ~~$170.0~~$365.0 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% fromOn 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,~~2018, California Lyon, Parent and the lenders party thereto entered into ~~a second~~an amendment to the ~~Second Amended~~New Facility, which amended the maximum leverage ratio to extend the timing of the gradual step-downs, such that the leverage ratio remained at ~~62.5%~~65% through and ~~including~~included December 30, ~~2017, and~~3018, 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%62.5% on the last day of the 2018 fiscal year through and ~~will remain~~including December 30, 2019, and further decreases and remains at 60% on December 31, 2019 and thereafter. The amendment did not revise any of our other financial covenants thereunder.

Borrowings under the ~~Second Amended~~New 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~~Parent’s wholly-owned subsidiaries ~~are secured by a pledge of all equity interests held by such guarantors,~~(such subsidiaries, the “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 March 31, ~~2018,~~2019, the commitment fee on the unused portion of the ~~Second~~New Facility accrues at an annual rate of 0.50%. As of March 31, ~~2018,~~2019, the Company had ~~$85.0~~$110.0 million outstanding against the ~~Second Amended~~New Facility at an effective rate of ~~4.88%~~6.6%, as well as a letter of credit for ~~$11.0~~$7.2 million. As of December 31, ~~2017,~~2018, the Company had $45.0 outstanding against the New Facility at an effective rate of 7.5%, as well as a letter of credit for ~~$7.8 million but no outstanding balance against the Second Amended Facility.~~$8.6 million.

The ~~Second Amended~~New Facility contains certain financial maintenance covenants, including (a) a minimum tangible net worth requirement of ~~$451.0~~$556.4 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 ~~70% effective~~65% as of ~~March 31, 2018 and is scheduled to decrease to 65% on June~~December 30, 2018, ~~and is scheduled~~further decreased to ~~further decrease to 60%~~62.5% effective as of December 31, 2018, through and including December 30, 2019, and further decreases to and remains at 60% thereafter, 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~~New Facility and can differ in certain respects from comparable GAAP or other commonly used terms. The New Facility also 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 New Facility and permit the Lenders to accelerate payment on outstanding borrowings under the New Facility and require cash collateralization of outstanding letters of credit. If a change of control (as defined in the New Facility) occurs, the Lenders may terminate the commitments under the New Facility and require that the Borrower repay outstanding borrowings under the New Facility and cash collateralize outstanding letters of credit. Interest rates on borrowings generally will be based on either LIBOR or a base rate, plus the applicable spread. The Company was in compliance with all covenants under the ~~Second Amended~~New Facility as of March 31, ~~2018.~~2019. The following table summarizes these covenants pursuant to the ~~Second Amended~~New Facility, and our compliance with such covenants as of March 31, ~~2018:~~2019:


	Covenant Requirements at			Actual at			Covenant Requirements at			Actual at
Financial Covenant	March 31, 2018			March 31, 2018			March 31, 2019			March 31, 2019
Minimum Tangible Net Worth	$	535.3	million	$	741.9	million	$	642.5	million	$	901.5	million
Maximum Leverage Ratio	70.0		%	63.0		%	62.5		%	59.8		%
Interest Coverage Ratio; or (1)	1.50x			3.6x			1.5			2.5
Minimum Liquidity (1)	$	73.6	million	$	124.5	million	$	96.9	million	$	197.1	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.

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 three months ended March 31, ~~2018,~~2019, the Company paid approximately ~~$180.4~~$70.8 million for land and land developments. Such spending related to land owned is a discretionary component that the Company can temper as needed to reduce cash outflow, and it believes it can do so without a significant impact on near-term operating results.

The ~~Second Amended~~New 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~~New Facility and permit the lenders to accelerate payment on outstanding borrowings under the ~~Second Amended~~New Facility and require cash collateralization of outstanding letters of credit, if we are unable to amend the ~~Second Amended~~New Facility, secure a waiver of the default from the lenders or otherwise cure the default. Further, acceleration of the ~~Second Amended~~New 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~~New Facility) occurs, the lenders may terminate the commitments under the ~~Second Amended~~New Facility and require that the Company repay outstanding borrowings under the ~~Second Amended~~New Facility and cash collateralize outstanding letters of credit.

The Company believes it has access to alternate sources of funding to pay off ~~resulting~~existing obligations or replace funding under the ~~Second Amended~~New 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

During thethree months ended 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.

