8-K

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

Current Report

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 31, 2013

SHEA HOMES LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)

CALIFORNIA	333-177328	95-4240219
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

655 Brea Canyon Road, Walnut, California 91789

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (909) 594-9500

Not Applicable

(Former name or former address, if changed since last report):

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition

On October 31, 2013, Shea Homes Limited Partnership issued a press release announcing its results of operations for the nine months ended September 30, 2013. A copy of the press release is furnished as Exhibit 99.1 to this report and is incorporated herein.

The information contained in this Item 2.02 and in the accompanying Exhibit 99.1 attached hereto 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 under that Section and shall not be deemed to be incorporated by reference into any filing of the Shea Homes Limited Partnership under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act.

Item 9.01. Financial Statements and Exhibits

The information contained in this Item 9.01 and in the accompanying Exhibit 99.1 attached hereto shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of Shea Homes Limited Partnership under the Securities Act or the Exchange Act.

(d) Exhibits

Exhibit Number	Description
99.1	Press Release dated October 31, 2013

SIGNATURES

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

SHEA HOMES LIMITED PARTNERSHIP
By:	/s/ Andrew H. Parnes
Name: Andrew H. Parnes
Title: Chief Financial Officer

Date: October 31, 2013

Exhibit Index

Exhibit Number	Description
99.1	Press Release dated October 31, 2013

EX-99.1

Exhibit 99.1

Shea Homes Reports Third Quarter 2013 Results

Shea Homes, one of America’s largest private homebuilders, today reported results for the third quarter ended September 30, 2013.

Three Months Ended 9/30/13 Highlights and Comparisons to Three Months Ended 9/30/12

• Net income attributable to Shea Homes was $25.8 million compared to $8.3 million

• Home sales orders were 434 compared to 530, an 18% decrease

• Active selling communities averaged 61 and 63 respectively

• Home sales per community were 7.1 homes, or 2.4 per month, compared to 8.4 homes, or 2.8 per month, a 15% decrease

• Cancellation rate was 17% compared to 13%

• Backlog units were 1,124 compared to 1,204, a 7% decrease

• Backlog sales value was $563.5 million compared to $507.2 million, an 11% increase

• The average selling price in backlog was $501,000 compared to $421,000, a 19% increase

• Total revenues were $238.3 million compared to $146.4 million, a 63% increase

• House revenues were $234.9 million* compared to $132.2 million*, a 78% increase

• Homes closed were 493 compared to 328, a 50% increase

• Average selling price of homes closed was $477,000 compared to $403,000, an 18% increase

• Gross margin was 23.4% compared to 21.3%

• House gross margin was 23.8%* compared to 18.7%*

• SG&A expense was $28.4 million (11.9% of revenues) compared to $26.3 million (18% of revenues)

• Adjusted EBITDA was $43.6 million* compared to $20.7 million*

• Cash and restricted cash at September 30, 2013 was $145.4 million compared to $292.8 million at December 31, 2012

Nine Months Ended 9/30/13 Highlights and Comparisons to Nine Months Ended 9/30/12

• Net income (loss) attributable to Shea Homes was $52.2 million compared to $(4.2) million

• Home sales orders were 1,467 compared to 1,616, a 9% decrease

• Active selling communities averaged 57 and 66 respectively

• Home sales per community were 25.7 homes, or 2.9 per month, compared to 24.5 homes, or 2.7 per month, a 5% increase

• Cancellation rate remained flat at 14%

• Total revenues were $590.6 million compared to $384.5 million, a 54% increase

• House revenues were $578.8 million* compared to $360.2 million*, a 61% increase

• Homes closed were 1,255 compared to 873, a 44% increase

• Average selling price of homes closed was $461,000 compared to $413,000, an 12% increase

• Gross margin was 23.0% compared to 19.8%

• House gross margin was 23.2%* compared to 19.6%*

• SG&A expense was $77.4 million (13.1% of revenues) compared to $65.7 million (17.1% of revenues)

• Adjusted EBITDA was $100.3 million* compared to $58.3 million*

* See “Reconciliation of Non-GAAP Financial Measures” beginning on page 9

“We are pleased to report our third quarter operating results which reflect significantly improved profitability, revenue growth, house gross margins* and SG&A leverage,” said Bert Selva, President and CEO of Shea Homes. “These results reflect the housing recovery which began to emerge in 2012, combined with our leading positions in some of the nation’s strongest housing markets and our lean operating model. Our house gross margins* and SG&A rate as a percentage of revenues continue to be among the best in the industry.”