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 March 31, ~~2018~~2019 (in millions):

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



Issuance Date	Facility Size		Outstanding		Maturity	Current Rate
March, 2019	18.9		$	0.4	November, 2020	5.38	%	(3)
May, 2018	128.0		86.7		May, 2021	5.49	%	(2)
May, 2018	13.3		11.1		June, 2020	5.38	%	(3)
July, 2017	66.2		31.7		February, 2021	5.56	%	(2)
January, 2016	35.0		14.0		August, 2019	5.75	%	(1)
	$	261.4	$	143.9

~~(2)~~(1) 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)~~(2) Loan bears interest at the greatest of the prime rate, federal funds effective rate +1.0%, or LIBOR +1.0%.

(3) Loan bears interest at LIBOR +2.90%.

In addition to the above, the Company had ~~$2.3~~$1.2 million of construction notes payable outstanding related to projects that are wholly-owned by the Company.

The notes payable contain certain financial maintenance covenants. The Company was in compliance with all such covenants as of March 31, ~~2018.~~2019.

Net Debt to Total Capital

The Company’s ratio of net debt to total capital (net of cash) was ~~59.5%~~56.6% and ~~49.6%~~55.9% as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, 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			March 31, 2019			December 31, 2018
	(dollars in thousands)						(dollars in thousands)
Notes payable and Senior Notes	$	1,302,347		$	1,030,184		$	1,375,506		$	1,321,345
Total equity	853,659			860,630			1,020,201			1,014,327
Total capital	$	2,156,006		$	1,890,814		$	2,395,707		$	2,335,672
Ratio of debt to total capital	60.4		%	54.5		%	57.4		%	56.6		%
Notes payable and Senior Notes	$	1,302,347		$	1,030,184		$	1,375,506		$	1,321,345
Less: Cash and cash equivalents	(50,473		)	(182,710		)	(45,709		)	(33,779		)
Net debt	1,251,874			847,474			1,329,797			1,287,566
Total equity	853,659			860,630			1,020,201			1,014,327
Total capital (net of cash)	$	2,105,533		$	1,708,104		$	2,349,998		$	2,301,893
Ratio of net debt to total capital (net of cash)	59.5		%	49.6		%	56.6		%	55.9		%

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~~three land banking ~~arrangement~~arrangements during the three months ended March 31, ~~2018~~2019 that ~~was~~were not a variable interest ~~entity~~entities 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.~~arrangements. Therefore, the Company has recorded the remaining purchase price of the land of ~~$282.2~~$294.1 million as of March 31, ~~2018,~~2019, 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 consolidated land banking arrangements is as follows as of the period presented (dollars in thousands):


	March 31, 2018		March 31, 2019
Total number of land banking projects	1
Total number of land banking arrangements consolidated			3
Total number of lots	3,053		5,184
Total purchase price	$	316,452	$	452,967
Balance of lots still under option and not purchased:
Number of lots	3,053		4,002
Purchase price	$	316,452	$	294,085
Forfeited deposits if lots are not purchased	$	34,283	$	76,812

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.

Cash Flows—Comparison of the Three Months Ended March 31, ~~2018~~2019 to the Three Months Ended March 31, ~~2017~~2018

For the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, 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 ~~of $41.4~~was $31.0 million in the ~~2017~~2019 period compared to $98.0 million provided by in the 2018 period. The change was primarily a result of (i) a net ~~cash proceeds~~decrease in spending on real estate inventories-owned of $30.9 million, compared to $79.9 million ~~from real estate inventory sales and purchases, including $194.1 million of net cash proceeds from a land banking arrangement, for which there is no comparable amount~~ in the ~~2017~~2018 period, (ii) a decrease in accrued expenses of $53.0 million in the 2019 period compared to a decrease of $21.5 million in the 2018 period, and ~~(ii) an increase~~(iii) a decrease in accounts payable of $19.9 million in the 2019 period compared to an increase of $20.7 million in the 2018 period ~~compared~~due to ~~a decrease~~timing of ~~$1.5~~payments

Net cash provided by investing activities was $1.4 million in the ~~2017 period.~~

~~Net cash used~~2019 period due to an increase in ~~investing activities was $477.7~~purchases of property and equipment of $1.4 million in the 2019 period compared to $2.4 million in the 2018 ~~period primarily due to~~period. During 2018, the ~~cash paid for the RSI acquisition~~Company had an outflow of $475.2 million inrelating to the ~~2018 period, for which there is no comparable amount in the 2017 period.~~acquisition of RSI Communities.

Net cash provided by financing activities ~~increased~~decreased to $41.6 million in the 2019 period from $247.4 million in the 2018 ~~period from $38.3 million in the 2017~~ period. The change was primarily the result of (i) proceeds of $350.0 million from the issuance of the 6% Senior Notes in the 2018 period, for which there is no comparable amount in the ~~2017~~2019 period (ii) net proceeds from borrowings of $65.0 million against the revolving line of credit in the 2019 period, versus $85.0 million in the 2018 period, partially offset by (iii) principal payments of the ~~8.5%~~5.75% Senior Notes of ~~$425.0~~$150.0 million in the ~~2017~~2018 period, for which there is no comparable amount in the ~~2018~~2019 period, ~~and (iii)~~(iv) net ~~proceeds from~~payments on borrowings of ~~$85.0~~$7.8 million against ~~the revolving line of credit~~notes payable in the ~~2018~~2019 period ~~versus net borrowings of $28.0~~compared to $9.0 million ~~in the 2017 period, partially offset by (iv) proceeds from issuance of the 5.875% Senior Notes of $446.5 million in the 2017 period for which there is no comparable amount~~ in the 2018 period, and (v) net noncontrolling interest distributions of $9.7 million in the 2019 period compared to $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 3 and 13 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 13 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 March 31, ~~2018,~~2019, which includes lots owned as of March 31, ~~2018,~~2019, lots consolidated in accordance with certain accounting principles as of March 31, ~~2018,~~2019, homes either closed or in backlog as of or for the period ended March 31, ~~2018,~~2019, parcels of undeveloped land held for future sale, and lots controlled as of March 31, ~~2018.~~2019. 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.


	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)	Estimated Number of Homes at Completion (1)	Cumulative Homes Closed as of March 31, 2019 (2)	Backlog at March 31, 2019 (3) (4)	Lots Owned or Controlled as of March 31, 2019 (5)	Homes Closed for the Three Months Ended March 31, 2019	Estimated Sales Price Range (6)
California	6,899	1,280	388	5,619	210	$ 373,000 - 2,991,000	6,319	1,758	261	4,561	281	$ 301,000 - 2,991,000
Arizona	4,766	1,063	164	4,767	105	$ 168,990 - 451,990	5,466	1,242	181	4,224	89	$ 179,990 - 492,990
Nevada	2,458	785	121	2,922	74	$ 80,000 - 1,524,500	2,178	771	82	2,656	71	$ 207,500 - 1,592,500
Colorado	2,746	658	223	2,088	93	$ 267,000 - 576,000	3,848	765	180	3,083	126	$ 273,000 - 610,000
Washington	2,783	613	176	2,170	94	$ 284,990 - 1,329,990	2,902	721	63	2,181	72	$ 284,990 - 1,319,990
Oregon	5,135	999	177	4,136	104	$ 194,990 - 779,990	4,871	627	120	4,244	120	$ 199,990 - 894,990
Texas	6,986	60	211	7,108	60	$ 183,990 - 451,990	8,722	790	308	7,893	190	$ 192,990 - 454,990
GRAND TOTALS	31,773	5,458	1,460	28,810	740		34,306	6,674	1,195	28,842	949

(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 "Lots Owned or Controlled as of March 31, ~~2018"~~2019".


(2)	“Cumulative Homes Closed” represents homes closed since the project opened, and may include prior years, in addition to the homes closed during the current year presented.


(3)	Backlog consists of homes sold under sales contracts that have not yet closed, and there can be no assurance that closings of sold homes will occur.


(4)	Of the total homes subject to pending sales contracts as of March 31, ~~2018, 1,034~~2019, 1,043 represent homes that are completed or under construction.

(5)

Lots owned or controlled as of March 31, ~~2018~~2019 include lots in backlog at March 31, ~~2018~~2019 and projects with lots owned as of March 31, ~~2018~~2019 that are expected to open for sale and have an estimated year of first delivery of ~~2019~~2020 or later, as well as lots controlled as of March 31, ~~2018,~~2019, 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.~~2019. 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.