Page 1

“We experienced a slowdown in sales during the third quarter partially as a result of our decision to focus on margins over volume coupled with the normal housing seasonal slowdown. Additionally, external factors including a jump in mortgage interest rates and policy uncertainties due to the federal government shutdown and debt ceiling discussions further affected the market. We still believe the fundamentals are in place for a continued recovery in the housing market. Household formations due to population and job growth, affordability and the absolute levels of new home sales and starts, continue to be positive catalysts for the housing market.”

For the 2013 third quarter, new home sales orders were 434 compared to 530 in 2012, an 18% decrease year-over-year, resulting primarily from the impact of higher mortgage interest rates and the federal government issues noted above, combined with slightly lower active selling communities in our San Diego, Northern California and Other segments. Home sales per community for the 2013 third quarter were 2.4 per month compared to 2.8 per month in the 2012 third quarter, a 14% decrease. For the first nine months of 2013, the Company opened 17 new wholly-owned home communities compared to 11 for the same period in 2012. For the full year, the Company expects to open 23 new communities compared to 15 for the full year in 2012. Backlog at September 30, 2013 was 1,124 compared to 1,204 at September 30, 2012, a 7% decrease.

For the 2013 third quarter, net income attributable to Shea Homes was $25.8 million compared to $8.3 million in 2012, primarily due to a $24.7 million improvement in gross margin (from higher revenues and a higher gross margin percentage), a $4.4 million decrease in interest expense, a $1.9 million decrease in general and administrative expenses and a $1.6 million increase in the gain on our reinsurance transaction (the actuarial adjustment resulted in a larger reduction in our deferred gain year over year from $0.2 million in 2012 to $1.8 million in 2013). These improvements were partially offset by a decrease in other income (expense) due to an $8.8 million gain on investment in 2012 and a $4.0 million increase in selling expenses.

For the 2013 third quarter, total revenues were $238.3 million compared to $146.4 million in 2012, a 63% increase, and house revenues were $234.9 million* compared to $132.2 million* in 2012, a 78% increase. The increase in house revenues was primarily due to a 50% increase in home closings to 493 and an 18% increase in average selling price to $477,000. Home closings increased year-over-year primarily as a result of a 98% higher backlog at the beginning of 2013 (911 units) versus the beginning of 2012 (461 units). The increase in the average selling price of homes closed was due to general home price increases in all of our regions, and the delivery of larger, more expensive homes in some of our regions, primarily Southern California, which were partially offset by our Northern California segment which has shifted to higher density, lower-priced homes.

Total gross margin for the 2013 third quarter was 23.4% compared to 21.3% in 2012, a 210 basis point (bp) increase, and house gross margin for the 2013 third quarter was 23.8%* compared to 18.7%* in 2012, a 510 bp increase. The increase in our house gross margin percentage reflected the general increase in home prices in all of our markets, partially offset by higher labor and material costs. House gross margin excluding interest* was 30.1% for the 2013 third quarter compared to 26.0% in the year earlier period.

SG&A expense for the 2013 third quarter was $28.4 million (11.9% of revenues) compared to $26.3 million (18.0% of revenues) in 2012. As a percentage of revenue, the decrease was the result of leveraging our G&A expenses over a higher level of revenues. The nominal increase was primarily attributable to higher volume related costs and higher compensation expenses.

Interest incurred for the third quarter was $16.8 million in both 2013 and 2012, while interest expense for the 2013 third quarter was $0.1 million versus $4.6 million in 2012. The 97% decrease in interest expense was due to higher qualified inventory used for interest capitalization purposes.

Net operating cash flows for the 2013 third quarter were $(16.3) million compared to $(53.1) million in 2012. The smaller operating cash deficit was primarily due to slightly lower land acquisition and land development spends and increased cash receipts from home closings, partially offset by increased house construction costs. Land acquisition and land development spends for the 2013 third quarter were $91.6 million compared to $98.1 million in 2012. Cash receipts from home closings for the 2013 third quarter were $234.9 million compared to $132.2 million in 2012. House construction costs for the 2013 third quarter were $114.3 million compared to $81.3 million in 2012.

Page 2

For the first nine months of 2013, net income (loss) attributable to Shea Homes was $52.2 million compared to $(4.2) million, primarily due to a 54% increase in revenues and a 320 bp higher gross margin percentage. In addition, interest expense decreased $11.8 million (due to higher qualified inventory) and the gain (loss) on our reinsurance transaction improved by $8.8 million, from $(7.2) million in 2012 to $1.6 million in 2013. These improvements were partially offset by an $11.8 million increase in SG&A, primarily attributable to higher volume related costs and compensation expenses. As a percentage of revenue, SG&A for the 2013 nine months was 13.1% compared to 17.1% for the 2012 nine months. As a percentage of revenue, the decrease was the result of leveraging our G&A over higher revenues.

Net operating cash flows for the 2013 nine months were $(124.4) million compared to $(86.8) million in 2012. The larger operating cash deficit was primarily due to increased spending on land acquisitions, land development and house construction, partially offset by increased cash receipts from home closings. Land acquisition and land development spends for the 2013 nine months were $279.9 million compared to $158.9 million in 2012. House construction costs for the 2013 nine months were $290.3 million compared to $184.3 million in 2012. Cash receipts from home closings for the 2013 third quarter were $578.8 million compared to $360.2 million in 2012.

About Shea Homes Limited Partnership

Shea Homes is one of the largest private homebuilders in the nation. Since its founding in 1968, Shea Homes has closed nearly 91,000 homes. Shea Homes builds homes with quality craftsmanship and designs that fit varied lifestyles and budgets. Over the past several years, Shea Homes has been recognized as a leader in customer satisfaction with a reputation for design, quality and service. For more about Shea Homes and its communities, visit www.sheahomes.com.

The preceding summary of the financial results of Shea Homes Limited Partnership and its subsidiaries does not purport to be complete and is qualified in its entirety by reference to the consolidated financial statements of Shea Homes Limited Partnership and its subsidiaries, available on our website at: http://www.sheahomes.com/investor.

This news release contains forward-looking statements and information relating to Shea Homes Limited Partnership and its subsidiaries, such as our leading position in some of the nation’s strongest housing markets, that the fundamentals are still in place for a continued recovery in the housing market, and new community openings for 2013, which are based on the beliefs of, as well as assumptions made by, and information currently available to, our management. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “anticipate,” “appear” and “project” and similar expressions, as they relate to Shea Homes Limited Partnership and its subsidiaries are intended to identify forward-looking statements. These statements reflect our management’s current views with respect to future events, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Further, certain forward-looking statements are based upon assumptions of future events that may not prove to be accurate. Such statements involve known and unknown risks, uncertainties, assumptions and other factors many of which are out of Shea Homes Limited Partnership’s and its subsidiaries’ control and difficult to forecast that may cause actual results to differ materially from those that may be described or implied. Such factors include but are not limited to: changes in employment levels; changes in the availability of financing for homebuyers; changes in interest rates; changes in consumer confidence; changes in levels of new and existing homes for sale; changes in demographic trends; changes in housing demands; changes in home prices; elimination or reduction of the tax benefits associated with owning a home; litigation risks associated with home warranty and construction defect and other claims; and various other factors, both referenced and not referenced above, and included in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from those described as anticipated, believed, estimated, expected, intended, planned or projected. Except as required by law, Shea Homes Limited Partnership and its subsidiaries neither intend nor assume any obligation to revise or update these forward-looking statements, which speak only as of their dates. Shea Homes Limited Partnership and its subsidiaries nonetheless reserve the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this press release. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.