Income Taxes

See Note 10 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, ~~2017,~~2018, the Company’s most critical accounting policies are real estate inventories and cost of sales; impairment of real estate inventories; variable interest entities; and business combinations. Management believes that there have been no significant changes to these policies during the three months ended March 31, ~~2018,~~2019, 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, ~~2017.~~2018.



Item 3.	Quantitative and Qualitative Disclosures About Market Risk

The Company’s exposure to market risk for changes in interest rates relates to the Company’s floating rate debt with a total outstanding balance at March 31, ~~2018~~2019 of ~~$170.0~~$254.0 million where the interest rate is variable based upon certain bank reference or prime rates. The ~~average~~ prime rate during the three months ended March 31, ~~2018 ranged between 4.50% and 4.75%~~2019 was approximately 5.50%. Based upon the amount of variable rate debt held by the Company, and holding the variable rate debt balance constant, each 1% increase in interest rates would increase the amount of interest expense incurred by the Company by approximately ~~$1.7~~$1.4 million.

The following table presents principal cash flows by scheduled maturity, interest rates and the estimated fair value of our long-term fixed rate debt obligations as of March 31, ~~2018~~2019 (dollars in thousands):


	Years ending December 31,											Thereafter		Total		Fair Value at March 31, 2018		Years ending December 31,												Thereafter		Total		Fair Value at March 31, 2019
	2018		2019		2020		2021		2022			Thereafter		Total		Fair Value at March 31, 2018		2019		2020		2021		2022			2023			Thereafter		Total		Fair Value at March 31, 2019
Fixed rate debt	$	2,291	$	—	$	—	$	—	$	350,000		$	800,000	$	1,152,291	$	1,147,541	$	1,204	$	—	$	—	$	350,000		$	350,000		$	436,886	$	1,138,090	$	1,101,525
Interest rate	—		—		—		—		7.0		%	5.875 - 6.0%						—		—		—		7.0		%	6.0		%	5.875%

The Company does not utilize swaps, forward or option contracts on interest rates, foreign currencies or commodities, or other types of derivative financial instruments as of or during the three months ended March 31, ~~2018~~2019. 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 March 31, ~~2018,~~2019, under the supervision and with the participation of our management, including our President and Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon their evaluation and subject to the foregoing, our President and Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, ~~2018,~~2019, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting. Our management determined that as of March 31, ~~2018,~~2019, 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, ~~2017,~~2018, 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, ~~2017.~~2018. 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 March 31, ~~2018.~~2019.

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



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, 2019	—	N/A		—	—	$	31,537,306
February 28, 2019	—	N/A		—	—	31,537,306
March 31, 2019	165,822	$	14.10	165,822	—	31,537,306
Total	165,822			165,822	—

⁽¹⁾ The Company repurchased ~~185,606~~165,822 shares from certain employees to facilitate income tax withholding payments pertaining to stock-based compensation awards that vested during the three month period ended March 31, ~~2018.~~2019. 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~~10.1	~~Purchase and Sale~~Employment 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,~~Matthew R. Zaist, 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 agentJanuary 18, 2019 (incorporated by reference to Exhibit 10.1 of the ~~Company’s~~Company's Form 8-K filed ~~March 15, 2018)~~January 23, 2019).

10.2	Employment Agreement by and among William Lyon Homes, William Lyon Homes, Inc. and William H. Lyon, dated as of January 18, 2019 (incorporated by reference to Exhibit 10.2 of the Company's Form 8-K filed January 23, 2019).

10.3+	William Lyon Homes Amended and Restated 2012 Equity Incentive Plan Form of Performance Stock Unit Award Agreement

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: May ~~10, 2018~~7, 2019	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~~10.1	~~Purchase and Sale~~Employment 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,~~Matthew R. Zaist, 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 agentJanuary 18, 2019 (incorporated by reference to Exhibit 10.1 of the ~~Company’s~~Company's Form 8-K filed ~~March 15, 2018)~~January 23, 2019).

10.2	Employment Agreement by and among William Lyon Homes, William Lyon Homes, Inc. and William H. Lyon, dated as of January 18, 2019 (incorporated by reference to Exhibit 10.2 of the Company's Form 8-K filed January 23, 2019).

10.3+	William Lyon Homes Amended and Restated 2012 Equity Incentive Plan Form of Performance Stock Unit Award Agreement

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.

5958