Contact: Andrew Parnes, CFO @ 909-594-0954 or andy.parnes@sheahomes.com

Page 3

KEY OPERATIONAL AND FINANCIAL DATA

(dollars in thousands)

	At or For the Three Months Ended September 30,									At or For the Nine Months Ended September 30,
	2013			2012			Change			2013			2012			Change
	(unaudited)			(unaudited)						(unaudited)			(unaudited)
Operating Data:
Revenues	$	238,309		$	146,421			63	%	$	590,579		$	384,492			54	%
Gross margin %		23.4	%		21.3	%		210 bp’s			23.0	%		19.8	%		320 bp’s
Homebuilding revenues (a) *	$	238,079		$	146,174			63	%	$	589,892		$	383,754			54	%
Homebuilding gross margin % (a) *		23.4	%		21.2	%		220 bp’s			22.9	%		19.7	%		320 bp’s
House revenues *	$	234,938		$	132,220			78	%	$	578,817		$	360,238			61	%
House gross margin*	$	55,905		$	24,743			126	%	$	134,063		$	70,519			90	%
House gross margin % *		23.8	%		18.7	%		510 bp’s			23.2	%		19.6	%		360 bp’s
Adjusted house gross margin % excluding interest in cost of sales *		30.1	%		26.0	%		410 bp’s			30.0	%		26.9	%		310 bp’s
SG&A expense	$	28,388		$	26,297			8	%	$	77,425		$	65,672			18	%
SG&A % of total revenue		11.9	%		18.0	%		(610) bp’s			13.1	%		17.1	%		(400) bp’s
Net income (loss) attributable to Shea Homes	$	25,824		$	8,330			210	%	$	52,196		$	(4,182	)		—
Adjusted EBITDA (b) *	$	43,632		$	20,708			111	%	$	100,341		$	58,266			72	%
Interest incurred	$	16,780		$	16,768			0	%	$	50,322		$	50,088			0	%
Interest capitalized to inventory	$	15,925		$	11,961			33	%	$	43,874		$	32,706			34	%
Interest capitalized to investments in joint ventures	$	710		$	226			214	%	$	1,473		$	604			144	%
Interest expense	$	145		$	4,581			-97	%	$	4,975		$	16,778			-70	%
Interest in cost of sales (c)	$	15,110		$	12,457			21	%	$	40,014		$	30,315			32	%
Other Data (d):
Home sales orders (units)		434			530			-18	%		1,467			1,616			-9	%
Homes closed (units)		493			328			50	%		1,255			873			44	%
Average selling price	$	477		$	403			18	%	$	461		$	413			12	%
Average active selling communities		61			63			-3	%		57			66			-14	%
Home sales orders per community		7.1			8.4			-15	%		25.7			24.5			5	%
Cancellation rate		17	%		13	%					14	%		14	%
Backlog at end of period (units)		1,124			1,204			-7	%
Backlog at end of period (estimated sales value)	$	563,513		$	507,226			11	%
Lots owned or controlled (units)		18,992			18,244			4	%
Homes under construction (units) (e)		1,122			1,055			6	%

(a) Homebuilding revenue and gross margin include house, land and other homebuilding activities.

(b) See page 10 for a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income (loss).

(c) As previously capitalized to house and land.

(d) Represents consolidated activity only; excludes unconsolidated joint ventures.

(e) Homes under construction includes completed homes.

* See “Reconciliation of Non-GAAP Financial Measures” beginning on page 9.

Page 4

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	September 30,		December 31,
	2013		2012
	(unaudited)
Assets
Cash and cash equivalents	$	143,198	$	279,756
Restricted cash		2,196		13,031
Accounts and other receivables, net		139,729		141,289
Receivables from related parties, net		32,681		34,028
Inventory		1,042,065		837,653
Investments in joint ventures		43,415		28,653
Other assets, net		39,679		39,127
Total assets	$	1,442,963	$	1,373,537
Liabilities and equity
Liabilities:
Notes payable	$	759,180	$	758,209
Other liabilities		312,089		296,081
Total liabilities		1,071,269		1,054,290
Total equity		371,694		319,247
Total liabilities and equity	$	1,442,963	$	1,373,537

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenues	$	238,309		$	146,421		$	590,579		$	384,492
Cost of sales		(182,461	)		(115,225	)		(454,769	)		(308,238	)
Gross margin		55,848			31,196			135,810			76,254
Selling, general and administrative expenses		(28,388	)		(26,297	)		(77,425	)		(65,672	)
Interest expense		(145	)		(4,581	)		(4,975	)		(16,778	)
Other income (expense), net		(208	)		8,789			486			3,081
Income (loss) before income taxes		27,107			9,107			53,896			(3,115	)
Income tax expense		(1,281	)		(807	)		(1,701	)		(903	)
Net income (loss)		25,826			8,300			52,195			(4,018	)
Less: Net loss (income) attributable to non-controlling interests		(2	)		30			1			(164	)
Net income (loss) attributable to Shea Homes	$	25,824		$	8,330		$	52,196		$	(4,182	)

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Operating activities
Net income (loss)	$	25,826		$	8,300		$	52,195		$	(4,018	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
(Gain) Loss on reinsurance transaction		(1,758	)		(199	)		(1,599	)		7,168
Depreciation and amortization expense		2,748			1,934			7,312			5,255
Distribution of earnings from joint venture		—			400			6,000			1,400
Gain on sale of available-for-sale investments		(5	)		(8,780	)		(15	)		(8,802	)
Other operating activities, net		(94	)		(176	)		(703	)		(938	)
Changes in operating assets and liabilities:
Inventory		(54,022	)		(86,318	)		(212,623	)		(114,860	)
Payables and other liabilities		7,937			34,517			17,726			35,756
Other operating assets		3,085			(2,811	)		7,258			(7,798	)
Net cash used in operating activities		(16,283	)		(53,133	)		(124,449	)		(86,837	)
Investing activities
Proceeds from sale of investments		85			18,742			3,163			23,954
Net proceeds from promissory notes from related parties		2,606			88			3,037			1,931
Other investing activities, net		34			(507	)		(16,316	)		(1,467	)
Net cash provided by (used in) investing activities		2,725			18,323			(10,116	)		24,418
Financing activities
Net decrease in notes payable		(1,241	)		(488	)		(1,993	)		(1,541	)
Contributions from owners		—			—			—			1,746
Other financing activities, net		—			1			—			(512	)
Net cash provided by (used in) financing activities		(1,241	)		(487	)		(1,993	)		(307	)
Net increase (decrease) in cash and cash equivalents		(14,799	)		(35,297	)		(136,558	)		(62,726	)
Cash and cash equivalents at beginning of period		157,997			240,937			279,756			268,366
Cash and cash equivalents at end of period	$	143,198		$	205,640		$	143,198		$	205,640

Page 6

SEGMENT OPERATING DATA

(dollars in thousands)

(unaudited)

	Three Months Ended September 30,								Nine Months Ended September 30,
	2013				2012				2013				2012
	Homes Closed		Avg. Selling Price		Homes Closed		Avg. Selling Price		Homes Closed		Avg. Selling Price		Homes Closed		Avg. Selling Price
Homes closed:
Southern California		48	$	830		57	$	546		179	$	748		168	$	503
San Diego		85		477		25		432		176		463		71		494
Northern California		138		513		55		527		315		481		170		500
Mountain West		98		450		58		438		229		442		160		446
South West		116		322		125		274		333		315		285		281
Other		8		285		8		215		23		252		19		216
Total consolidated		493	$	477		328	$	403		1,255	$	461		873	$	413
Unconsolidated joint ventures		42		326		35		322		120		325		92		310
Total		535	$	465		363	$	395		1,375	$	449		965	$	403
	Three Months Ended September 30,								Nine Months Ended September 30,
	2013				2012				2013				2012
	Home Sales Orders		Avg. Active Selling Communities		Home Sales Orders		Avg. Active Selling Communities		Home Sales Orders		Avg. Active Selling Communities		Home Sales Orders		Avg. Active Selling Communities
Home sales orders:
Southern California		107		7		89		7		211		5		247		8
San Diego		33		7		71		8		198		7		181		9
Northern California		84		14		140		16		305		13		376		16
Mountain West		72		15		106		13		306		15		316		13
South West		135		17		119		16		438		16		467		17
Other		3		1		5		3		9		1		29		3
Total consolidated		434		61		530		63		1,467		57		1,616		66
Unconsolidated joint ventures		77		13		45		10		188		12		151		11
Total		511		74		575		73		1,655		69		1,767		77

	At September 30,
	2013				2012
	Backlog Units		Backlog Sales Value		Backlog Units		Backlog Sales Value
Backlog:
Southern California		155	$	120,173		138	$	84,216
San Diego		129		67,494		149		61,243
Northern California		231		139,286		311		140,399
Mountain West		289		133,650		251		117,832
South West		318		102,163		334		98,239
Other		2		747		21		5,297
Total consolidated		1,124	$	563,513		1,204	$	507,226
Unconsolidated joint ventures		152		56,036		93		29,998
Total		1,276	$	619,549		1,297	$	537,224

Page 7

SEGMENT OPERATING DATA (continued)

(unaudited)

	At September 30,
	2013		2012
Lots owned or controlled:
Southern California		1,982		1,048
San Diego		687		887
Northern California		3,239		3,924
Mountain West		10,075		10,265
South West		2,242		2,083
Other		767		37
Total consolidated		18,992		18,244
Unconsolidated joint ventures		4,733		1,884
Total		23,725		20,128
Lots by ownership type:
Owned for homebuilding		6,581		6,925
Owned and held for sale		3,435		3,329
Optioned or subject to contract for homebuilding		5,942		4,956
Optioned or subject to contract held for sale		3,034		3,034
Joint venture		4,733		1,884
Total		23,725		20,128

Page 8

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(in thousands)

(unaudited)

In this earnings release, we utilize certain financial measures that, in each case, are not recognized under GAAP. We present these measures because we believe they and similar measures are useful to investors in evaluating a company’s operating performance and financing structure and, in certain cases, because they could be used to determine compliance with contractual covenants or as one measure of the Company’s ability to service debt and obtain financing. We also believe these measures facilitate the comparison of our operating performance and financing structure with other companies in our industry. Because these measures are not calculated in accordance with GAAP, they may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.

The following table reconciles revenues, cost of sales and gross margins, as reported and prepared in accordance with GAAP, to the non-GAAP measures house revenues, house cost of sales, house gross margin and house gross margin percentage, which exclude land sales, impairment charges and other transactions, and to adjusted house revenues, adjusted house cost of sales, adjusted house gross margin and adjusted house gross margin percentage, which add back interest in cost of sales.

	Three Months Ended September 30, 2013												Three Months Ended September 30, 2012
	Revenue			Cost of Sales			Gross Margin $			Gross Margin %			Revenue			Cost of Sales			Gross Margin $			Gross Margin %
Total	$	238,309		$	(182,461	)	$	55,848			23.4	%	$	146,421		$	(115,225	)	$	31,196			21.3	%
Less: Other		(230	)					(230	)					(247	)					(247	)
Homebuilding		238,079			(182,461	)		55,618			23.4	%		146,174			(115,225	)		30,949			21.2	%
Less: Land		(2,750	)		2,271			(479	)		17.4	%		(13,071	)		6,425			(6,646	)		50.8	%
Less: Impairment		—			—			—						—			—			—
Less: Other homebuilding		(391	)		1,157			766						(883	)		1,323			440
House	$	234,938		$	(179,033	)	$	55,905			23.8	%	$	132,220		$	(107,477	)	$	24,743			18.7	%
Add: Interest in house cost of sales (a)					14,733			14,733									9,594			9,594
Adjusted house excluding interest in cost of sales	$	234,938		$	(164,300	)	$	70,638			30.1	%	$	132,220		$	(97,883	)	$	34,337			26.0	%
	Nine Months Ended September 30, 2013												Nine Months Ended September 30, 2012
	Revenue			Cost of Sales			Gross Margin $			Gross Margin %			Revenue			Cost of Sales			Gross Margin $			Gross Margin %
Total	$	590,579		$	(454,769	)	$	135,810			23.0	%	$	384,492		$	(308,238	)	$	76,254			19.8	%
Less: Other		(687	)					(687	)					(738	)					(738	)
Homebuilding		589,892			(454,769	)		135,123			22.9	%		383,754			(308,238	)		75,516			19.7	%
Less: Land		(9,891	)		5,525			(4,366	)		44.1	%		(21,773	)		12,931			(8,842	)		40.6	%
Less: Impairment		—			—			—						—			—			—
Less: Other homebuilding		(1,184	)		4,490			3,306						(1,743	)		5,588			3,845
House	$	578,817		$	(444,754	)	$	134,063			23.2	%	$	360,238		$	(289,719	)	$	70,519			19.6	%
Add: Interest in house cost of sales (a)					39,447			39,447									26,255			26,255
Adjusted house excluding interest in cost of sales	$	578,817		$	(405,307	)	$	173,510			30.0	%	$	360,238		$	(263,464	)	$	96,774			26.9	%

(a) Interest incurred is generally capitalized to inventory, then expensed in cost of sales as related units close.

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (continued)

(in thousands)

(unaudited)

The following table calculates the non-GAAP measures of EBITDA and Adjusted EBITDA and reconciles those amounts to net income as reported and prepared in accordance with GAAP. Adjusted EBITDA means net income (loss) (plus cash distributions of income from consolidated and unconsolidated joint ventures and non-guarantor subsidiaries) before (a) income taxes, (b) interest expense, (c) expensing of previously capitalized interest included in costs of sales and in equity in income (loss) from joint ventures, (d) impairment charges and project write-offs and abandonments, (e) loss on debt extinguishment, (f) depreciation and amortization, (g) realized gain on sale of investments, (h) income (loss) from joint ventures and non-guarantor subsidiaries, (i) deferred (gain) loss recognition from the amortization of deferred gain resulting from a series of novation and reinsurance transactions entered into by Partners Insurance Company, a wholly-owned subsidiary (“PIC Transaction”), and (j) gain on sale of investment in joint ventures. Other companies may calculate Adjusted EBITDA (or similarly titled measures) differently.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net income (loss)	$	25,826		$	8,300		$	52,195		$	(4,018	)
Adjustments:
Income tax expense (benefit)		1,281			807			1,701			903
Depreciation and amortization expense		2,748			1,934			7,312			5,255
Interest in cost of sales		15,110			12,457			40,014			30,315
Interest in equity in income (loss) from joint ventures		244			226			829			604
Interest expense		145			4,581			4,975			16,778
EBITDA		45,354			28,305			107,026			49,837
Adjustments:
Project write-offs and abandonments		389			342			582			773
Realized gain on sale of investments		(5	)		(8,780	)		(15	)		(8,802	)
Deferred loss (gain) recognition from PIC Transaction		(1,757	)		(199	)		(1,598	)		7,168
Loss (income) from joint ventures and non-guarantor subsidiaries		(349	)		987			(6,022	)		8,582
Distributions of earnings from joint ventures and non-guarantor subsidiaries		—			50			367			688
Other		—			3			1			20
Adjusted EBITDA	$	43,632		$	20,708		$	100,341		$	58,266

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